## In the



# U n ited S ta tes Co urt o f Ap p ea ls

F o rth eS e v e n th C ir cu it
N o. 10

- 3607 I N RE : G R I FF I N T RADI NG C OMPAN Y, D e b t or . A PP E A L OF : L ERO Y G. I NSKE EP .

Appeal from the United States District Court fo r the N o rthernDi stricto f Illino is, Eas tern Div isi on. No . 10 C1915

—RubenC astil lo, Judge .
A RG UE D S EP TE MBE R 16, 2011

— D ECI DE D J UNE 25, 2012

Befo re E A S T E RB R OO K, Chie f Judg e, a nd W OO D a nd T INDER, C ircu it Judges. W OO D , C ircu it Judge. G riffin T ra d in g C om p an y, a futures co m m i ssi on m er c h an t, went bankr up t i n 199 8 aftero ne o fi ts custo m er s, J ohn H o Park, sust ai ned trad ing losses of seve ral m illion d oll ars an d neith er Park n orGri ffi n Tradi ng had enough capi talto co verthes e o bl i g at i o ns . Thi s ca se tur ns o n whe th erF ar r elGr i ffi n a nd Ro g erG riffi n ( whos e fi r stna m es we us e f o r c l ar i ty ) , the2 N o. 10

- 3607 p ar tn er s in co n tr ol of G r i f f in T ra d in g, br ea c h ed th eir fi du ci ar y duti es w hen theyal l owed se gr ega ted cust om er fu n d s t o b e u s e d t o h elp co ve r P ar k’s (an d th u s G riffin Tradi ng’ s) l oss es. I n deci ding this questi on, the dist ri ct and bankr up tcy cour ts appli ed Illi noi s’ s v er si on o f the Unifo rm Com m er ci alCode ( U
. C.C. ) to a ser i es of tr ansact i ons that w as i ni ti ate d b y the m ar gi n cal l that spe l l ed Gr i ffi n Tr adi ng ’ s do wnf al l

. The y e r r ed i n do i ng so. W e can fi nd no re aso n w hy the tr ansact i ons at issu e

— w hi ch i nvol ved banks i n Engla nd , Canada, Fr ance, an d G er m an y, bu t n ot a b ly n ot Il lin ois

— w oul d be gov er ned by I l l i noi s l aw . Thi s e rr or, however, does not s t a n d i n the way o fo u r r e s o l u t i o n o fth e a p p e a l

. We fin d th at th e b an kr u p tc y c ou rt ’s firs t d ec isio n in t h is c a s e a p p r o p r i a t e l y r e l i e d o n F a r r e l ’ s a n d R o g e r ’ s o wn adm i ssi ons that t h ey f ai l ed i n thei r obl i gat i on t o prot ect custo m erfund s. Thi s a dm i ssi on was eno ugh to hol d them l i abl e f orthe enti re val ue o fthe w i re tr ansf er . A ccor dingl y, we re verse the di str i ct c ourt ’ s m ost re cent deci si on i n this c ase and re m and fo r furtherpro ceedi ngs.

I On D ecem ber21 , 19 98, P ark be gan t ra ding Germ an b on d s o u t o f G riffin T ra d in g’s of f i c e i n L on d on . G riffin Tr adi n g wa s n o t a c l e a r i n g me mb e r o f E UR E X , t he re l evantexchange f orPar k’ s t ra des, and so i ts tr ades wer e pl ac ed th r o ug h Mee sP i er so n ( a co m pan y o r g an ized i n th e N eth erland s), w hich w as G riffi n T rad ing’s c lea rin g bro ke r. (A t on e po in t it w as kn ow n a s F o r t isN o. 10

