Case 1:11-cv-03775-JSR Document 48 Filed 12/30/11 Page 1 of 26 UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK In re: BERNARD L. MADOFF INVESTMENT SECURITIES LLC, Debtor. IRVING H. PICARD, Trustee for the Liquidation of Bernard L. Madoff Investment Securities LLC, Adv. Pro. No. 08-1789 (BRL) SIPA LIQUIDATION (Substantively Consolidated) Adv. Pro. No. 10-4357 (BRL) v. Plaintiff, JAMES GREIFF, 11 Civ. 3775 (JSR) Defendant. TRUSTEE S MEMORANDUM OF LAW IN OPPOSITION TO DEFENDANT GREIFF S MOTION TO CONSOLIDATE BAKER & HOSTETLER LLP 45 Rockefeller Plaza New York, New York 10111 Telephone: (212) 589-4200 Facsimile: (212) 589-4201 Attorneys for Irving H. Picard, Trustee for the Substantively Consolidated SIPA Liquidation of Bernard L. Madoff Investment Securities LLC and Bernard L. Madoff
Case 1:11-cv-03775-JSR Document 48 Filed 12/30/11 Page 2 of 26 TABLE OF CONTENTS PRELIMINARY STATEMENT... 1 BACKGROUND... 4 ARGUMENT... 14 I. THE MOTION TO CONSOLIDATE SHOULD BE DENIED BECAUSE DISPARATE CLAIMS AND ISSUES EXIST, AND THE TRUSTEE WOULD SUFFER SIGNIFICANT PREJUDICE AS A RESULT OF CONSOLIDATION... 14 Page A. Disparate Claims and Issues Exist... 15 B. Substantial Prejudice... 17 C. The Trustee Did Not Consent To Consolidation Of The Cases... 19 D. The Merits Of Any Anticipated Amended Complaint Are Irrelevant To The Issue Of Consolidation.... 21 CONCLUSION... 22 -i-
Case 1:11-cv-03775-JSR Document 48 Filed 12/30/11 Page 3 of 26 TABLE OF AUTHORITIES Page Cases Argo Comm. Corp. v. Centel Corp., et al., 91 Civ. 7226, 1992 WL 75144 (S.D.N.Y. Mar. 30, 1992)... 19 Bank of Montreal v. Eagle Assocs., 117 F.R.D. 530 (S.D.N.Y. 1987)... 15 Caronia v. Hustedt Chevrolet, Nos. 05-3526, 05-4148, 05-4149, and 05-4230, 2009 WL 5216940 (E.D.N.Y. Dec. 29, 2009)... 15 Devlin v. Transportation Communs. Int l Union, 175 F.3d 121 (2d Cir. 1999)... 15 In re Prudential Sec. Inc. Ltd. P ships. Litig., 158 F.R.D. 562 (S.D.N.Y. 1994)... 21 Johnson v. Celotex Corp., 899 F.2d 1281 (2d Cir. 1990)... 15, 17 Picard v. Hein, 11 Civ. 4936 (JSR) (S.D.N.Y. Nov. 7, 2011)... 21 Picard v. Katz, No. 11 Civ. 3605, 2011 WL 4448638 (S.D.N.Y. Sept. 27, 2011).... 18 Rio Energy Intern., Inc. v. Hilton Oil Transport, 776 F.Supp. 120 (S.D.N.Y. 1991).... 17 Walker, Truesdel, Roth & Assocs., et al. v. The Blackstone Group, L.P., et al. (In re Extended Stay, Inc.), 2011 WL 5532258 (S.D.N.Y. November 10, 2011)... 18 Statutes 11 U.S.C. 546(e)... 18 11 U.S.C. 547(b)(4)(B)... 16 28 U.S.C. 157(d)... 18 Rules F.R.Civ.Pr. Rule 15... 2, 9, 17, 21 F.R.Civ.Pr. Rule 42(a)... 14 Other Authorities 9A Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure 2382 (3d ed. 2011)... 21 -ii-
Case 1:11-cv-03775-JSR Document 48 Filed 12/30/11 Page 4 of 26 TABLE OF AUTHORITIES (Continued) Page Financial Management, Work Force, and Operations at the SEC: Who s Watching Wall Street s Watchdog: Joint Hearing before the Comm. On Oversight & Gov t Reform, 112 th Cong. 59-60 (March 3, 2011) (written testimony of Helen Davis Chaitman), http://oversight.house.gov/images/stories/testimony/3-10-11_helendavischaitman_ Testimony.pdf... 6 Testimony of Helen Davis Chaitman, Esq. Before the Subcomm. on Capital Mkts., Ins., and Gov t Sponsored Enterprises, 110th Cong. 1-24 (Dec. 9, 2009), http://www.house.gov/apps/list/hearing/financialsvcs_dem/chaitman.pdf.... 6 iii
Case 1:11-cv-03775-JSR Document 48 Filed 12/30/11 Page 5 of 26 Irving H. Picard (the Trustee ), as trustee for the substantively consolidated liquidation of the business of Bernard L. Madoff Investment Securities LLC ( BLMIS ) under the Securities Investor Protection Act, 15 U.S.C. 78aa et seq. ( SIPA ) and the estate of Bernard L. Madoff ( Madoff ) submits this memorandum of law and accompanying declaration of Oren J. Warshavsky ( Warshavsky Decl. ) in opposition to the motion to consolidate filed on behalf of Defendant James Greiff ( Greiff ). PRELIMINARY STATEMENT Although the Trustee has repeatedly consented to join parties and consolidate actions in the interest of efficiency, the Trustee cannot agree to the within motion to consolidate (the Consolidation Motion ). The Consolidation Motion is yet another attempt by Helen Davis Chaitman, Esq., counsel for Greiff, to create unwieldy litigation and hinder the sound resolution of these cases. Consistent throughout this liquidation, the Trustee has tried to cooperate with all of the various parties to streamline arguments, briefing and disposition of issues and otherwise accommodate parties and their counsel. To this end, the Trustee has tried to group arguments and parties and consented to so-called joinders to expedite the resolution of issues as to as many parties as possible. Indeed, before the parade of withdrawal motions occurred, the very issues currently before this Court in a variety of actions were set for common briefing before Judge Lifland with many of the defendants represented by the same counsel. The statements of the Trustee s counsel, David J. Sheehan, were made at oral argument on November 10, 2011 with the intent to express the same understanding; most, if not all of these issues should be the same for every typical innocent investor certainly for each defendant that has made the same argument and the Trustee has voiced similar opposition. 1
