case: 13-3992 document: 145 page: 1 02/28/2014 1167766 … · · 2014-02-28and principal brief on...

13-3992(L) 13-3875, 13-4178, 13-4196

UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT

IN RE: TRIBUNE COMPANY FRAUDULENT CONVEYANCE LITIGATION

On Appeal From the United States District Court for the Southern District of New York

DEFENDANTS-APPELLEES-CROSS-APPELLANTS’ RESPONSE AND PRINCIPAL BRIEF ON STANDING AND SECTION 546(e)

JOEL A. FEUER OSCAR GARZA GIBSON, DUNN & CRUTCHER LLP 2029 Century Park East Los Angeles, CA 90067 (310) 551-8808 Counsel for Chandler Trust No. 1 and Chandler Trust No. 2 DAVID C. BOHAN JOHN P. SIEGER KATTEN MUCHIN ROSENMAN LLP 525 West Monroe Street Chicago, IL 60661 (312) 902-5556 Counsel for The Robert R. McCormick Foundation and Cantigny Foundation

PHILIP D. ANKER ALAN E. SCHOENFELD ADRIEL I. CEPEDA DERIEUX PABLO G. KAPUSTA WILMER CUTLER PICKERING HALE AND DORR LLP 7 World Trade Center 250 Greenwich Street New York, NY 10007 (212) 230-8800 [email protected] Counsel for Susquehanna Capital Group, Susquehanna Investment Group, and Susquehanna Investment Group as custodian of the SIG-SS CBOE Joint Account

ADDITIONAL COUNSEL LISTED IN SIGNATURE BLOCK

February 28, 2014

Case: 13-3992 Document: 145 Page: 1 02/28/2014 1167766 94

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CORPORATE DISCLOSURE STATEMENT

The undersigned Defendants-Appellees-Cross-Appellants previously filed

corporate disclosure statements pursuant to Federal Rule of Appellate Procedure

26.1. See Dkt. Nos. 30, 135, 136, 138, 139. Defendants-Appellees-Cross-

Appellants incorporate by reference and rely upon those corporate disclosure

statements in satisfaction of their obligations under Federal Rule of Appellate

Procedure 26.1. Those corporate disclosure statements are complete and current,

and no amendment is required.


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TABLE OF CONTENTS

Page

CORPORATE DISCLOSURE STATEMENT .......................................................... i

TABLE OF AUTHORITIES ..................................................................................... v

JURISDICTIONAL STATEMENT .......................................................................... 1

ISSUES PRESENTED FOR REVIEW ..................................................................... 1

PRELIMINARY STATEMENT ............................................................................... 2

STATEMENT OF FACTS ........................................................................................ 9

A. Tribune’s LBO And Bankruptcy ........................................................... 9

B. Bankruptcy Proceedings ...................................................................... 10

1. The bankruptcy examiner ......................................................... 10

2. The estate action ........................................................................ 11

3. Appellants’ efforts to evade §546(e) ........................................ 12

4. Tribune’s bankruptcy plan ........................................................ 14

C. Proceedings Below .............................................................................. 15

D. The District Court’s Order .................................................................. 16

SUMMARY OF ARGUMENT ............................................................................... 17

STANDARD OF REVIEW ..................................................................................... 18

ARGUMENT ........................................................................................................... 18

I. THE DISTRICT COURT CORRECTLY HELD THAT APPELLANTS

LACK STANDING ............................................................................................. 18

A. Appellants Lack Standing Because The Estate Action Cut Off Creditors’ Standing, If Any, To Avoid The Same Transfers As The Estate Representative ............................................. 19


iii

1. Appellants lack standing to bring claims that are “similar in object and purpose to” the estate representative’s claims .............................................................. 23

2. An estate representative’s “support” for Appellants’ claims is irrelevant ................................................ 28

B. Neither The Automatic Stay Nor The Bankruptcy Plan Affected Appellants’ Standing ............................................................ 30

1. The lifting of the stay did not affect Appellants’ standing ..................................................................................... 30

2. The Plan did not adjudicate—much less recognize—Appellants’ standing .............................................. 32

3. Appellants did not gain standing as a result of the transition from the Creditors’ Committee to the Litigation Trustee ...................................................................... 36

C. The District Court Properly Dismissed Appellants’ Claims Rather Than Sua Sponte Holding Them In Abeyance ............................................................................................. 37

II. THE DISTRICT COURT ERRED IN HOLDING THAT §546(e) DOES

NOT BAR APPELLANTS’ STATE-LAW FRAUDULENT-TRANSFER

CLAIMS ........................................................................................................... 38

A. Section 546(e) Expressly Bars Appellants’ Claims ............................ 41

B. Even If Appellants’ Claims Were Not Expressly Barred By §546(e), They Would Be Precluded Under Settled Principles Of Implied Conflict Preemption......................................... 45

1. State law that stands as an obstacle to the accomplishment of Congress’s full purposes is preempted .................................................................................. 46

2. Congress enacted §546(e) to ensure stability in the securities markets and finality for investors ............................. 48


iv

3. Because Appellants’ claims would thwart Congress’s full purposes and objectives, they are preempted .................................................................................. 53

4. The district court’s reliance on legislative history and §544(b)(2) was misplaced .................................................. 59

5. If permitted to proceed, Appellants’ claims will render the safe harbor close to a dead letter, nullifying Congress’s intent to protect settlement payments ................................................................................... 66

CONCLUSION ........................................................................................................ 70

CERTIFICATE OF COMPLIANCE

CERTIFICATE OF SERVICE


v

TABLE OF AUTHORITIES

CASES Page(s)

AP Services LLP v. Silva, 483 B.R. 63 (S.D.N.Y. 2012) ................................... 49, 55

Arizona v. United States, 132 S. Ct. 2492 (2012) .............................................passim

Baron Financial Corp. v. Natanzon, 509 F. Supp. 2d 501 (D. Md. 2007) ...................................................................................................... 27, 29

Bogle-Assegai v. Connecticut, 470 F.3d 498 (2d Cir. 2006) ................................... 33

Branch v. Human, 109 S.E.2d 732 (Ga. 1959) ........................................................ 26

Carrion v. Agfa Construction, Inc., 720 F.3d 382 (2d Cir. 2013) ............... 46, 64, 65

Chisom v. Roemer, 501 U.S. 380 (1991) ................................................................. 44

Christian v. Mason, 219 P.3d 473 (Idaho 2009) ...................................................... 26

Contemporary Industries Corp. v. Frost, 564 F.3d 981 (8th Cir. 2009) ..................................................... 50, 55, 56, 59

Cox v. Roth, 348 U.S. 207 (1955) ............................................................................ 54

Crosby v. National Foreign Trade Council, 530 U.S. 363 (2000) .......................... 62

Eastern Equipment & Services Corp. v. Factory Point National Bank, 236 F.3d 117 (2d Cir. 2001) .................................................................. 19, 47

Eberhard v. Marcu, 530 F.3d 122 (2d Cir. 2008) .................................................... 19

FDIC v. Davis, 733 F.2d 1083 (4th Cir. 1984) ........................................................ 26

Garrett v. BNC Mortgage, Inc., 929 F. Supp. 2d 1120 (D. Colo. 2013) ................. 31

Geier v. American Honda Motor Co., 529 U.S. 861 (2000) .................................... 63

Grede v. Bank of New York Mellon, 409 B.R. 467 (N.D. Ill. 2009) ........................ 35

Hartford Underwriters Insurance Co. v. Union Planters Bank, N.A., 530 U.S. 1 (2000) ........................................................................................ 44


vi

Hartford v. Glastonbury, 561 F.2d 1042 (2d Cir. 1977) ......................................... 37

Hatchett v. United States, 330 F.3d 875 (6th Cir. 2003) ................................... 26, 63

Hays & Co. v. Merrill Lynch, 885 F.2d 1149 (3d Cir. 1989) .................................. 43

Hillman v. Maretta, 133 S. Ct. 1943 (2013) ................................................ 46, 48, 54

Hines v. Davidowitz, 312 U.S. 52 (1941) ................................................................ 47

In re American Hawk Enterprises, Ltd., 52 B.R. 395 (E.D. Va. 1985) ................... 43

In re Berg, 376 B.R. 303 (Bankr. D. Kan. 2007) ..................................................... 22

In re Bernard L. Madoff Investment Securities, LLC, 740 F.3d 81 (2d Cir. 2014)............................................................................. 20, 21, 25, 43

In re Boyer, 354 B.R. 14 (Bankr. D. Conn. 2006) ................................................... 22

In re Bridge Information Systems, Inc., 325 B.R. 824 (Bankr. E.D. Mo. 2005) .................................................................................................... 24

In re Chaffee Aggregates, Inc., 300 B.R. 170 (Bankr. W.D.N.Y. 2003) ................. 31

In re Colonial Realty Co., 980 F.2d 125 (2d Cir. 1992) .................................... 30, 42

In re Crane, __ F.3d __, 2013 WL 6731850 (7th Cir. Dec. 23, 2013) .................... 31

In re Daniele Laundries, Inc., 40 B.R. 404 (Bankr. S.D.N.Y. 1984) ...................... 21

In re Enron Creditors Recovery Corp., 651 F.3d 329 (2d Cir. 2011) ..............passim

In re Hechinger Investment Co. of Delaware, 274 B.R. 71 (D. Del. 2002) .....................................................................................................passim

In re Integrated Agri, Inc., 313 B.R. 419 (Bankr. C.D. Ill. 2004) ........................... 26

In re Jones, 21 B.R. 469 (Bankr. D.S.C. 1982) ....................................................... 23

In re Kaiser Steel Corp., 952 F.2d 1230 (10th Cir. 1991) ........................... 49, 50, 58

In re Lyondell Chemical Co., 503 B.R. 348 (Bankr. S.D.N.Y. 2014) ......... 51, 67, 68

In re MortgageAmerica Corp., 714 F.2d 1266 (5th Cir. 1983) ............................... 42


vii

In re MTBE Products Liability Litigation, 725 F.3d 65 (2d Cir. 2013) .................. 47

In re National Gas Distributors, LLC, 556 F.3d 247 (4th Cir. 2009) ............... 51, 53

In re PHP Healthcare Corp., 128 F. App’x 839 (3d Cir. 2005) ............................. 64

In re Plassein International Corp., 590 F.3d 252 (3d Cir. 2009) ............................ 40

In re Pruitt, 72 B.R. 436 (Bankr. E.D.N.Y. 1987) .................................................. 23

In re PWS Holding Corp., 303 F.3d 308 (3d Cir. 2002) ........................ 19, 22, 42, 43

In re Qimonda Richmond, LLC, 467 B.R. 318 (Bankr. D. Del. 2012) .................... 49

In re Quebecor World (USA) Inc., 719 F.3d 94 (2d Cir. 2013) ........................passim

In re Smith, 400 B.R. 370 (Bankr. E.D.N.Y. 2009) ................................................. 69

In re Stanwich Financial Services Corp., 488 B.R. 829 (D. Conn. 2013) ............................................................................................................ 43

In re Stein, 314 B.R. 306 (D.N.J. 2004) ............................................................ 20, 43

In re Tessmer, 329 B.R. 776 (Bankr. M.D. Ga. 2005) .......................... 21, 22, 28, 31

In re Towery, 53 B.R. 76 (Bankr. W.D. Ky. 1985) ................................................. 22

In re Tribune Co. Fraudulent Conveyance Litigation, 831 F. Supp. 2d 1371 (J.P.M.L. 2011) ........................................................ 16

In re U.S. Mortgage Corp., 492 B.R. 784 (Bankr. D.N.J. 2013) ....................... 50, 56

Ivester v. Miller, 398 B.R. 408 (M.D.N.C. 2008) .................................................... 24

Kappel v. Comfort, 914 F. Supp. 1056 (S.D.N.Y. 1996) ......................................... 38

Klingman v. Levinson, 158 B.R. 109 (N.D. Ill. 1993) ............................................. 26

Lumbard v. Maglia, Inc., 621 F. Supp. 1529 (S.D.N.Y. 1985) ............................... 26

Marchi v. BOCES, 173 F.3d 469 (2d Cir. 1999) ..................................................... 38

Mary Jo C. v. New York State & Local Retirement System, 707 F.3d 144 (2d Cir. 2013) .................................................................... 9, 18


viii

Matney v. Combs, 198 S.E. 469 (Va. 1938) ............................................................. 26

Motorola Credit Corp. v. Uzan, 322 F.3d 130 (2d Cir. 2003) ................................ 37

Munson v. Rinke, 919 N.E.2d 438 (Ill. App. Ct. 2009) ........................................... 26

Nardone v. United States, 308 U.S. 338 (1939) ...................................................... 55

National American Insurance Co. v. Ruppert Landscape Co., 122 F. Supp. 2d 670 (E.D. Va. 2000) ..................................................................... 26

National American Insurance Co. v. Ruppert Landscaping Co., 187 F.3d 439 (4th Cir. 1999) ........................................................... 20, 23, 24

NLRB v. Martin Arsham Sewing Co., 873 F.2d 884 (6th Cir. 1989) ....................... 19

Northern Trust Bank, FSB v. Wells Fargo Bank, N.A., 464 B.R. 269 (E.D. Va. 2012) ..................................................................... 24

Official Committee of Unsecured Creditors of Color Tile, Inc. v. Coopers & Lybrand, LLP, 322 F.3d 147 (2d Cir. 2003) ............................. 11

Oneida Indian Nation of New York v. New York, 691 F.2d 1070 (2d Cir. 1982) ...................................................................... 58

Pereira v. United Jersey Bank, N.A., 201 B.R. 644 (S.D.N.Y. 1996) ..................... 48

PHP Liquidating, LLC v. Robbins, 291 B.R. 603 (D. Del. 2003) ........................... 64

Poth v. Russey, 99 F. App’x 446 (4th Cir. 2004) ..................................................... 24

Quantum Servicing Corp. v. Haugabrook, No. 26542, 2013 WL 4131562 (Ohio App. Ct. Aug. 14, 2013) ..................................................... 31

Ross v. Bank of America, N.A., 524 F.3d 217 (2d Cir. 2008) .................................. 37

Seligson v. New York Produce Exchange, 394 F. Supp. 125 (S.D.N.Y. 1975) ........................................................................................... 60

Shearson Lehman Hutton, Inc. v. Wagoner, 944 F.2d 114 (2d Cir. 1991)............................................................................................... 43

St. Paul Fire & Marine Insurance Co. v. PepsiCo., Inc., 884 F.2d 688 (2d Cir. 1989)............................................................................. 22, 30, 43, 44


ix

Stellwagen v. Clum, 245 U.S. 605 (1918) ................................................................ 47

Sure-Snap Corp. v. State St. Bank & Trust Co., 948 F.2d 869 (2d Cir. 1991) ............................................................................................................ 36

U.S. Bank N.A. v. Verizon Communications Inc., 892 F. Supp. 2d 805 (N.D. Tex. 2012) .................................................................................... 55, 56

United Feature Syndicate, Inc. v. Miller Features Syndicate, Inc., 216 F. Supp. 2d 198 (S.D.N.Y. 2002) ......................................................... 42

United States v. Locke, 529 U.S. 89 (2000) ............................................................. 48

United States v. Naftalin, 441 U.S. 768 (1979) ....................................................... 54

Universal Church v. Geltzer, 463 F.3d 281 (2d Cir. 2006) ..................................... 20

Whyte v. Barclays Bank PLC, 494 B.R. 196 (S.D.N.Y. 2013) .......................... 48, 57

Wood v. General Motors Corp., 865 F.2d 395 (1st Cir. 1988) ................................ 63

Woods v. Empire Health Choice, Inc., 574 F.3d 92 (2d Cir. 2009) ........................ 18

STATUTES

11 U.S.C. §101 ............................................................................................................. 40 §362 ....................................................................................................... 13, 30 §522 ....................................................................................................... 22, 23 §544 ......................................................................................................passim §546 ......................................................................................................passim §547 ....................................................................................................... 25, 48 §548 ......................................................................................................passim §550 ............................................................................................................. 25 §1107 ........................................................................................................... 11 §1123 ........................................................................................................... 36

12 U.S.C. §632 ............................................................................................................... 1 §1821 ........................................................................................................... 52


x

28 U.S.C. §1291 ............................................................................................................. 1 §1334 ............................................................................................................. 1 §1409 ....................................................................................................... 7, 42 §1441 ............................................................................................................. 1

Davis-Bacon Act, 40 U.S.C. §§276a et seq. ........................................................... 64

N.Y. Debt. & Cred. Law §278 ................................................................................. 19

LEGISLATIVE MATERIALS

H.R. Rep. No. 97-420 (1982), reprinted in 1982 U.S.C.C.A.N. 583 ...................... 49

Bankruptcy Act Revision: Hearings on H.R. 31 and H.R. 32 Before the Subcomm. on Civil & Constitutional Rights of the H. Comm. on the Judiciary, 94th Cong., Supp. App. pt. 4 (1976) ............................... 61

Bankruptcy Reform Act: Hearings on S. 2266 and H.R. 8200 Before the Subcomm. on Improvements in Judicial Machinery of the S. Comm. on the Judiciary, 95th Cong. (1978) ........................................... 62

OTHER AUTHORITIES

Merrett, Daniel J. & John H. Chase, Safe Harbor Supernova, 21 J. Bankr. L. & Prac. 3 Art. 1 (2012) ................................................................ 67

Merrill, Thomas W., Preemption and Institutional Choice, 102 Nw. U. L. Rev. 727 (2008) .................................................................................. 64

Metzger, Gillian E., Administrative Law as the New Federalism, 57 Duke L.J. 2023 (2008) ................................................................................. 64


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JURISDICTIONAL STATEMENT

The district court had jurisdiction under 28 U.S.C. §§1334(b) and 1441, and

12 U.S.C. §632. The court granted defendants’ motion to dismiss on September

23, 2013, SA1-SA16, and entered final judgment on September 27, 2013, A1233-

A1234. Appellants filed their notice of appeal on September 30, 2013. A1235-

A1244. Appellees filed notices of cross-appeal on October 28, 2013. A1255-

A1299. This Court has jurisdiction under 28 U.S.C. §1291.