- 3607 3 M ees Pi er son, r efl ecting the f act that i t was acqui re d by For t i s Ba nki n 1 9 9 7, b uti n 2 0 0 9 the n a me c ha nged backto M ees Pi erso n . F orthe sak e o fco nsi ste ncy with the hi sto ri calr eco rd, we re f erto i t her e s i m p l y a s M ees Pi er son. ) Thi s a rr angem ent c re ate d a chai n ofr es po ns ib i l i t y : I fa nd wh e n t r a di ng l o s s e s a r o s e , EUR EX w oul d seekto r eco verfro m M ees Pi er son, M ees Pi er son f ro m Gri ffi n Tradi ng, and Gri ffi n Tradi ng from Par k. I n or der f or e ac h party in the chai n to r educe i ts f i na nc i a l e xp o s ur e , e a c h o ne r e qu i r e d i t s c us t o mer s to m ai ntai n m ar gi n fund s i n i ts custo m eraccou n ts
. Thus, G riffin T ra d in g h ad to ke ep so m e m o n e y on d ep os it wi th M e e s Pi e r s on, and Pa r kwa s r e qu i r e d t o k e e p a m i ni m um am ount o fm oney i n h is a ccount w i th Gri ffi n Tradi ng. Par k’ s t rad es , ho w eve r, f arexce eded hi s t ra ding lim i t; i n l ess than tw o days, Par k l osto ver $1 0 m i l l i o n. As a r e s ul to fthe s e l o sse s , Mee s Pi e r s o n i s s ue d a m ar gin cal l f o r 5 mil l i o n De ut sc he M ar k s ( DM ) o n the m o r ni ngo fDe ce m be r 2 2, pa y ab le th e ne xtda y . ( The eu ro w as n ot la u n c h ed u n til Jan u ar y 1 , 199 9, b u t in itia lly it op er at ed on ly a s a virt u al c u rre n c y ; i t b ec am e fu lly eff e c t i v e o n J a n u a r y 1 , 2 0 0 2 , wh e n a l l p a r t i c i p a t i ng na ti o na l c ur r en ci es, incl udi ngthe DM , ha d t o b e co nver ted. S ee http: //ec. euro pa. eu/e conom y_fi nance/ euro / i nde x_ en . ht m . ) Thi s tr i g g er ed a se r i es o ft r an sa ct i o ns am ong Gri ffi n Tradi ng’ s ba nk ac counts. F irs t, at 11: 19 a. m . i n Lond on on Decem ber 22, £1. 6 m i l l i on w er e tra nsfer re d fr om Gri ffi n Tradi ng’ s a ccount ofse gr egat ed custo m erfun d s at the London Cle ar i ng H ouse to its a c c ou n t o f cu st om er fu n d s a t t h e B an k of M on tr ea l.4 N o. 10

- 3607 Tha t m o ne y was the n t r an sferr ed to i ts c us to m er - fund a c c o un tat Cr é di tLy o nn a i s , a pp a r e nt l y t o t a k e a dvantag e o ff avo rabl e r ate s. O n th e m or n in g of th e ne x t d ay , D ec em b er 23 , G r i f fin Tradi ng m ove d that m oney

— conve rt ed f ro m Bri ti sh po un ds t o DM

—backto the Bank ofM ontr eal

. Final l y, at 11: 52 a. m . o n the 23r d, Gri ffin T ra ding answ er ed the m ar gi n cal l by w irin g 5 m i l l i on DM fro m i ts acco unt ofcus tom erfund s a t the Bank o fM ontr ealto M ees Pi er son’ s a ccount at Com m er zban k ( a Ger m an en tit y). In a ll, as a re su lt of P ar k’s t r a d e s m ad e in Lond on o n a Euro pean bond exchange , £ 1.6 m i l l i on ( or th e e q u iva len t in D M ) bo u n c ed aro u n d am on g G riffin Tr a di ng ’ s a c c o un t s h o l di ngc us t o mer s e g r e g a t e d fun ds in E ng la n d , Ca na d a, an d Franc e, un tilthe fun d s w ere fi nal l y t ra nsfer re d to M ees Pi er son’ s a ccount i n Germ any. M eanw hi l e, bac k in the U ni ted S tat es, Fa rr ell ear ned ofPar k’ s l oss es between 6 : 00 and 7: 00 a. m . Chica go t i me ( n o o n t o 1 : 0 0 p . m. UT C ) o n Dec embe r 2 2
. He c alle d h is p ar tn er , Ro ge r, a n d bo th of th em qu ick ly re al ized thatthi s “ debacl e” ( thei r w or d) was g oi ng to send Gri ffi n Tradi ng into bank ruptcy unle ss they quick l y f o un d a s o l ut i o n. T he i r fi r s ts t e p wa s , a s they p u t it, to ta ke ch ar ge of G riffin T ra d in g’s ac tiv itie s. Fa rre l, w i th Rog erava i l abl e byp h one, co ntacte d Park, had s e v e r a l c o nv e r s a t i o ns wi th the Lo nd o n o ffi c e , a nd , notab l y, cal l ed M ees Pi er son dir ectl y. The bank ru ptcy c o u r td e t e r mi n e d th a tb o th R o g e r a nd F a r r e l a tth a tt i me disc ove re d that M ees Pi er son had i ssued the 5 m i l l i on DM m ar gi n cal l to co verPar k’ s init ial l oss es ( anothe rN o. 10

