NO. 12-1447 In the Supreme Court of the United States ERIC C. RAJALA, Trustee in Bankruptcy for the Estate of Generation Resources Holding Company, LLC, Petitioner, v. LOOKOUT WINDPOWER HOLDING COMPANY, LLC, a Missouri Limited Liability Company, Respondent. On Petition for Writ of Certiorari to the United States Court of Appeals for the Tenth Circuit REPLY BRIEF OF PETITIONER Michael P. Healy Counsel of Record The Healy Law Firm, L.L.C. 200 Business Exchange Building 200 NE Missouri Road Lee s Summit, Missouri 64086 (816) 472-8800 Telephone (816) 472-8803 Fax mphealy@healylawyers.com Counsel for Petitioner Becker Gallagher Cincinnati, OH Washington, D.C. 800.890.5001
i TABLE OF CONTENTS TABLE OF CONTENTS... i TABLE OF AUTHORITIES... ii I. THE ISSUE ON APPEAL IS NOT MOOT.1 II. III. THE CIRCUITS ARE SPLIT OVER A FEDERAL STATUTE... 3 RULE 65 DOES NOT SUPPLANT 362(a) AND, REGARDLESS, WOULD CHILL THE ASSET PRESERVATION POLICY OF TITLE 11... 4 CONCLUSION... 6
ii TABLE OF AUTHORITIES CASES In re Johnson, 575 F.3d 1079 (10th Cir. 2009)... 5 In re Majestic Star Casino, LLC, 716 F.3d 736 (3rd Cir. 2013)... 2 In re Myers, 491 F.3d 120 (3d Cir.2007)... 2 In re MortgageAmerica, 714 F.2d 1266 (5th Cir. 1983)... 2 In re Siciliano, 13 F.3d 748 (3d Cir.1994)... 2 Price v. Rochford, 947 F.2d 829 (7th Cir. 1991)... 5 STATUTES 11 U.S.C. 362... 4 11 U.S.C. 362(a)... 1, 5 11 U.S.C. 362(d)... 5 11 U.S.C. 362(e)... 5 11 U.S.C. 542... 2, 4 11 U.S.C. 543... 2, 4
iii 11 U.S.C. 550(b)(1... 2 RULES Fed. R. Civ. P. 65... 4
I. THE ISSUE ON APPEAL IS NOT MOOT 1 The issue on appeal is whether property alleged to have been fraudulently transferred from a debtor is subject to the automatic stay provided by 11 U.S.C. 362(a) before the Trustee completes his fraudulent transfer adversary proceeding and recovers the fraudulently transferred property. Here, the fraudulently transferred property is the right to be paid the purchase price for a wind farm developed by debtor Generation Resources Holding Company, LLC ( GRHC ). 1 After this Petition was filed the District Court where the Trustee s adversary proceeding is pending granted summary judgment on the Trustee s fraudulent transfer claims ruling that the right to be paid the purchase price for the wind farms GRHC developed was not property of a debtor. See Brief in Opposition at App. 34-38. 2 Therefore, Respondent claims the [Trustee s] arguments are essentially moot. Brief in Opposition at 1. This is patently incorrect. 1 GRHC developed and sold two wind farms, the Forward project and the Lookout project. The approximate $9 million that was being held by the Kansas Bankruptcy Court which is the subject of this appeal was for the second and final installment payment of the Lookout project. 2 This is puzzling given the District Court s apparent recognition that GRHC paid at least $1.33 million to develop the Forward project. See Brief in Opposition at App. 8-12, 15.
2 The summary judgment is interlocutory (other claims will go to trial), subject to reconsideration and might be reversed on appeal. If it is reversed, the automatic stay will perform a vital function essential to bankruptcy administration in that 362 makes void any acts that violate the stay. 3 This means the Trustee may recover the purchase price without the delay and expense of multiple fraudulent transfer actions against multiple transferees. See, e.g., 11 U.S.C. 542 (Turnover of Estate Property) and 543 (Turnover by Custodian). The 362 remedy also avoids the good faith purchaser defense sometimes available to mediate transferees. See 11 U.S.C. 550(b)(1 and 2). It is a crucial tool for court-appointed bankruptcy Trustees. This Petition is the one-and-only opportunity for the Trustee to seek review of the Tenth Circuit s split from MortgageAmerica 4, and present the split to this Court. If review is not granted now, there is no other opportunity for the Trustee to present this question 3 In re Majestic Star Casino, LLC, 716 F.3d 736, 750 (3 rd Cir. 2013) citing In re Myers, 491 F.3d 120, 127 (3d Cir.2007) ( [A] transfer that violates the automatic stay is generally considered to be void without any action on the part of the debtor. ); In re Siciliano, 13 F.3d 748, 750 (3d Cir.1994) ( [T]he general principle [is] that any creditor action taken in violation of an automatic stay is void ab initio. ). 4 See In re MortgageAmerica, 714 F.2d 1266, 1275 (5 th Cir. 1983) ( when a soon-to-be bankrupt debtor fraudulently transfers property to shield it from his creditors, that debtor/transferor should be considered to have retained an equitable interest in the property so that it will continue to be considered property of the estate. ).
