The Solicitor General recommends that Cert be refused. in Tribune despite perceived errors | Patterson Belknap Webb & Tyler LLP

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In January 2020, we reported that after the reconsideration suggested by two Supreme Court justices and revisions to accommodate the Supreme Court ruling Merit management decision,[1] the Second Circuit Court of Appeal upheld its original decision,[2] in an appeal that was first upheld in 2014, payments to former Tribune shareholders that Tribune’s creditors sought to avoid were protected from cancellation by the Section 546 “safe harbor” (e ) of the Code.[3] The creditors have filed a petition certiorari with the Supreme Court, and a detailed account by the parties and several friend ensued.

In October, the Supreme Court asked the Justice Department for an opinion on whether certificate. should be granted, which is not uncommon. The DoJ’s solicitor general’s office has now filed its recommendation that, despite the SG’s disagreement with the Court of Appeal on the merits, the petition be dismissed.[4]

The two issues on appeal are preemption and the exact degree to which Merit management limited section 546 (e) “safe harbor”.

Pre-emption. Paragraph 546 (e) states that “the trustee cannot avoid a transfer which is[“Ilestbienadmisqu’illimitenonseulementlessyndicsdefaillitemaisaussilesautrespartiesquiexercentlespouvoirsd’unsyndiccommelesdébiteurs-exploitantslescomitésdecréanciersetlesfiduciesdepost-confirmationMaislesdemandeurs-appelantsnesontriendetoutcelaCesontsimplementdescréanciersdeTribunecherchantàexercerlesrecoursdeleurscréanciersenvertudelaloisurlanon-faillite(loissurlestransfertsfrauduleuxdel’État)pourleurproprecomptecontrelesanciensactionnairesdeTribunePourquoidevraient-ilsêtreinterditsparunerestrictionquiàpremièrevuenes’appliquequ’au« fiduciaire » ?

Le tribunal a estimé qu’une fois qu’une affaire a commencé en vertu du Code, l’article 546(e) prévaut sur les recours en droit de l’État d’un créancier individuel et, même si le créancier a obtenu une dispense de la suspension automatique, le créancier n’a pas le droit d’éviter une transfert qui serait protégé contre l’annulation par un fiduciaire en vertu de l’article 546(e). La préemption est du type « implicite », mais elle porte néanmoins toute la force de la clause de suprématie de la Constitution américaine. L’analyse du tribunal est complexe et sonne l’intention du Congrès en promulguant l’article 546 (e).[5]

The SG claims that the court “erred” in its pre-emption decision.[6] Its analysis of the issue is thorough and nuanced (as is that of the Court). Nonetheless, he recommends that the Supreme Court “a review is not warranted at this time”:

The petitioners do not claim that another circuit came to a different conclusion regarding the pre-emptive effect of Section 546 (e) on fraudulent transfer requests by state law creditors. The absence of a circuit conflict suggests both that the [Supreme] The possible consideration of this issue by the Court would benefit from further analysis by other appellate courts, and the question of preemption may not arise frequently.[7]

It is difficult to dispute the SG’s logic or its ironic statement that “the question of preemption may not arise frequently”. It has apparently never happened before in the forty-year history of Section 546 (e), and it took an extremely rare set of procedural circumstances for it to occur in Tribune. At least in the Second Circuit, the preemption implied by Section 546 (e) is likely to be established law for many years to come.

Deserved. The SG held that the Court concluded that the disputed payments to shareholders were protected from cancellation by section 546 (e) notwithstanding Merit management to be “questionable”[8] and return Merit management “a virtual nullity.”[9] However, the SG suggested that “this matter would be a bad means of clarification”[10] for several procedural reasons. Contrary to the question of implied preemption, the exact scope of the “safe harbor” in section 546 (e) after Merit management is likely to arise frequently, and the Supreme Court will therefore likely have other opportunities to provide greater clarity in the relatively near future.


[2] In re Tribune Co. Litigation Relating to Fraudulent Means of Transportation, 818 F.3d 98 (2d Cir. 2016).

[3] In re Tribune Co. Litigation Relating to Fraudulent Means of Transportation, 946 F.3d 66 (2d Cir. 2019), petition for cert. deposit, n ° 20-8 (July 6, 2020). All references to the “Code” mean the Bankruptcy Code, Title 11 of the US Code.

[4] Memoir for the United States as Amicus curiae, No 20-8 (March 12, 2021) (“SG Brief“).

[5] 818 F.3d at 109-24; 946 F.3d at 81-97.

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