In the

United States Court of Appeals

For the Seventh Circuit

No. 10-3607

IN RE:

GRIFFIN TRADING COMPANY,

Debtor.

APPEAL OF:

LEROY G. INSKEEP.

Appeal from the United States District Court 

for the Northern District of Illinois, Eastern Division.

No. 10 C 1915—Ruben Castillo, Judge.

ARGUED SEPTEMBER 16, 2011—DECIDED JUNE 25, 2012

Before EASTERBROOK, Chief Judge, and WOOD and

TINDER, Circuit Judges.

WOOD, Circuit Judge. Griffin Trading Company, a

futures commission merchant, went bankrupt in 1998

after one of its customers, John Ho Park, sustained

trading losses of several million dollars and neither Park

nor Griffin Trading had enough capital to cover these

obligations. This case turns on whether Farrel Griffin and

Roger Griffin (whose first names we use for clarity), the
2 No. 10-3607

partners in control of Griffin Trading, breached their

fiduciary duties when they allowed segregated customer

funds to be used to help cover Park’s (and thus Griffin

Trading’s) losses. In deciding this question, the district

and bankruptcy courts applied Illinois’s version of

the Uniform Commercial Code (U.C.C.) to a series of

transactions that was initiated by the margin call that

spelled Griffin Trading’s downfall. They erred in doing

so. We can find no reason why the transactions at issue—which involved banks in England, Canada, France,

and Germany, but notably not Illinois—would be

governed by Illinois law. This error, however, does not

stand in the way of our resolution of the appeal. We

find that the bankruptcy court’s first decision in this

case appropriately relied on Farrel’s and Roger’s own

admissions that they failed in their obligation to

protect customer funds. This admission was enough to

hold them liable for the entire value of the wire transfer. Accordingly, we reverse the district court’s most

recent decision in this case and remand for further proceedings.

I

On December 21, 1998, Park began trading German

bonds out of Griffin Trading’s office in London. Griffin

Trading was not a clearing member of EUREX, the

relevant exchange for Park’s trades, and so its trades

were placed through MeesPierson (a company organized in the Netherlands), which was Griffin Trading’s

clearing broker. (At one point it was known as Fortis
No. 10-3607 3

MeesPierson, reflecting the fact that it was acquired

by Fortis Bank in 1997, but in 2009 the name changed

back to MeesPierson. For the sake of consistency with

the historical record, we refer to it here simply as

MeesPierson.) This arrangement created a chain of responsibility: If and when trading losses arose, EUREX

would seek to recover from MeesPierson, MeesPierson

from Griffin Trading, and Griffin Trading from Park.

In order for each party in the chain to reduce its

financial exposure, each one required its customers to

maintain margin funds in its customer accounts. Thus,

Griffin Trading had to keep some money on deposit

with MeesPierson, and Park was required to keep a

minimum amount of money in his account with

Griffin Trading. Park’s trades, however, far exceeded

his trading limit; in less than two days, Park lost over

$10 million.

As a result of these losses, MeesPierson issued a

margin call for 5 million Deutsche Marks (DM) on the

morning of December 22, payable the next day. (The

euro was not launched until January 1, 1999, but initially

it operated only as a virtual currency; it became fully

effective on January 1, 2002, when all participating

national currencies, including the DM, had to be converted. See http://ec.europa.eu/economy_finance/euro/

index_en.htm.) This triggered a series of transactions

among Griffin Trading’s bank accounts. First, at

11:19 a.m. in London on December 22, £1.6 million

were transferred from Griffin Trading’s account of segregated customer funds at the London Clearing House to

its account of customer funds at the Bank of Montreal.
4 No. 10-3607

That money was then transferred to its customer-fund

account at Crédit Lyonnais, apparently to take advantage of favorable rates.

On the morning of the next day, December 23, Griffin

Trading moved that money—converted from British

pounds to DM—back to the Bank of Montreal. Finally,

at 11:52 a.m. on the 23rd, Griffin Trading answered

the margin call by wiring 5 million DM from its

account of customer funds at the Bank of Montreal to

MeesPierson’s account at Commerzbank (a German

entity). In all, as a result of Park’s trades made in

London on a European bond exchange, £1.6 million (or

the equivalent in DM) bounced around among Griffin

Trading’s accounts holding customer segregated funds

in England, Canada, and France, until the funds were

finally transferred to MeesPierson’s account in Germany.

Meanwhile, back in the United States, Farrel learned

of Park’s losses between 6:00 and 7:00 a.m. Chicago

time (noon to 1:00 p.m. UTC) on December 22. He

called his partner, Roger, and both of them quickly

realized that this “debacle” (their word) was going to

send Griffin Trading into bankruptcy unless they

quickly found a solution. Their first step was, as they

put it, to take charge of Griffin Trading’s activities. Farrel,

with Roger available by phone, contacted Park, had

several conversations with the London office, and,

notably, called MeesPierson directly. The bankruptcy

court determined that both Roger and Farrel at that time

discovered that MeesPierson had issued the 5 million

DM margin call to cover Park’s initial losses (another
No. 10-3607 5

margin call for over 13 million DM would come later that

day for the rest of the loss, but it was not satisfied), and

that they failed in their primary obligation to protect

customer funds by not blocking the 11:52 a.m. wire transfer.

After unsuccessfully attempting to cover the remaining

shortfall, Griffin Trading filed for bankruptcy in the

Northern District of Illinois on December 30, 1998. The

trustee in bankruptcy initiated this adversary action

against Roger and Farrel in 2001, and the suit went to

trial in 2004. At trial, the bankruptcy court found that

Roger’s and Farrel’s failure to “stop the wire transfer

paying the margin call constituted gross negligence and

constituted a violation of their fiduciary duties to their

creditors.” Inskeep v. Griffin (In re Griffin Trading Co.),

No. 01A00007 (Bankr. N.D. Ill. Jan. 26, 2005). Farrel and

Roger appealed the bankruptcy court’s decision to the

District Court for the Northern District of Illinois, arguing

that the application of Illinois’s U.C.C., rather than

foreign law, was error. The district court found this

argument forfeited, but it nevertheless thought the bankruptcy court applied the wrong law—in particular, the

wrong section of the U.C.C. See No. 05 C 1834, 2008 WL

192322, at *7 (N.D. Ill. Jan. 23, 2008). On remand, the

bankruptcy court reversed its earlier course, holding

that the trustee failed to establish, as a matter of Illinois

law, that Farrel and Roger actually caused the loss of

customer funds. 418 B.R. 714, 718-21 (Bankr. N.D. Ill. 2009).

The court further held that the trustee failed to establish

damages. Id. at 721. The district court affirmed, 440 B.R.

148, 164 (N.D. Ill. 2010), and the trustee now appeals.
6 No. 10-3607

II

Even though this case is over a decade old and has

generated at least four judicial decisions, this is the first

time that it has reached the court of appeals. Under 28

U.S.C. § 158(d)(1), our jurisdiction extends to “all final

decisions” issued by the bankruptcy and district courts.

After carefully reviewing the several opinions before us,

we regret to say that the bankruptcy and district courts

erred from the outset by applying Illinois law. Despite

this error, however, we agree with the result in the bankruptcy court’s initial decision: Roger and Farrel are liable

for causing the creditor loss alleged in this case.

A

The bankruptcy court’s first decision concluded that

Farrel and Roger were liable for damages because they

could have stopped the wire transfer and their failure to

do so constituted a breach of their fiduciary duties. It

based this finding on the authority that the two would

have had under the U.C.C. On appeal to the district court,

Farrel and Roger contested that ruling, asserting that

the U.C.C. could not provide the operative rule of law

for “a series of four transfers between Griffin Trading’s

bank in England to MeesPierson’s bank in Germany.”

2008 WL 192322, at *5. The district court rejected that

argument. Citing cases that considered appeals from

district courts to the court of appeals, the district court

chided the defendants for waiting until its first appeal

to raise the question of choice of law (especially foreign

law) and ruled the argument forfeited. Id. at *5-*6. This
No. 10-3607 7

ruling failed to appreciate the nature of Federal Rule

of Civil Procedure 44.1, and amounted to an abuse of

discretion.

