Mark Holliday, the Liquidating Trustee of the BosG v. Sullivan et al

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UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
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In re:
BOSTON GENERATING LLC, et al.,
Post-Confirmation Debtors.
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FOR PUBLICATION
Chapter 11
Case No. 10-14419 (SCC)
MARK HOLLIDAY, as the Liquidating Trustee of the
BosGen Liquidating Trust,
Plaintiff,
Adv. Proc. No. 12-01879 (RG)
v.
K ROAD POWER MANAGEMENT, LLC, et al.,
Defendants.
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MEMORANDUM OPINION RESOLVING
MOTION TO DISMISS THIIRD AMENDED COMPLAINT
I. 	Introduction1
This 	adversary 	proceeding 	was 	commenced 	almost 	eight 	years 	ago 	to 	recover
approximately $1 billion in allegedly fraudulent transfers under New York State law by the
Debtors to the Defendants. The Trustee asserts claims for intentional and constructive fraudulent
transfers under New York’s DCL, as well as under the theory of unjust enrichment. In response,
the Defendants filed the MTD asserting, among other things, that: (i) the Trustee’s claims were
time barred; (ii) the Trustee failed to state a plausible claim for relief; (iii) the transfers sought to
be avoided are safe-harbored pursuant to section 546(e) of the Bankruptcy Code; and (iv) the
Lenders ratified the transfers and thus, are estopped from now trying to avoid and recover the
transfers. For the reasons stated below, the Court dismisses all counts pursuant to section 546(e)
1 Capitalized terms used in Section I but not defined therein shall have the meanings ascribed to them below.
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of the Bankruptcy Code. 	Notwithstanding the fact that Counts I through V of the TAC are
dismissed pursuant to the safe harbor of section 546(e), the Court will provide an analysis below
of all the legal issues raised by the parties in their papers. The legal conclusions the Court reaches
were shaped by an analysis of all the legal issues presented and therefore warrant explanation.
The questions posed in the MTD and the Opposition thereto raise a series of complex and,
in some instances, novel issues. However, at its very heart, the issue for the Court is whether to
apply an analysis of the facts in isolation or to apply an approach that looks at the transactions at
issue in a broader sense so as to view the entire picture established by the record. How a court
applies applicable law is very often a function of how the court views facts presented. First, the
parties ask the Court to interpret a Delaware Statute of Repose, which limits the claw-back period
to three (3) years to recover a wrongful distribution made to a Delaware LLC’s members. 	The
Defendants ask the Court to find that the three (3) year limitation period contained in the Delaware
Statute of Repose applies not only to claims for wrongful distribution brought by a Delaware LLC
against its own members, but also to claims asserted by creditors to recover the same distribution.
There is a dearth of authority interpreting the statute of repose as it applies to the issues before the
Court. However, based on the Court’s analysis of the statute and relevant case law, the Court finds
the Delaware Statute of Repose does not apply in the instant case.
Second, the Defendants ask this Court to find that the Trustee’s pleadings fail to satisfy the
threshold requirement of setting forth a plausible basis for relief. 	At the most basic level, the
Trustee’s complaint is premised on the alleged illegality of the Debtors’ 2006 leveraged
recapitalization. This recapitalization was funded by more than $2 billion in loans from, among
others, Bank of America, N.A., Carlyle Capital Investment, LTD, Credit Suisse (Cayman Islands
Branch), and Goldman Sachs Credit Partners L.P. The Defendants proffer that because the loans
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were made by some of the world’s most sophisticated financial institutions it is implausible to
conclude those same lenders were defrauded. Notwithstanding the Court’s skepticism as to the
Trustee’s probability of success on the claims asserted, that is not the appropriate inquiry at this
stage of the proceeding. The Court must determine whether the Trustee has articulated more than
a “sheer possibility” for obtaining the relief sought. The Court holds the TAC clearly articulates
a claim, that the parties/people in control of the Debtors engaged in a scheme to hinder, delay, and
defraud the creditors/lenders that financed the Leveraged Recap Transaction by making material
misstatements and omissions during the course of the Lenders’ due diligence, which formed the
basis for their decision to lend. 	The Court is hesitant to assume that the size of an institution
insulates it from being a victim of a fraud. The Court’s determination as to whether the Trustee
will be able to establish that this conduct rises to the level of being violative of the law and the
damages for such actions must be left to another day.
A sub-issue to the Defendants’ plausibility argument concerns whether the Trustee, for his
intentional fraudulent transfer claims, was required to plead that a “critical mass” of the EBG board
of directors, which approved the Leveraged Recap Transaction, acted with fraudulent intent. Judge
Gerber in Lyondell and later Judge Sullivan in Tribune adopted a rule requiring that a plaintiff
plead a “critical mass” acted with fraudulent intent or otherwise explain how actors with fraudulent
intent otherwise caused the disposition of property. On appeal to the District Court, Judge Cote
reversed Judge Gerber’s “critical mass” test and held the actions of the CEO alone could be
imputed to the entire board of directors. Here, the Defendants assert the “critical mass” test should
be applied and therefore, the intentional fraudulent transfer claims must be dismissed because only
two of the seven EBG board members allegedly acted with fraudulent intent. Because the Court
concludes that the TAC satisfies the more stringent “critical mass” test, it need not delve into the
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split at the District Court level concerning the appropriate test to apply. 	The TAC satisfies the
“critical mass” test, and by necessity Judge Cote’s less stringent test for imputation to the entire
board, because the Trustee has alleged how actors with fraudulent intent otherwise caused the
disposition of property. Namely, the Trustee alleges that K Road: (i) was EBG’s agent; (ii) had
fraudulent intent based on various badges of fraud; and (iii) through manipulation, dominance, and
control of EBG’s operations, caused BosGen and EBG to incur debt under the Credit Facilities
and thereafter, transfer the monies to EBG’s members for no consideration.
Third, the Court must determine whether section 546(e)’s safe harbor provision applies to
the transfers the Trustee seeks to avoid. In answering this question, the Court relies on the United
States Supreme Court’s recent decision in Merit and its interplay with the Second Circuit’s
December 2019 Tribune decision. More specifically, the Court’s determination of whether section
546(e) applies to the transfers will focus on whether BosGen and EBG qualify as “financial
institutions” by virtue of their agency relationship with “financial institutions” in connection with
a securities contract. 	While also concluding that the additional requirements for safe harbor
established in section 546(e) have been met, the Court holds that both BosGen and EBG qualify
as “financial institutions” under the Bankruptcy Code.
Finally, the Defendants ask the Court to dismiss the TAC because the Lenders ratified the
transfers at issue. In answering this question, the parties call upon the Court to address the split of
authority on whether the ratification defense requires the Lenders’ knowledge of the material facts
related to the fraudulent transfer—namely, the fraud itself. In other words, does ratification require
the Lenders’ full knowledge of the Debtors’ intent and financial condition, or, is it sufficient that
the Lenders had mere knowledge of the transferees’ identity and approved the transaction. The
Court adopts the Material Facts Test and holds that for purposes of the instant motion the Lenders
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cannot be found to have ratified the transfers at issue because the scope of the Lenders’ knowledge
concerning the material facts of the Leveraged Recap Transaction is unclear.
A more fulsome discussion of the Court’s holding follows.
II. 	Background2
Boston Generating LLC (“BosGen”) and EBG Holdings LLC (“EBG”), both Delaware
limited liability companies, constituted with their subsidiaries “a wholesale power generation
company that own[ed] and operate[d] three electric power generating facilities located in the
Boston metropolitan area.” Decl. of Jeff Hunter ¶ 6, Case No. 10-14419 (Bankr. S.D.N.Y. Aug.
18, 2010), ECF No. 2 (the “Hunter Decl.”). 	EBG was a holding company with no significant
independent business operations and BosGen served as EBG’s main operating entity. See Hunter
Decl. ¶ 12.
In October 2006, EBG’s board of directors approved a leveraged recapitalization
transaction whereby BosGen and EBG would borrow approximately $2.1 billion from lenders for
use, in part, to fund a $925 million tender offer and the distribution of $35 million in dividends to
EBG LLC interest holders (the “Leveraged Recap Transaction”). See Third Amended Complaint
filed by Mark Holliday, the Liquidating Trustee of the BosGen Liquidating Trust (the “Trustee”)
¶¶ 1, 27, 117, 122-25, AP Case No. 12-01879 (Bankr. S.D.N.Y. Apr. 3, 2019), ECF No. 272-1 (the
“TAC”).
2 The background provided herein is drawn from the TAC, the exhibits attached thereto, and the documents referenced
therein, from the record of the proceedings in the Debtors’ bankruptcy cases and this adversary proceeding, and from
other public records. See In re Hydrogen, L.L.C., 431 B.R. 337, 345 (Bankr. S.D.N.Y. 2010). On a motion brought
pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure, the Court may consider “any written instrument
attached to [the complaint] as an exhibit or any statements or documents incorporated in it by reference,” as well as
any “documents that are integral to the complaint” (meaning documents where “the complaint relies heavily upon its
terms and effect”) and any “documents that the plaintiffs either possessed or knew about and upon which they relied
in bringing the suit.” In re Tribune Co. Fraudulent Conveyance Litigation, Case No. 12-cv-2652, 2019 WL 1771786,
at *5 (S.D.N.Y. Apr. 23, 2019) (internal quotation marks omitted). The Court “may also take judicial notice of relevant
matters of public record.” Id. (internal quotation marks omitted).
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a. 	Background of the Leveraged Recapitalization Transaction
i. 	The Tender Offer
In an “Offer to Purchase,” dated November 16, 2006, EBG and BosGen offered “to
purchase for cash up to $925,000,000 in value of Class A and Class B units of limited liability
company interests in the Company (‘Units’) now outstanding . . . .” 3 Decl. of Philip D. Anker, AP
Case No. 12-01879 (Bankr. S.D.N.Y. July 18, 2019), ECF No. 290-1, at 1 (the “Tender Offer”).
Three points are made abundantly clear in the Tender Offer that are relevant in determining the
issues before the Court.
First, the Tender Offer provides that both EBG and BosGen are offering to purchase EBG
member units. 	See Tender Offer, at 9 (“We invite our Members to tender outstanding units for
purchase by us.”) (emphasis added), 11 (“. . . we are offering up to $925,000,000 in value of
outstanding Units of the Company’s membership interests . . . .”) (emphasis added).
Second, EBG and BosGen condition the Tender Offer on receipt of $2.1 billion in “new
financing.” The Tender Offer states, the “Company [including BosGen and EBG] is negotiating
with prospective lenders with respect to the New Financing.” Id. at 23. Further, BosGen and EBG
“will not be required to accept for payment, purchase or pay for any Units tendered . . . [if] any of
the following events has occurred . . . : The New Financing is not consummated . . . or the Company
does 	not 	receive 	proceeds 	thereof 	sufficient 	to 	enable 	the 	Company 	to 	carry 	out 	the
Recapitalization . . . .” Id. at 20. According to the Tender Offer, the “New Financing” will consist
of: (i) up to $1.4 billion in senior secured first lien credit facilities, (ii) up to $400 million in senior
secured second lien term loan facilities, and (iii) up to $300 million in a senior unsecured term
3 The Tender Offer defines the term “Company” as EBG “(together with its subsidiaries . . . .” BosGen is an EBG
subsidiary and thus, the term “Company” encompasses, among other subsidiaries, both EBG and BosGen. See Hunter
Decl. ¶ 12. Additionally, the Tender Offer provides the term “Company” may be used interchangeably with “EBG,”
“we,” or “us.”
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loan facility. See id. at 23. Without all three credit facilities described above (and discussed in
further detail below), the Tender Offer fails.
Finally: (i) the procedures articulated in the Tender Offer for unit redemptions, (ii) BosGen
and EBG’s reservation of authority to accept or reject a tendering member’s units; and (iii) BosGen
and EBG’s agreement to pay The Bank of New York (“BONY”) for its services make clear that
BONY acted as a depository and agent for both BosGen and EBG in connection with the Tender
Offer. As to (i), pursuant to the Tender Offer, members tendered their units by submitting a Letter
of Transmittal along with required documents to BONY no later than December 14, 2006. See id.
at 1, 4. Thereafter, “[w]e [including EBG and BosGen] will pay for Units purchased pursuant to
the Offer by depositing the aggregate determined purchase price for the Units with the Depository,
which will act as agent for tendering [m]embers for the purpose of receiving payment from [EBG
and BosGen] and transmitting payments to the tendering [m]embers.” Id. at 19 (emphasis added).
Thus, the Tender Offer demonstrates that both EBG and BosGen were in an agency
relationship with BONY for purposes of transmitting monies to tendering EBG LLC members.
On several additional occasions throughout the Tender Offer, BONY is listed as the depository for
the “Company,” thus lending more weight to the conclusion that BONY acted as BosGen and
EBG’s agent in connection with the Tender Offer. 	See id. at 2 (noting members may direct
questions or requests for assistance to BONY in connection with the Tender Offer), 6 (same), 10
(noting the “Company” will “pay the fees and expenses incurred in connection with the Offer by
The Bank of New York, which is the Depository for the Offer.”), 36 (noting questions concerning
the Tender Offer should be directed to BONY and the Letters of Transmittal should be delivered
by each EBG LLC member to BONY).
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As to (ii), BosGen and EBG controlled BONY, which was acting as BosGen and EBG’s
agent, in connection with the Tender Offer. The Tender Offer provides, “[f]or purposes of the
Offer, we will be deemed to have accepted the payment (and therefore purchased) . . . Units that
are validly tendered at or below the determined purchase price . . . only when, as and if we give
oral or written notice to the Depository of our acceptance of the Units for payment pursuant to the
Offer.” Tender Offer, at 19 (emphasis added). Thus, BosGen and EBG authorized BONY to act
on their behalf in connection with the Tender Offer and expressly reserved ultimate decision-
making authority to determine whether to accept tendered units. In short, the EBG LLC member
tendered its unit to BONY and thereafter, BONY held the tendered unit for BosGen and EBG until
BosGen and EBG instructed BONY how to proceed.
As to (iii), the Tender Offer provides that “[w]e [defined to include BosGen and EBG]
have retained The Bank of New York to act as Depository in connection with this Offer. The
Depository will receive reasonable and customary compensation for its respective services, will
be reimbursed by us for reasonable out-of-pocket expenses and will be indemnified against certain
liabilities in connection with the Offer.” Tender Offer, at 34. Thus, the language cited from the
Tender Offer in this section of the Court’s opinion demonstrates that both BosGen and EBG, as
BONY’s customers, manifested their intent for BONY to serve as their agent in connection with a
securities contract (the Tender Offer).
ii. 	The Lenders’ Presentation
On December 4, 2006, BosGen presented the proposed Leveraged Recap Transaction in
New York to a group of lenders. See Decl. of William H. Gussman, Jr., AP Case No. 12-01879
(Bankr. S.D.N.Y. Nov. 1, 2013), ECF No. 152-4 (the “Lenders’ Presentation”). 	The Lenders’
Presentation states that “Boston Generating LLC (‘BostonGen’ or the ‘Company’) and EBG
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Holding LLC (‘EBG’) intend to enter into $2.1. billion of credit facilities in connection with the
proposed recapitalization of the Company and EBG.” 	Lenders’ Presentation, at 1. 	Further,
prospective lenders are informed the “proceeds [from the credit facilities] will be primarily used
to repay outstanding indebtedness and to purchase outstanding units of EBG Holdings pursuant to
a recapitalization.” Id. More precisely, prospective lenders are informed $1.025 billion will be
used to fund “Unit Buybacks Distributions and Warrants Repurchase.” Id. at 2. As to timing, the
Lenders’ Presentation called for lender commitments by December 15, 2006 and closing and
funding of the credit facilities to occur on December 22, 2006. Id. at 35.
iii. 	The Confidential Information Memorandum
Also in December 2006 and presumably in connection with the Lenders’ Presentation,
Credit Suisse Securities (USA) LLC (“Credit Suisse”), as “Joint Lead Arranger” and “Joint
Bookrunner,” and Goldman Sachs Credit Partners L.P. (“Goldman Sachs”), as” Joint Lead
Arranger” and “Joint Bookrunner,” furnished a Confidential Information Memorandum to
prospective lenders on behalf of BosGen and EBG in connection with the proposed Leveraged
Recap Transaction. 	See Decl. of Tibor L. Nagy, Jr., AP Case No. 18-01879 (Bankr. S.D.N.Y.
Nov. 1, 2013), ECF No. 155-9 (the “CIM”), at 3, 24. The CIM provides that both BosGen and
EBG are effectuating the proposed Leveraged Recap Transaction for EBG to repurchase tendered
LLC member units, repurchase certain warrants, and make a “distribution” payment to all EBG
LLC members.
Specifically, the CIM provides that Credit Suisse and Goldman Sachs have been retained
by EBG and BosGen to arrange $2.1 billion of credit facilities in connection with the proposed
recapitalization of EBG and BosGen. See id., at 24 (emphasis added). The CIM goes on to address
how proceeds from the $2.1 billion in credit facilities will be used by BosGen and EBG and states,
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[a]s part of the proposed transaction, EBG has made a tender offer to its members
. . . in which members have the opportunity to tender all or a portion of their EBG
units at a price within a range of prices . . . . EBG will also repurchase from affiliates
of K Road certain warrants to purchase EBG units . . . . In addition, the Company
intends to make a pro rata distribution to its members prior to the purchase of units
in the Tender Offer in order to simplify certain tax planning matters for members
and the Company. 	The Company currently estimates the distribution to be $35
million.
Id. at 24. 	Finally, and consistent with the Lenders’ Presentation, the CIM informs prospective
lenders that $1.025 billion from the proposed Leveraged Recap Transaction will be used to fund
“Unit Buyback Distribution and Warrant Repurchase.” Id., at 25. In short, the CIM demonstrates
both BosGen and EBG intended for slightly more than $1 billion of the $2.1 billion in loans from
the proposed credit facilities to fund, pursuant to the Tender Offer, unit redemptions, warrant
redemptions, and a distribution that would be made to EBG’s LLC members.
b. 	BosGen and EBG Execute the Credit Facilities in Furtherance of the Leveraged
Recap Transaction
In order to finance the Leveraged Recap Transaction and fund the Tender Offer, three credit
facilities (the “Credit Facilities”) were executed, which raised $2.1 billion for BosGen and EBG
in new capital.4 See TAC, ¶¶ 122-23; TAC Ex. E ($1,450,000,000 First Lien Credit and Guaranty
Agreement, 	dated 	December 	21, 	2006, 	by 	and 	among 	BosGen 	as 	the 	“Borrower,” 	the
“Guarantors,” the “Initial Lenders,” the “Synthetic Issuing Banks,” the “Fronting Bank,” Credit
Suisse as “First Lien Collateral Agent, Credit Suisse as “Administrative Agent,” Credit Suisse
Securities (USA) LLC and Goldman Sachs Credit Partners L.P. as “Co-Syndication Agents” and
as “Co-Documentation Agents,” and Credit Suisse Securities (USA) LLC and Goldman Sachs
Credit Partners L.P. as “Joint Lead Arrangers” and as “Joint Book Running Managers”) (the “First
4 Following execution of the Credit Facilities on December 21, 2006, the debt in the Credit Facilities was immediately
syndicated and the list of initial participants in the syndication (the “Lenders”) is attached to the TAC. See TAC,
Exhibits B and C. Many of the Lenders are listed as having a New York address. Further, each of the Credit Facilities
contains a New York choice of law provision.
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Lien Credit Agreement”)); TAC Ex. F ($350,000,000 Second Lien Credit and Guaranty
Agreement, 	dated 	December 	21, 	2006, 	by 	and 	among 	BosGen 	as 	the 	“Borrower,” 	the
“Guarantors,” the “Initial Lenders,” Credit Suisse as “Second Lien Collateral Agent, Credit Suisse
as “Administrative Agent,” Credit Suisse Securities (USA) LLC and Goldman Sachs Credit
Partners L.P. as “Co-Syndication Agents” and as “Co-Documentation Agents,” and Credit Suisse
Securities (USA) LLC and Goldman Sachs Credit Partners L.P. as “Joint Lead Arrangers” and as
“Joint 	Book 	Running 	Managers”) 	(the 	“Second 	Lien 	Credit 	Agreement”)); 	TAC 	Ex. 	G
($300,000,000 Credit Agreement, dated December 21, 2006, by and among EBG as the
“Borrower,” the “Initial Lenders,” Credit Suisse as “Administrative Agent,” Credit Suisse
Securities (USA) LLC and Goldman Sachs Credit Partners L.P. as “Co-Syndication Agents” and
as “Co-Documentation Agents,” and Credit Suisse Securities (USA) LLC and Goldman Sachs
Credit Partners L.P. as “Joint Lead Arrangers” and as “Joint Book Running Managers”) (the “Mezz
Agreement”)). To fund the Tender Offer for EBG member units worth up to $925 million, money
infused into BosGen from the First Lien Credit Agreement and the Second Lien Credit Agreement
had to be transferred to EBG—i.e., $300 million that went into EBG from the Mezz Agreement
would be insufficient to meet the capital requirements for the Tender Offer.
