Editor’s Note: The following article, “A Step Too Far in the Right Direction? Narrowing § 546(e)’s Settlement Payment Safe Harbor by Broadly Defining the “Mere Conduit” Rule,” won the prize for second place in the Ninth Annual ABI Bankruptcy Law Student Writing Competition. Mr. Diehl is a recent graduate of Georgia State University School of Law in Atlanta. Since graduation, he is serving as a term law clerk to the Hon. John T. Laney, III in the Middle District of Georgia Bankruptcy Court. Once completing the clerkship, Mr. Diehl hopes to practice commercial bankruptcy and real estate law.
In July 2016, the Seventh Circuit issued its decision in FTI Consulting v. Merit Mgmt. Grp. LP (the "FTI decision").[1] There, the appellant asked the court to review the application of 11 U.S.C. § 546(e) (the safe harbor), which protects settlement payments made “by or to (or on the behalf of)” a broad range of financial institutions, intermediaries and brokers (collectively, financial actors)[2] from many types of avoidance actions.[3] In particular, the parties asked the court to determine whether the safe harbor protected the defendants from an avoidance action targeting funds transferred in a leveraged buyout (LBO).[4] The defendants, citing decisions from the majority of circuit courts addressing this issue, argued that the safe harbor applied because financial actors facilitated the transaction.[5] Despite those contrary circuit court decisions, the Seventh Circuit court determined that the safe harbor does not protect financial actors acting as “mere conduits.”[6] In doing so, the court did not provide a clear test to determine whether a financial actor is acting as a conduit, leaving the circuit’s bankruptcy courts with significant discretion regarding how to apply this broad ruling to complex multi-million-dollar LBOs.
The FTI decision’s implications are sizeable, as representatives of the estate regularly target the beneficiaries of LBOs through “constructive fraud” avoidance actions when the debtor is the firm whose assets were pledged to finance the LBO.[7] To successfully avoid the transaction through these actions, claimants must demonstrate that the debtor received “less than reasonably equivalent value” and was or became insolvent at the time of the transfer.[8] Supporting the first element, claimants often argue that the debtor obtained no real value in the transaction and that, even though the corporation pledged collateral to finance the transaction, shareholders were the transaction’s ultimate beneficiaries.[9] Therefore, it is often difficult for shareholders to argue that LBOs provide much value (much less reasonably equivalent value) to the debtor.[10] Additionally, the highly leveraged capital structures of post-LBO companies can render the debtor insolvent for the purposes of an avoidance action.[11] Therefore, provisions that prohibit the avoidance of particular transfers, such as the safe harbor, are often shareholders’ only protection from liability. Many courts have interpreted the safe harbor expansively, applying it where financial actors play minimal roles in facilitating stock transactions. Because parties in an LBO regularly use the services of financial actors, such interpretations make the safe harbor particularly broad and robust.
In response to these expansive judicial interpretations, many commentators argue that courts have applied the safe harbor beyond congressional intent. Others, however, argue that narrowing its application could create instability in equity markets. To a degree, this article argues that both criticisms have merit. To demonstrate this, the article will first provide historical context. Secondly, the article will contrast the FTI decision with other circuit court decisions interpreting the safe harbor. Finally, the article will expand its argument that the FTI decision is both welcome and problematic.
Context and Legislative History of the Safe Harbor
The safe harbor was largely a response to changes in the securities and commodities markets occurring in the 1970s. Prior to these changes in the equity markets, participants traded stock by endorsing physical stock certificates, transferring the certificates through brokers, and finally, providing the signed certificates to the issuers for re-registration.[12] This process required a substantial amount of human oversight, which was imperfect and time-consuming.[13] These inefficiencies often increased costs, even causing the “paper crunch” of the 1960s, where increased market trading caused massive backlogs and delayed settlement.[14] To solve the “hopelessly clogged” backlog of securities trades, Congress passed the Securities Investor Protection Act of 1970.[15] The Act proposed creating a national depository system that would provide settlement and transfer services within a consolidated clearing system, eliminating the need to physically transfer stock certificates and reducing redundant trade accounting by “netting” a participant’s transactions at the end of the trading day.[16] Additionally, the system would ensure stability by providing clearing services and, thus, guaranteeing the finalization of market transactions through settlement payments.[17]
As participants created these financial systems, they also consolidated clearinghouses, eventually creating large nationalized institutions such as the Depository Trust & Clearing Corporation, which — through various subsidiaries — clears and settles all securities traded on the New York Stock Exchange.[18] Although the consolidation of clearinghouses provided useful efficiencies, it also created systematic vulnerabilities in the settlement and payment functions, which were no longer diversified among multiple market participants.
