Peterson ex rel. Estates of Lancelot Investors Fund, L.P. v. Somers Dublin Ltd.
729 F.3d 741
| 7th Cir. | 2013Background
- Funds’ mutual funds collapsed in 2008; trustee in bankruptcy pursued adversary actions against solvent third parties, including investors who redeemed shares.
- Funds invested in notes issued by Thousand Lakes, LLC; Bell operated the Funds in a manner that funded redemptions with new investments, effectively creating a Ponzi scheme to keep payouts going.
- By fall 2008, Thousand Lakes stopped remitting funds; Bell and Funds used round-trip transactions to pay prior investors, masking lack of net cash flow.
- Crashes led to prosecutions; Bell pled guilty; Petters convicted; substantial losses to creditors occurred.
- Trustee seeks to recover preferences or fraudulent conveyances under 11 U.S.C. §547, §548, and Illinois fraudulent-conveyance law via §544; bankruptcy court granted summary judgment in favor of investors based on §546(e).
- Issues include whether the trustee can avoid transfers under §546(e) and whether the appeal is timely/jurisdictionally proper, given appellate rules and Stern/Wellsness concerns.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Timeliness of joint certification for interlocutory appeal | Trustee contends joint certification timely under §158(d)(2) and Rule 8001(f) with no strict 30-day limit for joint certifications. | Investors argue possible 30- or 60-day limits apply under Rule 4(a)/§158(d)(2). | No time limit for joint certification; Rule 5(a) petition timely. |
| Bankruptcy judge authority under Stern and consent | Trustee contends consent to bankruptcy-judge adjudication permits direct appeal despite Stern. | Defendants argue Article III constraints prevent final adjudication by a non-Article III judge absent waiver. | Bankruptcy judge acted within authority; direct appeal allowed under §158(d). |
| Effect of §546(e) on avoiding transfers to financial participants | Trustee argues §546(e) should not bar avoidance for transfers to financial participants in a Ponzi context. | Investors contend §546(e) bars avoidance of settlements/transactions in connection with securities contracts. | §546(e) defeats Trustee’s avoidance actions. |
| Applicability of §548(a)(1)(A) exception | Trustee considers using the actual-fraud exception to §546(e) via §548(a)(1)(A). | Investors contend no need to consider §548(a)(1)(A) because Trustee did not invoke it. | Court does not decide applicability; Trustee did not invoke §548(a)(1)(A); no need to resolve here. |
| Textual vs. historical interpretation of §546(e) | Trustee seeks legislative-history to interpret ambiguous terms like 'settlement payment' and 'in connection with'. | Investors urge adherence to statutory text rather than history; history cannot override text. | Text governs; legislative history cannot override unambiguous language. |
Key Cases Cited
- Wellness International Network, Ltd. v. Sharif, 720 F.3d 761 (7th Cir. 2013) (waiver vs forfeiture; bankruptcy court authority to adjudicate)
- Katchen v. Landy, 382 U.S. 323 (Supreme Court 1966) (Article III bankruptcy jurisdiction over avoidance actions)
- Langenkamp v. Culp, 498 U.S. 42 (1990) (affirms bankruptcy-judge authority under Article III framework)
- In re Quebecor World (USA) Inc., 719 F.3d 94 (2d Cir. 2013) (definition of 'transfer' and securities contract in §546(e))
- Enron Creditors Recovery Corp. v. Alfa, S.A.B. de C.V., 651 F.3d 329 (2d Cir. 2011) ('settlement payment' meaning in §546(e))
- Dabit v. Merrill Lynch, Pierce, Fenner & Smith Inc., 547 U.S. 71 (Mid-2006) (scope of 'in connection with' in §546(e))
- O’Hagan, 521 U.S. 642 (1997) (fraud and securities context for 'in connection with')
- Bowles v. Russell, 551 U.S. 205 (2007) (jurisdictional time limits may be nonstatutory; important for timing)
- Kontrick v. Ryan, 540 U.S. 443 (2004) (Rule-based timeliness not jurisdictional; filing timing examples)
- In re Turner, 574 F.3d 349 (7th Cir. 2009) (Rule 5 timing does not govern jurisdictional limits)