Case 1:17-cv GBD Document 12 Filed 11/01/17 Page 1 of 28

Transcription

1 Case 1:17-cv GBD Document 12 Filed 11/01/17 Page 1 of 28 UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK SECURITIES INVESTOR PROTECTION CORPORATION, v. Plaintiff-Applicant, BERNARD L. MADOFF INVESTMENT SECURITIES LLC, Adv. Pro. No (SMB) SIPA LIQUIDATION (Substantively Consolidated) Defendant. In re: BERNARD L. MADOFF, Debtor. IRVING H. PICARD, Trustee for the Substantively Consolidated SIPA Liquidation of Bernard L. Madoff Investment Securities LLC and Bernard L. Madoff, Plaintiff, v. Adv. Pro. No (SMB) No. 17 Civ (GBD) CAROL NELSON, Defendant, IRVING H. PICARD, Trustee for the Substantively Consolidated SIPA Liquidation of Bernard L. Madoff Investment Securities LLC and Bernard L. Madoff, Plaintiff, v. CAROL NELSON, individually and as joint tenant; and STANLEY NELSON, individually and as joint tenant, Adv. Pro. No (SMB) No. 17 Civ (GBD) Defendants. IRVING H. PICARD, Trustee for the Substantively Consolidated SIPA Liquidation of Bernard L. Madoff Investment Securities LLC and Bernard L.

2 Case 1:17-cv GBD Document 12 Filed 11/01/17 Page 2 of 28 Madoff, Plaintiff, v. HELENE SAREN-LAWRENCE, Adv. Pro. No (SMB) No. 17 Civ (GBD) Defendant. TRUSTEE S MEMORANDUM OF LAW IN OPPOSITION TO DEFENDANTS MOTIONS TO WITHDRAW THE REFERENCE BAKER & HOSTETLER LLP 45 Rockefeller Plaza New York, New York Telephone: (212) Facsimile: (212) Attorneys for Irving H. Picard, Trustee for the Substantively Consolidated SIPA Liquidation of Bernard L. Madoff Investment Securities LLC and the Estate of Bernard L. Madoff

3 Case 1:17-cv GBD Document 12 Filed 11/01/17 Page 3 of 28 TABLE OF CONTENTS PRELIMINARY STATEMENT...2 STATEMENT OF FACTS...3 Page A. The SIPA Liquidation...3 B. Defendants Customer Claims, Trustee s Notices of Determination, and Pending Objections...4 C. The Trustee s Avoidance Actions Against Defendants...6 ARGUMENT...8 I. DEFENDANTS HAVE FAILED TO DEMONSTRATE CAUSE FOR WITHDRAWAL...8 A. Withdrawal Of The Reference Is Not Warranted Where Defendants Right To A Jury Trial Has Been Extinguished Based On Filing Customer Claims...9 B. Withdrawal Is Not Warranted Where The Bankruptcy Court Has Constitutional Authority To Finally Adjudicate the Avoidance Actions...13 C. Judicial Efficiency And Uniformity Support Denial Of The Motion To Withdraw...16 D. Even If This Court Holds That The Bankruptcy Court Cannot Issue A Final Determination, It Should Still Deny The Motion And Allow The Bankruptcy Court To Issue Proposed Findings And Conclusions...18 CONCLUSION i-

4 Case 1:17-cv GBD Document 12 Filed 11/01/17 Page 4 of 28 TABLE OF AUTHORITIES Page(s) Cases Adelphia Recovery Trust v. FLP Group, Inc., No. 11 Civ (PAC), 2012 WL (S.D.N.Y. Jan. 30, 2012)...19 In re Ames Dep t Stores, No. M-47 (PKL), 1991 WL (S.D.N.Y. Nov. 25, 1991)...9 In re Arbco Capital Mgmt., LLP, 479 B.R. 254 (S.D.N.Y.2012)...19 In re B & E Sales Co., Inc., 129 B.R. 133 (Bankr. E.D. Mich. 1990)...10 In re Bally Total Fitness of Greater N.Y., 411 B.R. 142 (S.D.N.Y. 2009)...10 Bankr. Servs. Inc. v. Ernst & Young (In re CBI Holding Co., Inc.), 529 F.3d 432 (2d Cir. 2008)...10, 11 California v. Enron Corp. (In re Enron Corp.), No. 05 Civ (GBD), 2005 WL (S.D.N.Y. May 18, 2005)...18 In re Coated Sales, Inc., 119 B.R. 452 (Bankr. S.D.N.Y. 1990)...11 In re Corson Mfg., No. 01-MC-5E, 2001 WL (W.D.N.Y. June 27, 2001)...18 Crown Paper Co. v. Fort James Corp. (In re Crown Vantage), No. C (MMC), 2007 WL (N.D. Cal. Jan. 18, 2007)...10, 12 Dev. Specialists, Inc. v. Akin Gump Strauss Hauer & Feld LLP, 462 B.R. 457 (S.D.N.Y.2011)...9, 18 Enron Power Mktg., Inc. v. City of Santa Clara (In re Enron Power Mktg.), No. 01 Civ (HB), 2003 WL (S.D.N.Y. Jan. 8, 2003)...20 Official Employment Related Issues Committee of Enron Corp. v. John J. Lavorato (In re Enron Corp.), 319 B.R. 122 (Bankr. S.D. Tex. 2004)...11 In re Extended Stay, 466 B.R. 188 (S.D.N.Y. 2011) ii-

5 Case 1:17-cv GBD Document 12 Filed 11/01/17 Page 5 of 28 TABLE OF AUTHORITIES (Continued) Page In re Fairfield Sentry Ltd., No. 10 Civ (LAP), 2010 WL (S.D.N.Y. Nov. 22, 2010)...18 First Fid. Bank N.A., N.J. v. Hooker Invs. Inc. (In re Hooker Invs., Inc.), 937 F.2d 833 (2d Cir. 1991)...10 Germain v. Connecticut Nat. Bank, 988 F.2d 1323 (2d Cir. 1993)...7, 10, 11, 15 Granfinanciera, S.A. v. Nordberg, 492 U.S. 33 (1989)...10, 11 In re McCorhill Pub., Inc., 90 B.R. 633 (Bankr. S.D.N.Y. 1988)...11 Kapila v. Bank of Am., N.A. (In re Pearlman), 493 B.R. 878 (Bankr. M.D. Fla. 2013)...7, 12 Katchen v. Landy, 382 U.S. 323 (1966)...14 Keller v. Blinder (In re Blinder Robinson & Co., Inc.), 135 B.R. 892 (D. Col. 1991)...10 Kirschner v. Agoglia, 476 B.R. 75 (S.D.N.Y.2012)...19 Langenkamp v. Culp, 498 U.S. 42 (1990)...2, 10, 12 In re Lyondell Chem. Co., 467 B.R. 712 (S.D.N.Y.2012)...19 Mishkin v. Ageloff, 220 B.R. 784 (S.D.N.Y. 1998)...16 Orion Pictures Corp. v. Showtime Networks, Inc. (In re Orion Pictures Corp.), 4 F.3d 1095 (2d Cir. 1993)...8, 16 Matter of Peachtree Lane Assocs., Ltd., 150 F.3d 788 (7th Cir. 1998)...12 Pearson Educ., Inc. v. Almgren, 685 F.3d 691 (8th Cir. 2012)...11 Picard v. Chais (In re Bernard L. Madoff Inv. Sec., LLC), 445 B.R. 206 (Bankr. S.D.N.Y. 2011) iii-

