Krys v. Farnum Place, LLC
768 F.3d 239
2d Cir.2014Background
- Fairfield Sentry Ltd. (Sentry), a BVI investment fund, held customer claims (the "SIPA Claim") against BLMIS in the U.S. SIPA liquidation overseen by SIPA trustee Irving Picard. Sentry had an allowed SIPA claim for $230 million (net losses ~ $960 million) subject to a $70 million cash payment.
- Sentry entered BVI liquidation in 2009; Kenneth Krys was appointed liquidator and obtained recognition of the BVI main proceeding under Chapter 15 in the SDNY.
- Farnum Place LLC agreed to buy Sentry’s SIPA Claim by Trade Confirmation governed by New York law; the Trade Confirmation required both BVI Court and U.S. bankruptcy court approval.
- Between signing and approval, a large recovery by the BLMIS trustee increased the SIPA Claim’s value materially.
- The BVI Court approved the Trade Confirmation but expressly declined to decide U.S. § 363 issues and directed Krys to present the matter to the U.S. bankruptcy court.
- The U.S. bankruptcy court denied Krys’s § 363 review request on territorial-situs and comity grounds; the district court affirmed. Krys appealed to the Second Circuit.
Issues
| Issue | Plaintiff's Argument (Krys) | Defendant's Argument (Farnum) | Held |
|---|---|---|---|
| Whether the sale is a "transfer of an interest of the debtor in property within the territorial jurisdiction of the United States" under 11 U.S.C. § 1520(a)(2) | SIPA Claim is an interest located in the U.S. because it is a chose in action tied to the BLMIS SIPA proceedings and the SIPA trustee in New York — hence § 363 review required | The relevant property is the SIPA Claim itself, whose situs is the BVI; thus not within U.S. territorial jurisdiction and § 363 review is not required | Held for Krys: the SIPA Claim is intangible property "within the territorial jurisdiction of the United States" because under NY law it is subject to attachment/garnishment (situs at the SIPA trustee in NY), so § 1520(a)(2) triggers § 363 review |
| Whether comity requires deference to the BVI Court’s approval so as to avoid § 363 review | Krys argued U.S. courts must apply Chapter 15 limits (including § 1520(a)(2)) and may not yield where statute mandates review | Farnum argued comity and respect for the BVI Court’s approval counsel against U.S. interference | Held for Krys: statutory command in § 1520(a)(2) limits comity; the BVI Court expressly declined to decide U.S. § 363 issues, so deference was not warranted |
| Scope of bankruptcy court’s review if § 363 applies | N/A (appellant sought full § 363 review) | N/A (respondent relied on no § 363 review) | Court instructed remand for § 363 review; bankruptcy court must assess good-business-reason factors, including the post-signing increase in claim value |
Key Cases Cited
- Lionel Corp. v. Dooley, 722 F.2d 1063 (2d Cir.) (requires bankruptcy court to find a good business reason to approve a § 363(b) sale)
- Consumer News & Bus. Channel P’ship v. Fin. News Network, Inc., 980 F.2d 165 (2d Cir.) (bankruptcy courts have broad discretion to enhance estate value and secure best bid)
- In re Vitro S.A.B. de C.V., 701 F.3d 1031 (5th Cir. 2012) (Chapter 15 comity is important but limited by statutory requirements)
- Gordon v. Softech Int’l, Inc., 726 F.3d 42 (2d Cir. 2013) (statutes should be construed to avoid rendering provisions superfluous)
- Corley v. United States, 556 U.S. 303 (2009) (canon against interpreting statutes so as to render parts meaningless)
- ABKCO Indus., Inc. v. Apple Films, Inc., 89 N.Y.2d 670 (N.Y. 1976) (contractual/contingent intangible interests may be attachable and thus have situs for attachment)
- Verizon New England, Inc. v. Transcom Enhanced Servs., Inc., 21 N.Y.3d 66 (N.Y. 2013) (discussing attachability and situs of contractual intangible property)
- In re Martin, 91 F.3d 389 (3d Cir. 1996) (bankruptcy courts may deny approval where intervening events render the deal less favorable to the estate)