In re: PLASSEIN INTERNATIONAL CORPORATION, f/k/a PL Liquidation Corp v. B.a. Capital Co. Lp, Andrew Marshall Forsberg Trust, Ethel Forsberg Revocable Trust,…

PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 08-2616
In re: PLASSEIN INTERNATIONAL CORPORATION,
f/k/a PL Liquidation Corp.,
Debtor
WILLIAM BRANDT, as he is the Trustee of the Estates of
Plassein International Corp., et al.,
v.
B.A. CAPITAL CO. LP, ANDREW MARSHALL
FORSBERG TRUST, ETHEL FORSBERG REVOCABLE
TRUST, JANIS RAE FORSBERG TRUST, FRANK JOHN
MCCARTHY, DANIEL R. ORRIS, BERNADINE ORRIS,
CHARLES J. WARR, PAUL D. GAGE, STEPHEN S.
WILSON, G. KENNETH POPE, JR., KENNETH OLENER,
DANIEL A. JONES, III, SAM CHEBEIR, THOMAS F.
FAY, RUTH L. FISCHBACH, MARK R. FREEDMAN,
ROBERT N. ZEITLIN, SIDNEY ZEITLIN, ZFC
ASSOCIATES, INC., WILLIAM G. RUSSELL, ROBERT N.
ZEITLIN 1999 CHARITABLE REMAINDER UNITRUST
William Brandt,

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2
Appellant
On Appeal from the United States District Court
for the District of Delaware
(D.C. Civ. No. 1-07-cv-00345)
Honorable Joseph J. Farnan, Jr., District Judge
Argued November 2, 2009
BEFORE: SCIRICA, Chief Judge, and JORDAN and
GREENBERG, Circuit Judges
(Filed: December 22, 2009)
Charles R. Bennett, Jr. (argued)
Hanify & King
One Beacon Street
21st Floor
Boston, MA 02108
Kevin S. Mann
Christopher P. Simon
Cross & Simon
913 North Market Street
11th Floor
Wilmington, DE 19801

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Attorneys for Appellant William Brandt
William P. Bowden
Andrew D. Cordo
Ricardo Palacio
Ashby & Geddes
500 Delaware Avenue
P.O. Box 1150, 8th Floor
Wilmington, DE 19899
Attorneys for Defendants-Appellees
Sam Chebeir, Paul D. Gage, Daniel A.
Jones, III, Kenneth Olenler, G. Kenneth
Pope, Jr., Charles J. Warr, Stephen S. Wilson
Mark C. Fleming (argued)
Jeffrey S. Gleason
Richard A. Johnston
Wilmer Cutler Pickering Hale & Dorr
60 State Street
Boston, MA 02109
Gabriel R. MacConaill
Laurie S. Silverstein
Potter, Anderson & Corroon
1313 North Market Street
6th Floor
Wilmington, DE 19801
Attorneys for Defendants-Appellees
Thomas F. Fay, Ruth L. Fischbach,

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4
Mark R. Freedman, Robert N. Zeitlin
1999 Charitable Remainder Unitrust,
William G. Russell, ZFC Associates Inc.,
Robert N. Zeitlin, Sidney Zeitlin
Elliot Moskowitz
Karen E. Wagner (argued)
Davis, Polk & Wardwell
450 Lexington Avenue
New York, NY 10017
Robert J. Stearn, Jr.
Richards, Layton & Finger
One Rodney Square
920 North King Street
Wilmington, DE 19899
Attorneys for Defendant-Appellee B.A.
Capital Co. LP
James A. Sarna
Sarna & Associates
328 North Broadway
2nd Floor
Upper Nyack, NY 10960
Attorneys for Defendants-Appellees Andrew
Marshall Forsberg Trust, Ethel Forsberg
Revocable Trust, Janis Rae Forsberg Trust,
Frank John McCarthy, Bernadine Orris, Daniel R. Orris

