The Honorable John G. Koeltl, of the United States District 1 Court for the… v. Alfa, S.A.B. de C.V. 2 3 UNITED STATES COURT OF APPEALS 4 FOR THE SECOND CIRCUIT 5 6…

* The Honorable John G. Koeltl, of the United States District 1
Court for the Southern District of New York, sitting by 2
designation. 3
1
09-5122-bk(L) 1
In re: Enron Creditors Recovery Corp. v. Alfa, S.A.B. de C.V. 2
3
UNITED STATES COURT OF APPEALS 4
FOR THE SECOND CIRCUIT 5
6
August Term 2010 7
(Argued: November 3, 2010 Decided: June 28, 2011) 8
Docket No. 09-5122-bk(L)09-5142-bk (Con) 9
-----------------------------------------------------x 10
In Re: ENRON CREDITORS RECOVERY CORP., 11
12
Appellant, 13
14
-- v. -- 15
16
ALFA, S.A.B. DE C.V., ING VP BALANCED PORTFOLIO, INC., 17
ING VP BOND PORTFOLIO, INC., 18
19
Appellees. 20
21
-----------------------------------------------------x 22
23
B e f o r e : WALKER, CABRANES, Circuit Judges, and KOELTL, 24
District Judge.*
25
Appeal from a judgment of the United States District Court 26
for the Southern District of New York (Colleen McMahon, Judge) 27
reversing an order of the United States Bankruptcy Court for the 28
Southern District of New York (Arthur J. Gonzalez, Bankruptcy 29
Judge) and remanding with instructions to enter summary judgment 30
in favor of Appellees Alfa, S.A.B. de C.V., ING VP Balanced 31
Portfolio, Inc., and ING VP Bond Portfolio, Inc. Appellant Enron 32
Creditors Recovery Corp. challenges the district court’s 33

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2
conclusion that 11 U.S.C. § 546(e) protects from avoidance pre- 1
petition payments Enron Corp. made to redeem, prior to maturity, 2
commercial paper it had issued. It argues that Enron Corp.’s 3
payments did not constitute “settlement payments” within the 4
meaning of § 546(e)’s safe harbor both because they were 5
repayments of debt and because they were not common in the 6
securities industry. We hold that Enron Corp.’s payments were 7
“settlement payments” and thus were protected from avoidance 8
under § 546(e). We therefore AFFIRM the judgment of the district 9
court. 10
Judge KOELTL dissents in a separate opinion. 11

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3
MICHAEL SCHATZOW (Robert L. 1
Wilkins, Mitchell Y. Mirviss, 2
Colleen M. Mallon, Richard L. 3
Wasserman, on the brief), Venable 4
LLP, Baltimore, MD, for Appellant 5
Enron Creditors Recover Corp. 6
7
MICHAEL L. COOK (Brian C. Tong, on 8
the brief), Schulte Roth & Zabel 9
LLP, New York, NY, for Appellee 10
Alfa, S.A.B. de C.V. 11
12
SABIN WILLETT (Mark M. Elliott, 13
Eric Heining, on the brief), 14
Bingham McCutchen LLP, Boston, MA, 15
for Appellees ING VP Balanced 16
Portfolio, Inc., and ING VP Bond 17
Portfolio, Inc. 18
19
Mark D. Cahn, Deputy General 20
Counsel (Morgan Bradylyons, 21
Attorney, Jacob H. Stillman, 22
Solicitor, Katharine B. Gresham, 23
Assistant General Counsel), on the 24
brief, Securities and Exchange 25
Commission, Washington DC, for 26
amicus curiae Securities and 27
Exchange Commission. 28
29
Joshua D. Cohn (Christopher J. 30
Houpt), on the brief, Mayer Brown 31
LLP, New York, NY, for amicus 32
curiae Securities Industry and 33
Financial Markets Association. 34
35
36
37
JOHN M. WALKER, JR., Circuit Judge: 38
This appeal raises an issue of first impression in the 39
courts of appeals: whether 11 U.S.C. § 546(e), which shields 40
“settlement payments” from avoidance actions in bankruptcy, 41
extends to an issuer’s payments to redeem its commercial paper 42

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1 This opinion will refer to Enron Corp. and the reorganized 1
entity, Enron Creditors Recovery Corp., collectively as “Enron.” 2
4
prior to maturity. Enron Creditors Recovery Corp. (“Enron”) 1
1
seeks to avoid and recover payments Enron made to redeem its 2
commercial paper prior to maturity from Appellees Alfa, S.A.B. de 3
C.V. (“Alfa”), ING VP Balanced Portfolio, Inc., and ING VP Bond 4
Portfolio, Inc. (collectively, “ING”), whose notes were redeemed 5
by Enron. Alfa and ING argue that § 546(e) protects these 6
payments from avoidance. 7
The Bankruptcy Court for the Southern District of New York 8
(Arthur J. Gonzalez, Bankruptcy Judge) concluded that § 546(e)’s 9
safe harbor does not protect Enron’s payments from avoidance 10
because they were made to retire debt, not to purchase 11
securities, and because they were extraordinary. The District 12
Court for the Southern District of New York (Colleen McMahon, 13
Judge) held that Enron’s payments do fall within the safe harbor, 14
reversed the Bankruptcy Court’s decision, and remanded with 15
instructions to enter summary judgment in favor of Alfa and ING. 16
On appeal, Enron challenges the district court’s conclusion 17
that the safe harbor protects Enron’s redemption payments whether 18
or not they were made to retire debt or were unusual. Because we 19
agree with the district court that Enron’s proposed exclusions 20
from the reach of § 546(e) have no basis in the Bankruptcy Code, 21
we AFFIRM its decision and order. 22

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5
1
BACKGROUND 2
After a series of events in the latter half of 2001, 3
including the resignation of its CEO, Jeffery Skilling, its 4
announcement of $600 million in third-quarter losses, the 5
commencement of an SEC investigation into its practices, and the 6
correction of four years’ worth of financial statements, Enron, a 7
Houston-based energy company, collapsed. See, e.g., David S. 8
Hilzenrath, Early Warnings of Trouble at Enron, Wash. Post, Dec. 9
30, 2001, at A10. 10
On December 2, 2001, Enron petitioned for Chapter 11 11
bankruptcy. This appeal arises out of Enron’s attempt to avoid 12
and recover pre-petition payments it made to redeem, prior to 13
maturity, commercial paper it had issued. 14
I. Facts 15
Between October 25, 2001 and November 6, 2001, Enron drew 16
down on its $3 billion revolving lines of credit and paid out 17
more than $1.1 billion to retire certain of its unsecured and 18
uncertificated commercial paper prior to the paper’s maturity. 19
Enron redeemed the commercial paper at the accrued par value, 20
calculated as the price originally paid plus accrued interest. 21
This price was considerably higher than the paper’s market value. 22
The offering memoranda that accompanied the issuance of the 23
commercial paper provided that the “Notes are not redeemable or 24

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6
subject to voluntary prepayment by the Company prior to 1
maturity.” This provision prohibited calls and puts: Enron could 2
not force investors to surrender the notes and the investors 3
could not require Enron to prepay them. 4
The Depository Trust Company (the “DTC”), a clearing agency, 5
maintained bookkeeping entries that tracked ownership of Enron’s 6
commercial paper. This is the customary tracking method in the 7
industry. Every issuer of commercial paper has an issuing and 8
paying agent (“IPA”) within the DTC to issue commercial paper and 9
to pay at maturity or at an early redemption. 10
Three broker-dealers, J.P. Morgan, Goldman, Sachs & Co., and 11
Lehman Brothers Commercial Paper, Inc., participated in Enron’s 12
redemption. They received the commercial paper from the 13
individual noteholders and paid them the redemption price. The 14
mechanics of these transfers were as follows. The DTC debited 15
the redemption price from each broker-dealer’s account and 16
credited it to the noteholder’s DTC account. The broker-dealers 17
then transferred the notes to the DTC account of Enron’s issuing 18
and paying agent, Chase IPA, and received payment from Enron 19
through the DTC. Immediately after the broker-dealer received 20
payment, the commercial paper Enron redeemed was extinguished in 21
the DTC system. Confirmations of these transactions referred to 22
them as securities trades, termed them “purchases” from the 23
holders, and referenced a “trade date” and “settlement date.” 24

