Sec. Inv'r Prot. Corp. v. Bernard L. Madoff Inv. Sec.
| Decision Date | 06 August 2021 |
| Docket Number | Adv. Pro. 09-01239 (CGM),08-01789 (CGM) |
| Parties | SECURITIES INVESTOR PROTECTION CORPORATION, Plaintiff-Applicant, v. BERNARD L. MADOFF INVESTMENT SECURITIES LLC, Defendant. In re: BERNARD L. MADOFF, Debtor. IRVING H. PICARD, Trustee for the Liquidation of Bernard L. Madoff Investment Securities LLC, Plaintiff, v. FAIRFIELD INVESTMENT FUND LIMITED, STABLE FUND, FAIRFIELD GREENWICH LIMITED, FAIRFIELD GREENWICH (BERMUDA), LTD., FAIRFIELD GREENWICH ADVISORS LLC, FAIRFIELD INTERNATIONAL MANAGERS, INC., WALTER NOEL, JEFFREY TUCKER, ANDRES PIEDRAHITA, AMIT VIJAYVERGIYA, PHILIP TOUB, CORINA NOEL PIEDRAHITA, FAIRFIELD GREENWICH CAPITAL PARTNERS and SHARE MANAGEMENT LLC Defendants. |
| Court | United States Bankruptcy Courts. Second Circuit. U.S. Bankruptcy Court — Southern District of New York |
NOT FOR PUBLICATION
SIPA LIQUIDATION (Substantively Consolidated)
BAKER HOSTETLER LLP
Attorneys for the Plaintiff
Camille Bent
Attorneys for Defendants Fairfield Greenwich Limited, Fairfield Greenwich (Bermuda) Limited, Fairfield Greenwich Advisors LLC, Fairfield International Managers, Inc., Amit Vijayvergiya, Philip Toub, Corina Noel Piedrahita, Fairfield Greenwich Capital Partners, and Share Management LLC
Sarah Eichenberger
DECHERT LLP
Attorneys for Andrés Piedrahita
Neil Steiner
Attorneys for Fairfield Investment Fund Limited and Stable Fund, L.P
Before the Court is the Defendants'[1] motion ("Motion to Dismiss") to dismiss the second amended complaint ("Complaint"), filed by Irving H. Picard, Trustee for the Liquidation of Bernard L. Madoff Investment Securities LLC ("Trustee"), on August 28, 2020. Defendants assert that the Complaint fails to state a claim upon which relief can be granted, pursuant to Federal Rule of Civil Procedure ("Rule") 12(b)(6).
For the reasons set forth below, the Motion to Dismiss is granted as to claims asserted against Corina Noel Piedrahita, individually, and is denied as to claims asserted against her in her capacity as a partner of Fairfield Greenwich Group ("FGG"). The Motion to Dismiss is denied on all other grounds.
This is an adversary proceeding commenced in this Court, in which the main underlying Securities Investment Protection Act ("SIPA") proceeding, No. 08-01789 (CGM), is pending. The SIPA proceeding was originally brought in the United States District Court for the Southern District of New York as Securities Exchange Commission v. Bernard L. Madoff Investment Securities LLC, et al., No. 08 CV 10791 and has been referred to this Court. This Court has jurisdiction over this adversary proceeding under 28 U.S.C. § 1334(b) and (e)(1), and SIPA § 78eee(b)(2)(A) and (b)(4). This is a core proceeding under 28 U.S.C. §§ 157(b)(2)(A), (H) and (O).
The Complaint arises in connection with the infamous Ponzi scheme perpetrated by Bernard L Madoff through his investment company, Bernard L. Madoff Investment Securities, LLC ("BLMIS"). As recognized by the Securities Investor Protection Corporation ("SIPC"), this is not a typical SIPC proceeding in which securities or cash were on hand at the time of the failure of the brokerage house. Picard v. Merkin (In re BLMIS), 440 B.R. 243 (Bankr. S.D.N.Y. 2010). It was a fraud of "unparalleled magnitude" in which the only assets available to pay customer claims were "other people's money or assets derived from such funds." In re BLMIS, LLC, 445 B.R. 206, 215 (Bankr. S.D.N.Y. 2011).
In this Complaint, the Trustee seeks to recover over $3.5 billion in redemption payments and fees that Defendants allegedly received from Fairfield Sentry Ltd. ("Sentry"), Greenwich Sentry ("GS"), and Greenwich Sentry Partners ("GSP") (collectively, the "Fairfield Funds"). The Trustee is seeking to recover (1) redemption payments and fees allegedly transferred to Defendants in the six years prior to Madoff's arrest ("Six-Year Subsequent Transfers"); and (2) redemption payments and fees allegedly transferred to Defendants in the two years prior to Madoff's arrest ("Two-Year Subsequent Transfers"). Compl., ECF No. 286.[2] The Trustee also seeks from Fairfield Greenwich Limited ("FG Limited") and Fairfield Greenwich (Bermuda) Limited ("FG Bermuda") transfers from BLMIS to GS and GSP in the six years prior to Madoff's arrest under a theory of general partnership liability.
