So far as is relevant here, this is an action against Bankers Trust Company ("BT") by a purported assignee created under a Chapter 11 plan of liquidation of Semi-Tech Corporation ("Semi-Tech") and related debtors for alleged breach of BT's obligations as indenture trustee with respect to certain Semi-Tech notes.*fn1 The matter is before the Court on BT's motion to dismiss for lack of standing.
As the scope of this motion is limited, only a brief description of the relevant allegations of the amended complaint is required.
In 1993, Semi-Tech's predecessor in interest*fn2 purchased from Akai Holdings Limited stock in Singer Sewing Machine Company for $848 million. It raised approximately $654 million for that purpose through the issuance of senior discount notes pursuant to an indenture, dated August 18, 1993, between Semi-Tech and BT.*fn3 The indenture, as is customary, contained a variety of provisions defining as events of default self dealing and other transactions, including certain issuances of additional debt and the failure to maintain certain financial ratios. BT served as the indenture trustee until May 11, 1999.*fn4
The complaint alleges a long series of transactions commencing in late 1995 and continuing into 1999 in which, plaintiff claims, Semi-Tech acted dishonestly and/or imprudently and breached its obligations under the indenture.*fn5 It charges that BT breached its obligations to the note holders under the indenture and the Trust Indenture Act of 1939 ("TIA"),*fn6 as well as its fiduciary duties, by failing adequately to protect the note holders and by accepting deficient certificates from Semi-Tech officers and its auditor that purported to affirm compliance with various requirements under the indenture agreement. It seeks to recover damages as assignee of certain of the note holders. The Bankruptcy and the Alleged Assignments
Semi-Tech filed for bankruptcy protection on September 7, 1999. Plaintiff SemiTech Litigation LLC, a Delaware limited liability company, was created, and purports to have authority to bring this action, "by virtue of (a) a September 18, 2000 First Amended Plan of Liquidation of Unsecured Creditors of Semi-Tech Group under Chapter 11 of Bankruptcy Code (the `Plan') . . ., and (b) the Bankruptcy Court's November 9, 2000 Findings of Fact and Conclusions of Law Relating to, and Order Under 11 U.S.C. § 1129(a) and (b) Confirming the Plan. . . ."*fn7
The Plan provided for assignment to plaintiff of Creditor Causes of Action*fn8 by holders of unsecured claims including, among others, those who beneficially owned the relevant notes as of September 15, 2000, i.e., the date for purposes of determining creditors entitled to vote to accept or reject the Plan ("Record Date Note Holders"),*fn9 and those who no longer owned their notes ("Former Note Holders").
Section 7.5.2 of the Plan provided that, "[i]n addition to soliciting votes to accept or reject the Plan," ballots sent to holders of unsecured claims, such as Record Date Note Holders, were to give them "an option to accept or decline, by so indicating on the Ballots, the Creditor Claim Assignment Offer [the "CCAO"]."*fn10 This purportedly permitted each Record Date Note Holder to (a) elect to assign its claims against Potential Defendants "as of the Effective Date [March 16, 2001*fn11] to the [plaintiff]," or (b) decline the offer and retain its claims against Potential Defendants.*fn12 Section 7.5.2, however, went on to provide that "[a]ll [Record Date Note] holders . . . shall be deemed to have accepted the Creditor Claim Assignment Offer unless such holders elect to reject [it] on the Ballot . . ."
Section 7.5.4 of the Plan provided that past or former creditors of the Debtors, such as Former Note Holders, might assign their claims against Potential Defendants "by executing and delivering the Former Holder Assignment Forms to the Claims Agent."*fn13 Thus, unlike Record Date Note Holders, Former Note Holders were required affirmatively to assign their claims in order for those claims to be transferred to plaintiff.
BT maintains that neither a bankruptcy estate nor an entity created by a reorganization or liquidation plan has standing to assert claims of third parties, including claims of holders of notes of the debtor, of misconduct by an indenture trustee, regardless of any assignment by a confirmed plan, a Bankruptcy Court, or the third parties. In any case, it contends that even if plaintiff has standing generally to pursue such claims, it cannot assert the TIA claims because it did not obtain assignments from those who owned the notes at the relevant time. Finally, it maintains that the assignments violated the New York champerty statute*fn14 and therefore are void.
