SunEdison Litigation Trust v. Seller Note, LLC et al

UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
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:
In re: 	: 	Chapter 11
:
SUNEDISON, INC., et al., 	: 	Case No. 16-10992 (SMB)
:
Reorganized Debtors. 	: 	Jointly Administered
:
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:
SUNEDISON LITIGATION TRUST, 	:
Plaintiff, 	:
:
- against - 	:
:
SELLER NOTE, LLC; D. E. SHAW CF-SP 	:
SERIES 1 MWP ACQUISITION, L.L.C.; 	:
D. E. SHAW CF-SP SERIES 8-01, L.L.C.; 	: 	Adv. Pro. No. 18-01537 (SMB)
D. E. SHAW CF-SP SERIES 10-07, L.L.C.; 	:
D. E. SHAW CF-SP SERIES 11-06, L.L.C.; 	:
D. E. SHAW CF-SP SERIES 13-04, L.L.C.; 	:
D. E. SHAW COMPOSITE HOLDINGS, L.L.C.; :
MADISON DEARBORN CAPITAL PARTNERS :
IV, L.P.; AND NORTHWESTERN 	:
UNIVERSITY, 	:
:
Defendants. 	:
:
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MEMORANDUM DECISION GRANTING
MOTION TO DISMISS THE AMENDED COMPLAINT
A P P E A R A N C E S:
DEBEVOISE & PLIMPTON LLP
919 Third Avenue
New York, New York 10022
Shannon Rose Selden, Esq.
My Chi To, Esq.
Erica S. Weisgerber, Esq.
Melanie Burke, Esq.
Brandon Fetzer, Esq.
Of Counsel
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Attorneys for D. E. Shaw CF-SP Series 1 MWP
Acquisition, L.L.C.; D. E. Shaw CF-SP Series 8-01,
L.L.C.; D. E. Shaw CF-SP Series 10-07, L.L.C.;
D. E. Shaw CF-SP Series 11-06, L.L.C.; D. E. Shaw
CF-SP Series 13-04, L.L.C.; D. E. Shaw Composite
Holdings, L.L.C.; Madison Dearborn Capital
Partners IV, L.P.; and Northwestern University
COLE SCHOTZ P.C.
1325 Avenue of the Americas, 19th Floor
New York, New York 10019
Steven L. Klepper, Esq.
David R. Hurst, Esq.
Daniel F.X. Geoghan, Esq.
Mark Tsukerman, Esq.
Of Counsel
Attorneys for the SunEdison Litigation Trust
STUART M. BERNSTEIN
United States Bankruptcy Judge:
The SunEdison Litigation Trust (“Plaintiff”) sued Seller Note, LLC (“Seller Note”)
and the other Defendants 1 seeking to avoid and recover, as constructively fraudulent,
the transfer by SunEdison Holdings Corporation (“SunEdison Holdings”) of certain
securities to Seller Note. Seller Note pledged the securities to Wilmington Trust, N.A.
(“Wilmington Trust”) to hold for the benefit of the Defendants as collateral for certain
exchangeable notes issued by Seller Note.
1 	The “Defendants” are D. E. Shaw CF-SP Series 1 MWP Acquisition, L.L.C.; D. E. Shaw CF-SP
Series 8-01, L.L.C.; D. E. Shaw CF-SP Series 10-07, L.L.C.; D. E. Shaw CF-SP Series 11-06, L.L.C.; D. E.
Shaw CF-SP Series 13-04, L.L.C.; D. E. Shaw Composite Holdings, L.L.C.; Madison Dearborn Capital
Partners IV, L.P.; and Northwestern University. When used in this opinion, “Defendants” refers to these
defendants but not Seller Note.
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The Defendants have moved to dismiss the Complaint. 2 (Defendants’
Memorandum of Law in Support of Their Motion to Dismiss the Amended Complaint,
dated Sept. 13, 2019 (the “Motion”) (ECF Doc. # 20).) They contend, inter alia, that the
safe harbor under 11 U.S.C. § 546(e) shields them from the Plaintiff’s claims. I agree,
and accordingly, the Motion is granted.
BACKGROUND
A. 	The YieldCos and TERP
SunEdison Holdings was a wholly-owned subsidiary of SunEdison, Inc.
(“SUNE”), a renewable-energy development company, and owned renewable energy
systems such as solar arrays and wind farms (“Projects”). (¶ 7.) 3 SUNE either operated
or sold the Projects to “YieldCos” 4 or other third-party purchasers. (¶ 17.) In March
2014, SUNE created a YieldCo subsidiary, TerraForm Power, LLC (“Terraform”). (Id.)
