Merit Mgmt. Grp., LP v. FTI Consulting, Inc.

Decision Date27 February 2018
Docket NumberNo. 16–784.,16–784.
Citation200 L.Ed.2d 183,138 S.Ct. 883
CourtU.S. Supreme Court

Brian C. Walsh, St. Louis, MO, for Petitioner.

Paul D. Clement, Washington, DC, for Respondent.

Jason J. DeJonker, Leslie A. Bayles, Justin A. Morgan, Bryan Cave LLP, Chicago, IL, Brian C. Walsh, John J. Schoemehl, Laura Uberti Hughes, Bryan Cave LLP, St. Louis, MO, for Petitioner.

William T. Reid, IV, Gregory S. Schwegmann, Joshua J. Bruckerhoff, Reid Collins & Tsai LLP, Austin, TX, Paul D. Clement, H. Christopher Bartolomucci, George W. Hicks, Jr., Kirkland & Ellis LLP, Washington, DC, for Respondent.

Justice SOTOMAYOR delivered the opinion of the Court.

To maximize the funds available for, and ensure equity in, the distribution to creditors in a bankruptcy proceeding, the Bankruptcy Code gives a trustee the power to invalidate a limited category of transfers by the debtor or transfers of an interest of the debtor in property. Those powers, referred to as "avoiding powers," are not without limits, however, as the Code sets out a number of exceptions. The operation of one such exception, the securities safe harbor, 11 U.S.C. § 546(e), is at issue in this case. Specifically, this Court is asked to determine how the safe harbor operates in the context of a transfer that was executed via one or more transactions, e.g., a transfer from A ? D that was executed via B and C as intermediaries, such that the component parts of the transfer include A ? B ? C ? D. If a trustee seeks to avoid the A ? D transfer, and the § 546(e) safe harbor is invoked as a defense, the question becomes: When determining whether the § 546(e) securities safe harbor saves the transfer from avoidance, should courts look to the transfer that the trustee seeks to avoid (i.e., A ? D) to determine whether that transfer meets the safe-harbor criteria, or should courts look also to any component parts of the overarching transfer (i.e., A ? B ? C ? D)? The Court concludes that the plain meaning of § 546(e) dictates that the only relevant transfer for purposes of the safe harbor is the transfer that the trustee seeks to avoid.


Because the § 546(e) safe harbor operates as a limit to the general avoiding powers of a bankruptcy trustee,1 we begin with a review of those powers. Chapter 5 of the Bankruptcy Code affords bankruptcy trustees the authority to "se[t] aside certain types of transfers ... and ... recaptur[e] the value of those avoided transfers for the benefit of the estate." Tabb § 6.2, p. 474. These avoiding powers "help implement the core principles of bankruptcy." Id., § 6.1, at 468. For example, some "deter the race of diligence of creditors to dismember the debtor before bankruptcy" and promote "equality of distribution." Union Bank v. Wolas, 502 U.S. 151, 162, 112 S.Ct. 527, 116 L.Ed.2d 514 (1991) (internal quotation marks omitted); see also Tabb § 6.2. Others set aside transfers that "unfairly or improperly deplete ... assets or ... dilute the claims against those assets." 5 Collier on Bankruptcy ¶ 548.01, p. 548–10 (16th ed. 2017); see also Tabb § 6.2, at 475 (noting that some avoiding powers are designed "to ensure that the debtor deals fairly with its creditors").

Sections 544 through 553 of the Code outline the circumstances under which a trustee may pursue avoidance. See, e.g., 11 U.S.C. § 544(a) (setting out circumstances under which a trustee can avoid unrecorded liens and conveyances); § 544(b) (detailing power to avoid based on rights that unsecured creditors have under nonbankruptcy law); § 545 (setting out criteria that allow a trustee to avoid a statutory lien); § 547 (detailing criteria for avoidance of so-called "preferential transfers"). The particular avoidance provision at issue here is § 548(a), which provides that a "trustee may avoid" certain fraudulent transfers "of an interest of the debtor in property." § 548(a)(1). Section 548(a)(1)(A) addresses so-called "actually" fraudulent transfers, which are "made ... with actual intent to hinder, delay, or defraud any entity to which the debtor was or became ... indebted." Section 548(a)(1)(B) addresses "constructively" fraudulent transfers. See BFP v. Resolution Trust Corporation, 511 U.S. 531, 535, 114 S.Ct. 1757, 128 L.Ed.2d 556 (1994). As relevant to this case, the statute defines constructive fraud in part as when a debtor:

"(B)(i) received less than a reasonably equivalent value in exchange for such transfer or obligation; and
"(ii)(I) was insolvent on the date that such transfer was made or such obligation was incurred, or became insolvent as a result of such transfer or obligation. 11 U.S.C. § 548(a)(1).

