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Enron Corp. v. Springfield Assocs., L.L.C. (In re Enron Corp.)

United States District Court for the Southern District of New York

August 27, 2007, Decided; August 27, 2007, Filed

Chapter 11, No. 01-16034, Jointly Administered, Adversary Proceeding No. 05-01025, 06 Civ. 7828 (SAS), 07 Civ. 1957 (SAS)





Defendant Springfield Associates, L.L.C. ("Springfield") and intervenor Citibank, N.A. ("Citibank") (collectively, "Appellants") in the above-captioned coordinated adversary proceeding bring this interlocutory appeal from the orders of the Bankruptcy Court of the Southern District of New York denying defendant's motion to dismiss an equitable subordination claim under section 510(c) of the Bankruptcy Code (the "Subordination Order") 1 and a disallowance claim pursuant to section 502(d) of the Bankruptcy Code (the "Disallowance Order") 2 filed by  [**3] Enron Corp. 3 and certain of its affiliates (collectively, "Enron" or "Appellee"). The question presented, as the Court stated in its January 30, 2007 Opinion granting leave to file this interlocutory appeal, is "whether equitable subordination under 510(c) and disallowance under 502(d) can be applied, as a matter of law,  [*428]  to claims held by a transferee to the same extent they would be applied to the claims if they were still held by the transferor based on alleged acts or omissions on the part of the transferor." 4

This question, although fairly simply stated, is complex and of first impression in this Circuit, and will have serious ramifications well beyond the parties  [**4] involved in this particular appeal. Hundreds of pages of material have been submitted by the parties and hundreds more by the various amici curiae, and all parties were heard at a lengthy oral argument. In resolving the difficult issues presented by this appeal, the Court has undertaken a careful review of the voluminous record, including a close reading of the Bankruptcy Court's two opinions, and the statutes, case law and ultimately, the policy considerations raised by the parties.

That review has revealed that the two opinions below unnecessarily reached beyond the facts of the cases before the court. 5 That overreaching resulted in the outcry from commentators and amici curiae, who have expressed great concern that the effect of these opinions will wreak havoc in the markets for distressed debt. While I cannot claim to avoid the use of dicta altogether, the conclusions of law here cleave tightly to the facts presented. For the reasons discussed below, the Subordination Order and Disallowance Order are vacated and the matter is remanded to the Bankruptcy Court for proceedings consistent with this Opinion.

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379 B.R. 425 *; 2007 U.S. Dist. LEXIS 63129 **; 48 Bankr. Ct. Dec. 213

In re ENRON CORP., et al., Reorganized Debtors. ENRON CORP., Plaintiff, -against- SPRINGFIELD ASSOCIATES, L.L.C. and WESTPAC BANKING CORPORATION, Defendants. SPRINGFIELD ASSOCIATES, L.L.C., Appellant, -against- ENRON CORP., Appellee.

Subsequent History: Motion denied by Enron Corp. v. Springfield Assocs., L.L.C. (In re Enron Corp.), 2007 U.S. Dist. LEXIS 70731 (S.D.N.Y., Sept. 24, 2007)

Prior History:  [**1] Chapter 11. No. 01-16034. Jointly Administered. Adversary Proceeding No. 05-01025.

Enron Corp. v. Ave. Special Situations Fund II, LP (In re Enron Corp.), 340 B.R. 180, 2006 Bankr. LEXIS 541 (Bankr. S.D.N.Y., 2006)

Disposition:  The orders denying the transferee's motions to dismiss the debtors' claims were reversed, and the case was remanded for further proceedings.


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