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7
Prior to these transactions, ING and Alfa owned Enron 1
commercial paper in the amount, respectively, of $48,200,000 and 2
$5,667,255. They both agreed to transfer their commercial paper 3
to broker-dealer J.P. Morgan in exchange for the redemption 4
price. 5
The parties dispute the circumstances and motives 6
surrounding Enron’s redemption. Enron argues that it made the 7
redemption payments under pressure from noteholders seeking to 8
recover on their investments amidst rumors of Enron’s imminent 9
implosion. Alfa and ING argue that Enron redeemed its commercial 10
paper to “calm the irrational markets” and leave a favorable 11
impression that would allow it to reenter the commercial paper 12
market once “bad publicity” about the company’s stability “had 13
blown over.” They argue that the redemption was an economically 14
rational move that allowed Enron to refinance its existing 15
commercial paper debt with debt at a lower interest rate. 16
II. Procedural History 17
In November 2003, two years after Enron filed for 18
bankruptcy, the reorganized entity brought adversary proceedings 19
against approximately two hundred financial institutions, 20
including appellees Alfa and ING, seeking to avoid and recover 21
the redemption payments. It alleged that the payments were 22
recoverable as (1) preferential transfers under 11 U.S.C. § 23
547(b), because they were made on account of an antecedent debt 24

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8
within ninety days prior to bankruptcy, and (2) constructively 1
fraudulent transfers under 11 U.S.C. § 548(a)(1)(B), because the 2
redemption price exceeded the commercial paper’s fair market 3
value. 4
In 2004, the defendants in the adversary proceedings moved 5
to dismiss Enron’s complaint for failure to state a claim. They 6
argued that the redemption payments were “settlement payments” 7
protected from avoidance under 11 U.S.C. § 546(e)’s safe harbor. 8
Section 546(e) provides, in relevant part, that 9
10
[n]otwithstanding sections . . . 547 [and] 548(a)(1)(B) 11
. . . of this title, [which empower the trustee to 12
avoid preferential and constructively fraudulent 13
transfers,] the trustee may not avoid a transfer that 14
is a . . . settlement payment, as defined in section . 15
. . 741 of this title, made by or to (or for the 16
benefit of) a . . . stockbroker, financial institution, 17
financial participant, or securities clearing agency . 18
. . that is made before the commencement of the case, 19
except under section 548(a)(1)(A) of this title[, which 20
empowers the trustee to avoid transfers made with 21
actual intent to hinder, delay, or defraud creditors]. 22
23
Section 741(8) of Title 11, in turn, defines a “settlement 24
payment” as “a preliminary settlement payment, a partial 25
settlement payment, an interim settlement payment, a settlement 26
payment on account, a final settlement payment, or any other 27
similar payment commonly used in the securities trade.” 28
The bankruptcy court denied the motion to dismiss. It held 29
that the phrase “commonly used in the securities trade” in 30
§ 741(8) modifies all the terms in the section’s definition and 31
thereby limits protected “settlement payments” to those that are 32

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9
common in the industry. In re Enron Corp., 325 B.R. 671, 685-86 1
& n.7 (Bankr. S.D.N.Y. 2005)(“Enron I”). The bankruptcy court 2
held that evidence was necessary to determine whether the 3
redemption payments were commonly used, rather than, as Enron 4
alleged, extraordinary because they resulted from coercion by 5
holders of the commercial paper. Id. at 686. It also held that 6
a factual issue existed over whether Enron’s redemption payments 7
were made to retire debt or to purchase the commercial paper, and 8
that this distinction could affect whether the payments 9
constituted settlement payments. Id. Most of the defendants 10
settled with Enron after Judge Gonzalez denied their motions to 11
dismiss. 12
Following discovery, Alfa and ING, relying on § 546(e)’s 13
safe harbor, moved for summary judgment. The bankruptcy court 14
denied the motions. In re Enron Creditors Recovery Corp., 407 15
B.R. 17, 45 (Bankr. S.D.N.Y. 2009)(“Enron II”). Concluding that 16
“the transfer of ‘ownership’ of a security is an integral element 17
in the securities settlement process,” it held that “settlement 18
payments” include only payments made to buy or sell securities 19
and not payments made to retire debt. Id. 37-41. The bankruptcy 20
court relied on our decision in SEC v. Sterling Precision Corp., 21
393 F.2d 214 (2d Cir. 1968), in which we held that “a maker's 22
paying a note prior to maturity in accordance with its terms 23
would not be regarded as a ‘purchase’” under the Investment 24

-- 9 of 47 --

10
Company Act of 1940. Enron II, 407 B.R. at 38 (quoting Sterling 1
Precision, 393 F.2d at 217). The bankruptcy court concluded that 2
Alfa and ING had not demonstrated that Enron’s payments were 3
settlement payments as defined in § 741(8), because they had 4
failed to establish that the payments were made to acquire title 5
to the commercial paper rather than to retire debt. Id. at 37- 6
41. At several points in its opinion, the bankruptcy court, to 7
buttress its denial of summary judgment, emphasized facts (most 8
of which are disputed) regarding the allegedly unusual nature of 9
Enron’s redemption. These include the above-market price Enron 10
paid, the alleged insistence of the broker-dealers to act as 11
intermediaries instead of principals, and the supposed rarity of 12
commercial paper prepayments in general. See, e.g., id. at 37- 13
38. 14
Alfa and ING sought, and were granted by the district 15
court, interlocutory review of the bankruptcy court’s decision 16
denying summary judgment. See In re Enron Creditors Recovery 17
Corp., No. 01-16034, 2009 WL 3349471 (S.D.N.Y. Oct. 16, 2009) 18
(“Enron III”). The district court limited the scope of review to 19
the question whether the § 546(e) safe harbor applies to an 20
issuer’s redemption of commercial paper prior to maturity, 21
effected through the customary mechanism of transacting in 22
commercial paper through the Depository Trust Company, without 23
regard to extrinsic facts, such as the motives and circumstances 24

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11
of the redemption. See In re Enron Creditors Recovery Corp., 422 1
B.R. 423, 424 (S.D.N.Y. 2009) (“Enron IV”). 2
The district court reversed the bankruptcy court. It 3
concluded that § 546(e)’s safe harbor protects Enron’s redemption 4
payments, and directed entry of summary judgment in favor of Alfa 5
and ING. Id. at 442. The district court held (1) that 6
§ 741(8)’s definition of “settlement payment” is not limited to 7
payments that are “commonly used,” and, therefore, that the 8
circumstances of a particular payment do not bear on whether that 9
payment fits within the definition, id. at 429-34; (2) that a 10
“settlement payment is any transfer that concludes or consummates 11
a securities transaction,” id. at 436; and (3) that Enron’s 12
redemption constitutes a securities transaction regardless of 13
whether Enron acquired title to the commercial paper, because the 14
redemption involved “the delivery and receipt of funds and 15
securities,” id. at 435-42. 16
Enron appealed to this court. 17
DISCUSSION 18
On appeal, Enron argues that the bankruptcy court’s 19
decision was correct and that the district court erred by holding 20
that settlement payments under § 741(8) are not limited to those 21
that are commonly used in the securities trade and that involve 22
the transfer of title to a security. 23
“A district court's order in a bankruptcy case is subject to 24

