Opposition Brief — HSBC Holdings PLC, et al., Petitioners v. Irving H. Picard, et al.

Supreme Court briefOct 30, 2019

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No. 19-277

IN THE

Supreme Court of the United States

HSBC HOLDINGS PLC, et al.,

Petitioners,

IRVING H. PICARD AND

SECURITIES INVESTOR PROTECTION CORPORATION,

Respondents.

On Petition For A Writ Of Certiorari

To The United States Court Of Appeals

For The Second Circuit

BRIEF IN OPPOSITION FOR

RESPONDENT IRVING H. PICARD

ROY T. ENGLERT, JR.

Counsel of Record

D. HUNTER SMITH

JOSHUA S. BOLIAN

Robbins, Russell, Englert,

Orseck, Untereiner &

Sauber LLP

2000 K Street, N.W.

Washington, DC 20006

(202) 775-4500

renglert@robbinsrussell.com

October 30, 2019

Counsel for Respondent

Irving H. Picard

HOWARD L. SIMON

KIM M. LONGO

Windels Marx Lane &

Mittendorf LLP

156 West 56th Street

New York, NY 10019

(212) 237-1000

DAVID J. SHEEHAN

SEANNA R. BROWN

TORELLO H. CALVANI

Baker & Hostetler LLP

45 Rockefeller Plaza

New York, NY 10111

(212) 589-4200

Counsel for Respondent Irving H. Picard

PARTIES TO THE PROCEEDING

Petitioners are listed in the appendix to the

petition. Pet. App. 185a-266a.

Respondents are (i) Irving H. Picard, as Trustee

for the liquidation of Bernard L. Madoff Investment

Securities LLC, and (ii) the Securities Investor

Protection Corporation (SIPC), which was “deemed

to have intervened” in the court of appeals, see 15

U.S.C. § 78eee(d), and hence is considered a

respondent, Sup. Ct. R. 12.6. Though incorrectly

omitted from the caption of the petition, SIPC is

acknowledged on page ii of the petition to have been

a party below, and SIPC participated in argument in

the Second Circuit (see Pet. App. 3a).

TABLE OF CONTENTS

Page

PARTIES TO THE PROCEEDING ............................ i

TABLE OF AUTHORITIES ...................................... iv

STATEMENT ..............................................................2

A. Legal Framework ...........................................2

B. Factual Background .......................................4

C. Procedural History .........................................5

D. Relevant Settlements .....................................9

REASONS FOR DENYING THE PETITION ..........10

The Second Circuit’s Holding That A

Bankruptcy Court Can Remedy A

Fraudulent Initial Transfer Within The

United States By Recovering Money From

A Foreign Subsequent Transferee Is

Correct And Does Not Conflict With Any

Holding Of This Court Or Another Court

of Appeals ............................................................10

II. The Court Of Appeals’ Standard Of

Review For Comity Does Not Conflict With

Any Holding Of Any Other Court ......................17

III. The Court Of Appeals’ Decision Will Not

Cause International Tension ..............................29

iii

TABLE OF CONTENTS—Continued

Page

CONCLUSION ..........................................................37

APPENDIX

Bankruptcy court memorandum opinion in

Picard v. Bureau of Labor Insurance, 480

B.R. 501 (Bankr. S.D.N.Y. 2012) ........................ 1a

TABLE OF AUTHORITIES

Page(s)

Cases

Allstate Life Ins. Co. v. Linter Grp Ltd.,

994 F.2d 996 (2d Cir. 1993) ................................. 23

Animal Sci. Prods., Inc. v. Hebei Welcome

Pharm. Co.,

138 S. Ct. 1865 (2018) .......................................... 25

Armotek Indus., Inc. v. Emp’rs Ins. of Wausau,

952 F.2d 756 (3d Cir. 1991) ................................. 27

Bigio v. Coca-Cola Co.,

448 F.3d 176 (2d Cir. 2006) ................................. 24

Bristol-Myers Squibb Co. v. Superior Court of

Cal.,

137 S. Ct. 1773 (2017) .......................................... 33

Chavez v. Carranza,

559 F.3d 486 (6th Cir. 2009) .......................... 23, 24

Daewoo Motor Am., Inc. v. General Motors

Corp.,

459 F.3d 1249 (11th Cir. 2006) ...................... 21, 22

Duggan v. Sansberry,

327 U.S. 499 (1946) .............................................. 36

EEOC v. Arabian Am. Oil Co.,

499 U.S. 244 (1991) .............................................. 16

TABLE OF AUTHORITIES—Continued

Page(s)

Exxon Mobil Corp. v. Saudi Basic Indus.

Corp.,

544 U.S. 280 (2005) .............................................. 18

GDG Acquisitions, LLC v. Gov’t of Belize,

749 F.3d 1024 (11th Cir. 2014) ............................ 22

Hachamovitch v. DeBuono,

159 F.3d 687 (2d Cir. 1998) ................................. 28

Hanson v. Denckla,

357 U.S. 235 (1958) .............................................. 33

Hartford Fire Ins. Co. v. California,

509 U.S. 764 (1993) ...................................... passim

Highmark Inc. v. Allcare Health Mgmt. Sys.,

Inc.,

572 U.S. 559 (2014) .............................................. 28

F. Hoffmann-La Roche Ltd. v. Empagran S.A.,

542 U.S. 155 (2004) ...................................... passim

In re Condor Ins. Ltd.,

601 F.3d 319 (5th Cir. 2010) ................................ 36

In re Dynamic Random Access Memory

(DRAM) Antitrust Litig.,

546 F.3d 981 (9th Cir. 2008) ................................ 24

TABLE OF AUTHORITIES—Continued

Page(s)

In re French,

440 F.3d 145 (4th Cir. 2006) ........................ passim

In re Harris,

464 F.3d 263 (2d Cir. 2006) ................................. 13

In re Monosodium Glutamate Antitrust Litig.,

477 F.3d 535 (8th Cir. 2007) ................................ 24

In re Sealed Case,

932 F.3d 915 (D.C. Cir. 2019) ........................ 22, 23

Merit Mgmt. Grp., LP v. FTI Consulting, Inc.,

138 S. Ct. 883 (2018) .................................. 3, 26, 29

Microsoft Corp. v. AT&T Corp.,

550 U.S. 437 (2007) .............................................. 14

Morrison v. Nat’l Australia Bank Ltd.,

561 U.S. 247 (2010) ...................................... passim

Perforaciones Exploración y Producción v.

Marítimas Mexicanas, S.A. de C.V.,

356 F. App’x 675 (5th Cir. 2009) ................... 21, 22

Picard v. Bureau of Labor Ins.,

480 B.R. 501 (Bankr. S.D.N.Y. 2012) .................... 6

Picard v. Fairfield Greenwich Ltd.,

762 F.3d 199 (2d Cir. 2014) ................................... 4

vii

TABLE OF AUTHORITIES—Continued

Page(s)

Quarles v. United States,

139 S. Ct. 1872 (2019) .......................................... 26

Republic of Argentina v. NML Capital, Ltd.,

573 U.S. 134 (2014) .............................................. 22

RJR Nabisco, Inc. v. European Community,

136 S. Ct. 2090 (2016) .................................. passim

SIPC v. Barbour,

421 U.S. 412 (1975) ................................................ 2

Société Nationale Industrielle Aérospatiale v.

U.S. Dist. Court for S. Dist. of Iowa,

482 U.S. 522 (1987) ........................................ 22, 23

Sprint Commc’ns, Inc. v. Jacobs,

571 U.S. 69 (2013) ................................................ 28

Swift & Co. Packers v. Compania Colombiana

Del Caribe, S.A.,

339 U.S. 684 (1950) .............................................. 34

U.S. Bank Nat’l Ass’n v. Vill. at Lakeridge,

LLC,

138 S. Ct. 960 (2018) ............................................ 25

United States v. Nippon Paper Indus. Co.,

109 F.3d 1 (1st Cir. 1997) .................................... 24

viii

TABLE OF AUTHORITIES—Continued

Page(s)

WesternGeco LLC v. ION Geophysical Corp.,

138 S. Ct. 2129 (2018) .................................. passim

Wu v. Stomber,

750 F.3d 944 (D.C. Cir. 2014) .............................. 27

Foreign Cases

Fairfield Sentry Ltd. (In Liquidation) v.

Migani,

[2014] UKPC 9 (Apr. 16, 2014) ............................ 31

Jetivia SA v. Bilta (UK) Ltd. (In Liquidation),

[2015] UKSC 23 (Apr. 22, 2015) .......................... 35

Rubin v. Eurofinance SA,

[2012] UKSC 46 (Oct. 24, 2012) .......................... 36

UBS AG New York v. Fairfield Sentry Ltd. (In

Liquidation),

[2019] UKPC 20 (May 20, 2019) .......................... 31

Statutes and Rules

11 U.S.C. § 548(a)(1) ................................................... 3

11 U.S.C. § 550(a) ........................................................ 3

11 U.S.C. § 550(a)(2) ................................................. 12

15 U.S.C. § 78eee(a)(3) ................................................ 2

TABLE OF AUTHORITIES—Continued

Page(s)

15 U.S.C. § 78eee(b)(2)(A) ......................................... 15

15 U.S.C. § 78eee(b)(3) ................................................ 2

15 U.S.C. § 78eee(d) .....................................................i

15 U.S.C. § 78fff(a)(1) .................................................. 2

15 U.S.C. § 78fff(b) ...................................................... 2

15 U.S.C. § 78fff-2(c)(3) ........................................... 2, 5

28 U.S.C. § 158(d)(2)(A) .............................................. 7

35 U.S.C. § 271(f)(2) .................................................. 12

35 U.S.C. § 284 .................................................... 12, 13

Sup. Ct. R. 12.6 .............................................................i

Sup. Ct. R. 14.1(a) ..................................................... 27

Fed. R. Civ. P. 12(b)(6) .............................................. 34

Other Authorities

Maggie Gardner, Abstention at the Border, 105

VA. L. REV. 63 (2019) ............................................ 19

TABLE OF AUTHORITIES—Continued

Page(s)

Edward R. Morrison, Extraterritorial

Avoidance Actions: Lessons from

Madoff, 9 BROOK. J. CORP. FIN. &

COM. L. 268 (2014) ....................................... passim

Restatement (Second) of Conflict of Laws ................ 26

Restatement (Third) of Foreign Relations Law ....... 30

Restatement (Fourth) of Foreign Relations

Law .............................................................. passim

UNCITRAL Model Law on Cross-Border

Insolvency with Guide to Enactment and

Interpretation (2014) ............................................ 36

BRIEF IN OPPOSITION FOR

RESPONDENT IRVING H. PICARD

The Second Circuit decided two questions in this

case, both correctly. Soundly applying this Court’s

recent decision in WesternGeco LLC v. ION

Geophysical Corp., 138 S. Ct. 2129 (2018), the court

decided

that

the

presumption

against

extraterritoriality presents no bar to recovering from

foreign subsequent transferees fraudulent transfers

made by Bernard Madoff ’ s company in New York as

part of his infamous Ponzi scheme. Correcting errors

of law made by the lower courts, and correctly

applying de novo review to a question of statutory

interpretation, the Second Circuit held that

prescriptive comity also poses no bar to bringing such

property back into the estate for the benefit of

Madoff ’ s victims, including his foreign victims.

The petition challenges the first holding by

claiming a conflict with the very decision of this

Court that the Second Circuit faithfully applied.

That contention is insubstantial. The petition next

pretends that the court of appeals did something it

did not do with respect to comity, and therefore asks

this Court to decide a question not actually

presented by this case. Compare Pet. i (asking this

Court to decide “[w]hether . . . abstentions . . . on

grounds of international comity should be reviewed

. . . de novo, as the court below held”) with Pet.

App. 30a (“Adjudicative comity abstention . . .

concerns a matter of judicial discretion. We thus

review adjudicative comity dismissals for abuse of

discretion.”). Prescriptive comity, which is the

doctrine at issue here, is not a doctrine of abstention

but one of statutory interpretation. Once the

distinction is recognized, it is clear that the courts of

appeals are in harmony, not discord. The petition

should be denied.

STATEMENT

A. Legal Framework

The Securities Investor Protection Act, 15 U.S.C.

§ 78aaa et seq. (SIPA), “provid[es] financial relief to

the customers of failing broker-dealers” and

promotes “confidence in the capital markets.” SIPC

v. Barbour, 421 U.S. 412, 413, 415 (1975). If a

brokerage firm fails, the Securities Investor

Protection Corporation (SIPC) may apply to a district

court for a “protective decree.” 15 U.S.C.

§ 78eee(a)(3). When the decree issues, a trustee

selected by SIPC is appointed to liquidate the failed

firm. Id. § 78eee(b)(3). The trustee seeks to repay the

firm’s customers. Id. § 78fff(a)(1).

If the failed firm has insufficient assets to repay

its customers, the SIPA trustee “may recover any

property transferred by the debtor [firm] which,

except for such transfer, would have been customer

property if and to the extent that such transfer is

voidable or void under the provisions of [the

Bankruptcy Code],” id. § 78fff-2(c)(3), insofar as

those provisions are consistent with SIPA, id.

§ 78fff(b). All of the property thus recovered goes to

the customers.

Under the Bankruptcy Code, a trustee may sue

persons who received property that the bankrupt

debtor had transferred with fraudulent intent:

The trustee may avoid any transfer . . . of an

interest of the debtor in property . . . if the debtor

voluntarily or involuntarily— (A) made such

transfer . . . with actual intent to hinder, delay,

or defraud . . . .

11 U.S.C. § 548(a)(1). The trustee’s remedy (subject

to certain defenses not at issue now) is recovery of

the property or its equivalent:

[If] a transfer is avoided under [Section 548], the

trustee may recover . . . the property transferred,

or, if the court so orders, the value of such

property, from— (1) the initial transferee of such

transfer or the entity for whose benefit such

transfer was made; or (2) any immediate or

mediate transferee of such initial transferee.

Id. § 550(a). These provisions “maximize the funds

available for, and ensure equity in, the distribution

to creditors.” Merit Mgmt. Grp., LP v. FTI

Consulting, Inc., 138 S. Ct. 883, 887 (2018).

This case concerns whether, in certain

circumstances, these provisions of SIPA and the

Bankruptcy Code permit the recovery of debtor

property fraudulently transferred overseas. To

answer that question, the courts below applied two

rules of statutory construction. The first, the

presumption against extraterritoriality, is that

courts should “presume that federal statutes apply

only within the territorial jurisdiction of the United

States.” WesternGeco LLC v. ION Geophysical Corp.,

138 S. Ct. 2129, 2136 (2018) (quotation marks

omitted). The second, called prescriptive comity, is

that courts should “construe[] ambiguous statutes to

avoid unreasonable interference with the sovereign

authority of other nations.” F. Hoffmann-La Roche

Ltd. v. Empagran S.A., 542 U.S. 155, 164 (2004).

B. Factual Background

“Bernard Madoff orchestrated the largest Ponzi

scheme in history through Madoff Securities, his

New York investment firm.” Pet. App. 7a. He told

investors that he traded stocks and options, but in

truth he parked their money in a New York bank

account. Ibid. When investors asked for their money,

Madoff Securities paid them from that account. Ibid.

“The scheme’s success depended in part on the

efforts of independent investment managers who

channeled billions of dollars through financial

vehicles—so-called ‘feeder funds’—that invested

largely or exclusively in” Madoff Securities. Picard v.

Fairfield Greenwich Ltd., 762 F.3d 199, 203 (2d Cir.

2014). The feeder funds funneled money from their

investors to Madoff Securities and vice versa. Pet.

App. 10a-11a. The feeder funds’ investors knew that

their money was going to Madoff Securities. Pet.

App. 39a.

Some feeder funds were organized abroad, often

in “offshore” financial centers. They include the three

largest feeder-fund groups at issue here. The

Fairfield Funds (Fairfield Sentry Limited, Fairfield

Lambda Limited, and Fairfield Sigma Limited) were

organized in the British Virgin Islands (BVI). The

Kingate Funds (Kingate Global Fund, Ltd., and

Kingate Euro Fund, Ltd.) were organized there and

managed by Bermudian entities. And the Harley

Fund (Harley International (Cayman) Ltd.) was

organized in the Cayman Islands. Pet. App. 9a-10a.

In December 2008, Madoff ’ s scheme collapsed,

and respondent Picard was appointed as Madoff

Securities’ SIPA Trustee. The collapse of Madoff ’ s

scheme led many feeder funds to collapse. Those

feeder funds also entered liquidation. The Fairfield

Funds entered liquidation in the BVI; the Kingate

Funds entered liquidation there and in Bermuda;

and the Harley Fund entered liquidation in the

Cayman Islands. Ibid.

Some of the feeder funds in liquidation sought to

recover payments they had made to their investors

and service providers. For example, the Fairfield

Funds’ liquidators sued their investors and service

providers using unjust enrichment, constructive

trust, and similar theories. Pet. App. 75a-76a. The

Kingate Funds brought actions against their service

providers. Other funds, such as the Harley Fund,

brought no such actions.

C. Procedural History

1. After Madoff ’ s collapse, the “customer

property” left over was “not sufficient to pay in full

the [customers’] claims.” See 15 U.S.C. § 78fff-2(c)(3).

Hence, as SIPA prescribes, ibid., the Trustee sought

to recover property Madoff Securities had

transferred. Specifically, he sued transferees under

Bankruptcy Code Sections 548(a)(1)(A) and 550(a).

This case arises from 88 actions filed against

predominantly foreign investors and service

providers who received the Madoff Securities

transfers through foreign feeder funds. Pet. App. 5a,

11a. (The Trustee disputes that some of these

defendants are foreign or received the Madoff

Securities transfers in foreign bank accounts, but

that issue is immaterial for present purposes.)

2. One defendant moved to dismiss, asserting

that Section 550(a) of the Bankruptcy Code did not

apply to it under the presumption against

extraterritoriality. The bankruptcy court (Lifland, J.)

disagreed. Picard v. Bureau of Labor Ins., 480 B.R.

501 (Bankr. S.D.N.Y. 2012) (BLI). 1 Applying “step

two” of Morrison v. National Australia Bank Ltd.,

561 U.S. 247 (2010), the court held that “the Trustee

is not seeking to apply Section 550 extraterritorially”

because that statute focuses “on the initial transfers

[from New York] that deplete the bankruptcy estate.”

App., infra, 43a, 44a. Alternatively, the court held

(under Morrison’s “step one”) that “Congress

expressed clear intent” for Section 550 to have

extraterritorial reach, id. at 49a, adopting the

reasoning of In re French, 440 F.3d 145, 151-52 (4th

Cir. 2006).

In the other actions at issue here, the district

court (Rakoff, J.) withdrew the reference to the

bankruptcy court. Pet. App. 164a. Departing from

BLI, the district court applied the presumption

against extraterritoriality to bar the actions. Pet.

App. 165a-177a. (The court did not address BLI.) In

1 The Bureau of Labor Insurance is a petitioner here (see Pet.

App. 201a), and BLI is a relevant opinion, cited favorably by the

court of appeals (Pet. App. 23a). Accordingly, the Trustee has

included BLI in an appendix. App, infra, 1a-55a.

the alternative, the district court held that the

actions were barred by international comity. Pet.

