22-2101-bk(L), 23-965(L)

22-2101-bk(L), 23-965(L)
In re Fairfield Sentry Ltd.
In the
United States Court of Appeals
FOR THE SECOND CIRCUIT
A UGUST TERM 2023
Nos. 22-2101-bk(L), 23-965(L)
IN RE FAIRFIELD S ENTRY L TD.,
Debtor.*
__________________
On Appeal from the United States District Court
for the Southern District of New York
A RGUED: A PRIL 12, 2024
DECIDED: A UGUST 5, 2025
Before: NARDINI, MENASHI, and L EE , Circuit Judges.
The debtors in this bankruptcy case were investment funds
based in the British Virgin Islands (“BVI”) that invested in Bernard L.
Madoff Investment Securities and were forced into liquidation in
2008. Liquidators were appointed for the funds in the BVI insolvency
proceedings. In approximately 300 separate actions in the United
* The list of consolidated appeals may be found at Docket No. 22-2101,
Order of November 23, 2022, Exhibit A, ECF No. 30; and at Docket No. 23-
965, Order of August 3, 2023, Exhibit B, ECF No. 192, and Order of August
28, 2023, ECF No. 295. Parties that have withdrawn from the appeal by letter
or stipulation are listed in Docket Nos. 22-2101 and 23-965.

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States, the liquidators attempted to recover redemption payments
made to investors in the funds shortly before the revelation of the
Madoff Ponzi scheme. Those payments exceeded $6 billion. These
actions were consolidated in the bankruptcy court after the
liquidators obtained recognition of the BVI insolvency proceedings
pursuant to Chapter 15 of the Bankruptcy Code. In a series of orders,
the bankruptcy court dismissed most of the actions on the grounds
that (1) it lacked personal jurisdiction over certain defendants, (2) the
liquidators were bound by the Net Asset Value calculations that set
the price at which the defendants redeemed their shares, and (3) the
safe harbor for securities transactions under the Bankruptcy Code
barred the liquidators’ claims. The bankruptcy court sustained
constructive trust claims against certain defendants that allegedly
knew or had reason to know that the Net Asset Value calculations
were inflated due to the Madoff fraud.
The district court affirmed the judgment of the bankruptcy
court. On appeal, the liquidators seek restoration of the non-
constructive-trust claims, and the defendants seek dismissal of the
constructive trust claims. We hold that all of the liquidators’ claims
should have been dismissed pursuant to the safe harbor for securities
transactions under § 546(e) of the Bankruptcy Code. We reverse in
part and affirm in part the judgment of the district court.
PAUL D. C LEMENT, Clement & Murphy, PLLC,
Alexandria, Virgina (Matthew D. Rowen, Clement &
Murphy, PLLC, Alexandria, Virgina; David J. Molton,
Marek P. Krzyzowski, Brown Rudnick LLP, New York,
New York; Caitlin J. Halligan, David Elsberg, Andrew R.
Dunlap, Michael Duke, Max H. Siegel, Selendy Gay

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Elsberg PLLC, New York, New York, on the brief), for
Plaintiffs-Appellants-Cross-Appellees.
JEFFREY A. R OSENTHAL , Cleary Gottlieb Steen & Hamilton
LLP, New York, New York (Carmine D. Boccuzzi, Jr.,
Cleary Gottlieb Steen & Hamilton LLP, New York, New
York; Elsbeth Bennett, Nowell D. Bamberger, Cleary
Gottlieb Steen & Hamilton LLP, Washington, DC, on the
brief), for Defendants-Appellees-Cross-Appellants.
MENASHI, Circuit Judge:
The debtors in this bankruptcy case—Fairfield Sentry Limited
(“Sentry”), Fairfield Sigma Limited (“Sigma”), and Fairfield Lambda
Limited (“Lambda” and, together with Sentry and Sigma, the
“Funds”)—were investment funds based in the British Virgin Islands
(“BVI”) that invested heavily in Bernard L. Madoff Investment
Securities (“BLMIS”). The Funds were forced into liquidation in the
BVI after BLMIS was exposed as a Ponzi scheme in 2008. The
plaintiffs-appellants-cross-appellees—Kenneth M. Krys and Greig
Mitchell—are the liquidators appointed for the Funds in the BVI
insolvency proceedings. The defendants-appellees-cross-appellants
are investors and successors-in-interest of investors in the Funds who
redeemed their shares for cash shortly before the collapse of the Ponzi
scheme. The Funds are also plaintiffs-appellants-cross-appellees.
In approximately 300 separate actions in the United States, the
liquidators attempted to recover the redemption payments made to
the defendants, which exceeded $6 billion. These actions were
consolidated in the bankruptcy court in the Southern District of New
York after the liquidators obtained recognition of the BVI insolvency
proceedings pursuant to Chapter 15 of the Bankruptcy Code. In a

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series of orders, the bankruptcy court dismissed most of the actions
on the grounds that (1) it lacked personal jurisdiction over certain
defendants, (2) the liquidators were bound by the Net Asset Value
calculations that set the price at which the defendants redeemed the
shares, and (3) the safe harbor for securities transactions under the
Bankruptcy Code barred the liquidators’ claims. The bankruptcy
court sustained constructive trust claims against certain defendants
that allegedly knew or had reason to know that the Net Asset Value
calculations were inflated due to the Madoff fraud.
The district court affirmed the judgment of the bankruptcy
court. On appeal, the liquidators seek restoration of the non-
constructive-trust claims, and the defendants seek dismissal of the
constructive trust claims. We hold that all of the liquidators’ claims
should have been dismissed pursuant to the safe harbor for securities
transactions under § 546(e) of the Bankruptcy Code. Accordingly, we
reverse the judgment insofar as the district court allowed the
constructive trust claims to proceed, and we otherwise affirm.
BACKGROUND
Bernard L. Madoff ran the largest Ponzi scheme in history until
the SEC exposed the scheme on December 11, 2008. Before then, the
Funds raised capital from investors and gave it to BLMIS, supposedly
to invest in securities. In fact:
the money that [the Funds] transferred to BLMIS was not
invested, but, rather, was used by Madoff to pay other
BLMIS investors or was otherwise misappropriated by
Madoff for unauthorized uses. Further, none of the
securities shown on statements provided to [the Funds]
by BLMIS were in fact purchased for [the Funds].
Additionally, none of the amounts withdrawn by [the
Funds] from its accounts with BLMIS were proceeds of

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sales of securities or other investments. Instead, such
amounts represented the monies of more recent
investors into the Madoff scheme.
App’x 4620. At the same time, the Funds unknowingly supported
Madoff’s scheme by attracting “new investors and new investments,”
which “allow[ed] Madoff to make payments to early investors who
sought to liquidate their investments” and to “maintain[] the illusion
that BLMIS was making active investments and engaging in a
successful investment strategy.” Id. at 4630-31. “Sentry was the largest
of all the so-called ‘feeder funds’ to maintain accounts with BLMIS,”
while “Sigma and Lambda were indirect BLMIS feeder funds
established for foreign currency (respectively, Euro and Swiss franc)
investment through purchase of shares of Sentry.” Id. at 4630.
“Sentry’s account statements with BLMIS as of the end of October
2008 showed in excess of $6 billion of invested assets supposedly held
by BLMIS.” Id.
Investors purchased shares in the Funds by signing the
Subscription Agreement, which was substantially identical for all
three Funds. The Subscription Agreement bound the investors to the
terms of the Funds’ Articles of Association. The Subscription
Agreement specified that it would be governed by New York law and
that “any suit, action or proceeding … with respect to this Agreement
and the Fund may be brought in New York.” Id. at 1029.
Pursuant to the Articles of Association, an investor had the
option to redeem its shares in the Fund at any time for cash. The
redemption price of each share was to equal the current Net Asset
Value per Share (“NAV”). The Articles provided that “[t]he Net Asset
Value per Share shall be calculated at the time of each determination
by dividing the value of the net assets of the Fund by the number of
Shares then in issue or deemed to be in issue” and then applying

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certain adjustments. Id. at 274. The Articles assigned ultimate
responsibility for certifying the periodic calculations of the NAV to
the directors of the Funds, but in practice the Funds delegated the task
of calculating and certifying the NAV to the administrators of the
Funds, primarily Citco Fund Services (Europe) B.V. (“Citco”).
“In calculating each of the Funds’ Net Asset Value, the Funds’
administrators used and relied on account statements provided by
BLMIS purportedly showing securities and investments, or interests
or rights in securities and investments, held by BLMIS for the account
of Sentry.” Id. at 4631. These account statements, however, were
“utterly fictitious.” Id. at 4632. “[N]o securities were ever purchased
or sold by BLMIS for Sentry and any stated cash on hand in the BLMIS
accounts was based on misinformation and fictitious account
statements. … Indeed, no investments of any kind were ever made by
BLMIS for Sentry.” Id. Rather, the money in Sentry’s account with
BLMIS was used to perpetuate the Ponzi scheme. As a result, the
NAVs that Citco and the Funds certified were artificially inflated. In
fact, Sentry’s account with BLMIS contained no assets. The liquidators
allege that:
[o]ver the course of fifteen years, in its capacity as service
providers to the Funds, Citco reviewed information
concerning BLMIS not available to the general public,
and expressed internal alarm about what that
information showed with respect to the likelihood of
fraud at BLMIS, but turned a blind eye to the reality
reflected in the information and instead proceed[ed]
with issuing the Certificates as if there were no problem.
Id. at 4634. The Funds, however, “believed that the amounts provided
in connection with [redemptions by investors] represented the

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proceeds arising from the profitability” of investments in BLMIS. Id.
at 4632.
After the exposure of the Ponzi scheme in 2008, “the Funds’
boards of directors suspended any further redemptions of Shares and
the calculation of the Funds’ Net Asset Values,” and “[i]n 2009, the
Funds were put into liquidation proceedings in the BVI.” Id. at 4647.
The BVI court appointed the liquidators as representatives of the
Funds’ estates with responsibility for “all aspects of the Funds’
business, including protecting, realizing, and distributing assets for
the Funds’ estates.” Id. at 4648.
As the district court explained, “[w]hen a Ponzi scheme
collapses, those who have already withdrawn some or all of their
funds and recovered some or all of their investments are insulated
from loss to a certain degree, while those whose money is still
invested will suffer substantial loss, and sometimes receive nothing
in return.” Fairfield Sentry Ltd. v. Citibank, N.A. London (Fairfield V),
630 F. Supp. 3d 463, 475 n.11 (S.D.N.Y. 2022). For that reason, the
liquidators initiated proceedings in the BVI against investors in the
Funds—or transferees of such investors—that had redeemed shares
before the collapse. The liquidators aimed to recover the redemption
payments and “to distribute the recoveries equitably among
members” of the Funds. Id. at 475. In support of that goal, the
liquidators advanced the theory that the redemption payments “were
mistaken payments and constituted or formed part of avoidable
transactions, and generally represent assets of Sentry’s estate that [the
redeeming investors] are not entitled to keep.” App’x 4648.
The Commercial Division of the Eastern Caribbean High Court
of Justice of the BVI, however, held that the investors had “paid good
consideration for the Redemption Payments by surrendering their

