Merit Management Group, LP v. FTI Consulting, Inc.

“Whether the safe harbor of Section 546(e) of the Bankruptcy Code prohibits avoidance of a transfer made by or to a financial institution, without regard to whether the institution has a beneficial interest in the property transferred.”

Petitioner is a debtor in a litigation trust that includes Respondent as one of its trustees. Petitioner appeals a decision that refused to allow a transfer it made as a shareholder in a company to fall within the Section 546(e) “safe harbor” of the Code after that company was forced to file for Chapter 11 bankruptcy. The district court agreed with Petitioner and granted them judgment on the pleadings. The court determined that because the transfer was made through a financial institution, it necessarily qualified that transfer to fall under the “safe harbor.” Respondent then appealed to the Seventh Circuit arguing that: 1) the “safe harbor” should only apply to those transfers made by or to a “named entity,” 2) the protections of 546(e) should be based on the receipt of value, and 3) that interpretation avoids an absurd result and is consistent with the rest of Chapter 5. The Seventh Circuit reversed the judgment below finding that 546(e) does not provide a safe harbor for those transfers between non-named entities when they are done through the conduit of a financial institution that is a named entity. Petitioner then appealed to the United States Supreme Court, which granted certiorari to decide the circuit split.