App. 177a-179a. The district court remanded.

The bankruptcy court (Bernstein, J.) then ruled

on dispositive motions in all of the 88 actions at issue

here. Applying the district court’s holding, the

bankruptcy court dismissed on comity grounds the

actions involving feeder funds that had entered

liquidation abroad. Pet. App. 68a-89a. The

bankruptcy court dismissed the remaining actions

(with

exceptions

not

relevant)

under

the

presumption against extraterritoriality. Pet. App.

90a-152a.

3. The court of appeals authorized a direct

appeal. See 28 U.S.C. § 158(d)(2)(A). In that court,

the Trustee was supported by amici including

bankruptcy professors, professors of conflicts of laws,

and the liquidator for the Fairfield Funds (Kenneth

Krys). No scholar, liquidator, or sovereign supported

petitioners’ position.

The court of appeals reversed the bankruptcy

court’s holdings as to both the presumption against

extraterritoriality and international comity. On both

issues, the court limited its holding to “the

Bankruptcy Code provisions in these actions.” Pet.

App. 39a. Contrary to petitioners’ suggestion (at 3133, 37), the court did not address the Code as a

whole.

As to the presumption against extraterritoriality,

the court of appeals held that WesternGeco “helps

resolve two issues relevant” here. Pet. App. 19a. 2

First, “the Bankruptcy Code’s avoidance and

recovery provisions work ‘in tandem.’” Ibid. (quoting

WesternGeco, 138 S. Ct. at 2137). Thus, “to determine

§ 550(a)’s focus in a given action, a court must also

look to the relevant avoidance provision,” which here

is Section 548(a)(1)(A). Pet. App. 20a. Second, the

focus of Section 550(a) in this context “is on the

debtor’s act of transferring property from the United

States.” Pet. App. 23a. Because that is a domestic

act, the presumption against extraterritoriality does

not apply. Petitioners’ interpretation, the court

added, would “open a loophole” whereby “a fraudster

. . ., anticipating his downfall,” could “transfer[]

property to a foreign entity that then transferred it

to another foreign entity,” “mak[ing] the property

recovery-proof.” Pet. App. 26a.

As to comity, the court of appeals recognized that

“international comity” means at least two different

things: “a canon of construction, [which] might

shorten the reach of a statute,” and “a discretionary

act of deference . . . to decline to exercise

jurisdiction.” Pet. App. 27a (quotation marks

omitted). The first doctrine, called “prescriptive

comity,” warranted review de novo because it is a

canon of construction. Pet. App. 29a. The second

doctrine, called “adjudicative comity,” warranted

review for abuse of discretion because “abstention . . .

concerns a matter of judicial discretion.” Pet. App.

30a.

2 Like this Court in WesternGeco, the court of appeals addressed

only the second step of the Morrison analysis.

It was undisputed that this case involves

prescriptive comity. Pet. App. 31a. Thus, the court of

appeals reviewed de novo the bankruptcy court’s

comity analysis. It reversed because that analysis

“rest[ed] on incorrect premises: that we should look

only to § 550(a), assume the United States has

purely remedial interests, and focus on the

subsequent transfer of property.” Pet. App. 38a. The

court also noted this Nation’s interest in “equitable

and orderly distribution” of the Madoff Securities

estate: “SIPA and the Bankruptcy Code envision a

unified proceeding, and we would frustrate this goal

if we limited the reach of § 550(a) in these actions.”

Pet. App. 36a.

The court of appeals denied rehearing and

rehearing en banc with no call for a response and no

noted dissent.

D. Relevant Settlements

The Trustee has settled his claims against the

Kingate Funds and the Fairfield Funds. Both

settlements have been approved by courts here and

in the jurisdictions where the Funds are liquidating

(Bermuda and the BVI). And both settlements

provide the Funds substantial claims in Madoff

Securities’ liquidation, which benefit their investors.

Under the Kingate Funds settlement, the

Trustee is dismissing his claims against petitioners

who received Madoff Securities money through the

Kingate Funds. Those claims involve approximately

$1 billion of transfers. Completion of the settlement

thus will reduce the amount at issue here from about

$4 billion to about $3 billion.

Under the Fairfield Funds settlement, both the

Trustee and the Fairfield Funds’ liquidator may

pursue recoveries from persons who received Madoff

Securities money through the Fairfield Funds.

However, the settlement requires the Trustee and

the liquidator to share any recoveries.

REASONS FOR DENYING THE PETITION

The Second Circuit’s Holding That A

Bankruptcy Court Can Remedy A

Fraudulent Initial Transfer Within The

United States By Recovering Money

From A Foreign Subsequent Transferee

Is Correct And Does Not Conflict With

Any Holding Of This Court Or Another

Court of Appeals

As the petition acknowledges (at 14-15), under

Morrison v. National Australia Bank Ltd., 561 U.S.

247, 267 (2010), the application of a federal statute

to conduct occurring abroad is not impermissibly

extraterritorial if either the focus of the statute is

domestic conduct or Congress intended that the

statute apply extraterritorially. Only two courts of

appeals have applied that analysis to the Bankruptcy Code’s avoidance and recovery provisions.

In In re French, 440 F.3d 145 (4th Cir. 2006), a

unanimous panel concluded that Congress intended

the avoidance and recovery provisions of the

Bankruptcy Code to apply extraterritorially. Id. at

151-52. Judge Wilkinson, concurring, observed that

such extraterritorial application avoids “a chaotic

and uncontrolled scramble for the debtor’s assets in a

variety of uncoordinated proceedings in different

courts.” Id. at 154-55 (quotation marks omitted). In

the decision below, the Second Circuit likewise

concluded that the relevant avoidance and recovery

provisions could apply to recover property transferred abroad, but for a different reason: It held that

the focus of those provisions is the fraudulent initial

transfers, which, here, were domestic.3

Petitioners do not contend that any court of

appeals has reached a conflicting result. Instead,

they argue that the panel below misapplied a

“straightforward test” (Pet. 21) in concluding that

the focus of Bankruptcy Code § 550(a)(2) is on the

initial, domestic transfers in this case. The result,

petitioners claim, conflicts with this Court’s opinions

in WesternGeco and RJR Nabisco, Inc. v. European

Community, 136 S. Ct. 2090 (2016).

But the Second Circuit has made no such

elementary error. The unanimous view of every

appellate judge to address the question, which is also

the unanimous view of every academic who has

written on the question, is correct. 4 Only by egre3 In accord with the Second Circuit’s later analysis, the Fourth

Circuit observed that the location in the Bahamas of property

subject to the avoidance action did “not seem critical” to the

extraterritoriality analysis because “§ 548 focuses not on the

property itself, but on the fraud of transferring it.” French, 440

F.3d. at 150.

4 Every law professor to have written on the issue, or to have

joined an amicus brief in this case, has agreed with the result

reached by the Second Circuit. The amici who supported respondents below include the Reporter of the Restatement

(Fourth) of Foreign Relations Law of the United States and numerous prominent bankruptcy professors. See Brief of

giously mischaracterizing this Court’s opinions can

petitioners suggest that the decision below conflicts

with them. In any event, the question is not certworthy in the absence of a circuit conflict; if a court

ever agrees with petitioners’ position, there will be

time enough for this Court to consider it.

1. The decision below carefully applied

WesternGeco to determine that recovery of the

transfers at issue here did not involve an

extraterritorial application of 11 U.S.C. § 550(a)(2). A

court “must look to a statute’s ‘focus’ to determine

whether a case involves a domestic application of

that statute.” Pet. App. 16a. In WesternGeco, this

Court held that the focus of the Patent Act’s damages

provision, 35 U.S.C. § 284, was the location of the

underlying infringement, which in that case was

prohibited by 35 U.S.C. § 271(f)(2). 138 S. Ct. at

2138. This Court explained that a statute’s focus

turns on “the conduct it ‘seeks to regulate,’ as well as

the parties and interests it ‘seeks to protec[t]’ or

vindicate.” Id. at 2137 (quoting Morrison, 561 U.S. at

267). When a statutory provision “works in tandem

with other provisions,” its focus “must be assessed in

concert with those other provisions.” Ibid. Because

Section 284’s role was to compensate patent holders

Professors of Conflict of Laws, Case No. 17-2992, DE # 592;

Brief of Bankruptcy Law Professors, Case No. 17-2992, DE #

593. Likewise, the leading academic article (prompted by the

incorrect district-court decision that the Second Circuit has now

reversed) is Edward R. Morrison, Extraterritorial Avoidance

Actions: Lessons from Madoff, 9 BROOK. J. CORP. FIN. & COM. L.

268 (2014), and no one has published a contrary analysis in the

five years since that article was published.

for infringement, its focus was on the underlying

infringement under Section 271(f)(2). Id. at 2138.

Because that underlying infringement occurred in

the United States, the Court held, it was a domestic

application of Section 284 to award damages for lost

foreign sales. Ibid.

Mirroring that analysis, the opinion below held

that it is a domestic application of Bankruptcy Code

§ 550(a)(2) to recover foreign subsequent transfers

because the focus of Section 550 is on the initial,

fraudulent transfer made avoidable by Section 548.

Pet. App. 16a-27a. Congress designed the

Bankruptcy Code’s avoidance provisions to “protect[]

a debtor’s estate from depletion to the prejudice of

the unsecured creditor.” Pet. App. 21a (quoting In re

Harris, 464 F.3d 263, 273 (2d Cir. 2006) (Sotomayor,

J.) (original alteration marks omitted)). And “it is the

initial transfer”—and only the initial transfer—“that

fraudulently depletes the estate.” Pet. App. 22a.

Section 550(a) is thus merely “‘a utility provision,

helping execute the policy of § 548[(a)(1)(A)]’ by

‘tracing the fraudulent transfer to its ultimate

resting place (the initial or subsequent transferee).’”

Pet. App. 21a (quoting Morrison, supra, 9 BROOK. J.

CORP. FIN. & COM. L. at 273). Here, those initial

transfers occurred out of Madoff Securities’ New

York City bank account. Because the statute is

focused on those domestic fraudulent transfers,

Section 550(a)(2)’s application is domestic, even

when the subsequent transfers (like the lost sales in

WesternGeco) occurred overseas.

What then did the opinion below get wrong so as

to warrant this Court’s review? Petitioners never

quite say. They complain that it simply cannot be

that Section 550(a)(2)’s authorization of a suit over

“foreign transactions between foreign entities located

abroad using foreign bank accounts” (Pet. 16)

involves a domestic application of that statute. But

that contention entirely disregards this Court’s

warning that “‘what a statute authorizes is not necessarily its focus.’” Pet. App. 22a (quoting

WesternGeco, 138 S. Ct. at 2138). The correct inquiry

is, instead, into the “conduct [the statute] seeks to

regulate” or “the parties and interests it seeks to

protect.” WesternGeco, 138 S. Ct. at 2137 (quotation

marks and alterations omitted); see also RJR

Nabisco, 136 S. Ct. at 2100 (the relevant question is

the “‘focus’ of congressional concern”). Nor did

Microsoft Corp. v. AT&T Corp., 550 U.S. 437 (2007),

“reject[]” (Pet. 18) such an inquiry into whether a

statute is focused on domestic interests. Microsoft, in

fact, did not address the statutory-focus inquiry at

all.

Petitioners also repeatedly italicize the words

“defendant’s conduct,” “conduct in this case,” and the

like, see Pet. 15-17, as if to suggest that the

defendant’s conduct must have occurred in the

United States for the statute’s application to be

domestic. But WesternGeco held no such thing. To

repeat: What this Court said matters is the conduct

Congress sought to regulate and the persons it

sought to protect. See WesternGeco, 138 S. Ct at

2138. Here, the conduct Congress sought to regulate

is fraudulent depletion of the Madoff Securities

estate, and the person Congress sought to protect is

the Madoff Securities estate.5 Both are located in the

United States.

At bottom, petitioners appear simply to disagree

with the result the Court reached in WesternGeco,

charging that it “gives courts license” to hold any

statutory application domestic so long as it can be

said to advance some “domestic policy goal.” Pet. 17.

That’s hardly a basis for certiorari, but it is also

quite wrong. A statute’s focus turns on the domestic

policy goal that Congress sought to further in

enacting the statute. As this Court’s cases make

plain, a court does not have license to deem a

statute’s application domestic simply because there

are other domestic policy goals that the statute

conceivably advances. See, e.g., Morrison, 561 U.S. at

266 (“the focus of the Exchange Act is not upon the

5 These foci are obvious enough in any bankruptcy case, and the

Second Circuit did not rely on any statute other than the

Bankruptcy Code to reach its conclusion. Were the Bankruptcy

Code insufficient to resolve the “focus” question, however, it

would become necessary to analyze the focus of SIPA, as this

case is not a pure bankruptcy case but instead a SIPA

liquidation, in which provisions of the Code are incorporated by

reference to the extent not inconsistent with SIPA. See Pet.

App. 24a-25a & n.8. Many provisions of SIPA make clear its

focus on protecting the victims of fraud by securities brokerdealers, but it suffices to cite 15 U.S.C. § 78eee(b)(2)(A), which

gives the court administering the liquidation “exclusive

jurisdiction of such debtor and its property wherever located

(including property located outside the territorial limits of such

court . . .)” (emphasis added). If there were doubt about the

correctness of the construction of the Bankruptcy Code adopted

below (which there is not), the appropriate case in which to

resolve that doubt would be one without the SIPA overlay.

place where the deception originated, but upon

purchases and sales of securities in the United

States”); EEOC v. Arabian Am. Oil Co., 499 U.S. 244,

255 (1991) (neither plaintiff ’ s American citizenship

nor the fact that he had been hired in Houston was

the “focus” of Title VII’s antidiscrimination

provisions).

2. Petitioners’ claim that the opinion below

“conflicts with” this Court’s opinion in RJR Nabisco

is equally insupportable. See Pet. 19-20. RJR

Nabisco and the opinion below concerned separate

statutory inquiries: RJR Nabisco concerned the “first

step” of the extraterritoriality analysis, at which a

court asks whether Congress has given “a clear,

affirmative indication” that it intended a statute to

apply extraterritorially. 136 S. Ct. at 2101. RJR

Nabisco did not address the second step, at which a

court “look[s] to the statute’s ‘focus’” to determine

whether a case involves an extraterritorial

application (ibid.), because a stipulation of the

parties had removed any dispute on that score. Id. at

2111. By contrast, the opinion below dealt only with

that second step. See Pet. App. 16a-27a. It declined

to address the first step because it was “of no

moment”

whether

Congress

intended

for

Section 550(a)(2) to apply extraterritorially given the

court’s determination that its application here is

domestic. Pet. App. 16a n.6.

Each step is “a separate inquiry.” RJR Nabisco,

136 S. Ct. at 2100. And it is “only at the second step

of the inquiry [that a court] consider[s] a statute’s

‘focus.’” Id. at 2103. How, then, could the Second

Circuit’s resolution of one statutory inquiry—the

focus test—“conflict with” RJR Nabisco’s resolution

of another inquiry? Petitioners do not say.

They do not conflict: RJR Nabisco instructs that

courts should presume, at step one of the

extraterritoriality inquiry, that a private cause of

action does not apply extraterritorially, even when

Congress has made clear its intention for a statute’s

substantive provisions to do so. See id. at 2106.

WesternGeco, by contrast, instructs how to perform

the step-two inquiry: When determining a statutory

provision’s “focus,” the provision must be considered

together with other provisions with which it works

“in tandem.” 138 S. Ct. at 2137. The opinion below

addressed step two, and therefore followed

WesternGeco. It cannot conflict with RJR Nabisco

any more than WesternGeco itself does.

II. The Court Of Appeals’ Standard Of

Review For Comity Does Not Conflict

With Any Holding Of Any Other Court

The second question presented asserts that the

court of appeals reviewed an abstention decision de

novo. Pet. i. From that premise, the petition argues

(at 23-27) that the decision below conflicts with those

of other Circuits and of this Court. But the premise

is false; as a result, so are the claims of conflict.

Moreover, courts would reach the same result even

were this Court to side with petitioners on the

standard of review.

1. This case does not present the question

“[w]hether . . . abstentions . . . on grounds of

international comity should be reviewed . . . de novo,

as the court below held.” Pet. i. The Second Circuit

held quite the opposite.

Petitioners presuppose that international comity

is a single doctrine, a doctrine of abstention. Pet. i, 6,

13-14, 23, 25, 37. Yet petitioners also recognize two

kinds of international comity, “prescriptive” and

“adjudicative.” Pet. 23. Petitioners never explain

whether international comity is multiple doctrines or

one doctrine with multiple variants. Likewise, they

never explain what distinguishes “prescriptive” from

“adjudicative” comity or why the distinction matters.

The correct answers show that petitioners’

presupposition is incorrect: There is not a single

doctrine of “comity” calling for “abstention” in

particular cases. Instead, “international comity,” like

“jurisdiction” and “standing,” refers to a set of

related but critically distinct doctrines. And, of those

doctrines, only adjudicative comity (also known as

“comity of courts”) is an abstention doctrine.

Prescriptive comity (also known as “comity of

nations”)—the doctrine at issue here—is not.

“[A]djudicative” comity is “more precisely” called

“abstention.” Hartford Fire Ins. Co. v. California, 509

U.S. 764, 820 (1993) (Scalia, J., dissenting). It is a

doctrine under which federal courts may “decline[] to

exercise [subject-matter] jurisdiction” on the basis of

international comity. Id. at 797 (majority opinion); cf.

Exxon Mobil Corp. v. Saudi Basic Indus. Corp., 544

U.S. 280, 292 (2005) (summarizing domestic

abstention doctrines). This Court has expressly

declined to decide whether courts “should ever

decline to exercise” jurisdiction on this basis.

Hartford Fire, 509 U.S. at 798. Many courts of

appeals, however, have adopted the doctrine of

adjudicative comity in some form. See Maggie

Gardner, Abstention at the Border, 105 VA. L. REV.

63, 65-66 (2019) (collecting cases).

“[P]rescriptive comity,” by contrast, does not

involve “account[ing for] comity considerations case

by case, abstaining where comity considerations so

dictate.” F. Hoffmann-La Roche Ltd. v. Empagran

S.A., 542 U.S. 155, 168, 169 (2004). That case-bycase abstention approach, this Court wrote, “is too

complex to prove workable.” Id. at 168. Prescriptive

comity is not an abstention doctrine at all but rather

a “rule of statutory construction.” Id. at 164.

Under this rule, courts “construe[] ambiguous

statutes to avoid unreasonable interference with the

sovereign authority of other nations.” Ibid. The rule

“is a principle of statutory interpretation and not a

discretionary judicial authority to decline to apply

federal law.” Restatement (Fourth) of Foreign

Relations Law § 405 cmt. a. It is called “prescriptive”

because it seeks to determine whether Congress has

exercised its “jurisdiction to prescribe” law abroad.

Hartford Fire, 509 U.S. at 813 (Scalia, J., dissenting)

(quotation marks omitted); see id. at 814-18.

