131289bk(L)131392cv(CON);131785

Picardv.FairfieldGreenwich;Picardv.Schneiderman

UNITEDSTATESCOURTOFAPPEALS
FORTHESECONDCIRCUIT
AugustTerm,2013
(Argued:October10,2013Decided:August8,2014)

DocketNo.131289
(consolidatedwith131392)

IrvingH.Picard,Trusteeforthe
LiquidationofBernardL.Madoff
InvestmentSecuritiesLLC,
Appellant,
v.
FairfieldGreenwichLimited,etal.,
DefendantsAppellees,
Securities&InvestmentCo.Bahrain,
HarelInsuranceCo.,Ltd.,AXA
PrivateManagement,St.Stephens
School,PacificWestHealthMedical
Center,Inc.EmployeesRetirement
Trust,
LeadPlaintiffsAppellees.

DocketNo.131785

IrvingH.Picard,Trusteeforthe
SubstantivelyConsolidatedSIPA
LiquidationofBernardL.Madoff
InvestmentSecuritiesLLCandthe
EstateofBernardL.Madoff,
Appellant,
SecuritiesInvestorProtection
Corporation,
Intervenor,
v.
EricT.Schneiderman,BartM.
Schwartz,RalphC.Dawson,J.Ezra
Merkin,andGabrielCapital
Corporation,
Appellees.

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1

Before: SACK,CHIN,andDRONEY,CircuitJudges.
Thetrusteechargedwithrecoveringassetson
behalfofcreditorsandcustomersofBernardL.Madoff
andhisinvestmentfirmsoughttoblockthesettlement
ofthreelawsuitsbroughtagainstthirdparties,which
thetrusteearguedwouldunderminehisabilityto
recoupfraudulenttransfersexecutedbythedebtor.In
twoseparatecases,whichwehearintandemonappeal,
thedistrictcourt(VictorMarreroandJedS.Rakoff,
Judges)dismissedthetrusteesclaimsfordeclaratory
andinjunctiverelief.Becauseweconcludethatthese
claimsfailonthemerits,thejudgmentsofthedistrict
courtare
AFFIRMED.

DAVIDJ.SHEEHAN,Baker&Hostetler
LLP,NewYork,NY(DeborahH.Renner,
TracyL.Cole,KeithR.Murphy,Baker&
HostetlerLLP,NewYork,NY;DavidB.
Rivkin,Jr.,LeeA.Casey,MarkW.
DeLaquil,AndrewM.Grossman,Baker&
HostetlerLLP,Washington,DC,ofcounsel),
forAppellantIrvingH.Picard.
STUARTH.SINGER,Boies,Schiller&
FlexnerLLP,Ft.Lauderdale,FL(DavidA.
Barrett,HowardL.Vickery,II,Boies,
Schiller&FlexnerLLP,NewYork,NY;
RobertC.Finkel,WolfPopperLLP,New
York,NY;VictorE.Stewart,LovellStewart
HalebianJacobsonLLP,NewYork,NY,of
counsel),forLeadPlaintiffsAppellees
RepresentativeAnwarPlaintiffs.
MARCG.CUNHA,SimpsonThacher&
BartlettLLP,NewYork,NY(PeterE.
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2

Kazanoff,JeffreyL.Roether,JeffreyE.
Baldwin,NicholasS.Davis,ofcounsel),for
DefendantsAppelleesFairfieldGreenwich
Limited,etal.
BRIANSUTHERLAND,forEricT.
Schneiderman,AttorneyGeneralofthe
StateofNewYork,NewYork,NY(James
C.McCarroll,JordanW.Siev,MichaelJ.
Venditto,ReedSmithLLP,NewYork,NY;
JudithA.Archer,DavidL.Barrack,Jami
MillsVibbert,Fulbright&JaworskiLLP,
NewYork,NY,ofcounsel),forAppelleesEric
T.Schneiderman,BartM.Schwartz,RalphC.
Dawson.
ANDREWJ.LEVANDER,DechertLLP,
NewYork,NY(NeilA.Steiner,ofcounsel),
forDefendantsAppelleesJ.EzraMerkinand
GabrielCapitalCorporation.
NATHANAELS.KELLY,Washington,DC
(JosephineWang,KevinH.Bell,ofcounsel),
forIntervenorSecuritiesInvestorProtection
Corporation.
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3

SACK,CircuitJudge:
IrvingH.Picard(theTrustee),trusteeforthe
liquidationofBernardL.MadoffInvestmentSecurities
LLC(BLMIS)andofthebankruptcyestateofBernard
L.Madoff,initiatedadversaryproceedingsseekingto
blockthesettlementofthreelawsuits,noneofwhich
involvedBLMISortheMadoffestateasaparty.The
suitsinquestionwerebroughtbyandonbehalfof
investorsinsocalledfeederfundsfundsthat
channeledinvestmentstoMadoffsPonzischeme
againstthefundsthemselvesandotherpersonsand
entitiesaffiliatedwiththem.TheTrusteeassertsthat
thesettlementsinthesecaseswouldhinderhisabilityto
recoupfraudulenttransfersheallegesBLMISmadeto
thesettlingdefendants.Intwoseparateproceedings,
whichwereviewintandemonappeal,thedistrictcourt
(VictorMarreroandJedS.Rakoff,Judges)dismissedthe
Trusteesclaimsfordeclaratoryandinjunctiverelief.
Picardv.FairfieldGreenwichLtd.,490B.R.59(S.D.N.Y.
2013)(VictorMarrero,J.);Picardv.Schneiderman,491
B.R.27(S.D.N.Y.2013)(JedS.Rakoff,J.).Becausewe
concludethattheTrusteeisnotentitledtodeclaratory
reliefandthatthedistrictcourtdidnotabuseits
discretionindenyinghisrequestsforinjunctiverelief,
weaffirm.
BACKGROUND
ThefactsoftheinfamousPonzischeme
orchestratedbyBernardMadoffhavebeensetforthin
detailelsewhere.See,e.g.,Sec.InvestorProt.Corp.v.
BernardL.MadoffInv.Sec.LLC(InreBernardL.Madoff
Inv.Sec.LLC),424B.R.122,12533(Bankr.S.D.N.Y.
2010).Werepeatthemhereonlyinsofaraswethink
necessarytoexplainourdecisioninthisappeal.The
schemessuccessdependedinpartontheeffortsof
independentinvestmentmanagerswhochanneled
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4

