MERIT MANAGEMENT GROUP, LP, Petitioner, v. FTI CONSULTING, INC., Respondent
Interviewer(s): Anthony M. Kennedy, Samuel A. Alito, Jr., Stephen G. Breyer, Elena Kagan, John G. Roberts, Jr., Ruth Bader Ginsburg, Neil Gorsuch, Sonia Sotomayor
Interviewee(s): Brian C. Walsh, Paul D. Clement

John G. Roberts, Jr.: We'll hear argument this morning in Case 16-784, Merit Management Group versus FTI Consulting. Mr. Walsh.

Brian C. Walsh: Mr. Chief Justice, and may it please the Court: The relevant transfers in this case are the transfers by 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.

Anthony M. Kennedy: I'll read them -- I'll read them with more care, but the circuits that come out as -- as you would ask us to, it seems to me focus on the word "settlement" and that that controls everything.

And they don't talk about transfer.

Of course, there was a transfer in a lay sense, but that's not the transfer here that the trustee seeks to avoid.

Brian C. Walsh: Well, 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 2006, Congress added "securities contract" and "commodities contract" to the statute, and those are much broader concepts. And so there's -- there's much less discussion about whether something is or is not a settlement payment because frequently it is a transfer in connection with a securities contract. But it is true that the transfer targeted by the plaintiff in this case is the end-to-end transfer between the parties with the beneficial interest.

But that is not a distinct or separable or independent transfer from the transfers that made it up; the transfers that the parties contemplated when they entered into this contract that they're --

Ruth Bader Ginsburg: Mr. Walsh, could you explain -- I mean, here we have two parties, Valley View and Merit.

And you don't claim that either of those is a 546(e) entity, do you?

Brian C. Walsh: Neither of those is a financial institution --

Ruth Bader Ginsburg: Yes.

Brian C. Walsh: -- or one of the other institutions named in the statute.

That's correct.

Ruth Bader Ginsburg: So now the trustee is alleging that Merit got money that otherwise would have been available for distribution to creditors.

That's the claim.

Brian C. Walsh: That's the gist of it, yes.

Ruth Bader Ginsburg: So why should it matter whether the transmission was through the banks rather than handed over by Valley View to Merit?

Brian C. Walsh: Because the goal of the statute is to protect the securities and commodities markets, not just to protect particular players in the markets.

We know --

Ruth Bader Ginsburg: Well, how -- how is the -- either bank at risk of anything here?

Brian C. Walsh: Neither bank is at risk of liability in this particular case, but the broader issue is that parties who receive distributions from securities or 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 -- 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, eight --

Sonia Sotomayor: I'm sorry, who's insecure about that? The banks or the person to whom the money was ultimately sent?

Brian C. Walsh: Investors in general would be insecure about that, Your Honor.

Sonia Sotomayor: Well, 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.

Brian C. Walsh: Well --

Sonia Sotomayor: Congress wanted to do that, why bother even creating the fraudulent transfer provisions? Just say any contract that any of these people sign in any of these fields is exempt.

Brian C. Walsh: Well, Your Honor, I agree that anyone engaging 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 markets --

Sonia Sotomayor: Going -- going back to this transfer question.

Brian C. Walsh: Yes.

Sonia Sotomayor: 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 the contractual obligation an obligation?

Brian C. Walsh: The contractual --

Sonia Sotomayor: Or a contractual rights obligation? So why can't a trustee choose what it is he or she wants to avoid, whether it's a transfer or an obligation?

Brian C. Walsh: Your Honor, the --

Sonia Sotomayor: And that define the scope of who's involved?

Brian C. Walsh: Sure.

The reference to obligation in the fraudulent-transfer statutes is -- is generally in reference to a debt incurred by the debtor to someone else.

And if that debt causes the debtor to become insolvent or inadequately capitalized and the other -- the other aspects of the statute are satisfied --

Sonia Sotomayor: I'm sorry --

Brian C. Walsh: -- then the --

Sonia Sotomayor: -- the -- here, debtor sold something to someone else or was obligated to send money ultimately to Merit. So how does that not fit into obligation?

Brian C. Walsh: Well, that obligation has been paid already.

It would -- that -- that application of the statute would normally be in a situation --

Sonia Sotomayor: You think that --

Brian C. Walsh: -- where the--

Sonia Sotomayor: -- obligation issue is one that's prospective and not --

Brian C. Walsh: It typically arises in that context.

And also the safe harbor, 546(e) does not apply to obligations; it only applies to transfers.

Samuel A. Alito, Jr.: And what you called the -- the end-to-end transfer is the transfer that the trustee is seeking to avoid; isn't that right?

Brian C. Walsh: That is correct.

