MEMORANDUM OF DECISION ON DEFENDANTS’ MOTIONS FOR SUMMARY JUDGMENT
The chapter 11 trustee (the “Trustee”) of the above debtor (the “Debtor”) has filed a complaint seeking, under section 548(a)(1)(B) of the Bankruptcy Code, 11 U.S.C. § 101 et seq., as well as under section 544(b) of the Bankruptcy Code to the extent that it incorporates sections 273, 275 and 278 of the New York Debtor and Creditor Law, to avoid allegedly fraudulent transfers of the Debtor’s cash to purchase the stock in the Debtor formerly owned by the three individual defendants (the “Shareholders”), as well as the loan from TD Bank, N.A. (and related security interest), the proceeds of which were used by the Debtor to fund the stock purchase, and to recover the transfers or the value thereof under section 550 of the Bankruptcy Code. The Trustee has sought to avoid the stock purchases and the TD Bank, N.A. loan and security interest only as constructively fraudulent; he has not asserted that the Debtor’s purchases of the Shareholders’ stock and the loan incurred by the Debtor to pay for the purchase and the related security interest in substantially all of the Debtor’s assets were intentionally fraudulent.
The Shareholders and TD Bank, N.A. each moved for summary judgment under Fed. R. Bankr.P. 7056, which incorporates Fed.R.Civ.P. 56, on the basis that section 546(e) of the Bankruptcy Code bars the Trustee’s avoidance claims and moots the applieation of section 550, which applies as a remedy only for avoidable transfers. 1
This memorandum explains the Court’s basis for denying both motions.
Jurisdiction
The Court has jurisdiction over this proceeding, arising under sections 544 and 548 of the Bankruptcy Code, pursuant to 28 U.S.C. § 1334(b) and 28 U.S.C. § 157(a). This is a core proceeding under 28 U.S.C. § 157(b)(2)(H).
Standard on Summary Judgment
Under Fed.R.Civ.P. 56(a) the Court shall grant summary judgment if the mov-ant shows that there is no genuine dispute as to any material fact and it is entitled to judgment as a matter of law. Subject to Fed.R.Civ.P. 56(c)(2)-(4) and 66(d)-(e), a party asserting that a fact cannot be, or is, genuinely disputed must support the assertion by (a) citing to particular parts of the record, including depositions, documents, electronically stored information, affidavits, or declarations, stipulations (including those made only for purposes of the motion), admissions, interrogatory answers, or other materials, or (b) by showing that the record does not establish the absence, or presence, as the case may be, of a genuine dispute. Fed.R.Civ.P. 56(c)(1). The movant bears the initial burden to satisfy each material element of its claim or defense.
Vt. Teddy Bear Co. v. 1-800 BEARGRAM Co.,
The Court “is not to weigh the evidence but is instead required to view the evidence in the light most favorable to the party opposing summary judgment, to draw all reasonable inferences in favor of that party, and to eschew credibility assessments.”
Amnesty Am. v. Town of W. Hartford,
Of course, where the parties do not dispute the material facts, disagreeing instead on the outcome based on the applicable law, the matter is appropriate for summary judgment.
Adirondack Transit Lines, Inc. v. United Transp. Union,
Facts
The parties agree on the relevant material facts. Until August 31, 2007, the Shareholders each owned 31 percent of the issued and outstanding common stock of the Debtor, a bar and grill. On July 6, 2007 they entered into a Stock Purchase Agreement with the Debtor under which they agreed to sell their stock to the Debt- or — a classic LBO, although writ small. 2 To fund the stock sale, the Debtor entered into a Loan and Security Agreement with Commerce Bank, N.A. (the “Lender”) 3 under which the Lender agreed to loan the Debtor $1,150,000. The loan was a Small Business Administration guaranteed loan, and attached to the SBA Settlement Sheet, dated August 31, 2007 and executed by representatives of the Lender and the Debtor, was a schedule of how the Lender was to make the loan payments: with the exception of fees, the loan proceeds were to be paid $390,000 to defendant Clark “to purchase stock,” $334, 983.07 to defendant Mooney “to purchase stock,” and $390,000 to defendant Hantho “to purchase stock.”
