Farnum Place, LLC v. Krys (In Re Fairfield Sentry Ltd.)
690 F. App'x 761
2d Cir.2017Background
- Fairfield Sentry Limited (the Debtor) was in BVI liquidation; Kenneth Krys was the BVI liquidator and recognized foreign representative in a Chapter 15 ancillary proceeding in the U.S.
- Krys sought to sell Fairfield Sentry’s claim against Bernard L. Madoff Investment Securities LLC (BLMIS) to Farnum Place, LLC (the Sale). An earlier 2010 bankruptcy entrustment order under 11 U.S.C. § 1521(a)(5) had authorized the foreign representative to administer/realize debtor assets in the U.S.
- The bankruptcy court originally declined to apply § 363(b) review and deferred to the BVI court’s approval of the Sale; this Court reversed in Krys v. Farnum Place (In re Fairfield Sentry Ltd.), 768 F.3d 239 (2d Cir. 2014) (Sentry I), holding § 1520(a)(2) required § 363(b) review and remanding for that review.
- On remand the bankruptcy court conducted a § 363(b) hearing, found the claim had materially increased in value post-signing, and disapproved the Sale for lack of a good business reason.
- Farnum appealed, arguing (1) the earlier § 1521(a)(5) entrustment order satisfied § 363(b)’s notice-and-hearing requirement (Entrustment Argument), and (2) comity concerns required deference to the BVI court and should have carried dispositive weight in any § 363(b) balancing (Comity Argument).
- The Second Circuit affirmed the district court’s judgment upholding the bankruptcy court, holding both arguments were foreclosed by Sentry I’s mandate and rejecting Farnum’s request to revisit Sentry I.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether a § 1521(a)(5) entrustment order satisfies § 363(b) so no further § 363 review is required | Farnum: the entrustment order authorized Krys to sell assets and thus satisfied § 363(b)’s notice/hearing and business-judgment protections | Krys: § 1520(a)(2) expressly requires § 363 to apply to the same extent as domestic cases; specific mandate controls over general entrustment language | Held: Foreclosed by Sentry I; § 1521(a)(5) did not obviate § 363(b) review and remand required such review |
| Whether comity should compel deference to the BVI court so as to outweigh § 363(b) factors | Farnum: comity/transnational cooperation is the dominant factor in Chapter 15 § 363(b) analysis and supports approval | Krys: § 1520(a)(2) requires standard § 363 balancing (Lionel factors); comity cannot displace that review | Held: Foreclosed by Sentry I; comity cannot be given dispositive weight to avoid § 363(b) review; the bankruptcy court reasonably disapproved the Sale based on increased value |
Key Cases Cited
- Krys v. Farnum Place, LLC (In re Fairfield Sentry Ltd.), 768 F.3d 239 (2d Cir. 2014) (remanding and directing § 363(b) review; held § 1520(a)(2) requires § 363 review)
- Committee of Equity Sec. Holders v. Lionel Corp. (In re Lionel Corp.), 722 F.2d 1063 (2d Cir. 1983) (sets factors and "good business reason" standard for § 363(b) sales)
- United States v. Ben Zvi, 242 F.3d 89 (2d Cir. 2001) (mandate rule limits relitigation on remand)
- Johnson v. Holder, 564 F.3d 95 (2d Cir. 2009) (law-of-the-case / reconsideration standard)
- RadLAX Gateway Hotel, LLC v. Amalgamated Bank, 132 S. Ct. 2065 (2012) (principle that specific statutory provisions govern general ones)