we'll hear argument this morning in case sixteen seven eighty four merit management group versus f b i consulting mr walsh mr chief justice and may please the court the relevant transfers in this case are the transfers and to the financial institutions credit suisse and citizens bank we know that because congress included intermediaries in the safe harbor from the very beginning focusing on what they do rather than who they are we know that because congress used the disjunctive by or to or for the benefit of a financial institution or another institution which precludes an approach that looks only at the party that has a beneficial interest in the transaction read them with more care but the circuits that come out you would ask us to it seems to me focus on the word settlement and the controls everything and they don't talk quite a transfer  of course there was a transfer the lace have but that's not the transfer here that the trustee seeks to avoid your honor the there was a lot of discussion of whether or not something is a settlement payment in some of the earlier cases in two thousand and six congress added securities contracting commodities contract to the statute and those are much broader concepts and so there's much less discussion about whether something is or is not a settlement payment because frequently it is a transfer in connection with the securities contract but  it is true that that transfer targeted by the point of in this case is the end to end transfer between the parties with the beneficial interest but there's not a distinct or separable or independent transfer from the transfers that and marriage and you don't claim that either of those is a five forty six three entity neither of those is a financial situ yeah one of the other institutions named in the statute that's correct so  over by valley view to mary because the goal of the statute is to protect the securities and commodities markets and not just to protect particular players in the markets the bank at risk and here neither bank is at risk of liability in this particular case but the broader issue is that parties who receive distributions from securit commodities transactions have a decision to make can we safely reinvest in something else can we make a distribution to our own investors or the benefits of our pension fund or what have you or do we have to create a reserve or do we have to anticipate that there may be litigation that comes along six i'm sorry who's insecure about that the banks or the person to whom the money was ultimately sent investors in general would be in secure about i understood that the safe harbor was not intended to protect people involved in financial transactions that's always a risk whenever you get into a deal that's contingent on any basis congress wanted to do that why bother even creating the fraudulent transfer provisions to say any contract that any of these people sign in any of these fields is exempt what your honor i agree that anyone in gauging in any transaction has some possibility that there could be a claim that would come along later but congress has focused here on the securities and commodities market going and going back to this transfer question yes the fraudulent transfer provision says the trustee may avoid any transfer or any obligation so it's not talking just about voiding a transfer it's talking about voiding an obligation isn't a contractual obligation an obligation the contract and traction all right it's obligations so why can't the trustee choose what it is he or she wants to avoid whether it's a one that's prospective in that it typically arises in that context and also the safe harbor five hundred sixty does not apply to obligations it only applies to transfers what you call the the end and transfer is the transfer that the trustee is seeking to avoid isn't that right that is why it's the one that is allegedly construction that instructed that is fraudulent so why does why shouldn't the exemption provision be applied to the transfer and that the trustee is seeking to avoid if the other why is use your argument that these intermediate transfers are more constructively fraudulent my argument is not that the intermediate transfers are constructively fraudulent my argument is that the intermediate transfers can't be separated from the overall end to end transfer and so that by avoiding the overall transfer the trustee would necessarily be avoiding the intermediate transfers as well to think of it if so why shouldn't the transfer why shouldn't the exemption be applied to the transfer that the trustee is seeking to avoid as opposed to intermediate transfers that can then or not constructively for roger i think useful way to think about your honor is that there's only fifty five million dollars involved here and we can say that as a shorthand now that we know how the transfer played out because it was ten years ago we can say there was a transfer from value to merit but it's not different from the transfer of the same fifty five million dollars that value view sent to citizens bank and it's not different from the subset of that transfer that citizens bank sent to merit on two different occasions three years apart in other words i understand the trustees point that i'm only seeking to to avoid this broader transfer but when we have an overriding prohibition like five forty six i don't think it's sufficient simply to say but that's not what i'm doing  i'm suggesting the trustee could pursue that claim but would you think there was adequate consideration for it and that claim would fail but the trustee could seek to pursue it your friend on the other side says that your theory would cover the simple use of a check to convey a straightforward purchase and sale if the purchaser pays with the check is that correct your honor not necessarily in the court doesn't need to go nearly that far to rule in our favor in this case that the safe harbor goes at least as far as what we have here where we have an intermediary a financial institution serving as an intermediary in much the same way that a broker or a clearing