Fifth Circuit Upholds Broad Reading of Forward Contract in Applying Safe Harbor of Section 546(e) to a Requirements Contract

On August 2, 2012, the United States Court of Appeals for the Fifth Circuit issued a decision in Lightfoot v. MXEnergy Electric, Inc. (In re MBS Management Services., Inc.), No. 11-30553, __ F. 3d ___, 2012 WL 3125167 (5th Cir. 2012), upholding the dismissal of a preference action seeking to avoid transfers received by an electricity merchant pursuant to a requirements contract. The Fifth Circuit’s decision continues the recent trend of courts broadly reading the safe harbors by interpreting them in accordance with the plain language of the statute. Applying the plain language of the Bankruptcy Code’s definition of a “forward contract,” the Fifth Circuit held that a requirement contract which “contained neither a specific quantity of electricity to be purchased nor specific delivery dates” qualified as a forward contract and that transfers thereunder were thus safe-harbored from avoidance by Section 546(e).