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OPINION OF THE COURT
GREENBERG, Circuit Judge.
I. INTRODUCTION
This matter comes on before this Court on appeal from
a final order of the District Court entered on May 15, 2008,
affirming an April 20, 2007 order of the Bankruptcy Court.
This case originated in the Bankruptcy Court when William
Brandt, the trustee in bankruptcy proceedings of Plassein
International Corporation (“Plassein”) and the subsidiaries it
had acquired in related leveraged buyouts, brought an
adversary proceeding seeking to recover the payments the
shareholders of the acquired corporations had received for
their shares on the grounds that the payments to them had
been fraudulent transfers avoidable under Delaware Law and
the Bankruptcy Code. The proceeding was unsuccessful
because the Court granted the shareholders’ motions to
dismiss, primarily on the basis of our opinion in Lowenschuss
v. Resorts Int’l, Inc. (In re Resorts Int’l, Inc.), 181 F.3d 505,
509 (3d Cir. 1999) (“Resorts”). The trustee appealed to the
District Court but that court affirmed the Bankruptcy Court
order and, for the reasons that follow, we will affirm the order
of the District Court.
II. BACKGROUND

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6
Plassein was formed in 1999 to acquire several
privately-held manufacturing corporations through leveraged
buyouts. In a leveraged buyout, the purchaser funds the
acquisition using borrowed money with the target company’s
assets usually being pledged as security for the loan after the
acquisition is completed.
As planned, Plassein acquired several manufacturing
corporations through leveraged buyouts in which, in
accordance with an agreement with Plassein’s lenders, each
newly-acquired corporation pledged its assets as collateral for
the loans to Plassein to finance the purchases. Furthermore,
each acquired corporation agreed that it would be jointly and
severally liable for all the funds that Plassein borrowed for all
of the leveraged buyouts. As would be expected, this cross
pledging of assets and assumptions of liability resulted in
each acquired company having debts far exceeding its assets
and thus, according to the trustee, the transactions rendered
the acquired corporations insolvent.
Prior to the leveraged buyouts, all of the acquired
companies had been privately-held with most having only a
few shareholders. After agreeing to the buyouts, the selling
shareholders delivered their shares to Plassein, which directed
its bank (Fleet Bank) to wire funds to the shareholders’
private accounts at their various banks to pay for the shares
delivered. In these purchases the parties did not make use of

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1In the settlement system, a third-party clearing agency acts as
an intermediary between an anonymous buyer and seller. The
clearing agency, however, is more than just a conduit because it
guarantees to the buyer and seller that the transaction will settle
as agreed, an event normally occurring a few days after the trade
is booked. This guarantee inspires confidence in the trading
system and permits lightning-fast trading but it also subjects the
clearing agency to possible liability if the transaction does not
settle as agreed. For their part, the buyer and seller guarantee
that they will deliver the money and securities as promised, even
though they may be waiting to receive that property from some
other party. See generally Kaiser Steel Corp. v. Pearl Brewing
Co. (In re Kaiser Steel Corp.), 952 F.2d 1230, 1238 n.4 (10th
Cir. 1991).
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the “settlement system”—the system of intermediaries and
guarantees usually employed in securities transactions.1
A few months after the acquisitions, Plassein and the
acquired companies began missing payments to the lenders
that had provided Plassein with the funds for the buyouts.
Eventually, Plassein and the acquired companies filed
petitions seeking relief under Chapter 11 of the Bankruptcy
Code but subsequently the bankruptcies were converted to
Chapter 7 proceedings and Brandt was appointed as trustee
for their estates.
As we indicated at the outset of this opinion, in the
adversary proceedings the trustee initiated against the selling
shareholders of the acquired companies he contended that the
buyout payments made to them in exchange for their