Samuel A. Alito, Jr.: That's the one that is allegedly construction --

Brian C. Walsh: That is --

Samuel A. Alito, Jr.: -- constructively fraudulent.

Brian C. Walsh: That is correct.

Samuel A. Alito, Jr.: So why does -- why shouldn't the exemption provision be applied to the transfer that the trustee is seeking to avoid, if the -- otherwise, is your argument that these intermediate transfers are -- are constructively fraudulent?

Brian C. Walsh: 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 a different way --

Samuel A. Alito, Jr.: 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't -- that are not constructively fraudulent?

Brian C. Walsh: Well, I think a useful way to think about it, Your Honor, is that there's only $55 million involved here.

And we can say, as a shorthand, now that we know how the transfer played out -- because it was 10 years ago -- we can say there was a transfer from Valley View to Merit, but it's not different from the transfer of the same $55 million that Valley 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 trustee's point that I'm only seeking to -- to avoid this broader transfer, but when we have an overriding prohibition like 546(e), I don't think it's sufficient simply to say, but that's not what I'm doing.

Ruth Bader Ginsburg: Well, could the trustee, absent 546(e), seek to avoid the transfer from Credit Suisse to Citizens Bank?

Brian C. Walsh: The trustee, absent the safe harbor, could seek to avoid the transfer from Credit Suisse to Citizens Bank.

Anthony M. Kennedy: Why -- why was there not adequate consideration for that? There -- there -- it was just a pass-through.

Brian C. Walsh: I'm -- I'm not agreeing on --

Anthony M. Kennedy: What would there be to avoid?

Brian C. Walsh: I'm sorry.

I'm not agreeing on the -- on the merits.

I'm -- I'm suggesting the trustee could pursue that claim.

Ruth Bader Ginsburg: But would you --

Brian C. Walsh: I do think there was adequate consideration for it, and that claim would fail, but the trustee could seek to pursue it.

John G. Roberts, Jr.: 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 a check.

Is that correct?

Brian C. Walsh: Your Honor, not necessarily.

And the Court doesn't need to go nearly that far to rule in our favor in this case. 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 serve as an intermediary --

John G. Roberts, Jr.: I -- 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?

Brian C. Walsh: 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 the -- the indirect holding system. They're going to clear through paper, debits, and credits and not with wire transfers or checks.

Stephen G. Breyer: I'm just curious -- look, I have two shares of company X in my -- I have an account somewhere, okay?

Brian C. Walsh: Yes.

Stephen G. Breyer: So, knowing I'm about to go bankrupt, I take my share, and I tell them go transfer it to my wife.

Right?

Brian C. Walsh: Yes.

Stephen G. Breyer: Now, you'll say they can't attack that as a fraudulent conveyance. I'm just trying to think, you know, of --

Brian C. Walsh: Well, actually --

Stephen G. Breyer: -- the paradigm case of a fraudulent conveyance.

Brian C. Walsh: Well, actually, Your Honor, that -- that very well might be a case that wouldn't fall within the safe harbor.

Stephen G. Breyer: Why not?

Brian C. Walsh: Because if you transfer your stock to your wife --

Stephen G. Breyer: No, no, no.

I told you it's being held in a -- in a bank, and I tell the bank to do it.

Brian C. Walsh: It's being held in the indirect system --

Stephen G. Breyer: Yeah.

Brian C. Walsh: -- and you -- you sell it to your wife.

Then in -- then in that case --

Stephen G. Breyer: It does.

Brian C. Walsh: -- there's safe harbor.

Stephen G. Breyer: So this covers -- that's, I think, the thrust -- this is going to cover all kinds of things. I have another -- another question, which is -- which is, and this is just a puzzle, look, when they define financial institutions -- what we have here is a transfer, we wanted to have a -- Valley View, VVD, Valley Downs, see, wants to give $55 million to a group of people that include the Merit Downs or whatever, Merit? All right?

Brian C. Walsh: Yes.

Yes.

Stephen G. Breyer: That's what they want to do.

Neither of them is financial institutions.

But the way they do it is Valley Downs says its friend, Credit Suisse, which is, you have the line of credit, you send it to the Citizens Bank, which is the escrow.

Brian C. Walsh: Correct.

Stephen G. Breyer: So you say, in real terms, it goes from Valley to Merit, but we do it by means of the guy who gives the line of credit, which is a bank, Credit Suisse, and they send it to the escrow agent, which is Citizens Bank, okay?

Brian C. Walsh: That's correct.

Stephen G. Breyer: And so the argument here is, because they used these two agents, now, suddenly, does it fall into the securities -- the bank -- or the -- or the bank exception, the Industrial Savings Bank exception, the et cetera, et cetera.

Brian C. Walsh: Correct, right.

And --

Stephen G. Breyer: Okay.

So why are we hearing this case? For this reason -- now, this is slightly a side issue, but it's very puzzling, and 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 custodian for a customer. Now, it seems to me that Citizens Bank is acting for agent or custodian of a customer, namely VVD, and it seems to me that Credit Suisse is acting as a -- as an agent or custodian for VVD. So why doesn't that cover it?

Brian C. Walsh: I think that is a fair way to look at it, Your Honor.

Stephen G. Breyer: Well, 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 -- you know, where -- where this is absolutely dealt with in a statute, under -- under another provision, and nobody refers us to that provision, and I can't understand why they didn't -- what's going on?

Brian C. Walsh: Your Honor, we did -- we did refer to that provision in -- in both of our briefs, if I remember correctly.

So --

Stephen G. Breyer: You may have put it in your briefs, but, I mean, why in the lower courts wasn't this just said, look, point to that, Judge, this involves a customer of a financial institution, namely VVD, and, therefore, it's in the exempt area? Point to that.

And -- and I want to know why that didn't happen.

Brian C. Walsh: That I don't --

Stephen G. Breyer: It's your case.

You can do it in a sense the way you want, but, I mean, where this is just standing out and we're asked to decide a question that I think is fraught with difficulty, I would like to know the answer.

Brian C. Walsh: I'm afraid I don't have a good answer for why that did not come up earlier.

Sonia Sotomayor: I'm sorry. Perhaps it's simple --

Samuel A. Alito, Jr.: Oh, I thought you conceded it.

Didn't both parties -- didn't both parties concede that -- that Valley View is not a financial institution?

Ruth Bader Ginsburg: You just did in answer to my question.

Brian C. Walsh: No, I'm sorry.

Ruth Bader Ginsburg: I said -- I asked you that, with the question that Justice Breyer raised in mind, I asked you specifically, do you agree that neither Valley View nor Merit is an entity enumerated under 546(e)?

Brian C. Walsh: I may have -- I may have misunderstood the difference between the two questions, Your Honor.

Stephen G. Breyer: I think it's the same, but, I mean, at some point, you know, if we have two cases involving the Fishing Act, and it involves fishermen, and both parties concede we are -- we are fishermen, but, in fact, what they are is both farmers and have nothing to do with fish, I would say we'd have a problem in this Court about whether we should hear the case.

Brian C. Walsh: And -- and, Justice Ginsburg, in response to your question, neither of the parties to this case is a -- is a financial institution, as that term is -- is generally understood. In trying to --

Stephen G. Breyer: But not as the statute understands it --

Brian C. Walsh: In -- in the --

Stephen G. Breyer: -- which uses it to include a customer of a financial institution in circumstances which are present here.

Brian C. Walsh: That -- in the rather unusual definition of financial institution, this is a situation in which the banks act as -- acted as agents, that's -- that's an escrow agent.

Ruth Bader Ginsburg: If you -- if this was such a standout issue, you must have thought about it, and yet, you relegated it to a footnote in your reply brief.

Brian C. Walsh: And I -- and I don't know whether it's a 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 550, which is the section of the Bankruptcy Code that deals with who has liability if there is a transfer that's avoided.

Sonia Sotomayor: Well, that -- actually, 550, I think, works very strongly against you because 550 says the trustee may recover for the benefit of the state the property transferred, so it seems to be talking about who has control and dominion of the property that the trustee is seeking to recover.

Brian C. Walsh: Well, Your Honor, control and dominion is a test that's been developed by the lower courts.

It's -- it's not a rationale.

It's a test to determine whether a party had the beneficial interest in the transaction, such that it's appropriate to impose liability on that party.

Sonia Sotomayor: They -- that's how they've defined it under 550.

Brian C. Walsh: That is how they --

Sonia Sotomayor: It makes common sense, which is --

Brian C. Walsh: That is how they've defined it.

But what --

Sonia Sotomayor: -- go to who ultimately has control of the property.

Brian C. Walsh: And -- and the question 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 transferee.

It's a non-literal definition of the term "initial transferee."

Sonia Sotomayor: Exactly.

Brian C. Walsh: And -- but the reference I was making to 550 earlier, Your Honor, is to 550(c), which is an example of a situation in which Congress perceived that there's a problem, that a transfer may be avoided and certain parties may be liable. And Congress's response was to say, 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 546(e), that it only protects banks and brokers and clearing agencies.

And Congress didn't do it in 550, which would have accomplished that. There -- 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. It has everything to do with protecting transactions.

So, for example, if Goldman Sachs were to sell me 100 shares of Berkshire Hathaway stock for $100 apiece, 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.

Anthony M. Kennedy: But they're parties to the transaction.

They're not acting just as a pass-through agent.

