## Facts

- Valley View Downs, LP and Bedford Downs Management Corp. competed for a Pennsylvania harness-racing license needed to develop “racinos.”
- They agreed Valley View would acquire all Bedford stock for $55 million in cash.
- Valley View financed the acquisition with loans from Credit Suisse and other lenders.
- Credit Suisse wired funds to Citizens Bank of Pennsylvania as escrow agent.
- Bedford’s shareholders deposited stock certificates into escrow; at closing Citizens Bank released cash to shareholders.
- Merit Management Group, LP, a 30% Bedford shareholder, received $16.5 million.
- Valley View obtained the harness-racing license but failed to secure a gaming license and later filed Chapter 11 bankruptcy.
- FTI Consulting, Inc., as litigation trustee for the debtors’ litigation trust, sued Merit to avoid and recover the $16.5 million as a constructively fraudulent transfer under 11 U.S.C. §§ 544, 548(a)(1)(B), and 550.
- The district court dismissed, holding the transfer was shielded by the Bankruptcy Code § 546(e) safe harbor because the transaction involved Credit Suisse and Citizens Bank.

## Issues

1. Whether § 546(e) protects a transfer from avoidance when the only covered entities (e.g., banks) are intermediaries that acted as conduits, and neither the debtor-transferor nor the ultimate transferee is a protected entity.

## Decision

- The Seventh Circuit reversed and remanded.
- Section 546(e) did not bar avoidance because the relevant transfer is the end-to-end transfer the trustee seeks to avoid (the $16.5 million paid to Merit), not the component wiring and escrow steps.
- The presence of Credit Suisse and Citizens Bank as financing and escrow intermediaries did not bring the transfer within § 546(e) where those institutions were not the debtor or the ultimate transferee.

## Legal Principles

- For § 546(e) analysis, the court focuses on the overarching transfer the trustee seeks to avoid, rather than dissecting the transaction into intermediate transfers through financial institutions.
- The § 546(e) safe harbor applies only when the transfer being avoided is “made by or to (or for the benefit of)” a covered entity; it does not extend to transactions where covered entities served solely as mere conduits.
- Reading § 546(e) to protect any transfer that passes through a bank would expand the statute beyond its text and would largely immunize ordinary modern transactions that routinely use financial intermediaries.

## Conclusion

The Seventh Circuit held that § 546(e) does not shield a stock-sale payment from avoidance where banks participated only as intermediaries; because the challenged transfer was between noncovered parties, the trustee could proceed with fraudulent transfer claims on remand.


FTI Consulting, Inc. v. Merit Mgmt. Grp., LP, 830 F.3d 690 (7th Cir. 2016)