Ronald R. Peterson v. Ritchie Structure Multi-Manage ( 2013 )

In the
United States Court of Appeals
For the Seventh Circuit
____________________
Nos.  12-­‐‑2463,  12-­‐‑2464,  12-­‐‑2493,  12-­‐‑2494  &  12-­‐‑2495
RONALD   R.   PETERSON,   as   Trustee   for   the   estates   of   Lancelot
Investors  Fund,  L.P.,  and  related  entities,
Plaintiff-­‐‑Appellant,
v.
SOMERS  DUBLIN  LTD.,  et  al.,
Defendants-­‐‑Appellees.
____________________
Appeals  from  the  United  States  District  Court  for  the
Northern  District  of  Illinois,  Eastern  Division.
No.  08  B  28225  —  Jacqueline  P.  Cox,  Bankruptcy  Judge.
____________________
ARGUED  APRIL  8,  2013  —  DECIDED  SEPTEMBER  6,  2013
____________________
Before   EASTERBROOK,   Chief   Judge,   and   BAUER   and   SYKES,
Circuit  Judges.
EASTERBROOK,   Chief   Judge.   After   Gregory   Bell’s   mutual
funds,  known  as  the  Lancelot  or  Colossus  group  (collectively
“the  Funds”),  folded  in  late  2008,  their  trustee  in  bankruptcy
filed  many  independent  suits  or  adversary  actions  seeking  to
recover   from   solvent   third   parties.   Last   year   we   considered
Nos.  12-­‐‑2463  et  al.   2
the   Trustee’s   claims   against   the   Funds’   auditor.   Peterson   v.
McGladrey  &  Pullen,  LLP,  676  F.3d  594  (7th  Cir.  2012).  These
appeals   concern   the   Trustee’s   claims   against   some   of   the
Funds’  investors,  which  the  Trustee  believes  received  prefer-­‐‑
ential   transfers   or   fraudulent   conveyances.   Another   appeal,
also   decided   today,   addresses   a   suit   against   one   of   the
Funds’  law  firms.
The   Funds   invested   in   notes   issued   by   Thousand   Lakes,
LLC,   and   other   ventures   operated   by   Thomas   Petters.   For
simplicity  we  refer  to  Thousand  Lakes  as  the  only  borrower.
Although   Bell   may   have   believed   at   the   outset   that   Thou-­‐‑
sand  Lakes  was  a  commercial  factor—that  is,  a  lender  financ-­‐‑
ing   other   businesses’   inventory—Petters   did   not   have   cus-­‐‑
tomers  and  was  running  a  Ponzi  scheme,  paying  old  inves-­‐‑
tors  with  newly  raised  money.  Ponzi  schemes  must  grow  to
survive,   and   eventually   they   collapse   when   they   cannot
maintain  the  necessary  growth.  See  Saul  Levmore,  Rethinking
Ponzi-­‐‑Scheme  Remedies  in  and  out  of  Bankruptcy,  92  Boston  U.
L.  Rev.  969  (2012).
In  fall  2007  Thousand  Lakes  stopped  remitting  money  to
the   Funds.   It   contended   that   Costco,   a   customer,   had   been
late  in  paying;  the  Funds  extended  the  notes’  due  dates.  By
February  2008  Thousand  Lakes  still  had  not  paid,  and  Bell  at
last   discovered   the   problem.   (He   may   have   learned   earlier,
or   been   wilfully   blind   to   what   Petters   was   doing,   but   we
need  not  decide.)  Instead  of  taking  the  news  to  prosecutors,
Bell   began   operating   the   Funds   as   a   second-­‐‑tier   Ponzi
scheme.   He   placed   “new”   investments   with   Thousand
Lakes,   which   used   the   money   the   same   day   to   repay   out-­‐‑
standing  notes.  These  round-­‐‑trip  transactions  meant  that  the
Funds  were  not  receiving  any  net  cash  from  Thousand  Lakes
3   Nos.  12-­‐‑2463  et  al.
and   thus   needed   to   pay   their   own   investors,   when   they
sought   to   redeem   shares,   with   newly   raised   money.   But   by
fall   2008   that   was   no   longer   possible.   Both   the   Funds   and
Petters’s  empire  collapsed;  about  60%  of  the  roughly  $2.5  bil-­‐‑
lion  nominally  held  by  the  Funds  had  been  stolen  or  disap-­‐‑
peared.  Bell  pleaded  guilty  to  fraud  and  was  sentenced  to  37
months’  imprisonment.  Petters  denied  liability  but  was  con-­‐‑
victed  after  a  trial  and  sentenced  to  50  years’  imprisonment.
