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In re Bernard L. Madoff Investment Securities, LLC

United States District Court, Second Circuit

September 6, 2013

IN RE BERNARD L. MADOFF INVESTMENT SECURITIES, LLC UNITED CONGREGATIONS MESORA ET AL., Appellants,
v.
IRVING H. PICARD, Appellees.

OPINION

THOMAS P. GRIESA, District Judge.

This case is a consolidated appeal from orders of the United States Bankruptcy Court of the Southern District of New York denying intervention in certain proceedings.

The denial of intervention is affirmed.

Background

Before discussing the appealed orders, it is necessary to provide some background. In the aftermath of Bernard Madoff's Ponzi scheme, Irving H. Picard was appointed as Trustee for the liquidation of BLMIS in the Bankruptcy Court under the Securities Investor Protection Act ("SIPA"). See 15 U.S.C. § 78eee(b)(3). Among other things, the Trustee is establishing a fund of customer property, which will be distributed to each customer who had funds invested with BLMIS based on the "net equity" owed to him. See In re Bernard L. Madoff Inv. Sec. LLC , 654 F.3d 229, 233 (2d Cir. 2011). The Trustee has calculated net equity by subtracting customer withdrawals from customer deposits. The Bankruptcy Court and the Second Circuit upheld this calculation method. See id. at 242. Now the Bankruptcy Court is going to determine whether the "net equity" calculations must account for inflation and interest; that is, whether customers will receive an increase in their "net equity" based on the time that passed while their money was invested with BLMIS. See id. at 235 n.6.

The Bankruptcy Court scheduled a hearing on this matter for September 10, 2013.

Appellants are not customers with claims on the customer fund and therefore were not parties before the Bankruptcy Court for this matter. Rather, they are defendants in separate proceedings where the Trustee seeks to avoid (or undo) BLMIS's payments to them and return money to the customer fund. See 15 U.S.C. § 78fff-2(c)(3); see also 11 U.S.C. § 548. The Trustee claims that these defendants took more money out of BLMIS than they deposited into it. To defend against the Trustee's claims in those avoidance actions, appellants assert that the transfers from BLMIS were "for value and in good faith, " 11 U.S.C. § 548(c), as "satisfaction... of a present or antecedent debt, " § 548(d)(2)(A). See Picard v. Flinn Investments, LLC , 463 B.R. 280, 284-85 (S.D.N.Y. 2011). District Judge Rakoff withdrew the reference to the Bankruptcy Court on these matters and will deal with them in district court proceedings. See id.

Even though appellants were not parties to the proceeding below-the resolution of claims on the customer fund under SIPA-they sought to intervene, arguing that they will be prejudiced as defendants in the avoidance actions. The Trustee opposed the request to intervene in a letter dated December 12, 2012. The Trustee argued that appellants lacked standing to participate in the proceeding because they did not have claims to the customer fund. Moreover, the Trustee asserted that the pending motion before the court was a narrow question that would only decide whether inflation and interest must be considered when calculating net equity for the purpose of customer claims on the SIPA fund.

On January 3, 2013, the Bankruptcy Court denied intervention through a memo endorsement on the Trustee's December 12 letter. The Bankruptcy Court stated:

Having considered the letter submissions..., and as this Court has previously determined that customers who failed to file claims lack standing to participate in the Trustee's time-based damages motion..., the Non-Claimants' request to intervene is hereby DENIED.

In the January 3 order, the Bankruptcy Court denied intervention to appellants in case number 13 Civ. 1300. Following that denial, appellants in case number 13 Civ. 2447 agreed to a stipulated order, providing that if they had sought intervention, it would have been denied for the same reasons as the Bankruptcy Court's January 3 order.

The present appeals are from the denial of the intervention. Appellants have filed consolidated briefs, and these appeals are consolidated for disposition.

Discussion

This court has appellate jurisdiction over rulings of the Bankruptcy Court under 28 U.S.C. § 158(a) and may "affirm, modify, or reverse" the Bankruptcy Court's order. Fed.R.Bankr.P. 8013; see also In re Lehman Bros. Holdings Inc. , 697 F.3d 74, 76 (2d Cir. 2012). This court reviews the Bankruptcy Court's denial of a motion to intervene for abuse of discretion. In re Iridium Operating, LLC , 329 B.R. 403, 405 (S.D.N.Y. 2005), aff'd 165 F.Appx. 878 (2d Cir. 2005). A Bankruptcy Court abuses its discretion if (1) its ruling is based on an erroneous view of the law or clearly erroneous factual findings ...


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