Case 13-3000, Document 96, 10/10/2014, 1342730, Page1 of 42

13-3000-BK
IN THE

FOR THE SECOND CIRCUIT

In Re: FAIRFIELD SENTRY LIMITED,
Debtor.
KENNETH KRYS, in his capacity as the duly appointed
liquidator and foreign representative of FAIRFIELD SENTRY LIMITED,
Appellant,
v.
FARNUM PLACE, LLC,
Appellee.
On Appeal From The United States District Court
For The Southern District of New York (New York City)

PETITION FOR PANEL REHEARING OR REHEARING EN BANC

Date of Decision: September 26, 2014
Judges: Newman, Walker, and Cabranes
Eric D. Winston
Shane McKenzie
Matthew Scheck
QUINN EMANUEL URQUHART
& SULLIVAN, LLP
865 South Figueroa St., 10th Floor
Los Angeles, CA 90017
213-443-3000

Kathleen M. Sullivan
Robert C. Juman
Scott C. Shelley
Cleland B. Welton II
QUINN EMANUEL URQUHART
& SULLIVAN, LLP
51 Madison Ave., 22nd Floor
New York, NY 10010
212-849-7000
Attorneys for Appellee

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TABLE OF CONTENTS
Page
TABLE OF AUTHORITIES .................................................................................... ii
INTRODUCTION AND RULE 35(B) STATEMENT ............................................. 1
FACTUAL STATEMENT ........................................................................................ 3
A.

The Trade Confirmation ........................................................................ 3

B.

The Proceedings In The BVI Court....................................................... 4

C.

The Proceedings Below ......................................................................... 5

D.

The Panels Decision ............................................................................. 6

REASONS FOR GRANTING THE PETITION ....................................................... 7

I.

II.

THE PANELS DECISION PRECLUDING CONSIDERATION OF

INTERNATIONAL COMITY IN CROSS-BORDER INSOLVENCY
PROCEEDINGS WARRANTS REHEARING EN BANC ............................ 7
A.

The Panels Decision Conflicts With The Central Purposes Of

Chapter 15 ............................................................................................. 7

B.

The Panels Decision Conflicts With Comity As A Canon Of

Construction ........................................................................................ 10

C.

The Panels Decision Conflicts With This Courts Decision In

Maxwell ............................................................................................... 11

D.

The Panels Decision Imposes Significant New Burdens On

Cross-Border Bankruptcy Proceedings ............................................... 13

THE PANEL SHOULD GRANT REHEARING TO CORRECT ITS

OPINION ....................................................................................................... 14

CONCLUSION ........................................................................................................ 15
CERTIFICATE OF COMPLIANCE ....................................................................... 17
ADDENDUM

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TABLE OF AUTHORITIES
Page
Cases
In re Brickell,
142 F. Appx 385 (11th Cir. 2005) ..................................................................... 10
Espinal v. Goord,
558 F.3d 119 (2d Cir. 2009) ............................................................................... 15
In re Fairfield Sentry Ltd.,
440 B.R. 60 (Bankr. S.D.N.Y. 2010), affd, 714 F.3d 127 (2d Cir. 2013) ........... 3
J.V.W. Inv. Ltd. v. Kelleher,
41 A.D.3d 233 (1st Dept 2007) ......................................................................... 11
In re Maxwell Commcn Corp.,
93 F.3d 1036 (2d Cir. 1996) ...........................................................2, 7, 11, 12, 13
In re Patriot Place, Ltd.,
486 B.R. 773 (Bankr. W.D. Tex. 2013).............................................................. 14
United States v. Aluminum Co. of Am.,
148 F.2d 416 (2d Cir. 1945) ............................................................................... 12
Victrix S.S. Co. v. Salen Dry Cargo A.B.,
825 F.2d 709 (2d Cir. 1987) ............................................................................... 11
In re Yatko,
416 B.R. 193 (Bankr. W.D.N.C. 2008) .............................................................. 10
Statutes
11 U.S.C. 103(a) .............................................................................................11, 12
11 U.S.C. 363 ................................................................... 2, 3, 5, 6, 7, 9, 12, 13, 14
11 U.S.C. 542 ..................................................................................................12, 13
11 U.S.C. 547 ........................................................................................................ 11
11 U.S.C. 549 ..................................................................................................12, 13
ii

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11 U.S.C. 1501(a) ................................................................................................... 8

11 U.S.C. 1501(b) ................................................................................................. 13
11 U.S.C. 1502(8) ................................................................................................... 6
11 U.S.C. 1504 ..............................................................................................3, 8, 13
11 U.S.C. 1508 ...................................................................................................... 13
11 U.S.C. 1517 ........................................................................................................ 3
11 U.S.C. 1520(a)(2) .....................................................................2, 5, 8, 10, 12, 13
11 U.S.C. 1525 ........................................................................................................ 8
11 U.S.C. 1525(a) ................................................................................................... 8
11 U.S.C. 1527 ........................................................................................................ 8
15 U.S.C. 78fff-2(b) .............................................................................................. 10
Fed. R. App. P. 35(b) ................................................................................................. 1
Miscellaneous
Forbes Hare,
Fairfield Sentry liquidators win key ruling in battle to secure
better deal for the sale of Sentrys claim in the estate of BLMIS (2014) ............. 8
Amended Guidelines for the Conduct of Asset Sales
(Bankr. S.D.N.Y. 2009) ........................................................................................ 9

iii

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INTRODUCTION AND RULE 35(b) STATEMENT

In Krys v. Farnum Place, LLC (In re Fairfield Sentry Ltd.), __ F.3d. __,
2014 WL 4783370 (2d Cir. Sept. 26, 2014) (Addendum hereto), the panel held that
a U.S. bankruptcy court exercising mere ancillary jurisdiction under Chapter 15
must violate international comity by second-guessing the decision of a foreign
bankruptcy court in a foreign bankruptcy proceeding. The decision disregards the
nature of Chapter 15 proceedings, conflicts with Circuit precedent, and will cause
significant burdens on the bankruptcy courts; accordingly it warrants en banc
review.
This case concerns a sale of an intangible asset held by a British Virgin
Islands (BVI) entitya transaction that the late Bankruptcy Judge Burton
Lifland (whose decision the panel overturned) properly called BVI-centric.
Specifically, Fairfield Sentry Ltd. (Sentry), a BVI-based Madoff feeder fund that
is undergoing liquidation under BVI law, sold its claim against the Madoff estate
to appellee Farnum Place, LLC (Farnum).

The BVI court with primary

jurisdiction over the Sentry insolvency approved the sale after full merits review
including a three-day evidentiary hearing. But Sentrys liquidator Kenneth Krys,
experiencing sellers remorse after the value of the claim went up after the sale,
tried to undo the sale by appealing to the U.S. bankruptcy court that had Chapter
15 ancillary jurisdiction over the Sentry estate. The bankruptcy court (Lifland, J.)