The Credit Facilities indicate that proceeds from the First Lien Credit Agreement and the
Second Lien Credit Agreement would be transferred by BosGen to EBG and used by EBG with
the proceeds from the Mezz Agreement to fund the Tender Offer. The “Preliminary Statement”
to the First Lien Credit Agreement provides, among other things, “the Borrower [defined as Bos
Gen only, not EBG] has requested that the Lender Parties lend to the Borrower . . . to fund in part
the Distribution and the Tender Offer . . .” 	TAC Ex. E., at 1(1) (the “First Lien Preliminary
Statement”). More specifically, section 2.14 of the First Lien Credit Agreement provides:
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(a) The proceeds of the Term B Loans shall be available (and the Borrower agrees
that it shall use such proceeds) solely (i) to refinance all outstanding indebtedness
under the Existing Credit Agreements, (ii) to provide working capital for the Loan
Parties, (iii) to fund the Distribution and the Tender Offer of EBG Holdings, and
(iv) pay transaction fees and expenses.
TAC Ex. E § 2.14 (the “First Lien Funding Provision,” together with the First Lien
Preliminary Statement, the “First Lien Funding Provisions”).5
Similarly, the “Preliminary Statement” to the Second Lien Credit Agreement provides,
among other things, “the Borrower [defined as Bos Gen only, not EBG] has requested that the
Lenders lend to the Borrower . . . to fund in part the Distribution and the Tender Offer . . .” TAC
Ex. F, at 1(1) (the “Second Lien Preliminary Statement”). 	Later, the Second Lien Credit
Agreement provides:
(a) The proceeds of the Loans shall be available (and the Borrower agrees that it
shall use such proceeds) solely (i) to refinance all outstanding indebtedness under
the Existing Credit Agreements, (ii) to provide working capital for the Loan Parties,
(iii) to fund the Distribution and the Tender Offer of EBG Holdings, and (iv) pay
transaction fees and expenses.
TAC Ex. F § 2.14 (the “Second Lien Funding Provision,” together with the Second Lien
Preliminary Statement, the “Second Lien Funding Provisions”).
5 The First Lien Credit Agreement and the Second Lien Credit Agreement define “Distribution” as follows, “EBG
Holdings intends to make a pro rate distribution to its unit holders, prior to the purchase of Units in the Tender Offer,
in an amount of up to $40,000,000.00 to be financed in part with the proceeds from the Facilities.” TAC Ex. E, at
1(4), and Ex. F, at 1(4). The Mezz Agreement defines Distribution substantially the same. See TAC, Ex. G, at 1(4).
The term “Distribution” as defined in the Credit Facilities encompasses the Distribution (as defined below).
The First Lien Credit Agreement and the Second Lien Credit Agreement define “Tender Offer” as follows, “(a) the
offer by EBG Holdings to purchase outstanding Units of limited liability company interest in EBG Holdings pursuant
to the Offer to Purchase dated November 16, 2006 . . . and (b) the repurchase of warrants and the cashless exercise
of warrants referred to in such Offer of Purchase.” TAC Ex. E, at 34, and Ex. F, at 30. The Mezz Agreement defines
Tender Offer substantially the same. 	See TAC Ex. G, at 27-28. 	Thus, the Tender Offer encompasses the Unit
Redemptions and the Warrant Redemptions (as both terms are defined below).
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Finally, the “Preliminary Statement” to the Mezz Agreement provides, “Simultaneously
with the entering into of this Agreement, [Bos Gen] and the Guarantors . . . are entering into that
certain . . . [First Lien Credit Agreement and Second Lien Credit Agreement] . . . the proceeds of
which shall be used to . . . (ii) fund the Distribution and the Tender Offer . . . .” TAC Ex. G, at
1(3) (the “Mezz Preliminary Statement”). Further, the Mezz Agreement provides:
The proceeds of the Loans shall be available (and the Borrower agrees that is shall
use such proceeds) solely (i) to fund the Distribution and the Tender Offer of the
Borrower, (ii) to pay transaction fees and expenses and (iii) for general corporate
purposes.
TAC Ex. G § 2.13 (the “Mezz Funding Provision,” together with the Mezz Preliminary Statement,
the “Mezz Funding Provisions”). Thus, BosGen and EBG clearly intended for the proceeds from
the Credit Facilities to be used, in part, “to fund the Distribution and the Tender Offer.”
c. 	The Transfers to Complete the Leveraged Recap Transaction and Thereafter,
Fund: (i) the Unit Redemptions; (ii) the Warrant Redemptions; and (iii) the
Distribution
The $2.1 billion cash infusion into BosGen and EBG from the Credit Facilities entered
BosGen and EBG bank accounts on December 21, 2006 and thereafter, portions of those monies
became the subject of: (i) a two-step intercompany transfer from BosGen to EBG; and (ii) transfers
to EBG’s LLC members.
i. 	The Two-Step Inter-Company Transfer
The First Lien Credit Agreement and the Second Lien Credit Agreement closed on
December 21, 2006 and thereafter, the Lenders transferred $1.8 billion into BosGen’s account with
U.S. Bank, Nation Association (“US Bank”), Account Number -1092 (the “US Bank Account”).
See TAC ¶¶ 123-24, and Ex. H. Thereafter, on December 22, 2008, step one of the inter-company
transfer 	occurred 	(the 	“Step 	One 	Transfer”)—BosGen 	caused 	US 	Bank 	to 	transfer
$707,967,367.00 (the “$708 Million”) from the US Bank Account to EBG’s account with Bank of
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America (“BoA”), Account Number -3956 (the “BoA Account”). See id. ¶ 124, and Ex. H. Step-
two of the inter-company transfer occurred sometime between December 22, 2006 and December
28, 2006—EBG caused the $708 Million in the BoA Account to be transferred (the “First BONY
Transfer,” together with the Step One Transfer, the “BosGen Transfer”) to EBG’s account with
BONY, Account Number -1363 (the “BONY Account”). See id. ¶¶ 124-25, and Ex. H. Neither
the Trustee’s nor the Defendants’ papers state the exact date the First BONY Transfer occurred.
ii. 	The Funds Flow Memorandum
BosGen delivered the “Closing Date Funds Flow Memorandum,” to US Bank on December
21, 2006 wherein BosGen authorizes US Bank to act as its agent in connection with: (i) the receipt
of funds from the Lenders pursuant to the First Lien Credit Agreement and the Second Lien Credit
Agreement; and (ii) the BosGen Transfer. 	See TAC Ex. H (the “FFM”) (Instructional Letter
introducing the FFM).
As evidence of an agency relationship between BosGen and US Bank, the FFM provides
“the deposits listed on the third page . . . of the FFM will be transferred to the Depository [US
Bank] on the Closing Date.” Id. at 1(i). Thereafter, the “disbursements listed on the third page of
the FFM will be disbursed by the Depository on the Closing Date . . . .” Id. at 2(ii). The FFM
goes on to state, “[t]he Depository [US Bank] is hereby authorized and instructed to accept such
deposits and to make such allocations, transfers and payments in accordance with the FFM.” See
id. at 2.
Pursuant to the FFM, US Bank initiated the BosGen Transfer on BosGen’s behalf in
connection with the Tender Offer to fund unit redemptions, warrant redemptions, and a
distribution. The FFM demonstrates US Bank sent the $708 Million, on behalf of BosGen, from
the US Bank Account to EBG’s BoA Account and that those funds would be used for
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“Distribution, Unit Buyback and Warrant Repurchases,” along with “Transaction Fees and
Expenses.” 	FFM, at 503. 	Thus, US Bank served as BosGen’s agent for the BosGen Transfer,
which the FFM demonstrates was an upstream transfer of monies to EBG in connection with the
Tender Offer to fund unit redemptions, warrant redemptions, and a distribution.
iii. 	The $300 Million Infusion into EBG Pursuant to the Mezz Agreement
The Mezz Agreement closed on December 21, 2006 and thereafter, the Lenders transferred
$300 million (the “$300 Million”) into EBG’s BoA Account. See id. ¶¶ 125-26, and Ex. H. EBG
then caused the $300 Million to be transferred from the BoA Account to the BONY Account (the
“Second BONY Transfer”). 	See id. 	Neither the Trustee’s nor the Defendants’ papers state the
exact date the Second BONY Transfer occurred.
Following the First BONY Transfer and the Second BONY Transfer, the BONY Account
held approximately $1.08 billion from the Credit Facilities, which as discussed below, EBG used
in connection with the Tender Offer to fund the Unit Redemptions, the Warrant Redemptions, and
the Distribution (the preceding three capitalized terms are defined below). See id. ¶ 125.
iv. 	The EBG Transfers to its LLC Members
On December 26, 2006 and December 28, 2006, EBG caused BONY to disburse from the
BONY Account to EBG’s LLC members more than $1 billion (the “EBG Transfers”), “consisting
of the $708 million that BostonGen had transferred to it, the $300 million of Mezzanine Debt, and
certain of its own cash . . . .” Id. 	The EBG Transfers by BONY on EBG’s behalf to EBG’s LLC
members was composed of the following: (i) $34,996,291.24 as a dividend to EBG members’
equity interests (the “Distribution”); (ii) $925,017,940 to redeem EBG’s members’ equity units
pursuant to the Tender Offer (the “Unit Redemptions”); and (iii) $50,359,12713 to redeem
warrants held by K Road (the “Warrant Redemptions”). See id.
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d. 	BosGen’s Chapter 11 Cases
More than three and a half years after the Credit Facilities closed and EBG made the Unit
Redemptions, the Warrant Redemptions, and the Distribution, on August 18, 2010, each of the
Debtors in the above-captioned chapter 11 cases filed voluntary petitions for relief under title 11
of the United State Code (the “Bankruptcy Code”). On November 24, 2010, the Court entered an
Order authorizing the sale of substantially all of the Debtors’ operating assets to Constellation
Holdings, Inc. or its nominee (the “Sale”). See Sale Order, Case No. 10-14419 (Bankr. S.D.N.Y.
Nov. 14, 2010), ECF No. 494. Proceeds from the Sale funded the Debtors’ liquidating plan.
i. 	Chapter 11 Confirmed Plan
A liquidating plan was subsequently confirmed, under which the Lenders pursuant to the
First Lien Credit Agreement received $1,005,902,449.94 of the sale proceeds in satisfaction of
virtually all of their claims. See Disclosure Statement § III.F., at 27, Case No. 10-14419 (Bankr.
S.D.N.Y. July 20, 2011), ECF No. 868 (the “Disclosure Statement”); see also First Mod. to Second
Am. Joint Plan of Liquidation § 502, Case No. 10-14419 (Bankr. S.D.N.Y. Aug. 26, 2011), ECF
No. 904 (confirmed Aug. 31, 2011 (ECF No. 915)) (the “Plan”). 	The Debtors’ estates were
substantively consolidated pursuant to the Plan. See id.
The Lenders pursuant to the First Lien Credit Agreement were left with a deficiency claim
of $25,000,000. The Lenders pursuant to the Second Lien Credit Agreement received no proceeds
directly from the sale; they were granted an unsecured claim in the amount of $346,500,000. See,
e.g., Disclosure Statement § I.A, at 6, 9-10 n.8; Plan § 3.02.3. The Lenders pursuant to the Mezz
Agreement also received an unsecured claim in the amount of $426,911,567. 	See Disclosure
Statement §§ I.A, at 9-10 n.8, III.F. All three tranches of the Lenders voted to accept the Plan.
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See Decl. of Jeffrey S. Stein ¶¶ 3, 14, Case No. 10-14419 (Bankr. S.D.N.Y. Aug. 24, 2011), ECF
No. 898.
ii. 	Liquidating Trust Created
The Plan created a liquidating trust to pursue claims on behalf of the Debtors’ general
unsecured creditors (the “Trust”). 	See Plan §§ 7.02, 8.01. 	Those creditors, whose claims are
classified in Class 4B of the Plan, consist almost entirely of the Lenders who financed the
Leveraged Recap Transaction. The Disclosure Statement estimates that there are $820,571,000 in
Class 4B general unsecured claims, consisting of (1) the Lenders’ $25,000,000 deficiency pursuant
to the First Lien Credit Agreement, (2) the Lenders’ $346,500,000 claim pursuant to the Second
Lien Credit Agreement, (3) the Lenders’ $426,911,567 claim pursuant to the Mezz Agreement,
and (4) miscellaneous other claims totaling approximately $22 million. See Disclosure Statement
§ I.A., at 9-10, n.8.
The Trust’s assets include (1) all of the Debtors’ causes of action and (2) causes of action,
if any, of Class 4B claim holders to the extent those creditors purported to assign those causes of
action to the Trust. The Trustee abandoned all of the Debtors’ causes of action. See TAC ¶ 63.
The Trustee asserts that all Class 4B holders, in fact, assigned all of their causes of action related
to the Leveraged Recap Transaction to the Trust. 	See id. ¶¶ 4, 61; see also Plan § 7.02. 	Any
proceeds recovered in this action (net of the Trust’s costs and the Trustee’s and his counsel’s fees)
will be distributed to the holders of Class 4B claims under the Plan—i.e., overwhelmingly to the
Lenders who financed the Credit Facilities for the Leveraged Recap Transaction.
iii. 	Liquidating Trustee Appointed and Procedural History of this Adversary
Proceeding
Craig R. Jalbert (“Jalbert”), the first liquidating trustee appointed pursuant to the Plan and
the Trust, commenced the above-captioned adversary proceeding on August 17, 2012. Mark
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Holliday succeeded Jalbert as the Trustee and on August 1, 2013 amended Jalbert’s original
complaint. See Am. Compl., AP Case No. 12-01879 (Bankr. S.D.N.Y. Aug. 1, 2013), ECF No.
96 (the “Amended Complaint”). The Amended Complaint asserted six causes of action to avoid
and recover the Unit Redemptions, the Warrant Redemptions, and the Distribution that the
Defendants received as a result of, or in exchange for, their membership interests in EBG. See id.
The Trustee then sought leave to file a Second Amended Complaint, purportedly to address
arguments raised in Defendants’ motions to dismiss, but the Court did not grant permission for the
filing. 	See AP Case No. 12-01879 (Bankr. S.D.N.Y. Jan. 10, 2014), ECF Nos. 181, Ex. 1, and
(Bankr. S.D.N.Y. May 27, 2012), ECF No. 212, at 276:13-20. 	When the Trustee retained new
counsel in March 2019, counsel sought leave to file the TAC. See Mot. to Amend and File Third
Am. Compl., AP Case No. 12-01879 (Bankr. S.D.N.Y. Apr. 3, 2019), ECF No. 272 (the “Motion
for Leave”). 	The Defendants consented to the Trustee filing the TAC so they could move to
dismiss on the merits. 	See Defendants.’ Consent to Relief Requested in Motion for Leave, AP
Case No. 12-01879 (Bankr. S.D.N.Y. Apr. 23, 2019), ECF No. 277. Whereas the complaints filed
prior to the TAC treated the BosGen Transfer and the EBG Transfers together, the Trustee now
seeks to avoid as intentional and constructive fraudulent conveyances what he characterizes as two
“sets” of transfers: an “initial transfer” of the $708 Million from BosGen to EBG, and the
“subsequent transfer” of those and additional funds from EBG to its members.
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III. 	Summary of the TAC6
The Trustee initiated this adversary proceeding asserting the claims of individual creditors
that were assigned to the Trust pursuant to the Plan. See TAC ¶ 63. Such creditors include (a) the
Lenders, and (b) all other general unsecured creditors of the Debtors (the “Other General
Claimants”). See id. Upon intentional and constructive fraudulent transfer theories pursuant to
the New York Debtor & Creditor Law (the “DCL”) and under the theory of unjust enrichment, the
Trustee seeks to recover from the defendants in the above-captioned adversary proceeding (the
“Defendants”)7 the BosGen Transfer and the EBG Transfers. 	See TAC ¶¶ 146-154 (Count I:
asserting intentional fraudulent conveyance claims against the Defendants on behalf of EBG’s
creditors to avoid and recover the Unit Redemptions, the Warrant Redemptions, and the
Distribution pursuant to sections 276 and 278 of the DCL), ¶¶ 155-164 (Count II: asserting an
intentional fraudulent conveyance claim against the Defendants on behalf of BosGen’s creditors
to avoid and recover the BosGen Transfer pursuant to sections 276 and 278 of the DCL), ¶¶ 165-
175 (Count III: asserting constructive fraudulent conveyance claims against the Defendants on
behalf of EBG’s creditors to avoid and recover the Unit Redemptions, the Warrant Redemptions,
and the Distribution pursuant to sections 273-75, and 278 of the DCL), ¶¶ 176-186 (Count IV:
asserting a constructive fraudulent conveyance claim against the Defendants on behalf of
BosGen’s creditors to avoid and recover the BosGen Transfer pursuant to sections 273-75, and
278 of the DCL), ¶¶ 187-196 (Count V: asserting an unjust enrichment claim against the
Defendants on behalf of both BosGen and EBG’s creditors for recovery of the BosGen Transfer,
the Unit Redemptions, the Warrant Redemptions, and the Distribution).
6 Capitalized terms used in this section but not defined herein shall have the meanings ascribed to them in the TAC.
7 The TAC more specifically defines the Defendants to be those “who or that received a transfer or distribution
pursuant to the Leveraged Recap Transaction and list the Defendants in Ex. A. The list of defendants in Ex. A to the
TAC is incorporated herein into the definition of the “Defendants.”
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In support of Counts I through V, the Trustee alleges two entities separate and apart from
BosGen and EBG, K Road and Harbinger, by and through their officers and employees, assumed
control of BosGen and EBG in October 2005 and devised a scheme to defraud the Lenders into
entering the Credit Facilities to BosGen and EBG’s peril. See TAC ¶¶ 66-84. According to the
TAC, as a merchant seller of electricity, BosGen was subject to various market forces, and by early
2006, those forces, coupled with the expiration of contracts granting BosGen favorable energy
prices, signaled a dismal future for the Debtors. See id. ¶¶ 1, 86. Thus, by mid-2006, K Road and
Harbinger allegedly schemed to sell their EBG LLC member interests before the electricity market
collapsed. See id. ¶¶ 78-79. According to the Trustee, realizing that a sale or initial public offering
would reveal the impending crisis, K Road created two sets of books for the Debtors. See id. ¶¶
1, 80–81. Then, K Road used the false set’s inflated figures along with baseless projections to lure
banks into funding the Leveraged Recap Transaction that would allow it, Harbinger, and EBG’s
other owners to sell their EBG LLC member interests back to EBG and leave the Lenders holding
the proverbial bag. 	See id. ¶¶ 1–3, 81, 83–93, 99.
At various instances in the TAC, the Trustee alleges the Lenders were misled regarding the
risk profile, expected performance, and solvency of BosGen and EBG. See id. ¶¶ 85–102, 114–
16, 138, 145. As a result, the Lenders were allegedly defrauded out of $2.1 billion in cash that
they transferred to BosGen and EBG. See id. ¶¶ 122–23, Ex. H at 503, 504. Approximately $1.8
billion of the Lenders’ money went to BosGen via the First Lien Credit Agreement and the Second
Lien Credit Agreement and thereafter, the BosGen Transfer of the $708 Million from its US Bank
Account to EBG’s BoA Account occurred. 	See TAC ¶¶ 122–23. The Trustee alleges the BosGen
Transfer left BosGen: (i) balance sheet insolvent by at least $535 million, see TAC ¶ 129, (ii) with
unreasonably small capital because it had no prospect of servicing its debts while also maintaining
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its operations, see TAC ¶¶ 136–38. and (iii) with no chance of paying those debts as they came
due. See id. ¶¶ 143–45.
