Supplemental Brief — Deutsche Bank Trust Company Americas, et al., Petitioners v. Robert R. McCormick Foundation, et al.

Supreme Court briefMar 31, 2021

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No. 20-8

IN THE

Supreme Court of the United States

DEUTSCHE BANK TRUST COMPANY AMERICAS, ET AL.,

Petitioners,

ROBERT R. MCCORMICK FOUNDATION, ET AL.,

Respondents.

On Petition for a Writ of Certiorari

to the United States Court of Appeals

for the Second Circuit

SUPPLEMENTAL BRIEF FOR PETITIONERS

IN RESPONSE TO BRIEF FOR THE

UNITED STATES AS AMICUS CURIAE

JAY TEITELBAUM

Teitelbaum Law

Group, LLC

1 Barker Avenue

White Plains, NY 10601

(914) 437-7670

jteitelbaum@tblawllp.com

Counsel for the Retirees

March 31, 2021

LAWRENCE S. ROBBINS

Counsel of Record

ROY T. ENGLERT, JR.

JOSHUA S. BOLIAN

CAROLYN M. FORSTEIN

ZACHARY N. FERGUSON

Robbins, Russell, Englert,

Orseck, Untereiner &

Sauber LLP

2000 K Street, N.W.

Washington, DC 20006

(202) 775-4500

lrobbins@robbinsrussell.com

Counsel for the Noteholders

TABLE OF CONTENTS

Page

TABLE OF AUTHORITIES ....................................... ii

The Preemption Questions Warrant

Review ...................................................................2

II. The “Financial Institution” Question

Warrants Review ..................................................8

CONCLUSION ..........................................................12

(i)

TABLE OF AUTHORITIES

Cases

Page(s)

Animal Sci. Prods., Inc. v. Hebei

Welcome Pharm. Co.,

138 S. Ct. 1865 (2018) ............................................ 8

In re Boston Generating LLC,

617 B.R. 442 (Bankr. S.D.N.Y. 2020) ...... 4, 5, 7, 10

In re Greektown Holdings, LLC,

621 B.R. 797 (Bankr. E.D. Mich.

2020) ..................................................................... 10

In re Lyondell Chem. Co.,

503 B.R. 348 (Bankr. S.D.N.Y. 2014) .................... 5

In re Nine West LBO Sec. Litig.,

464 F. Supp. 3d 1383 (J.P.M.L. 2020) ................... 4

In re Nine West LBO Sec. Litig.,

482 F. Supp. 3d 187 (S.D.N.Y. 2020) ............. 4, 5, 9

In re Northington,

876 F.3d 1302 (11th Cir. 2017) .............................. 7

In re Physiotherapy Holdings, Inc.,

No. 13-12965, 2016 WL 3611831

(Bankr. D. Del. June 20, 2016) .......................... 4, 5

Kansas v. Garcia,

140 S. Ct. 791 (2020) .............................................. 3

Merit Mgmt. Grp., LP v. FTI

Consulting, Inc.,

138 S. Ct. 883 (2018) .............................................. 8

iii

Cases—Continued

Page(s)

Rosenberg v. DVI Receivables XVII,

LLC,

835 F.3d 414 (3d Cir. 2016) ................................... 7

Whyte v. Barclays Bank PLC,

494 B.R. 196 (S.D.N.Y. 2013) ................................ 5

Statutes

11 U.S.C. § 547 ............................................................ 4

28 U.S.C. § 1408 .......................................................... 4

Other Authorities

Laura Napoli Coordes, The Geography

of Bankruptcy, 68 VAND. L. REV. 381

(2015) ...................................................................... 4

Restatement (Third) of Agency ................................. 10

SUPPLEMENTAL BRIEF FOR PETITIONERS

IN RESPONSE TO BRIEF FOR THE

UNITED STATES AS AMICUS CURIAE

The Acting Solicitor General acknowledges that

the Nation’s most important commercial court

(besides this Court) committed case-dispositive errors

when it ruled that federal bankruptcy law nullifies

billions of dollars’ worth of state-law fraudulent

transfer claims held by scores of Tribune retirees and

other creditors. She disagrees with the Second

Circuit’s bottom-line judgment. She does not agree

with the Second Circuit on any of the three questions

presented. She admits (Br. 19) that the decision below

renders this Court’s decision in Merit “a virtual

nullity.” And she recognizes (Br. 11-12) that the

Second Circuit mistakenly resorted to the “blunt

instrument” of “purposes and objectives” preemption

to address certain practical concerns that the

“nuanced mechanism” of the Bankruptcy Code’s

automatic stay provision is designed to address. Yet

she casts those multiple errors as vehicle problems

weighing against granting certiorari. Ultimately, she

suggests that someday some court of appeals will get

it right, and then—after more billions of dollars’ worth

of erroneous decisions and wasted judicial and litigant

resources—this Court can address the important and

recurring questions presented here.

