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QSI v. Dennis E. Alford, et al.

571 F.3d 545 (2009)

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QSI v. Dennis E. Alford, et al.

United States Court of Appeals for the Sixth Circuit

571 F.3d 545 (2009)

Facts

Quality Stores, Inc. (Quality) (plaintiff) was a privately held corporation. In 1999 Quality was purchased through a leveraged buyout. As part of the leveraged buyout, Quality’s shareholders (the defendant shareholders) (defendants) were paid $111.5 million for their shares of stock. In 2001 Quality filed for bankruptcy. Quality filed a fraudulent-conveyance action against the defendant shareholders in bankruptcy court, arguing that the leveraged buyout and its related transfers were fraudulent conveyances. Quality sought to avoid and recover its transfer with the defendant shareholders. The defendant shareholders argued that the transfer was exempt from avoidance under 11 U.S.C. § 546(e), which provided that settlement payments made in connection with securities trades were not avoidable. The exception was meant to protect financial markets from disruption caused by the reversal of securities trades. Quality argued that § 546(e) did not apply to its transfers with the defendant shareholders, because Quality was a privately held corporation and, therefore, public financial markets would not be affected by the reversal of the transfer. The bankruptcy court held that § 546(e) did apply to the transfers and that the transfers were not avoidable. The district court affirmed the bankruptcy court. Quality appealed.

Rule of Law

Issue

Holding and Reasoning (Norris, J.)

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