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and district court (Hellerstein, J.) declined to second-guess the BVI court, finding
no basis for review of the transaction under 11 U.S.C. 363 and 1520(a)(2).
The panel reversed, holding that the transaction was actually U.S.-centric
because of the theoretical possibility that the claim against the Madoff estate could
be garnished in a U.S. court, and that any consideration of comity toward the BVI
courts approval decision was precluded. That holding is in error, and will affect
virtually every transnational insolvency case with a U.S. arm. While Chapter 15
calls for coordination of and assistance among foreign and domestic bankruptcy
proceedings, the panels decision will force courts into needless conflict
impairing efficiency, increasing costs, and generating uncertainty that will impede
cross-border insolvencies and discourage international investment.
The panels holding also conflicts with In re Maxwell Communication
Corp., 93 F.3d 1036 (2d Cir. 1996)this Courts leading decision on comity in
cross-border insolvency lawwhich the panel failed even to cite, much less
distinguish. Maxwell holds that general words in a bankruptcy statute making
certain procedures applicable do not preclude consideration of background
principles of international comity that are presumptively applicable in any
transnational adjudication. The panel reached the opposite conclusion with respect
to a statute materially indistinguishable from the one in Maxwell.

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En banc review is warranted to resolve these conflicts. In the alternative, the

panel should grant rehearing and amend its opinion to correct misapprehensions of
law and factin particular, to make clear that the bankruptcy court on remand may
consider, before conducting any section 363 review, the several additional grounds
for dismissal that the panel declined to reach as alternative grounds for affirmance.
FACTUAL STATEMENT
A.

The Trade Confirmation

Bernard L. Madoff Investment Securities (BLMIS) entered liquidation in

the bankruptcy court for the Southern District of New York under the Securities
Investor Protection Act (SIPA) in December 2008.
BLMIS, thereafter entered liquidation in the BVI.

Sentry, an investor in

JA106.

Krys initiated an

ancillary proceeding under Chapter 15 in the bankruptcy court for the Southern
District, which recognized Sentrys BVI case as a foreign main proceeding. In
re Fairfield Sentry Ltd., 440 B.R. 60 (Bankr. S.D.N.Y. 2010), affd, 714 F.3d 127
(2d Cir. 2013); 11 U.S.C. 1517, 1504.
Krys asserted in BLMISs SIPA case a customer claim in excess of $960
million.

See Picard v. Fairfield Sentry Ltd., Adv. Pro. No. 09-1239 (Bankr.

S.D.N.Y.). BLMISs trustee Irving Picard disputed the claim, and Krys decided to
sell it at auction. Farnum won the auction, and on December 14, 2010, Farnum
agreed in a Trade Confirmation to purchase the claim for 32.125% of its final

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allowed amount. See JA35; JA74; JA518. The Trade Confirmation requires only
the BVI courts approval. JA36. The claim assignment is subject to [a]pproval
by the US Bankruptcy Court and the BVI Court (id.), but the Trade Confirmation
(JA33) and the declarations of four separate witnesses (JA586-632) make clear that
the term US Bankruptcy Court refers to the BLMIS SIPA casenot Sentrys
Chapter 15 case, which is not mentioned. See also Farnum Br. 7-9.
B.

The Proceedings In The BVI Court

On December 17, 2010, extrinsic events caused the claims value to rise.
JA25-27.1 Without first seeking relief in Sentrys Chapter 15 case, Krys sought in
the BVI court an order disapproving the Trade Confirmation, or in the alternative
deferring to a review in the Chapter 15 court. See JA517-19. The BVI court
denied both requests. JA519. Farnum then applied for the BVI courts approval,
which the court granted after a three-day trial. JA105-18. The court ruled that the
fact that the market ha[d] risen since the transaction closed [was] irrelevant,
and expressed no doubt in approv[ing] the terms and conditions of the Trade
Confirmation, as well as the assignment to Farnum of Sentrys claim. JA117.
The BVI court declined to decide Kryss alternative argument that the trade

As part of a settlement disposing of a number of Sentrys assets that would be

treated as U.S.-sited under the panels decision, Krys and Picard compromised
Sentrys claim for a conditionally allowed $230 million. JA661-62, JA670-71.
Krys did not seek the Chapter 15 courts review of that settlement, and has argued
(see JA703-05) that only the BVI Courts approval is required.
4

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required the Chapter 15 courts approval, expressing skepticism that 11 U.S.C.

363 would prevent it from treating as binding an agreement entered into by its
own officer where it is otherwise satisfied of its validity, but stating that it would
be unwise for a BVI court to opine on U.S. law (JA116) and deferring any
determination of U.S.-law issues to the U.S. bankruptcy court (without specifying
whether it meant the SIPA case or the Chapter 15 case) (JA117).
C.

The Proceedings Below

Krys sought disapproval of the Trade Confirmation in the Chapter 15 case

under section 363. The bankruptcy court rejected Kryss request, finding no basis
for disapproval.

SPA93.

The court first ruled that the claim (an item of

intangible property) was located in the BVI, and that the trade thus did not concern
property within the territorial jurisdiction of the United States to which section
363 would apply pursuant to 11 U.S.C. 1520(a)(2). SPA87-88.
The bankruptcy court also held that the doctrine of comity dictates that this
Court defer to the BVI Judgment. SPA92. Noting that its role was only to
supervis[e] an ancillary proceeding, the bankruptcy court found that the
transaction at issue is BVI-centric, that the U.S. lacks a meaningful interest in
the trade, and that principles of international comity barred second guessing the
BVI Courts approval. SPA91-92. The court rejected Kryss contention that the
BVI court had deferred to the U.S. courts, finding that the court had directed Krys

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to proceed in the U.S. only as a courtesy. Bankr. Ct. ECF No. 722, at 33-35.
The district court affirmed, holding that even if Section 363 applies, the
comity considerations that are at play barred disapproval of the trade. SPA2-3.
D.

The Panels Decision

Krys appealed, and a panel of this Court (Walker, J., joined by Newman &
Cabranes, JJ.) vacated the judgment. The panels recital of the facts states (Add. 56) that the transaction was subject to approval[] by the U.S. bankruptcy
court, implying that this meant the Chapter 15 court, rather than (as evidence
including the Trade Confirmation itself shows) BLMISs SIPA case (see supra, at
4). The panel also suggested (Add. 17 & n.2) that the BVI court did not expect[]
or desire[] deference from the U.S. courts, despite the BVI courts refusal to delay
ruling in favor of the Chapter 15 court and skepticism that section 363 would
interfere with its decision (see supra, at 4-5), and despite Judge Liflands finding
that the BVI courts deference was merely an act of courtesy (see supra, at 5-6).
On the legal issues, the panel first held that the SIPA claim is located
within the territory of the United States under 11 U.S.C. 1502(8), because
payments on the claim could be properly seized or garnished from the New
York-based trustee in BLMISs SIPA proceeding.