- 3607 5

m ar gi n cal l f oro ver13 m i l l i on DM w ou l d com e l ate r that dayfo r the r es t o fthe l o ss, b uti t was no t sa ti sfi ed) , a nd that they f aile d in thei r pri m ar y obl i gat i on t o prot ect custo m erfund s bynotbl ock i ng the 11 : 52 a. m . wir e t ra nsfer. Aft eruns ucc es sful l y a tt empti ngt o c o ve r the r emai ni ng sh o r tf al l, Gr i ffi n Tr adi ngfi l ed f o r b an krupt cyi n the N o r th ern Di st r i cto fI l l i no i s o n De ce m be r 3 0, 1998
. The tr ustee i n bankr up tcy i ni ti ate d thi s advers ary a cti on aga i nst Roger and F ar re l i n 2001 , and the sui t w en t to tr i ali n 200 4. A t t ri al, the bankr up tcy cour t f ound that Roger ’ s a nd Fa rrel’ s f ai l ure to “st op the w i re tr ansfer pay i ngthe mar g i n c al l c o ns ti tu ted g r o ss ne g l i g en ce a nd c on st itu te d a vio lat ion of th eir fid u c ia r y d u tie s t o t h eir cre dit or s. ” Ins keep v. G ri ff in ( In reGr i

f f i n Tr adi ng Co. ), N o . 0 1A00 00 7 ( Ban k r . N. D. I l l

. J an . 2 6, 2 00 5)
. F ar r ela nd Ro g era ppea l ed th e bankr upt cyc o ur t’ s dec i si o n t o the Di st r i ctCo ur t f o r the N o r th ern Di st r i ctofI l l i no i s, a r g ui ng that the a pp l i cati on o f Ill i noi s’ s U.C. C., r atherthan for eig n law , w as err or . Th e d ist ric t c o u rtfou n d th is a r g ume ntf o r f e i t e d, b uti tn e v e r the l e s s tho ughtthe bank

ruptcy cour t a pp l i ed the w ro ng l aw

— i n pa r ti cul ar, the wr o n g s e c t i o n o fth e U
. C
. C
. S e e N o . 0 5 C 1 8 3 4 , 2 0 0 8 WL 19 23 22 , a t * 7 ( N
. D. I l l. Jan
. 2 3, 2 00 8)
. On r emand, the ba nk r upt cy co ur t r ev er se d i ts ea r l i er co ur se, hol di ng th at th e t ru st ee f a iled to es ta b lish , as a m at te r of Illino is l aw , thatFa rr eland Roge r actual l y c aused the l oss o f cu stom er fund s. 418 B
. R
. 714, 718-21 (B an kr. N
. D
. I ll

. 2009). The cour t fu rther hel d that the trustee f ai l ed to es tabl i sh d am ag es . Id. a t 72 1. The di st r i ctc o ur t affi r m ed, 4 40 B. R. 148, 16 4 ( N
. D. I l l

. 20 10) , and the tr ustee now app eal s.6 N o. 10

- 3607 II Even though thi s ca se i s o vera decade ol d and has gener ate d at l eas t f our j ud i ci aldecision s, thi s i s the fi rs t ti m e that i t has r eached th e c ou rt o fappeal s. U nd er28 U
. S. C. § 1 58( d)( 1) , o ur j uri sdic ti on e x te nd s t o “al lfi nal de c isi ons” i ssued by the bankr up tcy and dist ri ct c ourt s. A ftercar efull y r evi ew i ng the se ver alo pini ons bef or e us, w e r egr et to say thatthe bankr up tcy a n d d i str i ct c ourt s er re d fr om t h e ou tse t byapply i ng I l l i noi s l aw . Despi te thi s er ro r, how eve r, w e agr ee w i th the re sul t in th e b ankru p tc y c ou rt ’s in itia l d ec isio n : Ro ge r an d Fa rre l are liab le f orcausing the cr edi torl oss al l ege d i n thi s ca se.

A T h e bankr up tcy cour t’ s fi rs t deci si on co ncl ud ed that Far re l and Roge r w er e l i abl e f ordam age s b ec ause they coul d have s topped the wir e tr an sferand thei r f ai l ure to d o s o c on st itu te d a b r e a c h of th eir fid u c iar y d u tie s. It b as ed th i s find in g on th e a u th or ity th at th e t w o w ou ld have had und erthe U
. C.C. On appealto the d i str i ct c ourt, Far re l and Roge r conte ste d that r uling, as ser ti ng tha t the U. C.C. co uld no t provi de the oper ati ve rul e o fl aw for “a series of four tran sfers betw een Griffin Trad ing’s bank i n Engla nd to M ees Pi er son’ s ba nk i n Germ an y.” 2008 W L 19232 2, at* 5. Th e dist ri ct c ourtr ej ecte d that ar gum ent. Ci ti ng ca ses thatco nsid ered appeal s fro m d istri ct cou rts to t h e c ou rt of ap p eals, the d istri ct cou rt chi ded the defe nd ants for w ai ti ng unti l i ts fi rs t a pp eal to ra i se the quest i on o fchoi ce o fl aw (e sp eci al l y f or ei gn law ) an d ru led th e a rg u m en t fo rfe ite d