On July 22, 2014, SUNE contributed Terraform to Terraform Power, Inc. (“TERP”)
concurrently with the IPO of TERP. (Id.) Following the IPO, SUNE, through SunEdison
Holdings, maintained a majority stake in both Terraform and TERP. (¶ 18.) TERP is
publicly traded on the NASDAQ under the ticker symbol “TERP” and has two classes of
common stock: Class A, which is publicly held, and Class B, which was privately held by
SunEdison Holdings. (¶ 19.) As of November 2014, SunEdison Holdings owned shares
of Class B common stock (the “Class B Stock”) in TERP and Class B units (the “Class B
2 	The “Complaint” refers to the Amended Adversary Complaint, dated May 30, 2019 (ECF Doc. #
8). “ECF” refers to the docket in this adversary proceeding.
3 	The notation “(¶ __)” refers to the paragraphs in the Complaint.
4 	YieldCos are a collection of operating energy assets that are expected to produce foreseeable
economic returns. (¶ 17 n.3.)
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Units”) in TerraForm Power Operating LLC, one of TERP’s operating subsidiaries.
(¶ 20.)
B. 	The Purchase and Sale Agreement
On November 17, 2014, SUNE and TerraForm Power, LLC (“Buyers”), with TERP
as guarantor, entered into a Purchase and Sale Agreement (the “2014 PSA”) 5 with D. E.
Shaw Composite Holdings, L.L.C. and certain of its affiliates, Madison Dearborn Capital
Partners IV, L.P. and others to acquire their equity interests in a renewable-energy
company called First Wind Holdings, LLC and certain of its subsidiaries (collectively,
“First Wind”). (¶ 21; 2014 PSA § 2.01(a).) SunEdison Holdings was not a party to the
2014 PSA. (¶ 22.)
The Buyers agreed in the 2014 PSA to acquire different First Wind assets. (¶ 23.)
SUNE would purchase equity interests representing First Wind’s development platform,
pipeline and projects in various stages of development (the “SUNE First Wind Assets”).
(Id.) Terraform agreed to purchase equity interests representing First Wind’s operating
portfolio, which included wind and solar power generation assets (the “TERP First Wind
Assets”). (Id.)
SUNE’s portion of the purchase price was to be funded, in part, by exchangeable
notes to be issued by a special purpose vehicle with a maximum aggregate principal
amount of $350,000,000. (¶ 24; 2014 PSA § 2.01(c).) Alternatively, SUNE could pay
the entire closing consideration in cash (i) upon ten business days’ notice prior to
5 	The 2014 PSA is attached as Exhibit A to the Declaration of Brandon Fetzer in Support of
Defendants’ Motion to Dismiss the Amended Complaint, dated Sept. 13, 2019 (the “Fetzer Declaration”)
(ECF Doc. # 21).
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closing, and (ii) upon acceptance in writing of the cash alternative by certain
Defendants. (2014 PSA § 2.01(d).) As conditions to closing, (1) the relevant parties had
to execute an Indenture and a Pledge Agreement, (see id. § 8.01(h)(i)); (2) a special
purpose entity (i.e., Seller Note 6) had to be formed, (see id. § 8.01(h)(ii) (describing
formation of “SPV Issuer”); id. at p. 24 (defining “SPV Issuer” as “the special purpose
entity . . . to be formed in connection with the issuance of the Exchangeable Notes”)); (3)
SunEdison Holdings had to contribute the aforementioned Class B Stock and Class B
Units (collectively, the “Class B Securities”) to Seller Note, (see id. § 8.01(h)(iv)); and (4)
Seller Note had to pledge the Class B Securities to Wilmington Trust as “Collateral
Agent.” (See id. § 8.01(h)(v) (describing pledge to “Collateral Agent”); id. at p. 9
(defining “Collateral Agent” as Wilmington Trust).)
C. 	The January 2015 Transfer
Seller Note was formed as the special purpose vehicle on January 16, 2015. (¶ 26;
see 2014 PSA § 8.01(h)(ii).) Thirteen days later, all of the transactions contemplated by
the 2014 PSA took place:
(i) 	Seller Note issued 3.75% Guaranteed Exchangeable Senior Secured Notes
due in 2020 in the amount of $336,470,000 (the “Exchangeable Notes”) pursuant to an
Indenture, dated Jan. 29, 2015 (the “Indenture”), 7 by and among Seller Note (as issuer),
SUNE (as guarantor), and Wilmington Trust (as exchange agent, registrar, paying agent,
and collateral agent). (¶ 27.a; 2014 PSA §§ 2.01(c), 8.01(h)(i); Indenture § 2.01,
Preamble.)
