12-4270-bk
In re Quebecor World (USA), Inc.
U NITED S TATES C OURT OF A PPEALS
FOR THE S ECOND C IRCUIT
August Term 2012
(Argued: May 13, 2013 Decided: June 10, 2013)
Docket No. 12-4270-bk
IN RE : Q UEBECOR W ORLD (USA) I NC .,
Debtor.
O FFICIAL C OMMITTEE OF U NSECURED C REDITORS
OF Q UEBECOR W ORLD (USA) I NC .
Appellant,
v.
A MERICAN U NITED L IFE I NSURANCE C OMPANY , AUSA L IFE I NSURANCE
C OMPANY , B ARCLAYS B ANK PLC, D EUTSCHE B ANK S ECURITIES I NC ., L IFE
I NVESTORS I NSURANCE C OMPANY OF A MERICA , M IDLAND N ATIONAL L IFE
I NSURANCE C OMPANY A NNUITY , M ODERN W OODMEN OF A MERICA , N ORTH
A MERICAN C OMPANY FOR L IFE AND H EALTH I NSURANCE /A NNUITY , N ORTH
A MERICAN C OMPANY FOR L IFE AND H EALTH I NSURANCE OF N EW Y ORK ,
P ROVIDENT L IFE AND A CCIDENT I NSURANCE C OMPANY , T HE N ORTHWESTERN
M UTUAL L IFE I NSURANCE C OMPANY , T HE P AUL R EVERE L IFE I NSURANCE
C OMPANY , S YMETRA L IFE I NSURANCE C OMPANY , T RANSAMERICA F INANCIAL
L IFE I NSURANCE C OMPANY , T RANSAMERICA L IFE I NSURANCE C OMPANY ,
W ACHOVIA C APITAL M ARKETS , LLC, W ILTON R EASSURANCE L IFE C OMPANY OF
N EW Y ORK , J OHN D OES , 1-50, D EUTSCHE B ANK AG,
Appellees.
Before:
C HIN AND L OHIER , Circuit Judges,
AND S WAIN , District Judge. *
Appeal from a judgment of the United States
District Court for the Southern District of New York
(Furman, J.), affirming an order of the United States
Bankruptcy Court (Peck, J.) dismissing appellant's
adversary complaint. Appellant sought to avoid and recover
certain payments made to appellees in exchange for private
placement notes that had been issued by one of debtor's
affiliates. Both lower courts held that the payments were
exempt from avoidance under section 546(e) of the
Bankruptcy Code.
A FFIRMED .
J OHN K. S HERWOOD (Jason E. Halper and
Natalie J. Kraner, on the brief),
Lowenstein Sandler LLP, Roseland,
New Jersey, for Appellant.
*
The Honorable Laura Taylor Swain, United States
District Judge for the Southern District of New York, sitting by
designation.
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J OSHUA D ORCHAK (Dina Kaufman and Jonathan
B. Alter, on the brief), Bingham
McCutchen LLP, New York, New York,
for Appellees.
C HIN , Circuit Judge:
In this case, appellant Official Committee of
Unsecured Creditors of Quebecor World (USA) Inc. (the
"Committee") sought to avoid and recover certain payments
made by debtor Quebecor World (USA) Inc. ("QWUSA") to the
appellee noteholders in exchange for private placement
notes that had been issued by one of QWUSA's affiliates . 1
The bankruptcy court granted appellees' motion for summary
judgment, holding that the payments were exempt from
avoidance because they were both "settlement payment[s]"
and "transfer[s] made . . . in connection with a securities
contract," within the meaning of section 546(e) of the
Bankruptcy Code. 11 U.S.C. § 546(e). The district court
affirmed both holdings. We need not decide whether the
payments fall within the "settlement payments" safe harbor
because we conclude that they clearly fall within the safe
1
The parties dispute whether the payments at issue in
this case were made to purchase, redeem, or extinguish these
notes. For the reasons set forth below, we conclude that, in
the circumstances of this case, QWUSA purchased the notes.
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harbor for "transfers made . . . in connection with a
securities contract." Accordingly, we affirm the district
court's judgment.
BACKGROUND
The relevant facts are undisputed and may be
summarized as follows:
QWUSA and Quebecor World Capital Corp. ("QWCC")
are subsidiaries of Quebecor World, Inc. ("QWI"), a
Canadian printing company. In 2000, QWCC raised $ 371
million for the Quebecor entities by issuing private
placement notes (the "Notes") to the appellees pursuant to
two nearly identical Note Purchase Agreements (the "NPAs").
QWI and QWUSA guaranteed the Notes and the funds were
eventually transferred, at least in part, to QWUSA.
