627 B.R. 546
Bankr. S.D.N.Y.2021Background:
- Fairfield Sentry Limited (a BVI "feeder fund") invested nearly all assets with Bernard L. Madoff Investment Securities (BLMIS); those investments were part of Madoff’s Ponzi scheme.
- The BVI liquidators assigned Sentry’s claims to Irving Picard, SIPA Trustee, who seeks recovery of ~$919 million in management and performance fees paid to Fairfield Greenwich entities and related individuals.
- Trustee filed a Second Amended Complaint (SAC) alleging breach of multiple IMAs, unjust enrichment, constructive trust, and a de facto partnership among FGG actors; defendants moved to dismiss.
- Court applied New York law to FG Limited’s breach claim (2002 IMA) and Bermuda/BVI-related law to other claims per parties’ agreements and choice-of-law provisions; it independently researched foreign law where necessary.
- Key factual allegations: defendants (entities and individuals) knowingly failed to monitor or concealed red flags about Madoff, continued fee-taking, and operated as a unified FGG enterprise.
- Ruling summary: dismissal granted only as to Count Four (unjust enrichment) against FG Limited and FG Bermuda; all other dismissal arguments were denied; personal-jurisdiction prima facie shown as to two individual defendants.
Issues:
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Breach of contract — FG Limited (2002 IMA, New York law) | FG Limited breached duty to "use its best efforts" to monitor BLMIS and thus breached the IMA | Exculpation/indemnity clauses bar liability; IMAs mandated investing with BLMIS | Denied dismissal: complaint pleads elements and factual allegations raise questions of fact about applicability of exculpation clauses |
| Breach of contract — FG Bermuda (2003/2004 IMAs, Bermuda law) | FG Bermuda failed to oversee, advise, and seek suitable investments despite red flags about Madoff | Directors/board made investment decisions; exculpation clauses protect FG Bermuda | Denied dismissal: pleadings sufficient; parties must supply Bermuda-law proof later |
| Unjust enrichment (choice of law; recovery from contractors/third parties) | Trustee seeks recovery under BVI law against multiple recipients of fees (including non-signatories) | Under New York, quasi-contract barred by express contracts; under BVI, restitution limited for contracting parties | Mixed: BVI law applied by center-of-gravity analysis; unjust enrichment dismissed as to FG Limited and FG Bermuda (contracting parties) but survives as to other defendants pending factual inquiry |
| Constructive trust (equitable restitution; knowledge requirement) | Constructive trust appropriate to recover wrongfully paid company funds where recipients knew of breach or acted in bad faith | Constructive trust not a standalone claim; requires proof that defendants knew NAV was wrong | Denied dismissal: BVI law governs; allegations of knowledge/bad faith adequate at pleading stage |
| De facto partnership / partnership by estoppel (FGG) | Complaint alleges partners shared profits, management, and intent to operate as FGG; public representations support estoppel | Defendants dispute existence/intent and urge higher proof of partnership | Denied dismissal: allegations meet district standard for pleading partnership; fact issues for discovery |
| Illegality / ex turpi causa under BVI law | Trustee: BVI equitable doctrines allow recovery notwithstanding wrongdoing by the fund; constructive remedies available | Defendants: in pari delicto / illegality precludes equitable relief | Denied dismissal: English/BVI approach is flexible (Patel framework); illegality not resolved on pleadings |
| Personal jurisdiction — Vijayvergiya & Piedrahita | Trustee: both had purposeful contacts with New York/US (office, meetings, fee receipt, coordination with Madoff) | Defendants: foreign nationals; most conduct abroad; insufficient suit-related contacts | Denied dismissal on 12(b)(2) — prima facie specific jurisdiction established; jurisdictional discovery allowed for general jurisdiction over Piedrahita |
Key Cases Cited
- Ashcroft v. Iqbal, 556 U.S. 662 (pleading: courts accept well-pleaded factual allegations but not legal conclusions)
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (plausibility pleading standard)
- Burger King Corp. v. Rudzewicz, 471 U.S. 462 (purposeful availment and reasonableness factors for personal jurisdiction)
- Int’l Shoe Co. v. Washington, 326 U.S. 310 (minimum contacts required for personal jurisdiction)
- S. Cherry St., LLC v. Hennessee Grp. LLC, 573 F.3d 98 (rule 12(b)(6) pleading framework and Iqbal/Twombly application)
- Westdeutsche Landesbank Girozentrale v. Islington LBC, 2 A.C. 669 (distinguishing constructive trust concepts and English-law principles on equitable relief)