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Seventh Circuit Denies Review of $16.5M Centaur Clawback Suit

New York, August 30, 2016 – On August 30, 2016, the Seventh Circuit denied Defendant Merit Management Group’s request for en banc review of its July decision in In re Centaur, LLC et al vs. Merit Management Group, LP. The case arose when FTI Consulting, Inc., as trustee of Centaur, LLC et al. litigation trust brought a lawsuit against Merit Management Group arguing that the alleged transfer of approximately $16.5 million to an entity named Valley View and thence to Merit was avoidable pursuant to §§§544,548(a)(1)(b), and 550 of the Bankruptcy Code.
The trustee argued that the alleged transfer was a part of the Valley View’s bankruptcy estate and thus the litigation trust. Merit argued that the transfer was made by or to (or for the benefit of) an entity designated in §546(e) and therefore protected under the safe harbor. The District Court agreed with Merit and held that the transfers were “made by or to” a financial institution because the funds passed through Citizens Bank and Credit Suisse and granted judgment in Merit’s favor, thereby preventing FTI from avoiding the transfer and recovering the $16.5 million.

On appeal, the Seventh Circuit reversed and held that §546(e) safe harbor does not protect transfers that are simply conducted through financial institutions (or the other entities mentioned under §546(e)), where the entity is neither the debtor nor the transferee but only the conduit. Merit sought review by filing a petition for rehearing en banc, but the Court denied Merit’s petition for rehearing.