The closing of the Loan and Security Agreement and of the Amended Stock Purchase Agreement took place on August 31, 2007, with the foregoing payments being made to the Shareholders from the loan proceeds by the Lender, not the Debtor. The Lender wire transferred Mr. Clark’s payment into his account at JPMorgan Chase, Mr. Mooney’s payment into his account at U.S. Alliance Federal Credit Union, and Mr. Hantho’s payment into his account at JPMorgan Chase. These were the only payments received by the Shareholders for the contemporaneous sale of their stock to the Debtor. At the same time, the Debtor secured the loan by granting the Lender a security interest in substantially all of its assets.
For purposes of the present motions, the parties agree that the Debtor did not receive fair consideration or reasonably equivalent value for the payments to the Shareholders or for the incurrence of the loan and the grant of the security interest
Discussion
The Shareholders’ Summary Judgment Motion. The Shareholders acknowledge that under the foregoing facts the Debtor’s purchase of their stock would be an avoidable constructive fraudulent transfer under both section 544(a) of the Bankruptcy Code (incorporating New York Debtor and Creditor Law sections 273, 275 and 278) and section 548(a)(1)(B) of the Bankruptcy Code but for the application of section 546(e) of the Bankruptcy Code. They contend that section 546(e)’s safe harbor applies to them, while the Trustee argues that it does not.
Section 546(e) of the Bankruptcy Code, states,
Notwithstanding sections 544, 545, 547, 548(a)(1)(B), and 548(b) of this title, the trustee may not avoid a transfer that is a margin payment, as defined in section 101, 741 or 761 of this title, or settlement payment as defined in section 101 or 741 of this title, made by or to (or for the benefit of) a commodity broker, forward contract merchant, stockbroker, financial institution, financial participant, or securities clearing agency, or that is a transfer made by or to (or for the benefit of) a commodity broker, forward contract merchant, stockbroker, financial institution, financial participant, or securities clearing agency, in connection with a securities contract, as defined in section 741(7), commodity contract, as defined in section 761(4), or forward contract, that is made before the commencement of the case, except under section 548(a)(1)(A) of this title.
11 U.S.C. § 546(e) (emphasis added). 4
Section 741(8) of the Bankruptcy Code defines a “settlement payment” as a preliminary settlement payment, a partial settlement payment, an interim settlement payment, a settlement payment on account, a final settlement payment, or any other similar payment commonly used in the securities trade.
11 U.S.C. § 741(8). Section 101(22) defines a “financial institution” as, among other things, “an entity that is a commercial or savings bank [or a] federally-insured credit union.” 11 U.S.C. § 101(22)(A). Section 741(7) of the Bankruptcy Code defines a “securities contract” as, among other things, “a contract for the purchase ... of a security,” 11 U.S.C. § 741(7)(A)(i), and the Bankruptcy Code defines a “security” to include “stock,” without reference to whether such stock is publicly traded. 11 U.S.C. § 101(49)(A)(ii).
The parties do not dispute that the Lender and the Shareholders’ banks were “financial institutions.” Nor can they dispute that the Shareholders’ stock in the Debtor constituted “securities.” Although both sides agree that the definition of “settlement payment” is frustratingly self-referential — essentially stating that a “ ‘settlement payment’ is a ‘settlement payment’ ” (see
QSI Holdings v. Alford
The Shareholders therefore argue that the transfers that the Trustee seeks to avoid — the payments of the loan proceeds, as instructed by the Debtor, from the Lender into the Shareholders’ respective bank accounts in return for the Shareholders’ sale of their stock in the Debtor — fall within the plain meaning of section 546(e)’s safe harbor in two ways. First, they contend that each was a transfer constituting a settlement payment made by (and to) a financial institution. Alternatively, consistent with the 2006 Amendment, they argue that each payment was a transfer by (and to) a financial institution in connection with a securities contract. 11 U.S.C. § 546(e). 5
Notwithstanding section 546(e)’s apparent plain meaning, however, several courts have disagreed with the view that it necessarily exempts private stock transactions like these from avoidance as constructive fraudulent transfers.
See, e.g., Kipper-man v. Circle Trust F.B.O. (In re Grafton Partners, L.P.),
These decisions note that granting a safe harbor to a constructively fraudulent private stock sale has little if anything to do with Congress’ stated purpose in enacting section 546(e): reducing systemic risk to the financial markets. As stated in
In re Norstan Apparel,
“It is important to
That policy continues for the 2006 Amendment, as well, which was intended to “help reduce systemic risk in the financial markets,” H. Rep. 109-648 (Part 1), at 1, by clarifying the exemption’s application to transactions functionally similar to those already covered by the prior version of section 546(e). “The common thread of these transactions is that they involve financial intermediaries — stockbrokers, financial institutions, financial participants or securities clearing agencies — that often hedge their risk on these transactions through other market transactions, re-pledge securities collateral received under these transactions, or both. As such these transactions implicate the systemic risk concerns that are addressed by the safe harbors.”
