450 B.R. 406
S.D.N.Y.2011Background
- Trustee Picard, SIPA liquidator for Madoff Securities, seeks common law and bankruptcy-related relief against HSBC and other defendants.
- The Trustee amended the complaint to include both avoidance (bankruptcy) and tort/restitution claims totaling billions of dollars.
- HSBC Defendants and UCG/PAI Defendants moved to withdraw the bankruptcy reference to address threshold issues of non-bankruptcy law.
- The court granted withdrawal for two threshold issues: Trustee standing to sue and SLUSA preemption, pending resolution of these issues.
- These threshold questions involve substantial interpretation of non-bankruptcy federal law and could affect the structure of the case if referred back to Bankruptcy Court.
- The opinion clarifies the mechanism and timing for withdrawal and signals return to the Bankruptcy Court after thresholds are resolved.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the Trustee has standing to pursue common law claims. | Picard argues standing under SIPA and alternative theories. | Movants contend no standing under non-bankruptcy law. | Mandatory withdrawal warranted; standing issue to be decided by district court. |
| Whether the Trustee's action is preempted by SLUSA. | Trustee/SIPC argue not a covered class action. | SLUSA preempts claims based on state law seeking damages. | Mandatory withdrawal warranted; SLUSA preemption to be resolved by district court. |
Key Cases Cited
- City of New York v. Exxon Corp., 932 F.2d 1020 (2d Cir. 1991) (withdrawal when non-bankruptcy federal questions require interpretation)
- In re Ionosphere Clubs, Inc., 922 F.2d 984 (2d Cir. 1990) (non-bankruptcy issues can require withdrawal of reference)
- Wagoner, 944 F.2d 114 (2d Cir. 1991) (standing issues and in pari delicto implications on trustee standing)
- Redington v. Touche Ross & Co., 592 F.2d 617 (2d Cir. 1978) (SIPC standing/subrogation questions; post-Redington developments questioned)
- Holmes v. Securities Investor Protection Corp., 503 U.S. 258 (1992) (subrogation theory and scope of SIPC questioned by Supreme Court)
- In re Orion Pictures Corp., 4 F.3d 1095 (2d Cir. 1993) (core vs non-core proceedings; efficiency considerations in withdrawal)
- City of New York v. Exxon Corp., 932 F.2d 1020 (2d Cir. 1991) (withdrawal standard for substantial non-bankruptcy federal questions)