Krys v. Farnum Place, LLC (In re Fairfield Sentry Ltd.)
| Decision Date | 26 September 2014 |
| Docket Number | No. 13–3000.,13–3000. |
| Parties | 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. |
| Court | U.S. Court of Appeals — Second Circuit |
OPINION TEXT STARTS HERE
Vacated and remanded. Paul D. Clement, Bancroft PLLC, Washington, DC, (David J. Molton, May Orenstein, Daniel J. Saval, Marek Krzyzowski, Brown Rudnik LLP, New York, NY, on the brief) for Appellant.
Kathleen M. Sullivan (Robert C. Juman, Scott C. Shelley, Cleland B. Welton II, Eric D. Winston, Shane McKenzie, Matthew Scheck, on the brief), Quinn Emanuel Urquhart & Sullivan, LLP, New York, N.Y. or Appellee.
Before: NEWMAN, WALKER, CABRANES, Circuit Judges.JOHN M. WALKER, JR., Circuit Judge.
Appeal from the July 3, 2013 order of the United States District Court for the Southern District of New York (Hellerstein, J.) affirming the January 10, 2013 order of the United States Bankruptcy Court for the Southern District of New York (Lifland, J.) declining to conduct, in a Chapter 15 ancillary bankruptcy proceeding, a section 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) comity dictates deference to a British Virgin Islands Court's judgment approving the sale. Because we conclude that the sale of the SIPA claims is a “transfer of an interest of the debtor in property that is within the territorial jurisdiction of the United States,” 11 U.S.C. § 1520(a)(2), and therefore the sale is subject to review under section 363, and comity is not warranted, we vacate and remand.
The bankruptcy court held that “under applicable nonbankrupcy” 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. London and Lancashire Insurance Co., 255 N.Y. 120, 123–24, 174 N.E. 299 (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 bankruptcy court concluded that “justice, convenience and common sense dictate ... that the SIPA Claim is located with the debtor in the BVI.” Id. at 625. The bankruptcy court' analysis, however, was incomplete. Section 1502(8) deems “any property subject to attachment or garnishment that may be properly seized or garnished by an action in” a United States court to be “within the territory of the United States” 11 U.S.C. § 1502(8).
The SIPA Claim here is subject to attachment or garnishment and may be properly seized by an action in a Federal or State court in the United States. Under New York law, “any property which could be assigned or transferred” is subject to attachment and garnishment. N.Y. C.P.L.R. §§ 5201(b), 6202. For attachment purposes, with respect to intangible property that has as its subject a 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., 39 N.Y.2d 670, 385 N.Y.S.2d 511, 350 N.E.2d 899 (1976), “[the New York Court of Appeals] recognized that a contractual agreement could constitute contingent property interests attachable and assignable, and thus subject to CPLR 5201(b).” Verizon New England, Inc. v. Transcom Enhanced Servs., Inc., 21 N.Y.3d 66, 967 N.Y.S.2d 883, 990 N.E.2d 121, 124 (2013). Here, although Sentry and the SIPA Trustee do not have a contractual relationship, the SIPA Trustee is statutorily obligated to distribute to Sentry its pro rata share of the recovered assets. Therefore the situs of the SIPA Claim is the location of the SIPA Trustee, which is New York.
Farnum argues that even if the SIPA Claim's situs is New York, the claim may not be “properly seized by an action” in a United States court because such action would be stayed by the BVI Court, see BVI Insolvency Act, 2003 § 175(1)(c), and the U.S. bankruptcy court, see 11 U.S.C. §§ 362, 1520(a)(1). But this argument 20 would render the “subject to attachment or garnishment” phrase of section 1502(8) a nullity. “[W]e must construe [a] statute ‘so that no part will be inoperative or superfluous, void or insignificant.’ ” Gordon v. Softech Int'l., Inc., 726 F.3d 42, 48 (2d Cir.2013) (quoting Corley v. United States, 556 U.S. 303, 314, 129 S.Ct. 1558, 173 L.Ed.2d 443 (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 subject to attachment or garnishment. 11 U.S.C. § 1502(8) (emphasis added). This provision thus cannot be read to mean that the determination of whether section 363 review is necessary can be affected by factors that are the quintessential features of bankruptcy law: the existence of the automatic stay under sections 362 and 1520(a)(1) or, in a proceeding ancillary to a foreign proceeding under section 1517, the automatic stay provisions of the foreign jurisdiction.
Therefore we conclude that the sale of the SIPA Claim is a “transfer of an interest of the debtor in property that is within the territorial jurisdiction of the United States,” 11 U.S.C. § 1520(a)(2), and that pursuant to section 1520(a)(2) the bankruptcy court must apply section 363.
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 Court's judgment approving the sale.
Congress specifically directed courts, “[i]n interpreting [Chapter 15], ... [to] consider its international origin, and the need to promote an application of this chapter that is consistent with the application of similar statutes adopted by foreign jurisdictions.” 11 U.S.C. § 1508. But, “Chapter 15 does impose certain requirements and considerations that act as a brake or limitation on comity.” In re Vitro S.A.B. de C.V., 701 F.3d 1031, 1054 (5th Cir.2012) (). 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, 11 U.S.C. § 1520(a)(2) (emphasis added), is one such limitation. “[W]hen a statute's language is plain, the sole function of the courts—at least where the disposition required by the text is not absurd—is to enforce it according to its terms.” Sebelius v. Cloer, ––– U.S. ––––, 133 S.Ct. 1886, 1896, 185 L.Ed.2d 1003 (2013) (quoting Hartford Underwriters Ins. Co. v. Union Planters Bank, N.A., 530 U.S. 1, 6, 120 S.Ct. 1942, 147 L.Ed.2d 1 (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 territorial jurisdiction of the United States.1
Moreover, it is not apparent at all that the BVI Court even expects or desires deference in this instance. The BVI Court expressly declined to rule on whether the Trade Confirmation required approval under section 363.2
Therefore we conclude that the bankruptcy court erred when it gave deference to the BVI Court's approval of the transfer of the SIPA Claim and failed to conduct a review under section 363.
III. Section 363 Review
As stated above, the sale of the SIPA Claim is a “transfer of an interest of the debtor in property within the territorial jurisdiction of the United States” within the meaning of 11 U.S.C. § 1520(a)(2). The language of the statute makes it plain that the bankruptcy court was required to conduct a section 363 review. Deference to the BVI Court was not required. We therefore vacate and remand to the district court with instructions to remand to the bankruptcy court to conduct the section 363 review.
While we intimate no view on the merits of the section 363 review on remand, we provide some guiding principles from our case law. We have held that “a judge determining a § 363(b) application [is required to] expressly find from the evidence presented before him at the hearing a good business reason to grant 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 have “broad discretion and flexibility ... to enhance the value of the estates before it.” Consumer News & Bus. Channel P'ship v. Fin. News Network Inc. (In re Fin. News Network Inc.), 980 F.2d 165, 169 (2d Cir.1992). And we have recognized also that the bankruptcy court's “principal responsibility ... is to secure for the benefit of creditors the best possible bid.” Id.
Applying this framework here, we note that the bankruptcy court must consider as part of its section 363 review the increase in value of the SIPA Claim between the signing of the Trade Confirmation and approval by the bankruptcy court. Cf. In re Martin, 91 F.3d 389 (3d Cir.1996) (...
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