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2Even though the trustee contends that the transfers were
fraudulent under Delaware law he does not contend that section
546(e) is limited to creating a safe harbor for transfers
challenged as fraudulent under the Bankruptcy Code, though he
does argue that, on the facts, section 546(e) is inapplicable here.
In this regard we point out that section 546(e) is regularly
applied when transfers are challenged as fraudulent under state
law. Nevertheless, at least in theory, it might be possible to
obtain different results in state and bankruptcy court
proceedings seeking to avoid the same transaction as fraudulent.
3The Bankruptcy Court also concluded that it should dismiss the
adversary proceeding because the trustee had failed to plead the
elements of a claim for a fraudulent transfer but we do not
address that holding on this appeal.
8
privately-held stock were fraudulent transfers, avoidable by
the trustee under Delaware law and 11 U.S.C. § 544. In their
motions to dismiss the adversary proceedings the previous
shareholders of the acquired companies argued that the
payments could not be recovered because they were
“settlement payments” made by or to a financial institution
and thus were protected from avoidance by 11 U.S.C. §
546(e).2 The Bankruptcy Court, relying primarily on our
opinion in Resorts, agreed with the shareholders that the
payments were exempt “settlement payments” under section
546(e), and thus the Court granted their motions to dismiss. 3
The trustee appealed to the District Court, which affirmed the
order of the Bankruptcy Court, and the trustee now appeals
from the order of the District Court.

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III. JURISDICTION AND STANDARD OF REVIEW
The Bankruptcy Court had jurisdiction over the
adversary proceeding under 28 U.S.C. § 157(b), and the
District Court had jurisdiction to review the Bankruptcy
Court’s final decision under 28 U.S.C. § 158(a). We have
jurisdiction to review the District Court’s order under 28
U.S.C. § 158(d)(1). Inasmuch as the District Court was
sitting as an appellate court, we essentially are reviewing the
Bankruptcy Court’s order of dismissal. See Interface Group-
Nevada, Inc. v. Trans World Airlines, Inc. (In re Trans World
Airlines, Inc.), 145 F.3d 124, 131 (3d Cir. 1998). We exercise
de novo review over orders granting motions to dismiss. Id.
IV. DISCUSSION
More than 20 years ago we held that leveraged buyouts
in corporate acquisitions were subject to fraudulent transfer
laws. See United States v. Tabor Court Realty Corp., 803
F.2d 1288, 1297 (3d Cir. 1986). This treatment seemed
appropriate because leveraged buyouts, in certain
circumstances, can prejudice unsecured creditors of the
acquired company by exchanging the equity in the acquired
company for secured debt held by other creditors with priority
over the claims of the unsecured creditors. Id.; see also Oscar
N. Pinkas, No Collateral and No Cash: Fraudulent Avoidance
in Private Equity-Leveraged Buyouts, Am. Bankr. Inst. J.,
Oct. 27, 2008, at 18. Accordingly, the use of a debtor’s assets
for security for a loan can impair the ability of unsecured
creditors to recover their debts from the debtor. Therefore a

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4Congress has amended section 546(e) since we decided Resorts
but we are not concerned with when the amendments became
effective because at the time of Resorts, and now, the section
shielded settlement payments to financial institutions. This case
focuses on the use of that shield.
10
reasonable argument can be made that, if possible, fraudulent
transfer laws should not be applied to protect leveraged
buyouts from being avoided as fraudulent transfers.
Nevertheless, we do not write on a blank slate when
construing section 546(e) which shields certain settlement
payments from a trustee’s power to avoid a transfer as
fraudulent. Indeed, in Resorts, as a result of our analysis of
section 546(e), we concluded that the challenged transfer
could not be avoided as a fraudulent transfer. 4 Other Courts
of Appeals have followed our opinion in Resorts. See, e.g.,
QSI Holdings, Inc. v. Alford (In re QSI Holdings, Inc.), 571
F.3d 545, 551 (6th Cir. 2009); Contemporary Indus. Corp. v.
Frost, 564 F.3d 981, 985–86 (8th Cir. 2009); see also Lisa G.
Beckerman & Robert J. Stark, LBOs and Fraudulent
Conveyances: The Third Circuit Does an About Face, 2
Norton Bankr. L. Adviser 1 (2000) (noting our “watershed”
ruling).
A. “Settlement Payments” and Our Opinion In Resorts
Resorts dealt with Resorts International, Inc., a
publicly-traded corporation that had been purchased in a
leveraged buyout. One shareholder, Fred Lowenschuss,
initially refused the buyout offer of $36 per share and

