454 B.R. 25
S.D.N.Y.2011Background
- Irving Picard, SIPA trustee for Madoff Securities, sues HSBC Defendants and UCG/PAI Defendants for common law claims premised on alleged failure to detect Madoff’s fraud.
- Court withdrew reference to address thresholds: Trustee standing and SLUSA preemption as non-bankruptcy federal issues.
- Trustee seeks to recover on behalf of customers or the estate via theories like bailee, SIPC subrogation, and assignment of customer claims.
- Court considers whether SIPA and related statutes grant standing beyond a Title 11 framework for a SIPA trustee.
- Court analyzes Redington and related authorities to assess whether standing can be derived from subrogation, bailment, or assignee theories.
- Court dismisses all common law claims (Counts 20–24) for lack of standing; returns remaining SIPA proceedings to Bankruptcy Court.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Does the Trustee have standing to sue third parties for common law claims? | Picard argues standing as bailee, as SIPC subrogee, or as assignee of customer claims. | HSBC and UCG/PAI contend Trustee lacks standing under federal law and SIPA. | Trustee lacks standing; claims dismissed. |
| Are the common law claims preempted by SLUSA? | Trustee argues SLUSA preemption may not apply or is uncertain. | Defendants contend SLUSA bars the claims as to securities fraud-type allegations. | Court does not reach SLUSA preemption because standing is lacking. |
| Can the Trustee stand as bailee of customer property to sue third parties? | Bailee theory allows recovery for misdeeds pre-bailment by third parties. | Bailee status is inappropriate since Trustee distributes property under SIPA and the conduct predates bailment; gains rather than losses occurred. | Bailee standing rejected. |
| Can the Trustee stand as subrogee of SIPC to sue third parties? | SIPC subrogation rights permit action against third parties. | SIPA priority scheme prevents subrogation to third-party claims until customers are made whole. | Subrogee standing rejected. |
| Can the Trustee stand as assignee of customer claims to sue third parties? | Assignment authority under SIPA could extend to third-party claims. | Assignments under SIPA cover net equity claims against the estate, not third-party claims. | Assignee standing rejected. |
Key Cases Cited
- Caplin v. Marine Midland Grace Trust Co. of New York, 406 U.S. 416 (1972) (trustee lacks implied rights to collect money not owed to the estate)
- Redington v. Touche Ross & Co., 612 F.2d 68 (2d Cir.1979) (supreme court reversed private right of action; subrogee standing limited)
- Touche Ross & Co. v. Redington, 442 U.S. 560 (1979) (private right of action under Exchange Act §17(a) rejected)
- Holmes v. Securities Investor Protection Corp., 503 U.S. 258 (1992) (SIPC subrogation theory questioned; no clear standing rule stated)
- Wagoner v. BankAmerica Corp., 944 F.2d 114 (2d Cir.1991) (prudential standing limits affect trustee authority)
- Park S. Sec., LLC, 326 B.R. 505 (Bankr.S.D.N.Y.2005) (assignee standing not extending to third-party claims)
- Giddens v. D.H. Blair & Co., 280 B.R. 794 (Bankr.S.D.N.Y.2002) (assignment scope under SIPA is narrow)
- Securities Investor Protection Corp. v. BDO Seidman, LLP, 222 F.3d 63 (2d Cir.2000) (assumption of standing issues without deciding)
- In re Park S. Sec., LLC, 326 B.R. 505 (Bankr.S.D.N.Y.2005) (confirming SIPA assignment limits)