agency would service and i understand that but i'm concerned about the scope of the rationale that we would adopt and you say not necessarily when would it be enough that the purchaser just paid by check well i think let me address the scope first i think the scope of checks or wire transfers is actually quite a bit less than than my opponent would suggest the vast majority of transfers in securities and commodities involving public securities in particular are going to clear through that the indirect holding system they're going to clear through paper debits and credits and not with wire transfer held in a bank and i tell the bank to do it it is being held in the indirect system and you sell it to your wife and then and then in that case it does so there's a cover safeguards i think the thrust of this is going to cover all kinds of things i have another another question which is which people that include marriage downs or whatever yes you're right that's what i want to do neither of them is financial institutions but the way they do it is valley downs says it's friend credit suisse which is if you have a line of credit you send it to the citizens bank which is thread so you say in real terms it goes from value merit but we do it by means of the guy who gives a line of credit which is a bank credit suisse and they send it to the escrow agent which is citizens bank ok and so the argument here is because they use these two agents now suddenly does it fall into the securities of the bank or the bank exception the industrial savings bait exception it separates out correct ok and so why are we hearing this case for this reason this is slightly a side issue but it's puzzling i think i should know the answer when i look up the definition of financial institution it says that not only is it credit suisse and not only is it citizens bank but it is also the customers of each of those financial institutions in an instance where the bank is acting as agent or custody and for a customer now it seems to me that citizens bank is acting for agent or custody in of a customer namely d v d and it seems to me that  script suess is acting as a as an agent or custody and for a d v d so why doesn't that cover i think that is a fair way to look at it your honor why doesn't that cover it why are we dealing with a case which is coming out of something and deciding all kinds of things about banks and my wife if i think you know where this is absolutely dealt with in a statute under the under another provision and nobody refers us to that provision and i can't understand why they didn't what's going on your own we did we did refer to that provision in both of our briefs if i remember correctly may put it in your brief but i mean why in the lower courts wasn't this just said the point that judge this involves a customer of a financial you want but i mean where this is just standing out and were asked to decide a question that i think is fraught with difficulty i would like to know the answer i'm afraid i don't have a good answer for why that did not come up i'm sorry i thought  involving the fishing at and it involves fisherman and both parties concede we are we are fishermen but in fact what they are is both farmers and have nothing to do with ish i would say we have a problem in this court about whether we should hear the case and just in response to your question neither of the parties to this case as it is a financial institution is that term it is generally understood as the statute understands in is it to include a customer of a financial institution in circumstances which are present here if that in the in the rather unusual definition of financial institution this is a situation in which the banks act as acted as agents standout issue or not your honor but that is a quirk in the definition of financial institution that is true that is true i think one of the one of the ways to think about what's going on here is whether congress is protecting particular institutions or whether congress is protecting transactions if congress wanted to protect banks and brokers and clearing agencies from liability and that was the only purpose of the statute here that could have been resolved in section five fifty which is the section of the bankruptcy code that deals with who has liability if there is a transfer that's avoided well that actually five fifty i think works very strongly against you because five six fifty says the trustee may recover for the benefit of the state the property transferred so it seems to be talking about who has control into minion of the property the trustee is seeking to recover well you're under control and demeaning is a test that's been developed by the lower courts it's not a rationale it's a test to determine whether a party had the beneficial interest in the man's action is your honor the reason the courts have applied that definition to the term initial transferee is because the party that initially receives a transfer is not necessarily the initial transfer non literal definition of the term initial transfer rate exactly but what with the reference i was making a five fifty earlier your honour's to five fifty c which is an example of a situation in which congress perceived that there is a problem that a transfer may be avoided and certain parties may be liable and congress is responsible for avoid the transfer all you want but here is the very limited subset of parties against whom you may recover that is what the opponent here would like to happen here that is what they propose is the actual function of five forty six see that it only protects banks and brokers and clearing agencies and congress didn't do it in five fifty which would have accomplished that there's also the problem here that the statute protects transfers by banks and brokers and clearing agencies and these other parties and that has nothing to do with protecting the bottom lines of banks and brokers and it has everything to do with protecting transactions so for example if goldman sachs were to sell mean one hundred shares of berkshire hathaway stock for one hundred