. Id. at *5-*6 . T h isN o. 10

- 3607 7

ru lin g fa iled to ap p re c ia te th e n at u re of Fe d er al R u le ofCi vi l Pro cedure 44. 1, and am ounted to an abus e of di sc r et i o n. The dis tr i ct c ourt sugge ste d that the defe nd ants’ al l ege d for feit u re w as es p ec ially “p ro b lem at ic” b ec au se it im p licate d R u l e 4 4. 1, wh i ch w as m ade appli cabl e i n bankrup tcy cou rt by F e d eral Ru le ofBa nk rup tcy P roced ure 9017
. 2 00 8 W L 19232 2, at* 5. Bankruptcy Rule 9017i s a rul e of evi dence, how eve r, not a rul e of proce d u re o r pl ea di ng . The Ba nk r upt cyRul e si m pl y c l ar i fi es tha t th e Feder alRule s of Evi dence and thos e Ci vi l Rule s that per ta i n t o e vide nt i ar y que st i o ns

— R u le 4 3 (T ak in g T es tim on y), R u le 4 4 (Pr ov in g a n O fficia l R ec or d ), an d R u le 4 4.1 ( De t e r mi n i n gF o r e i g n L a w)

— “a ppl y t o c as es unde r the [B an kr u p tc y] C od e.” A lth ou gh it is tr u e t h at R u le 4 4.1 re quir es any par ty w ho i ntends to pre sent evi de n c e o f f or ei gn l aw to “g i ve n ot ice by a pl eadi ng o r othe r w ri ting,” the langu age of the rule itse lfr e veals th at no pa rti cul arf or m al i ty i s re quir ed. A ny “other w ri ti ng” wil l do, as l o nga s i t su ffi ce s to g i ve pr o per no ti ce o fa n i nt en t to re l y on f or ei gn l aw . A s a pp l i cabl e her e, Bankruptcy Rul e 90 17a nd Ci vi l Rul e 44
. 1 govern the a dm i ss i o n a nd r ev i ew o fdi ff er en t ty pes o fe vi den ce o ff o r ei g n l aw, a nd they confi rm thatthi s i s a n i ssue of law for the co urt, not an i ssue off act. Even str i ctl y a dh er i ng to Ru l e 44. 1’ s noti ce r equi re m ent, w e co ncl ud e that the co urt and the par ti es w er e a dequatel y a l er ted to the possibl e a p pli cabi l i ty off or ei gn l aw i n a t i m el y manne r . As the no te s to the Rul e ex pl ain, the r equi re d noti ce ne ed onl y b e “r eas onabl e” so as to8 N o. 10

- 3607

av oid an “ unfai r surpri se. ” F ED . R. C IV . P. 4 4. 1, a dvisory c om m itt ee ’s n ot e, 19 66 ad op tio n . Fu rt h er m or e, th e a d visor y c om m i ttee’s n ote sugg est s that “ the per ti nence o f f or ei gn l aw [ m ay be] apparentfro m t he o utset, ” a nd so “n ot ice c an b e give n c on ve n ien tly in th e ple ad in gs .” In thi s ca se, the tr u ste e’ s o w n com pla i nt suffi ced to gi ve noti ce about th e ap p licabi l i ty off or ei gn l aw . Count I V of the Ad ver sar y Com pla i nt, an “ A cti on F orBrea ch of Fi du ci ar y Du ty, ” expli ci tl y ci tes Park ’ s tr adingac ti vi ty i n Lo ndo n a s th e pr ec i pi ta tinge ve nt , and po i nt s to the tr a ns f e r t o Mee s Pi e r s o n, a Ne the r l a nd s e nt i t y tha tu s ed a Ger m an bank, as the cause f orl i abi l i ty. Thi s was en o ug h t o puta l l pa r ti es o n n o ti ce tha t th e tr an sa ctio ns m i ght b e g ove rned byf or ei gn l aw . N ordoes i t m att er that the defe nd ants’ answ er denie d the tr ustee ’ s all ega ti ons, ev en tho u gh it w as the defendants wh o l ate r soug ht to r ai se the quest i on o ff or ei gn l aw : “I fnot i ce i s g i ve n b y o ne pa r tyi t ne ed notb e r epe at ed bya ny othe r an d se rv es as a ba si s f orpre senta ti on o fm ate ri al on the f or ei gn l aw by al l part i es. ” F ED . R. C IV . P. 44
. 1, adv i so r y c o m m i tt ee ’ s no te ¶ 3, 1 96 6 ado pti o n. M o r eo ve r, e ve n i fthe se r efer en ce s i n the c o m pl aint w er e n o t a s c l e a r the n a s the y no w s e e m, the no t es to the r ule el i m i nate any rem ain i ng quest i on. The not es sho w tha tthe r ul e e xp r e s s l y c o nt e mpl a t e s the p o s s ib i l i ty that the ne ed to answe r q u es ti ons off or ei gn l aw m ay b ec om e “ap p ar en t” ev en as lat e a s tria l. Id