6 Case 1:17-cv GBD Document 12 Filed 11/01/17 Page 6 of 28 TABLE OF AUTHORITIES (Continued) Page Picard v. Cohen, Adv. Pro. No (SMB), 2016 WL (Bankr. S.D.N.Y. Apr. 25, 2016)...16, 17 Picard v. Stahl, 443 B.R. 295 (Bankr. S.D.N.Y. 2011)...10 Rescap Liquidating Trust v. PHH Mortg. Corp., 518 B.R. 259 (S.D.N.Y. 2014)...8 In re Residential Capital, LLC, No. 14-cv-6015 (RA), 2015 WL (S.D.N.Y. Feb. 20, 2015)...7 S. St. Seaport Ltd. P ship v. Burger Boys, Inc. (In re Burger Boys, Inc.), 94 F.3d 755 (2d Cir. 1996)...8 Sec. Inv r Prot. Corp. v. Bernard L. Madoff Inv. Sec. LLC, 490 B.R. 46 (S.D.N.Y. 2013)...passim Sec. Inv r Prot. Corp. v. Bernard L. Madoff Inv. Sec. LLC, 513 B.R. 437 (S.D.N.Y. 2014)...7, 14, 15 Sec. Inv r Prot. Corp. v. Bernard L. Madoff Inv. Sec. LLC (In re Bernard L. Madoff), 531 B.R. 439 (Bankr. S.D.N.Y. 2015)...17 Sec. Inv r Prot. Corp. v. Bernard L. Madoff Inv. Sec. LLC (In re Madoff Sec.), 499 B.R. 416 (S.D.N.Y. 2013)...15, 16 Siegel v. F.D.I.C. (In re IndyMac Bancorp Inc.), No. CV (RGK), 2011 WL (C.D. Cal. July 15, 2011)...18 SNA Nut Co. v. Haagen-Dazs Co., Inc., 302 F.3d 725 (7th Cir. 2002)...12 Stern v. Marshall, 564 U.S. 462 (2011)...3, 8, 9 Thaler v. Parker, 525 B.R. 582 (E.D.N.Y. 2014)...9 Travellers Int l AG v. Robinson, 982 F.2d 96 (3d Cir. 1992)...13 U.S. Bank Nat l Ass n v. Verizon Commc ns Inc., No. 3:10-cv-1842-G (AJF), 2012 WL (N.D. Tex. Mar. 21, 2012), aff d, 761 F.3d 409 (5th Cir. 2014)...10, 12 -iv-

7 Case 1:17-cv GBD Document 12 Filed 11/01/17 Page 7 of 28 TABLE OF AUTHORITIES (Continued) Page In re Washington Mfg. Co., 133 B.R. 113 (M.D. Tenn. 1991)...10 Wellness Int l v. Sharif, 135 S. Ct (2015)...9 Statutes 11 U.S.C. 101 et seq U.S.C. 502(d)...passim 11 U.S.C. 548(a)(1)(A) U.S.C. 548(c) U.S.C. 78aaa et seq U.S.C. 78eee(b)(4) U.S.C. 78fff U.S.C. 157(a) U.S.C. 157(d)...1, 8 28 U.S.C. 157(e)...9 Rules Fed. R. Bankr. P Fed. R. Civ. P. 37(b)...17 Fed. R. Civ. P. 41(b)...17 Other Authorities Amended Standing Order of Reference, In the Matter of Standing Order of Reference Re: Title 11, No. 12 Misc. 32 (S.D.N.Y. Jan. 31, 2012)...8, 19 -v-

8 Case 1:17-cv GBD Document 12 Filed 11/01/17 Page 8 of 28 Irving H. Picard, as trustee ( Trustee ) for the substantively consolidated liquidation proceedings of Bernard L. Madoff Investment Securities LLC ( BLMIS ) under the Securities Investor Protection Act ( SIPA ), 1 15 U.S.C. 78aaa et seq., and the chapter 7 estate of Bernard L. Madoff ( Madoff, and together with BLMIS, each a Debtor and collectively, the Debtors ), by and through his undersigned counsel, hereby submits this memorandum of law in opposition to the Motions to Withdraw the Reference Pursuant to 28 U.S.C. 157(d) and Fed. R. Bankr. P (the Motions ) filed by defendants (the Defendants ) 2 in the above-captioned actions (the Avoidance Actions ). 3 For the Court s convenience, the Trustee captioned the instant opposition as one collective opposition to the Motions and has filed the same opposition in all three actions because they each concern: (i) identical underlying causes of action (i.e., avoidance of fraudulent transfers pursuant to 11 U.S.C. 548(a)(1)(A)); (ii) substantially similar transactions (i.e., transfers of fictitious profits, or the difference between the total amounts deposited and withdrawn from Defendants BLMIS investment advisory accounts, within two years of December 11, 2008 (the Two-Year Period )); and (iii) substantial factual overlap (i.e., each Defendant had an investment account with the investment advisory business at BLMIS and made and received withdrawals of fictitious profits during the Two-Year Period). The Trustee is not, however, seeking formal consolidation of the Avoidance Actions pursuant to Fed. R. Civ. Proc. 1 The Securities Investor Protection Act ( SIPA ) is found at 15 U.S.C. 78aaa et seq. For convenience, subsequent references to SIPA will omit 15 U.S.C. 2 This includes (i) defendant Carol Nelson, individually and in her capacity as a joint tenant, (ii) Stanley Nelson, individually and in his capacity as a joint tenant, and (iii) Helene Saren-Lawrence (collectively the Defendants ). 3 See Defendants Memorandum of Law in Support of Motion to Withdraw the Reference Pursuant to 28 U.S.C. 157(d) and Fed. R. Bankr. P. 5011, Picard v. Carol Nelson, No. 17 Civ (GBD) (S.D.N.Y. June 29, 2017), ECF No. 1 (the Nelson Action ); Picard v. Carol Nelson and Stanley Nelson, Adv. Pro. No (SMB), No. 17 Civ (GBD) (S.D.N.Y. June 29, 2017), ECF No. 1 (the Nelson #2 Action ); Picard v. Helene Saren- Lawrence, Adv. Pro. No (SMB), No. 17 Civ (GBD) (S.D.N.Y. June 29, 2017), ECF No. 1 (the Saren-Lawrence Action ). The Nelson Action, Nelson #2 Action, and Saren-Lawrence Action will hereinafter be collectively referred to as the Avoidance Actions.

