In Re: Fairfield Sentry Limited

Background

The case involved more than two rounds of appeals from orders issued by the Southern District of New York Bankruptcy Court in roughly 400 administratively consolidated cases arising from Bernard L. Madoff’s Ponzi scheme. Fairfield Sentry Limited, acting through its foreign representatives and liquidator Kenneth Krys, asserted common-law claims and statutory avoidance claims.

In an earlier opinion, the district court affirmed the Bankruptcy Court’s decision and held, among other things, that the liquidators’ statutory avoidance claims were barred by the Bankruptcy Code’s safe-harbor provision. The district court rejected the defendants’ separate argument that the liquidators’ foreign common-law claims were also barred because they duplicated the statutory avoidance claims. The liquidators appealed as of right, and the defendants sought permission for an immediate appeal of that unresolved legal issue.

Interlocutory Appeal Certification

Under 28 U.S.C. § 1292(b), a district court may certify an interlocutory appeal—an appeal before all issues in a case are finally resolved—when the order involves a controlling legal question, there is substantial reason for disagreement about the answer, and immediate review could materially advance the end of the litigation.

Judge Broderick found that all three requirements were met. First, the question of whether Bankruptcy Code Sections 546(e) and 561(d) bar foreign common-law claims in a Chapter 15 proceeding when those claims duplicate claims barred by Section 546(e) was a purely legal, controlling question. Reversal could materially affect the litigation’s outcome.

Second, the court found substantial reason for disagreement because the question appeared to be one of first impression for the Second Circuit. The court also stated that the interaction between the Constitution’s supremacy rule and principles of respect for foreign legal systems raised sufficiently difficult issues to warrant appellate review.

Third, the court found that certification could materially advance the litigation. The liquidators had already appealed the ruling concerning their avoidance claims, and the defendants’ proposed appeal raised a question closely connected to that pending appeal. The court also considered certification particularly appropriate because the litigation involved many coordinated cases and could otherwise produce prolonged litigation and multiple appeals.

Related Cases and Requested Amendments

The court learned that 11 related cases had not been administratively consolidated with the lead case. Five had pending motions for permission to appeal, and six had no pending motions. The defendants agreed that judgments should be entered in those cases consistent with the lead case’s amended opinion, explaining that the cases fell within the relevant consolidation orders but had not received docket numbers when the consolidation occurred.

The liquidators argued that the court should dismiss the appeals in seven related cases because the court had not granted permission to appeal interlocutory orders in those cases. They also argued in a footnote that 13 other judgments should be amended to dismiss the appeals rather than affirm the decision below.

The court declined to amend the 13 judgments. It agreed with the defendants that the request was untimely under Federal Rule of Civil Procedure 59(e), which requires a motion to alter or amend a judgment within 28 days after entry. The court also concluded that Rule 60(a), which permits correction of clerical mistakes, did not apply because the liquidators were not asking to correct a clerical error; they sought a different outcome. The court stated that it had intended to affirm the decisions below and that the arguments raised only in a footnote were not adequately preserved for review.

Disposition

The court granted the defendants’ motion to certify the ruling for interlocutory review by the Second Circuit under 28 U.S.C. § 1292(b). It directed the Clerk of Court to enter judgment in the 11 identified related cases in accordance with the amended opinion in the lead case. The court did not amend the 13 judgments identified by the liquidators.