Defendants move to dismiss the Complaint and argue that the Trustee has failed to allege that, among other things, the Fairfield Funds had actual knowledge of the fraud at BLMIS. They also argue that none of the Defendants had this knowledge so it cannot be imputed to the Fairfield Funds through them. Thus, Defendants believe that the Trustees Six-Year Subsequent Transfer claims must be dismissed. Similarly, Defendants argue that neither the Fairfield Funds nor the Defendants were willfully blind to BLMIS's fraud, and, as such, the Two-Year Subsequent Transfer claims must be dismissed. Defendants also argue that the general partner liability claims against FG Limited and FG Bermuda are preempted by the Bankruptcy Code, the claims against Fairfield Investment Fund Limited ("FIFL") and Stable are untimely, and that the Court lacks personal jurisdiction over Vijayvergiya and Piedrahita. The Trustee opposed the motion and Defendants filed a reply.
On June 16, 2021, this Court held a hearing to consider the motion and its opposition. Hr'g Tr., ECF No. 325.
"To survive a motion to dismiss, the complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face." Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (cleaned up). The claim is facially plausible when a plaintiff pleads facts that allow the Court to draw a "reasonable inference that the defendant is liable for the misconduct alleged." Id. "The plausibility standard is not akin to a 'probability requirement,' but it asks for more than a sheer possibility that a defendant has acted unlawfully." Id.; see also Bell Atl. Corp. v. Twombly, 550 U.S. 544, 556 (2007) (). In deciding a motion to dismiss, the Court should assume the factual allegations are true and determine whether, when read together, they plausibly give rise to an entitlement of relief. Iqbal, 556 U.S. at 679. "And, of course, a well-pl[ed] complaint may proceed even if it strikes a savvy judge that actual proof of those facts is improbable, and that a recovery is very remote and unlikely." Twombly, 550 U.S. at 556.
In deciding the motion, "courts must consider the complaint in its entirety, as well as other sources courts ordinarily examine when ruling on Rule 12(b)(6) motions to dismiss, in particular, documents incorporated into the complaint by reference, and matters of which a court may take judicial notice." Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 322 (2007). A complaint is deemed to include any written instrument attached to it as an exhibit, documents incorporated in it by reference, and other documents "integral" to the complaint. Chambers v. Time Warner, Inc., 282 F.3d 147, 152-53 (2d Cir. 2002) (citations omitted). A document is "integral" to a complaint when the plaintiff has "actual notice" of the extraneous information and relied on it in framing the complaint. DeLuca v. AccessIT Grp., Inc., 695 F.Supp.2d 54, 60 (S.D.N.Y. 2010) (citing Chambers, 282 F.3d at 153). However, "[l]imited quotation from or reference to documents that may constitute relevant evidence in a case is not enough to incorporate those documents, wholesale, into the complaint." Sira v. Morton, 380 F.3d 57, 67 (2d Cir. 2004); accord Sahu v. Union Carbide Corp., 548 F.3d 59, 67 (2d Cir. 2008).
Counts one through seventeen in the Complaint seek recovery of subsequent transfers under 11 U.S.C. § 550(a). Pursuant to SIPA[3] § 78fff-1(a), the Trustee has the general powers of a bankruptcy trustee in a case under the Bankruptcy Code, in addition to the powers granted by SIPA pursuant to 15 U.S.C. § 78fff(b). Chapters 1, 3, 5 and subchapters I and II of chapter 7 of the Bankruptcy Code apply to this proceeding to the extent consistent with SIPA pursuant to SIPA § 78fff(b). The Trustee has standing to bring the avoidance and recovery claims under SIPA § 78fff-1(a) and applicable provisions of the Bankruptcy Code, including 11 U.S.C. §§ 323(b), 544, and 704(a)(1), because the Trustee has the power and authority to avoid and recover transfers under Bankruptcy Code §§ 544, 547, 548, 549, 550(a), and 551, and SIPA §§ 78fff-1(a) and 78fff-2(c)(3).
To recover a fraudulent or preferential transfer of property from a subsequent transferee, the Trustee must show that the initial transfer of that property by the debtor is subject to avoidance under one of the Bankruptcy Code's avoidance provisions (e.g., ...
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