. Thu s, i fthe r efer ence t o the f o r ei g n a ct i vi tya nd f o r ei g n pa y m en t in th e c om p lain t w as n ot en ou gh to rev ea l t h a t a ll re l evantact i vi ty to ok pla ce o utsi de the U ni ted S tat es, by th e tim e a l l o fthe t r an sa ct i o ns a t i ss ue ha d b ee n e x-N o. 10

- 3607 9 plo re d at t ri al, i t would have b een obvi ous that i t was a t a m in im u m ve ry u n like ly th at a c ou rtin Illin ois w ou ld h av e con c lu d ed th at loc al l aw ap p lied

. Id

. ; se e a l so Yes se now v. E xecut ive R is k Indem n., Inc. , 95 3 N
. E.2 d 433, 438 ( I l l

. A pp . Ct. 2011 )
. Every re l evant acti on took p lace outsi de the U ni ted S ta tes
. The l osing tr ades o ri gi nated i n Engla nd

. Gri ffi n Tradi ng’ s v ar i ous b ank a ccounts w er e in E n gla n d , C an ad a, an d Fra n c e. M ee sP ier so n is b as ed i n the N ether l ands, and i ts bank acco unt w as in Germ any. The bank ruptcy and dist ri ct c ourt s e rre d by a p p l y i n gI l l i n o i s l a w.

B H avi ng es ta b lished thatthe U
. C.C. sho uld nothave been used, o ne m i ght thi nk tha t we n ee d to cho ose an al ter nati ve am ong the v arious l ega l sy ste m s a ff ecte d by Gri ffi n Tradi ng’ s dem i se. W e concl ud e, how eve r, that th i s i s no t ne ce ss ar y . The i m po r ta nt po i nt i s th at the U .C. C., under wh i ch a w i re tr ansfercan be r eve rs ed unti l the r ecei vi ng ba nk ac cepts a paym ent o rder, cannot provi de the op er at ive rul e o fl aw . S ee U
. C.C. § 4A

- 211, codi fi ed i n I l l i noi s a t 8 10 I LC S § 5 /4 A

- 211. The bank

rup tcy an d district cou rts believed that the tr u s tee’s i nabi l i ty to p in d ow n the preci se m om ent o facc eptance al l owed the Gri ffi ns to ar gue that there w as no pro of that they coul d have s topped the t ra ns fer . B ut that as su m es tha t the t rus te e ha d the b ur deno fde m o nst r at i ngc o m pl i an ce wi ththe U. C. C. I n f ac t, h e had no su chb ur denb ec ause th e U. C. C. do es no t pr o vi de th e ap p lica b le ru l e o fl a w . N or is th is a ca se in w h ich th er e is10 N o. 10

- 3607

no r ealdi ff er ence am ong le gal sys tem s. Our r ese ar ch re ve al s, f orexam ple , thatthe Eu ro pean U ni on has a Dir ecti ve on Pay m ent Se rvi ces i n the I nter nal M ar ket ( ado pte d i n 2 00 7) tha t per m i ts a p ayer to r ev o k e bythe end ofthe busi ness day pre cedin g th e day agr eed f o r de bi tingthe funds

. S ee ht tp: // eu r - l ex . eu r o pa. eu / LexU ri Se rv /LexU ri Se rv . do ? ur i = OJ : L: 2 0 0 7 : 3 1 9 : 0 0 0 1 : 0 1 : EN : H TM L, Art
. 6 6. 3 ( l as t vi si te d June 2 1, 2 01 2)
. The U N CITRA L M odelLaw o n I nter nati onalCre d i t Tr ansf er s o ff er s anotherapproa ch: I t pr ovi des that“[ a] paym ent o rderm ay not be r evo ked bythe se nd erunl ess th e re vo c at ion ord er is rec eiv ed by a re c eiv in g b an k . .

. ata t i m e an d i n a manne r suffi cientt o a ff o r d the re cei vi ng ba nk a re aso nabl e o pp or tuni ty to act
. . . . ” a rt
. 12( 1) ( 1994 ) ; se e a l so id

