Grede v. Country Hedging, Inc.
Filing
92
MOTION by Defendant Country Hedging, Inc. for judgment (Coco, Nathan)
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,
Case No. 09 C 00130
Plaintiff,
Honorable James B. Zagel
v.
COUNTRY HEDGING, INC.,
Defendant.
COUNTRY HEDGING, INC.’S MOTION FOR ENTRY OF JUDGMENT ON
COUNTS I, II, IV AND V OF THE TRUSTEE’S SECOND AMENDED COMPLAINT
Defendant, Country Hedging, Inc. (“CHS”),1 hereby submits this Motion for Entry of
Judgment on Counts I, II, IV and V of the Trustee’s Second Amended Complaint.2 In support of
its Motion, CHS 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 CHS, FCStone LLC
(“FCStone”) IFX Markets, Inc., IPGL Ltd., Farr Financial, Inc., Cadent Financial Services, Rand
Financial Services, Velocity Futures, LLC, American National Trading Corp., ABN AMRO
Clearing Chicago LLC and Crossland LLC (collectively, the “SEG 1 Defendants”).
1
Country Hedging, Inc. changed its name to CHS Hedging, Inc. on October 30, 2012. CHS Hedging, Inc. remains
a wholly owned subsidiary of CHS Inc. and conducts the same business functions as did Country Hedging.
2
The Trustee is Frederick J. Grede as Liquidation Trustee for the Sentinel Liquidation Trust.
2.
The complaints in all these cases contain identical counts, cover the same core
facts and transactions, and raise the same issues. These counts are: (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. All the Seg 1 Defendants
have raised the same core defenses.
3.
Pursuant to this Court’s instructions, the Trustee and the Seg 1 Defendants chose,
and this Court approved Grede v. FCStone, Case No. 09-cv-136 (the “FCStone Test Case”), as
the test case for all the SEG 1 Cases.
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). FCStone appealed those counts decided against it and the Trustee crossappealed the finding as to Count IV. This Court has refrained from making any further decisions
in the other Seg 1 Cases pending the appeal.
5.
On March 19, 2014, the United States Court of Appeals for the Seventh Circuit
found in favor of FCStone and 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). The Seventh Circuit held that
the post-petition transfer (Count I) was authorized by the Bankruptcy Court (id. at 246-47, 25458)—and therefore that no avoidance action could be brought by the Trustee under 11 U.S.C §
549(a), and that the pre-petition preferential transfer (Count II) fell within both the “settlement
2
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 crossappeal 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 Test 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).3 It also collaterally estops the Trustee from further litigating
these claims, as the Trustee had every incentive and opportunity to vigorously litigate these
issues in the FCStone Test Case and may not now re-litigate the adverse determinations against
him. See Ank v. Koppers Co., 1991 U.S. App. LEXIS 5381 (9th Cir. 1991) (“the situations that
are most likely to create an implied agreement to be bound involve a shared understanding that a
single action is to serve as a test case case that will resolve the claims or defenses of nonparties
as well as parties.”); Grubbs v. United Mine Workers, 723 F. Supp. 123 (W.D. Ark. 1989) (“It is
obvious that the parties regarded Royal as a test case as did the court and it was litigated
accordingly. There are, to this court’s knowledge, no procedural opportunities available in this
proceeding not available in Royal. The court perceives no “unfairness” in precluding the Plan
from relitigating the same issue ad infinitum. Although the doctrine of non-mutual offensive
3
CHS 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 postpetition and pre-petition transfers are not avoidable transfers from Sentinel’s estate. CHS, therefore, is entitled to
judgment on Count V as well.
3
collateral estoppel should be cautiously invoked, it is appropriate here.”). Indeed, this Court has
previously acknowledged that the Seventh Circuit’s reversal of the FCStone Test Case would
extinguish the Trustee’s identical claims against the SEG 1 Defendants. See Jan. 22, 2013 Tr.,
pp. 8:23-9:1 (“It is true that if the Court of Appeals says I’m completely wrong in FCStone and
everybody is off the hook as a result of that, you will have spent some money that perhaps your
clients didn’t have to …”).
7.
This Court, therefore, should enter judgment for CHS and against the Trustee on
Counts I, II, IV and V of the Trustee’s Second Amended Complaint.4
4
CHS 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 did not decide the
“property of the estate” issue.
4
WHEREFORE, CHS respectfully requests this Court to enter judgment in its favor and
against the Trustee on Counts I, II, IV and V of the Trustee’s Second Amended Complaint.
Dated: September 3, 2014
Respectfully submitted,
COUNTRY HEDGING, INC.
By:
Nathan F. Coco (6236870)
McDermott Will & Emery LLP
227 West Monroe Street
Chicago, IL 60606
Telephone: (312) 984-3658
Facsimile: (312) 984-7700
5
/s/ Nathan F. Coco
One of Its Attorneys
CERTIFICATE OF SERVICE
I, Nathan F. Coco, an attorney, hereby certify that on September 3, 2014, I electronically
filed the foregoing Country Hedging, Inc.’s Motion for Entry of Judgment on Counts I, II,
IV and V of the Trustee’s Second Amended Complaint with the Clerk of the Court using the
CM/ECF system, and furthercaused the same to be served on all counsel of record via ECF
filing.
/s/ Nathan F. Coco
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