If a transfer is avoided, § 550 identifies the parties from whom the trustee may recover either the transferred property or the value of that property to return to the bankruptcy estate. Section 550(a) provides, in relevant part, that "to the extent that a transfer is avoided ... the trustee may recover ... the property transferred, or, if the court so orders, the value of such property" from "the initial transferee of such transfer or the entity for whose benefit such transfer was made," or from "any immediate or mediate transferee of such initial transferee." § 550(a).


The Code sets out a number of limits on the exercise of these avoiding powers. See, e.g., § 546(a) (setting statute of limitations for avoidance actions); §§ 546(c) - (d) (setting certain policy-based exceptions to avoiding powers); § 548(a)(2) (setting limit to avoidance of "a charitable contribution to a qualified religious or charitable entity or organization"). Central to this case is the securities safe harbor set forth in § 546(e), which provides (as presently codified and in full):

"Notwithstanding sections 544, 545, 547, 548(a)(1)(B), and 548(b) of this title, the trustee may not avoid a transfer that is a margin payment, as defined in section 101, 741, or 761 of this title, or settlement payment, as defined in section 101 or 741 of this title, made by or to (or for the benefit of) a commodity broker, forward contract merchant, stockbroker, financial institution, financial participant, or securities clearing agency, or that is a transfer made by or to (or for the benefit of) a commodity broker, forward contract merchant, stockbroker, financial institution, financial participant, or securities clearing agency, in connection with a securities contract, as defined in section 741(7), commodity contract, as defined in section 761(4), or forward contract, that is made before the commencement of the case, except under section 548(a)(1)(A) of this title."

The predecessor to this securities safe harbor, formerly codified at 11 U.S.C. § 764(c), was enacted in 1978 against the backdrop of a district court decision in a case called Seligson v. New York Produce Exchange, 394 F.Supp. 125 (S.D.N.Y.1975), which involved a transfer by a bankrupt commodity broker. See S. Rep. No. 95–989, pp. 8, 106 (1978); see also Brubaker, Understanding the Scope of the § 546(e) Securities Safe Harbor Through the Concept of the "Transfer" Sought To Be Avoided, 37 Bkrtcy. L. Letter 11–12 (July 2017). The bankruptcy trustee in Seligson filed suit seeking to avoid over $12 million in margin payments made by the commodity broker debtor to a clearing association on the basis that the transfer was constructively fraudulent. The clearing association attempted to defend on the theory that it was a mere "conduit" for the transmission of the margin payments. 394 F.Supp., at 135. The District Court found, however, triable issues of fact on that question and denied summary judgment, leaving the clearing association exposed to the risk of significant liability. See id., at 135–136. Following that decision, Congress enacted the § 764(c) safe harbor, providing that "the trustee may not avoid a transfer that is a margin payment to or deposit with a commodity broker or forward contract merchant or is a settlement payment made by a clearing organization." 92 Stat. 2619, codified at 11 U.S.C. § 764(c) (repealed 1982).

Congress amended the securities safe harbor exception over the years, each time expanding the categories of covered transfers or entities. In 1982, Congress expanded the safe harbor to protect margin and settlement payments "made by or to a commodity broker, forward contract merchant, stockbroker, or securities clearing agency." § 4, 96 Stat. 236, codified at 11 U.S.C. § 546(d). Two years later Congress added "financial institution" to the list of protected entities. See § 461(d), 98 Stat. 377, codified at 11 U.S.C. § 546(e).2 In 2005, Congress again expanded the list of protected entities to include a "financial participant" (defined as an entity conducting certain high-value transactions). See § 907(b), 119 Stat. 181–182; 11 U.S.C. § 101(22A). And, in 2006, Congress amended the provision to cover transfers made in connection with securities contracts, commodity contracts, and forward contracts. § 5(b)(1), 120 Stat. 2697–2698. The 2006 amendment also modified the statute to its current form by adding the new parenthetical phrase "(or for the benefit of)" after "by or to," so that the safe harbor now covers transfers made "by or to (or for the benefit of)" one of the covered entities. Id., at 2697.


With this background, we now turn to the facts of this case, which comes to this Court from the world of competitive harness racing (a form of horse racing). Harness racing is a closely regulated industry in Pennsylvania, and the Commonwealth requires a license to operate a racetrack. See Bedford Downs Management Corp. v. State Harness Racing Comm'n, 592 Pa. 475, 485–487, 926 A.2d 908, 914–915 (2007) (per curiam ). The number of available licenses is limited, and in 2003 two companies, Valley View Downs, LP, and Bedford Downs Management Corporation, were in competition for the last harness-racing license in Pennsylvania.