United  States  v.  Petters,  663  F.3d  375  (8th  Cir.  2011).
The  Trustee  contends  in  the  current  proceedings,  filed  as
adversary   actions   in   the   Funds’   bankruptcy,   that   investors
who   redeemed   shares   before   the   bankruptcy   received   pref-­‐‑
erential  transfers,  11  U.S.C.  §547,  or  fraudulent  conveyances,
11  U.S.C.  §548(a)(1)(B).  The  Trustee  also  invoked  the  Illinois
fraudulent-­‐‑conveyance  statute,  using  the  avoiding  power  of
11   U.S.C.   §544.   These   parts   of   the   Bankruptcy   Code   allow
trustees  to  recoup  payouts  for  the  benefit  of  all  creditors.  The
bankruptcy   judge   granted   summary   judgment   to   the   inves-­‐‑
tors,  467  B.R.  643  (Bankr.  N.D.  Ill.  2012),  relying  on  11  U.S.C.
§546(e),  which  provides:
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  section  101,  741,  or  761
of   this   title,   or   settlement   payment,   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,   stock-­‐‑
broker,  financial  institution,  financial  participant,  or  securi-­‐‑
ties  clearing  agency,  or  that  is  a  transfer  made  by  or  to  (or
for   the   benefit   of)   a   commodity   broker,   forward   contract
merchant,   stockbroker,   financial   institution,   financial   par-­‐‑
ticipant,  or  securities  clearing  agency,  in  connection  with  a
securities  contract,  as  defined  in  section  741(7),  commodity
Nos.  12-­‐‑2463  et  al.   4
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.
Deleting   words   not   relevant   to   the   current   dispute,   and
omitting  ellipses,  we  have:  “the  trustee  may  not  avoid  a  set-­‐‑
tlement   payment   or   transfer   made   to   a   financial   participant
in  connection  with  a  securities  contract,  except  under  section
548(a)(1)(A)  of  this  title.”
The   bankruptcy   court   entered   its   decision   on   May   11,
2012,   and   on   May   24   the   Trustee   appealed   to   the   district
court.  The  Trustee  and  the  defendants  agreed  to  request  di-­‐‑
rect   review   by   this   court,   bypassing   a   district   judge,   as   28
U.S.C.  §158(d)  allows.  Certifications  under  Fed.  R.  Bankr.  P.
8001(f)  were  filed  on  June  19  and  20,  and  a  joint  petition  un-­‐‑
der  Fed.  R.  App.  P.  5  was  filed  on  July  16.  This  court  author-­‐‑
ized  the  appeals  but  directed  the  parties  to  discuss  whether
they  are  timely.  That  is  the  first  question  we  must  address—
and,   if   the   papers   are   late,   we   must   decide   whether   any
problem  is  a  jurisdictional  defect.
An  interlocutory  appeal  from  a  bankruptcy  judge’s  deci-­‐‑
sion  to  the  court  of  appeals  requires  three  steps:  first  a  certi-­‐‑
fication   by   the   bankruptcy   judge,   district   judge,   or   the   par-­‐‑
ties   acting   jointly;   second   a   petition   to   the   court   of   appeals
under   Rule   5;   and   finally   a   discretionary   decision   by   the
court   of   appeals.   Bankruptcy   Rule   8001(f)(3)(A)   says   that   a
“request”   for   certification   must   be   filed   “within   the   time
specified   by   28   U.S.C.   §  158(d)(2)”.   This   provision   governs
requests  by  a  party  to  a  judge.  Rule  8001(f)(4)  covers  certifi-­‐‑
cation  on  a  judge’s  initiative.  As  far  as  we  can  see  Rule  8001
does  not  set  a  time  limit  for  certification  on  a  judge’s  initia-­‐‑
tive  or  by  agreement  of  the  litigants.  In  re  American  Mortgage
5   Nos.  12-­‐‑2463  et  al.
Holdings,   Inc.,   637   F.3d   246,   254   (3d   Cir.   2011),   says   that   the
outer  limit  for  the  parties’  joint  certification  is  60  days,  which
it   drew   from   §158(d)(2)(E).   But   that   provision   deals   with   a
request   to   a   judge,   not   with   the   litigants’   joint   certification.