Initially, these vulnerabilities were most obviously exposed in commodity markets. In particular, the avoidance action that was the subject of Seligson v. N.Y. Produce Exch. in 1975 fueled fears that a large market participant’s bankruptcy could cause a domino effect of insolvencies.[19] In Seligson, the debtor, a commodity broker, attempted to avoid a pre-petition transfer of $12 million paid to a clearinghouse as a margin payment.[20] The clearinghouse defended this action by asserting it was not the transferee of the margin payments; rather, the clearinghouse argued that it operated according to its members’ terms, reserving margin payments according to its members’ obligations to each other.[21] The court, however, was not persuaded and affirmed the transfer’s avoidance.[22]
Fearing the impact that fraudulent transfer actions could have on large clearinghouses, many industry experts and legislators proposed amendments to the Bankruptcy Code.[23] Congress feared that the Code could prevent clearinghouses from finalizing transactions.[24] Because a clearinghouse must make a system of guarantees to each of its participants, the bankruptcy stay could prevent the clearinghouse from utilizing a debtor’s margin payments to complete a guaranteed transfer between the parties, and a subsequent avoidance action could seek to unwind that transfer.[25] This, Congress feared, could ultimately make the clearinghouse unable to clear other market transactions, potentially triggering a series of trade failures and causing market participants to lose confidence in the markets.[26]
The initial amendments to the Code, made in 1978, protected commodity markets by providing a safe harbor for certain transfers made in connection with commodity trading.[27] These protections, at the time codified in § 764(c), prevented a trustee from avoiding most margin and settlement payments made in connection with commodity transactions.
In 1982, Congress extended the protections granted to the commodity markets to additionally protect the securities markets. These protections, originally created in § 546(d) of the Code, provided both commodity and securities market participants with a safe harbor from avoidance actions.[28] Unlike the safe harbor currently provided in the Code, however, these protections only shielded margin and settlement payments made “by or to” particular market participants (such as clearinghouses and brokers) and did not apply more broadly to other financial institutions.[29] Proponents of the amendment stressed that § 546(d) would ensure that avoidance actions “are not construed to permit margin or settlement payments to be set aside except in cases of fraud.”[30] The purpose of such protections, they argued, was “to preserve the financial integrity of the nation's commodity and securities markets.”[31]
After subsequent amendments in 1984 (which added repurchase agreement participants to its scope), § 546(d) was redrafted and incorporated into § 546(e). Subsequent amendments further extended the safe harbor’s protections to financial actors, including adding a “financial participant” to the list of participants considered financial actors.[32] In 2006, Congress, through the Financial Netting Improvements Act of 2006, inserted a parenthetical within the safe harbor, extending the safe harbor to “[settlement payments made] by or to (or for the benefit of) [financial actors].”[33] Although the legislative history of this amendment provides little guidance on Congress’s intent, some commentators have suggested that Congress may have passed the amendment in response to the Eleventh Circuit’s opinion in Munford v. Valuation Research Corp., which held that the safe harbor does not protect a transaction in which a financial actor acts as a conduit without a beneficiary interest in the transaction (the following section of this paper will discuss the case in more detail).[34] However, courts, including the Seventh Circuit court, argue that it is unclear whether the 2006 amendments endorse the Munford “mere conduit” rule or reject it.[35]
The Circuit Split and the FTI Decision
After Congress created the initial safe harbor, appellate decisions interpreting it were slow to follow. As the use of LBOs increased between 1985 and 1999, however, post-LBO defaults pressured many corporations to file bankruptcy.[36] Increasingly, bankruptcy litigants called upon bankruptcy courts to interpret the safe harbor.