Plaintiff contends that it properly sues as assignee on two theories: viz. that (1) the claims of the Record Date Note Holders were assigned by virtue of the Bankruptcy Court's order confirming the Plan, and BT is foreclosed by res judicata and collateral estoppel from challenging that assignment, and in any case (2) holders of approximately 72 percent of the notes as of the record date accepted the CCAO and some Former Note Holders executed assignments in favor of plaintiff.*fn15
A. Plaintiff's Standing to Assert Claims on Behalf of Note Holders Generally
In Caplin v. Marine Midland Grace Trust Co.,*fn16 the Supreme Court held that a reorganization trustee created under the former bankruptcy act lacked standing to assert claims against an indenture trustee on behalf of holders of the debtor's debentures. It reasoned that the bankruptcy statute did not suggest "that the trustee in reorganization is to assume the responsibility of suing third parties on behalf of debenture holders,"*fn17 that debenture holders should make their own assessments of the advantages and disadvantages of litigation,*fn18 and that such suits by a trustee would create a risk of results inconsistent with those in any actions brought by individual debenture holders.*fn19 In revising the statute, moreover, Congress considered but ultimately rejected legislation that would have overturned this holding.*fn20
Caplin is distinguishable from this case in that the debenture holders there, in contrast to the situation here, had not assigned their claims to the trustee. In Williams v. California 1st Bank,*fn21 however, the Ninth Circuit held that this difference was immaterial and that a bankruptcy trustee who had obtained assignments by investors nevertheless lacked standing to sue on the assigned claims. It reached this result in light of its conclusion that the trustee "had no claim of its own" and, as in Caplin, the investors remained the real parties in interest, and there otherwise would have been a risk of inconsistent results in any actions brought by nonassigning investors.*fn22 BT therefore argues that plaintiff lacks standing to sue on behalf of the note holders irrespective of whether it obtained valid assignments of note holders' claims against it.
With respect, this Court does not find Williams persuasive. Caplin involved an effort to discern whether Congress intended trustees to exercise such a power whereas the issue both in Williams and here is whether assignments should be stripped of legal effect because the assignee is a creature of a bankruptcy. The considerations that moved the Supreme Court in Caplin are considerably less compelling in this context. If there is a substantial argument here that the plaintiffassignee is not the real party in interest, it may be advanced under Fed.R.Civ.P. 12(b)(6) and 17. The fact that the plaintiff-assignee has no claim of its own is no different than in most cases, outside the bankruptcy context, in which assignees may sue on assigned claims. Likewise, there always is a risk, outside the bankruptcy context, that a non-assigning note or debenture holder may sue and obtain results inconsistent with a result obtained by an assignee of an identical claim, but that affords no basis for refusing to allow suit on assigned claims. The Court sees no basis for treating an assignee created by, or assignments made pursuant to, a Chapter 11 plan any differently.
B. The Validity of the Assignments
The next aspect of BT's standing argument is a collateral attack on the power of the Bankruptcy Court to effect an assignment of the claims by approving the Plan.
A collateral attack may be foreclosed by principles of former adjudication provided the party mounting the challenge was subject to the personal jurisdiction of the Bankruptcy Court and, despite notice of and an opportunity to challenge the Confirmation Order, failed to appeal from it.*fn23 As the proponent of the Plan was obliged to give notice to BT, which does not deny its receipt, and as BT failed to appeal from the Confirmation Order,*fn24 the Court proceeds to the merits of the former adjudication argument.
1. Collateral Estoppel
The collateral estoppel argument is readily disposed of.
As a general proposition, "[t]he normal rules of res judicata and collateral estoppel apply to the decisions of bankruptcy courts."*fn25 The governing principle is clear:
"Litigants who have had a full and fair opportunity
to litigate ordinarily will not be heard to
relitigate an issue actually, finally and necessarily
decided against them in a prior action." In order for
this doctrine of issue preclusion to apply, four
requirements must be satisfied:
"`(1) the issues in both proceedings must be
identical (2) the issue in the prior proceeding must
have been actually litigated and actually decided,
(3) there must have been a full and fair opportunity
for litigation in the prior proceeding, and (4) the
issue previously litigated must have been necessary
to support a final judgment on the merits.'"*fn26