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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
proceeding, 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 exceptions. 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 executed 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 defense, 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 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 relevant
transfer for purposes of the safe harbor is the transfer 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 . . . recaptur[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 diligence of creditors to dismember the
debtor before bankruptcy” and promote “equality of distribution.”
Union Bank v.
Wolas, 502 U. S. 151, 162 (1991)
(internal quotation 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
circumstances 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 avoidance of so-called
“preferential transfers”). The particular avoidance provision at
issue here is §548(a), which provides that a “trustee may avoid”
certain fraudulent transfers “of an interest of the debtor in
property.” §548(a)(1). Section 548(a)(1)(A) addresses so-called
“actually” fraudulent 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) addresses “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).
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 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,
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
merchant, stockbroker, financial institution, financial
participant, or securities clearing agency, in connection 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 “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 association 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
transmission 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.” 92Stat. 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 payments “made by or to a
commodity broker, forward contract merchant, stockbroker, or
securities clearing agency.” §4, 96Stat. 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), 98Stat. 377, codified at 11 U. S. C.
§546(e).[
2] In 2005, Congress
again expanded the list of protected entities to include a
“financial participant” (defined as an entity conducting certain
high-value transactions). See §907(b), 119Stat. 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),
120Stat. 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
competitive 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 racetrack. 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 Corporation, were in competition for the
last harness-racing license in Pennsylvania.
Valley View and Bedford Downs needed the
harness-racing license to open a “ ‘racino,’ ” which is a
clever moniker for racetrack casino, “a racing facility with slot
machines.” Brief for Petitioner 8. Both companies were stopped
before the finish line, because in 2005 the Pennsylvania State
Harness Racing Commission denied both applications. The
Pennsylvania Supreme Court upheld those denials in 2007, but
allowed the companies to reapply 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 million 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 Bedford Downs shareholders, with $7.5 million
remaining in escrow at Citizens Bank under the multiyear
indemnification holdback period provided for in the parties’
agreement. Citizens Bank disbursed that $7.5 million installment 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 statement 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 applied 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, reasoning 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
attention to the definition of the words “by or to (or for the
benefit of )” as used in §546(e), and to the question whether
there is a requirement that the “financial institution” or other
covered entity have a beneficial interest in or dominion 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 transactions 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 transfer 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 transfer 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.
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 under 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 “notwithstanding” 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
section 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 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 fraudulent 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.
Piccadilly
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
“notwithstanding” and “except” clauses and the section heading
begin to suggest. The safe harbor provides that “the trustee may
not avoid” certain transfers. §546(e). Naturally, 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
preferential 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 payment” or made “in
connection with a securities contract.” §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 avoidance
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 pursuant 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 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 defined 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 invokes.” 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 Bedford Downs’ stock by Valley View from Merit as the transfer
that it sought to avoid. Merit does not contend that FTI improperly
identified the Valley View-to-Merit transfer 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
parenthetical “(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 requirements 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 language 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
respect 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 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 powers. 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 connection 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
renders 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 beneficial
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 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 incongruous, according to Merit, to read
the safe harbor such that its application “would depend on the
identity of the investor 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 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 –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 concerned 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 understanding 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
transfer from avoidance liability,
i.e., whether it was
“made by or to (or for the benefit of ) a . . .
financial institution,” 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.