Brian C. Walsh: 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, a 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 will -- 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 equity funds or pension funds collapse, we have systemic risk to the financial institution as well.

Neil Gorsuch: Mr. Walsh --

Brian C. Walsh: Yes?

Neil Gorsuch: -- can you help me out with what happens to the law of preferences under your interpretation? As you know, trustees can avoid transfers leading up to the bankruptcy that meet certain conditions.

Brian C. Walsh: Yes.

Neil Gorsuch: And a lot of that would seem to go away, that power would seem to go away under your interpretation, if 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 -- that apparent difficulty?

Brian C. Walsh: I'm -- I'm not sure that there is such a 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 securities --

Neil Gorsuch: Well, but often --

Brian C. Walsh: -- no commodities.

Neil Gorsuch: -- often a transfer that's avoidable does involve a financial institution.

You'd agree with that, surely?

Brian C. Walsh: It -- it may, but it --

Neil Gorsuch: May, but --

Brian C. Walsh: -- does not very often involve securities or commodities -- -

Neil Gorsuch: Well, but it could --

Brian C. Walsh: -- if that's the --

Neil Gorsuch: Well, but it could. I mean, why not? I mean, do you have any empirical information on that?

Brian C. Walsh: I don't have empirical information.

Neil Gorsuch: No.

Brian C. Walsh: I -- I do have the -- the overlap between securities transactions and bankruptcy is very small.

There are a million or so bankruptcy cases filed every year.

It's very --

Neil Gorsuch: So not -- a triviality we don't need to worry about, even though it was a central feature of the Seventh Circuit's opinion?

Brian C. Walsh: I wouldn't say it's a triviality, but it's not -- there's a lot of talk in the briefs about the exception swallowing the rule.

And the rule is a good bit broader, a good bit broader than the exception here, Your Honor.

Neil Gorsuch: But we don't have any -- nobody has any data on that? We're just -- we're just going on your -- your representation versus your friend's representation otherwise?

Brian C. Walsh: I -- I suppose that's correct, Your Honor.

Neil Gorsuch: All right.

Brian C. Walsh: 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 unperfected. That's -- that's not implicated by the safe harbor unless it 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.

If you're dealing with --

Elena Kagan: Mr. Walsh?

Brian C. Walsh: Yes.

Elena Kagan: Could I take you back to Justice Alito's question, perhaps just put a little bit of a different spin on it? I mean, if you look at 546(e), 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, I mean, it 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, where 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?

Brian C. Walsh: I think the -- the first -- my first response, Your Honor, is that when -- 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'm called to a visit with a U.S. attorney because I allegedly filled a wetland, it's not a sufficient response for me to say I didn't fill a wetland; I built a parking lot.

We have to look at, well, what did I do in the process of building the parking lot? Did I put a bunch of gravel in a wetland? And if I did, I have a problem, notwithstanding that I characterize my actions in a different way. But a second response is that because these transfers, the way we characterize the different pieces of this transaction as transfers are integrally -- integrally interrelated, to say that a trustee can avoid the end-to-end transfer without affecting the others, the intermediate transfers, in any way is just inconsistent with reality.

Elena Kagan: I guess you're 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-to-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 isn't being challenged.

Brian C. Walsh: I -- I think the difference in -- between what you're saying and what I'm saying, Your Honor, is that it's not a different transfer entirely.

If -- if we were talking about, say, the transfer of the real estate, where the plans were to build the racetrack, then -- then that would be a different transfer. But the transfer of $55 million from Valley View to the escrow agent and the subsequent transfers from the escrow agent to the shareholders of Bedford Downs, they aren't -- they aren't different transfers.

They're just different ways of looking at the same transfer because they made up the long --

Anthony M. Kennedy: Well, but in -- in your hypothetical, if the land were held as an -- in escrow for 30 days until everybody got the title in, then there would be an exemption.

Brian C. Walsh: No, because it's not securities or commodities.

It's real estate.

Stephen G. Breyer: What about this, the -- where -- where it says a trust fee, gee, tree -- sorry, a trustee may not avoid a transfer that is a settlement payment made by a financial institution? Joe -- that's right, isn't it? So far?

Brian C. Walsh: Yes.

Yes.

Stephen G. Breyer: Okay.

Joe Smith buys a piece of property from Bill Brown for $10 million.

Joe Smith puts into escrow $10 million.

It's -- Bank of America is the escrow agent.

Brown 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?

Brian C. Walsh: Your Honor, I don't think the term "settlement payment" has ever been understood to apply outside --

Stephen G. Breyer: It doesn't mean that --

Brian C. Walsh: -- outside securities and commodities in financial transactions.

So --

Stephen G. Breyer: I see.

So -- so it is not a settlement payment.

It's just -- it's not a settlement payment, a payment for a real estate transaction.