(ii) 	SunEdison Holdings transferred 12,161,844 shares of Class B Stock and
12,161,844 shares of Class B Units (i.e., the Class B Securities) to Seller Note to facilitate
the First Wind acquisition under the 2014 PSA (the “Step One Transfer”). (¶ 27.b.)
6 	Seller Note is an indirect, wholly-owned subsidiary of SunEdison Holdings, but is not a debtor.
(¶ 13.)
7 	The Indenture is attached as Exhibit B to the Fetzer Declaration.
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(iii) 	Pursuant to a Pledge Agreement, dated Jan. 29, 2015, 8 between Seller
Note and Wilmington Trust, Seller Note pledged its interests in the Class B Securities
(the “Pledged Collateral”) to Wilmington Trust to hold for the benefit of the Defendants
(the “Step Two Transfer,” and collectively with the Step One Transfer, the “January 2015
Transfer”).9 (¶ 27.b; Pledge Agreement § 2.01.)
As “Collateral Agent,” Wilmington Trust held a first lien in the Class B Securities
for the benefit of the Defendants. (See Indenture § 14.01; Pledge Agreement § 2.01.) In
the event of a default, Wilmington Trust could sell the Class B Securities or otherwise
enforce the lien to pay the Defendants. (See Indenture § 14.03(b)(i); Pledge Agreement
§ 3.01.) Upon satisfaction of the Exchangeable Notes, the liens on the Class B Securities
would be released, and Wilmington Trust would reconvey the released collateral to
Seller Note. (Indenture § 14.04.)
The First Wind transaction closed the same day, on January 29, 2015. (¶ 27.)
The SUNE First Wind Assets were allocated to SunEdison Wind Holdings, Inc., a direct,
wholly-owned subsidiary of SUNE. (¶ 29.) On February 19, 2015, SunEdison Wind
Holdings, Inc. was renamed SunEdison Utility Holdings, Inc. (Id.) The TERP First
Wind Assets were folded into TERP and its corporate structure. (¶ 30.)
D. 	The January 2016 Transfer
During 2015, the financial condition of SUNE and its affiliates deteriorated. (See
¶¶ 34-40.) By December 2015, the Defendants claimed that SUNE and Seller Note were
in default of certain obligations under the 2014 PSA and the Indenture. (¶ 48.) To
address their alleged defaults, on December 29, 2015, SUNE, certain of its affiliates, and
8 	The Pledge Agreement is attached as Exhibit C to the Fetzer Declaration.
9 	The Complaint defines only the Step One Transfer as the “January 2015 Transfer.” (¶ 27.b.) To
be clear, in this decision the “January 2015 Transfer” refers to both the Step One and Step Two Transfers.
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Seller Note entered into a purchase and sale agreement (the “December 2015 PSA”) 10
with the Defendants. 	(Id.) Pursuant to the December 2015 PSA, the Defendants
released their interests in the Class B Securities to Seller Note in contemplation of
receiving 12,161,844 shares of Class A common stock in TERP. (¶ 49.) On January 22,
2016, at the instruction of the Defendants, Wilmington Trust delivered the Pledged
Collateral to a transfer agent, which issued 12,161,844 shares of Class A common stock
in TERP to the Defendants (the “January 2016 Transfer”). (Id.; December 2015 PSA
§ 2.01(b).) On the same day, Defendants delivered Exchangeable Notes in the aggregate
principal amount of $121,470,000 to Wilmington Trust for cancellation. 11 (December
2015 PSA §§ 2.01(b), (c).)
E. 	The Chapter 11 Bankruptcy and Creation of the Litigation Trust
Beginning on April 21, 2016 (the “Petition Date”), SUNE, SunEdison Holdings,
and various other affiliates (collectively, the “Debtors”) filed voluntary petitions for
relief under chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court
for the Southern District of New York (the “Court”). (¶ 6.) Seller Note was not a debtor.
(¶ 13.)
10 	The December 2015 PSA is attached as Exhibit G to the Fetzer Declaration.
11 	The parties have not contended that the December 2015 PSA affects the outcome of this adversary
proceeding. Nevertheless, the only thing the Defendants received as a result of the Step One Transfer
from Seller Note (through the Step Two Transfer) was a security interest in the Class B Securities. They
did not receive legal title which remained in Seller Note. According to the Complaint, the Exchangeable
Notes were cancelled, and the Defendants released their lien under the December 2015 PSA and through
the January 2016 Transfer. (¶ 49.) In short, it appears that the parties unwound the Step Two Transfer
and entered into a new transaction under which Seller Note issued in restricted book-entry form the
12,161,844 TERP Class A Shares in exchange for the Pledged Collateral. (December 2015 PSA § 2.01(b).)
