The opinion of the court was delivered by: Kimba M. Wood, U.S.D.J.
Defendant-Appellee Dow Chemical Company ("Dow") moves to certify for interlocutory appeal, pursuant to 28 U.S.C. § 1292(b) and Fed. R. App. P. 5(a)(3), this Court's June 25, 2009 Opinion and Order ("June 25 Order"), which vacated a decision of the United States Bankruptcy Court for the Southern District of New York. The Court's June 25 Order found that the Bankruptcy Court abused its discretion in granting summary judgment in favor of Dow on a theory that Plaintiff-Appellant John S. Pereira, as Chapter 7 Trustee (the "Trustee") of Trace International Holdings, Inc., and its related entities (collectively "Trace"), was judicially estopped from arguing that certain payments Trace made to Dow were illegal dividend payments. For the reasons stated below, the Court GRANTS Dow's motion and certifies the June 25 Order for interlocutory appeal.
The facts and procedural history underlying this case are set forth in this Court's and the Bankruptcy Court's previous opinions, familiarity with which is assumed.*fn1 They are summarized here only to the extent that they are relevant.
The payments that are the subject of this action arose out of a transaction between Trace and Dow that was brokered via a third party, BSI Acquisitions Corp. ("BSI"). BSI's transaction with Trace was structured as a purchase of preferred stock, and Trace's payments to BSI were characterized as dividends on that stock. Dow's transaction with BSI, however, was structured as a loan, and BSI's payments to Dow were characterized as payments on that debt. In the Bankruptcy Court proceedings below, these two transactions have been collapsed into a single transaction such that payments from Trace to BSI and from BSI to Dow are treated as payments directly from Trace to Dow (the "Payments").*fn2
II. Characterization of the Payments
In the instant action before the Bankruptcy Court, the Trustee characterized the Payments as both liabilities and dividends. Specifically, the Trustee argued that the Payments should be treated as liabilities for the purposes of determining Trace's insolvency ("valuation purposes"), and that the Payments should be treated as dividends for the purposes of determining whether the Payments were fraudulent transfers ("legality purposes") (the Trustee's "Bankruptcy Court Position").*fn3
After commencing the instant action, the Trustee brought a separate lawsuit before Judge Sweet against the officers and directors of Trace. Pereira v. Cogan, 294 B.R. 449 (S.D.N.Y. 2003) ("Cogan"). The Trustee advanced the same position in the District Court action, that the Payments were liabilities for valuation purposes, and dividends for legality purposes (the Trustee's "Cogan Position").
During the instant action's pendency before the Bankruptcy Court, Judge Sweet adopted both of the Trustee's arguments in Cogan, holding that the Payments were debts for valuation purposes and dividends for legality purposes.*fn4 Judge Sweet did so notwithstanding the apparent inconsistency between these findings.*fn5
Thereafter, the Bankruptcy Court, in deciding a motion by Dow for summary judgment, judicially estopped the Trustee from arguing that the Payments were dividends. The Bankruptcy Court did so on the ground that the Trustee had argued to Judge Sweet that the Payments were liabilities for valuation purposes, and Judge Sweet had adopted this characterization of the Payments.*fn6
The Bankruptcy Court described this as a "novel application of judicial estoppel to inconsistent positions, both of which were taken successfully by the plaintiff in an earlier action against different parties." Dow II, 301 B.R. at 802.
On appeal, this Court reversed and vacated the Bankruptcy Court's decision as an abuse of discretion.*fn7 The Court held that the Bankruptcy Court erred in its application of the judicial estoppel doctrine and that its decision "cannot be located within the range of permissible decisions." Specifically, the Court concluded that judicial estoppel was inapplicable because the Trustee took the same internally inconsistent position in this proceeding that he advanced in the prior proceeding before Judge Sweet: that the Payments should be treated as debt for valuation purposes and dividends for legality purposes. The Court concluded that, under these circumstances, estopping the Trustee from ...