Valley View and Bedford Downs needed...

To continue reading

Request your trial
124 cases
  • In re Amaro
    • United States
    • U.S. Bankruptcy Court — Northern District of Illinois
    • September 30, 2020
    ... ... 2017); Advanced Control Solutions , Inc ... v ... Justice , 639 F.3d 838 (8th Cir. 2011); Fokkena v ... " not to "any component part of that transfer." Merit Mgmt ... Grp ., LP v ... FTI Consulting , Inc ., 138 S. Ct ... ...
  • Bauer v. Devos, Civil Action No. 17-1330 (RDM)
    • United States
    • U.S. District Court — District of Columbia
    • September 12, 2018
    ... ... that they have jurisdiction); Friends of the Earth, Inc. v. Laidlaw Envtl. Servs. (TOC), Inc. , 528 U.S. 167, 180, ... See Fund for Animals, Inc. v. U.S. Bureau of Land Mgmt. , 460 F.3d 13, 18 (D.C. Cir. 2006) (finding challenge to ... limit the plain meaning of [the] statutory text." Merit Mgmt. Grp., LP v. FTI Consulting, Inc. , U.S. , 138 S.Ct ... ...
  • Me. Cmty. Health Options v. United States
    • United States
    • U.S. Supreme Court
    • April 27, 2020
    ... ... UNITED STATES; Moda Health Plan, Inc., Petitioner v. United States; Blue Cross and Blue Shield ... See, e.g. , Merit Management Group, LP v. FTI Consulting, Inc. , 583 U.S ... ...
  • In re Shelton
    • United States
    • U.S. Bankruptcy Court — Northern District of Illinois
    • September 14, 2018
    ... ... of reorganization." In re Airadigm Communications, Inc., 616 F.3d 642, 664 (7th Cir. 2010). This is because in ... FTI Consulting, Inc. v. Merit Mgmt. Grp., LP , 830 F.3d 690, 692 (7th ... ...
  • Request a trial to view additional results
11 firm's commentaries
8 books & journal articles
  • Corporate Governance, Bankruptcy Waivers, and Consolidation in Bankruptcy
    • United States
    • Emory University School of Law Emory Bankruptcy Developments Journal No. 36-1, March 2020
    • Invalid date
    ...restructured, stayed, or avoided in bankruptcy. 11 U.S.C. §§ 546, 555, 556, 559-62 (2019). Merit Mgmt. Grp., LP v. FTI Consulting, Inc., 138 S. Ct. 883 (2018), may represent some long overdue retrenchment on this front.30. See Iman Anabtawi & Steven Schwarcz, Regulating Ex-Post: How Law Can......
    • United States
    • FNREL - Special Institute Bankruptcy and Financial Distress in the Oil and Gas Industry Legal Problems and Solutions (FNREL)
    • Invalid date avoiding certain transfers ensures fair distribution between all creditors).[8] Merit Mgt. Group, LP v. FTI Consulting, Inc., 138 S. Ct. 883, 888 (2018).[9] Bankr. R. P. 9001 et seq. [10] 11 U.S.C. § 544(a).[11] In re Weisman, 5 F.3d 417, 420 (9th Cir. 1993) (status of trustee as bona f......
  • NCBJ Special Committee on Venue: Report on Proposal for Revision of the Venue Statute in Commercial Bankruptcy Cases.
    • United States
    • American Bankruptcy Law Journal Vol. 93 No. 4, December 2019
    • December 22, 2019
    ...11 cases has tended to originate from other circuits, even from consumer cases. See, e.g., Merit Mgmt. Grp., LP v. FTI Consulting, Inc., 138 S. Ct. 883 (2018); Till v. SCS Credit Carp., 541 U.S. 465 (2004); Bank of Am. Nat'l Trust & Sav. Ass'n v. 203 N. LaSalle St. P'ship, 526 U.S. 434 ......
  • 9.5 Avoidance or Subordination of Liens in Bankruptcy
    • United States
    • Enforcement of Liens and Judgments in Virginia (Virginia CLE) Chapter 9 Bankruptcy: Its Effect on the Enforcement of Liens and Judgments
    • Invalid date
    ...Indus. Corp. v. Frost, 564 F.3d 981, 984-88 (8th Cir. 2009), overruled in part by: Merit Mgmt. Grp., LP v. FTI Consulting, Inc., 138 S. Ct. 883, 892 200 L. Ed. 2d 183, 193; In re C-T of Va., Inc., 940 F.2d 651, 1991 WL 138489, * 5 n.5 (4th Cir. 1991); United States v. Tabor Court Realty Cor......
  • Request a trial to view additional results

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT