721 F.3d 54 (2nd Cir. 2013), 11-5044, In re Bernard L. Madoff Inv. Securities LLC

Docket Nº:11-5044, 11-5051, 11-5175, 11-5207.
Citation:721 F.3d 54
Opinion Judge:DENNIS JACOBS, Chief Judge.
Party Name:In re BERNARD L. MADOFF INVESTMENT SECURITIES LLC. v. JPMorgan Chase & Co., JPMorgan Chase Bank, N.A., J.P. Morgan Securities LLC, J.P. Morgan Securities Ltd., Defendants-Appellees, Irving H. Picard, Plaintiff-Appellant, and Securities Investor Protection Corporation, Intervenor. In re Bernard L. Madoff Investment Securities LLC, Debtor. Irving H.
Attorney:Oren J. Warshavsky (David J. Sheehan, Deborah H. Renner, Lan Hoang, Geoffrey A. North on the brief) Baker & Hostetler LLP, New York, NY, for Plaintiff-Appellant. Christopher H. Larosa (Josephine Wang, Kevin H. Bell, on the brief) Securities Investor Protection Corporation, Washington, D.C. for In...
Judge Panel:Before: JACOBS, Chief Judge, WINTER and CARNEY, Circuit Judges.
Case Date:June 20, 2013
Court:United States Courts of Appeals, Court of Appeals for the Second Circuit
 
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721 F.3d 54 (2nd Cir. 2013)

In re BERNARD L. MADOFF INVESTMENT SECURITIES LLC.

Irving H. Picard, Plaintiff-Appellant,

v.

JPMorgan Chase & Co., JPMorgan Chase Bank, N.A., J.P. Morgan Securities LLC, J.P. Morgan Securities Ltd., Defendants-Appellees,

and

Securities Investor Protection Corporation, Intervenor.

In re Bernard L. Madoff Investment Securities LLC, Debtor.

Irving H. Picard, Plaintiff-Appellant,

and

Securities Investor Protection Corporation, Intervenor,

UBS Fund Services (Luxembourg) SA, Access International Advisors LLC, Access International Advisors Europes Limited, Access International Advisors Ltd., Access Partners (Suisse) SA, Access Management Luxembourg SA, as represented by its Liquidator Maitre Ferdinand Entringer, fka Access International Advisors Luxembourg SA, Access Partners SA, as represented by its Liquidator Maitre Ferdinand Entringer, Patrick Littaye, Claudine Magon De La Villehuchet, in her capacity as Executrix under the Will of Thierry Magon De La Villehuchet (aka Rene Thierry de la Villehuchet), individually and as the sole beneficiary under the Will Of Thierry Magon De La Villehuchet (aka Rene Thierry de la Villehuchet), aka Claudine De La Villehuchet, Pierre Delandmeter, Theodore Dumbauld, Luxalpha Sica V, as represented by its Liquidators Maitre Alain Rukavina and Paul Laplume, Roger Hartmann, Ralf Shroeter, Rene Egger, Alain Hondequin, Hermann Kranz, Bernard Stiehl, Groupement Financier Ltd., UBS AG, UBS (Luxembourg) SA, Maitre Alain Rukavina, in his capacity as liquidator and representative of Luxalpha Sica V, Paul Laplume, in his capacity as liquidator and representative of Luxalpha Sica V, UBS Third Party Management Company SA, Defendants-Appellees.

In re Bernard L. Madoff Investment Securities LLC, Debtor.

Irving H. Picard, Plaintiff-Appellant,

v.

HSBC Bank PLC, HSBC Securities Services (Luxembourg) S.A., HSBC Bank Bermuda Limited, HSBC Fund Services (Luxembourg) S.A., HSBC Private Bank (Suisse) S.A., HSBC Private Banking Holdings (Suisse) S.A., HSBC Bank (Cayman) Limited, HSBC Securities Services (Bermuda) Limited, HSBC Bank USA, N.A., HSBC Institutional Trust Services (Bermuda) Limited, HSBC Securities Services (Ireland) Limited, HSBC Institutional Trust Services (Ireland) Limited, HSBC Holdings PLC, Unicredit S.p.A., Pioneer Alternative Investment Management Limited, Unicredit Bank Austria AG, Alpha Prime Fund Limited, Defendants-Appellees,

and

Securities Investor Protection Corporation, Intervenor.