In a thoughtful and nuanced discussion

(Pet. App. 27a-31a) that bears little resemblance to

petitioners’ caricature, the court of appeals

distinguished prescriptive comity from adjudicative

comity and held that they call for different standards

of review. Because “[p]rescriptive comity poses a

question of statutory interpretation,” the court held

that

would

review

prescriptive

comity

determinations de novo. Pet. App. 29a. “Adjudicative

comity abstention, on the other hand, concerns a

matter of judicial discretion.” Pet. App. 30a. Hence,

the court would review abstention on that ground for

abuse of discretion. Ibid. This case involves

prescriptive comity, not adjudicative comity, because

it does not “ask[] whether . . . our courts should

abstain from exercising jurisdiction.” Pet. App. 31a.

(“[B]oth parties agree[d].” Ibid.)

The court of appeals’ explicit recognition that it

would review adjudicative-comity abstention for

abuse of discretion—which petitioners never mention

even while dramatically claiming that the Second

Circuit “shattered the consensus among the circuits”

(Pet. 25)—shows that the second question presented

is not actually at issue here.6 “[A]bstention[] . . . on

grounds of international comity,” see Pet. i, must

mean adjudicative comity because only that doctrine

is an “abstention” doctrine. And the court of appeals

held that it would review such abstention “for abuse

of discretion,” as “other circuits . . . have held.” See

ibid. It never held that it would review any abstention de novo, as petitioners claim (ibid.). Rather, the

court held that it would review de novo determinations of prescriptive comity, precisely because such a

determination is not abstention but a rule of statutory construction.

It is ironic that petitioners accuse the Second Circuit of

“collaps[ing] the two doctrines.” Pet. 25. The court correctly

noted that petitioners’ “advocacy for abuse-of-discretion review

relies on inapposite adjudicative comity cases.” Pet. App. 29a

n.12. The petition doubles down on that analytic error.

2. For related reasons, petitioners’ contention

that the decision below conflicts with those of other

courts of appeals is misplaced.

To support their contention, petitioners cite (at

27) cases that undisputedly involve adjudicative

comity. Those cases show not conflict but harmony.

The court of appeals here held that it “review[s]

adjudicative comity dismissals for abuse of discretion.” Pet. App. 30a. In so holding, it expressly

agreed with the other courts of appeals that “review

decisions . . . to dismiss on” “‘adjudicative’ comity”

grounds “for abuse of discretion.” Pet. 23.

Petitioners also cite cases applying an abuse-ofdiscretion standard to what petitioners claim is

prescriptive comity. But that claim is wrong.

Most of the cases that petitioners say involve

prescriptive comity in fact bear the hallmarks of

adjudicative comity. Each asked whether “to exercise

or decline jurisdiction.” Perforaciones Exploración y

Producción v. Marítimas Mexicanas, S.A. de C.V.,

356 F. App’x 675, 680 (5th Cir. 2009) (per curiam)

(non-precedential); accord Daewoo Motor Am., Inc. v.

General Motors Corp., 459 F.3d 1249, 1256 (11th Cir.

2006) (reviewing the “district court’s decision to abstain” (quotation marks omitted)). Each answered

that question by determining whether a pending foreign proceeding was an adequate alternative.

Perforaciones Exploración, 356 F. App’x at 681

(declining to defer to foreign proceeding that “only

receive[s] domestic recognition”); Daewoo, 459 F.3d

at 1258 (evaluating “competen[ce],” “fraud,” and

“prejudic[e]” in foreign proceeding (quotation marks

omitted)). And none could involve prescriptive

comity—a rule of construction—because none

construed a federal statute. Daewoo, 459 F.3d at

1255 (applying state law in relevant part);

Perforaciones Exploración, 356 F. App’x at 678

(applying Mexican law).7

Petitioners next claim that a recent prescriptivecomity case afforded “considerable discretion in balancing the comity factors.” Pet. 24 (quoting In re

Sealed Case, 932 F.3d 915, 938 (D.C. Cir. 2019)). But

those factors show that the case they quote had

nothing to do with prescriptive comity. The comity

factors that the D.C. Circuit balanced included: “‘the

importance to the litigation of the documents

requested,’” the “‘specificity of the request,’” and

“whether ‘alternative means of securing the

information’ exist.” Sealed Case, 932 F.3d at 931-32

(quoting Société Nationale Industrielle Aérospatiale

v. U.S. Dist. Court for S. Dist. of Iowa, 482 U.S. 522,

544 n.28 (1987) (alterations omitted)).

As the factors reveal, Sealed Case concerned not

the construction of a statute (as prescriptive comity

does) but “the discretionary determination” whether

“discovery is warranted, which may appropriately

consider comity interests.” See Republic of Argentina

v. NML Capital, Ltd., 573 U.S. 134, 146 n.6 (2014)

(quotation marks omitted). Discovery rulings are

quintessentially discretionary. And they are akin to

adjudicative comity in that a district court has

7 Without elaboration,

petitioners cite GDG Acquisitions, LLC

v. Government of Belize, 749 F.3d 1024 (11th Cir. 2014). That

case is similar to the same Circuit’s earlier Daewoo decision in

the relevant respects.

“jurisdiction . . . to order a foreign national party

before it to produce evidence”; the question is

whether to exercise that jurisdiction. Société

Nationale, 482 U.S. at 539-40.

The ultimate holding of Sealed Case was that the

district court did not abuse its discretion in rejecting

a comity defense—wholly separate from the banks’

statutory arguments under the Patriot Act (which

had already been rejected in Part III of the

opinion)—to the enforcement of subpoenas issued by

the United States to obtain foreign bank records. 932

F.3d at 931. The court’s discussion of the standard of

review described the comity analysis at issue as a

“fact-bound reasonableness call.” Id. at 934. The

court nowhere used the words “prescriptive comity”

or “comity of nations” and nowhere referred to the

judgment being made as one of statutory

interpretation. Nor, deciding the case half a year

after the Second Circuit decided this case, did the

D.C. Circuit cite the decision below or suggest that it

perceived a conflict with the Second Circuit. Quite

the contrary, citing a Second Circuit case, the D.C.

Circuit wrote that “[t]his approach comports with our

sister circuits, which review similar questions for

abuse of discretion.” Ibid. (citing Allstate Life Ins. Co.

v. Linter Grp Ltd., 994 F.2d 996, 999 (2d Cir. 1993)).

The only case left to demonstrate the purported

Circuit conflict is the puzzling Chavez v. Carranza,

559 F.3d 486 (6th Cir. 2009). The plaintiff torture

victims sued a Salvadorian military officer under

federal law, and the defendant raised a Salvadorian

“amnesty” statute as an affirmative defense. That

issue is not prescriptive comity. The court did not use

“comity” to construe any U.S. statute, and it held

that Empagran, the leading prescriptive-comity case,

was “of little relevance.” Id. at 495-96. For its

standard of review, the court relied on a Second

Circuit case, which the decision below certainly did

not purport to overrule. Id. at 495 (citing Bigio v.

Coca-Cola Co., 448 F.3d 176, 178 (2d Cir. 2006)).

In sum, petitioners have identified no conflict

among the courts of appeals because they have

identified no court that reviews prescriptive-comity

determinations for abuse of discretion.

Indeed, several prescriptive-comity cases in other

courts of appeals applied a de novo standard, as the

court of appeals did here. The Eighth and Ninth

Circuits reviewed de novo comity-based decisions to

construe the statutory phrase “gives rise to” as

requiring proximate cause. In re Dynamic Random

Access Memory (DRAM) Antitrust Litig., 546 F.3d

981, 984, 987 (9th Cir. 2008); In re Monosodium

Glutamate Antitrust Litig., 477 F.3d 535, 537-38 (8th

Cir. 2007). Similarly, the First Circuit decided de

novo the “statutory construction” question whether

“comity-based . . . principles of reasonableness”

prevent criminal application of the Sherman Act to

wholly foreign conduct. United States v. Nippon

Paper Indus. Co., 109 F.3d 1, 3, 8 (1st Cir. 1997).

In other words, once the distinction between

prescriptive and adjudicative comity is recognized,

there is strong uniformity in the approaches taken

by the courts of appeals. The decision below was

based on express recognition of that distinction,

preserving all of the ample Second Circuit law

providing for abuse-of-discretion review of comity

decisions that are not, like this case, exercises in

statutory construction. There is no conflict for this

Court to review.

3. The decision below does not conflict with any

decision of this Court.

Petitioners are correct, of course, that

“deferential review is warranted where . . . the

relevant issue at hand depends heavily on factual

determinations.” Pet. 26. Such determinations hinge

on “presentation of evidence” and “hear[ing] all the

witnesses.” U.S. Bank Nat’l Ass’n v. Vill. at

Lakeridge, LLC, 138 S. Ct. 960, 968 (2018).

But petitioners are wrong that prescriptive

comity is factual. See Pet. 25-27. It is a “rule of

statutory construction.” Empagran, 542 U.S. at 164.

Under it, “statutes should not be interpreted to

regulate foreign persons or conduct if that regulation

would conflict with principles of international law.”

Hartford Fire, 509 U.S. at 815 (Scalia, J., dissenting).

Application of prescriptive comity thus depends on

international law, as well as on the statute’s “text,

history, and purpose.” Restatement (Fourth) of

Foreign Relations Law § 405 cmt. d. Accordingly, the

court of appeals analyzed the Bankruptcy Code in

the abstract and its relationship with international

interests. Pet. App. 32a-34a, 36a-39a. Such analysis

is legal in nature, not factual.8

Petitioners suggest that “conflict[] with foreign law” is a

factual issue. Pet. 26. Not so; it is a legal issue reviewed de

novo. Animal Sci. Prods., Inc. v. Hebei Welcome Pharm. Co., 138

S. Ct. 1865, 1873 (2018).

Courts may frame prescriptive-comity holdings

as applications of the statute to generic facts, but

that does not make the doctrine factual. The court of

appeals, for example, held that “[p]rescriptive comity

poses no bar to recovery when the trustee . . . uses

§ 550(a) to recover property from a foreign

subsequent transferee . . . even if the initial

transferee is in liquidation in a foreign nation.” Pet.

App. 37a. This Court’s holding in Empagran was

similar, though the Court was not reviewing or

making factual determinations. 542 U.S. at 159

(holding that the Sherman Act does not apply to

conduct with “an adverse domestic effect” and “an

independent foreign effect giving rise to the claim”).

Indeed, the holdings produced by many rules of

construction are “factual” in this way. E.g., Quarles

v. United States, 139 S. Ct. 1872, 1875 (2019)

(holding that statute does not apply “only if a person

has the intent to commit a crime at the exact moment

when he or she first unlawfully remains in a

building”); Merit Mgmt. Grp., LP v. FTI Consulting,

Inc., 138 S. Ct. 883, 888 (2018) (holding that statute

does not apply to “a transfer from A → D that was

executed via B and C as intermediaries”). Despite

involving such “facts,” rules of construction are

paradigmatically legal.

That prescriptive comity can involve weighing

factors does not make it factual. Numerous purely

legal issues involve factors. For example, to decide

which jurisdiction’s law applies, courts weigh factors

such as “the relevant policies of other interested

states and the relative interests of those states in the

determination of the particular issue” and “the

protection of justified expectations.” Restatement

(Second) of Conflict of Laws § 6(2). Even so, such

decisions are purely legal and thus reviewed de novo.

E.g., Wu v. Stomber, 750 F.3d 944, 947, 949 (D.C.

Cir. 2014) (Kavanaugh, J.); Armotek Indus., Inc. v.

Emp’rs Ins. of Wausau, 952 F.2d 756, 760 & n.5 (3d

Cir. 1991) (Alito, J.).

Finally, the court of appeals did not “collapse[]”

prescriptive comity and the presumption against

extraterritoriality. See Pet. 25. Prescriptive comity

“becomes relevant” “if the presumption against

extraterritoriality has been overcome or is otherwise

inapplicable.” Hartford Fire, 509 U.S. at 814 (Scalia,

J., dissenting); accord Restatement (Fourth) of

Foreign Relations Law § 405 cmt. c. The court of

appeals followed that logic.

4. This case is a poor vehicle to consider the

second question presented. A ruling for petitioners

on the standard of review would not change the

outcome, for two reasons.

First, courts may not dismiss on comity grounds

without a true conflict of law. Hartford Fire, 509 U.S.

at 799; Pet. App. 31a. The court of appeals

“assume[d] without deciding” that a conflict existed.

Pet. App. 32a.9 But the Trustee would demonstrate

to this Court or a court on remand that no true

9 With this assumption, the court of appeals declined to resolve

the “conflict” issue but assumed that petitioners (who argued

that a conflict existed) were correct. For this reason, and

because no question presented fairly includes the issue, see

Sup. Ct. R. 14.1(a), petitioners’ “conflict” argument (at 28-31)

cannot support granting the petition.

conflict exists here. See infra at 30-32. That showing

would end the comity analysis without any need for

balancing (or even consideration) of any other

factors.

Second, should a court reach the merits of

comity, the opinion below demonstrates why the

Trustee would be sure to prevail under an abuse-ofdiscretion standard. In this context, “there is little

practical distinction between review for abuse of

discretion and review de novo.” Pet. App. 30a

(quotation marks omitted). That is because, as

petitioners have it, comity is an abstention doctrine.

And decisions to abstain merit close scrutiny

because, when jurisdiction exists, “a federal court’s

obligation to hear and decide a case is virtually

unflagging.” Sprint Commc’ns, Inc. v. Jacobs, 571

U.S. 69, 77 (2013) (quotation marks omitted); see

Hachamovitch v. DeBuono, 159 F.3d 687, 693 (2d

Cir. 1998) (linking that principle to the standard of

review). Petitioners do not acknowledge, much less

challenge, the “more rigorous” abuse-of-discretion

standard that would apply. See Pet. App. 30a

(quotation marks omitted).

Moreover,

under

any

abuse-of-discretion

standard, the core of the trial court’s comity ruling

still would be reviewed de novo. A trial court

“necessarily abuse[s] its discretion if it base[s] its

ruling on an erroneous view of the law.” Highmark

Inc. v. Allcare Health Mgmt. Sys., Inc., 572 U.S. 559,

563 n.2 (2014) (quotation marks omitted). And key

errors in the trial court’s comity decision were errors

of law. See Pet. App. 38a-39a (discussing four

different legally “incorrect” and “inaccurate”

“premises” of the lower courts’ analysis). With such

errors of law corrected, the trial court’s comity

decision would have no discretionary leg to stand on.

5. Numerous amici argue that the Second

Circuit’s comity analysis reached the wrong result

for various reasons. But the petition does not ask

this Court to address the result of the comity

analysis, only the standard of review that the Second

Circuit applied. Moreover, amici’s arguments are

easily refuted. For example, the BVI Restructuring

Professionals tout the interest in “finality and

certainty in redemption transactions” as a factor

deserving weight in the comity analysis. Br. 11. But

the avoidance and recovery provisions of the

Bankruptcy Code, like those applied in insolvency

regimes around the world, are entirely about

disrupting the finality of completed transactions in

appropriate circumstances, and “[t]hese avoiding

powers help implement the core principles of

bankruptcy.” Merit Mgmt., 138 S. Ct. at 888

(quotation marks omitted).

III. The Court Of Appeals’ Decision Will Not

Cause International Tension

1. Petitioners and their amici assert that the

court of appeals’ decision conflicts with foreign law.

Even were petitioners correct, the result would

not change. The court of appeals “assume[d] without

deciding that these conflicts exist[ed].” Pet. App. 32a.

The court also held, correctly, that conflicts do not

end the analysis in petitioners’ favor; they merely

begin the comity analysis. Pet. App. 31a; accord

Empagran, 542 U.S. at 165; Restatement (Fourth) of

Foreign Relations Law § 405 cmt. b (“[i]nterference

with the sovereign authority of foreign states may be

reasonable if application of federal law would serve

the legitimate interests of the United States”).

At any rate, petitioners are incorrect. As the

Trustee explained below (C.A. Br. 37-44; C.A. Reply

Br. 40-50), there is no conflict. (Petitioners are wrong

to claim, at 37, that either respondent admits

otherwise.)

“Conflict” in this context has a precise meaning.

For comity purposes, “[n]o conflict exists . . . ‘where a

person subject to regulation by two states can comply

with the laws of both.’” Hartford Fire, 509 U.S. at

799 (quoting Restatement (Third) of Foreign

Relations Law § 403 cmt. e).

Here, there is no Hartford Fire conflict. Even if

transfers from feeder funds to certain petitioners

were “legitimately executed” under foreign law, see

Pet. 34, foreign law did not compel those transfers.

Thus, returning the money to the Madoff Securities

estate complies with U.S. law and does not violate

foreign law, even though foreign law may not compel

it. As Professor Morrison explained: “Although

foreign law [might] not require the foreign customers

to return assets to the feeder funds, U.S. law does

require them to return those assets to Madoff

Securities. There is no conflict.” Morrison, supra, 9

BROOK. J. CORP. FIN. & COM. L. at 281. Hence, the

Trustee is not “reach[ing] around” foreign

proceedings (see Pet. 11): “From the perspective of

the foreign insolvency proceedings, the Trustee’s suit

is a dispute between two third parties, the resolution

of which has no bearing on the administration of the

foreign proceedings.” Morrison, supra, 9 BROOK. J.

CORP. FIN. & COM. L. at 281.

Even in some vague, non-Hartford Fire sense,

there is no conflict. Foreign law has barred some

feeder funds from recovering the transfers under

particular legal theories such as unjust enrichment.

Fairfield Sentry Ltd. (In Liquidation) v. Migani,

[2014] UKPC 9 (Apr. 16, 2014). U.S. law might well

do the same. But saying that a particular legal

theory for recovering money from a defendant fails

tells us nothing about whether a different legal

theory—here, fraudulent transfer—permits recovery.

The Judicial Committee of the Privy Council (the

tribunal of last resort for Bermuda, the BVI, and the

Cayman Islands) recently made exactly this point.

UBS sought to enjoin the Fairfield liquidators from

pursuing proceedings in the United States under a

statute that empowers a court “to set aside voidable

transactions, such as an unfair preference or an

undervalue transaction.” UBS AG New York v.

Fairfield Sentry Ltd. (In Liquidation), [2019] UKPC

20, para. [1] (May 20, 2019). Affirming the lower

courts’ rejection of that application, the Privy

Council specifically held that “[t]he liquidators’

claims against UBS which have been allowed to

proceed are not in conflict with the [Migani] decision

in 2014.” Id. para. [21].

Petitioners relatedly suggest that they could be

liable both to the Trustee and to the feeder funds.

That is extremely unlikely as a practical matter, and

the law has ample tools to deal with such a situation

case by case if it does arise. For transfers made

through the Harley Fund, it cannot happen because

the Harley liquidator brought no claims. For

transfers made through the Kingate Funds, the

recent settlement (see pp. 9-10, supra) obviates all

possible problems. And, for transfers made through

the Fairfield Funds, the Fairfield liquidator and the

Trustee have a strong cooperative arrangement, as

the Fairfield Liquidator explained in his amicus brief

below, filed in support of the Trustee. See DE # 1282.

