Enron Creditors Recovery Corp. v. Alfa, S.A.B. de C.V.

Enron, a financially troubled energy company, paid out more than $1.1 billion of its commercial paper held by various financial institutions prior to the paper’s maturity date. The redemption price included interest and was higher than the notes’ market value. Enron filed for bankruptcy under Chapter 11 of the United States Bankruptcy Code. A renamed version of Enron, Enron Creditors Recovery Corp. (Enron) (plaintiff), then commenced adversary proceedings against the paper holders to whom it had made the redemption payments. Enron sought to avoid the payments as preferential transfers (because the payments had been made within 90 days of the bankruptcy petition) and as constructively fraudulent transfers (because the redemption price exceeded the fair market value of the papers). Most of the financial entities settled, but Alfa, S.A.B. de C.V. (Alfa) (defendant) and ING VP Balanced Portfolio, Inc. and ING VP Bond Portfolio, Inc. (collectively, ING) (defendant) continued to litigate. Alfa and ING argued that the redemption payments fell under the safe harbor for settlement payments in § 546(e) of the Bankruptcy Code, which prohibited avoidance of settlement payments made to participants in financial markets. The Bankruptcy Code defined settlement payments to include all manner of settlement payments—preliminary, partial, interim, final—and “any other similar payment commonly used in the securities trade.” Enron countered that the safe harbor should not apply, because the circumstances of the redemption were not common. Enron also argued that the provision applied only to transactions in which title to securities changed hands and in which a financial intermediary took title to the securities. The bankruptcy court ruled in favor of Enron. Alfa and ING appealed to the federal district court, which reversed. Enron appealed. The United States Court of Appeals for the Second Circuit granted certiorari.