9 Case 1:17-cv GBD Document 12 Filed 11/01/17 Page 9 of and reserves the right to oppose any such consolidation. PRELIMINARY STATEMENT After nearly seven years of litigation, discovery disputes, and motion practice, the Honorable Stuart M. Bernstein scheduled the Avoidance Actions for bench trials, after which Defendants announced their intention to move to withdraw the reference to the Bankruptcy Court. These actions each involve statutory causes of actions under the Bankruptcy Code, brought against Defendants who filed customer claims and still-pending objections to the Trustee s determination of those claims relating to their BLMIS customer accounts. These are the exact type of cases that this Court previously held could be finally adjudicated by the Bankruptcy Court because the Defendants fraudulent transfer liability must be resolved as part of the Bankruptcy Court s determination of their customer claims. The Motions are based almost entirely on the notion that Defendants have a Seventh Amendment right to a jury trial and that the Bankruptcy Court lacks constitutional authority to finally adjudicate the Avoidance Actions. However, the Motions blatantly fail to disclose that each Defendant filed customer claims related to their customer accounts with BLMIS the same accounts that form the basis of the Trustee s complaints in the Avoidance Actions. The law is clear that a defendant who files a proof of claim invokes the equitable jurisdiction of the Bankruptcy Court and, by doing so, extinguishes any right to a jury trial of a related fraudulent transfer claim (e.g., Langenkamp v. Culp, 498 U.S. 42, 44 (1990)). Indeed, this Court has held in this SIPA liquidation proceeding with the Defendants before it, that the Bankruptcy Court may finally decide avoidance actions to the extent they raise the same issues as the related customer claims, which would necessarily be resolved by those avoidance actions, because the two are inextricably intertwined (see Sec. Inv r Prot. Corp. v. Bernard L. Madoff Inv. Sec. LLC, 490 B.R. 2

10 Case 1:17-cv GBD Document 12 Filed 11/01/17 Page 10 of (S.D.N.Y. 2013) (the Stern Consolidated Decision )). 4 As a result, and as more fully set forth below, the Bankruptcy Court has the constitutional authority to finally adjudicate the Avoidance Actions. That said, it is indisputable that judicial economy would be better served by having the Bankruptcy Court conduct the trials for the Avoidance Actions. The Bankruptcy Court has presided over the Avoidance Actions since 2010 (and since 2014 under Judge Bernstein) and has adjudicated motions and discovery-related disputes involving the Defendants, which may be relevant at trial. Lastly, even if this Court were to rule that the Bankruptcy Court cannot issue a final judgment here, judicial efficiency would still compel this Court to deny the Motions and follow the District s standing order of referral of cases, as well as case precedent from this Court allowing the Bankruptcy Court to exercise its authority to hear fraudulent transfer actions in the first instance and issue proposed findings of fact and conclusions of law. For all these reasons, withdrawal is not warranted and the Motions should be denied. STATEMENT OF FACTS A. The SIPA Liquidation This liquidation proceeding was commenced following an application by the Securities Investor Protection Corporation on December 15, 2008 by order of District Judge Louis L. 4 Defendants voluntarily participated in and are bound by the District Court s Stern Consolidated Decision, to determine among other issues, whether Stern prevents the Bankruptcy Court from entering a final order or judgment resolving claims by the Trustee, and if the Bankruptcy Court cannot finally resolve the Trustee s claims, whether the Bankruptcy Court has the authority to render proposed findings of fact and proposed conclusions of law. In re Madoff Sec., No. 12 Misc (JSR) (S.D.N.Y. April 13, 2012), ECF No. 4 (the Stern Order ). Defendants Carol Nelson and Stanley Nelson filed joinders to the Second Motion to Withdraw the Reference to the Bankruptcy Court filed in Picard v. Goldstein, Adv. Pro. No (SMB) (Bankr. S.D.N.Y.), No. 11-cv (JSR) (S.D.N.Y.). See Defendants Joinder in Michael Goldstein s Second Motion To Withdraw The Reference, Nelson Action, ECF No. 15; Nelson #2 Action, ECF No. 16. Defendant Saren-Lawrence filed a separate motion to withdraw the reference, which was subject to the Stern Order. See Exhibit A (No. 49) to the Stern Order; Motion Of Helene Saren-Lawrence To Withdraw The Reference, Saren-Lawrence Action, ECF Nos

11 Case 1:17-cv GBD Document 12 Filed 11/01/17 Page 11 of 28 Stanton, who referred the case to the Bankruptcy Court pursuant to SIPA 78eee(b)(4). 5 On December 23, 2008, Bankruptcy Judge Burton R. Lifland entered the Claims Procedures Order (defined below), which directed customers and other creditors to file claims with the Trustee by July 2, Under that order, each of the Defendants filed customer claims in the BLMIS SIPA proceeding in January 2009 as more fully set forth in Section B below. Following his appointment, the Trustee conducted an extensive investigation of the claims of the debtor. To fulfill his statutory duties, the Trustee brought over one thousand avoidance actions to avoid and recover BLMIS s fraudulent transfers for ratable distribution to BLMIS customers with allowed claims. The Trustee s suits can be broadly divided as against good faith and bad faith transferees. The Trustee seeks the return of fictitious profits from good faith transferees and is seeking the return of principal in addition to any fictitious profits that were withdrawn by transferees whom he alleges lacked good faith. These Avoidance Actions only seek the return of fictitious profits as the Defendants are good faith transferees. B. Defendants Customer Claims, Trustee s Notices of Determination, and Pending Objections Consistent with the Claims Procedures Order, the Defendants filed customer claims seeking to recover the purported balance in their BLMIS accounts as stated on their last BLMIS account statements as of November 30, Specifically, on or about January 9, 2009, Defendant Carol Nelson filed two customer claims for BLMIS Account No. 1ZA283, which the Trustee designated as Claims # and # (collectively, the 1ZA283 Customer Claims ). Defendant Carol Nelson also filed 5 See Order, Sec. Inv r Prot. Corp. v. Bernard L. Madoff Inv. Sec. LLC, Adv. Pro. No (SMB) (Bankr. S.D.N.Y. Dec. 15, 2008), ECF No See Order On Application For An Entry Of An Order Approving Form And Manner Of Publication, And Mailing Of Notices, Specifying Procedures For Filing, Determination, And Adjudication of Claims; And Providing Other Relief (the Claims Procedures Order ), Sec. Inv r Prot. Corp. v. Bernard L. Madoff Inv. Sec. LLC, Adv. Pro. No (SMB) (Bankr. S.D.N.Y. Dec. 23, 2008), ECF No

