MC Asset Recovery LLC v. Commerzbank A.G. (In re Mirant Corp.)

• Decision Date: 20 March 2012
• Docket Number: No. 11–10070.,11–10070.
• Citation: 56 Bankr.Ct.Dec. 56,675 F.3d 530
• Parties: In the Matter of MIRANT CORPORATION, Debtor.MC Asset Recovery LLC, Appellant–Cross Appellee, v. Commerzbank A.G.; ABN AMRO, Incorporated; Barclays Bank PLC; BNP Paribas; Calyon; Dankse Bank; ING Bank; Royal Bank of Scotland; Banca Intesa, Appellees–Cross Appellants.
• Court: U.S. Court of Appeals — Fifth Circuit

56 Bankr.Ct.Dec. 56

675 F.3d 530

In the Matter of MIRANT CORPORATION, Debtor.MC Asset Recovery LLC, Appellant–Cross Appellee,

v.Commerzbank A.G.; ABN AMRO, Incorporated; Barclays Bank PLC; BNP Paribas; Calyon; Dankse Bank; ING Bank; Royal Bank of Scotland; Banca Intesa, Appellees–Cross Appellants.

No. 11–10070.

United States Court of Appeals, Fifth Circuit.

March 20, 2012.

John Robert Forshey, Suzanne K. Rosen, Forshey & Prostok, L.L.P., Fort Worth, TX, Michael Joseph Collins, Bickel & Brewer, Jeffrey Scott Levinger (argued), Hankinson Levinger, L.L.P., Dallas, TX, for Appellant Cross–Appellee.

John Mark Chevallier, McGuire, Craddock & Strother, P.C., Dallas, TX, Hugh Matthew McDonald (argued), Keith Connolly Nusbaum, SNR Denton US, L.L.P., New York City, for Appellees Cross–Appellants.

Appeals from the United States District Court for the Northern District of Texas.Before BENAVIDES and PRADO, Circuit Judges, and ALVAREZ,^* District Judge.ALVAREZ, District Judge:

The district court denied Defendants' motion to dismiss based on Plaintiff's alleged lack of standing. Thereafter, the district court granted summary judgment for Defendants. Both sides appealed. While we agree that the district court correctly determined that there was standing to bring the avoidance claim, we vacate the judgment of dismissal because the district court erroneously applied Georgia rather than New York state law to the avoidance claim.

I. BACKGROUND

A. Factual Background

Mirant Corporation (“Mirant”) was an energy company with its headquarters in Georgia. Mirant sought to expand its European operations by acquiring nine power islands from General Electric. Mirant did not seek to acquire the power islands directly, but was acting through its subsidiary Mirant Asset Development and Procurement B.V. (“MADP”). Commerzbank provided financing for the power island transaction. As part of the financing agreement between Commerzbank and MADP, Mirant issued a guaranty (the “Guaranty”) which guaranteed the amounts owed by Mirant's subsidiary, MADP. Commerzbank later syndicated the loan facility to other lenders. Eventually, the European power island deal fell through, and Mirant made payments pursuant to the Guaranty. Soon thereafter, Mirant sought bankruptcy protection.

B. Procedural Background

Mirant, as debtor-in-possession,¹ sued Commerzbank and other lenders in bankruptcy court to avoid the Guaranty and to recover the funds Mirant paid pursuant to the Guaranty. Mirant's bankruptcy plan provided for the creation of a special litigation entity. After Mirant's bankruptcy plan was confirmed, MC Asset Recovery, LLC (“MCAR”) substituted into the case for Mirant, which was acting as debtor-in-possession.

Commerzbank and other lenders filed a motion to dismiss based on Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6). In the motion to dismiss, they argued that MCAR lacked standing and that MCAR failed to state a claim upon which relief could be granted because MCAR could neither use the Federal Debt Collection Procedures Act (“FDCPA”) to avoid the Guaranty nor could MCAR avoid the Guaranty under other applicable law. The parties' disagreement about what law was applicable law raised a choice-of-law issue. The bankruptcy court decided to consider additional evidence on the choice-of-law issue and converted the 12(b) motion into a motion for summary judgment. The bankruptcy court filed proposed findings of fact and conclusions of law. The district court found that MCAR had standing, but granted summary judgment against MCAR because it found that the FDCPA was not applicable law under 11 U.S.C. § 544(b) and it found that the law of Georgia, which it determined to be the applicable state law under § 544(b), did not permit avoidance of the Guaranty.

II. DISCUSSION

MCAR appealed the district court's determinations that the FDCPA is not applicable law under 11 U.S.C. § 544(b) and that Georgia law is the applicable state law under § 544(b). Commerzbank and other lenders (collectively “Lenders”) cross-appealed the district court's determination that MCAR has standing to pursue avoidance actions.

