Picard v. Rar Entrepreneurial Fund, Ltd.

IRVING H. PICARD, Trustee for the Liquidation of Bernard L. Madoff Investment Securities LLCand Bernard L. Madoff, Plaintiff, v. RAR ENTREPRENEURIAL FUND, LTD., et al., Defendants.

20-CV-1029 (JMF)

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK

March 3, 2021

OPINION AND ORDER

JESSE M. FURMAN, United States District Judge:

On December 11, 2008, Bernard L. Madoff was arrested and charged in connection with what is presumed to be the largest Ponzi scheme in history. In the more than dozen years since, as Madoff has sat in prison, lawyers and judges have spent countless hours dealing with the mess he left behind. Perhaps no lawyer has spent more hours doing so than Irving H. Picard (the "Trustee"), who was appointed in 2008 as trustee for the liquidation of Bernard L. Madoff Investment Securities LLC ("BLMIS LLC") under the Securities Investor Protection Act, 15 U.S.C. §§ 78aaa et seq. ("SIPA"). In that role, he has brought dozens of cases to recover funds that were allegedly fraudulently transferred from BLMIS LLC. This is yet another such case.

Here, the Trustee seeks to avoid and recover $12,800,065 that was allegedly fraudulently transferred to Defendant RAR Entrepreneurial Fund, Ltd. ("RAR"). Now pending are the Trustee's and RAR's cross-motions for summary judgment pursuant to Rule 56 of the Federal Rules of Civil Procedure. For the reasons that follow, the Trustee's motion is granted in part and denied in part, while RAR's cross-motion is denied in full.

BACKGROUND

Madoff's scheme "has been the subject of a wide variety of decisions" by the Second Circuit and judges of this Court. Picard v. Gettinger (In re Bernard L. Madoff Inv. Sec. LLC), 976 F.3d 184, 188 (2d Cir. 2020). "Because the facts are well documented across many pages of Federal Reporters," id., the Court assumes familiarity with the general background of Madoff's scheme and prior proceedings and recounts them only briefly here.

A. Madoff's Scheme

In January 1960, Madoff registered with the Securities and Exchange Commission ("SEC") as a broker-dealer and was assigned Registrant Number 8-8132. ECF No. 26 ("Def.'s 56.1 Response"), ¶ 7. Through that registration, Madoff became a member of the Securities Investor Protection Corporation (the "SIPC") when SIPA was enacted in 1970. Id. From 1960 until 2001, Madoff ran his broker-dealer business as a sole proprietorship, frequently using the trade name "Bernard L. Madoff Investment Securities" ("Madoff Securities"). Def.'s 56.1 Response ¶ 8; ECF No. 34 ("Pl.'s 56.1 Counter-Response"), ¶¶ 7-8. Madoff Securities operated three business units: (1) a proprietary trading business, (2) a market-making business, and (3) an investment advisory business. Def.'s 56.1 Response ¶ 13; Pl.'s 56.1 Counter-Response ¶ 1. The proprietary trading business traded for its own account to make money for the broader broker-dealer business. Def.'s 56.1 Response ¶ 14. The market-making business made markets in certain stocks, bonds, warrants, and rights. Id. ¶ 15. The investment advisory business ostensibly bought and sold equities and options on behalf of its customer accounts. Id. ¶ 17.

In 2001, Madoff formed a limited liability company, BLMIS LLC, with himself as the sole member. Id. ¶ 9; ECF No. 18-12 ("Amended Form BD"). On January 12, 2001, Madoff filed an amended Form BD ("Amended Form BD") with the SEC that listed BLMIS LLC as the"successor" to Madoff Securities and stated that, "effective January 1, 2001, predecessor will transfer to successor all of predecessor's assets and liabilities, related to predecessor's business" and that "the transfer will not result in any change in ownership or control." Def.'s 56.1 Response ¶ 10 (capitalization changed); Amended Form BD 11. Thereafter, BLMIS LLC operated under the same SEC registrant number, 8-8132, previously used by the sole proprietorship. Def.'s 56.1 Response ¶ 85. As discussed below, these facts notwithstanding, the scope of what exactly Madoff Securities transferred to BLMIS LLC is disputed.

As noted, Madoff was arrested on December 11, 2008. Id. ¶ 1. Around the same time, the SEC brought an action against Madoff in this Court alleging civil violations of the federal securities law. Id. On December 15, 2008, the SEC consented to consolidation of its action with an application by the SIPC that alleged, among other things, that BLMIS LLC could not meet its obligations to securities customers as they came due and that its customers needed the protections afforded by the SIPA. Id. ¶ 3. That same day, this Court granted SIPC's application and entered an order appointing the Trustee for the liquidation of BLMIS LLC; appointing Baker & Hostetler LLP as counsel to the Trustee; and removing the case to the Bankruptcy Court. Id. ¶ 4. On April 13, 2009, an involuntary bankruptcy petition was filed against Madoff, and on June 9, 2009, the Bankruptcy Court substantively consolidated Madoff's Chapter 7 estate into the SIPA Proceeding. Id. ¶ 6.