dollars a piece that is a significant hit to the bottom line of goldman sachs because the stock is worth many many times that much nevertheless that is not an avoidable transfer because it's by a broker to me even though i am not a cog in the financial system are parties to the transaction they're not acting just as a pass through agent but it would also apply your honor if goldman sachs on behalf of one of its clients made that transaction i probably wouldn't even know whether i was dealing with goldman sachs own balance sheet or whether i was dealing with someone who was trading through goldman sachs but those transfers go outside of the circle of the six entities that are identified in the statute nevertheless the trustee can't get them back and so that is a significant problem with the notion that all that is going on here is we're trying to protect banks and brokers from liability because if they get hit with liability there will be a cascade of other banks and brokers that were that will fail when we're talking about systemic risk to the financial markets we're not just talking about banks and brokers going under if parties aren't willing to provide capital to the financial system or if other parties like private funds collapse we have systemic risk to the financial institution as well mr walsh can you help me out with what happens to the law preferences under your control patient as you know trustees can avoid transfers leading up to the bankruptcy that meet certain conditions and a lot of that would seem to go away that power would seem to go away under your interpretation of a bank or financial institution is involved so that a lot of avoidable transactions would become unavoidable all of a sudden how do we reconcile your your interpretation with that apparent difficulty i'm not sure that there is such difficulty your honor a typical preference claim for example would be that the debtor repaid a vendor outside of the ordinary course of business and the pursuit of that claim against the manufacturer of a widget that sold it to the debtor would not obviously implicate the safe harbor here there are no security well but  often a transfer that's avoidable does involve a financial institution degrees that shortly it may but it does not very often involve securities or commodity wells that includes that well but it could i mean why not i mean do you have any empirical information on that i don't have opinion i wouldn't say it's a triviality but it's not there's a lot of talk in the briefs about the exceptions swallowing the rule in the rule is a good bit broader a good bit broader than the exception here iran are but we don't have nobody has any data on that we're just we're we're we're just going on your your representation vs your friends representation otherwise i suppose that's correct you are but but the variety of things that are untouched by the safe harbor are are significant transactions in real estate transactions in vehicles trustees can avoid liens because they're on perfected that's the bit that's not implicated by the safe harbor and unless they would happen to be a lien on a security perhaps or on a commodity  and so the overlap here between bankruptcy and security is a relatively confined space and what congress has determined is that if you're dealing with constructive fraud the concerns of the securities and commodities markets prevail have it yes could i take you back to justice alito is question perhaps just put a little bit of a different spin on it i mean if you look at five forty six it's clearly an exception to the avoidance power it says notwithstanding all these sections which deal with avoidance the trustee may not avoid the following transfers so maybe seems odd to read that in any other way than to start with the transfer that the trustee seeks to avoid why should we not do that why isn't that exactly what the text tell us tells us to do will you start with the transfer that the trustee seeks to avoid and then you ask whether there's a safe harbor that applies to that transfer i think th the first my first response your honor is that when we're dealing with a prohibition of that sort we don't simply look at what the party says it is doing so if i am called to visit with the u s attorney because i allegedly filled a wetland it's not sufficient response for me to say i didn't feel that what land i built a parking lot we have to look at what did i do in the process of building a parking lot did i put a bunch of gravel in a wetland and if i did i have a problem not withstanding that i characterize my actions in a different way but the second response is that because these transfers the way we characterize it different pieces of this transaction is transferred our are asking a court to make a shift in transfers in the middle of the analysis in other words first the court has to say whether this is the kind of transfer that the trustee can avoid and in doing that the court is looking at the what you call the end transfer and then all of a sudden when it comes to the safe harbor you're saying that the trustee has to flip and look at another transfer entirely and that seems like a strange thing for a safe harbor to do i mean usually what we think is that you know a safe harbor would shield from avoidance a transfer that's being challenged rather than a transfer that is it to be unchallenged i think the difference between what you're saying and what i'm saying your honor is that it's not that different transfer entirely if we were talking about say the transfer of the real estate where the plans were to build the race track then then that would be a different transfer but the transfer of fifty five million dollars from valleyview to the escrow agent and the subsequent transfers from the escrow agent to the shareholders at bedford downs they aren't they aren't different transfers they're just different ways of looking at the same transfer because well but you got into your hypothetical hypothetical if the land were held as a nest in escrow for thirty days until everybody got the title and then there would be an