# In Re: Bernard L. Madoff Investment Securities LLC

> District Court, S.D. New York · March 29, 2024

URL: https://www.frixlaw.com/law-library/cases/10359472

## Case

- **Court:** District Court, S.D. New York
- **Decided:** March 29, 2024
- **Opinion:** 100trialcourt
- **Cited by:** 0 later opinions in the Frix Law Library

## Citator (automated)

- No negative treatment found by the automated citator. That is not the same as a confirmation that the case is good law; read the citing cases.
- Full citator and citing cases: https://www.frixlaw.com/law-library/cases/10359472

## How later opinions describe it (automated extraction)

- stating that reviewing courts are to “look not to the analysis of each individual claim, but to the overall question where a lawsuit’s foundation is geographically based” when determining the gravamen of a suit
- noting that the general factual background of the BLMIS Ponzi scheme and associated proceedings “are well documented across many pages of the Federal Reporters”

## Opinion text

ELECTRONICALLY FILED
DOC#; □□
DATE FILED: _ 3/29/2024
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
IRVING H. PICARD, Trustee for the
Liquidation of Bernard L. Madoff Investment
Securities LLC, and Bernard L. Madoff,
Plaintiff-Appellee, Adv. Pro. No. 11-02493
22-cv-09911 (ALC)
~against- OPINION & ORDER
ABU DHABI INVESTMENT AUTHORITY,
Defendant-Appellant.

ANDREW L. CARTER, United States District Judge:
The Court considers herein Abu Dhabi Investment Authority’s (“Defendant” or “ADIA”)
appeal of the Bankruptcy Court’s denial of their motion to dismiss Irving H. Picard’s (“Trustee”)
complaint. For the reasons stated herein, the Court AFFIRMS in part and REVERSES in part
the Bankruptcy Court’s opinion and REMANDS the case for further proceedings consistent with
this Opinion and Order.
BACKGROUND
I. Procedural Background
The Trustee brought the initial bankruptcy action against the Defendant as part of its
responsibility to oversee the liquidation of Bernard L. Madoff Investment Securities LLC
(“BLMIS”). Like many other cases brought within and without this District, the Trustee brings
this action to recover former BLMIS investors’ funds from the Defendant. See Picard v.
Gettinger (In re BLMIS), 976 F.3d 184, 188 (2d Cir. 2020) (noting that the general factual
background of the BLMIS Ponzi scheme and associated proceedings “are well documented
across many pages of the Federal Reporters”). The operative procedural and factual background

of this case largely mirror those present in Pub. Inst. for Soc. Sec. v. Picard (In re Bernard L.
Madoff Inv. Sec. LLC), No. 1:22-cv-8741-GHW, 2023 U.S. Dist. LEXIS 167463 (S.D.N.Y. Sep.
20, 2023) (hereafter PIFSS).
The Trustee filed the initial complaint in this case against the Defendant on August 11,
2011. JA1-14.1 Therein, the Trustee alleged that Defendant received two transfers totaling $300

million from BLMIS “feeder fund” Fairfield Sentry Limited. JA 2-4 at ¶ 2, 7; see also JA 101
(indicating in an exhibit to the complaint that the operative transfers were made on April 4, 2005
and March 30, 2006 and totaled $200 and $100 million respectively). The complaint alleged that
Defendant “knowingly direct[ed] funds to be invested with New York-based BLMIS through
Fairfield Sentry.” JA 4 at ¶ 7; see also id. (alleging that “Defendant . . . entered into a
subscription agreement with Fairfield Sentry under which ADIA submitted to New York
jurisdiction”); JA 2 at ¶ 2 (noting that Fairfield Sentry “maintained in excess of 95% of its assets
in its BLMIS customer accounts”); JA1006-1014 (reproducing subscription forms between
Defendant and Fairfield Sentry).

