Sec. Inv'r Prot. Corp. v. Bernard L. Madoff Inv. Sec. LLC

654 B.R. 653

SECURITIES INVESTOR PROTECTION CORPORATION, Plaintiff-Applicant, v. BERNARD L. MADOFF INVESTMENT SECURITIES LLC, Defendant.

In re: Bernard L. Madoff, Debtor.

Irving H. Picard, Trustee for the Liquidation of Bernard L. Madoff Investment Securities LLC, Plaintiff, v. Natixis S.A. and Tensyr Ltd., Defendants.

No. 08-01789 (CGM)

Adv. Pro. No. 10-05353 (CGM)

United States Bankruptcy Court, S.D. New York

Signed November 3, 2023

Attorneys for Irving H. Picard, Trustee for the Substantively Consolidated SIPA Liquidation of Bernard L. Madoff Investment Securities LLC and the Chapter 7 Estate of Bernard L. Madoff, BAKER & HOSTETLER LLP, 45 Rockefeller Plaza, New York, New York 10111, By: Matthew Friedman

Attorneys for Defendant Tensyr Limited, Freshfields Bruckhaus Deringer US LLP, 601 Lexington Avenue, 31st Floor, New York, New York 10022, By: Christian Vandergeest

SIPA LIQUIDATION

(Substantively Consolidated)

MEMORANDUM DECISION DENYING DEFENDANT'S MOTION TO DISMISS

CECELIA G. MORRIS, UNITED STATES BANKRUPTCY JUDGE

Pending before the Court is the motion of the Defendant, Tensyr Ltd. ("Tensyr"), to dismiss the complaint of Irving Picard, the trustee ("Trustee") for the liquidation of Bernard L. Madoff Investment Securities LLC ("BLMIS") seeking to recover subsequent transfers allegedly consisting of BLMIS customer property. Defendant seeks dismissal for lack of personal jurisdiction and for failure to allege that it received BLMIS customer property. Defendant also asserts the affirmative defense of "good faith" and the safe harbor provision of the Bankruptcy Code. For the reasons set forth herein, the motion to dismiss is denied in its entirety.

Jurisdiction

This is an adversary proceeding commenced in this Court, in which the main underlying SIPA proceeding, Adv. Pro. No. 08-01789 (CGM) (the "SIPA Proceeding"), is pending. The SIPA Proceeding was originally brought in the United States District Court for the Southern District of New York (the "District Court") as Securities Exchange Commission v. Bernard L. Madoff Investment Securities LLC et al., No. 08-CV-10791, and has been referred to this Court. This Court has jurisdiction over this adversary proceeding under 28 U.S.C. § 1334(b) and (e)(1), and 15 U.S.C. § 78eee(b)(2)(A) and (b)(4).

This is a core proceeding under 28 U.S.C. § 157(b)(2)(A), (F), (H) and (O). Personal jurisdiction has been contested by the Defendant and will be discussed infra.

Background

The Court assumes familiarity with the background of the BLMIS Ponzi scheme and its SIPA proceeding. See Picard v. Citibank, N.A. (In re BLMIS), 12 F.4th 171, 178-83 (2d Cir. 2021), cert. denied sub nom. Citibank, N.A. v. Picard, — U.S. —, 142 S. Ct. 1209, 212 L.Ed. 2d 217 (2022).

This adversary proceeding was filed on December 8, 2010. (Compl., ECF¹ No. 1). Via the amended complaint (the "Complaint"), the Trustee seeks to recover approximately $35,190,115 in BLMIS' customer property transfers to Defendant from Fairfield Sentry Limited ("Fairfield Sentry"). (Am. Compl. ¶ 126-29 ECF No. 193). The Trustee is seeking to recover an additional $179 million in customer property transferred to Natixis S.A. ("Natixis," and with Tensyr, "Defendants"). (Id. ¶¶ 8, 122-25). In total, the Trustee seeks to recover over $214 in subsequent transfers of customer property made to Defendants. (Id. ¶ 9).

Tensyr was formed in 2006 as a limited company under the laws of Jersey by Natixis S.A. and Fairfield Greenwich Group ("FGG"). (Id. ¶ 20). It is a "special purpose investment vehicle," had no employees of its own, and operated through Natixis and FGG. (Id.). The Complaint describes it as an "orphan" entity with no employees of its own. (Id. ¶ 22). New York-based FGG agreed to act as "manager and information agent" for Defendant. (Id. ¶¶ 23; 33).

Natixis is a "corporate and investment bank organized under the laws of France as a société anonyme à conseil d'administration." (Id. ¶ 14). Natixis, along with the affiliates and subsidiaries it operates, provides services including retail banking, corporate and investment banking, and asset and private wealth management. (Id.). By 2008, it employed over 22,000 people in 68 countries and held nearly €556 billion in assets. (Id. ¶ 19).

Natixis allegedly created Tensyr to exploit returns from Madoff. (Id. ¶ 3). In 2006, Defendants and FGG "created a structured notes program (the 'Tensyr Transaction') through which they provided investors with returns linked to Fairfield Sentry's performance. As part of this notes program, Tensyr purchased shares in, and redeemed shares from, Fairfield Sentry." (Id. ¶ 6). Profits were derived from BLMIS returns by both investing in Fairfield Sentry and by issuing notes linked to the performance of Fairfield Sentry. (Id. ¶ 22). Tensyr invested entirely in Fairfield Sentry. (Id. ¶ 3).

