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Keywords

defendantstatutepleamotiontrustbankruptcymotion to dismiss
damagesmotiontrustwillbankruptcy

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In re Boston Generating LLC, 617 B.R. 442

Facts

The case arose from a leveraged recapitalization transaction approved by the board of EBG Holdings LLC and Boston Generating LLC, which involved borrowing $2.1 billion to fund a tender offer and distribute dividends to EBG's members. The Trustee, representing the liquidating trust established under the confirmed Chapter 11 plan, filed a complaint alleging that these transactions constituted fraudulent transfers under New York law. The defendants moved to dismiss the claims, arguing that they were time-barred and that the transfers were protected by the safe harbor provision of the Bankruptcy Code.

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.

Issue

The main legal issues included whether Delaware's statute of repose applied to the trustee's claims, whether the trustee's allegations were sufficient to state a plausible claim for relief, and whether the safe harbor provision of the Bankruptcy Code protected the transfers from avoidance.

The questions posed in the MTD and the Opposition thereto raise a series of complex and, in some instances, novel issues.

Rule

The court applied principles regarding the applicability of Delaware's statute of repose, the sufficiency of pleadings in fraudulent transfer claims, and the interpretation of the safe harbor provision under section 546(e) of the Bankruptcy Code.

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.

Analysis

The court found that Delaware's statute of repose did not apply to the trustee's claims, as it was limited in its application and did not extend to strong-arm fraudulent transfer claims brought by a trustee for the benefit of creditors. The court also determined that the trustee's allegations met the plausibility standard, as they articulated a scheme to defraud creditors. Furthermore, the court concluded that the safe harbor provision under section 546(e) applied to the transfers, preventing the trustee from pursuing avoidance claims.

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.

Conclusion

The court granted the defendants' motion to dismiss all counts of the complaint, concluding that the safe harbor provision of the Bankruptcy Code protected the transfers from avoidance.

For the reasons stated below, the Court dismisses all counts pursuant to section 546(e) of the Bankruptcy Code.

Who won?

The defendants prevailed in the case because the court found that the safe harbor provision of the Bankruptcy Code applied, thus shielding the transfers from the trustee's avoidance claims.

The Court adopts the Material Facts Test and holds that for purposes of the instant motion the Lenders 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.

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