Sec. Inv'r Prot. Corp. v. Bernard L. Madoff Inv. Sec. (In re Madoff)
| Decision Date | 28 February 2023 |
| Docket Number | 08-01789 (CGM),Adv. Pro. 12-01577 (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 Substantively Consolidated SIPA Liquidation of Bernard L. Madoff Investment Securities LLC and the Chapter 7 Estate of Bernard L. Madoff, Plaintiff, v. UBS EUROPE SE, formerly known as UBS Deutschland AG, as successor-in-interest to Dresdner Bank Lateinamerika AG, and LGT BANK (SWITZERLAND) LTD. as successor-in-interest to Dresdner Bank (Schweiz) AG, Defendants. |
| Court | U.S. Bankruptcy Court — Southern District of New York |
NOT FOR PUBLICATION
Attorneys for Irving H. Picard, Trustee for the Substantively Consolidated SIPA Liquidation of Bernard L. Madoff Investment Securities LLC and the Chapter 7 Estate of Bernard L. Madoff Baker & Hostetler LLP
David Sheehan Torello Calvani Of Counsel: Dean D. Hunt Marie L Carlisle Counsel for Defendant LGT Bank (Switzerland) LTD WUERSCH & GERING LLP
Pending before the Court is Defendant's, LGT Bank (Switzerland) Ltd. ("LGT Switzerland" or "Defendant") as successor-in-interest to Dresdner Bank (Schweiz) AG ("Dresdner Schweiz"), motion to dismiss the complaint of Irving Picard, the trustee ("Trustee") for the liquidation of Bernard L. Madoff Investment Securities LLC ("BLMIS") seeking to recover subsequent transfers allegedly consisting of BLMIS customer property. Defendant seeks dismissal for lack of personal jurisdiction, improper adoption by reference, and failure to allege that it received customer property. Defendant raises the "safe harbor," "good faith," and "mere conduit" defenses. For the reasons set forth herein, the motion to dismiss is denied in its entirety.
This is an adversary proceeding commenced in this Court, in which the main underlying SIPA proceeding, Adv. Pro. No. 08-01789 (CGM) (the "SIPA Proceeding"), is pending. The SIPA Proceeding was originally brought in the United States District Court for the Southern District of New York (the "District Court") 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 15 U.S.C. § 78eee(b)(2)(A) and (b)(4).
This is a core proceeding under 28 U.S.C. § 157(b)(2)(A), (F), (H) and (O). This Court has subject matter jurisdiction over these adversary proceedings pursuant to 28 U.S.C. §§ 1334(b) and 157(a), the District Court's Standing Order of Reference, dated July 10, 1984, and the Amended Standing Order of Reference, dated January 31, 2012. In addition, the District Court removed the SIPA liquidation to this Court pursuant to SIPA § 78eee(b)(4), (see Order, Civ. 08- 01789 (Bankr. S.D.N.Y. Dec. 15, 2008) ("Main Case"), at ¶ IX (ECF No. 1)), and this Court has jurisdiction under the latter provision. Personal jurisdiction has been contested by this Defendant and will be discussed infra.
The Court assumes familiarity with the background of the BLMIS Ponzi scheme and its SIPA proceeding. See Picard v. Citibank, N.A. (In re BLMIS), 12 F.4th 171, 178-83 (2d Cir. 2021), cert. denied sub nom. Citibank, N.A. v. Picard, 142 S.Ct. 1209, 212 L.Ed.2d 217 (2022).
This adversary proceeding was filed on May 4, 2012. (Compl., ECF [1] No. 1). The Trustee filed an amended complaint on July 14, 2022. (Am. Compl., ECF No. 105). Via the amended complaint (the "Amended Complaint"), the Trustee seeks to recover $10,392,396 in subsequent transfers made to Dresdner Bank Lateinamerika AG ("DBLA") and Dresdner Schweiz through their respective successors-in-interest, UBS Europe SE ("UBS Europe"), and LGT Switzerland for transfers made through Fairfield Sentry Limited ("Fairfield Sentry") and Fairfield Sigma Limited ("Fairfield Sigma," collectively with Fairfield Sentry, the "Fairfield Funds." (Id. ¶ 2). The Trustee seeks to recover at least $9,296,416 received by DBLA and at least $1,095,980 received by LGT Switzerland. (Id. ¶ 3-4). It is the latter set of transfers that this motion to dismiss concerns.[2] At the time of the transfers, Dresdner Schweiz was a subsidiary of Dresdner Bank AG, one of the largest banks in Germany with offices around the world and in the United States. (Id. ¶ 7). Dresdner Schweiz was a Swiss bank that provided investment advisory and private wealth management services. (Id. ¶ 55). The LGT Group Foundation acquired Dresdner Schweiz in 2009 and merged it into LGT Switzerland in 2010. (Id.). LGT Switzerland is a wholly owned subsidiary of LGT Group Foundation and its principal place of business is in Switzerland. (Id.).
The subsequent transfers were derived from investments with BLMIS made by the Fairfield Funds (Id. ¶¶ 107, 110). Fairfield Sentry is considered a "feeder fund" of BLMIS because the intention of the funds were to invest in BLMIS. (Id. ¶ 2).
