SCOTUS to Review Scope of Bankruptcy Settlement Payment Defense

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On May 1, 2017, the U.S. Supreme Court announced that it would review the Seventh Circuit’s decision in FTI Consulting, Inc. v. Merit Management Group, LP, 830 F.3d 690 (7th Cir. 2016) (“Merit”), which addressed the scope of the safe harbor found in Section 546(e) of the Bankruptcy Code for settlement payments. Litigation over the § 546(e) safe harbor has been on the rise in the last several years, as evident in the many high-profile bankruptcy suits to avoid, or “claw back,” payments from failed brokerages and investment banks (e.g., Madoff, Lehman Brothers) and to unwind shareholder payments in leveraged buy-outs (LBOs) that later went south (e.g., Tribune, Lyondell). The defenses against these suits have been furious, as the payee classes have been numerous (some suits have named hundreds or thousands of defendants and have even been styled as “defendant class actions”), the dollar amounts enormous (often in the…

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