ISSUES PRESENTED FOR REVIEW

1. Whether Appellants—individual creditors of Tribune Company—lack

standing to avoid and recover payments made to former Tribune shareholders in

exchange for their stock where an authorized representative of Tribune’s

bankruptcy estate, acting on behalf of all of Tribune’s creditors, previously filed an

action during Tribune’s bankruptcy proceedings, and continues to pursue that

action, to avoid and recover the same payments from the same Tribune

shareholders.

2. Whether the Bankruptcy Code’s safe-harbor provision, which

prohibits the avoidance and recovery under state fraudulent-transfer law of

securities “settlement payments” made by bankrupt debtors, bars Appellants’ state-

law fraudulent-transfer claims because (a) the provision’s reference to the

“trustee”—the “statutory successor” to the creditors of the bankrupt debtor for


2

purposes of state-law fraudulent-transfer actions—encompasses creditor claims

like Appellants’ here, or (b) the safe harbor preempts creditor state-law claims that

would frustrate Congress’s purpose in enacting the safe harbor of insulating the

securities markets from turmoil and protecting the finality of securities transactions

in the event the securities issuer is forced into bankruptcy.

PRELIMINARY STATEMENT

In 2007, Tribune Company closed a leveraged buyout in which thousands of

shareholders were required to give up their stock in exchange for cash. Following

Tribune’s bankruptcy filing in 2008, the authorized representative of Tribune’s

bankruptcy estate sued those shareholders to “avoid” and recover the payments

they received from Tribune as intentional fraudulent transfers under federal (and,

initially, state) law. The estate representative’s successor continues to prosecute

that action, for the benefit of all Tribune creditors. That case is not before this

Court. In the actions that are before this Court, a group of individual Tribune

creditors seeks to avoid the same transfers and recover them from the same

Tribune shareholders. The district court dismissed the individual creditors’ actions

and entered judgment in favor of the shareholders.

The judgment should be affirmed on two independent grounds:

First, the district court correctly held that Appellants lack standing to assert

their claims for constructive fraudulent transfer under state law. Those claims seek


3

to avoid and recover the same transfers from the same Tribune shareholders that

the representative of Tribune’s bankruptcy estate also seeks to avoid and recover.

Second, contrary to the district court’s additional conclusion, the “safe harbor” for

securities “settlement payments” in §546(e) of the Bankruptcy Code also precludes

Appellants’ claims. Section 546(e) expressly bars creditor claims, like those

asserted by Appellants, to avoid settlement payments under state law and, even if it

did not, the claims would be precluded under the settled law of implied conflict

preemption because they would frustrate Congress’ purpose by vitiating the safe

harbor.

Each of these independent grounds to affirm the judgment below is rooted in

the same legal soil: Chapter 5 of the Bankruptcy Code. There, Congress

established comprehensive rules for, and limits on, the assertion of fraudulent-

transfer claims in bankruptcy. When a debtor files for bankruptcy, Chapter 5

grants the bankruptcy trustee broad and exclusive powers to avoid and recover

fraudulent transfers for the benefit of all creditors. In particular, §548 of the Code

gives the trustee federal causes of action to avoid and recover intentional and

constructive fraudulent transfers. And §544 vests him with the further power to

stand in the shoes of the debtor’s creditors and bring fraudulent-transfer claims

under state law that, had the debtor not filed for bankruptcy, those creditors could

have brought. But, critically, §546(e) limits these powers with regard to


4

“settlement payments.” Under the safe harbor, the trustee cannot bring any

fraudulent-transfer claim, state or federal, to avoid and recover a settlement

payment, except for a federal-law intentional fraudulent-transfer claim under

§548(a)(1)(A).

Consistent with this statutory framework, the trustee of a litigation trust

established under Tribune’s plan of reorganization, as the representative of

Tribune’s bankruptcy estate, is prosecuting the estate’s action to avoid and recover

the more than $8 billion that Tribune’s former shareholders received in exchange

for their Tribune stock. Exercising his Chapter 5 powers, the trustee asserts the

one claim that Congress carved out from the §546(e) safe harbor: a federal claim

for intentional fraud under §548(a)(1)(A). He invokes the full scope of authority

Congress granted to anyone to challenge the settlement payments. And through

him, Appellants and all other Tribune creditors will receive the full benefit to

which they are entitled under Chapter 5, because the estate representative seeks to

avoid and recover the same transfers from the same defendants as do Appellants.

In contrast, Appellants’ actions are at war with this statutory framework.

They fail both because Appellants lack standing to seek to avoid the same transfers

that Tribune’s bankruptcy estate is seeking to avoid, and because the safe harbor,

both expressly and impliedly, bars the claims.


5

Standing. Under well-established authority, Appellants lack standing to

bring their own separate actions seeking to avoid and recover the same transfers

that the Tribune bankruptcy estate had previously sought and continues to seek to

avoid and recover. When the Tribune creditors committee, acting as the duly-

appointed estate representative prior to the litigation trustee, filed its action, it

exercised the estate’s authority under Chapter 5 to seek to avoid and recover the

payments Tribune made to its shareholders for the benefit of all Tribune creditors.

By exercising the exclusive standing Congress granted it, the estate representative

“cut off”—in the words of the District Court and other courts—any possible

standing of Appellants to bring a later challenge to the same transfers.

Appellants cannot cure their lack of standing by asserting an alternative legal

theory of liability—that is, by suing for constructive fraudulent transfer under state

law, rather than intentional fraudulent transfer under federal law. So long as they

seek to avoid the same transfers, Appellants’ actions have the same “object and

purpose” as the estate representative’s action. That is all that is required, under

settled law, to preclude those actions. Nor is it relevant that the estate

representative “consents” to Appellants’ separate actions. An estate representative

lacks authority unilaterally to restore a creditor’s standing once it has been “cut

off” by the estate representative’s own action.


6

It is likewise beside the point that the bankruptcy court lifted the automatic

stay in bankruptcy to allow Appellants to file their complaints so as to prevent a

potential running of the statute of limitations, and later confirmed a plan of

reorganization that authorized Appellants to pursue whatever rights they might

have. The bankruptcy court did not purport to grant Appellants standing or

prejudge any defense of the shareholders in lawsuits that were not even before it.

To the contrary, the court was emphatic, and Appellants’ counsel was equally clear

in his repeated assurances to the court and the parties, that nothing in the orders or

the plan could or did determine Appellants’ standing or prejudice any defense of

the shareholders.

Section 546(e). The payments Tribune made to its shareholders in exchange

for their stock were classic “settlement payments” under §546(e)—payments to

complete a securities transaction. Accordingly, the safe harbor bars any

constructive fraudulent-transfer claims brought after Tribune filed for bankruptcy

to avoid those payments. This is true whether the claims are asserted by the

bankruptcy trustee, as the statutory representative of the creditors, or by the

creditors themselves.

In reaching the contrary conclusion, the district court reasoned that §546(e)

applies, by its terms, to claims brought by the “trustee,” not to claims brought by

the debtor’s creditors. But the Bankruptcy Code does not distinguish between the


7

“trustee” and the “creditors” when it comes to the assertion of state-law fraudulent-

transfer claims in bankruptcy. It makes the trustee the “statutory successor to the

… creditors under section … 544(b),” 28 U.S.C. §1409(c), and §544(b) gives the

trustee, standing in the creditors’ shoes, the sole right to bring such claims for the

benefit of all the creditors. The district court erred when it considered §546(e) in

isolation from §544, even though §546(e) concerns—indeed, expressly

references—§544.

In so doing the court vitiated §546(e) in a way Congress could not have

intended. For even if Appellants’ claims were not expressly barred by §546(e),

Appellants’ attempt to accomplish what the safe harbor seeks to prevent would run

afoul of well-established principles of implied conflict preemption. In enacting the

safe harbor, Congress balanced two federal priorities—maintaining an efficient and

equitable bankruptcy system, and protecting the finality of securities transactions

and the stability of the Nation’s securities markets. To preserve that balance,

Congress permitted the avoidance of settlement payments that were made with

actual intent to defraud in violation of federal law, but prohibited the avoidance of

merely “constructive fraudulent transfers” (essentially, transfers made for less than

fair value when the debtor was insolvent) under state law. Section 546(e) reflects

Congress’s determination that the interests of transactional finality and financial

stability outweigh the interests of creditor protection in every circumstance, except


8

one: Where a debtor transfers assets within two years of its bankruptcy filing with

the “actual intent to hinder, delay or defraud” creditors as set forth in

§548(a)(1)(A), then, and only then, may a settlement payment be avoided.

Appellants’ actions conflict with the purpose of §546(e). They assert

constructive fraudulent-transfer claims under state law, the very claims the safe

harbor is designed to preclude. That the claims are brought—in an admitted effort

to “end run” or “Work-Around” the safe harbor—by Appellants, rather than by the

estate representative, is immaterial. Appellants’ claims threaten the finality of

securities transactions and the stability of securities markets no less than those

same claims would if brought by the estate representative. Those claims, like

similar state-law claims that several other courts have held impermissibly conflict

with the safe harbor, are preempted.

If permitted, Appellants’ gambit will be replicated in countless bankruptcy

cases; indeed, variations of it are already being tried in several other pending cases,

including Whyte v. Barclays Bank PLC, the case being heard in tandem with this

appeal.1 Creditors will simply see to it that (i) the estate representative does not

bring any action to avoid a settlement payment, and (ii) the bankruptcy plan or

order of the bankruptcy court “disclaims” or “abandons” the estate’s right to bring

1 Whyte does not raise the standing ground for affirmance here; it raises the §546(e) issue.


9

state-law constructive fraudulent-transfer claims that the estate could not prosecute

in any event because of §546(e). And, if this Court holds that individual creditors

have standing to pursue separate actions to avoid the same payment that the estate

representative also seeks to avoid under an alternative theory of liability, the plan

or order will preserve the estate’s right to bring federal-law intentional fraudulent-

transfer claims. There will then be a multiplicity of fraudulent-transfer actions,

some brought by the bankruptcy estate and some by individual creditors. Both

Congress’s desire to centralize all fraudulent-transfer actions with the trustee, and

the safe harbor itself, will be nullified. Congress did not intend its handiwork to be

so easily destroyed.

The judgment of the district court should be affirmed.2

STATEMENT OF FACTS3

A. Tribune’s LBO And Bankruptcy

Tribune went public in 1983. It thereafter had thousands of shareholders,

including individuals and employees who invested in the stock of their employer 2 In addition, this Court may affirm the district court’s judgment on the alternative grounds set forth in the Cross-Appellants’ Principal Brief on State Law (“State Law Brief”) and the Cross-Appellants’ Principal Brief on Reverter, which Defendants-Appellees-Cross-Appellants join. 3 These facts—drawn from the operative complaints (A840-A922, A379-A498), and public documents, including documents from Tribune’s bankruptcy proceeding—are assumed to be true for purposes of this Court’s review of the district court’s decision granting the motion to dismiss. See Mary Jo C. v. New York State & Local Ret. Sys., 707 F.3d 144, 149 (2d Cir. 2013), cert. dismissed, 133 S. Ct. 2823 (2013).


10

(Tribune); other individuals; financial institutions; pension, mutual, and hedge

funds; educational institutions; and charitable and other not-for-profit

organizations. A428-A467, A873-A881. Those former shareholders are

Defendants-Appellees-Cross-Appellants here (“Appellees”).4

In 2007, in connection with a leveraged buyout (“LBO”) by investor Sam

Zell and Tribune’s Employee Stock Ownership Plan, Tribune’s stockholders

received approximately $8.2 billion in exchange for their Tribune shares. A384,

A867, A885. Tribune operated for nearly a year following the LBO. In December

2008, however, amid the worldwide financial crisis, Tribune and its subsidiaries

were forced to file for bankruptcy. A388, A898.

B. Bankruptcy Proceedings

1. The bankruptcy examiner

The bankruptcy court appointed an examiner to investigate potential claims

arising out of the LBO that might be available to Tribune’s bankruptcy estate.5

The examiner reached the “straightforward” conclusion that §546(e) of the

Bankruptcy Code—which provides an absolute safe harbor from state-law

fraudulent-transfer claims directed at settlement payments—would bar the

4 Many of the Defendants-Appellees-Cross-Appellants signed an amicus brief in support of the defendant-appellee in Whyte, No. 13-2653. 5 See Report of Examiner, In re Tribune Co., No. 08-13141 (Bankr. D. Del. July 26, 2010), ECF Nos. 5130-5134 (“Examiner Report”).


11

bankruptcy estate from avoiding the payments to Tribune’s shareholders as

fraudulent transfers under state law.6

The examiner noted, however, that some Tribune creditors had suggested a

“Section 546(e) Work-Around.” The creditors proposed to have the bankruptcy

estate “abandon” its right to bring creditor state-law constructive fraudulent-

transfer claims, so that the creditors could “allegedly … assert” those claims

“unburdened by section 546(e)[.]” The examiner declined to opine on whether

such a “Work-Around” was lawful, deeming that question beyond his mandate.7

2. The estate action

The bankruptcy court granted the Official Committee of Unsecured

Creditors appointed in Tribune’s bankruptcy (the “Committee”) standing to act for

the bankruptcy estate and bring claims arising out of the LBO (the “Estate

Action”).8 A21-A24.

In drafting its multiple complaints, the Committee was aware of the

implications of §546(e). The Committee brought claims seeking to avoid LBO-

related transfers other than Tribune’s payments for shares (e.g., transfers to

6 2 Examiner Report 241. 7 Id. at 254-255. 8 In a Chapter 11 reorganization like Tribune’s, the “debtor in possession” has all the rights of the “trustee.” 11 U.S.C. §1107(a). As is common in Chapter 11 cases, the bankruptcy court here authorized the Committee to bring claims acting as the “trustee.” See Official Comm. of Unsecured Creditors of Color Tile, Inc. v. Coopers & Lybrand, LLP, 322 F.3d 147, 146-157 (2d Cir. 2003).


12

Tribune officers and directors, professionals and counterparties involved in the

LBO) as constructive fraudulent transfers under both state and federal law, because

such transfers were not safe-harbored settlement payments. See A122-A126,

A128-A130, A133-A134. The Committee also initially brought fraudulent-transfer

claims under both federal and state law seeking to avoid and recover the payments

to Tribune’s shareholders in exchange for their stock. Two and one-half years

later, no doubt recognizing that the state-law claims were doomed under §546(e),

the Litigation Trustee, as successor to the Committee, dropped them.9 Thereafter,

the Litigation Trustee sought to avoid the payments to Tribune’s former

shareholders, Appellees in this case, only as intentional fraudulent transfers under

federal law, §548(a)(1)(A), the one fraudulent-transfer claim carved out from

§546(e).

3. Appellants’ efforts to evade §546(e)

Despite the pendency of the Estate Action, several creditors were not content

to abide by the limitations of §546(e). Appellants—Tribune’s bondholders, led by

hedge funds that purchased the company’s debt at a discount after it went into

9 See Official Comm. of Unsecured Creditors of Tribune Co. v. Fitzsimons, 10-ap-54010 (Bankr. D. Del.), ECF No. 1 (complaint, Nov. 1, 2010) ¶¶ 317-320, 321-333, 334-340, 347-354; ECF No. 61 (first amended complaint, Dec. 7, 2010) ¶¶ 317-321, 322-328, 341-347, 354-362; ECF No. 327 (second amended complaint, Nov. 1, 2011) (same); ECF No. 408 (third amended complaint, Jan. 11 2012) (same); 1:12-cv-02652 (S.D.N.Y.), ECF No. 514 (fourth amended complaint, Nov. 8, 2012) ¶¶ 317-321, 322-328, 341-347, 354-362.


13

bankruptcy, and a subset of retiree creditors10—sought to execute the “Section

546(e) Work-Around” that had been previewed for the Examiner. Appellants

moved the bankruptcy court for relief from the automatic stay in bankruptcy, 11

U.S.C. §362, in order to file lawsuits asserting state-law constructive fraudulent-

transfer claims to avoid and recover the payments to Tribune’s shareholders. A21-

A24. The Committee supported Appellants’ motion,11 insisting that the

“Committee deliberately did not initiate any Creditor [state-law constructive

fraudulent-transfer] Claims against the Former Shareholders,” to avoid the

payments to shareholders, and “[i]nstead … inten[ded] … that individual creditors

have the ability to pursue the Creditor [state-law constructive fraudulent-transfer]

Claims on their own behalf.”12

The bankruptcy court held a hearing on the motion. The court observed that

some former shareholders had asserted “the argument[,] if I can put it in my own

words[,] … that what [the moving creditors] want is … an end run around 10 While Appellants cloak themselves in the mantle of Tribune’s retiree creditors, the 186 individuals who are plaintiffs in these actions have debt claims that total less than 5% of the sum sought to be recovered from Appellees. In fact, a far greater number of retirees will be adversely affected by Appellants’ suit, which names as a defendant the Tribune Company 401(k) Savings Plan, from which Appellants seek to recover hundreds of millions of dollars of retirement savings funds of thousands of present and former employees. See State Law Br. 30-31, 42. 11 Deutsche Bank Trust Company Americas—an Appellant here—was itself a member of the Committee. 12 See Committee Statement 4, In re Tribune Co., No. 08-13141 (Bankr. D. Del. Mar. 17, 2011), ECF No. 8396.


