13-3992-cv(L)

In re: Tribune Company Fraudulent Conveyance Litigation

In the

United States Court of Appeals

 For the Second Circuit

________________________

August Term, 2014

Nos. 13-3992-cv; 13-3875-cv; 13-4178-cv; 13-4196-cv

IN RE: TRIBUNE COMPANY FRAUDULENT CONVEYANCE LITIGATION

NOTE HOLDERS, Deutsche Bank Trust Company Americas, Law Debenture

Trust Company of New York, Wilmington Trust Company, INDIVIDUAL

RETIREES, William A. Niese, on behalf of a putative class of Tribune Company

retirees,

Plaintiffs-Appellants-Cross-Appellees,

MARK S. KIRSCHNER, as Litigation Trustee for the Tribune Litigation Trust,

Plaintiff,

TENDERING PHONES HOLDERS, Citadel Equity Fund Ltd., Camden Asset

Management LLP and certain of their affiliates,

Plaintiffs-Intervenors,

v.

LARGE PRIVATE BENEFICIAL OWNERS, FINANCIAL INSTITUTION

HOLDERS, FINANCIAL INSTITUTION CONDUITS, Merrill Lynch, Pierce,

Fenner & Smith, Inc., on behalf of a putative class of former Tribune Company

shareholders, PENSION FUNDS, including public, private, and Taft Hartley

Funds, INDIVIDUAL BENEFICIAL OWNERS, Mario J. Gabelli, on behalf of a

putative class of former Tribune Company shareholders, MUTUAL FUNDS, AT1
LARGE, ESTATE OF KAREN BABCOCK, PHILLIP S. BABCOCK, DOUGLAS

BABCOCK, DEFENDANTS LISTED ON EXHIBIT B,

Defendants-Appellees-Cross-Appellants,

CURRENT AND FORMER DIRECTORS AND OFFICERS, Betsy D. Holden,

Christopher Reyes, Dudley S. Taft, Enrique Hernandez, Jr., Miles D. White,

Robert S. Morrison, William A. Osborn, Harry Amsden, Stephen D. Carver,

Dennis J. FitzSimons, Robert Gremillion, Donald C. Grenesko, David Dean Hiller,

Timothy J. Landon, Thomas D. Leach, Luis E. Le, Mark Hianik, Irving Quimby,

Crane Kenney, Chandler Bigelow, Daniel Kazan, Timothy Knight, Thomas Finke,

SAM ZELL AND AFFILIATED ENTITIES, EGI-TRB, LLC, Equity Group

Investments, LLC, Sam Investment Trust, Samuel Zell, Tower CH, LLC, Tower

DC, LLC, Tower DL, LLC, Tower EH, LLC, Tower Gr, LARGE

SHAREHOLDERS, Chandler Trusts and their representatives, FINANCIAL

ADVISORS, Valuation Research Corporation, Duff & Phelps, LLC, Morgan

Stanley & Co. Inc. and Morgan Stanley Capital Services, Inc., GreatBanc Trust

Company, Citigroup Global Markets, Inc., CA PUBLIC EMPLOYEE

RETIREMENT SYSTEM, CALPERS, UNIVERSITY OF CA REGENTS, T. ROWE

PRICE ASSOCIATES, INC., MORGAN KEEGAN & COMPANY, INC., NTCA,

DIOCESE OF TRENTON-PENSION FUND, FIRST ENERGY SERVICE

COMPANY, MARYLAND STATE RETIREMENT AND PENSION SYSTEM, T

BANK LCV QP, T BANK-LCV-PT, JAPAN POST INSURANCE, CO., LTD.,

SERVANTS OF RELIEF FOR INCURABLE CANCER (AKA DOMINICAN

SISTERS OF HAWTHORNE), NEW LIFE INTERNATIONAL, NEW LIFE

INTERNATIONAL TRUST, SALVATION ARMY, SOUTHERN TERRITORIAL

HEADQUARTERS, CITY OF PHILADELPHIA EMPLOYEES, OHIO

CARPENTERS’ MIDCAP (AKA OHIO CARPENTERS’ PENSION FUND),

TILDEN H. EDWARDS, JR., MALLOY AND EVANS, INC., BEDFORD OAK

PARTNERS, LP, DUFF AND PHELPS LLC, DURHAM J. MONSMA, CERTAIN

TAG-ALONG DEFENDANTS, MICHAEL S. MEADOWS, WIRTZ

CORPORATION,

Defendants.

________________________

2
Appeal from the United States District Court

for the Southern District of New York

No. 1:11-md-02296

________________________

ARGUED: NOVEMBER 5, 2014

DECIDED: MARCH 29, 2016

AMENDED: DECEMBER 19, 2019

________________________

Before: WINTER, DRONEY, Circuit Judges, and HELLERSTEIN, District Judge.*

________________________

Appeal from a dismissal by the United States District Court for the

Southern District of New York (Richard J. Sullivan, Judge), of state law,

constructive fraudulent conveyance claims brought by creditors’ representatives

against the Chapter 11 debtor’s former shareholders, who were cashed out in an

LBO. The district court held that plaintiffs lacked statutory standing under the

Bankruptcy Code. We hold that appellants have statutory standing but affirm on

the ground that appellants’ claims are preempted by Section 546(e) of that Code.

________________________

ROY T. ENGLERT, JR. (Lawrence S.

Robbins, Ariel N. Lavinbuk, Daniel N.

Lerman, Shai D. Bronshtein, Robbins,

Russell, Englert, Orseck, Untereiner &

*

 Judge Alvin K. Hellerstein, of the Southern District of New York, sitting by

designation.

3
Sauber LLP, Washington, DC, Pratik A.

Shah, James E. Tysse, Z.W. Julius Chen,

Akin Gump Strauss Hauer & Feld LLP,

Washington, DC, David M. Zensky,

Mitchell Hurley, Deborah J. Newman, Akin

Gump Strauss Hauer & Feld LLP, New

York, NY, Robert J. Lack & Hal Neier,

Friedman Kaplan Seiler & Adelman LLP,

New York, NY, Daniel M. Scott & Kevin M.

Magnuson, Kelley, Wolter & Scott, P.A.,

Minneapolis, MN, David S. Rosner &

Sheron Korpus, Kasowitz Benson Torres &

Friedman LLP, New York, NY, Joseph

Aronauer, Aronauer Re & Yudell, LLP,

New York, NY, on the brief), Robbins,

Russell, Englert, Orseck, Untereiner &

Sauber LLP, Washington, DC, for PlaintiffsAppellants-Cross-Appellees Note Holders.

Jay Teitelbaum, Teitelbaum & Baskin LLP,

White Plains, NY, for Plaintiffs-AppellantsCross-Appellees Individual Retirees.

Joel A. Feuer & Oscar Garza, Gibson, Dunn

& Crutcher LLP, Los Angeles, CA, David C.

Bohan & John P. Sieger, Katten Muchin

Rosenman LLP, Chicago, IL, for

Defendants-Appellees-Cross-Appellants

Large Private Beneficial Owners.

PHILIP D. ANKER (Alan E. Schoenfeld,

Adriel I. Cepeda Derieux, Pablo G.

Kapusta, Wilmer Cutler Pickering Hale and

Dorr LLP, New York, NY, Sabin Willett &

Michael C. D’Agnostino, Bingham

4
McCutchen LLP, Boston, MA, Joel W.

Millar, Washington, DC, on the brief),

Wilmer Cutler Pickering Hale and Dorr

LLP, New York, NY, for DefendantsAppellees-Cross-Appellants Financial

Institution Holders.

Elliot Moskowitz, Davis Polk & Wardwell

LLP, New York, NY, Daniel L. Cantor,

O'Melveny & Myers LLP, New York, NY,

Gregg M. Mashberg & Stephen L. Ratner,

Proskauer Rose LLP, New York, NY, for

Defendants-Appellees-Cross-Appellants

Financial Institution Conduits.

DOUGLAS HALLWARD-DRIEMEIER,

Ropes & Gray LLP, Washington, DC, D.

Ross Martin, Ropes & Gray LLP, New

York, NY, Matthew L. Fornshell, Ice Miller

LLP, Columbus, OH, for DefendantsAppellees-Cross-Appellants Pension

Funds.

Andrew J. Entwistle, Entwistle & Cappucci,

LLP, New York, NY, David N. Dunn, Potter

Stewart, Jr. Law Offices, Brattleboro, VT,

Mark A. Neubauer, Steptoe & Johnson LLP,

Los Angeles, CA, for DefendantsAppellees-Cross-Appellants Individual

Beneficial Owners. 

Michael S. Doluisio & Alexander Bilus,

Dechert LLP, Philadelphia, PA, Steven R.

Schoenfeld, Robinson & Cole LLP, New

5
York, NY, for Defendants-Appellees-CrossAppellants Mutual Funds. 

Alan J. Stone & Andrew M. LeBlanc,

Milbank, Tweed, Hadley & McCloy LLP,

New York, NY, for Defendant-AppelleeCross-Appellant At-Large.

Gary Stein, David K. Momborquette,

William H. Gussman, Jr., Schulte Roth &

Zabel LLP, New York, NY, for DefendantsAppellees-Cross-Appellants Defendants

Listed on Exhibit B.

Kevin Carroll, Securities Industry and

Financial Markets Association, Washington,

DC, Holly K. Kulka, NYSE Euronext, New

York, NY, Marshall H. Fishman, Timothy P.

Harkness, David Y. Livshiz, Freshfields

Bruckhaus Deringer US LLP, New York,

NY, for Amici Curiae Securities Industry

and Financial Markets Association,

International Swaps and Derivatives

Association, Inc., and the NYSE Euronext.

Michael A. Conley, John W. Avery, Tracey

A. Hardin, Benjamin M. Vetter, Securities

and Exchange Commission, Washington,

DC, for Amicus Curiae Securities and

Exchange Commission.

6
WINTER and DRONEY, Circuit Judges: 

Representatives of certain unsecured creditors of the Chapter 11 debtor

Tribune Company appeal from Judge Sullivan’s grant of a motion to dismiss

their state law, constructive fraudulent conveyance claims brought against

Tribune’s former shareholders. Appellants seek to recover an amount sufficient

to satisfy Tribune’s debts to them by avoiding (recovering) payments by Tribune

to shareholders that purchased all of its stock. The payments occurred in a

transaction commonly called a leveraged buyout (“LBO”),1 soon after which

Tribune went into Chapter 11 bankruptcy. Appellants appeal the district court’s

dismissal for lack of statutory standing, and appellees cross-appeal from the

district court’s rejection of their argument that appellants’ claims are preempted.2

We address two issues: (i) whether appellants are barred by the

Bankruptcy Code’s automatic stay provision from bringing state law,

constructive fraudulent conveyance claims while avoidance proceedings against

1

 In a typical LBO, a target company is acquired with a significant portion of the

purchase price being paid through a loan secured by the target company’s assets.

2

 Because the issue has no effect on our disposition of this matter, we do not pause to

consider whether a cross-appeal was necessary for appellees to raise the preemption issues in

this court, but, for convenience purposes, we sometimes refer to those issues by the term crossappeal.

7
the same transfers brought by a party exercising the powers of a bankruptcy

trustee on an intentional fraud theory are ongoing; and (ii) if not, whether the

creditors’ state law, constructive fraudulent conveyance claims are preempted by

Bankruptcy Code Section 546(e). 

On issue (i), we hold that appellants are not barred by the Code’s

automatic stay because they have been freed from its restrictions by orders of the

bankruptcy court and by the debtors’ confirmed reorganization plan. On issue

(ii), the subject of appellees’ cross-appeal, we hold that appellants’ claims are

preempted by Section 546(e). That Section shields certain transactions from a

bankruptcy trustee’s avoidance powers, including, inter alia, transfers by or to a

financial institution in connection with a securities contract, except through an

intentional fraudulent conveyance claim.3

We therefore affirm.

3

 As discussed infra, after we previously issued an opinion in this appeal, In re Tribune

Co. Fraudulent Conveyance Litig. (“Tribune I”), 818 F.3d 98 (2d Cir. 2016), the Supreme Court

clarified the test for determining whether a transaction falls within Section 546(e), see Merit

Mgmt. Grp., LP v. FTI Consulting, Inc., 138 S. Ct. 883 (2018), causing us to recall the mandate

and issue this amended opinion. 