Id.
at 4.
7
See also Buckley v. Goldman, Sachs & Co.,
These decisions addressed their conflict with section 546(e)’s apparent plain meaning in various ways discussed below (because, of course, “It is well established that when the statute’s language is plain, the sole function of the courts' — -at least where the disposition required by the text is not absurd — is to enforce it according to its terms.”
Lamie v. United States Trustee,
Courts that have refused to apply section 546(e) to a private stock transfer have done so in part based on their belief that the Bankruptcy Code’s definition of “settlement payment” is limited by the phrase “or any other similar payment commonly used in securities trade” that appears at the end of Bankruptcy Code section 741(8). In other words, they have argued that this language in section 741(8), incorporated by cross reference in section 546(e), expressly limits the safe harbor’s broad reach.
See, e.g., Kipperman,
It is clear, however, that the phrase at the end of section 741(8) — “or any other similar payment commonly used in the securities trade” — does not serve to modify the categories of payments that precede it but, rather, broadens the definition’s scope, as a catchall.
See Contemporary Indus. Corp. v. Frost,
Nevertheless, it is also clear that, even before turning to the legislative history, the context of section 546(e) is in fact tied to the securities markets, a context that is highlighted by the catchall phrase appearing at the end of section 741(8) (even if it is only a catchall) but is best seen in the placement within the Bankruptcy Code of section 546(e)’s key definitional cross references, Bankruptcy Code sections 741 and 761. Section 741 appears in subchap-ter III of chapter 7 of the Bankruptcy Code, which governs stockbroker liquidations; section 761 appears in subchapter IV of chapter 7, which governs commodity broker liquidations. It is logical to assume, therefore, that the cross-references in section 546(e) to the definitions found in sections 741 and 761 relate to the business of being a broker, engaged in markets. See Robert G. Richardson, “Unsettled ‘Settlement Payments’ in § 546(e),” 27-3 Am. Bankr.Inst. L.J. 12, 44 (2008):
Considering that the term [settlement payment] is defined in the subchapter that deals with the liquidation of stockbrokers, entities defined in § 101(53A) as persons that are engaged in the ‘business of effecting transactions in securities,’ an argument can be made that a settlement payment as the term is defined in § 741(8) means a transfer of ... securities made in the context of a formal securities market. The transaction must [at least] involve persons in the ‘business’ of dealing with securities.
In that context, section 741(8)’s reference to the “securities trade ” (emphasis added), although, as discussed above, in the nature of a catch-all provision, suggests that Congress was limiting the extent of its catchall, and, therefore, the reach of section 546(e) as a whole, to the business of engaging in securities transfers.
Given this context, or, more generally, the perceived ambiguity of section 741(8)’s circular, self-referential and unhelpful definition of “settlement payment,”
8
several courts have looked beyond the statute’s words to the legislative history to discern the exemption’s limits, and that history, as discussed above, clearly shows that Congress did not intend section 546(e)’s exemption to apply to the modest private LBO transaction at issue here.
See Kipperman,
If, on the other hand, one accepts that, as understood by people who engage in the securities business, a “settlement payment” is any payment to complete the sale of a security, including stock
9
(although Congress could have said “the purchase or sale of a security” instead of “settlement payment”), the statute is not ambiguous and recourse to the legislative history should be precluded.
See In re QSI Holdings,
Moreover, after the 2006 Amendment, not only “settlement payments” are protected but also “transfers made by or to ... a financial institution ... in connection with a securities contract” — on its face an even broader exemption than the settlement payment safe harbor discussed above. Given the various agendas and interests of members of Congress, one looks skeptically on maxims of statutory interpretation based on Congress’ presumed awareness of what was going on in the courts before a bill’s enactment, not to mention the notion that each member of Congress shares the same view about how a bill will affect existing precedent.
Lamie,
The courts that do not apply the safe harbor to private transactions like the one at issue therefore generally make an addi
The
Norstan Apparel
court relied on these two often conflated exceptions to the plain meaning rule when it was asked to apply section 546(e) to a private stock sale of a closely held company — in that case a sale by two shareholders instead of by the three Shareholders here.