Section   158(d)(2)(E)   reads:   “Any   request   under   subpara-­‐‑
graph   (B)   for   certification   shall   be   made   not   later   than   60
days  after  the  entry  of  the  judgment,  order,  or  decree.”  Sub-­‐‑
paragraph  (B)  deals  with  judicial  certification,  while  subpar-­‐‑
agraph  (A)  is  what  authorizes  certification  by  the  parties.
We  have  considered  the  possibility  that  Rule  5(a)(2)  sup-­‐‑
plies  a  time  limit.  It  reads:  “The  petition  must  be  filed  within
the  time  specified  by  the  statute  or  rule  authorizing  the  ap-­‐‑
peal  or,  if  no  such  time  is  specified,  within  the  time  provided
by  Rule  4(a)  for  filing  a  notice  of  appeal.”  Because  Bankrupt-­‐‑
cy   Rule   8001(f)   does   not   supply   a   time,   Appellate   Rule
5(a)(2)   sends   us   to   Appellate   Rule   4(a),   which   specifies   30
days.   By   that   standard,   the   joint   certification   would   be   late.
But   Rule   5(a)   deals   with   petitions   for   leave   to   appeal—the
second   step   in   the   process   under   §158(d)—rather   than   with
certifications  by  judges  or  litigants.  The  parties’  petition  un-­‐‑
der  Rule  5(a)  came  within  30  days  of  the  joint  certification,  so
Rule  5(a)  has  been  satisfied.
This  leaves  the  conclusion  that  there  is  no  time  limit  for  a
joint   certification.   Probably   none   is   necessary.   If   the   parties
take  too  long,  the  court  of  appeals  can  deny  the  petition  for
interlocutory  review.  But  whether  or  not  a  time  limit  would
be  a  good  idea,  a  court  must  follow  the  statute  and  rules  as
written.  See,  e.g.,  Spivey  v.  Vertrue,  Inc.,  528  F.3d  982  (7th  Cir.
2008).
If   we   are   wrong   about   this,   and   there   is   either   a   30-­‐‑day
limit   from   Rules   4(a)   and   5(a)   or   a   60-­‐‑day   limit   from
Nos.  12-­‐‑2463  et  al.   6
§158(d)(2)(E),  we  still  would  hear  these  appeals,  which  pre-­‐‑
sent  legal  issues  not  yet  addressed  in  this  circuit.  If  the  limit
is  60  days,  the  certifications  are  timely.  And  if  the  limit  is  30
days,  none  of  the  parties  has  asked  us  to  dismiss  the  appeal
on   that   account.   The   time   established   by   Rule   5(a)   is   not   a
limit  on  appellate  jurisdiction.  See  In  re  Turner,  574  F.3d  349,
354  (7th  Cir.  2009).
Statutory   time   limits   for   appeal   can   be   jurisdictional,
see  Bowles   v.   Russell,   551   U.S.   205   (2007),   but   time   limits   in
the  Rules  of  Appellate  Procedure  are  not.  See  United  States  v.
Neff,  598  F.3d  320  (7th  Cir.  2010);  Carter  v.  Hodge,  No.  13-­‐‑2243
(7th  Cir.  Aug.  8,  2013).  See  also  Kontrick  v.  Ryan,  540  U.S.  443(2004)  (time  limits  in  Federal  Rules  of  Bankruptcy  Procedure
are   not   jurisdictional).   A   mandatory,   though   non-­‐‑
jurisdictional,   rule   must   be   enforced   if   a   party   invokes   its
protection,  but  no  one  wants  us  to  dismiss  these  appeals.
A   second   issue   potentially   affects   jurisdiction.   Stern   v.
Marshall,  131  S.  Ct.  2594  (2011),  holds  that  bankruptcy  judg-­‐‑
es,   who   lack   tenure   under   Article   III   of   the   Constitution,
cannot   entertain   certain   actions   by   debtors   or   trustees   in
bankruptcy.   We   concluded   in   In   re   Ortiz,   665   F.3d   906   (7th
Cir.   2011),   that,   when   a   bankruptcy   judge   is   not   entitled   to
enter   a   dispositive   order,   28   U.S.C.   §158(d)   does   not   allow
the  court  of  appeals  to  review  the  decision;  instead  the  case
must  be  heard  initially  by  a  district  judge.