8
BACKGROUND

a) The LBO

Tribune Media Company (formerly known as “Tribune Company”) is a

multimedia corporation that, in 2007, faced deteriorating financial prospects. 

Appellee Samuel Zell, a billionaire investor, proposed to acquire Tribune through

an LBO. In consummating the LBO, Tribune borrowed over $11 billion secured

by its assets. The $11 billion plus, combined with Zell’s $315 million equity

contribution, was used to refinance some of Tribune’s pre-existing bank debt and

to cash out Tribune’s shareholders for over $8 billion at a premium price –- above

its trading range –- per share. 

It is undisputed that Tribune transferred the over $8 billion to a “securities

clearing agency” or other “financial institution,” as those terms are used in

Section 546(e), acting as intermediaries in the LBO transaction.4 Those

intermediaries in turn paid the funds to the shareholders in exchange for their

shares that were then returned to Tribune. Appellants seek to satisfy Tribune’s

4

 Appellees contend that, with respect to the LBO transaction, Tribune also qualified as

a “financial institution,” but appellants disagree. We describe the facts relevant to that dispute

infra.

9
debts to them by avoiding Tribune’s payments to the shareholders. Appellants

do not seek money from the intermediaries. See Note 15, infra.

b) Bankruptcy Proceedings

On December 8, 2008, with debt and contingent liabilities exceeding its

assets by more than $3 billion, Tribune and nearly all of its subsidiaries filed for

bankruptcy under Chapter 11 in the District of Delaware. A trustee was not

appointed, and Tribune and its affiliates continued to operate the businesses as

debtors in possession. See 11 U.S.C. § 1107(a) (“Subject to any limitations on a

trustee . . . a debtor in possession shall have all the rights . . . , and powers, and

shall perform all the functions and duties . . . of a trustee . . . .”). In discussing the

powers of a bankruptcy trustee that can be exercised by a trustee or parties

designated by a bankruptcy court, we shall refer to the trustee or such parties as

the “trustee et al.”

The bankruptcy court appointed an Official Committee of Unsecured

Creditors (the “Committee”) to represent the interests of unsecured creditors. In

November 2010, alleging that the LBO-related payments constituted intentional

fraudulent conveyances, the Committee commenced an action under Code

Section 548(a)(1)(A) against the cashed out Tribune shareholders, various

10
officers, directors, financial advisors, Zell, and others alleged to have benefitted

from the LBO. An intentional fraudulent conveyance is defined as one in which

there was “actual intent to hinder, delay, or defraud” a creditor. 11 U.S.C. §

548(a)(1)(A).

In June 2011, two subsets of unsecured creditors filed state law,

constructive fraudulent conveyance claims in various federal and state courts. 

The plaintiffs, the appellants before us, were: (i) the Retiree Appellants, former

Tribune employees who hold claims for unpaid retirement benefits and (ii) the

Noteholder Appellants, the successor indenture trustees for Tribune’s pre-LBO

senior notes and subordinated debentures. A constructive fraudulent

conveyance is, generally speaking, a transfer for less than reasonably equivalent

value made when the debtor was insolvent or was rendered so by the transfer. 

See Picard v. Fairfield Greenwich Ltd., 762 F.3d 199, 208-09 (2d Cir. 2014).

Before bringing these actions, appellants moved the bankruptcy court for

an order stating that: (i) after the expiration of the two-year statute of limitations

period during which the Committee was authorized to bring avoidance actions

under 11 U.S.C. § 546(a), eligible creditors had regained the right to prosecute

their creditor state law claims; and (ii) the automatic stay imposed by Code

11
Section 362(a) was lifted solely to permit the immediate filing of their complaint.

In support of that motion, the Committee argued that, under Section 546(a), the

“state law constructive fraudulent conveyance transfer claims ha[d] reverted to

individual creditors” and that the “creditors should consider taking appropriate

actions to preserve those claims.” Statement of the Official Committee of

Unsecured Creditors in Supp. of Mot. at 3, In re Tribune Co., No 08-13141 (KJC)

(Bankr. D. Del. Mar. 17, 2011). 

In April 2011, the bankruptcy court lifted the Code’s automatic stay with

regard to appellants’ actions. The court reasoned that because the Committee

had elected not to bring the constructive fraudulent conveyance actions within

the two-year limitations period following the bankruptcy petition imposed by

Section 544, fully discussed infra, the unsecured creditors “regained the right, if

any, to prosecute [such claims].” J. App’x at 373. Therefore, the court lifted the

Section 362(a) automatic stay “to permit the filing of any complaint by or on

behalf of creditors on account of such Creditor [state law fraudulent conveyance]

Claims.” Id. The court clarified, however, that it was not resolving the issues of

whether the individual creditors had statutory standing to bring such claims or

whether such claims were preempted by Section 546(e). 

12
On March 15, 2012, the bankruptcy court set an expiration date of June 1,

2012 for the remaining limited stay on the state law, fraudulent conveyance

claims. In July 2012, the bankruptcy court ordered confirmation of the proposed

Tribune reorganization plan. The plan terminated the Committee and

transferred responsibility for prosecuting the intentional fraudulent conveyance

action to an entity called the Litigation Trust. The confirmed plan also provided

that the Retiree and Noteholder Appellants could pursue “any and all

LBO-Related Causes of Action arising under state fraudulent conveyance law,”

except for the federal intentional fraudulent conveyance and other LBO-related

claims pursued by the Litigation Trust. J. App’x at 643. Under the plan, the

Retiree and Noteholder Appellants recovered approximately 33 cents on each

dollar of debt. The plan was scheduled to take effect on December 31, 2012, the

date on which Tribune emerged from bankruptcy.

c) District Court Proceedings

Appellants’ various state law, fraudulent conveyance complaints alleged

that the LBO payments, made through financial intermediaries as noted above,

were for more than the reasonable value of the shares and made when Tribune

was in distressed financial condition. Therefore, the complaints concluded, the

13
payments were avoidable by creditors under the laws of various states. These

actions were later consolidated with the Litigation Trust’s ongoing federal

intentional fraud claims in a multi-district litigation proceeding that was

transferred to the Southern District of New York. In re: Tribune Co. Fraudulent

Conveyance Litig., 831 F. Supp. 2d 1371 (J.P.M.L. 2011). 

After consolidation, the Tribune shareholders moved to dismiss appellants’

claims. The district court granted the motion on the ground that the Bankruptcy

Code’s automatic stay provision deprived appellants of statutory standing to

pursue their claims so long as the Litigation Trustee was pursuing the avoidance

of the same transfers, albeit under a different legal theory. In re Tribune Co.

Fraudulent Conveyance Litig., 499 B.R. 310, 325 (S.D.N.Y. 2013). The court held

that the bankruptcy court had only “conditionally lifted the stay.” Id. at 314.

The district court rejected appellees’ preemption argument based on

Section 546(e). That Section bars a trustee et al. from exercising its avoidance

powers under Section 544 to avoid certain transactions including, inter alia,

transfers “by or to . . . a financial institution . . . in connection with a securities

contract,” except through an intentional fraudulent conveyance claim. 11 U.S.C.

§ 546(e). The district court held that Section 546(e) did not bar appellants’ actions

14
because: (i) Section 546(e)’s prohibition on avoiding the designated transfers

applied only to a bankruptcy trustee et al., id. at 315-16; and (ii) Congress had

declined to extend Section 546(e) to state law, fraudulent conveyance claims

brought by creditors, id. at 318.

d) Appellate Proceedings

Appellants appealed the dismissal for lack of statutory standing, and

appellees cross-appealed the rejection of their argument that appellants’ claims

are preempted. In a prior opinion, In re Tribune Co. Fraudulent Conveyance

Litig. (“Tribune I”), 818 F.3d 98 (2d Cir. 2016), we affirmed the dismissal of

appellants’ claims on the ground that Section 546(e) preempts “fraudulent

conveyance actions brought by creditors whose claims are [] subject to Section

546(e).” Id. at 118, 123-24. At the time, it was the law in this Circuit, under In re

Quebecor World (USA) Inc. (“Quebecor”), 719 F.3d 94, 100 (2d Cir. 2013), that the

payments at issue fell within Section 546(e) because entities covered by Section

546(e) had served as intermediaries. See Tribune I, 818 F.3d at 120 (“Section

546(e)’s language clearly covers payments, such as those at issue here, by

commercial firms to financial intermediaries to purchase shares from the firm’s

shareholders.”).

15
Appellants petitioned for rehearing en banc, which was denied, and we

issued the mandate. Appellants then petitioned for certiorari, presenting the

following question, among others: “Whether the Second Circuit correctly held . .

. that a fraudulent transfer is exempt . . . under 11 U.S.C. § 546(e) when a financial

institution acts as a mere conduit for fraudulently transferred property.” Petition

for a Writ of Certiorari, Deutsche Bank Trust Co. Ams. v. Robert R. McCormick

Found., No. 16-317 (U.S. Sept. 9, 2016), 2016 WL 4761722, at *1. 

While that petition was pending, the Supreme Court in Merit Mgmt. Grp.,

LP v. FTI Consulting, Inc., 138 S. Ct. 883 (2018), rejected Quebecor's interpretation

of Section 546(e)’s scope, holding that Section 546(e) does “not protect transfers in

which financial institutions served as mere conduits.” Merit Mgmt., 138 at 892. 

The question presented in Merit Mgmt. was whether, “in the context of a transfer

that was executed via one or more transactions,” such as a transfer from Party A

to Party D that included Parties B and C as intermediaries, the relevant transfer

for purposes of Section 546(e) is the overarching transfer from Party A to Party D

or “any component part[] of the overarching transfer,” such as the transfer from

Party B to Party C. Id. at 888. The Court concluded, based on the “plain

meaning” of Section 546(e), that the relevant transfer is the overarching transfer,

16
and therefore abrogated the relevant portion of Quebecor. Id. at 888, 897; see also

id. at 892 n.6 (identifying Quebecor as one of the decisions in conflict with its

holding).

Soon thereafter, Justices Kennedy and Thomas issued a statement

suggesting that this Court might wish to recall its mandate or provide other relief

in light of Merit Mgmt. See Statement of Justice Kennedy and Justice Thomas

Respecting the Petition for Certiorari, Deutsche Bank Trust Co. Ams., No. 16-317

(Apr. 3, 2018), 2018 WL 1600841. Appellants subsequently filed a motion to recall

the mandate, and we recalled the mandate in anticipation of further panel

review.

We have since agreed on changes to our prior opinion, which are reflected

in this amended opinion. Upon the filing of this amended opinion, the original

opinion is vacated. See, e.g., Brown v. City of Oneonta, New York, 221 F.3d 329,

336 (2d Cir. 2000), amending and superseding 195 F.3d 111 (2d Cir. 1999).

DISCUSSION

We review de novo the district court’s grant of appellees’ motion to

dismiss. See Mary Jo C. v. N.Y. State & Local Ret. Sys., 707 F.3d 144, 151 (2d Cir.

17
2013). The relevant facts being undisputed for purposes of this proceeding, only

issues of law are before us.5

a) Statutory Standing to Bring the Claims 

We first address the district court’s dismissal of appellants’ claims on the

ground that they lacked standing to bring them because of Section 362(a)(1).6

 In

re Tribune, 499 B.R. at 325. When a bankruptcy action is filed, any “action or

proceeding against the debtor” is automatically stayed by Section 362(a). The

5

 Appellants argue that one of the issues we address infra -- whether Tribune’s

payments to shareholders remain subject to Section 546(e) following Merit Mgmt. -- requires

resolving two factual disputes “never before tested in this case,” thus precluding a

determination as a matter of law and necessitating a remand to the district court. Appellants’

Reply in Support of Motion to Recall the Mandate at 9-11. Neither of the disputes identified by

appellants is factual in nature, however. Appellants first contend that certain documents cited

by appellees do not suffice to establish that Computershare Trust Company, N.A. was

Tribune’s “agent” in connection with the LBO payments. But that argument does not present a

factual dispute about the content or accuracy of those documents; instead, it only challenges

the legal significance of the documents, raising a pure question of law. Second, appellants

argue that a contract to redeem shares is not a “securities contract” within the meaning of 11

U.S.C. § 101(22)(A). But that argument, too, is plainly legal. Thus, there are no factual disputes

precluding our consideration of whether Tribune’s payments to shareholders remain subject to

Section 546(e) following Merit Mgmt., and a remand is unnecessary.