Defendant moved to dismiss the Trustee’s complaint on May 11, 2022. See generally JA
893-941. Inter alia, Defendant argued that they were immune from suit under the Foreign
Sovereign Immunities Act (“FSIA”). JA 908-914. In denying Defendant’s sovereign immunity
argument, the Bankruptcy Court determined that the statutory “commercial activities” exception
applied because the complaint was based upon Defendant’s actions which caused a direct effect
in the United States. Sec. Inv. Prot. Corp. v. Bernard L. Madoff Inv. Sec. LLC, Nos. 08-01789
(CGM), 11-02493 (CGM), 2022 Bankr. LEXIS 3063, at *5-*10 (Bankr. S.D.N.Y. Oct. 28, 2022)
(hereafter “SIPC”); see also 28 U.S.C. § 1605(a)(2). ADIA filed a timely notice of appeal on

1 The notation “JA” refers to the Parties’ joint appendix docketed at ECF No. 11.
November 16, 2022 stating their desire to appeal the Bankruptcy Court’s denial of their
sovereign immunity defense. JA1608-1611.
II. Factual Background
The Court assumes the Parties’ familiarity with the facts in this case and directs readers to

the Bankruptcy Court’s dismissal opinion for a more fulsome recitation of the general facts.
SIPC at *2-*4; see also Picard v. Citibank, N.A. (In re BLMIS), 12 F.4th 171, 178-83 (2d Cir.
2021), cert. denied sub nom. Citibank, N.A. v. Picard, 142 S. Ct. 1209, 212 L. Ed. 2d 217 (2022)
(recounting the factual background of the BLMIS Ponzi scheme and SIPA proceeding). Only
those facts germane to the review of the Bankruptcy Court’s decision are restated here.
As was true in PIFSS, ADIA “did not invest directly in BLMIS” but rather “invested in
equity securities of Fairfield Sentry” and “BLMIS made investments on behalf of Fairfield
Sentry.” PIFSS at *5-*6. ADIA made 15 subscription payments to Fairfield Sentry between
1996 and 2000 totaling well over $100 million. JA1000-1001. As in PIFSS, ADIA transferred
subscription funds to Fairfield Sentry by wiring money to Fairfield’s Netherlands bank account

vis-à-vis an intermediary New York bank. JA 1033; see also PIFSS at *6. Unlike in PIFSS, one
subscription form requesting a $25,000,000 stock purchase dated May 30, 2000 executed by
ADIA and another short subscription form requesting a $50,000,000 stock purchase dated
September 30, 2002 executed by ADIA and indicating that the Defendant had previously
delivered a fully executed subscription agreement were presented to the Bankruptcy Court as
exhibits to the Plaintiff Trustee’s opposition to the motion to dismiss. JA 1006-1014.
Here also, Fairfield Sentry’s Information Memorandum dated January 1, 1998 governed
ADIA’s rights as a shareholder. JA 1021-1055. The Memorandum:
disclosed BLMIS’s multiple roles as the de facto investment manager, broker-
dealer, and custodian for Sentry and highlighted the numerous U.S. connections
inherent in investing in Sentry, including: (i) Sentry invested at least 95% of its
assets with BLMIS in New York; (ii) New York-based BLMIS was the custodian
of Fairfield Sentry’s investments with BLMIS in New York; (iii) any returns on
investment in the Sentry would purportedly be earned by BLMIS in New York
through its execution of the SSC Strategy; (iv) BLMIS’s SSC Strategy
purportedly involved the purchase and sale of U.S. securities, U.S. options, and
U.S. Treasury Bills; and (v) BLMIS performed all investment management duties
for Sentry, and the decisions regarding when and which U.S. securities to
purportedly purchase were made by BLMIS in New York.
ECF No 14 (“Opp.”) at 6. The Information Memorandum also set out investors’
redemption rights and included model redemption request forms. JA 1041-1042; JA 1052-1054;
see also PIFSS at *8 (describing shareholders’ redemption rights). The Parties have presented
one redemption form dated March 3, 2005 in which ADIA requested the redemption of “[their]
investment, in its entirety” and directing transfer of the proceeds to their eponymous JPMorgan
Chase Bank Account in Tampa, Florida. JA 1585-1589. While this redemption form does not
state the cash value of the investment redeemed and the Parties have not presented a redemption
form corresponding to the alleged April 2006 redemption request, it is undisputed that ADIA
exercised their redemption rights between March 2005 and March 2006 to the tune of $300
million. ECF No. 11 (“Mot.”) at 5; see also JA 891 ¶ 6 (ADIA stating the same in their motion
to dismiss before the Bankruptcy Court). Nevertheless, Plaintiff alleges that ADIA received
$200 million from their March 2005 redemption on April 4, 2005 and a further $100 million
from their March 2006 redemption on March 30, 2006. JA 101.
In a letter to the Court, the Trustee has indicated that on April 1, 2005, shortly following
the March 3, 2005 redemption request but prior to ADIA’s receipt of funds, Fairfield Sentry
received a transfer from BLMIS totaling $175 million. ECF No. 19 at 1. That same letter also
alleges that Fairfield Sentry received two $50 million transfers from BLMIS between ADIA’s
“March 2006” redemption request and March 30, 2006 $100 million cash out. Id.
LEGAL STANDARD
I. Appellate Standard
The collateral-order doctrine grants this Court jurisdiction over the present appeal. See
Petersen Energía Inversora S.A.U. v. Argentine Republic and YPF S.A., 895 F.3d 194, 203 (2d

