Cross-practice Team Wins Second Circuit Affirmance of Dismissal of $1 Billion in Fraudulent Conveyance Claims Arising From Nine West LBO

Ropes & Gray, as counsel to the largest group of shareholder defendants, and as court-appointed liaison counsel for all shareholder defendants, won a recent Second Circuit ruling affirming an earlier decision of the United States District Southern District of New York that dismissed fraudulent conveyance claims brought by trustees for the bankrupt Nine West estate and Nine West noteholders, which sought to clawback $1 billion in proceeds from the 2014 LBO of Jones Group (a/k/a Nine West).

Plaintiffs appealed the decision of District Judge Rakoff’s granting a motion to dismiss filed by Ropes & Gray, which held that all claims asserted against the public shareholders were barred by the Bankruptcy Code’s safe harbor. The District Court observed that the motion was litigated “in the shadow of” Ropes & Gray’s 2019 victory before the Second Circuit in the $7 billion Tribune LBO avoidance litigation, and concluded that “Tribune largely controls” the safe harbor issues presented by the Nine West LBO, rejecting plaintiffs’ extensive efforts to distinguish Tribune.

On November 27, 2023, the Second Circuit affirmed the District Court’s decision, agreeing with Judge Rakoff and the public shareholders that Nine West was a “financial institution” as defined in Section 101(22)(A) of the Bankruptcy Code with respect to the payments made to the public shareholders in connection with the LBO, and that such payments were made in connection with a “securities contract.” Accordingly, the Second Circuit held that the transfers made to the public shareholders were safe harbored under Bankruptcy Code Section 546(e)—a complete victory for Ropes & Gray’s clients. The Second Circuit reversed Judge Rakoff’s decision with respect to employee defendants that received $78 million of payments on restricted shares through the company’s payroll, holding that there were at least factual questions as to whether the safe harbor applied to payments that, unlike the payments to public shareholders, were not paid through a paying agent (Wells Fargo).

On appeal, the Ropes & Gray team included litigation partner Gregg Weiner, bankruptcy and business restructuring partner Andrew Devore, and litigation & enforcement associates Ani-Rae Lovell, Deanna Minasi, Samuel Pokross, and Thanithia Billings. The team was also supported by business restructuring paralegal Nova Alindogan and litigation paralegals Roberto Gonzalez and William Richard Allen.