Initially, the courts deferred to legislative history and refused to apply the safe harbor where the avoidance of transfers would not subject the securities markets to risks.[37] Furthermore, many bankruptcy courts interpreting the safe harbor determined that the “to or by” language of the statute implied that the safe harbor protected a defendant only when it was a financial actor.[38] As parties appealed lower court decisions, appellate opinions turned on maximums of statutory interpretation, rather than legislative history or statutory context. Focusing on statutory interpretation led the courts to apply the safe harbor expansively and created splits in interpretation.
The Tenth Circuit Court of Appeal’s decision in In re Kaiser Steel Corp. was among the earliest of the circuit court opinions interpreting the safe harbor.[39] In Kaiser, the appellants asked the court to determine whether the safe harbor protected former shareholders of a corporation who were bought out in an LBO from an avoidance action.[40] The defendants argued that they received the funds from their broker, a financial actor, and accordingly, the safe harbor protected the transfers from avoidance.[41] In opposition, the plaintiff argued that the LBO’s settlement payments were ultimately distributed to former shareholders, not to a financial actor.[42] The plaintiff further argued that the financial actor’s role in the transaction was irrelevant because legislative history demonstrated that the safe harbor applied only where the action sought to claw back funds ultimately paid to financial actors.[43] In response to these arguments, the court noted that maximums of statutory interpretation prevented it from “replac[ing] the unambiguous language of [§ 546(e)] with clues garnered from the legislative history.”[44] Accordingly, the court reasoned that because § 546(e) protects payments made “by or to” a financial actor, the safe harbor applies to all settlement transactions where the target of the avoidance action received the funds from a financial actor.[45]
After the Kaiser Steel decision, other circuit courts similarly interpreted the safe harbor in cases involving the avoidance of LBOs, extending the protection in contexts that did not threaten the public securities markets. For example, in Lowenschuss v. Resorts Int’l Inc., the Third Circuit Court of Appeals determined that the safe harbor was applicable to a settlement of privately owned securities because the transaction utilized the services of a broker.[46] As in Kaiser Steel, the Lowenschuss court determined that the plain language of the statute did not differentiate between a transaction where the financial institution was an intermediary or a beneficiary.[47] Similarly, many other courts ruled that the safe harbor protects private securities transactions from avoidance where the parties utilized the services of a financial actor.[48]
Before the FTI decision, the Eleventh Circuit’s decision in Munford v. Valuation Research Corp. was the only circuit court opinion significantly limiting the safe harbor’s application with respect to transfers received in LBOs.[49] There, the court determined that the safe harbor did not protect a corporation’s shareholders because they were not financial actors.[50] Although financial actors were involved in the transaction, the court reasoned that they operated as “an intermediary or conduit” and never “acquired a beneficial interest in either the funds or the shares.”[51] Interestingly, in interpreting the statute, the court relied on external evidence without determining that the language of the statute was ambiguous,[52] which several courts have found that a strict application of statutory interpretation maxims would forbid.[53] Nevertheless, the Munford court held that the safe harbor only protected a transferee when it was a financial actor or where a financial actor had a “beneficial interest in the funds or shares.”[54]
In FTI, the Seventh Circuit joined the Eleventh Circuit in limiting the safe harbor’s application.[55] There, the defendants, former shareholders of a privately held corporation, argued that the safe harbor protected them from the avoidance action because they utilized the services of financial actors, including an escrow agent and a lender who financed the transaction.[56] Unlike the Munford court, the Seventh Circuit court analyzed whether the language of § 546(e) was ambiguous before considering extrinsic support for the section’s interpretation.[57] The court noted that the words “by or to” were not as explicit as the defendants asserted.[58] Rather, the court explained, they could be used to describe different actions; the court noted that “a postcard sent through the U.S. Postal Service could be said to have been sent ‘by’ the Postal Service or ‘by’ the sender who filled it out.”[59] Therefore, the court found that the language of the statute was ambiguous, as it did not definitively apply either narrowly to actions where the defendants were financial actors or broadly to all transactions utilizing financial actors’ services.[60]
