Bernard L. Madoff Investment Securities LLC v. Picard

Background

The Standard Chartered defendants—Standard Chartered Financial Services (Luxembourg) S.A., Standard Chartered Bank International (Americas) Ltd., and Standard Chartered International (USA) Ltd.—sought permission to take an interlocutory appeal, meaning an appeal before the bankruptcy case had reached a final judgment. They challenged a January 2023 bankruptcy court order and decision denying their motion to dismiss Irving H. Picard’s amended complaint.

Picard, trustee for the substantively consolidated liquidation of Bernard L. Madoff Investment Securities LLC, sought to recover more than $289 million in alleged customer property. The complaint alleged that Fairfield Sentry Limited and Fairfield Sigma Limited transferred the property to the Standard Chartered defendants. It also alleged that the defendants operated as a single enterprise and that one entity received transfers on behalf of the others.

Arguments and Analysis

The defendants argued that the bankruptcy court had erred in handling the “transferee” element of Picard’s claim under Bankruptcy Code § 550(a)(2). They contended that Picard had to plead and prove that each defendant was a transferee of the property. They also argued that the defendants were “mere conduits”—entities that did not exercise sufficient control over the property to be liable as subsequent transferees.

The district court held that the defendants mischaracterized the bankruptcy court’s decision. The bankruptcy court had not relieved Picard of the obligation to plead that the defendants received the property. Instead, it had found that the complaint plausibly alleged that two of the defendants received subsequent transfers as part of a larger enterprise. The district court also agreed that the mere-conduit defense was a separate, fact-dependent issue that was not clearly established on the face of the complaint and therefore was not suitable for resolution at the motion-to-dismiss stage.

For permission to appeal an interlocutory bankruptcy order, the defendants had to identify a controlling legal question, show substantial disagreement about that question, and show that an immediate appeal could materially advance the litigation. The court concluded that the defendants’ arguments required review of how the law applied to the complaint’s facts, rather than resolution of a pure legal question that could be decided quickly and independently of the record. Because the defendants failed to establish the first requirement, the court did not address the other requirements.

Disposition

The court denied the Standard Chartered defendants’ motion for leave to appeal. It also denied their request for oral argument. The conclusion states that the action was dismissed for lack of jurisdiction, and the clerk was directed to terminate the motion and close the case.