14

546(e).”13 Counsel for the Committee agreed that “the metaphor of an end run”

was apt.14

The bankruptcy court granted relief from the stay, permitting creditors to file

state-law fraudulent-transfer claims against Tribune’s shareholders. A371-A374.

But the court stressed that it was “mak[ing] no finding and issu[ing] no ruling

determining the standing of the [Noteholders or Retirees] (or any creditor) to assert

the Creditor [state-law constructive fraudulent-transfer] Claims or whether such

claims are preempted or otherwise impacted by … § 546(e).” A374 n.2. The court

confirmed that “[n]othing in this Order shall prejudice or impair any claims or

defenses of any defendant in any proceeding in respect of a Creditor [state-law

constructive fraudulent-transfer] Claim.” A374. Each subsequent order of the

bankruptcy court concerning the stay “reiterated” that it did not determine or

recognize any creditor’s standing or adjudicate any defense Appellees might have.

Appellants Br. 17, 19, 27-28; A374; A378; A523.

4. Tribune’s bankruptcy plan

In July 2012, the bankruptcy court confirmed Tribune’s reorganization plan

(“Plan”). The Plan dissolved the Committee and in its place established a

“Litigation Trust” to prosecute the Estate Action and otherwise pursue, for the

13 Tr. 53:12-14, In re Tribune Co., No. 08-13141 (Bankr. D. Del. Mar. 22, 2011), ECF No. 8485-3. 14 Id. at 57:24-58:3.


15

benefit of substantially all of Tribune’s creditors including Appellants, all of the

bankruptcy estate’s claims arising out of the LBO (and many other estate

fraudulent-transfer or other claims), except allegedly one: state-law constructive

fraudulent-conveyance claims to avoid the payments to Tribune’s shareholders in

exchange for their shares. A643, A650, A656, A729, A733. Those claims were

purportedly “disclaimed” by the estate (though the Plan did not actually disclaim

them, see infra n.20) for Tribune’s creditors to attempt to pursue—because §546(e)

would have barred the estate from bringing them. Again, the bankruptcy court,

counsel for the Committee, and Appellants’ counsel all confirmed that Appellees’

defenses to “the disclaimed state law avoidance claims … are unaffected by the

Plan.”15

C. Proceedings Below

Beginning around June 2011, with the stay lifted, Appellants filed

complaints virtually identical to those in the Estate Action. Both sets of cases seek

to avoid and recover the same payments made to former Tribune shareholders.16

Indeed, the Litigation Trust, which is represented in the Estate Action by the same

15 Tr. 29:21-31:6, In re Tribune Co., No. 08-13141 (Bankr. D. Del. June 8, 2012), ECF No. 11,812; see also id. at 23:16-25:7 (“We certainly don’t believe that the Plan adjudicates [Appellees’] defenses[.]”); Opinion on Confirmation 98, In re Tribune Co., No. 08-13141 (Bankr. D. Del. Oct. 31, 2011), ECF No. 10,133. 16 Compare, e.g., A899-A901 (Note Holder Compl. ¶¶ 115-132), with A120-A121 (Committee Compl. ¶¶ 317-320).


16

lawyers who represent Appellants in their suits, told the district court that it brings

essentially the same case to avoid the same transfers to substantially the same

defendants—the only material difference being that while the Litigation Trust (as

representative of the estate) proceeds on the one fraudulent-transfer theory that

Congress excepted from the safe harbor (intentional fraudulent transfer under

federal law), the creditors proceed on claims that Congress barred (constructive

fraudulent transfer under state law). A590-A591. Appellants’ actions and the

Estate Action were coordinated for pre-trial proceedings. 831 F. Supp. 2d 1371

(J.P.M.L. 2011).

D. The District Court’s Order

The district court granted defendants’ motion to dismiss by order dated

September 23, 2013. The court dismissed Appellants’ actions on the ground that

Appellants “lack standing to bring their own fraudulent conveyance claims

targeting the very same transactions” that an estate representative had previously

sought (thus “cut[ting] off the claims of creditors”) and continues to seek to avoid.

SA9-SA14. Though it did not have to reach the issue, the district court further

concluded that §546(e) did not bar plaintiffs’ state-law fraudulent-transfer claims.

SA5-SA8.

In view of its holding that the Estate Action cut off any standing of

Appellants to avoid the same payments to shareholders challenged in the Estate


17

Action, the district court directed the Litigation Trust to inform the court whether it

intended to abandon its fraudulent-conveyance claims. SA13-SA14. The

Litigation Trust responded that it would not do so (A1245), and this appeal

followed.

SUMMARY OF ARGUMENT

The district court’s dismissal of plaintiffs’ state-law fraudulent-transfer

claims should be affirmed on two independent grounds.

First, Appellants lack standing to avoid the same transfers that the Tribune

estate representative had previously sought and continues to seek to avoid. The

Estate Action “cut[] off the claims of creditors,” SA13, to avoid the same transfers.

Second, Appellants’ state-law fraudulent-transfer claims are barred by the

Bankruptcy Code’s safe harbor for settlement payments, for two reasons.

(A) Section 546(e)’s reference to the “trustee,” the creditors’ statutory “successor,”

and to “section[] 544,” which incorporates state fraudulent-transfer law, evidences

Congress’s determination to apply the safe harbor to bar creditor claims under state

law, like Appellants’ here, brought to unwind settlement payments made by a

debtor that files for bankruptcy. (B) Congress’s intent in enacting §546(e)—to

protect settlement payments from avoidance under state law where, as here, the

debtor has gone into bankruptcy—would be thwarted if creditors could pursue such

avoidance free and clear of the safe harbor.


18

STANDARD OF REVIEW

This Court reviews de novo the district court’s grant of Appellees’ motion to

dismiss on standing grounds as well as the district court’s rejection of Appellees’

motion on grounds of §546(e) and preemption. See Mary Jo C., 707 F.3d at 149;

Woods v. Empire Health Choice, Inc., 574 F.3d 92, 96 (2d Cir. 2009).

ARGUMENT

I. THE DISTRICT COURT CORRECTLY HELD THAT APPELLANTS LACK

STANDING

The district court correctly held that where, as here, a bankruptcy estate

representative acts to avoid a transfer, it “cuts off the claims of creditors” to

challenge the same transfer. SA13. This Court should thus affirm the district

court’s ruling that Appellants “lack standing to bring their own fraudulent

conveyance claims targeting the very same transactions” as the Litigation Trustee,

regardless of whether Appellants rely on different theories of recovery or have the

Litigation Trustee’s “support.” SA13-SA14. Although the district court also

reasoned that the automatic stay in bankruptcy prevents Appellants from pursuing

their claims, it is unnecessary for this Court to adopt that rationale in order to

affirm the judgment below.


19

A. Appellants Lack Standing Because The Estate Action Cut Off Creditors’ Standing, If Any, To Avoid The Same Transfers As The Estate Representative

Unless and until a debtor files for bankruptcy, its creditors can avail

themselves of state law to unwind fraudulent transfers that hinder repayment of

their claims against the debtor. See, e.g., N.Y. Debt. & Cred. Law §278; Eberhard

v. Marcu, 530 F.3d 122, 129-131 (2d Cir. 2008). Any creditor may bring a

separate state-law fraudulent-transfer action, recovering on a “first-come-first-

served” basis. NLRB v. Martin Arsham Sewing Co., 873 F.2d 884, 887 (6th Cir.

1989).

Once a debtor files for bankruptcy protection, however, state law gives way

to “a comprehensive federal system of penalties and protections to govern the

orderly conduct of debtors’ affairs and creditors’ rights.” Eastern Equip. & Servs.

Corp. v. Factory Point Nat’l Bank, 236 F.3d 117, 120 (2d Cir. 2001) (per curiam).

The bankruptcy trustee acquires complete dominion and control over any creditor’s

state-law fraudulent-transfer claims, including the “power … to resolve [such]

fraudulent transfer claims” through litigation, settlement, or extinguishment of the

claims in a plan of reorganization. In re PWS Holding Corp., 303 F.3d 308, 315

(3d Cir. 2002). As Appellants acknowledge, “the trustee has the exclusive right to

bring an action for fraudulent conveyance during the pendency of the bankruptcy

proceedings[.]” Appellants Br. 45 (internal quotation marks omitted; emphasis


20

added); see In re Bernard L. Madoff Inv. Sec., LLC, 740 F.3d 81, 94 (2d Cir. 2014)

(barring creditors’ “purported tort claims [that] are, in essence, disguised

fraudulent transfer actions, which belong exclusively to the Trustee”).

This “exclusive right” derives from Chapter 5 of the Bankruptcy Code,

which provides the bankruptcy estate representative with a set of federal-law

remedies to recover assets for the benefit of all creditors. One of these powers is

the right to “avoid any transfer … of an interest of the debtor in property” as a

fraudulent conveyance under federal law. 11 U.S.C. §548(a)(1).

The Code also incorporates state fraudulent-transfer law, giving the estate

representative the right to “avoid any transfer … that is voidable under applicable

law by a creditor.” 11 U.S.C. §544(b). In Appellants’ own words, §544 “vests the

bankruptcy trustee” with the “right to ‘step into the shoes of a creditor under state

law and avoid any transfers such a creditor could have avoided.’” Appellants Br.

44 (quoting Universal Church v. Geltzer, 463 F.3d 281, 222 n.1 (2d Cir. 2006)).

Under §544, “the Trustee is conferred with the authority to represent all creditors

and the Debtor’s estate and with the sole responsibility of bringing actions on

behalf of the Debtor’s estate to marshal assets for the estate’s creditors.” In re

Stein, 314 B.R. 306, 311 (D.N.J. 2004). The “trustee’s single effort eliminates the

many wasteful and competitive suits of individual creditors.” National Am. Ins.

Co. v. Ruppert Landscaping Co., 187 F.3d 439, 441-442 (4th Cir. 1999). Upon the


21

commencement of a bankruptcy case, therefore, it is “axiomatic that … creditors of

the estate have no right to proceed independently” to pursue fraudulent-transfer

actions under state law. In re Daniele Laundries, Inc., 40 B.R. 404, 408 (Bankr.

S.D.N.Y. 1984).

Applying this settled body of law, the district court correctly held that when

an estate representative “acts” to avoid a transfer, it “cuts off the claims of

creditors” to avoid the same transfer. SA13. That ruling is consistent with

considerable precedent, including this Court’s recent decision in Madoff, where the

Court held that individual creditors could not bring their own actions against the

same defendants the estate representative had already sued to recover billions of

dollars in payments Madoff had made. See Madoff, 740 F.3d at 96 (individual

creditors could not sue on claims that “echo those made by the Trustee in his New

York action for the recovery of fraudulent transfers”).

For example, in In re Tessmer, 329 B.R. 776 (Bankr. M.D. Ga. 2005), an

individual creditor brought a fraudulent-transfer claim in state court even though

the bankruptcy court had already approved the trustee’s settlement of the right to

avoid the same transfer. The Tessmer court held that the creditor’s right to sue had

been “fully and permanently cut off” by the trustee:

Once the Trustee acts under § 544(b), the rights of all other parties to bring a suit based on the same transaction are fully and permanently cut off unless the Trustee later abandons his claim…. [The individual creditor] is permanently enjoined from taking any steps to further


22

prosecute her state law fraudulent conveyance action against the [transferees], and she is permanently enjoined from initiating any other suit that arises from the transfer of property in question.

Id. at 780 (emphasis added); see also In re Boyer, 354 B.R. 14, 36 (Bankr. D.

Conn. 2006), aff’d on other grounds, 372 B.R. 102 (D. Conn. 2007); In re Berg,

376 B.R. 303, 314 (Bankr. D. Kan. 2007).

Here, when the Committee filed the Estate Action, it exercised its exclusive

standing and authority to “commence and prosecute the claims of the Debtors’

estates,” including its right to “assert fraudulent conveyance claims arising under

state law,” “relating to the leveraged buy-out of Tribune in 2007.” A22-A23. The

Estate Action cut off any possible right Appellants might have had to avoid the

same payments, and Appellants are “bound by the outcome of the [Estate Action].”

St. Paul Fire & Marine Ins. Co. v. PepsiCo., Inc., 884 F.2d 688, 702 (2d Cir.

1989); see also PWS, 303 F.3d at 315.

A similar rule governs an individual debtor’s standing to bring an avoidance

action when an estate representative has attempted to avoid the same transfer. In

limited circumstances, Bankruptcy Code §522(h) “empowers the debtor to avoid

certain transfers to the same sweeping extent, and armed with the same defenses,

as the trustee”; §522(h) is intended to “enable the debtor to protect his exemptions,

in which a trustee might take no interest.” In re Towery, 53 B.R. 76, 77 (Bankr.

W.D. Ky. 1985). Section 522(h), however, provides that a debtor may avoid a


23

transfer of its property only if (1) “such transfer is avoidable by the trustee under

section 544 … [or] 548,” and, importantly, (2) “the trustee does not attempt to

avoid such transfer.” 11 U.S.C. §522(h). An estate representative’s suit to avoid a

transfer cuts off any right of a debtor to avoid the same transfer. See In re Pruitt,

72 B.R. 436, 439 (Bankr. E.D.N.Y. 1987) (debtor may bring avoidance claim

under §522(h) only if the trustee “has not made any attempt to avoid the transfer”);

In re Jones, 21 B.R. 469, 472-473 (Bankr. D.S.C. 1982) (“§522(h) is not applicable

in this case [because] the trustee is attempting to recover the property. Section

522(h) can only be used by the debtors if the trustee does not pursue an avoiding

power to recover a transfer of property that would be exempt.”). The same rule

applies here, as the cases establish.

1. Appellants lack standing to bring claims that are “similar in object and purpose to” the estate representative’s claims

It does not matter that the Litigation Trustee is pursuing an intentional

fraudulent-transfer claim, now only under federal law, whereas Appellants seek to

pursue constructive fraudulent-transfer claims under state law. Courts have

consistently held that individual creditors lack standing to pursue any claim that is

“similar in object and purpose to” a fraudulent-transfer claim that an estate

representative has already brought or may still bring. For example, in Ruppert,

creditors challenged a transfer the debtor had made before filing for bankruptcy on

theories of successor liability, tortious interference with contract, and conspiracy,


24

even though the trustee had the authority to seek to avoid the same transfer as a

fraudulent conveyance. The Fourth Circuit held that the creditors lacked standing

notwithstanding that the trustee had not yet filed suit, because their claims were

“similar in object and purpose to” the trustee’s potential fraudulent-transfer claim.

187 F.3d at 441. The court reasoned that, “[a]lthough the [creditors’] claims and

the trustee’s fraudulent conveyance claim do not contain identical elements, they

all share [the] same underlying focus”—to “challenge the [same] transaction.” Id.

The Fourth Circuit reaffirmed this rule in Poth v. Russey, 99 F. App’x 446

(4th Cir. 2004), explaining that “[w]hen a creditor brings a state-law challenge to a

transaction that a bankruptcy trustee could avoid as a fraudulent conveyance, the

state-law cause of action is ‘so similar in object and purpose’ to the fraudulent

conveyance claim that the creditor lacks standing to assert it.” Id. at 457 (quoting

Ruppert, 187 F.3d at 441). Numerous cases are in accord. See, e.g., Northern

Trust Bank, FSB v. Wells Fargo Bank, N.A., 464 B.R. 269, 270 (E.D. Va. 2012)

(“[R]egardless of how the [creditor’s] claims are couched[,] … [t]he Trustee’s

ongoing prosecution of its fraudulent conveyance action ‘on behalf of all the

creditors’ deprives [the creditor] of standing to pursue its individual claims.”); In

re Bridge Info. Sys., Inc., 325 B.R. 824, 835-836 (Bankr. E.D. Mo. 2005), aff’d,

344 B.R. 587 (E.D. Mo. 2006); Ivester v. Miller, 398 B.R. 408, 430-431 (M.D.N.C.

2008).


25

These cases necessarily reject Appellants’ argument that they should have

standing because they assert a different legal theory than the one asserted by the

estate representative in the Estate Action. Appellants Br. 44-45. Appellants have

not cited a case—and Appellees know of none—holding that creditors had

standing to initiate a separate action to avoid the same transfer that an estate

representative had already sought and continued to seek to avoid, simply because

the creditors relied on an alternative theory of liability the estate representative did

not pursue. In fact, this Court recently rejected a similar ploy, upholding an

injunction barring creditor suits after concluding that the creditors’ claims were

“disguised fraudulent transfer actions, which belong exclusively to the Trustee.”

Madoff, 740 F.3d at 94.

