The opinion of the court was delivered by: Lewis A. Kaplan, District Judge
This document relates to: 04 Civ. 0030
Parmalat Finanziaria S.p.A., Parmalat S.p.A., and several affiliated entities (collectively, "Old Parmalat" or the "Foreign Debtors") filed for bankruptcy in Italy in late 2003 following an historic collapse allegedly caused by a lengthy and complex fraud. As a result of the bankruptcy proceedings and a reorganization plan approved by a majority of creditors, a new entity was created to assume certain of the Foreign Debtors' assets and liabilities and act as a vehicle for the discharge of claims by unsecured creditors. That new entity, Parmalat S.p.A., referred to herein as "New Parmalat" to distinguish it from the Foreign Debtor of the same name, is sued on claims relating to the alleged fraud. It moves to dismiss the claims against it in the third amended consolidated class action complaint (the "TAC").*fn1 Dr. Enrico Bondi, the foreign representative of Old Parmalat's estate, moves for an order modifying a preliminary injunction, currently in effect pursuant to Section 304 of the Bankruptcy Code (the "Code"),*fn2 to prevent plaintiffs from suing New Parmalat in the United States.
Familiarity with the Court's prior opinions in this and related matters is assumed.*fn3
Those opinions capture the gist of plaintiffs' allegations of securities fraud and provide sufficient background for present purposes regarding the collapse of Old Parmalat and the various lawsuits that followed. Some words are necessary, however, concerning the bankruptcy proceedings both here and in Italy and the formation of New Parmalat.
Old Parmalat filed for bankruptcy in Parma, Italy, after the collapse in December 2003. In direct response, the Italian Ministry of Productive Activities issued an emergency decree on December 23, which later was ratified by the Italian Parliament, called the Marzano Law. The law amended and supplemented certain provisions of Italian bankruptcy law as applicable to large companies with substantial debt. Among other things, the Marzano Law granted new powers to the Extraordinary Administrator of a bankrupt estate -- a position analogous to that of a trustee in U.S. bankruptcy proceedings -- to propose a plan for restructuring rather than simply liquidating a bankrupt entity.*fn4
The Parma bankruptcy court (the "Parma Court") declared the Foreign Debtors insolvent and eligible for Extraordinary Administration Proceedings. It issued a stay, as authorized by Italian law, enjoining all creditor actions. The Italian government appointed Dr. Bondi as Extraordinary Administrator.*fn5
II. Proceedings in the United States
On January 5, 2004, investors in Old Parmalat filed actions in the United States alleging violations of the federal securities laws by various of Old Parmalat's officers, directors, auditors, and others.*fn6 These were consolidated before the Court into one purported class action (the "Securities Fraud Action"). Plaintiffs subsequently filed two amended consolidated class action complaints.*fn7
Dr. Bondi meanwhile filed three lawsuits in the United States against certain banks and accounting firms, alleging fraud on Old Parmalat and its investors. Two were transferred to this Court from district courts in Illinois and North Carolina (the "Recovery Actions"). The third was filed in New Jersey state court, removed, and remanded.
In June 2004, Dr. Bondi commenced also an ancillary proceeding in the bankruptcy court for this district, seeking to bar U.S. actions against the Foreign Debtors pursuant to Section 304 of the Bankruptcy Code.*fn8 Judge Drain on July 2, 2004 granted a preliminary injunction (the "Section 304 Order").*fn9
Certain defendants in the Recovery Actions and the Securities Fraud Action, concerned that the Section 304 Order would prevent them from defending themselves adequately, moved for withdrawal of the reference of the ancillary proceeding in the bankruptcy court. The motion was granted "to the extent that the reference [was] withdrawn with respect to, and this Court will exercise exclusive jurisdiction over, whether to grant, vacate, modify, make permanent or otherwise continue, construe and enforce [the Section 304 Order] to the extent that such order affects the Securities Fraud Action or any Recovery Action pending in a federal court."*fn10 The Court modified the Section 304 Order to permit discovery against the Foreign Debtors.*fn11 It granted also subsequent motions to modify the Section 304 Order to permit the assertion of compulsory counterclaims in the Recovery Actions*fn12 and a third-party complaint by Grant Thornton International ("GTI") in the Securities Fraud Action.*fn13
III. New Parmalat and the Concordato
Pursuant to the Marzano Law, Dr. Bondi in July 2004 proposed a restructuring plan that called for the formation of a "Concordato," or "composition with (and agreement among) creditors,"*fn14 the purpose of which was to enable the continued operations of certain Foreign Debtors while at the same time creating a "'vehicle' that could be used to discharge the claims of unsecured creditors once their claims have been validated."*fn15 A majority of creditors voted in favor of the Concordato and, on October 1, 2005, the Parma Court approved it, making it effective.*fn16
Upon the approval of the Concordato, New Parmalat was created and succeeded to the assets of sixteen of the Foreign Debtors.*fn17 It assumed also "[a]ll debts" of those entities, including the obligation to discharge approved creditor claims by allocating to each eligible creditor an amount of New Parmalat stock determined in accordance with certain "recovery ratios."*fn18
The allocation of New Parmalat shares is the only means by which a creditor's claim against Old Parmalat may be satisfied.*fn19 New Parmalat thus functions essentially as a claims administrator, converting approved claims against Old Parmalat into new equity interests in New Parmalat.