Add. 13-14.

The panel

disregarded that a New York court would not permit any such garnishment given
that the BVI court has asserted jurisdiction over the claim, citing section 1502(8)s

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reference to applicable nonbankruptcy law. Add. 14-15 (citation omitted).

The panel rejected the bankruptcy courts additional ruling that comity
warranted declining to second-guess the BVI courts decision via section 363
review, holding that comity was foreclosed by the express statutory command
that, in a Chapter 15 ancillary proceeding, the requirements of section 363 apply
to the same extent as in Chapter 7 or 11 proceedings. Add. 16. Without
citing Maxwell or considering the consequences of its holding, the panel held that
the bankruptcy court is required to conduct a section 363 review where the
territorial prerequisite is met (Add. 17), and therefore ruled that the bankruptcy
court erred in applying comity to decline such review. Add. 18.
Without addressing Farnums alternative arguments (Br. 47-49), the panel
concluded with decretal language (consistent with mandatory language elsewhere
in the opinion, see Add. 3, 16, 17, 18) requiring the district court to REMAND to
the bankruptcy court for [the required section 363] review (Add. 20).
REASONS FOR GRANTING THE PETITION
I.

THE PANELS DECISION PRECLUDING CONSIDERATION OF

INTERNATIONAL COMITY IN CROSS-BORDER INSOLVENCY
PROCEEDINGS WARRANTS REHEARING EN BANC
A.

The Panels Decision Conflicts With The Central Purposes Of

Chapter 15

As Judge Liflanda distinguished jurist who was involved in developing

the UNCITRAL Model Law on Cross-Border Insolvency as well as Chapter 15

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itselfexplained in the overturned decision below, Chapter 15 emanates from

and was designed around this central concept of comity. SPA91 (citing 11 U.S.C.
1501(a), 1504, 1525, 1527). And as Judge Lifland emphasized, failing to
consider comity would undermine the very aims of Chapter 15:
[I]nharmonious legal approachessuch as ones in which parties can
obtain duplicative, cross-border review on the basis of a contrived
relationship to an ancillary courthamper the rescue of financially
troubled businesses, are not conducive to a fair and efficient
administration of cross-border insolvencies, impede the protection of
the assets of the insolvent debtor against dissipation and hinder
maximization of the value of those assets. Furthermore, an absence of
predictability in the handling of cross-border insolvency cases
impedes capital flow and is a disincentive to cross border investment,
which is exactly the outcome Chapter 15 was designed to prevent.
SPA93 (citations and internal quotation marks omitted).
In precluding consideration of comity so long as the territorial prerequisite
of section 1520(a)(2) is met, the panel decision invites all the adverse
consequences Judge Lifland listed. By forcing nominally ancillary courts to
second-guess judgments of the main courts they are meant to assist, the panels
decision will inject conflict and expense into cross-border matters that should be
efficient and cooperative. The threat of conflicting decisions will undermine
certainty in international insolvency, impairing debtors ability to secure value for
their assets.2 And even where there is no conflict, the necessity in many cases to

Krys and his attorneys are already boasting that the panel decision will
undermine certainty in insolvency proceedings. See Forbes Hare, Fairfield Sentry
8

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obtain multiple courts review and approval will pointlessly multiply costs to the
estate.
The effect will be to force foreign debtors to adapt their practices to U.S. law
in any transaction involving property as to which there is even a chance of a later
finding of a U.S. situs: failure to do so would risk invalidation by a U.S. court.
This will be so even where U.S. practices are not familiar to or approved by the
foreign main court. For instance, the possibility of section 363 review often
leads a U.S. debtor conducting a non-ordinary-course sale to seek advance court
approval of bidding procedures and break-up fees.3 But in countries (like the BVI)
whose laws vary from U.S. law, such procedures are often unheard-of.4 The risk
that a U.S. bankruptcy court acting under Chapter 15 might later disapprove the
procedures used in a sale by a foreign debtor will reduce buyers confidence, and
discourage transactions that might otherwise benefit the foreign estates. And the
threat of U.S. courts interference with foreign administration of foreign estates
will make other nations less likely to cooperate with U.S. courts. The panels
decision will thus create a morass of costly, conflicting, duplicative litigation
liquidators win key ruling in battle to secure better deal for the sale of Sentrys
claim in the estate of BLMIS, http://www.forbeshare.com/index.php/news/newsevents/8-fh-content/102-fairfield-v-farnum-article (visited Oct. 10, 2014).
3

See, e.g., Amended Guidelines for the Conduct of Asset Sales at 5-6 (Bankr.
S.D.N.Y. 2009), http://www.nysb.uscourts.gov/sites/default/files/m383.pdf.
4

See, e.g., Bankr. Ct. ECF No. 591-15, at 142 (Justice Bannister: I dont know
what a break-up fee is.).
9

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turning Chapter 15 on its head and discouraging cross-border investment.

B.

The Panels Decision Conflicts With Comity As A Canon Of

Construction

Comity would normally counsel resolving doubts about statutory

construction so as to avoid conflict with a decision of a foreign court. The panels
aggressive interpretation of section 1520(a)(2) contravenes this long-standing
canon of construction. Far from resting on a plain interpretation of unambiguous
text, the panels holding that section 1520(a)(2) applies because the SIPA claim is
supposedly garnishable in New York depends upon at least three dubious premises:
First, it assumes that the SIPA trustee was statutorily obligated to pay the
claim and that the garnishee would be too (Add. 13)even though the trustee
owed no payment obligation at the time of the Trade Confirmation because the
claim had not been allowed.5 Second, it assumes that the SIPA trustee could be
garnished, even though trustees often cannot be garnished at all.6 And third, it
assumes that such a garnishment would be proper notwithstanding the BVI
proceeding, despite the fact that New York law (not bankruptcy law, contra Add.
14-15) would likely prohibit any such seizure.7 Comity would resolve these doubts

See 15 U.S.C. 78fff-2(b) (claim must be paid only if established to the

satisfaction of the trustee).
6

See, e.g., In re Brickell, 142 F. Appx 385, 389-91 (11th Cir. 2005) (per curiam);
In re Yatko, 416 B.R. 193, 201 (Bankr. W.D.N.C. 2008).
10

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in favor of respect for the BVI courts decision to approve the Trade Confirmation.
C.

The Panels Decision Conflicts With This Courts Decision In

Maxwell

En banc review is warranted for the additional reason that the panel opinion
effectively overrules, sub silentio, this Courts leading decision in Maxwell, on
which Farnum heavily relied (Br. 35-37, 39-40).

