In Re: Tops Holding II Corporation
- Nelson Roman
- 7:22-cv-09464
- U.S. District Court · Southern District of New York
- 10
In re Tops Holding II Corporation, Judge Roman denied defendants’ requests to appeal an earlier bankruptcy-court order.
The ruling affected the private-equity defendants seeking immediate appellate review and the litigation trustee pursuing the dividend-related claims. The underlying claims that the bankruptcy court had otherwise allowed to proceed were not resolved by this order.
What happened
In re Tops Holding II Corporation arose from claims by Litigation Trustee Alan D. Halperin concerning dividends paid to private-equity defendants. The bankruptcy court dismissed some claims but allowed the remaining claims to proceed.
The defendants asked the district court for permission to immediately appeal that order. The court considered their three proposed appeal issues but found that they did not meet the legal requirements for an immediate appeal, so it denied each motion for permission to appeal.
Judge Nelson S. Roman also ruled that the trustee’s opposition brief exceeded the word limit but considered it because the defendants had been able to respond. The court closed the related cases.
The detailed version
- In Re: Tops Holding II Corporation · No. 7:22-cv-09464
- Nelson Roman
- Jan. 6, 2023
Background
Tops Holding II Corporation and affiliated debtors filed for bankruptcy protection. A litigation trust was later created for the benefit of Tops’s unsecured creditors, and Alan D. Halperin was appointed litigation trustee. The trustee brought adversary proceedings challenging four dividends paid to private-equity defendants between 2009 and 2013. He alleged that the dividends were avoidable as constructive and actual fraudulent transfers under federal bankruptcy law and New York law.
The private-equity defendants moved to dismiss the complaint. The bankruptcy court dismissed a limited portion of the complaint without prejudice, including part of a breach-of-fiduciary-duty count against Gregory Josefowicz and Stacey Rauch and a claim against Morgan Stanley Investment Management Inc. for aiding and abetting breach of fiduciary duty. The bankruptcy court otherwise denied the motions to dismiss and allowed the trustee to amend the complaint.
The defendants then moved in the district court for permission to appeal the bankruptcy court’s order before a final judgment. The related matters were docketed as Nos. 22-Civ-9464 (NSR) and 22-Civ-9471 (UA).
Word Limit
The court held that the bankruptcy appellate rules limited the trustee’s opposition to 5,200 words. Because the opposition exceeded that limit, the filing was not compliant. The court nevertheless considered it because the defendants had an adequate opportunity to respond. The court warned that future noncompliant submissions might be struck in their entirety.
Standards for Immediate Appeal
The court applied the standard for an interlocutory appeal under 28 U.S.C. § 1292(b). The defendants had to show that the bankruptcy order involved a controlling question of law, that there was substantial disagreement about the correct legal answer, and that an immediate appeal could materially advance the end of the litigation. The court explained that such appeals are strongly disfavored and generally reserved for exceptional cases.
Issues Presented
The defendants proposed three issues for appeal:
- Whether the trustee could use the longer limitations period available to the Internal Revenue Service for claims involving the 2009 and 2010 dividends.
- Whether New York Debtor and Creditor Law § 276 required the trustee to allege fraudulent intent by both the transferor and the transferee, rather than only by the transferor.
- Whether certain dividends fell within the bankruptcy-law safe harbor in 11 U.S.C. § 546(e), which can protect certain transfers involving securities contracts and financial institutions.
Court’s Analysis
The court held that the limitations-period issue was a pure legal question, but it found no substantial disagreement about the applicable law. The court concluded that 11 U.S.C. § 544(b) did not contain the state-law limitations restriction proposed by the defendants. It also found that removing the 2009 and 2010 dividend claims would be unlikely to materially speed the litigation because the claims involved overlapping issues and discovery.
The court declined to certify the pleading-standard issue for appeal. It explained that deciding whether the issue was controlling would require examining the sufficiency of the trustee’s allegations, which would be a fact-specific inquiry rather than a question that could be decided quickly and cleanly without studying the record.
The court likewise declined to certify the safe-harbor issue. It found that determining whether the dividends were covered by § 546(e) was fact-intensive and depended on the record, rather than presenting a pure legal question. The court also stated that an immediate appeal could produce prolonged and piecemeal litigation instead of materially advancing the case.
Disposition
Judge Nelson S. Roman denied each of the private-equity defendants’ motions for leave to appeal the bankruptcy court’s order. The Clerk was directed to terminate the listed motions and close the three related district-court cases.
Read the full 10-page opinion on CourtListener, the free public archive maintained by the Free Law Project.