443 B.R. 295
Bankr. S.D.N.Y.2011Background
- SIPA liquidation of Bernard L. Madoff Investment Securities LLC and related entities; Trustee Picard seeks to enforce automatic stay and preliminary injunction against Third Party Actions.
- Trustee administers customer claims under SIPA with a Claims Procedure Order and Net Equity framework (Net Equity Decision/Order).
- Trustee filed two Madoff Actions against Ruth Madoff and the Madoff Defendants seeking recovery of transfers and damages; Third Party Actions arise from various jurisdictions against Madoff Defendants.
- Four Third Party Actions are active (Lautenberg Foundation, Stahl, Abend, Chavez); six are stayed or unsettled; actions target Madoff family members or key BLMIS personnel.
- Trustee contends Third Party Actions would deplete the estate and conflict with the SIPA distribution scheme, violating the automatic stay and potentially stay orders.
- Court grants Trustee’s motion, holding Third Party Actions void ab initio as to Madoff Defendants and preliminarily enjoins such actions under 105(a).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Do the Third Party Actions violate the automatic stay under 362(a)? | Third Party Actions target the estate and would affect estate assets. | Each action seeks independent relief against non-debtors. | Yes; actions violate 362(a) and are void ab initio. |
| Do the Third Party Actions violate the District Court stay orders? | Actions interfere with stays prohibiting interference with BLMIS assets. | Stay orders do not apply to non-debtor actions against non-debtors. | Yes; at least one stay order is violated and actions are void ab initio. |
| May the court extend relief under 105(a) to enjoin Third Party Actions? | Actions threaten the estate and the court’s jurisdiction; 105(a) allows injunctions to protect the estate. | 105(a) does not create substantive rights; its use is limited. | Yes; 105(a) authorizes a preliminary injunction to protect the estate. |
| Do the Third Party Actions undermine administration of the SIPA estate or risk inconsistent judgments across courts? | Actions duplicate Trustee’s claims and could prejudice estate distribution. | Actions are independent claims against Madoff Defendants. | Yes; the actions threaten estate administration and jurisdiction, warrant injunction. |
Key Cases Cited
- Fisher v. Apostolou, 155 F.3d 876 (7th Cir.1998) (extension of stay under 105(a) to non-debtors permissible when it affects estate)
- Queenie, Ltd. v. Nygaard Int'l, 321 F.3d 282 (2d Cir.2003) (extension of stay to non-debtor actions)
- In re Calpine Corp., 365 B.R. 401 (S.D.N.Y.2007) (extension of stay to protect estate interests)
- St. Paul Fire & Marine Ins. Co. v. PepsiCo, Inc., 884 F.2d 688 (2d Cir.1989) (trustee has standing to assert claims affecting all creditors)
- In re The 1031 Tax Group, LLC, 397 B.R. 670 (Bankr.S.D.N.Y.2008) (standing and injury requirements for related-to jurisdiction)
- AP Indus., Inc. v. SN Phelps & Co., 117 B.R. 789 (Bankr.S.D.N.Y.1990) (procedural standards in stay-related analysis)
- Seven Seas Petroleum, Inc., 522 F.3d 575 (5th Cir.2008) (derivative claims and estate claims; relevance to SIPA atypical dismissal)
- Tennessee Student Assistance Corp. v. Hood, 541 U.S. 440 (U.S. 2004) (exclusive jurisdiction over debtor's property; supports stay framework)
- In re Adelphia Commc'ns Corp., 2006 WL * (Bankr.S.D.N.Y.2006) (related-to jurisdiction and stay considerations)