460 B.R. 84
S.D.N.Y.2011Background
- BMIS's massive Ponzi scheme collapsed; SIPA liquidation appointed trustee Irving Picard to recover customer net equity losses.
- Trustee alleges common law damages against JPMorgan Defendants and UBS Defendants for aiding and abetting fraud, breach of fiduciary duty, conversion, and related theories, seeking billions for BMIS customers.
- JPMorgan action centers on the 703 Account used by Madoff to funnel BMIS funds; UBS action involves feeder funds and related entities marketed by UBS-affiliates.
- Defendants move to dismiss for lack of standing; Judge Rakoff’s HSBC decision and related authority on standing influence the analysis.
- Court concludes Trustee lacks standing under Bankruptcy Code/SIPA to sue on behalf of creditors or to pursue pre-petition claims; grants dismissal of common law counts in both cases and returns matters to bankruptcy court.
- Redington and related authorities are discussed to reject bailment and subrogation theories post-SIPA framework.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Does Picard have standing to pursue common law claims for BMIS customers? | Picard argues standing under 544(a) or other theories to act for creditors. | Defendants contend standing lies with creditors or debtor, not the Trustee. | No; Trustee lacks standing to pursue customer claims. |
| Does 11 U.S.C. § 544(a) give standing to pursue pre-petition creditor claims? | Trustee can stand in the shoes of a hypothetical judgment creditor to pursue claims. | Reading § 544(a) to empower bearing of creditor claims misreads Caplin/Wagoner and is contrary to precedent. | No; § 544(a) does not authorize Trustee to pursue creditor claims. |
| Does SIPA or New York contribution law authorize contribution by the Trustee? | BMIS estate can pursue contribution for same-injury damages under NY CPLR 1401. | Contribution requires state-law liability plus compulsion; SIPA/federal scheme precludes state-law contribution. | No; Trustee lacks standing to claim contribution. |
| Does SIPA create bailment or subrogation standing for the Trustee? | SIPA implies bailment or subrogation rights allowing Trustee to vindicate customer claims. | SIPA does not create bailment or broad subrogation; Redington theory is limited or superseded. | No; SIPA does not confer bailment or subrogation standing. |
Key Cases Cited
- Caplin v. Marine Midland Grace Trust Co. of N.Y., 406 U.S. 416 (1972) (trustee cannot pursue creditor claims not belonging to debtor)
- Wagoner, 944 F.2d 114 (2d Cir. 1991) (standing of trustee largely limited to debtor's claims)
- In re Mediators, Inc., 105 F.3d 822 (2d Cir. 1997) (trustee standing limitations in bankruptcy)
- St. Paul Fire and Marine Ins. Co. v. PepsiCo, Inc., 884 F.2d 687 (2d Cir. 1989) (alter ego/veil issues; derivative vs direct claims)
- Redington v. Touche Ross & Co., 592 F.2d 617 (2d Cir. 1978) (SIPC/SIPA standing for subrogation and bailee rights, later limited)
- HSBC Bank plc v. Picard, 454 B.R. 25 (S.D.N.Y. 2011) (standing and SLUSA related issues in SIPA context)
- Picard v. HSBC Bank PLC, 454 B.R. 406 (S.D.N.Y. 2011) (related standing decision in JPMorgan/UBS context)