Appellants’ argument is not only inconsistent with the relevant Bankruptcy

Code sections giving the trustee the exclusive right to avoid and recover a

“transfer” (see 11 U.S.C. §§544(a), 544(b)(1), 547(b), 548(a)(1), 550(a)), but it is

also contrary to Appellants’ own cases. Those cases explain that creditors “regain

standing” only when the estate representative can no longer bring any claim to


26

avoid the transfer, not when the estate representative has brought such a claim

without pursuing the particular legal theory the creditors wish to advance.17

Appellants cite two cases that they contend “allowed creditors to file suit to

avoid the very same transfers that the estate representative was trying to avoid.”

Appellants Br. 64. Each case only underscores Appellants’ lack of standing. In

Lumbard v. Maglia, Inc., 621 F. Supp. 1529 (S.D.N.Y. 1985), a secured lender’s

bankruptcy trustee sued to avoid transfers made by its borrower. But the borrower

was not yet in bankruptcy, so there was no statutory representative to stand in the

shoes of the borrower’s creditors for purposes of avoiding the same transfers.

17 See Hatchett v. United States, 330 F.3d 875, 885-886 (6th Cir. 2003) (although “the trustee ha[d] [exercised its] exclusive right to bring an action for fraudulent conveyance,” he later “officially abandoned” that action); FDIC v. Davis, 733 F.2d 1083, 1084-1085 (4th Cir. 1984) (“[T]he trustee [did not] take affirmative steps in the bankruptcy court to set aside [the] transfer.”); In re Integrated Agri, Inc., 313 B.R. 419, 427-428 (Bankr. C.D. Ill. 2004) (creditor only “regains standing” if the trustee fails or is unable to exercise “the right to pursue recovery of fraudulently conveyed assets”); National Am. Ins. Co. v. Ruppert Landscape Co., 122 F. Supp. 2d 670, 674 (E.D. Va. 2000) (“[T]he trustee examined and rejected the cause of action for fraudulent conveyance … and the Bankruptcy Court auctioned off the right to pursue the claim.” (citations omitted)); Klingman v. Levinson, 158 B.R. 109, 113 (N.D. Ill. 1993) (creditors had standing because “the trustee never sought to recover the conveyance challenged”); Christian v. Mason, 219 P.3d 473, 479-480 (Idaho 2009) (trustee failed to bring “an action” challenging the transfer); Branch v. Human, 109 S.E.2d 732, 734 (Ga. 1959) (“[T]here was … no intervention by a trustee for the benefit of creditors[.]”); Matney v. Combs, 198 S.E. 469, 473 (Va. 1938) (“[T]he trustee in bankruptcy failed to take action to recover the property alleged to have been fraudulently transferred.”); Munson v. Rinke, 919 N.E.2d 438, 442 (Ill. App. Ct. 2009) (“[T]he trustee ultimately did not pursue the action [to] pursue the fraudulently conveyed assets.”).


27

When the borrower later filed for bankruptcy, the trustee for the borrower’s estate

joined in the action brought by the trustee for the secured lender’s estate, rather

than pursue its own suit, because the borrower, “by then an assetless shell,” lacked

sufficient funds to pursue an independent action. Id. at 1532-1533. Here, in

contrast, Appellants initiated these actions after Tribune had filed for bankruptcy,

and after a representative of Tribune’s bankruptcy estate—hardly “assetless” in its

vigorous pursuit of its claims—had already brought a fraudulent-transfer action to

recover the same payments from the same defendants, cutting off any standing

Appellants may otherwise have had to avoid those payments.

Baron Financial Corp. v. Natanzon, 509 F. Supp. 2d 501 (D. Md. 2007)—

the other case Appellants cite—also provides no support. It involved a “carefully

crafted and court-approved” settlement agreement permitting a debtor’s creditor to

pursue contract and tort claims against third parties. Id. at 522. Those claims had

been amended “to avoid infringing upon the rights of the Trustee” and were not

“property of the Estate.” Id. at 519. The court ruled that the creditor had standing

to bring the claims because the creditor was “not trying to recover assets diverted

from [the debtor]” through a fraudulent-transfer claim, id. at 520—exactly what

Appellants seek to do here. While in Baron there was merely “some similarity”

between the creditor’s claims and those of the trustee, id. at 521 n.34, here there is

an identity of object and purpose between Appellants’ claims and the Estate


28

Action: Both are fraudulent-transfer actions seeking to avoid and recover the same

payments.

Finally, granting Appellants standing would have serious, adverse practical

implications. “[D]efendants … would be unwilling to negotiate settlements” with

an estate representative if those defendants could also be sued by individual

creditors pursuing alternative theories of liability. Tessmer, 329 B.R. at 780.

Because an estate representative often cannot pursue every possible theory and

claim—where, for example, the claim would be barred under §546(e)—

Appellants’ position would undermine bankruptcy’s goal of facilitating settlement

by “consolidat[ing] … claims in one entity—the trustee.” SA13.

2. An estate representative’s “support” for Appellants’ claims is irrelevant

Appellants also argue that it would be “insensible” to determine that they

lack standing because they have the “support,” “consent,” and “approval” of the

estate representative to pursue their claims—though, evidently, not enough

“support” that the Litigation Trustee would abandon his claims to enable

Appellants to attempt to pursue theirs. Appellants Br. 42, 65-66. As the district

court correctly reasoned, “[w]hether the [estate representative] supports

[Appellants’] claims is of no moment”: Nothing in the Bankruptcy Code or the

case law suggests that “a bankruptcy trustee’s druthers may trump” Appellants’

lack of standing to avoid the same transfer an estate representative is seeking to


29

avoid. SA13. The one case Appellants cite in support—Baron—emphasized that

the creditor and trustee were not seeking to avoid the same transfers. 509 F. Supp.

2d 520. The opposite is true here.

Creating an exception to the standing case law simply because the estate

representative “supports” the creditors’ claims would cause the detrimental effects

that the Bankruptcy Code, and its grant of exclusive standing to the trustee, are

designed to avoid. If an estate representative could “support its way around” a

party’s lack of standing, then presumably he could also later deny that party’s

standing by withdrawing his support, then still later re-establish that party’s

standing by “supporting” it once again. This would frustrate Congress’s goal of an

orderly and efficient administration of bankruptcy estate assets, waste scarce

judicial and estate resources, and subject defendants to a multiplicity of litigation.

Moreover, the estate representative has “consented” in this case to Appellants’

assertion of state-law constructive fraudulent-transfer claims only because federal

law—the Bankruptcy Code’s statutory safe harbor for settlement payments—bars

him from pursuing those claims, and he and Appellants are seeking to evade that

bar. See infra Part II. If anything, the Litigation Trustee’s support undermines

Appellants’ standing.


30

B. Neither The Automatic Stay Nor The Bankruptcy Plan Affected Appellants’ Standing

Although it correctly held that Appellants “lack standing to bring their own

fraudulent conveyance claims targeting the very same transactions” as an estate

representative, the district court went an extra, unnecessary step by concluding that

Appellants lack standing because of the automatic stay in bankruptcy, 11 U.S.C.

§362. SA14. This Court need not address whether the stay provides additional

support for the district court’s dismissal of Appellants’ action on standing grounds.

All that matters is that, contrary to Appellants’ contentions, neither the lifting of

the automatic stay nor the confirmed Plan vested them with standing to bring these

actions.18

1. The lifting of the stay did not affect Appellants’ standing

Appellants cite cases for the uncontroversial proposition that, where a party

otherwise has standing to bring claims, a bankruptcy court’s lifting of the stay may

enable that party to “‘press its claims outside of the bankruptcy proceeding.’”

Appellants Br. 36 (quoting St. Paul, 884 F.2d at 702), 63-64 (citing In re Colonial

Realty Co., 980 F.2d 125 (2d Cir. 1992)). But none of those cases involved the

standing problem at issue here because, in each of those cases, no estate

18 The district court purported to adopt “[Appellees’ argument] that … [Appellants’] claims are held in abeyance by the automatic stay in Section 362 of the Code.” SA11. But no Appellee advanced that rationale in briefing or at oral argument. See Appellants Br. 39.


31

representative had cut off the parties’ standing by suing to avoid the same

transfers. Where, as here, creditors’ standing has been cut off not by operation of

the stay, but because the trustee has sued to avoid the same transfers, a subsequent

lifting of the automatic stay cannot confer standing. See Tessmer, 329 B.R. at 779-

780 (creditor’s “right to sue has been cut off by Trustee” even though “the stay on

actions … would not interfere with [her] ability to sue”); see also Garrett v. BNC

Mortg., Inc., 929 F. Supp. 2d 1120, 1125 (D. Colo. 2013); Quantum Servicing

Corp. v. Haugabrook, No. 26542, 2013 WL 4131562, at *1, *3-4 (Ohio App. Ct.

Aug. 14, 2013).19

The bankruptcy court recognized the difference between standing and the

automatic stay by lifting the stay only to the extent necessary for creditors to file

their claims before the statute of limitations might expire, but without adjudicating

or recognizing their standing to pursue those claims. When Appellants moved the

bankruptcy court for an order determining that “eligible creditors have regained the

right … to prosecute” state-law constructive fraudulent-transfer claims, the court

made it “clear that [it was] not disposing of substantive rights … [or] making a

19 The reason that relief from the automatic stay cannot cure a lack of standing is that the “stay operates only to stay the exercise of rights,” and is “not a determination of ultimate right.” In re Chaffee Aggregates, Inc., 300 B.R. 170, 172 (Bankr. W.D.N.Y. 2003); see also In re Crane, __ F.3d __, 2013 WL 6731850, at *6 (7th Cir. Dec. 23, 2013) (“An order granting a creditor relief from the automatic stay … is not an adjudication of the substantive rights of the parties.”).


32

determination of what happens to state law fraudulent conveyance claims upon the

expiration of the estate’s ability to pursue them.” A357. Accordingly, the

bankruptcy court denied the creditors’ request for an order providing that

“creditors have regained the right to prosecute their … claims,” instead explaining

that “I would be willing to say something like … creditors have regained the right,

if any, to prosecute their … claims.” A355-A357 (emphasis added). The

bankruptcy court’s order lifting the stay included that qualification. Appellants Br.

16; A372-A373.

Appellants concede that the bankruptcy court’s order “left open” and

“reserved the ultimate question of standing,” and that each subsequent order with

regard to the stay “reiterated” that the bankruptcy court “makes no finding and

issues no ruling determining the standing of … any creditor.” Appellants Br. 17,

19, 27; A374; A378; A523. Any lifting of the stay is thus irrelevant to the standing

issue here.

2. The Plan did not adjudicate—much less recognize—Appellants’ standing

Appellants argue that the Plan “expressly preserved the rights of the Retirees

and Noteholders to bring the constructive fraudulent transfer claims at issue.”

Appellants Br. 27-28. They contend that (1) any challenge to their standing

constitutes “an impermissible collateral attack on the Plan”; and (2) by dismissing

Appellants’ claims for lack of standing, the district court “frustrat[ed]


33

implementation of the plan” and “undermin[ed] the integrity of [the] … plan, and

the flexibility of the plan process.” Appellants Br. 26, 28, 30-31, 35, 59. All of

this is wrong.

As a threshold matter, Appellants never made this argument to the district

court, and it is therefore waived. See, e.g., Bogle-Assegai v. Connecticut, 470 F.3d

498, 504 (2d Cir. 2006). But even if that were not the case, the argument is

untenable. “The Bankruptcy Court took great pains to emphasize that it made ‘no

finding and issued no ruling determining [Appellants’] standing[.]’” SA13 n.16

(quoting A374) (alterations omitted). It is thus Appellants, not Appellees, who

now resort to “bait-and-switch” tactics to “cherry-pick” from the Plan. Appellants

Br. 35, 59.

Appellants claim that Plan §§1.1.67, 5.8.2, and 11.2.1 “provid[e] … that

prepetition fraudulent transfer claimants had the right to pursue ‘any and all LBO-

Related Causes of Action arising under state fraudulent conveyance law.’”

Appellants Br. 68 (emphasis added). In fact, none of those sections, or any other,

purports to grant or recognize any party’s standing or “right to pursue” such

claims.

Section 1.1.67 defines “Disclaimed State Law Avoidance Claims” as “any

and all LBO-Related Causes of Action arising under state fraudulent conveyance

law[.]” A643. The definition says nothing about creditors’ right to pursue such


34

claims.20 Section 11.2.1 provides that “Debtor Released Claims do not include any

Disclaimed State Law Avoidance Claims.” Appellants Br. 19-20; A717-A718. It

too does not speak to any party’s standing to pursue such claims. Finally, §5.8.2

merely provides that “nothing in this Plan shall or is intended to impair” the rights

of creditors to attempt to pursue Disclaimed State Law Avoidance Claims. A694-

A695. It grants no such rights.

The reason Appellants cannot cite a single provision of the Plan recognizing

their standing is that the bankruptcy court, the Committee, and counsel for

Appellants all agreed that, like the order lifting the stay, the Plan could not and

would not affect Appellees’ standing, preemption, or other defenses. The

bankruptcy court “conclude[d] that issues regarding standing, preemption, and

applicability of §546(e) are best left for determination by the courts hearing these

20 If it has relevance, §1.1.67 actually undermines Appellants’ standing. It excludes from the “Disclaimed State Law Avoidance Claims”—the claims the bankruptcy estate “disclaims”—any and all LBO-Related Causes of Action (defined in Plan §1.1.119 as any “causes of action, avoidance powers or rights … arising from the [LBO],” A649) that were “set forth in the amended complaint filed by the Creditors’ Committee on December 7, 2010.” A643. That amended complaint included both intentional fraudulent-transfer claims under state law seeking to avoid and recover the LBO payments to shareholders in exchange for their stock and constructive fraudulent-transfer claims under state law against other defendants seeking to avoid and recover other LBO payments. Thus, the estate did not disclaim state-law fraudulent-transfer claims under the Plan. Appellants’ contention that the Plan recognizes their standing to bring state-law fraudulent-transfer claims is inaccurate.


35

claims.”21 Appellants’ counsel concurred, assuring the bankruptcy court and the

parties that it was not necessary to add language to the Plan expressly reserving all

defenses to the Disclaimed State Law Avoidance Claims because the Plan did not

adjudicate any of the defenses that Appellants now claim the Plan did adjudicate:

[The Foundations assert] that what I’m asking you to do here today is somehow asking you to adjudicate a defense that they want to raise in those proceedings and nothing could be further from the truth…. We certainly don’t believe that the Plan adjudicates their defenses or that a confirmation of this Plan determines whether they are or are not liable in the preserved causes of action and the disclaimed state law actions, and there’s another section in the Plan that says that; that says this Plan does not determine whether you are or are not liable on these actions.22

And, for its part, counsel for the Committee agreed that Appellees’ defenses were

“unaffected by the Plan.”23

These concessions simply echoed settled law. All that was before the

bankruptcy court was a motion in the general bankruptcy case for confirmation of

the Plan—not the lawsuits that are now on appeal before this Court. It is well-

established that “the less-formal confirmation process” cannot adjudicate the

“disputed rights of third parties” in separate litigation. Grede v. Bank of New York

Mellon, 409 B.R. 467, 471 (N.D. Ill. 2009), rev’d on other grounds, 598 F.3d 899 21 Order on Confirmation 98, In re Tribune Co., No. 08-13141 (Bankr. D. Del. Oct. 31, 2011), ECF No. 10,133. 22 June 8, 2012 Tr. 23:16-25:7, In re Tribune Co., No. 08-13141 (Bankr. D. Del. June 8, 2012), ECF No. 11,812 (emphasis added). 23 Id. at 29:21-31:6.


36

(7th Cir. 2010); see also Sure-Snap Corp. v. State St. Bank & Trust Co., 948 F.2d

869, 873 (2d Cir. 1991). Indeed, as former shareholders, most defendants held

neither creditor claims nor equity interests in Tribune; having asserted no rights

that would be treated by a plan of reorganization, they had no reason even to

attempt to monitor the proceedings.

3. Appellants did not gain standing as a result of the transition from the Creditors’ Committee to the Litigation Trustee

Appellants also argue that their standing is “particularly clear” because the

Plan has been confirmed, which, they say, “terminate[d]” the “bankruptcy trustee,”

along with his “capacity to prosecute any claims.” Appellants Br. 46-47. To the

contrary, the Plan “appointed the Litigation Trustee as the duly appointed

representative of … the Estate[],” and specified that “the Litigation Trustee is

deemed to be acting in the capacity of a bankruptcy trustee[.]” A752-A753; see 11

U.S.C. §1123(b)(3)(B). Appellants’ argument that the Litigation Trustee is merely

a “product of contract” (Appellants Br. 47), with no statutory powers of the trustee,

is thus incorrect. It also misses the point. It was the Committee—not the

Litigation Trustee—that cut off Appellants’ standing when it brought suit to avoid

the LBO payments. That the Litigation Trustee—as the current representative of

the estate acting “for the benefit of substantially all of Tribune’s creditors,”

Appellants Br. 3—still seeks to avoid those payments merely confirms Appellants’

continued lack of standing to avoid the same transfers.


37

C. The District Court Properly Dismissed Appellants’ Claims Rather Than Sua Sponte Holding Them In Abeyance

Finally, Appellants argue that, rather than dismissing their claims, the

district court should have “held [them] in abeyance” pending “completion of the

Litigation Trustee’s intentional fraudulent conveyance claim.” Appellants Br. 74.

Appellants waived this argument as well by failing to raise it below.24

In any event, “[s]tanding is the threshold question in every federal case,

determining the power of the court to entertain the suit.” Ross v. Bank of Am.,

N.A., 524 F.3d 217, 222 (2d Cir. 2008) (internal quotation marks omitted). Where

a party fails to satisfy the threshold requirement of standing, dismissal of its claims

is required. Motorola Credit Corp. v. Uzan, 322 F.3d 130, 137 (2d Cir. 2003).

