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Holding: Affirmed.
Reasoning: Three other circuit courts - the 10th circuit, the 3rd circuit, and the 9th circuit - have concluded that the definition of settlement payments in § 741(8) is extremely broad and "intended to encompass most payments that can be considered settlement payments." The term is one of art that should be given its established meaning in the securities trade. "Specifically, 'settlement' refers to 'the completion of a securities transaction,' ... and a 'settlement payment is generally the transfer of cash or securities made to complete [the] securities transaction.'" Ultimately, the court concluded that based on the plain, unambiguous language of the statute, the "term 'settlement payment,' as used therein, encompasses most transfers of money or securities made to complete a securities transaction." The court felt that the transaction between CIH and the Frosts - transfers of money to complete a securities transaction, namely, the sale of the Frosts' Contemporary Industries stock - fit exactly into the definition of settlement payment and was thus exempt from avoidance. Nothing in the statutory language of either §§ 741(8) or 546(e) suggests that Congress meant to exclude payments for privately held stock from the definition of settlement payments. Additionally, there is not support in the language of the statute for the requirement that the financial institution that makes the transfers - here First National - obtain a beneficial interest in the funds that are transferred. As for the state law claims asserted in the complaint against the Frosts, the Supremacy Clause of the Constitution requires that the federal law at issue here (§ 546(e)) trump state law so that no recovery may be had based upon state law.
Facts: Amp'd Mobile, Inc. ("Amp'd") filed an adversary proceeding against Adderton, the founder of Amp'd, who had also been a director and CEO. Adderton filed a third-party complaint against a number of third-party defendants (collectively, the "Third Party Defendants"). Pre-petition, Amp'd and Adderton entered into an employment and release agreement (the "Release Agreement") for purposes of ending Adderton's tenure as CEO and moving him into a different role in the company. Under the Release Agreement, which was approved by Amp'd's board of directors, Adderton was to receive severance and incentive payments, sell 100,000 of his 1 million shares back to Amp'd at $7 a share, plus other items. The Release Agreement was mostly consummated - Adderton transferred his 100,000 shares to the company and was paid for the transfer; Adderton also got his severance payments. Under the Release Agreement, Adderton gave the Third-Party Defendants a "complete and general release of all claims he had against them based on anything they did or failed to do prior to midnight on May 10, 2007." Less than a month after Adderton stepped down as CEO, Amp'd filed for chapter 11. Amp'd was unable to get financing and terminated its services to its customers. Then Amp'd sued Adderton seeking disallowance of his claim, the avoidance and recovery of transfers that resulted from the Release Agreement, the recovery of preferences, alleging unjust enrichment, and alleging violation of Delaware Corporate Law. Adderton then filed a third-party complaint against the Third-Party Defendants - the directors of Amp'd who authorized the Release Agreement - claiming he was entitled to contribution if Amp'd succeeded in its claims. The Third-Party Defendants moved to dismiss.
Issues: "Whether Adderton's claims against the Third-Party Defendants are precluded under the terms of the Release Agreement..." or, alternatively, if the Release Agreement is not valid, whether Adderton is able to recover from the Third-Party Defendants on any other bases.
Holding: The third-party complaint is dismissed.