exemption no because settlement payment made by a financial institution joe that's right isn't it so far yes yes joe smith it was a piece of property from bill brown for ten million dollars joe smith puts into escrow ten million dollars it's bank of america is the escrow agent brough puts in the deed when both are there bank of america gives each the other why hasn't bank of america given a settlement payment your honor i don't think the term settlement payment has ever been understood to apply outside outside securities and commodities and financial ties actions oh so so it is not a settlement payment it's just it's not a settlement payment of payment for a real estate transaction it is a payment for real estate transaction that's correct it is not it is not a real estate transaction payment i'm sorry a settlement payment as defined in the code is not a real estate transaction yes but if the same thing were true and what they had bought it was a five million acres of wheat then it would be if they bought the crop and it was a forward contract under the code mr chief justice and may it please the court i think it would be helpful if i could start with the elephant in the room which is justice briar's question about the definition of the financial institution and then address the question presented so just as a prior couple of points about that first of all i think it could not be clear that that's never been an issue in this case and even more to the point the petitioner when they were trying to get this court to take the case emphasized the fact that this wasn't in dispute as a sort of a positive feature of this petition so if you look at page three of the petition it is clear that the have no doubt that neither party wanted it resolved on that basis and so what's nagging at the back of my head is that since it seems clear it's like two farmers who decide they have some other financial interest in fishing and they love to have this court decide the fishing act but in fact if you look at the farming act you've got the answer to the dispute between them and can two parties who would just love it if we could decide an issue that really isn't an issue before them and can they stipulate away all of the actual you know they stipulate away the basic rule that a contract is valid upon signing or something in order to get us to decide a question so just as prior if you really had the farmer fisher idea fisher person idea i think what you would do is dismiss the cases improvidently granted which would serve my client's interest just fine but i think there are two very good reasons why that issue was not put front and center by my friends here the first is that it's completely inconsistent with their overall theory of the case their overall theory of the case is that every customer of every one of the six protected entities is protected so facto by virtue of the fact that it went through one of those entities so it's more than a little bit of an embarrassment for them to come across a definition that says that customers of one of the six in relatively narrow circumstances are also covered it's inconsistent with their overall theory they really can't argue both things do you think still mr clement i'm sorry if he won it well i was just going to say the second point why they're not making it which is it doesn't apply here anyways which is as i i read that provision it is very narrow and it protects the customer only when the bank is acting when the bank is acting as an agent or custodian it doesn't say when the bank has acted or in the past acted it says when is the bank is acting as the custodian or the agent so if hypothetically we had that the trustee had tried to avoid the transfer while the money with still at citizens bank then maybe just maybe we'd still probably want to have a debate and actually look at you know and talk about what agent means in this context but then maybe it applies and maybe applies for a reason that which is in that context maybe citizens bank is actually inconvenienced by this but this is why i think that i really disagree with my friend when he says that the transfer of the trustee saw to avoid and the underlying transfers are sort of indivisible think about what happens if we prevail in this case given the transfer that the trustee sought to avoid if we prevail at the end of the day merrit the estate some sixteen million dollars citizens bank doesn't have to do a thing credit suisse doesn't have to do a thing if they want to wire the money they can pick one of those banks and one of those banks will actually benefit to the extent of the wire transfer fee but there's no obligation to do that they could pick bank of america instead it is not as if they win here that the poor folks at citizens bank need to go and sort of on earth that escrow agreement in reverse something on it they don't have to do a thing which of course explains why they're not here is a mickey well i know it's not that simple i mean this is not simply i think you try to portray it it's simply a matter of conduits that you don't have anything to do with it but as i understand it the intermediaries had a lot to do this is this  they were functioning as intermediaries intermediaries for several years they had certain compliance obligations to check there were going to be payments in this event but no payments in that event they were seriously involved they were just you know stamping the papers and moving the money you right mr chief justice to a degree but for whatever the x sort of exertion they did they were compensated and the trustees not trying to get that compensation back i mean if you can imagine this case when the wire transfer went from credit suisse the money went to citizens and then eventually to marit i assume credit suisse got paid i don't know a thousand dollars to do that transfer now if the trustee here thought you know this whole thing is such a bunch of baloney that we should get the money back from merit and we should have had to pay that thousand dollars to credit suisse so i have a theory is the trustee as to why i can avoid