The Plaintiff does not assert a claim based on the January 2016 Transfer.
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On July 28, 2017, the Court entered an order (the “Confirmation Order”) 12
confirming the Debtor’s Second Amended Plan of Reorganization (the “Plan”). 13 (¶ 9.)
On December 29, 2017, the Plan became effective (the “Effective Date”).14 (¶ 10.)
Pursuant to the Plan, on the Effective Date, all of the Debtors’ rights, title and interests
in the GUC/Litigation Trust Causes of Action (as defined in the Plan) were transferred
to Plaintiff. (¶ 11.) Plaintiff was authorized, as the representative of the Debtors’ estates,
to pursue the GUC/Litigation Trust Causes of Action, including the causes of action
asserted in the Complaint, and pursue claims under sections 502(d), 547, 548 and 550
of the Bankruptcy Code. (¶ 12.)
F. 	The Adversary Proceeding and Motion to Dismiss
Plaintiff commenced this adversary proceeding on April 20, 2018. The
Complaint seeks to avoid the Step One Transfer (SunEdison Holdings’ delivery of the
Class B Securities to Seller Note) as a constructive fraudulent transfer and recover its
value from the Defendants pursuant to 11 U.S.C. §§ 548(a)(1)(B) and 550 (Count I) and
11 U.S.C. §§ 544, 550 and N.Y. Debt. & Cred. Law §§ 272-275, 278 and/or 279 (Count II)
on the alternative theories that the Step One Transfer was made for the Defendants’
benefit, (¶¶ 27.b, 53, 62), see 11 U.S.C. § 550(a)(1), or the Defendants were subsequent
transferees from Seller Note, the initial transferee (¶ 59), see 11 U.S.C. § 550(a)(2).
12 	Findings of Facts, Conclusions of Law and Order Confirming Second Amended Plan of
Reorganization of SunEdison, Inc. and its Debtor Affiliates, dated July 28, 2017 (ECF Doc. # 3735).
13 	The Second Amended Plan of Reorganization of SunEdison, Inc. and Its Debtor Affiliates, dated
July 20, 2017, is attached as Exhibit A to the Confirmation Order.
14 	See Notice of Effective Date of Confirmed Second Amended Joint Plan of Reorganization of
SunEdison, Inc. and Its Debtor Affiliates, dated Dec. 29, 2017 (ECF Doc. # 4495).
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Finally, the Plaintiff seeks to disallow claims asserted by the Defendants against the
Debtors pursuant to 11 U.S.C. § 502(d) (Count III).
The Defendants filed the Motion on September 13, 2019. They made three
arguments: (i) Bankruptcy Code § 546(e)’s safe harbor bars the Plaintiff’s constructive
fraudulent transfer claims, (Motion at 10-14); (ii) SunEdison Holdings received
reasonably equivalent value for the transfer, (id. at 14-16); and (iii) the Complaint fails
to allege that SunEdison Holdings was insolvent, possessed unreasonably small capital,
or intended or believed that it would incur debts beyond its ability to pay as they
matured at the time of the Step One Transfer. (Id. at 7-10; see also Defendants’ Reply
Memorandum in Support of Their Motion to Dismiss the Amended Complaint, dated
Dec. 13, 2019 (the “Reply”) (ECF Doc. # 24).) The Plaintiff’s opposition, (see Plaintiff’s
Memorandum of Law in Opposition to Defendants’ Motion to Dismiss the Amended
Complaint, dated Nov. 15, 2019 (the “Opposition”) (ECF Doc. # 23)), responded that (i)
the safe harbor does not apply because Wilmington Trust’s status as a “financial
institution” raises a factual issue that cannot be decided on a motion to dismiss, and
Wilmington Trust was not Seller Note’s agent in connection with the Step One Transfer
because Wilmington Trust did not facilitate the actual transfer of the Class B Securities
to Seller Note, (Opposition at 20-26); (ii) SunEdison Holdings did not receive
reasonably equivalent value for the transfer, (id. at 2-13); and (iii) the Complaint
adequately alleges that SunEdison Holdings was insolvent or rendered insolvent at the
time of the transfer. (Id. at 13-20).
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DISCUSSION
A. 	Standard of Review
To survive a motion to dismiss, a plaintiff must “state a claim to relief that is
plausible on its face.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). When deciding a
motion to dismiss, the Court “accept[s] all factual allegations in the complaint and
draw[s] all reasonable inferences in the plaintiff’s favor.” ATSI Commc’ns, Inc. v. Shaar
Fund, Ltd., 493 F.3d 87, 98 (2d Cir. 2007). Legal conclusions pleaded in a complaint
are “not entitled to the assumption of truth.” Iqbal, 556 U.S. at 679.