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shares with the Funds, and, consequently, the Liquidators were
barred from recovering those payments.” Fairfield V, 630 F. Supp. 3d
at 476. The Eastern Caribbean Court of Appeal affirmed, and the case
was then considered by the Privy Council in London. The Privy
Council held that “the communications from Sentry to the Redeemers
were ‘certificates’ within the meaning of Article 11, which meant that
the NAV as determined by Citco was binding.” Id. at 477 (citing
Fairfield Sentry Ltd (In Liquidation) v Migani [2014] UKPC 9, 2014 WL
1219748 (PC)). The Privy Council “based its reasoning on the need for
finality and certainty in securities transactions.” Id. The Privy Council
did not consider whether Citco acted in bad faith.
In addition to the BVI proceedings, the liquidators “filed about
300 actions in the United States to claw back over $6 billion” in
allegedly inflated redemption payments. Id. at 478. While the
defendants in the BVI and U.S. proceedings “partially overlapped,”
the parties in this case “agree that the claims asserted in the U.S.
Proceedings are not the same as those asserted in the BVI
Proceedings, as they involved different redemption transactions at
different time periods.” Id. at 478 n.22. In the U.S. proceedings, the
liquidators asserted causes of action for “(1) unjust enrichment;
(2) money had and received; (3) mistaken payment; (4) constructive
trust …; (5) unfair preferences under BVI’s Insolvent Act § 245;
(6) undervalue transactions under the Insolvent Act § 246
(collectively, the ‘BVI Avoidance Claims’); (7) breach of contract; and
(8) breach of the implied covenant of good faith and fair dealing.” Id.
at 479.
In July 2010, the bankruptcy court in the Southern District of
New York granted recognition of the BVI proceedings as a foreign
main proceeding under Chapter 15 of the Bankruptcy Code,
consolidated all the cases the liquidators had filed, and stayed the U.S.

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proceedings pending resolution of the BVI proceedings. Under
Chapter 15 of the Bankruptcy Code, if a company has entered
insolvency proceedings in a foreign jurisdiction, a representative of
its estate may file a petition for recognition of the foreign proceedings
in U.S. bankruptcy court. See 11 U.S.C. §§ 1504, 1515. Upon the filing
of a petition for recognition, the bankruptcy court determines
whether to recognize the foreign proceeding as either a “foreign main
proceeding,” if it is “pending in the country where the debtor has the
center of its main interests,” or a “foreign nonmain proceeding,” if it
is pending in the country where the debtor merely “has an
establishment.” Id. § 1517. Recognition as a foreign main proceeding
triggers certain automatic protections, including application of the
automatic stay within the United States. Id. § 1520. Once recognition
is granted, the bankruptcy court “may provide additional assistance
to a foreign representative under [the Bankruptcy Code] or under
other laws of the United States.” Id. § 1507. In particular, “[u]pon
recognition of a foreign proceeding,” the bankruptcy court may
“grant[] any … relief that may be available to a trustee,” with certain
exceptions, including relief pursuant to the statutory avoidance
powers granted to the trustee by the Bankruptcy Code. Id.
§ 1521(a)(7).
The bankruptcy court lifted the stay after the Privy Council
issued the Migani decision in 2014, and the liquidators moved for
leave to amend the complaint to add allegations of bad faith on the
part of Citco. The defendants moved to dismiss the liquidators’ claims
on the grounds of lack of personal jurisdiction, failure to state a claim,
and the safe harbor for securities transactions of § 546(e) of the
Bankruptcy Code. That section provides:
Notwithstanding sections 544, 545, 547, 548(a)(1)(B), and
548(b) of this title, the trustee may not avoid a transfer

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that is … [a] settlement payment, as defined in section
101 or 741 of this title, made by or to (or for the benefit
of) a … financial institution … in connection with a
securities contract, as defined in section 741(7), … except
under section 548(a)(1)(A) of this title.
Id. § 546(e). Section 561(d), meanwhile, provides that:
[a]ny provisions of this title relating to securities
contracts … shall apply in a case under Chapter 15, so
that enforcement of contractual provisions of such
contracts and agreements in accordance with their terms
will not be stayed or otherwise limited by operation of
any provision of this title or by order of a court in any
case under this title, and to limit avoidance powers to the
same extent as in a proceeding under chapter 7 or 11 of
this title (such enforcement not to be limited based on the
presence or absence of assets of the debtor in the United
States).
Id. § 561(d).
The bankruptcy court resolved the motions in a series of orders
issued between 2018 and 2020. First, the bankruptcy court decided
that the forum selection clause in the Subscription Agreements did
not suffice to establish personal jurisdiction over 206 foreign
defendants who had moved to dismiss for lack of personal
jurisdiction. In re Fairfield Sentry Ltd. (Fairfield I), No. 10-13164, 2018
WL 3756343, at *8-14 (Bankr. S.D.N.Y. Aug. 6, 2018). Second, the
bankruptcy court dismissed all the claims in the complaint except for
the BVI Avoidance Claims and the constructive trust claims against
the defendants alleged to have known the NAV calculations were
inflated. In re Fairfield Sentry Ltd. (Fairfield II), 596 B.R. 275, 282 (Bankr.
S.D.N.Y. 2018). In Fairfield II, the bankruptcy court held that (1) Migani
did not preclude the liquidators’ claims under the preclusion rules of

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either the United States or the BVI; (2) the NAVs stated in the
certificates were binding on the Funds—and therefore on the
liquidators—regardless of Citco’s bad faith, except with respect to the
defendants who allegedly knew the NAVs were inflated; (3) the
doctrine of ex turpi causa non oritur actio did not bar the liquidators’
claims; (4) neither the Subscription Agreement nor the Articles
required investors to return payments based on inflated NAVs; (5) the
redemption payments were settlement payments made in connection
with securities contracts and therefore qualified as covered
transactions under the safe harbor for securities transactions of
§ 546(e); and (6) § 546(e) applied extraterritorially in Chapter 15 by
virtue of § 561(d). See id. at 290-315.
The bankruptcy court declined to decide in Fairfield II
whether—despite the transactions being covered—the safe harbor
barred the liquidators’ claims. See id. at 314-15 (“[T]he redemptions at
issue were Covered Transactions because they were settlement
payments made in connection with securities contracts. The more
difficult question is whether the transferor or the transferee was a
covered entity—either a financial institution or a financial
participant.”) (citation omitted). After receiving additional argument
on that question, the bankruptcy court decided that the safe harbor
barred the liquidators’ claims that were based on BVI statutory law.
See In re Fairfield Sentry Ltd. (Fairfield III), No. 10-13164, 2020 WL
7345988, at *7 (Bankr. S.D.N.Y. Dec. 14, 2020). The bankruptcy court
decided that the constructive trust claims were not barred, however,
because those claims were based on BVI common law. See id. at *8.
The bankruptcy court reasoned that § 546(e) did not apply directly to
the constructive trust claims and did not impliedly preempt those
claims because “[c]ourts do not assume that otherwise applicable

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foreign law is preempted absent express statutory language to that
effect.” Id. at *10.
The bankruptcy court denied the defendants’ motion for
reconsideration of its decision that the safe harbor did not bar the
constructive trust claims. In re Fairfield Sentry Ltd. (Fairfield IV), No. 10-
13164, 2021 WL 771677 (Bankr. S.D.N.Y. Feb. 23, 2021). The U.S.
District Court for the Southern District of New York affirmed the
judgment of the bankruptcy court that dismissed all claims except the
constructive trust claims. See Fairfield V, 630 F. Supp. 3d at 473.
Before this court are two appeals from the judgment of the
district court in Fairfield V. In the appeal docketed at No. 22-2101, the
liquidators argue that the district court should have reversed the
bankruptcy court’s dismissal of all the non-constructive-trust claims.
In the appeal docketed at No. 23-965, the defendants against which
the constructive trust claims were asserted argue that the district
court should have reversed the bankruptcy court’s decision that the
constructive trust claims could be maintained despite the safe harbor
for securities transactions.
DISCUSSION
These appeals require us to answer two questions. The first
question is whether the forum selection clause in the Subscription
Agreements establishes personal jurisdiction over the defendants. We
conclude that it does. The second question is whether the safe harbor
of 11 U.S.C. § 546(e) bars the liquidators’ actions. We conclude that
the safe harbor applies extraterritorially and bars the actions. Because
that conclusion resolves the case, we need not resolve the other
disagreements between the parties.

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I
“Parties can consent to personal jurisdiction through forum-
selection clauses in contractual agreements.” D.H. Blair & Co., Inc. v.
Gottdiener, 462 F.3d 95, 103 (2d Cir. 2006). The Subscription
Agreements for the Funds contain a forum selection clause, which
provides as follows:
Subscriber agrees that any suit, action or proceeding
(“Proceeding”) with respect to this Agreement and the
Fund may be brought in New York. Subscriber
irrevocably submits to the jurisdiction of the New York
courts with respect to any Proceeding and consents that
service of process as provided by New York law may be
made upon Subscriber in such Proceeding, and may not
claim that a Proceeding has been brought in an
inconvenient forum. … Nothing herein shall affect the
Fund’s right to commence any Proceeding or otherwise
to proceed against Subscriber in any other jurisdiction or
to serve process upon Subscriber in any manner
permitted by any applicable law in any relevant
jurisdiction.
App’x 1029. Despite the forum selection clause, the district court held
that it lacked personal jurisdiction over 206 of the defendants. The
district court “agree[d] with the Bankruptcy Court’s determination
that the word ‘and’ should be read conjunctively, and that the claims
here are not ‘with respect to’ the Subscription Agreement.” Fairfield V,
630 F. Supp. 3d at 482-83. For that reason, the district court held that
“the forum selection clause cannot establish the Bankruptcy Court’s
personal jurisdiction over the relevant Defendants-Appellees.” Id. at
486.

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A
“We review district court decisions on personal jurisdiction for
clear error on factual holdings and de novo on legal conclusions.” D.H.
Blair, 462 F.3d at 103 (quoting Mario Valente Collezioni, Ltd. v. Confezioni
Semeraro Paolo, S.R.L., 264 F.3d 32, 36 (2d Cir. 2001)).
We have recognized that “[c]ourts applying New York law to
contracts using the word ‘and’ look to the context in which the word
is used to determine whether it should be read in the conjunctive or
disjunctive sense.” Spanski Enters., Inc. v. Telewizja Polska S.A.,
832 F. App’x 723, 725 (2d Cir. 2020). That context includes whether the
parties used language other than “and” elsewhere in the contract to
convey a disjunctive meaning. See, e.g., id. (“[R]eading the Agreement
as a whole suggests that, when the parties sought to provide for
unilateral rights, they used the term ‘each party’ to distinguish from
the conjunctive ‘TVP and SEI.’”).
As the district court correctly observed, “in other parts of the
Subscription Agreement, the parties repeatedly use ‘or’ or ‘and/or’ to
show disjunctive meaning.” Fairfield V, 630 F. Supp. 3d at 484.1 Yet
the liquidators do not argue that the word “and” must be read
disjunctively. The liquidators concede, for example, that “if a bank
invested in one of the Funds through a Subscription Agreement and
separately provided banking services to the Fund, any dispute over
1 See, e.g., App’x 1027 (“Subscriber has obtained sufficient information from
the Fund or its authorized representatives to evaluate such risks.”); id. (“The
Subscriber irrevocably authorizes the Fund and/or the Administrator to
disclose, at any time, any information held by the Fund or the
Administrator in relation to the Subscriber or his investment in the Fund to
the Investment Manager or any affiliate of the Investment Manager or the
Administrator.”).