the transfer to credit suisse well of course that's covered by five hundred sixty through the straightforward way we think the statute should be read which is  affirmative defense this exception the safe harbor talks about a transfer that the trustee may not avoid it then cross references five sections of the statute each one of which uses the term may avoid it describes a transfer that the trustee may avoid it just seems like these provisions there are all these textural in relationships between the two provisions such that it seems perfectly natural to say that when you're applying five forty six c you look at the transfer that the trustee is seeking to avoid what if the trustee would be situations in which it would make sense for the trustee to want to avoid one of the intermediary transfers rather than simply be ultimate one it might but they probably run into five hundred sixty i mean w say you can imagine a situation where you really thought that you know the money stopped at one of those banks and so the the ultimate transferee the right person to bring the action against was the bank or if the banks trading on its own account or something i think in that situation and you know you'd have a transfer where the transfer that the trustee was bringing under five forty four five forty five all those various provisions the transfer you're seeking to avoid was a transfer to a bank would it be in a situ where there's transfer to the bank but in that situation five hundred sixty stops that in its tracks and i think it's also important to remember that five forty six is added at a point where you already have limitations as to which transfer you can recover from and part of what congress is worried about is the idea that in some situations maybe the ones that we were talking about in this kind of hypothetical it would actually be tough to figure out whether or not the financial intermediary really was just a conduit in which case they prepare checked it under preexisting law or whether they sort of ended up with the money when the music stopped and what congress tried to do in five hundred sixty was to provide a nice bright line rule that protects these intermediaries and it seems like it is consistent with both the general interest and the bright line nature of the rule to say this is relatively straightforward let's look at the transfer the trustee is seeking to avoid if the trustee is seeking to avoid a transfer that i by to or for the benefit one of these six entities that's it does not mean it is miss does that mean mr clement that we all we do is we look at the trustees complaint we leave it to him to decide the question yes justice  think the reason that that doesn't create some sort of mischief here is that in making that concern the complaint the affirmative part of the complaint the trustee isn't just sort of free to pick transfers at random that he or she seeks to invalidate they have to come up with a transfer that fits the terms and the requirements of one of those provisions of the code and that might be right i was trying to think of cases in which there could be mischief by relying entirely on the trustees power to define the trans here is what i came up with is that there truly is a transfer from a debtor to a bank at the banks not serving as an intermediary it is a real transfer of stock right and now five forty six forty six he is going to prevent the trustee from avoiding that but then the trustee says so in order to get around five forty six i'm going to define the transfer differently i'm going to ask where the bank then transferred the stock and and and say that the transfer that i want to avoid is from the original debtor to whoever it was that the bank transferred the stock to even though those really were two separate transactions could the trustee play games like that i don't think that i mean they could try but i don't think they would get away with it and i think that you know in any case where the trustee brings an action against somebody they're going to have essentially two kinds of defenses to raise one is going to be an affirmative defense based on five hundred sixty now it may be in your hypothetical the trustees kind of played around that but you still have to the trustee still has to essentially satisfy the terms of the original avoidance provision and i don't think for purposes of that hypothetical that might depend on some details of it that the trustee would be able to do that and then of course there's a second piece of this which is to make this in a transfer situation to really get any juice for the effort you have to not only avoid the transfer but you also have to get recovery under five fifty and in the hypothetical that you're talking about the third party subsequent transferee would not be the immediate the initial transfer under five fifty and so it's long as they took it in good faith and paid value for it they'd be completely protected so i just don't think it would work and i think it is important to recognize that you know this is not a situation where the trustee can just sort of you know that this does not apply to transfer is where the settlement has to to ssion does not have an equity participation i don't want to see i wouldn't do that justice kennedy i think that that is the way some of the courts had written have written it but i think the simpler way to write the opinion is to say to apply five forty six he just look to the transfer that the trustee seeks to avoid and it's as simple as that if the transfer that the t than then involves justice kagan is concerned that you're giving that the trustee a chance you have to define the transfer in a particular way now if the if the bankruptcy code finds a transfers it was abundantly clear what transferred it is involved in this one but i tried to be responsive to justice kagan's question and i think the code puts all sorts of limits on the trustee when they're picking the transfer that they're seeking to avoid so for example for certain provisions of the code you can only avoid a transfer at a certain time period if it's a transfer to