6

 The term “standing” has been used to describe issues arising in bankruptcy

proceedings when individual creditors sue to recover funds from third parties to satisfy

amounts owed to them by the debtor, and that action is defended on the ground that the

recovery seeks funds that are recoverable under the Code only by a representative of all

creditors. St. Paul Fire & Marine Ins. Co. v. PepsiCo, Inc., 884 F.2d 688, 696-97 (2d Cir. 1989),

disapproved of on other grounds by In re Miller, 197 B.R. 810 (W.D.N.C. 1996). The use of the

term “standing” is based on the suing creditors’ need to demonstrate an injury other than one

redressable under the Code only by the trustee et al. Id. at 704.

18
purpose of the stay is “to protect creditors as well as the debtor,” Ostano

Commerzanstalt v. Telewide Sys., Inc., 790 F.2d 206, 207 (2d Cir. 1986) (per

curiam), by avoiding wasteful, duplicative, individual actions by creditors

seeking individual recoveries from the debtor’s estate, and by ensuring an

equitable distribution of the debtor’s estate. See In re McMullen, 386 F.3d 320,

324 (1st Cir. 2004) (noting that Section 362(a)(1), among other things,

“safeguard[s] the debtor estate from piecemeal dissipation . . . ensur[ing] that the

assets remain within the exclusive jurisdiction of the bankruptcy court pending

their orderly and equitable distribution among the creditors”). Although

fraudulent conveyance actions are against third parties rather than a debtor,

there is caselaw, discussed infra, stating that the automatic stay applies to such

actions.7 See In re Colonial Realty Co., 980 F.2d 125, 131 (2d Cir. 1992). 

The district court ruled that Section 362’s automatic stay provision

deprived appellants of statutory standing to bring their claims because the

Litigation Trustee was still pursuing an intentional fraudulent conveyance action

challenging the same transfers under Section 548(a)(1)(A). In re Tribune, 499 B.R.

7

 The implications of applying the automatic stay to fraudulent conveyance actions are

discussed infra.

19
at 322-23. We disagree. The Bankruptcy Code empowers a bankruptcy court to

release parties from the automatic stay “for cause” shown. In re Bogdanovich,

292 F.3d 104, 110 (2d Cir. 2002) (quoting 11 U.S.C. § 362(d)(1)). Once a creditor

obtains “a grant of relief from the automatic stay” under Section 362(d), it may

“press its claims outside of the bankruptcy proceeding.” St. Paul Fire & Marine

Ins. Co. v. PepsiCo, Inc., 884 F.2d 688, 702 (2d Cir. 1989), disapproved of on other

grounds by In re Miller, 197 B.R. 810 (W.D.N.C. 1996).

In the present matter, the bankruptcy court granted appellants relief from

the automatic stay on three occasions. On April 25, 2011, the bankruptcy court

granted appellants relief “to permit the filing of any complaint by or on behalf of

creditors on account of such Creditor [state law fraudulent conveyance] Claims.” 

J. App’x at 373. A second order, entered on June 28, 2011, clarified that “neither

the automatic stay of [Section 362] nor the provisions of the [original lift-stay

order]” barred the parties in the state law actions from consolidating and

coordinating these actions. J. App’x at 376. And the bankruptcy court’s third

order, entered on March 15, 2012, set an expiration date of June 1, 2012, for the

“stay imposed on the state law constructive fraudulent conveyance actions.” J.

App’x at 521. None of the Tribune shareholders filed objections to these orders. 

20
Finally, the reorganization plan, confirmed by the bankruptcy court and in

all pertinent respects an order of that court, expressly allowed appellants to

pursue “any and all LBO-Related Causes of Action arising under state fraudulent

conveyance law.” J. App’x at 643. Section 5.8.2 of the plan provided that

“nothing in this Plan shall or is intended to impair” the rights of creditors to

attempt to pursue disclaimed state law avoidance claims. J. App’x at 695. 

Thus, under both the bankruptcy court’s orders and the confirmed

reorganization plan, if appellants had actionable state law, constructive

fraudulent conveyance claims, assertion of those claims was no longer subject to

Section 362’s automatic stay. See, e.g., In re Heating Oil Partners, LP, 422 F.

App’x 15, 18 (2d Cir. 2011) (holding that the automatic stay terminates at

discharge); United States v. White, 466 F.3d 1241, 1244 (11th Cir. 2006) (similarly

recognizing that the automatic stay terminates when “a discharge is granted”).

For the foregoing reasons, we hold that appellants’ claims are not barred

by Section 362.

b) Section 546(e) and Preemption

We turn now to the issue raised by the cross-appeal: whether appellants’

claims are preempted because they conflict with Code Section 546(e).

21
1. The Scope of Section 546(e)

The threshold question in our preemption inquiry is whether, in the

aftermath of Merit Mgmt., 138 S. Ct. 883, Tribune’s payments to the shareholders

remain subject to Section 546(e). As discussed above, it was previously the law in

this Circuit that the payments were subject to Section 546(e) because entities

covered by Section 546(e) had served as intermediaries. See Tribune I, 818 F.3d at

120; Quebecor, 719 F.3d at 100. Now, however, the parties agree that Merit

Mgmt. “forecloses” that basis for finding the payments covered by Section 546(e). 

Appellees’ Opposition to Appellants’ Motion to Recall the Mandate at 16; see also

Merit Mgmt., 138 S. Ct. at 892 (holding that Section 546(e) does “not protect

transfers in which financial institutions served as mere conduits”). Accordingly,

we must determine whether there is an alternative basis for finding that the

payments are covered. For the reasons that follow, we find that such a basis

exists.

(i) Tribune is a Covered Entity 

Under Merit Mgmt., the payments at issue can be subject to Section 546(e)

only if (1) Tribune, which made the payments, was a covered entity; or (2) the

shareholders, who ultimately received the payments, were covered entities. See

22
Merit Mgmt., 138 S. Ct. at 893 (“[T]he relevant transfer for purposes of the §

546(e) safe-harbor inquiry is the overarching transfer[.]”). According to

appellees, that requirement is satisfied because appellants’ complaints,

transaction documents that are integral to those complaints, and materials subject

to judicial notice establish that Tribune was a “financial institution” for the

purposes of Section 546(e).8

 See Appellees’ Opposition to Appellants’ Motion to

Recall the Mandate at 16-20. Tribune was a “financial institution,” appellees

maintain, because it was a “customer” of Computershare Trust Company, N.A.

(“Computershare”), and Computershare was its agent in the LBO transaction. Id.

at 17-18. We agree with appellees that Tribune was a “financial institution” and

therefore a covered entity.

Section 546(e) provides in relevant part that “the trustee may not avoid . . .

a transfer made by or to (or for the benefit of) a . . . financial institution, . . . in

connection with a securities contract, as defined in section 741(7),” except

through an intentional fraudulent conveyance claim. 11 U.S.C. § 546(e). Section

101(22) of the Code defines “financial institution,” to include, inter alia, “an entity

8

 Appellees also argue that Tribune was a covered entity because it was a “financial

participant,” and that the shareholders were likewise covered entities. Having agreed with

appellees that Tribune was a “financial institution,” we do not reach either of appellees’

alternative arguments.

23
that is a commercial or savings bank, . . . trust company, . . . and, when any such .

. . entity is acting as agent or custodian for a customer (whether or not a

‘customer’, as defined in section 741) in connection with a securities contract (as

defined in section 741) such customer.”9

 11 U.S.C. § 101(22)(A) (emphasis

added). 

Here, Tribune retained Computershare to act as “Depositary” in

connection with the LBO tender offer. See Tribune Offer to Purchase at 13, 113,

In re Tribune Co., No. 08-13141 (KJC) (Bankr. D. Del. Aug. 20, 2010), ECF Nos.

5437-5, 5437-6. Computershare is a “financial institution” for the purposes of

Section 546(e) because it is a trust company and a bank. See Office of the

Comptroller of the Currency, Trust Banks Active as of November 30, 2019, at

https://www.occ.treas.gov/topics/charters-and-licensing/financial-institution-lists

/trust-by-name.pdf; Office of the Comptroller of the Currency, National Banks

Active as of November 30, 2019, at

https://www.occ.treas.gov/topics/charters-and-licensing/financial-institution-lists

9

 As the Court noted in Merit Mgmt., “[t]he parties [t]here d[id] not contend that either

the debtor or petitioner in th[at] case qualified as a ‘financial institution’ by virtue of its status

as a ‘customer’ under § 101(22)(A). Petitioner Merit Management Group, LP, discussed th[at]

definition only in footnotes and did not argue that it somehow dictate[d] the outcome in th[e]

case.” Merit Mgmt., 138 S. Ct. at 890 n.2. The Court “therefore d[id] not address what impact,

if any, § 101(22)(A) would have in the application of the § 546(e) safe harbor.” Id. 

24
/national-by-name.pdf. Therefore, Tribune was likewise a “financial institution”

with respect to the LBO payments if it was Computershare’s “customer,” and

Computershare was acting as its agent. See 11 U.S.C. § 101(22)(A). 

In its role as Depositary, Computershare performed multiple services for

Tribune. First, Computershare received and held Tribune’s deposit of the

aggregate purchase price for the shares. See Examiner’s Report, Vol. 1, at 206, In

re Tribune Co., No. 08-13141 (KJC) (Bankr. D. Del. Aug. 3, 2010), ECF No. 5247. 

Then, Computershare received tendered shares, retained them on Tribune’s

behalf, and paid the tendering shareholders. Id.; see also Tribune Offer to

Purchase at 81, In re Tribune Co., No. 08-13141 (KJC) (Bankr. D. Del. Aug. 20,

2010), ECF Nos. 5437-5, 5437-6. 

Given these facts, we conclude that Tribune was Computershare’s

“customer” with respect to the LBO payments. Although Section 741 of the Code

provides a specialized definition of “customer” for certain purposes, see 11

U.S.C. § 741(2), the relevant section for these purposes, Section 101(22), plainly

states that its definition of “customer” is not limited by Section 741’s definition,

see 11 U.S.C. § 101(22)(A) (defining “financial institution” to include certain

entities when such entities are “acting as agent . . . for a customer (whether or not

25
a ‘customer,’ as defined in section 741)”). Moreover, Section 101(22) does not

provide any alternative specialized definition. Thus, we must give the term its

“ordinary meaning.”10 Ransom v. FIA Card Servs., N.A., 562 U.S. 61, 69 (2011). 

We have previously recognized that the “core” ordinary definition of “customer”

is “someone who buys goods or services.” UBS Fin. Servs., Inc. v. W. Virginia

Univ. Hosps., Inc., 660 F.3d 643, 650 (2d Cir. 2011) (citing multiple dictionary

definitions). Black’s Law Dictionary, which provides more granular definitions,

defines “customer” to include “a person . . . for whom a bank has agreed to

collect items.” Black’s Law Dictionary (10th ed. 2014). Regardless of which

definition we apply, Tribune would qualify as Computershare’s customer. 

10

 Appellants suggest that we should apply the specialized definition of “customer”

given in Section 761(9), see Appellants’ Reply in Support of Motion to Recall the Mandate at

10-11, which appears in a subchapter dealing with commodity broker liquidations. See 11

U.S.C. § 761(9). Section 761(9)’s definition, unlike the definition of “customer” from Section

741(2), is not explicitly disclaimed in Section 101(22). Nonetheless, we believe it is clear that the

definitions from Section 761(9) and Section 101(22) are not intended to be coextensive. First,

there is no indication in Section 101(22)’s text that Section 761(9)’s limited definition of

“customer” should apply. Moreover, Section 101(22)’s explicit disclaimer of Section 741(2)’s

definition suggests that “customer” should be given a broad meaning, so it would be odd to

hold – without any textual indication – that the definition in Section 761(9) circumscribes

Section 101(22). In addition, other subsections of Section 101 explicitly incorporate definitions

from Section 761, including its definition of “customer” specifically. See, e.g., 11 U.S.C. § 101(6)

(“The term ‘commodity broker’ means futures commission merchant, foreign futures

commission merchant, clearing organization, leverage transaction merchant, or commodity

options dealer, as defined in section 761 of this title, with respect to which there is a customer,

as defined in section 761 of this title.”). Thus, if Congress had intended to import Section

761(9)’s definition into Section 101(22), it clearly knew how (yet declined) to do so.