The district court suggested that the defendants’ alleged

forfeiture was especially “problematic” because it implicated Rule 44.1, which was made applicable in bankruptcy court by Federal Rule of Bankruptcy Procedure

9017. 2008 WL 192322, at *5. Bankruptcy Rule 9017 is a

rule of evidence, however, not a rule of procedure or

pleading. The Bankruptcy Rule simply clarifies that the

Federal Rules of Evidence and those Civil Rules that

pertain to evidentiary questions—Rule 43 (Taking Testimony), Rule 44 (Proving an Official Record), and Rule 44.1

(Determining Foreign Law)—“apply to cases under the

[Bankruptcy] Code.” Although it is true that Rule 44.1

requires any party who intends to present evidence of

foreign law to “give notice by a pleading or other writing,” the language of the rule itself reveals that no particular formality is required. Any “other writing” will do,

as long as it suffices to give proper notice of an intent

to rely on foreign law. As applicable here, Bankruptcy

Rule 9017 and Civil Rule 44.1 govern the admission and

review of different types of evidence of foreign law, and

they confirm that this is an issue of law for the court, not

an issue of fact.

Even strictly adhering to Rule 44.1’s notice requirement,

we conclude that the court and the parties were adequately alerted to the possible applicability of foreign

law in a timely manner. As the notes to the Rule explain,

the required notice need only be “reasonable” so as to
8 No. 10-3607

avoid an “unfair surprise.” FED. R. CIV. P. 44.1, advisory

committee’s note, 1966 adoption. Furthermore, the advisory committee’s note suggests that “the pertinence of

foreign law [may be] apparent from the outset,” and so

“notice can be given conveniently in the pleadings.” In

this case, the trustee’s own complaint sufficed to give

notice about the applicability of foreign law. Count IV of

the Adversary Complaint, an “Action For Breach of

Fiduciary Duty,” explicitly cites Park’s trading activity

in London as the precipitating event, and points to the

transfer to MeesPierson, a Netherlands entity that used

a German bank, as the cause for liability. This was

enough to put all parties on notice that the transactions

might be governed by foreign law. Nor does it matter

that the defendants’ answer denied the trustee’s allegations, even though it was the defendants who later

sought to raise the question of foreign law: “If notice

is given by one party it need not be repeated by any

other and serves as a basis for presentation of material

on the foreign law by all parties.” FED. R. CIV. P. 44.1,

advisory committee’s note ¶3, 1966 adoption.

Moreover, even if these references in the complaint

were not as clear then as they now seem, the notes to

the rule eliminate any remaining question. The notes

show that the rule expressly contemplates the possibility

that the need to answer questions of foreign law may

become “apparent” even as late as trial. Id. Thus, if the

reference to the foreign activity and foreign payment

in the complaint was not enough to reveal that all

relevant activity took place outside the United States, by

the time all of the transactions at issue had been ex-
No. 10-3607 9

plored at trial, it would have been obvious that it was

at a minimum very unlikely that a court in Illinois

would have concluded that local law applied. Id.; see also

Yessenow v. Executive Risk Indemn., Inc., 953 N.E.2d 433,

438 (Ill. App. Ct. 2011). Every relevant action took place

outside the United States. The losing trades originated

in England. Griffin Trading’s various bank accounts

were in England, Canada, and France. MeesPierson is

based in the Netherlands, and its bank account was in

Germany. The bankruptcy and district courts erred by

applying Illinois law.

B

Having established that the U.C.C. should not have

been used, one might think that we need to choose

an alternative among the various legal systems affected

by Griffin Trading’s demise. We conclude, however, that

this is not necessary. The important point is that the

U.C.C., under which a wire transfer can be reversed

until the receiving bank accepts a payment order, cannot

provide the operative rule of law. See U.C.C. § 4A-211,

codified in Illinois at 810 ILCS § 5/4A-211. The bankruptcy and district courts believed that the trustee’s

inability to pin down the precise moment of acceptance

allowed the Griffins to argue that there was no proof

that they could have stopped the transfer. But that

assumes that the trustee had the burden of demonstrating compliance with the U.C.C. In fact, he had no

such burden because the U.C.C. does not provide the

applicable rule of law. Nor is this a case in which there is
10 No. 10-3607

no real difference among legal systems. Our research

reveals, for example, that the European Union has a

Directive on Payment Services in the Internal Market

(adopted in 2007) that permits a payer to revoke by the

end of the business day preceding the day agreed

for debiting the funds. See http://eur-lex.europa.eu/

LexUriServ/LexUriServ.do?uri=OJ:L:2007:319:0001:01:EN

:HTML, Art. 66.3 (last visited June 21, 2012). The

UNCITRAL Model Law on International Credit Transfers offers another approach: It provides that “[a]

payment order may not be revoked by the sender unless

the revocation order is received by a receiving bank . . .

at a time and in a manner sufficient to afford the

receiving bank a reasonable opportunity to act . . . .” art.