B. The Payments to RAR

RAR is a limited partnership formed under the laws of, and with a principal place of business in, Florida. Id. ¶ 107. RAR was a customer of Madoff's investment advisory business and held BLMIS Account No. 1R0172 in the name of "RAR ENTREPRENEURIAL FUND," with an address in Miami, Florida, from at least April 3, 1998 through December 11, 2008 (the"RAR Account"). Id. ¶ 108. Only five transactions took place in the RAR Account before the year 2000. Id. ¶ 113.

In November 2010, the Trustee brought this adversary proceeding against RAR under, as relevant here, Sections 548, 550, and 551 of the Bankruptcy Code. See ECF No. 1-3.¹ He filed the operative Amended Complaint on December 14, 2011. See Compl. On February 6, 2020, after the close of discovery, RAR moved to withdraw the bankruptcy reference, arguing that "because the Trustee's claims are actions at law[] for which Defendants have the constitutional right to a trial by jury . . . RAR is entitled to an order withdrawing the reference." ECF No. 1-2, at 1. The Court granted the motion to withdraw on the consent of the Trustee. See ECF No. 6 (citing Buchwald v. Renco Grp., 539 B.R. 31, 36 (S.D.N.Y. 2015)). The Trustee moved for summary judgment on Count Two of the Amended Complaint (seeking to avoid and recover fraudulent transfers pursuant to 11 U.S.C. § 548(a)(1)(A)) on April 1, 2020, ECF No. 11, and RAR cross-moved for summary judgment on June 9, 2020, ECF No. 29.²

LEGAL STANDARDS

Summary judgment is appropriate where the admissible evidence and pleadings demonstrate "no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a); see also Johnson v. Killian, 680 F.3d 234, 236 (2d Cir. 2012) (per curiam). A dispute over an issue of material fact qualifies as genuine "if the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986); accord Roe v. City of Waterbury, 542 F.3d 31, 35 (2d Cir. 2008). The initial burden of establishing that no genuine factual dispute exists rests upon the party seeking summary judgment. See Chambers v. TRM Copy Ctrs. Corp., 43 F.3d 29, 36 (2d Cir. 1994). If the moving party shows a prima facie entitlement to summary judgment, "the burden shifts to the nonmovant to point to record evidence creating a genuine issue of material fact." Salahuddin v. Goord, 467 F.3d 263, 273 (2d Cir. 2006).

In ruling on a motion for summary judgment, a court must view all evidence "in the light most favorable to the non-moving party," Overton v. N.Y. State Div. of Military & Naval Affairs, 373 F.3d 83, 89 (2d Cir. 2004), and must "resolve all ambiguities and draw all permissible factual inferences in favor of the party against whom summary judgment is sought," Sec. Ins. Co. of Hartford v. Old Dominion Freight Line, Inc., 391 F.3d 77, 83 (2d Cir. 2004). To defeat a motion for summary judgment, the non-moving party must advance more than a "scintilla of evidence," Anderson, 477 U.S. at 252, and demonstrate more than "some metaphysical doubt as to the material facts," Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986). The non-moving party "cannot defeat the motion by relying on the allegations in [its] pleading, or on conclusory statements, or on mere assertions that affidavits supporting the motion are not credible." Gottlieb v. County of Orange, 84 F.3d 511, 518 (2d Cir. 1996)(internal citation omitted). Indeed, Rule 56 "mandates the entry of summary judgment, after adequate time for discovery and upon motion, against a party who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial." Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986).

"[W]hen," as here, "both sides move for summary judgment, neither side is barred from asserting that there are issues of fact, sufficient to prevent the entry of judgment, as a matter of law, against it. When faced with cross-motions for summary judgment, a district court is not required to grant judgment as a matter of law for one side or the other." Heublein, Inc. v. United States, 996 F.2d 1455, 1461 (2d Cir. 1993). "Rather, the court must evaluate each party's motion on its own merits, taking care in each instance to draw all reasonable inferences against the party whose motion is under consideration." Schwabenbauer v. Bd. of Educ., 667 F.2d 305, 314 (2d Cir. 1981). Finally, to the extent relevant here, in ruling on a summary judgment motion, a court may grant partial relief. That is, the court may enter an order identifying any material fact, including any item of damages or other relief, not in genuine dispute and treat that fact as established in the case. Fed. R. Civ. P. 56(g); see, e.g., AmTrust N. Am., Inc. v. KF&B, Inc., No. 17-CV-5340 (LJL), 2020 WL 5513458, at *1-2 (S.D.N.Y. Sept. 14, 2020).

DISCUSSION

The Court begins,...