Picard v. JPMorgan Chase & Co. (In re Bernard L. Madoff Inv. Sec. LLC), Docket No. 11-5044

• Court: United States Courts of Appeals. United States Court of Appeals (2nd Circuit)
• Writing for the Court: DENNIS JACOBS
• Docket Number: Docket No. 11-5207,Docket No. 11-5175,Docket No. 11-5051,Docket No. 11-5044
• Parties: 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, v. 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 ACESS 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.
• Decision Date: 20 June 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,
v.
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 ACESS 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.

Docket No. 11-5044
Docket No. 11-5051
Docket No. 11-5175
Docket No. 11-5207

UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT

August Term, 2012
Argued: November 21, 2012
Decided: June 20, 2013

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

A trustee appointed pursuant to the Securities Investor Protection Act appeals from the dismissal of his claims brought on behalf of the debtor and the debtor's customers, asserting that various financial institutions and other defendants aided and abetted the debtor's fraud. The United States District Court for the Southern District of New York (McMahon and Rakoff, JJ.) held that the claims were barred by the doctrine of in pari delicto and that the trustee lacked standing to pursue claims on behalf of customers. We affirm.

Page 2

OREN J. WARSHAVSKY (David J.
Sheehan, Deborah H. Renner, Lan
Hoang, Geoffrey A. North on the
brief) Baker & Hostetler LLP,
New York, New York 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, New York 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, New York 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,
New York for Defendants-
Appellees UniCredit S.p.A. and
Pioneer Alternative Investment
Management Ltd.

MARSHALL R. KING, Gibson, Dunn &
Crutcher LLP, New York, New York
for Defendant-Appellee UBS AG,
et al.

Page 3

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

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

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

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

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

Page 4

scheme, their banking fees gave incentive to look away, or at least caused a failure to perform due diligence that would have revealed the 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.).

Page 5

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 (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 (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

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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, 133 S. Ct. 25 (2012); In re...