# Irving H. Picard, Trustee for the Liquidation of B v. BNP Paribas Arbitrage SNC

> United States Bankruptcy Court, S.D. New York · December 28, 2023

URL: https://www.frixlaw.com/law-library/cases/10461030

## Case

- **Court:** United States Bankruptcy Court, S.D. New York
- **Decided:** December 28, 2023
- **Opinion:** 100trialcourt
- **Cited by:** 0 later opinions in the Frix Law Library

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## Opinion text

UNITED STATES BANKRUPTCY COURT NOT FOR PUBLICATION
SOUTHERN DISTRICT OF NEW YORK

SECURITIES INVESTOR PROTECTION
CORPORATION, No. 08-01789 (CGM)

Plaintiff-Applicant, SIPA LIQUIDATION

v. (Substantively Consolidated)

BERNARD L. MADOFF INVESTMENT
SECURITIES LLC,

Defendant.

In re:

BERNARD L. MADOFF,

Debtor.

IRVING H. PICARD, Trustee for the Liquidation of

Bernard L. Madoff Investment Securities LLC, and the

Chapter 7 Estate of Bernard L. Madoff,

Adv. Pro. No. 11-02796 (CGM)
Plaintiff,

v.

BNP PARIBAS ARBITRAGE SNC,

Defendant.

MEMORANDUM DECISION
DENYING DEFENDANT’S MOTION TO DISMISS

A P P E A R A N C E S :
Attorneys for Irving H. Picard, Trustee for the Substantively Consolidated SIPA
Liquidation of Bernard L. Madoff Investment Securities LLC and the Chapter 7 Estate of
Bernard L. Madoff
BAKER & HOSTETLER LLP
45 Rockefeller Plaza
New York, New York 10111
By: David J. Sheehan
Torello H. Calvani
Joanna F. Wasick
Matthew B. Friedman
Attorneys for Defendant BNP Paribas Arbitrage SNC
CLEARY GOTTLIEB STEEN & HAMILTON LLP
One Liberty Plaza
New York, New York 10006
By: Roger A. Cooper
Ari D. MacKinnon
Thomas S. Kessler

CECELIA G. MORRIS
UNITED STATES BANKRUPTCY JUDGE

Introduction
Pending before the Court is the motion of the Defendant, BNP Paribas Arbitrage SNC
(“BNP Arbitrage”), to dismiss the complaint of Irving Picard, the trustee (“Trustee”) for the
liquidation of Bernard L. Madoff Investment Securities LLC (“BLMIS”) seeking to recover
subsequent transfers allegedly consisting of BLMIS customer property received from Harley
International (Cayman) Ltd. (“Harley”). Defendant seeks dismissal for lack of personal
jurisdiction, for failure to allege avoidability of the initial transfers, and for failure to allege that
it received BLMIS customer property. Defendant asserts the affirmative defense of “good faith”
and the § 546(e) safe harbor provision of the Bankruptcy Code. For the reasons set forth herein,
the motion to dismiss is denied in its entirety.
Jurisdiction
This is an adversary proceeding commenced in this Court, in which the main underlying
SIPA proceeding, Adv. Pro. No. 08-01789 (CGM) (the “SIPA Proceeding”), is pending. The
SIPA Proceeding was originally brought in the United States District Court for the Southern
District of New York (the “District Court”) as Securities Exchange Commission v. Bernard L.
Madoff Investment Securities LLC et al., No. 08-CV-10791, and has been referred to this Court.
This Court has jurisdiction over this adversary proceeding under 28 U.S.C. § 1334(b) and (e)(1),
and 15 U.S.C. § 78eee(b)(2)(A) and (b)(4).
This is a core proceeding under 28 U.S.C. § 157(b)(2)(A), (F), (H) and (O). Personal
jurisdiction has been contested by Defendant and will be discussed infra.
Background
The Court assumes familiarity with the background of the BLMIS Ponzi scheme and its
SIPA proceeding. See 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).
This adversary proceeding was filed on November 3, 2011. (Compl., ECF1 No. 1). Via
the amended complaint (the “Amended Complaint”), the Trustee seeks to recover over $1 billion
in subsequent transfers of customer property that Defendant allegedly received from Harley.
(Am. Compl. ¶¶ 2, 87–93, ECF No. 100).
BNP Arbitrage is a general partnership incorporated and organized under the laws of
France as a société en nom collectif. (Id. ¶ 51). It is a wholly owned subsidiary of BNP Paribas
S.A. (Id.). Defendant is alleged to maintain offices in Paris, France and on Seventh Avenue in
New York, New York. (Id. ¶ 52).

The Amended Complaint alleges that BNP Arbitrage invested in or received customer
property from Harley and at least six other separate funds which fed investments into BLMIS.
(Id. ¶ 53). Harley was a Cayman Islands company that maintained a customer account and
allegedly invested all of its assets with BLMIS. (Id. ¶¶ 2, 54). Harley had no employees or
offices of its own and instead acted through a “fund-of-funds” manager called Fix Asset
Management, Inc. (“Fix Management”), which was owned and entirely controlled by a New
York resident named Charles Fix. (Id. ¶ 56). From New York, Fix Management allegedly

1 Unless otherwise indicated, all references to “ECF” are references to this Court’s electronic docket in adversary
proceeding 11-02796-cgm.
received Harley’s account statements from BLMIS, corresponded directly with BLMIS for
redemption requests, and marketed sales of shares to investors. (Id. ¶ 57).
Defendant is alleged to be a member of the BNP Fund Derivatives Group, (the
“Derivatives Group”).2 (Id. ¶¶ 63–65, 78). The Amended Complaint alleges that the
Derivatives Group is made up of employees of multiple BNP Paribas entities including BNP

Arbitrage. (Id. ¶ 64). The Derivatives Group allegedly created, marketed, and serviced credit
facilities and financial instruments which produced millions of dollars in fees and interest for
BNP Paribas S.A. (Id. ¶ 65).
In 2003, BNP Paribas S.A. acquired assets of Zurich Capital Markets, Inc. (“Zurich”).
(Id. ¶ 66). In doing so, BNP Paribas S.A. thereby acquired 60 former Zurich employees and
Zurich’s portfolio which included a multi-million-dollar credit facility with Santa Barbara
Holdings Ltd. (“Santa Barbara”). (Id. ¶¶ 66–68). Santa Barbara is described in the Amended
Complaint as a Fixed Management fund that invested entirely in Harley. (Id. ¶ 68). In 2004,
BNP Paribas S.A., through the Derivatives Group, allegedly executed a credit facility with Santa

Barbara. (Id. ¶ 69). The credit facility called for BNP Paribas S.A. to make loans to Santa
Barbara for investments with Harley and “explicitly referenced Harley’s ‘Madoff Account’ with
BLMIS as collateral for the credit facility.” (Id. ¶¶ 69–71). The Amended Complaint further
alleges that BNP Paribas Securities Corp. operated as a calculation agent for the facility and as a
collateral agent. (Id. ¶¶ 73–74). It was through Defendant’s relationship with these entities that
Defendant allegedly received transfers of over $1 billion in BLMIS customer property from
Harley between 2003 and 2008. (Id. ¶ 74).

