## Facts

- Valley View Downs, LP sought to develop a racetrack-casino project in Pennsylvania and competed with Bedford Downs Management Corp. for a harness-racing license.
- Valley View agreed to purchase all Bedford Downs stock for $55 million if Valley View obtained the license.
- To close the deal, Valley View’s lender wired $55 million to an escrow agent bank, shareholders deposited stock into escrow, and the escrow agent distributed the funds to shareholders.
- Merit Management Group, LP, a Bedford Downs shareholder, received $16.5 million from the distribution.
- Valley View and its parent later filed for Chapter 11 bankruptcy; a litigation trust was formed, and the trustee sued to avoid the $16.5 million payment as a constructively fraudulent transfer under 11 U.S.C. § 548(a)(1)(B) and to recover it under § 550.
- Merit argued the claim was barred by the § 546(e) securities safe harbor because the transaction used financial institutions as lender and escrow agent.

## Issues

1. For § 546(e), is the relevant “transfer” the overarching transfer the trustee seeks to avoid, or any intermediate component transfer involving a financial institution?
2. Does § 546(e) bar avoidance when financial institutions participated only as intermediaries and were not the debtor or the ultimate transferee?

## Decision

- The Supreme Court unanimously affirmed.
- The Court held that the relevant transfer for the § 546(e) inquiry is the transfer the trustee seeks to avoid, not intermediate component transfers.
- Because the trustee sought to avoid the transfer from Valley View to Merit, and neither was a covered entity for § 546(e) purposes, the safe harbor did not apply.
- The fraudulent-transfer action could proceed.

## Legal Principles

- In applying § 546(e), courts must identify the specific transfer the trustee seeks to avoid under the avoiding power invoked (such as § 548) and evaluate safe-harbor coverage for that transfer as a whole.
- The presence of financial institutions as conduits or intermediaries in component steps (such as wiring funds or serving as escrow) does not, by itself, bring the avoided transfer within § 546(e).
- Section 546(e) limits avoidance of certain settlement payments or securities-contract-related transfers only when the avoided transfer itself is “made by or to (or for the benefit of)” a covered entity.

## Conclusion

The Court limited § 546(e) to the transfer actually targeted by the trustee, rejecting reliance on intermediary banking steps to shield an otherwise avoidable payment to a shareholder.


Merit Mgmt. Grp., LP v. FTI Consulting, Inc., 138 S. Ct. 883 (2018)