The  parties,  well  aware  of  Stern,  sought  to  eliminate  any
problem  by  consenting  to  the  bankruptcy  court’s  exercise  of
jurisdiction.  It  is  established  that  parties  may  consent  to  the
entry  of  final  decision  by  a  magistrate  judge  under  28  U.S.C.
§636(c),   followed   by   an   appeal   that   bypasses   the   district
court,   even   though   a   magistrate   judge   lacks   Article   III   ten-­‐‑
7   Nos.  12-­‐‑2463  et  al.
ure.   See,   e.g.,   Roell   v.   Withrow,   538   U.S.   580   (2003);   Geras   v.
Lafayette   Display   Fixtures,   Inc.,   742   F.2d   1037   (7th   Cir.   1984);
Gibson  v.  Gary  Housing  Authority,  754  F.2d  205  (7th  Cir.  1985).
The  parties  assumed  that  consent  to  decision  by  a  bankrupt-­‐‑
cy  judge  would  be  treated  the  same  way.  But  a  panel  stated
in   Wellness   International   Network,   Ltd.   v.   Sharp,   No.   12-­‐‑1349
(7th  Cir.  Aug.  21,  2013),  that  Article  III  forbids  decision  by  a
bankruptcy  judge  on  the  basis  of  a  party’s  waiver.
The  issue  in  Wellness  International  Network  was  forfeiture
rather  than  waiver.  None  of  the  parties  objected  to  the  bank-­‐‑
ruptcy   judge’s   handling   of   the   case   until   it   reached   the   dis-­‐‑
trict  court,  when  the  loser  in  the  bankruptcy  court  first  relied
on   Stern.   A   case   pending   in   the   Supreme   Court—In   re   Bel-­‐‑
lingham   Insurance   Agency,   Inc.,   702   F.3d   553   (9th   Cir.   2012),
cert.   granted   under   the   name   Executive   Benefits   Insurance
Agency   v.   Arkison,   133   S.   Ct.   2880   (2013)   (No.   12-­‐‑1200)—
likewise  arises  from  a  belated  objection  rather  than  a  unani-­‐‑
mous  consent.
Wellness  International  Network  did  not  discuss  this  circuit’s
decisions  in  Geras  or  Gibson,  which  hold  that  consent  on  the
record   authorizes   decision   by   an   untenured   magistrate
judge,  even  though  the  parties’  failure  to  object  does  not.  The
panel   also   reserved   judgment   on   the   constitutionality   of   28
U.S.C.   §157(c)(2),   which   authorizes   the   parties   to   consent   to
adjudication   by   a   bankruptcy   judge   of   certain   proceedings
that  otherwise  would  go  to  a  district  judge.  Wellness  Interna-­‐‑
tional   Network,   slip   op.   39.   So   we   think   the   effect   of   an   ex-­‐‑
press  and  mutual  waiver  open  in  this  circuit.  Given  the  grant
of   certiorari   in   Executive   Benefits   Insurance   Agency,   the   fact
that   the   parties   have   not   filed   briefs   discussing   the   distinc-­‐‑
tion   between   waiver   and   forfeiture,   and   the   fact   that   the
Nos.  12-­‐‑2463  et  al.   8
bankruptcy   court’s   authority   over   these   proceedings   does
not   depend   on   consent,   we   do   not   try   to   resolve   today
whether   waiver   and   forfeiture   should   be   treated   the   same
way.
The   current   dispute   comes   within   a   bankruptcy   judge’s
authority,   notwithstanding   Stern,   because   all   of   the   defend-­‐‑
ants   submitted   proofs   of   claim   as   the   Funds’   creditors   and
thus  subjected  themselves  to  preference-­‐‑recovery  and  fraud-­‐‑
ulent-­‐‑conveyance   claims   by   the   Trustee.   See   11   U.S.C.
§502(d).   The   Supreme   Court   held   in   Katchen   v.   Landy,   382
U.S.  323,  329–36  (1966),  and  Langenkamp  v.  Culp,  498  U.S.  42,
44–45  (1990),  that  Article  III  authorizes  bankruptcy  judges  to
handle  avoidance  actions  against  claimants.  See  also  Granfi-­‐‑
nanciera  S.A.  v.  Nordberg,  492  U.S.  33,  57–59  (1989).  Stern  stat-­‐‑
ed  that  its  outcome  is  consistent  with  those  decisions.  131  S.
