11-4643(L)
     In Re: Ambac Fin. Grp.


                          UNITED STATES COURT OF APPEALS
                              FOR THE SECOND CIRCUIT

                                     SUMMARY ORDER
     RULINGS BY SUMMARY ORDER DO NOT HAVE PRECEDENTIAL EFFECT. CITATION TO A SUMMARY ORDER FILED
     ON OR AFTER JANUARY 1, 2007, IS PERMITTED AND IS GOVERNED BY FEDERAL RULE OF APPELLATE
     PROCEDURE 32.1 AND THIS COURT’S LOCAL RULE 32.1.1. WHEN CITING A SUMMARY ORDER IN A
     DOCUMENT FILED WITH THIS COURT, A PARTY MUST CITE EITHER THE FEDERAL APPENDIX OR AN
     ELECTRONIC DATABASE (WITH THE NOTATION “SUMMARY ORDER”). A PARTY CITING A SUMMARY ORDER MUST
     SERVE A COPY OF IT ON ANY PARTY NOT REPRESENTED BY COUNSEL.

1             At a stated term of the United States Court of Appeals
2        for the Second Circuit, held at the Daniel Patrick Moynihan
3        United States Courthouse, 500 Pearl Street, in the City of
4        New York, on the 12th day of July, two thousand twelve.

 5       PRESENT: DENNIS JACOBS,
 6                              Chief Judge,
 7                DENNY CHIN,
 8                SUSAN L. CARNEY,
 9                              Circuit Judges.
10       - - - - - - - - - - - - - - - - - - - -X
11       IN RE: AMBAC FINANCIAL GROUP, INCORPORATED
12
13       PUBLIC SCHOOL TEACHERS’ PENSION & RETIREMENT
14       FUND OF CHICAGO, ARKANSAS TEACHERS RETIREMENT
15       SYSTEM, PUBLIC EMPLOYEES’ RETIREMENT SYSTEMS
16       OF MISSISSIPPI, SCOTT REIMER, individually and
17       on behalf of all others similarly situated,
18       STANLEY TOLIN, EDWARD WALTON, PAINTING
19       INDUSTRY INSURANCE AND ANNUITY FUNDS, MARKO
20       BABIC, KEVIN PARKER, individually and on
21       behalf of all others similarly situated,
22       MINNEAPOLIS FIREFIGHTERS’ RELIEF ASSOCIATION,
23       on behalf of itself and all others similarly
24       situated,
25                 Plaintiffs-Appellees,


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1    POLICE AND FIRE RETIREMENT SYSTEM OF THE CITY
2    OF DETROIT,
3             Plaintiff-Appellant,

4             -v.-                    11-4643 (Lead)
5                                     12-59 (Con)

 6   AMBAC FINANCIAL GROUP, INC., ROBERT J.
 7   GENADER, PHILLIP B. LASSITER, SEAN T. LEONARD,
 8   THOMAS J. GANDOLFO, JOHN W. UHLEIN, III, DAVID
 9   W. WALLIS, MICHAEL A. CALLEN, JILL M.
10   CONSIDINE, W. GRANT GREGORY, THOMAS C.
11   THEOBALD, LAURA S. UNGER, HENRY WALLACE,
12   PHILIP N. DUFF, BANC OF AMERICA SECURITIES,
13   LLC, CITIGROUP GLOBAL MARKETS INC., GOLDMAN,
14   SACHS & CO., HSBC SECURITIES (USA) INC., J.P.
15   MORGAN SECURITIES INC., MERRILL LYNCH, PIERCE,
16   FENNER & SMITH INCORPORATED, UBS SECURITIES
17   LLC, WACHOVIA CAPITAL MARKETS, LLC,
18            Defendants-Appellees,

19   BANC OF AMERICA SECURITIES, LLC, CREDIT SUISSE
20   SECURITIES USA LLC, KEEFE, BRUYETTE & WOODS,
21   INC., KPMG LLP,
22            Defendants,

23   UNITED STATES TRUSTEE,
24            Trustee.
25   - - - - - - - - - - - - - - - - - - - -X

26   FOR APPELLANT:             Denis F. Sheils (Barbara L.
27                              Moyer, on the brief), Kohn,
28                              Swift & Graf, P.C.,
29                              Philadelphia, Pa.

30   FOR APPELLEES:             Rochelle Feder Hansen (Steven B.
31                              Singer, Niki L. Mendoza, on the
32                              brief), Bernstein Litowitz
33                              Berger & Grossmann LLP, Frederic
34                              S. Fox, Kaplan Fox & Kilsheimer
35                              LLP, on the brief, New York,
36                              N.Y. (Counsel for Public School

                                  2
1                               Teachers’ Pension & Retirement
2                               Fund of Chicago, Arkansas
3                               Teachers Retirement System and
4                               Public Employees’ Retirement
5                               System of Mississippi),

 6                              Peter C. Hein (C. Lee Wilson, on
 7                              the brief), Wachtell, Lipton,
 8                              Rosen & Katz, New York, N.Y.
 9                              (Counsel for Ambac Financial
10                              Group, Inc. and the individual
11                              Defendants-Appellees), Richard
12                              Reinthaler, Winston & Strawn
13                              LLP, on the brief, New York,
14                              N.Y. (Counsel for Ambac
15                              Financial Group, Inc.).

