Kahle v. Cargill, Inc.

Filing 178

ORDER denying 139 Motion for Leave to Appeal; denying 140 Motion for Leave to Appeal. For the reasons stated above, Cargill's motion for certification of interlocutory appeal is DENIED. The Clerk of Court is directed to terminate the motions at ECF Nos. 139 and 140. SO ORDERED.. (Signed by Judge Analisa Torres on 11/14/2023) (kv)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
PHILIP VON KAHLE, in his capacity as assignee
for the benefit of the creditors of COEX COFFEE
INTERNATIONAL, INC.,

USDC SDNY
DOCUMENT
ELECTRONICALLY FILED
DOC #: _________________
DATE FILED: 11/14/2023__

Plaintiff,
-against-

21 Civ. 8532 (AT)
ORDER

CARGILL, INC.,
Defendant.
ANALISA TORRES, District Judge:
Plaintiff, Philip von Kahle, in his capacity as assignee for the benefit of the creditors of
Coex Coffee International, Inc. (“Coex Miami”), brings this action against Defendant, Cargill,
Inc. (“Cargill”). Plaintiff seeks to avoid three limited guarantees between Coex Miami and
Cargill and to avoid and recover more than $91.5 million in transfers from Coex Miami to
Cargill under state law causes of action for actual and constructive fraud in New York or Florida.
ECF No. 26 ¶¶ 8, 147–81. Cargill moved to dismiss the case, arguing primarily that Plaintiff’s
claims are preempted by federal bankruptcy law—specifically, by 11 U.S.C. § 546(g). ECF No.
60 at 1–2. On May 9, 2023, the Court granted in part and denied in part Cargill’s motion to
dismiss the complaint (the “Order”), holding in relevant part that bankruptcy law did not preempt
Plaintiff’s state-law claims. Order at 5–7, ECF No. 121.
Cargill now moves to certify the Order’s preemption holding for interlocutory appeal.
Def. Mot., ECF No. 139; see Def. Mem. at 1–2, ECF No. 140. For the reasons stated below, the
motion is DENIED.

BACKGROUND1
This case involves allegedly fraudulent transfers made by Coex Miami, an insolvent
coffee company, to Cargill, a global food corporation. On July 2, 2020, Coex Miami voluntarily
assigned all of its assets to Plaintiff to be liquidated for the benefit of creditors under Florida’s
assignment statute, Chapter 727. Order at 2. On July 7, 2020, Plaintiff initiated a Florida
assignment of benefits proceeding (the “ABC Proceeding”), a state law alternative to the federal
bankruptcy system. Id. at 2–3, 6. On October 15, 2021, Plaintiff filed the instant action to avoid
and recover over $91.5 million in transfers from Coex Miami to Cargill based on state law
causes of action for actual and constructive fraud under New York law or, in the alternative,
Florida law. Id. at 3.
On January 31, 2022, Cargill moved to dismiss the amended complaint, arguing primarily
that Plaintiff’s fraudulent-transfer claims are preempted by § 546(g) of the U.S. Bankruptcy
Code. ECF No. 49; see ECF No. 60 at 5–16 (citing 11 U.S.C. § 546(g)). That section provides
that, notwithstanding certain exceptions, a “trustee may not avoid a transfer, made by or to (or
for the benefit of) a swap participant or financial participant, under or in connection with any
swap agreement and that is made before the commencement of the case.” 11 U.S.C. § 546(g).
Cargill acknowledged that Plaintiff “is the assignee in a Florida state insolvency
proceeding,” not the trustee in a federal bankruptcy proceeding. ECF No. 60 at 10. Still, Cargill
argued, Plaintiff is “the functional equivalent of a bankruptcy trustee,” so his action to avoid the
transfers conflicts with Congress’s intent expressed in § 546(g). Id. (citation omitted). Plaintiff
responded that state law claims are only preempted by the Bankruptcy Code when a federal

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The Court presumes familiarity with the facts and procedural history of this matter as detailed in prior orders, see
Order at 1–4, and, therefore, only summarizes those facts necessary for its decision here.