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12
plenary review, meaning that this Court undertakes an independent 1
examination of the factual findings and legal conclusions of the 2
bankruptcy court.” In re Duplan Corp., 212 F.3d 144, 151 (2d 3
Cir. 2000). Here, we review only the issue the district court 4
agreed to hear on appeal: 5
whether the § 546(e) ‘safe harbor’ . . . extends to 6
transactions in which commercial paper is redeemed by the 7
issuer prior to maturity, using the customary mechanism of 8
the Depository Trust Company . . . for trading in commercial 9
paper . . . , without regard to extrinsic facts about the 10
nature of the [transactions], the motive behind the 11
[transactions], or the circumstances under which the 12
payments were made. 13
14
Enron IV, 422 B.R at 424. As several of our sister circuits have 15
held, the meaning of “settlement payment” under § 741(8) is a 16
matter of statutory construction and thus a question of law we 17
review de novo. See, e.g., In re Comark, 971 F.2d 322, 324-25 18
(9th Cir. 1992)(citing In re Kaiser Steel Corp., 952 F.2d 1230 19
(10th Cir. 1991); Kaiser Steel Corp. v. Charles Schwab & Co., 913 20
F.2d 846 (10th Cir. 1990); Bevill, Bresler, & Schulman Asset 21
Mgmt. Corp. v. Spencer Sav. & Loan Ass'n, 878 F.2d 742, 745 (3d 22
Cir. 1989)). 23
I. Judicial Interpretation of the Safe Harbor 24
Congress enacted § 546(e)’s safe harbor in 1982 as a means 25
of “minimiz[ing] the displacement caused in the commodities and 26
securities markets in the event of a major bankruptcy affecting 27
those industries.” Kaiser Steel Corp. v. Charles Schwab & Co., 28
Inc., 913 F.2d 846, 849 (10th Cir. 1990) (quoting H.R. Rep. 97- 29

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13
420, at 2 (1982), reprinted in 1982 U.S.C.C.A.N. 583, 583). If a 1
firm is required to repay amounts received in settled securities 2
transactions, it could have insufficient capital or liquidity to 3
meet its current securities trading obligations, placing other 4
market participants and the securities markets themselves at 5
risk. 6
The safe harbor limits this risk by prohibiting the 7
avoidance of “settlement payments” made by, to, or on behalf of a 8
number of participants in the financial markets. By restricting 9
a bankruptcy trustee’s power to recover payments that are 10
otherwise avoidable under the Bankruptcy Code, the safe harbor 11
stands “at the intersection of two important national legislative 12
policies on a collision course–the policies of bankruptcy and 13
securities law.” In re Resorts Int’l, Inc., 181 F.3d 505, 515 14
(3rd Cir. 1999) (internal quotation marks omitted). 15
Section 741(8), which § 546(e) incorporates, defines 16
“settlement payment” rather circularly as “a preliminary 17
settlement payment, a partial settlement payment, an interim 18
settlement payment, a settlement payment on account, a final 19
settlement payment, or any other similar payment commonly used in 20
the securities trade.” The parties, following our sister 21
circuits, agree that courts should interpret the definition, “in 22
the context of the securities industry,” as “the transfer of cash 23
or securities made to complete [a] securities transaction.” 24

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14
Contemporary Indus. Corp. v. Frost, 564 F.3d 981, 985 (8th Cir. 1
2009) (quoting In re Resorts Int’l, Inc., 181 F.3d at 515). 2
Although our circuit has not yet addressed the scope of 3
§ 741(8)’s definition, other circuits have held it to be 4
“extremely broad.” In re QSI Holdings, Inc., 571 F.3d 545, 549 5
(6th Cir. 2009) (quoting Contemporary Indus. Corp., 564 F.3d at 6
985). Several circuits, for example, have rejected limitations 7
on the definition that would exclude transactions in privately 8
held securities or transactions that do not involve financial 9
intermediaries that take title to the securities during the 10
course of the transaction. See, e.g., In re Plassein Int’l 11
Corp., 590 F.3d 252, 258-59 (3rd Cir. 2009); In re QSI Holdings, 12
Inc., 571 F.3d at 549-50; Contemporary Indus. Corp., 564 F.3d at 13
986. No circuit has yet addressed the safe harbor’s application 14
to an issuer’s early redemption of commercial paper. 15
Alfa and ING argue that Enron’s redemption payments are 16
settlement payments within the meaning of § 741(8) because they 17
completed a transaction involving the exchange of money for 18
securities. The SEC and the Securities Industry and Financial 19
Markets Association, a trade group representing the interests of 20
securities firms, banks, and asset managers, have filed amicus 21
briefs in support of Alfa and ING’s interpretation of the 22
statute. 23
Enron proposes three limitations on the definition of 24

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15
settlement payment in § 741(8), each of which, it argues, would 1
exclude the redemption payments. First, it contends that the 2
final phrase of § 741(8)–“commonly used in the securities 3
trade”–excludes all payments that are not common in the 4
securities industry, including, Enron argues, Enron’s redemption. 5
Second, Enron argues that the definition includes only 6
transactions in which title to the securities changes hands. 7
Because, Enron argues, the redemption payments here were made to 8
retire debt and not to acquire title to the commercial paper, 9
they are not settlement payments within the meaning of § 741(8). 10
Finally, Enron argues that the redemption payments are not 11
settlement payments because they did not involve a financial 12
intermediary that took title to the transacted securities and 13
thus did not implicate the risks that prompted Congress to enact 14
the safe harbor. 15
Because we find nothing in the Bankruptcy Code or the 16
relevant caselaw that supports Enron’s proposed limitations on 17
the definition of settlement payment in § 741(8), we reject them. 18
We hold that Enron’s redemption payments fall within the plain 19
language of § 741(8) and are thus protected from avoidance under 20
§ 546(e). 21
II. “Commonly Used in the Securities Trade” 22
Section 741(8) defines “settlement payment” as “a 23
preliminary settlement payment, a partial settlement payment, an 24

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16
interim settlement payment, a settlement payment on account, a 1
final settlement payment, or any other similar payment commonly 2
used in the securities trade.” Enron argues that the phrase 3
“commonly used in the securities trade” modifies all the 4
preceding terms and thereby excludes from the definition all 5
uncommon payments. We disagree. 6
First, as the district court held, the grammatical structure 7
of the statute strongly suggests that the phrase “commonly used 8
in the securities trade” modifies only the term immediately 9
preceding it: “any other similar payment.” Under the “rule of 10
the last antecedent, . . . a limiting clause or phrase . . . 11
should ordinarily be read as modifying only the noun or phrase 12
that it immediately follows.” Barnhart v. Thomas, 540 U.S. 20, 13
26 (2003); see also Stepnowski v. Comm’r, 456 F.3d 320, 324 n.7 14
(3d Cir. 2006) (“Under the last-antecedent rule of construction, 15
. . . the series ‘A or B with respect to C’ contains two items: 16
(1) ‘A’ and (2) ‘B with respect to C.’”). Enron seizes on a 17
corollary rule of construction under which “a modifier . . . set 18
off from a series of antecedents by a comma . . . should be read 19
to apply to each of those antecedents.” Kahn Lucas Lancaster, 20
Inc. v. Lark Int’l Ltd., 186 F.3d 210, 215 (2d Cir. 1999), 21
abrogated on other grounds as recognized by Sarhank Grp. v. 22
Oracle Corp., 404 F.3d 657, 660 n.2 (2d Cir. 2005). For example, 23
in the phrase “no person shall be deprived of life, liberty, or 24

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17
the pursuit of happiness, without due process of law,” the phrase 1
“without due process of law” modifies all three terms. This 2
rule, however, does not apply to the series in § 741(8) because 3
the modifier is not set off from its antecedents by a comma. 4
Because both the modifier and its immediate antecedent are set 5
off from the preceding terms in the series, the last-antecedent 6
rule applies. The phrase “commonly used in the securities 7
industry” thus is properly read as modifying only the term “any 8
other similar payment.” The phrase is not a limitation on the 9
definition of settlement payment, but rather, as our sister 10
circuits have held, it is “a catchall phrase intended to 11
underscore the breadth of the § 546(e) exemption.” In re QSI 12
Holdings, Inc., 571 F.3d at 550 (quoting Contemporary Indus. 13
Corp., 564 F.3d at 986 (emphasis in original)). 14
Moreover, Enron’s proposed reading would make application of 15
the safe harbor in every case depend on a factual determination 16
regarding the commonness of a given transaction. It is not clear 17
whether that determination would depend on the economic 18
rationality of the transaction, its frequency in the marketplace, 19
signs of an intent to favor certain creditors–as suggested by the 20
facts on which the bankruptcy court relied, such as the alleged 21
coercion by Enron’s commercial paper noteholders, Enron II, 407 22
B.R. at 31–or some other factor. This reading of the statute 23
would result in commercial uncertainty and unpredictability at 24

