UNITED STATES COURT OF APPEALS

FIFTH CIRCUIT

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No. 01-20950

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In The Matter Of: OLYMPIC NATURAL GAS CO,

Debtor

RANDY W WILLIAMS, Trustee,

Appellant,

versus

MORGAN STANLEY CAPITAL GROUP INC,

Appellee.

Appeal from the United States District Court

For the Southern District of Texas

June 28, 2002

Before DAVIS, EMILIO M. GARZA, and STEWART, Circuit Judges.

EMILIO M. GARZA, Circuit Judge:

Trustee Randy W. Williams (the “Trustee”) appeals the district court’s judgment affirming

the bankruptcy court’s grant ofsummary judgment in favor of Morgan Stanley Capital Group, Inc.,

(“Morgan Stanley”). On appeal, we must decide whether the Trustee is precluded from avoiding

certain payments made by the debtor to Morgan Stanley pursuant to 11 U.S.C. § 546(e) of the
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Bankruptcy Code (the “Code”), which immunizes from avoidance settlement payments made by a

forward contract merchant. 

In 1995, Morgan Stanley entered into a Natural Gas Sales and Purchase Contract (the

“Contract”) with GM Hydrocarbons, Ltd., who later assigned itsinterest in the Contract to Olympic

Natural Gas Co. and Olympic Gas Marketing, Inc. (collectively, “Olympic”). Pursuant to this

Contract, each month the parties would enter into a series of individual transactions, in which each

would act sometimes as buyer and sometimes as seller, after agreeing on the price, quantity, timing,

and delivery point for the natural gas. Because the parties conducted numerous transactions each

month, acting as both buyer and seller, the Contract provided for a single net payment to be made in

settlement of each month’s trading. 

From January to May of 1997, a series of trades and payments occurred between Morgan

Stanley and Olympic. At the end of each month’s transactions, both parties paid the gross amount

due to one another. Pursuant to the Contract’s terms, Olympic transferred to Morgan Stanley cash

in the amount of $817,919.60 and $1,000,000 on April 11 and April 15, 1997, in payment for the

February transactions. Then, on April 29, 1997, Olympic transferred $10,850 to Morgan Stanley,

representing the gross amount owing from the March transactions. Finally, on May 22, 1997,

Olympic paid $48,000 to Morgan Stanley, in payment for the April transactions. 

On June 6, 1997, an involuntary Chapter 7 petition was filed against Olympic Natural Gas

Co., and on June 13, 1997, Olympic Gas Marketing, Inc., filed a voluntary Chapter 11 petition. The

bankruptcy court subsequently consolidated both cases under Chapter 7 and appointed the Trustee.

The Trustee filed a complaint against Morgan Stanley seeking avoidance of the $1.8 million in

payments made by Olympic to Morgan Stanley for the February, March, and April natural gas
1

11 U.S.C. § 547(b)(4)(A) provides:

 (b) Except as provided in subsection (c) of this section, the trustee may avoid any transfer

of an interest of the debtor in property--

 (4) made--

 (A) on or within 90 days before the date of the filing of the petition. 

11 U.S.C. § 547(b)(4)(A). 

2The Trustee voluntarily dismissed its § 548 fraudulent transfer claims prior to this appeal.

3

11 U.S.C. § 546(e) provides:

Notwithstanding sections 544, 545, 547, 548(a)(1)(B), and 548(b) of this title, the

trustee may not avoid a transfer that is a margin payment, as defined in section 101,

741, or 761 of this title, or settlement payment, as defined in section 101 or 741 of

this title, made by or to a commodity broker, forward contract merchant,

stockbroker, financialinstitution, orsecurities clearing agency, that ismade before the

commencement of the case, except under section 548(a)(1)(A) of this title.

11 U.S.C. § 546(e) (emphasis added).

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transactions (collectively, the “Payments”). The Trustee alleged that the Payments were avoidable

as preferential transfers under 11 U.S.C. § 547(b)1 or fraudulent transfers under 11 U.S.C. § 548.2

As a defense, Morgan Stanley argued that the Payments were “settlement payments” made by a

“forward contract merchant” within the meaning of 11 U.S.C. § 546(e), and were therefore exempt

from avoidance. The bankruptcy court agreed, and granted summary judgment in favor of Morgan

Stanley. The district court subsequently affirmed the decision of the bankruptcy court, and the

Trustee now appeals.

We review the district court’s decision, as well as the underlying bankruptcy court

determination, de novo. In re Carney, 258 F.3d 415, 418 (5th Cir. 2001). 