Section 8.2 of the NPAs gave QWCC the option to
prepay the Notes so long as QWCC paid the outstanding
principal, accrued interest, and a specified "Make -Whole
Amount." Section 8.6 prohibited any Quebecor affiliate
from purchasing the Notes unless they, inter alia, complied
with the prepayment provisions in section 8.2. Once the
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Notes were paid in full, section 8.5 required that they be
surrendered to QWCC for cancellation.
The NPAs also provided for the acceleration of the
Notes' maturity if QWI's debt-to-capitalization ratio fell
below a certain threshold. Pursuant to the terms of QWI's
separate $1 billion revolving credit facility, any default
with respect to the Notes would have in turn triggered a
default under the credit facility agreement, with
calamitous results for Quebecor. When QWI began having
financial difficulty in May 2007, it offered to purchase
just over half of the Notes in exchange for increasing the
debt-to-capitalization ratio, but the appellees rejected
this offer. Instead, they entered a Noteholder Cooperation
Agreement and Right of First Refusal Agreement (the
"Cooperation Agreement"), in which they agreed not to sell
their Notes to anyone but an existing noteholder.
In September 2007, QWI approved the prepayment of
all the Notes and QWCC issued a notice of its intent to
redeem the Notes early. After realizing redemption would
have severe tax implications under Canadian law, however,
QWI restructured the prepayment so that first QWUSA would
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purchase the notes from the appellees for cash and then
QWCC would redeem the notes from QWUSA in exchange for
forgiveness of debt QWUSA owed to QWCC. QWUSA issued a new
notice to appellees indicating that it -- not QWCC -- would
pay the "Redemption Price" set out in the NPAs, and that
the payment would "result in the purchase of the Notes by
Quebecor World (USA) Inc."
On October 29, 2007, QWUSA transferred
approximately $376 million to the appellees' trustee, CIBC
Mellon Trust Co. ("CIBC Mellon"). CIBC Mellon distributed
the funds to appellees and the appellees eventually
surrendered the Notes directly to QWI in Canada. QWUSA
filed for bankruptcy in the Southern District of New York
on January 21, 2008, less than ninety days after making the
payment for the Notes.
The Committee then commenced this adversary
action, seeking to avoid and recover the October 29
transfer pursuant to section 547 of the Code. Appellees
moved for summary judgment, arguing that the transfer was
exempt from avoidance under section 546(e). Before that
motion was resolved, this Court decided Enron Creditors
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Recovery Corp. v. Alfa, S.A.B. de C.V. (In re Enron
Creditors Recovery Corp.), 651 F.3d 329 (2d Cir. 2011), in
which we held that payments made to redeem commercial paper
before its maturity date were "settlement payments," within
the meaning of section 546(e), because they were
"transfer[s] of cash made to complete a securities
transaction." Id. at 339 (quotation and alteration
omitted).
After additional briefing, the bankruptcy court
granted appellees' motion, holding primarily that QWUSA's
payment fit the definition of "settlement payment"
announced in Enron. Furthermore, because Enron had applied
section 546(e) to redemptions of commercial paper, the
bankruptcy court held that the payment also qualified as a
"transfer made . . . in connection with a securities
contract" regardless of whether QWUSA "redeemed" or
"purchased" the Notes. The district court affirmed,
agreeing that QWUSA's payment was a "settlement payment"
under Enron. The court did not agree that a transfer to
"redeem" securities could qualify as a "transfer made . . .
in connection with a securities contract" because the Code
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defines a "securities contract" as one "for the purchase,
sale, or loan of a security." 11 U.S.C. § 741(7)(A)(i).
Nevertheless, the district court affirmed the bankruptcy
court's alternative holding on the basis that the
transaction was in fact a "purchase," not a "redemption."
The Committee appeals.
DISCUSSION
A. Applicable Law
"We exercise plenary review over a district
court's rulings in its capacity as an appellate court in
bankruptcy," independently reviewing the bankruptcy court's
factual findings for clear error and its lega l conclusions
de novo. Super Nova 330 LLC v. Gazes, 693 F.3d 138, 141
(2d Cir. 2012) (quotation omitted).
Under section 547 of the Code, the bankruptcy
trustee may avoid any transfer of a debtor's property
interest that is:
(1) to or for the benefit of a
creditor;
(2) for or on account of an
antecedent debt owed by the debtor
before such transfer was made;
(3) made while the debtor was
insolvent;
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(4) made . . . [inter alia] on or
within 90 days before the date of
the filing of the petition . . . .