billionsofdollarsthroughfinancialvehiclessocalled
feederfundsthatinvestedlargelyorexclusivelyin
BLMIS.WhilethemoneyflowedfromBLMIS,feeder
fundinvestorsenjoyedstrong(albeitillusory
1
)returns,
andthefundsmanagerscollectedsubstantialfeesasa
result.AfterthediscoveryofthefraudandMadoffs
December2008arrestbyfederalauthoritiesin
connectionwithit,thefundscollapsed,leavingtheir
investorswiththespecterofhugelossesand
precipitatinglitigationagainstthefundsandtheir
managers,auditors,custodians,andothers.While
investorspursuedcausesofactionfor,amongother
things,fraudandbreachoffiduciaryduty,theTrustee
filedhisownlegalactionsonbehalfoftheBLMIS
estate,seekingtoclawback
2
(i.e.,obtainthereturnof)
moneyMadoffhadpaidoutasreturnstothefunds.
Where,asinthecaseshereonappeal,feederfund
investorssoughtassetsfromthesameentitiesor
individualsasdidtheTrustee,theriskarosethattheir
claimsmightconflict.

1
Thereturnswereillusorybecausetheywerenot,infact,
returnsoninvestments;theywerepaymentsmadeby
BLMISinordertomaintaintheappearanceofsuccessand
furtherthefraud.Theuseoflateracquiredfundstopayoff
earlierinvestorsisessentialtothepyramidlikestructureof
aPonzischeme.See,e.g.,Gowanv.ThePatriotGrp.,LLC(Inre
DreierLLP),452B.R.391,42425(Bankr.S.D.N.Y.2011).
2
Thetermsclawbackandclawbackwereapparently
firstusedinthiscontextbytheBankruptcyCourtforthe
SouthernDistrictofNewYorkin2005.SeeEnronCorp.v.
Ave.SpecialSituationsFundII,LP(InreEnronCorp.),333B.R.
205,227(Bankr.S.D.N.Y.2005).Theyfirstappearedinone
ofouropinionslastyear.SeeCommodityFuturesTrading
Commnv.Walsh,712F.3d735,74344,755(2dCir.2013)
(referringtoclawbackactionstorecoverfundsfromthe
winnersinaPonzischeme).
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5

TheFeederFundLitigation
a.TheAnwarAction
InDecember2008,agroupofinvestorsincluding
PashaS.Anwar(theAnwarPlaintiffs)filedaclass
actiononbehalfofindividualsandentitieswho
investedinfourfeederfundsfoundedandoperatedby
theFairfieldGreenwichGroup(theAnwarAction).
Thesefundshad,inturn,investedmostoftheAnwar
PlaintiffsmoneywithBLMIS.IntheirSecond
ConsolidatedAmendedComplaint,filedonSeptember
29,2009,theAnwarPlaintiffsallegedvariousfederal
securitieslawviolations,aswellascommonlawtort,
breachofcontract,andquasicontractcausesofaction
againstthefunds,FairfieldGreenwichGroup,anda
numberofaffiliatedindividuals(collectively,the
FairfieldDefendants).
3
SeeSecondConsolidated
AmendedCompl.,Anwarv.FairfieldGreenwichLtd.,No.
09cv118(VM)(S.D.N.Y.filedSep.29,2009),ECFNo.
273.Thesedefendantsfiledamotiontodismiss,which
thedistrictcourtdeniedintwoseparateopinions.See
Anwarv.FairfieldGreenwichLtd.,728F.Supp.2d354,
35657,372(S.D.N.Y.2010)(Marrero,J.)(holdingthat
NewYorksMartinAct,N.Y.Gen.Bus.Law352359,
didnotpreemptcommonlawcausesofaction);Anwar
v.FairfieldGreenwichLtd.,728F.Supp.2d372,40102
(S.D.N.Y.2010)(Marrero,J.)(concludingthatthe
plaintiffshadstandingtopursueindividual,direct
claimsagainsttheFairfieldDefendantsonvariouslegal
theories).
Sometimein2010,theplaintiffsandthe
defendantsintheAnwarActionbegansettlementtalks.
ThesenegotiationsintensifiedinMay2012whilethe

3
Thecomplaintalsonamedasdefendantsprofessional
serviceproviderswhoaudited,administered,orservedas
custodiansofthefunds.
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6

partiesproceededwithdiscovery,andculminated
severalmonthslaterwithanagreementinprinciple
amongtheparties.Thepartiesthenpresenteda
proposedsettlementagreementtothedistrictcourt,
whichpreliminarilyapproveditonNovember30,2012.
Theagreementcontemplateda$50.25millionpayment
totheAnwarPlaintiffsbytheFairfieldDefendants,and
a$30millionescrowfundfundedbytheFairfield
defendantstosupportanyfuturesettlementor
judgmentamountstheFairfieldDefendantsmightpay
theTrustee.
OnNovember29,2012,theeveofthedistrict
courtspreliminaryapprovalofthepartiesproposed
agreement,theTrusteeinstitutedanadversary
proceedingintheUnitedStatesBankruptcyCourtfor
theSouthernDistrictofNewYorkseekingtoblockthe
settlement(theAnwarStayApplication).Picardv.
FairfieldGreenwichLtd.,Adv.Pro.No.122047(Bankr.
S.D.N.Y.filedNov.29,2012).TheAnwarStay
Applicationsoughtadeclarationthatthesettlementand
theAnwarActionitselfviolatedtheautomaticstay
provisionsoftheBankruptcyCodeandtheSecurities
InvestorProtectionAct(SIPA),aswellasoneormore
ofthestayordersissuedbythedistrictcourtin
connectionwiththeMadoffliquidation,
4
andthatthe

4
Intheprincipalcaseinitiatingtheliquidation,theUnited
StatesDistrictCourtfortheSouthernDistrictofNewYork
(LouisL.Stanton,J.)issuedtwoorderscitedbytheTrustee,
stayinganyinterferencewithanyassetsorpropertyowned,
controlledorinpossessionofMadoffandBLMIS.Order,
IV,InreBernardL.MadoffInvestmentSecuritiesLLC,Civ.
0810791(S.D.N.Y.Dec.15,2008),ECFNo.4;seealsoPartial
JudgmentonConsent,IV,InreBernardL.Madoff
InvestmentSecuritiesLLC,Civ.0810791(S.D.N.Y.Feb.9,
2009),ECFNo.18.