12 Case 1:17-cv GBD Document 12 Filed 11/01/17 Page 12 of 28 three customer claims for BLMIS Account No. 1ZR265, which the Trustee designated as Claims #000531, # and # (collectively, the 1ZA265 Customer Claims ). On or about October 19, 2009, the Trustee issued two Notices of Trustee s Determination of Claim to Defendant Carol Nelson, one with respect to the 1ZA283 Customer Claims (the 1ZA283 Determination ), and the other with respect to the 1ZA265 Customer Claims (the 1ZR265 Determination ). On or about November 6, 2009, Defendant Carol Nelson filed two separate objections, one to the 1ZA283 Determination and the other to 1ZR265 Determination (the 1ZR265 Objection and 1ZA283 Objection, respectively), which objections are pending and unresolved to date. 7 The excess withdrawals from BLMIS Account Nos. 1ZA283 and 1ZR265 form the basis of the Trustee s complaint in the Nelson Action. On or about January 9, 2009, Defendants Carol Nelson and Stanley Nelson (the Nelsons ) filed two customer claims for BLMIS Account No. 1ZA284, which the Trustee designated as Claims # and # (the 1ZA284 Customer Claims ). On or about October 19, 2009 the Trustee issued a Notice of Trustee s Determination of Claim with respect to the 1ZA284 Customer Claims (the 1ZA284 Determination ). On or about November 6, 2009, the Nelsons filed an objection to the 1ZA284 Determination (the 1ZA284 Objection ), which objection remains pending and unresolved to date. 8 The excess withdrawals from BLMIS Account No. 1ZA284 form the basis of the Trustee s complaint in the Nelson #2 Action. On or about January 9, 2009, Defendant Helene Saren-Lawrence filed a customer claim for BLMIS Account No. 1ZA620, which the Trustee designated as Claim # (the 1ZA620 Customer Claim, together with the 1ZA283 Customer Claims, 1ZA265 Customer Claims, 7 See Objection To Trustee s Determination of Claim, Sec. Inv r Prot. Corp. v. Bernard L. Madoff Inv. Sec. LLC, Adv. Pro. No (SMB), ECF Nos. 646 and See Objection To Trustee s Determination of Claim, Sec. Inv r Prot. Corp. v. Bernard L. Madoff Inv. Sec. LLC, Adv. Pro. No (SMB), ECF No

13 Case 1:17-cv GBD Document 12 Filed 11/01/17 Page 13 of 28 1ZA284 Customer Claims, collectively, the Customer Claims ). On or about October 19, 2009, the Trustee issued a Notice of Trustee s Determination of Claim with respect to the 1ZA620 Customer Claim (the 1ZA620 Determination ). On or about November 4, 2009, Defendant Helene Saren-Lawrence filed an objection to the 1ZA620 Determination (the 1ZA620 Objection, together with the 1ZA283 Objection, 1ZA265 Objection, 1ZA284 Objection, collectively, the Objections ), which objection remains pending and unresolved to date. 9 The excess withdrawals from BLMIS Account No. 1ZA620 form the basis of the Trustee s complaint in the Saren-Lawrence Action. Because (i) BLMIS never purchased any securities on behalf of the Defendants accounts any and all profits reported to Defendants by BLMIS on their account statements were fictitious; (ii) Defendants withdrew more funds than they deposited with BLMIS, and (iii) the funds received in excess of the deposits in Defendants accounts were taken from other BLMIS customers and given to Defendants; the Trustee denied the Customer Claims based on the negative net equity 10 in Defendants BLMIS accounts. As set forth above, the Objections remain pending before the Bankruptcy Court and involve the same factual predicates and legal issues that must be resolved in the Avoidance Actions. C. The Trustee s Avoidance Actions Against Defendants The Trustee commenced the Avoidance Actions by filing the relevant complaints on November 30, December 1, and December 2, 2010, respectively (the Complaints ). (Nelson Action, Adv. Pro. No , ECF No. 1; Nelson #2 Action, Adv. Pro. No , ECF No. 1; Saren-Lawrence Action, Adv. Pro. No , ECF No. 1). The Complaints asserted, 9 See Objection To Trustee s Determination of Claim, Sec. Inv r Prot. Corp. v. Bernard L. Madoff Inv. Sec. LLC, Adv. Pro. No (SMB), ECF No A BLMIS customer has negative net equity where his/her life-to-date withdrawals from BLMIS exceeds his/her life-to-date deposits. 6

14 Case 1:17-cv GBD Document 12 Filed 11/01/17 Page 14 of 28 inter alia, claims pursuant to sections 78fff(b), 78fff-1(a) and 78fff-2(c)(3) of SIPA, sections 105(a), 544, 548(a), 550(a), and 551 of the United States Bankruptcy Code, 11 U.S.C. 101 et seq., and other applicable law, seeking the avoidance and recovery of fraudulent transfers in connection with certain transfers of property by BLMIS to or for the benefit of the Defendants. Id. The Trustee s Avoidance Actions are predicated, in part, on the Defendants negative net equity in their BLMIS accounts as of December 11, 2008 (the Filing Date ) and thus seek to recover the fictitious profits Defendants received from BLMIS during the Two-Year Period. At the same time, the Customer Claims and pending Objections are predicated, in part, on the purported securities transactions reflected on the Defendants final monthly account statements received from BLMIS in November 2008, and seek to not only retain the fictitious profits received by the Filing Date, but also to recover the full balance of their customer accounts as reflected on their final account statements. Given that the Customer Claims and related Objections are still unresolved and the Bankruptcy Court must adjudicate those claims together with the Defendants fraudulent transfer liability to the Trustee under the express provisions of the Bankruptcy Code, 11 the Motions should be denied for the reasons set forth below. 11 As more fully set forth below, under the Bankruptcy Code a court must disallow any claim of any entity from which property is recoverable because of a fraudulent transfer under section U.S.C. 502(d); see Kapila v. Bank of Am., N.A. (In re Pearlman), 493 B.R. 878, 887 (Bankr. M.D. Fla. 2013) (noting that section 502(d) imposes upon the court an absolute obligation to disallow avoidable claims ). Thus, before a claim may be allowed, a court must resolve any avoidable transfer issues that the trustee might raise. Germain v. Connecticut Nat. Bank, 988 F.2d 1323, 1327 (2d Cir. 1993). The District Court has already held that section 502(d) applies in this SIPA liquidation proceeding. See Sec. Inv'r Prot. Corp. v. Bernard L. Madoff Inv. Sec. LLC, 513 B.R. 437, 444 (S.D.N.Y. 2014) ( Section 502(d) Consolidated Decision ) (noting that section 502(d) functions as an ordering provision. Its fundamental logic is that the estate should receive the property due to it before a liable creditor of the estate may obtain payment on its own claims. ). 7

