Source: https://mediatbankry.com/2018/03/29/footnote-5-in-supreme-courts-merit-management-opinion-settlement-payment-under-a-securities-contract/
Timestamp: 2019-04-19 01:06:35+00:00

Document:
Whenever a court goes out of its way to say in an opinion, “We aren’t deciding issues X and Y,” it’s time to take notice. The omitted issues must be significant, in some way, to what’s being decided; otherwise, there’s no reason to mention them.
And when the opinion is from the Supreme Court of the United States of America, we’d better give the undecided issues a hard look.
On February 27, 2018, the U.S. Supreme Court issues its ruling on the § 546(e) safe harbor defense in Merit Management Group, LP v. FTI Consulting, Case No. 16-784.
In footnotes 2 and 5 of this opinion, the Supreme Court identifies critical issues that were not raised by the parties and that are not addressed in the opinion.
–Footnote 2 deals with the statutory definition of “financial institution.” A prior article (linked here) discusses that issue and Justice Breyer’s comments, at oral argument, on the “customer” portion of that definition.
–Does a transfer of privately traded stock qualify as a “settlement payment . . . in connection with a securities contract” under the § 546(e) safe harbor defense?
The opinion is Geltzer v. Mooney (In re MacMenamin’s Grill Ltd.), 450 B.R. 414 (Bankry. S.D.N.Y. 2011).
(ii) the loan the Debtor took to fund the stock purchase and the related security interest it granted in substantially all of Debtor’s assets.
The shareholder defendants raise a § 546(e) defense, and summary judgment motions are filed on whether the § 546(e) defense applies to them.
Other courts hold, based on the statute’s “plain meaning,” that § 546(e) does apply to “privately traded securities in LBOs, including to insiders” (see, e.g., In re QSI Holdings, Inc., 571 F.3d 545, 550-51 (6th Cir. 2009); Brandt v. B.A. Capital Co., LP (In re Plassein Int’l Corp.), 590 F.3d 252, 258-59 (3d Cir. 2009); Contemporary Indus. Corp. v. Frost, 564 F.3d 981, 987-88 (8th Cir.2009)).
In MacMenamin, the Bankruptcy Court provides an independent analysis of the issue as follows.
§ 761 is also “a key definitional reference within § 546(e), which also appears in Subchapter IV of chapter 7 governing commodity broker liquidations.
Other courts in the Southern District of New York look beyond the “apparently plain language” of § 546(e) to achieve Congressional intent “on a nuanced basis.” One such court, for example, identifies “five factors” to consider regarding the nature of the transaction and its potential impact on markets.
“Clear” and “consistent” legislative history demonstrates that § 546(e) is intended to address market-level risks that are absent from private transactions. So, a result contrary to Congressional intent should not be imposed.
The § 546(e) safe harbor defense is the subject of debate and disagreement these days. The U.S. Supreme Court resolved a narrow issue for us in its Merit Management opinion. But many more issues remain, including those referenced in footnotes 2 and 5 of the Merit Management opinion.
Based upon the wording of those two footnotes, and upon comments in oral arguments, it appears that the winner and loser in Merit Management might have been different, if the footnote 2 issue had been raised by the parties. But the result, apparently, would not have been affected, even if the footnote 5 issue had been raised.
It will be interesting to see how all this plays out in litigation to come.

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