Supreme Court Hears Bankruptcy and Casino Cases

There are two cases argued at the United States Supreme Court this week. One addresses bankruptcy trustees reversing payments, and the other is a fascinating case resulting from of one man’s attempt to stop an Indian casino from operating near his property.

Merit Management Group, LP v. FTI Consulting, Inc.

The question presented here is:

Whether the safe harbor of Section 546(e) of the Bankruptcy Code prohibits avoidance of a transfer made by or to a financial institution, without regard to whether the institution has a beneficial interest in the property transferred,

Bankruptcy trustees can require some creditors give money they collected from debtors to bankruptcy courts for redistribution to other creditors.  Let’s say you were about to file for bankruptcy and you owed Mastercard $30,000, a hospital $15,000, and your Aunt Sally another $5,000.  Well if you pay back your Aunt in full and file for bankruptcy the next day, the bankruptcy court may “avoid” this payment by making Sally give them the money and fight for repayment like other creditors.

The case here involves an exception to the “avoidance” rule dealing with securities contracts.  For a detailed breakdown of the ramifications for securities traders, see the always excellent SCOTUSblog here.

 Patchak v. Zinke

David Patchak was not happy about the upheaval of his quiet little part of the world by the development of the Gun Lake Casino, and he decided to do something about it.  He challenged the creation of the trust that allowed the Match-e-be-nash-she-wish Band of Pottawatomi Indians, also known as the Gun Lake Band of Pottawatomi, to open the casino and offer the games they do.  The challenge is an existential one for the casino:

The validity of the land-in-trust transaction is critical to the casino, because if the land cannot be held in trust by the federal government, it cannot be used for Class III gaming, a prohibition that would include many games commonly played at casinos, such as slot machines, blackjack, craps and roulette.

Patchak’s challenge has been to the Supreme Court before, inspired a federal statute. It has become a separation of powers case because the statute essentially directed Federal Courts to dismiss Mr. Patchak’s suit.  The question presented before the Court now is whether legislation directing such a case to be dismissed violates the Constitution’s separation of powers provisions.