Merit Management Group, LP v. FTI Consulting, Inc.

(Slip Opinion) OCTOBER TERM, 2017 1
Syllabus
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
stock, arguing that it was constructively fraudulent under
§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
Cite as: 583 U. S. ____ (2018) 3
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.
Cite as: 583 U. S. ____ (2018) 1
Opinion of the Court
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
——————
1 Avoiding 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.
Cite as: 583 U. S. ____ (2018) 3
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
Cite as: 583 U. S. ____ (2018) 5
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
——————
2 The 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.
Cite as: 583 U. S. ____ (2018) 7
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
——————
3 A 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
——————
4 In
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.
Cite as: 583 U. S. ____ (2018) 9
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
——————
5 The 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.
6 Compare 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.
Cite as: 583 U. S. ____ (2018) 11
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:
“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 . . . 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 transaction and entity
criteria of the safe harbor, “except” for an actually fraudu­
lent transfer under §548(a)(1)(A). 11 U.S. C. §546(e). By
referring back to a specific type of transfer that falls within
the avoiding power, Congress signaled that the excep-
tion applies to the overarching transfer that the trustee
seeks to avoid, not any component part of that transfer.
Reinforcing that reading of the safe-harbor provision,
the section heading for §546—within which the securities
safe harbor is found—is: “Limitations on avoiding powers.”
Although section headings cannot limit the plain meaning
of a statutory text, see Florida Dept. of Revenue v. Picca-
dilly Cafeterias, Inc., 554 U.S. 33, 47 (2008), “they supply
cues” as to what Congress intended, see Yates v. United
States, 574 U. S. ___, ___ (2015) (slip op., at 10). In this
case, the relevant section heading demonstrates the close
connection between the transfer that the trustee seeks to
avoid and the transfer that is exempted from that avoiding
power pursuant to the safe harbor.
The rest of the statutory text confirms what the “not­
withstanding” and “except” clauses and the section head­
ing begin to suggest. The safe harbor provides that “the
trustee may not avoid” certain transfers. §546(e). Natu­
rally, that text invites scrutiny of the transfers that “the
trustee may avoid,” the parallel language used in the
substantive avoiding powers provisions. See §544(a)
(providing that “the trustee . . . may avoid” transfers
falling under that provision); §545 (providing that “[t]he
trustee may avoid” certain statutory liens); §547(b)
(providing that “the trustee may avoid” certain preferen­
tial transfers); §548(a)(1) (providing that “[t]he trustee
may avoid” certain fraudulent transfers). And if any
doubt remained, the language that follows dispels that
doubt: The transfer that the “the trustee may not avoid” is
specified to be “a transfer that is” either a “settlement
Cite as: 583 U. S. ____ (2018) 13
Opinion of the Court
payment” or made “in connection with a securities con­
tract.” §546(e) (emphasis added). Not a transfer that
involves. Not a transfer that comprises. But a transfer
that is a securities transaction covered under §546(e). The
provision explicitly equates the transfer that the trustee
may otherwise avoid with the transfer that, under the safe
harbor, the trustee may not avoid. In other words, to
qualify for protection under the securities safe harbor,
§546(e) provides that the otherwise avoidable transfer
itself be a transfer that meets the safe-harbor criteria.
Thus, the statutory language and the context in which it
is used all point to the transfer that the trustee seeks to
avoid as the relevant transfer for consideration of the
§546(e) safe-harbor criteria.
B
The statutory structure also reinforces our reading of
§546(e). See Hall v. United States, 566 U.S. 506, 516
(2012) (looking to statutory structure in interpreting the
Bankruptcy Code). As the Seventh Circuit aptly put it,
the Code “creates both a system for avoiding transfers and
a safe harbor from avoidance—logically these are two
sides of the same coin.” 830 F.3d, at 694; see also Fidelity
Financial Services, Inc. v. Fink, 522 U.S. 211, 217 (1998)
(“Section 546 of the Code puts certain limits on the avoid­
ance powers set forth elsewhere”). Given that structure, it
is only logical to view the pertinent transfer under §546(e)
as the same transfer that the trustee seeks to avoid pur­
suant to one of its avoiding powers.
As noted in Part I–A, supra, the substantive avoidance
provisions in Chapter 5 of the Code set out in detail the
criteria that must be met for a transfer to fall within the
ambit of the avoiding powers. These provisions, as Merit
admits, “focus mostly on the characteristics of the transfer
that may be avoided.” Brief for Petitioner 28. The trustee,
charged with exercising those avoiding powers, must
14 MERIT MANAGEMENT GROUP, LP v. FTI
CONSULTING, INC.
