Securities Investor Protection Corp. v. Bernard L. Madoff Investment Securities LLC (In re Bernard L. Madoff Investment Securities LLC)
474 B.R. 76
S.D.N.Y.2012Background
- Trustee seeks injunctive relief enforcing the automatic stay in the SIPA liquidation of BLMIS; the Cayman action by Maxam seeks declarations and damages against the Trustee.
- The Trustee alleges nearly $100 million was transferred from BLMIS to Maxam Fund (2006–2008) with about $25 million during the 90 days before the Filing Date (the Preference Period Transfers).
- The Cayman Action seeks (a) declaration that Maxam Limited is not liable for the $25 million and (b) liability for amounts transferred within two years prior to filing in excess of $25 million; Maxam Limited is Cayman-incorporated with assets in the U.S.
- The Bankruptcy Court issued the October 12, 2011 order enjoining Maxam Limited from continuing the Cayman Action and required dismissal of related Cayman proceedings.
- Maxam Limited appeals; the district court affirms the Bankruptcy Court’s order, holding the automatic stay and the court’s injunctive power have extraterritorial reach and that comity considerations do not preclude the injunction.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the automatic stay applies extraterritorially | Picard argues stay applies worldwide, including Maxam Limited abroad | Maxam Limited contends stay lacks extraterritorial effect | Yes, stay has extraterritorial effect |
| Whether the Bankruptcy Court’s injunctive power extends extraterritorially | Picard asserts §105(a) allows extraterritorial injunctions to implement the Code | Maxam Limited argues no extraterritorial scope under §105(a) | Yes, §105(a) authorizes extraterritorial injunctions to protect the estate |
| Whether comity limits the injunction under China Trade factors | Comity arguments do not override the Court’s exclusive jurisdiction and SIPA policies | China Trade requires comity analysis and potential deference to foreign courts | China Trade factors support injunction; comity does not preclude it |
Key Cases Cited
- Nakash v. Zur, 190 B.R. 763 (Bankr.S.D.N.Y.1996) (in rem jurisdiction; extraterritorial reach of estate)
- In re Gucci, 309 B.R. 679 (S.D.N.Y.2004) (extraterritorial reach of automatic stay; in personam jurisdiction)
- In re Rimsat, Ltd., 98 F.3d 961 (7th Cir.1996) (extraterritorial reach of the automatic stay via in personam jurisdiction)
- China Trade & Development Corp. v. M.V. Choong Yong, 837 F.2d 33 (2d Cir.1987) (multi-factor comity test for foreign injunctions)
- Stonington Partners v. Lemout & Hauspie Speech Prods. N.V., 310 F.3d 118 (3d Cir.2002) (parallel proceedings; comity considerations in injunctions)
- Hilton v. Guyot, 159 U.S. 113 (1895) (comity definition framework)
- In re Lykes Bros. S.S. Co., 207 B.R. 282 (Bankr.M.D.Fla.1997) (preclusive extraterritorial injunctions for foreign actions)
- In re McLean Industries, Inc., 74 B.R. 589 (Bankr.S.D.N.Y.1987) (extraterritorial reach of bankruptcy stay)
- In re Kalikow, 602 F.3d 82 (2d Cir.2010) (equitable powers under §105; limits of substantive rights)
- In re Johns-Manville Corp., 91 B.R. 225 (Bankr.S.D.N.Y.1988) (exercise of §105 injunctive power to protect jurisdiction)