Relevant Documents:
Reply - Citadel/Susquehanna
Reply - T. Rowe Price
Citadel, Susquehanna and T. Rowe Price, defendants in the Mallinckrodt Opioid Master Disbursement Trust II’s $1.6 billion
share repurchase program fraudulent transfer suit, filed briefs on Tuesday, Feb. 20, bolstering their Bankruptcy Code section 546(e) securities transaction “safe harbor” defense. The defendants attack a novel
argument made by the opioid trust established in Mallinckrodt’s first chapter 11 case, which maintains that the safe harbor does not apply because the $1.6 billion in share repurchases made by the Ireland-incorporated company from 2018 to 2019 were void at all times under Irish corporate law. The defendants again urge Judge John Dorsey to apply the safe harbor defense and dismiss the trust’s claims against them.
In their reply brief, Citadel and Susquehanna challenge the opioid trust’s “radical” argument that “the law of Mallinckrodt’s place of incorporation, Ireland, and not the U.S. Bankruptcy Code, determines whether the Share Repurchases are qualifying transactions.” The opioid trust’s main argument - “that Mallinckrodt was insolvent when it repurchased its stock, that the Share Repurchases were therefore illegal and ‘void’ under Irish law, and that, as a result, they were not ‘settlement payments’” - is premised on a “plainly wrong” argument, according to the brief.
Specifically, the opioid trust takes the position that the Third Circuit’s broad construction of “settlement payments” shielded by the safe harbor was somehow overruled by the U.S. Supreme Court’s 2018
Merit Management decision, say Citadel and Susquehanna, even though that decision from the court “explicitly said it was
not addressing the meaning of that term.”
Citadel and Susquehanna suggest that the plaintiff’s position on the definition of settlement payments was refuted by Judge Dorsey’s Jan. 18
opinion granting in part and denying in part a
motion to dismiss a separate lawsuit the opioid trust filed against Mallinckrodt’s former parent Covidien. In that ruling, Judge Dorsey acknowledged the Third Circuit’s view that the Bankruptcy Code’s definition of “settlement payment” is “extremely broad” and includes any “transfer of cash or securities made to complete a securities transaction,” the defendants say.
Citadel and Susquehanna assert, “That is precisely what happened here - Mallinckrodt transferred cash to repurchase its own stock on the open market.” The Third Circuit recognizes that “a payment for securities is a settlement payment even if it arose out of an ‘arguably illegal contract,’” the brief continues, and the Bankruptcy Code “provides for the safe harbor even if the debtor was insolvent when it made the transfer.”
In any event, Citadel and Susquehanna argue, section 546(e) is “part of the
United States Bankruptcy Code, not the statutory regime of Ireland.” The defendants insist that federal law, not foreign law, governs questions involving the interpretation of a federal statute and that the safe harbor “requires a uniform federal definition of the term ‘settlement payment.’”
Defendant T. Rowe Price joins in Citadel and Susquehanna’s argument that the share repurchases are “quintessential ‘settlement payments’” for purposes of the safe harbor. Disputing the opioid trust’s assertion that the T. Rowe Price funds are not “financial participants” protected by the safe harbor, the T. Rowe Price defendants emphasize that their “SEC filings and sworn declarations show that they are registered investment companies under the ’40 Act.”
The T. Rowe Price funds also maintain that in the challenged transactions, they were qualifying investment companies “in connection with” two different sets of securities contracts: The funds received share repurchase proceeds “in connection with” Mallinckrodt’s agreements to purchase the equity and also received share repurchase proceeds “in connection with” “sell orders they placed with their own brokers that, once accepted by Mallinckrodt, formed binding contracts.”
T. Rowe Price says its reading of the definition is consistent with the Second Circuit’s November 2023
Nine West opinion, which “held that because the payments to the ’40 act shareholders were part of a qualifying transaction, they satisfied the ‘in connection with’ requirement” of the safe harbor. Citadel and Susquehanna echo these points.
Citadel and Susquehanna reiterate their call for the court to toss the claims against them, saying that the opioid trust “refused over a period of 11 months to dismiss Moving Defendants without meaningful explanation.” Now, the trust has “conjured up” the safe harbor argument in the “eleventh hour” after it consented to a
protocol order governing issues such as the definitions of “financial institutions” and “financial participants” for purposes of the litigation, the defendants say.
Citadel and Susquehanna argue that the opioid trust never raised the Irish law issue in its original complaint and now makes the argument even though it would nullify the protocol order and “vitiate Section 546(e)’s goal of ensuring certainty, speed, finality, and stability in the securities markets.” Judge Dorsey should find that the opioid trust waived the Irish law argument, the defendants assert.