Sec. Inv'r Prot. Corp. v. Bernard L. Madoff Inv. Sec. (In re Madoff)

NOT FOR PUBLICATION

SIPA LIQUIDATION (Substantively Consolidated)

Special Counsel 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 WINDELS MARX LANE & MITTENDORF, LLP By: Howard L. Simon Kim M. Longo Alan D. Lawn

Attorneys for RBC Investor Services S.A., RBC Investor Services Trust, and Banco Inversis, S.A. KATTEN MUCHIN ROSENMAN LLP By: Anthony L. Paccione Mark T. Ciani

MEMORANDUM DECISION DENYING DEFENDANTS' MOTION TO DISMISS

CECELIA G. MORRIS, UNITED STATES BANKRUPTCY JUDGE

Pending before the Court is Defendants', RBC Investor Services Bank S.A. ("RBC Bank"), RBC Investor Services Trust ("RBC Trust"), and Banco Inversis S.A. ("Banco Inversis") (as successor-in-interest to RBC Dexia Investor Services España S.A.) (collectively, "RBC" or "RBC Defendants"), motion 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. RBC Defendants seek dismissal for lack of personal jurisdiction and improper adoption by reference. 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). This Court has subject matter jurisdiction over these adversary proceedings pursuant to 28 U.S.C. §§ 1334(b) and 157(a), the District Court's Standing Order of Reference, dated July 10, 1984, and the Amended Standing Order of Reference, dated January 31, 2012. In addition, the District Court removed the SIPA liquidation to this Court pursuant to SIPA § 78eee(b)(4), (see Order, Civ. 08- 01789 (Bankr. S.D.N.Y. Dec. 15, 2008) ("Main Case"), at ¶ IX (ECF No. 1)), and this Court has jurisdiction under the latter provision. Personal jurisdiction has been contested by the RBC Defendants 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, 142 S.Ct. 1209, 212 L.Ed.2d 217 (2022).

This adversary proceeding was filed on June 6, 2012. (Compl., ECF^[1] No. 1). The Trustee filed an amended complaint ("Amended Complaint"), on June 30, 2022. (Am. Compl., ECF No. 134). Via the amended complaint, the Trustee seeks to recover $65,995,850 in subsequent transfers made to RBC Defendants and associated defendants Banque Internationale à Luxembourg S.A. (f/k/a Dexia Banque Internationale à Luxembourg S.A.) ("Dexia Banque") and Banque International à Luxembourg (Suisse) S.A. (f/k/a Dexia Private Bank (Switzerland) Ltd.) ("Dexia Suisse," collectively" s"), through Fairfield Sentry Limited

("Fairfield Sentry"), Fairfield Sigma Limited ("Fairfield Sigma," collectively, the "Fairfield Funds"), and Rye Select Broad Market Portfolio Limited ("Rye Portfolio Limited"). (Id. ¶ 2). In the Amended Complaint, the Trustee seeks to recover approximately $54,875,160 received by Dexia Defendants and approximately $11,120,690 received by RBC Defendants. (Id.). The Trustee has provided a table with a breakdown of the funds subsequently transferred to each Defendant and the Court has added the left-most column for clarity:

Defendant	BLMIS feeder fund(s)	Transfers
Dexia Defendants[2]	Dexia Banque	• Fairfield Sentry • Fairfield Sigma	$52,331,690 $537,645
Dexia Suisse	• Fairfield Sentry • Fairfield Sigma	$2,000,067 $5,758
RBC Defendants	RBC Bank	• Fairfield Sentry	$5,146,594
RBC Trust	• Rye Portfolio Limited	$2,433,046
Banco Inversis	• Fairfield Sentry • Fairfield Sigma	$2,037,173 $1,503,877

(See id. at 3).

The instant motion to dismiss before the Court concerns only the transfers to the RBC Defendants. RBC Bank is a société anonyme organized under the laws of Luxembourg and its principal place of business is in Luxembourg. (Id. ¶ 54). RBC Trust is a trust company organized under the laws of Canada and its principal place of business is in Ontario. (Id. ¶ 55). Banco Inversis is a sociedad anónima organized under the laws of Spain and its principal place

of business is in Madrid. (Id. ¶ 56). At the time of the transfers, each of the RBC Defendants were wholly owned subsidiaries of a joint venture between non-party Royal Bank of Canada and Dexia Banque. (Id. ¶ 53).