Cir. 2018). This Court reviews the Bankruptcy Court’s conclusions of law “concerning
sovereign immunity de novo and its factual findings for clear error.” Kensington Int’l Ltd. v.
Itoua, 505 F.3d 147, 153 (2d Cir. 2007).
“Dismissal of a case for lack of subject matter jurisdiction under Rule 12(b)(1) is proper
when the district court lacks the statutory or constitutional power to adjudicate it.” Gelmart
Indus. v. Eveready Battery Co., 120 F. Supp. 3d 327, 329-30 (S.D.N.Y. 2014) (quoting Ford v.
D.C. 37 Union Local 1549, 579 F.3d 187, 188 (2d Cir. 2009)) (quotation marks omitted). “[T]he
Court generally must accept the material factual allegations in the complaint as true," but “does
not draw all reasonable inferences in the plaintiff's favor” when considering a 12(b)(1) motion on
sovereign immunity grounds. Pablo Star Ltd. v. Welsh Gov't, 378 F. Supp. 3d 300, 306 (S.D.N.Y.

2019). While a reviewing court “may refer to evidence outside the pleadings,” Harty v. W. Point
Realty, Inc., 28 F.4th 435, 441 (2d Cir. 2022), “[i]t is only where jurisdictional facts are placed in
dispute that the court has the obligation to decide issues of fact by reference to evidence outside
the pleadings, such as by affidavits.” Id. (citing Tandon v. Captain's Cove Marina of Bridgeport,
Inc., 752 F.3d 239, 243 (2d Cir. 2014)) (internal quotation marks omitted). “When the extrinsic
evidence submitted by the parties does not controvert the material allegations of the complaint, it
is not error for the district court to base its ruling solely on the allegations of the complaint.” Id.
II. Foreign Sovereign Immunities Act
A defendant seeking to assert sovereign immunity under FSIA must “present a prima
facie case that it is a foreign state.” Kensington, 505 F.3d at 153. From there, “the plaintiff has
the burden of going forward with evidence showing that, under exceptions to the FSIA,

immunity should not be granted.” Cabiri v. Gov't of the Republic of Ghana, 165 F.3d 193, 196
(2d Cir. 1999). If the plaintiff succeeds at this step, the burden then returns to the defendant to
“prov[e], by a preponderance of the evidence, that the alleged exception does not apply.” Pablo
Star Ltd., 961 F.3d at 560.
“Because the [P]arties agree that ADIA is a foreign sovereign,” the only dispute in this
action is whether a statutory exception applies to ADIA’s claim of sovereign immunity. Opp. at
14. The Bankruptcy Court relied on the third clause of the commercial activities exception to
deny Defendant’s motion to dismiss. SIPC at *5-*6. The full text of that exception is as follows:
[a] foreign state shall not be immune from the jurisdiction of courts of the United
States or of the States in any case . . . in which the action is [i] based . . . upon an
act outside the territory of the United States [ii] in connection with a commercial
activity of the foreign state elsewhere and [iii] that act causes a direct effect in the
United States.
28 U.S.C. § 1605(a)(2). As was the case in PIFSS, ADIA’s “argument focuses on the first
and third prongs to th[e] exception.” PIFSS at *14.2 To assess whether the first “based upon”
element is made out, “a court [must] identify the particular conduct on which the plaintiff’s
action is based.” OBB Personenverkehr AG v. Sachs, 577 U.S. 27, 33, (2015) (Saudi Arabia v.
Nelson, 507 U.S. 349, 356, 113 S. Ct. 1471, 123 L. Ed. 2d 47 (1993)) (cleaned up). “[A] court
should identify that 'particular conduct' by looking to the 'basis' or 'foundation' for a claim . . .