12(1) (1994); see also id. art. 12(2) (beneficiary’s bank).

More importantly, it was neither the trustee’s burden

or the court’s to canvass all possible foreign laws. It was

the Griffins’s responsibility to do so. Banque Libanaise

Pour Le Commerce v. Khreich, 915 F.2d 1000, 1006 (5th Cir.

1990) (the party seeking to rely on foreign law must

provide “clear proof of the relevant . . . legal principles” to

the trial court, even though the issue is reviewed as a

question of law on appeal). As the parties seeking to rely

on foreign law, they have not pointed to any possible

option applicable at the time of these transactions

under which they would have been disabled from

revoking the transfers before the margin call was

answered on December 23.

In any event, it appears to us that Farrel and Roger

would not have been able to meet this burden: Every one

of the possible applicable laws requires a causal link
No. 10-3607 11

between the challenged activity (or inactivity) and the

alleged injury, and none attaches the significance to the

moment of acceptance that—we assume for the sake of

argument—U.C.C. Article 4A does. We see no need to

delve further into the details of the different possible

applicable laws. See Prudential Ins. Co. of Am. v. Kamrath,

475 F.3d 920, 924 (8th Cir. 2007) (“Before applying . . .

choice-of-law rules . . . [a] court must first determine

whether a conflict exists.”). The only question properly

before us is whether Farrel’s and Roger’s inaction

caused Griffin Trading to lose its customers’ money. This

question has two parts: (1) Did Farrel and Roger know

about the scheduled wire transfer to MeesPierson; and

(2) if so, could Farrel and Roger have stopped it under

governing principles of commercial law? These are both

mixed questions of fact and law that the bankruptcy

court addressed in its first decision, and so our review

is only for clear error. Levenstein v. Salafsky, 414 F.3d 767,

773 (7th Cir. 2005) (clear error typically applies except

in limited instances, such as cases presenting constitutional questions).

The bankruptcy court’s first ruling answered both of

these questions in the affirmative. Judge Black discredited

the defendants’ contention that they did not know about

the 5 million DM margin call. The court found it “very

unlikely that the defendants would not have learned of

the first margin call from their employees in the London

office.” Their assertion was further undermined by evidence showing that Farrel and Roger called MeesPierson

directly. The court found it “strange” that the defendants

would ask the court to “believe that people in their posi-
12 No. 10-3607

tion would call the bank that had issued a margin

call of that size and not discuss the margin call and yet

discuss the . . . need for, quote, ‘more time,’ end quote.”

The bankruptcy court found as a fact that after that

phone conversation Farrel and Roger knew about the

scheduled transfer of customer funds.

The bankruptcy court further determined that both

Farrel and Roger “took no action to prevent the transfer”

despite having “time to stop it.” This is consistent with

the evidence presented at the first trial. Farrel learned

of Park’s trades between noon and 1:00 p.m. UTC on

December 22. Yet the actual transfer to MeesPierson

was not executed until nearly a full day later, just before

noon on December 23. As we have already noted,

the Griffins have not suggested, and we cannot find,

any legal standard under which this would not have

provided ample opportunity for them to prevent

the transfer of customer funds to MeesPierson. See

UNCITRAL Model Law on International Credit Transfers, art.

12(1), 12(2) (1994) (a transferor needs to give a bank only

a “reasonable opportunity to act” in order to cancel a

wire transfer); Benjamin Geva, The Wireless Wire: Do

M-Payments and UNCITRAL Model Law on International

Credit Transfers Match?, 27 BANKING & FIN. L.REV. 249, 254-

55 (2012) (same). Indeed, the defendants have never

argued that under U.K., or German, or Canadian, or

Dutch law that they were powerless to take corrective

action. To the contrary, they conceded that they “had

the ability to contact Griffin Trading Company’s banks

and direct them not to go through with the wire transfer.” See 1 Cresswell, P.J., ed., THE ENCYCLOPAEDIA OF
No. 10-3607 13

BANKING LAW, Div. D1 ¶ 224 (the duties that arise

between a payer and a payer’s bank regarding a funds

transfer are predominantly contractual). Their failure to

take advantage of this window of opportunity caused

the creditor loss at issue in this case.