In re Bernard L. Madoff Investment Securities LLC, Debtor.

Irving H. Picard, Plaintiff-Appellant,

v.

HSBC Bank PLC, HSBC Securities Services (Luxembourg) S.A., HSBC Bank Bermuda Limited, HSBC Private Bank (Suisse) S.A., HSBC Private Banking Holdings (Suisse) S.A., HSBC Bank (Cayman) Limited, HSBC Securities Services (Bermuda) Limited, HSBC Bank USA, N.A., HSBC Institutional Trust Services (Bermuda) Limited, HSBC Securities Services (Ireland) Limited, HSBC Institutional Trust Services (Ireland) Limited, HSBC Holdings PLC, HSBC Fund Services (Luxembourg) S.A., Defendants-Appellees,

Securities Investor Protection Corporation, Intervenor.

Nos. 11-5044, 11-5051, 11-5175, 11-5207.

United States Court of Appeals, Second Circuit

June 20, 2013

Argued: Nov. 21, 2012.

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Oren J. Warshavsky (David J. Sheehan, Deborah H. Renner, Lan Hoang, Geoffrey A. North on the brief) Baker & Hostetler LLP, New York, NY, for Plaintiff-Appellant.

Christopher H. Larosa (Josephine Wang, Kevin H. Bell, on the brief) Securities Investor Protection Corporation, Washington, D.C. for Intervenor Securities Investor Protection Corporation.

John F. Savarese (Douglas K. Mayer, Stephen R. DiPrima, Emil A. Kleinhaus, Lauren M. Kofke, Jonathon R. La Chapelle on the brief) Wachtell, Lipton, Rosen & Katz, New York, NY, for Defendant-Appellee JPMorgan Chase & Co., et al.

Thomas J. Moloney (Evan A. Davis, David E. Brodsky, Marla A. Decker, Charles J. Keeley, Jason B. Frasco on the brief) Cleary Gottlieb Steen & Hamilton LLP, New York, NY, for Defendant-Appellee HSBC Bank PLC, et al.

Marco E. Schnabl (Susan L. Saltzstein, Jeremy A. Berman on the brief) Skadden, Arps, Slate, Meagher & Flom LLP, New York, NY, for Defendants-Appellees UniCredit S.p.A. and Pioneer Alternative Investment Management Ltd.

Marshall R. King, Gibson, Dunn & Crutcher LLP, New York, NY, for Defendant-Appellee UBS AG, et al.

Franklin B. Velie (Jonathan G. Kortmansky, Mitchell C. Stein on the brief) Sullivan & Worcester LLP, New York, NY, for Defendant-Appellee UniCredit Bank Austria AG.

Robert W. Gottlieb, Katten Muchin Rosenman LLP, New York, NY, for Defendant-Appellee Access International Advisers, LLC, et al.

Brett S. Moore, Porzio Bromberg & Newman P.C., New York, NY, for Defendant-Appellee Luxalpha SICA V, et al.

Robert Knuts, Park & Jensen LLP, New York, NY, for Defendant-Appellee Theodore Dumbauld.

Before: JACOBS, Chief Judge, WINTER and CARNEY, Circuit Judges.

DENNIS JACOBS, Chief Judge.

Irving Picard (" Picard" or the " Trustee" ) sues in his capacity as Trustee under the Securities Investor Protection Act (" SIPA" ) on behalf of victims in the multi-billion-dollar Ponzi scheme worked by Bernard Madoff. The four actions presently before this Court allege that numerous major financial institutions aided and abetted the fraud, collecting steep fees while ignoring blatant warning signs. In summary, the complaints allege that, when the Defendants were confronted with evidence of Madoff's illegitimate scheme, their banking fees gave incentive to look away, or at least caused a failure to perform due diligence that would have revealed the

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fraud. The Trustee asserts claims for unjust enrichment, breach of fiduciary duty, aiding and abetting fraud, and negligence, among others. The Trustee's position is supported by the Securities Investor Protection Corporation (" SIPC" ), a statutorily created nonprofit corporation consisting of registered broker-dealers and members of national securities exchanges, which intervened to recover some or all of the approximately $800 million it advanced to victims.

