Supreme Court Resolves Circuit Split Over Application Of Section 546(e) To Transactions Involving Conduits

The Supreme Court's recent decision in Merit Management Group, LP v. FTI Consulting, Inc., 138 S.Ct. 883 (2018), held that transfers made by or to entities that are not "financial institutions" or other covered entities fall outside the scope of 11 U.S.C. § 546(e)'s "safe harbor" from a trustee's avoidance powers under the Bankruptcy Code, even if those transfers are made through financial institutions or other covered entities. In a unanimous decision, the Supreme Court jettisoned the majority view adopted by the Second, Third, Sixth, Eighth and Tenth Circuits, all of which applied the "safe harbor" to transactions made through covered entities.

Merit Management involved fraudulent transfer claims brought by FTI Consulting, as trustee of a bankruptcy litigation trust, against Merit Management Group, LP to recover approximately $16.5 million paid to Merit in connection with a cash-for-stock agreement involving the sale of Bedford Downs Management Corp. to Valley View