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the banking services would be ‘with respect to the Fund,’ but not with
respect to the Subscription Agreements” and therefore would not be
covered by the forum selection clause. Appellants’ Br., No. 22-2101, at
50. Accordingly, we accept that the word “and” should be read
conjunctively. Under that reading, the forum selection clause covers
the liquidators’ actions only if those actions are “with respect to” the
Subscription Agreements.2
The liquidators argue that the district court erred not in reading
“and” conjunctively but in concluding that the proceedings here are
not “with respect to this [Subscription] Agreement.” We agree.
We have explained that the phrase “with respect to” is
“synonymous” with phrases such as “related to,” “in connection
with,” and “associated with.” Coregis Ins. Co. v. Am. Health Found., Inc.,
241 F.3d 123, 128-29 (2d Cir. 2001). These phrases are “not necessarily
tied to the concept of a causal connection” and are “broader in scope”
than “the term ‘arising out of.’” Id.; see also ACE Cap. Re Overseas Ltd.
2 As the district court recognized, “because the Subscription Agreement
regulates the investment relationship between the members and the Funds,
any dispute over the Subscription Agreement is necessarily also ‘with
respect to the fund.’” Fairfield V, 630 F. Supp. 3d at 484. For that reason, a
conjunctive reading renders “and the Fund” superfluous because the forum
selection clause would have the same scope if it applied to proceedings only
“with respect to this Agreement.” App’x 1029. As a general rule, “[a]n
interpretation of a contract that has ‘the effect of rendering at least one
clause superfluous or meaningless … is not preferred and will be avoided
if possible.’” LaSalle Bank Nat’l Ass’n v. Nomura Asset Cap. Corp., 424 F.3d
195, 206 (2d Cir. 2005) (quoting Shaw Grp., Inc. v. Triplefine Int’l Corp., 322
F.3d 115, 124 (2d Cir. 2003)). Such avoidance is not possible here, however,
because a disjunctive reading would render “with respect to this
Agreement” superfluous. Under that reading, the forum selection clause
would have the same scope if it applied to proceedings only “with respect
to the Fund.”

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v. Cent. United Life Ins. Co., 307 F.3d 24, 32 (2d Cir. 2002) (describing
the phrase “relating to” as “expansive”). “Related” means “connected
by reason of an established or discoverable relation.” Coregis, 241 F.3d
at 128 (quoting Webster’s Third New International Dictionary 1916
(1986)); see also Related, Black’s Law Dictionary (12th ed. 2024)
(“Connected in some way; having relationship to or with something
else.”); Dan’s City Used Cars, Inc. v. Pelkey, 569 U.S. 251, 260 (2013)
(“The phrase ‘related to’ … embraces state laws ‘having a connection
with or reference to’ [the specified subject matter] whether directly or
indirectly.”) (quoting Rowe v. N.H. Motor Transp. Ass’n, 552 U.S. 364,
370 (2008)).
The liquidators’ actions have an “established or discoverable
relation” to the Subscription Agreements. Coregis, 241 F.3d at 128. The
liquidators seek “to recover payments made to shareholders for the
redemption of shares in the Funds prior to December 2008,” when the
Ponzi scheme was revealed. App’x 4618. The liquidators allege that
these payments “did not conform to or follow the terms of the Funds’
Subscription Agreements, Articles of Association and/or other
offering documents.” Id. at 4621. The lawsuits arise out of the
relationship between the defendants as investors and the Funds as
issuers of securities, and that relationship came into being through
the Subscription Agreements. As the liquidators note, “the
Subscription Agreements are the only documents that Defendants
executed, and the only documents that bound Defendants to the
Funds’ Articles of Association, which established the mechanics for
processing Fund redemptions.” Appellants’ Br., No. 22-2101, at 47.
While the Subscription Agreements did not expressly incorporate the
terms of the Articles of Association, see Fairfield V, 630 F. Supp. 3d at
486, those agreements informed investors that the Articles governed
their relationship to the Funds. Because of this “discoverable relation”

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between the liquidators’ actions and the Subscription Agreements,
the actions are “with respect to” the Agreements. Coregis, 241 F.3d at
128-29.
B
The defendants respond that this argument endorses a “but-
for” test that we have rejected in cases involving arbitration clauses.
See Appellees’ Br., No. 22-2101, at 77 (citing Necchi S.p.A. v. Necchi
Sewing Mach. Sales Corp., 348 F.2d 693 (2d Cir. 1965); Cooper v. Ruane
Cunniff & Goldfarb Inc., 990 F.3d 173 (2d Cir. 2021)). The Subscription
Agreements represent a but-for cause of the liquidators’ actions
precisely because those agreements created the investment
relationships between the defendants and the Funds. See Bostock v.
Clayton County, 590 U.S. 644, 656 (2020) (explaining that “but-for”
causation “is established whenever a particular outcome would not
have happened ‘but for’ the purported cause”).
It is not clear that we have rejected a but-for test for forum
selection clauses. We require only a “discoverable relation” between
the dispute and the agreement, Coregis, 241 F.3d at 128, and but-for
causation might qualify as a “discoverable relation.” Two other circuit
courts have relied on our decision in Coregis to hold that but-for
causation does qualify as a sufficient relationship between the dispute
and the agreement. See Carlyle Inv. Mgmt. LLC v. Moonmouth Co. SA,
779 F.3d 214, 220 (3d Cir. 2015); Huffington v. T.C. Grp., LLC, 637 F.3d
18, 22 (1st Cir. 2011). In fact, the insurer-defendant in Coregis prevailed
on its argument that the lawsuits for which the insured sought
coverage were “related to” insolvency because “the Lawsuits would
not have been brought but for the insolvency of the Companies,
and … consequently the Lawsuits arise out of, are based upon, or are
related to the insolvency.” Coregis, 241 F.3d at 126 (emphasis added).

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Our own precedent therefore suggests that a lawsuit is “related to” its
but-for cause.
However that may be, the liquidators disclaim reliance on a
but-for test here. See Reply Br., No. 22-2101, at 6-7. Our precedents
hold that a controversy may “relat[e] to” a contract for purposes of a
dispute-resolution clause when the controversy arose out of a
subsequent agreement between the parties and the “relationship”
between the contract and the subsequent agreement was “clear and
direct.” Pervel Indus., Inc. v. T M Wallcovering, Inc., 871 F.2d 7, 8-9 (2d
Cir. 1989). In this case, there was a “clear and direct” relationship
between the Subscription Agreements and the Articles of Association
from which the liquidators’ claims arose. The purpose of the
Subscription Agreements was to make the investors who signed the
agreements shareholders in the Funds pursuant to the terms of the
Articles. A dispute between investors and the Funds regarding the
redemption of shares, which is governed by the Articles, is “related
to” the Subscription Agreements and falls within the scope of the
forum-selection clause.
In David L. Threlkeld & Co. v. Metallgesellschaft Ltd. (London), we
considered the arbitration rules of the London Metal Exchange, which
provided that “[a]ll disputes arising out of or in relation to any
contract which contains an [arbitration clause] shall be referred to
arbitration.” 923 F.2d 245, 247 (2d Cir. 1991) (alteration omitted). The
plaintiff and the defendant had entered into forward contracts for
commodities trades, and those contracts contained arbitration
clauses. The plaintiff “assert[ed] that its claims arise out of a collateral
agreement with [the defendant], namely an agreement to value [the
plaintiff’s] forward contracts, and because the collateral agreement
lacks an arbitration clause, the claims are not arbitrable.” Id. at 251.
We rejected that argument because “[t]he forward contracts were the

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genesis of the parties’ relationship; the alleged collateral agreement
stemmed directly from the forward contracts,” and “[t]he metals
contracts between [the parties] represent the subject matter of the
alleged valuation agreements.” Id. at 251-52.
The same reasoning applies here. The Subscription Agreements
were “the genesis of the parties’ relationship,” and while the Articles
preceded the Subscription Agreements, the defendants’ obligations
under the Articles “stemmed directly” from the Subscription
Agreements. The two documents obviously share a common “subject
matter”: the relationship between the defendants, as investors and
shareholders, and the Funds. This relationship is sufficiently “clear
and direct” for the liquidators’ claims to “relat[e] to” the Subscription
Agreements. Pervel Indus., 871 F.2d at 8-9.
The alternative interpretation of the district court is that the
Funds sold securities to investors all over the world under
Subscription Agreements that would allow the investors to bring
lawsuits related to the securities in any forum worldwide. That is
commercially implausible. As the First Circuit has explained:
forum selection clauses have varying purposes, but one
reasonably inferred where, as here, a security is being
offered to a range of customers is to concentrate all
related litigation in a single forum. This assures the
defendant that it will be able to litigate all of the actions
in one place convenient to it; that one set of rules will
apply; that consolidation may be readily available; that
inconsistent outcomes can be minimized; and that a
single lead precedent can control all cases.
Huffington, 637 F.3d at 22-23. The bankruptcy and district courts
expressed skepticism of the liquidators’ interpretation of the forum-
selection clause on the ground that it would sweep almost any

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litigation between the subscribers and the Funds into New York. As
the liquidators note, “that is a feature of the clause, not a bug.”
Appellants’ Br., No. 22-2101, at 49. The purpose of a forum-selection
clause is to “ensure that parties will not be required to defend lawsuits
in far-flung fora, and promote uniformity of result.” Martinez v.
Bloomberg LP, 740 F.3d 211, 219 (2d Cir. 2014) (quoting Magi XXI, Inc.
v. Stato della Citta del Vaticano, 714 F.3d 714, 722 (2d Cir. 2013)). In fact,
“[t]he complexity of this decade-plus-long case illustrates the point.”
Appellants’ Br., No. 22-2101, at 49.3
We conclude that the forum-selection clause established
personal jurisdiction over all of the defendants.
II
We turn to the merits of the liquidators’ claims. The district
court agreed with the decision of the bankruptcy court in Fairfield III
that the safe harbor for securities transactions bars those claims the
liquidators brought under BVI statutory law. The district court
explained that § 561(d) overcame the presumption against
extraterritorial application of American law and that, in any event, the
application of the safe harbor to this case was domestic rather than
foreign. The district court also agreed with the decision of the
bankruptcy court in Fairfield III and Fairfield IV that the safe harbor
does not bar those claims the liquidators brought under BVI common
3 See Appellants’ Br., No. 22-2101, at 49 (“Absent a clause concentrating
cross-border litigation over billions of dollars in redemption payments in a
single forum, the Liquidators would have to slog through expensive and
time-consuming discovery and litigation against hundreds of individual
Defendants at the threshold, just to establish personal jurisdiction. Contrary
to the district court’s belief, it makes perfect sense that the parties chose a
broad forum selection clause to avoid just that outcome.”).

