Settlement of Tops Trustee Litigation Ends Epic Journey

In his final farewell decision from the bench in 2022, Judge Drain held that the § 546(e) safe harbor did not apply to the over $375 million in dividends issued to Tops’ former private equity owners. Judge Drain observed that the allegations in the complaint included “direct evidence of intent to defraud” and that the solvency opinions obtained by the company were “garbage in/garbage out.” Judge Drain then faulted Congress for its failure to address “the playbook of private loan and equity participants to loot privately held companies to the detriment of their non-insider creditors with effective impunity.” These observations have since been widely recited throughout restructuring circles. 

While many observers watched Tops closely as a bellwether of the courts’ evolving temperament toward private-equity sponsors, I have been fortunate to have a front-row seat on behalf of the Trustee over the past five years. That journey finally came to an end on November 24, 2025, when the parties settled their dispute and dismissed the case after more than 5 years of hard-fought litigation.

Undoubtedly, the key event in the case was Judge Drain’s decision in 2022.  Oral argument on the motions to dismiss took place in September 2020 and lasted over 6 hours. At the conclusion of argument, Judge Drain informed the parties that it was too late in the evening for him to issue an oral ruling from the bench. Instead, he would be issuing a written opinion.  In October 2022, Judge Drain issued his opinion, his last from the bench before retiring.

The opinion was well worth waiting for.

Judge Drain’s opinion was pivotal in pushing back against the overreach by financial sponsors to shield transfers that have nothing to do with the stability of the securities markets. Other courts soon followed his lead, reaffirming the critical role that centuries old fraudulent transfer law plays in protecting creditors. Importantly, the parties’ settlement leaves Judge Drain’s seminal decision undisturbed, allowing his clarion call to continue to resonate.

In a fitting coda to my involvement in the Tops’ case, this past summer I spoke at a roundtable on the safe harbor sponsored by the Creditors Right Coalition. My fellow panelist and host was Daniel Shamah at Cooley, who previously was my adversary in the Tops case when he was at O’Melveny. Judge Drain also was in attendance, as a participant on another panel.  It was surreal and apt to be discussing the safe harbor and the Tops case with Daniel and Judge Drain. 

?Looking back, I bid a fond farewell to the Tops case and the important precedent it established.