Section § 546(e) of the Code provides forward contract merchants with a complete defense

to avoidance claims brought by a Trustee.3 11 U.S.C. § 546(e). In order to qualify for the

exemption, a party must establish both that it is a “forward contract merchant,” and that the transfer

sought to be avoided is a “settlement payment.” Id. Thus, in order to determine whether the Trustee
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can avoid the Payments made to Morgan Stanley, we must analyze whether Morgan Stanley is a

“forward contract merchant” and whether the contested Payments are “settlement payments” as

provided in 11 U.S.C. § 546(e).

First, we must decide whether Morgan Stanley is a “forward contract merchant.” In order

to do so, we must determine whether it entered into a “forward contract” with the debtor. The term

“forward contract” is defined in 11 U.S.C. § 101(25), which provides: 

“forward contract” means a contract (other than a commodity

contract)for the purchase,sale, or transfer of a commodity, as defined

in section 761(8) of this title, or any similar good, article, service,

right, or interest which is presently or in the future becomes the

subject of dealing in the forward contract trade, or product or

byproduct thereof, with a maturity date more than two days after the

date the contract is entered into, including, but not limited to, a

repurchase transaction, reverse repurchase transaction, consignment,

lease, swap, hedge transaction, deposit, loan, option, allocated

transaction, unallocated transaction, or any combination thereof or

option thereon. 

11 U.S.C. § 101(25) (emphasis added). The parties have offered opposing interpretations of this

definition, focusing on the inclusion of the parenthetical “other than a commodity contract” in the

first line. The Trustee contends that the transactions at issue in this case were not “forward

contracts,” but rather ordinary commodity contracts, which are exempted from the definition of

“forward contract” by the parenthetical. In essence, the Trustee claims that the Bankruptcy Code

divides the “world of commerce in commodities” into three parts: (1) futures, or on-exchange

financialinstruments; (2) forwards, or off-exchange financial instruments; and (3) ordinary commodity

contracts (i.e. contracts for the commercial supply of goods with a future delivery date). Morgan

Stanley, on the other hand, argues that § 101(25)’s parenthetical simply reinforces the established

practice of distinguishing off-exchange forward contracts from on-exchange futures, or
4

11 U.S.C. § 761(4) provides: “commodity contract” means--

(A) with respect to a futures commission merchant, contract for the purchase or sale

of a commodity for future delivery on, or subject to the rules of, a contract market or

board of trade;

 (B) with respect to a foreign futures commission merchant, foreign future;

 (C) with respect to a leverage transaction merchant, leverage transaction;

 (D) with respect to a clearing organizati on, contract for the purchase or sale of a

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“commodities” contracts, and that no third category of “ordinary commodity contracts” exists. 

We agree with Morgan Stanley, and conclude that the transactions here fall within the scope

of § 101(25)’s definition of forward contract. The commodities market is divided into only two

categories: (1) on-exchange futures transactions; and (2) off-exchange forward contracts. See 5

COLLIER ON BANKRUPTCY ¶ 556.02[2], at 556-5 (Lawrence P. King ed., 15th ed. 2002) (“Thus, the

terms ‘commodity contract’ and ‘forward contract,’ taken together, seamlessly cover the entirety of

transactions in the commodity and forward contract markets, whether exchange-traded, regulated,

over-the-counter or private.”). The term “commodity contract” “encompasses purchases and sales

of commodities for future delivery on, or subject to the rules of, a contract market or board of trade,

and leverage transactions.” Id. at 556-4. In contrast, “forward contracts” are “contracts for the

future purchase or sale of commodities that are not subject to the rules of a contract market or board

of trade.” Id. at 556-5. 

With this background in place, we believe § 101(25)’s parentheticalreinforcesthe commonlyunderstood distinction between on- and off-exchange transactions, by clarifying that not all contracts

with a delayed-delivery component are included within the definition of “forward contract.” By

exempting “commodities contracts” fromthe definition of “forward contract” in § 101(25), the Code

retains a distinct definition of “commodities contracts.” See 11 U.S.C. § 761(4) (defining

“commoditycontract”).4 We decline to adopt an interpretation of “commodity contract” in § 101(25)
commodity for future delivery on, or subject to the rules of, a contract market or

board of trade that is cleared by such clearing organization, or commodity option

traded on, or subject to the rules of, a contract market or board oftrade that is cleared

by such clearing organization; or

 (E) with respect to a commodity options dealer, commodity option.

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that would conflict with a definition set forth in another portion of the Code. See United States Nat’l

Bank of Oregon v. Indep. Ins. Agents of America, Inc., 508 U.S. 439, 460 (1993) (“Presumptively,

identical words used in different parts of the same act are intended to have the same meaning.”)

