Picard v. Ida Fishman Revocable Trust (In re Bernard L. Madoff Inv. Sec. LLC)
| Decision Date | 08 December 2014 |
| Docket Number | 12–3582–bkcon,12–3422–bkcon,Nos. 12–2557–bkL,12–2616–bkcon,12–2500–bkcon,12–2497–bkcon,12–3585–bkcon.,12–3440–bkcon,s. 12–2557–bkL |
| Citation | 773 F.3d 411 |
| Parties | In re BERNARD L. MADOFF INVESTMENT SECURITIES LLC, Debtor. Irving H. Picard, Trustee for the Liquidation of Bernard L. Madoff Investment Securities LLC, Plaintiff–Appellant, Securities Investor Protection Corporation, Statutory Intervenor pursuant to Securities Investor Protection Act, 15 U.S.C. § 78eee(d), Intervenor–Appellant, v. Ida Fishman Revocable Trust, Paul S. Shurman, in his capacity as co-trustee of the Ida Fishman Revocable Trust, William Shurman, in his capacity as co-trustee of the Ida Fishman Revocable Trust and as Executor of the estate of Ida Fishman, Defendants–Appellees. |
| Court | U.S. Court of Appeals — Second Circuit |
David J. Sheehan (Oren J. Warshavsky, Tracy L. Cole, Seanna R. Brown ; Howard L. Simon, Windels Marx Lane & Mittendorf LLP; Matthew B. Lunn, Young Conaway Stargatt & Taylor LLP, on the brief), Baker Hostetler LLP, New York, N.Y., for Plaintiff–Appellant Irving H. Picard, Trustee for the Liquidation of Bernard L. Madoff Investment Securities LLC.
Josephine Wang, General Counsel (Kevin H. Bell, Lauren T. Attard, on the brief), Securities Investor Protection Corporation, Washington, D.C., for Intervenor–Appellant Securities Investor Protection Corporation, Statutory Intervenor pursuant to Securities Investor Protection Act, 15 U.S.C. § 78eee(d).
Richard Levy, Jr. (David C. Rose, on the brief), Pryor Cashman LLP, New York, N.Y., for Defendants–Appellees Kara Fishbein Goldman, Steven Goldman, et al.
P. Gregory Schwed (Walter H. Curchack, Daniel B. Besikof, Michael Barnett, on the brief), Loeb & Loeb LLP, New York, N.Y., for Defendants–Appellees Jonathan M. Aufzien, Lisa Aufzien, et al.
Helen Davis Chaitman, Becker & Poliakoff, LLP, New York, N.Y., for Defendants–Appellees David Abel, James Greiff, et al.
Deborah A. Skakel, Shaya M. Berger, Dickstein Shapiro LLP, New York, N.Y., for Defendant–Appellee PetCareRx, Inc.
Carole Neville, Dentons U.S. LLP, New York, N.Y., for Defendants–Appellees Harold J. Hein, Kelman Partners Limited Partnership, et al.
Jennifer L. Young, Matthew A. Kupillas, Millberg LLP, New York, N.Y.; Parvin K. Aminolroaya, SeegerWeiss LLP, New York, N.Y., for Defendants–Appellees Gerald Blumenthal, Harold A. Thau, et al.
David Parker, Matthew J. Gold, Kleinberg, Kaplan, Wolff & Cohen, P.C., New York, N.Y., for Defendants–Appellees Kenneth Hubbard, Lawrence Elins, et al.
Michael R. Griffinger, Gibbons P.C., New York, NY for Defendants–Appellees David J. Bershad, Bershad Investment Group LP, et al.
Richard A. Kirby, Laura L. Clinton, Martha Rodriguez–Lopez, K & L Gates LLP, Washington D.C., for Defendants–Appellees Chesed Congregations of America, Linda Berger, et al.
Philip Bentley, Elise S. Frejka, Kramer Levin Naftalis & Frankel LLP, New York, N.Y., for Defendants–Appellees 1096–1100 River Road Associates LLC, Fred A. Daibes LLC, et al.