[The plaintiff] contends that it is unreasonable to construe § 546 as exempting these payments, the reversal of which would in no way impact the stability of the financial markets.... We see no absurdity in that result. Instead, particularly because so much money [$26.5 million] is at stake, we question [plaintiffs] assertion that the reversal of the payments — at least a portion of which were probably reinvested — would in no way impact the nation’s financial markets. At the very least, we can see how Congress might have believed unwinding similar transactions could impact those markets....
(emphasis in original).
District courts in this District have also looked beyond the apparently plain language of section 546(e) to try to achieve Congress’ intent on a nuanced basis. Thus, in
Jackson v. Mishkin
Judge Marre-ro identified five factors, the absence of which, notwithstanding the plain language
(1) the transactions have long settled by means of actual transfers of consideration, so that subsequent reversal of the trade may result in disruption of the securities industry, creating a potential chain reaction that could threaten collapse of the affected market;
(2) consideration was paid put in exchange for the securities or property interest as part of settlement of the transaction;
(3) the transfer of cash or securities effected contemplates consummation of a securities transaction;
(4) the transfers were made to financial intermediaries involved in the national clearance and settlement system;
(5) the transaction implicated participants in the system of intermediaries and guaranties which characterize the clearing and settlement process of public markets and therefore would create the potential for adverse impacts on the functioning of the securities market if any of those guaranties in the chain were invoked.
Both
Jackson
and
Am. Tissue
preceded the 2006 Amendments and the circuit decisions that have more broadly applied section 546(e); however, in
Alfa, S.A.B. de C.V. v. Enron Creditors Recovery Corp.,
decided thereafter, Judge McMahon continued to recognize that not all securities sales that arguably fit the section’s plain meaning should be exempt from avoidance.
The
Am. Tissue
court’s endorsement of the
Jackson
factors was dicta because the court found that the transfer at issue would qualify as an intentional fraudulent transfer under section 548(a)(1) of the Bankruptcy Code.
The harder question is whether line drawing based on presumed Congressional intent is permissible in the absence of such an illegal transaction context (although one can argue that because Congress drew a line when it expressly excluded from section 546(e)’s safe harbor only intentional fraudulent transfers under section 548(a)(1)). In other words, while it is quite easy to find that the avoidance of - the transaction at issue here would have absolutely no impact on the financial markets, it is somewhat difficult to articulate a clear standard to distinguish this transaction from the facts of QSI or any number of hypothetical transactions in between. See Edward P. Morrison & Joerg Riefel, “Financial Contracts and the New Bankruptcy Code: Insulating Markets from Bankruptcy Debtors and Bankruptcy Judges,” 13 Am. Bankr.Inst. L.Rev. 641, 663-64 (2005) (noting difficulty of drawing lines in section 546(e)’s safe harbor context).
Nevertheless, in the light of section 546(e)’s textual context, which apparently focuses, in the midst of a circular and therefore ambiguous set of definitions, on the trade or business of securities transactions, reference to the legislative history is warranted. That legislative history, including the history of the 2006 Amendment, makes it clear that Congress intended section 546(e) to address risks that the movants have failed to show conclusively are implicated by the avoidance of the transaction at issue here. The Court should not, therefore, impose a result contrary to Congressional intent. The mov-ants in fact have not provided any evidence that the avoidance of the transactions at issue involved any entity in its capacity as a participant in any securities market, or that the avoidance of the transactions at issue poses any danger to the functioning of any securities market. Thus, section 546(e)’s safe harbor does not apply. This result does not stem from a belief that Congress chose to use a sledgehammer when it should have used a scalpel.
