Grede v. Farr Financial, Inc.

Filing 87

MOTION by Defendant Farr Financial, Inc. for judgment on Counts I,II, IV and V of Trustee's Second Amended Complaint (Stein, Howard)

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
FREDERICK J. GREDE, not individually but )
as Liquidation Trustee of the Sentinel )
Liquidation Trust,
)
)

Plaintiff,
v.

Honorable James B. Zagel

)
)
)

FARR FINANCIAL, INC.,

)
)

Defendant.

)

Case No. 09-cv-00120

FARR FINANCIAL, INC.’S MOTION FOR ENTRY OF JUDGMENT ON
COUNTS I, II, IV AND V OF THE TRUSTEE’S SECOND AMENDED
COMPLAINT
Defendant, Farr Financial,, hereby submits this Motion for Entry of Judgment on
Counts I, II, IV and V of the Trustee’s Second Amended Complaint.1

In support of its

Motion, FARR FINANCIAL, INC. states as follows:
INTRODUCTION
1.

This is one of 10 closely related adversary proceedings brought by the

Trustee against former SEG 1 customers (collectively, the “SEG 1 Cases”) of Sentinel
Management Group, Inc. (“Sentinel”). The defendants in the SEG 1 Cases are FCStone
LLC (“FCStone”) IFX Markets, Inc., IPGL Ltd., Farr Financial, Inc., Cadent Financial
Services, Rand Financial Services, Country Hedging Inc, Velocity Futures, LLC,

1

The Trustee is Frederick J. Grede as Liquidation Trustee for the Sentinel
Liquidation Trust.

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American National Trading Corp., ABN AMRO Clearing Chicago LLC and Crossland
LLC (collectively, the “SEG 1 Defendants”).
2.

The operative complaint in this case contains five Counts: (1) Count I for

avoidance and recovery of post-petition transfer under § 549 of the of Title 11 of the
United States Bankruptcy Code (“Bankruptcy Code”); (2) Count II for avoidance and
recovery of prepetition preferential transfer under § 547 of the Bankruptcy Code; (3)
Count III for declaratory judgment regarding the ownership interest in the SEG 1 reserve
funds held by the Trustee; (4) Count IV for unjust enrichment; and (5) Count V for
reduction or disallowance of claims.
3.

Pursuant to this Court’s instructions, the Trustee and the Seg 1 Defendants

chose Grede v. FCStone, Case No. 09-cv-136 (the “FCStone Case”), as a test case for all
the SEG 1 Cases. The operative complaint in the FCStone Case contained the same five
counts as the operative complaint in this one: (1) Count I for avoidance and recovery of
post-petition transfer under § 549 of the Bankruptcy Code; (2) Count II for avoidance and
recovery of prepetition preferential transfer under § 547 of the Bankruptcy Code; (3)
Count III for declaratory judgment regarding the ownership interest in the SEG 1 reserve
funds held by the Trustee; (4) Count IV for unjust enrichment; and (5) Count V for
reduction or disallowance of claims.
4.

On January 4, 2013, after a bench trial, this Court entered final judgment

for the Trustee on Counts I (post-petition transfer), Count II (pre-petition preferential
transfer), Count III (declaratory judgment) and Count V (disallowance of claims) and for
FCStone on Count IV (unjust enrichment). (Final Judgment Order, Ex. _) Both parties
appealed.

2
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5.

On March 19, 2014, the United States Court of Appeals for the Seventh

Circuit reversed this Court’s judgment on Counts I, II, III and V. Grede v. FCStone,
LLC, 734 F.3d 244, 246-47, 251-260 (7th Cir. 2014) (Ex. __). The Seventh Circuit held
that the post-petition transfer (Count I) was authorized by the Bankruptcy Court (id. at
246-47, 254-58) and that the pre-petition preferential transfer (Count II) fell within both
the “settlement payment” and “securities contract” safe harbor exceptions to claw back in
§ 546(e) of the Bankruptcy Code Id. at 246-47, 251-54.

The Seventh Circuit also denied

the Trustee’s cross-appeal for reinstatement of his unjust enrichment claim (Count IV),
affirming this Court’s holding that the Trustee’s unjust enrichment claim is preempted by
federal bankruptcy law. Id. at 259-60
6.

The Seventh Circuit’s opinion in the FCStone Case is binding precedent

for all the SEG 1 Cases with respect to the Trustee’s claims for: (1) avoidance and
recovery of Sentinel’s post-petition transfers (Count I); (2) avoidance and recovery of
Sentinel’s pre-petition preferential transfers (Count II); (3) unjust enrichment (Count IV);
and (4) reduction or disallowance of claims (Count V).2 It also collaterally estops the
Trustee from further litigation these claims.

2

Farr Financial, Inc. is entitled to judgment on Count V under Section 502(d) of the
Bankruptcy Code, which provides for the disallowance of the claims of an entity that
receives an avoidable transfer from the debtor’s estate and does not return such transfer to
the estate. See 11 U.S.C. § 502(d). Here, the Seventh Circuit already has held that the
post-petition and pre-petition transfers are not avoidable transfers from Sentinel’s estate.
Farr Financial, Inc., therefore, is entitled to judgment on Count V as well.

3
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7.

This Court, therefore, should enter judgment for FARR FINANCIAL,

INC. and against the Trustee on Counts I, II, IV and V of the Trustee’s Second Amended
Complaint.3

WHEREFORE, FARR FINANCIAL, INC. respectfully requests this Court to
enter judgment for FARR FINANCIAL, INC. and against the Trustee on Counts I, II, IV
and V of the Trustee’s Second Amended Complaint.

Dated: September __, 2014

Respectfully submitted,
Farr Financial, Inc.
By: /s/ Howard J. Stein
70 W. Madison St.
Suite 2100
Chicago, IL 60602
N.D. IL. No. 2116208
Telephone: [phone]

3

FARR FINANCIAL, INC. is not moving for the entry of judgment on Count III,
which seeks a declaratory judgment regarding the ownership interest in the SEG 1
reserve funds held by the Trustee, because the Seventh Circuit remanded that Count for
further proceedings.

4
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CERTIFICATE OF SERVICE
I, Howard J. Stein, an attorney, certify that on September ____, 2014, I electronically
filed Farr Financial, Inc.’s MOTION FOR ENTRY OF JUDGMENT ON COUNTS I, II, IV and
V with the United States District Court for the Northern District of Illinois. Notice of this filing
will be sent to all counsel of record via CM/ECF:

ADD

By: /s/ Howard J. Steinr
One of its attorneys

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