FTI Consulting v. Merit Management Group

Valley View Downs, LP (Valley View) owned a racetrack in Pennsylvania. In 2003 Valley View attempted to become a racino—a combination of a horse track and casino. In furtherance of those efforts, Valley View acquired all the stock of one of its competitors, Bedford Downs (Bedford), for $55 million. This allowed Valley View to be the only track seeking the last harness-racing license in the state. The exchange of the $55 million took place through an escrow agent, Citizens Bank of Pennsylvania. The funds were borrowed from numerous lenders, including Credit Suisse. After Valley View acquired the Bedford shares, although it was able to obtain the harness-racing license, it was unable to receive the separately needed gambling license. Subsequently, Valley View filed for Chapter 11 bankruptcy. The trustee in bankruptcy, FTI Consulting, Inc. (FTI) (plaintiff) attempted to have the transfer undone and have the appropriate funds returned to the bankruptcy estate. To that end, FTI filed an action in federal district court against Merit Management Group (Merit) (defendant), a 30 percent shareholder in Bedford, seeking to have Merit return its portion of the $55 million to the bankruptcy estate. Merit argued that the transfer fell within the Bankruptcy Code’s safe harbor for certain securities-related transfers on the basis that Credit Suisse and Citizens Bank acted as intermediaries.