Irving H. Picard v. James Greiff

Background

Irving H. Picard, the trustee for the liquidation of Bernard L. Madoff Investment Securities LLC (BLMIS), brought an avoidance action against James Greiff. An avoidance action seeks to undo and recover transfers that allegedly violated bankruptcy law. Picard alleged that Greiff received $2,803,787 in fictitious profits from BLMIS; after an earlier ruling, the claim for transfers made during the two years before the bankruptcy filing was reduced to $2,595,940.

The action was pending in the bankruptcy court and had been set for a bench trial. Greiff moved under 28 U.S.C. § 157(d) to withdraw the bankruptcy reference, which would have moved the proceeding to the district court. Picard opposed the motion.

Greiff’s Arguments

Greiff argued that he had a constitutional right to a jury trial on Picard’s fraudulent-transfer claims and that the bankruptcy court lacked constitutional authority to enter a final judgment. He also argued that he had timely asserted his jury-trial right, had not expressly consented to a final order by the bankruptcy court, and that factual disputes existed.

Court’s Analysis

The court held that Greiff’s filing of a proof of claim against the BLMIS estate subjected him to the bankruptcy court’s equitable authority over matters connected to the allowance or disallowance of that claim. The court concluded that Picard’s fraudulent-conveyance claims under the Bankruptcy Code directly implicated that claims-allowance process. As a result, Greiff did not have a jury-trial right on the issues involved in the action.

The court rejected Greiff’s argument that the prior denial of his customer claim severed the connection between that claim and Picard’s avoidance action. It explained that the filing of the proof of claim, rather than only the claim’s later disposition, triggered the claims-allowance process. The court also held, independently, that Greiff had impliedly consented to the bankruptcy court’s authority by filing his claim and participating in the bankruptcy proceedings for nearly a decade.

The court separately applied the factors used to decide whether there was cause to withdraw a bankruptcy reference. It found that withdrawal would delay a case that had already been pending for almost ten years, remove core issues from a court with substantial experience in the BLMIS liquidation, risk inconsistent results in related proceedings, and potentially encourage forum shopping. The court noted that Bankruptcy Judge Bernstein had overseen hundreds of related adversary proceedings and was familiar with the relevant facts and legal issues.

Disposition

Judge Lorna G. Schofield denied Greiff’s motion to withdraw the bankruptcy reference under 28 U.S.C. § 157(d). The Clerk of Court was directed to close the motion at Docket No. 1. The opinion did not decide the ultimate merits of Picard’s fraudulent-transfer claims.