Fairfield Sentry and Fairfield Sigma Transfers

Following BLMIS's collapse, the Trustee filed an adversary proceeding against Fairfield Sentry to avoid and recover fraudulent transfers of customer property in the amounts of approximately $3 billion. (Id. ¶ 149). In 2011, the Trustee settled with the Fairfield Funds. (Id. ¶ 150). As part of their settlement, Fairfield Sentry and Fairfield Sigma consented to judgments in the amounts of $3.054 billion and $752.3 million, respectively. (Consent Js., 09-01239-cgm, ECF Nos. 109-10). Only $70 million has been repaid to the BLMIS customer property estate. (Am. Compl. ¶ 150); (Settlement Agreement, 09-01239-cgm, ECF No. 169). The Trustee commenced a number of adversary proceedings against Fairfield Sentry's subsequent transferees, like RBC Defendants, to recover missing customer property.

The subsequent transfers the Trustee seeks to collect from RBC Bank and Banco Inversis were derived from investments with BLMIS made by the Fairfield Funds between 2007 and 2008. (Id. ¶¶ 149-55; Exs. C, E). The Trustee alleges that subsequent transfers from Fairfield Sentry to all RBC and Dexia Defendants total at least $61,515,524, and subsequent transfers from Fairfield Sigma to all RBC and Dexia Defendants total at least $2,047,280. (Id. ¶¶ 156, 161). The Trustee seeks approximately $8,687,644 of those transfers from RBC Bank and Banco Inversis (the "Fairfield RBC Transferees"). (See id. ¶ 2).

Rye Portfolio Limited Transfers

Following BLMIS's collapse, the Trustee filed an adversary proceeding against Tremont Group Holdings ("Tremont") and dozens of its affiliates to avoid and recover

fraudulent transfers of customer property in the amount of approximately $2.1 billion. (Id. ¶ 76). Rye Portfolio Limited was a named defendant alongside its manager, Tremont. (See Tremont Compl., Picard v. Tremont Grp. Holdings, Inc., Adv. Pro. 10-05310, ECF No. 1, (the "Tremont Complaint")). Tremont owned, managed, and operated Rye Portfolio Limited, along with other "Rye Select" feeder funds.^[3] (Id.). The Rye Select feeder funds had no employees of their own and acted through Tremont Group officers who operated the Rye Select funds. (Am. Compl. ¶ 70).

In 2011, the Trustee settled with Tremont and its affiliates, including Rye Portfolio Limited. (Id. ¶ 78). As part of the settlement, Tremont and Rye Portfolio Limited, consented to a judgment in the amount of $1.025 billion ("Tremont Settlement"). (Order, Adv Pro. 10-05310-brl, ECF No. 38). The Tremont Settlement provides that the Trustee may seek additional recovery from any non-settling defendant or subsequent transferee. (Id. at 6). The Trustee commenced a number of adversary proceedings against Tremont subsequent transferees, like RBC Trust, to recover the missing customer property.

The subsequent transfers the Trustee seeks to collect from RBC Trust were derived from investments with BLMIS made by Rye Portfolio Limited through its manager, Tremont. (Am. Compl. ¶¶ 164-170; Ex. H). The Trustee alleges that BLMIS made initial transfers to Rye Portfolio Limited of approximately $620 million, including $609 million made within six years of the filing date and $350 million made within two years of the filing date. (Am. Compl. ¶¶ 166-68). The Trustee has alleged that, based on his investigations, $2,433,046 transferred from BLMIS to Rye Portfolio Limited was subsequently transferred to RBC Trust. (Id. ¶ 171).

In their motion to dismiss, RBC Defendants seek dismissal for lack of personal jurisdiction and improper adoption by reference. The Trustee opposes the motion to dismiss. For the reasons set forth herein, the motion to dismiss is denied in its entirety.

Discussion

Personal...