11 U.S.C. § 547(b). Section 546(e) exempts some transfers,
however, if they fall within certain safe harbors:
Notwithstanding section[] . . . 547
. . . of this title, the trustee may
not avoid a transfer [1] that is a
margin payment . . . or settlement
payment . . . made by or to (or for
the benefit of) a . . . financial
institution, . . . or [2] that is 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), commodity contract,
. . . or forward contract . . . that
is made before the commencement of
the case . . . .
Id. § 546(e). In Enron, we defined a "settlement payment"
as a "transfer of cash made to complete a securities
transaction." In re Enron, 651 F.3d at 339 (quotation and
alterations omitted). Section 741(7) of the Code defines a
"securities contract" as "a contract for the purchase,
sale, or loan of a security . . . including any repurchase
or reverse repurchase transaction on any such security."
11 U.S.C. § 741(7)(A)(i).
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There is a split of authority regarding what role
a financial institution must play in the transaction for it
to qualify for the section 546(e) safe harbor. Three
circuit courts have concluded that the plain language
includes any transfer to a financial institution, even if
it is only serving as a conduit or intermediary. See QSI
Holdings, Inc. v. Alford (In re QSI Holdings, Inc.), 571
F.3d 545, 550-51 (6th Cir. 2009); Contemporary Indus. Corp.
v. Frost, 564 F.3d 981, 987 (8th Cir. 2009); Lowenschuss v.
Resorts Int'l, Inc. (In re Resorts Int'l, Inc.), 181 F.3d
505, 516 (3d Cir. 1999). Only the Eleventh Circuit has
held that the financial institution must acquire a
beneficial interest in the transferred funds or securities
for the safe harbor to apply. See Munford v. Valuation
Research Corp. (In re Munford, Inc.), 98 F.3d 604, 610
(11th Cir. 1996) (per curiam). In Enron, we cited the
Third, Sixth, and Eighth Circuits' decisions with approval
and concluded that "the absence of a financial intermediary
that takes title to the transacted securities during the
course of the transaction is [not] a proper basis on which
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to deny safe-harbor protection." In re Enron, 651 F.3d at
338.
B. Application
We need not reach the "settlement payments" issue
because, based on the undisputed facts, QWUSA's payment on
October 29 fits squarely within the plain wording of the
securities contract exemption, as it was a "transfer made
by or to (or for the benefit of) a . . . financial
institution . . . in connection with a securities
contract." 2 11 U.S.C. § 546(e).
QWUSA transferred funds to appellee's trustee CIBC
Mellon, in the amount and manner prescribed by the NPAs for
purchasing the Notes. The parties agree that CIBC Mellon
is a financial institution. The NPAs wer e clearly
"securities contracts" because they provided for both the
original purchase and the "repurchase" of the Notes. Id.
2
We note that the Court in Enron had no occasion to
consider the "securities contract" safe harbor, which was added
after Enron filed for bankruptcy and after the adversary
proceeding commenced. See Financial Netting Improvements Act of
2006 § 5(b)(1)(B), Pub. L. No. 109-390, 120 Stat. 2692; Enron
Creditors Recovery Corp. v. Alfa, S.A.B. de C.V. (In re Enron
Creditors Recovery Corp.), 651 F.3d 329, 331-32 (2d Cir. 2011)
(noting that Enron filed for bankruptcy in 2001 and adversary
proceeding commenced in 2003).
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§ 741(7). Accordingly, this was a transfer made to a
financial institution in connection with a securities
contract that is exempt from avoidance.
We need not decide whether the transfer would
still be exempt if QWUSA had "redeemed" its own securities
because we agree with the district court that QWUSA made
the transfer to "purchase" the Notes. Generally, "[t]o
redeem is defined as to purchase back; to regain possession
by payment of a stipulated price; to repurchase; to regain,
as mortgage property, by paying what is due; to receive
back by paying the obligation." In re United Educ. Co.,
153 F. 169, 171 (2d Cir. 1907) (quotation omitted). Here,
QWUSA was not "regaining" its own Notes; it was acquiring
for the first time the securities of another corporation,
QWCC. In fact, under the terms of the NPAs, only QWCC had
the right to "pre-pay" or redeem the Notes; its affiliates
could only "purchase" the Notes if they complied with the
pre-payment provisions. Therefore, QWUSA was not
"redeeming" its affiliate's Notes, but "purchasing" them.
The Committee contends that QWUSA could not have
"purchased" the Notes for two reasons. First, it points to
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evidence in the record showing that some of the appellees
believed the transaction was a redemption, not a purchase.
But it made no difference to appellees at the time of the
transfer whether QWUSA was "redeeming" or "purchasing" the
Notes because, from their perspective, the NPAs treated
both the same way and appellees received the same "pre-
payment" price. Thus, their subjective understanding of
the transaction at the time is not dispositive.
