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i. Picard v. JPMorgan & Chase Co. (In re Bernard L. Madoff Investment Securities LLC), 721 F.3d 54 (2d Cir. 2013)
Issue: Whether a Securities Investor Protection Act (SIPA) trustee has the power under SIPA to assert claims of debtor's defrauded customers.
Holding: SIPA does not give a trustee in a liquidation proceeding the power to assert claims of the debtor's defrauded customers. The court noted that a common rule of standing is that one "cannot rest his claim to relief on the legal rights or interests of third parties." Though SIPA is, "at best," silent on the standing issue, the court reasoned that just as a bankruptcy trustee cannot sue on behalf of creditors, a SIPA trustee does not have standing to sue on behalf of a debtor's customers. The court also rejected the trustee's claims that SIPA proceedings are not bound by bankruptcy precedent. The trustee's analogy of his position to that of a bailee failed because SIPA does not reference bailment or similar terms. Additionally, the trustee's argument that he was acting on behalf of the Securities Investor Protection Corporation (SIPC), on a theory that SIPC was subrogated to the customers' claims, failed because SIPA only allows SIPC to recoup funds paid by the trustee to the customers. SIPA does not allow SIPC to "step into customers' shoes" and litigate on their behalf.
ii. In re MF Global Holdings Ltd., et al., 465 B.R. 736 (Bankr. S.D.N.Y. 2012)
Issue: Whether the bankruptcy court had the authority to grant the commodities customers' request that the debtors' chapter 11 case be administered pursuant to the various sub-sections of chapter 7 pertaining to commodities brokers.
Holding: The court held that it did not have the authority to grant the relief requested by the commodities customers. The court first noted that the relief requested (administration of the chapter 11 estate pursuant to 11 U.S.C. § 766(h)) by the commodities customers "would treat MFGI [the debtor-subsidiary] commodities customers that held segregated accounts as a customer class of the Chapter 11 Debtors, entitling them to receive payment from the Chapter 11 Debtors' estates of 100% of their segregated-account funds on a first-priority basis, ahead of all creditors of the Chapter 11 Debtors." In support of its argument, the customer group asserted that the court could "pierce the corporate veil between MFGI [the subsidiary] and MFGH [the parent]. Second, [the group] asserts that section 2(a)(1)(B) of the Commodity Exchange Act (the "CEA") subjects the Chapter 11 Debtors to CFTC regulations. Finally, [the group] contends that when the Chapter 11 Debtors allegedly began accessing customer funds held by MFGI, they became de facto futures commission merchants ("FCMs")." Finally, "[a]s an alternative to the relief it seeks in the Motion, [the group] request[ed] that the Court allow it to conduct examinations of any party-in-interest relating to the relevant facts pursuant to Rule 2004 of the Federal Rules of Bankruptcy Procedure." The court rejected all of the group's requests and arguments. With respect to the request for administration of the estate under sections 761-767 of
©2014 William L. Norton III