26
Computershare agreed to collect items for Tribune by receiving the tendered

shares and retaining them, and Tribune bought Computershare’s services by

retaining Computershare to act as Depositary.

It is likewise plain that Computershare was Tribune’s agent. “[S]tatutes

employing common-law terms,” such as agent, “are presumed . . . ‘to incorporate

the established meaning of th[o]se terms,’” absent a contrary indication. U.S. ex

rel. O'Donnell v. Countrywide Home Loans, Inc., 822 F.3d 650, 657 (2d Cir. 2016)

(quoting Nationwide Mut. Ins. Co. v. Darden, 503 U.S. 318, 322 (1992)). Here, the

parties have not identified any reason why the term “agent,” for the purposes of

Section 101(22), should be given anything other than its common-law meaning,

and we have identified none. Thus, we will apply its common-law meaning. 

At common law, “[a]gency is the fiduciary relationship that arises when

one person (a ‘principal’) manifests assent to another person (an ‘agent’) that the

agent shall act on the principal’s behalf and subject to the principal’s control, and

the agent manifests assent or otherwise consents so to act.” Restatement (Third)

of Agency § 1.01 (2006); see also Commercial Union Ins. Co. v. Alitalia Airlines,

S.p.A., 347 F.3d 448, 462 (2d Cir. 2003) (“Establishment of [an agency]

relationship requires facts sufficient to show (1) the principal’s manifestation of

27
intent to grant authority to the agent, and (2) agreement by the agent. In

addition, the principal must maintain control over key aspects of the

undertaking.”) (internal citations omitted). Generally, “[w]hether an agency

relationship exists is a mixed question of law and fact.” Commercial Union Ins.,

347 F.3d at 462. However, the existence of an agency relationship can be resolved

“as a matter of law” if: ”(1) the facts are undisputed; or (2) there is but one way

for a reasonable jury to interpret them.” Garanti Finansal Kiralama A.S. v. Aqua

Marine & Trading Inc., 697 F.3d 59, 71 (2d Cir. 2012).

Here, Tribune manifested its intent to grant authority to Computershare by

depositing the aggregate purchase price for the shares with Computershare and

entrusting Computershare to pay the tendering shareholders. Computershare, in

turn, manifested its assent by accepting the funds and effectuating the

transaction. Then, as the transaction proceeded, Tribune maintained control over

key aspects of the undertaking. See Tribune Offer to Purchase at 81, In re Tribune

Co., No. 08-13141 (KJC) (Bankr. D. Del. Aug. 20, 2010), ECF Nos. 5437-5, 5437-6

(“For purposes of the Tender Offer, [Tribune] will be deemed to have accepted

payment . . . shares that are properly tendered and not properly withdrawn only

when, as and if we give oral or written notice to [Computershare] of our

28
acceptance of the shares for payment pursuant to the Tender Offer . . .”). 

Accordingly, the undisputed facts establish that Computershare was Tribune’s

agent,11 and we conclude that Tribune was a “financial institution” with respect

to the LBO payments. 

That conclusion does not end our assessment of whether the payments are

subject to Section 546(e), however, because we must also determine whether all

of the payments were made “in connection with a securities contract.” See

Appellees’ Opposition to Appellants’ Motion to Recall the Mandate at 20;

Appellants’ Reply in Support of Motion to Recall the Mandate at 10.

(ii) The Payments were Made in Connection with a 

“Securities Contract”

As stated above, Section 546(e) covers transfers “made by or to (or for the

benefit of) a . . . financial institution, . . . in connection with a securities contract,

as defined in section 741(7)[.]”12 11 U.S.C. § 546(e). Appellants do not dispute

11

 The decision cited by appellants, Manufacturers Hanover Tr. Co. v. Yanakas, 7 F.3d

310 (2d Cir. 1993), see Appellants’ Reply in Support of Motion to Recall the Mandate at 10, is

inapposite. That decision involved the application of the rule that, under normal

circumstances, a creditor-debtor relationship does not amount to a fiduciary relationship. 

Manufacturers Hanover Tr., 7 F.3d at 319. Tribune and Computershare were not in a creditordebtor relationship.

12

 Section 546(e) also covers certain “settlement payments,” which need not be “in

connection with a securities contract,” see 11 U.S.C. § 546(e), but appellees’ theory is that the

29
that “approximately half” of the payments were made in connection with a

securities contract because they involved the purchase of shares. See Appellants’

Reply in Support of Motion to Recall the Mandate at 10 (acknowledging that the

term “securities contract,” for these purposes, “encompasses contracts ‘to

purchase shares’”) (emphasis removed). However, they contend that the

remaining payments were not made in connection with a securities contract

because they involved the redemption, rather than the purchase, of shares. See

id. 

We disagree with appellants. The term “redemption,” in the securities

context, means “repurchase.” See Quebecor, 719 F.3d at 99 (“Generally, ‘to

redeem is defined as to purchase back; to regain possession by payment of a

stipulated price; to repurchase; to regain, as mortgage property, by paying what

is due; to receive back by paying the obligation.’”) (quoting In re United Educ.

Co., 153 F. 169, 171 (2d Cir. 1907)); Merriam-Webster’s Collegiate Dictionary 1042

(11th ed. 2003) (defining “redeem” as “to buy back” or “repurchase”). Section

741(7) defines “securities contract” capaciously to include, inter alia, a "contract

payments are covered because they were transfers made in connection with a securities

contract. See Appellees’ Opposition to Appellants’ Motion to Recall the Mandate at 20. Thus,

we are not deciding whether the payments at issue qualify as “settlement payments” under

Section 546(e).

30
for the purchase [or] sale . . . of a security, . . . including any repurchase . . .

transaction on any such security,” 11 U.S.C. § 741(7)(A)(i) (emphasis added), as

well as “any other agreement or transaction that is similar to an agreement or

transaction referred to in this subparagraph.” 11 U.S.C. § 741(7)(A)(vii); see also

In re Bernard L. Madoff Inv. Sec. LLC, 773 F.3d 411, 417 (2d Cir. 2014) (observing

that Section 741(7)“defines ‘securities contract’ with extraordinary breadth”).

Thus, we have no trouble concluding, based on Section 741(7)’s plain language,

that all of the payments at issue, including those connected to the redemption of

shares, were “in connection with a securities contract.”

(iii) Conclusion

For the foregoing reasons, we agree with appellees that the payments at

issue remain subject to Section 546(e) following Merit Mgmt. 

2. Conflict-Preemption Law

Under the Supremacy Clause, Article VI, Clause 2 of the Constitution,

federal law prevails when it conflicts with state law. Arizona v. United States,

132 S. Ct. 2492, 2500 (2012). 

As discussed throughout this opinion, Section 546(e)’s reference to limiting

avoidance by a trustee provides appellants with a plain language argument that

31
only a trustee et al., and not creditors acting on their own behalf, are barred from

bringing state law, constructive fraudulent avoidance claims. However, as

discussed infra, we believe that the language of Section 546(e) does not

necessarily have the meaning appellants ascribe to it. Even if that meaning is one

of multiple reasonable constructions of the statutory scheme, it would not

necessarily preclude preemption because a preemptive effect may be inferred

where it is not expressly provided. 

Under the implied preemption doctrine,13 state laws are “pre-empted to the

extent of any conflict with a federal statute. Such a conflict occurs . . . when []

state law stands as an obstacle to the accomplishment and execution of the full

purposes and objectives of Congress.” Hillman v. Maretta, 133 S. Ct. 1943,

1949-50 (2013) (citations and internal quotation marks omitted); accord In re

Methyl Tertiary Butyl Ether (MTBE) Prods. Liab. Litig., 725 F.3d 65, 97 (2d Cir.

2013) cert. denied sub nom. Exxon Mobil Corp. v. City of New York, 134 S. Ct.

13

 We see no need for a full discussion of various modes of analysis used to determine

federal preemption, i.e., “express” preemption, Chamber of Commerce v. Whiting, 131 S. Ct.

1968, 1977 (2011), “field” preemption, Arizona v. United States, 132 S. Ct. 2492, 2502 (2012), or

even that branch of “implied” preemption that requires a showing of “impossibility” of

complying with both state and federal law, id. at 2501. The only relevant analysis in the

present matter is preemption inferred from a conflict between state law and the purposes of

federal law, as discussed in the text. 

32
1877 (2014) (courts will find implied preemption when “state law directly

conflicts with the structure and purpose of a federal statute”) (citation and

internal quotation marks omitted). Appellants argue that a recognized

presumption against preemption limits the implied preemption doctrine. They

argue that Section 546(e) preempts creditors’ state law, fraudulent conveyance

claims only if the claims would do “‘major damage’ to ‘clear and substantial’

federal interests.” Resp. & Reply Br. of Pls.-Appellants-Cross-Appellees 45

(quoting Hillman, 133 S. Ct. 1943, 1950 (2013) (citation omitted)). The

presumption against inferring preemption is premised on federalism grounds

and, therefore, weighs most heavily where the particular regulatory area is

“traditionally the domain of state law.” Hillman, 133 S. Ct. at 1950; see also

Madeira v. Affordable Hous. Found., Inc., 469 F.3d 219, 241 (2d Cir. 2006) (“The

mere fact of ‘tension’ between federal and state law is generally not enough to

establish an obstacle supporting preemption, particularly when the state law

involves the exercise of traditional police power.”). According to appellants, the

presumption against preemption fully applies in the present context because

fraudulent conveyance claims are “among ‘the oldest [purposes] within the ambit

33
of the police power.’” Resp. & Reply Br. of Pls.-Appellants-Cross-Appellees 36

(quoting California v. Zook, 336 U.S. 725, 734 (1949)).

Preemption is always a matter of congressional intent, even where that

intent must be inferred. See Cipollone v. Liggett Grp., Inc., 505 U.S. 504, 516

(1992) (congressional intent is the “ultimate touchstone of pre-emption analysis”)

(quoting Malone v. White Motor Corp., 435 U.S. 497, 504 (1978)) (internal

quotation marks omitted); N.Y. SMSA Ltd. P’ship v. Town of Clarkstown, 612

F.3d 97, 104 (2d Cir. 2010) (“The key to the preemption inquiry is the intent of

Congress.”). As in the present matter, the presumption against preemption

usually goes to the weight to be given to the lack of an express statement

overriding state law.

The presumption is strongest when Congress is legislating in an area

recognized as traditionally one of state law alone. See Hillman, 133 S. Ct. at 1950

(stating that because “[t]he regulation of domestic relations is traditionally the

domain of state law . . . [t]here is [] a presumption against pre-emption”) (internal

quotation marks and citation omitted). However, the present context is not such

an area. To understate the proposition, the regulation of creditors’ rights has “a

34
history of significant federal presence.” United States v. Locke, 529 U.S. 89, 90

(2000).

Congress’s power to enact bankruptcy laws was made explicit in the

Constitution as originally enacted, Art. 1, § 8, cl. 4, and detailed, preemptive

federal regulation of creditors’ rights has, therefore, existed for over two

centuries. Charles Jordan Tabb, The History of the Bankruptcy Laws in the

United States, 3 Am. Bankr. Inst. L. Rev. 5, 7 (1995). Once a party enters

bankruptcy, the Bankruptcy Code constitutes a wholesale preemption of state

laws regarding creditors’ rights. See Eastern Equip. and Servs. Corp. v. Factory

Point Nat. Bank, Bennington, 236 F.3d 117, 120 (2d Cir. 2001) (“The United States

Bankruptcy Code provides a comprehensive federal system of penalties and

protections to govern the orderly conduct of debtors’ affairs and creditors’

rights.”); In re Miles, 430 F.3d 1083, 1091 (9th Cir. 2005) (“Congress intended the

Bankruptcy Code to create a whole scheme under federal control that would

adjust all of the rights and duties of creditors and debtors alike . . . .”).