If some problem of double recovery somehow slips

through the cracks, doctrines such as res judicata, as

well as cooperation between the Trustee and a

liquidator, are available. Throwing out all $4 billion

(reduced to $3 billion by the Kingate settlement) of

claims at issue here in the name of comity because of

a speculative concern about some problem of double

recovery would make no sense.

2. Unable to show a conflict, petitioners and their

amici object that the court of appeals’ decision

undermines the sovereignty of other nations.

That objection lacks merit because the court of

appeals’ decision does not “interfere[] with the ability

of foreign jurisdictions to regulate transactions

within their” borders. See Pet. 36. Foreign law

continues to regulate those transactions. U.S. law

regulates only the fraudulent transfer of assets by

U.S. persons. To effect that regulation, U.S. law

provides a cause of action against anyone who

receives fraudulently transferred assets other than

for value and in good faith. That cause of action,

though, is no different from any other claim against

a foreign defendant. Tort claims against foreign

defendants, for example, are made every day. They

hardly regulate transactions abroad simply because

a foreign defendant may end up having to pay a

judgment. For related reasons, this case does not

involve “‘a private civil remedy for foreign conduct.’”

Pet. 19 (quoting RJR Nabisco, 136 S. Ct. at 2106).

While providing such a remedy for foreign conduct

may “create[] a potential for international friction,”

RJR Nabisco, 136 S. Ct. at 2106, these cases concern

remedying Madoff Securities’ domestic fraud.

Moreover, respect for foreign sovereignty is not a

rule of decision but a value that animates “a broad

range of particular doctrines of this Court.” See

Cayman Islands Br. 17. Those doctrines include the

presumption against extraterritoriality and prescriptive comity. In developing those and related doctrines, this Court has carefully accounted for foreign

sovereignty and its relationship to competing considerations, such as this Nation’s interests. In this case,

the court of appeals faithfully applied this Court’s

doctrines. As a result, the court gave foreign sovereignty interests the full weight they are due.

Other doctrines of this Court not specific to crossborder litigation further guard against encroachment

on foreign sovereignty. “[R]estrictions on personal

jurisdiction,” for example, “‘are more than a guarantee of immunity from inconvenient or distant litigation. They are a consequence of territorial limitations

on the power of the respective States.’” Bristol-Myers

Squibb Co. v. Superior Court of Cal., 137 S. Ct. 1773,

1780 (2017) (quoting Hanson v. Denckla, 357 U.S.

235, 251 (1958)). Applied here, personal-jurisdiction

limitations preclude actions against a defendant that

truly “ha[s] nothing to do with the United States.”

See RISA Bermuda Br. 5. Here, however, each petitioner knowingly invested money with Madoff Securities in New York through an intermediary.

3. Various amici assert that this Court should

grant review so as not to upset the settled

expectations of investors abroad.

It is not true, as amici assert, that investors in

feeder funds had no “notice” that U.S. law might

apply and suffered “surprise” when they were sued to

claw back money into the Madoff estate in the

United States. E.g., SIFMA Br. 3, 4, 10, 20; RISA

Bermuda Br. 7, 11. The court of appeals decided this

case on the premise that those who knowingly

invested with Madoff through feeder funds should

not be surprised to suffer the consequences of dealing

with what turned out to be a U.S.-based fraudulent

scheme, after seeking to benefit from the returns

ostensibly promised as part of the same scheme. Pet.

App. 39a. To accept amici’s arguments would require

this Court to reexamine a fact-bound (and correct)

conclusion reached by the Second Circuit.10

Any expectation that U.S. law would not apply

would have lacked foundation. Generations ago, this

Court authorized a district court (in admiralty) to

redress a transfer from one foreign entity to another

in fraud of an American citizen. Swift & Co. Packers

v. Compania Colombiana Del Caribe, S.A., 339 U.S.

684, 686-88, 697-98 (1950). And, since 2006, the sole

Though based on the court of appeals’ reading of the

particular complaints at issue in this case, the conclusion that

petitioners knowingly dealt with Madoff Securities is not, as

amicus RISA Bermuda seems to suggest (at 7), contrary to a

factual finding by the district court. This matter was resolved

below on motions to dismiss under Fed. R. Civ. P. 12(b)(6). See

Pet. App. 47a n.2, 90a, 133a.

precedential authority on the subject had held that

Sections 548 and 550 operate extraterritorially.

French, 440 F.3d 145. The comparable United

Kingdom statute likewise operates extraterritorially.

Jetivia SA v. Bilta (UK) Ltd. (In Liquidation), [2015]

UKSC 23, paras. [10], [53], [107]-[111], [212]-[218]

(Apr. 22, 2015). There was no reason to believe that

this case would come out differently.

4. Finally, petitioners and their amici assert that

relief would have more appropriately been sought in

foreign courts.

The Trustee has diligently sought and earned the

cooperation of foreign courts. He has negotiated

complex settlements with the court-appointed

liquidators of the Fairfield and Kingate Funds, and

courts in the BVI and Bermuda have approved those

settlements.11

The suggestions of some amici that the Trustee

go beyond that (e.g., Cayman Islands Br. 14; Cayman

Finance Br. 21-22) are based on cases involving the

same debtor in liquidation in two different jurisdictions. This case is not like that. Madoff Securities,

the debtor, is in liquidation only in the United

States. “[T]he feeder funds, not Madoff Securities,

are the debtors in the foreign courts.” Pet. App. 34a.

11 This case shows that the court of appeals’ decision does not

make things “incredibly difficult for a [foreign] liquidator.”

Cayman Finance Br. 16. The only foreign liquidator to file an

amicus brief below, the Fairfield Funds’ liquidator, supported

the Trustee’s position.

Where, as here, the debtor is in liquidation in

only one jurisdiction, that jurisdiction is universally

“expected to have principal responsibility for

managing the insolvency of the debtor regardless of

the number of States in which the debtor has assets

and creditors.” UNCITRAL Model Law on CrossBorder Insolvency with Guide to Enactment and

Interpretation ¶ 1 (2014); accord Duggan v.

Sansberry, 327 U.S. 499, 510-11 (1946); Rubin v.

Eurofinance SA, [2012] UKSC 46, para. [51] (Oct. 24,

2012); see also In re French, 440 F.3d at 154-55

(Wilkinson, J., concurring) (“[A] major purpose of the

Bankruptcy Code is to forestall a chaotic and

uncontrolled scramble for the debtor’s assets in a

variety of uncoordinated proceedings in different

courts.” (quotation marks omitted)). The debtor’s

liquidator accordingly should bring avoidance actions

in the debtor’s jurisdiction (here, the United States)

to the extent possible. In this context, foreign courts

expect to assist with ancillary matters like

enforcement of judgments. E.g., Rubin [2012] UKSC

46, para. [5].

Insofar as a debtor’s liquidator may pursue

avoidance actions outside the debtor’s jurisdiction,

that would shed no light on the issues here. Even if

the action is brought in another jurisdiction, the law

of the debtor’s jurisdiction still should apply. E.g., In

re Condor Ins. Ltd., 601 F.3d 319, 320-21, 326-27

(5th Cir. 2010) (applying Nevis avoidance law for

debtor in liquidation in Nevis). And the scope of the

law of the debtor’s jurisdiction, the United States, is

what is at issue here. Foreign courts may apply that

law, but our courts are unquestionably better suited

to determine its scope.

CONCLUSION

The petition for a writ of certiorari should be

denied.

Respectfully submitted.

ROY T. ENGLERT, JR.

Counsel of Record

D. HUNTER SMITH

JOSHUA S. BOLIAN

Robbins, Russell, Englert,

Orseck, Untereiner &

Sauber LLP

2000 K Street, N.W.

Washington, DC 20006

(202) 775-4500

renglert@robbinsrussell.com

HOWARD L. SIMON

KIM M. LONGO

Windels Marx Lane &

Mittendorf LLP

156 West 56th Street

New York, NY 10019

(212) 237-1000

DAVID J. SHEEHAN

SEANNA R. BROWN

TORELLO H. CALVANI

Baker & Hostetler LLP

45 Rockefeller Plaza

New York, NY 10111

(212) 589-4200

Counsel for Respondent Irving H. Picard

October 30, 2019

APPENDIX

In re SECURITIES INVESTOR PROTECTION

CORPORATION,

Plaintiff–Applicant

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,

Plaintiff,

Bureau of Labor Insurance, Defendant.

Adversary Nos. 08–01789 (BRL),

11–02732 (BRL).

United States Bankruptcy Court,

S.D. New York.

Oct. 11, 2012.

Baker & Hostetler LLP, By: David J. Sheehan,

Thomas L. Long, Mark A. Kornfeld, Regina Griffin,

Torello Calvani, Michelle Kaplan, Catherine

Woltering, Constantine P. Economides, New York,

NY, for Irving H. Picard, Esq., Trustee for the

Substantively Consolidated SIPA Liquidation of

Bernard L. Madoff, Investment Securities LLC and

Bernard L. Madoff.

Lowenstein Sandler PC, By: Michael B. Himmel,

Amiad M. Kushner, Jamie R. Gottlieb, New York,

NY, for Bureau of Labor Insurance.

MEMORANDUM DECISION AND ORDER

DENYING BLI’S MOTION TO DISMISS THE

TRUSTEE’S COMPLAINT

BURTON R. LIFLAND, Bankruptcy Judge.

Before the Court is the motion (the ‘‘Motion to

Dismiss’’) of the Taiwanese Bureau of Labor

Insurance (‘‘BLI’’) seeking to dismiss the complaint

(the ‘‘Complaint’’) of Irving H. Picard, Esq. (the

‘‘Trustee’’), trustee for the substantively consolidated

Securities Investor Protection Act 1 (‘‘SIPA’’)

liquidation of Bernard L. Madoff Investment

Securities LLC (‘‘BLMIS’’) and Bernard L. Madoff

(‘‘Madoff’’), filed pursuant to SIPA sections 78fff(b),

78fff–1(a) and 78fff–2(c)(3), sections 105(a), 544,

550(a) and 551 of the Bankruptcy Code (the ‘‘Code’’)

and various sections of New York Debtor and

Creditor Law (the ‘‘NYDCL’’) 2 to recover certain

transfers allegedly received by BLI as a subsequent

transferee of funds originating from BLMIS.

BLI moves to dismiss the Complaint on four

grounds: 3 (i) this Court lacks subject matter

15 U.S.C. § 78aaa et seq. Hereinafter ‘‘SIPA’’ shall replace

‘‘15 U.S.C.’’ in reference to SIPA sections.

N.Y. Debt. & Cred. Law §§ 273–279 (McKinney 2001).

In contravention of Local Bankruptcy Rule 9013–1, BLI

failed to specify the statutory provisions upon which its motion

jurisdiction because BLI is immune from liability

under the Foreign Sovereign Immunities Act (the

‘‘FSIA’’); (ii) this Court lacks personal jurisdiction

over BLI; (iii) the Trustee cannot recover from BLI,

as subsequent transferee, under section 550 of the

Code (‘‘Section 550’’) because he has not avoided the

initial transfers from BLMIS to Fairfield Sentry

Limited (‘‘Fairfield Sentry’’ or the ‘‘Fund’’) and

cannot now do so because the relevant statute of

limitations has expired; and (iv) the Trustee’s claims

are

barred

the

presumption

against

extraterritoriality,

which

prohibits

the

extraterritorial application of Section 550 against

BLI. The Trustee argues to the contrary, contending

that the Court has both subject matter and personal

jurisdiction, and may use Section 550 to recover

subsequent transfers from BLI.

At bottom, the Trustee’s instant suit is based

upon BLI’s investment of tens of millions of dollars

in Fairfield Sentry with the specific goal of having

funds invested in BLMIS in New York, with intent to

profit therefrom. Such investment was not

haphazard. Rather, BLI 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.

is predicated. See Local Bankruptcy Rule 9013–1 (‘‘Each motion

shall specify the rules and statutory provisions upon which it is

predicated….’’). It appears, however, that BLI is moving to

dismiss pursuant to Federal Rules of Civil Procedure 12(b)(1),

(2) and (6).

For the reasons set forth below and at oral

argument, the Motion to Dismiss is DENIED.

BACKGROUND4

The Trustee’s instant action arises from the

commercial relationship between Fairfield Sentry,

the largest BLMIS feeder fund, and defendant BLI,

an agency or instrumentality of the Republic of

China (the ‘‘ROC’’) (commonly known as Taiwan).

BLI is a political branch of the ROC responsible for

labor safety policies and handling investments of the

Labor Insurance Fund. See Declaration by Tsai,

Chung–Chun in Support of Defendant’s Motion to

Dismiss Plaintiff’s First Amended Complaint (‘‘Tsai

Decl.’’) (Dkt. No. 9), ¶ 4. BLI is statutorily authorized

to invest ‘‘in any [ ] government-authorized projects,

which may inure to the benefit of their Fund,’’ id., ¶

6(e), including ‘‘[h]edge funds issued by the foreign

fund management institutions,’’ id., ¶ 8(c).

Prior to investing in Fairfield Sentry, BLI hired

an investment advisor agent, Union Securities

Investment Trust Co. Ltd. (‘‘Union Securities’’), to

conduct diligence on Fairfield Sentry. As part of this

diligence, Fairfield Greenwich Group, the entity

controlling Fairfield Sentry furnished BLI with a

private placement memorandum and other general

A comprehensive discussion of the facts underlying this

SIPA liquidation and Madoff’s notorious Ponzi scheme is set

forth in this Court’s March 1, 2010 net equity decision. See Sec.

Investor Prot. Corp. v. Bernard L. Madoff Inv. Sec. LLC (In re

Bernard L. Madoff Inv. Sec. LLC), 424 B.R. 122, 125–33

(Bankr. S.D.N.Y. 2010).

information about the Fund. BLI also received

specific information about the Fund’s investment

strategy, along with past results and details of

specific trades in the Standard & Poor’s 100 Index

(‘‘S & P 100’’). See, e.g., Declaration of Thomas L.

Long in Support of the Trustee’s Memorandum of

Law in Opposition to the Motion to Dismiss of the

Bureau of Labor Insurance (‘‘Long Decl.’’) (Dkt. No.

17), Ex. 1, pp. 1–6, 10. Union Securities learned that

the Fund’s ‘‘strategy is executed by Bernard L.

Madoff Securities,’’ id. at Ex. 1, p. 2, and that a

minimum of 95% of the Fund’s assets would be held

in BLMIS’s custody in New York and invested in

U.S. Securities and Treasuries, id. at Ex. 4 (Private

Placement Memorandum of Fairfield Sentry Limited,

as of October 1, 2004) [hereinafter ‘‘2004 PPM’’], p.

15; Supplemental Declaration of Thomas L. Long in

Support of the Trustee’s Sur–Reply in Opposition to

the Motion to Dismiss of the Bureau of Labor

Insurance (‘‘Long Supp. Decl.’’) (Dkt. No. 46), Ex. 1

(Private Placement Memorandum of Fairfield Sentry

Limited, as of August 14, 2006) [hereinafter ‘‘2006

PPM’’], pp. 9–10.

Armed with this knowledge, BLI chose to invest

in Fairfield Sentry for the following reasons:

(I) [T]he history and asset size of [Fairfield

Sentry] were in accordance with the relevant

rules of the BLI; (2) [Fairfield Sentry] had a

stable and steady annualized return rate of

11.02% and a Sharpe ratio of 2.81 since its

foundation in 1990; (3) Investing in [Fairfield

Sentry] met other requirements of BLI’s policy.

Tsai Decl., ¶ 9. In order to invest with the Fund, BLI

either individually or with the aid of Union

Securities appears to have opened one or more

accounts with JPMorgan Chase Bank in New York.

See Long Decl., Ex. 3 (Subscription Agreement

between BLI and Fairfield Sentry Limited, as

Executed on January 4, 2007) [hereinafter

‘‘Subscription Agreement’’ or ‘‘Agreement’’], pp. 1–2,

4, 11.

The Controlling Documents

On January 4, 2007, BLI signed the Subscription

Agreement with Fairfield Sentry. See id. at p. 11. In

accordance with this Agreement, BLI appointed

Union Securities as its advisor. See id. at pp. 3–4.

BLI acknowledged in the Agreement that it was a

‘‘Professional Investor,’’ and ‘‘warrant[ed] that [it]

has such knowledge and expertise in financial

matters sufficient to evaluate the risks involved in

an investment in [Fairfield Sentry].’’ Id. at p. 3, ¶

5(c). BLI also indicated that it had ‘‘obtained

sufficient information from [Fairfield Sentry] or its

authorized representatives to evaluate such risks

and ha[d] consulted with [its] own advisors and is

fully informed as to the legal and tax requirements

within the Subscriber’s own country (countries)

regarding a purchase of the Shares [of Fairfield

Sentry].’’ Id. at p. 4, ¶ 8.

The

Subscription

Agreement

expressly

incorporated the 2004 PPM and, by amendment, the

2006 PPM (taken together, the ‘‘PPMs’’). See id. at p.

1, ¶ 1. The PPMs clearly highlighted the prominent

role of New York-based BLMIS’s split strike

conversion strategy (the ‘‘SSC Strategy’’)5 in Fairfield

Sentry’s investments. The 2006 PPM clearly stated:

As a result of the Investment Manager’s selection

of Bernard L. Madoff Investment Securities, LLC

(‘‘BLM[IS]’’) as execution agent of the split strike

conversion strategy, substantially all of the

Fund’s assets will be held in segregated accounts

at BLM[IS], a U.S. registered broker-dealer and

qualified custodian.

2006 PPM, p. 16 (emphasis added). During those

times when BLMIS’s SSC strategy was not in the

U.S. equity markets, investor funds were used to

purchase U.S. Treasury Bills. See Compl., ¶ 25. In

addition, the PPMs set forth that BLMIS would

retain custody of at least 95% of the Fund’s assets in

the United States and would determine which shares

of companies on the S & P 100 would be purchased,

as well as the timing of such purchases. See 2006

PPM, pp. 9–10 (‘‘Investment Policies’’); p. 21, ¶ 17

(‘‘When the Fund invests utilizing the ‘split strike

conversion’ strategy…it will not have custody of the

assets so invested.’’); see also 2004 PPM, p. 15

(‘‘BLM[IS] has approximately 95% of the Fund’s

assets under custody.’’). The 2006 PPM further

clarified that ‘‘[t]he services of BLM[IS] and its

personnel are essential to the continued operation of

the Fund, and its profitability, if any.’’ 2006 PPM, p.

The SSC Strategy involved entering the U.S. equity

markets six to eight times a year through the purchase of

shares of companies composing the S & P 100 and OEX 100 put

options, along with the sale of OEX 100 call options. See 2006

PPM, pp. 9–10.

10. Fairfield Sentry’s investment manager, Fairfield

Greenwich (Bermuda) Ltd., had the discretion to

invest less than 5% of the fund’s net asset value

outside of BLMIS’s SSC strategy, with the rest going

to BLMIS. Id. (‘‘The Investment Manager, in its sole

and exclusive discretion, may allocate a portion of

the Fund’s assets [ ] never to exceed, in the

aggregate, 5% of the Fund’s Net Asset Value’’).

The Agreement further memorializes the

connections between BLI and New York in several

additional ways. First, BLI ‘‘agree[d] that any suit,

action or proceeding…with respect to this Agreement

and [Fairfield Sentry] may be brought in New York’’

and ‘‘irrevocably submit[ted] to the jurisdiction of the

New York courts with respect to any [p]roceeding.’’

Subscription Agreement, p. 6, ¶ 19. Second, the

Agreement specified that it ‘‘shall be governed and

enforced in accordance with the laws of New York,

without giving effect to its conflict of laws

provisions.’’ Id. at p. 5, ¶ 16. Third, the Agreement

required that all subscription payments from BLI to

Fairfield Sentry pass through Fairfield Sentry’s New

York HSBC bank account. Id. at pp. 1–2. Finally,

BLI specified that all redemption payments from

Fairfield Sentry Investments ‘‘should be wired only

to’’ to JPMorgan Chase Bank, New York at 270 Park

Avenue, New York, N.Y. 10017, USA. Id. at p. 11, ¶

30(g).6

BLI either delivered the subscription documents or sent

them by courier to Fairfield Sentry c/o Citco Fund Services

(Europe) B.V., Telestone 8—Teleport, Naritaweg 165, 1043 BW

Amsterdam, The Netherlands. See Tsai Decl., ¶ 11.

Subscription and Redemption Payments

On January 4, 2007, BLI transferred $10 million

in subscription payments to Fairfield Sentry. See

Tsai Decl., ¶ 10. On December 1, 2007, BLI

transferred an additional $30 million in subscription

payments to Fairfield Sentry. See id. In accordance

with the Agreement, BLI sent the subscription

payments from its JPMorgan account in Taiwan,

through its accounts with JPMorgan Bank in London

(the ‘‘London JPMorgan Accounts’’)7 to a JPMorgan

account in New York (the ‘‘New York JPMorgan

Account’’), to a New York account with HSBC Bank

held by Citco for Fairfield Sentry (the ‘‘New York

HSBC Account’’). See Subscription Agreement, pp. 1–

2, 11. The funds were then transferred to Fairfield

Sentry’s account with Citco Bank Nederland N.V.,

Dublin Branch in Ireland (the ‘‘Dublin Citco

Account’’). See Long Decl., Exs. 5, 6. Given that at

least 95% of Fairfield Sentry’s funds had to be

invested in U.S. Securities utilizing BLMIS’s SSC

Strategy, see 2006 PPM, pp. 9–10, funds deposited in

Fairfield Sentry’s Dublin Citco Account were

transferred to the New York HSBC Account and then

to BLMIS’s account at JP Morgan Chase in New

York, see Long Supp. Decl., Ex. 5; Compl., ¶ 3.

On July 4, 2008, a BLI representative in Taiwan

submitted a redemption request via fax to Fairfield

Sentry’s administrator, Citco Fund Services (Europe)

B.V. (‘‘Citco’’) in the Netherlands, specifying that

One of BLI’s London JPMorgan Accounts was a USD

account. See Supplemental Declaration of Tsai, Chung–Chun

(‘‘Tsai Supp. Decl.’’) (Dkt. No. 39), ¶ 3.

10a

redeemed funds should be wired to the New York JP

Morgan Account. See Tsai Decl., ¶ 15; Tsai Supp.

Decl., ¶ 6, Ex. A.

Shortly before the redemption request, on May 5,

2008, Fairfield Sentry withdrew $80 million from its

BLMIS accounts. See Compl., Ex. B. On July 10,

2008, Fairfield Sentry withdrew an additional $20

million, for a total of $100 million. See id. As alleged

by the Trustee in the Complaint, this $100 million

was utilized by Fairfield Sentry to make redemption

payments to its shareholders, including but not

limited to, BLI. See Compl., ¶¶ 34, 41, Exs. B, C.

On August 18, 2008, following receipt of funds

originating from BLMIS’s JPMorgan Account,

Fairfield Sentry sent $42,123,406, an amount

equivalent to the principal BLI invested with a 5%

return, from the Dublin Citco Account to the New

York HSBC Account, on to the New York JPMorgan

Account and then to BLI’s JPMorgan account in

London. See Long Supp. Decl., Ex. 2; Tsai Supp.

Decl., Ex. A. In honoring BLI’s redemption, Fairfield

complied with the wiring instructions BLI had

specified in the Agreement and in its redemption

request by sending the redemption payments to the

New York JPMorgan Account specified by BLI. See

Subscription Agreement, p. 11; Tsai Supp. Decl., Ex.

Procedural History

On September 22, 2011, the Trustee filed the

Complaint against BLI to recover the $42,123,406

BLI received as a subsequent transferee from

Fairfield Sentry. On November 23, 2011, counsel for

11a

the Trustee requested that the Clerk of the Court

serve process on BLI pursuant to 28 U.S.C. section

1608(b)(3)(B) by mailing a copy of a summons (the

‘‘Summons’’) and Complaint, along with a certified

Chinese translation of each, and an order setting the

time to respond (Dkt. No. 6). On December 6, 2011,

the Clerk certified that BLI was served via Federal

Express Priority Mail with a copy of the Summons,

Complaint, and an order setting the time to respond

(Dkt. No. 7). On February 3, 2012, Ettelman &

Hochheiser, P.C. filed a motion to dismiss on BLI’s

behalf (Dkt. No. 10). On April 19, 2012, the Trustee

filed an opposition to the motion to dismiss (Dkt. No.

16). On May 2, 2012, Lowenstein Sandler PC filed a

Substitution of Counsel and Notice of Appearance

(Dkt. No. 19), followed by a 35–page reply brief on

June 14, 2012 (Dkt. No. 38). On July 16, 2012, the

Trustee filed a sur-reply brief (Dkt. No. 45). A

hearing was held on August 8, 2012.

***

For purposes of this Motion to Dismiss, the

material facts alleged by the Trustee in the

Complaint are accepted as true. All reasonable

inferences should be drawn in favor of the plaintiff.

See Gant v. Wallingford Bd. of Educ., 69 F.3d 669,

673 (2d Cir. 1995). The Court ‘‘may resolve disputed

jurisdictional fact issues by reference to evidence

outside the pleadings, such as affidavits,’’ Reiss v.

Societe Centrale Du Groupe Des Assurances

Nationales, 235 F.3d 738, 748 (2d Cir. 2000)

(quotation omitted), and consider ‘‘all pertinent

documentation submitted by the parties,’’ Pilates,

Inc. v. Pilates Inst., Inc., 891 F. Supp. 175, 178 n. 2

(S.D.N.Y. 1995) (quotation omitted).

12a

DISCUSSION

The Trustee’s Complaint against BLI cannot be

dismissed because (i) this Court has subject matter

jurisdiction under the FSIA, (ii) this Court has

personal jurisdiction over BLI, (iii) the Trustee may

pursue recovery from BLI as a subsequent transferee

because the initial transfers from BLMIS to Fairfield

Sentry are avoidable, and (iv) the Trustee’s claims

are not barred by the presumption against

extraterritoriality. The Court addresses each point in

turn.

THE COURT HAS SUBJECT MATTER

JURISDICTION PURSUANT TO THE FSIA

The FSIA ‘‘provides the sole basis for obtaining

jurisdiction over a foreign state in the courts of this

country.’’ Argentine Republic v. Amerada Hess

Shipping Corp., 488 U.S. 428, 443, 109 S.Ct. 683, 102

L.Ed.2d 818 (1989). Under the FSIA, foreign states

are ‘‘presumptively immune from the jurisdiction of

United States courts; unless a specified exception

applies.’’ Saudi Arabia v. Nelson, 507 U.S. 349, 355,

113 S.Ct. 1471, 123 L.Ed.2d 47 (1993). In the absence

of such an exception, federal courts lack subjectmatter jurisdiction over claims against foreign

states. Id.

In evaluating whether a defendant is entitled to

sovereign immunity under the FSIA, the defendant

carries the initial burden of setting forth a prima

facie case that it is a foreign state. See Cargill Int’l

S.A. v. M/T Pavel Dybenko, 991 F.2d 1012, 1016 (2d

Cir. 1993). If this showing is made, the burden shifts

to the plaintiff, who must then produce evidence to

13a

demonstrate that immunity should not be granted

under exceptions to the FSIA, ‘‘although the ultimate

burden of persuasion remains with the alleged

foreign sovereign.’’ Id.

a. BLI IS A “FOREIGN STATE” UNDER THE FSIA

The initial dispute centers on whether BLI

qualifies as a ‘‘foreign state’’ entitled to immunity

under the FSIA. The Act defines a ‘‘foreign state’’ as

a ‘‘political subdivision of a foreign state or an agency

or instrumentality of a foreign state as defined in

subsection (b).’’ 28 U.S.C. § 1603(a). BLI has

produced evidence in the form of affidavits that it is

an ‘‘agency or instrumentality’’ of the ROC. As

averred in the affidavits, BLI (i) is a ‘‘political branch

of the ROC in charge of the labor safety policies and

handling of investments of the Labor Insurance

Fund,’’ Tsai Decl., ¶ 4, (ii) was created for a national

purpose, namely ‘‘to protect Taiwan workers’

livelihood and promote social security, as well as

services related to social insurance, labor protection,

and social welfare allowances,’’ id. ¶ 2, and (iii) was

established in accordance with Articles 4 and 5 of the

Taiwan Labor Insurance Act to handle labor

insurance affairs ‘‘under the direct authority of the

Council of Labor Affairs of the Taiwan Executive

Yuan, the executive branch of the government of the

Republic of China.’’ Id.; see also Filler v. Hanvit

Bank, 378 F.3d 213, 217 (2d Cir. 2004) (finding the

Korean Deposit Insurance Corporation to be a

foreign state because, inter alia, it was a Korean

governmental institution formed by statute,

performed functions traditionally performed by the

government and many of its operations were

overseen by the Korean government).

14a

In an attempt to rebut this evidence, the Trustee

argues in a footnote that BLI failed to provide

sufficient proof that it is a foreign state. See Irving

H. Picard, Trustee for the Liquidation of Bernard L.

Madoff Investment Securities LLC’s Memorandum in

Response to Defendant Bureau of Labor Insurance’s

Motion to Dismiss (‘‘Tr. Opp.’’) (Dkt. No. 16), p. 5, n.

2. Yet, a ‘‘plaintiff cannot defeat a claim of immunity

under the FSIA by simply arguing that more proof is

required to prove ‘agency or instrumentality’ status.’’

Kao Hwa Shipping Co., S.A. v. China Steel Corp.,

816 F. Supp. 910, 915 (S.D.N.Y. 1993). Rather, the

Trustee must specifically rebut BLI’s persuasive

evidence, which the Trustee has failed to do. See id.

Moreover, it appears that the Trustee conceded at

oral argument that BLI is a foreign state. See

Transcript dated August 8, 2012 (Dkt. No. 48)

(‘‘Transcript’’), p. 34, lines 12–13 (‘‘Clearly

investment by a foreign state’s instrumentality, like

we’re dealing with in this case….’’). In light of the

above, the Court finds that BLI is a foreign state and

is thus immune from jurisdiction unless the Trustee

can show that one of the exceptions to the FSIA

applies.

b. THE THIRD CLAUSE OF THE COMMERCIAL

ACTIVITY EXCEPTION APPLIES

The Trustee contends that BLI is not immune

from jurisdiction because all three clauses of the

commercial activity exception under the FSIA apply.

This exception denies immunity to a foreign state in

any case in which the underlying action is based:

[i] upon a commercial activity carried on in the

United States by the foreign state; or [ii] upon an

15a

act performed in the United States in connection

with a commercial activity of the foreign state

elsewhere; or [iii] upon an act outside the

territory of the United States in connection with

a commercial activity of the foreign state

elsewhere and that act causes a direct effect in

the United States.

28 U.S.C. § 1605(a)(2); Republic of Argentina v.

Weltover, 504 U.S. 607, 611, 112 S.Ct. 2160, 119

L.Ed.2d 394 (1992).

The Court finds that it has subject matter

jurisdiction over the instant action under at least the

third clause of the commercial activity exception.

Under this clause, a foreign state is subject to suit in

the United States where the suit is based upon an

act (i) that occurs outside the United States in

connection with a commercial activity of the foreign

state outside the United States, and (ii) causes a

direct effect in the United States. 28 U.S.C. §

1605(a)(2); Weltover, 504 U.S. at 611, 112 S.Ct. 2160.

i. Commercial Activity And The Act

In evaluating whether this third clause applies,

the Court first addresses whether BLI’s investment

activity

with

Fairfield

Sentry

constitutes

‘‘commercial activity’’ under the Act. Congress has

left much latitude to courts to determine which state

acts constitute commercial activity under the FSIA.

See NML Capital, Ltd. v. The Republic of Argentina,

680 F.3d 254, 258 (2d Cir. 2012) (finding that the

legislative history of the FSIA ‘‘explicitly asserts the

congressional intention to leave to the courts … a

great deal of latitude in determining what is a

16a

commercial activity for purposes of [the FSIA].’’)

(quotation omitted).

The FSIA defines ‘‘commercial activity’’ as

‘‘either a regular course of commercial conduct or a

particular commercial transaction or act.’’ 28 U.S.C.

§ 1603(d). The basic inquiry in determining whether

an activity is ‘‘commercial’’ is ‘‘whether the activity is

of the type an individual would customarily carry on

for profit.’’ De Letelier v. Republic of Chile, 748 F.2d

790, 797 (2d Cir. 1984). Therefore, ‘‘a state engages

in commercial activity … where it exercises only

those powers that can also be exercised by private

citizens as distinct from those powers peculiar to

sovereigns.’’ Nelson, 507 U.S. at 360, 113 S.Ct. 1471

(quotation omitted). The Supreme Court has found,

for example, ‘‘a foreign government’s issuance of

regulations limiting foreign currency exchange’’ to be

a sovereign activity ‘‘because such authoritative

control of commerce cannot be exercised by a private

party,’’ while ‘‘a contract to buy army boots or even

bullets is a ‘commercial’ activity, because private

companies can similarly use sales contracts to

acquire goods.’’ Weltover, 504 U.S. at 614–15, 112

S.Ct. 2160; see also H.R. Rep. 94–1487 at 6615

(1976), 1976 U.S.C.C.A.N. 6604, 6615 (noting that

‘‘commercial activity’’ under the FSIA includes a

foreign government’s ‘‘investment in a security of an

American corporation’’).

Here, as BLI’s investment activity, including

buying and redeeming shares from Fairfield Sentry,

could have been carried out by a private individual

for profit; such activity did not involve the use of

17a

powers peculiar to sovereigns. 8 Accordingly, BLI’s

investment activity in Fairfield Sentry constitutes

commercial activity under the FSIA.

With respect to the necessary ‘‘act’’ under the

statute, BLI’s signing of the Agreement and sending

out the corresponding subscriptions payments, as

well as making the redemption request, constitute

acts that transpired outside of the United States in

connection with BLI’s commercial activity. The Court

now addresses whether these acts had a direct effect

in the United States.

ii. Direct Effect in the United States

The Second Circuit has called for courts to

liberally construe what constitutes ‘‘direct effect in

the United States’’ to provide access to courts for

Although never formally argued, BLI presented evidence

that it made its redemption request for a national purpose:

‘‘BLI was requested by the Council of Labor Affairs of the

executive branch of the ROC to redeem the overseas investment

and return the cash to ROC to stabilize the operation of Labor

Insurance Fund.’’ Tsai Decl., ¶ 14. Whether a state acts as a

private party, however, is a question of behavior rather than

motivation. See Saudi Arabia, 507 U.S. at 360–61, 113 S.Ct.

1471. ‘‘In other words, the relevant inquiry concerns the power

that is exercised, rather than the motive for its exercise.’’ NML

Capital, Ltd. v. the Republic of Argentina, 680 F.3d 254, 259 (2d

Cir.2012). Accordingly, an assertion of a governmental motive

or national purpose does not change the fact that BLI engaged

in conduct in which a private party could customarily engage

for profit. Indeed, ‘‘it is irrelevant why [BLI]’’ made the

investments and requested the redemptions ‘‘in the manner of a

private actor; it matters only that it did so.’’ Weltover, 504 U.S.

at 614, 617, 112 S.Ct. 2160.

18a

plaintiffs who have been wronged. See, e.g., Texas

Trading & Mill. Corp. v. Federal Republic of Nigeria,

647 F.2d 300, 312 (2d Cir. 1981) (‘‘Courts construing

either [‘direct’ or ‘in the United States’] should be

mindful … of Congress’s concern with providing

‘access to the courts’ to those aggrieved by the

commercial acts of a foreign sovereign….’’) (citation

omitted) (overruled on other grounds). Courts should

inquire whether the United States has an interest in

the action such that ‘‘Congress would have wanted

an American court to hear the case.’’ Id. at 313.

The Supreme Court has found that ‘‘an effect is

direct if it follows as an immediate consequence of

the defendant’s … activity.’’ Weltover, 504 U.S. at

618, 112 S.Ct. 2160 (quotation omitted); see also

Martin v. Republic of S. Africa, 836 F.2d 91, 95 (2d

Cir. 1987) (‘‘The common sense interpretation of a

‘direct effect’ ’’ within the meaning of section

1605(a)(2) ‘‘is one which has no intervening element,

but, rather, flows in a straight line without deviation

or interruption.’’) (quotation omitted). To establish a

direct effect in the United States, the United States

‘‘need not be the location where the most direct effect

is felt, simply a direct effect.’’ Hanil Bank v. PT.

Bank Negara Indonesia (Persero), 148 F.3d 127, 133

(2d Cir. 1998) (emphasis in original). Courts tend to

refrain from finding a direct effect, however, if such

effect in the United States is merely fortuitous or

incidental, playing only a tangential role in the

lawsuit. See, e.g., Antares Aircraft, L.P. v. Federal

Republic of Nigeria, 999 F.2d 33, 36 (2d Cir. 1993)

(finding no direct effect where ‘‘the sole act connected

to the United States[,] … the drawing of a check on a

bank in New York, was entirely fortuitous and

19a

entirely unrelated to the liability of the appellees’’);

United World Trade v. Mangyshlakneft Oil Prod.

Ass’n, 33 F.3d 1232, 1237 (10th Cir. 1994) (finding no

direct effect where ‘‘the defendants’ performance of

their contractual obligations had no connection at all

with the United States’’).

Here, BLI’s actions caused a direct effect in the

United States by causing a two-way flow of funds to

and from New York-based BLMIS: to BLMIS for

investment in U.S. Securities and U.S. Treasuries

and from BLMIS in the form of profits from those

investments. This flow of funds in the form of

subscription and redemption payments into and out

of BLMIS in the United States via Fairfield Sentry

was part of a specific investment structure explicitly

set forth in the Subscription Agreement and the

PPMs. 9 These documents stated that: (i) Fairfield

Sentry was required to invest at least 95% of its

assets in the Split Strike Conversion Strategy

utilized and controlled by BLMIS in New York; (ii)

BLMIS was to act as sub-custodian of these assets,

holding them in segregated accounts in New York;

and (iii) BLMIS was to invest these assets in U.S.