Opinion of the Court
establish to the satisfaction of a court that the transfer it
seeks to set aside meets the characteristics set out under
the substantive avoidance provisions. Thus, the trustee is
not free to define the transfer that it seeks to avoid in any
way it chooses. Instead, that transfer is necessarily de­
fined by the carefully set out criteria in the Code. As FTI
itself recognizes, its power as trustee to define the transfer
is not absolute because “the transfer identified must sat­
isfy the terms of the avoidance provision the trustee in­
vokes.” Brief for Respondent 23.
Accordingly, after a trustee files an avoidance action
identifying the transfer it seeks to set aside, a defendant
in that action is free to argue that the trustee failed to
properly identify an avoidable transfer under the Code,
including any available arguments concerning 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), see Part II–A, supra.
In the instant case, FTI identified the purchase of Bed­
ford Downs’ stock by Valley View from Merit as the trans­
fer that it sought to avoid. Merit does not contend that
FTI improperly identified the Valley View-to-Merit trans­
fer as the transfer to be avoided, focusing instead on
whether FTI can “ignore” the component parts at the safe-
harbor inquiry. Absent that argument, however, the
Credit Suisse and Citizens Bank component parts are
simply irrelevant to the analysis under §546(e). The focus
must remain on the transfer the trustee sought to avoid.
III
A
The primary argument Merit advances that is moored in
the statutory text concerns the 2006 addition of the paren­
Cite as: 583 U. S. ____ (2018) 15
Opinion of the Court
thetical “(or for the benefit of )” to §546(e). Merit contends
that in adding the phrase “or for the benefit of ” to the
requirement that a transfer be “made by or to” a protected
entity, Congress meant to abrogate the 1998 decision of
the Court of Appeals for the Eleventh Circuit in In re
Munford, Inc., 98 F.3d 604, 610 (1996) (per curiam),
which held that the §546(e) safe harbor was inapplicable
to transfers in which a financial institution acted only as
an intermediary. Congress abrogated Munford, Merit
reasons, by use of the disjunctive “or,” so that even if a
beneficial interest, i.e., a transfer “for the benefit of ” a
financial institution or other covered entity, is sufficient to
trigger safe harbor protection, it is not necessary for the
financial institution to have a beneficial interest in the
transfer for the safe harbor to apply. Merit thus argues
that a transaction “by or to” a financial institution such as
Credit Suisse or Citizens Bank would meet the require­
ments of §546(e), even if the financial institution is acting
as an intermediary without a beneficial interest in the
transfer.
Merit points to nothing in the text or legislative history
that corroborates the proposition that Congress sought to
overrule Munford in its 2006 amendment. There is a
simpler explanation for Congress’ addition of this lan­
guage that is rooted in the text of the statute as a whole
and consistent with the interpretation of §546(e) the Court
adopts. A number of the substantive avoidance provisions
include that language, thus giving a trustee the power to
avoid a transfer that was made to “or for the benefit of ”
certain actors. See §547(b)(1) (avoiding power with re­
spect to preferential transfers “to or for the benefit of a
creditor”); §548(a)(1) (avoiding power with respect to
certain fraudulent transfers “including any transfer to or
for the benefit of an insider . . . ”). By adding the same
language to the §546(e) safe harbor, Congress ensured
that the scope of the safe harbor matched the scope of the
16 MERIT MANAGEMENT GROUP, LP v. FTI
CONSULTING, INC.
Opinion of the Court
avoiding powers. For example, a trustee seeking to avoid
a preferential transfer under §547 that was made “for the
benefit of a creditor,” where that creditor is a covered
entity under §546(e), cannot now escape application of the
§546(e) safe harbor just because the transfer was not
“made by or to” that entity.
Nothing in the amendment therefore changed the focus
of the §546(e) safe-harbor inquiry on the transfer that is
otherwise avoidable under the substantive avoiding pow­
ers. If anything, by tracking language already included in
the substantive avoidance provisions, the amendment
reinforces the connection between the inquiry under
§546(e) and the otherwise avoidable transfer that the
trustee seeks to set aside.
Merit next attempts to bolster its reading of the safe
harbor by reference to the inclusion of securities clearing
agencies as covered entities under §546(e). Because a
securities clearing agency is defined as, inter alia, an
intermediary in payments or deliveries made in connec­
tion with securities transactions, see 15 U.S. C.
§78c(23)(A) and 11 U.S. C. §101(48) (defining “securities
clearing agency” by reference to the Securities Exchange
Act of 1934), Merit argues that the §546(e) safe harbor
must be read to protect intermediaries without reference
to any beneficial interest in the transfer. The contrary
interpretation, Merit contends, “would run afoul of the
canon disfavoring an interpretation of a statute that ren­
ders a provision ineffectual or superfluous.” Brief for
Petitioner 25.