2 The Derivatives Group is itself alleged to be a part of an overarching BNP Paribas enterprise called the Global
Equity & Derivatives Division. (Am. Compl. ¶ 63).
The Trustee commenced a separate adversary proceeding against Harley in May 2009 to
avoid and recover initial transfers of customer property from BLMIS to Harley in the amount of
$1,072,800,000. (Id. ¶ 82); (see also Compl., Adv. Pro. No. 09-01187, ECF No. 1) (the “Harley
Complaint”). On July 8, 2009, this Court entered summary judgment against Harley in the
amount of $1,066,800,000 and default judgment against Harley in the amount of $6,020,000.

(Am. Compl. ¶ 83, ECF No. 100). The Amended Complaint states that the Trustee has not
recovered any money from this judgment. (Id.).
The Amended Complaint alleges that Harley transferred $1,054,960,052 of BLMIS
customer property to BNP Arbitrage. (Id. ¶ 87). The Trustee seeks recovery of these transfers
under § 550(a) of the Bankruptcy Code and applicable SIPA provisions. (Id. ¶¶ 88, 91).
In its motion to dismiss, Defendant argues that the Amended Complaint fails to establish
this Court’s personal jurisdiction over Defendant, fails to allege that Defendant received BLMIS
customer property, does not demonstrate that the subsequent transfers were composed of BLMIS
customer property, and does not adequately plead the avoidability of the initial transfers. (Mem.

L. at 1–2, ECF No. 104). Defendant argues that it is entitled to the affirmative defense of “good
faith” and “for value” and the § 546(e) “safe harbor.” (Id.). The Trustee opposes the motion to
dismiss. (Opp’n, ECF No. 106). The Parties waived oral arguments on the motion and agreed to
rest on their papers. (Stip. and Order, ECF No. 109).
Discussion
Personal Jurisdiction
Defendant objects to the Trustee’s assertion of personal jurisdiction. In the Amended
Complaint, the Trustee argues that BNP Arbitrage purposefully availed itself of the laws of the
United States and New York. (Am. Compl. ¶ 77, ECF No. 100).
To survive a motion to dismiss for lack of personal jurisdiction pursuant to Rule 12(b)(2)
of the Federal Rules of Civil Procedure, the Trustee “must make a prima facie showing that
jurisdiction exists.” SPV Osus Ltd. v. UBS AG, 882 F.3d 333, 342 (2d Cir. 2018) (quoting
Penguin Grp. (USA) Inc. v. Am. Buddha, 609 F.3d 30, 34–35 (2d Cir. 2010)). A trial court has
considerable procedural leeway when addressing a pretrial dismissal motion under Rule 12(b)(2).

Dorchester Fin. Sec., Inc. v. Banco BRJ, S.A., 722 F.3d 81, 84 (2d Cir. 2013). “‘It may
determine the motion on the basis of affidavits alone; or it may permit discovery in aid of the
motion; or it may conduct an evidentiary hearing on the merits of the motion.’” Id. (quoting
Marine Midland Bank, N.A. v. Miller, 664 F.2d 899, 904 (2d Cir. 1981)); see also Picard v. BNP
Paribas S.A. (In re BLMIS), 594 B.R. 167, 187 (Bankr. S.D.N.Y. 2018) (same).
“Prior to discovery, a plaintiff challenged by a jurisdiction testing motion may defeat the
motion by pleading in good faith, legally sufficient allegations of jurisdiction.” Dorchester Fin.,
722 F.3d at 84–85 (quoting Ball v. Metallurgie Hoboken-Overpelt, S.A., 902 F.2d 194, 197 (2d
Cir. 1990)); Picard v. Fairfield Greenwich Grp. (In re Fairfield Sentry Ltd.), 627 B.R. 546, 565

(Bankr. S.D.N.Y. 2021) (same). At the pre-discovery stage, the allegations need not be factually
supported. See 722 F.3d at 85 (an averment of facts is necessary only after discovery). The
pleadings and affidavits are to be construed “‘in the light most favorable to the plaintiffs,
resolving all doubts in their favor.’” Chloé v. Queen Bee of Beverly Hills, LLC, 616 F.3d 158,
163 (2d Cir. 2010) (quoting Porina v. Marward Shipping Co., 521 F.3d 122, 126 (2d Cir. 2008));
BNP Paribas S.A., 594 B.R. at 187.
In order to be subjected to personal jurisdiction in the United States, due process requires
that a defendant have sufficient minimum contacts with the forum in which the defendant is sued
“‘such that the maintenance of the suit does not offend traditional notions of fair play and
substantial justice.’” Picard v. Bureau of Labor Ins. (In re BLMIS), 480 B.R. 501, 516 (Bankr.
S.D.N.Y. 2012) (“BLI”) (quoting Int’l Shoe Co. v. Washington, 326 U.S. 310, 316 (1945)).
The Supreme Court has set out three conditions for the exercise of specific
jurisdiction over a nonresident defendant. First, the defendant must have
purposefully availed itself of the privilege of conducting activities within the
forum State or have purposefully directed its conduct into the forum State.
Second, the plaintiff's claim must arise out of or relate to the defendant’s forum
conduct. Finally, the exercise of jurisdiction must be reasonable under the
circumstances.