15 Case 1:17-cv GBD Document 12 Filed 11/01/17 Page 15 of 28 ARGUMENT I. DEFENDANTS HAVE FAILED TO DEMONSTRATE CAUSE FOR WITHDRAWAL In the Southern District of New York, all matters related to or arising under title 11 are automatically referred to the Bankruptcy Court. See Amended Standing Order of Reference, In the Matter of Standing Order of Reference Re: Title 11, No. 12 Misc. 32 (S.D.N.Y. Jan. 31, 2012); 28 U.S.C. 157(a). Similarly, SIPA section 78eee(b)(4) also dictates that all SIPA proceedings are automatically removed to the Bankruptcy Court after the District Court commences a SIPA liquidation by entering a protective decree. See 15 U.S.C. 78eee(b)(4). However, this automatic reference may be withdrawn for cause. 28 U.S.C. 157(d); In re Residential Capital, LLC, No. 14-cv-6015 (RA), 2015 WL , at *3 (S.D.N.Y. Feb. 20, 2015). When ruling on a motion to withdraw the reference for cause, courts consider the following factors: (1) whether the claim is core or non-core; (2) efficient use of judicial resources; (3) delay and costs to the parties; (4) uniformity of bankruptcy administration; (5) forum shopping; and (6) other related factors. See Orion Pictures Corp. v. Showtime Networks, Inc. (In re Orion Pictures Corp.), 4 F.3d 1095, 1101 (2d Cir. 1993); Rescap Liquidating Trust v. PHH Mortg. Corp., 518 B.R. 259, 263 (S.D.N.Y. 2014) (citing S. St. Seaport Ltd. P ship v. Burger Boys, Inc. (In re Burger Boys, Inc.), 94 F.3d 755, 762 (2d Cir. 1996)). Prior to Stern v. Marshall, 564 U.S. 462 (2011), courts generally considered the first Orion factor of whether a claim is core or non-core to be a threshold issue. See Rescap, 518 B.R. at 263; see also In re Burger Boys, Inc., 94 F.3d 755, 762 (2d Cir.1996). However, following Stern, a number of courts have concluded that, because the classification of a claim as core or non-core no longer definitively determines whether the Bankruptcy Court may enter final judgment, courts should instead look at whether, under Stern, the Bankruptcy Court has the final 8

16 Case 1:17-cv GBD Document 12 Filed 11/01/17 Page 16 of 28 power to adjudicate [the claim at issue]. Sec. Inv r Prot. Corp. v. Bernard L. Madoff Inv. Sec. LLC, 490 B.R. 46, 57 (S.D.N.Y. 2013) (quoting Dev. Specialists, Inc. v. Akin Gump Strauss Hauer & Feld LLP, 462 B.R. 457, 467 (S.D.N.Y.2011)). In certain circumstances, the parties may consent to the final adjudication of claims by the Bankruptcy Court. See Wellness Int l v. Sharif, 135 S. Ct. 1932, (2015) (holding that Article III permits bankruptcy judges to adjudicate Stern claims based on parties implied consent). As the movants, Defendants bear the burden of demonstrating cause to warrant withdrawal of the automatic reference to the Bankruptcy Court. See Thaler v. Parker, 525 B.R. 582, 585 (E.D.N.Y. 2014) (party seeking withdrawal bears the burden of establishing cause ); In re Ames Dep t Stores, No. M-47 (PKL), 1991 WL , at *2 (S.D.N.Y. Nov. 25, 1991). Defendants failed to meet their burden. A. Withdrawal Of The Reference Is Not Warranted Where Defendants Right To A Jury Trial Has Been Extinguished Based On Filing Customer Claims Defendants assert that withdrawal of the reference is appropriate because they have a Seventh Amendment right to a jury trial, which the Bankruptcy Court cannot conduct unless specially designated to do so by a district court or given consent by all parties involved. (Motions at 3) (citing 28 U.S.C. 157(e)). To the contrary, Defendants do not have a right to a jury trial where they filed Customer Claims and pending Objections in the BLMIS liquidation proceeding before the Bankruptcy Court, the determination of which are inextricably intertwined with the Trustee s Avoidance Actions against them, thus invoking the equitable jurisdiction of the Bankruptcy Court. As a result, and as more fully set forth below, the Bankruptcy Court has the constitutional authority to finally adjudicate the Avoidance Actions. By filing the Customer Claims and Objections in the BLMIS liquidation proceeding in the Bankruptcy Court, Defendants trigger[ed] the process of allowance and disallowance of 9

17 Case 1:17-cv GBD Document 12 Filed 11/01/17 Page 17 of 28 claims. In re Bally Total Fitness of Greater N.Y., 411 B.R. 142, 145 (S.D.N.Y. 2009) (quoting Bankr. Servs. Inc. v. Ernst & Young (In re CBI Holding Co., Inc.), 529 F.3d 432, (2d Cir. 2008)). In so doing, Defendants have subjected themselves to the Bankruptcy Court s equitable jurisdiction for the adjudication of matters related to their Customer Claims. Id. Defendants cannot now argue that the Bankruptcy Court does not have jurisdiction over matters related to such claims after voluntarily submitting to the Bankruptcy Court s jurisdiction. Indeed, the Supreme Court made it clear that where a creditor files a proof of claim 12 against a bankruptcy estate and is met with a trustee s preferential transfer action, 13 that action becomes part of the claims-allowance process which is triable only in equity. Langenkamp v. Culp, 498 U.S. 42, 44 (1990). In other words, the creditor s claim and the ensuing preference action by the trustee become integral to the restructuring of the debtor-creditor relationship through the bankruptcy court s equity jurisdiction. Id. (holding that those creditors who submitted claims against debtors bankruptcy estates had no right to jury trial when sued by trustee to recover preferential transfers); see also First Fid. Bank N.A., N.J. v. Hooker Invs. Inc. (In re Hooker Invs., Inc.), 937 F.2d 833, 838 (2d Cir. 1991) (stating a creditor who invokes the bankruptcy court s equitable jurisdiction to establish a claim against a debtor s estate is also 12 The filing of a customer claim in a SIPA action is the equivalent of filing a proof of claim in a typical bankruptcy proceeding for purposes of submission to jurisdiction. Picard v. Stahl, 443 B.R. 295, 310 (Bankr. S.D.N.Y. 2011) (citing Keller v. Blinder (In re Blinder Robinson & Co., Inc.), 135 B.R. 892, (D. Col. 1991)). 13 To be clear, most courts do not recognize a distinction between fraudulent transfer claims and preferential transfer claims[] for purposes of this analysis. U.S. Bank Nat l Ass n v. Verizon Commc ns Inc., No. 3:10-cv-1842-G (AJF), 2012 WL , at *4 (N.D. Tex. Mar. 21, 2012), aff d, 761 F.3d 409 (5th Cir. 2014). The Supreme Court has not distinguished between fraudulent transfer actions and preference actions when determining whether the defendant is subject to the bankruptcy court s equity jurisdiction. Compare Granfinanciera, S.A. v. Nordberg, 492 U.S. 33, 36 (1989) (fraudulent transfers) with Langenkamp, 498 U.S. at (preferential transfers). Section 502(d) expressly addresses both preferential and fraudulent transfer actions. See Germain, 988 F.2d at And finally, many courts have applied Langenkamp in the context of fraudulent transfer claims. See, e.g., U.S. Bank Nat. Ass'n, 2012 WL , at *5 ( Because of Section 502(d), the fraudulent transfer actions become integral to the restructuring of the debtor-creditor relationship and part of the claims-allowance process which is triable only in equity. ) (citing Langenkamp, 498 U.S. at 44 45)); Crown Paper Co. v. Fort James Corp. (In re Crown Vantage), No. C (MMC), 2007 WL at *3 (N.D. Cal. Jan. 18, 2007); In re Washington Mfg. Co., 133 B.R. 113, (M.D. Tenn. 1991); In re B & E Sales Co., Inc., 129 B.R. 133, (Bankr. E.D. Mich. 1990). 10