After determining that the language was ambiguous, the court examined the context of the safe harbor within the Code and its legislative history. The court noted that the Code’s various fraudulent transfer provisions applied only to transfers made “by” the debtor.[61] Accordingly, § 546(e)’s reference to transfers made “by” a financial actor indicates that the safe harbor should apply only when the defendant is a financial actor.[62] Furthermore, the court noted that Congress created the safe harbor to “protect the market from systemic risk and allow parties in the securities industry to enter into transactions with greater confidence.”[63] The court determined that the case before it, however, did not threaten to “trigger bankruptcies of any commodities or securities firms[,]” and therefore, the court was not persuaded to apply the safe harbor.[64] In concluding its opinion, the court wrote, “section 546(e) does not provide a safe harbor against avoidance of transfers between non-named entities where a named entity acts as a conduit.”[65]
Implications of the FTI Decision
To some degree, the FTI decision echoes the arguments of many commentators who argue that narrowing the safe harbor’s scope aligns it with congressional intent.[66] They argue that by declining to see ambiguity in the statute’s language, the majority of circuit courts have over-expanded the safe harbor to protect shareholders not operating as financial actors in private stock settlements. Legislative history demonstrates that these types of transactions were not the type Congress contemplated protecting in creating the safe harbor. As the Seventh Circuit court simply stated, Congress did not intend to protect all parties who “want[] to exchange money for privately held stock.”[67] Rather, as many commentators have noted, Congress intended to protect particularly vulnerable but important market institutions, such as clearinghouses and brokers, and to bolster confidence in consolidated securities markets.[68]
Despite FTI’s utility, determining whether a financial market participant, such as a stock broker or clearinghouse, acted as a conduit in an LBO or other transaction may prove more difficult than the FTI opinion suggests. Of course, one can define “conduit” in common parlance: “a means of transmitting or distributing.”[69] Its application to complex financial transactions, such as the settlement of publicly traded securities, however, is not nearly as clear, and many follow-up questions arise. For example, is a clearinghouse that facilitates multi-million-dollar equity trades through netting and systematic guarantees of delivery merely a means of distributing settlement payments? Is a stockbroker that guarantees payment to the clearinghouse in the event of its client’s default only a distributor of securities? Because the FTI decision only addresses the safe harbor’s application to an LBO involving privately held stock that was not settled and cleared through a clearinghouse, these questions remain unanswered in the Seventh Circuit.
Notwithstanding the ostensibly narrow holding in FTI, the court’s reasoning seems to suggest that most financial actors, including clearinghouses and brokers, are “mere conduits” like the lenders and brokers utilized in the FTI transaction. To determine whether the safe harbor applies to the transfer, the Seventh Circuit court examined the nature of the relationship between the parties of the transaction and their lenders and brokers, focusing on the financial actors’ ability to control the terms of the transaction.[70] In doing so, the court appears to endorse an agency and control analysis to determine whether a financial actor operated as a “mere conduit,” suggesting that the application of the safe harbor would be appropriate where a financial actor had “dominion over the money” and the “right to put the money to [its] own purposes.”[71] If this test is applied to clearinghouses and equity brokers in public corporation LBOs, these participants may never operate as more than conduits. Clearinghouses, of course, cannot put transferred funds to their own use, nor can brokers redirect their clients’ purchase orders to more profitable investments without their clients’ direction. This may suggest that the safe harbor in the Seventh Circuit applies only when financial actors are named defendants in the avoidance action.
Permitting the avoidance of LBO transfers exposes former shareholders to the risk that, if the acquirers in the LBO overleverage the corporation and seek bankruptcy relief, the trustee could avoid the transfers they received. On the one hand, one could argue that former shareholders should bear some risk of avoidance, as shareholders should examine the financial implications of an LBO transaction and vote on whether to approve the transaction.[72] From a policy perspective, however, imposing this risk on shareholders is problematic where these shareholders are individuals who hold these investments as a part of individual investment portfolios (as opposed to large institutional investors such as pension and hedge funds). These individual shareholders have little economic incentive to analyze the likelihood that a trustee could avoid the transaction if the LBO target seeks bankruptcy relief, because the costs of doing so could far exceed the value of the shareholders’ investment, and that investor may reinvest the proceeds in other stock. A broadly-interpreted safe harbor protects these shareholders by ensuring the finality of an investor’s trade.[73] Accordingly, although in creating the safe harbor Congress intended to assure market participants that avoidance actions would not subsequently trigger other participants’ bankruptcy filings, applying the safe harbor broadly in public securities transactions also protects small investors that do not have the resources or incentive to investigate whether the LBO exposes them to an avoidance action in the future.
