- Affirm the District Court's dismissal of the complaint, on preemption rather than standing grounds. The rights of creditors to bring state law, fraudulent conveyance claims not limited in the hands of a trustee et al. by Bankruptcy Code section 546(e) or by similar provisions is not being decided at this time. There is no support in the Bankruptcy Code section 544 for the reversion of fraudulent conveyance claims to creditors. Similarly, there is no basis in Bankruptcy Code section 362 for the reemergence of state law, fraudulent conveyance claims once the bankruptcy court lifts the automatic stay. Moreover, enforcement of the intentional fraud claim is undermined if creditors can later bring state law, constructive fraudulent conveyance claims involving the same transfers. The meaning of section 546(e) with regard to appellants' rights to bring the state law, constructive fraudulent conveyance claims is ambiguous. Every congressional purpose reflected in section 546(e) conflicts with appellant's legal theory, and so, their claims are preempted. Congress intended to protect from constructive fraudulent conveyance avoidance proceedings transfers by a debtor in bankruptcy that fall within section 546(e)'s terms.
- Procedural context:
- Individual unsecured creditors brought a constructive fraudulent transfer complaint against the debtors' former shareholders, which the District Court dismissed for lack of statutory standing. Appellants appealed the decision, and appellees cross-appealed from the district court's rejection of their argument that appellant's claims are preempted.
- In the Tribune Chapter 11 cases, the Official Committee of Unsecured Creditors commenced an action, pursuant to Bankruptcy Code section 548(a)(1)(A), against the cashed out Tribune shareholders, various officers, directors, financial advisors, and others, seeking to recover alleged intentional fraudulent conveyances (the "Committee Action"). Subsequent to the start of the Committee Action, two subsets of unsecured creditors filed state law, constructive fraudulent conveyance claims in various federal and state courts (the "Creditor Actions"). Prior to the start of the Creditor Actions, the bankruptcy court lifted the automatic stay with regard to the Creditor Actions, and as part of the confirmation of Tribune's chapter 11 plan, the appellants were specifically authorized to bring the Creditor Actions. In sum, on appeal, the Appellants argued that although the power to bring constructive fraudulent conveyance actions is clearly vested in the trustee pursuant to the terms of the Bankruptcy Code, when the bankruptcy proceeding begins, if the avoidance power is not exercised by the trustee, then it returns to the creditors after the bankruptcy ends or after two years. However, the appellants' argument is premised on "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).
- Winter, Droney & Hellerstein
Victor Kearney v. Unsecured Creditors Committee
Summarizing by Bradley Pearce
3217 in the system
1 Being Processed