Opinion
No. 05-01025 M47(SAS), No. 01-16034 Jointly Administered, Adversary Proceeding.
January 30, 2007
For Enron Corp., et al., debtors-in-possession: Albert Togut, Esq., Scott E. Ratner, Esq., Richard K. Milin, Esq., TOGUT SEGAL SEGAL LLP, New York, NY.
Special Litigation Counsel for Enron Corp., et al., debtors-in-possession: H. Lee Godfrey, Esq., Kenneth S. Marks, Esq., Mary Kathryn Sammons, Esq., SUSMAN GODFREY L.L.P., Houston, TX.
Special Litigation Counsel for Enron Corp., and Enron North America Corp., debtors-in-possession and plaintiffs: Richard L. Wasserman, Esq., VENABLE LLP, Baltimore, MD.
For Defendant Springfield Associates, L.L.C.: David Parker, Esq., Edward Grosz, Esq., KLEINBERG, KAPLAN, WOLFF COHEN, P.C., New York, NY., John J. Galban, Esq., SEWARD KISSEL LLP, New York, NY.
For Intervenor Citibank, N.A.: Stephen J. Shimshak, Esq., Douglas R. Davis, Esq., Brad S. Karp, Esq., Claudia L. Hammerman, Esq., PAUL, WEISS, RIFKIND, WHARTON GARRISON LLP, New York, NY.
For Defendants Rushmore Capital — I, L.L.C. Rushmore Capital — II, L.L.C.: David Lee Evans, Esq., Theodore J. Folkman, Esq., HANIFY KING, P.C., Boston, MA.
For Defendants Strategic Value Master Fund, Ltd. and Man Mac 3 Limited: Jonathan L. Hochman, Esq., SCHINDLER COHEN HOCHMAN LLP, New York, NY.
For Defendants DK Acquisition Partners, LP: Martin Eisenberg, Esq., Anna Karpman, Esq., EMMET, MARVIN MARTIN, LLP, New York, NY.
For Defendant Bear, Stearns Co. Inc.: Stephen M. Sinaiko, Esq., Jonathan A. Popolow, Esq., KRAMER LEVIN NAFTALIS FRANKEL LLP, New York, NY.
For Intervenors Barclays Bank PLC and its Affiliates: Hugh McDonald, Esq., ALLEN OVERY LLP, New York, NY., David H. Braff, Esq., Michael T. Tomaino, Jr., Esq., Jeffrey T. Scott, Esq., SULLIVAN CROMWELL LLP, New York, NY.
For Intervenors Merrill Lynch Co., Inc., Merrill Lynch, Pierce, Fenner Smith Incorporated, and Merrill Lynch Capital Services, Inc.: Herbert Washer, Esq., William J. F. Roll III, Esq., Seth M. Kean, Esq., SHEARMAN STERLING LLP, New York, NY.
For Intervenors Credit Suisse First Boston LLC and its Affiliates: Richard W. Clary, Esq., Julie A. North, Esq., Darin P. McAtee, Esq., CRAVATH, SWAINE MOORE LLP, New York, NY.
For Intervenor The Toronto-Dominion Bank: John H. Maddock, III, Esq., McGUIREWOODS LLP, New York, NY., Robert Plotkin, Esq., Dion W. Hayes, Esq., McGUIREWOODS LLP, Washington, D.C.
For FleetBoston Financial Corp., Fleet National Bank, DK Acquisition Partners, L.P., Rushmore Capital-I, L.L.C., Rushmore Capital-II, L.L.C., and RCG Carpathia Master Fund, Ltd.: Richard F. Casher, Esq., KASOWITZ, BENSON, TORRES FRIEDMAN LLP, New York, NY.
For Yosemite Securities Trust I, Yosemite Securities Company, Ltd., Enron Credit Linked Notes Trust, Enron Credit Linked Notes Trust II, Enron Sterling Credit Linked Notes Trust, Enron Euro Credit Linked Notes Trust, and The Bank of New York: David S. Elkind, Esq., Marc F. Skapof, Esq., ROPES GRAY LLP, New York, NY., Matthew M. Burke, Esq., Stephen Moeller-Sally, Esq., ROPES GRAY LLP, Boston, MA.
MEMORANDUM OPINION AND ORDER
Defendant Springfield Associates, L.L.C. ("Springfield") and intervenor Citibank, N.A. ("Citibank") in the above-captioned coordinated adversary proceeding request leave to file an interlocutory appeal from the order of the Bankruptcy Court of the Southern District of New York denying defendant's motion to dismiss the disallowance claim pursuant to section 502(d) of the Bankruptcy Code filed by Enron Corp. and certain of its affiliates (collectively, "Enron").