an insider now that seems to me to buttress the idea that that provision of the code doesn't really care much about the intermediaries because otherwise you could say well there's never a transfer to the insider because it i was goes through a bank first so i think the trustee is disciplined not just by five hundred sixty but by the various things that the trustee has to show to qualify the particular transfer for being avoidable under one of the affirmative avoidance powers what do you think is wrong mr clement with the alternative approach if i understand the alternative approach which justice kennedy was referring to it's more of a functional analysis you ask who has dominion and control of a particular piece of property at a particular point and that seems more what the seventh circuit was doing then then what you have briefs suggests so why do you think that that's a worse alternative than the one you are suggesting  saying it's a lot better alternative than my client lose in this case so if you find that attractive i mean that's fine here's the reason though that honestly i don't think it's right because i think one point my friend and i agree on is that when congress was passing the predecessor to five hundred sixty back in the day there was already substantial protection for the intermediaries under the recovery provision five fifty if they were truly conduits and weren't the beneficial owners and so i think what congress was trying to do with five forty six easy was to provide an alternative more bright line way for the financial intermediaries to get out of the case early at the motion to dismiss stage and the problem with this looking for the beneficial ownership is it's really the same inquiry and it could be fact specific in a particular case that congress was trying to supplement with this bright line rule and we think our rule gives a nice bright line rule the courts can apply at the motion to dismiss stage literally just look at the complaint look at the transfer the trustee seeking to avoid and then if it satisfies five forty six he you know you're done trustee loses if it doesn't we move forward of course when you move forward you can still get into this beneficial interest inquiry as part of the five fifty which i think both parties agree is the case that congress was trying to address with the predecessor to five hundred sixty and that was a situation where the financial intermediary there i believe was a commodity broker is the bankrupt and so and so in that situation you do want to protect and shield the transfers by the bankrupt because the one thing congress was clearly concerned with is you'd have a bankruptcy by one of the hub players in the financial industry and that would create this sort of ripple effect to everybody who dealt with them from this provision of do i have this right a look to the transaction that the trustee is trying to set aside as a preference or fraud conveyed be asked the question who is the person who directed that that transfer be made if it's a financial institution it said chris stop right there cabal you're out if not continue to question three and question three is who is the initial transferee and not a conduit of that transfer and if the answer is a financial institution you're out and otherwise we go on to ask the other questions and that means that they call the transferee the initial transfer even if he's receiving money that he has to hold for the benefit of the other he still is the initial transferee and you look to such matters as to who this money is to benefit later on in your efforts is that right well just for i think you've aptly captured the seven circuits reasoning i'm actually asking you to make this case even simple i'm asking you to look at the transfer that the trustee seeks to avoid you know that has to be by somebody into know in order for it to satisfy five forty four five forty five five forty seven or the two provisions of five forty eight that five hundred sixty cross reference so there you have right on the face of the complaint a transfer by someone to someone or for the benefit of someone because as we explained in the brief this is the reason that language is there is because the avoidance power is not limited to transfers to somebody who's like an insider a creditor but also to somebody who is for the benefit of a creditor or an insider so just look at the face of the complaint apply five hundred sixty to the transfer that the trustee has put at issue and if the terms are satisfied then the trustee loses and if the terms are not satisfied then you move forward and you probably analyze all of those transferee questions before the case is all over but i do think it's more faithful to what congress was trying to accomplish when it enacted the predecessor to five hundred sixty to have a nice bright line protection that's there for the financial intermediaries it doesn't protect all of their customers it doesn't protect merit they have other arguments they can eventually make but what they wanted was a nice bright line rules so clearing agencies commodity brokers and then eventually stock brokers an interest of the debtor in property so it's not so clean to say that the transfer has to be by the debtor it can also be by the debtors  money or i think you're right that it's certainly not clean now i think at the end of the day we're actually right and i get some solace from the fact that our position is supported by professor bruce baker who spent a lot more time looking at the code than i have so i think we're actually right that even when it's a transfer by a third party of an interest of the debtor it actually ends up for purposes of the code being a transfer made by which i think is the relevant term made by the debtor so that you know you're reading that that's how we're reading it but i want to make it clear as i can that nothing turns on that our position i think it makes if you accept that it makes our position that much clearer but nothing turns on it and i think what that just helps to show is that either one hundred percent of the cases or the vast