FGG is alleged to have been a New York-based de facto partnership. (Id.¶¶ 3, 24). Its headquarters were in New York along with personnel and several partners. (Id. ¶¶ 24-28, 34, 39). Fairfield Sentry was "created, operated, and controlled by FGG in New York." (Id. ¶ 4). Fairfield Sentry maintained customer accounts with BLMIS's investment advisory business and "invest[ed] virtually all of its assets in its BLMIS customer accounts." (Id. ¶ 5); (Id. ¶ 32) ("Fairfield Sentry invested at least 95% of its assets with New York-based BLMIS."). Fairfield Sentry ultimately received over $2.8 billion in avoidable transfers of BLMIS customer property. (Id. ¶ 5).

Following BLMIS's collapse, the Trustee filed an adversary proceeding against Fairfield Sentry and other feeder funds to avoid and recover fraudulent transfers of customer property in the amount of approximately $3 billion. (Id. ¶ 115). In 2011, the Trustee settled with Fairfield Sentry. (Id. ¶ 116). As part of the settlement, Fairfield Sentry consented to a judgment in the amount of $3.054 billion, (Consent J., 09-01239-cgm, ECF No. 109) of which only $70 million was repaid to the BLMIS customer property estate. The Trustee then commenced a number of adversary proceedings against subsequent transferees, like Defendant, to recover the approximately $3 billion in missing customer property.

In its motion to dismiss, Tensyr argues that this Court lacks personal jurisdiction and that the Trustee has failed to plausibly allege that Defendant received subsequent transfers of BLMIS customer property. (Mem. L at 2-3, ECF No. 204). Defendant also asserts that § 546(e) of the Bankruptcy Code bars the trustee's claims and that it is entitled to the "good faith defense" under § 550(b). (Id.). The Trustee opposes the motion to dismiss. (Opp'n, ECF No. 211).

Tensyr filed a letter with this Court on October 5, 2023, in which it stated its intention to "refer to at oral argument" the "recent decision in Picard v. Public Institution for Social Security." (Letter, ECF No. 217). The Trustee filed a letter in reply arguing that the PIFSS decision is inapplicable to the question of personal jurisdiction over Defendant. (Letter, ECF No. 218).

The parties entered into a stipulation waiving oral arguments as to "all issues in the Tensyr Motion except for issues related to personal jurisdiction." (Stip. and Order, ECF No. 220). The Court heard oral arguments on October 18, 2023. (See Hr'g Tr., Oct. 18, 2023, ECF No. 227).

Discussion

Personal Jurisdiction

Defendant objects to the Trustee's assertion of personal jurisdiction. In the Complaint, the Trustee argues that Defendant purposefully availed itself of the laws of the United States and New York. (Am. Compl. ¶ 21, ECF No. 193).

To survive a motion to dismiss for lack of personal jurisdiction pursuant to Rule 12(b)(2) of the Federal Rules of Civil Procedure, the Trustee "must make a prima facie showing that jurisdiction exists." SPV Osus Ltd. v. UBS AG, 882 F.3d 333, 342 (2d Cir. 2018) (quoting Penguin Grp. (USA) Inc. v. Am. Buddha, 609 F.3d 30, 34-35 (2d Cir. 2010)). A trial court has considerable procedural leeway when addressing a pretrial dismissal motion under Rule 12(b)(2). Dorchester Fin. Sec., Inc. v. Banco BRJ, S.A., 722 F.3d 81, 84 (2d Cir. 2013). " 'It may determine the motion on the basis of affidavits alone; or it may permit discovery in aid of the motion; or it may conduct an evidentiary hearing on the merits of the motion.' " Dorchester Fin., 722 F.3d at 84 (quoting Marine Midland Bank, N.A. v. Miller, 664 F.2d 899, 904 (2d Cir. 1981)); see also Picard v. BNP Paribas S.A. (In re BLMIS), 594 B.R. 167, 187 (Bankr. S.D.N.Y. 2018) (same).

"Prior to discovery, a plaintiff challenged by a jurisdiction testing motion may defeat the motion by pleading in good faith, legally sufficient allegations of jurisdiction." Dorchester Fin., 722 F.3d at 84-85 (quoting Ball v. Metallurgie Hoboken-Overpelt, S.A., 902 F.2d 194, 197 (2d Cir. 1990)); Picard v. Fairfield Greenwich Grp. (In re Fairfield Sentry Ltd.), 627 B.R. 546, 565 (Bankr. S.D.N.Y. 2021) (same). In this case, the Trustee has alleged legally sufficient allegations of jurisdiction simply by stating that the "Defendants invested in Fairfield Sentry knowing and intending that their investments would be investments with New York-based BLMIS," and that the Defendants "intended that the funds they invested in Fairfield Sentry would be used to purchase securities in the United States through New York-based BLMIS." (Am. Compl. ¶¶ 29-30, ECF No. 193). This allegation alone is sufficient to establish a prima facie showing of jurisdiction over Defendant in the pre-discovery stage of litigation. At the pre-discovery stage, the allegations need not be factually supported. See Dorchester Fin., 722 F.3d 81, 85 (2d Cir. 2013) (an averment of facts is necessary only after discovery). That being stated, this was not the only allegation made by the Trustee.

In order to be subjected to personal jurisdiction in the United States, due process requires that a defendant have sufficient minimum contacts with the forum in which the defendant is sued " 'such that the...