44CanalCenterPlaza,Suite400•Alexandria,VA22314•(703)739-0800•Fax(703)739-1060•www.abiworld.org RichardCorbiisanassociateinthe RichardJ.Corbi ProskauerRoseLLP;NewYork rcorbi@proskauer.com RoseLLP. theNewYorkCityoffjceofProskauer BankruptcyandRestructuringGroupin J OURNAL A M E R I C A N B A N K R U P T C Y I N S T I T U T E The Essential Resource for Today’s Busy Insolvency Professional The Powers of a Liquidating Trustee Trump Federal Securities Laws in the Third Circuit Written by: The plan of reorganization included About the Author the creation of a state-law trust to take title to and prosecute the assigned claims for the purchasers’ benefit. 11 The pur- chasers also assigned to the trust causes R ecently the Third Circuit Court of action that they owned individually of Appeals held in LaSala v. for actions related to the purchase of Bordier et Cie that the Securities the debtor’s securities. 12 The trustees Uniform Standards Act (SLUSA) does Factual Background asserted four causes of action against not prevent a liquidating trust in bank- two Swiss Banks, Bordier et Cie and Between 1998 and 2001, the officers ruptcy from bringing Delaware state Dominick Co.: Two counts of aiding and directors engaged in a “pump-and- law and Swiss law claims against Swiss and abetting a breach of fiduciary duty dump” scheme in which they artificially banks that allegedly assisted the debtor’s and two counts of violating Swiss mon- inflated AremisSoft’s stock price by officers and directors in a “pump and ey-laundering laws. 13 The district court representing that its financial position dump” scheme. In a typical “pump and dismissed the lawsuit by ruling that all was stronger than it really was. 5 After dump,” company insiders artificially four causes of action were preempted by “pumping” the stock price, the directors inflate the company’s stock price and SLUSA. 14 The district court determined “dumped” AremisSoft’s stock to unsus- then dump their overpriced stock on the pecting investors. 6 The directors pur- that all counts involved allegations of open market for sale to unsuspecting misrepresentations in connection with portedly ran these insider-trading deals investors. 1 There were two issues before securities trades and that the lawsuit through sham entities and bank accounts the Third Circuit: (1) Whether state law operated like a class action in that the with the assistance of defendants Bordier aiding and abetting breach-of-fiduciary- duty claims—which have passed from a corporation to its bankruptcy estate to a Code to Code trust—may be brought to federal court by the trustees of the trust notwithstand- ing the SLUSA, and (2) whether under et Cie and Dominick Co., which orga- the SLUSA, the trustees, as assignees nized under the laws of Switzerland. 7 trust was asserting claims for the benefit of individual investors in the debtor, of 6,000 shareholders of the debtor. 15 The situation continued to worsen, may assert in federal court claims char- and in March 2002 AremisSoft filed acterized as arising under foreign law Third Circuit Analysis: for Chapter 11 bankruptcy protection. 8 for aiding and abetting money launder- Aiding and Abetting Breaches At the time of the bankruptcy filing, a ing against foreign entities. 2 The Third of Fiduciary Duty federal class action securities lawsuit, in Circuit held that the SLUSA is no bar- which a group of purchasers of the debt- The Third Circuit then examined the rier on federal adjudication of state or foreign law claims, 3 because such claims or’s stock (purchasers) requested rescis- claims that were asserted by the trust sion of the stock-purchase contracts, was and how it became the owner of the are direct corporate claims assigned to pending against the debtor. 9 In order to claims. The Third Circuit explained that a trust from the estate did not intend to settle the purchasers’ lawsuit, the parties two types of claims were assigned to the preempt direct corporate claims. Further, to the bankruptcy proceedings agreed trust: (1) securities claims owned by the the Third Circuit held that the SLUSA that the plan of reorganization would purchasers, and (2) fiduciary-duty claims only preempts claims based on the laws give to the purchasers all the causes of owned by the corporation (the debtor). 16 of a state or territory of the United States, action owned by the debtor. 10 The first two counts of the complaint thus not preventing foreign law claims against entities for violating foreign law. 4 5 Id . at 126. 11 Id . at 127. 6 Id . 12 Id . 7 Id . 13 Id . 1 LaSala v. Bordeir et Cie , 519 F.3d 121 (3d Cir. 2008). 8 Id . 14 Id . at 129. 2 Id. at 126. 9 Id . 15 Id . 3 Id . 10 Id . 16 Id . at 130. 4 Id . at 143.
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