Following BLMIS's collapse, the Trustee filed an adversary proceeding against Fairfield Sentry and related defendants to avoid and recover fraudulent transfers of customer property in the amount of approximately $3 billion. (Id. ¶ 92). In 2011, the Trustee settled with Fairfield Sentry. (Id. ¶ 93). As part of the settlement, Fairfield Sentry consented to a judgment in the amount of $3.054 billion (Consent J., Adv. No. 09-01239-cgm, ECF No. 109) but repaid only $70 million to the BLMIS customer property estate. (Settlement Agreement, Adv. No. 09-01239-cgm, ECF No. 169). The Trustee then commenced a number of adversary proceedings against subsequent transferees, like Defendant, to recover the approximately $3 billion in missing customer property.
In its motion to dismiss, Defendant seeks dismissal for lack of personal jurisdiction, improper adoption by reference, and failure to allege Defendant received BLMIS customer property. The Defendant raises the following affirmative defenses: the "safe harbor" defense; the "mere conduit" defense; and the "good faith, for value" defense. The Trustee opposes the motion to dismiss. For the reasons set forth herein, the motion to dismiss is denied in its entirety.
Defendant objects to the Trustee's assertion of personal jurisdiction. (Mem. L. ¶ 7-16, ECF No. 110). In the Amended Complaint, the Trustee argues that Defendant purposefully availed itself to the laws of the United States. (Am. Compl. ¶¶ 28-39).
To survive a motion to dismiss for lack of personal jurisdiction pursuant to Rule 12(b)(2) of the Federal Rules of Civil Procedure, the Trustee "must make a prima facie showing that jurisdiction exists." SPV Osus Ltd. v. UBS AG, 882 F.3d 333, 342 (2d Cir. 2018) (quoting Penguin Grp. (USA) Inc. v. Am. Buddha, 609 F.3d 30 34-35 (2d Cir. 2010)). A trial court has considerable procedural leeway when addressing a pretrial dismissal motion under Rule 12(b)(2). Dorchester Fin. Sec., Inc. v. Banco BRJ, S.A., 722 F.3d 81, 84 (2d Cir. 2013). "'It may determine the motion on the basis of affidavits alone; or it may permit discovery in aid of the motion; or it may conduct an evidentiary hearing on the merits of the motion.'" Dorchester Fin. Sec., Inc. v. Banco BRJ, S.A., 722 F.3d 81, 84 (2d Cir. 2013) (quoting Marine Midland Bank, N.A. v. Miller, 664 F.2d 899 904 (2d Cir. 1981)); see also Picard v. BNP Paribas S.A. (In re BLMIS), 594 B.R. 167, 187 (Bankr. S.D.N.Y. 2018) (same).
"Prior to discovery, a plaintiff challenged by a jurisdiction testing motion may defeat the motion by pleading in good faith, legally sufficient allegations of jurisdiction." Dorchester Fin., 722 F.3d at 84-85 (quoting Ball v. Metallurgie Hoboken-Overpelt, S.A., 902 F.2d 194, 197 (2d Cir. 1990)); Picard v. Fairfield Greenwich Grp. (In re Fairfield Sentry Ltd.), 627 B.R. 546, 565 (Bankr. S.D.N.Y. 2021) (same). In this case, the Trustee has alleged legally sufficient allegations of jurisdiction simply by stating that Defendant "knowingly direct[ed] funds to be invested with and then redeemed from New York-based BLMIS through Fairfield Sentry." (Am. Compl. ¶ 29). This allegation alone is sufficient to establish a prima facie showing of jurisdiction over Defendant in the pre-discovery stage of litigation. At the pre-discovery stage, the allegations need not be factually supported. See Dorchester Fin. Securities Inc. v. Banco BRJ, S.A., 722 F.3d 81, 85 (2d. Cir. 2013) (). That being stated, this was not the only allegation made by the Trustee.
In order to be subjected to personal jurisdiction in the United States, due process requires that a defendant have sufficient minimum contacts with the forum in which defendant is sued "'such that the maintenance of the suit does not offend traditional notions of fair play and substantial justice.'" Picard v. Bureau of Labor Ins. (In re BLMIS), 480 B.R. 501 (Bankr. S.D.N.Y. 2012), 480 B.R. 501, 516 (Bankr. S.D.N.Y. 2012) (quoting Int'l Shoe Co. v. Washington, 326 U.S. 310, 316 (1945)). The pleadings and affidavits are to be construed "'in the light most favorable to the plaintiffs, resolving all doubts in their favor.'" Chloé v. Queen Bee of Beverly Hills, LLC, 616 F.3d 158, 163 (2d Cir. 2010) (quoting Porina v. Marward Shipping Co., 521 F.3d 122, 126 (2d Cir. 2008)); Picard v. BNP Paribas S.A. (In re BLMIS), 594 B.R. 167, 187 (Bankr. S.D.N.Y. 2018).
The Supreme Court has set out three conditions for the exercise of specific jurisdiction over a nonresident defendant. First, the defendant must have purposefully availed itself of the privilege of conducting activities...
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