Brian C. Walsh: It is a payment for a real estate transaction.

That's correct.

Stephen G. Breyer: It is not? It is not a real estate transaction payment?

Brian C. Walsh: I'm sorry, a settlement payment as defined in the code is not a real estate transaction payment, yes.

Stephen G. Breyer: But if the same thing were true and what they had bought was a -- 5 million acres of wheat, then it would be?

Brian C. Walsh: If -- if they bought the crop and it was a forward contract under the code, then that -- the -- the purchase of the crop --

Stephen G. Breyer: Thank you, thank you. I see.

Brian C. Walsh: -- could very well be covered by this.

Stephen G. Breyer: Thank you.

Brian C. Walsh: Unless there are further questions, I'd like to reserve the balance of my time.

John G. Roberts, Jr.: Thank you, counsel. Mr. Clement.

Paul D. Clement: 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 Breyer's question about the definition of the financial institution and then address the question presented. So, Justice Breyer, a couple of points about that. First of all, I think it could not be clearer that that's never been at 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 3 of the petition, it is clear that the Petitioner --

Stephen G. Breyer: I 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 so clear, it's like two farmers who decide they have some other financial interest in fishing, and they'd 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 at 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?

Paul D. Clement: So, Justice Breyer, if you really had the farmer/fisher idea -- fisher person idea, I think what you would do is dismiss the case as 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 ipso 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.

Here's the --

Elena Kagan: Do you think, though, Mr. Clement -- I'm sorry, if you want to --

Paul D. Clement: 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 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 -- the -- the trustee had tried to avoid the transfer while the money was 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 it applies for a reason then, 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 the trustee sought 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, Merit owes the estate some $16 million.

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 can pick Bank of America instead.

It is not as if, if they win here, that the poor folks at Citizens Bank need to go and sort of unearth that escrow agreement and reverse something on it. They don't have to do a thing, which, of course, explains why they're not here as amici, why --

John G. Roberts, Jr.: Well, 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 -- that don't have anything to do with it, but as I understand it, the intermediaries had a lot to do -- this -- this -- they were there 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 weren't just, you know, stamping the papers and moving the money.

Paul D. Clement: You're right, Mr. Chief Justice, to a degree, but for whatever the sort of exertion they did, they were compensated. And the trustee's 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 Merit.

I assume Credit Suisse got paid, I don't know, $1,000 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 shouldn't have had to pay that $1,000 to Credit Suisse, so I have a theory, as the trustee, as to why I can avoid the transfer to Credit Suisse, well, of course, that's covered by 546(e) through the straightforward way we think the statute should be read, which is this affirmative defense, this exception, this 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 textual interrelationships between the two provisions, such that it seems perfectly natural to say that, when you're applying 546(e), you look at the transfer that the trustee is seeking to avoid.

John G. Roberts, Jr.: Could -- what if the trustee -- would there be situations in which it would make sense for the trustee to want to avoid one of the intermediary transfers rather than simply the ultimate one?

Paul D. Clement: It might, but they probably run into 546(e), I mean, which is to 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 bank's trading on its own account or something, I think, in that situation, and you know, you -- you'd have a transfer where the transfer that the trustee was bringing under 544, 545, all those various provisions, the transfer you're seeking to avoid was a transfer to a bank.

John G. Roberts, Jr.: Well, would it be in a situation where there's no money with the ultimate seller to recover? They also become bankrupt.

Paul D. Clement: I suppose --

John G. Roberts, Jr.: Credit Suisse is not bankrupt?

Paul D. Clement: Right, no -- look, in that situation, an aggressive trustee might seek to avoid a transfer to the bank, but in that situation, 546(e) stops that in its tracks. And I think it's also important to remember that 546(e) is added at a point where you already have limitations as to which transferee you can recover from.

And part of what Congress is worried about is the idea that, in some situations, and 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'd be protected under preexisting law, or whether they sort of ended up with the money when the music stopped. And what Congress tried to do in 546(e) 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 is by, to, or for the benefit of one of these six entities, that's it, motion to dismiss --

Elena Kagan: Well, does that mean -- does that mean, Mr. Clement, that we -- all we do is we look at the trustee's complaint, we leave it to him to decide the question?

Paul D. Clement: Yes, Justice Kagan, but I think the reason that that doesn't create some sort of mischief here is that, in making that -- 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 in Chapter 5.

Elena Kagan: So that -- that might be right. I was trying to think of cases in which there could be mischief by relying entirely on the trustee's power to define the transfer. And here is what I came up with, is that there truly is a transfer from a debtor to a bank, if the bank's not serving as an intermediary, it is a real transfer of stock, right? And now, 546 -- 546(e) is going to prevent the trustee from avoiding that.

