In Re: Bernard L. Madoff Investment Securities LLC

Filing 14

MEMORANDUM OPINION & ORDER re: #3 MOTION for Leave to Appeal filed by ABN AMRO Bank N.V.. For the foregoing reasons, RBS/ABN's motion for leave to file for interlocutory appeal is DENIED. The Clerk of Court is respectfully directed to terminate the open motion at docket entry 3 and to close the case. (Signed by Judge Valerie E. Caproni on 10/3/2017) (kgo)

USDC SDNY
DOCUMENT
ELECTRONICALLY FILED
DOC #:
10/3/17
DATE FILED:

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
------------------------------------------------------------- X
SECURITIES INVESTOR PROTECTION
:
CORPORATION,
:
:
Plaintiff-Applicant,:
:
:
-against:
:
BERNARD L. MADOFF INVESTMENT
:
SECURITIES LLC,
:
Defendant.:
-------------------------------------------------------------- X
:
In re:
:
:
BERNARD L. MADOFF,
:
Debtor. :
-------------------------------------------------------------- X
:
ABN AMRO BANK N.V. (presently known as
:
THE ROYAL BANK OF SCOTLAND, N.V.),
:
Appellant,:
:
:
-against:
IRVING H. PICARD, Trustee for the Liquidation :
of Bernard L. Madoff Investment Securities LLC , :
:
Appellee.:
-------------------------------------------------------------- X

Adv. Pro. No. 08-01789 (SMB)
SIPA Liquidation
(Substantively Consolidated)
Adv. Pro No. 10-5354 (SMB)

17-CV-2959 (VEC)
MEMORANDUM OPINION &
ORDER

VALERIE CAPRONI, United States District Judge:
This appeal arises out of one of the many clawback actions brought by Irving H. Picard
(“Trustee”), the Trustee in the liquidation proceedings for Bernard L. Madoff Investment
Securities LLC (“BLMIS”). In the adversary proceeding before the bankruptcy court, the
Trustee seeks to avoid, pursuant to Section 550(a) of the Bankruptcy Code, approximately $149
million in transfers from two Cayman Islands feeder funds to ABN AMRO Bank N.V. (presently
1

known as the Royal Bank of Scotland N.V.) (“RBS/ABN”), a Dutch company. RBS/ABN
moves pursuant to 28 U.S.C. § 158(a)(3) and Rule 8004 of the Federal Rules of Bankruptcy
Procedure for leave to appeal the bankruptcy court’s order, issued on March 3, 2017, denying
RBS/ABN’s motion to dismiss based on comity and extraterritoriality grounds.
BACKGROUND
On December 8, 2010, the Trustee commenced an adversary proceeding against
RBS/ABN to recover $237.9 million that originated from BLMIS and that was received by
ABN/RBS (the “Rye Action”). Trustee’s Proffered Allegations Pertaining to the
Extraterritoriality Issue as to ABN AMRO Bank N.V. (“Proffered Allegations”) ¶ 1, Adv. Pro.
ECF No. 101.1
Rye Select Broad Market XL Portfolio (“Rye XL Portfolio”) and Rye Select Broad
Market Portfolio Limited (“Rye Portfolio Limited”) (collectively, the “Rye Cayman Funds”)
were feeder funds registered in the Cayman Islands that pooled investors’ assets and invested
them with BLMIS. Proffered Allegations ¶¶ 14-15. In September 2006, RBS/ABN entered into
a swap agreement with Rye XL Portfolio, and, in connection with that swap, RBS/ABN received
$74.6 million in subsequent transfers from Rye XL Portfolio. Id. ¶ 21. During that same time,
RBS/ABN also invested in Rye Portfolio Limited and received $74.4 million from Rye Portfolio
Limited, for a total of $149 million from the Rye Cayman Funds. Id. ¶ 22.
The Rye Select Broad Market XL Fund, L.P. (“Rye Broad Market XL”) and Rye Select
Broad Market Fund, L.P. (“Rye Broad Market”) (collectively, “Rye Delaware Funds”) were
feeder funders registered in Delaware that pooled investors’ assets and invested them with
BLMIS. Id. ¶¶ 17-18. On November 1, 2007, RBS/ABN entered into transactions with the Rye

1

The Court cites to specific docket entries in the adversary proceeding before the bankruptcy court, No. 105354 (SMB), as “Adv. Pro. ECF No.”

2

Delaware Funds that were allegedly substantially the same at the 2006 transactions with the Rye
Cayman Funds. Id. ¶¶ 42-49. The Rye Cayman Funds and the Rye Delaware Funds were all
operated by Tremont Group Holdings, Inc. (“Tremont”). Id. ¶¶ 14-15, 17-18.
In addition to seeking to recover the $149 million that RBS/ABN received from the Rye
Cayman Funds, the Trustee also seeks to recover $88.9 million that RBS/ABN received from the
Rye Delaware Funds. See Rye Action Am. Compl. ¶¶ 81-82, Adv. Pro. ECF No. 47. Combining
the $149 million from the Rye Cayman Funds and the $88.9 million from the Rye Delaware
Funds, the Trustee seeks to recoup a total of $237.9 million from RBS/ABN in the Rye Action.
In connection with the Rye Action and other similar adversary proceedings in the BLMIS
liquidation, in 2012, the district court withdrew the reference to the bankruptcy court pursuant to
28 U.S.C. § 157 to determine whether “[the Securities Investor Protection Act (“SIPA”)] and/or
the Bankruptcy Code as incorporated by SIPA apply extraterritorially, permitting the Trustee to
avoid initial transfers that were received abroad or to recover from initial, immediate, or mediate
foreign transferees.” Order at 3, Sec. Investor Prot. Corp v. Bernard L. Madoff Inv. Sec. LLC,
No.12-MC-0115 (JSR) (S.D.N.Y. June 7, 2012), ECF No. 167. RBS/ABN moved to dismiss the
Trustee’s claim to avoid the $149 million in transfers from the Rye Cayman Funds on
extraterritoriality grounds.2 Sec. Investor Prot. Corp v. Bernard L. Madoff Inv. Sec. LLC, No.12MC-0115 (JSR) (S.D.N.Y.), ECF Nos. 238-240. On July 6, 2014, the district court held that
“section 550(a) does not apply extraterritorially to allow for the recovery of subsequent transfers
received abroad by a foreign transferee from a foreign transferor,” and, in the alternative,
concluded that the Trustee’s use of section 550(a) to reach certain foreign transfers would be
precluded by concerns of international comity, particularly when the underlying BLMIS foreign

2

Defendants in other adversary proceedings in the BLMIS liquidation also moved to dismiss the Trustee’s
claims to avoid other transfers on extraterritoriality grounds.

3

feeder funds were in liquidation proceedings in their home countries.3 Sec. Inv’r Prot. Corp. v.
Bernard L. Madoff Inv. Sec. LLC, 513 B.R. 222, 231-32 (S.D.N.Y. 2014), supplemented, No. 12MC-115 (JSR), 2014 WL 3778155 (S.D.N.Y. July 28, 2014). The district court returned the
adversary proceedings to the bankruptcy court for further proceedings consistent with its
decision. Id. at 232-33.
On December 31, 2014, RBS/ABN and defendants in similar adversary proceedings
renewed their motions to dismiss; RBS/ABN sought to have the Trustee’s claim to avoid the
$149 million in transfers from the Rye Cayman Funds dismissed on extraterritoriality and comity
grounds. Adv. Pro. ECF No. 90. On November 22, 2016, the bankruptcy court issued its
Memorandum Decision Regarding Claims to Recover Foreign Subsequent Transfers and
dismissed the majority of the Trustee’s claims in the various adversary proceedings on either
international comity or extraterritoriality grounds.4 See Sec. Inv’r Prot. Corp. v. Bernard L.
Madoff Inv. Sec. LLC, No. AP 08-01789 (SMB), 2016 WL 6900689 (Bankr. S.D.N.Y. Nov. 22,
2016), motion to certify appeal denied, No. AP 08-01789 (SMB), 2017 WL 1806506 (Bankr.
S.D.N.Y. May 4, 2017), order withdrawn, No. AP 08-01789 (SMB), 2017 WL 3084395 (Bankr.
S.D.N.Y. July 19, 2017). But the bankruptcy court denied RBS/ABN’s motion to dismiss in the
Rye Action, holding that the doctrine of extraterritoriality did not bar the Trustee’s claim for

3

The parties dispute whether the district court’s decision requires that there be a foreign liquidation
proceeding in order for international comity concerns to arise.

4

In total, 87 adversary proceedings are subject to final judgments, which the Trustee has appealed, and
defendants in 86 of those 87 cases agreed to certify jointly the final judgments for direct appeal to the Second
Circuit pursuant to 28 U.S.C. § 158(d)(2)(A)(iii). Trustee Opp. at 5 n.16, ECF No. 8. In the last of those 87 cases,
the Trustee seeks to recover transfers from RBS/ABN with respect to a different foreign feeder fund, and RBS/ABN
did not agree to joint certification in order for the Trustee to appeal the final judgment directly to the Second Circuit.
Id. The bankruptcy court initially denied the Trustee’s motion in that proceeding for a direct appeal to the Second
Circuit, but it later withdrew the decision when it determined that it did not have jurisdiction to issue it. Sec. Inv’r
Prot. Corp. v. Bernard L. Madoff Inv. Sec. LLC, No. AP 08-01789 (SMB), 2017 WL 3084395 (Bankr. S.D.N.Y.
July 19, 2017).

4

recovery of transfers made to the Rye Cayman Funds—at least not without further development
of the facts. Id. at *28-30. The Trustee and RBS/ABN submitted a Stipulated Order Denying
Motion to Dismiss, which the bankruptcy court issued on March 3, 2017. Adv. Pro. ECF No.
117. RBS/ABN filed this motion for leave to appeal on April 11, 2017. Adv. Pro. ECF
Nos. 125-127.
DISCUSSION
RBS/ABN may only appeal the bankruptcy court’s non-final order “with leave of the
court.” 28 U.S.C. § 158(a)(3). To determine whether to grant leave to file an interlocutory
appeal, courts generally apply the standard set forth in 28 U.S.C. § 1292(b), the statute that
governs interlocutory appeals from district courts to the courts of appeals. In re Bernard L.
Madoff Inv. Sec. LLC, No. 15-CV-06564 (GBD), 2016 WL 690834, at *1 (S.D.N.Y. Feb. 11,
2016). Section 1292(b) provides that leave to appeal should be granted only if the order being
appealed: (1) “involves a controlling question of law,” (2) “as to which there is substantial
ground for difference of opinion,” and (3) “an immediate appeal from the order may materially
advance the ultimate termination of the litigation.” 28 U.S.C. § 1292(b). “The movant bears the
burden of demonstrating that all three of the substantive criteria are met.” In re Bernard L.
Madoff Inv. Sec. LLC, 2016 WL 690834, at *1 (quoting Al Maya Trading Establishment v. Glob.
Exp. Mktg. Co., No. 14-CV-00275 (PAE), 2014 WL 3507427, at *12 (S.D.N.Y. July 15, 2014))
Because section 1292(b) is an exception to the normal rule that interlocutory appeals
cannot be taken, the criteria in section 1292(b) are strictly construed. See Klinghoffer v. S.N.C.
Achille Lauro, 921 F.2d 21, 24 (2d Cir. 1990) (explaining that section 1292(b) should not be
liberally construed). “Generally, leave to appeal from an interlocutory bankruptcy order will
only be granted when ‘exceptional circumstances justify a departure from the basic policy of