See Lamie,
This conclusion obviates the need to consider other arguments for excepting the transactions at issue from section 546(e)’s safe harbor. Given the conflicting precedents and the complexity of the foregoing analysis, however, it is also worthwhile to address the Trustee’s alternative, narrower argument for not applying section 546(e) to the stock sales. The Trustee contends that because the Debtor’s purchase of the Shareholders’ stock in the absence of a corporate surplus was an impermissible payment under New York Business Corporation Law (“NY BCL”) § 513(a) (McKinney 2007), the sale was either (1) void ab initio and, therefore, was not a settlement payment or a transfer for purposes of section 546(e), or (2) unlawful and, therefore, outside the exemption based on those authorities, discussed above, 12 that have refused to shelter transfers made as part of an illegal or pervasively fraudulent scheme because to do so would pervert section 546(e)’s purpose. 13
NY BCL § 513(a) provides that “the shares of a corporation may not be purchased by the corporation ... if the corporation is then insolvent or would thereby be made insolvent. Shares may be purchased or redeemed only out of surplus.” NY BCL § 514(a) (McKinney 2007) further provides that “An agreement for the purchase by a corporation of its own shares shall be enforceable by the shareholder and the corporation to the extent such purchase is permitted at the time of purchase by section 513.” Asked to apply section 546(e)’s exemption to a transfer challenged under a similar, though not identical, Oregon statute, Judge Gonzalez decided in
Enron Corp. v. Bear, Stearns Int’l Ltd. (In re Enron Corp.),
Judge Gonzalez distinguished the effect of the Oregon statute at issue from a similar statute at issue in a decision
15
that applied section 546(e) where, under Delaware law, the improper distribution was only “potentially voidable,” not a nullity, because the shareholder’s good faith was a statutory defense.
Id.
at 877-88 (“[Vjoida-ble agreements are legal, as a matter of law, until the agreements are avoided. It is those types of transactions that [under section 546(e) ] a trustee cannot attack under its statutory avoidance authority. This conclusion does not undermine Congressional intent. Indeed, independent of the Bankruptcy Code, as a matter of state law, no party in the guaranty chain has any obligations under void agreements.”).
See also Contemporary Indus.,
Is an agreement providing for a payment that violates N.Y. BCL §§ 513(a) and 514(a) void
ab initio?
From the N.Y. BCL itself, it appears, to the contrary, that such an agreement is merely voidable, upon a showing that the corporation is insolvent when the payment is made. Thus N.Y. BCL § 514(b) (McKinney 2007) provides that “The possibility that a corporation may not be able to purchase its shares under section 513 shall not be a ground for denying to either party specific performance of an agreement for the purchase by a corporation of its own shares, if at the time for performance the corporation can purchase all or part of such shares under section 513.” That is, under N.Y. BCL § 514(b) a corporation’s agreement to purchase its own shares is only
possibly
unenforceable, depending on whether, at the time of performance, the corporation has a surplus.
1-5 White, New York Business Entities
¶ B514.01 (2010);
see also Richards v. Ernst Wiener Co.,
In addition, it has long been held that there is an exception to the enforcement of N.Y. BCL § 513 (and it predecessors) by or on behalf of subsequent creditors and shareholders who had sufficient notice of the share purchase.
In re Flying Mailmen Serv. Inc.,
In addition, as noted above, it has long been held that such agreements are not inherently unlawful but only rendered unenforceable under certain circumstances with respect to certain corporate constituents who have acted in good faith and without knowledge of the transfer, on whose behalf the corporation may recover improper payments.
Cross v. Beguelin,
Therefore, if section 546(e)’s safe harbor applied to the Shareholders, the Trustee would not prevail on the basis that the payments to the Shareholders under the Stock Purchase Agreement violated N.Y. BCL §§ 513 and 514.
The Lender’s Summary Judgment Motion. Like the Shareholders, the Lender has relied on section 546(e)’s safe harbor to protect it from the Trustee’s avoidance claims (with the exception of the Trustee’s claims under sections 547(b) and 549 of the Bankruptcy Code). However, for the reasons discussed above with regard to the Shareholders’ summary judgment motion, which apply equally to the Lender, the safe harbor of section 546(e) does not protect the Lender.
Section 546(e) does not apply to the Trustee’s claim to avoid the Debtor’s in-currence of the loan obligation to the Lender for another reason, also. Section 544(a) of the Bankruptcy Code provides that “The trustee ... may avoid any transfer of property of the debtor
or any obligation incurred by the debtor
that is voidable by” the three types of entities listed in subsections (1) through (3) of that section (emphasis added). Similarly, section 548(a)(1) of the Bankruptcy Code provides that “The trustee may avoid any transfer ... of an interest of the debtor in property,
or any obligation ... incurred by the debtor,
that was made
or incurred
on or within 2 years before” the petition date, if, under subsection 548(a)(1)(A), the transfer or the incurrence of the obligation was intentionally fraudulent, or, under subsection 546(a)(1)(B), was constructively fraudulent (emphasis added).
16
On the other
There clearly is a difference between making a transfer and incurring an obligation; otherwise, the relevant statutory provisions would not have used both terms.