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18
odds with the safe harbor’s purpose and in an area of law where 1
certainty and predictability are at a premium. 2
Accordingly, we hold that the phrase “commonly used in the 3
securities industry” limits only the phrase immediately preceding 4
it; it does not limit the other transactions that § 741(8) 5
defines as settlement payments. 6
III. Redemption of Debt Securities 7
Enron next argues that the redemption payments are not 8
settlement payments because they involved the retirement of debt, 9
not the acquisition of title to the commercial paper. We find no 10
basis in the Bankruptcy Code or the relevant caselaw to interpret 11
§ 741(8) as excluding the redemption of debt securities. Because 12
Enron’s redemption payments completed a transaction in 13
securities, we hold that they are settlement payments within the 14
meaning of § 741(8). 15
The bankruptcy court agreed with Enron’s position, relying 16
in large part on our decision in SEC v. Sterling Precision Corp., 17
393 F.2d 214 (2d Cir. 1968). See Enron II, 407 B.R. at 37-40. In 18
Sterling Precision Corp., we held that an issuer’s redemption of 19
bonds and preferred stock was not a “purchase” within the meaning 20
of the Investment Company Act of 1940. 393 F.2d at 217. We 21
based this conclusion, in part, on the fact that the issuer “did 22
not acquire title to its Debentures or Preferred Stock; it 23
discharged them.” 393 F.2d at 216-18. Drawing on this 24

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19
conclusion, the bankruptcy court held that Enron’s redemption 1
payments do not constitute settlement payments under § 741(8) 2
because Enron did not acquire title to the commercial paper it 3
redeemed. Enron II, 407 B.R. at 38-40. 4
Alfa and ING argue that Sterling Precision Corp. is not 5
relevant to this case because it interpreted the Investment 6
Company Act, not the Bankruptcy Code. Setting aside this 7
argument, reliance on Sterling Precision Corp.’s interpretation 8
of the term “purchase” still makes sense only if we read a 9
purchase or sale requirement into § 741(8). For the following 10
reasons, we decline to do so. 11
Nothing in the text of § 741(8) or in any other provision of 12
the Bankruptcy Code supports a purchase or sale requirement. 13
Enron argues that a “settlement payment” must involve a 14
transaction in securities, which, in turn, must involve a 15
purchase or sale. While we, like our sister circuits, agree that 16
in the context of the securities industry a “‘settlement’ refers 17
to ‘the completion of a securities transaction,’” Contemporary 18
Indus. Corp., 564 F.3d at 985 (quoting Kaiser Steel Corp. v. 19
Charles Schwab & Co., 913 F.2d 846, 849 (10th Cir. 1990)), we 20
find little support for the contention that a securities 21
transaction necessarily involves a purchase or sale. Several of 22
the industry definitions of “settlement payment” on which other 23
courts of appeals have relied define the term as an exchange of 24

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20
money or securities that completes a securities transaction; 1
these definitions make no mention of a requirement that title to 2
the securities changes hands. See, e.g., Kaiser Steel Corp., 913 3
F.2d at 849 (citing, inter alia, D. Brownstone & I. Franck, The 4
VNR Investor’s Dictionary 279 (1981) (defining “settlement” as 5
“finishing up of a transaction or group of transactions”); Group 6
of Thirty, Clearance and Settlement Systems in the World's 7
Securities Markets 86 (1989) (defining “settlement” as “[t]he 8
completion of a transaction, wherein securities and corresponding 9
funds are delivered and credited to the appropriate accounts”); 10
A. Pessin & J. Ross, Words of Wall Street: 2000 Investment Terms 11
Defined 227 (1983) (defining “settlement” as “the completion of a 12
securities transaction”)). While, as the dissent notes, see 13
Dissent at 8-9, Kaiser Steel Corp. also cites industry 14
definitions that reference a purchase or sale of securities, 913 15
F. 2d at 849, the range of definitions that the decision cites 16
suggests that the securities industry does not universally 17
consider a purchase or sale of securities to be a necessary 18
element of a settlement payment. 19
Enron argues, and the dissent agrees, see Dissent at 11, 19- 20
20, that applying the safe harbor to Enron’s commercial paper 21
redemption would contradict “uniform case law spanning two 22
decades” that allows “avoidance of debt-related payments.” The 23
cases on which Enron relies, however, involve non-tradeable bank 24

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21
loans, not widely issued debt securities. See, e.g., Union Bank 1
v. Wolas, 502 U.S. 151, 152-53 (1991); Ray v. City Bank & Trust 2
Co., 899 F.2d 1490, 1491-93 (6th Cir. 1990); Breeden v. L.I. 3
Bridge Fund, LLC, 220 B.R. 739, 740 (B.A.P. 2d Cir. 1998); CEPA 4
Consulting, Ltd. v. N.Y. Nat’l Bank, 187 B.R. 105, 106-07 5
(S.D.N.Y. 1995). Concluding that the safe harbor protects 6
payments made to redeem tradeable debt securities does not 7
contradict caselaw permitting avoidance of payments made on 8
ordinary loans. Interpreting the term “settlement payment” in 9
the context of the securities industry will exclude from the safe 10
harbor payments made on ordinary loans. 11
Indeed, it is not clear that a purchase or sale requirement 12
would necessarily exclude all payments made on ordinary loans. 13
For example, what if parties structured the early repayment of a 14
loan evidenced by a promissory note as a repurchase of that 15
promissory note? The note’s terms could prohibit voluntary early 16
redemption. If the borrower were to buy back the promissory note 17
at a negotiated price, it would be difficult to characterize this 18
transaction as a redemption rather than a repurchase in order to 19
exclude it from the safe harbor. 20
The payments at issue in this case demonstrate the 21
difficulty with and the absence of a statutory foundation for a 22
purchase or sale requirement. Assume, for example, that the 23
terms of Enron’s commercial paper–like the terms of the 24

-- 21 of 47 --

2 Whether the reacquisition of commercial paper at issue in 1
this appeal is properly characterized as a redemption or a 2
repurchase remains an open issue. See Enron II, 407 B.R. at 45. 3
Because the district court addressed on appeal only whether the 4
safe harbor protects an issuer’s premature redemption of 5
commercial paper, we do not have occasion to address the 6
distinction between a premature redemption and an issuer’s 7
repurchase of commercial paper. 8
22
hypothetical promissory note discussed above–prohibited early 1
redemption. Enron could reacquire the paper only by agreeing 2
with the paper holders on a particular reacquisition price. This 3
transaction would appear to be a repurchase, 2 cf. Sterling 4
Precision Corp., 393 F.2d at 217 (“[A] maker's paying a note 5
prior to maturity in accordance with its terms would not be 6
regarded as a ‘purchase.’” (emphasis added)), and would thus 7
trigger safe-harbor protection under the rule Enron and the 8
dissent espouse. It is difficult to see, however, why this 9
transaction should warrant safe harbor protection while a 10
transaction identical in every respect, except that the 11
commercial paper’s terms did not prohibit early redemption, 12
should not. Avoidance of the transactions in either scenario 13
would present the same threat of systemic risk in the 14
marketplace, and limiting safe-harbor protection to transactions 15
in the first scenario would not prevent an issuer from making 16
payments to reacquire commercial paper during the preference 17
period. Contrary to the dissent’s contention, see Dissent at 18- 18
19, a purchase or sale requirement would thus not prevent Enron 19

-- 22 of 47 --

23
from favoring commercial-paper holders over other creditors. 1
Because we find no basis in the Bankruptcy Code or the 2
caselaw for a purchase or sale requirement, and because we do not 3
think such a requirement is necessary to exclude from the safe 4
harbor repayment of ordinary loans, we decline to impose a 5
purchase or sale requirement on § 741(8). 6
IV. Involvement of a Financial Intermediary 7
Enron also argues that the redemption of debt does not 8
constitute a protected settlement payment because it did not 9
involve a financial intermediary that took a beneficial interest 10
in the securities during the course of the transaction. Enron 11
argues that the redemption thus did not implicate the systemic 12
risks that motivated Congress’s enactment of the safe harbor. 13
Although the role of the broker-dealers that participated in 14
Enron’s redemption is a disputed issue of fact, see Enron IV, 422 15
B.R. at 426, Enron is correct that the DTC acted as a conduit and 16
recordkeeper rather than a clearing agency that takes title to 17
the securities during the course of the transaction. 18
Nevertheless, we do not think the absence of a financial 19
intermediary that takes title to the transacted securities during 20
the course of the transaction is a proper basis on which to deny 21
safe-harbor protection. The Third, Sixth, and Eighth Circuits 22
rejected similar arguments in affirming application of the safe 23
harbor to leveraged buyouts of private companies that involved 24