U.S. Bank Nat’l Ass’n v. Bank of Am. N.A., 916 F.3d 143, 150 (2d Cir. 2019) (cleaned up).
Purposeful Availment
“[M]inimum contacts . . . exist where the defendant purposefully availed itself of the
privilege of doing business in the forum and could foresee being haled into court there.” Charles
Schwab Corp. v. Bank of Am. Corp., 883 F.3d 68, 82 (2d Cir. 2018). “Although a defendant’s
contacts with the forum state may be intertwined with its transactions or interactions with the
plaintiff or other parties, a defendant’s relationship with a third party, standing alone, is an
insufficient basis for jurisdiction.” U.S. Bank, 916 F.3d at 150 (cleaned up). “It is insufficient to
rely on a defendant’s random, fortuitous, or attenuated contacts or on the unilateral activity of a
plaintiff with the forum to establish specific jurisdiction.” Id. A party “purposefully avail[s]
itself of the benefits and protections of New York laws by knowing, intending and contemplating
that the substantial majority of funds invested in [a BLMIS feeder fund] would be transferred to
BLMIS in New York to be invested in the New York securities market.” BLI, 480 B.R. at 517.
The Amended Complaint alleges that BNP Arbitrage “knowingly directing funds to be
invested with New York-based BLMIS through Harley.” (Am. Compl. ¶ 77, ECF No. 100).
This Court has stated on multiple occasions that this allegation is legally sufficient to show that
the Defendant purposefully availed itself of the forum. See, e.g., Picard v. Banque Lombard
Odier & Cie SA (In re BLMIS), No. 22 Civ. 6561 (LGS), 2023 WL 395225, at *4 (S.D.N.Y. Jan.
25, 2023). That being said, this was not the only contact alleged.
In the Amended Complaint, the Trustee alleges Defendant maintained an office on
Seventh Avenue in New York as part of the so-called Derivatives Group. (Am. Compl. ¶ 78,
ECF No. 100). The subsequent transfers at issue here arise from the Derivatives Group’s New

York contacts. (Id. ¶¶ 74, 80). Defendant allegedly worked with other members of the
Derivatives Group on “transactions relating to investments with Harley” and the transfers the
Trustee now seeks to recover. (Id.). The Amended Complaint further alleges that Defendant
knew that Harley’s executing broker for the purported split-strike conversion strategy and
investment advisor was BLMIS in New York. (Id. ¶ 79). The split-strike strategy conversion
involved the purchase and sale of shares of U.S. equities, options, and Treasury bills. (Id.).
Defendant received each of the transfers sought here in a bank account in New York, NY, owned
by BNP Paribas S.A. (Id. ¶ 80); (Id. Ex. C). The Amended Complaint further alleges that
Harley acted through its New York-based manager, Fix Management, and had no employees or

offices of its own. (Id. ¶¶ 56–57). The transfers Defendant received from Harley came from
these New York contacts. (Id. ¶¶ 56–62).
The Amended Complaint contains allegations that are legally sufficient to constitute a
prima facie showing of jurisdiction. Dorchester Fin., 722 F.3d at 85; see also Picard v. BNP
Paribas S.A. (In re BLMIS), 594 B.R. 167, 190 (Bankr. S.D.N.Y. 2018). “[A]lthough physical
presence in the forum is not a prerequisite to jurisdiction, physical entry into the State—either by
the defendant in person or through an agent, goods, mail, or some other means—is certainly a
relevant contact.” Walden v. Fiore, 571 U.S. 277, 285 (2014). “[Defendant] intentionally tossed
a seed from abroad to take root and grow as a new tree in the Madoff money orchard in the
United States and reap the benefits therefrom.” BLI, 480 B.R. at 506. Defendant’s alleged
contacts with New York are not random, isolated, or fortuitous.
Arise out of or relate to the Defendant’s forum conduct
As to the second prong, the suit must “arise out of or relate to the defendant’s contacts
with the forum.” Ford Motor Co. v. Montana Eighth Jud. Dist. Ct., __ U.S. __, 141 S. Ct. 1017,

1026, 209 L. Ed. 2d 225 (2021) (emphasis in original). “[P]roof that a plaintiff’s claim came
about because of the defendant’s in-state conduct” is not required. Id. at 1027. Instead, the court
need only find “an affiliation between the forum and the underlying controversy.” Goodyear
Dunlop Tires Operations, S.A. v. Brown, 564 U.S. 915, 919 (2011); BNP Paribas S.A., 594 B.R.
at 190 (“Where the defendant’s contacts with the jurisdiction that relate to the cause of action are
more substantial, however, it is not unreasonable to say that the defendant is subject to personal
jurisdiction even though the acts within the state are not the proximate cause of the plaintiff's
injury.”) (internal quotations omitted).
Here, the Trustee is asserting subsequent transfer claims against BNP Arbitrage for

monies it received from the BLMIS feeder fund, Harley. (Am. Compl. ¶¶ 80–93). These
allegations are directly related to its investment activities with the feeder fund. See BNP Paribas
S.A. 594 B.R. at 191 (finding that the redemption and other payments the defendants received as
direct investors in a BLMIS feeder fund arose from New York contacts including sending
subscription agreements to New York, wiring funds in U.S. dollars to New York, sending
redemption requests to New York, and receiving redemption payments from a Bank of New
York account in New York, and were the proximate cause of the injuries that the Trustee sought
to redress). The suit is affiliated with the alleged in-state conduct. Goodyear Dunlop Tires
Operations, S.A. v. Brown, 564 U.S. 915, 919 (2011).
Reasonableness
Having found sufficient minimum contacts, the Court must determine if exercising
personal jurisdiction over the Defendants is reasonable and “comport[s] with fair play and
substantial justice.” Burger King Corp. v. Rudzewicz, 471 U.S. 462, 477 (1985) (internal
quotations omitted). Where, as here, the plaintiff has made his case to show the necessary

minimum contacts, the “defendant must present a compelling case that the presence of some
other considerations would render jurisdiction unreasonable.” MSP Recovery Claims, Series
LLC, 2021 WL 4461773, at *3 (quoting Bank Brussels Lambert v. Fiddler Gonzalez &
Rodriguez, 305 F.3d 120, 129 (2d Cir. 2002)). Factors the Court may consider include the
burden on the defendant, the forum State’s interest in adjudicating the dispute, the plaintiff's
interest in obtaining convenient and effective relief, the interstate judicial system’s interest in
obtaining the most efficient resolution of controversies, and the shared interest of the several
States in furthering fundamental substantive social policies. 471 U.S. at 476–77.
Both the forum and the Trustee have a strong interest in litigating the BLMIS adversary