According to the Trustee, EBG used proceeds from the BosGen Transfer, together with the
$300 Million from the Mezz Agreement, to fund the Tender Offer to its unit holders. See id. ¶¶
125–26. Following the First BONY Transfer and the Second BONY Transfer, EBG had BONY
effectuate the Unit Redemptions to the Defendants, which the Trustee alleges, left EBG hopelessly
insolvent. 	See id. ¶¶ 125-26,129-133, 136-145, Ex. H at 503, 506. 	Further, the Trustee asserts
EBG added to its insolvency woes by making the Distribution and effectuating the Warrant
Redemptions. See id. ¶ 125, Ex. H at 506.
Allegedly, the Step One Transfer8 and EBG Transfers are rife with badges of fraud too.
See TAC ¶¶ 124–25, 152, 162. 	Each transfer purportedly rendered the transferor insolvent,
stripped it of liquidity, and transferred the financial risk from the equity holders to the creditors
without their informed consent. 	Plus, neither BosGen nor EBG received any value or
consideration in exchange for the BosGen Transfer and/or the EBG Transfers. And the only reason
that either transferor had the ability to make the conveyances was because of the fraud that they—
via the K Road Insiders—had committed against the Lenders. See id. ¶¶ 152, 162.
Three and a half years following the BosGen Transfer and the EBG Transfers, the Debtors
collapsed. According to the Trustee, the Debtors’ demise was only briefly delayed by virtue of a
merger in 2007 with another compay. See id. ¶ 134. The Trustee claims that once BosGen and
EBG’s new owner realized the false assumptions built into K Road’s projections, BosGen and
EBG were spun off and placed into bankruptcy before this Court. See id. ¶ 135. Following these
8 The Trustee asks the Court to look only at the Step One Transfer to determine whether the $708 Million left BosGen
fraudulently under the DCL. According to the Trustee, the Court must examine the Step One Transfer as an isolated
transaction without regard to the overarching transaction concerning the $708 Million, which is the BosGen Transfer
that ultimately came to rest in the BONY Account.
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allegations, the Defendants moved to dismiss the TAC on various grounds. See Mem. of Law in
Supp. of Motion to Dismiss Third Am. Compl., AP Case No. 12-01879 (Bankr. S.D.N.Y. July 18,
2019), ECF No. 289 (the “MTD”).
IV. 	Summary of the MTD, the Trustee’s Opposition, Defendants’ Reply, and
Supplemental Filings
a. 	The MTD
Pursuant to Fed. R. Civ. P. 8, 9(b), and 12(b)(6) as incorporated into this proceeding by
Fed. R. Bankr. P. 7008, 7009, and 7012, the Defendants moved to dismiss the TAC. The MTD
asserts seven (7) grounds exist to dismiss all, or a portion, of the TAC.
First, the Defendants insist the Trustee’s claims are implausible and not plead with
sufficient particularity. Namely, the Defendants argue the TAC states claims for fraud on behalf
of the Lenders challenging the Leveraged Recap Transaction and it’s implausible fraud existed in
securing the loans for the Leveraged Recap Transaction because (i) some of the world’s most
sophisticated lenders financed the transaction, and (ii) the Credit Facilities expressly disclosed and
required the Debtors to use the loan proceeds in connection with the Tender Offer to fund the Unit
Redemptions, the Warrant Redemptions, and the Distribution. 	Based on the implausibility of a
fraud where sophisticated lenders were involved and the Debtors’ full disclosure as to the use of
the funds from the Credit Facilities, along with the failure to plead with particularity, the
Defendants request dismissal of the TAC.
Second, the Defendants assert the Trustee’s claims are time barred. The Trustee’s claims
seek to avoid and recover distributions made by two Delaware limited liability companies in
December 2006 to their members. According to the Defendants, the Delaware Code contains a
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statute of repose applicable here that, after three years, extinguishes an LLC member’s liability for
distributions from the company and thus, the Trustee’s claims must be dismissed as time barred.
Third, the Trustee’s claims are not subject to avoidance and are “safe-harbored” pursuant
to section 546(e) of the Bankruptcy Code. The Defendants contend the BosGen Transfer and the
EBG Transfers qualified as “settlement payments” and/or payments “in connection with a
securities contract” by or to a financial institution and thus, the TAC must be dismissed.
Fourth, the unjust enrichment claims against the Defendants should be dismissed because,
in addition to being “safe-harbored,” the Trustee’s claim fails as a matter of New York state law.
Fifth, the Trustee’s claims on behalf of the Lenders should be dismissed because the
Lenders consented to and ratified the Unit Redemptions, the Warrant Redemptions, and the
Distribution. Based on the Lenders’ ratification, the TAC should be dismissed.
Sixth, the Trustee failed to adequately plead claims for intentional fraudulent conveyance.
More specifically, the Defendants assert the Trustee was required to allege that a “critical mass”
of the EBG board of directors acted with fraudulent intent when they approved the Leveraged
Recap Transaction. 	The Trustee plead no such “critical mass” and thus, the TAC must be
dismissed.
Finally, the TAC must be dismissed as to some of the Defendants because they are
corporate entities that are no longer in existence and are not amenable to suit.
b. 	The Trustee’s Opposition
On August 30, 2019, the Trustee filed his opposition to the MTD. See Memo of Law in
Opposition to Motion to Dismiss TAC, AP Case No. 12-01879 (Bankr. S.D.N.Y. Aug. 30, 2019),
ECF No. 291 (the “Opposition”). 	The Opposition challenges the entirety of the Defendants’
arguments in the MTD.
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First, the Trustee believes his state law fraudulent-transfer claims are well plead. Namely,
the Trustee asserts claims under New York law against entities that received, directly and
indirectly, almost $1 billion in cash from BosGen and EBG while providing no consideration in
return. The gravamen of the complaint is that the parties in control of BosGen and EBG—K Road
and Harbinger, among others—engaged in a scheme to hinder, delay, and defraud the Lenders and
these insiders alone received a windfall of hundreds of millions of dollars while simultaneously
placing BosGen and EBG on a foreseeable path to bankruptcy.
Second, the Trustee asserts his claims are not time-barred. According to the Trustee, this
action was brought within New York’s applicable six-year statute of limitations for DCL claims
and the Defendants cite no authority supporting the application of any foreign law to the Trustee’s
New York claims—including the inapplicable Delaware statute of repose.
Third, the Trustee asserts section 546(e) of the Bankruptcy Code does not preempt the
Trustee’s state-law claims and thus, it is irrelevant whether sections 546(e)’s requirements are met
here. In the event section 546(e) preempts the Trustee’s state-law fraudulent transfer claims, the
Trustee asserts sections 546(e)’s requirements are not met. Namely, there is no (i) transfer by, or
to (or for the benefit of) a “financial institution,” (ii) “settlement payment,” and/or (iii) transfer “in
connection with a securities contract.”
Fourth, the Trustee contends the Defendants’ ratification argument also fails. The Lenders
did not “ratify” the fraudulent transfers, and certainly did not do so as a matter of law.
Finally, the Trustee makes the conclusory assertion that the “Defendants’ remaining
arguments are also without merit” and requests “this Court deny Defendants’ motion in its
entirety.” See Opposition, at 4, 48-49.
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c. 	The Defendants Reply to the Opposition and Supplemental Filings
On September 27, 2019, the Defendant filed their reply to the Opposition. See Reply Memo
of Law in Supp. of Motion to Dismiss TAC, AP Case No. 12-01879 (Bankr. S.D.N.Y. Sept. 27,
2019), ECF No. 293 (the “Reply”). The Reply reasserts that: (i) Delaware’s three-year statute of
repose applies to the Trustee’s claims; (ii) the claims are not well-plead; (iii) section 546(e)
preempts the TAC’s state-law claims; and (iv) the Lenders’ ratified the transfers at issue.
Following the end of briefing, the Defendants and the Trustee filed a total of three (3)
letters on the docket. From the Defendants, the first letter brought an additional statutory provision
related to Delaware’s three-year statute of repose to the Court attention, which the Defendants
claim is dispositive in their favor. 	See Letter to Judge Lane, AP Case No. 12-01879 (Bankr.
S.D.N.Y. Dec. 16, 2019), ECF No. 299 (the “First Letter”). Four-days later, the Trustee filed the
second letter responding to the substance of the First Letter. See Letter to Judge Lane, AP Case
No. 12-01879 (Bankr. S.D.N.Y. Dec. 23, 2019), ECF No. 302 (the “Second Letter”). Finally, the
Defendants filed a third letter bringing to the Court’s attention the recent decision issued by the
United States Court of Appeals for the Second Circuit (the “Second Circuit”) in Tribune. 	See
Letter to Judge Lane, AP Case No. 12-01879 (Bankr. S.D.N.Y. Dec. 24, 2019), ECF No. 303 (the
“Third Letter”).
d. 	Oral Argument
On February 24, 2020, Judge Lane heard arguments in connection with the MTD, the
Opposition, the Reply, the First Letter, the Second Letter, and the Third Letter. See Hr’g Tr., AP
Case No. 12-01879 (Bankr. S.D.N.Y. Feb. 24, 2020), ECF No. 309. On April 25, 2020, the Clerk
of the Court reassigned this adversary proceeding to this Court. See Notice of Reassignment, AP
Case No. 12-01879 (Bankr. S.D.N.Y. Apr. 25, 2020), ECF No. 310. This Court conducted a status
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conference in this matter on May 19, 2020 at which time the Court heard further arguments in
connection with the MTD, the Opposition, the Reply, the First Letter, the Second Letter, and the
Third Letter. See Hr’g Tr., AP Case No. 12-01879 (Bankr. S.D.N.Y. May 19, 2020), ECF No. 313
(the “May Transcript”). The decision below follows.
V. 	Timeliness of the Trustee’s Claims
Before the TAC’s substantive allegations are examined, the Court must determine whether
the Trustee’s claims are timely. 	The Court holds the Trustee’s claims for intentional and
constructively fraudulent transfers pursuant to the DCL were timely filed. However, the Trustee’s
claim for unjust enrichment under New York state-law is time barred.
a. 	Applicable Statutory Provisions
Both BosGen and EBG are Delaware limited liability companies. 	By statute, Delaware
shortens the limitations period to three-years for actions brought by Delaware LLC’s to recover
money distributed to its LLC members. Specifically, Delaware law provides:
(c) Unless otherwise agreed, a member who receives a distribution from a limited
liability company shall have no liability under this chapter or other applicable law
for the amount of the distribution after the expiration of 3 years from the date of the
distribution unless an action to recover the distribution from such member is
commenced prior to the expiration of the said 3-year period and an adjudication of
liability against such member is made in the said action.
Del. Code Ann. tit. 6, § 18-607(c) (the “Delaware Statute of Repose”).9
9 To provide context for the Delaware Statute of Repose, the two preceding sub-paragraphs provide as follows:
(a) A limited liability company shall not make a distribution to a member to the extent that at the
time of the distribution, after giving effect to the distribution, all liabilities of the limited liability
company, other than liabilities to members on account of their limited liability company interests
and liabilities for which the recourse of creditors is limited to specified property of the limited
liability company, exceed the fair value of the assets of the limited liability company, except that
the fair value of property that is subject to a liability for which the recourse of creditors is limited
shall be included in the assets of the limited liability company only to the extent that the fair value
of that property exceeds that liability. For purposes of this subsection (a), the term "distribution''
shall not include amounts constituting reasonable compensation for present or past services or
reasonable payments made in the ordinary course of business pursuant to a bona fide retirement plan
or other benefits program.
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Similarly, New York has its own statute of repose governing transfers by a New York LLC
to its LLC members. The New York Limited Liability Company Law (the “NYLLCL”) provides:
(c) Unless otherwise agreed, a member who receives a wrongful distribution from
a limited liability company shall have no liability under this article or other
applicable law for the amount of the distribution after the expiration of three years
from the date of the distribution.
NYLLCL § 508(c) (the “NY Statute of Repose”)10 .
Finally, the NYLLCL contains a provision addressing the proper forum’s law to apply
when a foreign LLC’s members are sued in a New York court for return of a distribution. The
NYLLCL provides:
(b) A member who receives a distribution in violation of subsection (a) of this section, and who
knew at the time of the distribution that the distribution violated subsection (a) of this section, shall
be liable to a limited liability company for the amount of the distribution. A member who receives
a distribution in violation of subsection (a) of this section, and who did not know at the time of the
distribution that the distribution violated subsection (a) of this section, shall not be liable for the
amount of the distribution. Subject to subsection (c) of this section, this subsection shall not affect
any obligation or liability of a member under an agreement or other applicable law for the amount
of a distribution.
Del. Code Ann. tit. 6, §§ 18-607(a)-(b).
10 To provide context for the NY Statute of Repose, the two preceding sub-paragraphs provide as follows:
(a) A limited liability company shall not make a distribution to a member to the extent that, at the
time of the distribution, after giving effect to the distribution, all liabilities of the limited liability
company, other than liabilities to members on account of their membership interests and liabilities
for which recourse of creditors is limited to specified property of the limited liability company,
exceed the fair market value of the assets of the limited liability company, except that the fair market
value of property that is subject to a liability for which the recourse of creditors is limited shall be
included in the assets of the limited liability company only to the extent that the fair value of such
property exceeds such liability.
(b) A member who receives a distribution in violation of subdivision (a) of this section, and who
knew at the time of distribution that the distribution violated subdivision (a) of this section, shall be
liable to the limited liability company for the amount of the distribution. A member who receives
a distribution in violation of subdivision (a) of this section, and who did not know at the time of the
distribution that the distribution violated subdivision (a) of this section, shall not be liable for the
amount of the distribution. 	Subject to subdivision (c) of this section, this subdivision shall not
affect any obligation or liability of a member under the operating agreement or other applicable law
for the amount of a distribution.
NYLLCL §§ 508(a)-(b).
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(a) the laws of the jurisdiction under which a foreign limited liability company is
formed govern its organization and internal affairs and the liability of its members
and managers; and
(b) a foreign limited liability company may not be denied a certificate of authority
by reason of any difference between such laws and the laws of this state.
NYLLCL § 801 (emphasis added) (the “NY Foreign LLC Law”).
b. 	Whether the Trustee’s DCL Claims are Time-Barred
Claims brought pursuant to the DCL are subject to a six-year statute of limitations. See
N.Y. Civ. Practice Law & R. (“NYCPLR”) § 213(8); In re Bernard L. Madoff Inv. Securities, LLC,
458 B.R. 87, 109 (Bankr. S.D.N.Y. 2011) (applying six-year statute of limitations to DCL claims).
The BosGen Transfer and EBF Transfers occurred in December 2006 and the Trustee brought this
action in August 2012. 	Thus, the Trustee’s DCL claims are timely under New York’s six-year
limitation period unless another applicable law, such as the Delaware Statute of Repose, applies
to shorten the limitations period. The Defendants ask the Court to hold that the Delaware Statute
of Repose: (i) applies to suits brought by creditors to recover a Delaware LLC’s member
distributions; and (ii) trumps New York’s six-year limitation period for DCL claims. In contrast,
the Trustee asks the Court to hold that: (i) the Delaware Statute of Repose does not apply to creditor
suits to recover a Delaware LLC’s distribution to its members, leaving the Court to apply New
York’s six-year limitations period for DCL claims; and (ii) even if the Delaware Statute of Repose
could be applied to creditor suits against a Delaware LLC’s members, it should give way to New
York law and its six-year limitations period because New York has a greater interest in seeing its
law applied in this proceeding. 	After evaluating how another jurisdiction has interpreted the
Delaware Statute of Repose and analyzing the interpretation New York courts have ascribed to the
virtually identical NY Statute of Repose, the Court concludes the Delaware Statute of Repose does
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not apply to creditor suits brought to recover a Delaware LLC’s distribution to its members.
Therefore, New York’s six-year limitations period for DCL claims governs.
i. 	New York’s Choice of Law Standard
Here, 	New York’s choice-of-law rules 	govern 	because 	a 	federal 	court 	exercising
bankruptcy jurisdiction must apply the conflict of laws rules of the state in which the federal court
sits to determine the applicable limitations period for fraudulent transfer claims. See Bianco v.
Erkins (In re Gaston v. Snow), 243 F.3d 599, 605-07 (2d Cir. 2001). The first step of New
York’s choice-of-law rules is to determine whether there is an actual conflict between the laws of
the jurisdictions involved. See Drenis v. Haligiannis, 452 F. Supp.2d 418, 426 (S.D.N.Y. 2006).
New York law applies when no jurisdictional conflict exists. See Curley v. AMR Corp., 153 F.3d
5, 12 (2d Cir.1998) (holding the Court will dispense with a choice of law analysis when there is
no conflict). If a jurisdictional conflict does exist, New York courts will apply the law of the state
with the greatest interest. See id. at 12-13.
First, the Court must determine whether the Delaware Statute of Repose applies to creditor
suits, thus potentially shortening the limitations period to three-years for the Trustee’s DCL claims
and creating a conflict between New York and Delaware substantive law.11 Second, only if the
Delaware Statute of Repose can be applied to creditor suits against a Delaware LLC’s members,
will the Court then engage in the “interest analysis” to resolve whether Delaware or New York has
the greater interest in seeing its law applied. Because the Delaware Statute of Repose does not
11 To be sure, the Delaware Statute of Repose is more than a procedural limitations period. In Vivaro Corp., this Court
addressed whether the NY Statute of Repose overtook the six year limitations period for DCL claims and held the
New York “statute of repose overrides the six year statute of limitations normally applied to NYDCL fraudulent
conveyance claims, provided that the transfers at issue were in fact distributions made by the LLC to LLC members.”
In re Vivaro Corp., 524 B.R. 536, 548 (Bankr. S.D.N.Y. 2015) (emphasis added). Here, the Delaware Statute of
Repose, were it applicable to creditor suits, would not automatically override the DCL’s six-year limitations period.
Were the Delaware Statute of Repose applicable to creditor suits, it would lead to the “interest analysis” referenced
above.
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apply to creditor suits, there is no conflict of law present and the Court need not delve into which
jurisdiction has the greatest interest in seeing its law applied.
ii. 	The NY Foreign LLC Law
Reading their papers, the Trustee and the Defendants take divergent paths at the outset
applying New York law. According to the Defendants, the NY Foreign LLC Law applies, it directs
the Court to the Delaware Statute of Repose, which also applies, and therefore the Trustee’s DCL
claims are time barred. The Trustee argues, the NY Foreign LLC Law does not apply to fraudulent
conveyance claims (only to claims regarding the LLC’s internal affairs). 	Further, the Trustee
posits that even if the NY Foreign LLC law applies here, the Delaware Statute of Repose is
inapplicable to creditor suits thus leaving the Court to apply New York’s six-year limitations
period for DCL claims. Step one of the analysis must be whether the NY Foreign LLC Law applies
only narrowly to claims involving an LLC’s internal affairs or whether it applies more broadly to
fraudulent conveyance claims against a foreign LLC’s members.
The Court holds the NY Foreign LLC Law applies broadly to fraudulent conveyance claims
against a foreign LLC’s members. 	The NY Foreign LLC Law’s coverage is not limited by its
terms to claims among and between the LLC and its members, or stated another way, the LLC’s
internal affairs. See Treeline 1 OCR, LLC v. Nassau Cty. Indus. Dev. Agency¸918 N.Y.S.2d 128,
131 (2d Dep’t 2011) (applying Texas law to claims against a Texas LLC for damage to real
property pursuant to the NY Foreign LLC Law). 	The NY Foreign LLC Law governs “the liability
of its members and managers” without any limitation. See id. The Trustee argues the NY Foreign
LLC Law codifies the common law internal affairs doctrine and must therefore be interpreted
restrictively to apply only to the LLC’s internal affairs. The Court will not ascribe this restrictive
reading to the NY Foreign LLC Law based on the plain language of the statute and Appellate
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Division, Second Department’s decision in Treeline 1 OCR, LLC. 	Because the Court holds the
NY Foreign LLC Law applies to fraudulent conveyance claims against a foreign LLC’s members,
the Court proceeds to step two of the analysis addressing whether the Delaware Statute of Repose
applies to creditor suits against a Delaware LLC’s members.12
iii. 	Whether the Delaware Statute of Repose Applies to Creditor Claims
1. 	The 	Plan 	Language 	of 	the 	Delaware 	Statute 	of 	Repose
Demonstrates It Does Not Apply to Creditor Claims
The Court holds that the Delaware Statute of Repose does not apply to suits brought by a
liquidating trustee standing in the shoes of creditors, not the debtor, seeking to recover a Delaware
LLC’s member distributions. The Court could not locate decisive authority from a Delaware court
addressing whether the Delaware Statute of Repose applies to creditor claims, though one
Delaware Court has intimated it does not. See Pepsi-Col Bottling Co. of Md. v. Handy, Case No.
