Merit Management Group v. FTI Consulting
Issues
Are transactions conducted through entities named in 11 U.S.C. § 546(e) protected from avoidance in bankruptcy?
The Supreme Court will decide whether transactions conducted through entities named in 11 U.S.C. § 546(e) are protected from avoidance in bankruptcy. Petitioner Merit Management Group, LP (“Merit”) claims that Respondent FTI Consulting, Inc. (“FTI”) may not avoid the transfer because the transfers to and from Citizens Bank are protected under the safe harbor provision of § 546(e), which precludes avoidance involving certain financial institutions and markets. Respondent FTI says that Merit is wrongly applying § 546(e) to the component transfers, and that the only relevant transfer is the overall transfer, which is not protected by the safe harbor provision. If the Supreme Court allows protections that would enable creditors to undo payouts, the resulting uncertainties may lead to market destabilization; conversely, the removal of such protections may enable the exploitation of intermediaries as a channel for prohibited transactions.
Questions as Framed for the Court by the Parties
Whether the safe harbor of 11 U.S.C. § 546(e) prohibits avoidance of a transfer made by or to a financial institution, without regard to whether the institution has beneficial interest in the property transferred, consistent with decisions from the Second, Third, Sixth, Eighth, and Tenth Circuits, but contrary to decisions from the Eleventh Circuit and now the Seventh Circuit.
Valley View Downs, LP (“Valley View”) sought to develop a “racino,” which would offer horse racing and casino entertainment in Pennsylvania. FTI Consulting, Inc. v. Merit Management Group, LP, 541 B.R. 850, 852 (N.D. Ill. 2015). To operate a racino, Valley View required a Pennsylvania-issued racing license and a gaming license.
Edited by
Additional Resources
- Diane Davis, Supreme Court to Look at Bankruptcy Safe Harbor Protections, Bloomberg Bureau of National Affairs (May 4, 2017).
- Brian Koosed and Robert Honeywell, The Stakes Are High In FTI Consulting V. Merit Management, Law360 (May 18, 2017).
- Dawn McCarty, Bankruptcy ‘Safe Harbor’ Protection to Get Supreme Court Review, Bloomberg (May 1, 2017).
- Controversial Safe Harbor, Supreme Court to Address Circuit Split of Clawback Protection in Bankruptcy Code, Absolute Priority (July 5, 2017).