Maxwell was another case

involving coordinated insolvency proceedingsthere, a New York Chapter 11

proceeding and an English administration. 93 F.3d at 1040. The Chapter 11
examiner sought in the New York case to avoid certain transfers under 11 U.S.C.
547 that would have been unavoidable in England. Id. at 1043. This Court refused
on comity grounds to permit the section 547 action to proceed, finding that
deference was due to English resolution of the avoidance question. Id. at 1051-53.
In so holding, Maxwell explained that, because Congress legislates against
a backdrop that includes those international norms that guide comity analysis,
comity is presumptively applicable to any statute, including particularly the
Bankruptcy Code, absent specific contrary legislative direction. Id. at 1048.
This presumption was not overcome by 11 U.S.C. 103(a)s provision that section
547 appl[ied] in a case under chapter ... 11: those mere general words do
7

See, e.g., J.V.W. Inv. Ltd. v. Kelleher, 41 A.D.3d 233, 234 (1st Dept 2007) (trial
court abused its discretion by granting pre-judgment attachment where defendant
was subject to Bahamian liquidation proceeding); Victrix S.S. Co. v. Salen Dry
Cargo A.B., 825 F.2d 709, 715-16 (2d Cir. 1987) (New York court would refuse an
attachment to enforce a British judgment against a debtor in Swedish proceedings).
11

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not limit the application of international comity. Id. at 1048-49 (quoting United
States v. Aluminum Co. of Am., 148 F.2d 416, 443 (2d Cir. 1945) (L. Hand, J.)).
Without citing or distinguishing Maxwell, the panel decision reached the
opposite result. According to the panel (Add. 16-17 & n.1), the phrase apply
to the same extent as it appears in section 1520(a)(2) is automatic[] and not
discretionary, and thus overrides the presumption in favor of international
comity.

But this rationale conflicts with Maxwells application of comity to

section 103(a), which is every bit as automatic and non-discretionary as section

1520(a)(2); section 1520(a)(2) contains nothing more than the general words that
Maxwell held inadequate. 8 The panel thus contradicts Maxwell in holding that
specific statutory language is not required to override background presumptions of
comity, and instead that any language that can be construed as automatic or
nondiscretionary may preclude consideration of those principles.

And the

panels decision thereby reaches far beyond the specific statute it purports to
enforce, threatening the doctrine of comity by wiping away the fundamental

The only difference in the statutes textsection 1520(a)(2)s to the same

extent clause (see Add. 16)is immaterial. That language is no more an explicit
repudiation of comity than is the word applies: it neither refers to international
law nor directs that the statute bars deference to foreign proceedings. Instead, to
the same extent explains how to translate sections 363, 542, and 549, which deal
with bankruptcy estates, into Chapter 15 cases, wherein no estate is created:
Although a foreign debtors U.S. property is not part of an estate, upon recognition
it is treated as though it were. To the same extent thus has a particular meaning
having nothing to do with overriding the presumption in favor of comity.
12

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principle that Congress should not be understood to have precluded deference to

foreign proceedings in the absence of particular contrary language.9 The Court
should rehear this case en banc to resolve the conflict with Maxwell.
D.

The Panels Decision Imposes Significant New Burdens On CrossBorder Bankruptcy Proceedings

The practical consequences of the panels decision are considerable and

extend far beyond the transaction at issue here. By holding that section 363 review
is required here despite the BVI courts approval of the Trade Confirmation, the
panel effectively imposes that requirement (as well as sections 542 and 549, both
also imported by section 1520(a)(2)) on every non-ordinary-course transaction
involving an even arguably U.S.-sited asset into which a foreign representative
may wish to enter. Foreign representatives of foreign main proceedings thus will
now be obliged to show, at full section 363 hearings before a Chapter 15 court, a
good business reason for (inter alia) their payment of attorneys fees from U.S.
funds, their distribution of U.S. funds to creditors at the direction of a foreign
insolvency court, and even their settlements of debtors claims for monetary relief.
For instance, on the panels reasoning, Kryss own settlement of Sentrys

Comity is an especially appropriate consideration in the context of Chapter 15,

which requires a court applying its provisions to consider its international origin
and to cooperate with foreign courts, 11 U.S.C. 1508, 1525(a), and which
creates ancillary cases for the purpose of providing assistance to foreign
proceedings, id. 1504, 1501(b); see also SPA91-93 (Lifland, J.). But nothing in
the panels opinion limits its holding to section 1520(a)(2).
13

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SIPA claim against the BLMIS estate (see supra note 4) would be subject to
section 363 review as a disposition of Sentrys property within the territorial
jurisdiction of the United States, despite the BVI courts approval.

Krys

compromised the claim (from $960 million to a conditionally allowed $230

million) but sought review only in the BVI courtnot in the Chapter 15 court.
Were Krys to seek belated approval now, the panels decision would prohibit
deference to the BVI court and would force the Chapter 15 court to conduct its
own full section 363 hearingpotentially undoing the entire settlement because of
events transpiring between its execution in 2011 and the time of the hearing. See
In re Patriot Place, Ltd., 486 B.R. 773, 792-93 (Bankr. W.D. Tex. 2013).
II.

THE PANEL SHOULD GRANT REHEARING TO CORRECT ITS

OPINION
Alternatively, the panel should grant rehearing on any of three bases. First,

the panel should grant rehearing because it misapprehended the BVI courts
intention in implying (Add. 17) that the BVI court did not mean its approval to be
conclusive. As the bankruptcy court correctly found, the BVI court directed Krys
to bring the Trade Confirmation to the bankruptcy court as a matter of courtesy
that it expected would be repaid: although the BVI court did not rule on section
363, it held a three-day merits trial, approved the Trade Confirmation (JA117), and
doubted that U.S. law would bar enforcement (JA116). The courts directive that
Krys give the U.S. court a choice whether or not to approve the trade (JA117;
14

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see Add. 17-18 & n.2) was aimed at ensuring that Krys did not prevent approval.10
Second, the panels opinion could be read (see Add. 6) to find that the Trade
Confirmations terms required approval by the Chapter 15 court.

