Bankruptcy

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7^th Circuit Court of Appeals

Case Name: John J. Petr v. BMO Harris Bank N.A.

Case No.: 23-1931

Officials: St. Eve, Kirsch, and Lee, Circuit Judges.

Focus: Bankruptcy

The case revolves around a disagreement between the Trustee representing the bankrupt entity BWGS, LLC, and BMO Harris Bank N.A. and Sun Capital Partners VI, L.P. The Trustee aimed to invalidate a payment made by BWGS to BMO Harris, which financed BWGS’s acquisition by a subsidiary of Sun Capital. The Trustee contended that the payment constituted a constructively fraudulent transfer under both the U.S. Bankruptcy Code and Indiana state law.

The Seventh Circuit confronted two unprecedented issues: whether Section 546(e) of the Bankruptcy Code, safeguarding specific transactions related to “securities contracts,” extends to transactions involving private securities; and if so, whether it preempts state law claims seeking similar redress.

The Court determined that Section 546(e) indeed encompasses transactions involving private securities and preempts state law claims seeking analogous remedies. Consequently, the Trustee’s endeavor to nullify the payment under both the Bankruptcy Code and Indiana law was impeded by Section 546(e). Additionally, the Court dismissed the Trustee’s contention that recovery of the payment’s value from Sun Capital was viable under another provision of the Bankruptcy Code, as this claim was also preempted by Section 546(e). Accordingly, the Court upheld the lower court’s ruling to dismiss the Trustee’s complaint with prejudice.

Affirmed.

Decided 03/15/24

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