2 Because the Parties’ submissions also treat the “two burden-shifting steps as essentially one issue—whether or not
an exception to the FSIA applies here,” the Court does the same by focusing “on the broader question of whether or
not an exception [to] the FSIA applies to this case.” PIFSS at *13 n.2 (citing Pablo Star, 961 F.3d at 560-566).
'those elements . . . that, if proven, would entitle a plaintiff to relief,' . . . and the gravamen of the
complaint.” Id. at 33-34 (quoting Nelson, 507 U.S. at 357) (internal quotations omitted).
As to the third “direct effect” prong, “an effect is direct if it follows as an immediate
consequence of the defendant’s . . . activity.” Guirlando v. T.C. Ziraat Bankasi A.S., 602 F.3d 69,

74 (2d Cir. 2010) (quoting Republic of Argentina v. Weltover, 504 U.S. 607, 618, (1992)). An
effect “need not be substantial or foreseeable” to be direct, Atlantica Holdings, Inc. v. Sovereign
Wealth Fund Samruk-Kazyna JSC, 813 F.3d 98, 108 (2d Cir. 2016) (internal citation omitted),
though it must be legally significant. Guirlando 602 F.3d at 77 (“That the money came from a
bank account in New York is a fact but one without legal significance to the alleged tort.”).
DISCUSSION
As was the case in PIFSS, “[t]he Bankruptcy Court’s decision rested on [the] faulty
assumption that the Defendant and the Trustee agree that the gravamen of the Complaint . . . is
[ADIA’s] receipt of funds due to its subscription into Fairfield Sentry.” PIFSS at *15; see also
SIPC at *6-*7. Therefore, it was inappropriate for the Bankruptcy Court to “defin[e] the relevant

act to include [ADIA’s] initial subscription into Fairfield Sentry” without “consider[ing] the issue
independently.” PIFSS at *15, *17.
I. Relevant Act
ADIA argued below and argues before this Court that the Trustee has not alleged any acts
undertaken by the Defendant beyond their passive “receipt of funds” for the application of the
commercial activity exception. Mot. at 9. The Trustee argues here, and the Bankruptcy Court
held below that the Parties agreed, that the gravamen of the suit was “ADIA’s receipt of funds
from Fairfield Sentry due to its subscription into Fairfield Sentry and its redemption requests.”
Opp. at 21.
ADIA, relying on the Supreme Court’s decision in OBB Personenverkehr AG v. Sachs,
argues that its subscription into Fairfield Sentry and redemption requests can not form the
gravamen of the Complaint “because proof of that subscription is neither sufficient nor necessary
to entitle the Trustee to relief.” Mot. at 9 (citing Sachs, 577 U.S. at 34). Referencing the

elements of the Trustee’s subsequent transfer claim under 11 U.S.C. § 550(a)(2), which allows a
“trustee [to] recover, for the benefit of the estate [a transfer] from . . . any immediate or mediate
transferee of such initial transferee,” ADIA argues that because their potential liability would be
based exclusively upon their receipt of property, their redemption requests and subscription into
Fairfield Sentry cannot form the gravamen of the complaint. Id.
This Court finds that, at least as to ADIA’s argument regarding their redemption requests,
this reading of Sachs is “unduly constrained.” PIFSS at *17 n.4. Sachs, while indeed
referencing “those elements of a claim that, if proven, would entitle a plaintiff to relief under his
theory of the case,” also counseled against “exhaustive claim-by-claim, element-by-element
analysis.” Sachs, 577 U.S. at 34 (quoting Nelson, 507 U.S. at 357). “Rather than individually