This Court should take a different path. The

Court knows enough to correct the Second Circuit’s

errors now, without awaiting the views of additional

courts. Able amici support the petition for a writ of

certiorari, and other amici and respondents’ counsel

(1)

will surely make the best arguments in defense of the

judgment below if this Court grants certiorari. The

Nation’s other hub of large corporate reorganizations—the United States Bankruptcy Court for the

District of Delaware—has already disagreed with the

Second Circuit. Further “percolation” would unearth

no new arguments worth unearthing but would

merely change the vote count on the split of authority.

This Court should not let the deeply erroneous

judgment below stand.

The Preemption Questions Warrant Review

1. The United States correctly recognizes that the

Second Circuit’s preemption holding is indefensible.

There is the statute’s text: “When a Bankruptcy Code

provision refers specifically to ‘the trustee,’ that

provision applies only to the trustee . . . and not to

other parties” like petitioners. U.S. Br. 8. There is its

context: “The absence of express preemptive language

in Section 546(e) is particularly significant when that

provision is contrasted with Section 544(b)(2).” Ibid.

There is its purpose: “Congress had a more modest

intent to prevent only ‘trustee’ actions,” not the “broad

congressional purpose to prevent uncertainty in the

securities markets” that the Second Circuit supposed.

U.S. Br. 13. And there is this Court’s case law: “This

Court in Merit Management rejected a similar effort

to override Section 546(e)’s text based on assumptions

about congressional purpose.” Ibid. The Second

Circuit’s holding, says the Acting Solicitor General, is

so wrong that petitioners should prevail even without

a presumption against preemption. U.S. Br. 18-19.

The United States also correctly recognizes that

rejecting preemption will in no way undermine

Chapter 11 restructuring. A separate restraint, the

automatic stay, bars actions like petitioners’ unless

the bankruptcy court decides otherwise. U.S. Br.

11-12. Such courts “are generally well-equipped to

determine whether particular state-law claims would

interfere with” a bankruptcy case. U.S. Br. 13. The

automatic stay therefore is “a nuanced mechanism

that makes it unnecessary to apply the blunt

instrument of preemption.”

U.S. Br. 12.

The

bankruptcy court lifted the automatic stay nine years

ago to allow this case to be brought. Pet. App. 13a.

Despite the Second Circuit’s egregious errors, the

United States opines that this Court’s review is

unwarranted. Its reasons are unpersuasive.

Preliminarily, the government does not address

the Second Circuit’s freewheeling mode of analysis,

which largely passed over the usual ways to discern

Congress’s purpose and elevated one perceived

purpose above others. Pet. App. 52a-61a; see Public

Law Scholars Br. 19-23.

That analysis vividly

exemplifies why, as some Members of the Court have

stated, “[t]he doctrine of ‘purposes and objectives’ preemption impermissibly rests on judicial guesswork.”

Kansas v. Garcia, 140 S. Ct. 791, 808 (2020) (Thomas,

J., concurring).

That jurisprudential omission aside, the United

States urges that, because the inevitable circuit split

does not exist yet, this Court should let the errors

stand. U.S. Br. 15-16. It is wrong for at least three

reasons.

First, a lopsided share of cases implicating this

preemption question arise in the Second Circuit. That

Circuit is home to many complex bankruptcies; nearly

half of all decisions citing Section 546(e) have arisen

there. Pet. 38. In just the last year, the decision below

has caused courts in the Second Circuit to hold that

state-law claims are preempted. In re Nine West LBO

Sec. Litig., 482 F. Supp. 3d 187, 203 (S.D.N.Y. 2020);

In re Boston Generating LLC, 617 B.R. 442, 449, 47780 (Bankr. S.D.N.Y. 2020). Indeed, Nine West was

decided in the Second Circuit even though the

plaintiffs had sued elsewhere, partly because (as in

virtually all securities transactions) Wall Street

“entities, advisors, and lenders” were involved. In re

Nine West LBO Sec. Litig., 464 F. Supp. 3d 1383, 1385

(J.P.M.L. 2020). And debtor companies seeking to

shelter their fraudulent (or merely preferential; see 11

U.S.C. § 547) transfers may forum-shop their bankruptcy filings into the Second Circuit so long as they

have one affiliate eligible for venue there, 28 U.S.C.

