throbber

`(Slip Opinion)
`
`
`
` OCTOBER TERM, 2017
`
`
`Syllabus
`
`1
`
` NOTE: Where it is feasible, a syllabus (headnote) will be released, as is
`
`
`
` being done in connection with this case, at the time the opinion is issued.
`
`
`
` The syllabus constitutes no part of the opinion of the Court but has been
`
` prepared by the Reporter of Decisions for the convenience of the reader.
`
` See United States v. Detroit Timber & Lumber Co., 200 U. S. 321, 337.
`
`
`SUPREME COURT OF THE UNITED STATES
`
`
`
` Syllabus
`
`MERIT MANAGEMENT GROUP, LP v. FTI
`
`
`
`
`
`CONSULTING, INC.
`
`
`CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR
`
`THE SEVENTH CIRCUIT
` No. 16–784. Argued November 6, 2017—Decided February 27, 2018
`
`
` The Bankruptcy Code allows trustees to set aside and recover certain
`transfers for the benefit of the bankruptcy estate, including, as rele-
`
` vant here, certain fraudulent transfers “of an interest of the debtor in
`
` property.” 11 U. S. C. §548(a). It also sets out a number of limits on
`the exercise of these avoiding powers. Central here is the securities
`
` safe harbor, which, inter alia, provides that “the trustee may not
`avoid a transfer that is a . . . settlement payment . . . made by or to
`
`(or for the benefit of) a . . . financial institution . . . or that is a trans-
`fer made by or to (or for the benefit of) a . . . financial institution . . .
`
`
` in connection with a securities contract.” §546(e).
`Valley View Downs, LP, and Bedford Downs Management Corp.
`
`entered into an agreement under which Valley View, if it got the last
`harness-racing license in Pennsylvania, would purchase all of Bed-
`ford Downs’ stock for $55 million. Valley View was granted the li-
`
`cense and arranged for the Cayman Islands branch of Credit Suisse
`
`
`to wire $55 million to third-party escrow agent Citizens Bank of
`
`
`Pennsylvania. The Bedford Downs shareholders, including petitioner
`Merit Management Group, LP, deposited their stock certificates into
`escrow. Citizens Bank disbursed the $55 million over two install-
`
`ments according to the agreement, of which petitioner Merit received
`
`$16.5 million.
`
`Although Valley View secured the harness-racing license, it was
`
`unable to achieve its goal of opening a racetrack casino. Valley View
`and its parent company, Centaur, LLC, filed for Chapter 11 bank-
`ruptcy. Respondent FTI Consulting, Inc., was appointed to serve as
`
`trustee of the Centaur litigation trust. FTI then sought to avoid the
`transfer from Valley View to Merit for the sale of Bedford Downs’
`
`
`
`
`
`
`
`

`

`2
`
`
`MERIT MANAGEMENT GROUP, LP v. FTI
`CONSULTING, INC.
`
`Syllabus
`
`fraudulent under
`it was constructively
`stock, arguing that
`§548(a)(1)(B). Merit contended that the §546(e) safe harbor barred
`FTI from avoiding the transfer because it was a “settlement payment
`
`. . . made by or to (or for the benefit of)” two “financial institutions,”
`Credit Suisse and Citizens Bank. The District Court agreed with
`
`Merit, but the Seventh Circuit reversed, holding that §546(e) did not
`protect transfers in which financial institutions served as mere con-
`duits.
`Held: The only relevant transfer for purposes of the §546(e) safe harbor
`is the transfer that the trustee seeks to avoid. Pp. 9–19.
`
`
`(a) Before a court can determine whether a transfer was “made by
`
`or to (or for the benefit of)” a covered entity, it must first identify the
`
`relevant transfer to test in that inquiry. Merit posits that the rele-
`vant transfer should include not only the Valley-View-to-Merit end-
`to-end transfer, but also all of its component parts, i.e., the Credit-
`
`Suisse-to-Citizens-Bank and the Citizens-Bank-to-Merit transfers.
`
`FTI maintains that the only relevant transfer is the transfer that it
`
`sought to avoid, specifically, the overarching transfer between Valley
`View and Merit. Pp. 9–14.
`
`
`
`(1) The language of §546(e) and the specific context in which that
`language is used support the conclusion that the relevant transfer for
`purposes of the safe-harbor inquiry is the transfer the trustee seeks
`to avoid. The first clause of the provision—“Notwithstanding sec-
`
`tions 544, 545, 547, 548(a)(1)(B), and 548(b) of this title”—indicates
`
`that §546(e) operates as an exception to trustees’ avoiding powers
`
`granted elsewhere in the Code. The text makes clear that the start-
`ing point for the §546(e) inquiry is the expressly listed avoiding pow-
`
`ers and, consequently, the transfer that the trustee seeks to avoid in
`
`exercising those powers. The last clause—“except under section
`
`548(a)(1)(A) of this title”—also focuses on the transfer that the trus-
`
`tee seeks to avoid. Creating an exception to the exception for
`
`§548(a)(1)(A) transfers, the text refers back to a specific type of trans-
`
`fer that falls within the avoiding powers, signaling that the exception
`
`applies to the overarching transfer that the trustee seeks to avoid,
`not any component part of that transfer. This reading is reinforced
`
`by the §546 section heading, “Limitations on avoiding powers,” and is
`confirmed by the rest of the statutory text: The provision provides
`
`that “the trustee may not avoid” certain transfers, which naturally
`invites scrutiny of the transfers that “the trustee . . . may avoid,” the
`
`parallel language used in the avoiding powers provisions. The text
`further provides that the transfer that is saved from avoidance is one
`“that is” (not one that involves) a securities transaction covered un-
`der §546(e). In other words, to qualify for protection under the secu-
`
`rities safe harbor, §546(e) provides that the otherwise avoidable
`
`
`
`
`
`