Securities and Treasuries.

In light of this structure, upon signing the

Subscription Agreement, BLI triggered the transfer

BLI was aware of this investment structure, not only

because it read and executed these Agreements as a selfproclaimed

‘‘Professional

Investor,’’

see

Subscription

Agreement, p. 3, ¶ 5(c), but also because BLI hired a consultant,

Union Securities, to conduct diligence on Fairfield Sentry and

its investment strategies, see Long Decl., Exs. 1, 2.

20a

of $40 million in subscription payments from its

account in Taiwan to Fairfield Sentry through New

York banks, ultimately to be held and invested by

BLMIS. So, too, in making its redemption request,

BLI triggered a transfer of over $42 million

(including over $2 million in profit) from BLMIS’s

accounts in New York, through New York banks,

finally to BLI abroad.

This movement of money to and from BLMIS in

the United States, as contemplated by the

Agreements, was not fortuitous or incidental;

instead, it was ‘‘the ultimate objective’’ and the

‘‘raison d’etre’’ of the Agreement between BLI and

Fairfield Sentry. Filetech S.A. v. France Telecom,

S.A., 212 F. Supp. 2d 183, 197 (S.D.N.Y. 2001).

Indeed, these transfers form the basis for the

Trustee’s entire suit; the Trustee would not have

brought this lawsuit but for them. These transfers,

therefore, ‘‘bear[ ] a jurisdictionally relevant

relationship to the [instant] cause[ ] of action.’’

Broadfield Fin., Inc. v. Ministry of Fin. of the Slovak

Republic, 99 F. Supp. 2d 403, 406 (S.D.N.Y. 2000). In

sum, BLI’s acts causing the flow of funds to and from

BLMIS in New York for the purpose of investment

and profit are sufficient to satisfy the direct effects

test under the commercial activity exception of the

FSIA.10

In addition, BLI’s redemption request directly resulted in a

sizeable financial loss for (i) a United States entity, BLMIS, and

(ii) BLMIS customers who will receive less of a distribution

from the Trustee’s customer fund if the $42 million were to

remain with BLI. At oral argument, counsel for BLI cited to

21a

1. BLI’s Counterarguments Are Unavailing

BLI advances several arguments against finding

that BLI’s commercial activity abroad had a direct

effect in the United States, none of which are

persuasive. First, BLI contends that the Trustee has

failed to identify any transfer from BLMIS that was

a direct effect of BLI’s redemption request, having

submitted only a hefty exhibit to his Complaint

without parsing out the individual transfers. Such

contention is erroneous, as the Trustee has

sufficiently identified such transfers. In particular,

the Trustee showed that on May 5, 2008, Fairfield

Sentry withdrew $80 million from its BLMIS

accounts and then withdrew an additional $20

million on July 10, 2008, for a total of $100 million.

See Compl., Ex. B. The Trustee has alleged that

Fairfield Sentry used this $100 million to make

redemption payments to its shareholders, including

but not limited to, BLI’s redemption payment on

Antares Aircraft, L.P. v. Federal Republic of Nigeria, 999 F.2d

33, 36 (2d Cir. 1993): ‘‘[T]he fact that an American individual or

firm suffers some financial loss from a foreign tort cannot,

standing alone, suffice to trigger the [direct effect] exception.’’

See Transcript, p. 16, line 25; p. 17, lines 1–3. First, as

demonstrated above, BLMIS’s financial loss is not the only

direct effect BLI’s actions had in the United States. Second,

Antares is distinguishable because there, the entire tort upon

which the lawsuit was based transpired in Nigeria; the only

nexus to New York was the money paid from a New York bank

account to Nigeria. Here, in contrast, the Trustee’s lawsuit is

based entirely on the transfers of funds themselves in and out

of New York-based BLMIS.

22a

August 18, 2008 in the amount of $42,123,406. See

Compl., ¶¶ 34, 41, Exs. B, C.11

Second, BLI suggests that the transfer of

$42,123,406 was not an ‘‘immediate’’ effect of the

redemption request because (i) ‘‘45 days elapsed

between BLI’s July 4, 2008 redemption request to

Citco in the Netherlands and Fairfield’s August 18,

2008 transfer of $42,123,406 to BLI,’’ Reply

Memorandum of Law in Further Support of

Defendant Bureau of Labor Insurance’s Motion to

Dismiss the Complaint (‘‘BLI Reply’’) (Dkt. No. 38),

p. 18, and (ii) Fairfield Sentry acted as an

intervening factor, id. at pp. 17–18 (‘‘To the extent

Citco or Fairfield [Sentry], in response to BLI’s

redemption request, elected to fund the redemption

of BLI’s shares by requesting BLMIS in New York to

transfer funds to Fairfield [Sentry], such intervening

acts broke the chain of causation between BLI’s

redemption request and any direct effect in the

United States.’’) (emphasis in original). BLI’s

arguments regarding immediacy are incorrect

because there were no intervening acts that broke

BLI then argues that the sequence of these transfers shows

that there was no direct effect between BLI’s redemption

request and Fairfield Sentry’s honoring of its request. Yet, as

explained supra, BLI’s ‘‘acts’’ taken together, including signing

of the Subscription Agreement, making subscription payments

and making a redemption request, had a direct effect in the

United States because, as contemplated by the Agreements,

they caused money to flow (i) from BLI to Fairfield Sentry to

BLMIS in the form of subscription payments and (ii) from

BLMIS to Fairfield Sentry to BLI in the form of redemption

payments.

23a

the chain of causation between BLI’s redemption

request and any direct effect in the United States.

See Martin, 836 F.2d at 95 (finding a consequence is

‘‘immediate’’ when there is ‘‘no intervening element,

but, rather, flows in a straight line without deviation

or interruption’’) (quotation omitted). Here, money

flowed from subscribing shareholders to Fairfield

Sentry, and ultimately to BLMIS (95% of the funds),

and then back from BLMIS to Fairfield Sentry, and

ultimately to the redeeming shareholders, which was

the exact investment structure to which BLI

consented through its execution of the Agreement

and the PPMs. As such, despite a 45–day delay, the

redemption request was ‘‘immediate.’’ In addition, to

explain this time lag, the Trustee pointed out at oral

argument that in accordance with the Agreements,

redemption requests were made by the 15th day of

the month, shares were valued as of the end of the

month, and payment took place 15 days later. See

Transcript, p. 40; lines 15–20.

Finally, BLI posits that the Trustee has not

satisfied the direct effect requirement because he has

failed to point to a ‘‘legally significant act’’ in the

United States that had a direct effect in the United

States. To that end, BLI cites cases for the

proposition that legally significant aspects of the

lawsuit must occur within the United States. See,

e.g., Hanil, 148 F.3d at 133; Antares, 999 F.2d at 36.

The Second Circuit has recently clarified,12 however,

Indeed, cases decided before and shortly after Weltover

caused confusion because a requirement of performance of a

legally significant act ‘‘in’’ the United States ‘‘would conflate the

provisions of the third clause with those of the second clause’’ of

24a

that it is not necessary for the legally significant acts

to have transpired in the United States. Guirlando,

602 F.3d at 76 (‘‘[W]e do not interpret the ‘legally

significant act’ test as one requiring that the foreign

state have ‘performed’ an act ‘in the United States.’

’’). Rather, courts now hold that the legally

significant acts test ‘‘requires that the conduct

having a direct effect in the United States be legally

significant conduct in order for the commercial

activity exception to apply.’’ Id. at 77 (emphasis in

original) (internal quotation omitted). BLI’s acts

outside of the United States, including signing the

Subscription Agreement, making subscription

payments, and making its redemption request,

constitute legally significant acts that form the basis

for the Trustee’s instant action.

At bottom, this is not a situation where ‘‘the

ripples caused by an overseas transaction manage

eventually to reach the shores of the United States.’’

Virtual Countries, Inc. v. Republic of S. Africa, 300

F.3d 230, 236 (2d Cir. 2002). Rather, BLI intended to

profit from BLMIS in New York through investments

in Fairfield Sentry. As a result, the United States

clearly has an interest in this action such that

Congress would have wanted an American court to

hear the case.

For the reasons explained above, BLI’s Motion to

Dismiss for lack of subject matter jurisdiction is

DENIED.

section 1605(a)(2). Guirlando v. T.C. Ziraat Bankasi A.S., 602

F.3d 69, 76 (2d Cir. 2010).

25a

II.

THE

COURT

HAS

JURISDICTION OVER BLI

PERSONAL

While the Second Circuit recently confirmed that

foreign states are not ‘‘persons’’ that can ‘‘avail

themselves of the fundamental safeguards of the Due

Process Clause,’’ Frontera Res. Azerbaijan Corp. v.

State Oil Co. of the Azerbaijan Republic, 582 F.3d

393, 399–400 (2d Cir. 2009) (quotation omitted), it

remains unclear, however, whether agencies and

instrumentalities of foreign states enjoy due process

protections. See id. at 400 (‘‘[H]olding that a

sovereign state does not enjoy due process

protections does not decide the precise question in

this case, because SOCAR is not a sovereign state,

but rather an instrumentality or agency of one.’’).

This Court need not resolve the exact status of BLI,

however, because ‘‘in any event … the due process

requirements have been met here.’’ Hanil Bank v.

PT. Bank Negara Indonesia (Persero), 148 F.3d 127,

134 (2d Cir. 1998).

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 defendant is sued ‘‘such that the

maintenance of the suit does not offend ‘traditional

notions of fair play and substantial justice.’ ’’13 Int’l

There are two types of personal jurisdiction; general and

specific. Under the facts, it is clear that there is no general

jurisdiction because BLI did not have ‘‘continuous and

systematic’’ contact with the U.S. Accordingly, the Court

conducts an analysis only as to whether it has specific

jurisdiction over BLI.

26a

Shoe Co. v. Washington, 326 U.S. 310, 316, 66 S.Ct.

154, 90 L.Ed. 95 (1945) (quoting Milliken v. Meyer,

311 U.S. 457, 463, 61 S.Ct. 339, 85 L.Ed. 278 (1940));

see also Shapiro v. Republic of Bolivia, 930 F.2d

1013, 1020 (2d Cir. 1991). These minimum contacts

must represent some ‘‘act by which the defendant

purposefully avails itself of the privilege of

conducting activities within the forum State, thus

invoking the benefits and protections of its laws.’’

Burger King Corp. v. Rudzewicz, 471 U.S. 462, 475,

105 S.Ct. 2174, 85 L.Ed.2d 528 (1985); Parex Bank v.

Russian Sav. Bank, 116 F. Supp. 2d 415, 422

(S.D.N.Y. 2000); see also Picard v. Cohmad Sec.

Corp. (In re BLMIS), 418 B.R. 75, 80 (Bankr.

S.D.N.Y. 2009) (finding that for the exercise of

specific jurisdiction, minimum contacts exist ‘‘where

a foreign defendant purposefully direct[s] his

activities at residents of the forum and the

underlying cause of action arise[s] out of or relate[s]

to those activities’’) (alteration in original) (quotation

omitted). ‘‘The defendant’s activity need not have

taken place within the forum, and a single

transaction with the forum will suffice.’’ Picard v.

Maxam Absolute Return Fund, L.P. (In re BLMIS),

460 B.R. 106, 117 (Bankr. S.D.N.Y. 2011) (citations

omitted). While a choice of law clause is not always

dispositive as to personal jurisdiction, see Zibiz Corp.

v. FCN Tech. Solutions, 777 F. Supp. 2d 408, 421

(E.D.N.Y. 2011), it ‘‘is a significant factor in a

personal jurisdiction analysis because the parties, by

so choosing, invoke the benefits and protections of

New York law,’’ Sunward Elecs., Inc. v. McDonald,

362 F.3d 17, 23 (2d Cir. 2004).

27a

BLI argues that its due process rights would be

violated if it were subjected to this Court’s personal

jurisdiction due to its ‘‘isolated contacts with the

United States.’’ Memorandum of Law in Support of

Defendant’s Motion to Dismiss (‘‘BLI Mem. Law’’)

(Dkt. No. 10), p. 8.14 ‘‘Indeed, it would be unfair to

force BLI to defend itself in the United States for

simply having funds which it invested in an entity

outside of the United States and ultimately ended up

in an account located at BLMIS.’’ Id. at 11.

BLI’s argument is disingenuous because BLI’s

investments in Fairfield Sentry did not merely ‘‘end

up’’ in an account at BLMIS as a result of

happenstance

coincidence.

Rather,

BLI

To support this point, BLI emphasizes that various

isolated banking arrangements, standing alone, are insufficient

to establish personal jurisdiction under the FSIA. See, e.g., Licci

v. Am. Exp. Bank. Ltd., 704 F. Supp. 2d 403, 407 (S.D.N.Y.

2010) (holding that a foreign defendant must have more of a

connection to the forum state than ‘‘mere maintenance’’ of a

correspondent or intermediary bank account there to suffice for

personal jurisdiction); Canadian Grp. Underwriters Ins. Co. v.

M/V ‘‘Arctic Trader’’, No. 96–9242, 1998 WL 730334, at *3

(S.D.N.Y. Oct. 19, 1998) (‘‘Standing alone, the existence of a

bank account is insufficient to exercise jurisdiction over a

foreign defendant in New York, especially where the function of

the account is only to wire funds to an overseas bank.’’)

(emphasis added). As detailed above, the New York accounts

through which the subscription and redemption payments

passed were not merely maintained by BLI, nor is personal

jurisdiction over BLI rooted in the mere existence of these

accounts. Instead, as the Trustee’s allegations make clear, BLI

directed its investment towards the forum State, thereby

purposefully availing itself of the benefits and protections of

New York laws.

28a

purposefully availed itself of the benefits and

protections of New York laws by knowing, intending

and contemplating that the substantial majority of

funds invested in Fairfield Sentry would be

transferred to BLMIS in New York to be invested in

the New York securities market. BLI not only was a

self-proclaimed ‘‘Professional Investor,’’ but also

hired Union Securities to conduct diligence on

Fairfield Sentry and its investment strategies. See

Long Decl., Exs. 1, 2. As part of this diligence, BLI

was

furnished

with

private

placement

memorandum and other information about Fairfield

Sentry, including specifics about the Fund’s

investment strategy and past results and trades in

the S & P 100. See Long Decl., Ex. 1, pp. 1–6, 10. On

BLI’s behalf, Union Securities learned that the

Fund’s ‘‘strategy is executed by [BLMIS],’’ id. at 2,

and the PPM highlighted BLMIS’s central role in

Fairfield Sentry’s investment strategy, see id. at Ex.

4, p. 15. It explicitly stated that (i) Fairfield Sentry

was required to invest at least 95% of its assets in

the SSC utilized and controlled by BLMIS in New

York; (ii) BLMIS was to act as custodian of these

assets, holding them in segregated accounts in New

York; and (iii) BLMIS was to invest these assets in

U.S. Securities and Treasuries. Id.; 2006 PPM, p. 21;

see Compl., ¶ 3; Subscription Agreement, p. 1, ¶ 3,

Ex. 6.15 Armed with the fruits of this diligence, BLI

Further evidencing the strong nexus with New York, the

Agreement contains a New York choice of law clause and a New

York forum selection clause. See Subscription Agreement, pp. 5,

6 (indicating the Agreement ‘‘shall be governed and enforced in

accordance with the laws of New York, without giving effect to

29a

signed

the

Subscription

incorporated the PPMs.

Agreement,

which

In a nutshell, BLI invested tens of millions of

dollars in Fairfield Sentry with the specific purpose

of having funds invested in BLMIS in New York, and

intended to profit from this U.S.-based investment.

As such, BLI cannot claim a violation of its due

process rights from having to appear in a New York

court to defend itself in a suit arising from activities

with a clear New York nexus. See In re BLMIS, 460

B.R. at 119 (finding no serious burden ‘‘where [the

defendant’s] counsel is in New York and there is a

U.S. nexus to its economic activities, and given that

‘the conveniences of modern communication and

transportation’ also militate against finding hardship

based on lack of proximity’’) (quoting Bank Brussels

Lambert v. Fiddler Gonzalez & Rodriguez, 305 F.3d

120, 129 (2d Cir. 2002)). Accordingly, this Court has

personal jurisdiction over BLI.

As a final jurisdictional argument, BLI asserts

that this Court lacks both subject matter and

personal jurisdiction because BLI invested only in

Fairfield Sentry, never directed its funds to BLMIS,

and, in fact, had no contact with BLMIS. In support

of its point, BLI cites to In re Aozora Bank Ltd., 480

B.R. 117 (S.D.N.Y. 2012), contending that when it

purchased ownership interests in Fairfield Sentry, (i)

the investment became the sole property of Fairfield

Sentry, which exercised exclusive control over the

its conflict of laws provisions’’ and requiring BLI to ‘‘irrevocably

submit[ ] to the jurisdiction of the New York courts’’).

30a

investment and directed the money to BLMIS, and

(ii) the investors had no direct control over the funds

and did not directly invest the money in BLMIS.

BLI’s argument is erroneous because it conflates

the concept of jurisdiction with the notion of a

‘‘customer’’ under SIPA, two entirely different

standards requiring completely different analyses.16

That BLI intended to purposefully avail itself of the

forum warrants a finding of personal jurisdiction

over BLI, but does not necessarily warrant any

finding regarding customer status under SIPA. See

SIPC v. BLMIS (In re Bernard L. Madoff), 454 B.R.

285, 301 n. 22 (Bankr. S.D.N.Y. 2011) (holding that

‘‘in light of the nature of the … investments in the

Feeder Funds,’’ intent to invest ultimately with

BLMIS is ‘‘of no consequence’’ to this Court’s finding

regarding customer status).

***

Having addressed jurisdiction, the Court now

turns to two issues of first impression; (i) whether

the Trustee, as a matter of law, may recover from

BLI as a subsequent transferee (‘‘Avoidance Issue’’),

and (ii) whether the Trustee’s claims are barred by

the

presumption

against

extraterritoriality

Indeed, the Aozora court never addressed jurisdiction; it

analyzed only which parties are entitled to SIPA customer

claims. See 2012 WL 28468, at *3.

31a

(‘‘Extraterritoriality Issue’’).17 Before delving into the

merits, a brief background is appropriate.

On May 18, 2009, the Trustee filed a complaint

against the initial transferee, Fairfield Sentry,

seeking, inter alia, the avoidance of all transfers

from BLMIS to Fairfield Sentry during the six year

period prior to the Filing Date totaling

$3,054,000,000. See Adv. Pro. No. 09–1239, Dkt. No.