But then the trustee says: So, in order to get around 546(e), 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?

Paul D. Clement: I don't think they -- 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 546(e).

Now, it may be in your hypothetical the trustee's kind of pled 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, though it 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 -- 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 550. And in the hypothetical that you're talking about, the third-party subsequent transferee would not be the immediate -- the initial transferee under 550.

And so, as 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, pick the -- well, today, I feel like the Credit Suisse to Citizens Bank transfer is the one I'm going after. That would satisfy --

Anthony M. Kennedy: Well, if we're -- if we're writing the -- the opinion to accept your proposition, how do we -- how do we qualify it? Do we -- do we say that this does not apply to transfers where the settlement institution does not have an equity participation? I mean, what -- what --

Paul D. Clement: See, I wouldn't do that, Justice Kennedy.

I think that's -- that is the way some of the courts had -- have written it, but I think the simpler way to write the opinion is to say, to apply 546(e), just look to the transfer that the trustee seeks to avoid, and it's as simple as that. If the transfer that the trustee seeks to avoid --

Anthony M. Kennedy: But that -- that -- that then involves Justice Kagan's concern that you're giving the -- the trustee a chance -- a chance to define the transfer in a particular way.

Now, if the -- if the Bankruptcy Code defines a transfer so it's abundantly clear the -- what transfer is -- is involved, then that's one thing.

Paul D. Clement: Well, but I tried to be responsive to Justice Kagan's question, and I think that 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 an insider because it always goes through a bank first. So I think the trustee is disciplined not just by 546(e) 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.

Elena Kagan: 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 -- and that seems more what the Seventh Circuit was doing than -- than what your brief suggests. So why do you think that that's a worse alternative than the one you're suggesting?

Paul D. Clement: Well, Justice Kagan, let me start by saying it's a lot better alternative than my client losing 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 -- my friend and I agree on is that when Congress was passing the predecessor to 546(e) back in the day, there was already substantial protection for the intermediaries under the recovery provision, 550, if they were truly conduits and weren't the beneficial owners. And so I think what Congress was trying to do with 546(e) 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 that courts can apply at the motion to dismiss stage, literally just look at the complaint, look at the transfer the trustee's seeking to avoid, and then, if it satisfies 546(e), 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.

That's part of the 550 inquiry because here -- -

Ruth Bader Ginsburg: Well, how --

Paul D. Clement: -- as in almost every case -- sorry.

Ruth Bader Ginsburg: How do you -- how do you answer what your colleague stressed; that is, it doesn't say for the -- only for the benefit of a financial institution.

It says "by." If a transfer is by a financial, that's enough.

Paul D. Clement: You're right, Justice Ginsburg, and we think that's right, but we think what Congress was addressing in that situation was the precise situation that the Southern District of New York dealt with in a case called Seligson, which I think both parties agree is the case that Congress was trying to address with the predecessor to 546(e). And that was a situation where the financial intermediary -- there I believe it was a commodity broker -- is the bankrupt.

And so --

Stephen G. Breyer: So for this --

Paul D. Clement: 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.

Stephen G. Breyer: So, for this provision, do I have this right? A, look to the -- the transaction that the trustee is trying to set aside as a preference or fraudulent conveyance.

B, ask the question: Who is the person who directed that that transfer be made? All right. If it's a financial institution, et cetera, stop right there, good-bye, you're out. If not, continue to question 3.

And question 3 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 a -- that the transferee, the initial transferee, if he's receiving money that he is to hold for the benefit of the other, he still is the initial transferee.

And you will look to such matters as to who this money is to benefit later on in your -- your efforts.

Is that right?

Paul D. Clement: Well, Justice Breyer, I think you've aptly captured the Seventh Circuit's reasoning.

Stephen G. Breyer: Uh-huh.

Paul D. Clement: I'm actually asking you to make this case even simpler.

Stephen G. Breyer: Uh-huh.

Paul D. Clement: I'm asking you to look at the transfer that the trustee seeks to avoid.

Stephen G. Breyer: Yeah.

Paul D. Clement: That has to be by somebody and to somebody --

Stephen G. Breyer: Yeah.

Paul D. Clement: -- in order for it to satisfy 544, 545, 547, or the two provisions of 548 that 546(e) cross-references.

Stephen G. Breyer: All Right.

Paul D. Clement: 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 --

Stephen G. Breyer: Do you have what it says?

Paul D. Clement: -- the reason that language is there is because the avoidance power is not limited to transfers to somebody who is like an insider or a creditor --

Stephen G. Breyer: That's right.

Paul D. Clement: -- 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 546(e) 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 546(e) 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 rule so clearing agencies, commodity brokers, and then eventually stockbrokers and financial institutions and financial participants would all have a nice, clean motion to dismiss argument to win their case.

