Professional Documents
Culture Documents
Second Circuit
In Re: FAIRFIELD SENTRY LIMITED,
Debtor.
PAUL D. CLEMENT
GEORGE W. HICKS, JR.
BANCROFT PLLC
1919 M Street, NW, Suite 470
Washington, DC 20036
(202) 234-0090
DAVID J. MOLTON
MAY ORENSTEIN
DANIEL J. SAVAL
MAREK P. KRZYZOWSKI
BROWN RUDNICK LLP
Seven Times Square
New York, New York 10036
(212) 209-4800
TABLE OF CONTENTS
Page
INTRODUCTION ..................................................................................................... 1
ARGUMENT ............................................................................................................. 2
I.
II.
III.
A.
Section 1520(a)(3).......................................................................6
B.
Section 1521(a)(5).......................................................................8
C.
CONCLUSION ........................................................................................................ 15
TABLE OF AUTHORITIES
PAGE(S)
CASES
Braunstein v. McCabe,
571 F.3d 108 (1st Cir. 2009) ............................................................................... 11
Espinal v. Goord,
558 F.3d 119 (2d Cir. 2009) .........................................................................13, 14
Espinal v. Goord,
No. 07-612, 2009 WL 6027848 (2d Cir. Feb. 13, 2009) .................................... 13
In re Dant & Russell, Inc.,
853 F.2d 700 (9th Cir. 1988) .............................................................................. 12
In re Lavigne,
114 F.3d 379 (2d Cir. 1997) ............................................................................... 11
In re Merry-Go-Round Enters., Inc.,
400 F.3d 219 (4th Cir. 2005) .............................................................................. 11
Krys v. Farnum Place, LLC (In re Fairfield Sentry Ltd.),
768 F.3d 239 (2d Cir. 2014) .............................................................1, 5, 8, 10, 13
Liona Corp. v. PCH Assocs. (In re PCH Assocs.),
949 F.2d 585 (2d Cir. 1991) ................................................................................. 6
Musico v. Champion Credit Corp.,
764 F.2d 102 (2d Cir. 1985) ................................................................................. 5
Oliveira v. Mayer,
23 F.3d 642 (2d Cir. 1994) ................................................................................... 5
United States v. Fernandez,
443 F.3d 19 (2d Cir. 2006) ................................................................................... 6
Zerega Ave. Realty Corp. v. Hornbeck Offshore Transp., LLC,
513 F. Appx 30 (2d Cir. 2013) ............................................................................ 5
ii
OTHER AUTHORITIES
1 Collier on Bankruptcy (16th ed. 2010) ................................................................... 9
3 Collier on Bankruptcy (16th ed. 2010) ................................................................. 12
1B JAMES WM. MOORE ET AL., MOORES FEDERAL PRACTICE (2d ed. 1991) ............ 6
iii
INTRODUCTION
In its September 26, 2014 opinion, this Court correctly held that the SIPA
claim at issue is property within the territorial jurisdiction of the United States,
and, thus, under the plain language of 11 U.S.C. 1520(a)(2), the bankruptcy
court must apply section 363 of the Bankruptcy Code to determine whether
transfer of that claim may proceed from appellant Kenneth Krys (Krys), on
behalf of debtor Fairfield Sentry Ltd. (Sentry), to appellee Farnum Place LLC
(Farnum). Krys v. Farnum Place, LLC (In re Fairfield Sentry Ltd.), 768 F.3d
239, 245 (2d Cir. 2014).
remanded the matter to the district court with instructions to remand to the
bankruptcy court to conduct the section 363 review. Id. at 246.
In its petition for rehearing, Farnum contends that this Court should amend
its opinion to clarify that three alternative arguments briefed and pressed by
Farnum in the lower courts and this Court remain open on remand. Pet. for
Rehg 15. Farnum claims that these arguments might well foreclose the need for
any section 363 review but no court has yet addressed them. Id. In turn, this
Court has asked Krys to respond to Farnums contention that the opinion should be
modified to permit the District Court, on remand, to consider any issues not
already adjudicated that might preclude the need for a section 363 hearing. Order
1.