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bankruptcy proceeding is involved and that Cargill had not shown that Plaintiff’s claims conflict
with Congress’s purposes. ECF No. 65 at 8–20.
In the Order, the Court declined to adopt Cargill’s expansive understanding of
preemption. Instead, the Court reasoned, the “plain text of § 546(g) makes clear that the
provision only applies to a federal bankruptcy trustee.” Order at 5. Because the ABC
Proceeding was not a federal bankruptcy case but instead was a state insolvency proceeding, the
Court held, federal bankruptcy law did not preempt Plaintiff’s claims. Id. at 6.
The Court also rejected Cargill’s argument that Plaintiff’s state-law claims were
impliedly preempted because they presented an obstacle to Congressional purposes. The Court
noted that Cargill had failed to identify evidence proving that Congress meant to extend the
Bankruptcy Code’s preemptive force to state insolvency proceedings. Id. at 6. Instead, the
Court explained, Congress “regularly treats federal and state laws differently where those laws
serve different purposes.” Id. at 7. The Court, therefore, denied Cargill’s motion to dismiss in
relevant part.2
On May 23, 2023, Cargill moved to certify for interlocutory appeal “the issue of whether
Plaintiff Philip Von Kahle’s claims are impliedly preempted by 11 U.S.C. § 546(g).” Def. Mot.
at 1.
DISCUSSION
I.

Legal Standard
Under 28 U.S.C. § 1292(b), a district court may certify an order for interlocutory appeal

where: (1) “[the] order involves a controlling question of law,” (2) “as to which there is

The Court also rejected Cargill’s argument that Plaintiff’s claims were field-preempted by the Bankruptcy Code
and Dodd-Frank Act, and dismissed as untimely Plaintiff’s constructive-fraud claims that predated July 1, 2017.
Order at 9. Those holdings are not at issue here.
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substantial ground for difference of opinion,” and (3) “an immediate appeal from the order may
materially advance the ultimate termination of the litigation.” The moving party bears the
burden of establishing the three factors. Bellino v. JPMorgan Chase Bank, N.A., No. 14 Civ.
3139, 2017 WL 129021, at *1 (S.D.N.Y. Jan. 13, 2017).
Section 1292(b) is “a rare exception to the final judgment rule that generally prohibits
piecemeal appeals.” Koehler v. Bank of Bermuda Ltd., 101 F.3d 863, 865 (2d Cir. 1996).
Because interlocutory appeals are strongly disfavored, “only exceptional circumstances will
justify a departure from the basic policy of postponing appellate review until after the entry of a
final judgment.” Klinghoffer v. S.N.C. Achille Lauro Ed Altri-Gestione Motonave Achille Lauro
in Amministrazione Straordinaria, 921 F.2d 21, 25 (2d Cir. 1990) (quoting Coopers & Lybrand
v. Livesay, 437 U.S. 463, 475 (1978)) (cleaned up).
II.

Application
The Court agrees with Cargill that the first and third prongs of the § 1292(b) analysis are

satisfied. The preemption issue is an “issue of law”—that is, “a pure question of law that the
reviewing court could decide quickly and cleanly without having to study the record.” Youngers
v. Virtus Inv. Partners Inc., 228 F. Supp. 3d 295, 298 (S.D.N.Y. 2017) (citation and quotation
marks omitted). Further, the issue of law is “controlling” because “reversal of the district court’s
opinion could result in dismissal of the action.” Flo & Eddie, Inc v. Sirius XM Radio Inc., No.
13 Civ. 5784, 2015 WL 585641, at *1 (S.D.N.Y. Feb. 10, 2015) (citation omitted); see
Klinghoffer, 921 F.2d at 24.
For similar reasons, immediate appeal could “materially advance the ultimate termination
of the litigation.” 28 U.S.C. § 1292(b). Plaintiff is correct that certification could delay the trial
date if the Second Circuit agrees that Plaintiff’s claims are not preempted. Pl. Opp. at 17–19,

