Securities Investor Protection Corp. v. Bernard L. Madoff Investment Securities LLC
477 B.R. 351
Bankr. S.D.N.Y.2012Background
- Trustee filed May 12, 2009 complaint seeking approximately $7.2 billion from Picower Defendants for withdrawals from BLMIS.
- February 2010 Fox Florida actions enjoined by this Court as related to BLMIS claims.
- December 17, 2010 Settlement Agreement forfeiting ~$7.2 billion with Picower Injunction; settlement approved in Settlement Order (Jan 13, 2011).
- March 26, 2012 District Court upheld Fox I and the Settlement Order, holding actions were property of the estate and barred by stay and injunction.
- Class Action Plaintiffs argue independent securities claims exist; court finds claims duplicative of Trustee’s and derivative in nature.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Picower Injunction and automatic stay bar the class action | Plaintiffs contend they may proceed independently. | Defendants assert stay and injunction prohibit the action. | Denied; injunction and stay bar the action. |
| Are the class actions duplicative/derivative of Trustee’s claims | Plaintiffs argue independence despite overlap. | Actions are duplicative of Trustee’s claims and belong to the estate. | Denied; actions are duplicative and improper derivative claims. |
| Do plaintiffs have particularized injuries warranting independent claims | Plaintiffs claim security-law harms unique to them. | Harms are general to all creditors; no particularized injury. | Denied; injury not particularized; claims belong to Trustee. |
| Is this a re-litigation of the Net Equity decision | Damages measured differently could permit recovery of principal. | Net Equity framework controls; principal recovery would windfall. | Denied; re-litigation barred; Net Equity governs. |
| Do Johns-Manville/standing arguments affect the court’s jurisdiction | Trustee lacks standing; Johns-Manville controls. | District Court already rejected, upholding estate-centered approach. | Denied; district court resolution controlling; claims remain estate matters. |
Key Cases Cited
- Fox II v. Fox I, 848 F.Supp.2d 469 (S.D.N.Y. 2012) (claims duplicative; stay and injunction apply to prevent distributions outside estate)
- Fox I, 429 B.R. 423 (Bankr.S.D.N.Y. 2010) (Net Equity and related injunctions govern; Florida actions duplicative)
- In re Ionosphere Clubs, Inc., 156 B.R. 414 (S.D.N.Y. 1993) (look to substance, not form, in determining duplicative/derivative claims)
- St. Paul Fire and Marine Ins. Co. v. PepsiCo, Inc., 884 F.2d 688 (2d Cir. 1989) (injury must be particularized; trustee is proper claimant for general harms)
- Travelers Casualty and Surety Co. v. Johns-Manville Corp., 517 F.3d 52 (2d Cir. 2008) (standing and related considerations relevant to stay/injunction analyses)