1973-S, 2000 WL 364199, at *5 (Del. Ch. March 15, 2000) (“The defendants, however, give a far
more expansive reading to § 18-607 than its language warrants. They claim that the statute shields
12 The Court holds the Delaware Statute of Repose does not apply to creditor suits and therefore, the conflict of law
inquiry ends. Had the Court determined the Delaware Statute of Repose applied to creditor suits, an interest analysis
would have been required to determine which jurisdiction has the greater interest in having its law applied here. Where
a conflict of laws exists in tort actions, New York’s choice-of-law rules use an “interest analysis” that applies the laws
of the jurisdiction with the greatest interest in the application of its law “based on the occurrences within each
jurisdiction, or contacts of the parties with each jurisdiction, that ‘relate to the purpose of the particular law in
conflict.’” Pension Comm. of Univ. of Montreal Pension Plan v. Banc. of Am. Secs., LLC, 446 F.Supp.2d 163, 192
(S.D.N.Y. 2006) (internal citations omitted); see AroChem Int'l, Inc. v. Buirkle, 968 F.2d 266, 269–70 (2d Cir.
1992); Advanced Portfolio Tech., Inc. v. Advanced Portfolio Tech., Ltd., Case No. 94-civ- 5620, 1999 WL 64283, at
*5 (S.D.N.Y. Feb. 8, 1999). “When the law is one which regulates conduct, such as fraudulent conveyance statutes,
the law of the jurisdiction where the tort occurred will generally apply because that jurisdiction has the greatest interest
in regulating behavior within its borders,” Pension Comm. of Univ. of Montreal, 446 F.Supp.2d at 192 (internal
quotations and citations omitted), “and parties engaging in those activities would have a reasonable expectation that
their activities would be governed by the law of the state in which they are located and reside.” GFL Advantage Fund
Ltd. Colkitt, Case No. 03-civ-1256, 2003 WL 21459716, at *3 (S.D.N.Y. June 24, 2003). The Trustee contends New
York has the greatest interest in seeing its law applied to this dispute because, among other things: (i) BosGen and
EBG both had their principle places of business in the New York at the time of the transfers; (ii) K Road allegedly in
New York directed the transfers; (iii) the Lenders’ presentation occurred in New York; (iv) the majority of the Lenders
were based in New York; and (v) the Credit Facilities provided they by New York law. See TAC ¶¶ 5-6, 8-15, 205-
06, Ex. B (list of lenders); Ex. E § 9.17, Ex. F § 9.16, Ex. G § 8.12. Were there a conflict of laws present, the Court
expresses no opinion on how it might have decided which jurisdiction has the greater interest in seeing its law applied.
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LLC members against any other claims against them, i.e., against all claims except those that arise
under § 18-607. Nothing in § 18-607 so provides.”). With this backdrop, the Court will endeavor
to determine, based on Delaware’s rules for statutory construction, whether the Delaware Statute
of Repose applies to the Trustee’s claims.
When interpreting a state’s statute, a federal court must employ that state’s statutory
construction principles. See Brownsburg Area Patrons Affecting Change v. Baldwin, 137 F.3d
503, 507 (7th Cir. 1998). The primary rule of statutory construction requires this Court to ascertain
and effectuate the Delaware legislature’s intent. See In re Adoption of Swanson, 623 A.2d 1095,
1096 (Del. 1993). 	Where a statute “is unambiguous and there is no reasonable doubt as to the
meanings of the words used, the court’s role is limited to an application of the literal meaning of
those words.” Id. at 1096–97.
The Court finds the Delaware Statute of Repose’s interpretation by the United States
District Court for the Southern District of Illinois in A Communication Co. v. Bonutti persuasive.
There, Judge Gilbert addressed whether the Delaware Statute of Repose applied to creditor breach
of fiduciary duty claims against a Delaware LLC’s members and held:
When the Court reads subsection (c) in context and views it in its place in the
statutory scheme, the Court is further convinced that Delaware’s legislature
intended subsection (c) to modify the liability set forth in subsection (a) and (b) of
Section 18–607. Under statutory construction principles, ‘words of a statute must
be read in their context and with a view to their place in the overall statutory
scheme.’ Section 18–607 contains three subsections and sets forth limitations on
distributions from a limited liability company to a member. . . .
A Communications Co. v. Bonutti, 55 F. Supp.3d 1119, 1126-27 (S.D. Ill. 2014) (emphasis added)
(internal citations omitted). The Court adopts Judge Gilbert’s reasoning and concludes the correct
interpretation of the Delaware Statute of Repose is that it modifies the liability of LLC members
to the LLC under sections 18-607(a)-(b) of title 6 of the Delaware Code. 	Thus, in this Court’s
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view, the Delaware Statute of Repose does not apply to creditor claims against a Delaware LLC’s
members. This interpretation is consistent with how New York courts interpret the NY Statute of
Repose, which is virtually identical to the Delaware Statute of Repose. 	By analogy, the Court
finds persuasive New York’s interpretation of its own statute of repose.
2. 	The New York Statute of Repose Does Not Apply to Creditor
Claims and, By Analogy, Supports the Holding that the Plain
Language of Delaware’s Statute of Repose Does Not Apply to
Creditor Claims
The NY Statute of Repose provides, “a member who receives a wrongful distribution from
a limited liability company shall have no liability under this article or other applicable law for the
amount 	of 	the 	distribution 	after 	the 	expiration 	of 	three 	years 	from 	the 	date 	of 	the
distribution.” NYLLCL § 508(c). 	Courts have applied this three-year time limit to avoidance
actions under 11 U.S.C. § 544 and the DCL. See Geron v. Craig (In re Direct Access Partners,
LLC), 602 B.R. 495, 517-18 (Bankr. S.D.N.Y. 2019) (applying the NY Statute of Repose to claims
asserted by the chapter 7 trustee standing in the debtor’s shoes); O’Connell v. Shallo (In re Die
Fliedermaus LLC), 323 B.R. 101, 108 (Bankr. S.D.N.Y. 2005) (same). 	However, other courts
have concluded, and this Court agrees, that there is a distinction between a trustee standing in a
debtor’s shoes suing for the benefit of creditors versus suing as a creditor. 	Given the virtually
identical language used in the Delaware Statute of Repose to that used in the NY Statute of Repose,
it’s instructive by analogy for this Court to determine whether the NY Statute of Repose applies
to creditor claims to recover a distribution to a New York LLC’s members. It does not.
The three-year limitation imposed by the NY Statute of Repose does not apply to fraudulent
transfers claims brought by creditors against a New York LLC’s members. See Lyman Commerce
Solutions, Inc. v. Lung, Case No. 12-civ-4398, 2015 WL 1808693, at *5 (S.D.N.Y. Apr. 20,
2015) (“Section 508, by its terms, applies to amounts owed by a member to ‘the limited liability
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company’—not to outside creditors.”). The Court agrees with Lyman’s reasoning because “[t]o
hold that outside creditors are subject to Section 508’s limitations period when bringing claims for
fraudulent conveyances to corporate members would be to hold that fraudulent transfers to a
corporate insider could be challenged for only half as long as transfers to persons outside the
corporate entity. Such a holding would turn the purposes of the fraudulent conveyance statute on
its head . . . .” Id.
Additionally, the Appellate Division, First Department, held the three-year limitation
period imposed by the NY Statute of Repose does not override the six-year statute of limitations
for fraudulent conveyance claims brought by creditors under the DCL. The Appellate Division,
First Department held that the plain language of the NY Statute of Repose indicates that it applies
to members of an LLC and holds them “liable to the limited liability company” for wrongful
distributions and does not extend to apply to claims of outside creditors. Setters v. AI Properties
and Developments (USA) Corp., 139 A.D.3d 492, 492, 32 N.Y.S.3d 87, 89 (1st Dep’t. 2016). 13
iv. 	Conclusion
As the Delaware Statute of Repose is inapplicable to creditor claims for the reasons stated
above, no conflict of law exists. Therefore, this Court is left with New York’s six-year limitations
period for DCL claims14 and the Trustee’s DCL claims are timely.
13 There are three cases from New York State courts which support the view that both the NY Statute of Repose and
the Delaware Statute of Repose apply to creditor claims against an LLC’s members. See Peckar & Abramson, P.C.
v. Lyford Holdings, Ltd., 135 A.D.3d 108, 115, 20 N.Y.S.3d 41, 46 (1st Dep’t 2015) (applying three-year limitations
period under analogous New York LLP law to creditor’s claim); Bd. of Managers of Chocolate Factory Condo., 992
N.Y.S.2d 157, 2014 WL 1910237, at *12 (Sup. Ct. Kings County 2014) (holding the three-year limitations period
contained in the NY Statute of Repose “applies both to claims by the limited liability company against its members
and by third party creditors.”); Mostel v. Petrycki, 885 N.Y.S.2d 397, 399,25 Misc.3d 929, 932 (Sup. Ct. N.Y. County
2009). However, Chocolate Factory, Mostel, and Peckar were decided pre-Setters and this Court considers those
decisions overruled and/or unpersuasive in light of Setters.
14 The NY Statute of Repose applies only to transfers made by a New York limited liability company. Here, it’s
inapplicable because the BosGen Transfer and the EBG Transfers were effectuated by Delaware limited liability
companies.
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c. 	Whether the Trustee’s Unjust Enrichment Claim is Time-Barred
The Trustee’s unjust enrichment claim is time-barred under New York law because such
claim seeks monetary recovery. Under New York law, the statute of limitations applicable to an
unjust enrichment claim depends on the nature of the substantive remedy the plaintiff seeks. See
Loengard v. Santa Fe Indus., Inc., 514 N.E.2d 113, 70 N.Y.2d 262, 266 (1987). The limitations
period is six years where a plaintiff seeks an equitable remedy, but three years where a plaintiff
seeks monetary damages. 	See Ingrami v. Rovner, 45 A.D.3d 806, 808, 847 N.Y.S.2d 132 (2d
Dep’t 2007); see Lia v. Saporito, 909 F.Supp.2d 149, 167 (E.D.N.Y. 2012); Kermanshah v.
Kermanshah, 580 F. Supp.2d 247, 261 (S.D.N.Y. 2008); Grynberg v. Eni S.p.A., Case No. 06-civ-
6495, 2007 WL 2584727, at *3 (S.D.N.Y. Sept. 5, 2007). The applicable limitations period begins
“upon the occurrence of the wrongful act giving rise to a duty of restitution and not from the time
the facts constituting the fraud are discovered.” Cohen v. S.A.C. Trading Corp., 711 F.3d 353, 364
(2d Cir. 2013) (quoting Coombs v. Jervier, 74 A.D.3d 724, 724, 906 N.Y.S.2d 267 (2d Dep’t
2010)).
The TAC plainly states the Trustee is seeking monetary damages in connections with his
unjust enrichment claim. 	The Trustee alleges, “[t]his count [unjust enrichment] is asserted on
behalf of the EBG Creditors and the BosGen Creditors. Upon information and belief, the creditor
claims described herein exceed $800 million.” 	TAC ¶ 188. 	Further into the unjust enrichment
count in the TAC, the Trustee alleges that:
[a]s a direct and proximate result of the foregoing, this Court should find that the
Transferee Defendants . . . 	have been unjustly enriched, and the EBG Creditors
and BosGen Creditors whose claims and causes of action have been assigned to the
Liquidating Trust . . . have been damaged thereby in an amount to be determined at
trial. 	Equity and good conscience demand a return of the funds received by the
Transferee Defendants . . . or an award of damages equivalent to the amount by the
Transferee Defendants . . . were unjustly enriched . . . [plus pre-judgment and post
judgment interest with fees and costs].
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TAC ¶ 196; see id. ¶ Prayer for Relief, at 69(c) (“on Count Five . . . EBG and BosGen Creditors
have been damaged in an amount to be determined at trial but believed to be in excess of $1 billion
. . . .”). The Trustee seeks monetary damages more than three-years after the transfers complained
of occurred and thus, his unjust enrichment claim is time-barred.
d. 	New York’s Borrowing Statute
The Defendants assert that the Trustee’s claims are barred for a second, independent
reason—CPLR § 202. As noted above, this Court must apply New York choice of law rules. See
In re Gaston v. Snow, 243 F.3d 599, 605-07 (2d Cir. 2001). CPLR section 202 provides:
An action based upon a cause of action accruing without the state cannot be
commenced after the expiration of the time limited by the laws of either the state
or the place without the state where the cause of action accrued, except that where
the cause of action accrued in favor of a resident of the state the time limited by
the laws of the state shall apply.
CPLR § 202 (the “Borrowing Statute”). 	Under the Borrowing Statute, “when a nonresident
plaintiff sues upon a cause of action that arose outside of New York, the court must apply the
shorter limitation period, including all relevant tolling provisions, of either: (1) New York; or (2)
the state where the cause of action accrued.” Stuart v. Am. Cyanamid Co.,158 F.3d 622, 627 (2d
Cir. 1998). Here, many of the Lenders and Other General Claimants, who the Trustee is suing on
behalf of, are not New York residents. Therefore, according the Defendants, the Borrowing Statute
applies, other (shorter) limitations periods apply via the Borrowing Statute, and the Trustee’s
claims are time barred. 	The Borrowing Statute places the burden of proof on the Defendants, and
they have not provided the Court with sufficient documentation to carry their burden of proof on
this issue. Cf. Reply, at 19-20 (arguing the Trustee bears the burden of proving residency in New
York under the Borrowing Statute).
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The burden of proving that a particular statute of limitation has expired falls on the
defendant. 	See Cuccolo v. Lipsky, Goodkin & Co., 826 F. Supp. 763, 767 n.3 (S.D.N.Y.
1993). 	However, the plaintiff bears the burden of proving that a particular statute of limitation
has been tolled. See id. Finally, when another state’s statute of limitation is considered pursuant
to the Borrowing Statute, the party seeking to benefit therefrom bears the burden of proof. See id.
(citing Katz v. Goodyear Tire & Rubber Co., 737 F.2d 238, 243 (2d Cir. 1984)).
In Cuccolo, considering a defendant’s motion to dismiss pursuant to Rule 12(b)(6) based,
in part, on the Borrowing Statute, the Court held:
there is no evidence in the papers submitted to the Court indicating that defendants
would be amenable to jurisdiction in New Jersey. Plaintiffs’ argument is based
on Stafford v. Int'l Harvester Co., 668 F.2d 142, 152 (2d Cir. 1981), which held that
New York's borrowing statute does not require consideration of the limitations
period of another jurisdiction if the plaintiff's cause of action could not have been
brought there. 	The Court of Appeals explained: ‘Insofar as the purpose of the
borrowing statute is . . . to prevent a plaintiff from forum shopping, it makes no
sense at all to apply [a statute of] limitation of a state where the defendant could
not have been sued.’ Id. Although Stafford 's reasoning has been questioned . . .
this Court is bound by the Second Circuit's holding. Since plaintiffs' argument was
not contested and no evidence indicated the defendants—who bore the burden of
proof—would be amenable to a New Jersey court's jurisdiction, only the New York
statute of limitations will be considered. Cf. Maiden v. Biehl, 582 F. Supp. 1209,
1215 (S.D.N.Y. 1984) (defendants proffered evidence indicating they would be
amenable to foreign court's jurisdiction).
Id. The Defendants have not demonstrated in their papers that they would be amenable to suit in
another foreign jurisdiction and that alone under Stafford and Cuccolo is sufficient to deny
Defendants’ request to apply the Borrowing Statute. Additionally, as further support of the Court’s
conclusion, the Defendants have not identified a jurisdiction in which the Trustee’s claims are
untimely. Thus, the Borrowing Statute cannot be applied here.
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VI. 	Pleading Standards for the Trustee’s Claims on Behalf of the Lenders and the
Other General Claimants
a. 	Standard for Motion to Dismiss
A motion to dismiss for failure to state a cause of action under Federal Rule of Civil
Procedure 12(b)(6) (“Rule 12(b)(6)”), made applicable to this adversary proceeding by Fed. R.
Bankr. P. 7012, requires a determination as to whether the complaint properly states a claim under
Fed. R. Civ. P. 8 (“Rule 8”). See Fed. R. Bankr. P. 7008. Under Rule 8, a complaint must contain
a “short and plain statement of the claim showing the pleader is entitled to relief.” Ashcroft v. Iqbal,
556 U.S. 662, 668 (2009). Recently, the Supreme Court has twice taken up the requirements of
Rule 8. See id. at 662; see also Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). 	In both
cases, the Supreme Court emphasized two principles which form the basis for determining a Rule
12(b)(6) motion.
First, the tenet that a court must “accept all factual allegations as true” is limited to factual
allegations and does not apply to legal conclusions listed in the plaintiff's complaint. Ashcroft v.
Iqbal, 556 U.S. at 668. 	The Court explained that legal conclusions are not entitled to the
assumption of truth: “[w]hile legal conclusions can provide the complaint's framework, they must
be supported by factual allegations. When there are well-pleaded factual allegations, a court should
assume their veracity and then determine whether they plausibly give rise to an entitlement to
relief.” Id. at 676.
Second, “only a complaint that states a plausible claim for relief survives a motion to
dismiss.” Id. The Supreme Court has explained that “[t]he plausibility standard is not akin to a
probability requirement, but asks for more than a sheer possibility.” 	Id. 	This two-pronged
approach now forms the standard to be applied when courts are determining a motion to dismiss
for failure to state a cause of action. Id. Courts must focus only on the allegations in the complaint
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which are entitled to the assumption of truth, “discounting legal conclusions clothed in the factual
garb.” Gowan v. Novator Credit Mgmt. (In re Dreier LLP), 452 B.R. 467, 475 (Bankr. S.D.N.Y.
2011). 	Based on these well-pleaded factual allegations, courts must determine if the complaint
states a plausible claim for relief. See id.
Determining whether a complaint states a plausible claim is “context specific, requiring the
court to draw on its experience and common sense.” Ashcroft v. Iqbal, 556 U.S. at 668. However,
the “pleadings must create the possibility of a right to relief that is more than speculative.” Spool
v. World Child Int'l Adoption Agency, 520 F.3d 178, 184 (2d Cir. 2008). A complaint has facial
plausibility when “the pleaded factual content allows the court to draw the reasonable inference
that the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal 556 U.S. at 668.
Additionally, courts must “draw inferences . . . in the light most favorable to the [nonmovant], and
construe the complaint liberally.” Gowan v. Novator Credit Mgmt., 452 B.R. at 476 (quoting
Gregory v. Daly, 243 F.3d 687, 691 (2d Cir. 2001) (other citations omitted)).
Finally, “courts must consider the complaint in its entirety.” Tellabs, Inc. v. Makor Issues
& Rights, Ltd. 551 U.S. 308, 310 (2007). The Court may take judicial notice of the public record
in related cases involving one of the parties. Mangiafico v. Blumenthal, 471 F.3d 391, 398 (2d
Cir. 2006). A court may even consider a document that has not been incorporated by reference
“‘where the complaint relies heavily upon its terms and effect, which renders the document integral
to the complaint.’” Buena Vista Home Entm't, Inc. v. Wachovia Bank, N.A. (In re Musicland
Holding Corp.), 374 B.R. 113, 119 (Bankr. S.D.N.Y. 2007) (citing Chambers v. Time Warner,
Inc., 282 F.3d 147, 153 (2d Cir. 2002) (other citations omitted)).
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b. 	Heightened Pleading Standard for Intentional Fraud
Fed. R. Civ. P. 9(b) (“Rule 9(b)”), which is applicable in this case pursuant to Bankruptcy
Rule 7009, governs claims for intentional fraudulent transfers. Silverman v. Actrade Capital, Inc.