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7

AnwarActionwasthereforevoidabinitio.Id.105.
TheStayApplicationalsocontainedarequestthatthe
bankruptcycourtexerciseitspowersundersection
105(a)oftheBankruptcyCode,11U.S.C.105(a),
5
to
preliminarilyenjointheAnwarActionuntiltheTrustee
hadcompletedhiseffortstorecouptheproceedsof
specifiedallegedfraudulenttransfersfromtheFairfield
Defendants.AnwarStayApplication,108,110.On
February6,2013,thedistrictcourtgrantedtheAnwar
Plaintiffsmotiontowithdrawthereferencetothe
bankruptcycourtinthestayaction.Picardv.Fairfield
GreenwichLtd.,486B.R.579(S.D.N.Y.2013);see28U.S.C.
157(d).
Pursuingaparallelstrategy,theTrusteescounsel
wrotetothecourtseekingtointerveneintheAnwar
Actiondirectly.OnMarch7,treatingthisletterasa
motiontointervene,thecourtdeniedit.Thecourtalso
deniedtheTrusteessubsequentrequesttosupplement
therecord.
OnMarch20,2013,thedistrictcourtissuedoneof
thetwodecisionsnowbeforeusonappeal,denyingthe
AnwarStayApplicationinitsentiretyanddirecting
thattheadversaryproceedingbeclosed.SeePicardv.
FairfieldGreenwichLtd.,490B.R.59(S.D.N.Y.2013)
(Marrero,J.)(theAnwarStayRuling).Shortly
thereafter,thecourtissuedafinaljudgmentandorder

5
Thesubsectionreadsinfull:
The court may issue any order, process, or judgment
that is necessary or appropriate to carry out the
provisionsof[theBankruptcyCode].Noprovisionof
this title providing for the raising of an issue by a
party in interest shall be construed to preclude the
court from, sua sponte, taking any action or making
any determination necessary or appropriate to
enforce or implement court orders or rules, or to
preventanabuseofprocess.
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8

acceptingthesettlementoftheAnwarActionand
dismissingtheclaimsagainsttheFairfieldDefendants
withprejudice.
b.Peoplev.MerkinandSchwartzv.Merkin
InApril2009,NewYorksAttorneyGeneral(the
NYAG)broughtsuitinNewYorkstatecourtclaiming
thatEzraMerkinandhisinvestmentcompany,Gabriel
CapitalCorp.together,theMerkinDefendantshad
violatedNewYorksMartinAct,itsExecutiveLaw,and
itsNotforProfitCorporationLawbymakingmaterial
misrepresentationsandomissionstoinvestorsin
severalfeederfunds.SeeCompl.,Peoplev.Merkin,No.
450879/2009(N.Y.Sup.Ct.filedApr.6,2009).
Specifically,theNYAGscomplaintallegedthatMerkin
breachedhisfiduciarydutiestoinvestorsbycollecting
managementfeeswhileturningall,orasubstantial
portion,of[theinvestors]fundsovertoMadoffand
others.Id.6.TheNYAGalsonamedthefeeder
fundsthemselves(theMerkinFunds)asrelief
defendants.
6
SeeAm.Compl.,Peoplev.Merkin,No.
450879/2009(N.Y.Sup.Ct.filedMay28,2009).
InSeptember2010,BartM.Schwartz,thereceiver
fortwooftheMerkinFunds,ArielFundLtd.and
GabrielCapital,L.P.(bothreliefdefendantsinthe
NYAGssuit),alsofiledsuitagainsttheMerkin
defendantsinstatecourt.SeeCompl.,Schwartzv.
Merkin,No.651516/2010(N.Y.Sup.Ct.filedSept.16,
2010).Schwartzscomplaintallegedonbehalfoffund
investorsthattheMerkinDefendantshadbreached
theirfiduciarydutiesofcandoranddisclosure,
fraudulentlymisrepresentedthenatureofthework
performedbyvariousinvestmentmanagers,and
collectedexorbitantfees.Id.114.

6
TheMerkinFundsincludedAscotPartners,L.P.,Ascot
Fund,Ltd.,ArielFund,Ltd.,andGabrielCapital,L.P.
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Afterseveralyearsoflitigation,onJune13,2012,
theNYAGandSchwartzexecutedajointsettlementof
theirclaimswiththeMerkinDefendantsfor$410
million.Severalweekslater,theTrusteeinstitutedan
adversaryproceeding(theNYAGStayApplication)
substantiallysimilartotheAnwarStayApplication,
seekingtoenjoinanddeclarevoidthejointsettlement
andtheunderlyingsuits.SeeCompl.,Picardv.
Schneiderman,Adv.Pro.No.121778(Bankr.S.D.N.Y.
filedAug.1,2012).AsJudgeMarrerohaddonewith
respecttotheAnwarStayApplication,JudgeRakoff
withdrewthereferencetothebankruptcycourt.See
Picardv.Schneiderman,492B.R.133(S.D.N.Y.2013);see
28U.S.C.157(d).OnApril15,2013,inthesecondof
thejudgmentshereonappeal,thecourtdeniedthe
NYAGStayApplicationinitsentiretyanddirectedthat
theadversaryproceedingbedismissedwithprejudice
andthecaseclosed.SeePicardv.Schneiderman,491B.R.
27(S.D.N.Y.2013)(Rakoff,J.)(theNYAGStayRuling).
TheFraudulentConveyanceLitigation
Whilethefeederfundlitigationwasinprogress,
theTrusteeinstitutedactionsagainsttheMerkin
DefendantsandMerkinFundsandagainsttheFairfield
Defendantsallegingthattheyhadreceivedfraudulent
conveyancesfromBLMIS.SeePicardv.Merkin,Adv.
Pro.No.091182(Bankr.S.D.N.Y.filedMay7,2009);
Picardv.FairfieldSentryLtd.,Adv.Pro.0901239(Bankr.
S.D.N.Y.filedMay18,2009).InMerkin,theTrustee
sought$33millionfromtheArielandGabrielfunds,
and$460millionfromathirdfundandtheMerkin
Defendants.AlthoughtheMerkinFundswerenet
losersinMadoffsscheme,theTrusteesoughtthe
entirevalueofthetransferstheyreceivedwithinthe
applicableclawbackperiodonthetheorythatthe
MerkinDefendantsknewofthefraud.Theallegations
againsttheFairfieldDefendantsweresimilar,butthe
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10

