Morrison Cohen Files Petition for Certiorari in U.S. Supreme Court Regarding Interpretation of Important Bankruptcy Code Provisions

On April 2, 2024, Morrison Cohen filed a petition for a writ of certiorari before the U.S. Supreme Court, concerning whether Section 101(22)(A) of the Bankruptcy Code, which defines a “financial institution,” should be interpreted on a contract-by-contract basis or a transfer-by-transfer basis.

This question is important because under Section 101(22)(A), “financial institution” status may be extended to any entity that is a customer of a bank in connection with securities contract. And Section 546(e) of the Bankruptcy Code creates a safe harbor for any transfers made to or from (or for the benefit of) a “financial institution.” Therefore, depending on how Section 101(22)(A) is interpreted, transfers made by corporations as part of a securities contract may be safe harbored and protected from later avoidance by a bankruptcy trustee.  

Morrison Cohen began work on the case at issue in 2020, defending three former employees of Nine West, who were sued for receiving payments as part of Nine West’s leveraged buyout (LBO). The firm helped secure the district court’s the dismissal of the fraudulent conveyance claims against them. The district court found that (1) Section 101(22)(A) should be interpreted on a contract-by-contract basis, and (2) therefore, all transfers made as part of the LBO (including those to our clients) were protected by the Bankruptcy Code’s safe harbor, even those made through Nine West’s payroll (instead of by the bank). 

On appeal, the Second Circuit, by a 2-1 decision, reversed the district court’s decision in part, adopting a transfer-by-transfer interpretation of Section 101(22)(A). Ultimately, the Second Circuit majority concluded that Congress did not intend to protect all transfers made as part of a securities contract, even those alleged to not have involved the bank.  Consequently, the Second Circuit reinstituted fraudulent conveyance claims against our clients and all other former employees of Nine West who had been paid by payroll as part of the LBO. Although the Second Circuit denied the firm’s request to rehear arguments en banc, it granted a stay of the case to bring the question to the Supreme Court’s attention. Filing the petition ensures that the case does not proceed until the Supreme Court has had a chance to review.

Morrison Cohen Partner & Co-Chair Y. David Scharf, with assistance from Senior Counsel Collin A. Rose, filed the petition as lead counsel for our clients and a broader group of employees of Nine West. The firm was assisted by Howard Seife, partner at Norton Rose Fulbright, and former U.S. Attorney General William Barr and Patrick Philbin, partners at Torridon Law PLLC.

Morrison Cohen’s Business Litigation team is available to assist clients in the advanced and specialized work of preparing and filing petitions for writ of certiorari in the U.S. Supreme Court.

Read the petition for certiorari, linked below.