`

`3
`
`
`Cite as: 583 U. S. ____ (2018)
`
`
`Syllabus
`
`transfer itself be a transfer that meets the safe-harbor criteria.
`Pp. 11–13.
`
`
`
`(2) The statutory structure also supports this reading of §546(e).
`
`The Code establishes a system for avoiding transfers as well as a safe
`
`
`harbor from avoidance. It is thus only logical to view the pertinent
`
`transfer under §546(e) as the same transfer that the trustee seeks to
`avoid pursuant to one of its avoiding powers. In an avoidance action,
`
`the trustee must establish that the transfer it seeks to set aside
`
`meets the carefully set out criteria under the substantive avoidance
`
`provisions of the Code. The defendant in that avoidance action is free
`to argue that the trustee failed to properly identify an avoidable
`transfer under the Code, including any available arguments concern-
`
`ing the role of component parts of the transfer. If a trustee properly
`
`identifies an avoidable transfer, however, the court has no reason to
`
`examine the relevance of component parts when considering a limit
`to the avoiding power, where that limit is defined by reference to an
`otherwise avoidable transfer, as is the case with §546(e). Pp. 13–14.
`
`
`(b) The primary argument Merit advances that is moored in the
`statutory text—concerning Congress’ 2006 addition of the parenthe-
`tical “(or for the benefit of)” to §546(e)—is unavailing. Merit contends
`
`that Congress meant to abrogate the Eleventh Circuit decision in
`In re Munford, Inc., 98 F. 3d 604, which held that §546(e) was inap-
`
`plicable to transfers in which a financial institution acted only as an
`
`
`intermediary. However, Merit points to nothing in the text or legisla-
`tive history to corroborate its argument. A simpler explanation root-
`
`ed in the text of the statute and consistent with the interpretation of
`
`§546(e) adopted here is that Congress added the “or for the benefit of”
`
`language that is common in other substantive avoidance provisions to
`
`the §546(e) safe harbor to ensure that the scope of the safe harbor
`
`and scope of the avoiding powers matched.
`
`
`That reading would not, contrary to what Merit contends, render
`other provisions ineffectual or superfluous. Rather, it gives full effect
`
`to the text of §546(e). If the transfer the trustee seeks to avoid was
`made “by” or “to” a covered entity, then §546(e) will bar avoidance
`without regard to whether the entity acted only as an intermediary.
`
`It will also bar avoidance if the transfer was made “for the benefit of”
`that entity, even if it was not made “by” or “to” that entity.
`
`Finally, Merit argues that reading the safe harbor so that its appli-
`cation depends on the identity of the investor and the manner in
`which its investment is held rather than on the general nature of the
`
`
`
`transaction is incongruous with Congress’ purportedly “prophylactic”
`approach to §546(e). But this argument is nothing more than an at-
`tack on the text of the statute, which protects only certain transac-
`
`tions “made by or to (or for the benefit of)” certain covered entities.
`
`
`
`
`
`
`
`
`
`