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law—namely, unjust enrichment, money had and received, mistaken
payment, and constructive trust. Because the bankruptcy court
decided in Fairfield II that BVI law barred all of the liquidators’
common-law claims except for the constructive trust claims, see
Fairfield II, 596 B.R. at 300-01, the net result of the district court’s
decision in Fairfield V was that the only claims remaining were the
constructive trust claims against the defendants alleged to have
known about the inflated NAV calculations.
On appeal, the liquidators argue that the safe harbor does not
bar any of the claims. The defendants argue that the safe harbor bars
all of the claims, including the constructive trust claims. We agree
with the defendants. We first address the liquidators’ argument that
the defendants’ position involves an extraterritorial application of the
safe harbor in violation of the presumption against extraterritoriality.
We then address the scope of the safe harbor.
A
“It is a basic premise of our legal system that, in general,
‘United States law governs domestically but does not rule the
world.’” RJR Nabisco, Inc. v. Eur. Cmty., 579 U.S. 325, 335 (2016)
(quoting Microsoft Corp. v. AT&T Corp., 550 U.S. 437, 454 (2007)). “This
principle finds expression in a canon of statutory construction known
as the presumption against extraterritoriality: Absent clearly
expressed congressional intent to the contrary, federal laws will be
construed to have only domestic application.” Id. “When a statute
gives no clear indication of an extraterritorial application, it has
none.” Morrison v. Nat’l Austl. Bank Ltd., 561 U.S. 247, 255 (2010).
1
The Supreme Court has identified two reasons for the
presumption against extraterritoriality. First and “[m]ost notably, it

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serves to avoid the international discord that can result when U.S. law
is applied to conduct in foreign countries.” RJR Nabisco, 579 U.S. at
335. “Although ‘a risk of conflict between the American statute and a
foreign law’ is not a prerequisite for applying the presumption
against extraterritoriality, where such a risk is evident, the need to
enforce the presumption is at its apex.” Id. at 348 (citation omitted)
(quoting Morrison, 561 U.S. at 255). Second, the presumption “reflects
the more prosaic ‘commonsense notion that Congress generally
legislates with domestic concerns in mind.’” Id. at 336 (quoting Smith
v. United States, 507 U.S. 197, 204 n.5 (1993)). Because the “consistent
application of the presumption ‘preserves a stable background
against which Congress can legislate with predictable effects,’”
Yegiazaryan v. Smagin, 599 U.S. 533, 541 (2023) (alteration omitted)
(quoting Morrison, 561 U.S. at 261), we “assume that Congress
legislates against the backdrop of the presumption,” EEOC v. Arab
Am. Oil Co. (Aramco), 499 U.S. 244, 248 (1991).
The Court has prescribed a “two-step framework for analyzing
extraterritoriality issues.” RJR Nabisco, 579 U.S. at 337. “At the first
step, we ask whether the presumption against extraterritoriality has
been rebutted—that is, whether the statute gives a clear, affirmative
indication that it applies extraterritorially.” Id. If the statute contains
such an “unmistakable” indication, “then claims alleging exclusively
foreign conduct may proceed.” Abitron Austria GmbH v. Hetronic Int’l,
Inc., 600 U.S. 412, 418 (2023). At this step, “possible interpretations,”
Morrison, 561 U.S. at 264, broad definitional language, Abitron,
600 U.S. at 420-21, and “generic terms like ‘any’ or ‘every’ do not rebut
the presumption against extraterritoriality,” Kiobel v. Royal Dutch
Petroleum Co., 569 U.S. 108, 118 (2013). Still, “an express statement of
extraterritoriality is not essential,” RJR Nabisco, 579 U.S. at 340,

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because “[a]ssuredly context can be consulted as well,” Morrison, 561
U.S. at 265.
If the statute does not apply extraterritorially, then we proceed
to the second step and ask “whether the case involves a domestic
application of the statute.” RJR Nabisco, 579 U.S. at 337. A court will
answer that question “by looking to the statute’s ‘focus.’” Id. “The
focus of a statute is the object of its solicitude, which can include the
conduct it seeks to regulate, as well as the parties and interests it seeks
to protect or vindicate.” WesternGeco LLC v. ION Geophysical Corp., 585
U.S. 407, 413-14 (2018) (internal quotation marks and alterations
omitted). “If the conduct relevant to the statute’s focus occurred in the
United States, then the case involves a permissible domestic
application even if other conduct occurred abroad.” RJR Nabisco, 579
U.S. at 337. But “if the conduct relevant to the focus occurred in a
foreign country, then the case involves an impermissible
extraterritorial application regardless of any other conduct that
occurred in U.S. territory.” Id. In this way, “[s]tep two is designed to
apply the presumption against extraterritoriality to claims that
involve both domestic and foreign activity, separating the activity
that matters from the activity that does not.” Abitron, 600 U.S. at 419.
2
In this case, the district court held that “the presumption
against extraterritoriality does not bar the application of § 546(e) to
[the liquidators’] claims because (1) Congress has expressed a clear
intent to apply § 546(e) extraterritorially through § 561(d), and
(2) even if there were no such [c]ongressional intent, the application
of § 546(e) here is a domestic one that passes step two of the test.”
Fairfield V, 630 F. Supp. 3d at 489-90. The district court was correct at
step one, so we need not proceed to step two.

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Section 546(e) does not, by its own terms, apply in a foreign
proceeding under Chapter 15. See 11 U.S.C. § 546(e). If § 546(e) applies
extraterritorially to the proceeding here, it must do so through
§ 561(d), which provides that any provision “relating to securities
contracts” such as § 546(e) “shall apply in a case under chapter 15.”
Id. § 561(d). We therefore ask whether the language of § 561(d)
“manifests an unmistakable congressional intent to apply
extraterritorially.” RJR Nabisco, 579 U.S. at 339. We conclude that it
does. The only plausible reading of § 561(d) is that it applies
extraterritorially.
Section 561(d) must apply extraterritorially if it is to have any
effect at all. Through § 561(d), the safe harbor limits the foreign
representative’s avoidance powers. And the only avoidance powers a
foreign representative has in a case under Chapter 15 are those that it
possesses under foreign law. Chapter 15 expressly prohibits a foreign
representative from using the statutory avoidance powers of the
Bankruptcy Code. See 11 U.S.C. § 1521(a)(7) (authorizing the court in
a Chapter 15 proceeding to grant a foreign representative “any
additional relief that may be available to a trustee, except for relief
under sections 522, 544, 545, 547, 548, 550, and 724(a)”). Nor can a
foreign representative assert avoidance claims under state law: a
bankruptcy trustee may assert such claims only pursuant to § 544(b),
and § 1521(a)(7) denies the foreign representative access to relief
under that section.4 The district court correctly recognized that, if
4 We elaborate further on § 544(b) in Part II.B.2. We note that at least one
district court—while acknowledging that a foreign representative cannot
use § 544(b) to assert state-law fraudulent conveyance claims—has held
that such claims may proceed without relying on § 544(b) “if the basis of
such relief is non-bankruptcy law and the foreign representative, under
non-bankruptcy law, has standing to seek the relief.” In re Massa Falida do
Banco Cruzeiro do Sul S.A., 567 B.R. 212, 222 (Bankr. S.D. Fla. 2017). We

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§ 561(d) is to have any application, it must necessarily apply to
avoidance claims under foreign law—that is, it must apply
extraterritorially.
3
The liquidators’ counterarguments are not convincing. First,
the liquidators appeal to § 1523(a), which provides that “[u]pon
recognition of a foreign proceeding, the foreign representative has
standing in a case concerning the debtor pending under another
chapter of this title to initiate actions under sections 522, 544, 545, 547,
548, 550, 553, and 724(a).” 11 U.S.C. § 1523(a). Based on this section,
the liquidators assert that the “major premise” of the district court—
that a foreign representative has no domestic avoidance powers in a
Chapter 15 case—is “flat wrong.” Appellants’ Br., No. 22-2101, at 59.
The liquidators argue that a case under Chapter 7 or 11 in which a
foreign representative has intervened to initiate an avoidance action
“would plainly be ‘a case under chapter 15,’ as Chapter 15 is what
empowers a foreign liquidator to bring the avoidance action.” Reply
Br., No. 22-2101, at 20.
The text of § 1523(a) refutes this argument. It applies “in a case
concerning the debtor pending under another chapter of this title.”
11 U.S.C. § 1523(a) (emphasis added). If the case is “under another
chapter,” it cannot be “under chapter 15” for purposes of § 561(d). The
foreign proceeding under Chapter 15 and the domestic proceeding
disagree. Section 1521(a)(7) allows a court in a Chapter 15 case to “grant[]
any additional relief that may be available to a trustee” except for relief
under the avoidance provisions of the Bankruptcy Code. 11 U.S.C.
§ 1521(a)(7). Relief under state fraudulent transfer laws is available to a
trustee only via § 544(b). Accordingly, such relief would be available to a
foreign representative only via § 544(b).

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26
are separate cases; indeed, other sections of Chapter 15 speak of
foreign and domestic proceedings concerning the same debtor
“pending concurrently.” 5 The liquidators’ argument also conflicts
with the text of § 561(d), which provides that the safe harbor “shall
apply in a case under chapter 15 … to limit avoidance powers to the
same extent as in a proceeding under chapter 7 or 11 of this title.”
11 U.S.C. § 561(d). This language would not make sense if, as the
liquidators contend, the safe harbor applies directly to a case under
Chapter 7 or 11 in which a foreign representative has intervened.
The liquidators advert to § 1504, which states that “[a] case
under [Chapter 15] is commenced by the filing of a petition for
recognition of a foreign proceeding under section 1515.” Id. § 1504.
The liquidators argue that this language shows that “[e]verything that
follows that filing in the U.S. Courts is ‘a case under Chapter 15,’ even
if the provisions of Chapter 15 empower foreign liquidators to use
authorities under other chapters.” Reply Br., No. 22-2101, at 20.
Not so. Section 1504 says that a Chapter 15 case begins when a
foreign representative petitions for recognition of a foreign
proceeding. And § 1523(a) says that once the foreign proceeding has
been recognized, the foreign representative has standing to intervene
in a case pending under another chapter and to avail himself of the
avoidance powers under the Bankruptcy Code. But, as the text of
§ 1523(a) indicates, the foreign representative’s intervention does not
transform a case “pending under another chapter of this title” into a
5 See 11 U.S.C. § 1501(b)(3) (stating that Chapter 15 applies when “a foreign
proceeding and a case under this title with respect to the same debtor are
pending concurrently”); id. § 1529 (“If a foreign proceeding and a case
under another chapter of this title are pending concurrently regarding the
same debtor, the court shall seek cooperation and coordination under
sections 1525, 1526, and 1527.”).