In ruling on a motion to dismiss under Rule 12(b)(6), the Court may also consider
“documents attached to the complaint as exhibits, and documents incorporated by
reference in the complaint.” DiFolco v. MSNBC Cable L.L.C., 622 F.3d 104, 111 (2d Cir.
2010). If a document is not incorporated into a complaint by reference, “the court may
nevertheless consider it where the complaint ‘relies heavily upon its terms and effect,’
thereby rendering the document ‘integral’ to the complaint.” Id. (quoting Mangiafico v.
Blumenthal, 471 F.3d 391, 398 (2d Cir. 2006) (quoting Chambers v. Time Warner, Inc.,
282 F.3d 147, 152-53 (2d Cir. 2002))). To consider such an integral document, there
must be no dispute about “the authenticity or accuracy of the document” or “the
relevance of the document.” Id. (quoting Faulkner v. Beer, 463 F.3d 130, 134 (2d Cir.
2006)).
The Complaint incorporates by reference and relies on the 2014 PSA, the
Indenture, and the December 2015 PSA. (See, e.g., ¶¶ 21-24 (describing the 2014 PSA
and its terms); ¶ 27.a (describing the “Indenture dated January 29, 2015”); ¶¶ 48-49
(describing the December 2015 PSA).) While the Complaint does not specifically name
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the Pledge Agreement, the Plaintiff relies on its terms. (See ¶ 27.b (describing the terms
and effect of the Pledge Agreement).) The Defendants attached these signed documents
to their motion papers, they are relevant to the disposition of the Motion and the
Plaintiff does not question their authenticity or accuracy. Thus, the Court may consider
these documents in connection with the Motion.
B. 	The Section 546(e) Safe Harbor
Section 546(e) of the Bankruptcy Code provides, in relevant part:
Notwithstanding sections 544. . . [and] 548(a)(1)(B) . . . of this title, the
trustee may not avoid . . . a transfer made by or to (or for the benefit of)
a . . . financial institution . . . in connection with a securities contract, as
defined in section 741(7), . . . that is made before the commencement of
the case, except under section 548(a)(1)(A) of this title.
11 U.S.C. § 546(e).15 “The application of Section 546(e) presents a straightforward
question of statutory interpretation of the type that is appropriately resolved on the
pleadings.” In re Tribune Co. Fraudulent Conveyance Litig., No. 11MD2296 (DLC),
2019 WL 1771786, at *7 (S.D.N.Y. Apr. 23, 2019). “Put simply, the safe harbor applies
where two requirements are met: (1) there is a qualifying transaction (i.e., there is a
‘settlement payment’ or a ‘transfer payment . . . made in connection with a securities
contract) and (2) there is a qualifying participant (i.e., the transfer was ‘made by or to
15 	Section 546(e) states:
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.
11 U.S.C. § 546(e).
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(or for the benefit of) a . . . financial institution).” In re Nine West LBO Sec. Litig., 20
MD. 2941 (JSR), 2020 WL 5049621, at *6 (S.D.N.Y. Aug. 27, 2020) (emphasis in
original).
1. 	The Relevant Transfer
Before considering these questions, the Court must identify the relevant transfer.
See Merit Mgmt. Grp., LP v. FTI Consulting, Inc., 138 S. Ct. 883, 892 (2018) (“Before a
court can determine whether a transfer was made by or to or for the benefit of a covered
entity, the court must first identify the relevant transfer to test in that inquiry.”). The
Complaint seeks to avoid only the Step One Transfer, and the Plaintiff urges the Court
to ignore the subsequent pledge of Seller Note’s interests in the Class B Securities to
Wilmington Trust ─ the Step Two Transfer. (Opposition 22-26.) The Defendants
disagree. They argue that the Step One Transfer must be considered in the context of
the Step Two Transfer to Wilmington Trust, because the Step One Transfer would not
have occurred without the parties agreeing to the Step Two Transfer. (Reply at 4-5.)
We begin with Merit. There, Valley View Downs, LP (“Valley View”) acquired
Bedford Downs Management Corp. (“Bedford Downs”) by purchasing all of Bedford
Downs’ stock. 138 S. Ct. at 891. As part of the transaction, Valley View arranged for
Credit Suisse to wire $55 million to third-party escrow agent Citizens Bank of
Pennsylvania, which disbursed the money to the Bedford Downs shareholders. Id.