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5The trustee advanced other bases for recovering the payment to
Lowenschuss but we need not discuss them.
11
demanded a judicial appraisal of his shares to establish the
price for their purchase. He subsequently changed his mind
about seeking an appraisal as he later filed a petition in the
District Court requesting payment of $36 per share in
exchange for the immediate tender of his shares.
Lowenschuss delivered his shares to his broker (Merrill
Lynch) who tendered the shares to Resorts International’s
transfer agent (Chase Manhattan Bank). When Chase
Manhattan informed Resorts International of Lowenschuss’s
tender, Resorts International’s treasurer directed Chase
Manhattan to pay Lowenschuss the $36 per share that
Lowenschuss sought. Consequently, Chase Manhattan Bank
sent a check to Merrill Lynch for $36 per share and Merrill
Lynch, in turn, paid the funds to Lowenschuss.
Resorts International subsequently realized that it had
paid Lowenschuss the full merger price instead of the lower
price it hoped to win in the appraisal proceeding from the
court. Therefore Resorts International initiated a suit to
recover the payment, but before the suit was complete Resorts
International filed a petition in bankruptcy. In the bankruptcy
court, the trustee sought to avoid the payment as a fraudulent
transfer.5 Lowenschuss argued that the payment to him could
not be avoided because he had received his funds through a
settlement payment and section 546(e), the provision at issue
in this case, provides that a trustee may not avoid a transfer
made as a “settlement payment” by or to a financial
institution.

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In Resorts we focused on the final clause of the
definition of “settlement payment” in 11 U.S.C. § 741(8)
which defines “settlement payment” as “a preliminary
settlement payment, a partial settlement payment, an interim
settlement payment, a settlement payment on account, a final
settlement payment, or any other similar payment commonly
used in the securities trade.” We were concerned in Resorts
with whether the payment to Lowenschuss involved “any
other similar payment commonly used in the securities trade.”
In our opinion, we cited several district court opinions that
excluded leveraged buyout payments from the definition of
“settlement payment” as those courts reasoned that the
payments did not use the system of intermediaries and
guarantees that normal public-securities transactions employ.
Resorts, 181 F.3d at 515 (citing Zahn v. Yucaipa Capital
Fund, 218 B.R. 656, 675-76 (D.R.I. 1998); Wieboldt Stores,
Inc. v. Schottenstein, 131 B.R. 655, 664–65 (N.D. Ill. 1991)).
In Resorts we also reviewed an opinion of the Court of
Appeals for the Eleventh Circuit holding that a financial
institution was not “involved” in a leveraged buyout payment
because a bank did not acquire a beneficial interest in the
shares being exchanged; rather the banks were merely acting
as conduits. Id. at 516 (citing Munford v. Valuation Research
Corp., 98 F.3d 604, 610 (11th Cir. 1996)). The court’s
approach in Munford was clearly a different way of
expressing the same position as the district courts whose
opinions we had cited in Resorts when they excluded
leveraged buyouts payments from the definition “settlement
payments”—namely, that “settlement payments” must travel
through the system of intermediaries and guarantees that
normal securities transactions employ. In Resorts we

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recognized that a clearing agency had not been involved in the
settlement for Lowenschuss’s shares and that the financial
institutions involved acted only as conduits.
In view of our recognition of the limited role of the
financial institutions in Resorts, if we had accepted the view
of the Court of Appeals for the Eleventh Circuit in Munford
and the several district court opinions that we cite above, we
would have concluded that the payment to Lowenschuss was
not a “settlement payment,” safe from being avoided as a
fraudulent transfer, but we rejected the courts’ reasoning.
Instead we held that the definition of “settlement payment”
was broad and that in the securities trade, “a settlement
payment is generally the transfer of cash or securities made to
complete a transfer payment.” Id. at 515 (citing Kaiser Steel
Corp. v. Charles Schwab & Co., 913 F.2d 846, 849 (10th Cir.
1990) (relying on several industry texts)). We concluded, “[a]
payment for shares during [a leveraged buyout] is obviously a
common securities transaction, and we therefore hold that it is
also a settlement payment” for the purposes of section 546(e).
Id. at 516. Based on this conclusion, we dismissed the
adversary proceeding against Lowenschuss.
B. Distinguishing Privately-Traded Shares from Publicly-
Traded Shares
Though Resorts seemingly should be determinative
here because Fleet Bank transferred the buyout funds to the
shareholders’ banks and thus financial institutions were
implicated in the transfers, the trustee argues that Resorts
should not control our outcome because Resorts International
was a publicly-traded company while Plassein only acquired