proceedings in this Court. See Picard v. Maxam Absolute Return Fund, L.P. (In re BLMIS), 460
B.R. 106, 117 (Bankr. S.D.N.Y. 2011), aff’d, 474 B.R. 76 (S.D.N.Y. 2012); Picard v. Chais (In
re BLMIS), 440 B.R. 274, 278 (Bankr. S.D.N.Y. 2010); Picard v. Cohmad Sec. Corp. (In re
BLMIS), 418 B.R. 75, 82 (Bankr. S.D.N.Y. 2009); Picard v. Fairfield Greenwich Grp., (In re
Fairfield Sentry Ltd.), 627 B.R. 546, 568 (Bankr. S.D.N.Y. 2021); see also In re Picard, 917
F.3d 85, 103 (2d Cir. 2019) (“The United States has a compelling interest in allowing domestic
estates to recover fraudulently transferred property.”).
Defendant argues that it would be unreasonable to exercise jurisdiction over it, thereby
forcing it “to litigate far from home and at great expense.” (Reply at 10, ECF No. 108). This
does not demonstrate a sufficiently heavy burden. “Even if forcing the defendant to litigate in a
forum relatively distant from its home base were found to be a burden, the argument would
provide defendant only weak support, if any, because the conveniences of modern
communication and transportation ease what would have been a serious burden only a few
decades ago.” Chloé v. Queen Bee of Beverly Hills, LLC, 616 F.3d 158, 173 (2d Cir. 2010); see

also In re Platinum & Palladium Antitrust Litig., 61 F.4th 242, 273 (2d Cir. 2023). Furthermore,
Defendant was allegedly part of a group of BNP entities with offices in New York. (Am. Compl.
¶ 64). BNP Arbitrage is represented by U.S. counsel and has participated in this litigation for
over a decade. (See, e.g., Mot. to Withdraw Reference, ECF No. 7). The exercise of jurisdiction
is reasonable.
By alleging that Defendant intentionally invested in BLMIS through a known BLMIS
feeder fund, the Trustee has met his burden of alleging jurisdiction as to each subsequent transfer
that originated with BLMIS. And by alleging that Defendant received funds from investments
with a BLMIS feeder fund, the Trustee has met his burden of alleging jurisdiction over each

transfer that received through a New York bank account.
As recognized by the Second Circuit, “[w]hen these [subsequent transfer] investors chose
to buy into feeder funds that placed all or substantially all of their assets with Madoff Securities,
they knew where their money was going.” In re Picard, 917 F.3d 85, 105 (2d Cir. 2019). The
Trustee has made a prima facie showing of personal jurisdiction with respect to all of the
subsequent transfers at issue in this Complaint.
12(b)(6) standard
“To survive a motion to dismiss, the complaint must contain sufficient factual matter,
accepted as true, to state a claim to relief that is plausible on its face.” Ashcroft v. Iqbal, 556 U.S.
662, 678 (2009) (cleaned up). The claim is facially plausible when a plaintiff pleads facts that
allow the Court to draw a “reasonable inference that the defendant is liable for the misconduct
alleged.” Id. “The plausibility standard is not akin to a ‘probability requirement,’ but it asks for
more than a sheer possibility that a defendant has acted unlawfully.” Id.; see also Bell Atl. Corp.
v. Twombly, 550 U.S. 544, 556 (2007) (“Asking for plausible grounds to infer an agreement does

not impose a probability requirement at the pleading stage; it simply calls for enough fact to raise
a reasonable expectation that discovery will reveal evidence of illegal agreement.”). In deciding
a motion to dismiss, the Court should assume the factual allegations are true and determine
whether, when read together, they plausibly give rise to an entitlement of relief. Iqbal, 556 U.S.
at 679. “And, of course, a well-pleaded complaint may proceed even if it strikes a savvy judge
that actual proof of those facts is improbable, and that a recovery is very remote and unlikely.”
Twombly, 550 U.S. at 556.
In deciding the motion, “courts must consider the complaint in its entirety, as well as
other sources courts ordinarily examine when ruling on Rule 12(b)(6) motions to dismiss, in

particular, documents incorporated into the complaint by reference, and matters of which a court
may take judicial notice.” Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 322
(2007). A complaint is “deemed to include any written instrument attached to it as an exhibit[,] .
. . documents incorporated in it by reference[,]” and other documents “integral” to the complaint.
Chambers v. Time Warner, Inc., 282 F.3d 147, 152–53 (2d Cir. 2002) (citations omitted). A
document is “integral” to a complaint when the plaintiff has “actual notice” of the extraneous
information and relied on it in framing the complaint. DeLuca v. AccessIT Grp., Inc., 695 F.
Supp. 2d 54, 60 (S.D.N.Y. 2010) (citing Chambers, 282 F.3d at 153).
The Trustee is seeking to recover subsequent transfers made received by BNP Arbitrage
from Harley. (Am. Compl. ¶ 2, ECF No. 100).
Recovery of Subsequent Transfers
Pursuant to § 550(a) of the Bankruptcy Code, a trustee is entitled to recover avoided
transfers of customer property from initial transferees as well as from “any immediate or mediate

transferee of such initial transferee.” 11 U.S.C. § 550(a). “To plead a subsequent transfer claim,
the Trustee must plead that the initial transfer is avoidable, and the defendant is a subsequent
transferee of that initial transferee, that is, that the funds at issue originated with the debtor.”
Picard v. BNP Paribas S.A. (In re BLMIS), 594 B.R. 167, 195 (Bankr. S.D.N.Y. 2018); see also
SIPC v. BLMIS (In re Consol. Proc. On 11 U.S.C. § 546(e))(“Cohmad”), No. 12 MC 115, 2013
WL 1609154, at *7 (S.D.N.Y. Apr. 15, 2013). “Federal Civil Rule 9(b) governs the portion of a
claim to avoid an initial intentional fraudulent transfer and Rule 8(a) governs the portion of a
claim to recover the subsequent transfer.” BNP Paribas, 594 B.R. at 195 (citing Sharp Int’l
Corp. v. State St. Bank & Trust Co., (In re Sharp Int’l Corp.), 403 F.3d 43, 56 (2d Cir. 2005).