amountsoughtwassome$3.2billion.Bothcasesare
pending.
TheDistrictCourtDecisions
TheTrusteemadenearlyidenticalargumentsin
bothstayapplicationproceedings.Heassertedthat:(1)
thefeederfundlitigationandtheproposedsettlements
implicatedpropertyofBLMISandtheMadoffestate
withinthemeaningoftheBankruptcyCodesautomatic
stayprovisions,see11U.S.C.362(a)(1),(3),(6),the
SIPA,see15U.S.C.78eee(b)(2)(B),andtwodistrict
courtorders,andshouldthereforebedeclaredvoidab
initio;(2)whetherthefeederfundlitigationimplicated
theautomaticstayornot,apreliminaryinjunction
undersection105(a)wasappropriate;and(3)the
SecuritiesInvestorProtectionActpreemptedthefeeder
fundlitigationtotheextenttheactionsinterferedwith
theTrusteesabilitytoreturnfundstoBLMIS
customers.Thedistrictcourt,ineachcase,rejectedall
oftheTrusteesargumentsonthemeritsandruledthat
thestayapplicationswerebarredinanyeventby
laches.TheTrusteeappeals.
DISCUSSION
I. StandardofReview
Thescopeoftheautomaticstayisaquestionof
lawsubjecttodenovoreview.UnitedStatesv.
Colasuonno,697F.3d164,173(2dCir.2012);seealsoFed.
DepositIns.Corp.v.Hirsch(InreColonialRealtyCo.),980
F.2d125,130(2dCir.1992).Butbecause[i]tisan
axiomofappellateprocedurethatwe
review...questionsoffactforclearerror,wereview
thefactualfindingsunderlyingalegaldetermination
forclearerroronly.UnitedStatesv.Rajaratnam,719F.3d
139,153(2dCir.2013);accordGuzzov.Cristofano,719
F.3d100,109(2dCir.2013)(concludingthatan
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11

essentiallyfactualcomponentofmixedquestionof
factandlawissubjecttoreviewforclearerror(internal
quotationmarksomitted)).
Wereviewthedenialofapreliminaryinjunction
forabuseofdiscretion.ChristianLouboutinS.A.v.Yves
SaintLaurentAm.Holdings,Inc.,696F.3d206,215(2d
Cir.2012)(internalquotationmarksomitted).A
districtcourtabusesitsdiscretion...whenitsdecision
restsonanerroroflaworaclearlyerroneousfactual
finding,orwhenitsdecisioncannotbelocatedwithin
therangeofpermissibledecisions.WPIX,Inc.v.ivi,
Inc.,691F.3d275,278(2dCir.2012),cert.denied,133S.
Ct.1585(2013).
Finally,wereviewacourtsinterpretationofthe
SIPAdenovo,consideringtheviewsoftheSecurities
InvestorProtectionCorporation(SIPC)onlytothe
extentthattheyhavethepowertopersuade.Inre
BernardL.MadoffInv.Sec.LLC,654F.3d229,234(2dCir.
2011)(internalquotationmarksandbracketsomitted),
cert.dismissed,132S.Ct.2712,cert.denied,133S.Ct.24,
and133S.Ct.25(2012).
II. DenialoftheTrusteesRequestfor
DeclaratoryRelief
TheTrusteearguesthattheAnwarandNYAG
ActionsarebarredbytheBankruptcyCodesautomatic
stayandbytwoordersissuedbythedistrictcourtatthe
outsetoftheMadoffliquidation(theStayOrders).
TheautomaticstayandtheStayOrdersapplyonlyto
propertyoftheMadoffestateandtolawsuitsdirected
againstMadofforBLMIS.See11U.S.C.362(a)(1),(3),
(6);Order,IV,InreBernardL.MadoffInvestment
SecuritiesLLC,Civ.0810791(S.D.N.Y.Dec.15,2008),
ECFNo.4;seealsoPartialJudgmentonConsent,IV
(S.D.N.Y.Feb.9,2009),ECFNo.18.Thedistrictcourtin
bothproceedingsconcludedthattheActionsinvolved
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12

neitherestatepropertynorsuitsagainstthedebtors,
andthattheywerethereforenotstayed.Forthereasons
explainedbelow,weagree.
Section362theautomaticstayprotects
bankruptcyestatesbyrestraininganyformalor
informalactionorlegalproceedingthatmightdissipate
estateassetsorinterferewiththetrusteesorderly
administrationoftheestate.See3Collieron
Bankruptcy362.03(AlanN.Resnick&HenryJ.
Sommereds.,16thed.2014).[S]ocentralisthe362
staytoanorderlybankruptcyprocessthatactionstaken
inviolationofthestayarevoidandwithouteffect.
ColonialRealty,980F.2dat137(internalquotationmarks
omitted).TheTrusteeinthiscasereliesonprovisions
thatstay:
(1) the commencement or continuation,
including the issuance or employment of
process, of a judicial, administrative, or
other action or proceeding against the
debtor that was or could have been
commenced before the commencement of
the case under this title, or to recover a
claim against the debtor that arose before
the commencement of the case under this
title;[...]
(3)anyacttoobtainpossessionofproperty
of the estate or of property from the estate
or to exercise control over property of the
estate;[...]
(6) any act to collect, assess, or recover a
claim against the debtor that arose before
the commencement of the case under this
title[.]
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13

11U.S.C.362(a).TheStayOrdersdonot,bytheirown
terms,expandthescopeoftheseprovisions.SeeOrder,
IV,InreBernardL.MadoffInvestmentSecuritiesLLC,
Civ.0810791,(S.D.N.Y.Dec.15,2008),ECFNo.4
(enjoininginterferencewithanyassetsorproperty
owned,controlledorinthepossessionofMadoffor
BLMIS);PartialJudgmentonConsent,IV(S.D.N.Y.
Feb.9,2009),ECFNo.18(incorporatingOrderon
Consent,IX(S.D.N.Y.Dec.18,2008),ECFNo.8
(enjoininginterferencewiththecontrol,possession,or
managementoftheassetssubjecttothereceivership)).
TheTrusteeassertsthattheAnwarandNYAG
Actionsrunafouloftheseprovisionsandordersintwo
ways.First,hearguesthat,regardlessoftheirform,the
Actionsareinsubstanceclaimstorecoverfraudulent
conveyances,whicharetreatedasclaimsagainsta
debtorandstayedbysection362(a)(1).Second,the
TrusteeassertsthattheActionsaresointertwined
withtheestatesownfraudulentconveyanceclaimsthat
theyconstituteimpermissibleattemptstoexercise
controloverpropertyoftheestate.
7
See11U.S.C.
362(a)(3).
A. WhethertheActionsareIntertwinedwith
EstateClaims
WeaddresstheTrusteeslatterargumentthat
theActionsareintertwinedwithestatepropertyfirst.