. art. 12(2) (ben eficiary’s ban k). M or e i mpo r t a nt l y, i twa s n e i the r the t r us t e e ’ s b ur den orthe co u rt ’s t o canvas s a l l poss ibl e for ei gn l aw s. I t was th e G riffin s’s res p on sib ility to d o s o. B a nqu e L i b a n a ise P ou r Le C om m er cev. Kh re ich , 915 F.2d 100 0, 1006 ( 5th Cir. 1990 ) ( the par ty see ki ng to r el y o n f or ei gn l aw m ust provi de “cl earpro ofo fthe re l evant
. . . l ega l pri nci ple s” to the t r i a l c o ur t, e v e n tho ugh the i s s ue i s r e v i e wed as a q u es tio n ofl aw o n appeal )
. A s the par ti es see ki ng to rely on fore ign law , th ey h av e n o t p oin te d to an y p os sib le o pti o n a ppl i cabl e atthe t i m e o fthe se t r an sa ct i o ns und erwh i ch theywould have bee n dis abl ed f ro m re vok i ng the tra n sfer s be f or e the m ar gi n cal l was answ er ed on Decem ber23
. I n a nye v e nt, i ta pp e a r s t o u s tha tF a r r e l a nd R o g er woul d no t ha ve b ee n abl e to meet th is b ur den : Ev er y o ne o fthe possible a ppl i cabl e l aws r equi r es a c au sa l l i nkN o. 10

- 3607 11 be twe enthe c ha l l en g ed ac ti vi ty (ori na ct i vi ty ) a nd the all eged i nj ur y, a nd no ne a tt ac he s th e si g ni fi ca nc e to the m om ent o facc eptance that

— w e assum e f orthe sak e o f ar g um en t

— U
. C.C. A rt icle 4A does

. W e s ee no nee d to d elv e fur th er in to th e d et ails of th e d iffer en t p o s sib le applic ab le l aw s. S ee P rudent ial Ins
. Co
. of Am
. v. Ka m rath , 47 5 F .3d 92 0, 92 4 (8 t h C ir. 20 07 ) (“B efo re ap p lyin g . . . ch o i ce - o f

- l aw r ul es . . . [ a] co ur t m us t fi rst de te r m i ne w h et h e r a co n flict ex ist s.” ). Th e o n ly q u es tio n p ro p er ly bef or e us i s whether Far re l ’ s a nd Roge r’ s i nacti on c au se d G riffin T ra d in g t o los e it s c u st om er s’ m on ey . Th is questi on has t w o parts : ( 1) Did F ar re l and Roge r know ab o utthe s ch edu l ed wi r e tr an sfert o M eesPi er so n; a nd ( 2) if so , c oul d Far re l and Roge r have sto pp ed i t under gov e r ningp r i nc i pl e s o fc o mm e r c i a l l a w? T he s e a r e bo th m i xed questi ons off act and l aw thatthe bankr up tcy cour t a dd re sse d i n i ts fi rs t deci si on, and so o ur r evi ew is on ly for c lea r e r r o r . Le ve ns t e i n v . Sa l af s ky, 41 4 F
. 3d 767, 7 7 3 ( 7 th Ci r . 2 0 0 5 ) ( c l e a r e r r o r t y pi c a l l y a pp l i e s e xc e pt i n l i m i te d i ns ta nc es , s ucha s ca se s pr es en tingc o ns ti tu
tional qu estions ). The bankr up tcy cour t’ s fi rs t ru lin g answ er ed both of these questi ons i n the a ffi rm ati ve. J ud ge Blac k di scr edi ted th e defen dan ts ’ c o nt en ti on th atthe y di d no t k no w ab o ut th e 5 m il li on D M m argin call. Th e cou rt fou nd i t “very unli kel y that the defendants would nothave l ear ned of the fi rs t m ar gi n cal l fro m t h eir em plo yee s i n the Lond on offic e.” T h eir as se rt ion w as fu rth er u n d er m in e d by ev idence showingthatFa rr eland Roge r cal l ed M ees Pi er son dir ectl y. The co urt fou n d it “st ra nge” that the defendants w ou ld as k t h e c ou rtto “b elie ve t h a t p e o p le in th eir p os i-12 N o. 10

- 3607 tio n w ou ld ca ll th e b an k t h at h ad is su ed a m ar gin c all of that s i ze and not di scuss the m ar gi n cal l and ye t d isc u ss th e . . . ne ed for, q u o t e , ‘m or e t im e,’ en d qu ot e.” The bankr up tcy cour t f ound as a f act that after that pho ne co nv er sa ti o n F ar r el an d Ro g er k ne w abo ut the schedule d tra nsfero fcusto m erfund s. The bankr up tcy cour t further dete rm i ned that both Farrel and Roge r “took no a c t io n to prev en t the trans fer” despit e hav i ng “t i m e t o sto p i t. ” Thi s i s c on sist ent with th e evidence prese nted at the fi rs t t ri al