-- 23 of 47 --

3 The dissent characterizes these decisions as “stand[ing] for 1
the proposition that, if Section 546(e) applies to a particular 2
type of transaction–namely, purchases of equity securities–an 3
individual transaction does not lose safe-harbor protection 4
simply because it does not involve a central counterparty.” 5
Dissent at 15. We have difficulty understanding the import of 6
this characterization. We rely on these decisions as support for 7
rejecting Enron’s argument that a transaction must involve a 8
central counterparty to receive safe-harbor protection. The 9
dissent argues that Congress enacted the safe harbor out of 10
“concern for the stability of central counterparties that 11
guarantee both sides of a securities transaction.” But the 12
dissent does not appear to dispute our, or the Third, Sixth, and 13
Eighth Circuits’, rejection of a restriction on the safe harbor 14
that would limit it to transactions involving central 15
counterparties. 16
24
financial intermediaries who served only as conduits. See In re 1
Plassein Int’l Corp., 590 F.3d at 257-59; In re QSI Holdings, 2
Inc., 571 F.3d at 549-50; Contemporary Indus. Corp., 564 F.3d at 3
986. In reasoning that provides an analog for us, these courts 4
explained that undoing long-settled leveraged buyouts would have 5
a substantial impact on the stability of the financial markets, 6
even though only private securities were involved and no 7
financial intermediary took a beneficial interest in the 8
exchanged securities during the course of the transaction. 3 See 9
In re Plassein Int’l Corp., 590 F.3d at 258; In re QSI Holdings, 10
Inc., 571 F.3d at 550; Contemporary Indus. Corp., 564 F.3d at 11
987. We see no reason to think that undoing Enron’s redemption 12
payments, which involved over a billion dollars and approximately 13
two hundred noteholders, would not also have a substantial and 14
similarly negative effect on the financial markets. 15

-- 24 of 47 --

4 We reject, as the district court did, Enron’s attempt to 1
supplant the Bankruptcy Code’s definition of “security” with the 2
definition in the Securities Exchange Act of 1934, which excludes 3
short-term commercial paper. 15 U.S.C. § 78c(a)(10). This case 4
calls on us to interpret a provision of the Bankruptcy Code. It 5
makes little sense to look to a definition from a different 6
statutory scheme, particularly when that definition contradicts 7
the Bankruptcy Code’s. 8
25
Moreover, § 546(e) applies to settlement payments made “by 1
or to (or for the benefit of)” a number of participants in the 2
financial markets. It would appear inconsistent with this 3
language for courts to limit the safe harbor circuitously by 4
interpreting the definition of “settlement payment” to exclude 5
payments that do not involve a financial intermediary that takes 6
title to the securities during the course of the transaction. 7
In sum, we decline to adopt Enron’s proposed exclusions from 8
the definition of settlement payment and the safe harbor. The 9
payments at issue were made to redeem commercial paper, which the 10
Bankruptcy Code defines as a security. 11 U.S.C. 11
§ 101(49)(A)(i). 4 They thus constitute the “transfer of cash . . 12
. made to complete [a] securities transaction” and are settlement 13
payments within the meaning of § 741(8). See Contemporary Indus. 14
Corp., 564 F.3d at 985 (quoting In re Resorts Int’l, Inc., 181 15
F.3d at 515 (3rd Cir. 1999)). Because we reach this conclusion 16
by looking to the statute’s plain language, we decline to address 17
Enron’s arguments regarding legislative history, which, in any 18
event, would not lead to a different result. See Lamie v. U.S. 19

-- 25 of 47 --

26
Trustee, 540 U.S. 526, 534 (2004) (“It is well established that 1
when the statute's language is plain, the sole function of the 2
courts-at least where the disposition required by the text is not 3
absurd-is to enforce it according to its terms.” (internal 4
quotation marks omitted)). 5
CONCLUSION 6
For the foregoing reasons, we AFFIRM the district court’s 7
decision reversing the decision of the Bankruptcy Court and 8
directing entry of summary judgment in favor of Alfa and ING. 9

-- 26 of 47 --

1
John G. Koeltl, District Judge, dissenting: 1
The Court today concludes that Section 546(e) of the 2
Bankruptcy Code, 11 U.S.C. § 546(e), which exempts a “settlement 3
payment” from a bankruptcy trustee’s avoidance powers, extends 4
to every transaction in which commercial paper is redeemed by an 5
issuer prior to maturity using the customary mechanism of the 6
Depository Trust Company. Op. at 26-27. 7
The issue resolved in this case has never been decided 8
previously by any court of appeals. To capture a premature 9
commercial paper redemption within the definition of “settlement 10
payment” in the Bankruptcy Code, the Court broadly defines 11
“settlement payment” to include a payment that “complete[s] a 12
transaction in securities.” Op. at 19. A “security” is, in 13
turn, broadly defined under the Bankruptcy Code to include 14
various types of debt such as a note, bond, or debenture. 11 15
U.S.C. § 101(49)(A). The Court’s holding is not required by the 16
opaque definition of “settlement payment” in the Bankruptcy 17
Code, and is inconsistent with the legislative history of that 18
provision. Moreover, the breadth of the Court’s definition 19
threatens routine avoidance proceedings in bankruptcy courts. 20
The Bankruptcy Court correctly concluded in this case that the 21
definition of “settlement payment” should include a requirement 22
that there be a purchase or sale of a security to trigger a 23

-- 27 of 47 --

2
“settlement payment.” See In re Enron Creditors Recovery Corp., 1
407 B.R. 17, 38-40 (Bankr. S.D.N.Y. 2009). The redemption of 2
commercial paper indisputably is not the purchase or sale of 3
that commercial paper. Because I disagree with the Court’s 4
conclusion eliminating this requirement, I respectfully dissent. 5
6
I. 7
8
Section 547(b) of the Bankruptcy Code, 11 U.S.C. § 547(b), 9
provides that the trustee of a bankruptcy estate may recover, 10
among other things, money or property transferred by an 11
insolvent debtor in the 90 days preceding bankruptcy, where the 12
transfer (1) was made to or for the benefit of a creditor; (2) 13
was made for or on account of an antecedent debt owed by the 14
debtor; and (3) enabled the creditor to receive more than it 15
otherwise would have under the provisions of the Bankruptcy 16
Code. 11 U.S.C. § 547(b). 17
Section 546(e) of the Bankruptcy Code, 11 U.S.C. § 546(e), 18
carves out a limited exception to the trustee’s avoidance 19
powers, including its power to avoid preferential transfers 20
under Section 547(b). It provides, in relevant part, that: 21
Notwithstanding sections 544, 545, 547, 548(a)(1)(B), 22
and 548(b) of this title, the trustee may not avoid a 23
transfer that is a . . . settlement payment, as 24
defined in section . . . 741 of this title, made by or 25

-- 28 of 47 --

3
to (or for the benefit of) a commodity broker, forward 1
contract merchant, stockbroker, financial institution, 2
financial participant, or securities clearing agency 3
. . . . 4
5
11 U.S.C. § 546(e). Section 741 in turn defines “settlement 6
payment” in an ambiguous fashion as “a preliminary settlement 7
payment, a partial settlement payment, an interim settlement 8
payment, a settlement payment on account, a final settlement 9
payment, or any other similar payment commonly used in the 10
securities trade.” 11 U.S.C. § 741(8). 11
The question the Court confronts today is whether an issuer’s 12
redemption of commercial paper prior to maturity is a 13
“settlement payment” within the meaning of Sections 546(e) and 14
741(8). Op. at 12. 1 It answers this question in the 15
affirmative, based on what it terms “the plain language of 16
§ 741(8).” Op. at 16; see also Op. at 26-27. The text of 17
Section 741(8), however, provides virtually no guidance as to 18
the types of transfers that might qualify as settlement 19
payments. The Court understates the severity of this problem by 20
1 As the Bankruptcy Court noted, commercial paper is a note
evidencing a debt, “with a corporation borrowing the money in
the marketplace instead of from a bank.” Enron, 407 B.R. at 37,
38. Commercial paper with a maturity at the time of issuance of
nine months or less is excluded from the definition of a
“security” under the Securities Exchange Act of 1934. See 15
U.S.C. § 78c(a)(10).