7
Onappeal,theTrusteehasapparentlywithdrawnthe
argumentintheStayApplicationsthattheActionsseek
literallytoobtainpossessionofpropertyoftheestate,in
contraventionofsection362(a)(3).Thatargumentis
squarelyforeclosedbyourdecisioninColonialRealty,which
heldthatfraudulentlyconveyedpropertyisnottobe
consideredpropertyoftheestateuntilitisrecovered.980
F.2dat131(quotingInreSaunders,101B.R.303,305(Bankr.
N.D.Fla.1989)).
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14

IntheonlycasecitedbytheTrusteeonthispoint,48th
St.Steakhouse,Inc.v.RockefellerGrp.Inc.(Inre48thSt.
Steakhouse,Inc.),835F.2d427(2dCir.1987),cert.denied,
485U.S.1035(1988),weupheldthestayofalessors
attempttoterminateaprimeleasewherethesublessee
wasadebtorinbankruptcy.Asubleaseheldbya
debtorisconsideredpropertyoftheestate.See11
U.S.C.541(a)(1).AndunderNewYorklaw,the
terminationofaprimeleaseautomaticallyterminatesa
sublease.48thSt.Steakhouse,Inc.,835F.2dat43031.
Wereasonedthat[i]factiontakenagainst[a]non
bankruptparty[likeaprimelessee]wouldinevitably
haveanadverseimpactonpropertyofthebankrupt
estate[thesublease],thensuchactionshouldbebarred
bytheautomaticstay.Id.at431(emphasisadded).
Butanadverseimpactonadebtorthatoccursby
operationoflawsuchastheterminationoftheprime
leasein48thSt.Steakhouseisdistinctfromonewhich
theTrusteemerelyarguesis,asafactualmatter,likely
tooccur.SeeOfficialComm.ofUnsecuredCreditorsv.PSS
SteamshipCo.(InrePrudentialLinesInc.),928F.2d565,
574(2dCir.1991)(applying48thSt.Steakhousetobaran
actionthatwouldhavethelegaleffectofdiminishingor
eliminatingpropertyofthebankruptestate(emphasis
added)).Wedeclinetoextendourholdingin48thSt.
Steakhousetoautomaticallystayactionstakenagainst
thirdpartiesthatareonlyfactuallylikely,asopposedto
legallycertain,toimpactestateproperty.
B. WhethertheActionsPleadFraudulentConveyance
Claims
WhethertheActionsareinfacteffortstoplead
aroundthestayisaquestionthatmeritsmore
attention.IftheActionsarefraudulentconveyance
claimsindisguise,theyfallwithinthescopeofthe
automaticstay.See11U.S.C.362(a)(1);Marshallv.
Picard(InreBernardL.MadoffInv.Sec.LLC),740F.3d81,
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94(2dCir.2014)([A]ppellantspurportedtortclaims
are,inessence,disguisedfraudulenttransferactions,
whichbelongexclusivelytotheTrustee.).Thedistrict
courtconcludedthattheAnwarandNYAGActions
weredistinctfromtheTrusteesfraudulentconveyance
claimsbecausetheywerebasedondutiesoweddirectly
bythedefendantstotheplaintiffs.SeeAnwarStay
Ruling,490B.R.at68(concludingthattheAnwar
Plaintiffsclaimsareinnowaycontingentonthe
[defendants]possibleliabilitytotheBLMISestate);
NYAGStayRuling,491B.R.at36(concludingthatthe
NYAGsandSchwartzsclaimsareindependentclaims
basedonseparatefacts,theories,anddutiesthanthe
TrusteesfraudulenttransferclaimsagainstMerkin).
Weagree.
Afraudulentconveyance(orfraudulenttransfer)
actionseekstorecoveroravoidtransfersthat
wrongfullyreducethepoolofassetsavailableto
creditors.Seegenerally5CollieronBankruptcy548.01
(AlanN.Resnick&HenryJ.Sommereds.,16thed.
2014).UndertheCode,atransfermayqualifyas
fraudulenteitherbecauseitwasmadewithactual
intenttohinder,delay,ordefraudacreditor,see11
U.S.C.548(a)(1)(A),orbecausethetransferwasmade
inexchangeforlessthanthereasonablyequivalent
valueofthepropertytransferredandotherstatutorily
specifiedconditionsobtained,seeid.(a)(1)(B);seealso
N.Y.Debt.&Cred.Law27376(definingactualand
constructivefraudulentconveyances);SharpIntlCorp.
v.StateStreetBank&TrustCo.(InreSharpIntlCorp.),
403F.3d43,5357(2dCir.2005)(applyingNewYorks
fraudulentconveyancestatute).
Althoughanactionforfraudulentconveyanceis
broughtagainstthetransferee,thefraudisthedebtors.
AsweexplainedinColonialRealty,[a]bsentaclaim
againstthedebtor,thereisnoindependentbasisforthe
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actionagainstthetransferee.ColonialRealty,980F.2d
at13132(quotingSaunders,101B.R.at30506).Thus,a
bankruptcytrusteemayrecovertransferredpropertyor
itsvaluefromthepersontowhomitwasoriginally
conveyedwithoutshowingthatthetransfereewas
culpableinanyfraud.
8
See11U.S.C.550(a)(1).This
focusonthedebtorexplainswhyathirdpartyaction
torecoverfraudulentlytransferredpropertyisproperly
regardedasundertakentorecoveraclaimagainstthe
debtorandsubjecttotheautomaticstaypursuantto
362(a)(1).ColonialRealty,980F.2dat13132;seealso
11U.S.C.362(a)(6).Inordertoqualifyasdisguised
fraudulenttransferactions,therefore,thecomplaints
againsttheFairfieldandMerkinDefendantswould
havetobecontingentonMadofforBLMISswrongful
transferofthefundssoughtbytheActions.Theyare
not.
TheAnwarcomplaintallegesbreachesofduty
owedbyandfraudulentmisrepresentationsmadeby
theFairfieldDefendantsnotMadoff.SeeSecond
ConsolidatedAm.Compl.,354425,Anwarv.
FairfieldGreenwichLtd.,No.09cv118(VM)(S.D.N.Y.
filedSep.29,2009),ECFNo.273.Thecomplaintalleges,
amongotherthings,thattheFairfieldDefendants
fraudulentlyinducedtheAnwarPlaintiffstoinvestin
thedefendantfunds,violatedfederalsecuritieslaw,
recklesslyandnegligentlymisrepresentedthenatureof
theirinvestmentstrategyandtheirdiligenceofMadoff,
andbreachedfiduciaryandcontractualduties.Id.
Althoughthecomplaintincludesfactualallegations
regardingMadoffsfraud,thelegalbasesfortheclaims
leveledagainsttheFairfieldDefendantsare

