BVI Constructive Trust Claims: Are They Avoidance Claims?

The U.S. Bankruptcy Court for the S.D.N.Y. provided further clarity in the Fairfield Sentry litigation on whether foreign constructive trust claims are avoidance claims in assessing the applicability of Sections 546(e) and 561(d), the U.S. bankruptcy safe harbor laws which generally immunizes securities transactions from bankruptcy avoidance actions. Judge Stuart M. Bernstein - in one of his last decisions before retiring from the bench - authored the opinion.

Denying a motion by defendants to reconsider his December 14, 2020 decision on the topic, Judge Bernstein reaffirmed that Bankruptcy Code Section 546(e) - the securities "safe harbor" - did not apply to BVI constructive trust claims. In that earlier decision, Judge Bernstein had ruled that the safe harbor could not reach foreign common law claims, because the safe harbor did not expressly bar them, and the U.S. federal law doctrine of "implied preemption" was inapplicable because the U.S. Constitution's