Once the district court determined that Appellants “lack standing,” SA13-

SA14, that was the end of the matter—regardless of whether the district court

afforded the Litigation Trustee an opportunity to abandon his claims so that

Appellants might attempt to pursue theirs. The district court could not “hold

Appellants’ reservation” in the event they subsequently acquired standing. See

Hartford v. Glastonbury, 561 F.2d 1042, 1051 n.3 (2d Cir. 1977) (en banc).

Whether Appellants would hypothetically have had standing if the Litigation 24 In the district court, Appellants argued that their claims and those of the Litigation Trustee could proceed concurrently, with Appellants and the Litigation Trustee standing “side by side” to avoid the same shareholder transfers. See Individual Creditor Plaintiffs’ Memorandum of Law 36, No. 11 MD 2296, ECF No. 2086 (“Plaintiffs’ Mem.”).


38

Trustee had “actually and completely abandon[ed] [its] claims,” SA13-SA14—

something the Litigation Trustee refused to do—was not ripe for adjudication. See

Marchi v. BOCES, 173 F.3d 469, 478 (2d Cir. 1999).

Even if doing so would otherwise be possible, Appellants make no effort to

demonstrate how long staying their cases in the district court would be warranted.

See Kappel v. Comfort, 914 F. Supp. 1056, 1058 (S.D.N.Y. 1996). Indefinite

postponement of Appellants’ cases would prejudice the thousands of former

Tribune shareholders whom Appellants have sued, all of whom have had to endure

the financial uncertainty and, in the case of individual shareholders, anxiety,

engendered by litigation that seeks to undo payments they received more than six

years ago.

II. THE DISTRICT COURT ERRED IN HOLDING THAT §546(e) DOES NOT BAR

APPELLANTS’ STATE-LAW FRAUDULENT-TRANSFER CLAIMS

As discussed, once a debtor files for bankruptcy, the fraudulent-transfer

claims of a debtor’s creditors vest exclusively in the trustee, who stands in the

creditors’ shoes as their “successor” for purposes of pursuing those claims under

§544. But Congress limited these avoidance powers in critical ways where the

transfers that would otherwise be avoidable involved securities transactions. It

enacted an absolute “safe harbor,” In re Enron Creditors Recovery Corp., 651 F.3d

329, 330 (2d Cir. 2011), that applies “[n]otwithstanding section[] 544,” the

provision otherwise allowing the trustee, as the creditors’ statutory representative,


39

to bring state-law fraudulent-transfer claims. And that safe harbor admits of only

one “except[ion]”: intentional fraudulent-transfer claims brought by the bankruptcy

estate under federal law, §548(a)(1)(A).

Entitled “Limitations on Avoiding Powers,” §546 of the Bankruptcy Code

provides:

Notwithstanding sections 544, … 548(a)(1)(B) … of this title, the trustee may not avoid a transfer that is a … settlement payment … 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 … except under section 548(a)(1)(A).

11 U.S.C. §546(e) (emphasis added).

Originally enacted in 1978, and amended several times in the intervening

decades to broaden its reach, the safe harbor advances Congress’s goal of

“‘minimiz[ing] the displacement caused in the commodities and securities markets

in the event of a major bankruptcy affecting those industries.’” In re Quebecor

World (USA) Inc., 719 F.3d 94, 100 (2d Cir. 2013) (quoting Enron, 651 F.3d at

334), cert. denied, 2014 WL 684068 (Feb. 24, 2014).

The payments that Appellants seek to avoid are paradigmatic safe-harbored

transfers. They were made to Tribune’s shareholders in exchange for their shares

of publicly-traded securities—classic “settlement payments” within the meaning of


40

§ 546(e). See, e.g., In re Plassein Int’l Corp., 590 F.3d 252, 258 (3d Cir. 2009).

And they were “made by or to … [a] financial institution,” as they were processed

through the shareholders’ agent and attorney-in-fact, CTC, a “trust company” and

therefore a “financial institution” under the Bankruptcy Code, 11 U.S.C.

§101(22)(A), and were cleared and settled through DTCC or its subsidiary DTC, a

registered “securities clearing agency.”

There is thus no question that §546(e) would bar Tribune’s bankruptcy estate

from bringing the same state-law fraudulent-transfer claims under §544 that

Appellants, Tribune creditors, now assert in their purported “Work-Around.”

Indeed, other than seeking to “preserve” their rights to seek possible en banc

review in this Court or certiorari from the Supreme Court, Appellants conceded

below that the controlling law of this Circuit would have barred the bankruptcy

estate from bringing the same state-law fraudulent-transfer claims.25 The question

presented in this appeal is whether Tribune creditors can “end run” §546(e) and

assert the same state-law fraudulent-transfer claims free and clear of the safe

harbor. They cannot.

First, §546(e) expressly bars Appellants’ claims. The reference to the

“trustee” in the safe-harbor makes sense, as the Code empowers only the

“trustee”—acting as the statutory “successor” to the creditors—to avoid and

25 See Plaintiffs’ Mem. 23-24.


41

recover the debtor’s transfers in the first place. The Code thus makes clear

Congress’s intent to prevent creditor claims, like those asserted here, seeking to

avoid and recover safe-harbored transactions under state law.

Second, even if the statute did not on its face bar Appellants’ claims, the

Supremacy Clause of the United States Constitution would. As the Supreme Court

recently held, “[i]t is well-settled … that a state law is preempted where it stands as

an obstacle to the accomplishment and execution of the full purposes and

objectives of Congress.” Arizona v. United States, 132 S. Ct. 2492, 2505 (2012).

Even if Appellants could advance under state law their claims to avoid and recover

transfers that are protected from avoidance and recovery by federal law—and there

is good reason to think they could not, see State Law Br. 16-39—those claims

would be preempted because they would stand as an obstacle to Congress’s

statutory directive. Congress surely did not intend its effort to balance “two

important national legislative policies on a collision course—the policies of

bankruptcy and securities law,” Enron, 651 F.3d at 263—to be undone by a simple

stratagem contrived by the estate representative and the debtor’s creditors.

A. Section 546(e) Expressly Bars Appellants’ Claims

The district court held that Appellants’ claims did not fall within the express

terms of §546(e) because that provision refers only to the “trustee,” and the

creditors “have no relation to the bankruptcy trustee.” SA5. That was error.


42

The “relation” between the trustee and the creditors is set forth in Chapter 5

of the Bankruptcy Code and reaffirmed by related provisions in Title 28 of the

United States Code (Judiciary and Judicial Procedure). The trustee is the creditor’s

“statutory successor” for purposes of asserting state-law fraudulent-transfer claims

under §544. 28 U.S.C. §1409(c) (venue for proceedings commenced by a “trustee

… as statutory successor to the … creditors under section … 544(b)”). Section

544 itself so specifies, identifying the trustee in its title as the “successor to …

creditors.” 11 U.S.C. §544. Simply put, “§544(b) places the [trustee] in the shoes

of [the] creditors.” PWS, 303 F.3d at 314.

Indeed, as Appellants acknowledge, the trustee has “exclusive” standing—

the trustee, and only the trustee, can bring creditors’ state-law fraudulent-transfer

claims after the debtor files for bankruptcy. Appellants Br. 45 (emphasis added);

see also Colonial Realty Co., 980 F.2d at 131-132; United Feature Syndicate, Inc.

v. Miller Features Syndicate, Inc., 216 F. Supp. 2d 198, 222 (S.D.N.Y. 2002) (“the

estate trustee has exclusive authority to maintain [fraudulent conveyance]

actions”).26 And, because the trustee is the creditors’ “successor,” “the creditors

are bound by the outcome of the trustee’s action” in any subsequent fraudulent-

26 Accord PWS, 303 F.3d at 314 (§544(b) gives trustee “the right to prosecute individual creditors’ fraudulent transfer claims”); In re MortgageAmerica Corp., 714 F.2d 1266, 1275-1276 (5th Cir. 1983) (“A trustee acting under section 544 acts as a representative of creditors, and any property recovered is returned to the estate for the eventual benefit of all creditors.” (internal quotation marks omitted)).


43

transfer litigation. St. Paul, 884 F.2d at 701; see also PWS, 303 F.3d at 314-315

(creditor’s state-law fraudulent-transfer claims barred after bankruptcy trustee

released §544 claims); Stein, 314 B.R. at 310-311; In re Am. Hawk Enters., Ltd.,

52 B.R. 395, 397, 399-400 (E.D. Va. 1985), aff’d, 852 F.2d 132 (4th Cir. 1988).27

The purported distinction between the creditors and the trustee upon which

the district court rested its analysis is thus illusory. It is immaterial that §546(e)

refers only to the “trustee” and not to the debtor’s creditors. Once a debtor files for

bankruptcy, the trustee is the creditors for purposes of any state-law fraudulent-

transfer claim. Indeed, the only party the Bankruptcy Code empowers to bring

creditors’ state-law fraudulent-transfer claims in the first place is the “trustee.” 11

U.S.C. §544; see Madoff, 740 F.3d at 93. That §546(e) also refers to the

“trustee”—the creditors’ “successor”—and applies “[n]otwithstanding section[]

27 This identity between the trustee and the creditors for purposes of state-law fraudulent-transfer claims is well-settled in other aspects of bankruptcy law. For example, this Court’s Wagoner rule generally bars a trustee from advancing “a claim against a third party for defrauding [the debtor] with the cooperation of management[.]” Shearson Lehman Hutton, Inc. v. Wagoner, 944 F.2d 114, 118 (2d Cir. 1991). But that rule does not apply to state-law fraudulent-transfer claims because, “when acting under section 544(b), a trustee is vested with the rights of actual creditors to avoid certain transfers.” In re Stanwich Fin. Servs. Corp., 488 B.R. 829, 834 (D. Conn. 2013). Likewise, when the trustee brings a claim standing in the shoes of a debtor, he is bound by the debtor’s pre-petition arbitration agreement; but the trustee is not so bound when bringing a fraudulent-transfer claim, because in that context the trustee stands in the shoes of the creditors, not of the debtor. See, e.g., Hays & Co. v. Merrill Lynch, 885 F.2d 1149, 1155 (3d Cir. 1989).


44

544,” thus evidences Congress’s intent for the safe harbor to apply to all creditor

state-law fraudulent-transfer claims when the debtor files for bankruptcy. In short,

§546(e)’s references to the “trustee” and “section[] 544” is an express command

that the debtor’s creditors “may not avoid” safe-harbored transfers under state law.

A contrary reading of the statute would lead to results inconsistent with the

law of this Circuit. Take, for example, the rule that the outcome of a trustee’s

fraudulent-transfer action binds the creditors in future actions—a rule that exists

because the trustee and the creditors are in privity for purposes of fraudulent-

transfer claims. See, e.g., St. Paul, 884 F.2d at 701. If §546(e) nevertheless barred

only the trustee, and not the creditors, from avoiding safe-harbored transactions,

then the trustee could bring a state-law fraudulent-transfer claim under §544(b) and

lose as a consequence of §546(e), and the creditors could bring suit on the same

claim free and clear of the judgment against the trustee. That is not the law of this

(or any) Circuit, yet the district court’s reading of §546(e) would require it.

Statutes should not be construed to achieve such anomalous results. See Chisom v.

Roemer, 501 U.S. 380, 402 (1991).

Finally, Hartford Underwriters Insurance Co. v. Union Planters Bank, N.A.,

530 U.S. 1 (2000), cuts against, not in favor of, the district court’s reading of the

Bankruptcy Code. See SA5. The Supreme Court concluded that the affirmative

grant of power to a named party in a section of the Code—there, the grant of power


45

to the trustee in §506(c) to “surcharge” a secured creditor’s collateral for the costs

incurred by the estate in preserving the collateral—meant that no other party could

exercise that right. Hartford, 530 U.S. at 6-7 (“Where a statute names the parties

granted the right to invoke its provisions, such parties only may act.” (emphasis

added)). Nothing in Hartford supports the district court’s conclusion that the

reference to the “trustee” in §546(e) permits creditors to bring claims the Code bars

the trustee from pursuing. Section 506(c), at issue in Hartford, is a grant of power,

whereas §546(e) is a limitation of power. The analog to §506(c) is not §546(e), but

§544. Section 544 also provides the affirmative grant of power to the trustee—and

only the trustee—to bring creditor state-law fraudulent-transfer claims. The

absolute bar in §546(e) against state-law fraudulent-transfer claims aimed at

settlement payments, applicable to the one party the Code authorizes to sue (the

trustee), surely does not suggest that Congress intended to permit other parties to

bring such claims, let alone that they can do so free and clear of the safe harbor.

B. Even If Appellants’ Claims Were Not Expressly Barred By §546(e), They Would Be Precluded Under Settled Principles Of Implied Conflict Preemption

Congress’s intent to bar creditor state-law claims to avoid and recover safe-

harbored payments is manifest on the face of the statute. But even if the Code did

not expressly bar Appellants’ claims, settled principles of implied conflict

preemption would defeat those claims all the same. Put simply, Congress’s will


46

cannot be thwarted by “an impermissible ‘end run’ around [federal law].” Carrion

v. Agfa Const., Inc., 720 F.3d 382, 383 (citation omitted), reh’g denied, 733 F.3d

490 (2d Cir. 2013).

1. State law that stands as an obstacle to the accomplishment of Congress’s full purposes is preempted

The district court’s preemption analysis starts from the premise that state law

would recognize a claim to avoid and recover securities settlement payments that

were made by a debtor that later filed for bankruptcy, and that are safe-harbored

under the Bankruptcy Code. The district court did not explain the basis for that

premise, and it is dubious at best. No state court has allowed such a claim, and no

state court is likely to do so were the question put to it. See State Law Br. 18. But,

even if the district court were right to assume that state law would permit

Appellants to avoid and recover payments that the Bankruptcy Code protects,

Appellants’ state-law claims would then conflict with federal law and be

preempted.

Under the Supremacy Clause, state laws that interfere with federal law are

preempted. Just last year, the Supreme Court confirmed the black-letter principles

of implied conflict preemption law that apply here. Congress undoubtedly “has the

power to pre-empt state law expressly.” Hillman v. Maretta, 133 S. Ct. 1943, 1949

(2013). But state law is also “pre-empted to the extent of any conflict with a

federal statute. Such a conflict occurs … when state law stands as an obstacle to


47

the accomplishment and execution of the full purposes and objectives of

Congress.” Id. at 1949-1950 (internal citations and quotation marks omitted). This

fundamental rule of constitutional law is “well-settled.” Arizona, 132 S. Ct. at

2505.28

These principles apply with special force in areas like bankruptcy, where

national uniformity is necessary. See Hines v. Davidowitz, 312 U.S. 52, 67-68

(1941). The Constitution requires, and the Bankruptcy Code implements, “a

comprehensive federal system of penalties and protections to govern the orderly

conduct of debtors’ affairs and creditors’ rights.” Eastern Equip., 236 F.3d at 120.

Accordingly, “it has been settled from an early date that state laws to the extent

that they conflict with the laws of Congress … on the subject of bankruptcies are

suspended.” Stellwagen v. Clum, 245 U.S. 605, 613 (1918). This Court and others

have recognized that implied preemption principles preclude state-law claims that

would evade or frustrate the Bankruptcy Code. See, e.g., Eastern Equip., 236 F.3d

28 The district court discussed implied conflict preemption as if it were a disfavored doctrine that is rarely invoked, citing this Court’s recent decision in In re MTBE Products Liability Litigation, 725 F.3d 65 (2d Cir. 2013). That case is readily distinguishable. First, the statutory provisions on which appellants in MTBE relied for their preemption argument “suggest[ed] a Congressional intent to permit—not preempt—suits like th[e] one” at issue. Id. at 102. Second, those appellants contended that federal law governing the use of the chemical MTBE preempted state-law claims that had nothing to do with the use of MTBE. Id. at 103-104. Here, in contrast, §546(e) expressly bars the very types of claims—state-law fraudulent-transfer claims—that Appellants seek to pursue.


48

at 120-121 (state-law tort claims alleging violations of bankruptcy stay

preempted); Pereira v. United Jersey Bank, N.A., 201 B.R. 644, 676-680 (S.D.N.Y.

1996) (state-law unjust-enrichment claims to recover transfers of debtor’s property

preempted by §547(b)).

These principles govern this appeal. There is, of course, a long history of

state law on fraudulent transfer applicable where the debtor has not filed for

bankruptcy. But Tribune did file for bankruptcy, and the question is whether

§546(e) preempts contrary state law in that context. As the district court held in

Whyte, where (as here) the debtor has gone into bankruptcy, there is no

presumption against preemption because “there is a history of significant federal

presence in this area of regulation.” Whyte v. Barclays Bank PLC, 494 B.R. 196,

200 n.6 (S.D.N.Y. 2013) (citing United States v. Locke, 529 U.S. 89, 108 (2000)).

Thus, in order to demonstrate that Appellants’ state-law claims are

preempted, Appellees need only show—as the Supreme Court held last Term—that

those claims “interfere[] with Congress’ scheme” and “frustrate[] the deliberate

purpose of Congress.” Hillman, 133 S. Ct. at 1952. They do.