(internal quotations and citations omitted). 

Furthermore, our interpretation is in accord with the traditional definition of “forward

contract.” Although the Trustee points to the fact that the transactions at issue here contemplated

actual delivery as evidence that they are not true “forward contracts,” courts in other circuits have

repeatedly stated that one of the distinguishing characteristics of a forward contract is that the parties

expect to make actual delivery. See, e.g., Nagel v. ADM Investor Servs., Inc., 217 F.3d 436, 441 (7th

Cir. 2000) (when eventualdeliveryof commodityisreasonablyassured, contract is a forward);CFTC

v. Co Petro Marketing Group, Inc., 680 F.2d 573, 579 (9th Cir. 1982) (forward contract is

“predicated upon the expectation that delivery of the actual commodity by the seller to the original

contracting buyer will occur in the future”); Grain Land Coop v. Kar Kim Farms, Inc., 199 F.3d 983,

990 (8th Cir. 1999) (“[T]he contemplation of physical delivery of the subject commodity is the

hallmark of an unregulated cash-forward contract.”).

In sum, we see no reason to adopt the interpretation the Trustee advocates, and distinguish

between “financial” forward contracts, and “ordinarypurchase and sale” forward contracts, when the
5The Trustee arguesthat the immunization provision in § 546(e) wasintended only to prevent

disruptions in the securities markets, and therefore off-exchange sales transactions between private

parties should not be exempt from avoidance, as they are not conducted on an exchange, and do not

impact the financial derivatives market. The legislative history of § 546(e) indicates that the provision

was intended “to minimize the displacement caused in the commodities and securities markets in the

event [of] a major bankruptcy affecting those industries.” H. R. REP. NO. 97-420, at 1 (1982),

reprinted in 1982 U.S.C.C.A.N. 583. More specifically, Congress sought to prevent the “ripple

effect” created by “the insolvency of one commodity or security firm from spreading to other firms

and possibly threatening the collapse of the affected industry.” Id. By including references to both

the commodities and the securities markets, it seems clear that Congress meant to exclude from the

stay and avoidance provisions both on-market, and the corresponding off-market, transactions.

6The Bankruptcy court concluded that the Payments were not “settlement payments” as

defined in 11 U.S.C. § 741(8). Thus, we will analyze only whether the Payments fit within the

definition of “settlement payments” included in 11 U.S.C. § 101(51A). 

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statutory language makes no such distinction.5 Thus, we conclude that Morgan Stanley is a “forward

contract merchant,” and that the transactions between the parties were in fact “forward contracts.”

We must next consider whether the Payments at issue were “settlement payments.” Section

101(51A) provides: “‘settlement payment’ means, for purposes of the forward contract provisions

of this title, a preliminary settlement payment, a partial settlement payment, an interim settlement

payment, a settlement payment on account, a finalsettlement payment, a net settlement payment, or

any other similar payment commonly used in the forward contract trade.” 11 U.S.C. § 101(51A)

(emphasis added).6 We believe that the definition of “settlement payment” in § 101(51A)

encompasses payments made in settlement of forward contract transactions, such as the Payments

at issue here. See 5 COLLIER ON BANKRUPTCY ¶ 546.06[2][b], at 546-48 (stating that “settlement

payment” should be interpreted very broadly); Kaiser Steel Corp. v. Pearl Brewing Co. (In re Kaiser

Steel Corp.), 952 F.2d 1230, 1240 (10th Cir. 1991) (advocating broad interpretation of “settlement

payment,” and holding that consideration paid to shareholders for their stock in connection with a

leveraged buyout would qualify as settlement payments under § 546(e)). We reject the Trustee’s
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argument that in order to be exempt from avoidance, a “settlement payment” must be made on a

financialderivative contract, and be cleared orsettled through a centralized system. See In re Resorts

Int’l, Inc., 181 F.3d 505, 515-16 (3d Cir. 1999) (holding payment for securities made in conjunction

with leveraged buyout is settlement payment, regardless of whether clearing agency was involved).

Thus, we hold that the Payments made pursuant to the Contract were “settlement payments” as

defined in the Code. 

Because we conclude that the Payments made by the debtor were settlements payments made

to a forward contract merchant, we hold that pursuant to § 546(e), the Trustee cannot seek avoidance

of these Payments. For the foregoing reasons, we AFFIRM the district court’s order affirming the

bankruptcy court’s grant of summary judgment in favor of Morgan Stanley.