In Re Fairfield Sentry Ltd. Litigation, 2011 U.S. Dist. LEXIS 106275

Background

Fairfield Sentry Limited, Fairfield Sigma Limited, and Fairfield Lambda Limited (the Funds) invested primarily with Bernard L. Madoff Investment Securities LLC, resulting in inflated NAV and later losses.
After Madoff's fraud, each Fund liquidated in 2009 in the British Virgin Islands; foreign representatives were appointed and began pursuing claims.
Beginning in 2010, foreign representatives filed numerous state-court actions against banks and others, alleging misredemption and related relief claims under state/foreign law.
In 2010 the foreign representatives sought recognition of the BVI liquidation as a foreign main proceeding under Chapter 15, which was granted in July 2010.
Subsequently, these actions were removed to federal court and consolidated in the Bankruptcy Court; the Bankruptcy Court denied remand/abstention and sua sponte extended removal deadlines.
Defendants appealed, and the district court granted leave to appeal, reversing the Bankruptcy Court's order after considering jurisdictional issues under Chapter 15.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether the Bankruptcy Court had core jurisdiction under 1521(a)(5)/(a)(7).	Funds argue core power to realize or avoid assets; 1521(a)(5) and 1521(a)(7) apply.	No core jurisdiction because assets are not in the U.S. and U.S. avoidance powers are limited in Chapter 15 without plenary chapter 7/11 case.	No core jurisdiction under §1521(a)(5)/(a)(7).
Whether there is any 'related to' (non-core) jurisdiction under 28 U.S.C. § 1334(b).	Chapter 15 ancillary-relief could confer related-to jurisdiction.	If any, related-to may exist but abstention must be reconsidered; otherwise not clearly established.	Court did not resolve related-to jurisdiction; remand required to reassess abstention.
Whether mandatory or permissive abstention should apply.	Abstention should be denied; proceedings involve international assets and are related to foreign main proceeding.	State courts could timely adjudicate and abstention is appropriate.	Abstention issues require remand; mandatory abstention should be reconsidered.
Whether removal timeliness was properly handled.	Removal timely or within extended periods; orderly consolidation benefits the proceedings.	Some removals were untimely and cannot be excused by equity.	Removal deadlines improperly enlarged; four removals deemed untimely.

Key Cases Cited

In re Condor Ins. Ltd., 601 F.3d 319 (5th Cir.2010) (Chapter 15 ancillary relief; territorial limits on assets; foreign-law avoidance reasoning)
Granfinanciera, S.A. v. Nordberg, 492 U.S. 33 (1989) (private rights; common-law claims not core if to augment the estate)
Northern Pipeline Construction Co. v. Marathon Pipe Line Co., 458 U.S. 50 (1982) (core vs non-core bankruptcy jurisdiction framework)
Stern v. Marshall, 131 S. Ct. 2594 (2011) (Article I court limitations; constitutional constraints on core proceedings)
In re JSC BTA Bank, 434 B.R. 334 (Bankr.S.D.N.Y.2010) (Chapter 15 ancillary proceedings; territorial/assets limitations)
In re Condor Ins. Ltd., 601 F.3d 319 (5th Cir.2010) (foreign law relief within Chapter 15 context; distinction from Condor (2010))
In re Orion Pictures Corp., 4 F.3d 1095 (2d Cir.1993) (core vs non-core; priority of bankruptcy-related adjudications)
Katchen v. Landy, 382 U.S. 323 (1966) (pre-petition claims; core bankruptcy adjudication when against estate)
Langenkamp v. Culp, 498 U.S. 42 (1990) (private rights; not inherently core; jury considerations)
Parmalat Capital Fin. Ltd. v. Bank of Am. Corp., 639 F.3d 572 (2d Cir.2011) ('related to' jurisdiction; effects on estate; territorial considerations)
In re Condor, 434 B.R. 344 (Bankr.S.D.N.Y.2008) (context for Condor/Condor Ins.; ancillary relief and territorial limits)
In re U.S. Lines, Inc., 197 F.3d 631 (2d Cir.1999) (jurisdictional considerations in bankruptcy context)
In re Ames Dep’t Stores, Inc., 582 F.3d 422 (2d Cir.2009) (core vs non-core analysis; case-by-case approach)