-- 29 of 47 --

4
describing the definition as “rather circular[].” Op. at 14. 1
It is in fact difficult to imagine a more circular, less clear 2
statute than one that defines “settlement payment” by exclusive 3
reference to a variety of types of “settlement payment,” and 4
then concludes with a catch-all that refers back to the 5
undefined “settlement payment,” namely “any other similar 6
payment commonly used in the securities trade.” Thus, while it 7
may be true, as the Court notes, that no provision of the 8
Bankruptcy Code clearly indicates that the redemption of 9
commercial paper is beyond the scope of Section 741(8), see, 10
e.g., Op. at 16, 19, neither does any provision of the 11
Bankruptcy Code clearly indicate that such transactions are 12
within its scope. In other words, the statute is ambiguous. 13
In light of this statutory ambiguity, other courts of 14
appeals have construed “settlement payment” as a “term . . . of 15
art in the securities trade,” which “should be given its 16
established meaning in that industry.” Contemporary Indus. 17
Corp. v. Frost, 564 F.3d 981, 985 (8th Cir. 2009) (citing 18
McDermott Int’l, Inc. v. Wilander, 498 U.S. 337, 342-46 (1991)). 19
“Specifically, ‘settlement’ refers to ‘the completion of a 20
securities transaction,’ and a ‘settlement payment is generally 21
the transfer of cash or securities made to complete [the] 22
securities transaction.’” Id. (quoting Kaiser Steel Corp. v. 23

-- 30 of 47 --

5
Charles Schwab & Co., 913 F.2d 846, 849 (10th Cir. 1990); In re 1
Resorts, Int’l, Inc., 181 F.3d 505, 515 (3d Cir. 1999) 2
(alteration in original)); see also In re Comark, 971 F.2d 322, 3
325 (9th Cir. 1992). The parties agree that this is the 4
approach the Court should follow in interpreting “settlement 5
payment,” see Op. at 14, but disagree as to whether an issuer’s 6
redemption of its commercial paper is a “securities 7
transaction.” This question is one of first impression in the 8
courts of appeals. 9
10
II. 11
12
Enron argues persuasively that a “securities transaction” 13
is a term of art in the securities industry that requires a 14
purchase or sale of securities. This industry understanding is 15
reflected in numerous business dictionaries. See, e.g., 16
Barron’s Financial Guides, Barron’s Dictionary of Finance and 17
Investment Terms 641, 745 (7th ed. 2006) (defining “settlement” 18
as the “conclusion of a securities transaction in which a 19
broker/dealer pays for securities bought . . . or delivers 20
securities sold and receives payment from the buyer’s broker”); 21
Thomas P. Fitch, Barron’s Dictionary of Banking Terms 423-24 22
(5th ed. 2006) (“[t]he delivery of securities by a selling 23

-- 31 of 47 --

6
broker, and payment by a buying broker”); Group of Thirty, 1
Global Clearing and Settlement: A Plan of Action 13 (2003) (“the 2
process by which the ownership interest in securities is 3
transferred from one investor to another, generally in exchange 4
for a corresponding transfer of funds”); New York Stock 5
Exchange, Language of Investing Glossary 30 (1981) 6
(“[c]onclusion of a securities transaction when a customer pays 7
a broker/dealer for securities purchased or delivers securities 8
sold and receives from the broker the proceeds of a sale”); Bank 9
for International Settlements, Committee on Payment and 10
Settlement Systems & Technical Committee of the International 11
Organization of Securities Commissions, Recommendations for 12
Securities Settlement Systems 48 (2001) (“[t]he completion of a 13
transaction through final transfer of securities and funds 14
between the buyer and the seller”). 15
The existence of a purchase or sale requirement also finds 16
support in case law. See, e.g., In re Bevill, Bresler & 17
Schulman Asset Mgmt. Corp., 878 F.2d 742, 751 (3d Cir. 1989) 18
(“[T]he transfer of record ownership of securities is an 19
integral element in the securities settlement process.”). Among 20
the definitions of “settlement payment” that the Kaiser Steel 21
Court relied on was the definition from the New York Stock 22
Exchange’s Language of Investing Glossary: The “[c]onclusion of 23

-- 32 of 47 --

7
a securities transaction when a customer pays a broker/dealer 1
for securities purchased or delivers securities sold and 2
receives from the broker the proceeds of a sale.” Kaiser Steel, 3
913 F.2d at 849 (quoting New York Stock Exchange, Language of 4
Investing Glossary 30 (1981)). See also 17 C.F.R. 240.17f- 5
1(a)(5) (“The term securities-related transaction shall mean a 6
purpose [sic], sale or pledge of investment securities, or a 7
custodial arrangement for investment securities.”). 8
There appears to be no dispute that an issuer’s redemption 9
of its commercial paper does not involve the purchase or sale of 10
a security. Commercial paper is a note evidencing the issuer’s 11
debt. As the Court recognizes, this Court has found that an 12
issuer’s redemption of its bonds and preferred stock is not a 13
“purchase” within the meaning of the Investment Company Act of 14
1940. SEC v. Sterling Precision Corp., 393 F.2d 214, 217 (2d 15
Cir. 1968) (Friendly, J.). While the Court reached that 16
conclusion in the context of the Investment Company Act, the 17
Court’s reasoning was based on, among other factors, the common 18
understanding of an issuer’s repayment of its debt. As Judge 19
Friendly explained, “in common speech a maker’s paying a note 20
prior to maturity in accordance with its terms would not be 21
regarded as a ‘purchase.’” Id. at 217. Judge Friendly 22
continued: “[T]he normal discourse of lawyers sets redemptions 23

-- 33 of 47 --

8
apart from purchases. The distinction is recognized in 1
corporation statutes, . . . ; by judicial decision, . . . ; and 2
by writers on corporation law.” Id. The Court today does not 3
dispute this conclusion, but argues that it is irrelevant 4
because the Court declines to “read a purchase or sale 5
requirement into § 741(8).” Op. at 20. 6
The Court states that it finds little support for a 7
purchase or sale requirement and explains that cases “make no 8
mention of a requirement that title to the securities changes 9
hands.” Op. at 21. The Court cites Kaiser Steel and its 10
citation to definitions of “settlement” that make no reference 11
to a change in title to securities. However, Kaiser Steel 12
concerned whether a leveraged buyout transaction was included in 13
the definition of a “settlement payment” in § 741(8). There was 14
no question that the transaction involved the purchase of 15
securities. Moreover, as the Court notes, Kaiser Steel 16
specifically cited other source materials that make clear that a 17
change of title is an integral element of the settlement of a 18
securities transaction. See Kaiser Steel, 613 F.2d at 849 19
(citing New York Stock Exchange, Language of Investing Glossary 20
30 (1981)(quoted above); D. Scott, Wall Street Words 320 (1988) 21
(defining “settlement” as the “[t]ransfer of the security (for 22
the seller) or cash (for the buyer) in order to complete a 23

-- 34 of 47 --

9
security transaction”)). Kaiser Steel cannot stand for the 1
proposition that no purchase or sale is required for a 2
securities transaction when the transaction at issue did include 3
a purchase and when the Court cited to source materials that 4
identified a purchase as an essential element of a settlement 5
payment. 6
The Court today points to no case that holds that there is 7
no purchase or sale requirement for a securities transaction, 8
and provides no source that indicates that there is a common 9
industry understanding that the redemption of commercial paper 10
is the completion of a securities transaction. 2
11
12
2 The Court downplays Enron’s argument that applying the safe
harbor to the redemption of commercial paper would undermine
uniform case law that allows the avoidance of debt-related
payments. Op. at 21-22. But this is not an argument that a
purchase or sale requirement is not part of a “securities
transaction.” Rather, it is an effort to downplay the
significance of the Court’s holding. As explained in Part IV,
the Court’s distinction is unpersuasive, and the decision will
in fact undo decades of well-established law. It is sufficient
at this point to note that the Court’s attempt to distinguish
prior case law is not an argument why the Court’s definition of
a securities transaction is in fact correct.