Valley View subsequently filed for chapter 11 bankruptcy and confirmed a plan after
which the litigation trustee brought a constructive fraudulent transfer action to avoid
the transfer to Merit Management Group, LP (“Merit Management”), one of the
shareholders, and recover its value. Id. Merit Management argued that the safe harbor
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under 11 U.S.C. § 546(e) barred the claim because financial institutions acted as
intermediaries and received the component transfers. Id. at 891-92.
The Supreme Court concluded that “the relevant transfer for purposes of the §
546(e) safe-harbor inquiry is the overarching transfer that the trustee seeks to avoid
under one of the substantive avoidance provisions.” Id. at 893; accord In re Tribune
Co. Fraudulent Conveyance Litig., 946 F.3d 66, 75, 77 (2d Cir. 2019), petition for cert.
filed, 2020 WL 3891501 (U.S. July 6, 2020) (No. 20-8); Nine West, 2020 WL 5049621,
at *14 (In Merit, “the Supreme Court held that ‘the relevant transfer for purposes of the
§ 546(e) safe-harbor inquiry is the overarching transfer that the trustee seeks to avoid,’
and ‘not any component part of that transfer.’”) (quoting Merit, 138 S. Ct. at 893). Thus,
where a qualifying participant serves as a mere conduit or intermediary in connection
with the overarching transaction between non-qualifying participants, the safe harbor
does not apply. See Merit, 138 S. Ct. at 892, 897; Tribune, 946 F.3d at 75.
While Merit defined the relevant transfer as the overarching transfer that the
trustee seeks to avoid, it does not follow that the trustee can escape the reach of the safe
harbor by seeking to avoid an intermediate transfer between non-qualifying participants
and sue the qualifying participants of the true overarching transfer as subsequent
transferees. Such was the case in Holliday v. K Road Power Mgmt., LLC (In re Boston
Generating LLC), 617 B.R. 442 (Bankr. S.D.N.Y. 2020). There, the debtor Boston
Generating LLC (“BosGen”) and its parent, EBG Holdings LLC (“EBG”) decided to make
a tender offer for the equity interests held by EBG’s members and borrowed $2.1 billion
primarily for that purpose. Id. at 451. The borrowed funds were deposited in BosGen’s
account with U.S. Bank, National Association (“US Bank”). Id. at 456. In the Step One
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Transfer, BosGen caused US Bank to transfer approximately $708 million to EBG’s
account with Bank of America (“BoA”). Id. In the Step Two Transfer, EBG caused the
$708 million in its BoA account to be transferred to its Bank of New York (“BONY”)
account to fund the tender offer. Id at 457. BONY served as BosGen’s and EBG’s agent
and depositary in connection with the tender offer. Id. at 452. The Step One and Step
Two Transfers were collectively defined as the BosGen Transfer. Id. at 456.
BosGen’s liquidating trustee eventually brought an action designed, among other
things, to avoid the Step One Transfer and recover its value from the redeeming equity
holders (the recipients of the Step Two Transfer) as subsequent transferees of the Step
One Transfer. Id. at 459. Under the liquidating trustee’s theory, neither BosGen nor
EBG were qualifying participants, and consequently, the safe harbor would not apply to
the Step One Transfer. Id. at 491. Furthermore, if the liquidating trustee avoided the
Step One Transfer, he could then recover its value from those subsequent transferees
under 11 U.S.C. § 550(a)(2), even if they were qualifying participants, because the safe
harbor defense only applies by its terms to the initial transfer. Picard v. BNP Paribas,
S.A. (In re Bernard L. Madoff Inv. Sec. LLC), 594 B.R. 167, 197 (Bankr. S.D.N.Y. 2018).
Agreeing with the defendants that the safe harbor barred the state fraudulent
conveyance claims, the Court refused to disaggregate the two steps and viewed them as
parts of the same overarching transfer. Boston Generating, 617 B.R. at 491-92. In
particular, it ruled that the BosGen Transfer (i.e., the two steps) was made “to complete
a securities transaction” (i.e., the tender offer), id. at 485, and “in connection with” a
securities contract (i.e., it was related to and associated with a securities contract,
because it funded the redemptions made through the tender offer). Id. at 486-87. In
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addition, BosGen and EBG were customers of BONY, a financial institution, which acted
as their agent in connection with the tender offer. Id. at 489-91. Most important for
present purposes, the Court ruled that under Merit, the Court must consider the
overarching transaction and not limit its inquiry to the Step One component. Id. at 492
(“Merit’s holding does not instruct the Court to confine its inquiry to the Step One
Transfer. In fact, Merit requires the opposite.”)