The Trustee only needs to provide “a short and plain statement of the claim showing that
the pleader is entitled to relief.” Fed. R. Civ. P. 8(a)(2). The plaintiff’s burden at the pleading
stage does not require exact accounting of the funds at issue. BNP Paribas, 594 B.R. at 195.
Rather “[t]he plaintiff must allege the necessary vital statistics – the who, when, and how much –
of the purported transfers to establish an entity as a subsequent transferee of the funds.” Id.
However, the plaintiff’s burden at the pleading stage does not require dollar-for-dollar
accounting of the exact funds at issue.” Id.
While the Trustee must allege that the initial transfer from BLMIS to Harley is avoidable,
he is not required to avoid the transfer received by the initial transferee before asserting an action
against subsequent transferees. IBT Int’l Inc. v. Northern (In re Int’l Admin Servs., Inc.), 408
F.3d 689, 706–07 (11th Cir. 2005). The Trustee is free to pursue any of the immediate or
mediate transferees, and nothing in the statute requires a different result. Id.
Section 550(a) allows recovery of a transfer “to the extent that [that] transfer is avoided
under” certain provisions of the Bankruptcy Code. 11 U.S.C. § 550(a). Over a decade ago, this

Court analyzed “whether Section 550 requires a trustee to formally avoid an initial transfer to
permit recovery against a subsequent transferee or if the mere avoidability of such transfer is
sufficient.” BLI, 480 B.R. 501, 520 (Bankr. S.D.N.Y. 2012). This Court answered that “the
Trustee may recover from [the subsequent transferee] under Section 550 because the Trustee
timely filed a complaint against [initial transferee] Fairfield Sentry alleging that the initial
transfers from BLMIS to Fairfield Sentry are ‘avoidable’ under section 548 of the Code.” Id. In
the Amended Complaint, the Trustee states that he “commenced a separate adversary proceeding
against Harley in the Bankruptcy Court under the caption, Picard v. Harley Int’l (Cayman) Ltd.,
Adv. Pro. No. 09- 01187, to avoid and recover initial transfers of customer property from

BLMIS to Harley in the amount of $1,072,800,000.” (Am. Compl. ¶ 82, ECF No. 100). The
Amended Complaint further states that this Court “entered summary judgment against Harley in
the amount of $1,066,800,000, and a default judgment against Harley in the amount of
$6,020,000, for a total judgment against Harley in the amount of $1,072,820,000, from which no
appeal was taken . . . . The Trustee has not yet recovered any monies as a result of the
November 10, 2010 Judgment.” (Id. ¶ 83). Through these allegations, the Trustee has pled that
the initial transfers were avoided for purposes of ¶ 550(a). Notwithstanding the prior avoidance,
the Amended Complaint includes allegations that establish the avoidability of these initial
transfers.
Whether the Amended Complaint properly pleads the avoidability of the initial transfer,
is governed by Rule 9(b). Rule 9(b) states: “[i]n alleging fraud or mistake, a party must state
with particularity the circumstances constituting fraud or mistake. Malice, intent, knowledge, and
other conditions of a person’s mind may be alleged generally.” Fed. R. Civ. P. 9(b).
Where the actual fraudulent transfer claim is asserted by a bankruptcy trustee,
applicable Second Circuit precedent instructs courts to adopt a more liberal view
since a trustee is an outsider to the transaction who must plead fraud from second-
hand knowledge. Moreover, in a case such as this one, where the Trustee’s lack of
personal knowledge is compounded with complicated issues and transactions that
extend over lengthy periods of time, the trustee’s handicap increases, and even
greater latitude should be afforded.

Picard v. Cohmad Secs. Corp., (In re BLMIS), 454 B.R. 317, 329 (Bankr. S.D.N.Y. 2011)
(cleaned up).
Because the Trustee has pleaded that BLMIS operated a Ponzi scheme, the Trustee’s
burden of pleading actual fraudulent intent is satisfied. (Am. Compl. ¶¶ 19–40); (id. ¶ 12)
(Madoff pleaded guilty and admitted he operated a Ponzi scheme through BLMIS); (id. ¶ 13)
(“Frank DiPascali, a former BLMIS employee, pleaded guilty to . . . participating in and
conspiring to perpetuate the Ponzi scheme. DiPascali admitted that no purchases or sales of
securities took place in connection with BLMIS customer accounts and that the Ponzi scheme
had been ongoing at BLMIS since at least the 1980s.”); (id. ¶ 14) (“David Kugel, a former
BLMIS trader and manager, . . . Kugel admitted to helping create false, backdated trades in
BLMIS customer accounts beginning in the early 1970s.”).
The Defendant argues that the Trustee should not be allowed to rely on the Ponzi scheme
presumption. (Mem. L. at 14, ECF No. 104). The “Ponzi scheme presumption” allows courts to
presume actual intent to defraud on part of the operator of the Ponzi scheme. Donell v. Kowell,
533 F.3d 762, 770 (9th Cir. 2008) (“The mere existence of a Ponzi scheme is sufficient to
establish actual intent to defraud.”). In this case, the Ponzi scheme presumption allows the Court
to presume that BLMIS made the initial transfers with actual intent to defraud because Madoff
has admitted to operating a Ponzi scheme.
The mere existence of a Ponzi scheme “demonstrates actual intent as matter of law
because transfers made in the course of a Ponzi scheme could have been made for no purpose

other than to hinder, delay or defraud creditors.” Bear Stearns Secs. Corp. v. Gredd (In re
Manhattan Inv. Fund Ltd.), 397 B.R. 1, 8 (S.D.N.Y. 2007). The “Ponzi scheme presumption”
makes perfect sense in cases such as this one. BLMIS had no legitimate assets and therefore
every transfer made by BLMIS was made with actual intent to defraud in order to ensure that
Ponzi scheme would survive.
The Trustee has pleaded that BLMIS operated a Ponzi scheme and as such, BLMIS’s
actual fraudulent intent is presumed via the Ponzi scheme presumption. (Am. Compl. ¶¶ 12–14,
19–41). Intent to defraud is established as debtor operated a Ponzi scheme. Picard v. Cohen,
Adv. Pro. No. 10-04311 (SMB), 2016 WL 1695296, at *5 (Bankr. S.D.N.Y. Apr. 25, 2016)

(citing Omnibus Good Faith Decision, 531 B.R. at 471) (“[T]he Trustee is entitled to rely on the
Ponzi scheme presumption pursuant to which all transfers are deemed to have been made with
actual fraudulent intent.”); Picard v. Cohmad Sec. Corp., 454 B.R. 317, 330 (Bankr. S.D.N.Y.
2011) (“[T]he fraudulent intent on the part of the debtor/transferor . . . is established as a matter
of law by virtue of the ‘Ponzi scheme presumption’ . . . .”). That BLMIS operated as a Ponzi
scheme is well-established and the Court relies on earlier findings of same and holds that the
Trustee has met his burden of pleading BLMIS’s actual intent on this issue. See Picard v.
Legacy Capital Ltd., 603 B.R. 682, 688-93 (Bankr. S.D.N.Y. 2019) (discussing in detail that
BLMIS was a Ponzi scheme and why the Trustee is permitted to rely on the Ponzi scheme
presumption to prove intent as a matter of law); see also Bear Stearns Secs. Corp. v. Gredd (In
re Manhattan Inv. Fund Ltd.), 397 B.R. 1, 11 (S.D.N.Y. 2007) (“[T]he Ponzi scheme
presumption remains the law of this Circuit.”).
Defendant describes the Ponzi scheme presumption as a “not well-settled” a
“questionable” application fraudulent transfer statutes. (Mem. L. at 15, ECF No. 104).