-- 35 of 47 --

10
III. 1
2
A. 3
4
The relevant legislative history supports the conclusion 5
that redemptions of commercial paper are not protected by 6
Section 546(e)’s safe harbor. In 1975, Congress amended the 7
Securities Exchange Act of 1934 (“the 1934 Act” or “the Act”), 8
48 Stat. 881, codified at 15 U.S.C. § 78a et seq., to create a 9
national system for the clearance and settlement of securities 10
transactions. Bradford Nat’l Clearing Corp. v. SEC, 590 F.2d 11
1085, 1091-92 (D.C. Cir. 1978). The predecessor of Section 12
546(e) was first enacted in 1978, and applied only to 13
commodities markets. See Kaiser Steel, 913 F.2d at 848-49; H.R. 14
Rep. No. 97-420, at 1-3 (1982). This left open the possibility 15
that the avoidance provisions of Section 547(b) could be applied 16
to the settlement of securities transactions, and the failure to 17
include securities transactions in the settlement safe harbor 18
lent force to the argument that the clearing agencies were not 19
entitled to protection from preference avoidance when they 20
cleared securities transactions. This anomaly inadvertently 21
jeopardized the national settlement system. See Bankruptcy of 22
Commodity and Securities Brokers: Hearings Before the Subcomm. 23

-- 36 of 47 --

11
on Monopolies and Commercial Law of the H. Comm. on the 1
Judiciary, 97th Cong. 238-67 (1981) (statement of Bevis 2
Longstreth, Comm’r, SEC). Clearing agencies were exposed to 3
risk because they were “the critical link between the buyer’s 4
broker and the seller’s broker”; they “simultaneously 5
guarantee[d]” the delivery of securities to the buyer and the 6
delivery of the purchase price to the seller. Id. at 245. 3 In 7
response to this concern, in 1982, Congress adopted 8
substantially the current version of Section 546(e), which more 9
broadly covered settlement payments. H.R. Rep. No. 97-420, at 2 10
(1982). 4
11
3 The Court’s reading of the legislative purpose behind Section
546(e) at times appears substantially broader. It writes: “If
a firm is required to repay amounts received in settled
securities transactions, it could have insufficient capital or
liquidity to meet its current securities trading obligations,
placing other market participants and the securities markets
themselves at risk.” Op. at 13 (emphasis added). However, this
concern could likewise be invoked for refusing to apply the
Bankruptcy Code’s preference provisions in any context; there is
always a risk that the transferee of an avoided transfer will be
negatively affected and destabilized by the trustee’s exercise
of its avoidance powers. The legislative history indicates that
Congress intended to eliminate only a particular subset of
claims: those that might jeopardize the stability of clearing
agencies.
4 In 2006, Congress adopted amendments to Section 546(e) that
were “technical changes” designed to “update the language to
reflect current market and regulatory practices” and to “clarify
[] the treatment of certain financial products.” H.R. Rep. 109-

-- 37 of 47 --

12
These concerns were not implicated by the market for 1
commercial paper at the time of Section 546(e)’s enactment, and 2
cannot justify the application of the safe harbor to redemptions 3
of commercial paper today. As an initial matter, the 1934 Act 4
did not, and does not, apply to commercial paper, which is not a 5
“security” for purposes of the Act. See 15 U.S.C. § 78c(a)(10). 5
6
Moreover, Congress’s concern for the stability of central 7
counterparties that guarantee both sides of a securities 8
transaction would not justify sweeping redemptions of commercial 9
paper within Section 546(e)’s safe harbor, because transactions 10
in commercial paper are not cleared through such a central 11
counterparty. As the Court notes, “the DTC acted as a conduit 12
rather than a clearing agency that takes title to the securities 13
during the course of the transaction.” Op. at 24. Unlike the 14
National Securities Clearing Corporation (“NSCC”), which clears 15
transactions in equity and debt securities covered by the 1934 16
Act, the DTC does not act as an intermediary for trades by 17
648, at 2 (2006). The amendments do not shed any light on
whether the premature redemption of commercial paper is covered
by the exclusion for a “settlement payment.”
5 The 1934 Act exempts from the definition of security “any note,
draft, bill of exchange, or banker’s acceptance which has a
maturity at the time of issuance of not exceeding nine months,
exclusive of days of grace, or any renewal thereof the maturity
of which is likewise limited.” 15 U.S.C. § 78c(a)(10).

-- 38 of 47 --

13
undertaking independent obligations to deliver securities to the 1
buyer and payment to the seller. See Pet Quarters, Inc. v. 2
Depository Trust and Clearing Corp., 559 F.3d 772, 776-77 (8th 3
Cir. 2009). Rather than act as such a central counterparty, the 4
DTC serves as an electronic bookkeeper that processes payments; 5
it does not guarantee the performance (and assume the risk of 6
non-performance) of any other party. See id. (explaining that 7
the DTC “tracks transfers of indirect security entitlement 8
positions among its members, eliminating the need to transfer 9
the physical stock certificates,” while “NSCC acts as the 10
intermediary between buyer and seller . . . and assumes the 11
rights and obligations of buyers and sellers to receive, pay 12
for, and deliver securities”). Because the DTC does not 13
guarantee the obligations of its members, and does not take 14
title to the securities or funds it clears, it is not exposed to 15
any risk on account of a transaction that is challenged by a 16
bankruptcy trustee. 17
The Court acknowledges this distinction between the DTC and 18
the NSCC, but rejects it as immaterial on the theory that “the 19
absence of a financial intermediary that takes title to the 20
transacted securities during the course of the transaction is 21
[not] a proper basis on which to deny safe-harbor protection.” 22
Op. at 24-25. In support of this conclusion, it relies on cases 23

-- 39 of 47 --

14
from other courts of appeals that have applied Section 546(e)’s 1
safe harbor to leveraged buyouts of companies that “involved 2
financial intermediaries who served only as conduits.” Op. at 3
25 (citing In re Plassein Int’l Corp., 590 F.3d 252, 257-59 (3d 4
Cir. 2009); In re QSI Holdings, Inc., 571 F.3d 545, 549-50 (6th 5
Cir. 2009); Frost, 564 F.3d at 986). Accepting the reasoning of 6
the courts of appeals in those cases, however, does not militate 7
in favor of extending Section 546(e)’s safe harbor to 8
transactions in commercial paper. Those cases stand for the 9
proposition that, if Section 546(e) applies to a particular type 10
of transaction – namely, purchases of equity securities – an 11
individual transaction does not lose safe-harbor protection 12
simply because it does not involve a central counterparty, and 13
thus does not directly implicate the concerns that led Congress 14
to enact the section. 6 The leveraged buyout cases do not resolve 15
the question the Court must answer in the first instance: 16
whether a different type of transaction – a redemption of 17
commercial paper – is covered by Section 546(e). 7
18
6 As the Court points out, the issue on this appeal concerns only
an issuer’s premature redemption of commercial paper. Opinion
at 23 n.2.
7 The Court questions any reliance on the fact that Congress
enacted the safe harbor out of concern for the stability of
central counterparties when various courts of appeals have
rejected a restriction on the safe harbor in leveraged buyout

-- 40 of 47 --

15
B. 1
2
The conclusion that redemptions of commercial paper are not 3
covered by Section 546(e) is further supported by subsequent 4
legislative history. 8 Section 547(c)(2) of the Bankruptcy Code 5
provides that a trustee may not avoid under Section 547 a 6
transfer 7
to the extent that such transfer was in payment of a 8
debt incurred by the debtor in the ordinary course of 9
business or financial affairs of the debtor and the 10
transferee, and such transfer was (A) made in the 11
ordinary course of business or financial affairs of 12
the debtor and the transferee; or (B) made according 13
to ordinary business terms. 14
15
transactions that do not involve such counterparties. Op. at 25
n.3. That is not a basis to ignore the legislative history,
which reveals that Congress was primarily concerned with
upsetting the securities settlement process. That settlement
process involves the purchase and sale of securities that are
ordinarily cleared through a clearing agency. The fact that
some transactions that do not involve a clearing agency –
leveraged buyouts – are protected by the safe harbor because
they were not carved out by Congress is not a basis for
disregarding the legislative history and its focus on
transactions involving the purchase and sale of securities. The
Court points to nothing in the legislative history of the
ambiguous “settlement payment” provision that indicates that it
was intended to cover the redemption of commercial paper.
8 Subsequent legislative history is not entitled to the same
weight as contemporaneous legislative history, but it may
provide “some guidance” as to the legislative intent for a prior
congressional act. See Davis v. United Air Lines, Inc., 662
F.2d 120, 123-24 (2d Cir. 1981).