Creditors entitled to receive stock include those whose claims were submitted prior to the approval of the Concordato and approved by the Parma Court as part of a list of liabilities compiled for purposes of the reorganization. Such creditors typically include those whose claims were included in Old Parmalat's pre-insolvency financial statements and accounting books, such as suppliers.*fn20 Other creditors entitled to receive New Parmalat stock under the Concordato include "eligible unsecured creditors with a title and/or cause that predates the date when individual [Foreign Debtors] were declared eligible for Extraordinary Administration Proceedings . . . whose claims were not included in the sum of liabilities but whose claims [are] later verified by a court decision that has become final and, therefore, can no longer be challenged ('Late-Filing Creditors')."*fn21
Certain plaintiffs in the Securities Fraud Action already have sought to convert claims against Old Parmalat into New Parmalat shares. Plaintiffs Cattolica Partecipazioni, S.p.A. ("Cattolica"), Capital & Finance Asset Management S.A. ("CFAM"), and Margery Louise Kronengold (collectively, the "Bondholders") submitted pre-insolvency claims in the Parma Court and received New Parmalat shares and warrants as Late-Filing Creditors.*fn22 Plaintiffs Hermes Focus Asset Management Europe, Ltd., and Hermes European Focus Funds I, II, and III (collectively, "Hermes") filed proofs of claim in the Parma Court prior to the approval of the Concordato to be included on the initial list of liabilities.*fn23 The Parma Court held that those claims would not be included on the list, as it concluded that they should have been brought against Old Parmalat's employees and auditors, not the company itself.*fn24 Hermes appealed that decision in Italy.*fn25
IV. The Third Amended Complaint
On June 1, 2006, plaintiffs sought leave to amend the consolidated class action complaint in the Securities Fraud Action to add claims against New Parmalat.*fn26 The Court granted the motion on July 21,*fn27 and plaintiffs filed the TAC on July 26.*fn28
Counts One and Two of the TAC allege violations of Section 10(b) of the Securities and Exchange Act of 1934 (the "Exchange Act")*fn29 and Rule 10b-5 thereunder.*fn30
In particular, Count One alleges that Old Parmalat's officers, directors, and auditors, in violation of Rule 10b-5(a) and (c), used fraudulent accounting, invoicing, and other business methods to "boost Parmalat's reported assets and earnings and reduce its liabilities," thus inducing plaintiffs to purchase securities at inflated prices.*fn31 Count Two alleges that the same defendants, in violation of Rule 10b-5(b), fraudulently induced plaintiffs to purchase securities by misstating the company's financial status in financial statements and other reports.*fn32 The TAC does not allege any conduct post-dating the approval of the Concordato or conduct by New Parmalat itself. Rather, it alleges that New Parmalat is liable "as the successor to Old Parmalat."*fn33
Plaintiffs have stated that in asserting the claims against New Parmalat in the United States, they seek only to liquidate their claims here. They represent that they will seek to enforce any judgment only in the Parma Court.*fn34 In other words, they seek ultimately to recover New Parmalat stock in accordance with the Concordato's recovery ...