See Rake v. Wade,
The distinction between a transfer and the incurrence of an obligation has also been recognized in the case law.
See Covey v. Commercial Nat’l Bank,
It is clearly proper, therefore, to presume that section 546(e) does not implicitly adopt a definition of “transfer” that somehow includes the “incurrence of an obligation.” “Transfer” is, of course defined in section 101(54), as discussed above, and the cross reference in section 546(e) to sections 544 and 548 points one immediately to the fact that sections 544 and 548 use both “transfer” and “the incurrence of an obligation” while section 546(e) uses only “transfer.”
See also In re Enron Corp.,
Although there is no ambiguity or clearly inconsistent pre-enactment practice to support defining “transfer” in section 546(e) differently than how it is used in the rest of the Code
(cf. Dewsnup v. Timm,
The Lender’s motion raises one additional defense to the Trustee’s claims besides section 546(e). It contends that because the loan was a Small Business Administration guaranteed loan, with the SBA in some measure being the real economic party in interest, 13 C.F.R. § 101.106(d) (the “Regulation”) precludes avoidance of the loan and security interest. That Regulation (enacted under the SBA Administrator’s authority under 15 U.S.C. § 634(b)(6)), provides, “No person, corporation, or organization that applies for and receives any benefit or assistance, is entitled to claim or assert any local or state law to defeat the obligation incurred in obtaining or assuring such Federal benefit or assistance.” The Lender contends that the Trustee therefore may not invoke section 544(a) of the Bankruptcy Code against it because section 544(a) gives the Trustee the avoidance powers of a creditor and a hypothetical good faith purchaser under applicable state law. 20
The Lender cites no case law or other authority besides the Regulation to support this argument, nor has the Trustee cited any cases in opposition, with the exception of decisions avoiding SBA liens, which do not discuss the Lender’s argument and to which the Regulation on its face would not appear to apply. It appears clear, however, that the Regulation does not preclude the Trustee’s claim under section 544(a) of the Bankruptcy Code, for two reasons.
First, to the extent that the Regulation is viewed as a limitation on standing, it would not apply to the Trustee, who has independent standing under section 544, as opposed to under state law.
See Nisselson v. Empyrean Inv. Fund, L.P. (In re MarketXT Holdings Corp.),
Second, the Court is obligated to harmonize the Regulation and the Bankruptcy Code before finding that one invalidates the other. While the Regulation serves a clear purpose vis a vis individual obligors in a non-bankruptcy context, it does not, by its plain terms trump Bankruptcy Code section 544, which is a federal, not a state, provision, that only incorporates state avoidance law for the Trustee’s (and the Debtor’s estate’s) benefit in that express federal context. (This is particularly apt under the present facts, it being highly doubtful that the Debtor, let alone the Trustee, “received any benefit or assistance” on account of the loan, which went to pay the Shareholders on account of their stock while the Debtor was insolvent.)
Therefore, because section 546(e)’s safe harbor does not extend to the avoidance of an obligation, and the Regulation does not preempt section 544 of the Bankruptcy Code, the Lender’s summary judgment motion should be denied on this separate, alternative basis to the extent that the Trustee seeks to avoid the incurrence of the Debtor’s obligation to the Lender for the LBO loan.
For the foregoing reasons, both the Lender’s and the Shareholders’ summary-judgment motions should be denied as set forth herein. Counsel for the Trustee should submit a separate order denying each motion consistent with this decision.
Notes
. TD Bank, N.A. has not moved for summary judgment on the Trustee’s claims under sections 547(b) and 549 of the Bankruptcy Code to avoid later payments to it.
. The parties amended the Stock Purchase Agreement on August 8, 2007 to increase the purchase price.
. TD Bank, N.A. is Commerce Bank, N.A.’s successor in interest.
. The current version of section 546(e) was in effect on the Petition Date. Section 546(e) was last amended by the Financial Netting Improvements Act of 2006, Pub.L. No. 109-390 (2006) (the “2006 Amendment”), which became effective in bankruptcy cases commenced on and after December 12, 2006.
.
See Lowenschuss. v. Resorts Int’l, Inc. (In re Resorts Int’l Inc.),
. See also 5 Collier on Bankruptcy ¶ 546.06[2][b][i] (16th Ed. 2010) ("There is significant disagreement among courts about whether the section 546(e) defense is limited to transfers made in connection with the public securities markets or whether the statute also encompasses transfers related to nonpublic transactions.”).
