United States District Court, S.D. New York
In re BERNARD L. MADOFF INVESTMENT SECURITIES LLC, Debtor,
IRVING H. PICARD, Appellee, ADELE FOX, ET AL., Appellants, and CAPITAL GROWTH COMPANY, ET AL., Intervenors
For Susanne Stone Marshall, Adele Fox, Marsha Peshkin, Russell Oasis, Appellants: Helen Davis Chaitman, LEAD ATTORNEY, Becker & Poliakoff, P.A, New York, NY; Julie Gorchkova, LEAD ATTORNEY, Becker & Poliakoff, LLP, New York, NY; Lance Gotthoffer, LEAD ATTORNEY, Reed Smith LLP (NYC), New York, NY; Peter William Smith, LEAD ATTORNEY, Becker & Poliakoff, New York, NY.
For Irving H. Picard, Trustee for the Liquidation of Bernard L. Madoff Investment Securities LLC, Appellee: David J. Sheehan, Keith R. Murphy, LEAD ATTORNEYS, Ferve Emine Ozturk, Baker & Hostetler LLP (NYC), New York City, NY; Deborah Hilarie Renner, Baker & Hostefler LLP, New York, NY.
For Picower Parties, As Intervenors, Appellee: Jennifer Marie Opheim, Marcy Ressler Harris, Michael Yongha Kwon, LEAD ATTORNEYS, Schulte Roth & Zabel LLP (NY), New York, NY.
OPINION AND ORDER
John G. Koeltl, United
States District Judge
This bankruptcy appeal arises out of Bernard L. Madoff's Ponzi scheme and the subsequent bankruptcy of Bernard L. Madoff Investment Securities LLC (" BLMIS" ) in the wake of the public revelation of that scheme. In early 2010, the appellants, Adele Fox and Susanne Stone Marshall, who each had invested money in BLMIS, sought to file separate class action lawsuits in the United States District Court for the Southern District of Florida (the " Florida Actions" ) asserting state law claims against Jeffrey Picower, an alleged Madoff co-conspirator, and other related defendants (collectively, the " Picower defendants" ). The appellee, Irving H. Picard (" Picard" or the " Trustee" ), is the trustee for the BLMIS estate pursuant to the Securities Investor Protection Act of 1970 (" SIPA" ), 15 U.S.C. § § 78aaa et seq. After Picard reached a $7.2 billion settlement agreement with the Picower defendants, the United States Bankruptcy Court for the Southern District of New York granted Picard's motion to enjoin the appellants' Florida lawsuits because they were commenced in violation of the Automatic Stay Order in the BLMIS liquidation proceeding, and approved the settlement and a permanent injunction precluding the assertion of claims that were duplicative or derivative of claims brought by the Trustee, or that could have been brought by the Trustee, against the Picower defendants. On March 26, 2012, this Court affirmed the bankruptcy court's Automatic Stay Order and its approval of the settlement and injunction.
The Court of Appeals for the Second Circuit affirmed that judgment. Marshall v. Picard (In re Bernard L. Madoff Inv. Secs. LLC), 740 F.3d 81, 96 (2d Cir. 2014). In the present appeal, the appellants challenge the decision of the bankruptcy court (Bernstein, B.J.), preventing the appellants from filing a Second Amended Complaint in the Florida district court alleging new claims against the Picower defendants. The bankruptcy court held that the appellants' new claims, including a claim under Section 20(a) of the Securities Exchange Act of 1934 (" the Exchange Act" ), 15 U.S.C. § 78t(a) (the " Section 20(a) Claim" ), and a claim under the Federal Racketeer Influenced and Corrupt Organization Act, 18 U.S.C. § 1961 et seq. (the " Federal RICO Claim" ), were derivative of the Trustee's claims against the Picower defendants and therefore were precluded by the permanent injunction.
For the reasons that follow, the bankruptcy court was correct in finding that the appellants' proposed complaint was derivative of the Trustee's claims on behalf of all the creditors of BLMIS and was barred by the permanent injunction.
The factual background of this case was set out at length in this Court's prior decision. See Fox v. Picard (In re Madoff), 848 F.Supp.2d 469, 473-76 (S.D.N.Y. 2012). The Court assumes familiarity with that decision. The following factual and procedural background is presented for its relevance to this appeal.
In May 2009, the Trustee first filed an adversary proceeding against the Picower defendants (the " New York Action" ), bringing claims under federal and New York state law for, among other things, fraudulent transfers and conveyances made by the Picower defendants as part of their conspiracy with Madoff. The Trustee's complaint alleged that the Picower defendants, knowing that BLMIS was an elaborate hoax, withdrew billions of dollars from their BLMIS accounts, money that belonged to defrauded BLMIS customers.
In February 2010, appellants Fox and Marshall filed separate class action lawsuits in the United States District Court for the Southern District of Florida, alleging Florida state law claims against the Picower defendants based on the same factual allegations as the Trustee's complaint (the " Florida Actions" ). Indeed, much of the appellants' initial complaints were cut-and-paste repetitions of the Trustee's complaint. The Trustee filed a motion in the bankruptcy court to enjoin those lawsuits, and on May 3, 2010, the bankruptcy court granted the Trustee's motion. The bankruptcy court held that the appellants' claims were covered by the automatic stay provisions of 11 U.S.C. § 362(a) and therefore belonged " exclusively to the Trustee." Secs. Investor Prot. Corp. v. Bernard L. Madoff Inv. Secs. LLC (" Automatic Stay Decision" ), 429 B.R. 423, 432 (Bankr. S.D.N.Y. 2010). The court also found that the Florida Actions violated part of a protective order issued by the District Court for the Southern District of New York on December 15, 2008, which had placed BLMIS customers under the protection of the SIPA. Id. at 433. Finally, the bankruptcy court issued a preliminary injunction pursuant to 11 U.S.C. § 105(a) finding that the Florida Actions threatened the BLMIS estate. Id. at 434.
Thereafter, the Trustee reached a settlement with the Picower defendants pursuant to which the Picower defendants agreed to return $5 billion to the BLMIS estate and forfeit $2.2 billion to the Government. The $7.2 billion represented the entire amount of money withdrawn by the Picower defendants from their BLMIS accounts. On January 13, 2011, the bankruptcy court approved the settlement and issued the following permanent injunction pursuant to the settlement agreement:
[A]ny BLMIS customer or creditor of the BLMIS estate who filed or could have filed a claim in the liquidation, anyone acting on their behalf or in concert or participation with them, or anyone whose claim in any way arises from or is related to BLMIS or the Madoff Ponzi scheme, is hereby permanently enjoined from asserting any new claim against the Picower BLMIS Accounts or the Picower Releasees that is duplicative or derivative of the claims brought by the Trustee, or which could have been brought by the Trustee against the Picower BLMIS Accounts or the Picower Releasees . . . .
Murphy Decl. filed Mar. 11, 2014, Ex. A (Permanent Injunction Order and Exhibit, Picard v. Picower, Case No. 09-1197, (Bankr. S.D.N.Y. Jan. 13, 2011), ECF No. 43 ...