Farnums last-ditch effort to avoid the required Section 363 hearing should
be rejected for three straightforward reasons.
representation, the district court has already considered and rejected each of
Farnums three alternative arguments.
meritless before this Courts decision, and each has even less merit after the
decision; it is no accident that despite Farnums express invitation to this Court to
accept these arguments in its brief, the Court declined to do so. Third, the lone
precedent cited by Farnum does not support its extraordinary demand. Farnums
request should be denied.1
ARGUMENT
I.
any of its three alternative arguments supposedly foreclosing the need for a
Section 363 hearing. Pet. for Rehg 15. This Courts request for a response is
premised on that representation: it posits a remand to allow the district court to
consider any issues not already adjudicated that might preclude the need for a
Section 363 hearing. Order 1. But Farnums premise is false. In fact, the district
1
The limited scope of the Courts order indicates that the Court (correctly)
believes that Farnums other arguments for rehearing lack merit. Accordingly, and
consistent with the Order, this response is limited to Farnums specific claim that
the Court should remand to allow consideration of the three arguments that might
preclude the need for a section 363 hearing. Order 1.
2
Second, because the bankruptcy court, at the time of its July 2010 recognition of
Sentrys BVI insolvency proceeding as a foreign main proceeding, entrusted to
Krys the administration or realization of any property located in the United
States pursuant to 11 U.S.C. 1521(a)(5), there is no need for any further court
approval for transactions arguably subject to Section 1520(a)(2). Br. for Appellee
48.
transaction for which no Section 363 hearing is required because the business of
Sentry, the debtor, is to liquidate all of its assets. Id. at 49.
Farnum made each of these arguments to the district court.
See, e.g.,
Farnum Place, LLCs Br. in Response to Foreign Representatives Opening Br. 1921 (S.D.N.Y. May 6, 2013). And the district court rejected each of them. The
district court rejected Farnums third argument out of hand during oral argument.
Counsel explicitly raised Farnums argument that the transfer of the SIPA claim
was in [the] ordinary course, and the district court immediately responded:
3
Clearly it was not. SPA-30. Farnum thus cannot seriously contend that the
district court has not already adjudicated this question. The issue was before the
district court, the district court considered it, and the district court rejected it.2
Furthermore, in its written order, the district court impliedly, but
incontrovertibly, rejected Farnums other two arguments (as well as the third
argument) that Section 363 review does not apply in this case. To begin with, the
court observed at the outset of its order that it was not clear that Section 363 of
the Bankruptcy Code applies to this case. SPA-1. The court did not hold that it
was inapplicable, however, as would be expected if the court found any of
Farnums alternative arguments persuasive.
applicability of Section 363 because it was unsure whether the SIPA claim is
within the territorial jurisdiction of the United States.
Second, and more significant, the district court nevertheless proceeded to
hold that even if Section 363 appliesi.e., if the purported assignment of the
SIPA claim were in fact a transfer of an interest in property in the United States
transfer of the SIPA claim was proper. SPA-2 (emphasis added). That was so, the
district court believed, because Farnums offer for the SIPA claim was the
During oral argument, the district court also rejected Farnums claim that the
Trade Confirmations terms required approval by the SIPA court, not the Chapter
15 courtanother argument it advances in its petition for rehearing (though not
one of its alternative arguments purportedly precluding a Section 363 hearing).
Pet. for Rehg 15; see SPA-66-67.
4
winning bid in a properly held auction, and the deal was a reasonable one from
the perspective of the debtors liquidator. SPA-2. The district court thus applied
Section 363 and concluded that the transaction passed muster under that provision.
