In re Ltd.

Decision Date23 May 2011
Docket NumberAdversary No. 10–03496.1,Bankruptcy No. 10–13164 (BRL).
Citation452 B.R. 64
PartiesIn re FAIRFIELD SENTRY LIMITED, et al., Debtors in Foreign Proceedings.Fairfield Sentry Limited, et al., (In Liquidation), acting by and through the Foreign Representatives thereof, Plaintiffs,v.Theodoor GGC Amsterdam, et al., Defendants.
CourtU.S. Bankruptcy Court — Southern District of New York

OPINION TEXT STARTS HERE

Brown Rudnick LLP, By: David J. Molton, May Orenstein, Daniel Saval, Kerry L. Quinn, New York, NY, for the Foreign Representatives.Cleary Gottlieb Steen & Hamilton LLP, By: Thomas J. Moloney, New York, NY, for HSBC Private Bank (Suisse) SA, HSBC Securities Services (Luxembourg) SA, HSBC Bank USA NA (sued here as HSBC Bank USA), HSBC Private Bank (C.I.) Limited (sued here as HSBC Private Bank (Guernsey) Ltd), HSBC Private Banking Nominee 1 (Jersey) Limited (sued here as FS/HSBC Private Banking Nom), Robinson & Co., Caceis Bank Luxembourg, CDC IXIS, Citibank NA London, Citibank (Switzerland) AG, Citigroup, Citivic Nominees Limited, BNP Paribas Securities Services Luxembourg, BGL BNP Paribas (sued here as BNP Paribas Luxembourg SA), BNP Paribas (Suisse) SA, BNP Paribas (Suisse) SA Ex Fortis, & BNP Paribas (Suisse) SA Private.Sullivan & Cromwell LLP, By: Robinson B. Lacy, Jeffrey T. Scott, Joshua Fritsch, Yavar Bathaee, New York, NY, for Defendant Safra National Bank of New York and Banque Safra–Luxembourg.

MEMORANDUM DECISION AND ORDER DENYING DEFENDANTS' MOTIONS FOR REMAND OR ABSTENTION

BURTON R. LIFLAND, Bankruptcy Judge.

Before the Court are the motions (the “Remand Motions”) filed by certain defendants (the Movants) in 42 of the 209 above-referenced administratively consolidated adversary proceedings (the “Actions”) 2 currently pending before this Court in connection with the above-referenced chapter 15 cases of Fairfield Sentry Limited (Sentry), Fairfield Sigma Limited (“Sigma”) and Fairfield Lambda Limited (“Lambda,” and together with Sentry and Sigma, the “Debtors”) requesting that this Court remand the Actions to the New York Supreme Court for the County of New York, Commercial Division (the State Court) or abstain from adjudicating the Actions pursuant to, inter alia, 28 U.S.C. §§ 157, 1334(c) and 1452(b), and Federal Rules of Bankruptcy Procedure (“Bankruptcy Rules”) 5011 and 9027(d).

With upward of 209 actions pending and almost $6 billion in play, which is the best ballpark to host the games? After extensive briefing and oral argument, the Court finds the Movants to be incorrect in their broad assertion that the Actions, seeking within the territorial jurisdiction of the United States to recover multi-billions in potential foreign estate assets, “have nothing to do with the federal bankruptcy laws and no real connection to any bankruptcy case.” HSBC Mot., p. 1.3 To the contrary, the relief sought in the Actions strikes directly at the core bankruptcy functions of this Court under chapter 15 to provide ancillary assistance within the United States to the recognized, foreign main proceedings and the efforts of the Foreign Representatives to maximize the value of the BVI estate. These Actions are but a small subset of the complex litigation scheme pending before this Court involving the Debtors and the international Madoff Ponzi scheme, such that [h]aving these intimately related cases consolidated before one judge who is familiar with the background ... will be more efficient and promote the uniform application of the bankruptcy laws.” In re Fairfield Sentry Ltd., et al., Nos. 10–CIV–7340, et al., 2010 WL 4910119, at *3 (S.D.N.Y. Nov.22, 2010) (denying withdrawal of the reference in these cases).4

Accordingly, for the reasons set forth below and at oral argument, the Remand Motions are DENIED.

BACKGROUND
I. The Debtors and the Chapter 15 Cases

The Debtors were established for the purpose of allowing mainly non-U.S. persons and certain tax-exempt United States entities to invest with Bernard L. Madoff Investment Securities LLC (“BLMIS”). While the Debtors were operating, investors were able to redeem their shares at will, receiving what was believed at the time to be their proportional interest in the assets of the Debtors. On December 11, 2008, however, it was revealed that Bernard L. Madoff (“Madoff”) had for decades perpetrated a Ponzi scheme through the investment advisory side of BLMIS, which is currently in liquidation before this Court pursuant to 15 U.S.C. §§ 78aaa et seq., the Securities Investor Protection Act (SIPA). Sec. Inv. Prot. Corp. v. BLMIS (In re BLMIS), Case No. 08–01789 (Bankr.S.D.N.Y.2008).