Defendant argues that this Court should adopt the reasoning set forth in Judge Menashi’s
concurrence in Citibank. Picard v. Citibank, N.A. (In re BLMIS), 12 F.4th 171, (2d Cir. 2021).
This Court has re-read Judge Menashi’s concurrence in Citibank and finds it to be
unpersuasive. The Ponzi scheme presumption does not turn would-be preferences into
fraudulent transfers. All the Ponzi scheme presumption does is save the Trustee’s and the
Court’s time and resources by presuming that each transfer was made with actual fraudulent
intent. As the District Court has stated, “[n]otwithstanding Judge Menashi's concerns, ‘the Ponzi
scheme presumption remains the law of this Circuit.’” Picard v. Sage Realty, No. 20 CIV.
10057 (JFK), 2022 WL 1125643, at *28 (S.D.N.Y. Apr. 15, 2022), aff'd sub nom. In re Bernard

L. Madoff Inv. Sec. LLC, No. 22-1107, 2023 WL 5125596 (2d Cir. Aug. 10, 2023), and aff'd sub
nom. In re Bernard L. Madoff Inv. Sec. LLC, No. 22-1107, 2023 WL 5439455 (2d Cir. Aug. 24,
2023) (citing Gredd, 397 B.R. at 11); see also Brown v. Picard (In re BLMIS), No. 22-CV-3882
(VEC), 2023 WL 4744195, at *5 (S.D.N.Y. July 25, 2023) (“The Bankruptcy Court correctly
concluded that the transfers at issue in this case are subject to the presumption of fraudulent
intent that applies to a Ponzi scheme.”). The Court agrees with “every court to opine on the
application of the presumption in the context of the BLMIS Ponzi scheme” and will not now
discard the presumption. Sage Realty, 2022 WL 1125643, at *28.
The Ponzi scheme presumption saves the Trustee and the courts time and resources by
presuming that each transfer was made with actual fraudulent intent. Without the presumption,
Defendant would not be “off-the-hook” for the two-year transfers because the Trustee would
meet (and, in this case, has met) his pleading burden by pleading the “badges of fraud” with
respect to BLMIS. Badges of faud include:

(1) the lack or inadequacy of consideration; (2) the family, friendship or close
associate relationship between the parties; (3) the retention of possession, benefit
or use of the property in question; (4) the financial condition of the party sought
to be charged both before and after the transaction in question; (5) the existence or
cumulative effect of a pattern or series of transactions or course of conduct after
the incurring of debt, onset of financial difficulties, or pendency or threat of suits
by creditors; (6) the general chronology of the event and transactions under
inquiry.

Salomon v. Kaiser (In re Kaiser), 722 F.2d 1574, 1582–83 (2d Cir. 1983). The “concealment of
facts and false pretenses by the transferor” is also a circumstance from which courts have
inferred intent to defraud. Id. at 1582 (quoting 4 Collier on Bankruptcy ¶ 548.02[5] at 548-34 to
38 (L. King 15th ed. 1983)). The existence of several badges can “constitute conclusive evidence
of an actual intent to defraud.” Kirschner v. Fitzsimons (In re Tribune Co. Fraudulent
Conveyance Litig.), No. 11-md-2296 (RJS), 2017 WL 82391, at *13 (S.D.N.Y. Jan. 6, 2017)
(citation omitted); Picard v. Nelson (In re BLMIS), 610 B.R. 197, 235 (Bankr. S.D.N.Y. 2019).
BLMIS’s actual fraudulent intent is well-pleaded in the Amended Complaint. (See Am.
Compl. ¶¶ 19–40). The Court need not infer intent to defraud because Madoff has admitted that
he had actual intent to defraud when he admitted under oath that he operated a Ponzi scheme.
(Id. ¶ 49). The Trustee has alleged that “BLMIS’s website omitted the I[nvestment] A[dvisory]
Business entirely” and that “BLMIS did not register as an investment adviser with the SEC until
2006, following an investigation by the SEC, which forced Madoff to register.” (Id. ¶ 22). “For
more than 20 years preceding that registration, the financial reports BLMIS filed with the SEC
fraudulently omitted the existence of billions of dollars of customer funds BLMIS managed
through its I[nvestment] A[dvisory] Business. (Id. ¶ 23). BLMIS lied to the SEC in reports
regarding the number of accounts it has and “grossly understated” the amount of assets under
management. (Id. ¶ 24). BLMIS had no legitimate business operations and produced no profits
or earnings. (Id. ¶ 25) “Madoff was assisted by several family members and a few employees,

including Frank DiPascali, Irwin Lipkin, David Kugel, Annette Bongiorno, JoAnn Crupi, and
others, who pleaded to, or were found guilty of, assisting Madoff in carrying out the fraud.”
(Id.). “BLMIS reported falsified trades using backdated trade data on monthly account
statements sent to BLMIS customers that typically reflected impossibly consistent gains on the
customers’ principal investments.” (Id. ¶ 33).
“Madoff could not be using the SSC Strategy because his returns drastically
outperformed the market. BLMIS showed only 16 months of negative returns
over the course of its existence compared to 82 months of negative returns in the
S&P 100 Index over the same time period. Not only did BLMIS post gains that
exceeded (at times, significantly) the S&P 100 Index’s performance, it would also
regularly show gains when the S&P 100 Index was down (at times significantly).
Such results were impossible if BLMIS had actually been implementing the SSC
Strategy.”

(Id. ¶ 40). “There is no record of BLMIS clearing a single purchase or sale of securities in
connection with the SSC Strategy at The Depository Trust & Clearing Corporation, the clearing
house for such transactions, its predecessors, or any other trading platform on which BLMIS
could have traded securities.” (Id. ¶ 46).
Though unnecessary, the Trustee has sufficiently pleaded multiple badges of fraud. The
Trustee need not plead all six badges of fraud to meet his burden of pleading actual fraudulent
intent. In re May, 12 B.R. 618, 627 (N.D. Fla. 1980) (“Such indicators or badges, when
established either singularly, but more often in combination, may justify the inference of the
requisite intent to hinder, delay or defraud creditors.”).
Reasonably Equivalent Value
Defendant argues that the Amended Complaint “includes no allegations that BNPP
Arbitrage or Harley gave less than ‘reasonably equivalent value’ to BLMIS in exchange for any
of the alleged transfers.” (Mem. L. at 17, ECF No. 104) (arguing that the “return of principal” is
“reasonably equivalent value,” and that there are no allegations that the transfers comprised

“fictitious profits . . . in excess of principal.”).
Section 548(a)(1) authorizes a trustee to recover transfers interest of the debtor in
property if the debtor:
(A) made such transfer or incurred such obligation with actual intent to hinder,
delay, or defraud any entity to which the debtor was or became, on or after the
date that such transfer was made or such obligation was incurred, indebted; or
(B)
(i) received less than a reasonably equivalent value in exchange for such
transfer or obligation; and . . . .

