On August 7, 2017, the United States Court of Appeals for the Seventh Circuit affirmed rulings by the United States District Court and the United States Bankruptcy Court in favor of Firm member Ira Bodenstein, who is the chapter 7 trustee of the Peregrine Financial Group, Inc. (“PFG”) bankruptcy estate, relating to the treatment of claims by customers who held accounts with PFG for retail foreign exchange (“Forex”) and over-the-counter spot metals (“Metals”) trading.
In Secure Leverage Group Inc., et al. v. Bodenstein, a group of former Forex and Metals customers sought the return of funds held by PFG at the time of its bankruptcy on the grounds that Forex and Metals contracts were “commodity contracts” within the meaning of the Bankruptcy Code. Therefore, the plaintiffs argued, their claims were entitled to the same priority afforded to futures customers. The Secure Leverage claimants also asserted that PFG held the funds they deposited for Forex and Metals trading in trust, such that those funds are not part of the bankruptcy estate. Judge Carol A. Doyle of the Bankruptcy Court rejected both theories and, on appeal, U.S. District Judge John J. Tharp Jr. agreed, endorsing the Bankruptcy Court’s rationale and affirming its judgment in favor of the Trustee.
In Miller, et al. v. Bodenstein, a second group of Forex and Metals claimants, represented by the same attorneys as the Secure Leverage plaintiffs, filed a class action lawsuit on behalf of all of PFG’s former Forex and Metals customers, in which they asserted new legal theories in support of their claims for the return of funds deposited for Forex and Metals trading. Because the Miller class action lawsuit was filed more than two years after the claims bar date, the Bankruptcy Court dismissed the lawsuit as untimely. Again, Judge Tharp agreed and affirmed the Bankruptcy Court’s entry of judgment in favor of the Trustee.
On further appeal, the Court of Appeals found Judge Tharp’s decision to be a “thorough and well-reasoned opinion” that “properly resolved all of [the Forex and Metals claimants’] challenges.” As such, the Court of Appeals took the rare step of simply adopting the District Court’s opinion as its own. The Court of Appeals’ decision ends nearly five years of litigation over how Forex and Metals claims should be treated in the PFG bankruptcy case.
Mr. Bodenstein was represented in these proceedings by Firm members Robert M. Fishman and Terence G. Banich, as well as former Firm member Carrie E. Davenport.