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BNY Win in $312 Million Sentinel Case Withdrawn by Court

Dec. 3 (Bloomberg) -- Bank of New York Mellon Corp.’s victory in a lawsuit challenging its $312 million lien on the assets of bankrupt Sentinel Management Group Inc. was canceled without explanation by a U.S. appeals court.

A three-judge panel of the U.S. Court of Appeals in Chicago on Nov. 30 withdrew its prior ruling affirming the lender’s entitlement to the lien in a two-sentence decree.

“The opinion of this court issued on Aug. 9, 2012, is withdrawn and the judgment is vacated,” a three-judge panel of Daniel A. Manion, Ilana Diamond Rovner and John D. Tinder said. “This appeal remains under consideration by the panel.”

After the Northbrook, Illinois-based cash-management firm filed for bankruptcy in 2007, liquidation trustee Frederick Grede sued the New York-based bank alleging its employees knew Sentinel was improperly using investor assets as collateral for its own line of credit and sought to disallow or subordinate BNY’s lien.

Following a 2010 trial, U.S. District Judge James B. Zagel in Chicago rejected Grede’s claims.

After Manion, Rovner and Tinder upheld that decision, Grede’s lawyers petitioned for a rehearing by the full court.

Chris Gair, an attorney for Grede, didn’t immediately reply to voice-mail and e-mail messages seeking comment on the appellate court order. Kevin Heine, a spokesman for the bank, said he couldn’t immediately comment on it.

The case is In re Sentinel Management Group Inc., 10-3787, 10-3990 and 11-1123, U.S. Circuit Court of Appeals for the Seventh Circuit (Chicago).

To contact the reporter on this story: Andrew Harris in Chicago at aharris16@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net

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