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

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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, and the Chapter 7 Estate of Bernard L. Madoff, Plaintiff, v. BNP PARIBAS - DUBLIN BRANCH, Defendant.

No. 08-01789 (CGM)

Adv. Pro. No. 22-01087 (CGM)

United States Bankruptcy Court, S.D. New York

December 28, 2023

NOT FOR PUBLICATION

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 By: David J. Sheehan, Oren J Warshavsky, Jason S. Oliver, Tatiana Markel Carrie A Longstaff Peter B. Shapiro Jessica H. Fernandez Attorneys for Defendant, BNP Paribas - Dublin Branch Cleary Gottlieb Steen & Hamilton LLP By: Thomas S. Kessler, Roger A. Cooper, Ari D. MacKinnon

SIPA LIQUIDATION

MEMORANDUM DECISION DENYING DEFENDANT'S MOTIONTO DISMISS

CECELIA G. MORRIS, UNITED STATES BANKRUPTCY JUDGE

Introduction

Pending before the Court is the motion of the Defendant, BNP Paribas - Dublin Branch ("BNP Dublin"), to dismiss the complaint of Irving Picard, the trustee ("Trustee") for the liquidation of Bernard L. Madoff Investment Securities LLC ("BLMIS") seeking to recover initial transfers allegedly consisting of BLMIS customer property. Defendant seeks dismissal for failure to plead that the transfers at issue are avoidable under § 548(a)(1) of the Bankruptcy Code and due to the "safe harbor" defense under 11 U.S.C. § 546(e). 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 not been contested by the Defendant.

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 April 27, 2022. (Compl., ECF^[1] No. 1) (the "Complaint"). Via the Complaint, the Trustee seeks to recover $49,505,850 in BLMIS customer property transferred to Defendant from BLMIS. (Id. ¶¶ 4, 67-75).

Defendant is an Irish registered branch of BNP Paribas S.A. (Id. ¶ 10). BNP Paribas S.A. is a French entity that is registered to do business in Ireland and has an office on Seventh Avenue in New York City. (Id.). Both BNP Dublin and BNP Paribas S.A. have principal places of business in Dublin, Ireland. (Id.). Defendant allegedly received initial transfers of BLMIS customer property from the BLMIS Account of Legacy Capital ("Legacy") for the benefit of Legacy. (Id. ¶¶ 3, 10). Legacy is a British Virgin Islands corporation with principal place of business in that country. (Id. ¶ 11).

The Complaint alleges that Legacy entered into a credit agreement in 2004 with Defendant and various BNP entities.^[2] (Id. ¶ 65). The $100 million line of credit for this agreement was secured by Legacy's BLMIS Account No. 1FR071. (Id. ¶¶ 11, 65). After the credit agreement was made, BNP Paribas Securities Corp. took over signatory authority for Legacy's BLMIS account, and Defendant allegedly received direct transfers from BLMIS on account of this agreement. (Id.).

The Complaint alleges that BLMIS made $174,000,000 of transfers to Legacy and BNP Dublin in the two years prior to the filing date. (Id. ¶ 66). It is further alleged that various BNP Paribas entities, through the collateral agent BNP Paribas Securities Corp., directed BLMIS to make identical transfers of customer property to Legacy and Defendant. (Id. ¶¶ 66-67). Half of the total amount, or $87,000,000, was transferred to Defendant, and the remaining half was transferred to Legacy. (Id. ¶ 66). Defendant's affiliate in New York, BNP Paribas S.A. New York Branch,^[3] acted as the receiving bank for the transfers. (Id. ¶¶ 13, 67). The Complaint alleges that these transfers consisted in part of fictitious profits. (Id. ¶ 68) ("Of the $87,000,000 BNP Dublin received, approximately $49,505,850 . . . comprised fictitious profits.").