Ct.   at   2616–18.   Wellness   International   Network   likewise   ob-­‐‑
serves  (slip  op.  44–45)  that  there  is  no  constitutional  problem
when   a   bankruptcy   judge   adjudicates   a   trustee’s   avoidance
actions   against   creditors   who   have   submitted   claims.   The
bankruptcy   judge   thus   acted   within   her   authority,   and   28
U.S.C.  §158(d)  allows  a  direct  appeal.
To  the  merits.  Here  again  is  the  short  version  of  §546(e):
“the  trustee  may  not  avoid  a  settlement  payment  or  transfer
made   to   a   financial   participant   in   connection   with   a   securi-­‐‑
ties   contract,   except   under   section   548(a)(1)(A)   of   this   title.”
The   Trustee   does   not   deny   that   entities   that   invested   in   the
Funds   were   “financial   participants”—a   term   that   11   U.S.C.
§101(22A)  defines  as  an  investor  whose  stake  exceeds  $1  mil-­‐‑
lion,   which   was   the   Funds’   minimum-­‐‑purchase   require-­‐‑
ment—or  that,  when  the  Funds  redeemed  some  or  all  of  an
investor’s  holdings,  a  “transfer  [was]  made”  to  that  investor.
9   Nos.  12-­‐‑2463  et  al.
It  seems  to  follow  that  the  transfer  cannot  be  recovered  “ex-­‐‑
cept   under   section   548(a)(1)(A)   of   this   title.”   That   subpara-­‐‑
graph  covers  a  payment  “made  …  with  actual  intent  to  hin-­‐‑
der,  delay,  or  defraud  any  entity  to  which  the  debtor  was  or
became  …  indebted”.
The   Trustee   did   not   rely   on   §548(a)(1)(A)   in   the   bank-­‐‑
ruptcy   court   or   his   appellate   briefs.   At   oral   argument   the
Trustee   confirmed   that   he   made   a   conscious   choice   not   to
invoke   the   exception.   We   are   puzzled   by   that   decision,   be-­‐‑
cause  “actual  intent  to  …  defraud”  seems  an  apt  description
of   a   Ponzi   scheme’s   payouts.   The   round-­‐‑trip   transactions
that   began   in   February   2008   extended   the   life   of   the   Petters
scam  and  turned  the  Funds  themselves  into  a  Ponzi  scheme.
Such  schemes  can  operate  only  as  long  as  they  pay  existing
investors’  claims.  Once  they  stop  paying  old  investors,  new
investments   stop   coming   in   and   the   scams   collapse.   Thus
ongoing  payments  are  integral  to  the  fraud.  Although  some
of  the  payments  the  Trustee  wants  to  recover  predate  Febru-­‐‑
ary   2008,   the   Trustee   has   contended   in   other   litigation   that
Bell   knew   the   truth   about   Petters’s   business   earlier;   and,   at
all  events,  even  if  the  §548(a)(1)(A)  exception  to  §546(e)  were
available  only  for  payments  the  Funds  made  after  Bell  threw
in   with   Petters,   still   some   recovery   is   better   than   none.   The
Trustee  said  at  oral  argument  that  he  understands  the  excep-­‐‑
tion  to  be  limited  to  an  investor’s  profits,  as  opposed  to  the
return   of   principal,   in   light   of   §548(c).   Given   the   Trustee’s
decision   not   to   rely   on   the   exception,   we   need   not   decide
whether  that  understanding  is  correct.
What   the   Trustee   does   contend   is   that   §546(e)   contains
some   ambiguities,   such   as   what   is   a   “settlement   payment”
and  when  is  a  payment  made  “in  connection  with”  a  securi-­‐‑
Nos.  12-­‐‑2463  et  al.   10
ties  or  commodities  contract.  “Settlement  payment”  is  a  de-­‐‑
fined   term,   but   the   definitions   in   11   U.S.C.   §§  101(51A)   and
741(8)   are   circular.   Section   741(8)   says   that   a   settlement
payment  “means  a  preliminary  settlement  payment,  a  partial
settlement   payment,   an   interim   settlement   payment,   a   set-­‐‑
tlement  payment  on  account,  a  final  settlement  payment,  or
any  other  similar  payment  commonly  used  in  the  securities
trade”.   Section   101(51A)   has   similar   language   about   the
commodities   trade.   “In   connection   with”   does   not   have   a
definition   in   the   Bankruptcy   Code—or   for   that   matter   the
statutes  covering  the  commodities  and  securities  businesses.