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27
case “under Chapter 15.” The Chapter 7 or 11 proceeding is a separate
case from the Chapter 15 proceeding. Similarly, § 1528 provides that
“[a]fter recognition of a foreign main proceeding, a case under another
chapter of this title may be commenced only if the debtor has assets in
the United States.” 11 U.S.C. § 1528 (emphasis added). Such a case
would be “under another chapter of this title,” not “under Chapter
15,” even though a Chapter 15 proceeding has been commenced
pursuant to § 1504.
A case under Chapter 7 or 11 of the Bankruptcy Code is not a
proceeding “under Chapter 15” simply because a foreign
representative who has obtained recognition under Chapter 15
intervenes in the case. The Chapter 7 or 11 case, on the one hand, and
the Chapter 15 case, on the other, are separate cases.
Second, the liquidators argue that § 561(d) need not apply
extraterritorially to have effect because it “limit[s] the power of
domestic trustees to avoid ‘close-out’ transactions, which is the focus
of § 561 as a whole.” Reply Br., No. 22-2101, at 22. Domestic trustees,
however, cannot bring Chapter 15 cases.6 Thus, a domestic trustee
has no power to avoid “close-out” transactions—or any other
transactions—in Chapter 15. See 11 U.S.C. § 1521(a) (“Upon
recognition of a foreign proceeding … the court may, at the request of
the foreign representative, grant any appropriate relief.”) (emphasis
6 See 11 U.S.C. § 1515(a) (“A foreign representative applies to the court for
recognition of a foreign proceeding in which the foreign representative has
been appointed by filing a petition for recognition.”) (emphasis added);
id. § 1509(a) (“A foreign representative may commence a case under section
1504 by filing directly with the court a petition for recognition of a foreign
proceeding under section 1515.”) (emphasis added).

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28
added). 7 Moreover, § 561(a) already provides that the exercise of
close-out rights under securities contracts, commodity contracts,
forward contracts, repurchase agreements, swap agreements, and
master netting agreements “shall not be stayed, avoided, or otherwise
limited by operation of any provision of this title or by any order of a
court or administrative agency in any proceeding under this title.”
11 U.S.C. § 561(a) (emphasis added). Thus, Congress has separately
provided that close-out transfers generally cannot be avoided “in any
proceeding under this title”—including in Chapter 15—at least with
respect to domestic applications.
Third, the liquidators argue that § 561(d) could apply when a
foreign representative brings foreign law avoidance claims regarding
domestic transactions. Appellants’ Br., No. 22-2101, at 65. But the
liquidators have not identified a case in which a domestic transaction
was subject to avoidance in a foreign bankruptcy under foreign law.
The liquidators suggest that “in this very case, Defendants insist that
some of their own transfers are domestic transfers targeted by foreign-
law avoidance claims.” Reply Br., No. 22-2101, at 23. Yet if a court
determined that the transfers at issue were domestic, it would likely
decide that domestic law applied to the avoidance claims. Generally,
“a bankruptcy court must apply the choice of law rules of the forum
state,” In re Thelen LLP, 736 F.3d 213, 219 (2d Cir. 2013), and “[t]he
domestic nature of th[e] transfers … tips the scales … in favor of
domestic adjudication,” In re Picard, 917 F.3d 85, 105 (2d Cir. 2019); see
7 The liquidators respond that “there is no bar to a domestic trustee
participating in a proceeding initiated by a foreign representative under
Chapter 15, and § 561(d) would make clear that a domestic trustee could
not avoid close-out transfers in that proceeding.” Reply Br., No. 22-2101, at
22. But the liquidators fail to cite any case in which a domestic trustee
intervened in a Chapter 15 proceeding.

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29
also In re Bankr. Est. of Norske Skogindustrier ASA, 629 B.R. 717, 736
(Bankr. S.D.N.Y. 2021) (“The Second Circuit recently suggested that
the choice of law inquiry for avoidance actions should focus on the
location of the debtor’s transfer.”).
4
Because § 561(d) must apply extraterritorially to serve a
meaningful function, the liquidators fall back on the assertion that
“the superfluity canon is no match for the substantive presumption
against extraterritoriality.” Reply Br., No. 22-2101, at 21. To be sure,
we have avoided the suggestion that “the presumption against
superfluity necessarily trumps, by itself, the presumption against
extraterritoriality in every instance.” United States v. Epskamp, 832 F.3d
154, 165 n.10 (2d Cir. 2016). But we “rely on the canon against
superfluity” when doing so is “consistent with and reinforces our
reading of the statute in other respects.” Id. Here, the domestic
interpretation would render the whole of § 561(d) superfluous, and
there is an obvious alternative interpretation available. See Yates v.
United States, 574 U.S. 528, 543 (2015) (“We resist a reading of [a
statutory section] that would render superfluous an entire provision
passed in proximity as part of the same Act.”); Homaidan v. Sallie Mae,
Inc., 3 F.4th 595, 602 (2d Cir. 2021) (rejecting an interpretation under
which “the other subsections … would be swallowed up”). “[T]he
canon against surplusage is strongest when an interpretation would
render superfluous another part of the same statutory scheme.” Marx
v. Gen. Revenue Corp., 568 U.S. 371, 386 (2013).
In addition to the text of § 561(d), the purpose of Chapter 15
indicates that § 561(d) applies extraterritorially. Section 561(d) applies
“in a case under chapter 15,” and “the main purpose of chapter 15 is
to permit filing by foreign, not domestic, debtors.” 1 Collier on

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Bankruptcy ¶ 13.03 (16th ed.) (emphasis added). A transfer by a
foreign debtor initiated in the foreign jurisdiction would likely be
considered a foreign transfer for the purpose of the extraterritoriality
analysis, even if the recipient is a domestic institution. 8 When
Congress provided that § 561(d) applies “in a case under chapter 15,”
it did so with respect to the prototypical Chapter 15 case and the
prototypical type of transfer that would be challenged in a Chapter 15
proceeding. Nothing in the text suggests that it applies to an
exceptional or rare circumstance.
Moreover, “the context from which the statute arose”
demonstrates that § 561(d) applies the safe harbor of § 546(e)
extraterritorially. Bond v. United States, 572 U.S. 844, 866 (2014). 9
Congress enacted § 561(d) in response to the collapse of Long Term
Capital Management L.P. (“LTCM”), a hedge fund based in the
Cayman Islands:
[The President’s Working Group on Financial Markets]
hypothesized the effect of a default on the LTCM Fund’s
counterparties. It noted that if the LTCM Fund was the
8 We have held that when “the debtor is a domestic entity,” and “the
alleged fraud occurred when the debtor transferred property from U.S.
bank accounts,” the transfer at issue is a domestic transfer, regardless of the
nationality of the recipient. In re Picard, 917 F.3d at 99 n.9. By parity of
reasoning, a transfer by a foreign debtor from a foreign bank account would
be a foreign transfer. In Picard, we expressed “no opinion on whether either
factor standing alone”— the nationality of the debtor or the location of the
bank account—“would support a finding that a transfer was domestic.” Id.
9 See Samuel L. Bray, The Mischief Rule, 109 Geo. L.J. 967, 968 (2021) (“The
mischief rule instructs an interpreter to consider the problem to which the
statute was addressed, and also the way in which the statute is a remedy
for that problem. … [T]he generating problem is taken as part of the context
for reading the statute.”) (footnote omitted).

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31
subject of a Cayman Islands insolvency proceeding, “its
Cayman receiver could have sought a Section 304
injunction prohibiting at least temporarily the
liquidation of U.S. collateral pledged by LTCM to its
counterparties.” This might force U.S. secured creditors
to seek the permission of the foreign bankruptcy court to
liquidate their collateral, or at least delay them from
liquidating any U.S. Treasury securities pledged by the
Fund under a master netting agreement.
Fairfield II, 596 B.R. at 312-13 (citation omitted) (quoting President’s
Working Group, Hedge Funds, Leverage, and the Lessons of Long-
Term Capital Management (Apr. 1999)). “Congress and the Working
Group were primarily and understandably concerned with U.S.
creditors and U.S. markets” but “recognized that the financial
contagion they feared did not stop at the border.” Id. at 314. In fact,
§ 561(d) expressly provides that enforcement of financial contracts is
“not to be limited based on the presence or absence of assets of the
debtor in the United States.” 11 U.S.C. § 561(d). Accordingly, “a
chapter 15 foreign representative (and the bankruptcy court) cannot
prevent the enforcement of Close-Out Rights, even if the exercise of
those rights involves the transfer of collateral located abroad[,] and
cannot invoke non-U.S. law to avoid and recover those transfers if
they have already occurred.” Fairfield II, 596 B.R. at 314.
The problem that Congress sought to address when it enacted
§ 561(d) required an extraterritorial application. We agree with the
amicus that “[i]t cannot be that Congress, legislating in the wake of
the LTCM collapse, intended to hobble investors by leaving them
exposed to the risk of avoidance litigation brought by the bankruptcy

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32
estates of failed foreign companies, especially when the Bankruptcy
Code bars domestic trustees from bringing the exact [same] claims.”10
As the district court recognized, the liquidators seek to “have it
both ways—benefiting from the domestic forum Chapter 15 has
created for foreign law claims as a matter of comity while trying to
avoid the limitations that Chapter 15 imposes on their power to bring
these claims.” Fairfield V, 630 F. Supp. 3d at 490 (internal quotation
marks and citation omitted). We have previously doubted that
“[a]llowing a plaintiff’s claim to go forward because the cause of
action applies extraterritorially, while then applying the presumption
[against extraterritoriality] to block a different provision setting out
defenses to that claim,” could be the result Congress intends “when it
writes provisions limiting civil liability.” Force v. Facebook, 934 F.3d 53,
73 (2d Cir. 2019). That result would “seem only to increase the
possibility of international friction” and “could also give the plaintiffs
an advantage when they sue over extraterritorial wrongdoing that
they would not receive if the defendant’s conduct occurred
domestically.” Id. It is similarly implausible that Congress intended
to allow a foreign debtor and its representative to take advantage of
U.S. bankruptcy law to bring avoidance actions unconstrained by the
safe harbor that applies to the avoidance actions of a domestic trustee
or debtor-in-possession.
5
We agree with the district court insofar as it held that § 561(d)
applies § 546(e) extraterritorially. Because “a finding of
extraterritoriality at step one will obviate step two’s ‘focus’ inquiry,”
10 Brief of the Securities Industry and Financial Markets Association as
Amicus Curiae Supporting Appellees 14.