In our case, the Step One Transfer was part of the overarching transaction
described in the 2014 PSA, to wit, SUNE’s purchase of the First Wind assets funded by
notes secured by the Class B Securities. The 2014 PSA required the formation of a
special purpose vehicle (i.e., Seller Note) to issue the Exchangeable Notes that would
partially fund SUNE’s purchase. (2014 PSA § 8.01(h)(ii) (describing formation of “SPV
Issuer”); id. at p. 24 (defining “SPV Issuer”); ¶ 24.) As conditions to closing, SunEdison
Holdings would contribute the Class B Securities to Seller Note, (2014 PSA §
8.01(h)(iv)), and Seller Note would pledge the Class B Securities to Wilmington Trust,
(2014 PSA § 8.01(h)(v)), to collateralize repayment of the Exchangeable Notes it issued
pursuant to the Indenture. 16 This was an integrated transaction, a fact implicitly
conceded by the Plaintiff, which asserts that the Step One Transfer was made to Seller
Note “for the benefit of” the Defendants. (¶¶ 27.b, 53, 62.) Thus, the relevant transfer
for the safe harbor inquiry is the January 2015 Transfer of Class B Securities from
16 	Although Wilmington Trust was not party to the 2014 PSA, it was contemplated when the 2014
PSA was executed that Wilmington Trust would serve as the Indenture Trustee and Collateral Agent. The
2014 PSA defined “Exchangeable Note Indenture” as “the Indenture for the Exchangeable Notes, to be
dated on or around the Closing Date, among the SPV Issuer, as issuer, Holdco Buyer, as guarantor, and
Wilmington Trust, National Association, as trustee and collateral agent . . . .” (2014 PSA at p. 13.)
Furthermore, it defined “Exchangeable Note Trustee” to mean “Wilmington Trust, National Association,
in its capacity as trustee under the Exchangeable Note Indenture.” (Id.)
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SunEdison Holdings through Seller Note to Wilmington Trust to secure the repayment
of the Exchangeable Notes received by the Defendants.
2. 	The January 2015 Transfer Was Made “in Connection with” the
2014 PSA, a “Securities Contract”
Section 546(e) protects transfers made “in connection with a securities contract”
to a qualifying participant. 11 U.S.C. § 546(e). The Defendants argue that SunEdison
Holdings’ transfer of Class B Securities was “made in connection with a securities
contract,” specifically the 2014 PSA. 17 The first step in the analysis is to determine
whether the 2014 PSA was a “securities contract.” The second step of the analysis is to
determine whether the transfer was made “in connection with” the securities contract.
a. 	The 2014 PSA Was a “Securities Contract”
Section 546(e) refers to 11 U.S.C. § 741(7) for the definition of a “securities
contract,” see 11 U.S.C. § 546(e), and section 741(7) defines “securities contract” to
include “a contract for the purchase, sale, or loan of a security,” 11 U.S.C. § 741(7)(A)(i),
and “any other agreement or transaction that is similar to an agreement or transaction
referred to in this subparagraph.” 11 U.S.C. § 741(7)(A)(vii). The definition of a
“securities contract” is extraordinarily broad. See In re Bernard L. Madoff Inv. Sec.
LLC, 773 F.3d 411, 418-19 (2d Cir. 2014) (noting “broad definition” of “securities
contracts” under § 741(7)(A) and that “[f]ew words in the English language are as
expansive as ‘any’ and ‘similar.’”). The term “security” includes “stock,” as well as any
“other claim or interest commonly known as ‘security.’” 11 U.S.C. § 101(49)(A)(ii), (xiv).
17 	The Defendants separately argue in a footnote that the transfer of Class B Securities was a
settlement payment. (Motion at 14 n.12.) Arguments made in footnotes are forfeited. See City of New
York v. Mickalis Pawn Shop, LLC, 645 F.3d 114, 137 (2d Cir. 2011). This issue was not further briefed by
either party in the papers, and the Court will not consider it.
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LLC member units being purchased under the 2014 PSA qualify as securities. See In re
Lehman Bros. Holdings Inc., 855 F.3d 459, 473 (2d Cir. 2017) (“a membership interest
in an LLC is a ‘security’”) (citing O’Donnell v. Tristar Esperanza Props., LLC (In re
Tristar Esperanza Props., LLC), 488 B.R. 394, 399 (B.A.P. 9th Cir. 2013), aff’d, 782
F.3d 492 (9th Cir. 2015)); Boston Generating, 617 B.R. at 485.
