Fox v. Picard
848 F. Supp. 2d 469
S.D.N.Y.2012Background
- Bernard L. Madoff's Ponzi scheme and the subsequent SIPA liquidation of BLMIS triggered bankruptcy proceedings in which Picard serves as Trustee.
- Fox and Marshall, as BLMIS investors, filed Florida class actions against Picower defendants seeking state-law remedies for harms from the Madoff scheme.
- Picard sought to stay and enjoin the Florida Actions as duplicative of the Trustee's claims and as actions against estate property under the automatic stay.
- Net Equity Method determined customer recoveries, affecting who could receive distributions from the estate; net winners are generally barred until net losers are paid.
- Picard settled with the Picower defendants for over $7.2 billion total (including forfeitures), and sought a permanent injunction barring duplicative or derivative claims by non-estate creditors.
- Bankruptcy Court held Florida Actions were void ab initio under the automatic stay, approved the Picower settlement, and issued a permanent injunction barring duplicative or derivative claims; these rulings are on appeal.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Florida Actions were void ab initio under the automatic stay | Fox and Marshall contend actions were independent, not estate property. | Picard argues actions are property of the estate and duplicative of Trustee suit. | Yes; Florida Actions were barred by the stay and void ab initio. |
| Whether the § 105(a) injunction extending the stay was proper | Florida Actions threaten estate administration; injunction necessary to protect assets. | Injunction over independent claims is improper; should be limited to derivative claims. | Yes; § 105(a) injunction upheld to protect the estate and settlement integrity. |
| Whether the Striking Order disallowing issue five on appeal was proper to review | Issue five raised important legal questions, including in pari delicto/Wagoner doctrine. | Bankruptcy court lacked jurisdiction to strike issues from appellate review. | Striking Order vacated; issue five will be considered on appeal. |
| Whether the settlement with Picower and the accompanying permanent injunction were appropriate | Settlement unfair to creditors and obstructs independent claims. | Settlement highly beneficial to estate; injunction necessary to prevent duplicative claims and ensure liquidation integrity. | Yes; settlementfair, reasonable, and enforceable; injunction upheld. |
| Whether the Florida Actions could be enjoined because they are duplicative/derivative of Trustee claims | Actions are independent tort claims separate from Trustee’s fraud claims. | Actions are substantively duplicative of the Trustee's claims and thus estate property. | Yes; Florida Actions are duplicative of estate claims and barred. |
Key Cases Cited
- Colonial Realty Co., 980 F.2d 125 (2d Cir.1992) (actions taken in violation of stay are void and without effect)
- St. Paul Fire & Marine Ins. Co. v. PepsiCo, Inc., 884 F.2d 688 (2d Cir.1989) (automatic stay centralizes disputes to protect creditors)
- Johns-Manville Corp., 517 F.3d 52 (2d Cir.2008) (direct-action independence analyzed; not controlling here)
- In re Granite Partners, L.P., 194 B.R. 318 (Bankr.S.D.N.Y.1996) (determines analysis of whether claims are derivative/estate property)
- In re Dreier LLP, 2010 WL 3835179 (Bankr.S.D.N.Y.2010) (bar orders and settlements involving derivative claims)
- In re Calpine Corp., 365 B.R. 401 (S.D.N.Y.2007) (settlement approval standards and abuse of discretion)
- Stern v. Marshall, 131 S. Ct. 2594 (U.S.2011) (questions about bankruptcy court judgments and jurisdiction)
- In re The 1031 Tax Group, LLC, 397 B.R. 670 (Bankr.S.D.N.Y.2008) (property of estate and automatic stay discussions)