Marshall v. Picard (In re Bernard L. Madoff Inv. Secs. LLC)

740 F.3d 81 *; 2014 U.S. App. LEXIS 600 **; 58 Bankr. Ct. Dec. 272; Bankr. L. Rep. (CCH) P82,566; 2014 WL 103988

IN RE: BERNARD L. MADOFF INVESTMENT SECURITIES LLC, Debtor. SUSANNE STONE MARSHALL, individually and to the extent she purports to represent a class of those similarly situated, ADELE FOX, individually and to the extent she purports to represent a class of those similarly situated, Claimants-Appellants, v. IRVING H. PICARD, Trustee for the Liquidation of Bernard L. Madoff Investment Securities LLC, Appellee, SECURITIES INVESTOR PROTECTION CORPORATION, Intervenor.1

Subsequent History: As Amended March 3, 2014.

Prior History: Fox v. Picard (In re Madoff), 848 F. Supp. 2d 469, 2012 U.S. Dist. LEXIS 41262 (S.D.N.Y., 2012)

Disposition:  [**1] Appeal from the United States District Court for the Southern District of New York. No. 10 Civ. 7101 (JGK)—John G. Koeltl, Judge. Once again, we are asked to review the liquidation proceedings involving Bernard L. Madoff Investment Securities LLC ("BLMIS")—the investment enterprise created by Bernard L. Madoff to effect his now-infamous Ponzi scheme. These consolidated appeals arise out of a permanent injunction entered by the United States Bankruptcy Court for the Southern District of New York (Burton R. Lifland, Bankruptcy Judge) and affirmed by the United States District Court for the Southern District of New York (John G. Koeltl, Judge), enjoining state law tort actions brought by appellants, two of Madoff's defrauded "investors," against the estate of Jeffry M. Picower, one of Madoff's alleged co-conspirators, and related defendants (collectively, "Picower defendants"). We consider two questions: (1) whether the Bankruptcy Court had the authority under the Bankruptcy Code to enjoin appellants' actions as "derivative" of adversary proceedings brought by the trustee for the BLMIS estate, Irving Picard ("Picard" or the "Trustee"), against the Picower defendants; and, if indeed authorized  [**2] by the Bankruptcy Code, (2) whether the exercise of such authority transgressed the limitations imposed by Article III of the United States Constitution. First, we conclude that appellants' complaints impermissibly attempt to "plead around" the Bankruptcy Court's injunction barring all claims "derivative" of those asserted by the Trustee. Although appellants seek damages that are not recoverable in an avoidance action, their complaints allege nothing more than steps necessary to effect the Picower defendants' fraudulent withdrawals of money from BLMIS, instead of "particularized" conduct directed at BLMIS customers. Second, we conclude that the Bankruptcy Court operated within the confines of Article III of the United States Constitution, as recently interpreted by the Supreme Court in Stern v. Marshall, 131 S. Ct. 2594, 180 L. Ed. 2d 475 (2011). Accordingly, we hold that the Bankruptcy Court did not exceed the bounds of its authority under the Bankruptcy Code or run afoul of Article III.

Affirmed.

CORE TERMS

bankruptcy court, customers, derivative, complaints, particularized, fraudulent, injunction, appellants', withdrawals, fraudulent transfer, defendants', settlement, enjoining, allegations, liquidation, permanent injunction, conspiracy, investors, injuries, rights, fraudulent conveyance, bankrupt estate, misrepresentations, duplicative, asserting, asbestos, insurers, trading, state law, counterclaim

Bankruptcy Law, Judicial Review, Standards of Review, Clear Error Review, De Novo Standard of Review, Civil Procedure, Appeals, Abuse of Discretion, Remedies, Injunctions, Permanent Injunctions, General Overview, Bankruptcy, Liquidations, Clearing Banks, Commodity Brokers & Stockbrokers, Estate Property, Contents of Estate, Examiners, Officers & Trustees, Duties & Functions, Capacities & Roles, Capacity of Parties, Representative Capacity, Trustees, Avoidance, Fraudulent Transfers, Prepetition Transfers, Preferential Transfers, Procedural Matters, Jurisdiction