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ECF No. 152. But a ruling in the opposite direction would bar Plaintiff’s claims and terminate
the action, “rendering any trial on the merits a nullity.” Ferring B.V. v. Allergan, Inc., 343 F.
Supp. 3d 284, 291 (S.D.N.Y. 2018).
Cargill, however, does not satisfy the second prong of the § 1292(b) analysis: whether
there is “substantial ground” for a difference of opinion on the Court’s preemption decision. A
substantial ground for difference of opinion exists where “(1) there is conflicting authority on the
issue, or (2) the issue is particularly difficult and of first impression for the Second Circuit.” In
re Goldman Sachs Grp., Inc. Sec. Litig., No. 10 Civ. 3461, 2014 WL 5002090, at *3 (S.D.N.Y.
Oct. 7, 2014) (quoting Cap. Records, LLC v. Vimeo, LLC, 972 F. Supp. 2d 537, 551 (S.D.N.Y.
2013)). “Mere conjecture that courts would disagree on the issue” is insufficient. Bellino, 2017
WL 129021, at *3. Instead, “there must be substantial doubt that the district court’s order was
correct.” Century Pac., Inc. v. Hilton Hotels Corp., 574 F. Supp. 2d 369, 372 (S.D.N.Y. 2008)
(quoting SPL Shipping Ltd. v. Gujarat Cheminex Ltd., No. 06 Civ. 15375, 2007 WL 1119753, at
*2 (S.D.N.Y. Apr. 12, 2007)) (quotation marks omitted).
Cargill cites no “conflicting authority” on the implied-preemption issue. See Def. Mem.
at 15–17. Instead, it contends, the “issue of preemption is a difficult one,” and “the issue before
the Court is [] novel.” Id. at 18. But even if some scholars have described preemption generally
as “perplexing,” id., the specific issue before the Court is not particularly so. As the Court
explained, the “plain text of § 546(g) makes clear that the provision only applies to a federal
bankruptcy trustee.” Order at 5. And the Second Circuit has affirmed that preemption takes
effect “when [] Chapter 11 proceedings commence[].” In re Trib. Co. Fraudulent Conv. Litig.,
946 F.3d 66, 83 (2d Cir. 2019) (emphasis added). The ABC Proceeding is not a bankruptcy

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proceeding, and Cargill cites no cases in which § 546(g) has operated to bar a state law
avoidance claim in the absence of a bankruptcy proceeding.
Cargill also reiterates its argument that allowing Plaintiff’s claims to proceed would
“stand as an obstacle to the accomplishment and execution of the full purposes and objectives of
Congress.” Def. Mem. at 15 (citation omitted). Through § 546(g), Cargill contends, Congress
intended to “clos[e] the floodgates” to fraudulent-transfer actions against transfers made under
swap agreements, and permitting state insolvency assignees to bring claims while barring federal
bankruptcy trustees from doing the same would close only one floodgate while leaving another
open. Id.
Cargill’s evidence on congressional intent, however, remains scant and speculative. It is
true that Congress enacted Section 546(g) “to ensure that the swap and forward contract financial
markets are not destabilized by uncertainties regarding the treatment of their financial
instruments under the Bankruptcy Code.” Whyte v. Barclays Bank PLC, 494 B.R. 196, 200
(S.D.N.Y. 2013), aff’d, 644 F. App’x 60 (2d Cir. 2016) (quoting Act of June 25, 1990, H.R. Rep.
101–484, at 3, available at 1990 WL 92539 (1990)). But federal regulation does not preempt
state regulation “absent ‘persuasive reasons—either that the nature of the regulated subject
matter permits no other conclusion, or that the Congress has unmistakably so ordained.’”
Insolvency Servs. Grp., Inc. v. Samsung Elecs. Am., Inc., No. 20 Civ. 8179, 2021 WL 871434, at
*3 (S.D.N.Y. Mar. 8, 2021) (quoting Fl. Lime & Avocado Growers, Inc. v. Paul, 373 U.S. 132,
142 (1963)). Here, the regulated subject matter—avoidance of swap transactions—does not, by
its nature, command the conclusion that Plaintiff’s claims are preempted. See id. (noting that
“there is a long history of state laws permitting the recovery of voluntary transfers coexisting
with the [Bankruptcy] Code”). Nor does Congress’s general statement of intent constitute an

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unmistakable ordinance, particularly where Congress chose not to expressly preempt claims like
Plaintiff’s in the statutory text. See O & G Indus., Inc. v. Nat’l R.R. Passenger Corp., 537 F.3d
153, 161 (2d Cir. 2008) (declining to imply preemption by “supply[ing] that which is omitted by
the legislature” (citation omitted)).
Accordingly, Cargill fails to show a “substantial ground for difference of opinion” as to
the holding that it moves to certify for interlocutory appeal. 28 U.S.C. § 1292(b).
CONCLUSION
For the reasons stated above, Cargill’s motion for certification of interlocutory appeal is
DENIED. The Clerk of Court is directed to terminate the motions at ECF Nos. 139 and 140.
SO ORDERED.
Dated: November 14, 2023
New York, New York

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