It could not have done so, however, unless it had impliedly considered and rejected
Farnums three arguments for why Section 363 does not apply at all (as it
explicitly did with respect to Farnums third argument). Had the district court
believed that any of those arguments were meritorious, either it would have
refrained from carrying out its own Section 363 analysis, or it would have
mentioned at least one of them when explaining why it believed it was unclear
whether Section 363 applies at all, as it did with the territorial jurisdiction
question. The fact that the district court proceeded to apply Section 363 (albeit
erroneously) confirms that it rejected Farnums alternative arguments that it need
not apply Section 363 at all.3
District courts are not required to expressly address every argument by a
party; rejection by implication is permissible. See, e.g., Oliveira v. Mayer, 23 F.3d
642, 648 (2d Cir. 1994); Musico v. Champion Credit Corp., 764 F.2d 102, 107-08
(2d Cir. 1985); Zerega Ave. Realty Corp. v. Hornbeck Offshore Transp., LLC, 513
3
The district courts Section 363 analysis was flawed, as Krys argued to this Court
and this Court acknowledged when it provided guiding principles for a Section
363 analysis. In re Fairfield Sentry, 768 F.3d at 246-47. But the operative point
for present purposes is that the district court proceeded to apply Section 363 and
engage in what it believed was a proper Section 363 analysis, notwithstanding
Farnums alternative arguments for why Section 363 does not apply at all.
5
F. Appx 30, 33 (2d Cir. 2013); cf. United States v. Fernandez, 443 F.3d 19, 30 (2d
Cir. 2006). In this case, Farnum raised, briefed, and pressed its three alternative
arguments before the district court, and the district court expressly rejected one of
them and impliedly rejected all of them.
adjudicated these issues, Order 1, and Farnum is not entitled to another bite at the
apple on remand.4
II.
alternative arguments, why Farnum barely advanced them before this Court, and
why this Court declined to accept them: They were completely without merit even
before this Courts decision, and this Courts decision has rendered them even
more baselessindeed, entirely foreclosed. There is no sound reason to signal that
these baseless arguments could excuse the need for the requisite 363 hearing.
A.
Section 1520(a)(3)
Farnums first argument is that application of Section 363 in this case is not
mandatory but discretionary, because Section 1520(a)(2) must be read in
4
Indeed, because the district court has already adjudicated these issues, Farnum is
barred from relitigating them in the district court under the law of the case
doctrine. See Liona Corp. v. PCH Assocs. (In re PCH Assocs.), 949 F.2d 585, 59293 (2d Cir. 1991) (observing that where an issue was decided by the district court
in an earlier case and was not disapproved by the appellate court, it is the law of
the case) (quoting 1B JAMES WM. MOORE ET AL., MOORES FEDERAL PRACTICE
0.404[4.3] (2d ed. 1991)).
6
Section
Section 1521(a)(5)
Farnums second argument is that because the bankruptcy court has already
entrusted to Krys the administration or realization of any property located in the
8
United States pursuant to 11 U.S.C. 1521(a)(5), then there is no need for any
further court approval for transactions subject to Section 1520(a)(2). Br. for
Appellee 48. Like Farnums first argument, this contention was grossly incorrect
even before the Courts opinion. The entrustment or realization of assets to Krys
under Section 1521(a)(5) does not mean that he may simply transfer the debtors
assets to third parties in any way he pleases. Rather, this power is analogous to a
Chapter 7 trustees power to dispose of and distribute estate property pursuant to
Section 704(a).
has
previously
granted
the
foreign
representatives
request
for
Farnums third argument is that the transfer of the SIPA Claim occurred in
the ordinary course of Sentrys business and thus no Section 363 hearing is
required.
liquidate all of its assets. Id. The district court rightly rejected this argument as
[c]learly wrong, SPA-30, and it is even more so following the Courts opinion.
The term ordinary course of business generally has been accepted to
embrace the reasonable expectations of interested parties of the nature of
transactions that the debtor would likely enter in the course of its normal, daily
business. In re Lavigne, 114 F.3d 379, 384 (2d Cir. 1997) (citation omitted)
(quotation marks omitted). To determine whether a transaction is ordinary,
courts typically apply two tests.