§ 1408(2), as virtually all large reorganizing entities

do.

Second, the decision below conflicts with the

holdings of extraordinarily important trial courts.

“Empirical studies and reports have consistently

confirmed New York’s and Delaware’s dominance in

handling mega bankruptcies,” where Section 546(e)

tends to come up. Laura Napoli Coordes, The

Geography of Bankruptcy, 68 VAND. L. REV. 381, 390

(2015).

And Delaware’s bankruptcy court has

disagreed with the Second Circuit’s preemption

holding in this case, by name and at length. In re

Physiotherapy Holdings, Inc., No. 13-12965, 2016 WL

3611831, at *5-*10 (Bankr. D. Del. June 20, 2016).

Delaware’s district court, too, has held that creditors

may bring state-law avoidance claims despite Section

546(e), though it is true that its decision did not

address preemption. U.S. Br. 16.

Third, the proffered reason to await a circuit

split—that this Court “would benefit from further

analysis” (U.S. Br. 15)—is, here, no reason at all. This

case is huge in every sense. Billions of dollars are at

stake; thousands of parties (including petitioner

retirees long denied their benefits) have an interest;

the litigation has consumed more than a decade; and

its result affects other big cases. This case thus has

attracted prominent practitioners, academics, trade

associations, and others as counsel and amici. To

boot, the Acting Solicitor General explains why the

Second Circuit erred. Any further analysis would

have marginal value, if any. It is easy to invoke rote

considerations—“percolation” and the like—but the

reasons underlying those considerations are absent.

The Acting Solicitor General’s other argument

against certiorari is that “the preemption question

may not frequently arise.” U.S. Br. 16; see ibid. (“not

clear how often”). In just the past decade, however,

the preemption question has arisen in at least five

other cases that, together, put at issue almost $9

billion. Nine West, 482 F. Supp. 3d at 192, 203 ($1.2

billion); Whyte v. Barclays Bank PLC, 494 B.R. 196,

198-201 (S.D.N.Y. 2013) ($143 million); Boston

Generating, 617 B.R. at 449, 477-80 ($1 billion);

Physiotherapy, 2016 WL 3611831, at *1, *5-*10 ($249

million); In re Lyondell Chem. Co., 503 B.R. 348, 354,

364-78 (Bankr. S.D.N.Y. 2014) ($6.3 billion). And

such cases are momentous both financially and

legally. As the United States notes, “suits by private

parties implicate the interests of state governments in

determining what avoidance remedies should be

available to creditors under state law.” U.S. Br. 15.

The preemption issue therefore arises with some

frequency and raises weighty issues of federalism.

This issue does frequently arise but may seldom

receive a fresh look at the court-of-appeals level,

especially with the Second Circuit’s decision dictating

erroneous results in that vital jurisdiction. That

combination of facts counsels in favor of, not against,

certiorari.

2. The Acting Solicitor General also correctly

recognizes that the Second Circuit erred in rejecting

the presumption against preemption. The court’s

decision, she concedes, “unquestionably overstates the

preemptive force of the Bankruptcy Code” (U.S.

Br. 17) and “unduly minimizes [its] intrusion into

traditional state domains” (U.S. Br. 18 (cleaned up)).

She nevertheless recommends denial of review for

erroneous reasons. For starters, she is wrong that

there “does not appear to” be a circuit split. U.S.

Br. 18. She does not dispute that a circuit split exists

if the Second Circuit’s statement that “the Bankruptcy Code constitutes a wholesale preemption of

state laws regarding creditors’ rights,” Pet. App. 34a,

constitutes a holding. And a holding it is.

The Second Circuit elsewhere used similar

language to make the same point. See Reply Br. 1-2.