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14
privately-held companies. Moreover, the trustee argues that
our opinion in Resorts took too wide a scope in considering
the meaning of the phrase “the securities trade.” The trustee
argues that the “securities trade” refers to “the industry
dealing in publicly-traded securities . . . and naturally refers
only to the ‘business of buying and selling’ publicly-traded
securities.” Appellant’s Br. at 18 (emphasis in original).
Thus, the trustee is arguing that the meaning of “settlement
payment” is limited to payments made for securities in the
actual public securities market. In contrast, however, in
Resorts we concluded that the meaning of “settlement
payment” is best understood by examining how the term is
used by those who work in the public securities market.
The trustee argues that Resorts did not consider the
arguments he advances here and therefore we are not bound
by that case, but we think that Resorts implicitly rejected the
trustee’s contentions advanced in this case. Certainly Resorts
expressly rejected the argument that “settlement payments”
must travel through the settlement system. Though it is true
that Resorts International was a publicly-traded company
whose shares when traded and the payment for them normally
traveled through the settlement system, that circumstance had
no bearing on our decision in Resorts. Lowenschuss sold his
shares to Resorts International in a transaction outside of the
publicly traded securities settlement system. See supra note 1
(describing the settlement system). If in determining what
type of transaction constituted a settlement payment we had
applied the definition the trustee advances here, we would
have found that the shares in Resorts, as they were actually
traded in that case, were not part of the “industry dealing in
publicly-traded securities” but we did not do so. Instead, in

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6The defendant shareholders also contend that the trustee’s
complaint fails to state a claim for fraudulent transfer under §§
1304 and 1305 of Delaware’s Uniform Fraudulent Transfer Act,
Del. Code Ann. tit. 6, § 1301 et seq. (2005), but, because we
15
Resorts we explored the meaning of “settlement payment” by
examining how that term is used by those who work in the
securities trade, and recognized that persons who work in the
securities trade use the term “settlement payment” when
referring to the payment that completes a leveraged buyout.
Cf. QSI Holdings, Inc. v. Alford (In re QSI Holdings, Inc.),
571 F.3d 545, 549-50 (6th Cir. 2009) (citing to Resorts and
Contemporary Industries and holding that “[t]he value of the
privately held securities at issue is substantial and there is no
reason to think that unwinding that settlement would have any
less of an impact on financial markets than publicly traded
securities”); Contemporary Indus. Corp. v. Frost, 564 F.3d
981, 986 (8th Cir. 2009) (citing Resorts and holding that
“[n]othing in the relevant statutory language suggests
Congress intended to exclude these payments from the
statutory definition of ‘settlement payment’ simply because
the stock at issue was privately held”).
For these reasons, we reject the trustee’s attempt to
distinguish Resorts. We will not ignore the plain language in
that case which governs the present dispute. If we accepted
the trustee’s distinction, we would, at a minimum, be calling
Resorts into serious question. But in this Court, a panel will
not reject the clear holding of a previous panel. See 3rd Cir.
Internal Operating P. 9.1; Blair v. Scott Specialty Gases, 283
F.3d 595, 610-11 (3d Cir. 2002). 6

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have concluded that section 546(e) bars the trustee’s action, we
need not address that additional argument.
16
V. CONCLUSION
Because we conclude that our opinion in Resorts
directly controls the outcome in this case, we will affirm the
District Court’s order of May 15, 2008, affirming the
Bankruptcy Court’s order of April 20, 2007.

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