Opinion ID: 2709359
Heading Depth: 2
Heading Rank: 3

Heading: Voiding the Contracts

Text: The district court dismissed under Rule 12(b)(6) the claim that Sentinel’s contracts with the Bank were inherently illegal. See 11 U.S.C. § 506(d) (voiding liens securing disallowed claims). We review this dismissal de novo. Tamayo v. Blagojevich, 526 F.3d 1074, 1081 (7th Cir. 2008). The district court correctly dismissed this claim because the agreements were not the cause of Sentinel’s under‐segregation. The contracts did not require either Sentinel or the Bank to do anything illegal, nor did they encourage either party to engage in illegal activity. The contracts’ provisions requiring Sentinel to release all third‐party claims when funds were desegregated were not inherently unlawful because segregated funds could be deposited elsewhere Ain the normal course of business” to settle trades. 7 U.S.C. § 6d(a)(2); see also 17 C.F.R. § 1.23 (stating that § 6d(a)(2) does not prohibit an entity from withdrawing segregated funds “to the extent of its actual interest”); 17 C.F.R. § 1.29 (an FCM may receive and retain “as its own any incre‐ ment or interest resulting” from investments). Furthermore, Grede fails to point to any evidence suggesting that the 24 Nos. 10‐3787, 10‐3990 & 11‐1123 contract between Sentinel and the Bank was connected with an illegal scheme or plan. Just because the parties to a contract have engaged in illegal behavior does not mean the contract itself is intrinsically illegal. Nor does “the defense of illegality … come into play just because a party to a lawful contract … commits unlawful acts to carry out his part of the bargain.” N. Ind. Pub. Serv. Co. v. Carbon Cnty. Coal Co., 799 F.2d 265, 273 (7th Cir. 1986) (citations omitted). Consequently, we agree with the district court that the defense of illegality is inapplicable to the contracts between Sentinel and the Bank of New York.