Adv. Pro. No. 08-1789 (BRL) Adv. Pro. No. 10-05342 (BRL)
The opinion of the court was delivered by: J. Paul Oetken, District Judge:
SIPA LIQUIDATION (Substantively Consolidated)
In the adversary proceeding below, Irving H. Picard (the "Trustee"), as Trustee for the substantively consolidated Securities Investor Protection Act ("SIPA")*fn1 liquidation of Bernard L. Madoff Investment Securities LLC ("BLMIS") and Bernard L. Madoff, brought an application seeking injunctive relief against MAXAM Absolute Return Fund LTD ("Maxam Limited" or "Appellant"). The Bankruptcy Court granted that application in an October 12, 2011 order. (Order Pursuant to Sections 362(a) and 105(a) of the Bankruptcy Code Enforcing the Automatic Stay, Stay Orders, and SIPA and Granting Trustee's Application for an Injunction (the "Order") (Dkt. No. 1-1)). Before the Court is an appeal (Dkt. No. 1) by Maxam Limited from that Order. For the reasons stated below, the Order of the Bankruptcy Court is affirmed.
On December 8, 2010, the Trustee filed a complaint (the "Complaint") against Appellant and several related funds, "seeking the avoidance of certain transfers, including the recovery of subsequent transfers to Maxam Limited." Sec. Investor Prot. Corp. v. Bernard L. Madoff Inv. Sec., LLC, 460 B.R. 106, 113 (Bankr. S.D.N.Y. 2011). The Complaint alleges that, between 2006 and 2008, nearly $100 million was transferred from BLMIS to Maxam Absolute Return Fund, L.P. ("Maxam Fund") in the form of withdrawals and that, during the ninety days prior to December 11, 2008 (the "Filing Date"), three transfers totaling approximately $25 million were made to Maxam Fund (the "Preference Period Transfers"). The Complaint further alleges that some or all of the Preference Period Transfers were subsequently transferred to Maxam Limited. The Trustee seeks return of these funds.
On July 11, 2011, Maxam Limited filed an answer to the Trustee's Complaint. On or about the same day, Maxam Limited filed an action in the Grand Court of the Cayman Islands (the "Cayman Action") seeking (1) a declaration that Maxam Limited is not liable to the Trustee for either (a) the $25 million Maxam Limited received from Maxam Fund within the period ninety days prior to the Filing Date or (b) any amounts received from Maxam Fund within the period two years prior to the Filing Date in excess of the $25 million; and (2) costs and any other relief deemed proper by the court. Maxam Limited represents that it was incorporated under the laws of the Cayman Islands and maintains its principal place of business there, though all of its assets are in the United States. (Declaration of Carrie A. Tendler dated December 19, 2011 (Dkt. Nos. 10-5, Ex. J at iv; 10-6, Ex. J at 1; 10-10, ¶ 4).)
The Trustee's Application to the Bankruptcy Court followed. On October 12, 2011, the Bankruptcy Court issued its Order, which deemed the Cayman Action and any relief derived from it void ab initio. The Order also, among other things, enjoined Maxam Limited and its agents from participating in the Cayman Action and from filing any further proceedings against the Trustee, the BLMIS estate, or the estate's assets "in any domestic or extraterritorial jurisdiction without first obtaining leave of [the Bankruptcy Court]." (Order at 3.) The Order further directed Maxam Limited to dismiss the Cayman Action as well as any other claims and requests for declaratory judgment or other relief against the Trustee or BLMIS in the Grand Court of the Cayman Islands.
The Bankruptcy Court explained its reasoning for the Order in a separate bench memorandum. See Sec. Investor Prot. Corp. v. Bernard L. Madoff Inv. Sec., LLC, 460 B.R. 106 (Bankr. S.D.N.Y. 2011). As stated therein, the injunctive portions of the Order were authorized by 11 U.S.C. § 105(a), which permits a bankruptcy court to "issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of [the Bankruptcy Code*fn3 ]." Id. at 120(quoting 11 U.S.C. § 105(a)) (modification altered). The Bankruptcy Court concluded that the Cayman Action violated (1) the automatic stay established in bankruptcy cases by 11 U.S.C. § 362(a) and applied in SIPA cases by SIPA § 78fff(b); (2) at least one stay order of this Court in connection with the ongoing SEC litigation related to this matter; (3) the Barton Doctrine established in Barton v. Barbour, 104 U.S. 126 (1881), which forbids a petitioning party from suing a court-appointed receiver without leave of court; and (4) sections of SIPA, including § 78eee(b)(2)(A)(i)-(ii), providing that the Bankruptcy Court has "exclusive jurisdiction of [BLMIS] and its property wherever located (including property located outside the territorial limits of [the Bankruptcy Court] . . . [and] of any suit against the trustee with respect to a liquidation proceeding . . . ." See 460 B.R. at 113-17.
Maxam Limited filed this appeal from the Order on November 29, 2011. (Dkt. No. 1.)
In reviewing final decisions of bankruptcy courts, a district court acts as an appellate court. See In re Sanshoe Worldwide Corp., 993 F.2d 300, 305 (2d Cir. 1993). Findings of fact are reviewed for clear error. Fed. R. Bankr. P. 8013 ("Findings of fact . . . shall not be set aside unless clearly erroneous, and due regard shall be given to the opportunity of the bankruptcy court to judge the credibility of the witnesses."); accord In re Cody, Inc., 338 F.3d 89, 94 (2d Cir. 2003). Legal conclusions are reviewed de novo. See In re Adelphia Commc'ns Corp., 298 B.R. 49, 52 (S.D.N.Y. 2003) (citing In re United States Lines, Inc., 197 F.3d 631, 640-41 (2d Cir. 1999)).
A decision to grant or deny an injunction is reviewed for abuse of discretion. See Nevada Power Co. v. Calpine Corp. (In re Calpine Corp.), 365 B.R. 401, 407 (S.D.N.Y. 2007). The extension or denial of comity is also reviewed for abuse of discretion. See Finanz AG Zurich v. Banco Economico S.A., 192 F.3d 240, 246 (2d Cir. 1999).
Appellant Maxam Limited argues that the Bankruptcy Court's Order should be reversed because the automatic stay, the stay orders, the Barton Doctrine, the relevant sections of SIPA, and the Bankruptcy Court's injunctive power all lack extraterritorial effect. (Appellant's Br. (Dkt. No. 6).) Appellant also argues that the Order should be reversed in the interests of comity toward the courts of the Cayman Islands. (Id.) The Court concludes that the automatic stay and the Bankruptcy Court's injunctive power have extraterritorial effect, that the Cayman Action violates the automatic stay, and that the Bankruptcy Court was not restricted by interests of comity in this case. Accordingly, the Order must be affirmed.*fn4
A. Extraterritoriality of the Automatic Stay
Appellant argues that the Bankruptcy Court "erred in applying the automatic stay extraterritorially against MAXAM Limited" because the automatic stay lacks extraterritorial effect. (Id. at 21-22.) As discussed below, federal statutes, case law, and policy considerations all support the conclusion that the automatic stay does have extraterritorial reach. ...