The 2014 PSA is a contract for the purchase and sale of the First Wind LLC
member units, which are securities. Thus, the 2014 PSA is a securities contract under 11
U.S.C. § 741(7)(A), and Plaintiff does not argue otherwise.
b. 	The January 2015 Transfer Was Made “in Connection
with” the 2014 PSA
Under “§ 546(e), a transfer is ‘in connection with’ a securities contract if it is
‘related to’ or ‘associated with’ the securities contract.” In re Bernard L. Madoff Inv.
Sec. LLC, 773 F.3d at 421. “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.
The January 2015 Transfer related to and was associated with the 2014 PSA
because it was the means of effecting the partial payment of the purchase price under
the 2014 PSA through the issuance of the Exchangeable Notes secured by the Pledged
Collateral. See Boston Generating, 617 B.R. at 487 (“[T]his 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.”). Thus, the
January 2015 Transfer of the Class B Securities was made “in connection with” the 2014
PSA, and the Plaintiff does not argue otherwise.
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c. 	Wilmington Trust Is a “Financial Institution”
To be safe-harbored, the transfer must also be “made by or to (or for the benefit
of)” a qualifying participant, which includes a “financial institution.” 11 U.S.C. § 546(e).
The Bankruptcy Code defines “financial institution” as:
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) such customer
11 U.S.C. § 101(22)(A).
Wilmington Trust is a “financial institution” because it is identified as a bank on
the Office of the Comptroller of the Currency website’s Financial Institution Lists,
https://www.occ.treas.gov/topics/charters-and-licensing/financial-institution-
lists/index-financial-institution-lists.html. See Tribune, 946 F.3d at 78 (Computershare
was a “financial institution” for the purposes of Section 546(e) because it is a trust
company and a bank based on Office of the Comptroller of the Currency records);
Boston Generating, 617 B.R. at 489 (finding that the Bank of New York is a “financial
institution” for the purposes of Section 546(e) because it is a bank pursuant to the Office
of the Comptroller website). In addition, the State of Delaware Office of the State Bank
Commissioner lists Wilmington Trust as a “National Bank.” (Delaware Financial
Institutions18 at 5.) The Court can take judicial notice of this information. See In re
18 	The list of Delaware Financial Institutions, dated July 16, 2019, is attached as Exhibit I to the
Reply Declaration of Brandon Fetzer in Support of Defendants’ Motion to Dismiss the Amended
Complaint, dated Dec. 13, 2019 (ECF Doc. # 25).
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Enron Corp., 341 B.R. 451, 458 (Bankr. S.D.N.Y. 2006) (taking judicial notice of an
entity’s status as a “financial institution” based on “records of various public or quasi-
public bodies”).
By isolating the Step One Transfer and ignoring the Step Two Transfer, the
Plaintiff hopes to remove Wilmington Trust from the picture, focus exclusively on Seller
Note and argue that Seller Note was not a financial institution. However, as discussed
above, the relevant transfer of the Class B Securities contemplated by the 2014 PSA was
from SunEdison Holdings through Seller Note to Wilmington Trust to collateralize the
Exchangeable Notes. The deal was not simply the transfer of the Class B Securities from
SunEdison Holdings to Seller Note; the Step One Transfer would not have occurred
without agreement on the Step Two Transfer as well as the other components of the
purchase and sale. Accordingly, the January 2015 Transfer was made to Wilmington
Trust, a financial institution, in connection with the 2014 PSA, a securities contract. The
Section 546(e) safe harbor shields the January 2015 Transfer and the component steps
from the constructive fraudulent transfer provisions under bankruptcy and state law.
Counts I and II are, therefore, dismissed.
C. 	Reasonably Equivalent Value and Insolvency
In light of the Court’s conclusion that the safe harbor provides a complete defense
to the Plaintiff’s constructive fraudulent transfer claims, the Court does not reach the
separate questions of whether the Complaint adequately pleads “reasonably equivalent
value” or a financial condition, such as insolvency, necessary to support a constructive
fraudulent transfer claim.
D. 	Disallowance of Claims
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Section 502(d) provides that “the court shall disallow any claim of any entity
from which property is recoverable under section . . . 550 . . . of this title or that is a
transferee of a transfer avoidable under section . . . 544 . . . [or] 548 . . . of this title.” 11
U.S.C. § 502(d). Disallowance of a transferee’s claim under section 502(d) rises and
falls with the avoidability of the underlying transfer. Because the January 2015 Transfer
is not avoidable, section 502(d) is inapplicable, and Count III is also dismissed.
For the reasons stated above, the Motion is granted, and the Complaint is
dismissed. The Court has considered the Plaintiff’s other arguments and concludes that
they lack merit. Settle order.
Dated: 	New York, New York
November 2, 2020
/s/ Stuart M. Bernstein
STUART M. BERNSTEIN
United States Bankruptcy Court
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