18 Case 1:17-cv GBD Document 12 Filed 11/01/17 Page 18 of 28 subject to the procedures of equity in the determination of preference actions brought on behalf of the estate ); In re Coated Sales, Inc., 119 B.R. 452, 455 (Bankr. S.D.N.Y. 1990) (citing Granfinanciera, S.A., 492 U.S. at (same)). Thus, the filing of the Customer Claims extinguished the Defendants asserted right to a jury trial. See, e.g., Germain, 988 F.2d 1323 ( [T]he right to a jury trial is lost not so much because it is waived, but because the legal dispute has been transformed into an equitable issue. ); Official Employment Related Issues Committee of Enron Corp. v. John J. Lavorato (In re Enron Corp.), 319 B.R. 122, 125 (Bankr. S.D. Tex. 2004) ( when a creditor elects to participate in that equitable [bankruptcy] process by filing a proof of claim,...[the filing] denies both the creditor and the trustee any right to a jury trial either would have had concerning the claims. ). The Second Circuit reinforced this principle in In re CBI Holding Co., Inc., which held that Ernst & Young, LLP ( E&Y ) had waived its right to a jury trial when it voluntarily participated in the equitable reordering of [CBI s] estates by filing a proof of claim, because all of the claims against E&Y are an inextricable part of the allowance or disallowance of E & Y s claim against the[ ] estates and the adjustment of the debtor-creditor relationship. 529 F.3d at 442. Similarly, in In re McCorhill Pub., Inc., the Bankruptcy Court made it clear that the creditor willingly relinquished any right it might have had outside the bankruptcy court to a jury trial when it filed its proof of claim against the debtors. 90 B.R. 633, (Bankr. S.D.N.Y. 1988) (by filing its proof of claim, the creditor acknowledged that the bankruptcy court was the appropriate forum for determining all issues relating to its claim ). This is well supported among courts in other Circuits. See, e.g., Pearson Educ., Inc. v. Almgren, 685 F.3d 691, 694 (8th Cir. 2012) ( [T]he publishers relinquished their right to have a jury determine the amount of damages when they filed claims against Almgren s bankruptcy 11

19 Case 1:17-cv GBD Document 12 Filed 11/01/17 Page 19 of 28 estate. ); SNA Nut Co. v. Haagen-Dazs Co., Inc., 302 F.3d 725, 730 (7th Cir. 2002) ( Once a party has triggered this process of allowance and disallowance of claims, that party has subjected itself to the bankruptcy court s equitable jurisdiction and thus can no longer demand a right to a trial by jury. ); U.S. Bank Nat l Ass n, 2012 WL , at *5 (holding that the plaintiff s right to a jury trial has been extinguished where defendants have filed proofs of claim in the bankruptcy court and plaintiff has brought fraudulent transfer claims against the defendants ); In re Crown Vantage, 2007 WL at *2-3 (ruling against a jury trial; because the Trustee s fraudulent transfer claim... is asserted against a party that has filed a proof of claim against the bankruptcy estate, [it] is part of the claims-allowance process which is triable only in equity ) (quoting Langenkamp, 498 U.S. at 44). Accordingly, by filing the Customer Claims and the Objections, Defendants are no longer entitled to a jury trial on the Avoidance Actions. After all, [a] creditor does not file a claim against a bankruptcy estate in a vacuum. Kapila v. Bank of Am., N.A. (In re Pearlman), 493 B.R. 878, 887 (Bankr. M.D. Fla. 2013). All other interested parties including other innocent customers to the BLMIS SIPA liquidation proceeding are impacted by the claim[s] because their pro rata distributions are directly affected. Id. If the Trustee successfully avoids a fraudulent transfer, the amount every other creditor will receive correspondingly increases. A creditor s claim, therefore, become[s] integral to the restructuring of the debtor-creditor relationship through the bankruptcy court s equity jurisdiction. Id. (citing Langenkamp, 498 U.S. at 45). This remains the case even if Defendants assert the Customer Claims and Objections were conditional and that they did not forfeit their right to a jury trial by making such conditional claims. Courts have not found such arguments to be persuasive. See e.g., Matter of 12

20 Case 1:17-cv GBD Document 12 Filed 11/01/17 Page 20 of 28 Peachtree Lane Assocs., Ltd., 150 F.3d 788, (7th Cir. 1998) (ruled that defendants, having submitted a claim against the bankruptcy estate, even with any conditional designation attached, no longer were entitled to a jury trial on Peachtree s adversary complaint or on their own counterclaims. ); Travellers Int'l AG v. Robinson, 982 F.2d 96, (3d Cir. 1992) (creditor who has filed a contingent claim couched in protective language still has submitted to the bankruptcy court s equitable jurisdiction and waived any Seventh Amendment right to a jury trial ). Therefore, Defendants right to a jury trial has been extinguished because the Customer Claims, pending Objections, and ensuing Avoidance Actions in the BLMIS liquidation proceeding and are inexorably intertwined such that they are integral to the restructuring of the debtor-creditor relationship through the Bankruptcy Court s equity jurisdiction, and thus, part of the claims-allowance process which is triable only in equity. As a result, the Motions should be denied so that the Avoidance Actions can proceed before the Bankruptcy Court, which is wellsuited to handle these sorts of claims and routinely does so, consistent with the prior directives of this Court in its Stern Consolidated Decision in this very liquidation proceeding. B. Withdrawal Is Not Warranted Where The Bankruptcy Court Has Constitutional Authority To Finally Adjudicate the Avoidance Actions These cases can be finally decided by the Bankruptcy Court because the resolution of the Defendants avoidance liability and determination of their Customer Claims are two sides of the same coin. The Supreme Court explicitly stated that the Bankruptcy Court is the proper forum to fully adjudicate a proof of claim and all matters directly related to that claim, which are integral to the restructuring of the debtor-creditor relationship. Stern, 564 U.S. at 517. The District Court further clarified in the BLMIS-consolidated briefings related to motions to withdraw the reference on the basis of Stern which Defendants voluntarily participated in that where the 13