Marcy Ressler Harris, Jennifer M. Opheim, Mark D. Richardson, Schulte Roth & Zabel LLP, New York, N.Y., for Defendants–Appellees Thomas H. Lee, HHI Investment Trust # 2, et al.
William P. Weintraub, Gregory W. Fox, Stutman, Treister & Glatt, PC, New York, N.Y., for Defendants–Appellees Jeffrey Hinte, Robert Nystrom, et al.
Parvin K. Aminolroaya, SeegerWeiss LLP, New York, N.Y. for Defendants–Appellees M&B Weiss Family Limited Partnership of 1996, et al.
Paul Steven Singerman, Ilyse M. Homer, Isaac Marcushamer, Berger Singerman LLP, for Amicus Curiae National Association of Bankruptcy Trustees.
Philip D. Anker, Alan E. Schoenfeld, Wilmer Cutler Pickering Hale and Dorr LLP, New York, N.Y.; Craig Goldblatt, Danielle Spinelli, Shivaprasad Nagaraj, Allison Hester–Haddad, Wilmer Cutler Pickering Hale and Dorr LLP, Washington, D.C., for Amicus Curiae Securities Industry and Financial Markets Association.
Thomas J. Moloney, David E. Brodsky, Lawrence B. Friedman, Carmine D. Boccuzzi, Jr., Breon S. Peace, Charles J. Keeley, Shira A.B. Kaufman, Cleary Gottlieb Steen & Hamilton LLP, New York, N.Y., for Amici Curiae HSBC Bank PLC, HSBC Holdings plc, et al.
Marco E. Schnabl, Susan L. Saltzstein, Jeremy A. Berman, Skadden, Arps, Slate, Meagher & Flom LLP, New York, N.Y., for Amicus Curiae UniCredit S.p.A.
Franklin B. Velie, Jonathan G. Kortmansky, Mitchell C. Stein, Sullivan & Worcester LLP, New York, N.Y., for Amicus Curiae UniCredit Bank Austria AG.
Michael Feldberg, Allen & Overy LLP, for Amicus Curiae ABN Amro Bank N.V. (presently known as the Royal Bank of Scotland N.V.).
Joseph Cioffi, James R. Serritella, Davis & Gilbert LLP, New York, N.Y., for Amici Curiae Natixis S.A., Natixis Financial Products LLC, et al.
Fran M. Jacobs, Duane Morris LLP, for Amicus Curiae East Star SICAV.
Marshall R. King, Gibson, Dunn & Crutcher LLP, New York, N.Y., for Amici Curiae UBS AG and UBS (Luxembourg) S.A.
Marc J. Gottridge, Andrew M. Behrman, Hogan Lovells U.S. LLP, New York, N.Y., for Amici Curiae Barclays Bank (Suisse) S.A., Barclays Bank S.A., and Barclays Private Bank & Trust Limited.
Thomas B. Kinzler, Daniel Schimmel, Kelley Drye & Warren LLP, New York, N.Y., for Amici Curiae Caceis Bank France and Caceis Bank Luxembourg.
Jodi Kleinick, Barry Sher, Mor Wetzler, Paul Hastings LLP, for Amici Curiae FIM Limited and FIM Advisors LLP.
Eric Fishman, Kerry A. Brennan, Brandon Johnson, Pillsbury Winthrop Shaw Pittman LLP, New York, N.Y., for Amicus Curiae Falcon Private Bank Ltd.
Richard L. Spinogatti, Proskauer Rose LLP, New York, N.Y., for Amici Curiae Grosvenor Investment Management Ltd., Grosvenor Private Reserve Fund Limited, et al.
William J. Sushon, Shiva Eftekhari, O'Melveny & Myers LLP, New York, N.Y., for Amici Curiae Credit Suisse AG, Credit Suisse AG, Nassau Branch, et al.