As we will explain, the doctrine of in pari delicto bars the Trustee (who stands in Madoff's shoes) from asserting claims directly against the Defendants on behalf of the estate for wrongdoing in which Madoff (to say the least) participated. The claim for contribution is likewise unfounded, as SIPA provides no such right. The decisive issue, then, is whether the Trustee has standing to pursue the common law claims on behalf of Madoff's customers. Two thorough well-reasoned opinions by the district courts held that he does not. See Picard v. HSBC Bank PLC, 454 B.R. 25 (S.D.N.Y.2011) (Rakoff, J. ); Picard v. JPMorgan Chase & Co., 460 B.R. 84 (S.D.N.Y.2011) (McMahon, J. ).

Our holding relies on a rooted principle of standing: A party must " assert his own legal rights and interests, and cannot rest his claim to relief on the legal rights or interests of third parties." Warth v. Seldin, 422 U.S. 490, 499, 95 S.Ct. 2197, 45 L.Ed.2d 343 (1975). This prudential limitation has been consistently applied in the bankruptcy context to bar suits brought by trustees on behalf of creditors. See, e.g., Caplin v. Marine Midland Grace Trust Co., 406 U.S. 416, 92 S.Ct. 1678, 32 L.Ed.2d 195 (1972); Shearson Lehman Hutton, Inc. v. Wagoner, 944 F.2d 114, 118 (2d Cir.1991).

Picard offers two theories for why a SIPA liquidation is a different creature entirely, and why therefore a SIPA trustee enjoys third-party standing: (1) He is acting as a bailee of customer property and therefore can pursue actions on customers' behalf to recover such property; and (2) he is enforcing SIPC's rights of equitable and statutory subrogation to recoup funds advanced to Madoff's customers. Neither is compelling. Although a SIPA liquidation is not a traditional bankruptcy, a SIPA trustee is vested with the " same powers and title with respect to the debtor and the property of the debtor ... as a trustee in a case under Title 11." 15 U.S.C. § 78fff-1(a). At best, SIPA is silent as to the questions presented here. And analogies to the law of bailment and the law of subrogation are inapt and unconvincing.1

BACKGROUND

In December 2008, federal agents arrested Bernard L. Madoff, who had conducted the largest Ponzi scheme yet uncovered. Madoff purported to employ a " split-strike conversion strategy" that involved buying S & P 100 stocks and hedging through the use of options. In reality, he engaged in no securities transactions at all.2

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In March 2009, Madoff pleaded guilty to securities fraud and admitted that he had used his brokerage firm, Bernard L. Madoff Investment Securities LLC (" BLMIS" ), as a vast Ponzi scheme. The details of Madoff's fraud have been recounted many times. See, e.g., In re Bernard L. Madoff Inv. Sec. LLC, 654 F.3d 229, 231-32 (2d Cir.2011), cert. denied, __ U.S. __, 133 S.Ct. 25, 183 L.Ed.2d 675 (2012); In re Bernard L. Madoff Inv. Sec. LLC, 424 B.R. 122, 126-32 (Bankr.S.D.N.Y.2010).

Following Madoff's arrest, SIPC filed an application under SIPA, 15 U.S.C. § 78eee(a)(4)(B), asserting that BLMIS required protection. The district court appointed Picard as the firm's Trustee and referred the case to the bankruptcy court.

SIPA was enacted in 1970 to speed the distribution of " customer property" back to investors following a firm's collapse.3 Customer property is cash and securities held separately from the general estate of the failed brokerage firm. " SIPA serves dual purposes: to protect investors, and to protect...

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