(In re Actrade Fin. Techs. Ltd.), 337 B.R. 791, 801 (Bankr. S.D.N.Y. 2005). The first and second
counts in the TAC arise under DCL §§ 276 and 278, and each count requires a finding of intent by
the transferor to defraud. Picard v. Madoff, et al. (In re Bernard L. Madoff Inv. Sec. LLC), 458
B.R. 87, 105 (Bankr. S.D.N.Y. 2011) (“Picard v. Madoff ”) (citing Gowan v. The Patriot Group,
LLC (In re Dreier LLP), 452 B.R. 391, 424 (Bankr. S.D.N.Y. 2011)). 	As intentional intent
fraudulent transfers, these claims must meet the heightened specificity requirements under Rule
9(b). Sharp Int'l Corp. v. State Street Bank & Trust Co. (In re Sharp Int'l Corp.), 403 F.3d 43, 56
(2d Cir. 2005). 	However, where a bankruptcy trustee is the party asserting the intentional
fraudulent transfer claim, the Second Circuit has adopted “ ‘a more liberal view . . . since a trustee
is an outsider to the transaction who must plead fraud from second-hand knowledge.’” Picard v.
Cohmad Sec. Corp. et al. (In re Bernard L. Madoff Inv. Sec. LLC), 454 B.R. 317, 329 (Bankr.
S.D.N.Y. 2011) (“Picard v. Cohmad”) (citing Nisselson v. Softbank AM Corp. (In re MarketXT
Holdings Corp.), 361 B.R. 369, 395 (Bankr. S.D.N.Y. 2007) (other citations omitted)).
c. 	The Trustee’s Intentional Fraud Claims are Well Plead
i. 	Allegations Necessary to Sustain Counts I and II
Section 276 of the DCL provides that “every conveyance made and every obligation
incurred with actual intent . . . to hinder, delay, or defraud either present or future creditors, is
fraudulent as to both present and future creditors.” This section authorizes a party “to avoid
transactions which have the purpose or effect of removing property from a debtor's estate which
should properly be used to repay creditors.” Kramer v. Mahia (In re Kahn), Case No. 11-01520,
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2014 WL 10474969, at *21 (E.D.N.Y. Dec. 24, 2014) (citing Strauss v. Sixty-Five Brokers, (In re
Churchill Mortg. Inv. Corp.), 256 B.R. 664, 675 (Bankr. S.D.N.Y. 2000)).
To survive a motion to dismiss on an intentional fraud claim pursuant to DCL section 276:
a plaintiff must allege that a defendant acted with ‘actual intent to hinder, delay, or
defraud’ creditors and must plead its allegations with particularity as required
by Rule 9(b). Due to the difficulty of proving intent, plaintiffs may rely on ‘badges
of fraud’—'circumstances so commonly associated with fraudulent transfers that
their presence gives rise to an inference of intent.’ The ‘badges of fraud’ include:
‘a close relationship between the parties to the alleged fraudulent transaction; a
questionable transfer not in the usual course of business; inadequacy of the
consideration . . . and retention of control of the property by the transferor after the
conveyance.
Techno-Comp. Inc. v. Arcabascio, 130 F. Supp.3d 734, 745 (E.D.N.Y. 2015) (internal citations
omitted).
ii. 	The Trustee’s Allegations Were Sufficient to Sustain Counts I and II
The Trustee sufficiently plead intentional fraud pursuant to section 276 of the DCL. Taken
together, all of the allegations in the TAC plead: (i) that the K Road Insiders, which included the
CEO and Chairman of EBG’s board of directors, were agents of BosGen and EBG; (ii) the K Road
Insiders’ knowledge, by virtue of their dominance and control of the EBG’s operations, was
imputed to BosGen and EBG; (iii) the K Road Insiders omitted and/or misrepresented the Debtors’
financial condition to the Lenders; (iv) the K Road Insiders intended to defraud the Lenders and
the Other Claimants; and (v) the BosGen Transfer and the EBG Transfers provided value to the
Defendants with no value to BosGen and/or EBG in return. The specific fraud allegedly committed
by the K Road Insiders was concealing and misrepresenting BosGen and EBG’s true financial
condition from the Lenders. See TAC ¶¶ 17-27, 74-77, 83, 88, 104, 106, 117 (alleging the K Road
Insiders caused the board of directors to approve the Leveraged Recap Transaction, which the
Trustee alleges was fraudulent), ¶¶ 17-24, 74-76 (alleging K Road directly appointed and
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controlled two members of EBG’s seven-member board of directors and all of EBG’s senior
management was comprised of K Road Insiders), ¶ 26 (alleging the remaining five of the seven
directors on EBG’s board were controlled by K Road because, as K Road internally acknowledged,
the “EBG Board of Directors would approve whatever K Road told them to, as long as the
Nominating Committee was in agreement”).
More specifically, the Trustee alleges numerous badges of fraud which the Court finds
sufficient to hold that the Trustee has satisfied the pleading requirements of Rule 8 and Rule 9(b)
for a DCL section 276 claim. Among other allegations sufficient to demonstrate “badges of fraud”
were present surrounding the BosGen Transfer and the EBG Transfers, the Trustee alleges: (i)
inadequacy of consideration for the BosGen Transfer and the EBG Transfers because, a) BosGen
and EBG were balance-sheet insolvent as a result of the transfers, b) BosGen and EBG knew they
could not pay their debts as they came due as a result of the transfers, c) BosGen and EBG received
no value or consideration in exchange for the transfers, and d) such transfers rendered BosGen and
EBG insolvent; (ii) a close-relationship between K Road, EBG, BosGen, parties to the alleged
fraud; and (iii) the BosGen Transfer and EBG Transfers were questionable transactions based on
false and misleading projections. See TAC ¶¶ 152, 162 (summaries for Counts I and II).
iii. 	Whether a “Critical Mass” of the EBG Board Acted with Fraudulent Intent
The Defendants assert that the Trustee was required to allege that a “critical mass” of the
EBG board acted with fraudulent intent. 	According to the Defendants, the Trustee’s allegation
that K Road, Harbinger, and the Nominating Committee “dominated and controlled” the Debtors
such that their intent can be imputed to the entire board of directors is insufficient. 	The Court
disagrees.
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In Weisfelner v. Fund 1 (In re Lyondell Chem. Co.), 503 B.R. 348, 388 (Bankr. S.D.N.Y.
2014), Judge Gerber held that where board approval is required, a plaintiff must plead that a
“critical mass” of directors acted with the requisite intent or otherwise explain how actors with
fraudulent intent otherwise caused the disposition of property. See id. (emphasis added). Here,
the Trustee has alleged how actors with fraudulent intent otherwise caused the disposition of
property. The TAC alleges that K Road: (i) was EBG’s agent; (ii) had fraudulent intent based on
the badges of fraud discussed above; and (iii) through manipulation, dominance, and control of
EBG’s operations, caused BosGen and EBG to incur debt under the Credit Facilities and thereafter,
transfer the monies to EBG’s members for no consideration. See TAC ¶¶ 74-76 (alleging K Road
directly appointed and controlled two members of EBG’s seven-member board of directors and all
of EBG’s senior management was comprised of K Road Insiders), ¶ 26 (alleging the remaining
five of the seven directors on EBG’s board were controlled by K Road because, as K Road
internally acknowledged, the “EBG Board of Directors would approve whatever K Road told them
to, as long as the Nominating Committee was in agreement”). 	The Trustee may not be able to
prove these facts following discovery. Nevertheless, he has plead facts sufficient to withstand the
MTD under the Bankruptcy Court’s decision in Lyondell.
Further, Judge Cote reversed Judge Gerber’s decision in Lyondell holding the CEO’s
“knowledge that the EBITDA figures were fraudulent, as well as his intent in creating and
presenting them, can be imputed.” In re Lyondell, 554 B.R. 635, 648 (S.D.N.Y. 2016). In reaching
this holding, the District Court rejected the Bankruptcy Court’s determination that an additional
showing—through a “critical mass” or otherwise—was necessary to impute the acts of corporate
agents for transactions involving board approval. See id. at 647–50.
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Notwithstanding the District Court’s decision in Lyondell, the Defendants argue the
Bankruptcy Court’s reasoning should still apply for two reasons. First, because Judge Sullivan,
sitting on the District Court, agreed that Judge Gerber’s holding that the “critical mass” test
“appropriately accounts for the distinct roles played by directors and officers under corporate law.”
Reply, at 5 (quoting Judge Sullivan in Tribune). However, Judge Sullivan’s full quotation provides
that the “critical mass” test “appropriately accounts for the distinct roles play by directors and
officers under corporate law, while also factoring in the power certain officers and other actors
may exercise over the corporation’s decision to consummate a transaction.” (quoting Kirschner
v. Fitzsimons (In re Tribune Co. Fraudulent Conveyance Litigation), Case No. 12-civ-2652, 2017
WL 82391, at *6 (S.D.N.Y. Jan. 6, 2017) (emphasis added) (noting Judge Cote’s reversal of
Lyondell, disagreeing with Judge Cote, concluding her decision in Lyondell was not binding in
Tribune, and holding, “Specifically, the Court agrees with . . . [Judge Gerber] that the intent of
the debtor’s officers may be imputed to the debtor if the officers were ‘in a position to control the
disposition of [the transferor’s] property,’ thereby effectuating the underlying offense.”))); see In
re Adler, Coleman Cleaning Corp., 263 B.R. 406 (S.D.N.Y. 2001) (cited with approval by Judge
Sullivan for the proposition that that a transferee’s intentional fraudulent intent may be ascribed to
the transferor corporation where transferee “dominated or controlled [transferor’s] disposition” of
its property). As discussed above, the Trustee has alleged such domination of BosGen and EBG
by the K Road Insiders.
Second, Judge Cote was given the opportunity to reverse Judge Sullivan’s Tribune decision
when she took the case over following Judge Sullivan’s elevation to the Second Circuit, and she
declined to do so. 	See Fitzsimons (In re Tribune Co. Fraudulent Conveyance Litigation), Case
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No. 12-civ-2652, 2019 WL 1771786, at *3 (S.D.N.Y. Apr. 23, 2019). The Court refuses to infer
anything from Judge Cote’s inaction.
Notwithstanding that there is a split of authority at the district court level concerning the
appropriate test to apply for imputation of a director or officer’s knowledge and/or conduct to the
entire board, the facts alleged in the TAC satisfy the tests adopted by Judge Gerber in Lyondell
and Judge Sullivan in Tribune for the reasons stated above,.15
d. 	The Trustee’s Constructive Fraud Claims are Well Plead
i. 	Allegations Necessary to Sustain Counts III and IV
The DCL provides several paths to recover a constructively fraudulent transfer:
[A] conveyance by a debtor is deemed constructively fraudulent if it is made
without ‘fair consideration,’ and . . . one of the following conditions is met: (i) the
transferor is insolvent or will be rendered insolvent by the transfer in question, DCL
§ 273; (ii) the transferor is 	engaged in 	or 	is 	about 	to 	engage 	in 	a 	business
transaction for which its 	remaining 	property 	constitutes 	unreasonably small
capital, DCL § 274; or (iii) the transferor believes that it will incur debt beyond its
ability to pay, DCL § 275.
In re Sharp Int’l Corp., 403 F.3d 43, 53 (2d Cir. 2005). 	Such claims need not be plead with
particularity under Rule 9(b). 	Instead, “the pleading standards of Rule 8 . . . apply, subject, of
course, 	to 	the 	‘plausibility’ 	requirements 	of Iqbal and Twombly.” 	Techno-Comp. 	Inc. 	v.
Arcabascio, 130 F. Supp.3d 734, 746 (E.D.N.Y. 2015).
ii. 	The Trustee’s Allegations Were Sufficient to Sustain Counts III and IV
The Trustee sufficiently plead that BosGen and EBG did not receive fair consideration
from the BosGen Transfer and the EBG Transfers. See TAC ¶¶ 124-25, 152, 162, 170, 181, 191.
15 Certainly, the TAC satisfies the less stringent standard for imputation adopted by Judge Cote in Lyondell, which
accounts for a distinction in cases addressing “the imputation of a transferee’s intent” from those addressing
imputation of an agent’s intent. Lyondell, 554 B.R. at 649. Under Judge Cote’s approach, when a single corporate
officer’s conduct falls within the scope of his authority as an agent, everything such agent knows or does is imputed
to their principals. See Kirschner v. KPMG LLP, 25 N.Y.3d 446, 465 (2010).
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Further, the Trustee alleged that BosGen and EBG: (i) were rendered insolvent by the transfers;
(ii) were left with unreasonably small capital following the transfers; and (iii) believed they would
incur debt beyond their ability to pay. See TAC ¶¶ 129-135, 136-145, 171-72, 182-83.
e. 	Count V (Unjust Enrichment) Must Be Dismissed Pursuant to Rule 12(b)(6)
Pursuant to New York state law, “unjust enrichment is not a catchall cause of action to be
used when others fail. It is available only in unusual situations when, though the defendant has
not breached a contract nor committed a recognized tort, circumstances create an equitable
obligation running from the defendant to the plaintiff.” Corsello v. Verizon N.Y., Inc., 967 N.E.2d
1177, 18 N.Y.3d 777, 790–91 (2012). 	“Typical cases are those in which the defendant, though
guilty of no wrongdoing, has received money to which he or she is not entitled.” Eidelman v. Sun
Products Corp., Case No. 16-civ-3914, 2017 WL 4277187, at *6 (S.D.N.Y. Sep. 25, 2017)
(quoting Corsello v. Verizon N.Y., Inc., 18 N.Y.3d at 790).
Here, the Trustee alleges a wrongdoing—the same wrongdoing that underlies his
intentional and constructive DCL fraudulent transfer claims—and that this wrongdoing is the
source of the Defendants’ “equitable obligation” to pay the same damages that the Trustee plead
in connection with his other tort claims under the DCL. “Although a plaintiff ‘may plead unjust
enrichment in the alternative to his other claims,’ ” the unjust enrichment claim will not survive a
motion to dismiss where the plaintiff “ ‘fail[s] to explain how [it] is not merely duplicative of [his]
other causes of action.’” Nelson v. MillerCoors, LLC, Case No. 15-civ-7082, 2017 WL 1403343,
at *9 (E.D.N.Y. Mar. 31, 2017). 	The Trustee’s unjust enrichment claim duplicates his claims
pursuant to the DCL. Further, the Trustee has not offered the Court any explanation as to why the
unjust enrichment claim is not merely duplicative of the DCL claims. Therefore, the unjust
enrichment 	claim 	fails 	under New York law 	and 	must 	be 	dismissed 	pursuant 	to 	Rule
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12(b)(6). See Corsello v. Verizon N.Y., Inc., 18 N.Y.3d at 790 (unjust enrichment claim is “not
available” where its underlying allegations “simply duplicate” plaintiffs’ legal causes of
action); Ebin 	v. 	Kangadis 	Food 	Inc., 	Case 	No. 	13-civ-2311, 	2013 	WL 	6504547, 	at 	*7
(S.D.N.Y. Dec. 11, 2013) (dismissing unjust enrichment claims under New York and New Jersey
law where plaintiffs “failed to explain” how it is “not merely duplicative of their other causes of
action.”).
f. 	Plausibility
As discussed above, the Trustee sufficiently plead the intentional and constructive
fraudulent transfer claims contained in Counts I through IV of the TAC. However, this doesn’t
end the inquiry. Counts I through IV must also state a plausible basis for the relief sought. The
plausibility determination is “context specific, requiring the court to draw on its experience and
common sense.” Ashcroft v. Iqbal, 556 U.S. 662, 668 (2009). For a claim to be plausible, it must
state more than the “sheer possibility” for relief. See id.
The lynchpin of the TAC is that the K Road Insiders actively concealed from, and
misrepresented information to, the Lenders. The TAC alleges the K Road Insiders controlled the
flow of information to the Lenders by, among other things, concealing the terms of material hedge
contracts from those who could have identified errors in BosGen’s cash flow projections and
maintaining two sets of books so the Lenders would not identify the misinformation. See TAC ¶¶
85-102, 110-16. 	Additionally, the Trustee alleged the K Road Insiders concealed the same
information from the financial firms retained by the Debtors to provide consulting services and
issue opinions in connection with the Leveraged Recap Transaction, and those financial firms
disclaimed any responsibility for BosGen’s financial projections. See TAC ¶¶ 2, 78, 96-97, 105,
107, 120.
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The Defendants contend the participation of independent financial firms and sophisticated
lenders in the Leveraged Recap Transaction demonstrates the Lenders were not duped. However,
sophisticated parties can be the subject of a fraud. This Court is not prepared at this stage of the
proceeding to hold that the Trustee’s claims are implausible where the Trustee has alleged material
misstatements and omissions by the Debtors in connection with the Leveraged Recap Transaction.
See LaMonica v. CEVA Group (In re CIL Ltd.), 582 B.R. 46, 108-09 (Bankr. S.D.N.Y. 2018)
(holding that plausibility based on the involvement of independent third parties, such as the
financial firms and the “sophisticated lenders,” is only relevant when the third parties had access
to all relevant information), amended on reconsideration on other grounds, Case No. 13-11272,
2018 WL 3031094 (Bankr. S.D.N.Y. June 15, 2018).
The Defendants note, however, that the Debtors were able in June 2007—only six months
after the closing—to effect a sale by merger to another major company in which the Debtors were
valued at more than $1 billion. 	The Debtors became a wholly owned subsidiary of US Power
Generating Company (“USPG”) in a transaction in which USPG agreed to allow EBG’s new
equity holders to retain a majority of the equity in the newly merged entity. See Hunter Decl. ¶
10. Nearly four years after the Leveraged Recap Transaction that allegedly rendered the company
insolvent, and following convulsions in the energy marketplace caused by the global financial
crisis, EBG and its subsidiaries, including BosGen, filed for chapter 11 protection. See TAC ¶ 59.
As of the petition date, the Debtors’ total indebtedness included approximately $1.1 billion under
the First Lien Credit Agreement, $350 million under the Second Lien Credit Agreement, and $422
million under the Mezzanine Credit Agreement. 	See Hunter Decl. ¶¶ 28-35. 	The Debtors had
virtually no other debt than the amounts owed under the Credit Facilities. 	See Disclosure
Statement § I.A.
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In light of these facts, the Trustee may have a difficult time proving, among other things,
that the Leveraged Recap Transaction left the Debtors insolvent or that somehow the Lenders were
duped. However, the Court is not prepared to say now it’s completely implausible. The allegations
in the TAC state more than a “sheer possibility” for relief under the DCL for intentional and
constructive fraudulent transfers. 	Therefore, the Court finds the Trustee’s request for relief
plausible.
g. 	Conclusion
For the reasons stated above, the Court dismisses Count V pursuant to Rules 8 and 12(b)(6).
The Trustee sufficiently plead Counts I through IV and met the plausibility standard. In any event,
Counts I through V are dismissed pursuant to section 546(e) of the Bankruptcy Code.
VII. 	The Safe Harbor
Pursuant to section 546(e) of the Bankruptcy Code, certain transfers are excepted from
avoidance and recovery. To qualify for this “safe-harbor,” section 546(e) of the Bankruptcy Code
provides the payments sought to be avoided must be (i) qualifying payments, such as securities
“settlement payment[s]” or “transfer[s] . . . in connection with a securities contract,” and (ii) made
by, or to (or for the benefit of) a “financial institution.”
As an initial matter, the Court must determine whether the Trustee’s state-law claims are
preempted by section 546(e) of the Bankruptcy Code. The Court holds section 546(e) preempts
Counts I through V in the TAC.
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a. 	Section 546(e) Preempts the Trustee’s Claims
i. 	The Safe Harbor Preempts the Trustee’s Constructive Fraudulent Transfer
Claims in Counts III and IV
Recently, the Second Circuit held that section 546(e)’s safe harbor preempts state-law
constructive fraudulent transfer claims asserted by a litigation trustee standing in the shoes of a
debtor’s creditors. See In re Tribune Co. Fraudulent Conveyance Litigation, 818 F.3d 98, 119-
124 (2d Cir. 2016) (“Tribune I”).16 	The Court next must determine whether this holding applies
when a litigation trustee suing on behalf of a debtor’s creditors assert state law intentional
fraudulent transfer claims. It does.
ii. 	The Safe Harbor Preempts the Trustee’s State Law Intentional Fraudulent
Transfer Claims in Counts I and II
1. 	Whether the Trustee’s Intentional Fraudulent Transfer Claims
are Preempted
As discussed in Tribune I and II, the safe harbor’s scope is not limited to avoidance actions
brought by a “trustee.” The safe harbor’s coverage extends to suits brought by a debtor’s creditors.