Putting aside the question whether a securities clearing
agency always acts as an intermediary without a benefi­
cial interest in a challenged transfer—a question that the
District Court in Seligson found presented triable issues of
fact in that case—the reading of the statute the Court
adopts here does not yield any superfluity. Reading
§546(e) to provide that the relevant transfer for purposes
Cite as: 583 U. S. ____ (2018) 17
Opinion of the Court
of the safe harbor is the transfer that the trustee seeks to
avoid under a substantive avoiding power, the question
then becomes whether that transfer was “made by or to (or
for the benefit of )” a covered entity, including a securities
clearing agency. If the transfer that the trustee seeks to
avoid was made “by” or “to” a securities clearing agency
(as it was in Seligson), then §546(e) will bar avoidance,
and it will do so without regard to whether the entity
acted only as an intermediary. The safe harbor will, in
addition, bar avoidance if the transfer was made “for the
benefit of ” that securities clearing agency, even if it was
not made “by” or “to” that entity. This reading gives full
effect to the text of §546(e).
B
In a final attempt to support its proposed interpretation
of §546(e), Merit turns to what it perceives was Congress’
purpose in enacting the safe harbor. Specifically, Merit
contends that the broad language of §546(e) shows that
Congress took a “comprehensive approach to securities
and commodities transactions” that “was prophylactic, not
surgical,” and meant to “advanc[e] the interests of parties
in the finality of transactions.” Brief for Petitioner 41–43.
Given that purported broad purpose, it would be incongru­
ous, according to Merit, to read the safe harbor such that
its application “would depend on the identity of the inves­
tor and the manner in which it held its investment” rather
than “the nature of the transaction generally.” Id., at 33.
Moreover, Merit posits that Congress’ concern was plainly
broader than the risk that is posed by the imposition of
avoidance liability on a securities industry entity because
Congress provided a safe harbor not only for transactions
“to” those entities (thus protecting the entities from direct
financial liability), but also “by” these entities to non-
covered entities. See Reply Brief 10–14. And, according to
Merit, “[t]here is no reason to believe that Congress was
18 MERIT MANAGEMENT GROUP, LP v. FTI
CONSULTING, INC.
Opinion of the Court
troubled by the possibility that transfers by an industry
hub could be unwound but yet was unconcerned about
trustees’ pursuit of transfers made through industry
hubs.” Id., at 12–13 (emphasis in original).
Even if this were the type of case in which the Court
would consider statutory purpose, see, e.g., Watson v.
Philip Morris Cos., 551 U.S. 142, 150–152 (2007), here
Merit fails to support its purposivist arguments. In fact,
its perceived purpose is actually contradicted by the plain
language of the safe harbor. Because, of course, here we
do have a good reason to believe that Congress was con­
cerned about transfers “by an industry hub” specifically:
The safe harbor saves from avoidance certain securities
transactions “made by or to (or for the benefit of )” covered
entities. See §546(e). Transfers “through” a covered
entity, conversely, appear nowhere in the statute. And
although Merit complains that, absent its reading of the
safe harbor, protection will turn “on the identity of the
investor and the manner in which it held its investment,”
that is nothing more than an attack on the text of the
statute, which protects only certain transactions “made by
or to (or for the benefit of )” certain covered entities.
For these reasons, we need not deviate from the plain
meaning of the language used in §546(e).
IV
For the reasons stated, we conclude that the relevant
transfer for purposes of the §546(e) safe harbor is the
same transfer that the trustee seeks to avoid pursuant to
its substantive avoiding powers. Applying that under­
standing of the safe-harbor provision to this case yields a
straightforward result. FTI, the trustee, sought to avoid
the $16.5 million Valley View-to-Merit transfer. FTI did
not seek to avoid the component transactions by which
that overarching transfer was executed. As such, when
determining whether the §546(e) safe harbor saves the
Cite as: 583 U. S. ____ (2018) 19
Opinion of the Court
transfer from avoidance liability, i.e., whether it was
“made by or to (or for the benefit of ) a . . . financial institu­
tion,” the Court must look to the overarching transfer from
Valley View to Merit to evaluate whether it meets the
safe-harbor criteria. Because the parties do not contend
that either Valley View or Merit is a “financial institution”
or other covered entity, the transfer falls outside of the
§546(e) safe harbor. The judgment of the Seventh Circuit
is therefore affirmed, and the case is remanded for further
proceedings consistent with this opinion.
It is so ordered.