Madoff Trustee’s Case Against JPMorgan Must Go to Higher Court, Judge Says
A bankruptcy judge doesn’t have the authority to decide whether the trustee liquidating Bernard Madoff’s firm has the right to sue JPMorgan Chase & Co. for $6.4 billion, a higher court said.
U.S. District Judge Colleen McMahon in New York said she would determine whether trustee Irving Picard has standing to sue the bank on behalf of the con man’s customers, as JPMorgan requested. The question of Picard’s status requires “significant interpretation” of federal non-bankruptcy law that isn’t the province of a bankruptcy court, she said in a written opinion today explaining her May 4 decision to take the case.
In its request, “JPMorgan has satisfied the standard for mandatory withdrawal” of the case to a higher court, she said.
JPMorgan argued that Picard was hired to liquidate the Madoff firm, and wasn’t empowered by law to mount a class-action suit to recover money on behalf of Madoff customers. Picard, claiming that he was suing as a single entity, not a class, “misses the point,” the judge said.
“The issue is whether seeking damages on behalf of more than 50 persons or prospective class members triggers” a law that might bar Picard from bringing his suit, the judge said.
McMahon’s opinion is another challenge to Picard, who has filed more than 1,000 suits claiming $100 billion for investors in the Ponzi scheme. HSBC Holdings Plc (HSBA) has asked U.S. District Judge Jed Rakoff in Manhattan to dismiss a $9 billion lawsuit against it and so-called feeder funds, saying Picard isn’t allowed by law to bring such suits on behalf of Madoff customers.
Taking the HSBC case temporarily, Rakoff agreed with the U.K. bank that Picard’s lawsuit raised issues beyond the jurisdiction of the bankruptcy court where Picard filed the suit. He said he would decide whether Picard can bring common-law claims such as unjust enrichment and can sue on behalf of customers, since his job is to liquidate the Madoff firm.
Picard, whose firm was paid $146 million through March for work since Madoff’s 2008 arrest, has fought to keep his cases in bankruptcy court. JPMorgan “no doubt hopes to distance itself both from the thousands of victims of that scheme and from other alleged wrongdoers” by going to district court, Picard said in a March filing.
Picard sued JPMorgan in December, claiming the bank, as Madoff’s main lender, aided the fraud and should pay for investors’ losses in specified years. Denying wrongdoing, New York-based JPMorgan said it had a right to a jury trial in the district court.
The judge has told JPMorgan to file papers by June 3 arguing that Picard’s suit should be dismissed.
The appeal is Picard v. JPMorgan Chase & Co. (JPM), 1:11-cv-00913, U.S. District Court, Southern District of New York (Manhattan).
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