. Fa rr ell ear ned ofPar k’ s t ra des bet w een no on a nd 1: 00 p. m . U TC o n Decem ber22
. Yet t he ac tualtr ansferto M ees Pi er son w as no t exe c u t e d u nt ilnearly a fullda y l ater, j us t before no o n o n D e c e mb e r 2 3
. A s w e h a v e a l r e a d y n o t e d, the Gr i f fi ns h a v e n o ts ug g e s t e d, a nd we c a nn o tfi nd , any l ega l st an d ar d u nd erwh i ch thi s would nothave pr o vi ded ampl e o p p or tu ni tyf o r the m t o pr ev en t the t ra nsfero fcusto m erfund s t o M ees Pi er son. S ee UN C ITR A L M o del La w o n Interna tio na l C redit Tran sfers , ar t. 12 (1), 12 (2) (1 99 4) (a tra n sfe ro r n ee d s t o giv e a ba n k on ly a “ re as on ab le op p or tu n ity to ac t” in o rd er to ca n c el a w i re tr ansfer ) ; Benj am i n Geva, TheWi r e l e s s Wi r e : Do M

- Paym e nt s an d UN CITRA L M ode l La w on Int e r nat i onal Cre di tTr ans

f e rs M at ch ? , 27 B ANK I NG & F IN . L. R EV . 24 9, 25 4- 55 ( 2012 ) ( sam e) . In deed, the defe nd ants have never ar gued that u n der U.K. , o r Germ an, o r Canad i an, o r Du tch l aw that they w er e pow er l ess to tak e cor re cti ve acti on. To th e c on tr ar y, theyco nceded that they “ had the abi l i ty to conta ct G ri ffi n Tradi ng Com pany’s bank s and dir ect them notto go thr ough with the w i re tr ansfer .” Se e 1 C re ss w ell, P .J., ed ., T HE E NC Y CL OP A E DI A OFN o. 10

- 3607 13 B ANK I NG L AW, Div. D1 ¶ 2 24 ( the dutie s that a ri se b e t we e n a p a y e r a n d a p a y e r ’ s b a n kr e g a r d i n ga fun ds tr ansferar e pr ed om i nantl y c ontr actual )
. Thei r f ai l ure to tak e advantage o fthi s window o fo pp or tuni ty caused the c re dit orl oss ati ssue i n thi s ca se. I n the fi nal anal ysi s, the ban kr u ptcy co urt concl ud ed th atF ar r ela nd Ro g er“ k ne w ab o ut[ th e wi r e tr an sfer ] w hi l e there was sti ll t im e to sto p i t. ” Gi ven the ev i dence th atthe de f en dan ts wer e i n c o ns ta ntc o nt ac t wi ththe Lond on offi ce and had cal l ed M ees Pi er so n them sel ves, coupl ed w i th t h ei r adm i ssi ons at tr i althattheyhad the o pp or tuni ty to cancelthe tr ansfer, we cannot say that thi s dete rm i nati on was cl ear l y e rr oneo us.

III H avi ng co ncl ud ed that the defendants’ in actio n caused the c re dit orl oss ati ssue, we turn now t o th e quest i on ofdam age s. The tr uste e a l l ege s that the defendants v i o l a t e d 17C. F
. R
. § 3 0
. 7, w h i c h r e q u i r e s fu t u r e s c o mm i ssi on m er chants to prot ect custo m erfu n d s, w hen th ey t r an sfer r ed cus to m erfunds t o M ee sP i er so n, a nd thus thatthe fullextent o fthi s v i ol ati on

— i.e. , the w hol e wir e t ra nsfer

— r epr es en ts da m ag es. One might wond e r wh y U. S
. l a w s h o u l d a p p l y h e r e , g i v e n t he ear l i erdi scussi on about choi ce o fl aw . The an sw eri s that the di scussi on above co nsi dered Gri ffi n Tradi ng’ s l ega l r i g h t s v i s - á

- v i s i t s f o r e i g n a g e n t s ( i t s b a n k s ) , a n d we have concl ud ed that these pri vate ar ran ge m ents ar e no t gov er ned by I l l i noi s l aw . H er e, i n contr as t, w e co nsi der G riffi n T rad ing’s obli gati o n s t o i ts cu stom ers un d er a14 N o. 10

- 3607

re gul ato ryr egi m e, i n i ts cap aci ty as a futures co m m i ssi on m er chant r egi ste re d w i th the U

. S. Com m odi ty F ut ur es Tr adi ngCo m m is si o n ( CFT C) a nd s ubj ec t to the C FT C ’s d om es tic an d ex tr at er rit or ial re gu lat ion s. G riffin Tradi ng i s su b j ect to the Com m odi ty Ex change A ct, w hi ch i m poses r eq uir em ents on futures co m m i ssi on m er chants f or the hand l i ng of custo m er fund s a n d gi ves the CFTC a u th or i ty to i m pose speci alr egul ati ons to “s afegua r d c us tom ers’ funds ” i n c o nne ct i o n wi tht r adi ng acti vi ty on f or ei gn e x c h anges . 7 U
. S. C. § 6 ( b) ( 2) ( A ) ; 17 C.F
. R. § 30. 7; se e a l so M or r i s on v. Nat i onal A ustl. Bank, 13 0 S. Ct. 28 69, 2 88 2-83 ( 2011 ) ( disc ussi ng wh en st atute s ha ve ex traterritori al effect). Spe c i fi c a l l y, § 3 0
. 7 ( a ) r e qu i r e s tha ta futur e s c o mm i ssi on m er chant “ m ai ntai n i n a s epara te acco unt or ac co unt s m o ne y, s ec ur i ti es a nd pr op er tyi n a n a m o unt atl ea sts uffi ci en t to c over o r s at i sfy a l l o fi ts c ur r en t obl i gat i ons to f or ei gn future s. ” That sect i on a l so p r o v i de s t h a ts u c h s e g r e g a t e d fu n d s “ ma y n o tb e c o mm i ngl ed w i th the m oney, se curi ti es orpro pert y of s uch futures co m m iss i on m er chant .