`

`4
`
`
`MERIT MANAGEMENT GROUP, LP v. FTI
`CONSULTING, INC.
`
`Syllabus
`
`
`
`
`Pp. 14–18.
`
`(c) Applying this reading of the §546(e) safe harbor to this case
`yields a straightforward result. FTI sought to avoid the Valley-View-
`to-Merit transfer. When determining whether the §546(e) safe har-
`bor saves that transfer from avoidance liability, the Court must look
`to that overarching transfer to evaluate whether it meets the safe-
`
`harbor criteria. Because the parties do not contend that either Valley
`View or Merit is a covered entity, the transfer falls outside of the
`
`§546(e) safe harbor. Pp. 18–19.
`830 F. 3d 690, affirmed and remanded.
` SOTOMAYOR, J., delivered the opinion for a unanimous Court.
`
`
`
`
`
`
`
`
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`
`
`
`

`

`
`
`
`
` Cite as: 583 U. S. ____ (2018)
`
`Opinion of the Court
`
`1
`
`
` NOTICE: This opinion is subject to formal revision before publication in the
`
`
`
` preliminary print of the United States Reports. Readers are requested to
`
` notify the Reporter of Decisions, Supreme Court of the United States, Wash­
`
` ington, D. C. 20543, of any typographical or other formal errors, in order
`
`
` that corrections may be made before the preliminary print goes to press.
`
`
`
`
`SUPREME COURT OF THE UNITED STATES
`
`
`
`_________________
`
` No. 16–784
`_________________
` MERIT MANAGEMENT GROUP, LP, PETITIONER v.
`
`
` FTI CONSULTING, INC.
`
`ON WRIT OF CERTIORARI TO THE UNITED STATES COURT OF
`
`
`APPEALS FOR THE SEVENTH CIRCUIT
`
`
`[February 27, 2018]
`
` 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 proceed­
`
`ing, 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 excep­
`
`tions. 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 exe­
`
`cuted 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 de­
`fense, 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
`
`
`
`
`
`

`

`2
`
`
`MERIT MANAGEMENT GROUP, LP v. FTI
`CONSULTING, INC.
`Opinion of the Court
`
`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 rele­
`vant transfer for purposes of the safe harbor is the trans­
`fer that the trustee seeks to avoid.
`I
`
`A
`
`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 . . . recap-
`tur[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 dili­
`gence of creditors to dismember the debtor before bank­
`ruptcy” and promote “equality of distribution.” Union
`
`Bank v. Wolas, 502 U. S. 151, 162 (1991) (internal quota­
`tion 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 cir­
`
`——————
`1Avoiding powers may be exercised by debtors, trustees, or creditors’
`
` committees, depending on the circumstances of the case. See generally
`
` C. Tabb, Law of Bankruptcy §6.1 (4th ed. 2016) (Tabb). Because this
`
`case concerns an avoidance action brought by a trustee, we refer
`throughout to the trustee in discussing the avoiding power and avoid­
`
` ance action. The resolution of this case is not dependent on the identity
`of the actor exercising the avoiding power.
`
`
`
`
`
`
`
`
`
`

`

`3
`
`
`
`
`
`
`
` Cite as: 583 U. S. ____ (2018)
`
`Opinion of the Court
`cumstances 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 avoid­
`ance of so-called “preferential transfers”). The particular
`avoidance provision at issue here is §548(a), which pro­
`vides that a “trustee may avoid” certain fraudulent trans­
`fers “of an interest of the debtor in property.” §548(a)(1).
`Section 548(a)(1)(A) addresses so-called “actually” fraudu­
`lent 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) ad­
`dresses “constructively” fraudulent transfers. See BFP v.
`Resolution Trust Corporation, 511 U. S. 531, 535 (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).
`
`
`
`
`
`

`

`4
`
`
`MERIT MANAGEMENT GROUP, LP v. FTI
`CONSULTING, INC.
`Opinion of the Court
`
`B
`
`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 sec­
`tion 101, 741, or 761 of this title, or settlement pay­
`
`ment, 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 mer­
`chant, stockbroker, financial institution, financial
`participant, or securities clearing agency, in connec­
`tion 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
`(SDNY 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
`
`
`
`
`
`
`
`
`
`
`