1. Shortly thereafter, the Eastern Caribbean

Supreme Court in the High Court of Justice of the

Virgin Islands (the ‘‘BVI Court’’) entered an order

initiating the wind up of Fairfield Sentry. On May 9,

2011, the Trustee and the Fairfield Sentry Joint

Liquidators at that time entered into a written

settlement (the ‘‘Settlement’’ or ‘‘Settlement

Agreement’’)18 wherein Fairfield Sentry (i) agreed to

Judge Rakoff of the United States District Court, Southern

District of New York, has withdrawn the reference in certain

adversary proceedings to adjudicate these issues. The

Extraterritoriality Issue has been fully briefed and oral

argument was held on September 21, 2012. The Avoidance

Issue is in the process of being briefed and oral argument is

scheduled for November 30, 2012. See 12–MC–00115 (JSR)

(Dkt. Nos. 167, 314). As BLI never moved to withdraw the

reference and is not a party to the aforementioned adversary

proceedings, these issues remain before this Court. In a recent

order, Judge Rakoff noted that ‘‘to the extent that the issues

overlap, whichever court reaches its issue first can provide

guidance for the other.’’ See Order, 12–MC–00115 (JSR) (Dkt.

No. 214). In the instant decision, this Court addresses only

those arguments presented before it.

See Form of Agreement Between the Trustee and Kenneth

Krys and Joanna Lau, Solely in Their Respective Capacities as

the Foreign Representatives for and Joint Liquidators of

Fairfield Sentry Limited, Fairfield Sigma Limited and Fairfield

32a

pay $70 million to the Trustee, (ii) reduced its

customer claim by nearly $730 million and (iii)

entered into a consent judgment against it in favor of

the Trustee for the entire amount of the initial

transfers sought to be avoided by the Trustee

(totaling $3,054,000,000). The Settlement Agreement

stated that ‘‘the Judgments may be used by the

Trustee to prosecute a Subsequent Transferee Claim,

and then for the purpose of establishing the

avoidance

the

Withdrawals.’’

Settlement

Agreement, ¶ 24.

On June 10, 2011, following a hearing on the

Trustee’s Bankruptcy Rule 9019 Motion19, this Court

approved the Settlement conditioned upon its

approval by the BVI Court. On June 24, 2011, the

BVI Court approved the Settlement and on July 13,

2011, this Court entered the consent judgment

against Fairfield Sentry. BLI incorrectly asserts that

the consent judgment was the product of improper

collusion and ‘‘collaboration among liquidation

trustees with one common goal, settle the current

dispute and go after secondary transferees.’’ BLI

Lambda Limited [hereinafter ‘‘Settlement’’ or ‘‘Settlement

Agreement’’], Adv. Pro. No. 09–1239, Dkt. No. 69, Att. 2 (Ex. A).

Motion for Entry of Order Pursuant to Section 105(a) of the

Bankruptcy Code and Rules 2002(a)(3) and 9019(a) of the

Federal Rules of Bankruptcy Procedure Approving an

Agreement by and Between the Trustee and Kenneth Krys and

Joanna Lau, Solely in Their Respective Capacities as the

Foreign Representatives for and Joint Liquidators of Fairfield

Sentry Limited, Fairfield Sigma Limited, and Fairfield Lambda

Limited [hereinafter ‘‘Bankruptcy Rule 9019 Motion’’] (Adv.

Pro. No. 09–1239, Dkt. No. 69).

33a

Mem. Law, p. 14. Instead, the Settlement was the

result of a court-approved settlement process that (i)

recognized the limited funds available to recover

from an insolvent entity, and (ii) avoided the

gratuitous costs and delays involved in adjudicating

to judgment the Trustee’s claims against Fairfield

Sentry. See Bench Memorandum and Order

Granting Trustee’s Motion for Entry of Order

Approving Agreement (Adv. Pro. No. 09–1239, Dkt.

No. 92), p. 3. In approving the Settlement, this Court

acknowledged that part of the value of the

settlement was the consent judgment, which allowed

the Trustee to seek recovery of funds against other

parties in the future. See id. at p. 4 (‘‘[T]he Trustee’s

and the Foreign Representatives’ proposed joint

litigation strategies provide for the assignment of

claims, and allocation of recoveries, to the BLMIS

estate, enhancing the Trustee’s ability to achieve the

substantially greater sums from third parties for

ultimate distribution to creditors and customers of

the BLMIS estate.’’). As set forth infra, the Court

also recognized and preserved the rights of

subsequent transferees to raise defenses and contest

the avoidability of the initial transfers. See Order

Pursuant to Section 105(a) of the Bankruptcy Code

and Rules 2002 and 9019(a) of the Federal Rules of

Bankruptcy Procedure Approving an Agreement By

and Among the Trustee and Kenneth Krys and

Joanna Lau, Solely in Their Respective Capacities as

the Foreign Representatives for and Joint

Liquidators of Fairfield Sentry Limited, Fairfield

Sigma Limited, and Fairfield Lambda Limited, p. 3.

With respect to the Avoidance Issue and the

Extraterritoriality Issue, BLI seemingly moves to

34a

dismiss under Rule 12(b)(6), which allows a party to

move to dismiss a cause of action for ‘‘failure to state

a claim upon which relief can be granted.’’ FED. R.

CIV. P. 12(b)(6); FED. R. BANKR. P. 7012(b). When

considering a motion to dismiss under Rule 12(b)(6),

a court must accept all factual allegations in the

complaint as true and draw all reasonable inferences

in the plaintiff’s favor. Ashcroft v. Iqbal, 556 U.S.

662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009);

Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555–56,

127 S.Ct. 1955, 167 L.Ed.2d 929 (2007); E.E.O.C. v.

Staten Island Sav. Bank, 207 F.3d 144, 148 (2d Cir.

2000).

The Court now turns to the merits of these

issues.

III.

THE TRUSTEE MAY PURSUE RECOVERY

FROM

BLI

SUBSEQUENT

TRANSFEREE UNDER SECTION 550 OF

THE CODE BECAUSE THE INITIAL

TRANSFERS

FROM

BLMIS

FAIRFIELD SENTRY ARE AVOIDABLE

The issue before the Court is 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.

Section 550 provides:

[T]o the extent that a transfer is avoided under

[an avoidance provision in the Code], the trustee

may recover, for the benefit of the estate, the

property transferred, or, if the court so orders,

35a

the value of such property, from … (2) any

immediate or mediate transferee of such initial

transferee.

11 U.S.C. § 550(a). BLI argues that the Trustee is

barred from seeking recovery from BLI as a

subsequent transferee because the Trustee, having

entered into a settlement agreement, did not obtain a

full and final judgment of avoidance against the

initial transferee, Fairfield Sentry. The Court

disagrees. Under these circumstances, the Trustee

may recover from BLI under Section 550 because the

Trustee timely filed a complaint against Fairfield

Sentry alleging that the initial transfers from

BLMIS to Fairfield Sentry are ‘‘avoidable’’ under

section 548 of the Code. See Official Comm. of

Unsecured Creditors of M. Fabrikant & Sons, Inc. v.

J.P. Morgan Chase Bank, N.A. (In re M. Fabrikant &

Sons, Inc.), 394 B.R. 721, 741 (Bankr. S.D.N.Y. 2008)

(‘‘Avoidable … describes a transaction that can be

voided … but that is valid until annulled.’’)

(quotations and citations omitted). Indeed, the

majority of courts have found that Section 550

requires a transfer be avoidable; it does not require a

trustee to litigate a final judgment of avoidance

against initial transferees before seeking recovery

from subsequent transferees. 5 COLLIER ON

BANKRUPTCY, ¶ 550.02[1] at 550–6 (16th Ed. 2011)

(‘‘The better view, adopted by the majority of courts

is that … a recovery may be had from a subsequent

transferee without suing the initial transferee.’’); see,

e.g., IBT Int’l, Inc. v. Northern (In re Int’l Admin.

Servs., Inc.), 408 F.3d 689, 708 (11th Cir. 2005)

(‘‘Section 550(a) does not mandate a plaintiff to first

pursue recovery against the initial transferee and

36a

successfully avoid all prior transfers against a

mediate transferee.’’); Kendall v. Sorani (In re

Richmond Produce Co.), 195 B.R. 455, 463 (N.D. Cal.

1996) (‘‘[O]nce the trustee proves that a transfer is

avoidable under section 548, he may seek to recover

against any transferee, initial or immediate, or an

entity for whose benefit the transfer is made.’’)

(emphasis added); Woods & Erickson, LLP v.

Leonard (In re AVI, Inc.), 389 B.R. 721, 735 (9th Cir.

BAP 2008) (‘‘[A] trustee is not required to avoid the

initial transfer from the initial transferee before

seeking recovery from subsequent transferees under

§ 550(a)(2).’’); In re M. Fabrikant & Sons, Inc., 394

B.R. at 745–46 (‘‘The plaintiff can proceed directly

against the [subsequent transferees] and ‘‘avoid’’ the

initial transfer as to them.’’). Further, there is

nothing in Section 550 suggesting ‘‘that recovery

from immediate transferees is in any way dependent

upon a prior action or recovery against the initial

transferee…. On the contrary, avoidability is an

attribute of the transfer rather than that of the

creditor.’’ In re Richmond Produce Co., 195 B.R. at

463 (quotation omitted).

Only one district court case in the Second Circuit

has addressed this issue. See Enron Creditors

Recovery Corp. v. Int’l Fin. Corp. (In re Enron

Creditors Recovery Corp.), 388 B.R. 489 (S.D.N.Y.

2008). In Enron, the bankruptcy court was

confronted with a situation where it was impossible

and impractical for the trustee to obtain a judgment

of avoidance against the initial transferee, CLO

Holdings, ‘‘because there was no CLO Holdings and

there was no CLO trustee. The special purpose entity

[CLO] … had been collapsed.’’ See In re Enron

37a

Creditors Recovery Corp., Hearing Transcript (Enron

Transcript), No. 07–6597, Dkt. No. 32, Apr. 16, 2008,

at p. 17, lines 21–24. As such, while the district court

agreed with the bankruptcy court that Section 550

usually requires a formal avoidance of a transfer

before permitting recovery from a subsequent

transferee, it emphasized that it was ‘‘necessary to

leave open the possibility of an exception where[,] for

legal or practical reasons[,] it is impossible or

impractical to satisfy the precondition of an

avoidance.’’ See Enron Transcript at p. 37, lines 15–

25; p. 38, lines 1–10 (emphasis added).

In essence, the district court found that Section

550 must be construed flexibly to avoid harsh and

inequitable results. Specifically, it noted that ‘‘two

[sic] ready an application of the requirement of the

condition precedent can amount to forfeiture. And in

this application it would bar the trustee from seeking

recovery of assets that arguably should be recovered

for the bankrupt … and the creditors thereof.’’ Id. at

p. 38, lines 11–15; see also id. at p. 38, lines 16–21

(‘‘[W]e are involved with statutory extensions of laws

of equity and I think we should inform the way that

the bankruptcy code and rules are interpreted not in

the feasance of literal terms, but, certainly, where

there is sufficient ambiguity to allow such we can

satisfy both literal rule and equity….’’) (emphasis

added).

The AVI court echoed the district court’s

sentiments that Section 550 ‘‘should be interpreted

to provide flexibility.’’ In re AVI, Inc., 389 B.R. at

735. In the context of settlements in particular, it

relied on such flexibility to ‘‘avoid [the] absurd

result’’ of precluding a trustee from ‘‘pursuing

38a

subsequent transferees after settling with an initial

transferee who does not admit liability.’’ Id.

(emphasis added). The court emphasized that

‘‘Congress could not have contemplated this outcome

in enacting § 550’’ because it would lead to trustees

having ‘‘little incentive to partially settle avoidance

actions, thereby running up the costs of litigation

and causing further delay.’’ Id.

Under the present circumstances where a

settlement is at play, rigidly construing Section 550

to require a formal avoidance against Fairfield

Sentry before permitting recovery from BLI makes

little sense. It was ‘‘impractical’’ for the Trustee to

obtain such a judgment against Fairfield Sentry

because it would have entailed protracted, expensive

litigation with an insolvent entity in the midst of a

liquidation proceeding with little chance of

meaningful recovery. 20 See Affidavit of Irving H.

Picard, 21 (Adv. Pro. No. 09–1239) (Dkt. No. 71),

Attachment 5, Ex. D, ¶¶ 4, 7 (Trustee attesting that,

using his business judgment, he believed it

preferable to settle with Fairfield Sentry rather than

engage in an exercise of futility to litigate to a full

As a result of the Settlement, the Trustee is entitled to

recover only $70 million, a mere two percent of the

approximately $3 billion consent judgment against Fairfield

Sentry. See Settlement Agreement, ¶¶ 1–2.

Affidavit of Irving H. Picard, Trustee, In Support of Motion

for Entry of Order Pursuant to Section 105(a) of the

Bankruptcy Code and Rules 2002(a)(3) and 9019(a) of the

Federal Rules of Bankruptcy Procedure Approving Agreements

Between the Trustee and Greenwich Sentry, L.P., and

Greenwich Sentry Partners LP.

39a

and final judgment of avoidance). In addition, such a

requirement would lead to the ‘‘absurd result’’ of

forcing the Trustee to choose between engaging in

such burdensome litigation with the insolvent initial

transferee on the one hand, or forever forfeiting the

right to recover from all subsequent transferees on

the other. To avoid such an impractical result, the

Court construes Section 550 flexibly to require only

avoidability to pursue recovery from BLI.

The above notwithstanding, the Trustee will still

be required to prove that the transfers from BLMIS

to Fairfield were fraudulent and improper in

connection with its suit against BLI as subsequent

transferee because the Trustee’s Settlement with

Fairfield Sentry did not involve any determination

on the merits as to the initial transfers.22 So, too, BLI

will be afforded its due process rights to contest the

avoidability of these initial transfers. See Dye v.

Sachs (In re Flashcom, Inc.), 361 B.R. 519, 525

(Bankr. C.D. Cal. 2007) (‘‘[A] stipulated or default

judgment entered in an avoidance action does not

preclude the defendants in a recovery action from

disputing the avoidability.’’); Thompson v. Jonovich

(In re Food & Fibre Protection, Ltd.), 168 B.R. 408,

416 (Bankr. D. Ariz. 1994) (finding that a default

judgment did not preclude defendants from asserting

their due process rights to dispute avoidability of the

initial transfer and raise whatever defenses were

In fact, there was an express denial of liability with regard

to the initial transfers. See Settlement Agreement, ¶ 24 (‘‘This

Agreement … will not be deemed to be a presumption,

concession or admission by any Party of any fault, liability or

wrongdoing whatsoever.’’).

40a

available to the initial transferee); Morris v. Emprise

Bank (In re Jones Storage and Moving, Inc.), No. 00–

14862, 2005 WL 2590385 (Bankr. D. Kan. Apr. 14,

2005). That BLI should be afforded this right to

dispute is a notion the Trustee does not contest. See

Irving H. Picard, Trustee for the Liquidation of

Bernard L. Madoff Investment Securities LLC’s

Memorandum in Response to Defendant Bureau of

Labor Insurance’s Motion to Dismiss (Dkt. No. 16), p.

29 (‘‘[T]hese cases merely hold that subsequent

transferees’ rights to due process afford them the

opportunity to contest the avoidability of initial

transfers, to the extent that issue was not fully

adjudicated in a prior proceeding—a proposition that

the Trustee does not contest.’’).

BLI further argues that since the Settlement did

not constitute a true avoidance, it failed to trigger

the one-year statute of limitations under section

550(f) of the Code. See 11 U.S.C. § 550(f) (stating the

trustee must initiate recovery actions against

subsequent transferees within ‘‘one year after the

avoidance of the transfer’’). To avoid the absurd

result of section 550(f) of the Code never starting to

run, BLI asserts that ‘‘the Court should apply the

two-year statute of limitations contained in 11 U.S.C.

§ 546(a) to the Trustee’s claims against BLI.’’ See

BLI Reply, p. 27; 11 U.S.C. § 546(a)(1)(A) (stating the

trustee must initiate an avoidance proceeding within

two years after entry of the bankruptcy petition).

BLI contends that since the Trustee’s Complaint

against BLI was filed over two years after the

bankruptcy petition, the suit is time-barred. BLI’s

arguments in this regard are erroneous. Although

the Settlement does not constitute a formal

41a

avoidance of the initial transfer from BLMIS to

Fairfield, it presents the Court with finality with

respect to Fairfield Sentry. This finality triggers the

relevant one-year statute of limitations under section

550(f) of the Code. Without such a trigger, the

Trustee would be permitted to bring suit against a

subsequent transferee for an indefinite amount of

time, a highly inequitable result. See ASARCO LLC

v. Shore Terminals LLC, No. C 11–01384, 2012 WL

2050253, at *5 (N.D. Ca. June 6, 2012) (finding that

a judicially approved settlement triggered the

statute of limitations because any other result

‘‘would undermine the certainty that statutes of

limitations are designated to further,’’ and because

otherwise ‘‘the statute of limitations would be

indefinite because a triggering event might never

occur’’). Whether the Court looks at the date that (i)

the Trustee’s Bankruptcy Rule 9019 Motion was

granted (June 7, 2011), (ii) a final order from this

Court approving the Settlement was entered (June

10, 2011), (iii) a final order from the BVI court

approving the Settlement was entered (June 24,

2011), or (iv) a consent judgment was entered

against Fairfield Sentry by this Court (July 13,

2011), the Trustee’s suit against BLI, commenced on

September 22, 2011, was well within the one-year

statute of limitations and is therefore deemed timely.

In light of the above, the Motion to Dismiss on

these grounds is DENIED.

IV. THE TRUSTEE’S CLAIMS ARE NOT

BARRED

THE

PRESUMPTION

AGAINST EXTRATERRITORIALITY

42a

The final issue before the Court is whether the

Trustee’s claims against BLI under Section 550 are

barred

the

presumption

against

extraterritoriality.

The Supreme Court recently reaffirmed the

presumption against extraterritoriality, which

assumes that, unless Congress indicates otherwise,

its legislation applies only within the territorial

jurisdiction of the United States. See Morrison v.

Nat. Australia Bank Ltd., ––– U.S. ––––, ––––, 130

S.Ct. 2869, 2877, 177 L.Ed.2d 535 (2010)

[‘‘Morrison’’]. This principle ‘‘represents a canon of

construction, or a presumption about a statute’s

meaning, rather than a limit upon Congress’s power

to legislate’’ and ‘‘rests on the perception that

Congress ordinarily legislates with respect to

domestic, not foreign matters.’’ Id. As such, ‘‘unless

there is the affirmative intention of the Congress

clearly expressed to give a statute extraterritorial

effect, we must presume it is primarily concerned

with domestic conditions.’’ Id. (quotations omitted).

In light of this presumption, BLI argues that the

Trustee improperly seeks to apply Section 550

extraterritorially to transfers that BLI received from

Fairfield Sentry overseas. BLI is incorrect, however,

because (i) the Trustee is not seeking to apply

Section

550

extraterritorially,

making

this

presumption inapplicable, and (ii) even if the Trustee

were seeking to apply this section extraterritorially,

Congress expressed clear intent to permit such an

application. Accordingly, the Trustee’s claims against

BLI pursuant to Section 550 are not barred by the

presumption against extraterritoriality.