Id.
Under these
uncontroverted circumstances, the transaction plainly fails both the vertical and
horizontal tests. See, e.g., In re Dant & Russell, Inc., 853 F.2d 700, 705 (9th Cir.
1988) (noting that [s]ome transactions either by their size, nature or both are not
within the day-to-day operations of a business and are therefore extraordinary)
(citation omitted).5
Moreover, as with Farnums other arguments, this Courts opinion further
confirms the infirmity of Farnums ordinary course contention. Farnums claim
that a Section 363 hearing is not warranted under Section 1520(a)(2) turns on its
assertion that because Sentry was in liquidation, Sentrys business was to
liquidate all its assets. But Section 363 expressly applies in Chapter 7 liquidations,
the only purpose of which is to liquidate all of the debtors assets. See 11 U.S.C.
103(a); 3 Collier on Bankruptcy 363.02 (16th ed. 2010) (The authorization to
use, sell or lease property other than in the ordinary course of business applies both
when the business is not authorized to be operated, for example because the debtor
is being liquidated, and when the business is authorized to be operated and the
proposed action is not in the ordinary course of business. (emphasis added)).
And under the plain and express language of Section 1520(a)(2), In re
Farnums argument that the transfer of the SIPA claim is in the ordinary course
is further belied by the fact that the Trade Confirmation requires the approval of
two different courtshardly the markings of an ordinary transaction.
12
Fairfield Sentry, 768 F.3d at 245-46, Section 363 applies to the same extent in a
foreign main proceeding (once the territorial prerequisite is satisfied) as it does in a
Chapter 7 proceeding. Consequently, Section 363 applies even when a foreign
proceeding consists solely of liquidation.
III.
request for modification of the opinion. In Espinal v. Goord, 558 F.3d 119 (2d Cir.
2009), a prisoner plaintiff alleged that the defendants used excessive force against
him in retaliation for previously filing lawsuits.
summary judgment to the defendants on the retaliation claim, and a jury returned a
verdict for the defendants on the excessive force claim. This Court reversed the
grant of summary judgment but upheld the excessive force verdict. Id. at 121.
The defendants petitioned for rehearing, arguing that the jurys excessive
force verdict foreclosed a necessary element of the retaliation claim. Id. at 129 n.8.
The defendants explained that they had not addressed this alternative ground for
affirmance of the retaliation judgment because the plaintiff did not challenge the
retaliation judgment in his briefs and the court had not held oral argument. Thus,
the defendants had no opportunity to raise this alternative argument for
affirmance. Defs.-Appellees Pet. for Rehg 1-2, Espinal v. Goord, No. 07-612,
2009 WL 6027848, at *1-2 (2d Cir. Feb. 13, 2009). Consequently, this Court
13
amended its opinion to clarify that it was leaving [this issue] to the district court
to decide in the first instance on remand. 558 F.3d at 129 n.8.
This case is readily distinguishable from Espinal. This is not a situation
where the Courts decision has created new issues that are more properly addressed
in the first instance by the district court on remand. Here, the issues Farnum
wishes to press on remand are the same issues it has already pressed before both
the district court and this Court. Unlike in Espinal, Farnum had every opportunity
to raise its alternative arguments for affirmance before this Courtand it did so.
This Court simply chose not to accept them, and for very good reasons, as
explained above. And as further explained, the district court in this case would not
be deciding these issues in the first instance, id.; the district court has already
considered and rejected them, too. Neither Espinal nor anything else in this
Courts jurisprudence supports Farnums effort to delay the Section 363 hearing to
which Krys is entitled. In sum, Farnum was correct to give these alternative
arguments short shrift in its briefing and to focus on its more substantial but still
unavailing arguments.
Nothing would be gained by signaling that these baseless claims could possibly
excuse the need for the mandatory and long-delayed Section 363 hearing.
14
CONCLUSION
The petition for rehearing should be denied in its entirety.
Dated:
15