16        Consolidated appeals from judgments of the United
17   States District Court for the Southern District of New York
18   (Buchwald, J.).

19        UPON DUE CONSIDERATION, IT IS HEREBY ORDERED, ADJUDGED
20   AND DECREED that the judgments of the district court be
21   AFFIRMED.


22        Police and Fire Retirement System of the City of
23   Detroit (“PFRS”) appeals from: (1) the September 28, 2011,
24   judgments of the District Court approving, pursuant to
25   Federal Rule of Civil Procedure 23(e), a settlement between
26   Ambac Financial Group and plaintiffs in consolidated
27   shareholder class actions, and (2) the December 29, 2011,
28   judgment of the District Court affirming the Bankruptcy
29   Court’s order approving the settlement pursuant to
30   Bankruptcy Rule 9019. As part of the settlement, Ambac
31   released any claims that could be brought on its behalf
32   against its officers and directors. PFRS, a nominal
33   plaintiff in a shareholder derivative action, argues that
34   Ambac lacked authority to release the derivative claims.

35        “[T]he filing of [a] bankruptcy petition immediately
36   alter[s] the rights of the [c]orporation and the manner in
37   which its rights [can] be asserted.” Mitchell Excavators,
38   Inc. v. Mitchell, 

, 131 (2d Cir. 1984).
39   “[W]hile normally the fiduciary obligation of officers,

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1    directors and shareholders ‘is enforceable directly . . .
2    through a stockholder’s derivative action, it is, in the
3    event of bankruptcy of the corporation, enforceable by the
4    trustee’” or debtor-in-possession.1 Id. (quoting Pepper v.
5    Litton, 

, 307 (1939)). Accordingly, when Ambac
6    filed for bankruptcy, the derivative claims became property
7    of the debtor-in-possession, Ambac.

 8        “[U]nder certain circumstances a shareholder may assert
 9   a cause of action of the debtor even after the commencement
10   of a bankruptcy proceeding. For example, the trustee may
11   abandon a particular claim, making it possible for others to
12   assert it. Also, the bankruptcy court may order the trustee
13   to abandon a claim.” Id. (citations omitted). The
14   bankruptcy court never ordered Ambac to abandon the
15   derivative claims and found that PFRS never petitioned for
16   such an order, a finding PFRS challenges only in its reply
17   brief. See United States v. Yousef, 

, 115 (2d
18   Cir. 2003) (“We will not consider an argument raised for the
19   first time in a reply brief.”). PFRS argues that Ambac
20   unilaterally abandoned the claims by agreeing to their
21   release. But in cases of abandonment, “some proceeding in
22   the bankruptcy court must take place before a shareholder
23   can assert the right directly.” Mitchell, 734 F.2d at 132;
24   see also 11 U.S.C. § 554(a)-(b) (“After notice and a
25   hearing, the trustee may abandon any property of the estate
26   . . . . On request of a party in interest and after notice
27   and a hearing, the court may order the trustee to abandon
28   any property of the estate . . . .”). Moreover, Ambac
29   released the claims as part of a settlement with (inter
30   alia) its directors’ and officers’ liability insurers, who
31   had asserted that they were unwilling to pay absent the
32   release. Accordingly, the derivative claims belong to the
33   Ambac estate and PFRS lacks a cognizable interest in their
34   release. See Sobchack v. Am. Nat’l Bank & Trust Co. of
35   Chicago (In re Ionosphere Clubs, Inc.), 

, 604 (2d
36   Cir. 1994) (“[T]he claims submitted by the [shareholders] to
37   the bankruptcy court are derivative . . . . They therefore



         1
            “[D]ebtors-in-possession and reorganization trustees
     have essentially the same rights, powers, and duties.”
     Kalb, Voorhis & Co. v. Am. Fin. Corp., 

, 132 n.1
     (2d Cir. 1993) (citing 11 U.S.C. § 1107(a)).
                                  4
1    belong exclusively to the [debtor’s] Estate and were
2    extinguished by its settlement of those claims.”).

3         Having concluded that PFRS lacks an interest in the
4    derivative claims, we need not consider the other arguments
5    it raises. Accordingly, we hereby AFFIRM the judgments of
6    the district court.



 7                              FOR THE COURT:
 8                              CATHERINE O’HAGAN WOLFE, CLERK
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