In 2010, following BLMIS's collapse, the Trustee filed an adversary proceeding against Legacy and related defendants to avoid and recover over $200 million of fraudulent transfers of customer property. (Id. ¶¶ 2, 56-59); Legacy Compl., Picard v. Legacy Capital Ltd. (In re BLMIS), Adv. Pro. No. 10-05286 (CGM) (Bankr. S.D.N.Y.) (the "Legacy Adversary Proceeding"), ECF No. 1. The Legacy Complaint was amended in July 2015 to discontinue actions against the defendants in that proceeding except for Legacy and Khronos LLC. (Compl. ¶ 60); see also Am. Legacy Compl, Legacy Adversary Proceeding, ECF No. 112. The Court dismissed Khronos LLC from the Legacy Adversary Proceeding in April 2016. (Compl. ¶ 62); see also Order Granting Mot. to Dismiss, Legacy Adversary Proceeding, ECF No. 137. The only claim remaining after that time was against Legacy in the amount of $86,505,850 for alleged fictious profits received within two years of the filing date. (Compl. ¶ 62).

On November 12, 2019, this Court entered a final judgment and order against Legacy in the amount of $79,125,781. (Id. ¶ 63); Final Judgment, Legacy Adversary Proceeding, ECF No. 231. The judgment was "pursuant to the terms of the Stipulation and Order for Entry of Final Judgment dated November 8, 2019." Id. That stipulation and order stated that "[t]he Legacy Transfers are avoidable and avoided under § 548(a)(1)(A) and recoverable from Legacy under § 550(a) of the Bankruptcy Code." Stip. and Order, Legacy Adversary Proceeding, ECF No. 230.

Following entry of that order, the Trustee learned through discovery that Legacy was unable to satisfy the final judgment and through Legacy's own representations that it was owned by the Defendant, BNP Dublin, as of December 2008. (Compl. ¶ 64). The Trustee commenced this adversary proceedings against Defendant in April 2022. (See Compl., ECF No. 1). The Complaint alleges that BLMIS transferred $87,000,000 directly to BNP Dublin in the two years prior to the filing date of the main case. (Id. ¶ 66). Of that amount, $49,505,850 is alleged to be fictious profits. (Id. ¶ 68).

In its motion to dismiss, BNP Dublin argues that the Trustee has failed to allege that the transfers from BLMIS to are avoidable under § 548(a)(1) of the Bankruptcy Code and that all transfers are shieledthe safe harbor, under § 546(e), shields all of the transfers from potential recovery. (Mem. L. at 1, ECF No. 27). The Trustee has filed opposition. (Opp'n, ECF No. 29). The parties agreed to rest on their papers and waived oral arguments on this motion. (Stip and Order, ECF No. 32).

Discussion

12(b)(6) standard

"To survive a motion to dismiss, the complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face." Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (cleaned up).

The claim is facially plausible when a plaintiff pleads facts that allow the Court to draw a "reasonable inference that the defendant is liable for the misconduct alleged." Id. "The plausibility standard is not akin to a 'probability requirement,' but it asks for more than a sheer possibility that a defendant has acted unlawfully." Id.; see also Bell Atl. Corp. v. Twombly, 550 U.S. 544, 556 (2007) ("Asking for plausible grounds to infer an agreement does not impose a probability requirement at the pleading stage; it simply calls for enough fact to raise a reasonable expectation that discovery will reveal evidence of illegal agreement."). In deciding a motion to dismiss, the Court should assume the factual allegations are true and determine whether, when read together, they plausibly give rise to an entitlement of relief. Iqbal, 556 U.S. at 679. "And, of course, a well-pleaded complaint may proceed even if it strikes a savvy judge that actual proof of those facts is improbable, and that a recovery is very remote and unlikely." Twombly, 550 U.S. at 556.

In deciding the motion, "courts must consider the complaint in its entirety, as well as other sources courts ordinarily examine when ruling on Rule 12(b)(6) motions to dismiss, in particular, documents incorporated into the complaint by reference, and matters of which a court may take judicial notice." Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 322 (2007). A complaint is "deemed to include any written instrument attached to it as an exhibit[,] . . . documents incorporated in it by reference[,]" and other documents "integral" to the complaint. Chambers v. Time Warner, Inc., 282 F.3d 147, 152-53 (2d Cir. 2002) (citations omitted). A document is "integral" to a complaint when the plaintiff has "actual notice" of the extraneous information and relied on it in framing the complaint. DeLuca v. AccessIT Grp., Inc., 695 F.Supp.2d 54, 60 (S.D.N.Y. 2010) (citing Chambers, 282 F.3d at 153).

Recovery of Fraudulent Transfers

The Trustee is seeking to recover alleged fraudulent...