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33
RJR Nabisco, 579 U.S. at 338 n.5, we need not identify the statutory
focus or determine whether the conduct in this case occurred abroad.
B
Because the safe harbor of § 546(e) applies extraterritorially
through § 561(d), we must decide whether the safe harbor bars the
liquidators’ claims. The parties agree that the transactions here are
“settlement payment[s]” made to “financial institution[s] … in
connection with a securities contract.” 11 U.S.C. § 546(e). But the
liquidators insist that this point is not conclusive. First, the liquidators
argue that their statutory claims fall within the carve-out from the safe
harbor for intentional fraudulent transfer claims. Second, the
liquidators argue that because § 546(e) uses the term “avoid”—a term
of art referring to the statutory avoidance powers conferred by the
Bankruptcy Code—the safe harbor applies only to statutory
avoidance claims under the Bankruptcy Code or under foreign law
that exist solely in bankruptcy. That would mean the safe harbor does
not apply to common-law claims under domestic or foreign law. To
the extent that courts have applied the safe harbor to domestic
common-law claims, according to the liquidators, those decisions
have relied on an implied-preemption theory that does not apply to
foreign law. Third, the liquidators argue that their constructive trust
claims do not resemble traditional avoidance claims because the
constructive trust claims depend on the defendants’ knowledge and
do not depend on the insolvency of the debtor.
The district court rejected the first argument on the ground that
the liquidators’ claims under BVI statutory law do not contain a fraud
element and therefore do not resemble intentional fraudulent transfer
claims under § 548(a)(1)(A). But the district court agreed with the
liquidators that the safe harbor did not bar the BVI common-law

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34
claims because “[t]here is nothing to suggest that Congress intended
the Bankruptcy Code to preempt foreign common law claims.”
Fairfield V, 630 F. Supp. 3d at 494. And the bankruptcy court agreed
with the liquidators that the constructive trust claims were not
avoidance claims because the constructive trust claims “proceed on
different theories and different proof” than the BVI avoidance claims.
Fairfield IV, 2021 WL 771677, at *3.
We reject all three arguments. First, we agree with the
liquidators that a foreign-law claim need not include fraud as an
element in order to fall within the carve-out for intentional fraudulent
transfer claims; it is sufficient if “the facts alleged in support of those
claims include actual intent to hinder, delay, or defraud creditors.”
Appellants’ Br., No. 22-2101, at 78. But we conclude that the
liquidators do not allege such an intent here. Second, we conclude
that § 546(e) applies to domestic common-law claims irrespective of
implied-preemption principles. By virtue of § 561(d), the safe harbor
applies in Chapter 15 “to the same extent as in a proceeding under
chapter 7 or 11.” 11 U.S.C. § 561(d). For that reason, foreign common-
law avoidance claims fall within the scope of the safe harbor in cases
under Chapter 15. Third, a common-law claim that seeks to avoid a
covered transaction does not escape the safe harbor based on its legal
theory or required proof. Because the constructive trust claims fall
under the safe harbor and do not qualify for the carve-out for
intentional fraudulent transfer claims, those claims are barred.
1
The safe harbor of § 546(e) contains a carve-out for avoidance
claims brought under § 548(a)(1)(A). Id. § 546(e). Section 548(a)(1)(A),
in turn, allows the trustee or debtor-in-possession to avoid transfers
made and obligations incurred “with actual intent to hinder, delay, or

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defraud” a creditor. Id. § 548(a)(1)(A). The liquidators argue that their
claims “allege actual fraud and therefore fall within the exception to
the safe harbor.” Appellants’ Br., No. 22-2101, at 75. According to the
liquidators, the statutory claims rely on allegations that Citco acted
with the actual intent to hinder, delay, or defraud creditors and that
this intent is imputed to the Funds. We disagree.
First, the liquidators have not plausibly alleged that Citco
actually intended to hinder, delay, or defraud creditors. The
liquidators allege that—after becoming suspicious of BLMIS’s
operations and attempting three times to verify the existence of the
Funds’ assets at BLMIS between May 2000 and December 2002—
“Citco never again tried to gain evidence from Madoff that the Funds’
assets existed until his fraud was ultimately exposed in December
2008.” App’x 4998. Additionally, “Citco failed to verify the pricing
information for the Funds’ portfolio from independent sources and
instead relied on BLMIS statements, even though it knew that such
account statements contained incorrect information.” Id. at 5000. At
the same time, “Citco accepted dramatically higher fees—tied directly
to the Net Asset Value certified by Citco—in exchange for the risks to
Citco of doing business with BLMIS.” Id.
When credited, the liquidators’ allegations might establish that
Citco was negligent or reckless with respect to the risk of fraud at
BLMIS but do not establish that Citco intended to hinder, delay, or
defraud creditors. “[M]any courts look to the Restatement (Second) of
Torts to refine the concept of intent under section 548.” 5 Collier on
Bankruptcy ¶ 548.04[a] (16th ed.). According to the Restatement,
“[t]he word ‘intent’ is used … to denote that the actor desires to cause
consequences of his act, or that he believes that the consequences are
substantially certain to result from it.” Restatement (Second) of Torts
§ 8A (1965) (emphasis added). The Restatement explains:

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If the actor knows that the consequences are certain, or
substantially certain, to result from his act, and still goes
ahead, he is treated by the law as if he had in fact desired
to produce the result. As the probability that the
consequences will follow decreases, and becomes less
than substantial certainty, the actor’s conduct loses the
character of intent, and becomes mere recklessness, as
defined in § 500. As the probability decreases further,
and amounts only to a risk that the result will follow, it
becomes ordinary negligence, as defined in § 282.
Id. § 8A cmt. b (emphasis added). It is true, as Judge Hand explained
over a hundred years ago, that “in general, civil responsibility is
imputed to a man for the usual results of his conduct, regardless of
whether in the instance under consideration he actually had those
consequences in mind.” In re Condon, 198 F. 947, 950 (S.D.N.Y. 1912)
(L. Hand, J.). But “in specific cases like this,” in order to establish an
“intent to hinder, delay, or defraud” creditors, “the law requires proof
of that added element, his mental apprehension of those
consequences, before it attaches to his conduct the result in question.”
Id. at 950-51. The allegations here do not show that Citco was
“substantially certain” that BLMIS was a Ponzi scheme and that
investors who redeemed shares late would be defrauded. At most,
Citco was reckless in continuing to issue the NAV certificates despite
its suspicions regarding BLMIS.
We have previously said that a presumption of intent would be
appropriate “where a large entity, firm, institution, or corporation is
acting in a manner that easily can be foreseen to result in harm.”
AUSA Life Ins. Co. v. Ernst & Young, 206 F.3d 202, 221 (2d Cir. 2000).
That case involved a claim of securities fraud against the accounting
firm Ernst & Young, which allegedly had falsely certified that the
financial statements of one of its auditing clients were prepared in

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accordance with GAAP and that the client was in compliance with the
financial covenants in its debt securities. We concluded that the
investor-plaintiffs had established that Ernst & Young acted with the
“intent to deceive, manipulate, or defraud” required to sustain a claim
of securities fraud. Id. at 221. Ernst & Young had actual knowledge
that the financial statements were inaccurate and that the client had
defaulted on its debt securities, but it nonetheless certified to the
contrary. See id. at 207-210. In this case, by contrast, Citco suspected—
but did not know—that BLMIS was engaging in fraud. While that
suspicion might establish recklessness or negligence, it does not
establish that Citco intended to hinder, delay, or defraud investors.
See Restatement (Second) of Torts § 8A cmt. b.
The Seventh Circuit has similarly stated that even when a
transferor’s “primary purpose may not have been to render the funds
permanently unavailable to [creditors],” an actual intent for purposes
of § 548(a)(1)(A) might still be present if the transferor “certainly
should have seen this result as a natural consequence of its actions.”
In re Sentinel Mgmt. Grp., 728 F.3d 660, 667 (7th Cir. 2013). We agree
with those jurists who have explained that “Sentinel should not be
read as replacing the traditional, more demanding standard for
ascribing actual intent with a presumption that a person is aware of
the natural consequences of her acts.” In re Lyondell Chem. Co., 554 B.R.
635, 651 (S.D.N.Y. 2016). While “proof of the natural consequences of
one[’s] acts may serve as circumstantial evidence that one appreciated
those consequences,” the fact-finder is nevertheless “required to find,
based on all of the direct and circumstantial evidence, that the debtor
did form an actual intent to defraud creditors, as that standard was
described by Judge Hand or as intent is described in the Restatement
(Second) of Torts.” Id. at 651 n.17.

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To establish an intent to hinder, delay, or defraud creditors, a
plaintiff “must show that the debtor had an intent to interfere with
creditors’ normal collection processes or with other affiliated creditor
rights for personal or malign ends.” 5 Collier on Bankruptcy
¶ 548.04[a]; see also In re Lyondell, 554 B.R. at 650. The liquidators do
not allege that Citco interfered with creditors’ rights or collection
processes. In fact, the liquidators’ claims are based on Citco facilitating
the redemption of the defendants’ shares in the Funds. The non-
redeeming investors, meanwhile, were not even creditors at the time
the defendants redeemed the shares but were shareholders in the
Funds. As the bankruptcy court recognized, a shareholder in the
Funds became a creditor only after submitting a redemption request.
See Fairfield II, 596 B.R. at 303 (“[T]he Defendants became creditors
when they requested redemptions.”). “A contract arose at the time
that the [shareholders] served their notices of redemption. At that
moment, they were entitled to be paid the NAV per share computed
in accordance with Article 11(1) in exchange for their shares.” Id. at
297. When Citco processed the defendants’ redemption requests, the
non-redeeming shareholders were not yet creditors of the Funds but
shareholders with potential redemption rights.
Moreover, “[t]he requisite actual intent” for purposes of
§ 548(a)(1)(A) “must be something more than just an intent to prefer
one creditor over another.” 5 Collier on Bankruptcy ¶ 548.04[a]. Thus,
“[m]ere intent to prefer one creditor over another, although
incidentally hindering or delaying creditors, will not establish a
fraudulent transfer under section 548(a)(1).” In re Rubin Bros. Footwear,
Inc., 119 B.R. 416, 423 (S.D.N.Y. 1990); accord Richardson v. Germania
Bank, 263 F. 320, 325 (2d Cir. 1919) (“[A] very plain desire to prefer,
and thereby incidentally to hinder creditors, is (1) not as a matter of
law an intent obnoxious to [the prohibition on fraudulent transfers];

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and (2) is not persuasive in point of fact that such intent … ever
existed.”). The liquidators’ allegations establish at most that Citco
preferred investors who redeemed shares early over those who
allowed their investments to remain with the Funds. Even if Citco
were substantially certain that its conduct would result in a
preference for some creditors over others, it still would not have had
the requisite intent to establish an intentional fraudulent transfer
under § 548(a)(1)(A).11
Second, the liquidators have not plausibly alleged that Citco’s
intent—whatever it was—is attributable to the Funds. Section
548(a)(1)(A) requires that the debtor make the transfer with the actual
intent to hinder, delay, or defraud creditors. The liquidators claim
that “the Citco Administrator’s fraudulent intent is attributable to the
Funds, which authorized the transfers.” Appellants’ Br., No. 22-2101,
at 75. We disagree.
11 “Under the so-called Ponzi scheme presumption, the existence of a Ponzi
scheme demonstrates actual intent as a matter of law because transfers
made in the course of a Ponzi scheme could have been made for no purpose
other than to hinder, delay or defraud creditors.” In re BLMIS LLC, 12 F.4th
171, 181 (2d Cir. 2021) (internal quotation marks and alteration omitted).
While “most courts” apply some form of the Ponzi scheme presumption,
5 Collier on Bankruptcy ¶ 548.04[3][b], “[s]ome courts have rejected the
Ponzi scheme presumption on the ground that it improperly treats
preferences as fraudulent transfers,” In re BLMIS, 12 F.4th at 201 (Menashi,
J., concurring) (citing cases). We have “applied the Ponzi scheme
presumption in prior cases when its application was uncontested.” Id. at
202 n.7. In this case, neither party has argued that the presumption alters
the analysis applicable to the transfers here. Accordingly, “[w]e need not
and therefore do not address” the effect of the presumption. Register.com,
Inc. v. Verio, Inc., 356 F.3d 393, 435 n.53 (2d Cir. 2004).