majority of the cases that when you get to transfer by either for purposes of the avoidance power or for purposes of the exception of five hundred sixty it's going to be a transfer by the bankrupt and whether it's ninety nine or  hundred percent nothing ultimately sounds on i why then that you argue that the transfer from credit suisse to citizens bank both involves property of the debtor why did you argue that that wouldn't qualify because it wasn't a transfer by the debtor because the way we read chapter five of the code is it essentially ignores conduits for purposes of dennis fine who's the transfer and who's the transferee and we do think transfer it would automatically satisfy five hundred sixty what i'm making though is the point that i don't think properly understood that is even a transfer by credit suisse and i think maybe the way to try to at least understand the point i'm making to is is think about the charitable giving exception now it allows it exempts certain transfers by the debtor to a qualifying charitable institution now i would think the vast majority of those are made by telling your bank i want to give two thousand dollars to this charity now if you accept their view that you subdivide everything within that's not a transfer by the debtor to the charity it's a transfer by the debtor to credit suisse which is not a charity and then a transfer by credit suisse to the charity and that doesn't come within the exception to the power which is nonsense that's clearly not what congress was trying but mr comment on that  i assume your friend to get up and say well a lot of those charitable contributions are by check and those are covered and just as just as we heard when i asked a question about avoidable transfers and it became an empirical debate about how many of those would be covered so how how clean a line is this really what you're suggesting well two things just of course that first of all my friend would want to tell you that the checks are covered  but with all due respect i don't think he has a theory as to why and i think that's that's what's critical i mean if you know if there's no word in that statute that allows you to draw that distinction as the colloquy with justice prior showed there might be a theory based on the definition of institution why the escrow situation is different from the check situation but if he's right and all you have to do is have a any kind of transfer and we don't ignore any transfers buyer to a financial institution i don't think he's offered you a theory for why checks don't count so that would be the first point the second point would be some empirical debates or we don't know the answers to but if we're looking for a clean answer i mean i think both sides are giving you a clean answer they're basically giving you an answer that says if it's a settlement payment or a margin payment or a payment connection with the securities contract in less there's like the one person out there that's doing these things with bags of cash its cover we're giving you the clean position that do you  us a very clean position right that we need to transfer under the statute in a debtor under the statute i read the read brief as being a little more quickly on that maybe i misread it  without qualification we think our position is even cleaner i mean so so i but we think if you're referring to professor brew bakers you know we think we get to the exact same place i think maybe since i'm coming at this more like a lawyer instead of a bankruptcy professor i think about it in really simple terms and it maps onto the procedural history of this case the trustee here brought a complaint it was a complaint that a den of five a transfer for avoidance the merit filed a in an answer with an affirmative for purposes of the exception of the affirmative defense then the transfer that you're looking at for the pre mixed pascha case of avoidance in the first instance it seems like the statutes work together very well hand in glove and we haven't talked a lot about the policy implications of their clean position which is that sort of as long as there was a bank anywhere involved in security strands action it's exempted and the consequences of that are really quite simple and quite striking which is in a case like this where otherwise the unsecured creditors are going to get fifteen cents on the dollar which is already enough to ruin your whole day r r r right but the second circuit is very concerned about the fact that this would have on the  and and therefore the economy more broadly now i can understand an argument that congress in one hundred seventy eight was a much concerned about the leveraged buyout industry because it didn't exist as we now know it but what else do you say in response to that the parade of horribles that we've heard well i mean i don't actually think it's much of a parade of horribles your honor but let me try to be as responsive as i can which is to say i think if congress were really concerned about the leverage buyout situation it would have written a very different exemption than the one that  here it might have to find something like leverage buyout it might have exempted certain smaller ones or larger ones you know when you have this provision applied in the context of a very large transaction on the public markets there are lots of the case including that there wasn't sufficient value provided in the like those are going to be relatively difficult to prove i mean at least if you believe in sort of the efficiencies of markets but when you have leveraged buyouts for small companies i mean that is a fertile ground for essentially getting money out of the company and away from unsecured creditors and to some favored party so as the  carve out you know leveraged buyouts from the fraudulent avoidance laws that's carving out a lot because these are transactions where there is a risk that's quite considerable to moping the interest of the unsecured creditors the last thing i'll say before i sit down is just in addition to all the other textual arguments we make in the brief i do think it's