`

`5
`
`
`Cite as: 583 U. S. ____ (2018)
`
`Opinion of the Court
`“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 associ­
`
`ation 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 trans­
`
`mission 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 pay­
`ments “made by or to a commodity broker, forward con­
`
`tract 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
`——————
`2The term “financial institution” is defined as:
`
`
`“(A) a Federal reserve bank, or an entity that is a commercial or
`
`savings bank, industrial savings bank, savings and loan association,
`
`trust company, federally-insured credit union, or receiver, liquidating
`agent, or conservator for such entity and, when any such Federal
`
`
`reserve bank, receiver, liquidating agent, conservator or entity is acting
`
`as agent or custodian for a customer (whether or not a ‘customer’, as
`
`
`defined in section 741) in connection with a securities contract (as
`
`
`
`
`
`
`
`

`

`6
`
`
`MERIT MANAGEMENT GROUP, LP v. FTI
`CONSULTING, INC.
`Opinion of the Court
`
`list of protected entities to include a “financial participant”
`(defined as an entity conducting certain high-value trans­
`
`actions). 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.
`
`
`
`
`
`
`
`C
`
`With this background, we now turn to the facts of this
`case, which comes to this Court from the world of competi­
`tive 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 race­
`track. 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 avail-
`able licenses is limited, and in 2003 two companies, Valley
`View Downs, LP, and Bedford Downs Management Corpo­
`
`ration, were in competition for the last harness-racing
`——————
`defined in section 741) such customer; or
`
`“(B) in connection with a securities contract (as defined in section
`
`741) an investment company registered under the Investment Company
`
`
`
`
`Act of 1940.” 11 U. S. C. §101(22).
`The parties here do not contend that either the debtor or petitioner in
`
`
`this case qualified as a “financial institution” by virtue of its status as a
`
`“customer” under §101(22)(A). Petitioner Merit Management Group,
`LP, discussed this definition only in footnotes and did not argue that it
`
`somehow dictates the outcome in this case. See Brief for Petitioner 45,
`n. 14; Reply Brief 14, n. 6. We therefore do not address what impact, if
`
`
`
`any, §101(22)(A) would have in the application of the §546(e) safe
`harbor.
`
`
`
`
`
`
`

`

`
`
`
`
`
`
`7
`
`
`Cite as: 583 U. S. ____ (2018)
`
`Opinion of the Court
`license in Pennsylvania.
`
`Valley View and Bedford Downs needed the harness-
`racing license to open a “‘racino,’” which is a clever moni­
`ker for racetrack casino, “a racing facility with slot ma­
`chines.” Brief for Petitioner 8. Both companies were
`stopped before the finish line, because in 2005 the Penn­
`sylvania State Harness Racing Commission denied both
`applications. The Pennsylvania Supreme Court upheld
`those denials in 2007, but allowed the companies to reap­
`ply for the license. See Bedford Downs, 592 Pa., at 478–
`479, 926 A. 2d, at 910.
`
`Instead of continuing to compete for the last available
`
`harness-racing license, Valley View and Bedford Downs
`
`entered into an agreement to resolve their ongoing feud.
`Under that agreement, Bedford Downs withdrew as a
`competitor for the harness-racing license, and Valley View
`was to purchase all of Bedford Downs’ stock for $55 mil­
`
`lion after Valley View obtained the license.3
`With Bedford Downs out of the race, the Pennsylvania
`
`
`Harness Racing Commission awarded Valley View the last
`harness-racing license. Valley View proceeded with the
`corporate acquisition required by the parties’ agreement
`
`and arranged for the Cayman Islands branch of Credit
`Suisse to finance the $55 million purchase price as part of
`a larger $850 million transaction. Credit Suisse wired the
`
`$55 million to Citizens Bank of Pennsylvania, which had
`agreed to serve as the third-party escrow agent for the
`
`transaction. The Bedford Downs shareholders, including
`petitioner Merit Management Group, LP, deposited their
`stock certificates into escrow as well. At closing, Valley
`View received the Bedford Downs stock certificates, and in
`October 2007 Citizens Bank disbursed $47.5 million to the
`——————
`3A separate provision of the agreement providing that Bedford
`
`Downs would sell land to Valley View for $20 million is not at issue in
`this case.
`
`
`
`
`
`
`
`

