MC Asset Recovery LLC v. Commerzbank A.G., et. al (In re Mirant Corp.)

Case No. 11-10070 (5th Cir. March 20, 2012).
Plaintiff had standing to avoid the debtor’s guaranty obligations pursuant to 11 U.S.C. § 544(b) and the laws of the State of New York. The decision was driven by the Fifth Circuit’s balancing of factors set forth in the RESTATEMENT (SECOND) OF CONFLICT OF LAWS (“Restatement”) and the Court’s selection of New York fraudulent transfer laws, which authorize the avoidance of guarantees. Defendants argued that because Mirant’s creditors had been paid in full under the terms of a confirmed plan, the Plaintiff lacked standing. Recognizing some divergence in federal court precedent, the court cited with approval the Eighth Circuit’s pronouncement that ”the ‘bankruptcy estate’ is not synonymous with the concept of a pool of assets to be gathered for the sole benefit of unsecured creditors.” The court also relied upon its earlier decision in In re Moore, 608 F.3d 253, 260 (5th Cir. 2010) in finding that § 544(b) triggers a trustee’s (and by extension, a debtor-in-possession’s) right to pursue avoidance claims as of the petition date and that right persists until avoidance would no longer benefit the estate, even if all allowed unsecured creditors have been paid in full. Accordingly, the court found that the Plaintiff had standing “to the extent that [Plaintiff’s] successful avoidance of fraudulent transfers will benefit the estate,” but left the determination of any benefit(s) to the estate to the district court on remand. The court quickly resolved the FDCPA issue by citing to specific language within the FDCPA, as well as legislative history effectively stating that the FDCPA should not be included as “applicable law” under §544(b). The court’s determination of which state fraudulent transfer law should apply drove the outcome of the case, because the Georgia statue at issue did not treat guarantees as avoidable fraudulent transfers whereas those same transfers may be subject to avoidance under New York law. The court’s choice of New York law turned on its balancing of contacts under § 6 of the Restatement within the context of an overriding policy objective to protect creditors from fraudulent transfers. Within that context and persuaded in part by the fact that Georgia had repealed the applicable fraudulent transfer statute, the court found that far more of the § 6 factors favored application of New York law rather than the repealed Georgia law.
Procedural context:
Defendants filed a motion to dismiss, arguing that the Plaintiff lacked standing and that the application of Georgia law prevented avoidance of the Guaranty. The bankruptcy court sua sponte converted the motion to dismiss into a summary judgment motion and issued proposed findings of fact and conclusions of law. The district court partially accepted and partially rejected the bankruptcy court’s proposed findings and held that the Plaintiff had standing, but that the Defendants were entitled to summary judgment because neither the Federal Fair Debt Collection Practices Act (“FDCPA”) nor Georgia law authorized avoidance of the Guaranty under § 544(b). Both sides appealed. Defendants appealed the district court’s ruling on standing, and the Plaintiff requested review of whether (1) the FDCPA was “applicable law” under §544(b) and (2) whether Georgia or New York state law should be applied. The Fifth Circuit addressed both issues de novo.
Mirant guaranteed a subsidiary’s pre-petition loan obligation to Commerzbank for acquisition of “power islands” in Europe (the “Guaranty”). The acquisition fell through and Mirant made payments on the Guaranty. After filing bankruptcy, Mirant sued, and its post-confirmation special litigation entity (“Plaintiff”) subsequently prosecuted, a suit against Commerzbank and other syndicated lenders (the “Defendants”) to avoid Mirant’s Guaranty.
Benavides and Prado, Circuit Judges, and Alvarez, District Judge, sitting by designation.

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