Second, the Committee argues that the Cooperation
Agreement prohibited appellees from selling the Notes, and
therefore QWUSA could not have "purchased" the Notes. But
the Cooperation Agreement explicitly allowed for the sale
of the Notes to a "Constituent Company Guarantor" like
QWUSA pursuant to an amended offer to purchase the Notes.
Moreover, neither QWUSA nor any other Quebecor entity was a
party to the Cooperation Agreement. Thus, nothing
prohibited the noteholders as a group from selling -- and
QWUSA from purchasing -- all of the Notes in a single
transaction. Even if appellees had breached the
Cooperation Agreement by selling to QWUSA, that would only
mean that appellees are liable to each other; the breach
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would have no effect on the validity of the transaction
with QWUSA.
Finally, the Committee argues that even if QWUSA
"purchased" the Notes, not all of the transfers are exempt
because CIBC Mellon was merely a conduit and some of the
appellees are not financial institutions. Enron rejected a
similar argument, holding that the financial intermediary
need not have a beneficial interest in the trans fer. See
In re Enron, 651 F.3d at 338-39. To the extent Enron left
any ambiguity in this regard, we expressly follow the
Third, Sixth, and Eighth Circuits in holding that a
transfer may qualify for the section 546(e) safe harbor
even if the financial intermediary is merely a conduit.
See In re QSI Holdings, Inc., 571 F.3d at 551; Frost, 564
F.3d at 987; In re Resorts Int'l, Inc., 181 F.3d at 516.
The plain language of the statute refers to
transfers made "by or to (or for the benefit of)" a
financial institution. 11 U.S.C. § 546(e) (emphasis
added). 3 Because we generally prefer a construction that
3
The phrase "(or for the benefit of)" was added by the
2006 amendments to section 546(e). See Financial Netting
Improvements Act of 2006 § 5(b)(1), Pub. L. No. 109-390, 120
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does not render parts of a statute superfluous, see Marx v.
Gen. Revenue Corp., 133 S. Ct. 1166, 1177-78 (2013), we
conclude that a transfer may be either "for the benefit of"
a financial institution or "to" a financial institution,
but need not be both.
Finally, we note that this construction furthers
the purpose behind the exemption. As we explained in
Enron, in the context of the "settlement payment" prong of
section 546(e):
Congress enacted § 546(e)'s safe
harbor in 1982 as a means of
'minimiz[ing] the displacement
caused in the commodities and
securities markets in the event of a
major bankruptcy affecting those
industries.' If a firm is required
to repay amounts received in settled
securities transactions, it could
have insufficient capital or
liquidity to meet its current
securities trading obligations,
placing other market participants
Stat. 2692. Because this change was made after the circuit
split arose, it is arguable that Congress intended to resolve
the split with the 2006 Amendments. See, e.g., United States v.
Mele, 117 F.3d 73, 75 (2d Cir. 1997). But the legislative
history does not mention, let alone explain the reasoning
behind, this change. See H.R. Rep. No. 109-648 (Part I) at 8
(2006), reprinted in 2006 U.S.C.C.A.N. 1585, 1593. We need not,
however, rely on this legislative history, as the words of the
statute are unambiguous.
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and the securities markets
themselves at risk.
In re Enron, 651 F.3d at 334 (quoting Kaiser Steel Corp. v.
Charles Schwab & Co., 913 F.2d 846, 849 (10th Cir. 1990)).
A transaction involving one of these financial
intermediaries, even as a conduit, necessarily touches upon
these at-risk markets. Moreover, the enumerated
intermediaries are typically facilitators of, rather than
participants with a beneficial interest in, the underlying
transfers. A clear safe harbor for transactions made
through these financial intermediaries promotes stability
in their respective markets and ensures that otherwise
avoidable transfers are made out in the open, reducing the
risk that they were made to defraud creditors. 4
Accordingly, it was sufficient that QWUSA's transfer was
made to CIBC Mellon as appellees' trustee, even though CIBC
Mellon did not take title to the transferred funds.
4
Of course, the "securities contract" safe harbor is
not without limitation, and, for example, mere structuring of a
transfer as a "securities transaction" may not be sufficient to
preclude avoidance. See, e.g., 11 U.S.C. § 546(e) (providing
safe harbor relief from avoidance under section 548(a)(1)(B)
but not from avoidance under section 548(a)(1)(A)).
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CONCLUSION
For the foregoing reasons, we conclude QWUSA's
payment was a "transfer made . . . in connection with a
securities contract" and is exempt from avoidance pursuant
to section 546(e) of the Bankruptcy Code. Accordingly, we
AFFIRM the judgment of the district court.
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