analyzing each of the . . . causes of action, [the Supreme Court] zeroed in on the core of the[]
suit.” Id. at 35 (quoting Nelson, 507 U.S. at 358); see also Atlantica Holdings, 813 F.3d at 108
(stating that reviewing courts are to “look not to the analysis of each individual claim, but to the
overall question where a lawsuit’s foundation is geographically based” when determining the
gravamen of a suit).
Therefore, this Court finds that ADIA’s redemption requests and receipt of funds were
acts upon which the gravamen of this suit is based. ADIA’s subscription into Fairfield Sentry is
not a qualifying “act” on these facts within the meaning of FSIA. While crediting ADIA’s view
that only their receipt of funds form the gravamen of this suit would improperly “place[]
excessive emphasis on the elements of the Trustee’s claims,” to include ADIA’s subscription into
the fund which occurred decades prior to the redemptions forming the core of this case would be
improper under Sachs. PIFSS at *17 n.4. The redemption requests are also inextricably linked
to ADIA’s receipt of funds from Fairfield Sentry as they are close in time to the fund transfers

and form the beginning of the causal chain by which ADIA reclaimed the relevant funds.
II. Direct Effect
It is clear from the undisputed evidentiary record that ADIA’s March 3, 2005 redemption
request and associated receipt of funds had a direct effect in the United States. This is because
“[t]he direct effect requirement is satisfied where the parties to a transaction, including the
sovereign defendant, specifically agree or specifically contemplate that payment will be made to
a United States bank account, and the plaintiff’s cause of action arises out of that transaction.”
Skanga Energy & Marine, Ltd. v. Arevenca S.A., 875 F. Supp. 2d 264, 271 (S.D.N.Y. 2012)
(citing Rogers v. Petroleo Brasileiro, S.A., 673 F.3d 131, 139 (2d Cir. 2012). There is no dispute
between the Parties that ADIA directed Fairfield Sentry to wire the redeemed funds into their

bank account located in Tampa, Florida within the associated redemption request, that such
payment was made to that very same account, and that this cause of action arises out of this
transaction. The joint appendix also contains evidentiary documents that independently confirm
these events. The Bankruptcy Court therefore committed harmless error as to this transfer and
the denial of dismissal is affirmed in part.3
The evidentiary record as to ADIA’s March 2006 redemption request and alleged March
30, 2006 $100 million payment is much less clear. Despite the fact that the Parties agree that

3 Because there are independent grounds which establish the application of the commercial activity exception, the
Court need not consider whether ADIA’s redemption request caused Fairfield Sentry to request and/or receive funds
from BLMIS.
ADIA received $300 million from Fairfield Sentry between March 2005 and March 2006, neither
party has produced ADIA’s executed redemption request form or indicated the precise date upon
which ADIA allegedly made the redemption request. As such, there is no evidence supporting a
finding that ADIA received the $100 million funds into a bank account in the United States as

was true in the previous redemption. The only evidence in the record potentially supporting a
finding that this alleged redemption and receipt of funds had a direct effect in the United States is
the fact that Fairfield Sentry received two $50 million transfers from BLMIS on March 27, 2006,
three days prior to ADIA’s alleged receipt of the funds. ECF No. 19 at 1. While it is possible
that ADIA’s redemption request could have “triggered . . . movement of funds from BLMIS to
Fairfield Sentry” given the timeline of events, there is insufficient evidence within the record at
this time to support such a finding. PIFSS at *19. As in PIFSS, ADIA’s redemption request
could have occurred later in time to the transfers from BLMIS such that those transfers were not
“an immediate consequence of the defendant’s . . . activity.” Guirlando 602 F.3d at 74 (internal
citations and quotations omitted). While this Court finds that the Trustee has not met their

burden to establish that an exception to ADIA’s sovereign immunity applies and reverses the
Bankruptcy Court’s decision in part on those grounds, it also recognizes the possibility that
further discovery may uncover facts from which to conclude that the commercial activity
exception applies.
CONCLUSION

For the reasons stated above, the Bankruptcy Court’s denial of Defendant’s motion to
dismiss is AFFIRMED in part and REVERSED in part and remanded to the Bankruptcy Court
for further proceedings in accordance with this Opinion and Order.

SO ORDERED.
Dated: March 29, 2024 [rods
New York, New York □ As J
ANDREW L. CARTER, JR.
United States District Judge

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Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/10359472. Public record. Not legal advice.