Given  statutory  ambiguity,  the  Trustee  turns  to  the  legis-­‐‑
lative   history.   It   is   easy   to   sum   up   what   the   Trustee   finds
there:  Congress  enacted  §546(e)  to  ensure  that  honest  inves-­‐‑
tors  will  not  be  liable  if  it  turns  out  that  a  leveraged  buyout
(LBO)   or   other   standard   business   transaction   technically
rendered  a  firm  insolvent.  For  a  recap  of  the  legislative  his-­‐‑
tory  see  Peter  S.  Kim,  Navigating  the  Safe  Harbors:  Two  Bright
Line  Rules  to  Assist  Courts  in  Applying  the  Stockbroker  Defense
and  the  Good  Faith  Defense,  2008  Colum.  Bus.  L.  Rev.  657.  Of-­‐‑
ten  the  goal  of  a  transaction  is  to  replace  equity  with  debt  in
order  to  change  managers’  incentives.  If  the  business  fails,  a
trustee   may   attempt   to   argue   that   the   very   nature   of   the
transaction  made  the  debtor  insolvent  and  subjected  the  in-­‐‑
vestors  to  liability.  Section  546(e)  prevents  that.  The  Trustee
concludes  that  §546(e)  is  designed  “to  protect  this  country’s
legitimate   market   transactions   that   promote   the   stability   of
and   confidence   in   the   financial   markets.”   But   the   Funds
were  not  operating  “legitimately”  at  the  end  and  were  con-­‐‑
duits   for   the   Petters   scam   all   along.   The   Trustee   concludes
from  this  that  §546(e)  is  irrelevant.
11   Nos.  12-­‐‑2463  et  al.
It  is  fair  to  say  that  some  courts  have  been  restive  at  the
idea  that  people  who  received  money  from  a  crooked  enter-­‐‑
prise  can  keep  it,  to  the  detriment  of  other  investors  who  did
not  get  out  while  the  going  was  good,  and  have  interpreted
§546(e)   narrowly.   See   the   discussion   in   Samuel   P.   Roth-­‐‑
schild,  Bad  Guys  in  Bankruptcy:  Excluding  Ponzi  Schemes  From
the   Stockbroker   Safe   Harbor,   112   Colum.   L.   Rev.   1376   (2012).
For  example,  In  re  Slatkin,  525  F.3d  805  (9th  Cir.  2008),  and  In
re  Wider,  907  F.2d  570  (5th  Cir.  1990),  hold  that  the  operators
of  particular  Ponzi  schemes  were  not  “stockbrokers”  for  the
purpose   of   the   statute,   which   therefore   did   not   block   re-­‐‑
coupment.   But   the   second   circuit   has   held   §546(e)   fully   ap-­‐‑
plicable   to   businesses   that   engaged   in   fraud.   See   In   re   Que-­‐‑
becor  World  (USA)  Inc.,  719  F.3d  94  (2d  Cir.  2013)  (“transfer”
has  its  normal  meaning);  Enron  Creditors  Recovery  Corp.  v.  Al-­‐‑
fa,   S.A.B.   de   C.V.,   651   F.3d   329   (2d   Cir.   2011)   (“settlement
payment”  has  its  normal  meaning).
The   Trustee   is   not   asking   us   to   choose   sides   in   a   debate
about   interpretive   method   so   much   as   he   is   asking   us   to
chuck   §546(e)   out   the   window.   Yet   a   court   can’t   say   “this
statute   is   ambiguous,   so   we   will   implement   the   legislative
history   unencumbered   by   enacted   text.”   Ambiguity   some-­‐‑
times   justifies   resort   to   legislative   history,   but   it   is   used   to
decipher  the  ambiguous  language,  not  to  replace  it.  The  text
is   what   it   is   and   must   be   applied   whether   or   not   the   result
seems  equitable.  See,  e.g.,  Freeman  v.  Quicken  Loans,  Inc.,  132
S.   Ct.   2034,   2044   (2012);   Dodd   v.   United   States,   545   U.S.   353,
359–60   (2005);   In   re   Draiman,   714   F.3d   462,   465–66   (7th   Cir.
