Source: http://nj.findacase.com/research/wfrmDocViewer.aspx/xq/fac.19890515_0040887.C03.htm/qx
Timestamp: 2018-04-25 18:36:42
Document Index: 307801668

Matched Legal Cases: ['§ 1292', '§ 101', '§ 547', '§ 548', '§ 546', '§ 741', '§ 741']

IN THE MATTER OF: BEVILL, BRESLER & SCHULMAN ASSET MANAGEMENT CORPORATION, A NEW JERSEY CORPORATION, DEBTOR-IN-POSSESSION,
SPENCER SAVINGS & LOAN ASSOCIATION, APPELLANT IN 88-6020; IN THE MATTER OF: BEVILL, BRESLER & SCHULMAN ASSET MANAGEMENT CORPORATION, A NEW JERSEY CORPORATION, DEBTOR-IN-POSSESSION, V. NIAGARA COUNTY SAVINGS BANK, APPELLANT IN 88-6021; IN THE MATTER OF: BEVILL, BRESLER & SCHULMAN ASSET MANAGEMENT CORPORATION, A NEW JERSEY CORPORATION, DEBTOR-IN-POSSESSION V. CITY OF HARRISBURG, APPELLANT IN 88-6022; IN THE MATTER OF: BEVILL, BRESLER & SCHULMAN ASSET MANAGEMENT CORPORATION, A NEW JERSEY CORPORATION, DEBTOR-IN-POSSESSION, V. CITY OF ALLENTOWN, APPELLANT IN 88-6023
Appeals from the United States District Court for the District of New Jersey, D.C. Civil No. 85-1728.
The appeals come to us in the form of two questions certified under 28 U.S.C. § 1292(b) and Rule 5, Fed. R. App. P. The questions require us to interpret provisions of the Bankruptcy Amendments and Federal Judgeship Act of 1984, Pub.L.No. 98-353, 98 Stat. 333. We must decide:
The dispute here arises out of certain transfers of federal government securities from Bevill, Bresler & Schulman Asset Management Corporation (AMC) to appellants, Niagara County Savings Bank, City of Allentown, City of Harrisburg, and Spencer Savings & Loan Association. The transfers were made pursuant to repurchase agreements between the appellants and AMC. A standard repurchase agreement, commonly called a "repo, consists of a two-part transaction. The first part is the transfer of specified securities by one party, the dealer, to another party, the purchaser, in exchange for cash. The second part consists of a contemporaneous agreement by the dealer to repurchase the securities at the original price, plus an agreed upon additional amount on a specified future date. A "reverse repo" is the identical transaction viewed from the perspective of the dealer who purchases securities with an agreement to resell. See 11 U.S.C. § 101(40)-(41); see also S. Rep. No. 65, 98th Cong., 1st Sess. 44 n. 1 (1983).
In April 1987, the trustee filed a complaint seeking to avoid the transfers of securities to the appellants, and to receive either a return of the securities, or award of equivalent money damages. The trustee alleged that AMC's pre-petition deliveries of the securities to each of the appellants were voidable under 11 U.S.C. § 547 (" . . . the trustee may avoid any transfer of an interest of the debtor in property -- (4) made -- (A) on or within 90 days before the date of filing of the petition . . .") and 11 U.S.C. § 548 ("The trustee may avoid any transfer of an interest of the debtor in property, or any obligation incurred by the debtor, that was made or incurred in or written one year before the filing of the petition, if the debtor . . . received less than a reasonably equivalent value in exchange . . . .").
Appellants filed a joint motion to dismiss the complaint under Rule 12(b) (6), Fed.R.Civ.P., for failure to state a claim under which relief could be granted. The basis of the motion was that the trustee's preference actions were barred by 11 U.S.C. §§ 546(f) and 559.
Notwithstanding sections 544, 545, 547, 548(a) (2), and 548(b) of this title, the trustee may not avoid a transfer that is a margin payment, as defined in § 741(5) or 761(15) of this title, or settlement payment, as defined in § 741(8) of this title, made by or to a repo participant in connection with a repurchase agreement and that is made before the commencement of the case, except under section 548(a) (1) of this title.
The exercise of a contractual right of a repo participant to cause the liquidation of a repurchase agreement because of a condition of the kind specified in section 365(e) (1) of this title shall not be stayed, avoided, or otherwise limited by operation of any provision of this title or by order of a court or administrative agency in any proceeding under this title. . . .
In reaching its holding, the district court assumed that none of the securities in question had been "delivered" to the repo purchasers prior to the physical transfer of possession. The court based this assumption on its earlier conclusion that the securities had not been previously "delivered" within the meaning of the Uniform Commercial Code (UCC). See In the Matter of Bevill, Bresler & Schulman Asset Management Corp., 67 Bankr. 557 (D.N.J. 1986) ("Test Cases"). In the Test Cases, the district court held, inter alia, that repos are purchases and sales of securities. Id. at 598. We accept that characterization
Before proceeding to the controlling statutes, we, as did Congress, deem it advisable to emphasize the important role that repo transactions have in our nation's economy. In 1983, it was estimated that the aggregate daily volume of repo transactions amounted to several hundred billion dollars. S.Rep. No. 65, 98th Cong., 1st Sess. 45 (1983) ("1983 Senate report"). More recently, it has been reported that the aggregate daily repo volume during the week of November 9, 1988, was approximately $600 billion. Br. for amicus curiae (Public Securities Assoc. (PSA)) at 10 n. 10 (citing Fed.Res.Bull. at A32 (Fed. 1989) (Table 1.43)). By contrast, the record volume of stock exchange and over-the-counter trades during the week of October 26, 1987 (when stock trades for the week of October 19, 1987 settled) has been estimated to have been less than $200 billion. Id. (citing Division of Market Regulation, U.S. Securities and Exchange Commission, The October 1987 Market Break at 10-1, appearing in, The Stock Market Crash, October 19, 1987: Reports, Studies and Testimony, Vol. 1, (1980)). Repos involve large amounts of money (agreements are usually for $500,000 or more), are typically of limited duration, often for just one night, and are usually closed by an oral agreement subject to written confirmation. See SEC v. Miller, 495: F. Supp. 465, 469 (S.D.N.Y. 1980).
The repo market is used by the Federal Reserve System to help execute monetary policy, and serves to finance the national debt at the lowest possible cost. Repos are an attractive cash-management investment for businesses, ...