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The liquidators have consistently maintained that the Funds
were victims of a fraud that Citco perpetrated. The complaint alleges,
for example, that “Citco issued the Certificates without good faith.
The Funds were the primary victims of Citco’s conduct and its lack of
good faith in issuing the Certificates.” App’x 4643. Under well-
established principles, “notice of a fact that an agent knows or has
reason to know is not imputed to the principal if the agent acts
adversely to the principal in a transaction or matter, intending to act
solely for the agent’s own purposes or those of another person.”
Restatement (Third) of Agency § 5.04 (2006); see Center v. Hampton
Affiliates, Inc., 66 N.Y.2d 782, 784 (1985) (“[W]hen an agent is engaged
in a scheme to defraud his principal, either for his own benefit or that
of a third person, the presumption that knowledge held by the agent
was disclosed to the principal fails because he cannot be presumed to
have disclosed that which would expose and defeat his fraudulent
purpose.”). If the allegations are correct, Citco’s knowledge of the
possible fraud at BLMIS would not be imputed to the Funds.
The New York Court of Appeals has emphasized that the
adverse interest exception applies only in the “narrow circumstance
where the corporation is actually the victim of a scheme undertaken
by the agent to benefit himself or a third party personally, which is
therefore entirely opposed (i.e., ‘adverse’) to the corporation’s own
interests.” Kirschner v. KPMG LLP, 15 N.Y.3d 446, 467 (2010). It does
not apply “[w]here the agent is perpetrating a fraud that will [also]
benefit his principal.” Id. The complaint does not allege that Citco’s
conduct benefited the Funds as well as Citco but that “[t]he Funds
were the primary victims of Citco’s conduct.” App’x 4643. It is
difficult to see how the Funds could have benefited by maintaining
investments with BLMIS; the Funds would surely suffer losses when
the scheme collapsed, and in the meantime the Funds did not receive

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41
the personal benefits from the scheme that Madoff and (allegedly)
Citco received.
The Privy Council’s explanation of its decision in Migani
indicates that BVI law would not impute Citco’s bad faith to the
Funds in this case. See In re Lyondell, 554 B.R. at 647 (“State law
supplies the governing law principles for assessing the imputation of
a corporate officer’s intent to a corporation for purposes of § 548.”)
(citing O’Melveny & Myers v. FDIC, 512 U.S. 79, 83 (1994)). The Privy
Council stated that even if the issue of Citco’s bad faith had been
raised in Migani, the NAVs nonetheless would have been binding on
the Funds because the alleged fraud was “external to the fund,” and
therefore “the redemption liabilities were determined by the directors
in good faith, as the articles required.” Skandinaviska Enskilda Banken
AB (Publ) v. Conway (as Joint Official Liquidators of Weavering Macro
Fixed Income Fund Ltd.) (Weavering II) [2019] UKPC 36 ¶ 24.12
12 In Weavering II, which also involved a Ponzi scheme, the individual
responsible for fraudulently inflating the NAVs, Magnus Peterson, was
found to have “directly, and through his company WCUK, managed and
controlled the Company for all purposes relevant to these proceedings.”
[2019] UKPC 36 ¶ 25. For that reason, the Privy Council decided that the
fraud “cannot be considered external to the Company.” Id. ¶ 24. The
liquidators in Weavering II, who sought to recover redemption payments,
argued that “Peterson’s knowledge of the fraud would not be imputed to
the company that he was defrauding.” Id. ¶ 26. The Board explained that it
was “not concerned here with attributing knowledge” but with the fact that
Peterson, who had the authority to calculate and to certify the NAVs, did
so “on a fraudulent basis.” Id. The Board explained that while its prior
decision in Migani did not consider the “operation of the fraud,” in that case
“the redemption liabilities were determined by the directors in good faith,
as the articles required,” and “[t]he fraud which operated on the assessment
of the NAV was external to the fund.” Id. ¶ 24.

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We conclude that the liquidators’ claims do not qualify for the
carve-out for intentional fraudulent transfer claims under § 546(e).
The allegations do not establish either that Citco acted with the actual
intent to hinder, delay, or defraud creditors or that Citco’s knowledge
of the possible fraud at BLMIS is attributable to the Funds. Because
the carve-out does not apply, the claims cannot proceed if the main
clause of § 546(e) covers such claims.
2
The liquidators allege in the complaint that “[t]he Redemption
Payments that were made to Defendants were mistaken payments
and constituted or formed part of avoidable transactions, and generally
represent assets of Sentry’s estate that Defendants are not entitled to
keep.” App’x 4648 (emphasis added). The liquidators nevertheless
argue on appeal that the constructive trust claims are not, in fact,
“avoidance claims” within the meaning of the Bankruptcy Code.
In support of that conclusion, the liquidators contend that the
safe harbor does not prohibit all “avoidance claims” but instead limits
the trustee’s ability to use the specific avoidance powers conferred by
the Bankruptcy Code. Appellees’ Br., No. 23-965, at 18. According to
the liquidators, “[i]n this context, ‘avoiding power’ is a term of art that
refers to the extraordinary statutory powers conferred on a trustee in
domestic bankruptcy proceedings by §§ 544, 545, 547, and 548 of the
Bankruptcy Code.” Id. at 19. As a result, § 546(e) applies only to claims
brought pursuant to the trustee’s statutory avoidance powers under
the Bankruptcy Code and does not apply to common-law claims that
a litigant could bring outside of bankruptcy. See id. at 18. The
liquidators conclude that § 561(d)—which provides that § 546(e)
applies in Chapter 15 “to the same extent” as in Chapter 7 or 11—can
apply only to claims brought under foreign statutory law that are

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analogous to a bankruptcy trustee’s statutory avoidance powers. See
id. at 21.
The liquidators acknowledge that courts have held that § 546(e)
bars state common-law claims, but in their view these courts have not
held that § 546(e) directly covers such claims. Instead, according to
the liquidators, these courts have held only that § 546(e) might
impliedly preempt state common-law claims. See id. at 26. Because
implied preemption applies only to conflicts between federal law and
state law, the same bar would not apply in cases of conflict between
federal law and foreign law. The liquidators maintain—and the
district court agreed—that the rationale for applying the safe harbor
to state common-law claims is inapplicable to foreign common-law
claims, so the BVI constructive trust claims may proceed against the
defendants alleged to have known that the NAV calculations were
inflated.
We are not persuaded. The premise of the liquidators’
argument—that the safe harbor applies only to the statutory
avoidance powers conferred by the Bankruptcy Code—contradicts
the statutory text. Section 546(e) does not say that it bars only
avoidance actions that utilize the statutory avoidance powers. Rather,
it says that “[n]otwithstanding sections 544, 545, 547, 548(a)(1)(B), and
548(b) of this title, the trustee may not avoid” the transfers the safe
harbor describes. 11 U.S.C. § 546(e) (emphasis added). According to
the liquidators, a statute that says “despite your specific power to
avoid transfers, you shall not avoid these transfers” really means
“you may avoid these transfers as long as you do not use your specific
power to do so.” That is not a natural reading of the text. Indeed, the
Supreme Court has explained that “[a] ‘notwithstanding’ clause does
not naturally give rise to … an inference” that one may do what the
statute forbids using mechanisms other than those identified in the

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“notwithstanding” clause. NLRB v. SW Gen., Inc., 580 U.S. 288, 302
(2017). Instead, the notwithstanding clause “just shows which of two
or more provisions prevails in the event of a conflict.” Id. Such a clause
“simply shows that” the operative provision “overrides” the
provisions identified in the notwithstanding clause, “and nothing
more.” Id. at 304. As a result, this sort of clause “confirms rather than
constrains breadth.” Id. at 302.
In this case, the notwithstanding clause of § 546(e) establishes
that the safe harbor provision overrides §§ 544, 545, 547, 548(a)(1)(B),
and 548(b). It does not imply that the operative language of the safe
harbor, which provides that the trustee “may not avoid” a “settlement
payment,” limits only the use of the enumerated statutory avoidance
powers. 11 U.S.C. § 546(e).
We also disagree with the liquidators’ assertion that “avoiding
powers” is a term of art referring only to the statutory avoidance
powers under the Bankruptcy Code. We will recognize a term of art
when a statute includes a word or phrase with a “specialized common
law meaning.” Food Mktg. Inst. v. Argus Leader Media, 588 U.S. 427, 438
(2019). In this case, however, the liquidators argue that “avoid” has a
narrower meaning than it would have had under the common law and
that it does not encompass common-law claims that seek to avoid
transfers. If Congress intended to restrict the ordinary meaning of
“avoid” when it enacted the Bankruptcy Code, it would have
provided a statutory definition identifying that technical sense. It did
not. “Without a statutory definition,” we rely on “the phrase’s plain
meaning at the time of enactment.” Tanzin v. Tanvir, 592 U.S. 43, 48
(2020).
The liquidators recognize that courts have applied the safe
harbor to bar state common-law claims in addition to claims that rely

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on statutory avoidance powers. The liquidators argue, however, that
these cases did not hold that the state common-law claims were
“avoidance claims” within the meaning of the safe harbor but instead
that the safe harbor impliedly preempted the state common-law
claims. Cf. Hillman v. Maretta, 569 U.S. 483, 490 (2013) (“State law is
pre-empted … when the state law ‘stands as an obstacle to the
accomplishment and execution of the full purposes and objectives of
Congress.’”) (quoting Hines v. Davidowitz, 312 U.S. 52, 67 (1941)). The
liquidators conclude that “the implied-preemption doctrine has no
application here” because that doctrine reflects “the unique
relationship between federal law and state law under the
Constitution” and does not apply to claims under foreign law.
Appellees’ Br., No. 23-965, at 32-33.
We do not agree that the application of § 546(e) to bar the
trustee from avoiding covered transfers through state common-law
claims depends on implied preemption. Rather, § 546(e) directly
provides that the trustee “may not avoid” such transfers. 11 U.S.C.
§ 546(e). We have relied on implied preemption to answer a different
question. Because § 546(e) provides that “the trustee may not avoid”
those transfers, id. (emphasis added), the question of whether
someone other than the trustee may avoid such transfers has arisen.
In In re Tribune Co. Fraudulent Conveyance Litig., we explained that
“[s]ection 546(e)’s reference to limiting avoidance by a trustee
provides appellants with a plain language argument that only a
trustee et al., and not creditors acting on their own behalf, are barred
from bringing state law, constructive fraudulent avoidance claims.”
946 F.3d 66, 81 (2d Cir. 2019).13 Our phrasing of the issue assumed
13 See also In re Tribune Co. Fraudulent Conveyance Litig., 499 B.R. 310, 316
(S.D.N.Y. 2013) (“Section 546(e) addresses its prohibition on avoiding
settlement payments only to the bankruptcy trustee …. Because Congress

