Overview
In a decision yesterday, Judge Marrero denied a motion from the trustee for Bernard Madoff’s investment firm to declare void, and undo a preliminary partial settlement, in the “Anwar” class action against Fairfield Greenwich, a Madoff feeder fund. Judge Marrero ruled that the Anwar plaintiffs were not customers or creditors of Madoff’s firm, but third parties with claims against Fairfield and other third parties. Judge Marrero first rejected the trustee’s argument that claims of the Anwar plaintiffs should be stayed on the ground that they would limit the recoverable assets of the debtor firm, referred to as “BLMIS”:
[I]t is by no means clear that the funds being used in the Proposed Settlement stem, even in part, from transfers from BLMIS to the Fairfield Defendants. Moreover, even assuming these facts, “prepetition transfers ... do not become ‘property of the estate’ unless and until they are recovered through a successful avoidance action,” and therefore the tangible assets currently held by the Fairfield Defendants are not considered property of the estate prior to such an adjudication. The sweeping implications of the Trustee’s logic are even more problematic. According to the Trustee’s legal theory, the mere presence of a limited pool of assets possessed by a target of a bankruptcy estate’s adversary proceeding, in and of itself, can convert wholly unrelated and independent claims by non-creditors filed against that non-debtor target into “acts to collect or recover a claim against the debtor” merely because they “prejudic[e] the Trustee’s ability to pursue his claims.” (Tr.’s Mem. at 25.) Such an expansive interpretation of § 362 would obliterate the requirement that stayed actions bear some relation to the “debtor” and would enable the Trustee to subjugate independent legal claims of parties unrelated to the bankruptcy estate merely because both parties seek recovery from the same limited pool of funds.Judge Marrero separately ruled that the trustee’s delay was reason enough to deny the motion:
The Trustee’s Stay Application is a textbook example of unreasonable delay and therefore would be independently barred as untimely under the equitable doctrine of laches. Despite having full knowledge of the details of the Anwar Action, the Trustee waited on the sidelines for nearly four years prior to seeking to declare the Anwar Action void ab initio, watching while the parties expended significant resources litigating the Anwar Action and attempting to seek an equitable resolution, including the filing of more than 1,000 docket entries in the case. During this time period, the Trustee filed numerous applications to stay other proceedings, but not the Anwar Action. If the Trustee believed the assets of the Fairfield Defendants to be property of the BLMIS estate, he should have sought relief long ago rather than delaying more than four years only to file the Stay Application on the eve of settlement, resulting in enormous prejudice to the Injunction Defendants.