See Tribune I, 818 F.3d at 119-124. The Second Circuit reasoned that if the safe harbor would
preclude the bankruptcy trustee from avoiding a transfer, the debtor’s creditors cannot do an end-
run around that safe harbor by causing a bankruptcy trustee to abandon his standing to sue, thereby
allowing creditors to sue free and clear of the safe harbor. See id. The Second Circuit’s reasoning
applies equally to the Trustee’s state law intentional fraudulent transfer claims asserted on behalf
of the Lenders and the Other General Claimants.
16 	The 	Second 	Circuit 	recalled 	Tribune 	I 	following 	the 	United 	States 	Supreme 	Court’s 	decision 	in
Merit Mgmt. Grp., LP v. FTI Consulting, Inc., ––– U.S. ––––, 138 S. Ct. 883 (2018) (“Merit”), and issues an amended
opinion. See In re Tribune Co. Fraudulent Conveyance Litigation, 946 F.3d 66 (2d Cir. 2019) (“Tribune II”). Tribune
II reaffirmed Tribune I’s holding that section 546(e) preempts state law constructive fraudulent transfer claims asserted
by a litigation trustee standing in the shoes of creditors. See Tribune II, 946 F.3d at 81-82.
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Neither Tribune I nor II addressed whether section 546(e) preempts intentional state law
fraudulent transfer claims and the Court sees no reason why Tribune’s reasoning does not extend
to intentional state law fraudulent transfer claims. 	Nevertheless, the Court will engage in the
appropriate inquiry.
Preemption is always a matter of congressional intent, even where that intent must be
inferred. See Cipollone v. Liggett Grp., Inc., 505 U.S. 504, 516 (1992). As in the present matter,
the presumption against preemption usually goes to the weight to be given to the lack of an express
statement overriding state law. See Tribune I, 818 F.3d at 111-12. The presumption is strongest
when Congress is legislating in an area recognized as traditionally one of state law alone. See id.
However, the present context is not such an area. To be sure, the regulation of creditors’ rights
has ‘“a history of significant federal presence.”’ Id. (quoting United States v. Locke, 529 U.S. 89,
90 (2000)). Congress’s power to enact bankruptcy laws was made explicit in the Constitution as
originally enacted, Art. 1, § 8, cl. 4. Once a party enters bankruptcy, the Bankruptcy Code
constitutes a wholesale preemption of state laws regarding creditors’ rights. 	See id.; Eastern
Equip. and Servs. Corp. v. Factory Point Nat. Bank, Bennington, 236 F.3d 117, 120 (2d Cir.
2001) (“The United States Bankruptcy Code provides a comprehensive federal system of penalties
and protections to govern the orderly conduct of debtors' affairs and creditors' rights.”); In re
Miles, 430 F.3d 1083, 1091 (9th Cir.2005) (“Congress intended the Bankruptcy Code to create a
whole scheme under federal control that would adjust all of the rights and duties of creditors and
debtors alike . . . .”). The Court in Tribune I held, “[w]hile the issue before us is often described
as 	whether Section 	546(e) 	preempts 	state 	fraudulent 	conveyance 	laws, 	that 	is 	a
mischaracterization. 	Appellants’ state law claims were preempted when the Chapter 11
proceedings commenced and were not dismissed.” Tribune I, 818 F.3d at 112 (internal citations
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omitted). Thus, section 546(e) preempts the Trustee’s intentional fraudulent transfer claims under
the DCL. 	Next, the Court must examine whether, despite the safe harbor’s preemption of state
law, section 546(e) creates an exception from its coverage for state law intentional fraudulent
transfer claims. It does not.
2. 	The Safe Harbor Excludes from its Coverage Claims Brought
Pursuant to Section 548(a)(1)(A) of the Bankruptcy Code and
this Exclusion Does Not Extend to Encompass State Law
Intentional Fraudulent Transfer Claims
Section 546(e) excepts from its coverage claims for intentional fraudulent transfers brought
under the Bankruptcy Code. The Trustee argues that this section 548(a)(1)(A) “exception” also
includes intentional fraudulent transfers brought under state law. 	The Court declines to extend
section 546(e)’s exception for intentional fraudulent transfer claims brought under the Bankruptcy
Code to include state law intentional fraudulent transfers claims.
Section 548(a)(1)(A) of the Bankruptcy Code empowers a trustee to avoid a transfer made
with actual intent to hinder, delay or defraud any entity. 	Section 276 of the DCL requires a
showing of actual intent to hinder, delay, or defraud creditors. 	Fundamentally, there is no
difference between a claim brought pursuant to the DCL compared to one under the Bankruptcy
Code for avoidance and recovery of an intentional fraudulent transfer. See In re Actrade Fin. Tech.
Ltd., 337 B.R. 791, 799 n.5 (Bankr. S.D.N.Y. 2005) (“A cause of action under DCL § 276 is
substantially similar to that under § 548(a)(1)(A) but has a six-year statute of limitations as
opposed to the one-year reach back period provided for under the Bankruptcy Code.”). However,
Congress did not act with only New York in mind and this Court is bound by the plain language
of section 546(e), which provides an exception only for intentional fraudulent transfer claims
brought under the Bankruptcy Code and no more. 	See US Bank Nat’l Assoc. v. Verizon
Communications, Inc., 892 F. Supp.2d 805, 816-17 (N.D. Tex. 2012) (rejecting an argument
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similar to the one advanced here by the Trustee because “it conflict[s] with the clear language of
[section] 546(e), which operates notwithstanding all of [section] 544”; “that Congress did
expressly exclude [section] 548(a)(1)(A) implies that it did not want to exclude state ‘actual intent’
fraudulent transfer claims.”).
In fact, Congress may well have had its reasons for not excepting state law intentional
fraudulent transfer claims from the safe harbor. While it’s true that sections 548(a)(1)(A) and
546(e) apply to all cases brought under the Bankruptcy Code, that is not the case for intentional
state law fraudulent transfer claims that may be brought through section 544 of the Bankruptcy
Code. As Judge Holwell held in Drenis, some states have adopted the Uniform Fraudulent
Conveyance Act (the “UFCA”) and other have adopted the Uniform Fraudulent Transfer Act (the
“UFTA”). 	While the UFCA and the UFTA are similar in most respects, there are differences
between the two. 	See Drenis v. Haligiannis, 452 F. Supp.2d 418, 426-27 (S.D.N.Y. 2006).
Compare, Del. Code Ann. tit. 6 § 1308 (providing good faith on part of transferee or exchange of
reasonably equivalent value as a defense to intentional fraudulent conveyance under § 1304(a)(1),
as distinguished from constructive fraudulent conveyance), with DCL § 276 (providing that every
conveyance with actual intent to defraud present or future creditors is fraudulent, irrespective of
transferee’s good faith (or lack thereof) or exchange of fair consideration).
At a minimum, Drenis demonstrates state law fraudulent transfer statutes are far from
uniform. Further, there are fifty (50) separate state judiciaries interpreting those fifty (50) separate
“uniform” [sic] statutes. 	The Tribune I Court held “that the policies reflected in Section
546(e) relate to securities markets, which are subject to extensive federal regulation. The
regulation of these markets has existed and grown for over eighty years and reflects very important
federal concerns.” Tribune I, 818 F.3d at 112. Congress may have specifically excluded state law
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intentional fraudulent transfer claims from section 546(e)’s exception having determined the need
for stability in the securities markets overrode the potential danger of creditors escaping claims for
intentional fraud based on a fear that inconsistent application of fifty (50) states’ fraudulent transfer
statutes would result in instability in the securities markets. 	In any event, state law intentional
fraudulent transfer claims are not excepted from section 546(e)’s coverage within the section
548(a)(1)(A) exception to section 546(e) nor anywhere else in section 546(e) of the Bankruptcy
Code.
iii. 	The Safe Harbor Preempts the Trustee’s Unjust Enrichment Claim
in Count V
In AP Servs. LLP, a litigation trustee brought, among other causes of action, an unjust
enrichment claim under New York state law in connection with a leveraged buyout transaction.
The Court held,
The Trustee's claim for unjust enrichment is preempted by Section 546(e). The unjust
enrichment claim “seeks to recover the same payments ... held ... unavoidable under §
546(e).” Indeed, “[a]llowing recovery for unjust enrichment ... would implicate the same
concerns regarding the unraveling of settled securities transactions ... which is precisely
the result that section 546(e) precludes. The Court could not permit the unjust enrichment
claim to go forward without frustrating the purpose of Section 546(e). The unjust
enrichment claim (Count Five) is thus dismissed.
In re AP Servs. LLP v. Silva, 483 B.R. 63, 71 (S.D.N.Y. 2012) (internal citations omitted). Here,
the Trustee’s unjust enrichment claim seeks recovery of the BosGen Transfer and the EBG
Transfers, which is an attempt to unwind a securities transaction. 	Allowing this would thwart
section 546(e)’s purpose and thus, Count V of the TAC is preempted.
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iv. 	Preemption Conclusion
Because the Court holds section 546(e) preempts all the Trustee’s claims, the next
determination must be whether the BosGen Transfer17 and/or the EBG Transfers satisfy section
546(e)’s safe harbor requirements, i.e., “financial institution” and “settlement payment” or “in
connection with a securities contract.” If the transfers do, Counts I through V must be dismissed
under the safe harbor. Applying Merit and Tribune II, among other cases, to the facts presented
here, the Court holds that the BosGen Transfer and the EBG Transfers satisfy the safe-harbor
requirements of section 546(e) and thus, Counts I through V of the TAC are dismissed.
b. 	Statutory Predicate for the Safe Harbor and a Brief Synopsis of the Safe Harbor’s
Construction
i. 	Statutory Provisions
Section 546(e) provides that a transfer: (i) which qualifies as a settlement payment or is
one made in connection with a securities contract (ii) by, or to, or for the benefit of, a financial
institution will fall within the scope of section 546(e)’s safe harbor and is not subject to avoidance.
See 11 U.S.C. § 546(e).18
The 	Bankruptcy 	Code 	defines 	“settlement 	payment” 	as, 	“a 	preliminary settlement
payment, a partial settlement payment, an interim settlement payment, a settlement payment on
17 Again, the Court recognizes the Trustee asks the Court to look only at the Step One Transfer and not the overarching
transaction, which is the BosGen Transfer.
18 The full text of the section 546(e) provides,
(e) Notwithstanding sections 544, 545, 547, 548(a)(1)(B), and 548(b) of this title, the trustee may
not avoid a transfer that is a margin payment, as defined in section 101, 741, or 761 of this title, or
settlement payment, as defined in section 101 or 741 of this title, made by or to (or for the benefit
of) a commodity broker, forward contract merchant, stockbroker, financial institution, financial
participant, or securities clearing agency, or that is a transfer made by or to (or for the benefit of) a
commodity broker, forward contract merchant, stockbroker, financial institution, financial
participant, or securities clearing agency, in connection with a securities contract, as defined in
section 741(7), commodity contract, as defined in section 761(4), or forward contract, that is made
before the commencement of the case, except under section 548(a)(1)(A) of this title.
Id. (emphasis added).
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account, a final settlement payment, or any other similar payment commonly used in the securities
trade.” 	11 U.S.C. § 741(8); see 11 U.S.C. § 101 (51(A)) (defining “settlement payment” “for
purposes of the forward contract provisions of this title, [as] a preliminary settlement payment, a
partial settlement payment, an interim settlement payment, a settlement payment on account, a
final settlement payment, a net settlement payment, or any other similar payment commonly used
in the forward contract trade.”).
The Bankruptcy Code defines “securities contract” to include, among other things:
(a) (i) a contract for the purchase, sale, or loan of a security . . . , or option on any
of the foregoing, including an option to purchase or sell any such security . . . and
including any repurchase . . . transaction on any such security . . . (whether or not
such repurchase . . . transaction is a “repurchase agreement”, as defined in section
101).
11 U.S.C. § 741(7)(a)(1).
The Bankruptcy Code defines “financial institution” as:
(A) a Federal reserve bank, or an entity that is a commercial or savings bank,
industrial savings bank, savings and loan association, trust company, federally-
insured credit union, or receiver, liquidating agent, or conservator for
such entity and, when any such Federal reserve bank, receiver, liquidating
agent, conservator or entity is acting as agent or custodian for a customer
(whether or not a “customer”, as defined in section 741) in connection with a
securities contract (as defined in section 741) . . . .
11 U.S.C. § 101(22) (emphasis added). Under this definition, a private entity (or, the customer)
qualifies as a financial institution provided: (i) a financial institution (such as a commercial bank)
transfers money on the customer’s behalf; (ii) as such customer’s agent; (iii) in connection with a
securities contract (as defined above). See 11 U.S.C § 741(2) (defining “customer”); 11 U.S.C. §
101(22) (providing the term “customer,” as used in this section, is not limited to the definition
provided in section 741).
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ii. 	Interpreting “Settlement Payment” and “In Connection with a Securities
Contract”
In In re Quebecor World (USA) Inc., 453 B.R. 201 (Bankr. S.D.N.Y. 2011), Judge Peck
addressed Defendants motion for summary judgment wherein they contended that prepetition
payments totaling approximately $376 million received from Quebecor World (USA) Inc.
(“QWUSA”, and with its various debtor and non-debtor affiliates, “Quebecor”) during the
preference period were exempt from avoidance as a matter of law by virtue of section 546(e). “The
question presented calls for examination of this “safe harbor” provision with particular emphasis
on the proper application of the term “settlement payment” as defined in section 741(8) of the
Code when used in reference to a repurchase and subsequent cancellation of privately-placed
notes.” Id. at 203. Relying on the Second Circuit’s decision in In re Enron Creditors Recovery
Corp. v. Alfa S.A.B. de C.V., 651 F.3d 329 (2d Cir. 2011) (“Enron”), Judge Peck held that the
payments at issue were protected as both settlement payments and transfers in connection with a
securities contract. See In re Quebecor World (USA) Inc., 453 B.R. at 215-19.
On October 29, 2007, the agent under the Credit Agreement wired approximately $426
million to QWUSA's main operating account at Bank of America, N.A. (“Bank of America”).
Bank of America then wired approximately $376 million of this amount to CIBC Mellon Trust
Co. (“CIBC Mellon”), the trustee for the notes (the “Disputed Transfer”). CIBC Mellon, in turn,
wired to each noteholder its portion of that amount. See id.
Judge Peck held:
The definition [of settlement payment] in the Code may be self-referential and
circular, but the direction given by the Enron majority with respect to that
definition is both uncomplicated and crystal clear—a settlement payment, quite
simply, 	is 	a 	“transfer 	of 	cash 	... 	made 	to 	complete 	[a] 	securities
transaction.” Enron, 2011 WL 2536101, at *9 (quotations omitted).
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Under this easy-to-apply formulation, the Court concludes that the Disputed
Transfer qualifies for the exemption under section 546(e). The transaction in
question involves three elements that together support this conclusion—(i) the
transfer by QWUSA of cash (ii) to a financial institution that was acting as agent
for the Noteholders (iii) made to repurchase and cancel securities, i.e., to complete
a securities transaction. The first part of the formulation—that the “settlement
payment” be a “transfer of cash”—is demonstrated by the wiring of funds from
QWUSA to CIBC Mellon. The second required component, consistent with section
546(e), is that the transfer be made to a financial institution. This requirement is
satisfied by the involvement of CIBC Mellon, a financial institution, in receiving
the Disputed Transfer. The third element is present because the cash was transferred
for securities in “completion” of the transaction.
In re Quebecor World (USA) Inc., 453 B.R. 201, 215 (Bankr. S.D.N.Y. 2011), aff'd, 480 B.R. 468
(S.D.N.Y. 2012), aff'd, 719 F.3d 94 (2d Cir. 2013). Recently, the United States Supreme Court in
Merit addressed the breadth of the term “financial institution” as used in section 546(e). 	Merit
leaves unchanged Judge Peck’s analysis of what is or is not a settlement payment or transfer made
in connection with a securities contract.
iii. 	Tribune I
In Tribune, the Official Committee of Unsecured Creditors brought an adversary
proceedings asserting intentional fraudulent transfer claims against corporate debtor’s cashed-out
shareholders, officers and directors, financial advisors, and others who benefited from a prepetition
leveraged buyout of the debtor, and, after conditional stay relief was granted, individual creditors
brought actions asserting state-law constructive fraudulent transfer claims to unwind buyouts of
debtor's shareholders. See Tribune I, 818 F.3d. 98, 106 (2d Cir. 2016).
Tribune transferred over $8 billion to a securities clearing agency (or financial institution
as used in section 546(e)), acting as an intermediary in the leveraged buyout transaction. See id.
In turn, the intermediary paid the funds to the shareholders in exchange for their shares that were
then returned to Tribune. 	See id. 	In short, Tribune I held safe harbor protections did, in fact,
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apply to any transaction that passed through a financial intermediary, regardless of whether the
banks and brokers at issue received any of the funds themselves. See id. at 112.
iv. 	Merit
The United States Supreme Court’s decision in Merit addresses the “by or to (or for the
benefit of) a . . . financial institution” requirement of section 546(e). See Merit, 138 S. Ct. 883
(2017). In 2007, a would-be racing casino Valley View Downs, LP agreed to purchase the stock
of Bedford Downs Management Corporation, a company with which it had been competing for
the last available harness-racing license in Pennsylvania. 	See id. at 890-92. After Valley View
was unable to secure a necessary gaming license in the time allotted for it to do so under a financing
agreement, it and its parent company Centaur, LLC filed for bankruptcy. See id. The Bankruptcy
Court confirmed a reorganization plan and appointed FTI Consulting, Inc. as trustee of the Centaur
litigation trust. See id.
Thereafter, FTI Consulting filed a lawsuit against Merit Management to claw back $16.5
million in funds that Merit Management had received as a stockholder in Bedford Downs. See id.
As part of the stock acquisition agreement, Valley View had arranged for Credit Suisse to finance
the transaction. 	See id. 	Credit Suisse wired the purchase price to the Citizens Bank of
Pennsylvania, which agreed to serve as the third-party escrow agent for the transaction. See id.
Merit Management, along with other Bedford Downs shareholders, deposited its stock certificates
into escrow, and Citizens Bank of Pennsylvania distributed the purchase proceeds to stockholders
including Merit Management. See id.
Before the Court determined whether the transfer at issue was “made by or to (or for the
benefit of)” a financial institution, it first identified the relevant transfer to test in that inquiry. See
id. at 891-95. Merit posited that the relevant transfer should include not only the Valley–View–
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to–Merit end-to-end transfer, but also all of its component parts, i.e., the Credit–Suisse–to–
Citizens–Bank and the Citizens–Bank–to–Merit transfers. See id. FTI maintained that the only
relevant transfer is the transfer that it sought to avoid, specifically, the overarching transfer
between Valley View and Merit. See id.
Ultimately, the Court concluded that the relevant transfer for purposes of section 546(e)’s
safe harbor was the overarching transfer between Valley View and Merit, not the component
transfers to and between the financial institutions. 	See id. at 896-97. 	The Court held that if an
entity covered by the exception is only a “conduit” or a component part of an overall transfer, then
the safe harbor does not apply. See id. Because the parties did not assert that either Valley View
or Merit Management was a “financial Institution,” or other covered entity, the transfer fell outside
the section 546(e) safe harbor. See id. In light of Merit, the Second Circuit recalled Tribune I.
v. 	Tribune II
Merit abrogated Tribune I’s holding that “the language of Section 546(e) covers all
transfers by or to financial intermediaries that are ‘settlement payment[s]’ or ‘in connection with
a securities contract.’” 	Nevertheless, the Second Circuit held in Tribune II that the transfers at
issue were still safe harbored.
On recall, the Tribune II Court held the transferor debtor, Tribune, itself met the statutory
definition of a “financial institution.” 	See Tribune II, 946 F.3d 66, 78-80 (2d Cir. 2019). 	In
Tribune II, the transferor qualified as a “financial institution” because it was a “customer” of a
trust company and bank (Computershare) that was “acting as agent” for its “customer” in
“connection with a securities contract.” See id. at 78-79. The securities contract in Tribune was
the tender offer repurchase and redemption of Tribune’s shares from its shareholders. 	See id.