But to the

contrary, the Trade Confirmation refers only to the BLMIS SIPA court (see supra,
at 4), and this issue was not decided below. The panel opinion should not
preclude further consideration of this issue on remand.
Third, the panel opinion should be amended so as not to require the
bankruptcy court to conduct a section 363 review, which could be read to foreclose
the prior consideration on remand of the alternative arguments (see Farnum Br. 4749) that Farnum pressed in both lower courts and in this Court, but which no court
has yet addressed. A decision on one or more of these arguments might well
foreclose the need for any section 363 review, and the panel should amend its
opinion, by remanding simply for proceedings not inconsistent with its opinion, to
clarify that those issues remain open on remand. See, e.g., Espinal v. Goord, 558
F.3d 119, 121 n.2, 129 n.8 (2d Cir. 2009) (amending opinion on rehearing to
clarify that issue remained open on remand).
CONCLUSION
The petition should be granted.
10

As discussed in Farnums brief (at 16) and at argument, on July 22, 2013, the
BVI court issued a sealed judgment denying Krys sanction to take this appeal. The
judgment clarifies the BVI courts intentions in directing Krys to the bankruptcy
court. Krys has successfully opposed Farnums efforts to unseal this judgment.
15

Case 13-3000, Document 96, 10/10/2014, 1342730, Page20 of 42

Dated: October 10, 2014

Respectfully submitted,
/s/ Kathleen M. Sullivan
Kathleen M. Sullivan
Robert C. Juman
Scott C. Shelley
Cleland B. Welton II
QUINN EMANUEL URQUHART
& SULLIVAN, LLP
51 Madison Ave., 22nd Flr.
New York, NY 10010
(212) 849-7000

Eric D. Winston
Shane McKenzie
Matthew Scheck
QUINN EMANUEL URQUHART
& SULLIVAN, LLP
865 South Figueroa St., 10th Floor
Los Angeles, CA 90017
213-443-3000

Attorneys for Appellee

16

Case 13-3000, Document 96, 10/10/2014, 1342730, Page21 of 42

CERTIFICATE OF COMPLIANCE
This Petition For Panel Rehearing or Rehearing En Banc complies with the
requirements of Fed. R. App. P. 32(a)(c)(2) because it has been prepared in
proportionately spaced, 14-point Times New Roman font.

/s/ Kathleen M. Sullivan__

Kathleen M. Sullivan

17

Case 13-3000, Document 96, 10/10/2014, 1342730, Page22 of 42

ADDENDUM

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133000
Krysv.FarnumPlace,LLC

20

1
2

In the

United States Court of Appeals

For the Second Circuit

30

________

AUGUSTTERM,2013

ARGUED:MAY21,2014
DECIDED:SEPTEMBER26,2014

No.133000

INRE:FAIRFIELDSENTRYLIMITED
Debtor.

KENNETHKRYS,inhiscapacityasthedulyappointedliquidatorand
foreignrepresentativeofFairfieldSentryLimited,
Appellant,

v.

FARNUMPLACE,LLC,
Appellee.
________

Before:NEWMAN,WALKER,CABRANES,CircuitJudges.
________

AppealfromtheJuly3,2013orderoftheUnitedStatesDistrict

31

Court for the Southern District of New York (Hellerstein, J.)

32

affirmingtheJanuary10,2013orderoftheUnitedStatesBankruptcy

5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29

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2
1

CourtfortheSouthernDistrictofNewYork(Lifland,J.)decliningto

conduct,inaChapter15ancillarybankruptcyproceeding,asection

363 review of a sale of the claims of Fairfield Sentry Limited

(Sentry), a British Virgin Islands investment fund, in the

liquidation of Bernard L. Madoff Investment Securities LLC

(BLMIS) under the Securities Investor Protection Act (SIPA)

because: (1) the sale does not involve a section 1520(a)(2) transfer;

and(2)comitydictatesdeferencetoaBritishVirginIslandsCourts

judgment approving the sale. Because we conclude that the sale of

10

theSIPAclaimsisatransferofaninterestofthedebtorinproperty

11

that is within the territorial jurisdiction of the United States, 11

12

U.S.C.1520(a)(2),andthereforethesaleissubjecttoreviewunder

13

section363,andcomityisnotwarranted,wevacateandremand.

14
15
16
17
18
19
20
21
22
23
24
25

________

PAUL D. CLEMENT, Bancroft PLLC, Washington,

DC, (David J. Molton, May Orenstein, Daniel J.
Saval, Marek Krzyzowski, Brown Rudnik LLP,
NewYork,NY,onthebrief)forAppellant.

KATHLEEN M. SULLIVAN (Robert C. Juman, Scott

C.Shelley,ClelandB.WeltonII,EricD.Winston,
Shane McKenzie, Matthew Scheck, on the brief),
Quinn Emanuel Urquhart & Sullivan, LLP, New
York,NYforAppellee.

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3
1
2
3

________

JOHNM.WALKER,JR.,CircuitJudge:

AppealfromtheJuly3,2013orderoftheUnitedStatesDistrict

Court for the Southern District of New York (Hellerstein, J.)

affirmingtheJanuary10,2013orderoftheUnitedStatesBankruptcy

CourtfortheSouthernDistrictofNewYork(Lifland,J.)decliningto

conduct,inaChapter15ancillarybankruptcyproceeding,asection

363 review of a sale of the claims of Fairfield Sentry Limited

10

(Sentry), a British Virgin Islands investment fund, in the

11

liquidation of Bernard L. Madoff Investment Securities LLC

12

(BLMIS) under the Securities Investor Protection Act (SIPA)

13

because: (1) the sale does not involve a section 1520(a)(2) transfer;

14

and(2)comitydictatesdeferencetoaBritishVirginIslandsCourts

15

judgment approving the sale. Because we conclude that the sale of

16

theSIPAclaimsisatransferofaninterestofthedebtorinproperty

17

that is within the territorial jurisdiction of the United States, 11

18

U.S.C.1520(a)(2),andthereforethesaleissubjecttoreviewunder

19

section363,andcomityisnotwarranted,wevacateandremand.

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BACKGROUND

SentryisaBritishVirginIslands(BVI)investmentfundthat

invested approximately 95% of its assets with BLMIS, a limited

liability company wholly owned by Bernard Madoff. In December

2008,Madoff,whoisnowinprison,revealedthatheusedcustomer

fundstoperpetuateamassivePonzischeme.Consequently,BLMIS

collapsed and was placed into liquidation by the U.S. bankruptcy

court under SIPA. Irving Picard was appointed trustee of BLMIS

andchargedwiththetaskofoverseeingtheBLMISliquidationand

10

recoveringstolenassetsinthisfraud.

11

Sentry filed three customer claims in the SIPA liquidation

12

(collectively, the SIPA Claim), to which BLMIS objected. The

13

BLMIStrusteecounteredwithitsownclaims.AlthoughSentrysnet

14

losses in BLMIS were approximately $960 million, negotiations

15

betweenSentryandtheBLMISTrusteeresultedinasettlementthat

16

allowedSentrysSIPAClaimintheBLMISliquidationintheamount

17

of$230million,subjecttoacashpaymentof$70milliontobepaid

18

bySentrytotheBLMISTrustee.

