From the Top in Brief

On April 3, 2018, the U.S. Supreme Court issued an order that, in light of its recent ruling in Merit Management Group LP v. FTI Consulting Inc., 138 S. Ct. 883, No. 16-784 (Feb. 27, 2018), the Court would defer consideration of a petition seeking review of a 2016 decision by the U.S. Court of Appeals for the Second Circuit in the Tribune Co. chapter 11 case ruling that the Bankruptcy Code’s "safe harbor" shielding certain securities transactions from avoidance as fraudulent transfers preempts creditors’ state law constructive fraudulent transfer claims and applies to any transfer which passes through a financial intermediary, regardless of whether the banks and brokers at issue had any beneficial interest in the funds. See In re Tribune Co. Fraudulent Conveyance Litig., 818 F.3d 98 (2d Cir. 2016), petition for cert. filed, No. 16-317 (U.S. Sept. 9, 2016).

In ruling that the safe harbor—section 546(e) of the Bankruptcy Code—protects transfers even if the financial institution is a mere conduit, the Second Circuit in Tribune agreed with decisions issued by the Third, Sixth, Eighth, and Tenth Circuits and disagreed with the approach adopted by the Seventh Circuit (in Merit) and the Eleventh Circuit.

In Merit, the unanimous Court held that section 546(e) does not protect transfers made through a financial institution to a third party, regardless of whether the financial institution had a beneficial interest in the transferred property. Instead, the relevant inquiry is whether the transferor or the transferee in the transaction sought to be avoided is a financial institution.

According to the Supreme Court’s order in Tribune, deferring consideration of whether the Court should review the merits of the Second Circuit’s decision "will allow the Court of Appeals or the District Court to consider whether to recall the mandate, entertain a Federal Rule of Civil Procedure 60(b) motion to vacate the earlier judgment, or provide any other available relief in light of this Court’s decision in [Merit]." See Deutsche Bank Trust Company Americas v. Robert R. McCormick Foundation, 138 S. Ct. 1162, 2018 WL 1600841, No. 16-317 (U.S. Apr. 3, 2018). The order also states that "[t]he Court of Appeals or the District Court could decide whether relief from judgment is appropriate given the possibility that there might not be a quorum in this Court."

On May 5, 2018, the Second Circuit issued an order recalling the mandate in its Tribune safe-harbor decision "in anticipation of further panel review." The order neither vacates the underlying decision nor establishes a schedule for further review.

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