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that no “plain language argument” was available to suggest that the
safe harbor allows the trustee to bring state-law avoidance claims. We
relied on implied preemption to conclude that—while § 546(e)
literally bars only the trustee from avoiding covered transfers—the
safe harbor also bars other litigants from avoiding those transfers
because of its preemptive effect. See In re Tribune, 946 F.3d at 94. That
is how the decision has been understood. See, e.g., In re Nine W. LBO
Sec. Litig., 482 F. Supp. 3d 187, 203 (S.D.N.Y. 2020) (“In Tribune … the
Second Circuit held that § 546(e) impliedly preempts state law
fraudulent conveyance claims by individual creditors that would be
barred by the safe harbor if brought by a bankruptcy trustee.”) (emphasis
added).
We have subsequently applied Tribune to affirm the decision of
a district court that “unjust enrichment claims” were “preempted by
§ 546(e) because they seek the same remedy as the Trustees’
fraudulent conveyance claims, which it found were safe harbored
under that provision.” In re Nine W. LBO Sec. Litig., 87 F.4th 130, 150
(2d Cir. 2023). We explained that this conclusion followed from
“§ 546(e)’s plain language and legislative history,” but the parties did
not litigate whether the text or the congressional policy was
dispositive. Id. Our precedent does not foreclose the straightforward
conclusion that § 546(e) directly bars the trustee from avoiding a
covered transfer through either a statutory or a common-law claim.14
has spoken so clearly with respect to the object of the limitation in Section
546(e), the Court discerns no basis in the text for barring [state-law
constructive fraudulent conveyance] claims brought by Individual
Creditors who have no relation to the bankruptcy trustee.”).
14 We are also not persuaded that whether § 546(e) bars state-law
avoidance claims due to text or preemption is dispositive. Section 561(d)
provides that the safe harbor of § 546(e) “shall apply in a case under chapter

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The liquidators’ contention that the safe harbor does not
directly apply to common-law claims is wrong even based on their
technical reading of the notwithstanding clause. The parties agree
that the safe harbor applies to avoidance actions by a bankruptcy
trustee pursuant to § 544, § 545, § 547, or § 548 of the Bankruptcy
Code. One of these enumerated provisions—§ 544—expressly
empowers the trustee to avoid transfers that could be avoided by an
unsecured creditor under applicable state law, including state
common law. Specifically, § 544(b)(1) provides that “the trustee may
avoid any transfer of an interest of the debtor in property or any
obligation incurred by the debtor that is voidable under applicable
law by a creditor holding an unsecured claim that is allowable under
section 502 of this title or that is not allowable only under section
502(e) of this title.” 11 U.S.C. § 544(b)(1).
In most cases, the trustee relies on § 544(b)(1) to assert claims
under state fraudulent conveyance statutes.15 But § 544(b)(1) “is not
15 … to limit avoidance powers to the same extent as in a proceeding under
chapter 7 or 11 of this title.” 11 U.S.C. § 561(d). If § 546(e) limits avoidance
powers in domestic proceedings through text as well as implication, those
limitations apply in a case under chapter 15 to the same extent. The
statutory directive to apply the same limitations to foreign as to domestic
proceedings precludes the argument that the reasoning by which § 546(e)
limits certain avoidance powers applies only to the domestic context.
Moreover, Congress has provided that “[n]othing in [Chapter 15] prevents
the court from refusing to take an action governed by this chapter if the
action would be manifestly contrary to the public policy of the United
States.” Id. § 1506. To the extent that § 546(e) preempts state-law avoidance
claims, it does so because extending the safe harbor in that way is necessary
to “the accomplishment and execution of the full purposes and objectives
of Congress.” Hillman, 569 U.S. at 490 (quoting Hines, 312 U.S. at 67).
15 See 5 Collier on Bankruptcy ¶ 544.06 (“The state laws most frequently
used by trustees under section 544(b)(1) are the Uniform Fraudulent

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limited to the avoidance of fraudulent transfers [under state statutes].
Rather, it gives a trustee statutory standing to avoid transfers on any
grounds that could be asserted by … an unsecured prepetition
creditor.” In re Park South Sec., LLC, 326 B.R. 505, 514 (Bankr. S.D.N.Y.
2005). Thus, a trustee “could employ” § 544(b)(1) “to bring an unjust
enrichment claim under state law.” Id. To the extent that such a claim
sought to avoid a transaction that falls within the scope of the safe
harbor, however, it would be expressly barred by § 546(e) even under
the liquidators’ technical reading of that provision.
In fact, an avoidance claim on behalf of creditors based on a
common-law theory such as unjust enrichment or constructive trust
could be brought by the trustee only pursuant to § 544(b). “It is well
settled that a bankruptcy trustee has no standing generally to sue
third parties on behalf of the estate’s creditors, but may only assert
claims held by the bankrupt corporation itself.” Shearson Lehman
Hutton, Inc. v. Wagoner, 944 F.2d 114, 118 (2d Cir. 1991); see also Caplin
v. Marine Midland Grace Tr. Co. of N.Y., 406 U.S. 416, 428 (1972).16
Section 544(b) creates an exception to the general rule in Wagoner.
“[W]hen acting under section 544(b), a trustee is vested with the rights
of actual creditors to avoid certain transfers. So even if the trustee
Transfer Act (‘UFTA’) and its successor, the 2014 Uniform Voidable
Transactions Act (‘UVTA’).”).
16 We expressed uncertainty in Tribune as to whether state-law fraudulent
conveyance claims become the property of the debtor’s estate when a
bankruptcy proceeding commences. See 946 F.3d at 88. But we did not
doubt that the trustee acquires the power to assert such a claim through
§ 544(b)(1), regardless of whether it is technically part of the debtor’s estate.
See id. (noting the “ambiguities as to exactly what is transferred to trustees
et al. by Section 544(b)(1)”); id. at 89 (observing that “Section 544(b)(1) does
not expressly state whether the bundle of rights transferred can revert” to
creditors after a bankruptcy proceeding).

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itself is otherwise barred from asserting the claim because of Wagoner,
the trustee, standing in the shoes of the creditors, is not barred from
asserting the claim.” In re Stanwich Fin. Servs. Corp., 488 B.R. 829, 834
(D. Conn. 2013). Unless he is proceeding under § 544(b), the
bankruptcy trustee has no power to assert claims under state law on
behalf of creditors. A constructive trust claim under state common
law must be brought under § 544(b), but even the narrow reading of
the safe harbor of § 546(e) would apply to such a claim.
The liquidators claim that “even assuming that the Safe Harbor
applies extraterritorially through 11 U.S.C. § 561(d), the furthest the
statutory limitation on statutory ‘avoidance powers’ could reach is
foreign statutory avoidance powers that exist only in bankruptcy.”
Appellees’ Br., No. 23-965, at 13 (citation omitted). But the focus of
§ 546(e) is the transaction, not the specific legal authority that a
domestic trustee would use to avoid that transaction. Cf. Merit Mgmt.
Grp., 583 U.S. at 379 (“[T]he focus of the inquiry is the transfer that the
trustee seeks to avoid.”). It prohibits state statutory as well as
common-law claims that seek to avoid covered transactions. We
conclude that, through § 561(d), the safe harbor operates in Chapter
15 to prohibit claims under foreign statutory or common law that seek
to avoid the same category of covered transactions. That includes the
constructive trust claims in this case.
3
The liquidators attempt to rescue the constructive trust claims
by arguing that the claims “‘proceed on different theories and
different proof’ than avoidance claims under the Bankruptcy Code.”
Appellees’ Br., No. 23-965, at 25 (quoting Fairfield IV, 2021 WL 771677,
at *3). The liquidators explain that “insolvency is not an element of
the Constructive Trust Claims, but obviously is an element of an

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avoidance action under Chapter 5 of the Code (and a claim under the
BVI Insolvency Act).” Id. at 24 (internal quotation marks and citation
omitted). In addition, “whereas the Constructive Trust Claims require
a showing of knowledge on the part of Defendants that the value of
the assets they received was inflated, … knowledge is not an element
of any of the avoidance actions created by Chapter 5.” Id. at 24-25.
In general, a constructive trust claim does not require a
showing of insolvency and does require bad faith on the part of the
recipient of the property. See, e.g., El Ajou v. Dollar Land Holdings plc
[1994] 2 All ER 685, 700 (identifying the elements of a constructive
trust claim under BVI law). But it does not follow from these
distinctions that the constructive trust claims are not avoidance
claims. Whether a claim is an avoidance claim for purposes of the safe
harbor depends on the remedy sought—that is, whether it would
avoid a covered transaction—rather than the legal elements of the
claim. “[I]t is the remedy sought, rather than the allegations pled, that
determines whether § 546(e) preempts a state law claim,” In re
Nine W., 482 F. Supp. 3d at 207, because “§ 546(e) ‘was intended to
protect from avoidance proceedings payments by and to commodities
and securities firms in the settlement of securities transactions or the
execution of securities contracts,’” In re Nine W., 87 F.4th at 150
(quoting In re Tribune, 946 F.3d at 90). The liquidators concede that the
constructive trust claims seek a “similar remedy” as an avoidance
action using the Bankruptcy Code’s avoidance powers. Appellees’
Br., No. 23-965, at 25. That is dispositive.
In any event, we do not agree that the constructive trust claims
proceed on a different theory than a traditional avoidance claim.
Taking the liquidators’ allegations as true, the defendants did not do
anything that would have been wrongful if the Funds had not been
insolvent. To the contrary, the defendants were contractually entitled

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to redeem their shares at a price based on the NAV that Citco
calculated. The liquidators recognize that “[t]he Articles provide
shareholders with a contractual right to redeem their shares in
exchange for their Redemption Payments at the NAVs determined by
the Funds” and that “[t]he Liquidators’ claim that Defendants are
inequitably retaining funds in excess of the pro rata share purportedly
owed to all shareholders … therefore relies on the Funds entering
liquidation.” Id. at 26. It misses the point to insist that constructive
trust claims, unlike avoidance claims, require bad faith on the part of
the transferee and do not require insolvency. While that may be true
of constructive trust claims in general, it is not true of these
constructive trust claims. The district court erred in allowing the
claims to proceed.
CONCLUSION
By adopting the “broad language” of the safe harbor provision,
Congress sought to prevent “settled securities transactions” from
being unwound in a way that “would seriously undermine …
markets in which certainty, speed, finality, and stability are necessary
to attract capital.” In re Tribune, 946 F.3d at 90-92. “A lack of protection
against the unwinding of securities transactions … would be akin to
the effect of eliminating the limited liability of investors for the debts
of a corporation: a reduction of capital available to American
securities markets.” Id. at 93. Contrary to arguments advanced on
appeal, there is “no conflict between Section 546(e)’s language and its
purpose.” Id. at 92. That language operates here to bar claims seeking
to avoid covered transactions. We reverse the judgment of the district
court insofar as it allowed the constructive trust claims to proceed and
otherwise affirm.

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