19

In July 2009, Sentry itself was placed into liquidation in the

20

BVI (the BVI Liquidation), and the High Court of Justice of the

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Eastern Caribbean Supreme Court (the BVI Court) appointed

appellant Kenneth Krys liquidator. On June 14, 2010, Krys filed a

petitionintheU.S.bankruptcycourtseekingrecognitionoftheBVI

Liquidation as a foreign main proceeding under Chapter 15, 11

U.S.C. 1517. On July 22, 2010, the bankruptcy court entered an

ordergrantingrecognition.UponrecognitionoftheBVILiquidation

asaforeignmainproceeding,anautomaticstaywasimposedonall

proceedings against Sentry in the United States, including a

derivative action brought by Morning Mist, a Sentry shareholder.

10

The order of recognition was affirmed by the district court and

11

subsequentlybythisCourt.SeeMorningMistHoldingsLtd.v.Krys(In

12

reFairfieldSentryLtd.),714F.3d127(2dCir.2013).

13

Among Sentrys assets in the BVI Liquidation is the SIPA

14

Claim. During the summer of 2010, an auction process to sell the

15

SIPA Claim commenced. Appellee Farnum Place, LLC (Farnum),

16

alimitedliabilitycorporationorganizedunderthelawsofDelaware,

17

offered to purchase the SIPA claim for 32.125% of the claims

18

allowedamount.Farnumsbidwasseveralpercentagepointshigher

19

thantheotherbids,andKrysacceptedit.Thetransaction,however,

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wassubjecttoapprovalsbytheBVICourtandtheU.S.bankruptcy

court.

InDecember2010,KrysandFarnumnegotiated,documented,

andsignedatradeconfirmation(theTradeConfirmation)setting

forth the material terms and conditions of the sale of the SIPA

Claim.TheTradeConfirmationspecificallystatedthatitisgoverned

by the laws of the State of New York. The Trade Confirmation

provided that the transaction was subject to approval by both the

U.S. bankruptcy court and the BVI Court. The Trade Confirmation

10

also provided that Sentrys liquidator, subject to its fiduciary duty

11

andobligations,shallendeavortoobtainpromptlytheapprovalof

12

the BVI Court of the terms and conditions of this Trade

13

Confirmation.J.A.42.

14

Three days after the Trade Confirmation was signed, Irving

15

Picard announced that he had entered into a settlement agreement

16

withtheestateofJeffreyPicowerfortheforfeitureandrepaymentof

17

approximately$7.2billion,ofwhich$5billionwouldbepaidtothe

18

BLMIS Trustee and $2.2 billion would be paid to the federal

19

government.Theinfluxof$5billiontotheBLMISTrusteeincreased

20

thevalueofSentrysSIPAClaimfrom32%tomorethan50%ofthe

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$230 million allowed amount of the claim (an increase of

approximately$40million).

In October 2011, because Krys had failed to submit an

applicationaskingtheBVICourttoapprovethetermsoftheTrade

Confirmation, Farnum filed an application with the BVI Court

seeking an order compelling Krys to satisfy the conditions of the

Trade Confirmation, or, in the alternative, granting permission to

commence proceedings against Sentry for specific performance.

KrysaskedtheBVICourtnottoapprovethetransfertoFarnumat

10

thebidpricebecause,giventhesuddenincreaseinthevalueofthe

11

SIPAClaim,itwasnotinthebestinterestsoftheSentryestate.Krys

12

also argued to the BVI Court that the Trade Confirmation required

13

U.S. bankruptcy court approval pursuant to 11 U.S.C. 1520(a)(2)

14

and363.

15

Afterathreedayevidentiaryhearing,theBVICourtonMarch

16

27, 2012, approve[d] the terms and conditions of the Trade

17

Confirmation and the assignment to Farnum of Sentrys claim in

18

theSIPAliquidationofBLMISatthepricestipulatedforintheTrade

19

Confirmation.J.A.117.Initsorder,theBVICourt,fullycognizant

20

of the required approval proceeding in the U.S. bankruptcy court,

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stateditwouldbeunwisefor[it]toexpressviewsontheissuesthat

willarisefordeterminationbytheUSBankruptcyCourt.J.A.116.

The BVI Court directed Krys to take the necessary steps to bring

before the US Bankruptcy Court the question of approval (or non

approval) by that Court of the Trade Confirmation. J.A. 117. And

theBVICourtmadeclearthatitmustbedoneinsuchawaythat

theUSBankruptcyCourtispresentedwithachoicewhetherornot

toapproveit.Id.

On April 18, 2012, Krys filed an application with the United

10

States Bankruptcy Court for the Southern District of New York,

11

seeking review of the Trade Confirmation under 11 U.S.C. 363(b)

12

and an order disapproving the trade. On January 10, 2013, the

13

bankruptcy court denied Kryss application. The bankruptcy court

14

characterized the application for section 363 review as sellers

15

remorse and a lastditch effort to undo the transaction. In re

16

FairfieldSentryLtd.,484B.R.615,617,618(Bankr.S.D.N.Y.2013).The

17

bankruptcy court held that a Section 363 review is not warranted

18

under section 1520(a)(2) of the Code . . ., id. at 622, because the

19

[s]aledoesnotinvolvethetransferofaninterestinpropertywithin

20

theUnitedStates,asstatutorilymandatedbyChapter15,id.at618.

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The bankruptcy court also stated that comity dictates that this

[c]ourtdefertotheBVIJudgment.Id.at628.Andthat[f]ailingto

grant such comity to the BVI Judgment under these circumstances

necessarily undermines the equitable and orderly distribution of a

debtors property by transforming a domestic court into a foreign

appellate court where creditors are always afforded the proverbial

secondbiteattheapple.Id.(quotingSNPBoatServ.Sav.HotelLe

St.James,483B.R.776,786(Bankr.S.D.Fla.2012)).

Krys appealed the denial of his application to the district

10

court. After a hearing, the district court affirmed the bankruptcy

11

courts decision. The district court stated that [i]t is not clear that

12

Section363...applies,however,evenifSection363applies,the

13

bankruptcycourtsdenialoftheforeignrepresentativeschallenge

14

was proper because [c]ourts should be loath to interfere with

15

corporate decisions absent a showing of bad faith, selfinterest, or

16

gross negligence. Krys v. Farnum Place, LLC (In re Fairfield Sentry

17

Ltd.),No.13Civ.1524(AKH)at*1,2(S.D.N.Y.Jul.3,2013)(internal

18

quotationmarksomitted).Thisappealfollowed.

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DISCUSSION

1
2

An appeal from a district courts review of a bankruptcy

court ruling is subject to plenary review. Warex Terminals Inc. v.

Halstead Energy (In re Halstead Energy Corp.), 367 F.3d 110, 113 (2d

Cir. 2004). We review a bankruptcy courts conclusions of law de

novoanditsfindingsoffactundertheclearlyerroneousstandard.Id.

at114.