. . o r used to guar antee th e obli gations of

. . . suc h f u t u r es com m issi on m erchant. ” That i s, m er c h an ts that ar e e ntrust ed w i th th ei r c us to m er s’ mone y ha ve sp ec i alo bl i g at i o ns , a nd thos e m e r c ha nt s a r e l i a b l e f o r l o s s e s a r i s i ngo uto fv i ol ati ons oftho se obl i gat i ons. I n i t s s e c o nd r ul i ng, the b a nk r up t c y c o ur t he l d that the t ru ste e had f ai l ed to pro ve that Far re l and Roge r had v iolated thi s r egul ati on, and thus that the tr ustee ha d not p roven any d am a g e to the esta te. T he cou rtN o. 10

- 3607 15 f au l te d the t r us te e f o r p rovi di ng“ no e vi den ce o fthe am ount i n the acco unts bef or e or after the w i re tra n sf er ” an d “ no evi den ce r eg ar di ngthe c al cul at i o n o fthe f o r ei g n fut ur es s ec ur ed amoun t. ” 41 8 B.R. at 72 5. The re c or d , ho w ev er , belie s t h es e fin d in gs . In fac t, it rev ea ls that the wir e t ra nsfernece ssa ri l y t ra nsm i tte d custom er fun d s to M eesP ierson i n ord er to satisfy G riffi n T rad ing’s own o bl i gat i ons. A t t h e s ec o n d tria l, Fa rre l te st ified th at G riffin Tradi ng’ s London acco unt ofse gr ega ted cust om er fund s e xi ste d to s ecure custo m eract i vi ty out ofi ts Lond on o ffi ce; thati s, tho se fund s w er e s up posed to “sati sfy a l l o fi ts curr ent obl i gat i ons to f or ei gn futures .” This m eans that al l o fthe m oney in th at a ccount w as subj ect to the s tr i ctures of § 30. 7. Yet the CFTC re

port ed that, atthe cl ose o fthe d ay on Decem ber22 , Gri ffi n Tradi ng’ s a ccount w as und er fund ed b y over $ 7mi l l i o n. Be c a us e the ma r g i n c a l l wa s val ue d a ta pproxi m ate ly $3 m i l l i on, the enti re tr ansferm ust hav e been m ade usi ng cust om erfund s. A nd , despite the bankruptcy cour t’ s co ncer n, thi s would be the case wh ether o r no t th e $7mil l i o n s ho r tf al l was the r ea so n f o r the pe n d in g wir e t ra nsfer . Fur ther m or e, Par k’ s a ccount w i th Gr i ffi n Tr adi ngwas r unni nga d efi cita t th e ti m e o fthe w ire tra n sfe r, an d so it ca n n ot be th e c as e t h a t G riffin T ra d in g u se d P ar k’s m on ey to sa tis fy t h e m ar gin ca ll. ( I fPar k’ s a ccount had not b ee n in the re d, i t would have been perfectl y a l l owable f orGri ffi n Tradin g to draw on i t, sin c e, as w e e x p lain ed ea rlier , th e d eb t w as ac tu ally Pa r k ’ s. ) Thi s ev i d en ce demons tr at es tha t Gr i ffi n Tr adi ng ne cess aril y us ed restricted fun d s th at its cu s tom ers16 N o. 10

- 3607 ha d e nt rus ted to i t i n o r dert o s at i sfy i ts o wn o bl i g at i o ns to M ee sP i er so n. The defe nd ants’ f ailure t o sto p the wir e t ra nsferto M eesPi er son w as a br each ofthei r fi du ci ar y duti es. That br each c aused a l oss to G riffi n Tradi ng’ s custom ers eq uivalen t to the am ou nt of th e ent ire tran sfer. The bankr up tc y es tat e o fGri ffi n Tradi ng i s thus enti tl ed to proce ed ag ai nst F ar re l and Roge r f orthe dam age s they caused

. W e R EVER S E a nd R EMA ND to the dist ri ct co ur t f o r pr o ce eding s co ns i st en t wi ththi s o pi ni o n.

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