`

`8
`
`
`MERIT MANAGEMENT GROUP, LP v. FTI
`CONSULTING, INC.
`Opinion of the Court
`
`Bedford Downs shareholders, with $7.5 million remaining
`in escrow at Citizens Bank under the multiyear indemnifi­
`cation holdback period provided for in the parties’ agree­
`ment. Citizens Bank disbursed that $7.5 million install­
`
`ment to the Bedford Downs shareholders in October 2010,
`
`after the holdback period ended. All told, Merit received
`approximately $16.5 million from the sale of its Bedford
`Downs stock to Valley View. Notably, the closing state­
`ment for the transaction reflected Valley View as the
`“Buyer,” the Bedford Downs shareholders as the “Sellers,”
`and $55 million as the “Purchase Price.” App. 30.
`
`
`In the end, Valley View never got to open its racino.
`
`Although it had secured the last harness-racing license, it
`
`was unable to secure a separate gaming license for the
`operation of the slot machines in the time set out in its
`
`financing package. Valley View and its parent company,
`
`Centaur, LLC, thereafter filed for Chapter 11 bankruptcy.
`
`The Bankruptcy Court confirmed a reorganization plan
`and appointed respondent FTI Consulting, Inc., to serve as
`trustee of the Centaur litigation trust.
`
`FTI filed suit against Merit in the Northern District of
`Illinois, seeking to avoid the $16.5 million transfer from
`
`Valley View to Merit for the sale of Bedford Downs’ stock.
`
`The complaint alleged that the transfer was constructively
`fraudulent under §548(a)(1)(B) of the Code because Valley
`View was insolvent when it purchased Bedford Downs and
`
`“significantly overpaid” for the Bedford Downs stock.4
`Merit moved for judgment on the pleadings under Federal
`
`Rule of Civil Procedure 12(c), contending that the §546(e)
`safe harbor barred FTI from avoiding the Valley View-to-
`Merit transfer. According to Merit, the safe harbor ap­
`
`
`
`——————
` 4In its complaint, FTI also sought to avoid the transfer under
`
`§544(b). See App. 20–21. The District Court did not address the claim,
`
` see 541 B. R. 850, 852–853, n. 1 (ND Ill. 2015), and neither did the
` Court of Appeals for the Seventh Circuit.
`
`
`
`
`
`
`

`

`
`
`
`
`9
`
`
`
` Cite as: 583 U. S. ____ (2018)
`
`Opinion of the Court
`plied because the transfer was a “settlement payment . . .
`made by or to (or for the benefit of)” a covered “financial
`
`institution”—here, Credit Suisse and Citizens Bank.
`
`The District Court granted the Rule 12(c) motion, rea­
`
`soning that the §546(e) safe harbor applied because the
`financial institutions transferred or received funds in
`connection with a “settlement payment” or “securities
`contract.” See 541 B. R. 850, 858 (ND Ill. 2015).5 The
`
`Court of Appeals for the Seventh Circuit reversed, holding
`
`that the §546(e) safe harbor did not protect transfers in
`
`which financial institutions served as mere conduits. See
`830 F. 3d 690, 691 (2016). This Court granted certiorari to
`
`resolve a conflict among the circuit courts as to the proper
`
`application of the §546(e) safe harbor.6 581 U. S. ___
`(2017).
`
`II
`
`The question before this Court is whether the transfer
`
`
`between Valley View and Merit implicates the safe harbor
`exception because the transfer was “made by or to (or for
`the benefit of) a . . . financial institution.” §546(e). The
`parties and the lower courts dedicate much of their atten­
`tion to the definition of the words “by or to (or for the
`
`benefit of)” as used in §546(e), and to the question whether
`——————
` 5The parties do not ask this Court to determine whether the transac­
`
`tion at issue in this case qualifies as a transfer that is a “settlement
`payment” or made in connection with a “securities contract” as those
`terms are used in §546(e), nor is that determination necessary for
`resolution of the question presented.
`6Compare In re Quebecor World (USA) Inc., 719 F. 3d 94, 99 (CA2
`
`2013) (finding the safe harbor applicable where covered entity was
`
`
` intermediary); In re QSI Holdings, Inc., 571 F. 3d 545, 551 (CA6 2009)
`
` (same); Contemporary Indus. Corp. v. Frost, 564 F. 3d 981, 987 (CA8
`
` 2009) (same); In re Resorts Int’l, Inc., 181 F. 3d 505, 516 (CA3 1999)
`(same); In re Kaiser Steel Corp., 952 F. 2d 1230, 1240 (CA10 1991)
`(same), with In re Munford, Inc., 98 F. 3d 604, 610 (CA11 1996) ( per
`curiam) (rejecting applicability of safe harbor where covered entity was
`intermediary).
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`