(emphasis added).
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More specifically, the Second Circuit concluded Tribune qualified as a financial institution
because it retained:
Computershare to act as ‘Depositary’ in connection with the LBO tender offer.
Computershare is a ‘financial institution’ for the purposes of Section 546(e)
because it is a trust company and a bank [pursuant to the Office of the Comptroller
of the Currency website]. Therefore, Tribune was likewise a ‘financial institution’
with respect to the LBO payments if it was Computershare’s ‘customer,’ and
Computershare was acting as its agent. In its role as Depositary, Computershare
performed multiple services for Tribune. First, Computershare received and held
Tribune’s 	deposit 	of 	the 	aggregate 	purchase 	price 	for 	the 	shares. 	Then,
Computershare received tendered shares, retained them on Tribune’s behalf, and
paid the tendering shareholders. Given these facts, we conclude that Tribune was
Computershare’s ‘customer’ with respect to the LBO payments.
Id. at 78 (internal citations omitted). 	Further, the Court concluded that Computer share was
Tribune’s agent because “Tribune manifested its intent to grant authority to Computershare by
depositing the aggregate purchase price for the shares with Computershare and entrusting
Computershare to pay the tendering shareholders. Computershare, in turn, manifested its assent by
accepting the funds and effectuating the transaction.” Id. at 80.
Given the entirety of this backdrop concerning section 546(e), the Court turns to the
BosGen Transfer and the EBG Transfers at issue.
c. 	The BosGen Transfer Meets Section 546(e)’s Safe Harbor Requirements
The BosGen Transfer meets the statutory requirements for safe harbor because a financial
institution (US Bank), as agent for its customer (BosGen), transferred the $708 Million to EBG in
connection with the tender offer by EBG for the Unit Redemptions, the Warrant Redemptions, and
the Distribution. 	Additionally, or, in the alternative, the BosGen Transfer meets the statutory
requirements for safe harbor because BosGen transferred the $708 Million to a financial institution
(BONY), as agent for its customers (BosGen and EBG) in connection with the Tender Offer.
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To support his argument that the BosGen Transfer was neither a settlement payment nor a
transfer in connection with a securities contract, the Trustee asserts that the BosGen Transfer was
a standalone payment from BosGen to EBG of an LLC distribution, that this LLC distribution was
an isolated dividend falling outside section 546(e)’s scope, and therefore, the Trustee can avoid
the BosGen Transfer. Each of, and certainly in the aggregate, the Lenders’ Presentation, the CIM,
the FFM, the Tender Offer, and the Credit Facilities demonstrate the BosGen Transfer was a
settlement payment and a transfer in connection with a securities contract.
i. 	The BosGen Transfer was a “Settlement Payment”
Simply put, a transfer of cash to a financial institution made to repurchase and cancel
securities—in other words, to complete a securities transaction--qualifies for the safe harbor as a
settlement payment. 	See Enron, 651 F.3d 329, 334 (2d Cir. 2011). 	The first part of the
formulation—that the “settlement payment” be a transfer of cash—is demonstrated by the wiring
of funds from BosGen’s US Bank Account to EBG’s BoA Account. See FFM (providing also that
BoA would thereafter wire the funds to BONY). The second component, that the transfer be made
by or to a financial institution, is addressed below. The third element is met because the BosGen
Transfer was made to EBG to fund the Unit Redemptions, the Warrant Redemption, and the
Distribution, i.e., to complete a securities transaction (the Tender Offer).
As the transfer of cash is self-evident and the requirement that such transfer be by, to, or
for the benefit of, a financial institution addressed below, the Court turns to whether the BosGen
Transfer was made to complete a securities transaction and holds that it was. BosGen Transferred
the $708 Million to EBG for EBG to fund the Unit Redemptions, the Warrant Redemption, and
the Distribution—i.e., to complete a securities transaction (the Tender Offer).
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First, the Court must determine whether EBG repurchased “securities.” 	Thereafter, the
Court turns to whether the BosGen Transfer was made to complete the repurchase of “securities.”
Though the Bankruptcy Code’s definition of “security” does not expressly include the LLC
member units and warrants that are the subject of the Tender Offer. The definition of security is
broad and includes, among other things, any “other claim or interest commonly known as
‘security.’” 	11 U.S.C. § 101(49)(A)(xiv). 	The LLC member units and warrants most certainly
qualify as securities under the Bankruptcy Code’s broad definition. 	See In re Lehman Bros.
Holdings Inc., 855 F.3d 459, 473 (2d Cir. 2017) (citing with approval, O’Donnell v. Tristar
Esperanza Props., LLC (In re Tristar Esperanza Props., LLC), 488 B.R. 394, 399 (B.A.P. 9th Cir.
2013) (concluding that a membership interest in an LLC is a “security”), aff’d, 782 F.3d 492 (9th
Cir. 2015)); see also O’Cheskey v. Templeton (In re Am. Hous. Found.), Case No. 09-20232-RLJ-
11, 2013 WL 1316723, at *18, 2013 Bankr. LEXIS 1449 (Bankr. N.D. Tex. Mar. 30, 2013)
(concluding that the enumerated list in section 101(49) is not exhaustive and that securities are not
limited to the items specifically identified), aff’d in part, rev’d in part on other grounds, 785 F.3d
143 (5th Cir. 2015). Indeed, the residual clause set forth in section 101 (49)(A)(xiv) clearly opens
the door to securities not specifically listed; see also SeaQuest Diving, LP v. S&J Diving, Inc. (In
the matter of SeaQuest Diving, LP), 579 F.3d 411, 418 (5th Cir. 2009) (observing that subsection
(A)(xiv) is a “broad residual category”).
BosGen made the BosGen Transfer to complete a securities transaction. The Credit
Facilities expressly say in the First Lien Funding Provisions, the Second Lien Funding Provisions,
and the Mezz Funding Provisions that the monies loaned to Bos Gen and EBG pursuant to the First
Lien Credit Agreement, the Second Lien Credit Agreement, and the Mezz Agreement will be made
available to fund the Tender Offer. Put another way, of course the $708 Million was transferred
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to EBG to complete the repurchase of securities—without it, EBG would not have had enough
money from the Mezz Agreement (providing for the $300 Million) to fund the Unit Redemptions,
the Warrant Redemptions, and the Distribution which required over $900 million.
Further, the Trustee concedes that “[t]here was . . . [a] settlement payment here—the
transfer from EBG to its members.” Opposition, at 31 (conceding also that the BosGen Transfer
funded that settlement payment). For the reasons stated above, the BosGen Transfer qualifies as a
“settlement payment” and, in any event, it was also a transfer “in connection with a securities
contract.”
ii. 	The BosGen Transfer was Made “In Connection with a Securities Contract”
The BosGen Transfer occurred in connection with a securities contract too. The term
“securities contract” includes “any repurchase . . . transaction on any such security.” 11 U.S.C. §
741(7)(a)(1). Under “§ 546(e), a transfer is ‘in connection with’ a securities contract if it is ‘related
to’ or ‘associated with’ the securities contract.” Picard v. Ida Fishman Revocable Tr. (In re
Bernard L. Madoff Inv. Sec. LLC), 773 F.3d 411, 421 (2d Cir. 2014). “Section 546(e) sets a low
bar for the required relationship between the securities contract and the transfer sought to be
avoided,” “merely requir[ing] that the transfer have a connection to the securities contract.” Id. at
422. Here, the BosGen Transfer had a substantial relationship to the Tender Offer.
The Trustee concedes the Tender Offer was a securities contract between EBG and its
members. See Opposition, at 30. However, the Tender Offer was more than a securities contract
between EBG and its members. 	The Tender Offer was a contract among BosGen, EBG, and
EBG’s members. 	See Tender Offer, at 9 (providing both BosGen and EBG invite members to
tender). 	As discussed above, the Lenders’ Presentation, the CIM, the Credit Facilities, and the
FFM all demonstrate a large portion of the monies loaned to BosGen and EBG pursuant to the
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First Lien Credit Agreement, the Second Lien Credit Agreement, and the Mezz Agreement would
be used to fund the Tender Offer made by BosGen and EBG. As more direct evidence of this, the
First Lien Funding Provisions and the Second Lien Funding Provisions make clear a portion of the
monies loaned to BosGen would be transferred to fund the Tender Offer. 	Thus, the BosGen
Transfer occurred in connection with a securities contract (the Tender Offer).
By analogy, in Tribune II, the Court held the securities contract was the tender offer
repurchase and redemption of Tribune’s shares from its shareholders. See Tribune II, 946 F.3d 66,
78-80 (2d Cir. 2019). As “shares” are securities under the Bankruptcy Code, so too are the units
and warrants that were redeemed pursuant to the Tender Offer. See Section VI(c)(i). The Tribune
Court had “no trouble concluding, based on Section 741(7)’s plain language, that all of the
payments at issue, including those connected to the redemption of shares, were “in connection
with a securities contract.” Id. at 81 (emphasis added). Likewise, this Court concludes that the
BosGen Transfer funded the Unit Redemptions, the Warrant Redemptions, and the Distribution
and thus, were made in connection with a securities contract.
iii. 	BosGen Qualifies as a “Financial Institution” for the BosGen Transfer By
Virtue of its Relationship with US Bank
The customer of a “financial institution” will itself qualify as a “financial institution” under
section 546(e) of the Bankruptcy Code if, (i) the “financial institution” acts as its customer’s agent,
(ii) in connection with a securities contract. As the Trustee correctly writes, “for the customer to
qualify as a financial institution, the bank that sends or receives the relevant transfer must be acting
as the customer’s agent or custodian in connection with a securities contract.” Opposition, at 29.
As demonstrated below, the Trustee’s test is met here because US Bank sent the BosGen Transfer,
as BosGen’s agent, in connection with the Tender Offer. Thus, BosGen qualifies as the financial
institution for purposes of section 546(e)’s safe harbor.
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As a preliminary matter, the Court notes at the outset that US Bank is a “financial
institution” for purposes of section 546(e) of the Bankruptcy Code because it is a bank pursuant to
the Office of the Comptroller of the Currency website. See Office of the Comptroller of the
Currency, Office of the Comptroller of the Currency at https://www.occ.treas.gov/topics/charters-
and-licensing/financial-institution-lists. The next two inquiries are whether: (i) BosGen was US
Bank’s customer; and (ii) US Bank served as BosGen’s agent in connection with a securities
contract. If the answer to both of those questions is yes, the BosGen Transfer is safe harbored.
1. 	BosGen Was US Bank’s Customer
The FFM and its terms demonstrate BosGen was US Bank’s customer. 	See FFM
(providing instructions to US Bank from BosGen for the disbursement of funds by US Bank from
BosGen’s US Bank Account). Further, nowhere in the record does the Trustee dispute BosGen is
US Bank’s customer. 	Next, US Bank must have acted as BosGen’s agent in connection with a
securities contract.
2. 	US Bank Acted as BosGen’s Agent in Connection with a
Securities Contract
An agency relationship is typically established by “written or spoken words or other
conduct of the principal which, reasonably interpreted, causes the agent to believe that the
principal desires him so to act on the principal's account.” 	Itel Containers Int'l Corp. v.
Atlanttrafik 	Express 	Service 	Ltd., 909 	F.2d 	698, 	702 	(2d 	Cir. 	1990) 	(emphasis
added) (quoting Restatement (Second) of Agency § 26 (1958)). 	The elements of an agency
relationship are: (1) “a manifestation by the principal that the agent shall act for him,” (2) “accept
[ance of] the undertaking” by the agent, and (3) “an understanding between the parties that the
principal is to be in control of the undertaking.” In re Rubin Bros. Footwear, Inc., 119 B.R. 416,
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422 (S.D.N.Y. 1990). Of these, the critical element is control of the agent by the principal. In re
Shulman Transp. Enterprises, Inc., 744 F.2d 293, 295 (2d Cir. 1984).
The agency test’s first requirement is satisfied. In the FFM, BosGen manifested an intent
for US Bank to act on its behalf in connection with a securities contract. Therein, BosGen
authorizes US Bank to act in connection with: (i) the receipt of funds from the Lenders pursuant
to the First Lien Credit Agreement and the Second Lien Credit Agreement; and (ii) the BosGen
Transfer. See TAC Ex. H (the “FFM”) (Instructional Letter introducing the FFM). As evidence
that BosGen manifested an intent for US Bank to serve as its agent, the FFM provides “the deposits
listed on the third page . . . of the FFM will be transferred to the Depository [US Bank] on the
Closing Date.” Id. at 1(i). Thereafter, the “disbursements listed on the third page of the FFM will
be disbursed by the Depository on the Closing Date . . . .” Id. at 2(ii). The FFM goes on to state,
“[t]he Depository [US Bank] is hereby authorized and instructed to accept such deposits and to
make such allocations, transfers and payments in accordance with the FFM.” See id. at 2. The
FFM further demonstrates that US Bank sent the $708 Million, on behalf of BosGen, from the US
Bank Account to EBG’s BoA Account and that those funds would be used for “Distribution, Unit
Buyback and Warrant Repurchases,” along with “Transaction Fees and Expenses.” FFM, at 503.
Thus, US Bank served as BosGen’s agent for the BosGen Transfer, which the FFM demonstrates
was an upstream transfer of monies to EBG in connection with the Tender Offer to fund the Unit
Redemptions, the Warrant Redemptions, and the Distribution.
The agency test’s second requirement is satisfied. US Bank accepted the task of serving
as BosGen’s agent. 	As evidence of US Bank’s acceptance, US Bank did actually receive the
monies loaned to BosGen pursuant to the First Lien Credit Agreement and the Second Lien Credit
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Agreement and thereafter, did actually transfer a portion of those loan proceeds to EBG on
BosGen’s behalf to fund the Tender Offer. See FFM.
The agency test’s third requirement is satisfied. 	BosGen remained in control of the
undertaking. Namely, the BosGen directed US Bank to effectuate the BosGen Transfer to fund
the Tender Offer. See FFF (providing “the disbursements . . . are to be disbursed by the Depository
. . .” and further providing, that US Bank “is authorized and instructed to accept such deposits . . .
and to make such allocations . . .”) (emphasis added).
Tribune’s reasoning further supports the conclusion that US Bank served as BosGen’s
agent in connection with the Tender Offer. 	There, the transferor qualified as a “financial
institution” because it was a “customer” of a trust company and bank (Computershare) that was
“acting as agent” for its “customer” in “connection with a securities contract.” See Tribune II, 946
F.3d 66, 78-80 (2d Cir. 2019). The securities contract in Tribune was the tender offer repurchase
and redemption of Tribune’s shares from its shareholders. See id. (emphasis added).
As in Tribune, BosGen qualifies as a “financial institution.” BosGen retained US Bank to
act as depository and agent in connection with the Tender Offer.19 The result of this relationship
being, BosGen is likewise a financial institution with respect to the BosGen Transfer because: (i)
BosGen was US Bank’s customer; (ii) US Bank was acting as BosGen’s agent for the BosGen
Transfer; and (iii) the BosGen Transfer was in connection with a securities contract. 20
Thus, the BosGen Transfer meets the safe harbor requirements of section 546(e) of the
Bankruptcy Code and Counts II and IV of the TAC are dismissed.
19 The FFM acknowledges it is delivered to US Bank by BosGen “pursuant to Section 3.22 of the Security Deposit
Agreement dated as of December 21, 2006 (the ‘Security Deposit Agreement’) by and among the Borrower [defined
as BosGen], the Guarantors from time to time party thereto, Credit Suisse, Cayman Islands Branch, as First Lien
Collateral Agent and as Second Lien Collateral Agent, and U.S. Bank National Association, as depository (the
‘Depository’). The FFM, at 1.
20 The Court has already concluded above in Section VII (c)(ii) that the BosGen Transfer was in connection with a
securities contract.
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iv. 	Additionally, or, In the Alternative, Both BosGen and EBG Qualify as
“Financial Institutions” for the BosGen Transfer By Virtue of Their
Relationship with BONY
As a preliminary matter, the Court notes at the outset that BONY is a “financial institution”
for purposes of section 546(e) of the Bankruptcy Code because it is a bank pursuant to the Office
of the Comptroller of the Currency website. See Office of the Comptroller of the Currency, Office
of 	the 	Comptroller 	of 	the 	Currency 	at 	https://www.occ.treas.gov/topics/charters-and-
licensing/financial-institution-lists. 	Also, the Trustee concedes BONY qualifies as a financial
institution. 	See May Transcript, at 28:16-18. 	The next two inquiries are whether: (i) BosGen
and/or EBG was BONY’s customer; and (ii) BONY served as BosGen and/or EBG’s agent in
connection with a securities contract. If the answer to both of those questions is yes as to BosGen
or EBG, the BosGen Transfer is safe harbored.
1. 	BosGen and EBG Were BONY’s Customers
The Tender Offer provides that “[w]e [defined to include BosGen and EBG] have retained
The Bank of New York to act as Depository in connection with this Offer. The Depository will
receive reasonable and customary compensation for its respective services, will be reimbursed by
us for reasonable out-of-pocket expenses and will be indemnified against certain liabilities in
connection with the Offer.” 	Tender Offer, at 34. 	Thus, according to the Tender Offer, both
BosGen and EBG were BONY’s customers.
2. 	BONY Acted as Both BosGen and EBG’s Agent in Connection
with a Securities Contract
As discussed above in section VII(c)(iii)(2), an agency relationship is established by (1) “a
manifestation by the principal that the agent shall act for him,” (2) “accept [ance of] the
undertaking” by the agent, and (3) “an understanding between the parties that the principal is to be
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in control of the undertaking.” In re Rubin Bros. Footwear, Inc., 119 B.R. 416, 422 (S.D.N.Y.
1990).
The agency test’s first requirement is satisfied. BosGen and EBG manifested their intent
for BONY to act as their agent in connection with the Tender Offer prior to the Step One Transfer
(as early as November 16, 2006, the date of the Tender Offer). The Court’s conclusion that BONY
acted as both BosGen and EBG’s agent in connection with the Tender Offer is supported by: (i)
the procedures articulated in the Tender Offer for unit redemptions, (ii) BosGen and EBG’s
reservation of authority to accept or reject a tendering member’s units; and (iii) BosGen and EBG’s
agreement to pay BONY for its services. As to (i), pursuant to the Tender Offer, members tendered
their units by submitting a Letter of Transmittal along with required documents to BONY no later
than December 14, 2006. 	See Tender Offer, at 1, 4. 	Thereafter, “[w]e [including EBG and
BosGen] will pay for Units purchased pursuant to the Offer by depositing the aggregate determined
purchase price for the Units with the Depository, which will act as agent for tendering [m]embers
for the purpose of receiving payment from [EBG and BosGen] and transmitting payments to the
tendering [m]embers.” Id. at 19 (emphasis added). Thus, the Tender Offer demonstrates that both
EBG and BosGen were in an agency relationship with BONY for purposes of transmitting monies
to tendering EBG members. On several additional occasions throughout the Tender Offer, BONY
is listed as the depository for the “Company,” thus lending more weight to the conclusion that
BONY acted as BosGen and EBG’s agent in connection with the Tender Offer. See id. at 2 (noting
members may direct questions or requests for assistance to BONY in connection with the Tender
Offer), 6 (same), 10 (noting the “Company” will “pay the fees and expenses incurred in connection
with the Offer by The Bank of New York, which is the Depository for the Offer.”), 36 (noting
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questions concerning the Tender Offer should be directed to BONY and the Letters of Transmittal
should be delivered by each member to BONY).
As to (ii), BosGen and EBG controlled BONY, their agent, in connection with the Tender
Offer. 	The Tender Offer provides, 	“[f]or purposes of the Offer, we will be deemed to have
accepted the payment (and therefore purchased) . . . Units that are validly tendered at or below
the determined purchase price . . . only when, as and if we give oral or written notice to the
Depository of our acceptance of the Units for payment pursuant to the Offer.” Tender Offer, at 19
(emphasis added). Thus, BosGen and EBG authorized BONY to act on their behalf in connection
with the Tender Offer and expressly reserved ultimate decision-making authority to determine
whether to accept tendered units. In short, the EBG LLC member tendered its unit to BONY and
thereafter, BONY held the tendering unit for BosGen and EBG until BosGen and EBG instructed
BONY how to proceed.