2. Congress enacted §546(e) to ensure stability in the securities markets and finality for investors

This Court has already determined the “purposes and objectives of

Congress,” Arizona, 132 S. Ct. at 2505, that animated the enactment and expansion

of the safe harbor for settlement payments: ensuring the stability of securities


49

markets and the finality of securities transactions. Congress sought to “minimize

the displacement caused in the commodities and securities markets in the event of

a major bankruptcy affecting those industries.” Quebecor, 719 F.3d at 100

(quoting Enron, 651 F.3d at 334). Congress also enacted §546(e) to “promot[e]

finality … and certainty for investors,” by limiting the circumstances under which

securities transactions could be unwound years after they occurred. In re Kaiser

Steel Corp., 952 F.2d 1230, 1240 n.10, 1241 (10th Cir. 1991) (noting “Congress’

policy interests in promoting finality and ‘in promoting speed and certainty in

resolving complex financial transactions,’” and finding “that disruption in the

securities industry—an inevitable result if leveraged buy outs can freely be

unwound years after they occurred—is also a harm the statute was designed to

avoid” (quoting H.R. Rep. No. 97-420, at 1 (1982), reprinted in 1982

U.S.C.C.A.N. 583, 583)); see also AP Servs. LLP v. Silva, 483 B.R. 63, 71

(S.D.N.Y. 2012) (in Enron, this Court “took pains to point out that the application

of the safe harbor rule to preclude unwinding of long-settled leveraged buyouts

was consistent with the statute’s underlying policy of avoiding undesirable impacts

on the financial markets”), appeal dismissed, No. 12-4875 (2d Cir. Dec. 17, 2013);

In re Qimonda Richmond, LLC, 467 B.R. 318, 321-322 (Bankr. D. Del. 2012)

(“Section 546(e) shields certain securities transactions from the trustee’s avoidance


50

powers for the purpose of promoting stability and finality in the securities

markets.”).

Congress made a considered judgment in balancing these securities-law

policies against the policies served by bankruptcy law. By permitting only a

federal intentional fraudulent-transfer claim to escape the safe harbor, but barring

federal constructive fraudulent-transfer claims and all state-law fraudulent-transfer

claims, Congress concluded that the federal policies ensuring finality and stability

were paramount, except where the settlement payments were made within two

years of the debtor’s bankruptcy and the trustee can demonstrate actual fraud under

federal law. See Kaiser Steel, 913 F.2d at 848 (citation omitted); Contemporary

Indus. Corp. v. Frost, 564 F.3d 981, 986-987 (8th Cir. 2009); In re Hechinger Inv.

Co. of Del., 274 B.R. 71, 88 (D. Del. 2002); In re U.S. Mortg. Corp., 492 B.R. 784,

805 (Bankr. D.N.J. 2013).

The district court misconceived this balance. According to the district court,

“[i]t is not at all clear that Section 546(e)’s purpose with respect to securities

transactions trumps all of bankruptcy’s other purposes”—namely, in the district


51

court’s view, “making whole the creditors of a bankruptcy estate.” SA6.29 That is

wrong; Congress’s judgment on this point is entirely clear. Congress gave the

bankruptcy trustee exclusive standing to bring creditors’ state-law fraudulent-

transfer claims in bankruptcy, and it then barred the trustee from bringing such

claims to avoid settlement payments. As the Fourth Circuit put it in a case

involving another bankruptcy safe harbor, “[e]ven though an overarching policy of

the Bankruptcy Code is to provide equal distribution among creditors, in enacting

[the safe harbor for swaps], Congress intended to serve a countervailing policy of

protecting financial markets and therefore favoring an entire class of instruments

and participants.” In re Nat’l Gas Distribs., LLC, 556 F.3d 247, 259 (4th Cir.

2009) (emphasis added).

The district court erroneously reasoned that Congress’s intent not to bar

Appellants’ state-law claims was evident from the legislature’s decision “not to

extend Section 546(e) to [state-law fraudulent conveyance] claims filed before

bankruptcy or to intentional fraudulent conveyance claims brought after a

29 In similar fashion, the bankruptcy court in In re Lyondell Chemical Co., 503 B.R. 348 (Bankr. S.D.N.Y. 2014), misapprehended this Court’s holdings regarding the safe harbor. That decision is filled with skepticism about whether and how the safe harbor should apply. See, e.g., id. at 372 (“[S]afe harbors are at least arguably absurd [as applied to] LBOs and other transactions involving privately held companies where the stock is not even traded in the financial markets.”). This Court’s case law, however, is settled and unequivocal: The safe harbor protects the payments at issue here. See, e.g., Quebecor, 719 F.3d at 100; Enron, 651 F.3d at 336.


52

bankruptcy filing.” SA7. Congress legislated in the circumstance where the threat

to the securities markets was most acute—where an issuer of securities has

defaulted and been forced to go into bankruptcy or another federal proceeding to

restructure its debts. The district court did not cite any example of fraudulent-

transfer litigation seeking to set aside settlement payments (let alone billions of

dollars in such payments) where the debtor was able to avoid bankruptcy or a

comparable federal insolvency proceeding in which a similar safe harbor applies.

See 12 U.S.C. §1821(e)(8)(C), (D) (barring FDIC as receiver of a failed bank from

“avoid[ing] any transfer of money or other property in connection with,” among

other things, any “securities contract”). As to Congress’s decision not to preempt

federal intentional fraudulent-transfer claims, Congress allowed those actions to

proceed because of their exacting nature—compared to the “lesser showing” that

Appellants concede is needed for their constructive fraudulent-transfer claims.

Appellants Br. 72. It determined that, in the rare cases where a trustee could prove

that the debtor made the transfers within two years of the bankruptcy with “actual

intent to hinder, delay, or defraud” its creditors, 11 U.S.C. §548(a)(1)(A), public

policy called for such actions to proceed despite any destabilizing effects they

could have on the market.


53

3. Because Appellants’ claims would thwart Congress’s full purposes and objectives, they are preempted

Starting from its faulty premise as to Congress’s objectives in enacting the

safe harbor, the district court erroneously held that Appellants’ state-law

fraudulent-transfer claims could proceed consistent with §546(e). Under the

district court’s reasoning, Congress’s intent was to protect the securities markets

and the investing public from the destabilizing effects of a major bankruptcy if the

state-law fraudulent-transfer claims to recover safe-harbored transfers were

brought by a trustee suing in the creditors’ shoes, but Congress was indifferent to

the effects on those markets and investors if the bankrupt company’s creditors

themselves invoked the very same laws to avoid the very same transfers.

That proposition defies common sense. The “displacement … in the ...

securities markets,” Quebecor, 719 F.3d at 100, that would be caused by the

avoidance of securities transactions that occurred years ago, and the recovery of a

multi-billion-dollar judgment against thousands of former shareholders, would be

no less acute simply because the plaintiffs are Tribune creditors rather than their

statutory representative. Appellants’ claims jeopardize Congress’s intent to

“protect[] financial markets,” Nat’l Gas, 556 F.3d at 259, no less than would the

same claims brought by Tribune’s bankruptcy estate. Appellants seek to recover

billions of dollars in safe-harbored transfers, from thousands of individual and

institutional shareholders, years after those transfers were made to settle securities


54

transactions. And they seek to do so using state fraudulent-transfer law, claims

that Appellants concede are markedly easier to prove than the exacting federal

intentional fraudulent-transfer claim that Congress purposefully excepted from the

safe harbor. Appellants’ claims thus go to the heart of Congress’s concerns in

enacting §546(e), and vindication of those claims would “interfere[] with

Congress’ scheme” and “frustrate[] the deliberate purpose of Congress.” Hillman,

133 S. Ct. at 1952.

Nothing in this Court’s (or any Circuit’s) decisions suggests that Congress’s

intent in enacting the safe harbor turned on the identity of the plaintiff—the

creditors or their statutory representative—rather than the effect that the action,

whoever brings it, would have on the securities markets and investors. Moreover,

the district court’s holding would mean that Congress achieved little, if anything,

in enacting §546(e), since the bankruptcy estate and its creditors could easily

circumvent the safe harbor by adding a few lines in a reorganization plan to forgo

the estate’s right to bring claims under state law seeking to set aside safe-harbored

transfers. Such a reading of §546(e) would be contrary to the rule that courts are

not supposed to apply federal statutes in a manner that “create[s] a loophole ... that

Congress simply did not intend,” United States v. Naftalin, 441 U.S. 768, 777

(1979), or “results in the emasculation or deletion of a provision,” Cox v. Roth, 348

U.S. 207, 209 (1955). “A decent respect for the policy of Congress must save us


55

from imputing to it a self-defeating, if not disingenuous purpose.” Nardone v.

United States, 308 U.S. 338, 341 (1939).

The district court’s decision also conflicts with a string of cases holding that

§546(e) does preempt state-law claims that conflict with its purposes. In

Contemporary Industries—which, like this case, involved an LBO—the plaintiff

sought to recover settlement payments through state-law claims for unjust

enrichment and illegal shareholder distributions. Those claims did not fall within

the textual confines of §546(e): They were not claims to “avoid a transfer”

brought under §544 (or §548)—i.e., they were not fraudulent-transfer claims. But

that made no difference, the Eighth Circuit explained, because “[a]llowing

recovery on these [state law] claims would render the § 546(e) exemption

meaningless, and would wholly frustrate the purpose behind that section.” 564

F.3d at 988. The Eighth Circuit relied on Hechinger, another case involving an

LBO, in which the court also held that §546(e) preempted a state-law claim:

If the court were to entertain the Committee’s unjust enrichment claim, a claim that effectively acts as an avoidance claim against the shareholders … and allowed the Committee to circumvent section 546(e) by asserting a state law claim for unjust enrichment … , the purpose of section 546(e) would be frustrated.

274 B.R. at 96-98; see also Silva, 483 B.R. at 71 (“The Court could not permit the

unjust enrichment claim to go forward without frustrating the purpose of Section

546(e).”); U.S. Bank N.A. v. Verizon Commc’ns Inc., 892 F. Supp. 2d 805, 824-825


56

(N.D. Tex. 2012) (“allowing the plaintiff … to recover for the cash payments

under state unlawful dividend statute would render Section 546(e) meaningless”);

U.S. Mortg. Corp., 492 B.R. at 817 (“[C]ircumventing the provisions of §546(e) by

merely re-labeling claims but seeking essentially the same relief frustrates the

purpose of §546(e).”).

The district court distinguished these cases on the ground that, in each, the

plaintiff was the bankruptcy trustee, or other representative of the bankruptcy

estate, and was thus “explicitly bound by Section 546(e).” SA8 n.10. But that

misses the point. In Contemporary Industries, Hechinger, and the other cases,

none of the claims came within the express terms of §546(e) because they were not

fraudulent-transfer or other avoidance claims asserted under Chapter 5 of the Code.

The courts nonetheless recognized that allowing the cases to proceed would thwart

Congress’s intent. The only distinction here is that Appellants contend that their

actions do not satisfy a different requirement of §546(e): that the claim be brought

by the “trustee.” Even if Appellants were correct (and they are not for the reasons

discussed supra in Section II.A.), this would be a distinction without a difference

for purposes of implied conflict preemption.

The district court recognized as much in Whyte. There, the debtor’s plan

created a litigation trust that purported to receive the assignment of both the

bankruptcy estate’s and creditors’ avoidance claims. The litigation trustee brought


57

state-law fraudulent-transfer claims seeking to avoid and recover safe-harbored

payments, but argued that the safe harbor that would otherwise apply (§546(g)) did

not bar the claims because the trustee was suing as assignee of the creditors, not

under §544(b) as the representative of the debtor’s bankruptcy estate. Citing

Hechinger, the district court rejected this “clever argument” because it would

“render section 546(g) a nullity.” Whyte, 494 B.R. at 199. That “absurd result,”

the district court held, was foreclosed “under well-established principles of federal

preemption”; “section 546(g) impliedly preempts the Trustee’s attempt to

resuscitate fraudulent avoidance claims as the assignee of certain creditors where,

as here, she would be expressly prohibited by section 546(g) from asserting those

claims as assignee of the debtor-in-possession’s rights[.]” Id.

The district court here sought to distinguish Whyte on the ground that there

the bankruptcy plan “designated one entity, the SemGroup Litigation Trust, to

serve in the capacity of both the bankruptcy trustee and the representative of

outside creditors,” whereas here the creditors are not “creatures of a Chapter 11

plan.” SA8. But it was the Tribune bankruptcy plan, as well as the bankruptcy

court’s earlier order, that gave effect to the creditors’ attempted “Work-Around” of

§546(e), by purporting to “disclaim” any estate state-law fraudulent-transfer

actions to avoid the payments to Tribune’s shareholders. A643, A650, A656,

A729, A733.


58

In any event, it does not matter for purposes of implied conflict preemption

whether the creditors sue in their own name or assign their claims to a trust that

also obtains an assignment of bankruptcy estate claims. The question is whether

the state-law claims would “stand as an obstacle,” Arizona, 132 S. Ct. at 2505, to

Congress’s goals of “minimizing the displacement in the commodities and

securities markets,” Quebecor, 719 F.3d at 100, and “promot[ing] finality and …

certainty for investors,” Kaiser Steel, 952 F.2d at 1240 n.10. Just as the claims will

frustrate Congress’s purpose whether the plaintiff is a bankruptcy trustee or the

creditors themselves, so too they will frustrate Congress’s purpose whether the

plaintiff is the creditors or their assignee. Cf. Oneida Indian Nation of N.Y. v. New

York, 691 F.2d 1070, 1084 (2d Cir. 1982) (holding that claims were not time-

barred, whether brought by Indian tribe or tribe’s trustee, because “the interests

sought to be protected … are the same, no matter who the plaintiff may be”

(citation omitted)). The markets and shareholders do not care who the plaintiff is;

they care that long-completed securities transactions are being unwound and

settlement payments are being avoided and recovered. Regardless of how the

creditors assert their claims—in their own names, through a bankruptcy trustee, or

through a plan assignee—avoiding safe-harbored transfers through constructive

fraudulent-transfer claims will undermine Congress’s objectives of protecting the

securities markets and the finality and certainty of securities transactions.


59

Thus, in order to affirm the district court’s ruling that Appellants’ claims

could proceed notwithstanding §546(e) (were it not for their lack of standing), this

Court would have to conclude that the district court in Whyte, the Eighth Circuit in

Contemporary Industries, and the raft of lower court decisions consistent with

Whyte and Contemporary Industries are all wrong. But the courts’ reasoning in

those cases is correct. Allowing plaintiffs to bring constructive fraudulent-transfer

claims to “undo” long-settled securities transactions will destabilize the markets,

whoever the plaintiffs are and whatever their legal theory is. If anything, this

concern applies with even greater force here (and in Whyte) than in the

Contemporary Industries and Hechinger line of cases. Unlike the plaintiffs in

those cases, Appellants do not assert a state-law claim that “effectively acts” like a

fraudulent-transfer claim, Hechinger, 274 B.R. at 96; they assert a state-law claim

that is a fraudulent-transfer claim—the sort of market-destabilizing claim that

Congress intended to foreclose when it enacted §546(e).

4. The district court’s reliance on legislative history and §544(b)(2) was misplaced

In the district court’s view, two pieces of legislative history and one

unrelated provision of the Bankruptcy Code supported its conclusion that

Appellants’ state-law fraudulent-transfer claims were not impliedly preempted by

§546(e). None lends any support.


60

First, the district court placed great weight on the fact that in 1976 CFTC

Chairman Bagley “petitioned Congress to amend Section 546(e) to expressly

preempt [state-law constructive fraudulent-transfer] claims,” SA6-SA7 (emphasis

added), and that Congress chose not to do so. That is a misreading of the

legislative history. The point of his request was to encourage Congress to enact a

safe harbor that protected margin payments from avoidance in the event a futures

commission merchant entered bankruptcy—not to draw a line between safe-

harbored claims brought by trustees and those brought by creditors.

Chairman Bagley’s 1976 testimony addressed a proposed legislative

override of Seligson v. New York Produce Exchange, 394 F. Supp. 125 (S.D.N.Y.

1975), a case in which the trustee of a bankrupt commodity broker sued a

commodities exchange and clearing association under state fraudulent-transfer law

to recover alleged fraudulent conveyances of margin payments. When the district

court denied the clearing association’s motion for summary judgment, it exposed

the clearing association to substantial liability—and thus potentially destabilized

the commodities markets. Chairman Bagley encouraged Congress to overrule

Seligson and ensure that “margin payments made to … any clearing house or other

futures commission merchant by the bankrupt futures commission merchant prior

to the date of bankruptcy … be protected from reversal by the trustee in

bankruptcy. Any such provision should also clearly preempt state law in this


61

area.” 30 In other words, Chairman Bagley wanted an explicit safe harbor under

federal bankruptcy law barring a bankruptcy trustee from bringing the type of

fraudulent-transfer action that the trustee had brought in Seligson (i.e., a state-law

fraudulent-transfer action under §544). And that is exactly what Congress enacted

in (the predecessor to) 11 U.S.C. §546. Chairman Bagley never contemplated that

creditors would bring their own actions to circumvent §546(e), let alone propose a

fix for that unanticipated “Work-Around” that Congress rejected.

It is inconceivable that Congress would have carefully weighed the

competing policies of securities and bankruptcy law and enacted §546(e)

anticipating at the same time that the balance it drew could easily be overcome by

the tactic employed here. The absence of any suggestion in the legislative history

that creditor state-law fraudulent-transfer claims would be excepted from §546(e)

confirms that Congress did not intend the possibility of such a “Work-Around.”