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16
11 U.S.C. § 547(c)(2). As originally enacted in 1978, the 1
“ordinary course” defense was restricted to preference actions 2
involving short-term debts of a duration of 45 days or less. 3
See Fidelity Sav. & Inv. Co. v. New Hope Baptist, 880 F.2d 1172, 4
1175-76 (10th Cir. 1989). In 1984, two years after the passage 5
of Section 546(e), the “ordinary course” defense was amended to 6
eliminate this restriction. A discussion between Senators Dole 7
and DeConcini, as part of the debate surrounding passage of the 8
amendment, makes clear that Congress was primarily concerned 9
with ensuring that “ordinary course” redemptions of commercial 10
paper with longer maturities would come within Section 11
547(c)(2)’s safe harbor. Id. If, as the Court concludes, 12
Section 546(e) protects every redemption of commercial paper, 13
“without regard to . . . the motives and circumstances of the 14
redemption,” Op. at 11, then this amendment was unnecessary 15
because any redemption of commercial paper – whether made in the 16
ordinary course of business or not – would be protected by the 17
“settlement payment” exclusion that Congress had adopted two 18
years before. 19
20
21
22

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17
IV. 1
2
3
Enron’s reading of Section 546(e) finds further support in 4
the policies reflected in the Bankruptcy Code. In Union Bank v. 5
Wolas, 502 U.S. 151 (1991), the Supreme Court discussed the 6
congressional priorities that motivated enactment of Section 7
547, and concluded that preference actions under that section 8
are “intended to serve two basic policies”: 9
A preference is a transfer that enables a creditor to 10
receive payment of a greater percentage of his claim 11
against the debtor than he would have received if the 12
transfer had not been made and he had participated in 13
the distribution of the assets of the bankruptcy 14
estate. The purpose of the preference section is two- 15
fold. First, by permitting the trustee to avoid 16
prebankruptcy transfers that occur within a short 17
period before bankruptcy, creditors are discouraged 18
from racing to the courthouse to dismember the debtor 19
during his slide into bankruptcy. The protection thus 20
afforded the debtor often enables him to work his way 21
out of a difficult financial situation through 22
cooperation with all of his creditors. Second, and 23
more important, the preference provisions facilitate 24
the prime bankruptcy policy of equality of 25
distribution among creditors of the debtor. Any 26
creditor that received a greater payment than others 27
of his class is required to disgorge so that all may 28
share equally. The operation of the preference 29
section to deter “the race of diligence” of creditors 30
to dismember the debtor before bankruptcy furthers the 31
second goal of the preference section — that of 32
equality of distribution. 33
34
502 U.S. at 160-161 (citing H. R. Rep. No. 95-595 177-178 35
(1977)). 36

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18
These goals – preventing a “race to the courthouse” and 1
ensuring equality of distribution among creditors – are severely 2
undermined by the interpretation of Section 546(e) adopted by 3
the Court. What Enron alleges happened in this case, according 4
to the Court’s interpretation of its papers, is instructive: 5
“it made the redemption payment under pressure from noteholders 6
seeking to recover on their investments amidst rumors of Enron’s 7
imminent implosion.” Op. at 7. That is, under intense pressure 8
from certain creditors, Enron extinguished its debt by paying to 9
them funds in excess of what they would have received on the 10
open market and, more importantly, far in excess of what they 11
would have received pursuant to the provisions of the Bankruptcy 12
Code. See 11 U.S.C. § 547(b). The scenario depicted by the 13
appellees is no less troubling. They assert, according to the 14
Court, that “Enron redeemed its commercial paper to ‘calm the 15
irrational markets’ and leave a favorable impression that would 16
allow it to reenter the commercial paper market once ‘bad 17
publicity’ about the company’s stability ‘had blown over.’” Op. 18
at 7. Those voluntary debt payments are no different from other 19
efforts of a debtor shortly before bankruptcy to prefer some 20
creditors over others. Such transfers, which result in 21
creditors of equal priority being treated unequally, and which 22
decrease the liquidity of a corporation attempting to avoid a 23

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19
slide into bankruptcy, are at the very core of the trustee’s 1
avoidance powers under Section 547. 2
The Court’s holding that a settlement payment requires only 3
the transfer of cash to complete a securities transaction, 4
without any purchase or sale of a security, is indeed 5
extraordinarily broad. In fact, the Court’s definition of a 6
settlement payment would seem to bring virtually every 7
transaction involving a debt instrument within the safe harbor 8
of Section 546(e), thus allowing the settlement payment 9
exception to swallow up the Section 547(b) avoidance provision. 10
The Court concludes that its holding poses no threat to the 11
viability of the Bankruptcy Code’s preference provisions on the 12
ground that this case involves “widely issued debt securities,” 13
and not “non-tradeable bank loans.” Op. at 22. The Court, 14
however, offers no basis for distinguishing between the two 15
types of debts, and under 11 U.S.C. § 101(49)(A), there is none; 16
notes, bonds, and debentures are “securities” under the 17
Bankruptcy Code irrespective of whether they are widely issued 18
or tradeable. The Court’s reasoning thus applies equally to any 19
payment on account of a debt evidenced by a writing, and does 20
indeed imperil decades of cases that allow the avoidance of 21
debt-related payments. See, e.g., Wolas, 502 U.S. at 162 22
(remanding to determine whether payments of long-term debt were 23

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20
within the ordinary course of business exception to avoidance 1
under Section 547(c)(2)). 2
The Court does not dispute that the payment of any ordinary 3
loan evidenced by a note would fall within its definition of a 4
settlement payment, but the Court finds that “the context of the 5
securities industry will exclude from the safe harbor payments 6
made on ordinary loans.” Opinion at 22. The Court cites no 7
authority for this proposition, and the terms of its definition 8
would cover such payments. 9
The Court’s holding is wholly unnecessary. The issue 10
presented in this case is a narrow one – whether the premature 11
redemption of commercial paper by the issuer falls within the 12
safe harbor of a “settlement payment” under section 546(e). The 13
issue is an unusual one, as reflected by the fact that it has 14
never arisen in any prior decision of any court of appeals. 15
However, by eliminating the “purchase or sale” requirement that 16
would exclude such payments, the Court undermines the ability of 17
bankruptcy trustees to avoid preferential payments on account of 18
ordinary debts. The Court argues that including a “purchase or 19
sale” requirement would not “necessarily exclude all payments 20
made on ordinary loans.” Opinion at 22. It is not clear why 21
this is an argument against a “purchase or sale requirement,” 22
which should be required by the common industry understanding 23

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21
and legislative history of section 546(e). The Court does not 1
dispute that recognizing such a requirement in fact excludes the 2
premature redemption of commercial paper from the scope of the 3
“settlement payment” safe harbor of section 546(e), and does so 4
without imperiling the regular avoidance powers of bankruptcy 5
trustees for ordinary loans. The Court appears to object that 6
the “purchase or sale” requirement would not exclude various 7
ways in which an issuer might deal with its commercial paper. 8
The Court hypothesizes that companies could protect their 9
premature redemptions of commercial paper by turning them into 10
repurchases rather than redemptions, if there is a “purchase or 11
sale” requirement. Opinion at 22-24. But, under the Court’s 12
approach, such repurchases would still be covered by the 13
“settlement payment” safe harbor, and, in addition, the Court’s 14
approach imperils the ordinary repayment of loans. The fact 15
that the “purchase or sale” requirement would not address all of 16
the ways in which a company might deal with its commercial paper 17
is not a reason to find that premature redemptions of commercial 18
paper do not fall within the “settlement payment” safe harbor. 19
20
CONCLUSION 21
22
For the reasons explained above, I respectfully dissent. 23

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