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

Supreme Court of the United States

November 6, 2017, Argued; February 27, 2018, Decided

No. 16-784.


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  [*888]  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, [***8]  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,  [**189]  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 [***9]  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”).

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138 S. Ct. 883 *; 200 L. Ed. 2d 183 **; 2018 U.S. LEXIS 1514 ***; 86 U.S.L.W. 4088; Bankr. L. Rep. (CCH) P83,219; 65 Bankr. Ct. Dec. 92; 27 Fla. L. Weekly Fed. S 73; 2018 WL 1054879



FTI Consulting, Inc. v. Merit Mgmt. Grp., LP, 830 F.3d 690, 2016 U.S. App. LEXIS 13705 (7th Cir. Ill., July 28, 2016)

Disposition: Affirmed and remanded.


harbor, safe, entity, license, safe-harbor, commodity, fraudulent, stock, intermediary, settlement, harness-racing, overarching, beneficial, broker, escrow, margin

Bankruptcy Law, Examiners, Officers & Trustees, Duties & Functions, Capacities & Roles, Estate Property, Avoidance, Limitations on Trustee Powers, Governments, Legislation, Interpretation