8
Althoughthegoodfaithofasubsequenttransfereemay
beadefensetoatrusteessuitforrecovery,see11U.S.C.
550(b),suitsagainstinitialandsubsequenttransfereesare
predicatedonthedebtorsfraud.
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independentofanyliabilityMadofforBLMISmayhave
totheAnwarPlaintiffs.Nordotheallegationsdepend
insubstanceonthefactthatMadoffmayhave
wrongfullytransferredfundstotheFairfield
Defendants.
ThedistinctionbetweentheNYAGscomplaint
andafraudulentconveyanceactionisevenstarker.See
Compl.,Peoplev.Merkin,No.450879/2009(N.Y.Sup.Ct.
filedApr.6,2009).TheNYAGallegesthatJ.Ezra
Merkinfraudulentlyheldhimselfoutasaninvesting
guruwhenhewasinfactnomorethanaglorified
mailbox,turningovervirtuallyalloftheassetsinthe
MerkinFundstoMadoff.Id.12.Accordingtothe
complaint,Merkinnotonlyfraudulentlycollected
managementfeesforworkheletMadoffperformwith
virtuallynosupervision,buthealsoengagedinself
dealingbysteeringnonprofitorganizationstowhich
heowedfiduciarydutiestowardthefeederfunds.Id.
36.Thecomplaintallegesbreachesoffiduciary
duty,themakingoffraudulentmisrepresentationswith
respecttothesaleofsecurities,andotherviolationsof
NewYorkstatutesandcommonlaw.Seeid.12134.
WhileMadoffsfraudmaybeabutforcauseofthe
enormouslossessufferedbyMerkinsclients,noneof
theMerkinDefendantsliabilitytotheplaintiffs
dependsonthewrongfulnessofMadoffsconduct,or
onthefactthatMadofforBLMISmayhavetransferred
fundstotheMerkinDefendants.Theallegationsin
Schwartzv.Merkinaresubstantiallysimilar.SeeCompl.,
Schwartzv.Merkin,114,No.651516/2010(N.Y.Sup.
Ct.filedSept.16,2010).TheTrusteesclaimthatthe
AnwarandNYAGActionscovertlyseektherecoveryof
fraudulentconveyancesthusfindsnosupportinthe
allegationsofthecomplaints,andtheActionscannotbe
characterizedasagainstthedebtoronthatbasis.
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TheTrusteeurgesthattheActionsare
indistinguishablefromfraudulenttransferclaims
becausetheyseekthereturnofmanagementfees,which
thedefendantspaidthemselvesoutoffundstransferred
asreturnsfromBLMIS,onthebasisthatthe
[defendants]hadactualorconstructiveknowledgeof
Madoffsfraud.AnwarActionAppellantBr.at56;
NYAGActionAppellantBr.at58.This,heargues,is
thesamebasisastheavoidanceactionbroughtbythe
TrusteeonbehalfofallBLMIScreditors.Anwar
ActionAppellantBr.at5657;NYAGActionAppellant
Br.at58.Wedisagree.
First,asweexplainedinCumberlandOilCorp.v.
Thropp,791F.2d1037(2dCir.),cert.denied,479U.S.950
(1986),onecomplaintisnotduplicativeofanother
solelybecauseitrecitessomeorallofthesamefacts.
TheplaintiffinCumberlandenteredintoanoil
explorationcontractwithacompanycalledBenchmark
basedontherepresentationsofitspresident,Thropp.
Id.at103839.Contrarytothoserepresentations,
Benchmarkwasnotonlyinfinancialdistress,butalso
soonbeganaseriesoftransferstoThroppandhisfather
whichstrippeditoftheresourcesnecessarytofulfillits
obligationsundertheagreement.Id.at103940.After
Benchmarkfiledforbankruptcy,Cumberlandbrought
suitagainsttheThroppsforfraud.Thedistrictcourt
dismissedthecomplaint,reasoningthattheasset
strippingallegationsweresubstantiallyidenticalto
fraudulenttransferclaims.Id.at1041.Wedisagreed,
explainingthatevenifCumberlandpledthesamefacts
thatwouldhavebeeninvokedinafraudulent
conveyanceaction,thecompanyallegedthatitwasthe
victimofafraudperpetratedbytheThroppsadistinct
legalclaimthatwasneitherthepropertyof
Benchmarksbankruptcyestatenorwasdischargedby
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Benchmarksemergencefrombankruptcy.Id.at1042
43.
NoraretheActionsbroughtonthesamebasis
astheTrusteesfraudulentconveyanceclaims.The
defendantsallegedknowledgeofMadoffsfraudis
relevanthereonlytotheirliabilityforbreachesofduties
theyoweddirectlytotheplaintiffs.Theseindependent
dutiesdistinguishtheActionsfromtheTrusteesown
claimsandplacethemlikethefraudclaimsin
Cumberlandoutsidethescopeoftheautomaticstay.
SeeVariableParameterFixtureDev.Corp.v.Morpheus
Lights,Inc.,945F.Supp.603,608(S.D.N.Y.1996)([A]
stayclearlycannotbeextendedto[a]nondebtor
wherethenondebtorsliabilityrestsuponhisown
breachofduty.(internalquotationmarksomitted))
(citingA.H.RobinsCo.v.Piccinin,788F.2d994,999(4th
Cir.),cert.denied,479U.S.876(1986)).
Inthealternative,theTrusteeappealstothe
backgroundbankruptcypolicydisfavoringindividual
litigationthatallowsonecreditortostealamarchon
theothers.SeeMartinTrigonav.ChampionFed.Sav.&
LoanAssn,892F.2d575,577(7thCir.1989).Henotes
thattheplaintiffsinbothActionsarecreditorsofthe
Madoffestate.Buttheplaintiffsrighttoenforceduties
owedtothemisnotqualifiedbythefactthattheymay
alsohaveclaimsagainsttheMadoffestate.
Itiswellsettledthatwhencreditors...havea
claimforinjurythatisparticularizedastothem,they
