480 B.R. 468
S.D.N.Y.2012Background
- QWUSA paid about $376 million on Oct. 29, 2007 to prepay/redeem notes, structured via QWI/QWCC to avoid Canadian tax; the Notes were guaranteed by QWI and QWUSA.
- NPA sections 8.2, 8.5, 8.6 governed redemption, cancellation, and purchase options for notes.
- QWI sought to avoid breaching a debt-to-capitalization covenant by prepaying notes; the Noteholders rejected a partial tender and pursued a cooperation agreement.
- QWUSA wired funds to CIBC Mellon, the trustee, for redemption; Noteholders later returned notes to QWI in Canada.
- The bankruptcy court held the transfers were protected by §546(e) as settlement payments and in connection with a securities contract; the district court affirms.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the payments qualify as settlement payments under §546(e) | Appellant argues Enron's broad definition is inapplicable | Appellees rely on Enron to classify payments as settlement payments | Yes; payments qualify as settlement payments under §546(e) |
| Whether the transfers were made by or to a financial institution in connection with a securities contract | Appellant contends not in connection with a securities contract | Appellees contend the transfer was in connection with the NPA securities contract | Yes; transfers were in connection with a securities contract |
| Whether Enron controls and the safe harbor should be interpreted broadly or narrowly | Appellant urges narrowing interpretation to avoid broad application | Appellees contend Enron supports broad interpretation to protect markets | Enron controls; broad interpretation adopted |
Key Cases Cited
- In re Enron Creditors Recovery Corp., 651 F.3d 329 (2d Cir. 2011) (broad settlement-payment definition under §546(e) applied to redemptions in securities trades)
- In re Enron Creditors Recovery Corp., 422 B.R. 423 (S.D.N.Y. 2009) ( Bankruptcy Court decision on settlement payments prior to Enron ruling)
- Plassein Int’l Corp., 590 F.3d 252 (3d Cir. 2009) (settlement-payment concept applied to conduit intermediaries)
- QSI Holdings, Inc., 571 F.3d 545 (6th Cir. 2009) (extension of §546(e) to payments via intermediaries)
- Contemporary Indus. Corp. v. Frost, 564 F.3d 981 (8th Cir. 2009) (application of safe harbor to financial intermediaries)
- Resorts Int’l, Inc., 181 F.3d 505 (3d Cir. 1999) (discusses bankruptcy-market protections under §546(e))
- In re Munford, 98 F.3d 604 (11th Cir. 1996) (intermediary-beneficial-interest requirement rejected by many circuits)