Sonia Sotomayor: May I address a question that confused me in your briefing?

Stephen G. Breyer: Yeah.

Sonia Sotomayor: You kept saying that the initial transfer had to be by the debtor. But the code permits the trustee to void a non-debtor's transfer if the property that that non-debtor is transferring is of 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 debtor's agent, a non-debtor.

Paul D. Clement: Justice Sotomayor, 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 Brubaker, who's 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.

Sonia Sotomayor: So that's how you're reading that then.

Paul D. Clement: That's how we're reading it, but I want to make as clear as I can that nothing turns on that.

Our position -- I think it makes -- if you -- 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 in 100 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 546(e), it's going to be a transfer by the bankrupt.

And whether it's 99 or 100 percent, nothing ultimately turns on it.

Sonia Sotomayor: So why -- but why then did you argue that the transfer from Credit Suisse to Citizens Bank -- both involved property of the debtor, why did you argue that that wouldn't qualify because it wasn't a transfer by the debtor?

Paul D. Clement: Because the way we read Chapter 5 of the code is it essentially ignores conduits for purposes of identifying who's the transferor and who's the transferee.

And we do think that's consistent throughout Chapter 5. That's why for its --

Sonia Sotomayor: You don't think Credit Suisse or -- or Citizens Bank fell under the safe harbor automatically? They're both financial --

Paul D. Clement: I think -- I think if the trustee had tried to avoid that transfer, it would automatically satisfy 546(e). 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, but nothing turns on it --

Sonia Sotomayor: Oh, okay.

That's what I'm --

Paul D. Clement: -- 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 $2,000 to this charity.

Now, if you accept their view that you subdivide everything, well, then 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 --

Neil Gorsuch: So -- but, Mr. Clement, on that, I assume your friend will get up and say, well, a lot of those charitable contributions are by check, and those aren't covered. And just as -- just as we heard when I asked the question about avoidable transfers, that it became an empirical debate about how many of those would be covered. So how -- how clean a line is this really? I mean, what -- what you're suggesting?

Paul D. Clement: Well, two things, Justice Gorsuch.

First of all, my friend would want to tell you that the checks aren't covered.

Neil Gorsuch: Yeah.

Paul D. Clement: 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, you know, if there's no word in that statute that allows you to draw that distinction, as the colloquy with Justice Breyer showed, there might be a theory based on the definition of financial institution --

Neil Gorsuch: Customer.

Paul D. Clement: -- 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 by or 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, yeah, there's some empirical debates here we don't know the answers to.

Neil Gorsuch: Right.

Paul D. Clement: 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 in connection with a securities contract, unless there's like the one person out there that's doing these things with bags of cash, it's covered.

Neil Gorsuch: Yeah.

Paul D. Clement: We're giving you the clean position that --

Neil Gorsuch: The amici -- the amici give us a very clean position, right, that we need a transferee under the statute and a debtor under the statute.

I read the red brief as being a little more equivocal on that. Maybe I misread it. Did you endorse the amici's clean position without qualification?

Paul D. Clement: Well, we think our position is even cleaner, I mean, so -- so -- but we think -- if you're referring to Professor Brubaker's --

Neil Gorsuch: Yeah.

Paul D. Clement: 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 on to the procedural history of this case. The trustee here brought a complaint. It was a complaint that identified a transfer for avoidance.

The -- Merit filed an answer with an affirmative defense.

The affirmative defense was based on 546(e). It just seems logical, as -- as Justice Kagan suggested, albeit in a question, so she might not have meant it, but -- (Laughter.)

Paul D. Clement: -- but as Justice Kagan suggested, like what world do you look at different transfers for purposes of the exception to the affirmative defense than the transfer that you're looking at for the prima facie 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 is a bank anywhere involved in a securities transaction, it's exempted. And the consequences of that are, I mean, really quite simple and quite striking, which is, in a case like this, where otherwise the unsecured creditors are going to get 15 cents on the dollar, which is already enough to ruin your whole day --

Neil Gorsuch: All right.

All right.

But the Second Circuit is very concerned about the effect that this would have on the leveraged buyout industry and -- and, therefore, the economy more broadly. I can understand an argument that Congress in 1978 wasn't much concerned about the leveraged buyout industry because it didn't exist, as we now know it, but what -- what else do you say in response to that, the parade of horribles that we've heard?

Paul D. Clement: 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 leveraged buyout situation, it would have written a very different exemption than the one that it wrote here.

It might have defined something like leveraged 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 trustees' prima facie case, including that there wasn't sufficient value provided and 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 -- as the trustee's amicus brief said, to sort of 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 mulcting 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's effort in 2005 to add financial participants as the sixth on the list of protected entities was completely superfluous and just a fool's errand, because I can't imagine that financial participants who are defined as entities with $100 million or a billion dollars in transactions were doing those transactions with cash. So those financial participants 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 2005.

