Before ingesting too much holiday cheer, we encourage you to consider a recent opinion from the United States Court of Appeals for the Second Circuit.

Weil Bankruptcy Blog connoisseurs will recall that, in May 2019, we wrote on the Southern District of New York’s decision in In re Tribune Co. Fraudulent Conveyance Litigation, Case No. 12-2652, 2019 WL 1771786 (S.D.N.Y. April 23, 2019) (Cote, J.) (“Tribune I”).

  • You can access our prior post here
  • As our prior commentary thoughtfully observed, Tribune I determined that a debtor-transferor’s status as a “financial institution,” or its customer, triggered application of the securities safe harbor for constructive fraud claims in LBO-related litigation. See, e.g., Tribune I at 12.

On December 19, 2019, the Second Circuit adopted Tribune I’s reasoning in yet another opinion arising from the Tribune bankruptcy, captioned In re Tribune Company Fraudulent Conveyance Litigation, Case No. 13-3992 (2d Cir. Dec. 19, 2019) (“Tribune II”).

  • In light of Tribune II, the 546(e) safe harbor may well be available where LBO or similar transfers are made through paying agents in that process – notwithstanding the dire predictions with respect to 546(e) in theimmediate wake of Merit Management Group, LP v. FTI Consulting, Inc., 138 S. Ct. 883 (2018).


For those in need of a refresher on our learned commentary, Tribune I held that a debtor-transferor’s status as the “customer” of a “financial institution” continued to shelter otherwise voidable transfers under the 546(e) safe harbor.

  • In Tribune I, Judge Cote relied on Tribune’s use of Computershare Trust Company, N.A. (“CTC”) as an exchange agent to rule that: “The text of Section 101(22)(A) compels the conclusion that Tribune itself was a ‘financial institution.’ The Trustee’s [federal constructive fraudulent transfer] claims are therefore barred by the safe harbor provided in Section 546(e). This result is consistent with Section 546(e)’s goal of promoting stability and finality in securities markets and protecting investors from claims precisely like these.” Id. at 12.
  • Tribune I thus answered a question expressly left open by the Supreme Court’s 2018 opinion in Merit Management – namely, whether a principal/agent relationship between a debtor and an exchange agent or paying agent might continue to shelter transfers or distributions within the ambit of section 546(e).
  • Merit Mgmt., 138 S. Ct. at 890 n.2 (“The parties here do not contend that either the debtor or petitioner in this case qualified as a ‘financial institution’ by virtue of its status as a ‘customer’ under § 101(22)(A).”).

Tribune II

  • Procedurally, Tribune II arose from the Second Circuit’s determination to reconsider its 2016 opinion in a related matter, In re Tribune Fraudulent Conveyance Litig., 818 F.3d 98 (2d Cir. 2016), following a suggestion from the Supreme Court to this effect post-Merit ManagementSee Tribune II at 17.
  • Substantively, Tribune II assessed the same operative facts under consideration in Tribune I to reach the same conclusion—namely:
  • First, “Tribune was a ‘financial institution,’ . . . because it was a ‘customer’ of [CTC], and [CTC] was its agent in the LBO transaction,” Tribune II at 23; and
  • Second, “all of the payments at issue, including those connected to the redemption of shares, were ‘in connection with a securities contract’” such that 546(e)’s safe harbor applied. Id. at 31.
  • Tribune II also reaffirmed the Second Circuit’s prior determination that 546(e) worked a broad preemption on state law fraudulent transfer claims that might otherwise be brought by individual creditors:
  • “Allowing creditors to bring claims barred by Section 546(e) to the trustee et al. only after the trustee et al. fails to exercise powers it does not have would increase the disruptive effect of an unwinding by lengthening the period of uncertainty for covered entities an investors.” Id. at 57.


  • As we said in May 2019, Tribune I found that an appropriately structured principal/agent relationship could continue to shelter transfers or distributions within the ambit of section 546(e).
  • Tribune II reinforces this conclusion, with a further endorsement of a broad-based approach to preemption in favor of the 546(e) safe harbors.
  • But it bears repeating that much will depend on the operative facts, and we encourage you to contact to your Weil team for further analysis in a particular situation.