Sec. Inv'r Prot. Corp. v. Bernard L. Madoff Inv. Sec. (In re Madoff)
| Docket Number | 08-01789 CGM,Adv. Pro. 11-02796 (CGM) |
| Decision Date | 28 December 2023 |
| 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, and the Chapter 7 Estate of Bernard L. Madoff, Plaintiff, v. BNP PARIBAS ARBITRAGE SNC, |
| 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NOT FOR PUBLICATION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 45 Rockefeller Plaza New York, New York 10111 By: David J. Sheehan Torello H. Calvani Joanna F Wasick Matthew B. Friedman Attorneys for Defendant BNP Paribas Arbitrage SNC CLEARY GOTTLIEB STEEN & HAMILTON LLP One Liberty Plaza New York New York 10006 By: Roger A. Cooper Ari D. MacKinnon Thomas S. Kessler
Pending before the Court is the motion of the Defendant, BNP Paribas Arbitrage SNC ("BNP Arbitrage"), 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 received from Harley International (Cayman) Ltd. ("Harley"). Defendant seeks dismissal for lack of personal jurisdiction, for failure to allege avoidability of the initial transfers, and for failure to allege that it received BLMIS customer property. Defendant asserts the affirmative defense of "good faith" and the § 546(e) safe harbor provision of the Bankruptcy Code. 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). Personal jurisdiction has been contested by 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 November 3, 2011. (Compl., ECF[1] No. 1). Via the amended complaint (the "Amended Complaint"), the Trustee seeks to recover over $1 billion in subsequent transfers of customer property that Defendant allegedly received from Harley. (Am. Compl. ¶¶ 2, 87-93, ECF No. 100).
BNP Arbitrage is a general partnership incorporated and organized under the laws of France as a société en nom collectif. (Id. ¶ 51). It is a wholly owned subsidiary of BNP Paribas S.A. (Id.). Defendant is alleged to maintain offices in Paris, France and on Seventh Avenue in New York, New York. (Id. ¶ 52).
The Amended Complaint alleges that BNP Arbitrage invested in or received customer property from Harley and at least six other separate funds which fed investments into BLMIS. (Id. ¶ 53). Harley was a Cayman Islands company that maintained a customer account and allegedly invested all of its assets with BLMIS. (Id. ¶¶ 2, 54). Harley had no employees or offices of its own and instead acted through a "fund-of-funds" manager called Fix Asset Management, Inc. ("Fix Management"), which was owned and entirely controlled by a New York resident named Charles Fix. (Id. ¶ 56). From New York, Fix Management allegedly received Harley's account statements from BLMIS, corresponded directly with BLMIS for redemption requests, and marketed sales of shares to investors. (Id. ¶ 57).
Defendant is alleged to be a member of the BNP Fund Derivatives Group, (the "Derivatives Group").[2] (Id. ¶¶ 63-65, 78). The Amended Complaint alleges that the Derivatives Group is made up of employees of multiple BNP Paribas entities including BNP Arbitrage. (Id. ¶ 64). The Derivatives Group allegedly created, marketed, and serviced credit facilities and financial instruments which produced millions of dollars in fees and interest for BNP Paribas S.A. (Id. ¶ 65).
In 2003, BNP Paribas S.A. acquired assets of Zurich Capital Markets, Inc. ("Zurich"). (Id. ¶ 66). In doing so, BNP Paribas S.A. thereby acquired 60 former Zurich employees and Zurich's portfolio which included a multi-million-dollar credit facility with Santa Barbara Holdings Ltd. ("Santa Barbara"). (Id. ¶¶ 66-68). Santa Barbara is described in the Amended Complaint as a Fixed Management fund that invested entirely in Harley. (Id. ¶ 68). In 2004, BNP Paribas S.A., through the Derivatives Group, allegedly executed a credit facility with Santa Barbara. (Id. ¶ 69). The credit facility called for BNP Paribas S.A. to make loans to Santa Barbara for investments with Harley and "explicitly referenced Harley's 'Madoff Account' with BLMIS as collateral for the credit facility." (Id. ¶¶ 69-71). The Amended Complaint further alleges that BNP Paribas Securities Corp. operated as a calculation agent for the facility and as a collateral agent. (Id. ¶¶ 73-74). It was through Defendant's relationship with these entities that Defendant allegedly received transfers of over $1 billion in BLMIS customer property from Harley between 2003 and 2008. (Id. ¶ 74).
The Trustee commenced a separate adversary proceeding against Harley in May 2009 to avoid and recover initial transfers of customer property from BLMIS to Harley in the amount of $1,072,800,000. (Id. ¶ 82); (see also Compl., Adv. Pro. No. 09-01187, ECF No. 1) (the "Harley Complaint"). On July 8, 2009, this Court entered summary judgment against Harley in the amount of $1,066,800,000 and default judgment against Harley in the amount of $6,020,000. (Am. Compl. ¶ 83, ECF No. 100). The Amended Complaint states that the Trustee has not recovered any money from this judgment. (Id.).
The Amended Complaint alleges that Harley transferred $1,054,960,052 of BLMIS customer property to BNP Arbitrage. (Id. ¶ 87). The Trustee seeks recovery of these transfers under § 550(a) of the Bankruptcy Code and applicable SIPA provisions. (Id. ¶¶ 88, 91).
In its motion to dismiss, Defendant argues that the Amended Complaint fails to establish this Court's personal jurisdiction over Defendant, fails to allege that Defendant received BLMIS customer property, does not demonstrate that the subsequent transfers were composed of BLMIS customer property, and does not adequately plead the avoidability of the initial transfers. (Mem. L. at 1-2, ECF No. 104). Defendant argues that it is entitled to the affirmative defense of "good faith" and "for value" and the § 546(e) "safe harbor." (Id.). The Trustee opposes the motion to dismiss. (Opp'n, ECF No. 106). The Parties waived oral arguments on the motion and agreed to rest on their papers. (Stip. and Order, ECF No. 109).
Defendant objects to the Trustee's assertion of personal jurisdiction. In the Amended Complaint, the Trustee argues that BNP Arbitrage purposefully availed itself of the laws of the United States and New York. (Am. Compl. ¶ 77, ECF No. 100).
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.'" Id. (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). At the pre-discovery stage, the allegations need not be factually supported. See 722 F.3d at 85 (). 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)); BNP Paribas S.A., 594 B.R. at 187.
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...
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