Conclusion
The FTI decision narrows an arguably overly expansive interpretation of § 546(e)’s settlement payment safe harbor. Unfortunately, it does so using reasoning that many bankruptcy courts may have difficulty applying to avoidance actions involving a public corporation LBO. Applying this rule too narrowly may limit some of the utility of the safe harbor and increase passive-selling shareholders’ risk in a public corporation LBO. To preserve the utility of the safe harbor while not creating an overly broad protection, Congress could perhaps redraft § 546(e) to apply the safe harbor only to publicly traded equity transactions, or to protect shareholders who did not actively participate in the structuring of an LBO transaction. Without such a provision, the FTI decision may expose former shareholders to avoidance actions. Although institutional investors may have resources to review transactions and determine the likelihood of the LBO’s avoidance, individual investors with limited resources typically do not and may be particularly vulnerable to those actions.
[1] 830 F.3d 690 (7th Cir. 2016).
[2] 11 U.S.C. § 546(e) is applicable to payments made “by or to” particular entities, including “a commodity broker, forward contract merchant, stockbroker, financial institution, financial participant, or securities clearing agency[.]”
[3] 830 F.3d at 692. Notably, the safe harbor does not apply to avoidance actions asserted as “actual fraud” claims under 11 U.S.C. § 548(a)(1). See 11 U.S.C. § 546(e).
[4] 830 F.3d at 691. LBOs are methods of corporate acquisition in which an acquiring firm finances its acquisition of the targeted firm largely through debt financing, pledging the target firm’s unencumbered assets to secure the loan. See generally Irina V. Fox, Settlement Payment Exception to Avoidance Powers in Bankruptcy: An Unsettling Method of Avoiding Recovery from Shareholders of Failed Closely Held Company LBOs, 84 Am. Bankr. L.J. 571, 577-80 (2010) (describing the finance and transactional process used in most LBOs).
[5] 830 F.3d at 692.
[6] Id. at 697-98.
[7] 11 U.S.C. § 548 provides two methods of asserting a claim for a fraudulent transfer: “actual fraud” claims and “constructive fraud” claims.
[8] Id.
[9] See Samir Parikh, Saving Fraudulent Transfer Law, 86 Am. Bankr. L.J. 305 at 338 (cataloging early cases where parties sought to avoid LBO transactions through constructive fraud actions); see also Fox, supra note 4 at 580-81 (“LBOs can prejudice unsecured creditors because in a buyout shareholders receive a large cash payment, while the company arguably gets nothing in return.”).
[10] See Id. at 338 (“[T]he structure of a leveraged buyout makes it quite susceptible to attack under fraudulent transfer law.”)
[11]The Code provides a variety of different tests to satisfy this insolvency requirement. For example, the claimant may assert that after the transfer, the debtor was left with “unreasonably small capital.” 11 U.S.C. § 548(a)(B)(ii)(II). Or, the claimant can assert that the debtor “intended to incur … debts that would be beyond [its] ability to pay as such debts matured.” Id. at § 548(a)(B)(ii)(III).
[12] See Parikh, supra note 9 at 327. As the amount of securities trading increased in the late 1960s, these inefficiencies prevented traders from completing stock exchanges, causing a crisis on Wall Street that ultimately led to a loss of $130 million in investments. Id.
[13] William J. Casey, Chairman, Sc. & Exch. Comm’n Statement to Conference of State Bank Supervisors: The Securities Transaction Processing Act of 1972 (describing the work as “a low priority item” for broker-dealers and banks; furthermore, “[t]he profits were to be achieved elsewhere, and the best management talent was not deployed in securities processing or, as it was commonly called, the ‘back office’ of these businesses”).
[14] Id. at 3.
[15] See, Parikh, supra note 9 at 327.