areexclusivelyentitledtopursuethatclaim,andthe
bankruptcytrusteeisprecludedfromdoingso.Hirsch
v.ArthurAndersen&Co.,72F.3d1085,1093(2dCir.
1995);seealsoCaplinv.MarineMidlandGraceTrustCo.of
N.Y.,406U.S.416,428(1972)([N]owhereinthe
statutoryschemeisthereanysuggestionthatthetrustee
inreorganizationistoassumetheresponsibilityof
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suingthirdpartiesonbehalfof[creditors].).The
injuriesallegedbytheplaintiffsinbothActionsare
allegedtohavebeencauseddirectlybythenondebtor
defendantsnotbyMadofforBLMIS.Thatrenders
themparticularizedandoutsidetheTrustees
purview.Marshall,740F.3dat89([A]ninjuryissaidto
beparticularizedwhenitcanbedirectlytracedtothe
thirdpartysconduct.(bracketsomitted)(quotingSt.
PaulFire&MarineIns.Co.v.PepsiCo,Inc.,884F.2d688,
704(2dCir.1989))).TheActionsarethereforenot
voidedby,andthesettlementsnotsubjectto,the
automaticstay.
III. DenialoftheTrusteesClaimsforSection
105InjunctiveRelief
InadditiontoadeclarationthattheActionsare
void,theTrusteeseeksanorderpreliminarilyenjoining
thesettlements.Whetherornottheclaimsassertedin
theActionsaresubjecttothetermsoftheautomatic
stay,abankruptcycourthasjurisdictionoveranysuit
thatmighthaveanyconceivableeffectonthe
bankruptcyestate.PfizerInc.v.LawOfficesofPeterG.
Angelos(InreQuigleyCo.),Inc.,676F.3d45,57(2dCir.
2012)(quotingPublickerIndus.v.UnitedStates(Inre
CuyahogaEquip.Corp.),980F.2d110,114(2dCir.1992)),
cert.denied,133S.Ct.2849(2013).Section105(a)ofthe
BankruptcyCodeempowersacourttoissueanyorder,
process,orjudgmentthatisnecessaryorappropriateto
carryouttheprovisionsofthistitle.11U.S.C.105(a);
seealsofulltextatfootnote5,supra.Thus,wehaveheld
thatacourthasthepowerpursuanttosection105(a)to
enjoinclaimsagainstanondebtorthirdpartywhere
thoseclaimsarederivative,Marshall,740F.3dat93,or
otherwisepose[]thespecterofdirectimpactontheres
ofthebankruptestate,Quigley,676F.3dat58;seealso
Nev.PowerCo.v.CalpineCorp.(InreCalpineCorp.),365
B.R.401,409n.20(S.D.N.Y.2007)(Courtsconsistently
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havefoundthatsection105maybeusedtostayactions
againstnondebtorsevenwheresection362otherwise
wouldnotprovidesuchrelief,recognizingthatsection
105grantsbroaderauthoritythansection362.).The
questionis,essentially,whetherthedirectresultofa
suitagainstathirdpartywillbetheremovalofassets
fromthebankruptcyestate.Quigley,676F.3dat58.
Ofcourse,acourtsauthoritytoissuean
injunctionisonlythefirststepoftheinquiry;wemust
alsobesatisfiedthatthepartyseekinginjunctiverelief
isentitledtoit.Seeid.at58n.14.Thepartiesinthiscase
couldnotagreeandthedistrictcourtdidnotdecide
onthestandardforobtainingapreliminaryinjunction
undersection105(a).Theappelleesinbothcasesurge
ustoapplythestandardapplicabletorequestsfor
injunctivereliefunderFederalRuleofCivilProcedure
65(incorporatedintoadversaryproceedingsin
bankruptcybyBankruptcyRule7065),whichrequires
that[a]plaintiffseekingapreliminaryinjunctionmust
establishthatheislikelytosucceedonthemerits,that
heislikelytosufferirreparableharmintheabsenceof
preliminaryrelief,thatthebalanceofequitiestipsinhis
favor,andthataninjunctionisinthepublicinterest.
SeeWinterv.NaturalRes.Def.Council,Inc.,555U.S.7,20
(2008).TheTrusteeassertstothecontrarythatheneed
onlyshowthattheactionsheseekstoenjoinwould
haveanimmediateadverseeconomicconsequencefor
thedebtorsestate.Queenie,Ltd.v.NygardIntl,321
F.3d282,287(2dCir.2003)(statingthat,while[t]he
automaticstaycanapplytonondebtors,[it]normally
doessoonlywhenaclaimagainstthenondebtorwill
haveanimmediateadverseeconomicconsequencefor
thedebtorsestate).
Likethedistrictcourtinbothcasesbeforeuson
appeal,wedeclinetodecidethisissueofapparentfirst
impression.Instead,weconcludethattheTrusteeis
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incapableofestablishingeitherthatthesettlements
wouldinfacthaveanimmediateadverseeconomic
consequencefortheBLMISestate,id.,orthattheestate
islikelytosufferirreparableharmintheabsenceof
preliminaryrelief,Winter,555U.S.at20;seealsoid.at
22([P]laintiffsseekingpreliminaryrelief[must]
demonstratethatirreparableinjuryislikelyinthe
absenceofaninjunction.(emphasisinoriginal)).The
reasonsforthisarecommontobothappeals.
Thepurportedharmhereistheeffectthatthe
TrusteeclaimsthesettlementsoftheAnwarandNYAG
Actionswouldhaveonhisabilitytocollecton
judgmentshehopestowininhispendingfraudulent
conveyanceactionsagainsttheFairfieldandMerkin
Defendants.AssumingthattheTrusteecouldshow
thatthesettlementswouldhavesuchanimpact,he
cannotshowthatthisimpactwouldbeimmediate,
underQueenie,orlikelyunderthetestarticulatedin
Winter.
Theimpactofthesettlementscouldnotbe
immediatebecausetheTrusteesfraudulent