11 U.S.C. § 548(a)(1)(A)–(a)(1)(B)(i) (emphasis added). As discussed above, the Trustee has
alleged that BLMIS had actual intent to hinder, delay, or defraud creditors. A cause of action
under § 548(a)(1)(A) requires a different showing from a cause of action under § 548(a)(1)(B)(i).
See Grochocinski v. Schlossberg (In re Eckert), 388 B.R. 813, 830 (Bankr. N.D. Ill. 2008) (“A
cause of action under § 548(a)(1)(A) is commonly referred to as ‘actual fraud’ because of the
element of the debtor's actual intention to hinder, delay, or defraud creditors . . . A cause of
action under § 548(a)(1)(B), on the other hand, is often referred to as "constructive fraud"
because it omits any element of intent.”); see also Bayou Superfund, LLC v. WAM Long/Short
Fund II, L.P. (In re Bayou Grp., LLC), 362 B.R. 624, 630 (Bankr. S.D.N.Y. 2007) (“[U]nder
Section 548(a)(1)(A), ‘the entire transfer may be avoided, even if reasonably equivalent value
was given, so long as the transferor actually intended to hinder, delay or defraud its creditors and
the transferee accepted the transfer without good faith’”) (quoting Hayes v. Palm Seedlings
Partners-A (In re Agric. Research and Tech. Group, Inc.), 916 F.2d 528, 538 (9th Cir. 1990)).
The Trustee need not plead the elements of § 548(a)(1)(B) in order to meet his burden under §
548(a)(1)(A).
The Safe Harbor Does Not Bar the Avoidance of the Initial Transfers

Defendant has raised the “safe harbor” defense, found in § 546(e), to the Trustee’s
allegations. (Mem. L. at 17, ECF No. 104). Section 546(e) is referred to as the safe harbor
because it protects a transfer that is a “settlement payment ... made by or to (or for the benefit of)
a ... financial institution [or] financial participant,” or that is “made by or to (or for the benefit of)
a ... financial institution [or] financial participant ... in connection with a securities contract.” 11
U.S.C. § 546(e). “By its terms, the safe harbor is a defense to the avoidance of the initial
transfer.” Picard v. BNP Paribas S.A. (In re BLMIS), 594 B.R. 167, 197 (Bankr. S.D.N.Y. 2018)
(emphasis in original).
The limitations on the trustee’s avoiding powers set forth in section 546(e) expressly do
not apply to § 548(a)(1)(A) of the Bankruptcy Code. 11 U.S.C. §§ 546(e), 548(a)(1)(A); see also

5 Collier on Bankruptcy P 546.06 (16th 2023). The Amended Complaint seeks recovery of
transfers made to Harley within two years of the filing date. (Am. Compl. ¶¶ 84–85); (id. Ex. B).
None of the transfers at issue here fall within the safe harbor provision of §546(e). By its plain
terms, the §546(e) safe harbor does not apply to shield the transfers here.
BLMIS Customer Property
Defendant argues that the Amended Complaint fails to plead that transfers were
composed of BLMIS customer property. (Mem. L. at 9, ECF No. 104). The Trustee has pleaded
that “[b]ased on the Trustee’s investigation to date, Harley transferred $1,054,960,052 in
subsequent transfers of BLMIS customer property to BNP Paribas Arbitrage.” (Am. Compl. ¶
87, ECF No. 100); (see also id. Ex. C). The Amended Complaint sets forth the initial transfers
of customer property from BLMIS to Harley. (Id. Ex. A, B). The exhibits to the Amended
Complaint provide Defendant with the exact date and amount of each transfer the Trustee is
seeking to recover. These exhibits show the “who, when, and how much” of each transfer. BNP
Paribas S.A., 594 B.R.at 195.

Defendant argues that the Amended Complaint fails to tie the initial transfers from
BLMIS to Harley to the subsequent transfers made to Defendant. (Mem. L. at 10, ECF No. 104)
(“Because the Amended Complaint fails to specify which, or what portion, of the Initial
Transfers were subsequently transferred by Harley to BNPP Arbitrage, it necessarily fails to
show that BNPP Arbitrage received customer property.”). The Court has already addressed this
argument in its multitude of prior decisions in similar Fairfield Sentry subsequent transfer
proceedings. See, e.g., Picard v. Parson Fin. Panama S.A. (In re BLMIS), No. 08-01789 (CGM),
2022 WL 3094092, at *10–11 (Bankr. S.D.N.Y. Aug. 3, 2022).
The Fairfield Complaint, which is incorporated by reference into this, alleges that
the Fairfield Fund was required to invest 95% of its assets in BLMIS. (Fairfield
Compl. ¶ 89); see also (Fairfield Compl. ¶ 91) (‘From the beginning, to comport
with Madoff's requirement for BLMIS feeder funds, Fairfield Sentry ceded
control of not only its investment decisions, but also the custody of its assets, to
BLMIS.’).
The Complaint plausibly alleges that Fairfield Sentry did not have any
assets that were not customer property. Defendants ask this Court to consider
allegations made in the other complaints filed by the Trustee in this SIPA
proceeding. Memo. L. at 22, ECF No. 93. These complaints have not been
adopted by reference by the Trustee in this adversary proceeding and, as such, are
not within the Court’s power to consider on a Rule 12(b)(6) motion. Williams v.
Time Warner Inc., 440 F. App’x 7, 9 (2d Cir. 2011) (‘A district court, in deciding
whether to dismiss a complaint under Rule 12(b)(6), is generally limited to the
facts as presented within the four corners of the complaint, to documents attached
to the complaint, or to documents incorporated within the complaint by
reference.’) (citing Taylor v. Vt. Dep’t of Educ., 313 F.3d 768, 776 (2d Cir.
2002)).
Taking all allegations as true and reading them in a light most favorable to
the Trustee, the Complaint plausibly pleads that Parson received customer
property because Fairfield Sentry did not have other property to give. The
calculation of Fairfield Sentry’s customer property and what funds it used to make
redemption payments are issues of fact better resolved at a later stage of litigation.