21 Case 1:17-cv GBD Document 12 Filed 11/01/17 Page 21 of 28 Bankruptcy Court has independent authority to decide whether to disallow a defendant s claim to the estate, and a decision on that issue would bind the parties under normal principles of res judicata in a separate avoidance action, the Bankruptcy Court may resolve the avoidance action to the extent necessary to effectuate its independent authority. Stern Consolidated Decision, 490 B.R. at 54 (citing Katchen v. Landy, 382 U.S. 323, (1966)). Further, the District Court specifically held that whenever the Bankruptcy Court must resolve a 502(d) claim brought by the Trustee, it may also finally decide avoidance actions to the extent that those actions raise the same issues as the 502(d) claim and thus would necessarily be resolved by it. Id. In fact, the District Court also addressed whether section 502(d) of the Bankruptcy Code 14 applied in this SIPA liquidation proceeding when deciding another consolidated motion to dismiss filed pursuant to granted motions to withdraw the reference. See generally Section 502(d) Consolidated Decision, 513 B.R While concluding that section 502(d) did apply to these cases, the Court noted that [i]ts fundamental logic is that the estate should receive the property due to it before a liable creditor of the estate may obtain payment on its own claims. Id. at 444, 440, n.1 (noting that if the Trustee has valid avoidance and recovery claims against a defendant, he may also state a claim for disallowance under section 502(d)). Here, section 502(d) applies to disallow the Customer Claims until Defendants, as the transferees of avoidable transfers, pay the amount for which Defendants are determined to be 14 Section 502(d) of the Bankruptcy Code, 11 U.S.C. 502(d), reads as follows: Notwithstanding subsections (a) and (b) of this section, the court shall disallow any claim of any entity from which property is recoverable under section of this title or that is a transferee of a transfer avoidable under section , 545, 547, [or] of this title, unless such entity or transferee has paid the amount, or turned over any such property, for which such entity or transferee is liable U.S.C. 502(d) (emphasis added). 14

22 Case 1:17-cv GBD Document 12 Filed 11/01/17 Page 22 of 28 liable to the BLMIS estate based on the Trustee s Avoidance Actions. The very purpose of section 502(d) is to preclude entities that have received avoidable transfers from sharing in the distribution of assets unless and until the voidable transfer has been returned to the estate. Picard v. Chais (In re Bernard L. Madoff Inv. Sec., LLC), 445 B.R. 206, 239 (Bankr. S.D.N.Y. 2011) (citation omitted) (holding that the SIPA claim is a claim against the estate and section 502(d) applied). Indeed, at the liquidation stage, it would be inequitable to allow customers who effectively owe money to their fellow customers to be permitted to retain those funds and at the same time receive payments from the estate, especially where it seems unlikely that customer net equity claims will be satisfied in full. Section 502(d) Consolidated Decision, 513 B.R. at 444. As a result, until Defendants return the avoidable transfers to the estate, their Customer Claims and pending Objections cannot be resolved. Id. at 441 (finding that section 502(d) applies to customer claims brought under SIPA section-78fff); Stern Consolidated Decision, 490 B.R. at 444 (noting the relevance of section 502(d) where the adjudication and payment of avoidance actions may affect the final calculation of a given customer s net equity. ); cf. Germain, 988 F.2d at 1327 (before a claim may be allowed, a court must resolve any avoidable transfer issues that the trustee has raised). As the District Court stated, a customer s net equity and the amounts sought in avoidance and recovery proceedings (assuming the customer s good faith) are two sides of the same coin. Sec. Inv r Prot. Corp. v. Bernard L. Madoff Inv. Sec. LLC, (In re Madoff Sec.), 499 B.R. 416, 420 (S.D.N.Y. 2013) ( Antecedent Debt Decision ). In both cases, the Trustee nets deposits against withdrawals: [a] customer who withdrew less than she deposited over the course of her investment with Madoff Securities has a net-equity claim and may be entitled to disbursements from the customer property estate for the amount of that net equity, and 15

23 Case 1:17-cv GBD Document 12 Filed 11/01/17 Page 23 of 28 customers who withdraw more money from their accounts than they deposited are subject to avoidance actions for the amount in excess of their deposits. Id. at Therefore, the computation of net equity under SIPA and value under Bankruptcy Code 548(c) are inherently intertwined. Post-Trial Proposed Findings of Fact and Conclusions of Law, Picard v. Cohen, Adv. Pro. No (SMB), 2016 WL , at *14 (Bankr. S.D.N.Y. Apr. 25, 2016), ECF No. 90 (the Cohen Decision ) (citing Antecedent Debt Decision, 499 B.R. at 424). The present cases are precisely the type that the District Court held the Bankruptcy Court could finally decide because the resolution of the Defendants avoidance liability and determination of their net equity are two sides of the same coin, thus requiring the Bankruptcy Court to resolve identical claims under section 502(d). See Stern Consolidated Decision, 490 B.R. at 444. In other words, the Bankruptcy Court s determination of Defendants fraudulent transfer liability is inseparable from its determination of the Customer Claims under section 502(d). Accordingly, given that the Trustee s claims for avoidance and recovery of fraudulent transfers would necessarily resolve Defendants Customer Claims, the Bankruptcy Court has final adjudicative authority to resolve the Avoidance Actions. C. Judicial Efficiency And Uniformity Support Denial Of The Motion To Withdraw Judicial efficiency, in its many forms, is a critical factor in determining whether to withdraw the reference. See In re Orion Pictures Corp., 4 F.3d at 1100; Mishkin v. Ageloff, 220 B.R. 784, 800 (S.D.N.Y. 1998) ( the critical question is efficiency and uniformity ). Here, the interests of judicial efficiency warrant denial of withdrawal of the reference. The Bankruptcy Court is well-situated to address these issues as they pertain to the Defendants in the Avoidance Actions. The Honorable Stuart M. Bernstein has actively presided over the Avoidance Actions since During this time, the Bankruptcy Court has gained 16

