Justia Commercial Law Opinion Summaries

Enron Creditors Recovery Corp. (Enron) sought to avoid and recover payments it made to redeem its commercial paper prior to maturity from appellees, whose notes were redeemed by Enron. On appeal, Enron challenged the district court's conclusion that 11 U.S.C. 546(e)'s safe harbor, which shielded "settlement payments" from avoidance actions in bankruptcy, protected Enron's redemption payments whether or not they were made to retire debt or were unusual. The court affirmed the district court's decision and order, holding that Enron's proposed exclusions from the reach of section 546(e) have no basis in the Bankruptcy Code where the payments at issue were made to redeem commercial paper, which the Bankruptcy Code defined as security. Therefore, the payments at issue constituted the "transfer of cash ... made to complete [a] securities transaction" and were settlement payments within the meaning of 11 U.S.C. 741(8). The court declined to address Enron's arguments regarding legislative history because the court reached its conclusion based on the statute's plain language.

The borrowers, former high-level employees, participated in the company’s shared investment program by purchasing company stock. The entire purchase price was funded by personal loans from banks. The company guaranteed the loans, received loan proceeds directly from the banks, and held the shares. Some participants made a profit, but in 2001 the company filed for bankruptcy. After settling with the lenders, the bankruptcy trustee filed actions against the borrowers. The district court ruled in favor of the trustee. The Seventh Circuit vacated and remanded. The borrowers may have enough evidence to satisfy the "in the business of supplying information" element of a negligent misrepresentation defense. The borrowers may raise margin Regulations G and U as an affirmative excuse-of-nonperformance defense; it is not clear whether the borrowers, the banks, the company, or the plan violated those regulations. Summary judgment on the Securities and Exchange Act Section 10(b) and Section 17(a) illegality defenses was also in error.