43a

A. The

Presumption

Against

Extraterritoriality Does Not Apply Under These

Circumstances

As demonstrated below, in light of the ‘‘focus’’

test annunciated in Morrison, in conjunction with

pragmatic considerations, the Court finds that the

Trustee is not seeking to apply Section 550

extraterritorially and, therefore, the presumption

against extraterritoriality is not implicated in the

instant Motion to Dismiss.

a. The ‘‘Focus’’ Test Under Morrison

In determining whether a statute is being

applied domestically or extraterritorially, the

Supreme Court in Morrison annunciated a

transactional test centered on the ‘‘focus’’ of a

statute, namely, the ‘‘objects of the statute’s

solicitude,’’ and what the statute ‘‘seeks to regulate.’’

130 S.Ct. at 2883–84. If the acts or objects upon

which the statute focuses are located in the United

States, application of the statute is domestic and the

presumption against extraterritoriality is not

implicated, even if other activities or parties are

located outside the United States. See id. at 2884–85;

SEC v. Gruss, No. 11–Civ–2420, 2012 WL 1659142,

at *8–10 (S.D.N.Y. May 09, 2012) (finding no

extraterritorial

application

where

focus

Investment Advisor Act was on investment advisers

and fraud was perpetuated by domestic investment

advisor against foreign clients); see also Lapiner v.

Camtek, Ltd., No. C 08–01327, 2011 WL 445849, at

*2 (N.D.Cal. Feb. 2, 2011) (denying motion to dismiss

on extraterritorial grounds because focus of act was

domestic even though ‘‘the conduct on which [the]

44a

plaintiff’s claims are based took place outside of the

United States, specifically in Israel, and that the

majority of [the] stock is, purportedly, held in

Israel’’).

As demonstrated by the text and structure of the

avoidance and recovery sections of the Code, their

focus is on the improper depletion of the bankruptcy

estate’s assets. French v. Liebmann (In re French),

440 F.3d 145, 154 (4th Cir. 2006) (‘‘[T]he Code’s

avoidance provisions protect creditors by preserving

the

bankruptcy

estate

against

illegitimate

depletions.’’). These avoidance and recovery

provisions work in tandem to further the Code’s

policy of maximizing the value of the bankruptcy

estate by permitting a trustee to avoid certain

transfers that deplete the estate and recover the

payments for the benefit of creditors. See Lassman v.

Patts (In re Patts), 470 B.R. 234, 243 (Bankr. D.

Mass. 2012) (‘‘These sections of the Bankruptcy Code

must be read in conjunction when assessing a

trustee’s avoidance and recovery action, the purpose

of which is to restore the estate to the financial

condition it would have enjoyed if the transfer had

not occurred.’’); see also 5 COLLIER ON BBANKRUPTCY

¶ 548.01[1][a] (16th ed. 2010) (‘‘[S]ection 548 serves

the goal of increased creditor dividends by allowing

the estate representative to avoid offending

transactions, and bring the property back into the

debtors’ estate for distributions to creditors.’’).

Specifically, the focus of the avoidance and

recovery sections is on the initial transfers that

deplete the bankruptcy estate and not on the

recipient of the transfers or the subsequent

transfers. For example, the avoidance sections focus

45a

on the transfers themselves, including the timing of

the transfers, see, e.g., 11 U.S.C. §§ 547(b)(4),

548(a)(1), (b), their purpose, see, e.g., 11 U.S.C. §

548(a)(1)(A), and their effect on the transferor, see,

e.g., § 548(a)(1)(B). Further, the recovery section that

governs the Trustee’s claims against BLI, Section

550, is titled ‘‘Liability of transferee of avoided

transfer.’’ 11 U.S.C. § 550; see Gruss, 2012 WL

1659142, at *9 (‘‘[A] title of a statute or section can

aid in resolving any ambiguity in the legislation’s

text.’’) (quotation omitted). It makes no mention of

the transfer from the initial transferee to the

subsequent transferee; indeed, recovery from a

subsequent transferee is grounded solely on the basis

of it possessing a fraudulent transfer. See 11 U.S.C. §

550. Moreover, as ‘‘a court’s recovery power is

generally coextensive with its avoidance power,’’ it is

logical that the relevant transfer for purposes of the

presumption against extraterritoriality is only the

transfer that is to be avoided, namely the initial

transfer. See Diaz–Barba v. Kismet Acquisition, LLC,

No. 08–CV–1446, 2010 WL 2079738, at *8 (S.D.Cal.

May 20, 2010).

Looking at the instant facts, the Trustee’s

application of Section 550 is domestic because the

depletion of the BLMIS estate occurred in the United

States. The BLMIS Ponzi scheme was operated in

the United States and the funds used to operate the

scheme were received and disbursed to investors in

the United States. Specifically, the transfers at issue

originated from BLMIS’s New York JPMorgan

Account and went to Fairfield Sentry’s New York

HSBC Account. These acts, which occurred

domestically, are the ‘‘objects of the statute’s

46a

solicitude,’’ and what the statute ‘‘seeks to regulate,’’

Morrison, 130 S.Ct. at 2884. As the focus of Section

550 occurred domestically, the fact that BLI received

BLMIS’s fraudulently transferred property in a

foreign country does not make the Trustee’s

application of this section extraterritorial. See id. at

2884–85; Gruss, 2012 WL 1659142, at *8–10;

Lapiner, 2011 WL 445849, at *2.

b. Pragmatic Considerations

In addition, finding that the Trustee could not

recover assets fraudulently transferred abroad, as

BLI argues, would, from a practical standpoint,

render hollow the avoidance and recovery provisions

of the Code, an outcome clearly unintended by

Congress. In particular, if the avoidance and

recovery provisions ceased to be effective at the

borders of the United States, a debtor could end run

the Code by ‘‘simply arrang[ing] to have the transfer

made overseas,’’ thereby shielding them from United

States law and recovery by creditors. In re Maxwell

Communication Corp., 186 B.R. at 816. Congress did

not intend for this absurd result of according ‘‘an

invariable exemption from the Code’s operation to

those who leave our borders to engage in fraud.’’

French, 440 F.3d at 155 (Wilkinson, J., concurring).

This is especially so given the prevalence of special

purpose offshore entities engaging in financial and

commercial activities in the United States. Moreover,

‘‘nothing is better settled[ ] than’’ the responsibility

of courts to assure that statutes receive ‘‘a sensible

construction, such as will effectuate the legislative

intention, and, if possible, so as to avoid an unjust or

an absurd conclusion.’’ Johnson v. U.S., 529 U.S. 694,

707 n. 9, 120 S.Ct. 1795, 146 L.Ed.2d 727 (2000)

47a

(quoting In re Chapman, 166 U.S. 661, 667, 17 S.Ct.

677, 41 L.Ed. 1154 (1897); see also Gruss, 2012 WL

1659142, at *10) (finding congressional silence did

not

implicate

the

presumption

against

extraterritorially because ‘‘[n]ot every silence is

pregnant…. An inference drawn from congressional

silence certainly cannot be credited when it is

contrary to all other textual and contextual evidence

of congressional intent’’) (quoting Burns v. U.S., 501

U.S. 129, 136, 111 S.Ct. 2182, 115 L.Ed.2d 123

(1991)). 23 Accordingly, the Court declines to adopt

BLI’s position in this regard.

c. Maxwell is Distinguishable From The

Instant Facts

Although BLI relies heavily on Maxwell

Communication Corp. plc v. Barclays Bank (In re

Maxwell Communication Corp. plc), 170 B.R. 800

(Bankr. S.D.N.Y. 1994), where the court found

Section 547 of the Code could not be applied

The analysis above applies equally to subsequent

transferees. If foreign subsequent transferees were insulated

from recovery actions, the avoidance and recovery provisions of

the Code would likewise be rendered ineffective. A debtor could

engineer transfers to end up in the possession of foreign parties,

thus preventing recovery by a trustee. Indeed, ‘‘[t]he

cornerstone of the bankruptcy courts has always been the doing

of equity, and in situations such as this, where money is spread

throughout the globe, fraudulent transferors should not be

allowed to use § 550 as both a shield and a sword. Not only

would subsequent transferees avoid incurring liability, but they

would also defeat recovery and further diminish the assets of

the estate.’’ In re Int’l Admin. Servs., Inc., 408 F.3d 689, 707

(11th Cir. 2005) (quotation and citation omitted).

48a

extraterritorially,

aff’d

sub

nom.

Maxwell

Communication Corp. plc v. Societe General plc (In re

Maxwell Communication Corp. plc), 186 B.R. 807

(S.D.N.Y. 1995), aff’d on other grounds, 93 F.3d 1036

(2d Cir. 1996), Maxwell is distinguishable on its

facts.

First,

application

Section

547

was

extraterritorial in Maxwell because the focus of the

statute, depletion of the debtor’s estate, occurred

abroad; preferential transfers were made by a United

Kingdom corporation from its accounts located

abroad to recipients also located abroad. See id. at

809. Indeed, the Maxwell court expressly limited its

holding to instances where the Debtor was not a

United States entity and the transfers occurred

abroad to other foreign entities. See id. at 814 (‘‘To be

clear, I do not hold today that no debtor may pursue

a transfer overseas. What I do hold is that where a

foreign debtor makes a preferential transfer to a

foreign transferee and the center of gravity of that

transfer is overseas, the presumption against

extraterritoriality prevents utilization of section 547

to avoid the transfer.’’); id. at 808, n. 13 (‘‘Much as I

would relish the opportunity to address whether a

debtor which is a U.S. entity could use section 547 to

recover a preference made to a foreign creditor, I

think it is best to refrain from such dicta.’’). In

contrast, application of Section 550 here is domestic

because, as discussed supra, the depletion of the

BLMIS estate occurred in the United States.

Second, the Second Circuit declined to reach

whether the presumption against extraterritoriality

barred application of Section 547 abroad and

ultimately affirmed the lower courts on comity

49a

grounds. Maxwell, 93 F.3d at 1054–1055 (electing

not to ‘‘decide whether, setting aside considerations

comity,

the

‘presumption

against

extraterritoriality’ would compel a conclusion that

the Bankruptcy Code does not reach the pre-petition

transfers at issue’’). Employing a comity analysis, the

Second Circuit held that as Maxwell involved a

debtor subject to joint insolvency proceedings in the

United States and the United Kingdom, ‘‘the doctrine

of international comity precludes application of the

American avoidance law to transfers in which

England’s interest has primacy.’’ Id. at 1055. This

reasoning has no applicability to the instant case,

where BLMIS is not subject to parallel liquidation

proceedings in another court.24

In light of the above, the Trustee’s application of

Section 550 is purely domestic and is therefore not

barred

the

presumption

against

extraterritoriality.

B. Congress Expressed Clear Intent For

Extraterritorial Application of Section

550

Even if the application of Section 550 were

extraterritorial under these facts, which it is not,

Congress expressed clear intent for such an

In addition, comity is an affirmative defense that BLI has

the burden of proving. See Allstate Life Ins. Co. v. Linter Group

Ltd., 994 F.2d 996, 999 (2d Cir. 1993). As BLI has not argued

that comity concerns prevent the application of Section 550 to

its receipt of fraudulent transfers from BLMIS, the Court need

not address the issue.

50a

application

and

the

presumption

against

extraterritoriality ‘‘must give way when Congress

exercises its undeniable ‘authority to enforce its laws

beyond the territorial boundaries of the United

States.’ ’’ French, 440 F.3d at 151 (quoting E.E.O.C.

v. Arabian Am. Oil Co., 499 U.S. 244, 248, 111 S.Ct.

1227, 113 L.Ed.2d 274 (1991)). A statute need not

include a clear statement declaring ‘‘this law applies

abroad’’ to rebut the presumption, and statutory

context may be consulted ‘‘in searching for a clear

indication of statutory meaning.’’ U.S. v. Weingarten,

632 F.3d 60, 65 (2d Cir. 2011) (citing Morrison, 130

S.Ct. at 2883). Moreover, ‘‘reference to nontextual

sources is permissible’’ and ‘‘all available evidence’’

should be considered in determining congressional

intent. Id. (quotations omitted); see also French, 440

F.3d at 151 (‘‘To determine whether Congress has

expressed such an affirmative intention, courts may

look to … the text of the statute, the overall

statutory scheme, and legislative history.’’).

However, broad boilerplate terms in statutes are

insufficient to overcome the presumption against

extraterritoriality. Morrison, 130 S.Ct. at 2882.

Congress demonstrated its clear intent for the

extraterritorial application of Section 550 through

interweaving terminology and cross-references to

relevant Code provisions. Specifically, (i) ‘‘property of

the estate,’’ under Section 541, includes all property

worldwide; (ii) the avoidance provisions of Sections

544(b), 547, and 548 (the ‘‘Avoidance Provisions’’),

incorporate the language of Section 541—‘‘an

interest of debtor in property’’—to delineate the

extent to which transfers can be avoided, i.e., that

which would have been property of the estate but for

51a

the improper transfer can be avoided; and (iii)

Section 550 explicitly authorizes the recovery of all

transfers that have been avoided, which necessarily

includes overseas property.

With respect to Section 541, it defines ‘‘property

of the estate’’ as, inter alia, all ‘‘interests of the

debtor in property as of the commencement of the

case,’’ 11 U.S.C § 541(a)(1), ‘‘wherever located and by

whomever held.’’ 11 U.S.C. § 541(a). In accord with

the broad language of this section, courts have

universally held that property of the estate extends

to any property located worldwide. See, e.g., Hong

Kong & Shanghai Banking Corp. v. Simon (In re

Simon), 153 F.3d 991, 996 (9th Cir. 1998) (explaining

that property of the estate ‘‘includes property outside

the territorial jurisdiction of the United States’’);

Nakash v. Zur (In re Nakash), 190 B.R. 763, 768

(Bankr. S.D.N.Y. 1996) (noting that ‘‘wherever

located’’ is broadly construed ‘‘to include property

located in and outside of the U.S.’’).

The Avoidance Provisions grant a trustee the

power to avoid certain prepetition transfers ‘‘of an

interest of a debtor in property.’’ See 11 U.S.C. §

544(b), 547, 548. These sections’ reference to the

‘‘interest of the debtor in property’’—the same term

used in Section 541—is not coincidental. Rather, as

discussed by the Supreme Court in the context of

preferential transfers under section 547 of the Code,

property subject to avoidance is defined by ‘‘property

of the estate’’ in Section 541. As explained by the

Court, section 541 ‘‘delineates the scope of ‘property

of the estate’ and serves as the postpetition analog to

§ 547(b)’s ‘property of the debtor.’ ’’ Begier v. I.R.S.,

496 U.S. 53, 58–59, 110 S.Ct. 2258, 110 L.Ed.2d 46

52a

(1990). This is because (i) ‘‘ ‘property of the debtor’

subject to the preferential transfer provision is best

understood as that property that would have been

part of the estate had it not been transferred before

the commencement of the bankruptcy proceedings’’

and (ii) ‘‘the purpose of the avoidance provision is to

preserve the property includable within the

bankruptcy estate.’’ Id. at 58, 110 S.Ct. 2258.

In circumstances similar to the instant

proceeding, the Fourth Circuit concluded that the

Avoidance Provisions’ reference to Section 541 also

incorporates that section to permit the avoidance of

overseas transfers.

By incorporating the language of § 541 to define

what property a trustee may recover under his

avoidance powers, § 548 plainly allows a trustee

to avoid any transfer of property that would have

been ‘‘property of the estate’’ prior to the transfer

in question—as defined by § 541—even if that

property is not ‘‘property of the estate’’ now.

Through this incorporation, Congress made

manifest its intent that § 548 apply to all

property that, absent a prepetition transfer,

would have been property of the estate, wherever

that property is located.

French, 440 F.3d at 151–52 (4th Cir. 2006) (citations

omitted)

(emphasis

altered).

Section

548’s

incorporation of ‘‘property of the estate’’ as defined in

Section 541 ‘‘is not merely broad, boilerplate

language that arguably contemplates application

beyond the territorial jurisdiction of the United

States.’’ Kollias v. D & G Marine Maint., 29 F.3d 67,

74 (2d Cir. 1994). That is, Congress explicitly

53a

incorporated the language of Section 541 to allow a

trustee to maximize recoveries for the bankruptcy

estate by permitting the avoidance of any transfer

that would have been property of the estate, which

necessarily includes assets fraudulently transferred

outside the United States. See French, 440 F.3d at

152 (‘‘Congress thus demonstrated an affirmative

intention to allow avoidance of transfers of foreign

property that, but for a fraudulent transfer, would

have been property of the debtor’s estate.’’).

Section 550, in turn, allows a trustee to recover

any transfer to the extent it has been avoided. See 11

U.S.C. § 550. This section’s use of the term ‘‘transfer’’

specifically refers to all transfers ‘‘avoided under

section 544, 545, 547, 548, 549, 553(b), or 724(a) of

this title.’’ Id. As such, by incorporating the

avoidance provisions by reference, Section 550

expresses the same congressional intent regarding

extraterritorial

application.

Thus,

Congress

expressed intent for the application of Section 550 to

fraudulently transferred assets located outside the

United States and the presumption against

extraterritoriality does not apply.

BLI argues that the definition of property of the

estate in Section 541 cannot form the basis for the

extraterritorial application of the avoidance and

recovery sections in the Code because under Second

Circuit precedent, fraudulently transferred assets

are not property of the estate until they are actually

recovered. See BLI Reply, p. 32 (citing FDIC v.

Hirsch (In re Colonial Realty Co.), 980 F.2d 125, 131

(2d Cir. 1992)). BLI therefore urges this Court to

adopt the view of Barclay v. Swiss Fin. Corp. (In re

Midland Euro Exchange, Inc.), 347 B.R. 708 (Bankr.

54a

C.D. Cal. 2006), which criticized the holding of

French for the same reason. Id. at 717–18. Both BLI

and the court in Midland Euro Exchange, however,

misunderstand French’s holding. In French,

extraterritorial application of Section 548 was not

premised on fraudulently transferred assets

constituting actual property of the estate prior to

recovery. See French, 440 F.3d at 151 n. 2 (‘‘Because

we hold that § 548 applies to the transfer in this case

even assuming that § 541’s definition of ‘property of

the estate’ does not by itself extend to the

[fraudulently transferred property], we need not join

this dispute [on whether fraudulently transfers are

property of the estate prior to recovery].’’). Rather, as

explained above, Section 548’s reference to Section

541 expressed congressional intent to grant the

Trustee authority to avoid and recover all transfers

that, but for a fraudulent transfer, would have been

property of the estate, even if not currently property

of the estate. This grant of authority includes assets

fraudulently transferred overseas because but for the

fraudulent transfer, assets located overseas would

undeniably be property of the estate.

In light of the above, the Motion to Dismiss on

these grounds is DENIED.

CONCLUSION

For the reasons set forth herein, BLI’s Motion to

Dismiss is hereby DENIED.25

The Court notes that notwithstanding the approach of the

Trustee seeking to recover all $42 million from BLI in the

instant suit, in light of potential ‘‘value’’ defenses available

55a

IT IS SO ORDERED.

under the Code, it is conceivable that BLI would be liable only

for its net winnings.

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.