In Re: Bernard L. Madoff Investment Securities LLC

Background

Irving H. Picard, the trustee, brought an adversary proceeding against Natixis S.A. to recover allegedly fraudulent transfers connected to Bernard L. Madoff Investment Securities LLC. According to the allegations described in the opinion, Natixis issued structured notes linked to Fairfield Sentry Limited Fund and bought and redeemed Fairfield Sentry shares to hedge its obligations to noteholders. Fairfield Sentry allegedly invested almost exclusively through Madoff Investment Securities LLC, and Natixis allegedly received hundreds of millions of dollars in fraudulent transfers from Fairfield Sentry.

Natixis moved to dismiss Picard’s adversary proceeding. Among other arguments, Natixis contended that a release in a settlement agreement from a separate adversary proceeding involving Alpha Prime Fund Limited covered the claims against Natixis. The release covered Alpha Prime, related entities, and certain directors and shareholders from claims related to Madoff or BLMIS. Natixis argued that the release applied to it because it was an Alpha Prime shareholder.

The Bankruptcy Court denied Natixis’s motion to dismiss. Applying New York contract-interpretation principles, it concluded that the release covered claims related to Alpha Prime’s BLMIS account, but not claims based on Natixis’s redemptions from Fairfield Sentry.

Motion for Leave to Appeal

Natixis asked the District Court for permission to bring an interlocutory appeal, meaning an appeal before the Bankruptcy Court’s proceeding had reached a final judgment. The District Court applied the standards in 28 U.S.C. § 1292(b). Those standards require the proposed appeal to involve a controlling question of law, a substantial basis for disagreement about the answer, and an immediate appeal that could materially advance the end of the litigation. Even when those requirements are met, the court retains discretion to deny permission unless exceptional circumstances justify an early, piecemeal appeal.

Court’s Analysis

The court held that Natixis had not shown a controlling question of law. The proposed appeal concerned the interpretation of a release in a settlement agreement. Although contract meaning is generally a legal question, the court explained that contract-interpretation disputes ordinarily do not qualify for interlocutory appeal. The court found that this dispute involved well-established principles of contract interpretation and would have little precedential value beyond this case.

The court also held that Natixis had not shown a substantial basis for disagreement. Natixis argued that the Bankruptcy Court had misapplied settled contract principles, including the ejusdem generis rule, rather than relying on an incorrect or disputed legal standard. The court said that disagreement with how a court applied an established standard was not enough to satisfy the statutory requirement.

Finally, the court stated that, even if the statutory requirements had been met, it would exercise its discretion against an immediate appeal. The dispute was significant to the parties, but it concerned a discrete contract-interpretation issue and did not present an exceptional reason to depart from the general policy of waiting for final judgment before appellate review.

Ruling

Judge Gregory H. Woods denied Natixis’s motion for leave to appeal. The Clerk of Court was directed to terminate the motion at Docket No. 3 and close this case.