The primary question before this Court is whether the

bankruptcy court was required to conduct a review under section

10

363, which requires that a judge . . . expressly find from the

11

evidence presented before him at the hearing a good business

12

reasontoapprovethesale.InreLionelCorp.,722F.2d1063,1071(2d

13

Cir.1983).ThebankruptcycourtrecognizedtheBVILiquidationasa

14

foreign main proceeding, which protects Sentrys United States

15

assetsfromcreditoractionandallowsKrystoobtaintherightsand

16

benefits of Chapter 15. An asset sale in a Chapter 15 bankruptcy

17

proceedingrequiressection363reviewofthesaleifitisatransfer

18

of an interest of the debtor in property that is within the territorial

19

jurisdiction of the United States. 11 U.S.C. 1520(a)(2). The

20

question here thus turns on whether the SIPA Claim is such a

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1

transfer of an interest. We must also consider whether

considerations of comity, codified in Chapter 15, require deference

to the BVI Courts judgment approving the transfer, irrespective of

whether section 1520(a)(2)s territorial prerequisite has been

satisfied.

I.

ApplicationofSection1502(a)(2)

In considering whether section 363 review is required in an

ancillaryU.S.bankruptcyproceedingwhenthereisaforeignmain

proceeding, section 1520(a)(2) instructs the bankruptcy court to

10

apply section 363 to a transfer of an interest of the debtor in

11

propertythatiswithintheterritorialjurisdictionoftheUnitedStates

12

to the same extent that the sections would apply to property of an

13

estate.11U.S.C.1520(a)(2).

14

The parties dispute whether the sale of the SIPA Claim

15

involves a transfer of an interest of the debtor in property that is

16

within the territorial jurisdiction of the United States. Krys argues

17

that section 1520(a)(2)s territorial prerequisite is satisfied because:

18

(1) the SIPA Claim is an interest in the BLMIS Fund, which is

19

propertylocatedintheUnitedStates;and(2)theSIPAClaimitselfis

20

propertylocatedintheUnitedStates.Farnummaintainsthat(1)the

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relevant property is the SIPA Claim itself, not the BLMIS Fund;

and(2)thattheSIPAClaimisintheBVIandthusnotlocatedwithin

theterritorialjurisdictionoftheUnitedStates.

WeagreewithFarnumthatthepropertyistheSIPAClaim

itself, not the BLMIS Fund. The SIPA Claim is not an ownership

interestintheBLMISFund.BysellingitsSIPAClaim,Sentryisnot

transferringaclaimorrighttotheBLMISFund;itissellingSentrys

rights,titleandinterestinandto[Sentrys]claimsagainstBLMIS

in the BLMIS proceedings. Trade Confirmation, J.A. 33. In other

10

words, the SIPA Claim is a chose in action. See Blacks Law

11

Dictionary 294 (10th ed. 2014) (defining chose in action as [t]he

12

righttobringanactiontorecoveradebt,money,orthing).

13

But we disagree with Farnum and the bankruptcy court that

14

theSIPAClaimisnotwithintheterritorialjurisdictionoftheUnited

15

States. Within the territorial jurisdiction of the United States is

16

definedinsection1502(8)as:

17
18
19
20
21
22
23
24

[T]angible property located within the territory of the

United States and intangible property deemed under
applicablenonbankruptcylawtobelocatedwithinthat
territory, including any property subject to attachment
or garnishment that may properly be seized or
garnishedbyanactioninaFederalorStatecourtinthe
UnitedStates.

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11U.S.C.1502(8).

The bankruptcy court held that under applicable

nonbankruptcy law (agreed by the parties to be the law of New

York), the situs of the intangible SIPA Claim is the BVI. The

bankruptcy court relied on the common sense appraisal of the

requirements of justice and convenience annunciated in Severnoe

Sec.Corp.v.LondonandLancashireInsuranceCo.,255N.Y.120,12324

(1931), to determine the location of the SIPA Claim. In re Fairfield

Sentry Ltd., 484 B.R. at 624. In applying the Severnoe test, the

10

bankruptcycourtconcludedthatjustice,convenienceandcommon

11

sensedictate...thattheSIPAClaimislocatedwiththedebtorinthe

12

BVI. Id. at 625. The bankruptcy courts analysis, however, was

13

incomplete. Section 1502(8) deems any property subject to

14

attachmentorgarnishmentthatmaybeproperlyseizedorgarnished

15

byanactioninaUnitedStatescourttobewithintheterritoryof

16

theUnitedStates.11U.S.C.1502(8).

17

TheSIPAClaimhereissubjecttoattachmentorgarnishment

18

andmaybeproperlyseizedbyanactioninaFederalorStatecourt

19

in the United States. Under New York law, any property which

20

could be assigned or transferred is subject to attachment and

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garnishment. N.Y. C.P.L.R. 5201(b), 6202. For attachment

purposes,withrespecttointangiblepropertythathasasitssubjecta

legal obligation to perform, the situs is the location of the party of

whom that performance is required pursuant to that obligation. In

ABKCO Industries, Inc. v. Apple Films, Inc., 350 N.E.2d 899 (N.Y.

1976), [the New York Court of Appeals] recognized that a

contractualagreementcouldconstitutecontingentpropertyinterests

attachable and assignable, and thus subject to CPLR 5201(b).

Verizon New England, Inc. v. Transcom Enhanced Servs., Inc., 990

10

N.E.2d 121, 124 (N.Y. 2013). Here, although Sentry and the SIPA

11

Trustee do not have a contractual relationship, the SIPA Trustee is

12

statutorily obligated to distribute to Sentry its pro rata share of the

13

recovered assets. Therefore the situs of the SIPA Claim is the

14

locationoftheSIPATrustee,whichisNewYork.

15

Farnum argues that even if the SIPA Claims situs is New

16

York, the claim may not be properly seized by an action in a

17

UnitedStatescourtbecausesuchactionwouldbestayedbytheBVI

18

Court, see BVI Insolvency Act, 2003 175(1)(c), and the U.S.

19

bankruptcycourt,see11U.S.C.362,1520(a)(1).Butthisargument

20

wouldrenderthesubjecttoattachmentorgarnishmentphraseof

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section1502(8)anullity.[W]emustconstrue[a]statutesothatno

part will be inoperative or superfluous, void or insignificant.