Some of that language has been interpreted to defeat

the presumption’s application to state-law claims of

intentional fraud, even though such claims under

federal law are expressly exempted from Section

546(e). 1 The Second Circuit, too, matched its bark

with bite: It held that petitioners had to establish that

their textual reading of the statute is “necessarily”

correct. Pet. App. 38a. It thus imposed on petitioners

the burden of avoiding preemption, rather than

properly requiring respondents to show that Congress

meant more than it said. Indeed, the Second Circuit

imposed the heaviest possible burden, demanding

that petitioners establish that their reading of the

statute’s plain text was “necessarily” correct. Far

from a “retreat[] from its absolutist view” (U.S. Br.

17), the Second Circuit’s actions were a headlong

forward charge.

Moreover, the circuit split is not “abstract” (U.S.

Br. 18) in any sense that matters. The Second

Circuit’s holding—like those with which it conflicts—

concerns “the Bankruptcy Code,” full stop. Pet. App.

34a; see, e.g., In re Northington, 876 F.3d 1302, 1312

(11th Cir. 2017) (“[W]e should hold that the

Bankruptcy Code [preempts state law] only if we find

some clear textual indication.”); Rosenberg v. DVI

Receivables XVII, LLC, 835 F.3d 414, 419 (3d Cir.

2016) (“This strong presumption against inferring

Congressional preemption also applies in the bankruptcy context.” (quotation marks omitted)). The

cases in the split thus concern not “discrete statutory

1 “The Court in Tribune I held, ‘[w]hile the issue before us is

often described as whether Section 546(e) preempts state

fraudulent conveyance laws, that is a mischaracterization.

Appellants’ state law claims were preempted when the Chapter

11 proceedings commenced and were not dismissed.’ Thus,

section 546(e) preempts the Trustee’s intentional fraudulent

transfer claims under [state law].” Boston Generating, 617 B.R.

at 479 (citation omitted).

context[s]” but the same “particular federal law.” See

U.S. Br. 18. At any rate, that a question presented is

relevant to multiple statutory contexts makes the

question more, not less, certworthy. For example, the

Court in a recent Term granted certiorari on a

“principle[] of statutory construction” without

addressing any “particular statut[e].” Ibid.; see

Animal Sci. Prods., Inc. v. Hebei Welcome Pharm. Co.,

138 S. Ct. 1865, 1872 (2018) (“Is a federal court

determining foreign law under Rule 44.1 required to

treat as conclusive a submission from the foreign

government describing its own law?”). The Solicitor

General supported that grant, advising that “[t]he

degree of deference that a court owes . . . is an

important and recurring question.” U.S. Br. at 12,

Animal Sci. Prods., supra (Nov. 14, 2017).

Finally, the Acting Solicitor General claims that

this case is a poor vehicle because the Second Circuit

is wrong “[e]ven without a thumb on the scale.” U.S.

Br. 18-19. The issue, however, is not merely that the

Second Circuit declined to apply the presumption

against preemption. It is that the court put its thumb

on the other side of the scale. Pet. App. 51a (“[A]mbiguities” are “sufficient” to reject the “clear textual

basis for [petitioners’] theory.”); see p. 7, supra. No

wonder the court reached an indefensible result.

II. The

“Financial

Warrants Review

Institution”

Question

The Second Circuit’s construction of the statutory

term “financial institution” would, the United States

rightly emphasizes, render a recent and unanimous

decision of this Court “a virtual nullity.” U.S. Br. 19

(discussing Merit Mgmt. Grp., LP v. FTI Consulting,

Inc., 138 S. Ct. 883 (2018)). The same construction

would likewise annul the work of the political

branches in setting “precisely crafted limits . . . in

Section 546(e).” U.S. Br. 20. Whereas Section 546(e)

is carefully drafted to cover only some transfers

connected to a securities contract, “under the court of

appeals’ interpretation, [Section 546(e)] will apply to

virtually every transfer made in connection with a

securities contract, since some party to almost every

such transfer will rely on” a bank or similar entity.

Ibid. (emphasis added).

The government nevertheless argues against

review because a circuit split is absent and because

this case is a poor vehicle. Neither basis is sound.

The proffered rationale for awaiting a circuit

split—that “the Court would likely benefit from prior

consideration of the issue by additional courts of

appeals” (U.S. Br. 22)—is unconvincing, for substantially the reasons it is unconvincing in the preemption

context.

First, as explained above (pp. 3-4), questions of

Section 546(e)’s reach—and thus of how to construe

“financial institution”—are likely to arise with

disproportionate frequency in the Second Circuit.