Consider, for example, the present proceeding. While the issue before us is

often described as whether Section 546(e) preempts state fraudulent conveyance

laws, Resp. & Reply Br. of Pls.-Appellants-Cross-Appellees 33, that is a

35
mischaracterization. Appellants’ state law claims were preempted when the

Chapter 11 proceedings commenced and were not dismissed. Appellants’ own

arguments posit that those claims were, at the very least, stayed by Code Section

362. Whether, as appellants argue, they were restored in full after two years, see

11 U.S.C. § 546(a)(1)(A), or by order of the bankruptcy court, see 11 U.S.C. §

349(b)(3), is hotly disputed. But if they were restored, it was by force of federal

law. 

Once Tribune entered bankruptcy, the creditors’ avoidance claims were

vested in the federally appointed trustee et al. 11 U.S.C. § 544(b)(1). A

constructive fraudulent conveyance action brought by a trustee et al. under

Section 544 is a claim arising under federal law. See In re Intelligent Direct

Mktg., 518 B.R. 579, 587 (E.D. Cal. 2014); In re Trinsum Grp., Inc., 460 B.R. 379,

387-88 (S.D.N.Y. 2011); In re Sunbridge Capital, Inc., 454 B.R. 166, 169 n.16

(Bankr. D. Kan. 2011); In re Charys Holding Co., Inc., 443 B.R. 628, 635-36 (Bankr.

D. Del. 2010). Although such a claim borrows applicable state law standards

regarding avoiding the transfer in question, see Universal Church v. Geltzer, 463

F.3d 218, 222 n.1 (2d Cir. 2006), the claim has its own statute of limitations, 11

U.S.C. § 546(a)(1)(A), measure of damages, see 11 U.S.C. § 550, and standards for

36
distribution, 11 U.S.C. § 726. A disposition of this federal law claim extinguishes

the right of creditors to bring state law, fraudulent conveyance claims. See St.

Paul Fire, 884 F.2d at 701 disapproved of on other grounds by In re Miller, 197

B.R. 810 (W.D.N.C. 1996) (noting that “creditors are bound by the outcome of the

trustee’s action”); see also In re PWS Holding Corp., 303 F.3d 308, 314-15 (3d Cir.

2002) (barring creditor’s state law, fraudulent transfer claims after trustee

released § 544 claims). And, if creditors are allowed by a bankruptcy court,

trustee, or, as appellants argue, by the Bankruptcy Code, to bring state law

actions in their own name, that permission is a matter of grace granted under

federal authority. The standards for granting that permission, moreover, have

everything to do with the Bankruptcy Code’s balancing of debtors’ and creditors’

rights, In re Coltex Loop Cent. Three Partners, L.P., 138 F.3d 39, 44 (2d Cir. 1998),

or rights among creditors, United States v. Ron Pair Enters, Inc., 489 U.S. 235, 248

(1989), and nothing to do with the vindication of state police powers.

We also note here, and discuss further infra, that the policies reflected in

Section 546(e) relate to securities markets, which are subject to extensive federal

regulation. The regulation of these markets has existed and grown for over

eighty years and reflects very important federal concerns.

37
In the present matter, therefore, there is no measurable concern about

federal intrusion into traditional state domains. Our bottom line is that the issue

before us is one of inferring congressional intent from the Code, without

significant countervailing pressures of state law concerns.

3. The Language of Section 546(e)

Section 544(b) empowers a trustee et al. to avoid a “transfer . . . [by] the

debtor . . . voidable under applicable law by a[n] [unsecured] creditor.” Section

548(a) also provides the trustee et al. with independent federal intentional, 11

U.S.C. § 548(a)(1)(A), and constructive fraudulent conveyance claims, 11 U.S.C. §

548(a)(1)(B). 

Section 546(e) provides in pertinent part:

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 . . . stockbroker, financial institution, financial

participant, or securities clearing agency, or that is a transfer made by or to

(or for the benefit of) a . . . stockbroker, financial institution, financial

participant, or securities clearing agency, in connection with a securities

contract . . . except under section 548(a)(1)(A). . . . 

Id. § 546(e). Section 546(e) thus expressly prohibits trustees et al. from using their

Section 544(b) avoidance powers and (generally) Section 548 against the transfers

specified in Section 546(e). However, Section 546(e) creates an exception to that

38
prohibition for claims brought by trustee et al. under Section 548(a)(1)(A) that, as

noted, establishes a federal avoidance claim to be brought by a trustee et al.

based on an intentional fraud theory. As discussed supra, the Litigation Trust

brought a Section 548(a)(1)(A) claim against the same transfers challenged by

appellants’ actions before us on this appeal, which was still pending when

appellants’ claims were dismissed. 

The language of Section 546(e) covers all transfers by or to covered entities

that are “settlement payment[s]” or “in connection with a securities contract.” 

Transfers in which either the transferor or transferee is not a covered entity are

clearly included in the language, so long as one of the two is a covered entity. 

The Section does not distinguish between kinds of transfers, e.g., settlements of

ordinary day-to-day trading, LBOs, or mergers in which shareholders of one

company are involuntarily cashed out. So long as the transfer sought to be

avoided is within the language quoted above, the Section includes avoidance

proceedings in which the covered entity would escape a damages judgment. But

see In re Lyondell Chem. Co., 503 B.R. 348, 372-73 (Bankr. S.D.N.Y. 2014), as

corrected (Jan. 16, 2014) (holding that Section 546(e) does not include “LBO

payments to stockholders at the very end of the asset transfer chain, where the

39
stockholders are the ultimate beneficiaries of the constructively fraudulent

transfers, and can give the money back to injured creditors with no damage to

anyone but themselves”).

4. Appellants’ Legal Theory

Appellants’ state law, constructive fraudulent conveyance claims purport

to be brought under mainstream bankruptcy procedures directly mandated by

the Code. However, an examination of the Code as a whole, in contrast with an

isolated focus on the word “trustee” in Section 546(e), reveals that appellants’

theory relies upon adhering to statutory language only when opportune and

resolving various ambiguities in a way convenient to that theory. Even then,

their legal theory results in anomalies and inconsistencies with parts of the Code. 

The consequence of those ambiguities, anomalies, and conflicts is that a reader of

Section 546(e), at the time of enactment, would not have necessarily concluded

that the reference only to a trustee et al. meant that creditors may at some point

bring state law claims seeking the very relief barred to the trustee et al. by Section

546(e). Its meaning, therefore, is not plain.

40
(i) Appellants’ Theory of Fraudulent Conveyance Avoidance

Proceedings

Appellants’ theory goes as follows. When a debtor enters bankruptcy, all

“legal or equitable interests of the debtor in property,” 11 U.S.C. § 541(a)(1), vest

in the debtor’s bankruptcy estate. This property includes legal claims that could

have been brought by the debtor. See U.S. ex rel. Spicer v. Westbrook, 751 F.3d

354, 361-62 (5th Cir. 2014) (“The phrase ‘all legal or equitable interests’ includes

legal claims–whether based on state or federal law.”). Therefore, “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). However, fraudulent conveyance claims proceed on a theory that an

insolvent debtor may not make what are essentially gifts that deprive creditors of

assets available to pay debts. See Grupo Mexicano de Desarrollo S.A. v. Alliance

Bond Fund, Inc., 527 U.S. 308, 322 (1999). Therefore, before a bankruptcy takes

place, fraudulent conveyance claims belong to creditors rather than to the debtor. 

As a consequence, Section 544(b)(1) provides that a bankruptcy trustee may

avoid “any transfer of an interest of the debtor . . . that is voidable under

41
applicable law by a creditor holding an unsecured claim.” 11 U.S.C. § 544(b)(1). 

The responsibility of the trustee et al. is to “step into the shoes of a creditor under

state law and avoid any transfers such a creditor could have avoided.” Univ.

Church v. Geltzer, 463 F.3d 218, 222 n.1 (2d Cir. 2006). 

The trustee et al., however, is subject to a statute of limitations that requires

such claims to be brought within two years of the commencement of the

bankruptcy proceeding. See 11 U.S.C. § 546(a)(1)(A). Appellants infer from this

statute of limitations that if the trustee et al. fails to act to enforce such claims

during that two-year period, the claims revert to creditors who may then pursue

their own state law, fraudulent conveyance actions. Resp. & Reply Br. of Pls.-

Appellants-Cross-Appellees 1. This position assumes that, although the power to

bring such actions is clearly vested in the trustee et al. when the bankruptcy

proceeding begins, if the power is not exercised, it returns in full flower to the

creditors after the bankruptcy ends or after two years.

Appellants’ theory also is that their fraudulent conveyance claims were

only stayed under Section 362(a), rather than extinguished when assumed by the

trustee on behalf of the bankrupt estate by the trustee et al. under Section 544,

and could be asserted by them as creditors when the Section 362(a) stay was

42
lifted. Accordingly, appellants argue, when the Committee did not bring

constructive fraudulent conveyance actions against the LBO transfers by

December 8, 2010, appellants regained the right to bring their own state law

actions. See Resp. & Reply Br. of Pls.-Appellants-Cross Appellees 6. Moreover,

they correctly note that Section 362’s automatic stay was, as discussed supra,

lifted. In either case -- automatically after two years or by the bankruptcy court’s

lifting of the stay -- appellants assert that the right to bring state law actions has

reverted to them.

(ii) Ambiguities, Anomalies, and Conflicts 

When appellants’ arguments and their relation to the Code are viewed, as

we must view them, in their entirety, In re Boodrow, 126 F.3d 43, 49 (2d Cir. 1997)

(“The Supreme Court has thus explained . . . ‘we must not be guided by a single

sentence or [part] of a sentence [of the Code], but look to the provisions of the

whole law, and to its object and policy.’”) (quoting Kelly v. Robinson, 479 U.S. 36,

43 (1986)), they reveal material ambiguities, anomalies, and outright conflicts

with the purposes of Code Sections 544, 362, and 548, not to mention the outright

conflict with Section 546(e) discussed infra. 

43
A critical step in the logic of appellants’ theory finds no support in the

language of the Code. In particular, the inference that fraudulent conveyance

actions revert to creditors if either the two-year statute of limitations passes

without an exercise of the trustees’ et al. powers under Section 544 or the Section

362(a) stay is lifted by the bankruptcy court has no basis in the Code’s language. 

To begin, the language of the automatic stay provision applies only to actions

against “the debtor.” 11 U.S.C. § 362. To be sure, there are cases barring

fraudulent conveyance actions brought by creditors before the passing of the

limitations period or lifting of the stay. See, e.g., In re Crysen/Montenay Energy

Co., 902 F.2d 1098, 1101 (2d Cir. 1990). The rationales of these cases vary. Some

rely on Section 362(a) on the theory that the fraudulent conveyance claims are the

property of the debtors’ estate. See In re MortgageAmerica Corp., 714 F.2d 1266,

1275-76 (5th Cir. 1983); Matter of Fletcher, 176 B.R. 445, 452 (Bankr. W.D. Mich.

1995), rev’d and remanded on other grounds sub nom. In re Van Orden, No. 1:95-

CV-79, 1995 WL 17903731 (W.D. Mich. Sept. 5, 1995). Some do not mention

Section 362(a) and rely on the need to protect trustees’ et al. powers to bring

Section 544 avoidance actions. See In re Van Diepen, P.A., 236 F. App’x. 498,

502-03 (11th Cir. 2007); In re Clark, 374 B.R. 874, 876 (Bankr. M.D. Ala. 2007); In re

44
Tessmer, 329 B.R. 776, 780 (Bankr. M.D. Ga. 2005). All the caselaw agrees that the

trustee et al.’s powers under Section 544 are exclusive, at least until the stay is

lifted or the two-year period expires. 