[16] See, Louis Loss et. al., Securities Regulation (Wolters Kluwer Law & Business), Vol. 7 at 324-26 (describing the consolidation of settlement and trade registration services and explaining the process of netting, whereby a participant’s daily debits and deposits are netted into one transaction).
[17] Id. at 322 (explaining clearing as a “post-trade comparison … confirming that the trade was executed and that it was executed in accordance with the directions of the buyer and seller”).
[18] Id.; see also Depository Trust & Clearing Corporation, An Overview: Securing Today. Shaping Tomorrow 2 (available at www.dtcc.com/about <select “Read More” hyperlink>).
[19] 394 F. Supp. 125 (S.D.N.Y. 1975).
[20] Id. at 134.
[21] Id.
[22] The Court noted that the clearinghouse contemplated direct payment of margin payments to the clearinghouse “indicating that the obligation to pay variation margin is owed to the [clearinghouse], not to the credit members.” Id. at 136 (emphasis in the original).
[23] See Id.
[24] See H.R. Rep No. 96-1195 at 6 (1980) (in proposing amendments to Code, congressional report noted steps should be taken to ensure “that the financial failure of any one such entity would not have such an effect upon an entire marketplace so as to pose the potential for a massive disruption of the entire industry”).
[25] Bankruptcy of Commodity and Securities Brokers: Hearing Before the H. Sub. Comm. on Monopolies and Commercial Law 97th Cong. 3 (1981) (testimony of Phillip P. Johnson, Chairman, Commodity Futures Trading Commission) (explaining how bankruptcy stay and fraudulent transfer law could prevent clearinghouse from utilizing margin payments); see also Fox, supra note 4 at 585-86 (discussing the “ripple effect” a bankruptcy petition could have on equity settlement transaction procedures).
[26] See Id. at 49 (noting that failure of clearinghouse to clear settlements could have “serious implications on the solvency of [participating] banks”).
[27] S. Rep. No. 95-989 (1978).
[28] Pub. L. No. 97-222 (1982).
[29] These protections were not extended to all of the financial actors listed in the safe harbor, such as broadly defined “financial institutions.” Compare Pub. L. No. 97-222 (1982) (“[T]he trustee may not avoid a transfer that is … [a] settlement payment … made by or to a commodity broker, forward contract merchant, stockbroker, or securities clearing agency.”) with 11 U.S.C. § 546(e) (“[T]he trustee may not avoid a transfer that is … [a] settlement payment … made by or to (or for the benefit of) a commodity broker, forward contract merchant, stockbroker, financial institution, financial participant, or securities clearing agency.”).
[30] H.R. Rep No. 97-420 at 2.
[31] H.R. Rep No. 96-1195 at 7.
[32] See Pub. L. No. 101-311 (1990) (amending the safe harbor’s reference to the definition of “settlement payments”); Pub. L. No. 103-394 (1994) (same); Pub. L. No. 105-183 (1998) (amending the section’s reference to an avoidance action alleging actual fraud); Pub. L. No. 109-8 (2005) (inserting the term “financial participant” among the listed financial actors).
[33] Pub. L. No. 109-390 (2006).
[34] See Parikh, supra note 9 at 336.
[35] See FTI 830 F.3d at 697 (“We do not believe that Congress would have jettisoned Munford's rule by such a subtle and circuitous route. Its addition of an alternate way to meet the safe harbor criteria says nothing about the method already in the statute. If Congress had wanted to say that acting as a conduit for a transaction between non-named entities is enough to qualify for the safe harbor, it would have been easy to do that. But it did not.”)
[36] See Parikh, supra note 9 at 337-38.
[37] See, e.g., Wieboldt Stores Inc. v. Schottenstein, 131 B.R. 655, 665 (N.D. Ill. 1991) (finding that transfer of privately held stock was not exempt from fraudulent transfer action because “a financial intermediary purportedly involved in the clearance and settlement process would not be meaningfully affected [by the avoidance action]”.
[38] See, e.g., Brandt v. Hicks, Muse & Co. (In re Healthco Int'l Inc.), 195 B.R. 971 (Bankr. D. Mass. 1996).
[39] 952 F.2d 1230 (10th Cir. 1991).