Indeed, courts in that Circuit have already found, due

to the decision at issue, that both a “fashion retail

company” and a “power generation company” are

“financial institutions,” so that Section 546(e) protects

their transfers. Nine West, 482 F. Supp. 3d at 191,

199; Boston Generating, 617 B.R. at 450-51.2 Those

counterintuitive—if not absurd—conclusions have

cost creditors more than $2 billion. See p. 5, supra.

Second, since petitioners filed their reply brief, a

(non-appellate) court has disagreed at length with the

Second Circuit. In re Greektown Holdings, LLC, 621

B.R. 797, 825-34 (Bankr. E.D. Mich. 2020). The

Greektown court was “not persuaded” by the Second

Circuit’s “financial institution” holding because that

holding did “not distinguish between mere intermediaries contracted for the purpose of effectuating a

transaction and agents who are authorized to act on

behalf of their customers.” Id. at 827; see also ibid.

(“Not all actors who ‘perform an intermediary role

between parties who engage in a transaction[] . . . are

agents in any sense.’” (quoting Restatement (Third) of

Agency § 1.01 cmt. h)).

Third, as explained above (p. 5), the gravity of this

case has attracted and will attract amici, including

the United States, fully interested in and capable of

making the best arguments on both sides.

No better than its circuit-split argument are the

government’s vehicle-problem arguments.

One

purported problem—which, again, blames the

victim—is that “uncertainty regarding the facts . . .

would likely hamper this Court’s review.” U.S. Br. 22.

2 Defendants in a third case pending in the Second Circuit are

arguing that a holding company for “two nationwide retail

brands,” Sears and K-Mart, should be deemed a “financial

institution.” Adv. Proc. 19-8250, Docket Entry No. 52, ¶ 84

(Bankr. S.D.N.Y. Nov. 25, 2019); see also Adv. Proc. 20-07007,

Docket Entry No. 40, at 17 (Bankr. S.D.N.Y. Jan. 19, 2021).

But there is no uncertainty for purposes of this Court’s

review. No party asks this Court to review the Second

Circuit’s factual statements. We have noted that

those facts are wrong and were arrived at by a

procedurally indefensible path. But we did not seek

certiorari on that ground. This Court should hardly

allow lower courts to evade review by making

additional errors that do not themselves warrant

review.

The other purported vehicle problem is that the

existence of a parallel lawsuit brought by the Trustee

for the Tribune Litigation Trust “produces an

additional complication.” U.S. Br. 23. But it is not

clear how. Given that rehearing en banc of the

decision below was sought and denied, the Trustee

suit has little chance of changing the Second Circuit’s

“financial institution” ruling without action by this

Court. Indeed, counsel for the respondents (who also

represent appellees in the Trustee’s case) has scoffed

at the idea that the views of the United States even

constitute “authority.” In re Tribune Co. Fraudulent

Conveyance Litig., No. 19-3049, Docket Entry No. 305,

at 1 (2d Cir. Mar. 18, 2021) (letter to clerk of court).

This Court must act if the error below is not to

metastasize.

Even if the Court thinks that it should not grant

plenary review—despite calling for the views of the

United States knowing full well that there is no circuit

split yet on the second and third questions—there are

other tools this Court can use. Summary reversal is

one such tool: The United States has now concluded

that the Second Circuit “erred in finding that

creditors’ state-law avoidance actions are preempted

by Section 546(e).” U.S. Br. 7. A second tool is the

Court’s power to grant certiorari, vacate a judgment,

and remand a case for further consideration in light of

an intervening event. Here, the Securities and

Exchange Commission appeared as amicus curiae

before the Second Circuit urging preemption. But this

Court’s invitation has now yielded the definitive view

of the United States, which is 180 degrees opposite

what the court below was entitled to think of as the

government’s view—a view particularly relevant to

“purposes and objectives” preemption. Were the

United States a party, that would be a confession of

error. Yet a third tool, used before in this very case,

is to postpone disposition of the petition for a writ of

certiorari while individual Justices suggest that the

court below recall its mandate. That step was

unusual, perhaps even unprecedented, but it is better

than letting stand a profoundly erroneous judgment

enormous

monetary

and

jurisprudential

consequence.

CONCLUSION

The petition for a writ of certiorari should be

granted.

Respectfully submitted.