Gordon v. Softech Intl., Inc., 726 F.3d 42, 48 (2d Cir. 2013) (quoting

Corley v. United States, 556 U.S. 303, 314 (2009)). There is always an

automatic stay in bankruptcy proceedings so it would make no

sense if the existence of a stay could affect the construction of the

term interest under section 1502(8). Moreover, the statute speaks

of property deemed under applicable nonbankruptcy law to be

subjecttoattachmentorgarnishment.11U.S.C.1502(8)(emphasis

10

added). This provision thus cannot be read to mean that the

11

determination of whether section 363 review is necessary can be

12

affected by factors that are the quintessential features of bankruptcy

13

law: the existence of the automatic stay under sections 362 and

14

1520(a)(1)or,inaproceedingancillarytoaforeignproceedingunder

15

section 1517, the automatic stay provisions of the foreign

16

jurisdiction.

17

Therefore we conclude that the sale of the SIPA Claim is a

18

transfer of an interest of the debtor in property that is within the

19

territorial jurisdiction of the United States, 11 U.S.C. 1520(a)(2),

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and that pursuant to section 1520(a)(2) the bankruptcy court must

applysection363.

II.

Comity

As an additional reason for denying section 363 review, the

bankruptcy court held that the role of comity, codified in Chapter

15, dictates deference to the BVI Courts judgment approving the

sale.

Congress specifically directed courts, [i]n interpreting

[Chapter15],...[to]consideritsinternationalorigin,andtheneed

10

topromoteanapplicationofthischapterthatisconsistentwiththe

11

application of similar statutes adopted by foreign jurisdictions. 11

12

U.S.C. 1508. But, Chapter 15 does impose certain requirements

13

andconsiderationsthatactasabrakeorlimitationoncomity.Inre

14

Vitro S.A.B. de C.V., 701 F.3d 1031, 1054 (5th Cir. 2012) (stating that

15

comityisanimportantfactorindeterminingwhetherreliefwillbe

16

granted under Chapter 15, but is not a per se rule). The express

17

statutory command that, in a Chapter 15 ancillary proceeding, the

18

requirements of section 363 apply . . . to the same extent as in

19

Chapter 7 or 11 proceedings, 11 U.S.C. 1520(a)(2) (emphasis

20

added),isonesuchlimitation.[W]henastatuteslanguageisplain,

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the sole function of the courtsat least where the disposition

required by the text is not absurdis to enforce it according to its

terms.Sebeliusv.Cloer,133S.Ct.1886,1896(2013)(quotingHartford

UnderwritersIns.Co.v.UnionPlantersBank,N.A.,530U.S.1,6(2000))

(alteration omitted). The language of section 1520(a)(2) is plain; the

bankruptcy court is required to conduct a section 363 review when

the debtor seeks a transfer of an interest in property within the

territorialjurisdictionoftheUnitedStates.1

Moreover, it is not apparent at all that the BVI Court even

10

expects or desires deference in this instance. The BVI Court

11

expressly declined to rule on whether the Trade Confirmation

12

requiredapprovalundersection363.2
Notably,theautomaticapplicationofsection363pursuanttosection
1520(a)(2) expressly deviates from the discretionary grant of relief that
may be granted upon filing a petition for recognition of a foreign
proceeding pursuant to section 1519, and upon recognition of a foreign
proceeding pursuant to section 1521. This contrast further suggests that
the statutory requirement that section 363 apply automatically acts as a
brakeorlimitationoncomityinthecircumstancespresentedhere.Inre
VitroS.A.B.deC.V.,701F.3dat1054.

2OnMarch27,2012theBVICourtissuedajudgmentstatingthat:(1)
itwouldbeunwise...toexpressviewsontheissuesthatwillarisefor
determination by the US Bankruptcy Court, J.A. 116; (2) [i]f [the U.S.
bankruptcy court] decides, for whatever reason, to withhold approval of
theTradeConfirmation,thatwillbringtheTradeConfirmationtoanend
id.;(3)theBVICourtdirect[s][Krys]totakethenecessarystepstobring
1

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Thereforeweconcludethatthebankruptcycourterredwhen

it gave deference to the BVI Courts approval of the transfer of the

SIPAClaimandfailedtoconductareviewundersection363.

III.

Section363Review

Asstatedabove,thesaleoftheSIPAClaimisatransferofan

interestofthedebtorinpropertywithintheterritorialjurisdictionof

theUnitedStateswithinthemeaningof11U.S.C.1520(a)(2).The

languageofthestatutemakesitplainthatthebankruptcycourtwas

requiredtoconductasection363review.DeferencetotheBVICourt

10

was not required. We therefore vacate and remand to the district

11

court with instructions to remand to the bankruptcy court to

12

conductthesection363review.

13

While we intimate no view on the merits of the section 363

14

review on remand, we provide some guiding principles from our

15

case law. We have held that a judge determining a 363(b)

16

application [is required to] expressly find from the evidence

17

presentedbeforehimatthehearingagoodbusinessreasontogrant

beforetheUSBankruptcyCourtthequestionofapproval(ornonapproval)
bythatCourtoftheTradeConfirmation,id.at117;and(4)thenecessary
steps must be done in such a way that the US Bankruptcy Court is
presentedwithachoicewhetherornottoapproveit,id.(emphasisadded).

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such an application. In re Lionel Corp., 722 F.2d at 1071. In

fashioning its findings, a bankruptcy judge . . . should consider all

salient factors pertaining to the proceeding . . . . Id. Such salient

factors include whether the asset is increasing or decreasing in

value. Id. We have also recognized that bankruptcy courts must

havebroaddiscretionandflexibility...toenhancethevalueofthe

estatesbeforeit.ConsumerNews&Bus.ChannelPshipv.Fin.News

NetworkInc.(InreFin.NewsNetworkInc.),980F.2d165,169(2dCir.

1992). And we have recognized also that the bankruptcy courts

10

principal responsibility . . . is to secure for the benefit of creditors

11

thebestpossiblebid.Id.

12

Applying this framework here, we note that the bankruptcy

13

courtmustconsideraspartofitssection363reviewtheincreasein

14

value of the SIPA Claim between the signing of the Trade

15

Confirmationandapprovalbythebankruptcycourt.Cf.InreMartin,

16

91 F.3d 389 (3d Cir. 1996) (upholding a bankruptcy courts order

17

denying approval of a stipulation agreement after debtors were

18

victorious in a state court litigation filed in violation of the

19

stipulationagreement);InreBroadmoorPlaceInvs.,994F.2d744,746

20

(10th Cir. 1993) (finding that a bankruptcy court has power to

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disapprove a proposed sale ... if it has an awareness there is

another proposal in hand which, from the estates point of view, is

betterormoreacceptable).Nothinginthelanguageofsection363

or our case law limits the bankruptcy courts review to the date of

signingtheTradeConfirmation.
CONCLUSION

6
7

Accordingly, we VACATE the district courts July 3, 2013

order affirming the bankruptcy courts order denying Kryss

applicationforsection363reviewandREMANDtothedistrictcourt

10

with instructions to REMAND to the bankruptcy court for such

11

review.

12