Equally important is the fact that the inference of a reversion of fraudulent

conveyance claims to creditors drawn from Section 544's statute of limitations is

not based on the language of the Code, which says nothing about the reversion of

claims vested in the trustee et al. by Section 544. Statutes of limitation usually are

intended to limit the assertion of stale claims and to provide peace to possible

defendants, Converse v. Gen. Motors Corp., 893 F.2d 513, 516 (2d Cir. 1990), and

not to change the identity of the authorized plaintiffs without some express

language to that effect. A decisive part of appellants’ legal theory thus has no

support in the language of the Code.

Even if this gap is assumed not to exist, or can be otherwise traversed,

appellants’ theory encounters other serious problems. Section 544, vesting

avoidance powers in the trustee et al., is intended to simplify proceedings, reduce

the costs of marshalling the debtor’s assets, and assure an equitable distribution

among the creditors. See In re MortgageAmerica Corp., 714 F.2d 1266, 1275-76

(5th Cir. 1983) (noting that “[t]he ‘strong arm’ provision of the [Bankruptcy]

45
Code, 11 U.S.C. § 544, allows the bankruptcy trustee to step into the shoes of a

creditor for the purpose of asserting causes of action under state fraudulent

conveyance acts for the benefit of all creditors, not just those who win a race to

judgment” and Section 362 helps prevent “[a]ctions for the recovery of the

debtor’s property by individual creditors under state fraudulent conveyance laws

[that] would interfere with [the bankruptcy] estate and with the equitable

distribution scheme dependent upon it”). However, these purposes are hardly

consistent with the process hypothesized by appellants.

Accepting for purposes of argument appellants’ view of the applicable

process, Section 362, at the very least, prevented appellants (for a time) from

bringing their state law, fraudulent conveyance claims, while Section 546(e)

barred the Committee from seeking to enforce or, necessarily, to settle them. 

Appellants’ argument thus seems to posit that their claims are on hold until the

trustees et al. decide whether to bring an action they are powerless to bring or to

pass on to creditors a power they do not have. In short, it assumes that, when

creditors’ avoidance claims are lodged in the trustee et al. and are diminished in

that hand by the Code, they reemerge in undiminished form in the hands of

46
creditors after the statute of limitations governing actions by the trustee et al. has

run or the bankruptcy court lifts the automatic stay. 

In the context of the Code, however, any such process is a glaring anomaly. 

Section 548(a)(1)(A) vests trustees with a federal claim to avoid the very transfers

attacked by appellants’ state law claims –- but only on an intentional fraud

theory. There is little apparent reason to limit trustees et al. to intentional fraud

claims while not extinguishing constructive fraud claims but rather leaving them

to be brought later by individual creditors. In particular, enforcement of the

intentional fraud claim is undermined if creditors can later bring state law,

constructive fraudulent conveyance claims involving the same transfers. Any

trustee would have grave difficulty negotiating more than a nominal settlement

in the federal action if it cannot preclude state claims attacking the same transfers

but not requiring a showing of actual fraudulent intent. Unable to settle, a

trustee et al. will be reluctant to expend the estate’s resources on vigorously

pursuing the federal claim while awaiting the stayed state claims to revert and to

be litigated by creditors. As happened in the present matter, the result is that the

trustee et al.’s action awaits the pursuit of piecemeal actions by creditors. This is

precisely opposite of the intent of the Code’s procedures. While a bankruptcy

47
court can reduce the delay by an early lifting of the automatic stay with regard to

constructive fraudulent conveyance actions, that action would underline the

anomaly of applying the stay to the bringing of claims that are barred to trustees

et al. 

Staying ordinary state law, constructive fraudulent conveyance claims by

individual creditors while the trustee deliberates is a rational method of avoiding

piecemeal litigation and ensuring an equitable distribution of assets among

creditors. See MBNA Am. Bank, N.A. v. Hill, 436 F.3d 104, 108 (2d Cir. 2006)

(“The objectives of the Bankruptcy Code . . . include . . . ‘the need to protect

creditors and reorganiz[e] debtors from piecemeal litigation . . . .’”) (quoting Ins.

Co. of N. Am. v. NGC Settlement Trust & Asbestos Claims Mgmt. Corp., 118 F.3d

1056, 1069 (5th Cir. 1997)). However, the scheme described by appellants does

not resemble this method either in simplicity or in the equitable treatment of

creditors.

To rationalize these anomalies, appellants speculate as to -- more

accurately, imagine -- a deliberate balancing of interests by Congress. They argue

that Congress wanted to balance the need for certainty and finality in securities

markets, recognized in Section 546(e), against the need to maximize creditors’

48
recoveries, recognized in various other provisions. Congress did so, they argue,

by limiting only the avoidance powers of trustees et al., not those of individual

creditors (save for the stay), in Section 546(e) because actions by trustees et al. are

a greater threat to securities markets than are actions by individual creditors. 

Resp. & Reply Br. of Pls.-Appellants-Cross-Appellees 71. That greater threat

results from the fact that a trustee’s power of avoidance is funded by the debtor’s

estate, see 11 U.S.C. §§ 327, 330, supported by national long-arm jurisdiction, see

Fed. R. Bankr. P. 7004(d),(f), and can be used to avoid the entirety of a transfer, 

Tronox Inc. v. Anadarko Petroleum Corp. (In re Tronox Inc.), 464 B.R. 606, 615-17

(Bankr. S.D.N.Y. 2012) (citing Moore v. Bay, 284 U.S. 4 (1931)). Creditors, in turn,

have no such funding, are limited by state jurisdictional rules, and can sue only

for their individual losses. See In re Integrated Agri, Inc., 313 B.R. 419, 428

(Bankr. C.D. Ill. 2004). Therefore, appellants argue that a deliberate “balance”

was struck by protecting securities markets from trustees’ et al. actions while

subjecting them to the lesser disruption individual creditors’ actions might cause

after a two-year stay. Resp. & Reply Br. of Pls.-Appellants-Cross-Appellees 83-

85. For a court to upset this delicate balance would constitute judicial intrusion

on policy decisions rightfully left to the Congress.

49
However, the balance described above is an ex post explanation of a legal

scheme that appellants must first construct, and then justify as rational, because it

is essential to their claims. Although they argue that the scheme was deliberately

constructed by Congress, that argument lacks any support whatsoever in the

legislative deliberations that led to Section 546(e)’s enactment. 

Moreover, appellants’ arguments understate the number of creditors who

would sue, if allowed, and the corresponding extent of the danger to securities

markets. Creditors may assign their claims and various methods of aggregation

can lead to billions of dollars of claims, as here.

(iii) No Plain Meaning

These issues reflect ambiguities as to exactly what is transferred to trustees

et al. by Section 544(b)(1). It is clear that trustees et al. own the debtors’ estates,

which include the debtors’ property and legal claims. See 11 U.S.C. § 541(a)(1)

(Among other things, the “estate is comprised of . . . all legal or equitable

interests of the debtor in property as of the commencement of the case”); U.S. ex

rel. Spicer v. Westbrook, 751 F.3d 354, 361-62 (5th Cir. 2014) (“The phrase ‘all

legal or equitable interests’ includes legal claims -- whether based on state or

federal law.”). Avoidance claims belong to creditors, however, and whether they

50
become the property of the debtors’ estates is a debated, and somewhat

metaphysical, issue. The issue does have a limited practical bearing on the

present matter, however. If the claims asserted by appellants became the

property of the debtor’s estate upon Tribune’s bankruptcy and were thereby

limited in the hands of the Committee, their reversion in an unaltered form,

whether occurring automatically or by act of the Committee or bankruptcy court,

might seem counterintuitive.

Appellants’ reliance on the applicability of the automatic stay to their

claims would arguably support the “property” view. The stay is intended in part

to protect the property rights of the trustee et al. in the debtor’s estate. Subjecting

avoidance actions by creditors to the stay has been supported by various courts

on the ground that such claims are either the property of the debtor’s estate or

have an equivalent legal status. See In re MortgageAmerica Corp., 714 F.2d 1266,

1275-76 (5th Cir. 1983); In re Swallen’s, Inc., 205 B.R. 879, 882 (Bankr. S.D. Ohio

1997); Matter of Fletcher, 176 B.R. 445, 452 (Bankr. W.D. Mich. 1995).

Whether, and to what degree, fraudulent conveyance claims become the

property of a bankrupt estate was, at the time of Section 546(e)’s enactment, and

now, anything but clear. The principal Supreme Court precedent held that such

51
claims are the property of the debtor’s estate. Trimble v. Woodhead, 102 U.S.

647, 649 (1880). It is a very old decision but has not been expressly overruled. 

Subsequent court of appeals decisions are bountiful in contradictory statements

regarding the property issue. Compare In re Cybergenics Corp., 226 F.3d 237,

241, 246 (3d Cir. 2000) (stating that “fraudulent transfer claims have long

belonged to a transferor’s creditors, whose efforts to collect their debts have

essentially been thwarted as a consequence of the transferor’s actions” but also

noting that the debtor’s “‘assets’ and ‘property of the estate’ have different

meanings, evidenced in part by the numerous provisions in the Bankruptcy Code

that distinguish between property of the estate and property of the debtor, or

refer to one but not the other”), and Picard v. Fairfield Greenwich Ltd., 762 F.3d

199, 212 (2d Cir. 2014) (“Our case law is clear that assets targeted by a fraudulent

conveyance action do not become property of the debtor’s estate under the

Bankruptcy Code until the Trustee obtains a favorable judgment.”), with

Cumberland Oil Corp. v. Thropp, 791 F.2d 1037, 1042 (2d Cir. 1986) (noting that

causes of action alleging violation of fraudulent conveyance laws would be

property of the estate), and Nat’l Tax Credit Partners v. Havlik, 20 F.3d 705, 708-

09 (7th Cir. 1994) (“[T]he right to recoup a fraudulent conveyance, which outside

52
of bankruptcy may be invoked by a creditor, is property of the estate that only a

trustee or debtor in possession may pursue once a bankruptcy is underway.”). 

Use of the term “property” as a short-hand way of suggesting exclusivity

has merit, Henry E. Smith, Property and Property Rules, 79 N.Y.U. L. Rev. 1719,

1770-74 (2004), but Section 544(b)(1) does not expressly state whether the bundle

of rights transferred can revert. However, we need not resolve either the

“property” or the reversion issues. Whether the statutory language has a plain

meaning turns on whether a consensus would have existed among reasonable,

contemporaneous readers as to meaning of that language in the particular

statutory context. See Pettus v. Morgenthau, 554 F.3d 293, 297 (2d Cir. 2009)

(“[W]e attempt to ascertain how a reasonable reader would understand the

statutory text, considered as a whole.”); Engine Mfrs. Ass’n v. S. Coast Air

Quality Mgmt. Dist., 541 U.S. 246, 252-53 (2004) (noting that “[s]tatutory

construction must begin with the language employed by Congress and the

assumption that the ordinary meaning of that language accurately expresses the

legislative purpose”) (quoting Park ‘N Fly, Inc. v. Dollar Park & Fly, Inc., 469 U.S.

189, 194 (1985)). If differing views as to meaning were reasonable at the time of

53
Section 546(e)’s enactment, its meaning is less than plain. See, e.g., Rodriguez v.

Cuomo, 953 F.2d 33, 39-40 (2d Cir. 1992).

Appellants’ arguments on meaning rely not only on the reference to a

trustee’s et al. powers but equally, or more so, on a claim of settled law at the

time of Section 546(e)’s enactment that creditors’ avoidance rights not only revert

to creditors but also revert in their original breadth. However, whether

fraudulent conveyance claims revert as a matter of law upon a trustee’s failure to

act was, both at the time Section 546(e) was passed as well as now, unclear, as

discussed supra. A contemporaneous reader would not, therefore, necessarily

have believed it plain that Section 546(e)’s reference only to a trustee’s et al.

avoidance claim meant that creditors could bring their own claims.14

A contemporaneous reader would also notice that the language of the

automatic stay provision does not literally apply to appellants’ actions and that

no provision for the reversion of claims vested in the trustee et al. by Section 544

exists. As explained supra, having to draw an inference of reversion of rights

from that provision’s statute of limitations might well have appeared as a leap

several bridges too far to such a reader. Indeed, the vesting of avoidance claims

14

 Our task of determining how a contemporaneous reader would have read Section

546(e) does not depend on the caselaw of one particular circuit.