5

postponing appellate review until after the entry of a final judgment.’” In re Enron Creditors
Recovery Corp., No. 01-16034 (AJG), 2009 WL 3349471, at *5 (S.D.N.Y. Oct. 16, 2009)
(quoting Klinghoffer, 921 F.2d at 23). Moreover, “[e]ven where the three legislative criteria of
Section 1292(b) appear to be met, district courts retain unfettered discretion to deny certification
if other factors counsel against it.” In re Bernard L. Madoff Inv. Sec. LLC, 2016 WL 690834, at
*1 (quoting Al Maya Trading Establishment, 2014 WL 3507427, at *12).
The present appeal does not satisfy at least one element of the three-part test for leave to
file an interlocutory appeal.5 Specifically, an immediate appeal from the denial of RBS/ABN’s
motion to dismiss would not materially advance the ultimate termination of the Rye Action.
“Courts place particular emphasis on the importance of this last factor.” In re Enron Corp., No.
01-16034, 2006 WL 2548592, at *4 (S.D.N.Y. Sept. 5, 2006); see also In re Facebook, Inc., IPO
Sec. & Derivative Litig., 986 F. Supp. 2d 524, 531 (S.D.N.Y. 2014). “An immediate appeal is
considered to advance the ultimate termination of the litigation if that appeal promises to
advance the time for trial or to shorten the time required for trial.” In re Facebook, Inc., 986 F.
Supp. 2d at 531 (quoting Florio v. City of New York, No. 06-CV-6473 (SAS), 2008 WL
3068247, at *1 (S.D.N.Y. Aug. 5, 2008)) (internal quotation marks omitted). Immediate appeal
accomplishes neither of those goals in this case.
RBS/ABN argues that reversal of the bankruptcy court’s order will “substantially shrink
discovery and shorten any trial because it will eliminate fact-finding” regarding the 2006
transactions between RBS/ABN and the Rye Cayman Funds. RBS/ABN Mem. at 20, ECF

5

Because the section 1292(b) factors are conjunctive, the Court need not address the other factors.
Nevertheless, the Court notes that, as to the first factor, the appeal does not present a controlling question of law.
RBS/ABN does not challenge the district court’s holding that section 550(a) does not apply extraterritorially or that
international comity can bar the application of section 550(a) to certain foreign transfers but instead challenges how
the bankruptcy court applied the district court’s holding to the facts alleged in the Rye Action.

6

No. 4. This Court disagrees. Even if RBS/ABN were to prevail on appeal, the 2007 transactions
between RBS/ABN and the Rye Delaware Funds would remain at issue, and the 2006
transactions are relevant to the Trustee’s claim to recuperate the proceeds from the 2007
transactions.
The Trustee has alleged that the 2007 transactions with the Rye Delaware Funds were
substantially the same as the 2006 transactions with the Rye Cayman Funds. Proffered
Allegations ¶¶ 6, 42-49. Moreover, the negotiations surrounding the 2006 and 2007 transactions
allegedly involved the same people, and RBS/ABN allegedly had trust concerns regarding
Madoff as early as 2006 when it negotiated the transactions with Tremont. Id. ¶¶ 6, 34-38, 48.
Because of the similarities between the 2006 and 2007 transactions and the ongoing relationship
between RBS/ABN and Tremont, discovery regarding the 2006 transactions will be relevant to
the Trustee’s claims as to the 2007 transactions. Thus, even if only the 2007 transactions were at
issue, in order to understand what RBS/ABN knew about BLMIS in 2007, the Trustee would
likely pursue discovery to ascertain what RBS/ABN knew about BLMIS in 2006 and why it
structured the 2006 transactions the way it did. Moreover, that evidence would be relevant at
trial to decide the Trustee’s claims vis-à-vis the Rye Delaware Funds, even if the trial might be
slightly shorter because the claims vis-à-vis the Rye Cayman Funds would have been dismissed.
In short, an immediate appeal does not materially advance the ultimate termination of the Rye
Action, and the possibility of the partial dismissal because of a reversal of a denial of a motion to
dismiss is “‘not an exceptional circumstance’ that ‘justif[ies] a departure from the basic policy of
postponing appellate review until after the entry of a final judgment.’” In re Facebook, Inc., 986
F. Supp. 2d at 531 (quoting Coopers & Lybrand v. Livesay, 437 U.S. 463, 475 (1978)).

7

CONCLUSION
For the foregoing reasons, RBS/ABN’s motion for leave to file for interlocutory appeal is
DENIED. The Clerk of Court is respectfully directed to terminate the open motion at docket
entry 3 and to close the case.
SO ORDERED.
____
___________________________
__
__
__
_
_________________________________
VALERIE CAPRONI
United States District Judge

Date: October 3, 2017
New York, New York

8