. A different authority had taken the position that securities transactions involving a "mere intermediary” financial institution or stockbroker without a beneficial interest in the transferred asset were not intended to be covered by section 546(e).
Munford v. Valuation Research Corp. (In re Munford, Inc.),
. "The difficulty with the definition of 'settlement payment' is that it relies on a conclusory list of securities industries terms of art that contain the words ‘settlement payment’ without articulating the elements of a settlement payment.”
Kipperman,
.
See Enron Corp. v. Int’l Fin. Corp. (In re Enron Corp.),
. The District Court in
QSI
also noted that “the courts will continue to winnow out those exceptional cases at the far end of the spectrum where the exemption is unwarranted”, discussing favorably four instances in the
Enron
chapter 11 case where the bankruptcy court "applied the statutory framework to the facts of each case, reaching different results in determining whether the transactions qualified as settlement payments.”
QSI Holdings, Inc. v. Alford,
. "Faced with the clash of interests in these provisions [section 546(e), on the one hand, and the trustee’s avoidance powers excepted by section 546(e), on the other], courts ... have identified a number of considerations which may prove helpful and persuasive in deciding which Congressional intent should prevail, and which other vital legislative policy should yield.”
Jackson,
.
See Picard v. Merkin,
. The Trustee has also argued that his rights under N.Y. BCL § 513(a) do not derive from Bankruptcy Code section 544 or any of the other sections of the Code expressly precluded by section 546(e) but, rather, from the Debtor's separate, pre-banlcruptcy right to attack an improper shareholder payment. It appears, however, that N.Y. BCL § 513(a) is invoked offensively (as opposed to tire corporation’s right to defend against enforcement of a share purchase agreement) by or on behalf of creditors and, therefore, is properly assertable by the Trustee under Bankruptcy Code section 544(a).
See, e.g., Cross v. Beguelin,
.Or.Rev.Stat. § 60.181, at issue in
Enron/Bear, Steams,
provided in relevant part, "(1) ... the corporation may make distributions to its shareholders subject to ... the
.
PHP Liquidating LLC v. Robbins,
.
See also
11 U.S.C. § 548(c): "Except to the extent that a transfer
or obligation
voidable under this section is voidable under section 544, 545, or 547 of this title, a transferee
or obligee
of such transfer
or obligation
that takes for value and in good faith has a lien on or may retain any interest transferred
or may enforce any obligation incurred, as the case may be,
to the extent that such transferee
or
. “Except as otherwise provided in this section, to the extent that a transfer is avoided under section 544, 545, 547, 548, 549, 553(b), or 724 of this title, the trustee may recover, for the benefit of the estate, the property transferred, or, if the court so orders, the value of such property....” 11 U.S.C. § 550(a).
“Any transfer avoided under section 522, 544, 545, 547, 548, 549, or 724(a) of this title, or any lien void under section 506(d) of this title, is preserved for the benefit of the estate but only with respect to property of the estate.” 11 U.S.C. § 551.
. "Notwithstanding subsections (a) and (b) of this section, the court shall disallow any claim of any entity from which property is recoverable under section 542, 543, 550, or 553 of this title, or that is a transferee of a transfer avoidable under section 522(f), 522(h), 544, 545, 547, 548, 549, or 724(a) of this title, unless such entity or transferee has paid the amount, or turned over any such property, for which such entity or transferee is liable under section 522(i), 542, 543, 550, or 553 of this title.” 11 U.S.C. § 502(d).
. This argument is superficially bolstered by the 2006 Amendment, which expanded the exemption to cover "a transfer by or to ... a financial institution ... in connection with a securities contract, as defined in section 741(7)." 11 U.S.C. § 546(e). However, as discussed above, nothing in the legislative history suggests that Congress intended the 2006 Amendment to exempt lenders from a trustee’s avoidance powers where, as here, no party was acting in its capacity as a participant in a securities market and the avoidance of the transaction would not pose any risk to any securities market, let alone that Congress implicitly intended to exempt the avoidance of the debtor's incurrence of an obligation notwithstanding the statute’s failure to use such terms.
. Even under the Lender's argument, the Regulation would not apply to the Trustee's use of Bankruptcy Code section 548, a wholly federal right. Similarly, the Regulation appears to apply only attempts to defeat obligations, not liens.