Subsequent to the revelation of the BLMIS fraud, redemption payments ceased, and certain of the Debtors' shareholders and creditors commenced insolvency proceedings on behalf of the Debtors (the “BVI Proceedings”) in the British Virgin Islands (the “BVI”) before the Commercial Division of the Eastern Caribbean High Court of Justice, British Virgin Islands (the “BVI Court). The BVI Proceedings were commenced on separate dates with respect to each of the Debtors: Lambda on February 27, 2009, Sentry on April 21, 2009, and Sigma on April 23, 2009. The BVI Court appointed Christopher Stride (“Stride”) as liquidator of Lambda by order dated April 23, 2009, and Stride and Kenneth Krys (“Krys”) as joint liquidators of Sentry and Sigma by orders dated July 21, 2009. Joanna Lau (“Lau,” and together with Krys and their predecessors, the “Foreign Representatives”) subsequently succeeded to Stride's liquidator positions, and Krys was appointed as joint liquidator of Lambda with Lau. As a result, Krys and Lau are the current joint court-appointed liquidators of the Debtors' estates, as well as the Foreign Representatives with respect to each of the Debtors' chapter 15 cases. See Notice of Change in Status of Foreign Representatives' Appointment Pursuant to 11 U.S.C. § 1518, Case No. 10–13164, Dkt. No. 77.

The Foreign Representatives filed the Debtors' chapter 15 petitions seeking recognition of the BVI Proceedings before this Court on June 14, 2010 (the “Petition Date”). The Debtors' chapter 15 cases were consolidated for administrative purposes by order dated June 17, 2010. Id. at Dkt. No. 11. On July 22, 2010 (the “Recognition Date”), after a hearing held on the matter, this Court entered an Order (the “Recognition Order”) 5 recognizing the Debtors' BVI Proceedings as foreign main proceedings and granting other relief under sections 1517(b)(1) and 1521 of the Bankruptcy Code (the “Code”). See generally In re Fairfield Sentry Ltd., 440 B.R. 60 (Bankr.S.D.N.Y.2010).

II. The Foreign Representatives' Role and The Pending Actions

As the Debtors are the largest of the so-called “feeder funds” to have invested with Madoff through BLMIS, the Debtors' investors are not only creditors to this proceeding, but also victims of the massive Ponzi scheme. In order to marshal assets for fair and efficient distribution among these creditors and victims, in accordance with BVI insolvency law, the Foreign Representatives are “entrust[ed] [with] the administration or realization of all or part of the debtor's assets within the territorial jurisdiction of the United States.” 11 U.S.C. § 1521(a)(5); see also In re Fairfield Sentry Ltd., 440 B.R. at 67 ([G]ranting the requested relief under section 1521 of the Code fosters the ‘fair and efficient administration of [the Debtors'] cross-border insolvencies' by ensuring that only one unbiased party—the Liquidators—quarterback the Debtors' causes of action ‘in the interests of all creditors and other interested entities, including the debtor.’) (quoting 11 U.S.C. § 1501(a)(3)). Recognition of the BVI Proceedings as foreign main proceedings under chapter 15, among other things, grants the Foreign Representatives “the capacity to sue and be sued in a court of the United States” and the ability to “apply directly to a court in the United States for appropriate relief in that court.” 11 U.S.C. § 1509(b) (“Right of Direct Access”). Moreover, as liquidators appointed by order of the BVI Court, the Foreign Representatives “have custody and control of all the assets” of the Debtors and the powers to, inter alia, “commence, continue, discontinue or defend any action or other legal proceedings in the name and on behalf of [the Debtors] in the British Virgin Islands or elsewhere” and “all other things incidental to the exercise of” such powers. BVI Insolvency Order, pp. 11–12.6

In furtherance of these powers and duties, the Foreign Representatives have identified and asserted causes of action against a number of parties on behalf of the Debtors. In April 2010, with the BVI Court's approval, the Foreign Representatives began commencing actions in the United States against direct or indirect subscribers for the return of redemption payments (the “Redemption Payments”) withdrawn from Sentry's BLMIS account (the “Redeemer Actions”). Following this Court's entry of the Recognition Order, the Foreign Representatives removed those Redeemer Actions that had been asserted in the State Court to this Court pursuant to 28 U.S.C. section 1452, and continued filing any post-recognition Redeemer Actions before this Court. The instant Remand Motions were then filed in 42 of the 56 Redeemer Actions removed from the State Court. See Redeemer Actions Statistics Letter, p. 2.7 Thus, the Actions subject to the instant Remand Motions constitute 42 of the Redeemer Actions pending before this Court.

The original complaints filed in the Redeemer Actions assert claims titled money had and received, unjust enrichment, mistaken payment and constructive trust (the “Common Law Claims”). These claims are equitable and restitutionary in nature, seeking Redemption Payments, including “fictitious profits,” paid to the Debtors' shareholders based on a miscalculated net asset value that was falsely inflated as a result, ultimately, of the Madoff Ponzi scheme. The legal theories asserted in the Common Law Claims are identical to...

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