54
in the trustee et al., the lack of applicable language in the automatic stay

provision, and the lack of a statutory basis for reversion might well have

suggested to such a reader that Section 544’s vesting of avoidance proceedings in

the trustee et al. cut off creditors from any avoidance rights other than a share of

the proceeds in bankruptcy.

Even passing these obstacles, the structure of the Code and the relationship

of its pertinent sections might have suggested to a contemporaneous reader that

altered rights do not revert to creditors unaltered, or to put it another way, a

trustee et al. cannot pass on, or “allow” to revert through passivity, a right the

trustee et al. does not have. To be sure, contemporaneous readers might have

taken other views, including those of appellants, but that is the very definition of

ambiguity.

(iv) Conclusion

We need not resolve these issues or even hold that the lack of statutory

support, ambiguities, anomalies, or conflicts with purposes of the Code are

sufficient to support a preemption holding. They are sufficient, however, to

dispel the suggestions found in some discussions of these issues of a clear textual

basis for appellants’ theory in the Code and an overall consistency with

55
congressional purpose. See In re Lyondell Chem. Co., 503 B.R. 348, 358-59

(Bankr. S.D.N.Y. 2014) as corrected (Jan. 16, 2014); In re: Tribune Co. Fraudulent

Conveyance Litig., 499 B.R. at 315. We also need not issue a decision that affects

fraudulent conveyance actions brought by creditors whose claims are not subject

to Section 546(e). Our ensuing discussion concludes that the purposes and

history of that Section necessarily reflect an intent to preempt the claims before

us. We turn now to the conflict between those claims and Section 546(e).

5. Conflict with Section 546(e)

As discussed supra, the meaning of Section 546(e) with regard to

appellants’ rights to bring the actions before us is ambiguous. We must,

therefore, look to its language, legislative history, and purposes to determine its

effect. Marvel Characters, Inc. v. Simon, 310 F.3d 280, 290 (2d Cir. 2002). Every

congressional purpose reflected in Section 546(e), however narrow or broad, is in

conflict with appellants’ legal theory. Their claims are, therefore, preempted.

Section 546(e) was intended to protect from avoidance proceedings

payments by and to commodities and securities firms in the settlement of

securities transactions or the execution of securities contracts. The method of

settlement through such entities is essential to securities markets. Payments by

56
and to such entities provide certainty as to each transaction’s consummation,

speed to allow parties to adjust the transaction to market conditions, finality with

regard to investors’ stakes in firms, and thus stability to financial markets. See

H.R. Rep. No. 97-420 (1982); H.R. Rep. No. 95-595 (1977). Unwinding settled

securities transactions by claims such as appellants’ would seriously undermine -

- a substantial understatement -- markets in which certainty, speed, finality, and

stability are necessary to attract capital. To allow appellants’ claims to proceed,

we would have to construe Section 546(e) as achieving the opposite of what it

was intended to achieve.

Allowing creditors to bring claims barred by Section 546(e) to the trustee et

al. only after the trustee et al. fails to exercise powers it does not have would

increase the disruptive effect of an unwinding by lengthening the period of

uncertainty for covered entities and investors. Indeed, the idea of preventing a

trustee from unwinding specified transactions while allowing creditors to do so,

but only later, is a policy in a fruitless search of a logical rationale.

The narrowest purpose of Section 546(e) was to protect other commodities

and securities firms from avoidance claims seeking to unwind a bankrupt

commodities or securities firm’s transactions that consummated transfers

57
between customers. See H.R. Rep. No. 97-420, at 1 (1982) (“The commodities and

securities markets operate through a complex system of accounts and guarantees. 

Because of the structure of the clearing systems in these industries and the

sometimes volatile nature [of] the markets, certain protections are necessary to

prevent the insolvency of one commodity or security firm from spreading to

other firms and possibl[y] threatening the collapse of the affected market.”). It

must be emphasized that appellants’ legal theory would clearly allow such

claims to be brought (later) by creditors of the bankrupt firm. Even the

narrowest purpose of Section 546(e) is thus at risk.

Some judicial and other discussions of these issues avoid addressing the

full effects of adopting appellants’ arguments. See In re Lyondell Chem. Co., 503

B.R. 348, 359-78 (Bankr. S.D.N.Y. 2014) as corrected (Jan. 16, 2014). Such analysis

always begins by reliance on the “trustee” language, id. at 358, but then narrows

the scope of the transfers covered by Section 546(e)’s language. For example,

appellants argue that the concerns of the amicus curiae Securities and Exchange

Commission regarding the effect of the district court’s decision on the securities

markets are misplaced, because appellants are not seeking money from the

58
intermediaries.15 Resp. & Reply Br. of Pls.-Appellants Cross-Appellees 78-82. In

doing so, they rely upon the Lyondell opinion, which, after relying on the

“trustee” language, held that Section 546(e) is not preemptive of state law,

fraudulent conveyance actions involving LBOs because such actions do not

implicate the purposes of Section 546(e). 503 B.R. at 372-73.

There is no little irony in putting lynchpin reliance on the word “trustee”

while ignoring the language that follows. In any event, for the reasons stated

above, Section 546(e)’s language is broad enough under certain circumstances to

cover a bankrupt firm’s LBO payments even where, as here, that firm’s business

was primarily commercial in nature. 11 U.S.C. § 546(e) (limitations on avoidance

of transfers made by a “customer” of a financial institution “in connection with a

securities contract”). A search for legislative purpose is heavily informed by

language, and analyzing all the language of a provision and its relationship to the

Code as a whole is preferable to using literalness here and perceived legislative

purpose (without regard to language) where as needed to reach particular

15

 Under the “Collapsing Doctrine,” “[c]ourts analyzing the effect of LBOs have

routinely analyzed them by reference to their economic substance, ‘collapsing’ them, in many

cases, to consider the overall effect of multi-step transactions.” In re Lyondell Chem. Co., 503

B.R. 348, 354, 379 (Bankr. S.D.N.Y. 2014) as corrected (Jan. 16, 2014). Monies passed through

intermediaries are deemed to be the property only of the ultimate recipients, here the cashed

out shareholders. 

59
results. See King v. Burwell, 135 S. Ct. 2480, 2489 (2015) (“[O]ftentimes the

meaning -- or ambiguity -- of certain words or phrases may only become evident

when placed in context. So when deciding whether the language is plain, we

must read the words in their context and with a view to their place in the overall

statutory scheme. Our duty, after all, is to construe statutes, not isolated

provisions.”) (internal quotation marks and citations omitted).

We do not dwell on this because we perceive no conflict between Section

546(e)’s language and its purpose. Section 546(e) is simply a case of Congress

perceiving a need to address a particular problem within an important process or

market and using statutory language broader than necessary to resolve the

immediate problem. Such broad language is intended to protect the process or

market from the entire genre of harms of which the particular problem was only

one symptom. The legislative history of Section 546(e) clearly reveals such a

purpose. That history (confirmed by the broad language adopted) reflects a

concern over the use of avoidance powers not only after the bankruptcy of a

commodities or securities firm, but also after a “customer” or “other participant”

in the securities markets enters bankruptcy. See H.R. Rep. No. 97-420 (1982). To

be sure, the examples used by the Section’s proponents focused on the immediate

60
concern of creditors of bankrupt brokers seeking to unwind payments by the

bankrupt firm to other brokers. Id. Such actions were perceived as creating a

danger of “a ripple effect,” id., a chain of bankruptcies among brokers disrupting

the securities market generally. From these examples, appellants, and others,

have argued that when monetary damages are sought only from shareholders, or

an LBO is involved, the purposes of Section 546(e) are not implicated. See Resp.

& Reply Br. of Pls.-Appellants-Cross-Appellees 79; In re Lyondell, 503 B.R. at 358-

59. Even apart from using the oil and water mixture of applying a narrow

literalness to the word “trustee” and disregarding the rest of the Section’s

language, we disagree.

As courts have recognized, Congress’s intent to “minimiz[e] 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 Creditors Recovery Corp. v. Alfa, S.A.B. de C.V., 651 F.3d 329, 333 (2d Cir.

2011)), reflected a larger purpose memorialized in the legislative history’s

mention of bankrupt “customers” or “other participant[s]” and in the broad

statutory language defining the transactions covered. That larger purpose was to

“promot[e] finality . . . and certainty” for investors, by limiting the circumstances,

61
e.g., to cases of intentional fraud, under which securities transactions could be

unwound. In re Kaiser Steel Corp., 952 F.2d 1230, 1240 n.10 (10th Cir. 1991)

(quoting H. Rep. No. 484, 101st Cong. 2d Sess. 2 (1990), reprinted in 1990

U.S.C.C.A.N. 223, 224).

The broad language used in Section 546(e) protects transactions rather than

firms, reflecting a purpose of enhancing the efficiency of securities markets in

order to reduce the cost of capital to the American economy. See Bankruptcy of

Commodity and Securities Brokers: Hearings Before the Subcomm. on

Monopolies and Commercial Law of the Comm. on the Judiciary, 47th Cong. 239

(1981) (statement of Bevis Longstreth, Commissioner, SEC) (explaining that,

without 546(e), the Bankruptcy Code’s “preference, fraudulent transfer and stay

provisions can be interpreted to apply in harmful and costly ways to customary

methods of operation essential to the securities industry”). As noted, central to a

highly efficient securities market are methods of trading securities through

commodities and securities firms. Section 546(e)’s protection of the transactions

consummated through these entities was not intended as protection of politically

favored special interests. Rather, it was sought by the SEC –- and corresponding

provisions by the CFTC, see Bankruptcy Act Revision: Hearings on H.R. 31 and

62
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) -- in order to protect

investors from the disruptive effect of after-the-fact unwinding of securities

transactions. 

A lack of protection against the unwinding of securities transactions would

create substantial deterrents, limited only by the copious imaginations of able

lawyers, to investing in the securities market. The effect of appellants’ legal

theory would be akin to the effect of eliminating the limited liability of investors

for the debts of a corporation: a reduction of capital available to American

securities markets.

For example, all investors in public companies would face new and

substantial risks, if appellants’ theory is adopted. At the very least, each would

have to confront a higher degree of uncertainty even as to the consummation of

securities transfers. The risks are not confined to the consummation of securities

transactions. Pension plans, mutual funds, and similar institutional investors

would find securities markets far more risky if exposed to substantial liabilities

derived from investments in securities sold long ago. If appellants were to

prevail, a pension plan whose position in a firm was cashed out in a merger

63
might have to set aside reserves in case the surviving firm went bankrupt and

triggered avoidance actions based on a claim that the cash out price exceeded the

value of the shares. Every economic downturn could expose such institutional

investors not only to a decline in the value of their current portfolios but also to

claims for substantial monies received from mergers during good times. 

Given the occasional volatility of economic events, any transaction buying

out shareholders would risk being attacked as a fraudulent conveyance avoidable

by creditors if the firm faltered. Appellants’ legal theory could even reach

investors who, after voting against a merger approved by other shareholders,

were involuntarily cashed out. Tender offers, which almost always involve a

premium above trading price, Lynn A. Stout, Are Takeover Premiums Really

Premiums? Market Price, Fair Value, and Corporate Law, 99 Yale L.J. 1235, 1235

(1990), would imperil cashed out shareholders if the surviving entity

encountered financial difficulties. 

If appellants’ theory was adopted, individual investors following a

conservative buy-and-hold strategy with a diversified portfolio designed to

reduce risk might well decide that such a strategy would actually increase the

risk of crushing liabilities. Such a strategy is adopted because it involves low

64
costs of monitoring the prospects of individual companies and emphasizes the

offsetting of unsystematic risks by investing in multiple firms. See Leigh v.

Engle, 858 F.2d 361, 368 (7th Cir. 1988). Appellants’ legal theory might well

require costly and constant monitoring by investors to rid their portfolios of

investments in firms that might, under then-current circumstances, be subject to

mergers, stock buy-backs, or tender offers (and would otherwise be good

investments). Investing in multiple companies, the essence of diversification,

would increase the danger of avoidance liability. 