David J. Onorato, Jessica R. Simonoff, Susan A. Higginsshra, Freshfields Bruckhaus Deringer U.S. LLP, New York, N.Y., for Amicus Curiae Tensyr Limited.
Brian H. Polovoy, Christopher R. Fenton, Andrew Z. Lipson, Shearman & Sterling LLP, for Amicus Curiae Nomura International PLC.
John Westerman, Mickee Hennessy, Westerman Ball Ederer Miller & Sharfstein, LLP, Uniondale, N.Y., for Amici Curiae DOS BFS Family Partnership II, L.P. and Donald and Bette Stein Family Trust.
Before: PARKER, LYNCH, and DRONEY, Circuit Judges.
Bernard L. Madoff orchestrated a massive Ponzi scheme through the investment advisory unit of Bernard L. Madoff Investment Securities LLC (“BLMIS”). After the scheme collapsed, Irving H. Picard (the “Trustee”) was appointed trustee for BLMIS pursuant to the Securities Investor Protection Act, 15 U.S.C. § 78aaa et seq. (“SIPA”). Under SIPA, a trustee is empowered to “recover” (or claw back) money paid out by the debtor, as long as the money “would have been customer property” had the payment not occurred, and the transfers could be avoided under the Bankruptcy Code. Id. § 78fff–2(c)(3).
Section 546(e) of the Bankruptcy Code, in turn, establishes an important exception to a trustee's clawback powers. See 11 U.S.C. § 546(e). Section 546(e) provides generally that certain securities-related payments, such as transfers made by a stockbroker “in connection with a securities contract,” or “settlement payment[s]” cannot be avoided in bankruptcy.
Invoking his clawback powers, the Trustee sued hundreds of BLMIS customers who withdrew more from their accounts than they had invested and, as a result, profited (whether knowingly or not) from Madoff's scheme. The Trustee contends that, if BLMIS had not preferentially paid these customers, the money would have been customer property available to be distributed ratably to all customers, including those who, over time, had withdrawn less than they had invested.
Several defendants moved to dismiss the actions on the ground that the payments received by BLMIS customers were securities-related payments that cannot be avoided under § 546(e). The dispositive issue presented by this appeal is whether the payments that BLMIS made to its customers are the type of securities-related payments that are shielded by § 546(e) from clawback.
The United States District Court for the Southern District of New York (Rakoff, J. ) concluded that the payments were shielded by § 546(e) and dismissed the relevant claims under Federal Rule of Civil Procedure 12(b)(6). We agree and therefore we affirm.
Because this appeal is from dismissals under Rule 12(b)(6), we assume the truth of all well pleaded facts in the underlying complaints and draw all reasonable inferences in favor of the Trustee.See Gibbons v. Malone, 703 F.3d 595, 599 (2d Cir.2013).1
BLMIS purported to execute a “split strike conversion strategy” for customers of its investment advisory unit. This strategy, had it actually been executed, would have consisted of timing the market to purchase a basket of stocks on the S & P 100 Index, and then hedging those purchases with related options contracts. See SIPC v. Bernard L. Madoff Inv. Secs. LLC (In re Bernard L. Madoff Inv. Secs. LLC), 424 B.R. 122, 129–30 (Bankr.S.D.N.Y.2010) (“SIPC v. BLMIS ”).
In reality, however, BLMIS's investment advisory business conducted no actual securities or options trading on behalf of its customers. Instead, BLMIS deposited customer investments into a single commingled checking account and, for years, fabricated customer statements to show fictitious securities trading activity and returns ranging between 10 and 17 percent annually. When customers sought to withdraw money from their accounts, including withdrawals of the fictitious profits that BLMIS had attributed to them, BLMIS sent them cash from the commingled checking account. The Trustee seeks to claw back funds from customers who, over time, were able to take out more money than they had invested with BLMIS.
In December 2008, the Madoff scheme was exposed and liquidation proceedings began in the district court. As a SIPA trustee, Picard was obligated to collect and set aside a fund of...
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