Elena Kagan: May I ask, Mr. Clement, 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 SG didn't file here?

Paul D. Clement: 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, boy, I sure think the SG would be here, wave -- you know, waving at least a yellow flag. To me, the amici that aren't here that speak even louder, though, are, frankly, the lack of financial institutions, stockbroker, clearing agency amici. I mean, look, normally, I don't think you really draw any inference through -- from the amici that aren't 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 -- if you had any thought that you were not fully protected by the Respondent's view as much as the Petitioner's view, I would think it would be worth your while to file an amicus brief. And the fact that they're not here, I think, underscores that the entities that Congress was trying to protect are fully protected by our view, and they're fully protected by the Petitioner's view.

It's just so is the rest of the world. And I just don't think there's any view that Congress actually intended to not just protect those 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.

John G. Roberts, Jr.: Thank you, counsel. Four minutes, Mr. Walsh.

Brian C. Walsh: Thank you. I'd like to return to Justice Kagan's question a little 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-to-end transfer in this case is avoided and -- and some amount of that would have to be refunded by Merit.

I think the question we have to ask is then: 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 and have been paid, and Citizens has satisfied its obligations because Merit has the 16 and a half million dollars? And I think the answer to all those questions is no because, once the broader transfer is avoided and a recovery is made, everything else falls with it as well. So when we say the --

Sonia Sotomayor: Sorry.

I thought that 550 said that post -- that transferees from Bedford could be protected by other safe havens, if they paid consideration in -- in good faith, et cetera, they would be okay?

Brian C. Walsh: No, that -- that's right. If -- if -- well, Bedford didn't receive the transfer, Your Honor, the shareholders of Bedford, including my client, received the transfer.

Sonia Sotomayor: Right.

Brian C. Walsh: If they had transferred it on --

Sonia Sotomayor: Right.

Brian C. Walsh: And that's what we were talking about, the good faith defense would come into play. But what I'm talking about is the transfers from Citizens out of escrow to the shareholders.

If the -- if the broader transfer is avoided and recovery is had against Merit, then those transfers into and out of escrow involving financial institutions are not in full force and effect.

Stephen G. Breyer: So what?

Brian C. Walsh: So --

Stephen G. Breyer: I mean, if I write a check, and it goes to the postman, and the postman delivers it to Smith, and I get my money back from Smith, then I guess you could say, well, the postman -- that putting it in the mailbox didn't have any financial effect. So what?

Brian C. Walsh: So the -- the so what, Your Honor, is that, when the trustee says, I'm only seeking to avoid the one transfer and the rest can --

Stephen G. Breyer: Well, that is all that he's trying to avoid.

Brian C. Walsh: -- and the rest can be disregarded --

Stephen G. Breyer: Well, I know, but I mean it has no effect.

If FedEx, you know, 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 a sense 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?

Brian C. Walsh: The so what is that the statute says the trustee may not avoid the transfer by a financial institution.

And so by -- by avoiding the transfer, the broader transfer --

Stephen G. Breyer: And there's no -- there's no consequence to Citizens Bank, is there?

Brian C. Walsh: It would not hit Citizens' bottom line, that's correct.

Stephen G. Breyer: No -- no -- no consequence?

Brian C. Walsh: That's correct.

Stephen G. Breyer: Okay.

Brian C. Walsh: I -- I do want to talk about consequences, though, because this is a case involving 16 and a half million dollars. As the Court is aware, both sides in the Tribune case have filed amicus briefs.

That case is, let's call it 100 times larger than ours, it's more than that. And the issue there, and Justice Gorsuch mentioned the Second Circuit's opinion, which is justifiably concerned about what happens, there are thousands of defendants in that case. Of course, if Goldman Sachs or Merrill Lynch received a 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 company stock, there are pension funds that held stock in Tribune.

All these other entities remain exposed. Over the past 30 years, Congress has expanded and expanded and expanded the safe harbor to bolt on different concepts, including financial institutions.

At the same time, the courts, with a few exceptions, have been interpreting the statute broadly. And if Congress thought that the courts were out of line, it could very well have cut the statute back.

It didn't do that. The statute has continued to expand.

And it's important. And one -- one last point, Mr. Clement mentioned the Seligson case.

And what Congress was -- I'm sorry.

John G. Roberts, Jr.: You can finish your point.

Brian C. Walsh: 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 where Goldman Sachs transferred me a bunch of Berkshire Hathaway stock for a nominal amount of money is covered as well, so it's broader than Seligson.

John G. Roberts, Jr.: Thank you, counsel.

The case is submitted.