The opinion in this adversary proceeding is unpublished, but is substantively identical as far as the relevant legal issues are concerned to those issued in the other coordinated adversary proceedings, of which one is published, see Enron Corp. v. Avenue Special Situations Fund II, LP (In re Enron Corp.), 340 B.R. 1820 (Bankr. S.D.N.Y. 2006).
I. BACKGROUND
This Court, in an Opinion and Order dated September 5, 2006, previously had granted certain defendants and intervenors, including Springfield and Citibank, leave to file an interlocutory appeal from the Bankruptcy Court's order denying defendants' motions to dismiss claims for equitable subordination under section 510(c) of the Bankruptcy Code (the "September 5 Opinion"). Familiarity with the September 5 Opinion, and the legal standard and terms used therein, is presumed for purposes of this Opinion. To date, all but one of the transferee litigations have been settled.
See Enron Corp. v. Avenue Special Situations Fund II, LP (In re Enron Corp.), No. M47, 2006 WL 2548592 (S.D.N.Y. Sept. 5, 2006).
II. DISCUSSION
It is undisputed that the present motion for leave to appeal presents issues substantively identical to those that were considered in the September 5 Opinion. The first issue is whether equitable subordination under 510(c) and disallowance under 502(d) can be applied, as a matter of law, to claims held by a transferee to the same extent they would be applied to the claims if they were still held by the transferor based on alleged acts or omissions on the part of the transferor. The second issue is whether the good faith defense is available as a matter of law to purchasers of a claim, and even if it were, whether it is available to purchasers of post-petition claims.
Rather than repeat the arguments considered and rejected by the Court in the September 5 Opinion, Enron now opposes the present motion — and, in effect, requests reconsideration of the September 5 Opinion — on the ground that both motions, and both issues therein, were predicated on the disputed issue of fact of whether the transferees were in fact good faith purchasers for value, which Enron argues should prevent an interlocutory appeal. Enron's argument fails as to the first issue, but succeeds as to second issue.
A. The First Issue Does Not Turn on Any Disputed Fact
As is clear from the September 5 Opinion, the issue of whether equitable subordination and disallowance of claims can be applied to claims held by a transferee to the same extent they would be applied to claims in the hands of the transferor does not turn on the disputed fact of whether the transferee is a good faith purchaser for value or any other disputed fact. To the contrary, the issue is a pure question of law. Moreover, as detailed in the September 5 Opinion, the issue is novel and is controlling insofar as it would be outcome determinative if the Bankruptcy Court were reversed. Thus, for the reasons already stated in the September 5 Opinion, defendant and intervenor's motion for leave to appeal the 502(d) order is granted as to the first issue. The appeal pending as to the 510(c) order shall proceed on that issue as well.
B. The Second Issue Does Turn on a Disputed Fact
The issue of whether the good faith defense is available as a matter of law to purchasers of a claim, by contrast, does turn on the disputed fact of whether the transferees were in fact good faith purchasers for value. This issue is not appropriate for interlocutory appeal because even if the Court found that the good faith defense is not foreclosed as a matter of law, the parties would still have to litigate the factual issue of the transferee's good faith in order to determine if the transferee can invoke that defense. Reversal of the Bankruptcy Court on the second issue in an interlocutory appeal would not end the litigation because Enron's claims cannot be dismissed based on an affirmative defense that turns on disputed facts. Thus, the motion for leave to appeal the 502(d) order is denied as to the second issue. Further, I have reconsidered the September 5 Opinion in this respect and conclude that leave to appeal the 510(c) order on the second issue likewise should have been denied. Thus, the appeal pending as to the 510(c) order is dismissed as to that issue.
See United States v. Space Hunters, Inc., 429 F.3d 416, 426 (2d Cir. 2005) ("A court may dismiss a claim on the basis of an affirmative defense only if `the facts supporting the defense appear on the face of the complaint,' and `it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim that would entitle him to relief.'" (quoting McKenna v. Wright, 386 F.3d 432, 436 (2d Cir. 2004))).
III. CONCLUSION
For the reasons stated above and in the September 5 Opinion, the motion for leave to appeal the 502(d) order is granted in part and denied in part. The pending appeal of the 510(c) order is dismissed in part as to the issue of the availability of the good faith defense. The parties are directed to submit a proposed order reflecting an agreed upon coordinated briefing schedule for the combined appeals of the 510(c) and the 502(d) orders only as to the first issue, as defined above. The Clerk of the Court is directed to close this motion.