3 and he along with all other similarly situated trustees will be prejudiced. II. THE CIRCUITS ARE SPLIT OVER A FEDERAL STATUTE Respondent argues that there is no split in the Circuits and even if there is, the Tenth Circuit followed the majority view so resolving the split is unnecessary. The Tenth Circuit titled one section of its opinion The Split and another Which Interpretation? See Petition for Writ of Certiorari at App. 14, 16. Therefore, Respondent s argument that the split does not relate directly to the arguments asserted in the Petition is plainly wrong. It is also belied by Respondent s subsequent argument that a majority of courts reject Petitioner s improper construction of the statute and follow the Second Circuit s decision in Colonial. Brief in Opposition at 9, 10. If there were no split, there would be no majority rule. In fact, most Circuit Courts follow MortgaeAmerica. See Petition at 11-15. Regardless, there is a split and it needs to be resolved so debtors, trustees and non-debtors may govern their actions accordingly.
4 III. RULE 65 DOES NOT SUPPLANT 362(a) AND, REGARDLESS, WOULD CHILL THE ASSET PRESERVATION POLICY OF TITLE 11 Respondent characterizes the 362 stay as an asset-freezing injunction and then argues Rule 65 5 would be offended if 362 applied, because 362 has different requirements/elements than Rule 65. Respondent does not retort the illusion its Rule 65 argument creates - Rule 65 would only be needed if 541(a) and 362 do not apply, but Rule 65 is satisfied only if 541(a) applies in the first place. See Petition for Writ of Certiorari at 17. Respondent s concern is freezing property possessed by non-debtor transferees places the burden of relief on the non-debtor who must seek and obtain relief from 362 rather than on the trustee who Respondent claims should be required to sue, litigate and win a hearing under Rule 65. The Bankruptcy Code contains numerous provisions protecting estate property possessed by non-debtors. See, e.g., 11 U.S.C. 542 (Turnover of Estate Property) and 543 (Turnover by Custodian). Indeed, 362 is the central provision of the entire Bankruptcy Code. 6 5 Referring to Fed. R. Civ. P. 65 and its adoption by Fed. R. Bankr. P. 7065. 6 The automatic stay created by 11 U.S.C. 362 is the central provision of the Bankruptcy Code. When a debtor files for bankruptcy, section 362 prevents creditors from taking further action against him except through the bankruptcy court. The stay protects debtors from harassment and also ensures that the debtor s assets can be distributed in an orderly fashion, thus
5 Congress did not intend to replace 362 with Rule 65, and there is no law saying otherwise. Indeed, the automatic release feature of 362 7 proves Congress carefully balanced the harms posed by each approach 8 and decided it was better for 362 to apply. From the non-debtor s view it is much quicker and easier to seek and obtain relief from the automatic stay than it is to be sued by a trustee, litigate a Rule 65 motion, and have a hearing/trial. The remedy features of 362 bolster this interpretation. Specifically, where, like here, the transferred property has been alienated by the nondebtor transferee, 362 can help get it back because it voids subsequent transfers without the need for further litigation. Rule 65 cannot. These remedial measures preserving the interests of the creditors as a group. In re Johnson, 575 F.3d 1079, 1083 (10th Cir.2009) (quoting Price v. Rochford, 947 F.2d 829, 831 (7th Cir.1991)). 7 The automatic stay applies automatically. 11 U.S.C. 362(a). However, if a transferee in possession of allegedly fraudulent transferred property disputes that the property was fraudulently transferred or that the stay should apply, he may file for relief from the stay. 11 U.S.C. 362(d). Such a person is automatically released from the stay within 30 days unless the bankruptcy court convenes a hearing and rules otherwise. 11 U.S.C. 362(e). 8 The alleged harm in applying 541(a) and 362(a) is that a courtappointed, impartial trustee would allege frivolous fraudulent transfer claims and the transferee would be forced to seek relief from the 362 stay. The harm in rejecting this application is that a debtor will transfer assets pre-bankruptcy so he can alienate property while the bankruptcy is pending and generally chill pursuit of such property.
6 would be meaningless surplusage if they did not apply to non-debtors in possession of estate property. CONCLUSION The Tenth Circuit s interpretation encourages debtors to transfer property pre-bankruptcy, encourages non-debtor transferees to dissipate such property, and discourages trustees from investing the time and money needed to pursue such property. There is no reason Congress would enact a body of Legislation protecting and preserving assets for distribution to creditors and then undercut one of its key components. The split created by the Second Circuit in Colonial Realty needs to be eradicated so the policy undergirding Title 11 can be interpreted and applied as Congress intended. Wherefore, the Trustee requests that this Court grant his Petition for a Writ of Certiorari. Respectfully Submitted, Michael P. Healy Counsel of Record The Healy Law Firm, L.L.C. 200 Business Exchange Building 200 NE Missouri Road Lee s Summit, Missouri 64086 (816) 472-8800 Telephone (816) 472-8803 Fax mphealy@healylawyers.com Counsel for Petitioner