Grede v. Velocity Futures, LP

Filing 116

MOTION by Defendant Velocity Futures, LP for judgment /Velocity Futures, LLC's Motion for Entry of Judgment on Counts I, II, IV and V of the Trustee's Second Amended Complaint (Goodman, Geoffrey)

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

)
)
)

VELOCITY FUTURES, LLC,

)
)

Defendant.

)

Case No. 09-cv-00135

VELOCITY FUTURES, LLC’S MOTION FOR ENTRY OF JUDGMENT ON
COUNTS I, II, IV AND V OF THE TRUSTEE’S SECOND AMENDED
COMPLAINT
Defendant, Velocity Futures, LLC (“Velocity”), 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, Velocity 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, American National
Trading Corp., ABN AMRO Clearing Chicago LLC and Crossland LLC (collectively, the
“SEG 1 Defendants”).
1

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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 cross-appealed 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, 254-58)—and therefore that no avoidance action could

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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 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 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).2 It also collaterally estops the
Trustee from further litigation of 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.
2

Velocity 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. Velocity, therefore, is entitled to judgment on Count V as well.

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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 collateral estoppel should be cautiously invoked, it is appropriate here.”)(and
collecting authority). 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 Velocity and against the

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

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

3

Velocity 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.

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Dated: September 3, 2014

Respectfully submitted,
Defendant, Velocity Futures, LLC
By: /s/ Geoffrey S. Goodman
Stephen P. Bedell (#3125972)
William J. McKenna (#3124763)
Thomas P. Krebs (#6229634)
Geoffrey S. Goodman (#6272297)
Foley & Lardner LLP
321 North Clark Street, Suite 2800
Chicago, IL 60654-5313
Telephone: [phone]
Facsimile: [phone]

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CERTIFICATE OF SERVICE
I, Geoffrey S. Goodman, an attorney, hereby certify that on September 3, 2014, I
electronically filed the foregoing VELOCITY FUTURES LLC’S MOTION FOR ENTRY OF
JUDGMENT ON COUNTS I, II, IV and V with the Clerk of the Court using the CM/ECF
system, and further caused the same to be served on all counsel of record via ECF filing.

By: /s/ Geoffrey S. Goodman
One of its attorneys

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