24 Case 1:17-cv GBD Document 12 Filed 11/01/17 Page 24 of 28 intimate familiarity with the parties, facts, and the complex legal issues. In particular, Judge Bernstein resolved over 230 motions to dismiss, when he conducted an entire Omnibus Good Faith Motion to Dismiss proceeding that involved extensive briefing and oral arguments by the Trustee and Defendants counsel on behalf of similarly-situated defendants, 15 and various discovery-related motion practice involving the Defendants, all of which may be relevant at trial. 16 Indeed, the Bankruptcy Court s expertise in this SIPA liquidation proceeding is unmatched. Since taking over these proceedings from the late Honorable Burton R. Lifland in 2014, Judge Bernstein has overseen the resolution of over 550 adversary proceedings like the Avoidance Actions at issue. As such, Judge Bernstein: (1) is intimately familiar with underlying facts related to Madoff s Ponzi scheme and the related SIPA liquidation proceeding; and (2) is aware of the intricacies of these fraudulent transfer claims and the Defendants asserted defenses. In addition, Judge Bernstein recently conducted a trial in the Picard v. Cohen matter, involving a BLMIS customer who subsequently paid a judgment resolving all claims. See generally Cohen Decision, 2016 WL Based on the Bankruptcy Court s extensive familiarity and expertise in these liquidation proceedings, it is uniquely situated to resolve expeditiously and efficiently these 15 See Sec. Inv r Prot. Corp. v. Bernard L. Madoff Inv. Sec. LLC (In re Bernard L. Madoff), 531 B.R. 439, 446 n.2 (Bankr. S.D.N.Y. 2015) ( Omnibus Good Faith Decision ) (noting the participation of Defendants counsel on behalf of defendants in 128 adversary proceedings). 16 For example, on December 30, 2015, Defendants Carol Nelson and Stanley Nelson filed a letter with the Bankruptcy Court regarding the Trustee's purported discovery deficiencies. See Nelson Action, ECF No. 46, Nelson #2 Action, ECF No. 44. Subsequently, on February 29, 2016, the Trustee sought a protective order prohibiting Defendants Carol Nelson and Stanley Nelson from pursuing any discovery that implicated the compensation or fees of the Trustee and his counsel. See Nelson Action, ECF No. 50; Nelson #2 Action, ECF No. 48. On March 17, 2016, the Court entered an order to that effect. See Order Implementing Court s March 17, 2016 Bench Ruling Granting Protective Order, Nelson Action, ECF No. 51; Nelson #2 Action, ECF No. 49. On February 25, 2016, defendants in 11 adversary proceedings, including Defendant Helene Saren-Lawrence, filed motions to dismiss pursuant to Fed. R. Civ. P. 37(b) and 41(b) and joint cross-motions to quash Rule 45 subpoenas the Trustee filed on third-party banks, and motions seeking a protective order barring the Trustee from compelling discovery of the personal bank records of the defendants in the 11 adversary proceedings. See e.g., Saren-Lawrence Action, ECF Nos On March 23, 2016, the Bankruptcy Court denied the motions. See Order Implementing The Court s March 23, 2016 Bench Ruling, Saren-Lawrence Action, ECF No

25 Case 1:17-cv GBD Document 12 Filed 11/01/17 Page 25 of 28 Avoidance Actions. See Siegel v. F.D.I.C. (In re IndyMac Bancorp Inc.), No. CV (RGK), 2011 WL , at *7 (C.D. Cal. July 15, 2011) (denying withdrawal because the bankruptcy court had greater familiarity with the facts and holds a unique vantage point from the center of the overall bankruptcy proceeding and routinely resolves these types of disputes ); California v. Enron Corp. (In re Enron Corp.), No. 05 Civ (GBD), 2005 WL , at *3 (S.D.N.Y. May 18, 2005) (bankruptcy court was in a better position to adjudicate the issues since it had presided over the [related] bankruptcy cases for over three years ). Under these circumstances, it is more efficient and economical for the Avoidance Actions to remain in the Bankruptcy Court rather than be transferred to this Court. See In re Corson Mfg., No. 01-MC-5E, 2001 WL , at *2 (W.D.N.Y. June 27, 2001) (finding that the Bankruptcy Court should preside over adversary proceeding given its familiarity with the case and the kinds of issues raised therein ). The Bankruptcy Court is in the best position to conduct the trial of the Avoidance Actions promptly and efficiently. For these reasons, the Motions should be denied. D. Even If This Court Holds That The Bankruptcy Court Cannot Issue A Final Determination, It Should Still Deny The Motion And Allow The Bankruptcy Court To Issue Proposed Findings And Conclusions Defendants argue that there will be inefficiency and uncertainty in every case where a Bankruptcy Court cannot grant final judgment because the District Court will eventually need to review the Article I Court s determinations de novo... (Motions at 4) (citing Dev. Specialists, Inc., 462 B.R. 457, 467 (S.D.N.Y. 2011)). Contrary to Defendants assertion, de novo review is not a basis in and of itself to withdraw the reference. The contention that this Court must conduct a de novo review of the bankruptcy court s determination is not dispositive in light of the other efficiency and uniformity factors involved in this case. In re Fairfield Sentry Ltd., No. 10 Civ (LAP), 2010 WL , at *4 (S.D.N.Y. Nov. 22, 2010). As 18

26 Case 1:17-cv GBD Document 12 Filed 11/01/17 Page 26 of 28 the District Court previously addressed in the Stern Consolidated Decision (which the Defendants participated in), [t]he hypothetical possibility of duplicative proceedings... cannot outweigh the efficiency of receiving the recommendation of a court that possesses both intimate familiarity with the underlying liquidation and substantial expertise in the bankruptcy law that applies to these avoidance actions. 490 B.R. at 58 (refusing to withdraw the reference for cause even where the Bankruptcy Court could not issue a final order under Stern; permitting the Bankruptcy Court to hear[s] the matter in the first instance and recommend[s] proposed findings of fact and conclusions of law ). The District Court further noted that the Bankruptcy Court should have the opportunity to apply its expertise to the complicated project of uniformly administering the Madoff Securities estate. Id. 17 Consistent with that conclusion, the Board of Judges of this District has also amended its standing order of referral of cases to the Bankruptcy Court to provide that [i]f a bankruptcy judge or a district judge determines that entry of a final order or judgment by a bankruptcy judge would not be consistent with Article III of the United States Constitution[,]... the bankruptcy judge shall... submit proposed findings of fact and conclusions of law to the district court. Amended Standing Order of Reference, No. 12 Misc. 32. In light of this directive, courts in this District have recognized that this explicit authority to issue proposed findings and conclusions in connection with core matters dictated maintaining the reference to the Bankruptcy Court. Adelphia Recovery Trust v. FLP Group, Inc., No. 11 Civ (PAC), 2012 WL , at *6 (S.D.N.Y. Jan. 30, 2012). Finally, it would not be overly burdensome for the District Court to engage in de novo 17 Courts in this District addressing other bankruptcy proceedings have reached the same conclusion: although the Bankruptcy Court may not ordinarily enter final judgment on avoidance claims, it may nonetheless hear the case in the first instance and recommend proposed findings of fact and conclusions of law. Stern Consolidated Decision, 490 B.R. at 49 (citing In re Arbco Capital Mgmt., LLP, 479 B.R. 254, (S.D.N.Y.2012); Kirschner v. Agoglia, 476 B.R. 75, (S.D.N.Y.2012); In re Lyondell Chem. Co., 467 B.R. 712, (S.D.N.Y.2012)). 19