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Luria v. HSBC Bank USA

September 3, 2010


The opinion of the court was delivered by: Seybert, District Judge


Pending before the Court are four motions:

(1) Plaintiffs Amy J. Luria and Robert Luria (collectively "Plaintiffs" or the "Lurias") motion to remand this case in its entirety to the Supreme Court of the State of New York, Nassau County ("state court"); (2) Plaintiffs' motion for attorneys' fees; (3) Defendant's motion to supplement the record; and (3) Defendant's motion to change venue. For the reasons stated below, Plaintiffs' motions are DENIED, and Defendant's motions are GRANTED.


The Will of Gladys C. Luria created two trusts, one each for the benefit of Amy Luria and Robert Luria. Bernard Madoff ("Madoff"), and Peter Madoff (collectively, the "Madoffs"), were appointed the trustees of those trusts. On or about July 2007, the Madoffs created two partnerships, Amy Luria Partners and Robert Luria Partners. In or about fall 2008, the Madoffs opened two accounts, one for each partnership, with Defendant HSBC Bank USA, N.A. ("HSBC"). (Pl's Mot. to Remand. Ex. A ¶¶ 4-6, 12-14, ECF No. 8.)

Thereafter, on December 11, 2008, Madoff was arrested for operating one of the largest Ponzi schemes in history. Bernard L. Madoff Investment Securities, LLC ("BLMIS"), a broker-dealer and investment advisor, was wholly owned by Madoff. See SIPC v. Bernard L. Madoff Inv. Sec. LLC (In re Bernard L. Madoff Inv. Sec. LLC), 424 B.R. 122, 127 (Bankr. S.D.N.Y. 20 10).*fn2 On December 15, 2008, the District Court for the Southern District of New York placed BLMIS into a Securities Investor Protection Act liquidation, and appointed the Trustee for the liquidation. Id. at 126. That same day, the District Court issued an order imposing the automatic bankruptcy stay provisions of 11 U.S.C. § 362(a) on "any act to obtain possession of property of the estate" and "any act to create, perfect or enforce any lien against property of the estate[.]" Order ¶¶ III (C)-(D), SEC v. Madoff, No. 08-CV-10791 (S.D.N.Y. Dec. 15, 2008) ("Freeze Order"). The Freeze Order also stayed all persons from directly or indirectly transferring or otherwise disposing of any assets or property of the estate. Id. ¶ IV. On October 2, 2009, the Trustee filed a complaint against members of Madoff's family, including his brother Peter Madoff, who was BLMIS's Senior Managing Director and Chief Compliance Officer. See Compl., Picard v. Madoff, Adv. Pro., No. 09-BR-01503 (Bankr. S.D.N.Y. Oct. 2, 2009).

On March 25, 2009, the Trustee's counsel wrote to HSBC, asserting that all funds received from BLMIS in the 90-day period prior to December 11, 2008 were property of the estate and subject to the Freeze Order. Further, the letter stated that the Freeze Order applied to the accounts of Amy Luria and Amy Luria Partners LLC ("Amy Luria Partners") and that "any attempt to withdraw money from those accounts should be denied." Corsiglia Decl., Ex. B.

Around the time of Madoff's arrest, Plaintiffs sought to withdraw what they believed to be their funds from their respective trusts.*fn3 Since that time, however, in accordance with the directives of the Trustee's counsel and in attempt to avoid paying out the contents of the trusts twice, HSBC has refused to release funds from those accounts to Plaintiffs.

On December 16, 2009, Plaintiffs commenced this action against HSBC in the Supreme Court of New York, County of Nassau, pleading six state law claims for accounting, breach of contract, and conversion with respect to each of the partnerships. (Compl. ¶¶ 26, 34, 37, 46, 54, 57.) Essentially, Plaintiffs argue that the trusts are exempted from the stay and outside of the BLMIS estate. Accordingly, Plaintiffs demand that HSBC return to them, individually, the funds held by those trusts. On February 5, 2010, Defendant removed the action to this Court, pursuant to 28 U.S.C. §§ 1334, 1441, 1446 and 1442. Defendant asserts that this Court has subject matter jurisdiction because the underlying facts render this case a core proceeding, or alternatively, "related to" the BLMIS bankruptcy case under 28 U.S.C. §§ 157, 1334(b), and 1452(a). Pending before this Court is Plaintiffs' Motion to remand this case to state court, pursuant to 28 U.S.C. §§ 1334(c), 1452(b), and 1447(c) and Defendant's motions to supplement the record and to transfer venue pursuant to 28 U.S.C. § 1412, or in the alternative § 1404(a). For the reasons stated below, the Court DENIES Plaintiffs' motion, and GRANTS Defendant's motions.


I. Motion to Remand

A. Original Jurisdiction

Section 1334(b) provides that "district courts shall have original but not exclusive jurisdiction of all civil proceedings arising under title 11, or arising in or related to cases under title 11." 28 U.S.C. § 1334(b). Plaintiffs argue that this case does not arise under title 11 nor is it related thereto. Alternatively, Plaintiffs argue that, even if the Court has jurisdiction, the Court must abstain from hearing the proceeding under 28 U.S.C. § 1334(c)(2). Finally, Plaintiffs argue that this Court should remand this case on equitable grounds pursuant to 28 U.S.C. § 1452(b).

Under the Bankruptcy Code, cases "arising under" and "arising in" title 11 are considered core proceedings. Wood v. Wood (In re Wood), 825 F.2d 90, 96 (5th Cir. 1987). "Generally, a core proceeding is one that invokes a substantive right under title 11, or could only arise in the context of a bankruptcy case." Penthouse Media Group v. Robert C. Guccione (In re Gen. Media, Inc.), 335 B.R. 66, 72 (Bankr. S.D.N.Y. 2005). But this does not mean that a case is only a core proceeding if it is affected by Federal law; in fact Section 157(b)(3) specifically states that "[the] determination that a ...

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