A. Standard of Review and Applicable Law

We review the district court's determination that MCAR has standing de novo. Bonds v. Tandy, 457 F.3d 409, 411 (5th Cir.2006). “[W]e take the well-pled factual allegations of the complaint as true and view them in the light most favorable to the plaintiff.” Lane v. Halliburton, 529 F.3d 548, 557 (5th Cir.2008) (citation omitted). “[U]nder Rule 12(b)(1), the court may find a plausible set of facts by considering any of the following: (1) the complaint alone; (2) the complaint supplemented by the undisputed facts evidenced in the record; or (3) the complaint supplemented by undisputed facts plus the court's resolution of disputed facts.” Id. (citation and internal quotation marks omitted).

The district court's summary judgment determinations that FDCPA is not applicable law under § 544(b) and that Georgia law applies instead of New York law are also reviewed de novo. Holt v. State Farm Fire & Cas. Co., 627 F.3d 188, 191 (5th Cir.2010) (citation omitted). The factual determinations made by the district court in its choice-of-law analysis are reviewed for clear error. Hartford Underwriters Ins. Co. v. Found. Health Servs. Inc., 524 F.3d 588, 592 (5th Cir.2008) (citation omitted). “A summary judgment motion is properly granted only when, viewing the evidence in the light most favorable to the nonmoving party, the record indicates that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law.” Barker v. Halliburton Co., 645 F.3d 297, 299 (5th Cir.2011) (citation and internal quotation marks omitted).

B. Whether MCAR has Article III Standing

Lenders claim that because Mirant's creditors have been paid in full, MCAR does not have standing to pursue an avoidance action. The Court disagrees.

Constitutional standing requires three elements:

First, the plaintiff must have suffered an “injury in fact”-an invasion of a legally protected interest which is (a) concrete and particularized; and (b) “actual or imminent, not ‘conjectural’ or ‘hypothetical.’ ” Second, there must be a causal connection between the injury and the conduct complained of-the injury has to be “fairly ... trace[able] to the challenged action of the defendant, and not ... th[e] result [of] the independent action of some third party not before the court.” Third, it must be “likely,” as opposed to merely “speculative,” that the injury will be “redressed by a favorable decision.”

Lujan v. Defenders of Wildlife, 504 U.S. 555, 560–61, 112 S.Ct. 2130, 119 L.Ed.2d 351 (1992) (internal citations omitted).

Federal courts disagree whether plaintiffs in positions similar to MCAR's have standing. In Adelphia Recovery Trust v. Bank of America, N.A., 390 B.R. 80 (S.D.N.Y.2008), a district court found that because the relevant creditors had been paid in full and would receive no benefit from avoiding a transfer, Adelphia Recovery Trust did not have standing under 544(b) to assert an avoidance claim. Id. at 91–97.

In Stalnaker v. DLC, Ltd., 376 F.3d 819 (8th Cir.2004), the unsecured creditors settled their claims against the estate on the eve of trial. Id. at 821. Thereafter, the trustee attempted to avoid a fraudulent transfer, and the transferee objected and argued that the trustee could no longer pursue an avoidance action. Id. at 822–23. Despite the fact that the unsecured creditors had settled their claims, the Eighth Circuit sided with the trustee because avoiding the transfer would still benefit the bankruptcy estate as required by § 550(a). Id. at 823–824. Central to this decision is the assessment that “the bankruptcy ‘estate’ is not synonymous with the concept of a pool of assets to be gathered for the sole benefit of unsecured creditors.” Id. at 823. The Eighth Circuit also noted that in that case there were still administrative claims that needed to be paid out of the estate. Id. at 823–24. “We find no authority for the proposition that a debtor may settle with unsecured creditors on the eve of trial, thereby thwarting professionals in their attempt to collect fees for at least four years of work to administer the bankruptcy estate.” Id. at 824.

In re Acequia, 34 F.3d 800 (9th Cir.1994), is a case in which the Ninth Circuit allowed a trustee to pursue an avoidance action even though “the corporation paid all unsecured creditors in its plan of reorganization.” Id. at 807–812. The Ninth Circuit made three basic points. First, the “existence of a section 544(b) cause of action” should be evaluated at the time the bankruptcy petition is filed. Id. at 807 (citation omitted). Second, the Bankruptcy Code authorizes post-confirmation pursuit of a debtor's causes of action. Id. (citing 11 U.S.C. § 1123(b)(3)(B) (additional citations omitted)). “[T]hird, if confirmation and payment precluded application of section 544(b), debtors undoubtedly would delay filing plans of reorganization until completing all potential litigation, a result that would contravene the Bankruptcy Code's goal of quick and equitable reorganization.” Id. (citation omitted).

Under the law of this circuit, a trustee's right to avoid a transfer is tested at the petition date.

Central to this bankruptcy is the trustee's power under § 544(b), which allows him to succeed to the actual, allowable and unsecured claims of the estate's creditors. If an actual, unsecured creditor can, on the date of the bankruptcy, reach property that the debtor has transferred to a third party, the trustee may use § 544(b) to step into the shoes of that creditor and “avoid” the debtor's transfer. Although the cause of action belonged to one creditor, any property the trustee recovers becomes estate property and is divided pro rata among all general creditors. The trustee may recover the full extent of the fraudulently transferred property on the basis of...