In Re: Tops Holding II Corporation
- Nelson Roman
- 7:22-cv-09450
- U.S. District Court · Southern District of New York
- 10
In re Tops Holding II Corporation: Judge Roman denied the private-equity defendants’ requests for immediate appeals of a bankruptcy dismissal order.
The private-equity defendants—HSBC Equity Partners USA, L.P.; HSBC Private Equity Partners II USA L.P.; Morgan Stanley Investment Management Inc.; Morgan Stanley Capital Partners V U.S. Holdco LLC; Turbic Inc.; and Begain Company Limited—were denied permission to appeal immediately. The ruling left the Bankruptcy Court’s partial dismissal order in place and affected the litigation pursued by Trustee Alan D. Halperin.
What happened
In re Tops Holding II Corporation arose from claims by Litigation Trustee Alan D. Halperin concerning more than $370 million in dividends that Tops paid to private-equity defendants before its bankruptcy. The Bankruptcy Court dismissed a limited part of the claims but allowed the remaining claims to proceed and permitted an amended complaint.
The private-equity defendants asked Judge Roman’s court for permission to immediately appeal that Bankruptcy Court order. They raised questions about the time limit for claims, the intent required for certain fraudulent-transfer claims, and whether a bankruptcy-law protection covered the dividend transactions.
Judge Roman denied each motion for permission to appeal. The court concluded that the proposed questions did not satisfy the requirements for an immediate appeal, including the requirement that the appeal involve a controlling legal question whose resolution could materially advance the litigation.
The detailed version
- In Re: Tops Holding II Corporation · No. 7:22-cv-09450
- Nelson Roman
- Jan. 6, 2023
Background
Tops Holding II Corporation and affiliated debtors filed for Chapter 11 bankruptcy. A litigation trust was created under Tops’s reorganization plan, and Alan D. Halperin was appointed litigation trustee. The plan authorized him to investigate and pursue claims for the benefit of Tops’s unsecured creditors.
The trustee’s complaint primarily challenged four dividends paid to the private-equity defendants between 2009 and 2013. The dividends totaled more than $370 million and were allegedly avoidable as constructive and actual fraudulent transfers under federal bankruptcy law and New York law.
The Bankruptcy Court’s October 2022 order granted the defendants’ motions to dismiss in part and denied them in part. It dismissed, without prejudice as specified in that order, part of a fiduciary-duty claim 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 later granted the trustee leave to amend. The amended complaint repleaded the claim against Morgan Stanley Investment Management Inc.
Requests for Immediate Appeal
HSBC Equity Partners USA, L.P., HSBC Private Equity Partners II USA L.P., Morgan Stanley Investment Management Inc., Morgan Stanley Capital Partners V U.S. Holdco LLC, Turbic Inc., and Begain Company Limited—collectively, the private-equity defendants—asked the District Court for permission to appeal the Bankruptcy Court’s interlocutory order. An interlocutory appeal is an appeal before the lower-court case has reached a final judgment.
The District Court applied the standard in 28 U.S.C. § 1292(b). Under that standard, the moving party must show a controlling question of law, a substantial basis for 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 reserved for exceptional circumstances.
The defendants identified three proposed appeal questions:
- 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 requires proof of fraudulent intent by both the transferor and the transferee, rather than only by the transferor.
- Whether the dividends qualified for the protection in 11 U.S.C. § 546(e), which can prevent a bankruptcy trustee from avoiding certain transfers involving securities contracts and financial institutions.
Court’s Analysis
The court held that the limitations-period question was a pure question of law, but found no substantial basis for disagreement about it. The court said that 11 U.S.C. § 544(b) does not contain the state-law limitations bar urged by the defendants. It also concluded that removing the 2009 and 2010 dividend claims would be unlikely to materially speed the litigation because the four dividend claims involved overlapping issues and discovery.
The court declined to permit an appeal on the pleading-standard question. It reasoned that deciding whether the question was controlling would require examining the factual sufficiency of the trustee’s allegations. That type of fact-specific inquiry was outside the scope of deciding whether an interlocutory appeal should be allowed.
The court also declined to certify an appeal concerning the § 546(e) protection. It found that determining whether the protection applied was fact-intensive rather than a pure legal question. The court further stated that an immediate appeal could lead to 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 of Court was directed to terminate the three listed motions and close the related District Court cases. The opinion did not change the Bankruptcy Court’s partial dismissal ruling or its ruling allowing the remaining claims to proceed.
Read the full 10-page opinion on CourtListener, the free public archive maintained by the Free Law Project.