The second piece of legislative history the district court cited illustrates the

point. In 1977, Commodity Exchange, Inc. (“Comex”) submitted testimony

supportive of the proposed safe harbor. According to Comex, it had “been

suggested that the supremacy doctrine”—i.e., implied conflict preemption—

“would prevent the application of state law inconsistent with [the] federal statute in

30 See Bankruptcy Act Revision: Hearings on H.R. 31 and H.R. 32 Before the Subcomm. on Civil & Constitutional Rights of the H. Comm. on the Judiciary, 94th Cong., Supp. App. pt. 4, 2406 (1976) (emphasis added).


62

this area. This may be so. However, we would prefer to see the subject covered

by express language in the statute.”31 Congress decided, however, that such

express preemption was unnecessary in light of the “supremacy doctrine.” This is

thus a situation where Congress’s “failure to provide for preemption expressly”

reflects “nothing more than the settled character of implied preemption doctrine

that courts will dependably apply[.]” Crosby v. National Foreign Trade Council,

530 U.S. 363, 387-388 (2000). It therefore adds nothing to the district court’s

analysis that Congress “never added an express preemption provision” to §546(e)

despite its later amendments to the statute. SA7.

The chronology of relevant events shows the error in the district court’s

reasoning. Congress enacted the predecessor to §546(e) in 1978 and last amended

it in 2006. As of that time, there had been no case raising the preemption issue

implicated here—i.e., whether the Bankruptcy Code preempts creditors’ attempt to

31 Bankruptcy Reform Act: Hearings on S. 2266 and H.R. 8200 Before the Subcomm. on Improvements in Judicial Machinery of the S. Comm. on the Judiciary, 95th Cong. 1297 n.* (1978).


63

advance state-law fraudulent-transfer claims free and clear of the safe harbor after

the bankruptcy trustee has “disclaimed” those claims.32

When the plaintiff advanced a similar argument against preemption of a

novel state-law claim in Wood v. General Motors Corp., 865 F.2d 395, 402 (1st

Cir. 1988), the First Circuit rejected the contention in words that are just as apt

here: “At [the time Congress enacted the relevant statute], the only kind of legal

claim which could give rise to the present dilemma … had yet to take its place in

the arsenal of the plaintiffs’ bar…. Congress simply did not anticipate the situation

that now confronts us.” See also Geier v. American Honda Motor Co., 529 U.S.

861, 885 (2000) (implied conflict preemption doctrine does not “tolerate conflicts

that … Congress[] is most unlikely to have intended”). Likewise here: Lyondell,

32 Over the years, there have been a handful of cases in which bankruptcy estates declined to bring fraudulent-transfer cases and agreed to allow individual creditors to do so. But none of those cases entailed an effort to circumvent §546(e) or otherwise to allow a creditor to bring a claim that the Bankruptcy Code (or any of its predecessors) would have barred the trustee from bringing. Rather, these cases typically concerned potential fraudulent-transfer claims unrelated to securities transactions and Chapter 7 estates that simply did not have the resources to pursue the claims or that had no interest in doing so because the benefit of any judgment would go to a particular (typically secured) creditor. See, e.g., Hatchett, 330 F.3d at 885-887.


64

the first case to bring the preemption issue to the fore, was not filed until 2010, and

the first decisions on this question were not issued until 2013.33

The whole point of implied conflict preemption is that Congress cannot

predict every creative effort by the plaintiffs’ bar to use state law to circumvent

federal law or, more broadly, every conflict that might arise between a federal

statutory scheme and state law.34 The courts are therefore entrusted with

determining when state law conflicts with federal law such that it would thwart

Congress’s intent; in such cases, it is state law that must give way.

This Court recently applied this principle, explaining its reasoning in words

that fit this appeal just as well. In Carrion, plaintiffs attempted to use state

contract law to circumvent the federal ban on private rights of action under the

Davis-Bacon Act, 40 U.S.C. § 276a, et seq. The Court held that the state-law

claims were barred because they “would be inconsistent with the underlying

33 The district court was wrong that PHP Liquidating, LLC v. Robbins, 291 B.R. 603 (D. Del. 2003), aff’d, 128 F. App’x 839 (3d Cir. 2005), should have alerted Congress to the preemption question presented here. SA7. The Delaware district court in PHP dismissed the creditor-plaintiffs’ claims for lack of standing and thus never addressed—or even mentioned—preemption. See id. at 611. The Third Circuit also affirmed on standing grounds, 128 F. App’x at 846, and likewise never mentioned preemption or §546(e). 34 See, e.g., Merrill, Preemption and Institutional Choice, 102 Nw. U. L. Rev. 727, 754 (2008) (“Congress cannot anticipate when it legislates all the situations in which questions of displacement will arise.”); Metzger, Administrative Law as the New Federalism, 57 Duke L.J. 2023, 2081 (2008) (“Congress simply lacks the resources and foresight to resolve all the federalism issues that can arise in a given regulatory scheme.”).


65

purpose of the [federal] legislative scheme and would interfere with the

implementation of that scheme to the same extent as” a claim under federal law.

Carrion, 720 F.3d at 386 (citation omitted). Here, as in Carrion, Appellants’

claims “are clearly an impermissible ‘end run’ around [federal law],” id. at 383

(citation omitted)—indeed, that is the very term counsel for the Committee used to

describe the creditors’ gambit.

Second, the district court erred in concluding that the express preemption

provision in §544(b)(2) somehow bears on the question of implied preemption

under §546(e). See SA7-SA8. As the Supreme Court reiterated only two terms

ago, “the existence of an express pre-emption provision does not bar the ordinary

working of conflict pre-emption principles or impose a special burden that would

make it more difficult to establish the pre-emption of laws falling outside the

clause.” Arizona, 132 S. Ct. at 2504 (internal quotation marks and alterations

omitted).

This rule has particular force here. Section 544(b)(2) and §546(e)

accomplish the same purpose: Both statutes disable every conceivable party from

bringing the barred claims. Section 544(b)(1) grants the trustee the exclusive

power to assert virtually all creditor state-law claims. But §544(b)(2) denies the

trustee the power to avoid charitable contributions under §544(b)(1). To avoid any

implication that others could step into the void, Congress needed to specify in


66

§544(b)(2) that no other party could bring such a claim. In contrast, §544(b)(2)

does not exclude the trustee’s authority to avoid settlement payments from the

trustee’s general powers. Instead, §546(e) bars any such claims.

5. If permitted to proceed, Appellants’ claims will render the safe harbor close to a dead letter, nullifying Congress’s intent to protect settlement payments

Few, if any, preemption cases present the sort of purposeful, choreographed

evasion of federal law that this case presents, where the bankruptcy estate

“disclaimed” its state-law fraudulent-transfer claims so that its representative,

together with Appellants, could, in their own words, “end run” §546(e). The stakes

in this appeal are high for the securities markets, investors, and the safe harbor. In

this case alone, Appellants seek to recover billions of dollars from more than 2,500

named defendants and a purported defendant class, which includes individuals and

retirees who invested in their employer’s stock, financial institutions, pension

funds, mutual funds, hedge funds, educational institutions, and charitable and other

not-for-profit organizations. The destabilizing effects on the securities

marketplace of a decision permitting Appellants’ claims here would, to say the

least, be substantial.

But as the companion appeal in Whyte illustrates, the Tribune litigation is no

aberration. After this Court and others rejected efforts by bankruptcy estates and

their creditors to limit §546(e) or circumvent it altogether—by arguing, for


67

example, as in the Contemporary Industries line of cases, that the safe harbor does

not apply to unjust enrichment, unlawful dividend, or similar claims—those parties

have begun in the last few years to adopt the same stratagem as in Tribune,

purporting to have the creditors (or their assignee), not the bankruptcy trustee, their

statutory representative, bring the claims. See Merrett & Chase, Safe Harbor

Supernova, 21 J. Bankr. L. & Prac. 3 Art. 1, 12 (2012) (describing lawyers

“hunting for creative work-arounds to the broad circuit court interpretation of

section 546(e)”).

In an order that tracked the district court’s decision in this case, a bankruptcy

judge in the Southern District of New York recently held that similar creditor

claims could proceed notwithstanding §546(e). See Lyondell, 503 B.R. at 358-378.

The Lyondell litigation, like that here, concerns an LBO of a public company in

which thousands of shareholders received payment for their shares many years

ago. Recognizing that §546(e) would bar any such claims brought by the

bankruptcy estate, the Lyondell creditors’ committee insisted that the plan of

reorganization provide for the “abandonment” by the estate of any right to bring

state-law fraudulent-transfer claims and then for those claims to be deemed

assigned by the creditors to a so-called “creditor trust.” That trust is administered

by the same trustee (formerly counsel for the creditors’ committee) who is

administering a “separate” trust to which all non-abandoned estate claims—that is,


68

all estate claims not barred by the safe harbor—were assigned. That single

trustee—acting as the assignee of the bankruptcy estate in one action, and as the

assignee of the debtor’s creditors in the other—has brought fraudulent-transfer

claims against the same defendants for the benefit of the same creditors, to avoid

and recover the same billions of dollars in securities payments. And in that case,

as here, the trustee proceeds on behalf of the bankruptcy estate for the one claim

that §546(e) permits (§548(a)(1)(A)), and on behalf of the creditors for the state-

law fraudulent-transfer claims that §546(e) bars.35 Other similar cases are in the

pipeline.36

As these cases illustrate, §546(e) will for all intents and purposes be

eviscerated if this Court vindicates Appellants’ approach. To be sure, the safe

harbor will technically still apply if the bankruptcy trustee brings the state

fraudulent-transfer claims. But precisely because §546(e) bars those claims, the

35 Referencing the district court’s analysis of Appellants’ standing in this case, the bankruptcy court in Lyondell declined to determine, and afforded the parties a further opportunity to address, whether the estate’s and the creditors’ claims could both proceed despite having “overlapping ultimate beneficiaries, and targeting the same transactions.” 503 B.R. at 378 n.148. 36 For example, in a fraudulent-transfer action arising from the bankruptcy of Boston Generating, the liquidating trustee has “abandon[ed]” his §544 claims and purports to assert fraudulent-transfer claims under New York law as assignee of the debtors’ creditors. The $1 billion in settlement payments that the liquidating trustee seeks to avoid—payments unquestionably protected from avoidance by §546(e) if brought by the bankruptcy trustee—were transferred nearly seven years ago to scores of individuals and financial institutions. See Holliday v. K Road Power Mgmt. LLC, No. 12-01879 (Bankr. S.D.N.Y.).


69

trustee will surely “disclaim” or “abandon” his right to sue, so the creditors can—

just as has happened in Tribune, Lyondell, Whyte, and Boston Generating. Indeed,

it would almost certainly be a breach of the fiduciary duty a trustee owes all

creditors for him not to do so. See, e.g., In re Smith, 400 B.R. 370, 377 (Bankr.

E.D.N.Y. 2009), aff’d, 426 B.R. 435 (E.D.N.Y. 2010); Appellants Br. 61, 66

(describing the decision of the Tribune estate representative, acting as a

“fiduciary,” to allow the Appellants to bring their claims). If Appellants’ “Work-

Around” is permitted, future plaintiffs will not need to wait until a bankruptcy plan

is confirmed before asserting state-law fraudulent-transfer claims to unwind safe-

harbored transfers. The creditors will simply file a motion at the outset of the

bankruptcy case demanding that the estate abandon any §544 claims involving

securities transactions that would otherwise be, as Congress intended, blocked by

§546(e). Congress could not have intended to have its legislation gutted through

such a contrivance.


70

CONCLUSION

The judgment of the district court should be affirmed.

Respectfully submitted.

/s/ Philip D. Anker JOEL A. FEUER OSCAR GARZA GIBSON, DUNN & CRUTCHER LLP 2029 Century Park East Los Angeles, CA 90067 (310) 551-8808 Counsel for Chandler Trust No. 1 and Chandler Trust No. 2 DAVID C. BOHAN JOHN P. SIEGER KATTEN MUCHIN ROSENMAN LLP 525 West Monroe Street Chicago, IL 60661 (312) 902-5556 Counsel for The Robert R. McCormick Foundation and Cantigny Foundation

PHILIP D. ANKER ALAN E. SCHOENFELD ADRIEL I. CEPEDA DERIEUX PABLO G. KAPUSTA WILMER CUTLER PICKERING HALE AND DORR LLP 7 World Trade Center 250 Greenwich Street New York, NY 10007 (212) 230-8800 [email protected] Counsel for Susquehanna Capital Group, Susquehanna Investment Group, and Susquehanna Investment Group as custodian of the SIG-SS CBOE Joint Account

February 28, 2014


71

ELLIOT MOSKOWITZ DAVIS POLK & WARDWELL LLP 450 Lexington Avenue New York, NY 10017 Counsel for Bear Stearns Asset Management, Inc.; Bear Stearns & Co., Inc. (n/k/a J.P. Morgan Securities LLC); Bear Stearns Equity Strategies RT LLC; Bear Stearns Secs Corp. (n/k/a J.P. Morgan Clearing Corp.); Custodial Trust Company; JPMorgan 401(k) Savings Plan; JPMorgan Chase Bank, N.A.; J.P. Morgan Clearing Corp.; J.P. Morgan; J.P. Morgan Securities LLC (formerly J.P. Morgan Securities Inc.); J.P. Morgan Securities plc (formerly J.P. Morgan Securities Ltd.); JPMSI LLC (formerly J.P. Morgan Services Inc.); JPMorgan Trust II; and J.P. Morgan Whitefriars, Inc.

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MICHAEL S. DOLUISIO ALEXANDER R. BILUS DECHERT LLP Cira Centre 2929 Arch Street Philadelphia, PA 19104-2808

Counsel for Aegon/Transamerica Series Fund – TRP; Aegon/Transamerica Series Trust T Rowe Price Equity Income; Board of Trustees of the Colleges of Applied Arts and Technology Pension Plan, As Administrator of Colleges of Applied Arts and Technology Pension Plan; Charles Schwab & Co. Inc; Charles Schwab & Co., Inc, as Custodian for Brent V. Woods IRA Rollover; Charles Schwab & Co., Inc, as Custodian of the

MATTHEW L. FORNSHELL ICE MILLER LLP 250 West Street Columbus, OH 43215 Counsel for Illinois Municipal Retirement Fund, School Employees Retirement System of Ohio, Ohio Public Employees Retirement System, Pensions Reserve Investment Management Board of Massachusetts, and School Employees Retirement System of Ohio


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George William Buck SEP-IRA DTD 04/08/93; Charles Schwab & Co., Inc, as Custodian of the Peter Marino IRA Rollover; Charles Schwab Investment Management, Inc. (incorrectly named by Plaintiffs-Appellants-Cross-Appellees as “Charles Schwab Inv Mgt Co”); Clearwater Growth Fund; DIA MID CAP Value Portfolio; Harbor Capital Advisors, Inc.; Harbor Capital Group Trust for Defined Benefit Plans (incorrectly named by Plaintiffs-Appellants-Cross-Appellees as “Harbor Capital Group Trust”); Harbor Mid Cap Value Fund, J. Goldman & Co., L.P.; Jay Goldman Master Limited Partnership (incorrectly named by Plaintiffs-Appellants-Cross-Appellees as “Jay Goldman Master LP”); JHF II Equity-Income Fund; JHF II Spectrum Income Fund; JHT New Income Trust; John Hancock Financial Services Inc.; John Hancock Funds II; John Hancock Funds II (Equity-Income Fund); John Hancock Funds II (Spectrum Income Fund); John Hancock Variable Insurance Trust; John Hancock Variable Insurance Trust New Income Trust (incorrectly named by Plaintiffs-Appellants-Cross-Appellees as “John Hancock Variable Insurance Trust (F/K/A John Hancock Trust (New Income Trust))”); Linda Molenda; Manulife Asset Management (US) LLC (Colleges of Applied Arts and Tech. Pension Plan); Manulife Invst Ex FDS Corp.-MIX; Manulife Mutual Funds; Manulife U.S. Equity Fund; MassMutual Premier Enhanced Index Value Fund; MassMutual Premier Funds; MassMutual Premier Main


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Street Small Cap Fund; MassMutual Premier Small Company Opportunities Fund; MassMutual Select Diversified Value Fund; MassMutual Select Funds; MassMutual Select Indexed Equity Fund; MML Blend Fund; MML Equity Income Fund; MML Series Investment Fund; MML Series Investment Fund II; Monumental Life Insurance Co.; Monumental Life Insurance Co. F/K/A Peoples Benefit Life Insurance Company; Monumental Life Insurance Co., as Owner of Teamsters Separate Account (Monumental Life Insurance Company, on Behalf of Separate Account L-32) (incorrectly named by Plaintiffs-Appellants-Cross-Appellees as “Monumental Life Insurance Co., as Owner of Teamsters Separate Account (Monumental Life Insurance Company, on Behalf of Separate Account L-23)”); OFI Private Investments, Inc.; Oppenheimer Main Street Select Fund (formerly known as Oppenheimer Main Street Opportunity Fund); Oppenheimer Main Street Small & Mid-Cap Fund (formerly known as Oppenheimer Main Street Small Cap Fund); Oppenheimer Variable Account Funds (doing business as Oppenheimer Main Street Small & Mid-Cap Fund/VA) (formerly known as Oppenheimer Main Street Small Cap Fund/VA); OppenheimerFunds, Inc.; OptionsXpress, Inc.; Pacific Select Fund, ProShares Ultra S&P500 (incorrectly named by Plaintiffs-Appellants-Cross-Appellees as “Pro Shares Ultra S&P 500”); Russell Investment Company; Russell Investment Group; Russell US Core