Id. Similarly, the Amended Complaint has plead that the feeder fund, Harley, invested entirely
in BLMIS. (Compl. ¶ 78, ECF No. 1) (“BLMIS in New York maintained custody of 99.99% of
Harley’s assets.”). The Amended Complaint plausibly alleges that Harley did not have any
assets that were not customer property. Taking all allegations as true and reading them in a light
most favorable to the Trustee, the Amended Complaint plausibly pleads that Defendant received
customer property because Harley did not have other property to give. The determination of
which specific funds it used to make redemption payments are issues of fact better resolved at a
later stage of litigation.
Whether Defendant took the transfers for value, in good faith, and without knowledge of
the voidability of the initial transfers?

Defendant has raised the “good faith defense” under § 550(b), arguing that this Court
should dismiss the Trustee’s complaint because it took the transfers “for value,” in good faith,
and without knowledge of the voidability of the transfers under section 550(b).” (Mem. L. at 11,
ECF No. 104).
“An affirmative defense may be raised by a pre-answer motion to dismiss under Rule
12(b)(6), without resort to summary judgment procedure, if the defense appears on the face of
the complaint.” Pani v. Empire Blue Cross Blue Shield, 152 F.3d 67, 74 (2d Cir. 1998). “Not
only must the facts supporting the defense appear on the face of the complaint, but, as with all
Rule 12(b)(6) motions, the motion may be granted only where it appears beyond doubt that the
plaintiff can prove no set of facts in support of his claim that would entitle him to relief.”
McKenna v. Wright, 386 F.3d 432, 436 (2d Cir. 2004) (cleaned up). A “plaintiff is entitled to all
reasonable inferences from the facts alleged, not only those that support his claim, but also those
that defeat the [affirmative] defense.” Id.
i. For Value
The “value” that a subsequent transferee must provide is “merely consideration sufficient
to support a simple contract, analogous to the ‘value’ required under state law to achieve the

status of a bona fide purchaser for value.” Picard v. Legacy Capital Ltd. (In re BLMIS), 548
B.R. 13, 37 (Bankr. S.D.N.Y. 2016) (citation omitted); accord Enron Corp. v. Ave. Special
Situations Fund II, L.P. (In re Enron Corp.), 333 B.R. 205, 236 (Bankr. S.D.N.Y. 2005). In
addition, the “value” element under § 550(b)(1) looks to what the transferee gave up rather than
what the transferor received.
Defendant argues that receiving transfers as repayment of loaned funds “by means of a
subsequent transfer from a Feeder Fund” constitutes “for value.” (Mem. L. at 11, ECF No. 104).
This Court has found that allegations that a defendant has been repaid for loans with shares of
the Prime Fund, a separate BLMIS feeder fund, constituted value on the face of the complaint.

See Picard v. Citibank, N.A. (in re BLMIS), 608 B.R. 181, 195 (Bankr. S.D.N.Y. 2019). The
Court found that the payments beyond the initial loan amount “coincided with the life of the
loan” and appeared from the exhibits attached to the complaint to be “monthly payments of fees
or interest, or both.” 608 B.R. at 195. The Trustee responds only that this Court has determined
that value cannot be determined on a motion to dismiss. (Opp’n at 18–19). Whether the value
element is met on the face of the Amended Complaint here is not determinative. The Defendant
has failed to meet the other elements required for the affirmative defense.
ii. Good Faith
Where, in light of surrounding circumstances, a transferee should have known of the
debtor’s precarious financial condition, the transferee will be deemed to have taken in bad faith,
unless an investigation into the debtor’s financial condition actually discloses no reason to
suspect financial trouble. 2 Bankruptcy Desk Guide § 19:105. The District Court explained that

good faith is a fact-intensive inquiry that almost always requires a trial: “The Second Circuit
made clear in its decision in [Picard v. Citibank, N.A. (In re BLMIS), 12 F.4th 171 (2d Cir.
2021), cert. denied No. 21-1059 (Feb. 28, 2022)] that the inquiry notice standard requires a ‘fact-
intensive inquiry to be determined on a case-by-case basis, which naturally takes into account the
disparate circumstances of differently-situated transferees.’” In re BLMIS, LLC, 20-cv-02586
(CM), 2022 WL 1304589, at *3 (S.D.N.Y. May 2, 2022). And that “such a fact-based
determination can only be made based on the entirety of the factual record after discovery . . . .”
Id. (internal quotation omitted). The burden of proving good faith falls squarely on Defendant,
and this Court cannot make a determination on Defendant’s affirmative defense until after a fact-

intensive inquiry.
iii. Knowledge of the Voidability
Good faith is linked with whether one had knowledge of the voidability of the transfer.
Picard v. Citibank, N.A. (In re BLMIS), 12 F.4th 171, 189 (2d Cir. 2021) (“[A] transferee does
not act in good faith when he has sufficient actual knowledge to place him on inquiry notice of
the debtor’s possible insolvency.”), cert. denied sub nom. Citibank, N.A. v. Picard, 212 L. Ed. 2d
217, 142 S. Ct. 1209 (2022). Having determined that “good faith” cannot be found on the face of
a complaint, the Court must deny the Defendant’s motion on this element. Additionally, §
550(b)(1) provides a defense to recovery making lack of knowledge Defendants’ burden to plead
and prove. It is a fact-intensive inquiry that requires a three-step inquiry into 1) what Defendant
subjectively knew; ““whether these facts put [Defendant] on inquiry notice of the fraudulent
purpose behind a transaction—that is, whether the facts the transferee knew would have led a
reasonable person in the [Defendant’s] position to conduct further inquiry into a debtor-
transferor’s possible fraud; and whether “diligent inquiry by [Defendant] would have discovered
the fraudulent purpose of the transfer.” Jd. at 192. It is not appropriate for the Court to resolve
these factual issues at this stage of the litigation.
Conclusion
For the foregoing reasons, Defendant’s motion to dismiss is denied. The Trustee shall
submit a proposed order within fourteen days of the issuance of this decision, directly to
chambers (via EOrders), upon not less than two days’ notice to all parties, as required by Local
Bankruptcy Rule 9074-1(a).

/s/ Cecelia G. Morris
Poughkeepsie, New York Hon. Cecelia G. Morris —
ees U.S. Bankruptcy Judge
Page 26 of 26

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Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/10461030. Public record. Not legal advice.