As to (iii), The Tender Offer provides that “[w]e [defined to include BosGen and EBG]
have retained The Bank of New York to act as Depository in connection with this Offer. The
Depository will receive reasonable and customary compensation for its respective services, will
be reimbursed by us for reasonable out-of-pocket expenses and will be indemnified against certain
liabilities in connection with the Offer.” Tender Offer, at 34. Thus, according to the Tender Offer,
BosGen and EBG retained BONY to act as their Depository in connection with a securities contract
(the Tender Offer). As discussed below, the language cited from the Tender Offer in this section
of the Court’s opinion demonstrates BosGen and EBG manifested their intent for BONY to serve
as their agent in connection with the Tender Offer.
The agency test’s second requirement is satisfied. BONY accepted the task of serving as
BosGen and EBG’s agent. As evidence of BONY’s acceptance, BONY did actually receive the
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Letter of Transmittal from EBG LLC members and thereafter, did actually transfer monies to those
members for the Unit Redemptions, the Warrant Redemptions, and the Distribution.
The agency test’s third requirement is satisfied. BosGen and EBG remained in control of
the undertaking. 	The Court’s conclusion is supported by language in the Tender Offer that
provides, “Units that are validly tendered at or below the determined purchase price . . . only when,
as and if we give oral or written notice to the Depository of our acceptance of the Units for payment
pursuant to the Offer.” Tender Offer, at 19 (emphasis added). Thus, BosGen and EBG authorized
BONY to act on their behalf in connection with the Tender Offer and expressly reserved ultimate
decision-making authority to determine whether to accept tendered units.
In short, both BosGen and EBG qualify as “financial institutions.” 	BosGen and EBG
retained BONY to act as depository and agent in connection with the Tender Offer. The result of
this relationship being, BosGen and EBG are likewise a financial institutions with respect to the
BosGen Transfer because: (i) BosGen and EBG were BONY’s customers; (ii) BONY acted as
both BosGen and EBG’s agent for the BosGen Transfer; and (iii) the BosGen Transfer was in
connection with a securities contract.
Thus, the BosGen Transfer meets the safe harbor requirements of section 546(e) of the
Bankruptcy Code and Counts II and IV of the TAC are dismissed.
3. 	The Trustee Argues Only the Step One Transfer is Relevant
The Court will address the Trustee’s contention that the appropriate inquiry here is whether
the Step One Transfer, not the overarching BosGen Transfer, qualifies for the safe harbor.
According to the Trustee, BONY was not acting as BosGen or EBG’s agent in connection with
the Tender Offer when EBG received the $708 Million into its BoA Account and thus, EBG does
not qualify as a financial institution as BONY’s customer. 	See Opposition, at 28-29; May
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Transcript, at 30:2-10 (“MR. REID: Well, let's take the obvious. If Boston Generating had sent the
money to the BONY account directly, and not the Bank of America account, then I think the
argument would fall away because clearly BONY, in this counter factual world, received the
money and was acting as agent. But the fact that it is planning to act as agent in the future and
eventually does act as agent in the future does not fall within the statutory language that requires
it be acting at the time. That's our argument.”). Put another way, the Trustee asks the Court to
review the Step One Transfer as an isolated transaction.
The Trustee points the Court to a footnote in Judge Cote’s Tribune decision in which she
holds that a transfer “is a settlement payment” to a bank that “is acting as agent” for its customer
in connection with a securities contract. 	In re Tribune Co. Fraudulent Conveyance Litigation,
Case No. 11-MDL-2295, 2019 WL 1771786, at *11 n.11 (S.D.N.Y. Apr. 23, 2019). According to
the Trustee, neither BosGen nor EBG qualifies as a financial institution because the BosGen
Transfer went first to BoA and BoA was neither of their agents in connection with a securities
contract. The Trustee contends the inquiry ends here.
Section 546(e) provides that the Trustee may not avoid a transfer that is by or to (or for the
benefit of) a financial institution as a settlement payment or in connection with a securities contract.
See 11 U.S.C. § 546(e) (emphasis added). The Step One Transfer to BoA, which is the first part
of the BosGen Transfer, was clearly intended for the benefit of a financial institution, BONY. See
FFM (describing, before the BosGen Transfer even occurred, the transfer of the $708 Million from
US Bank to BoA and thereafter, BONY using $1.011 billion to fund the Unit Redemptions, the
Warrant Redemptions, and the Distribution pursuant to the Tender Offer). The $708 Million was
transferred for the benefit of a financial institution (BONY) in connection with a securities contract
(the Tender Offer), and BONY was both BosGen and EBG’s agent.
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According to the Trustee, because EBG did not cause BoA to effectuate the First BONY
transfer until a few days after BoA received monies from the Credit Facilities,21 BONY does not
qualify as a “financial institution” acting in connection with a securities contract because BONY
could not have manifested their intent to serve as agent prior to their receipt of the First BONY
Transfer and the Second BONY Transfer. See May Transcript, at 28-31. The Court disagrees.
As discussed above, BONY manifested their intent to serve as BosGen and EBG’s agent
in connection with the Tender Offer well before the First BONY Transfer. In any event, following
the Supreme Court’s Merit decision, the Court must examine the overarching transaction. In this
case, that is the BosGen Transfer, not the Step One Transfer. In Merit, the Supreme Court held
that the relevant transfer for purposes of section 546(e)’s safe harbor was the overarching transfer
between Valley View and Merit, not the component transfers to and between the financial
institutions. See Merit, 138 S. Ct. 883, 896-97 (2017). The Supreme Court held that if an entity
covered by the exception is only a “conduit” or a component part of an overall transfer, then the
safe harbor does not apply. See id. Because the parties did not assert that either Valley View or
Merit Management was a “financial Institution,” or other covered entity, the transfer fell outside
the section 546(e) safe harbor. 	See id. 	Unlike in Merit, the parties to the overarching transfer
(BosGen and EBG) both qualify as “financial institutions” for the BosGen Transfer because of
their relationship with BONY in connection with the Tender Offer. 	Merit’s holding does not
instruct the Court to confine its inquiry to the Step One Transfer. 	In fact, Merit requires the
opposite.
21 The record before the Court does not make clear how many days elapsed between BoA receipt of funds from: (i)
the Step One Transfer; and (ii) the Mezz Agreement and the subsequent First BONY Transfer and Second BONY
Transfer.
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For the reasons articulated above, BONY’s agency relationship with BosGen and EBG has
been established pursuant to the term of the Tender Offer and the parties’ conduct, and the relevant
transaction to consider under Merit is the overarching BosGen Transfer.
d. 	The Unit Redemptions and the Warrant Redemptions Meet Section 546(e)’s Safe
Harbor Requirements
i. 	Constructive Fraudulent Transfer of the Unit Redemptions and the Warrant
Redemptions
In light of Tribune II, the Trustee concedes his constructive fraudulent transfer claim to
recover the Unit Redemptions and the Warrant Redemptions made by EBG to its members fails.
See Opposition, at 25-26 (conceding Count III survives only to the extent it seeks to avoid the
Distribution). 	Further, the Trustee concedes: (ii) the Tender Offer was a securities contract
between EBG and its members, see id. at 30; (ii) that “[t]here was . . . [a] settlement payment
here—the transfer from EBG to its members,” id. at 31; and (iii) that EBG “transferred funds to
BONY for that bank to act as EBG’s agent in connection with the subsequent settlement
payments,” id. at 30—i.e., that EBG was a financial institution as BONY’s (its agent’s) customer.
ii. 	Intentional Fraudulent Transfer of the Unit Redemptions and the Warrant
Redemptions
Because this Court holds that: (i) section 546(e) of the Bankruptcy Code also preempts the
Trustee’s state-law intentional fraudulent transfer claims; and (ii) the Unit Redemptions and the
Warrant Redemptions are safe harbored from the Trustee’s state-law constructive fraudulent
transfer claims, the Trustee’s state-law intentional fraudulent transfer claim to recover the Unit
Redemptions and the Warrant Redemptions is safe harbored too.
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iii. 	Conclusion
Accordingly, those portions of Counts I and III that seeks to recover the Unit Redemptions
and the Warrant Redemptions from the Defendants are dismissed pursuant to section 546(e) of the
Bankruptcy Code.
e. 	The Distribution Meets Sections 546(e)’s Safe Harbor Requirements
The Trustee asserts next that the Distribution falls outside section 546(e) because dividend
payments are not settlement payments or payments made in connection with a securities contract.
As discussed above, the Trustee concedes the Distribution was made by a financial institution
(BONY), as agent for its customer (EBG). The Trustee relies on Judge Gerber’s Global Crossing
decision, 385 B.R. 52, 56 n.1 (Bankr. S.D.N.Y. 2008), which holds that issuance of a dividend on
previously purchased stock is not a “settlement payment” exempt from section 546(e)’s coverage.
However, in Global Crossing, the dividend was a true dividend to shareholders who retained their
equity following the dividend. 	No purchase of stock or securities contracts were involved in
Global Crossing at all. See id. at 59-60. It was not, as here, a transfer in exchange for the member’s
equity interest.
The Distribution was not an isolated dividend paid in the ordinary course. EBG paid the
$35 million as part of an integrated transaction—which the TAC itself describes as a singular
“Leveraged Recap Transaction”—that comprised the “use [of] more than $1 billion to redeem
equity interests in EBG, redeem warrants, and pay a dividend to equity.” TAC ¶ 1. The Tender
Offer specifically contemplated that the $35 million would be paid “prior to the purchase of Units
in the Offer” to “return value to Members . . . consistent with the Recapitalization and [to] enhance
the benefits of the Recapitalization.” Tender Offer, at 28. 	Accordingly, because EBG paid the
Distribution as part of a single, integrated transaction to settle EBG’s repurchase of its members’
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shares, those payments were “settlement payments”—i.e., “transfers . . . made to complete [a]
securities transaction.” See Enron, 651 F.3d 329, 334-35 (2d Cir. 2011).
Further, the payments plainly fall within section 546(e) as “transfer[s] made . . . in
connection with a securities contract.” 	Under “§ 546(e), a transfer is ‘in connection with’ a
securities contract if it is ‘related to’ or ‘associated with’ the securities contract.” Picard v. Ida
Fishman Revocable Tr. (In re Bernard L. Madoff Inv. Sec. LLC), 773 F.3d 411, 421 (2d Cir. 2014).
“Section 546(e) sets a low bar for the required relationship between the securities contract and the
transfer sought to be avoided,” “merely requir[ing] that the transfer have a connection to the
securities contract.” Id. at 422. That “low bar” is easily met here because EBG’s payment “ha[d]
a connection to” and was thus “related to” the Tender Offer, which expressly contemplated that
the Distribution would be paid as part of the purchase transaction. 	Other courts have held that
“dividends” paid as part of an integrated securities transaction fall within sections 546(e)’s scope.
See Crescent Res. Litig. Tr. v. Duke Energy Corp., 500 B.R. 464, 471-476 (W.D. Tex. 2013)
(holding that $1 billion that subsidiaries transferred to parent as a “distribution or dividend” was a
“settlement payment” and transfer “in connection with a securities contract” because the payment
was part of an integrated transaction to sell parent’s equity-security holdings in subsidiaries).
Accordingly, those portions of Counts I and III that seek to recover the Distribution from
the Defendants are dismissed pursuant to section 546(e) of the Bankruptcy Code.
VIII. 	Ratification
Next, the Defendants assert the Trustee’s claims on behalf of the Lenders must be dismissed
because the Lenders ratified the Leveraged Recap Transaction. For the reasons that follows, the
Court finds the Defendants reasoning unpersuasive.
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More specifically, they argue that because the Lenders were aware that the proceeds from
the Credit Facilities would be used to cash out EBG’s LLC members they are estopped from
seeking to avoid the very transfer they allegedly approved. 	Relying primarily on Lyondell, the
Defendants encourage the court to adopt the view that “[c]reditors who authorized or sanctioned
the transaction, or, indeed, participated in it themselves, can hardly claim to have been defrauded
by it, or otherwise to be victims of it.” In re Lyondell Chemical Co., 503 B.R. 348, 383- 84 (Bankr.
S.D.N.Y. 2014). In Lyondell, the Court noted that a creditor’s knowledge that it was lending “for
the purpose of financing an LBO, and that the LBO proceeds would go to the stockholders” was
sufficient to establish a ratification defense. Id. at 385. In response, the Trustee claims that the
Lenders could not have possibly ratified the transaction because they loaned money in reliance on
fraudulent financial statements and projections.
The Trustee believes that the appropriate question to ask is whether the Lenders “had full
knowledge of all material facts” surrounding the transaction (the “Material Facts Test”). 	See
ASARCO LLC v. Americas Mining Corp., 396 B.R. 278, 427 (S.D. Tex. 2008). “Ratification ‘is
the act of knowingly giving sanction or affirmance to an act which would otherwise be
unauthorized and not binding.’” PAH Litigation Trust v. Water Street Healthcare Partners, L.P.
(In re Physiotherapy Holdings Inc.), Case No. 13-12965, 2016 WL 3611831, at *12 (Bankr. D.
Del. June 20, 2016) (quoting 57 N.Y. Jur.2d Estoppel, Ratification and Waiver § 87 (2007)). This
defense “implies assent, express or implied, and a change of position on the part of one who acts
in reliance on such assent.” Id. 	With regard to transactions such as the Leveraged Recap
Transaction, courts have noted that “[w]here the allegedly ratifying party’s silent acquiescence to
a transaction credibly appears to have resulted from the complexity of the situation rather than
intent, ratification does not occur.” Adelphia Recovery Trust v. HSBC Bank USA (In re Adelphia
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Recovery Trust), 634 F.3d 678, 693-94 (2d Cir. 2011) (citing King v. Ionization Int’l, Inc., 825
F.2d 1180, 1187 (7th Cir. 1987)). Other courts have held that the ratification defense is applicable
“only if [the creditor] actually participated in structuring the transaction that damaged creditors.”
Tronox Inc. v. Kerr McGee Corp. (In re Tronox, Inc.), 503 B.R. 239, 276 (Bankr. S.D.N.Y. 2013).
See also In re Refco, Inc. Sec. Litig., No. 07 MDL 1902 GEL, 2009 WL 7242548, at *11 (S.D.N.Y.
Nov. 13, 2009), report adopted, 2010 WL 5129027 (S.D.N.Y. Jan. 12, 2010) (noting that the
transferee was “heavily involved in structuring the transaction for the purchase of PlusFunds
shares). 	In Tronox, the Court held that because the defendants “did not establish that the
bondholders knowingly gave sanction to the fraudulent conveyances complained of in this case,”
a finding of ratification was inappropriate. In re Tronox, 503 B.R. at 276.
Both the Adelphia court and the Tronox court appeared to endorse the Material Facts Test.
Contrary to the Defendants’ assertions, the use of proceeds from the Credit Facilities is simply one
piece of the entire “fraud alleged in the complaint.’” In re Refco Inc. Sec. Litigation, 2009 WL
7242548, at * 10. As a result, the Court holds that there is a material dispute as to whether or not
the Lenders had knowledge of the material facts surrounding the Leveraged Recap Transaction.
With respect to the loans made pursuant to the Credit Facilities and BosGen and EBG’s ability to
repay those loans, BosGen and EBG’s financial health is likely the most material fact. 	As Judge
Gross noted in Physiotherapy Holdings,
[c]ompanies rely on cash flow to service their debts. A firm with poor cash flows
may find itself unable to pay its debts as they come due. Clearly, this information
is highly pertinent to a reasonable investor’s decision to lend money to a company.
Simply put, the Trustee has advanced sufficient allegations to suggest that the
Senior Noteholders may have been misled into lending money to a company whose
financial health was poorer than represented. Because intent is the central element
of ratification, it is far from certain that the Senior Noteholders intended to extend
credit to an insolvent company. Rather, the bondholders ‘simply bought into [the
transaction] based on the information available to them.’
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In re Physiotherapy Holdings, Inc., 2016 WL 3611831, at *12 (quoting Tronox, 503 B.R. at 276).
The Trustee has alleged that the information in, among other things, the Lenders’ Presentations,
the CIM, and the Tender Offer did not indicate BosGen and EBG’s true financial condition by
omission and misrepresentation, provide accurate projections for BosGen’s future cash flow, or
disclose the risks associated with various hedge contracts BosGen had entered. Thus, a finding of
ratification is inappropriate at this juncture.
The Court finds Lyondell distinguishable from the facts presented here because there were
no allegations in Lyondell that their lenders relied on false financial statements. 	There, the
creditors knew they were participating in a leveraged buyout that carried potential risk. Whereas
here, the Lenders knew they were participating in a leveraged recapitalization transaction that
carried potential risk but also, according to the Trustee, may have made the decision to loan money
based on material misstatements and omissions. For these reasons, the Court adopts the Material
Facts Test discussed above and the Defendants request to dismiss the TAC based on the Lenders’
ratification of the Leveraged Recap Transaction is denied.
IX. 	Claims Against Defunct Entities
To the extent the Trustee purports to sue corporate entities that are no longer in existence,
the claims against those defendants are barred because they have not been (and cannot be) served
with the TAC and are not amenable to suit. 	“At common law, the dissolution of a corporation
abruptly ended its existence, thus abating all pending actions by and against it and terminating its
capacity thereafter to sue or be sued. Thus, statutory authority is necessary to prolong the life of
a corporation past its date of dissolution.” In re Citadel Indus., Inc., 423 A.2d 500, 503 (Del. Ch.
1980). 	Thus, the Trustee may sue a dissolved corporation only if there is express statutory
authority granting him the right. 	No such statutory right exits here. 	For example, the Trustee
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purports to sue Trade Claim Acquisition, L.L.C. TAC ¶ 41, Ex. A. But that Delaware LLC was
canceled in 2010. See Anker Decl., Ex. 2.22 Under Delaware LLC law, a Delaware LLC that has
been issued its certificate of cancellation from the Secretary of State cannot be sued. 	See Del.
Code Ann. tit. 6, § 18-803(b); see also Kwon v. Yun, Case No. 05-civ-1142, 2008 WL 190058, at
*1 (S.D.N.Y. Jan. 22, 2008); Matthew v. Laudamiel, Case No. 5957-VCN, 2012 WL 605589, at
*21 (Del. Ch. Feb. 21, 2012). 	Here, the same holds true for Defendant Epic Distressed Debt
Holdings, Inc. (“Epic”), a Delaware corporation that was dissolved as of September 3, 2009. See
Anker Decl., Ex. 3; Citadel Indus., 423 A.2d at 503.
Similarly, 	the 	Trustee 	has 	sued 	Greenwich 	International, 	Ltd. 	(“Greenwich”) 	and
Cedarview EBG Holdings, Ltd. (“Cedarview,” together with Epic and Greenwich, the “Defunct
Entities”). 	They too, are canceled corporations—Bermudan and Cayman Islands companies,
respectively, that were dissolved and stricken from the companies registers years before the
Trustee filed suit. See Anker Decl., Exs. 4 & 5. Under applicable law, those entities also cannot
be sued. Cf. Eluv Holdings (BVI) Ltd. v. Dotomi, LLC, Case No. 6894-VCP, 2013 WL 1200273,
at *11 (Del. Ch. Mar. 26, 2013). 	Thus, this action must be dismissed as against all dissolved
entities that, under the applicable law of the jurisdiction of their incorporation, are no longer
subject to suit.
X. 	Conclusion
For the reasons stated above: (i) Counts I through IV of the TAC are dismissed as to all the
Defendants pursuant to section 546(e) of the Bankruptcy Code; (ii) Count V of the TAC is
dismissed as to all Defendants pursuant to, a) New York’s applicable statute of limitations, b)
22 The certificate of cancellation for Trade Claim Acquisition was filed with the Delaware Secretary of State. This
Court takes judicial notice of that document as a public filing.
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Rules 8 and 12(b)(6), and c) section 546(e) of the Bankruptcy Code; and (iii) additionally, Counts
I through V of the TAC are dismissed as to the Defunct Entities. The Defendants are directed to
submit an Order to the Court consistent with this opinion.
Dated: New York, New York
June 18, 2020
s/ Robert E. Grossman
Honorable Robert E. Grossman
United States Bankruptcy Judge
12-01879-lgb Doc 314 Filed 06/18/20 Entered 06/18/20 11:55:36 Main Document
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