Source: https://mediatbankry.com/2018/04/12/no-quorum-on-u-s-supreme-court-and-%C2%A7-546e-issues-heading-back-to-courts-below-deutsche-bank-v-mccormick/
Timestamp: 2019-04-19 00:50:09+00:00

Document:
Wow: lack of a quorum for a case in the U.S. Supreme Court! Who ever heard of such a thing? But it happens.
–to “allow the Court of Appeals or the District Court to consider whether to recall the mandate” in light of the Supreme Court’s recent “Merit Management” decision.
The Merit Management decision resolved a question on how the § 546(e) defense applies to fraudulent transfer claims, which question had also been raised in Deutsche Bank v. McCormick.
Then, determine whether the parties to such transfer qualify in their own right as entities protected by § 546(e): if either qualifies, the defense applies; if not, it doesn’t.
(ii) a bank’s “customer,” when the bank acts as customer’s “agent or custodian” in the challenged transfer.
–once the “overarching” transfer is identified, a bank-as-intermediary can create a § 546(e) defense for the transferee, when the bank acts as agent or custodian in the challenged transfer.
This view is explained by Justice Breyer at oral arguments on the Merit Management case and is preserved in Footnote 2 of the Merit Management opinion. See this article.
No one raised the Footnote 2 issue in Merit Management or in Deutsche Bank v. McCormick. And Justice Breyer suggested, in Merit Management oral arguments, that such issue might have altered the outcome of that case, if it had been raised.
So . . . here’s guessing that, if and when the Deutsche Bank v. McCormick case goes back to the Circuit Court or District Court, Footnote 2 issues will take center stage.
–“financial institutions” did act as agents for the parties, in the challenged LBO transfers, by handling the exchange of $8 billion cash for shares of stock.
This is precisely the type of agency relationship identified by Justice Breyer as grafting a bank’s “customer” into the “financial institution” definition and, thereby, generating a § 546(e) defense.
–Did the Second Circuit properly dismiss the claims on preemption grounds?
The resolution of such second question will, presumably, have to await the grant of certiorari in another case.
Here are Deutsche Bank v. McCormick facts.
Tribune Company was a multimedia corporation that, in 2007, faced financial stress.
Samuel Zell, a billionaire investor, acquired Tribune Company through a leveraged buyout (“LBO”). To consummate the LBO, Tribune Company borrowed $11 billion, secured by a lien on all its assets, to which Zell added a $315 million equity contribution.
Such amounts were used to, (i) refinance some of Tribune’s pre-existing debt, and (ii) cash out Tribune’s shareholders for $8 billion, a premium price, using financial institutions as intermediaries for the transaction.
Tribune Company promptly failed, after the LBO. And it filed bankruptcy on December 8, 2008.
In November 2010, the bankruptcy estate brought actual fraud claims, under the Bankruptcy Code’s fraudulent transfer statute (§ 548(a)(1)(A)), to recover the $8 billion LBO payments from shareholders.
After expiration of the two-year statute of limitations of § 546(a)(1), creditors brought constructive fraud claims, under state law, against Tribune’s former shareholders to recover the same LBO payments. Creditors argued that constructive fraud claims under state law reverted back to them, upon expiration of the two-year statute of limitations, and that the § 546(e) defense does not apply to such claims outside bankruptcy.
Thereafter, the Tribune Company’s reorganization plan is confirmed, under which, (i) responsibility for prosecuting actions on behalf of the bankruptcy estate is transferred to a Litigation Trust, and (ii) creditors could continue pursuing their constructive fraud claims.
In District Court, the shareholder defendants moved to dismiss the creditors’ state law claims because, (i) § 546(e) preempts all state law fraudulent transfer claims, and (ii) creditors lack standing, since the bankruptcy estate is already pursuing avoidance of the same transfers.
District Court rejected shareholders’ preemption argument. But it accepted shareholders’ lack-of-standing argument and dismissed the creditors’ claims.
Opportunity for lower courts to sync up their rulings with the latest Supreme Court decision?
This will be interesting to watch as the case develops further.

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