The threat to investors is not simply losing a lawsuit. Given the costliness

of defending such legal actions and the long delay in learning their outcome,

exposing investors to even very weak lawsuits involving millions of dollars

would be a substantial deterrent to investing in securities. The need to set aside

reserves to meet the costs of litigation -- not to mention costs of losing -- would

suck money from capital markets. 

As noted, concern has been expressed that LBOs are different from other

transactions in ways pertinent to the Bankruptcy Code. In re Lyondell Chem.

Co., 503 B.R. 348, 354, 358-59 (Bankr. S.D.N.Y. 2014), as corrected (Jan. 16, 2014). 

65
However, the language of Section 546(e) clearly covers the LBO payments at

issue here for the reasons stated above.

Moreover, securities markets are heavily regulated by state and federal

governments. The statutory supplements used in law school securities regulation

courses are thick enough to rival Kevlar in stopping bullets. Mergers and tender

offers are among the most regulated transactions. See, e.g., Williams Act, 15

U.S.C.A. §§ 78m(d)-(e), 78n(d). Much of the content of state and federal

regulation is designed to protect investors in such transactions. Much of that

content is also designed to maximize the payout to shareholders cashed out in a

merger, see, e.g., Revlon, Inc. v. MacAndrews & Forbes Holdings, Inc., 506 A.2d

173, 182 (Del. 1986); Unocal Corp. v. Mesa Petroleum Co., 493 A.2d 946, 955-56

(Del. 1985), or accepting a tender offer, see Williams Act, 15 U.S.C.A. §§ 78m(d)-

(e), 78n(d). Appellants’ legal theory would allow creditors to seek to portray that

maximization as evidence supporting a crushing liability. A legal rule

substantially undermining those goals of state and federal regulation –- again,

one akin to eliminating limited liability –- is a systemic risk.

It is also argued that the Bankruptcy Code has many different purposes

and that Section 546(e) does not clearly “trump[] all [the] other[s].” In re Tribune

66
Co. Fraudulent Conveyance Litig., 499 B.R. 310, 317 (S.D.N.Y. 2013). The

pertinent -- and “trumping” -- “other” purpose of the Code is said to be the

maximization of assets available to creditors. Id. Courts customarily

accommodate statutory provisions in tension with one another where the

principal purpose of each is attainable by limiting each in achieving secondary

goals. See, e.g., In re Colonial Realty Co., 980 F.2d 125, 132 (2d Cir. 1992). 

However, Section 546(e) is in full conflict with the goal of maximizing the assets

available to creditors. Its purpose is to protect a national, heavily regulated

market by limiting creditors’ rights. Conflicting goals are not accommodated by

giving value with the right hand and taking it away with the left. Section 546(e)

cannot be trumped by the Code’s goal of maximizing the return to creditors

without thwarting the Section’s purposes.

6. Additional Considerations Regarding Congressional Intent

We therefore conclude that Congress intended to protect from constructive

fraudulent conveyance avoidance proceedings transfers by a debtor in

bankruptcy that fall within Section 546(e)’s terms. As discussed supra,

appellants’ theory hangs on the ambiguous use of the word “trustee,” has no

basis in the language of the Code, leads to substantial anomalies, ambiguities and

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conflicts with the Code’s procedures, and, most importantly, is in irreconcilable

conflict with the purposes of Section 546(e). In this regard, we do not ignore

Section 544(b)(2), which prohibits avoidance of a transfer to a charitable

contribution by a trustee but also expressly preempts state law claims by

creditors. It states: “Any claim by any person to recover a transferred

contribution described in the preceding sentence under Federal or State law in a

Federal or State court shall be preempted by the commencement of the case.” 11

U.S.C. § 544(b)(2). Appellants rely heavily upon this provision to argue that,

while Congress knew how to explicitly preempt state law in the Bankruptcy

Code, it chose not to do so in the context of Section 546(e).

Appellants’ argument suffers from a fatal flaw, however. In Arizona v.

United States, the Supreme Court made clear that “the existence of an express

pre-emption provisio[n] does not bar the ordinary working of conflict preemption principles or impose a special burden that would make it more difficult

to establish the preemption of laws falling outside the clause.” 132 S. Ct. 2492,

2504-05 (2012) (quotation marks and citations omitted); see also Hillman, 133 S.

Ct. at 1954 (“[W]e have made clear that the existence of a separate pre-emption

provision does not bar the ordinary working of conflict pre-emption principles.”)

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(internal quotation marks and citations omitted). Section 544(b)(2) does not,

therefore, undermine our conclusion as to Congress’s intent.

Next, appellants argue that Congress’s failure to amend Section 546(e) over

the years that it has existed in pertinent form reflects a congressional intent to

allow their actions to proceed. In support, they point only to requests for an

amendment by the Chair of the CFTC and by Comex, 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); Bankruptcy Reform Act: Hearings on S. 2266 and H.R. 8000

Before the Subcomm. on Improvements in Judicial Machinery of the S. Comm. on

the Judiciary, 95th Cong. 1297 (1978), the enactment of Section 544(b)(2) with an

express preemption provision, and a decision in the District of Delaware, PHP

Liquidating, LLC v. Robbins, 291 B.R. 603, 607 (D. Del. 2003), aff’d sub nom. In re

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

To be sure, a history of relevant practice may support an inference of

congressional acquiescence. See, e.g., Fiero v. Fin. Indus. Regulatory Auth., 660

F.3d 569, 577 (2d Cir. 2011) (noting that FINRA’s “longstanding reliance” on

enforcement mechanisms other than fines -- and Congress’s failure to alter

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FINRA’s enforcement powers -- “indicates that FINRA is not authorized to

enforce the collection of its fines through the courts”); Am. Tel. & Tel. Co. v. M/V

Cape Fear, 967 F.2d 864, 872 (3d Cir. 1992) (“The Supreme Court in the past has

implied private causes of action where Congress, after a ‘consensus of opinion

concerning the existence of a private cause of action’ had developed in the

federal courts, has amended a statute without mentioning a private remedy.”)

(quoting Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Curran, 456 U.S. 353, 380

(1982)). However, the effect or meaning of legislation is not to be gleaned from

isolated requests for more protective, but possibly redundant, legislation. The

impact of Section 544(b)(2) is discussed immediately above and need not be

repeated here. 

Finally, the failure of Congress to respond to court decisions is of

interpretive significance only when the decisions are large in number and

universally, or almost so, followed. See Merrill Lynch, 456 U.S. at 379 (holding

that congressional amendment of the Commodity Exchange Act that was silent

on the subject of private judicial remedies did not overturn federal court

decisions routinely and consistently [] recogniz[ing] an implied private cause of

action”) (emphasis added); see also Touche Ross & Co. v. Redington, 442 U.S.

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560, 577 n.19 (1979) (holding that the Supreme Court’s implication of a private

right of action under § 10(b) of the Securities and Exchange Act of 1934 was

simply acquiescence in “the 25-year-old acceptance by the lower federal courts of

an implied action”). The present decision is far from a departure from a

generally accepted understanding. The district court decision in this very case

and the bankruptcy court decision in Lyondell are in fact the sole extensive

judicial discussions of the issue. Indeed, our present decision does not even

constitute a split among the circuits. As or more telling with regard to the

existence of a general understanding or a need for action, we find no history of

the use of state law, constructive fraudulent conveyance actions to unwind

settled securities transactions, either after a bankruptcy or in its absence. 

The Constitution’s establishment of two legislative branches that must act

jointly and with the executive’s approval was designed to render hasty action

possible only in circumstances of widely perceived need. Congress’s failure to

act must be viewed in that context, and reliance upon an inference of satisfaction

with the status quo must at least be based on evidence of a long-standing and

recognized status quo. In the present matter, we cannot draw the suggested

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inference on the basis of the skimpy evidence submitted while the inference of a

preemptive intent is easily drawn.

7. The Relevance of Merit Mgmt. to this Preemption Holding

Appellants finally contend that this preemption holding “cannot be

reconciled” with the Supreme Court’s decision in Merit Mgmt. Appellants’

Motion to Recall the Mandate at 10. Again, we disagree. As an initial matter, the

Merit Mgmt. Court was not tasked with assessing Section 546(e)’s preemptive

force, and it did not address preemption. Instead, the sole issue in Merit Mgmt.

was whether, “in the context of a transfer that was executed via one or more

transactions,” the relevant transfer for the purposes of Section 546(e) was the

overarching transfer or any of its component transfers. Merit Mgmt., 138 S. Ct. at

888. Accordingly, Merit Mgmt. does not control our disposition of the

preemption issue.

Nor have we located anything in Merit Mgmt.’s reasoning that contradicts

our assessment of Congress’s preemptive intent. Appellants suggest that the

Supreme Court rejected a primary premise upon which we have relied here: that

Section 546(e) was intended to promote “‘finality’ in the securities markets.” 

Appellants’ Motion to Recall the Mandate at 10-11. The Court did no such thing,

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however. Instead, it merely concluded that, to the extent the policies animating

Section 546(e) were relevant for determining the safe harbor’s scope, those

policies did not supply a basis for “deviat[ing] from the plain meaning of the

language used in § 546(e).” Merit Mgmt., 138 S. Ct. at 897; see also id. at 888

(“The Court concludes that the plain meaning of § 546(e) dictates that the only

relevant transfer for purposes of the safe harbor is the [overarching] transfer that

the trustee seeks to avoid.”). 

Also, the failures of the “purposivist arguments” in Merit Mgmt., id. at 897,

are not particularly instructive here due to the distinctions between the inquiries

here and there. The Supreme Court has repeatedly held that where, as in Merit

Mgmt., courts are interpreting the meaning of a statutory provision, they should

not allow extrinsic evidence of Congressional purpose to alter the plain meaning

of the statute. See, e.g., Henson v. Santander Consumer USA Inc., 137 S. Ct. 1718,

1725 (2017) (“[I]t is quite mistaken to assume . . . that whatever might appear to

further the statute’s primary objective must be the law.”) (internal quotation

marks and alterations omitted); Dodd v. United States, 545 U.S. 353, 357 (2005)

(“We must presume that the legislature says in a statute what it means and

means in a statute what it says there.”) (internal quotation marks and alterations

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omitted). But where, as here, we are assessing whether a statute preempts

certain claims, we have been directed to consult evidence of Congressional

purpose to ascertain whether the statute has a preemptive effect beyond that

provided by its plain terms. See, e.g., Altria Grp., Inc. v. Good, 555 U.S. 70, 76

(2008) (“Congress may indicate pre-emptive intent through a statute’s express

language or through its structure and purpose. [Even where] a federal law

contains an express pre-emption clause, it does not immediately end the inquiry

because the question of the substance and scope of Congress’ displacement of

state law still remains.”) (internal citations omitted) (emphasis added). Thus, in

light of these different directives, it is clear that a “purposivist” argument should

carry far more weight in this case than in Merit Mgmt.

Finally, it bears emphasizing that the other reasons underpinning our

preemption holding are not implicated by Merit Mgmt. in any way. Specifically,

Merit Mgmt. does not contradict our findings that appellants’ legal theory has no

support in the language of the Code; leads to substantial anomalies and conflicts

with the Code’s procedures; and requires reading Section 546(e)’s reference to a

trustee et al. avoidance claim to mean that creditors could bring their own claims

–- a reading that is less than plain. 

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For these reasons, we find that our preemption holding is consistent with

Merit Mgmt.

CONCLUSION

For the reasons stated, we affirm the dismissal of appellants’ claims, on

preemption rather than standing grounds. We resolve no issues regarding the

rights of creditors to bring state law, fraudulent conveyance claims not limited in

the hands of a trustee et al. by Code Section 546(e) or by similar provisions such

as Section 546(g), which was at issue in an appeal heard in tandem with the

present matter, see Whyte v. Barclays Bank PLC, 644 F. App’x 60, 60 (2d Cir.

2016) (affirming the district court’s dismissal of state law, fraudulent conveyance

claims limited by Section 546(g) “for substantially the reasons stated in [Tribune

I]”), cert. denied, 137 S. Ct. 2114 (2017). 

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