worth emphasizing that under their view of the statute congress is effort in two thousand and five to add financial participants as the six on the list of protected entities was completely separate and just a fool's errand because i can't imagine that financial participants who were defined as entities with one hundred million or a billion dollars in transactions were doing those transactions with cash so those financial pissants were already customers of these five entities so if that's enough to bring you into the statute congress was utterly wasting its time in two thousand and five when i asked mr clemente you might have no insight on this and you might not be able to say anything about it so if so just say so  but it is curious to me i've never seen a bankruptcy case maybe ever but certainly a bankruptcy case like this one in which we do not have a solicitor general brief do you have any thoughts about why the s didn't file here no i don't have any particular thoughts other than i do think that if what we were urging on you was really a catastrophe for the markets or something else but i sure think the s g would be here you know waving at least a yellow flag to me the a mickey that aren't here that speak even louder though are frankly the lack of financial institution stockbroker clearing agency i mean look normally i don't think you really draw any inference from from the a mickey that are here but you know if you told me that wow there's this provision that's in the code that's specifically designed to protect your interests and the seventh circuit adopted a narrow construction of it and it's going up to the supreme court of the united states and they will decide the scope of this exemption that protects your industry i mean if you had any thought that you were not fully protected by the respondents view as much as the petitioners view i would think it would be worth your while the following week it's brief and the fact that they're not here i think underscores that entities that congress was trying to protect are fully protected by our view and they're fully protected by the petitioners view it's just so is the rest of the world and i just don't think there's any view that congress racked actually intended to not just protect the six financial entities but to protect everybody else who essentially transacted in them in connection with the securities contract so we think the decision below should be affirmed thank you thank you counsel four minutes mr walsh thank you i like return to justice kagan's questionable bit earlier about whether we can focus solely on the transfer as the trustee identifies and characterizes it and i think it's useful to think about what happens if that end transfer in this case is avoided and some amount of that would have to be funded by merit i think the question we have to ask is them so what of the transfers from citizens bank out of escrow to merit can we say that those transfers are still valid and in effect and have been consummated have been paid and citizens is satisfied its obligations because merrit has the sixteen and a half million dollars and i think the answer to all those questions is no because once the broader transfer is avoided if they paid consideration and in good faith accent or they would be ok with it that's right it if the bedford didn't receive the transfer you're out of the shareholders of bedford in writing my client received a transfer if they had transferred it on right and that's what we were talking about the good faith the fans would come into play but what i'm talking about is the transfers from citizens out of escrow to the shareholders if that if the broader transfer is avoided in recovery is had against merit then those transfers into and out of escrow involving financial institutions are not in full force in effect so what i mean so write a check and it goes to the postman of the postman delivers it to smith and i get my money back from smith then i guess you could say well the postman putting in a mailbox delivered the check i mean there are many ways of delivering the check if they're just a conduit the bank it's quite true in the sands that transfer from the bank didn't have any effect because the people who got the money had to give it back to the people who deposited the money but my question was so what the so what is that the statute says the trustee may not avoid a transfer by a financial institution and so by by avoiding the transfer the broader transfer in there is no can then there's no consequence to citizens that is there it would not hit citizens bottom line that's correct no no no consequence that's ok i do want to talk about consequences though because this is a case involving sixteen a half million dollars is the court is aware both sides in the tribune case a file make its briefs that cases let's call it a hundred times larger than ours it's more than that and it's the issue there and just as which mention the second circuit's opinion which is justifiably concerned about what happens with the thousands of defendants in that case of course if goldman sachs or merrill lynch received the distribution in that case for its own account they don't have liability that transfer can't be avoided i think everybody would agree about that but there are employees who held companies stock their pension funds that held stock in tribute all these other entities remain exposed over the past thirty years congress has expanded and expanded and expanded the safe harbor to both on different concepts including financial institutions at the same time the courts with a few exceptions have been interpreted in the statute broadly and if congress thought that the courts were out of line it could very finish with the the notion that transfers by an institution are protected by the safe harbor covers a good bit more than transfers by an institution into the clearing system the example i gave before were goldman sachs transferred me of much of berkshire hathaway stock for a nominal amount of money is covered as well so it's broader than seligson thank you council cases submitted