Madoff Trustee Seeks To Bar 3rd-Party Suit In Luxembourg
By Lisa Uhlman
Law360, New York (April 19, 2012, 6:56 PM EDT) -- The liquidating trustee for Bernard Madoff's investment company on Thursday sued Access Management Luxembourg SA, a third-party plaintiff in an action in Luxembourg against the trustee, seeking to keep it "from undermining this court's continuing jurisdiction" and violating an automatic stay.
Irving H. Picard, who is charged with unwinding Bernard L. Madoff Investment Securities LLC in the wake of Madoff's massive Ponzi scheme, is busy with lawsuits of his own seeking to claw back funds for the estate. He said he filed the adversary proceeding in the liquidation to prevent Access Management's bid to undermine the Southern District of New York bankruptcy court's jurisdiction over the BLMIS estate.
"By commencing an action in Luxembourg against the trustee as representative of the consolidated estates of BLMIS and Madoff, the third-party plaintiffs have willfully violated the automatic stay provision of the U.S. Bankruptcy Code … stay orders issued in connection with these proceedings issued by the U.S. District Court for the Southern District of New York … and the 'Barton doctrine,' which prohibits an action against a trustee," the suit said.
According to the complaint, the third-party suit — which is known as the Luxalpha Third Party Writ and seeks more than $1 billion to be taken directly from the BLMIS estate's assets — undermines the bankruptcy court's exclusive jurisdiction to adjudicate claims against the BLMIS estate and distribute customer property among the Ponzi scheme's victims.
"By protecting this court's exclusive jurisdiction over the administration of the BLMIS estate, the trustee seeks to ensure that customer property is distributed to the victims of Madoff's massive Ponzi scheme in a fair and efficient manner consistent with SIPA and the Bankruptcy Code," the complaint said, referring to the Securities Investor Protection Act, which gives Picard his mandate.
Picard argues that the third-party plaintiffs are subject to the bankruptcy court's jurisdiction because they have taken an action that affects the administration of the BLMIS estate and was expressly aimed at the U.S.
"Moreover, each of the third-party plaintiffs has undertaken acts in the United States directed at profiting from BLMIS, a New York-based investment scheme," the suit said.
According to the complaint, the Southern District of New York on Dec. 15, 2008, entered an order reinforcing the automatic stay and declaring that "all persons and entities are stayed, enjoined and restrained from directly or indirectly ... interfering with any assets or property owned, controlled or in the possession of" BLMIS.
Despite that order, the third-party plaintiffs filed their action in Luxembourg seeking assets of the estate, relief that would affect the distribution of customer property and the orderly administration of the estate, Picard says. He adds that he had to file the current suit to avoid injury to BLMIS' customers.
The case is intertwined with an action Picard filed in November 2010 against UBS AG and others, including BLMIS feeder funds Luxalpha SICAV and Groupement Financier Ltd. and the third-party plaintiffs, "who collectively reaped billions of dollars in fees for the services they purportedly rendered to the funds, when in reality they rendered no services other than to facilitate and/or enable Madoff's fraud," the suit said.
In December 2009, Luxalpha's liquidator filed an action in Luxembourg against the third-party plaintiffs over the damage it suffered as a result of the fraud perpetrated by Madoff and facilitated by the third-party plaintiffs, the suit says.
According to the Luxembourg action, Access Management breached its obligations as Luxalpha's portfolio manager by improperly handing its managerial responsibilities over to BLMIS while representing that it was actually managing the assets.
As a result of that action, in May 2010 the third-party plaintiffs named Picard as a third-party defendant through an interpleader in the Luxalpha liquidator action, alleging the BLMIS estate is responsible for any judgment rendered against them in the liquidator action.
"The Luxalpha Third Party Writ, which is essentially a claim for indemnification from the BLMIS estate, directly violates the automatic stay and stay orders in this case," Picard said. "It is an attempt to disrupt the orderly administration of the estate by involving the trustee in litigation abroad and obtain estate assets."
He asks the court to enforce the automatic stay and stay orders; declare that the Luxalpha Third Party Writ violates the automatic stay, the stay orders, SIPA and the Barton doctrine and is void under U.S. law; and permanently enjoin the third-party plaintiffs and their counsel from litigating the Luxalpha Third Party Writ against Picard, BLMIS or Madoff.
Picard is represented by David J. Sheehan, Deborah H. Renner, Gonzalo S. Zeballos, Keith R. Murphy, Sammantha E. Clegg and Constantine P. Economides of Baker Hostetler
The liquidation is Securities Investor Protection Corp. v. Bernard L. Madoff Investment Securities LLC, case number 1:08-ap-01789, in the U.S. Bankruptcy Court for the Southern District of New York.
The new adversary proceeding is Picard v. Access Management Luxembourg SA et al., case number 1:12-ap-01563, in the same court.
--Editing by Eydie Cubarrubia.
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