[40] Id. at 1236.
[41] Id. at 1235-36.
[42] Id. at 1240.
[43] Id. The DIP noted that § 546(e) excludes “equity-security holder” from the parties delineated in the statute. Id. This indicated, the DIP argued, that Congress intended to protect only financial intermediaries and not the beneficiaries of the transaction. Id.
[44] Id. at 1241, citing Miller v. Commissioner, 836 F.2d 1274, 1283 (10th Cir. 1988). See also Consumer Product Safety Comm'n v. GTE Sylvania Inc., 447 U.S. 102, 108, 64 L. Ed. 2d 766, 772, 100 S. Ct. 2051, 2056 (1980) (finding that court cannot utilize extrinsic evidence of a statute’s meaning in absence of ambiguity).
[45] In re Kaiser Steel Corp., 952 F.2d at 1287.
[46] 181 F.3d 505, 515-16 (3d Cir. 1999).
[47] Id.
[48] See, e.g., Official Comm. of Unsecured Creditors of Qubecor World (USA) Inc. v. Am. Life Ins. Co. (In re Quebecor (USA) Inc.), 719 F.3d 94, 99 (2d Cir. 2013) (holding that safe harbor applied to bond redemptions that utilized a financial actor); Brandt v. Capital Co. LP (In re Plassien Int’l Corp.), 590 F.3d 252, 257-58 (3d Cir. 2009) (holding that safe harbor applied to LBO of closely held stock that utilized services of financial actor who used wire transfer); QSI Holdings Inc. v. Alford (In re QSI Holdings Inc.), 571 F.3d 545, 549-50 (6th Cir. 2009) ("[T]here is no reason to think that unwinding [the settlement of privately held securities] would have any less of an impact on financial markets than publicly traded securities.").
[49] 98 F.3d 604, 609 (11th Cir. 1996).
[50] Id. at 610.
[51] Id.
[52] Id.
[53] See supra note 45.
[54] 98 F.3d at 610.
[55]See FTI Consulting, 830 F.3d at 697 (2016) (recognizing that the Court’s decision took “ [a] different position from the one adopted by five of our sister circuits, which have interpreted section 546(e) to include the … situation [before the Court].”)
[56] Id. at 691-92.
[57] Id. at 692-93.
[58] Id.
[59] Id. at 692.
[60] Id.
[61] Id. at 694; Avoidance actions are generally limited to those transactions made by the debtor. See, e.g., 11 U.S.C. § 544 (allowing a trustee to avoid “any transfer of property of the debtor or any obligation incurred by the debtor”); see also Id. at § 548(a)(1) (trustee may avoid transfers "of an interest of the debtor in property, or any obligation ... incurred by the debtor").
[62] FTI, 830 F.3d at 693-94
[63] Id. at 696 (citing Grede v. FCStone LLC, 746 F.3d 244, 252 (7th Cir. 2014)).
[64] FTI, 830 F.3d at 696.
[65] Id. at 697.
[66] See, e.g., Lawrence J. Kotler, “Second Circuit Interprets § 546(e) Broadly — Again!,” 32-7 ABI Journal 32 (Aug. 2013).
[67] FTI, 830 F.3d at 696.
[68] See supra note 26 and accompanying text.
[69] Merriam Webster (2016) (available at merriam-webster.com/dictionary/conduit).
[70] FTI Consulting v. Merit Mgmt. Grp. LP, 830 F.3d 690, 696 (2016) (stating that Congress intended to protect financial actors when they had control of the exchange, but not where they were “intermediaries”).
[71] Id. at 695.
[72] 8 Del. C. § 251 requires corporate directors to adopt a resolution declaring the advisability of adopting the merger. The statute requires the resolution to provide inter alia the terms and conditions of the merger and “such other details as are deemed desirable.” Id. § 251(b)(1), (2). Once the board adopts the resolution, the document is submitted to the shareholders. Id. § 251(c). The merger must be adopted by a majority of the outstanding stock entitled to vote on the merger. Id.
[73] See, e.g., In re Quebecor (USA) Inc., 719 F.3d at 100 (“A clear safe harbor for transactions made through [financial actors] promotes stability in [securities] markets[.]”).