United States District Court, D. Delaware
IN RE: FRANKLIN BANK CORPORATION, Debtor. BANK OF NEW YORK MELLON TRUST COMPANY, N.A., Appellant,
GEORGE L. MILLER, et al., Appellees
Bankruptcy Case No. 08-12924 (CSS).
Robert J. Stearn, Jr., Esq. (argued), RICHARDS, LAYTON & FINGER, P.A., Wilmington, DE, Attorney for Appellant Bank of New York Mellon Trust Company, N.A.
David B. Stratton, Esq., PEPPER HAMILTON LLP, Wilmington, DE; Stephen H. Warren, Esq. (argued), O'MELVENY & MYERS LLP, Los Angeles, CA, Attorneys for Appellant Senior Noteholders.
Glenn Brown, Esq., REAL WORLD LAW, PC, Wilmington, DE; Seth B. McCormick, Esq. (argued), BROWN LEGAL ADVISORS, LLC, Chicago, IL, Attorneys for Appellant HoldCo Advisors, L.P.
Michael Busenkell, Esq., GELLERT SCALI BUSENKELL & BROWN LLC, Wilmington, DE; Todd C. Meyers, Esq. (argued), KILPATRICK TOWNSEND & STOCKTON LLP, Atlanta, GA, Attorneys for Appellee Wilmington Trust Co.
Linda Richenderfer, Esq. (argued), KLEHR HARRISON HARVEY BRANZBURG LLP, Wilmington, DE, Attorney for Appellee George L. Miller.
Richard G Andrews, U.S. DISTRICT JUDGE.
Pending before the Court are five closely related appeals by the Bank of New York Mellon (" BNYM" ), a class of senior debt securities holders (" the Senior Noteholders" ), and HoldCo Advisors, L.P., challenging the Bankruptcy Court's orders entered on September 5, 2013 (1:13-cv-1713 D.I. 13-1) and September 20, 2013 (D.I. 13-2). Briefing is complete, and the Court heard oral argument on July 1, 2014. For
the reasons that follow, the Orders of the Bankruptcy Court are vacated and the case is remanded for further proceedings consistent with this Opinion.
This is a chapter 7 bankruptcy appeal involving the affairs of Franklin Bank Corporation (" FBC" ), a defunct Texas-based savings and loan holding company organized under the laws of the State of Delaware. The facts are well-known to the parties, and are amply laid out in the Bankruptcy Court's Order. (D.I. 13-1). Several key facts, however, bear mention here because they are particularly relevant to my view of the case.
The Texas Department of Savings and Mortgage Lending closed FBC's subsidiary on November 7, 2008, causing FBC to commence a voluntary chapter 7 case in Delaware's Bankruptcy Court on November 12, 2008. Prior to filing for bankruptcy, FBC created four capital trusts (collectively, " Trusts I-IV" ) and issued four classes of Junior Subordinated Debt Securities (" Debt Securities" ) held by an Indenture Trustee. BNYM is the Indenture Trustee for Trusts I-III, and Wilmington Trust is the Indenture Trustee for Trust IV. Each of those trusts then issued securities (collectively, " Trust I-IV Securities" ). FBC also issued Contingent Convertible Senior Notes (" the Senior Notes" ), for which BNYM serves as the Indenture Trustee. The Senior Noteholders own the Senior Notes. HoldCo, as manager and power of attorney for Financials Restructuring Partners, Ltd. (" FRP" ) and Financials Restructuring Partners, III Ltd. (" FRP III" ) hold Trust II and Trust III Securities. The claimants are parties to a series of subordination agreements that order FBC's debt as follows:
1. Senior Notes held by BNYM as Indenture Trustee for the Senior Notes
2. Debt Securities I held by BNYM as Indenture Trustee for Trust I
3. Debt Securities II held by BNYM as Indenture Trustee for Trust II
4. Debt Securities III held by BNYM as Indenture Trustee for Trust III
5. Debt Securities IV held by Wilmington Trust as Indenture Trustee for Trust IV
( Id., p. 10). The Indenture agreements are governed by New York law. (1:13-cv-1755 ...