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Equity Fund; Rydex ETF Trust (Guggenheim S&P 500 Pure Value ETF) (incorrectly named by Plaintiffs-Appellants-Cross-Appellees as “Rydex ETF Trust (Rydex S&P 500 Pure Value ETF)”); Rydex ETF Trust (Guggenheim S&P 500 Equal Weight Consumer Discretionary ETF) (incorrectly named by Plaintiffs-Appellants-Cross-Appellees as “Rydex ETF Trust (Rydex S&P Equal Weight Consumer Discretionary ETF)”); Rydex ETF Trust (Guggenheim S&P 500 Equal Weight ETF) (incorrectly named by Plaintiffs-Appellants-Cross-Appellees as “Rydex ETF Trust (Rydex S&P Equal Weight ETF)”); Rydex Investments; Rydex Series Funds; Rydex Series Funds Multi-Hedge Strategies Fund; Rydex Series Funds S&P 500 Pure Value Fund; Rydex Variable S&P 500 Pure Value Fund; Rydex Variable Trust; Rydex Variable Trust Multi-Hedge Strategies Fund; SBL Fund Series H; SBL Fund Series O; Schwab 1000 Index Fund; Schwab Capital Trust; Schwab Fundamental US Large Company Index Fund; Schwab Investments; Schwab S&P 500 Index Fund; Schwab S&P 500 Index Fund (F/K/A Schwab Institutional Select S&P 500 Fund); Schwab Total Stock Market Index Fund; Security Global Investors-Rydex/SGI; Security Investors, LLC; Transamerica Asset Management, As Owner of the DIA Mid Cap Value Portfolio; Transamerica Blackrock Large Cap Value VP (F/K/A Transamerica T. Rowe Price Equity Income VP); Transamerica Partners Mid Cap Value; Transamerica Partners Mid Cap Value F/K/A Diversified


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Investors Portfolios; Transamerica Partners Mid Value Portfolio (f/k/a Transamerica Partners Mid-Cap Value Portfolio f/k/a/ Diversified Investors Mid-Cap Value Portfolio); Transamerica Partners Portfolios (F/K/A Diversified Investors Portfolios); Transamerica Series Trust (F/K/A Aegon/Transamerica Series Trust); The Vanguard Group, Inc.; Vanguard 500 Index Fund (incorrectly named by Plaintiffs-Appellants-Cross-Appellees as “Vanguard Index 500 Fund”); Vanguard Asset Allocation Fund; Vanguard Balanced Index Fund (incorrectly named by Plaintiffs-Appellants-Cross-Appellees as “Vanguard Balanced Index Fund (a/k/a Vanguard Balanced Index Equity Fund)”); Vanguard Consumer Discretionary Index Fund; Vanguard Equity Income Fund; Vanguard Fenway Funds; Vanguard Fiduciary Trust Company; Vanguard FTSE Social Index Fund; Vanguard Growth and Income Fund; Vanguard High Dividend Yield Index Fund; Vanguard Index Funds; Vanguard Institutional Index Fund (incorrectly named by Plaintiffs-Appellants-Cross-Appellees as “Vanguard Institutional Index Funds”); Vanguard Institutional Total Stock Market Index Fund; Vanguard Large Cap Index Fund; Vanguard Malvern Funds; Vanguard Mid-Cap Index Fund; Vanguard Mid-Cap Value Index Fund; Vanguard Quantitative Funds; Vanguard Scottsdale Funds; Vanguard Structured Large-Cap Equity Fund; Vanguard Tax-Managed Funds; Vanguard Tax-Managed Growth &


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Income Fund; Vanguard Total Stock Market Index Fund; Vanguard Valley Forge Funds; Vanguard Value Index Fund; Vanguard Variable Insurance Fund; Vanguard Variable Insurance Funds; Vanguard VVIF Equity Fund Index; Vanguard VVIF Equity Income VGI; Vanguard VVIF Midcap Index Fund; Vanguard Whitehall Funds; Vanguard Windsor Funds; Vanguard Windsor II Fund; Vanguard World Fund (f/k/a Vanguard World Funds); VFTC - Vanguard Company Stock Account 21; and Woodmont Investments Ltd. DAVID N. DUNN POTTER STEWART JR. LAW OFFICES, P.C. The Merchants Bank Building 205 Main Street, Suite 8 Brattleboro, VT 05301 Counsel for Counsel for Ciri Gillespie, Cara-Leigh Gillespie-Wilson, John and Carol Jansson, Walter Lang, Joel Marks, Steven and Susan Miller, and George Moss

ALAN J. STONE ANDREW M. LEBLANC MILBANK, TWEED, HADLEY & MCCOY LLP 1 Chase Manhattan Plaza New York, NY 10005 Counsel for Amalgamated Bank; Bank of Tokyo-Mitsubishi UFJ Trust Company; Barclays Bank PLC; Barclays Capital Inc.; Barclays Capital Securities Ltd.; Bessemer Trust Company; BHF-Bank AG; BMO Nesbitt Burns Employee Co-Investment Fund I (U.S.), L.P.; BMO Nesbitt Burns Employee Co-Investment Fund I Management (U.S.), Inc.; BMO Nesbitt Burns Inc.; BMO Nesbitt Burns Trading Corp. S.A.; BMO Nesbitt Burns U.S. Blocker Inc.; BNP Paribas Securities Corp.; Brown Brothers Harriman & Co.; Canadian Imperial Holdings, Inc.; CIBC World Markets Corp.; CIBC World Markets, Inc.; Commerz Markets LLC; Commerzbank AG; Cooper Neff


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Advisors, Inc. n/k/a Harewood Asset Management (US) Inc.; Credit Suisse (USA), Inc.; Credit Suisse Securities (Europe) Ltd.; Credit Suisse Securities (USA) LLC; D.E. Shaw Valence Portfolios, L.L.C.; Deutsche Bank AG; Deutsche Bank AG, Filiale Amsterdam; Deutsche Bank Securities Inc.; Deutsche Investment Management Americas Inc.; Eaton Vance Multi Cap Growth Portfolio; Eaton Vance Tax Managed Global Buy Write Opportunities Fund; Eaton Vance Tax Managed Growth Portfolio; Eaton Vance Tax Managed Multi-Cap Growth Portfolio; Edward D. Jones & Co., L.P.; Fidelity Advisor Series I; Fidelity Commonwealth Trust; Fidelity Concord Street Trust; Fidelity Securities Fund – Leveraged Company Stock Fund; Fidelity U.S. Equity Index Commingled Pool; Goldman Sachs Execution & Clearing, L.P.; Goldman Sachs International Holdings LLC; Goldman Sachs Variable Insurance Trust; Goldman, Sachs & Co.; GS Investment Strategies LLC; Liberty Harbor Master Fund I, L.P.; Lyxor/Canyon Value Realization Fund Ltd.; National Financial Services LLC; Neuberger Berman LLC; PNC Bank, N.A.; RBC Capital Markets Arbitrage, LLC; RBC Capital Markets, LLC; RBC Global Asset Management, Inc.; RBC O’Shaughnessy U.S. Value Fund; Royal Bank of Canada; Royal Trust Corporation of Canada; Schultze Asset Management LLC; Scotia Capital (USA) Inc.; Scotia Capital Inc.; SG Americas Securities, LLC; State Street Bank and Trust Company; State Street Bank Luxembourg, S.A.; State Street Global


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Advisors (Japan) Co., Ltd.; State Street Global Advisors, Inc.; State Street Trust & Banking Co., Ltd.; SunTrust Bank; Swiss American Corporation; Swiss American Securities, Inc.; TD Ameritrade Clearing, Inc.; TD Equity Options LLC (f/k/a TD Options LLC); The Bank of Nova Scotia; U.S. Bancorp Investments, Inc.; U.S. Bank N.A.; UBS AG; UBS Financial Services, Inc.; UBS Global Asset Management (Americas) Inc.; UBS Global Asset Management (US) Inc.; UBS O’Connor LLC; UBS Securities LLC; Union Bank, N.A.; Variable Insurance Products Fund II – Index 500 Portfolio; and Workers’ Compensation Board

DANIEL L. CANTOR O’MELVENY & MYERS LLP Times Square Tower 7 Times Square New York, NY 10036 Counsel for Bank of America, N.A Bank of America, N.A. / LaSalle Bank, N.A.; Bank of America Corporation; Bank of America; Bank of America Structured Research; Banc of America Securities LLC; Bank of America N.A.; GWIM Trust Operations; Bank of America, National Association as Successor-in-Interest to Boatmens; BNP Paribas Prime Brokerage, Inc.; Columbia Management Group; Forrestal Funding Master Trust; Merrill Lynch, Pierce, Fenner & Smith Incorporated; Merrill Lynch; Merrill Lynch & Co., Inc.; Merrill Lynch Capital Corp.; Merrill Lynch Financial Markets, Inc.; Merrill Lynch Trust Co.; Merrill Lynch, Pierce,

STEVEN R. SCHOENFELD ROBINSON & COLE LLP 666 Third Avenue, Twentieth Floor New York, NY 10017 Counsel for College Retirement Equities Fund; Teachers Insurance and Annuity Association of America; TIAA Board of Overseers, as Trustee; TIAA-CREF Funds; TIAA-CREF Institutional Mutual Funds; TIAA-CREF Investment Management, LLC; and TIAA-CREF Life Funds


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Fenner & Smith, Inc. – Safekeeping; Merrill Lynch, Pierce, Fenner & Smith, Inc.; Securities Lending; 1IA SPX1; US Trust Co. N.A.; and U.S. Trust Company of Delaware

GREGG M. MASHBERG STEPHEN L. RATNER PROSKAUER ROSE LLP 11 Times Square New York, NY 10036 Counsel for A.G. Edwards & Sons, LLC; A.G. Edwards Private Equity Partners III, L.P.; A.G. Edwards, Inc.; AG Edwards & Sons, Inc.; Baldwin Enterprises, Inc.; The Bank of New York Mellon Corporation Retirement Plans Master Trust; BNY Mellon Investment Servicing (US) Inc. (f/k/a PFPC, Inc.); BNY Mellon Trust of Delaware; BNY Mellon, N.A., as Succesor-In-Interest to Mellon Trust of New England, N.A.; Cede & Co.; Dreyfus Index Fund, Inc.; Dreyfus Stock Index Fund, Inc.; Equity League Pension Trust Fund; Evergreen Asset Management Corp.; First Clearing LLC; Iolaire Investors LLP; Jefferies Bache Securities, LLC (formerly Prudential Bache Securities, LLC); Jefferies LLC (formerly Jefferies & Company, Inc.); Mellon Bank N.A. Employees Benefit Collective Investment Plan; Mellon Bank, N.A. Employee Benefit Plan; Mellon Capital Management Corporation; New Eagle Holdings LLC; Newedge USA, LLC; Oppenheimer & Co., Inc.; Paper Products, Miscellaneous Chauffeurs, Warehousemen, Helpers, Messengers,

MARK A. NEUBAUER STEPTOE & JOHNSON LLP 2121 Avenue of the Stars, Suite 2800 Los Angeles, CA 90067 Counsel for The Alfred W. Merkel Marlowe G. Merkel Trust UA 11 Sept 85; Chase L. Leavitt; Darell F. Kuenzler; Darell F. Kuenzler IRA; Debra A. Gastler; Denise Palmer Revocable Trust U/A/D 10-28-1991, Denise E. Palmer, Trustee; Durham J. Monsma; Emil Kratochvil; Evelyn A. Freed Trust U/A/D 03/26/90 Brandes-All Cap Value; Javad Rassouli; Jeanette Day Family Trust U/A DTD 10/04/1994; Jennifer Merkel, Successor Trustee of The Alfred W. Merkel Marlowe G. Merkel Trust UA 11 Sept 85; Jim Hicks, as Trustee of the Jim Hicks & Co. Employee Profit-Sharing Plan; John Patinella; Leonidia Gonsalves; Mark Allen Itkin; Mary E. Day; Miles Adrian Collet Murray; Monserrate Ramirez JTWROS; Muriel S. Harris; Myrna Ramirez; Nancy Lobdell; OMA OPA LLC; The Peter J. Fernald Trust U/A 1/13/92; Peter J. Fernald, Trustee of The Peter J. Fernald Trust U/A 1/13/92; Posen Family Limited Partnership; Raymond M. Luthy Trust; Renee H. Miller; Reichhold, Inc.; Richard L. Goldstein; Robbie E. Monsma; Robert N. Mohr, Successor


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Production and Office Workers Local 27 Pension Fund; Pershing LLC; Producer-Writers Guild of America Pension Plan; Reed Elsevier Inc.; Reed Elsevier U.S. Retirement Plan; Reliance Trust Company; Strategic Funds, Inc.; The Bank of New York Mellon; The Bank of New York Mellon as trustee of The Bank of New York Mellon Employee Benefit Collective Investment Fund Plan f/k/a Mellon Bank, N.A. Employee Benefit Collective Investment Fund Plan; The Bank of New York Mellon as trustee of The Collective Trust Of The Bank of New York; The Bank of New York Mellon as trustee of the PG&E Nuclear Facilities Qualified CPUC Decommissioning Master Trust; The Bank of New York Mellon as trustee of the PG&E Postretirment Medical Plan Trust; The Bank of New York Mellon as trustee of the R.E. Ginna Nuclear Power Plant LLC Master Decommissioning Trust; The Bank of New York Mellon Corporation; The Depository Trust & Clearing Corporation; The Depository Trust Company; The Dreyfus Corporation; The Dreyfus/Laurel Funds, Inc.; Wachovia Bank, N.A.; Wells Fargo Bank, N.A.; and Wells Fargo Investments, LLC

Trustee to Joseph B. Mohr, as Trustee of the J&M Trust UA Dated 07/23/1992; Terrill F Cox & Lorraine M Cox Trust U/A DTD 3/31/98; and William F. Thomas

GARY STEIN DAVID K. MOMBORQUETTE WILLIAM H. GUSSMAN, JR. SCHULTE ROTH & ZABEL LLP 919 Third Avenue New York, NY 10022 (212) 756-2000


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Counsel for Adage Capital Advisors Long, Adage Capital Partners LP, Cougar Trading, LLC, Del Mar Master Fund, Ltd., DiMaio Ahmad Capital LLC, Emanuel E. Geduld 2005 Family Trust, GPC LX LLC, Gryphon Hidden Values VIII Ltd., Guggenheim Advisors, LLC, Guggenheim Portfolio Company XXXI, LLC, Guggenheim Portfolio LIX, LLC, Halcyon Asset Management LLC, Halcyon Diversified Fund LP, Halcyon Fund, LP, Halcyon Master Fund LP, Harvest AA Capital LP, Harvest Capital LP, Howard Berkowitz, Hudson Bay Fund LP, Hudson Bay Master Fund Ltd., Hussman Econometrics Advisors, Inc., Hussman Investment Trust, Hussman Strategic Growth Fund, John Splain, as Trustee of the Hussman Investment Trust, Lispenard Street Credit Fund LLP, Lispenard Street Credit Master Fund, Lispenard Street Credit Master Fund Ltd., Lockheed Martin Corporation, Lockheed Martin Corporation Master Retirement Trust, New Americans LLC, Pond View Credit (Master) LP, QVT Fund LP, Sowood Alpha Fund LP, Stark Global Opportunities Master Fund Ltd., Stark Investments, Stark Master Fund Ltd., Swiss Re Financial Products Corp., TOA Reinsurance Company of America., Towerview LLC, Twin Securities, Inc., and Wabash/Harvest Partners LP


CERTIFICATE OF COMPLIANCE

Pursuant to Federal Rule of Appellate Procedure 32, the undersigned hereby

certifies that this brief complies with the type-volume limitation of Federal Rule of

Appellate Procedure 32(a)(7)(B)(i) and the Court’s order of November 21, 2013:

1. Exclusive of the exempted portions of the brief, as provided in Federal

Rule of Appellate Procedure 32(a)(7)(B), the brief contains 16,443 words.

2. The brief has been prepared in proportionally spaced typeface using

Microsoft Word 2010 in 14 point Times New Roman font. As permitted by

Federal Rule of Appellate Procedure 32(a)(7)(C), the undersigned has relied upon

the word count feature of this word processing system in preparing this certificate.

/s/ Philip D. Anker PHILIP D. ANKER


CERTIFICATE OF SERVICE

The undersigned hereby certifies that on February 28, 2014, the foregoing

document was served in compliance with the requirements set forth in this Court’s

case management order dated November 21, 2013. See Doc. No. 63. Specifically,

the undersigned hereby certifies that the foregoing document was:

(1) served via e-mail to all members of the Appellate Liaison Committee;

(2) served via the District Court’s CM/ECF System on the defendants

listed in Exhibit D to the case management order by filing the same with the

District Court;

(3) served via e-mail to all other defendants who did not appear in the

District Court proceedings but have provided their e-mail addresses to members of

the Appellate Liaison Committee; and

(4) posted on the Tribune Defendants’ website, http://www.tribune-

defendants.com.

The foregoing was filed by electronic means, via the Court’s CM/ECF

System, and parties may also access this filing through that system.

.

/s/ Philip D. Anker PHILIP D. ANKER


case: 13-3992 document: 145 page: 1 02/28/2014 1167766 … · · 2014-02-28and principal brief on...

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