Law.com Subscribers SAVE 30%

Call 855-808-4530 or email [email protected] to receive your discount on a new subscription.

Safe Harbor Shields Shareholders In Tribune Fraudulent Transfer Litigation

By Michael L. Cook

The U.S. District Court for the Southern District of New York, on April 23, 2019, denied a litigation trustee's motion for leave to file a sixth amended complaint that would have asserted constructive fraudulent transfer claims against 5,000 Tribune Company (Tribune) shareholders. In re Tribune Co. Fraudulent Conveyance Litigation, 2019 WL 1771786 (S.D.N.Y. Apr. 23, 2019). The safe harbor of Bankruptcy Code (Code) §546(e) barred the trustee's proposed claims, held the court. Id. at 12. Based on undisputed facts, it reasoned that the debtor, Tribune Company (Tribune) “was a 'customer' of CTC” [Computershare Trust Company, N.A.]; CTC was “acting as Tribune's 'agent or custodian' … 'in connection with a securities contract'”; and that both entities were a “financial institution” as defined by the Code. Id. at 9. Also, held the court, “at this stage of the litigation,” allowing the trustee to amend his complaint “would result in undue prejudice to the [defendant] Shareholders.” Id. at 12.

This decision means, as a practical matter, that: a) the trustee cannot assert federal constructive fraudulent transfer claims against the shareholders; b) the court has now resolved all of the trustee's other claims in the action; and c) separate individual creditor suits asserting state law constructive fraudulent transfer claims, the subject of the Second Circuit's related decision, 818 F.3d 98 (2d Cir. 2016) (state law claims “preempted by” §546(e)), will also probably be barred. In any event, the court has now effectively dismissed all of the trustee's federal claims against the shareholder defendants.

Relevance

Code §546(e), the so-called “safe harbor” defense, “shields from [a bankruptcy trustee's] avoidance proceedings [e.g., fraudulent transfer, preferential transfers]” based on “transfers by or to financial intermediaries effectuating settlement payments in securities transactions or made in connection with a securities contract, except through an intentional fraudulent [transfer] claim.” In re Tribune Co. Fraudulent Conveyance Litigation, 818 F.3d 98, 105 (2d Cir. 2016).

This premium content is locked for Entertainment Law & Finance subscribers only

  • Stay current on the latest information, rulings, regulations, and trends
  • Includes practical, must-have information on copyrights, royalties, AI, and more
  • Tap into expert guidance from top entertainment lawyers and experts

For enterprise-wide or corporate acess, please contact Customer Service at [email protected] or 877-256-2473

Read These Next
Bankruptcy Sales: Finding a Diamond In the Rough Image

There is no efficient market for the sale of bankruptcy assets. Inefficient markets yield a transactional drag, potentially dampening the ability of debtors and trustees to maximize value for creditors. This article identifies ways in which investors may more easily discover bankruptcy asset sales.

Judge Rules Shaquille O'Neal Will Face Securities Lawsuit for Promotion, Sale of NFTs Image

A federal district court in Miami, FL, has ruled that former National Basketball Association star Shaquille O'Neal will have to face a lawsuit over his promotion of unregistered securities in the form of cryptocurrency tokens and that he was a "seller" of these unregistered securities.

Why So Many Great Lawyers Stink at Business Development and What Law Firms Are Doing About It Image

Why is it that those who are best skilled at advocating for others are ill-equipped at advocating for their own skills and what to do about it?

Blockchain Domains: New Developments for Brand Owners Image

Blockchain domain names offer decentralized alternatives to traditional DNS-based domain names, promising enhanced security, privacy and censorship resistance. However, these benefits come with significant challenges, particularly for brand owners seeking to protect their trademarks in these new digital spaces.

Coverage Issues Stemming from Dry Cleaner Contamination Suits Image

In recent years, there has been a growing number of dry cleaners claiming to be "organic," "green," or "eco-friendly." While that may be true with respect to some, many dry cleaners continue to use a cleaning method involving the use of a solvent called perchloroethylene, commonly known as perc. And, there seems to be an increasing number of lawsuits stemming from environmental problems associated with historic dry cleaning operations utilizing this chemical.