conveyanceactionsareactivelybeinglitigated;the
Trusteethereforelacksajudgmententitlinghimtoany
partoftheassetsoftheFairfieldorMerkinDefendants.
NordoestheTrusteeenjoyastatutoryrighttothose
assets.Ourcaselawisclearthatassetstargetedbya
fraudulentconveyanceactiondonotbecomeproperty
ofthedebtorsestateundertheBankruptcyCodeuntil
theTrusteeobtainsafavorablejudgment.Colonial
Realty,980F.2dat131.
TheSIPA,invokedbytheTrusteeandthe
intervenorSIPC,doesnotalterthisrule.ASIPAtrustee
hasnogreaterlegalinterestinunadjudicated
fraudulenttransfersthandoesatrusteeinbankruptcy.
TheActmerelyengraftsspecialfeaturesontothe
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familiarframeworkofaliquidationproceedingunder
Chapter7oftheBankruptcyCode,see15U.S.C.
78fff(b),toaddresstheconcernspeculiartotheorderly
liquidationofabrokerage.Justasinanordinary,non
SIPAbankruptcy,aSIPAtrusteestandsintheshoesofa
liquidatingfirm.SeePicardv.JPMorganChase&Co.(In
reBernardL.MadoffInv.Sec.LLC),460B.R.84,91
(S.D.N.Y.2011)(JPMorganI),affd,721F.3d54(2dCir.
2013)(JPMorganII);seealsoJPMorganII,721F.3dat71
(Asageneralrule,SIPAveststrusteeswiththesame
powersandtitlewithrespecttothedebtorandthe
propertyofthedebtorasatrusteeinacaseunderTitle
11.(internalquotationmarksandellipsisomitted)).
Butbecausemoneyheldbyabrokeronbehalfofits
customersisnotthebrokerspropertyunderstatelaw,
itwouldnotberecoverablebyatrusteeinanordinary
bankruptcy.Picardv.EstateofChais(InreBernardL.
MadoffInv.Sec.LLC),445B.R.206,23738(Bankr.
S.D.N.Y.2011).SIPAcircumventsthisproblemthrough
astatutorilycreatedlegalfictionthatconfersstanding
onaSIPAtrusteebytreatingcustomerpropertyas
thoughitwerepropertyofthedebtorinanordinary
liquidation.Id.at238;see15U.S.C.78fff2(c)(3).The
meaning,purpose,andeffectofthisprovisionareinno
wayinconsistentwiththeruleweadoptedinColonial
Realty.SeeEstateofChais,445B.R.at238(agreeingwith
priordecisionsconcludingthatthelimitedpurposeof
SIPAsection78fff2(c)(3)istocreatethislegalfiction).
BecausetheTrusteesinterestsherearecontingent
atbest,itwasnotanabuseofdiscretiontodenyhim
injunctivereliefonthebasisthathefailedtoestablish
anyimmediateadverseeconomicconsequencetothe
BLMISestate.
Foressentiallythesamereasons,itwasnotan
abuseofdiscretiontodenytheTrusteeaninjunctionif
thedenialwasbasedontheconclusionthathecould
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notestablishalikelihoodofirreparableharm.The
Trusteehasnotshownthatitislikelyasopposedto
possiblethathewould(a)winthefraudulent
conveyanceactions,andthen(b)beunabletorecovera
judgmentasaresultoftheAnwarandNYAG
settlements.SeeWinter,555U.S.at22(Issuinga
preliminaryinjunctionbasedonlyonapossibilityof
irreparableharmisinconsistentwithour
characterizationofinjunctivereliefasanextraordinary
remedythatmayonlybeawardeduponaclear
showingthattheplaintiffisentitledtosuchrelief.).
TheTrusteesfraudulentconveyanceactionshave
beenpendingformorethanfouryears.Thebankruptcy
courtrecentlyheardoralargumentonthemotionsto
dismissthethirdamendedcomplaintintheTrustees
fraudulentconveyanceactionagainsttheMerkin
DefendantsandFunds,anddiscoveryisnotscheduled
toconcludeuntilOctober2014.SeeSeventhAm.Case
Mgmt.Plan,Picardv.Merkin,Adv.Pro.No.091182
(Bankr.S.D.N.Y.Apr.222014),ECFNo.208.Theaction
againsttheFairfieldDefendantsseemstobeeven
furtherfromresolution.SeeStip.ExtendingTimeto
Move,AnswerorOtherwiseRespondtoTrustees
Complaint,Picardv.FairfieldSentryLtd.,Adv.Pro.09
1239(Bankr.S.D.N.Y.Jun.27,2014),ECFNo.151.
Tobesure,thereisthepossibility,particularlyin
thecaseagainsttheFairfieldGreenwichGroup,thatthe
defendantswillnotbeablebothtosatisfyapossible
futurefraudulentconveyancejudgmentandtopaythe
settlementamount.Butitisanextraordinaryexercise
ofdiscretiontouse[section105]tostayathirdparty
actionnotinvolvingthedebtor,InreG.S.F.Corp.,938
F.2d1467,1474(1stCir.1991)(quotingInreBrentanos
Inc.,36B.R.90,92(S.D.N.Y.1984)),abrogatedinparton
othergrounds,Conn.NatlBankv.Germain,503U.S.249
(1992),andthemerepossibilitythatathirdpartyaction
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willhavesomeeffectonadebtorsestateisnotenough
tosatisfyeithertheQueenieorWinterstandards.The
districtcourtreasonablyfoundthatitwasnotlikely
thattheTrusteewouldbothprevailinhisfraudulent
conveyanceactionsandfindhimselfunabletocollect
theresultingjudgmentasaresultofthechallenged
settlements.Itwasthereforenotanabuseofdiscretion
forthecourttodenytheTrusteesrequestsfor
preliminaryinjunctivereliefonthegroundsthathe
couldnotshowthattheBLMISestatewaslikelyto
sufferirreparableharmifthesettlementswentforward
asplanned.
CONCLUSION
Fortheforegoingreasons,thejudgmentsofthe
districtcourtareAFFIRMED.
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