2013).   If   the   Trustee   were   right   that   §546(e)   is   irrelevant
when  the  debtor  in  bankruptcy  had  any  role  in  a  fraud,  why
did   Congress   add   the   exception   referring   to   §548(a)(1)(A)?
Nos.  12-­‐‑2463  et  al.   12
The   presence   of   an   exception   for   actual   fraud   makes   sense
only  if  §546(e)  applies  as  far  as  its  language  goes.
Statutes  often  are  written  more  broadly  than  their  genesis
suggests.   RadLAX   Gateway   Hotel,   LLC   v.   Amalgamated   Bank,
132   S.   Ct.   2065,   2073   (2012),   tells   us   that   “[t]he   Bankruptcy
Code  standardizes  an  expansive  (and  sometimes  unruly)  ar-­‐‑
ea  of  law,  and  it  is  our  obligation  to  interpret  the  Code  clear-­‐‑
ly  and  predictably  using  well  established  principles  of  statu-­‐‑
tory   construction.”   We   apply   the   text—which   both   Houses
of  Congress  approved  and  the  President  signed—not  themes
from  a  history  that  was  neither  passed  by  a  majority  of  either
House  nor  signed  into  law.
The  Trustee  has  not  referred  us  to  any  legislative  history
about   the   meaning   of   “settlement   payment”   or   “in   connec-­‐‑
tion  with”,  the  phrases  he  thinks  ambiguous.  The  second  cir-­‐‑
cuit  held  in  Enron  that  “settlement  payment”  means  what  it
ordinarily   does   in   the   securities   business:   the   financial   set-­‐‑
tling-­‐‑up   after   a   trade.   651   F.3d   at   339.   Brokers   will   sell   cus-­‐‑
tomers’   shares   of   stock   on   the   market   without   having   them
in  hand.  The  customer  later  turns  over  the  stock  and  receives
the   proceeds;   that’s   the   settlement   for   the   transaction.   Here
the  investors  told  the  Funds  to  redeem  some  of  their  shares;
the   swap   of   money   for   shares   was   a   settlement   payment.
And,  as  Quebecor  holds,  “transfer”  is  a  more  comprehensive
term  and  usually  makes  it  unnecessary  to  decide  whether  a
given  transaction  entailed  a  “settlement  payment”.  719  F.3d
at  98.  A  “transfer”  from  the  Funds  to  each  redeeming  inves-­‐‑
tor  undoubtedly  occurred.  As  for  “in  connection  with”:  deci-­‐‑
sions   such   as   Merrill   Lynch,   Pierce,   Fenner   &   Smith   Inc.   v.
Dabit,   547   U.S.   71   (2006),   and   United   States   v.   O’Hagan,   521
U.S.   642   (1997),   show   that   it   is   more   than   comprehensive
13   Nos.  12-­‐‑2463  et  al.
enough   to   cover   the   Funds’   redemption   of   the   investors’
shares.
The   Trustee’s   only   textual   argument   is   that   fraudulent
schemes  do  not  have  “securities”  for  the  purpose  of  §546(e).
That  contention  is  hard  to  fathom,  given  that  a  principal  goal
of  securities  laws  is  to  control  fraud.  If  the  existence  of  fraud
meant   that   an   instrument   were   not   a   “security”,   then   the
main  federal  means  to  deal  with  financial  fraud  would  van-­‐‑
ish.   Section   741(7)   of   the   Bankruptcy   Code   provides   that   a
“securities  contract”  is  a  contract  for  the  purchase  or  sale  of  a
security,  and  §101(49)(A)(ii)  says  that  security  includes  stock.
The   definition   in   §101(49)   comes   almost   verbatim   from   the
Securities   Act   of   1933   and   the   Securities   Exchange   Act   of
1934.  No  one  doubts  that  shares  of  stock  issued  by  crooked
mutual   funds   or   hedge   funds   are   “securities”   for   the   pur-­‐‑
pose  of  the  1933  and  1934  Acts.  They  are  “securities”  for  the
purpose  of  §546(e)  as  well.
Other  arguments  need  not  be  discussed  in  light  of  our
conclusion   that   §546(e)   defeats   the   Trustee’s   actions.   The
judgments  of  the  bankruptcy  court  are  affirmed.