Bankruptcy – Post-Petition Transfer

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7^th Circuit Court of Appeals

Case Name: Frederick J. Grede, Liquidation Trustee of the Sentinel Liquidation Trust v. FCStone, LLC

Case No.: 16-1896; 16-1916

Officials: RIPPLE, ROVNER, and HAMILTON, Circuit Judges.

Focus: Bankruptcy – Post-Petition Transfer

This is our fifth appeal dealing with Sentinel. In a pair of cases decided in 2013 and 2016, we addressed the priority of a claim against the bankruptcy estate by the Bank of New York, Sentinel’s largest (but no longer secured) creditor. In re Sentinel Management Group, Inc., 728 F.3d 660 (7th Cir. 2013); Grede v. Bank of New York Mellon Corp. (In re Sentinel Management Group, Inc.), 809 F.3d 958 (7th Cir. 2016). Earlier this year, we affirmed the convictions and sentence of Sentinel’s former president and CEO, who was prosecuted for wire fraud and investment adviser fraud. United States v. Bloom, 846 F.3d 243 (7th Cir. 2017).

In Grede v. FCStone, LLC, 746 F.3d 244 (7th Cir. 2014) (FCStone I), the direct predecessor to this appeal, we considered among other issues a distribution of $297 million to a group of Sentinel customers a few days after Sentinel filed for bankruptcy protection in August 2007. Following a bench trial, the district court had allowed the trustee in bankruptcy to avoid this post-petition transfer under 11 U.S.C. § 549. We reversed, holding that relief under § 549 was unavailable to the trustee because the bankruptcy court had authorized the transfer. We rejected the trustee’s reliance on an October 2008 “clarification” through which the bankruptcy judge indicated that he had not intended to foreclose a § 549 avoidance action. Later statements by the judge about his subjective intentions could not, we concluded, defeat the plain language of the order authorizing the transfer. We remanded for further proceedings, which led to these new appeals.

Despite our holding in FCStone I that “the bankruptcy court authorized the post-petition transfer” and that the trustee “therefore cannot avoid the transfer,” 746 F.3d at 258, the trustee argued on remand that the bankruptcy judge’s October 2008 “clarification” was entitled to preclusive effect. Since FCStone did not appeal that “clarification” when it was made, the trustee argued, FCStone should be bound by it and collaterally estopped from arguing that the post-petition transfer was authorized. The district court rejected the trustee’s argument on this point, and we affirm on two independent grounds. First, pursuant to the mandate rule and the law-of the-case doctrine, the collateral estoppel theory was unavailable to the trustee on remand. Second, even if the theory were available despite our unambiguous holding in FCStone I, the bankruptcy judge’s “clarification” was not the sort of final ruling that could be entitled to preclusive effect.

For the reasons we have explained, we AFFIRM the district court’s judgment as to Counts I and V of the trustee’s operative Second Amended Complaint. We REVERSE with respect to Count III and REMAND with instructions to enter judgment for FCStone on that count and for further proceedings consistent with this opinion.

Affirmed in part. Reversed and Remanded in part.

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Attorney Derek A. Hawkins is the managing partner at Hawkins Law Offices LLC, where he heads up the firm’s startup law practice. He specializes in business formation, corporate governance, intellectual property protection, private equity and venture capital funding and mergers & acquisitions. Check out the website at www.hawkins-lawoffices.com or contact them at 262-737-8825.