In the final analysis, the bankruptcy court concluded

that Farrel and Roger “knew about [the wire transfer]

while there was still time to stop it.” Given the evidence

that the defendants were in constant contact with the

London office and had called MeesPierson themselves,

coupled with their admissions at trial that they had

the opportunity to cancel the transfer, we cannot say

that this determination was clearly erroneous.

III

Having concluded that the defendants’ inaction caused

the creditor loss at issue, we turn now to the question

of damages. The trustee alleges that the defendants

violated 17 C.F.R. § 30.7, which requires futures commission merchants to protect customer funds, when

they transferred customer funds to MeesPierson, and

thus that the full extent of this violation—i.e., the

whole wire transfer—represents damages. One might

wonder why U.S. law should apply here, given the

earlier discussion about choice of law. The answer is that

the discussion above considered Griffin Trading’s legal

rights vis-á-vis its foreign agents (its banks), and we

have concluded that these private arrangements are not

governed by Illinois law. Here, in contrast, we consider

Griffin Trading’s obligations to its customers under a
14 No. 10-3607

regulatory regime, in its capacity as a futures commission merchant registered with the U.S. Commodity

Futures Trading Commission (CFTC) and subject to the

CFTC’s domestic and extraterritorial regulations. Griffin

Trading is subject to the Commodity Exchange Act,

which imposes requirements on futures commission

merchants for the handling of customer funds and gives

the CFTC authority to impose special regulations to

“safeguard customers’ funds” in connection with trading

activity on foreign exchanges. 7 U.S.C. § 6(b)(2)(A); 17

C.F.R. § 30.7; see also Morrison v. National Austl. Bank, 130

S. Ct. 2869, 2882-83 (2011) (discussing when statutes

have extraterritorial effect).

Specifically, § 30.7(a) requires that a futures commission merchant “maintain in a separate account or

accounts money, securities and property in an amount

at least sufficient to cover or satisfy all of its current

obligations to foreign futures.” That section also

provides that such segregated funds “may not be commingled with the money, securities or property of such

futures commission merchant . . . or used to guarantee

the obligations of . . . such futures commission merchant.” That is, merchants that are entrusted with

their customers’ money have special obligations, and

those merchants are liable for losses arising out of violations of those obligations.

In its second ruling, the bankruptcy court held that

the trustee had failed to prove that Farrel and Roger

had violated this regulation, and thus that the trustee

had not proven any damage to the estate. The court
No. 10-3607 15

faulted the trustee for providing “no evidence of the

amount in the accounts before or after the wire transfer” and “no evidence regarding the calculation of the

foreign futures secured amount.” 418 B.R. at 725. The

record, however, belies these findings. In fact, it reveals

that the wire transfer necessarily transmitted customer

funds to MeesPierson in order to satisfy Griffin Trading’s

own obligations.

At the second trial, Farrel testified that Griffin

Trading’s London account of segregated customer

funds existed to secure customer activity out of its

London office; that is, those funds were supposed to

“satisfy all of its current obligations to foreign futures.”

This means that all of the money in that account was

subject to the strictures of § 30.7. Yet the CFTC reported that, at the close of the day on December 22,

Griffin Trading’s account was underfunded by over

$7 million. Because the margin call was valued at approximately $3 million, the entire transfer must have

been made using customer funds. And, despite the bankruptcy court’s concern, this would be the case whether

or not the $7 million shortfall was the reason for the

pending wire transfer. Furthermore, Park’s account with

Griffin Trading was running a deficit at the time of the

wire transfer, and so it cannot be the case that Griffin

Trading used Park’s money to satisfy the margin call.

(If Park’s account had not been in the red, it would have

been perfectly allowable for Griffin Trading to draw on

it, since, as we explained earlier, the debt was actually

Park’s.) This evidence demonstrates that Griffin Trading

necessarily used restricted funds that its customers
16 No. 10-3607

had entrusted to it in order to satisfy its own obligations

to MeesPierson.

The defendants’ failure to stop the wire transfer to

MeesPierson was a breach of their fiduciary duties.

That breach caused a loss to Griffin Trading’s customers equivalent to the amount of the entire transfer.

The bankruptcy estate of Griffin Trading is thus entitled

to proceed against Farrel and Roger for the damages

they caused. We REVERSE and REMAND to the district

court for proceedings consistent with this opinion.

6-25-12