`

`10
`
`
`MERIT MANAGEMENT GROUP, LP v. FTI
`CONSULTING, INC.
`Opinion of the Court
`
`there is a requirement that the “financial institution” or
`other covered entity have a beneficial interest in or domin­
`ion and control over the transferred property in order to
`qualify for safe harbor protection. In our view, those
`inquiries put the proverbial cart before the horse. Before
`
`a court can determine whether a transfer was made by or
`
`to or for the benefit of a covered entity, the court must
`
`first identify the relevant transfer to test in that inquiry.
`At bottom, that is the issue the parties dispute in this
`case.
`
`
`On one side, Merit posits that the Court should look not
`
`only to the Valley View-to-Merit end-to-end transfer, but
`
`
`also to all its component parts. Here, those component
`parts include one transaction by Credit Suisse to Citizens
`Bank (i.e., the transmission of the $16.5 million from
`
`Credit Suisse to escrow at Citizens Bank), and two trans­
`actions by Citizens Bank to Merit (i.e., the transmission of
`
`$16.5 million over two installments by Citizens Bank as
`escrow agent to Merit). Because those component parts
`include transactions by and to financial institutions, Merit
`contends that §546(e) bars avoidance.
`
`FTI, by contrast, maintains that the only relevant trans­
`
`fer for purposes of the §546(e) safe-harbor inquiry is the
`overarching transfer between Valley View and Merit of
`$16.5 million for purchase of the stock, which is the trans­
`
`fer that the trustee seeks to avoid under §548(a)(1)(B).
`Because that transfer was not made by, to, or for the
`benefit of a financial institution, FTI contends that the
`safe harbor has no application.
`
`The Court agrees with FTI. The language of §546(e),
`the specific context in which that language is used, and
`
`the broader statutory structure all support the conclusion
`that the relevant transfer for purposes of the §546(e) safe-
`harbor inquiry is the overarching transfer that the trustee
`
`seeks to avoid under one of the substantive avoidance
`provisions.
`
`
`
`
`
`

`

`
`
` 11
`
`
`
`
`
`
` Cite as: 583 U. S. ____ (2018)
`
`Opinion of the Court
`
`A
`
`
`Our analysis begins with the text of §546(e), and we look
`
`to both “the language itself [and] the specific context in
`which that language is used . . . .” Robinson v. Shell Oil
`
`
`Co., 519 U. S. 337, 341 (1997). The pertinent language
`provides:
`
`547,
`545,
`544,
`sections
`“Notwithstanding
`548(a)(1)(B), and 548(b) of this title, the trustee may
`not avoid a transfer that is a . . . settlement payment
`. . . made by or to (or for the benefit of) a . . . financial
`institution . . . or that is a transfer made by or to (or
`
`for the benefit of) a . . . financial institution . . . in
`
`connection with a securities contract . . . , except un­
`der section 548(a)(1)(A) of this title.”
`The very first clause—“Notwithstanding sections 544, 545,
`547, 548(a)(1)(B), and 548(b) of this title”—already begins
`to answer the question. It indicates that §546(e) operates
`as an exception to the avoiding powers afforded to the
`
`trustee under the substantive avoidance provisions. See
`A. Scalia & B. Garner, Reading Law: The Interpretation of
`
`Legal Texts 126 (2012) (“A dependent phrase that begins
`with notwithstanding indicates that the main clause that
`
`it introduces or follows derogates from the provision to
`which it refers”). That is, when faced with a transfer that
`
`is otherwise avoidable, §546(e) provides a safe harbor
`notwithstanding that avoiding power. From the outset,
`
`therefore, the text makes clear that the starting point for
`
`the §546(e) inquiry is the substantive avoiding power
`under the provisions expressly listed in the “notwithstand­
`ing” clause and, consequently, the transfer that the trustee
`
`seeks to avoid as an exercise of those powers.
`Then again in the very last clause—“except under sec­
`
`tion 548(a)(1)(A) of this title”—the text reminds us that
`the focus of the inquiry is the transfer that the trustee
`
`seeks to avoid. It does so by creating an exception to the
`
`
`
`
`
`
`
`
`
`

`

`12
`
`
`MERIT MANAGEMENT GROUP, LP v. FTI
`CONSULTING, INC.
`Opinion of the Court
`
`exception, providing that “the trustee may not avoid a
`
`transfer” that meets the covered

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