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Bankruptcy Litigation Securities Litigation

Safe Harbor Shields Shareholders In Tribune Fraudulent Transfer Litigation

The U.S. District Court for the Southern District of New York 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 shareholders. The safe harbor of Bankruptcy Code §546(e) barred the trustee’s proposed claims.

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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.

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