Case 1:11-cv-03775-JSR Document 48 Filed 12/30/11 Page 6 of 26 Why then does the Trustee object to the joinder or consolidation of approximately 125 Cases 1 here? There are several answers. First, the Trustee seeks to preserve his right to object to the withdrawal of the reference for these 400+ defendants. On July 28, 2011, this Court told Ms. Chaitman that she would need to make motions in each of the Cases. She chose not to do so until well after the motion to withdraw the reference was decided in the within case starting to file on November 4, 2011 and finishing on December 9, 2011. The Trustee should not be forced to waive his objections because Ms. Chaitman decided to belatedly file her joinders. Second, the Trustee likewise seeks to preserve his right to amend his complaint against any defendant pursuant to Rule 15 of the Federal Rules of Civil Procedure. Many defendants suggest that there is a debt based upon the false statements issued by BLMIS (whether arguing antecedent debt or as a methodology for calculating fictitious profits). The Trustee has a right to amend his complaint against any defendant to avoid any obligations that they claim exist by virtue of BLMIS s fictitious statements, or for any other reason. 2 Third, these defendants are not all similarly situated. Included in the list of defendants sought to be added to the within action are: (1) statutory insiders Mr. Madoff s sister-in-law and her husband; (2) two entities that have settlements in principle with the Trustee; and (3) according to Ms. Chaitman, defendants in more than 20 Cases who seek to raise additional issues. Ms. Chaitman addresses only one of these issues, proclaiming the innocence of Mr. Madoff s family; her opinion is irrelevant and cannot serve as a basis for consolidation. 1 All of the cases in which Ms. Chaitman seeks joinder and/or consolidation herein are referred to as the Cases. 2 In other similar cases, the Trustee raised no objection to the joinders, regardless of procedural infirmities, because such joinders did not seek to deprive the Trustee of his right to amend. 2
Case 1:11-cv-03775-JSR Document 48 Filed 12/30/11 Page 7 of 26 Fourth, none of the other defendants represented by Ms. Chaitman have moved here. The application is made only by Greiff, and he has not alleged any reason why consolidation is appropriate for his case. Likewise, parties to some of these actions, not represented by Ms. Chaitman, have not filed a motion to consolidate or joined this application, nor does it appear that they have even been given notice of this application. Fifth, the Trustee did not consent to consolidate. The main argument made by Ms. Chaitman is that the Trustee waived all of his rights when, at oral argument, his counsel stated that the legal arguments would be the same for all of her similarly situated clients. She is wrong. In three separate conferences with the Court, and other correspondence with counsel, Ms. Chaitman repeatedly stated that she understood the Trustee s position that these various Cases would not be joined or consolidated with Greiff. And this position was advantageous for a number of her clients, as she sought to raise new issues on their behalf. The first time Ms. Chaitman made the argument regarding waiver was during the teleconference on December 16, 2011 when the Court asked whether the Trustee had waived his objection. Of course, as stated above, the Trustee believes that streamlining resolution of common legal issues should be a goal. As Mr. Sheehan stated in Court on November 10, 2011, the legal arguments raised by Greiff s motion to dismiss would be similar for all similarly situated innocent investors raising the same legal challenges to the Trustee s complaint. At various times, the Trustee offered to engage in common briefing. The Trustee offered to try to stay cases pending final resolution in certain test cases. The Trustee offered to work with Ms. Chaitman and others on a Court ordered stipulation which would preserve all rights of the parties while treating issues as decided commonly. All of those offers have been rejected. 3
Case 1:11-cv-03775-JSR Document 48 Filed 12/30/11 Page 8 of 26 Decidedly, defendants created the procedural quagmire by waiting more than 3 months to begin filing the 124 joinders and taking more than 4 months to complete the process. Also, they did so knowing that in more than 25 of the Cases, there were clear issues that preclude joinder or consolidation. That the Trustee s counsel at oral argument honestly assessed that the different defendants raising the same arguments would be treated similarly does not affect the analysis these individuals have various means for expediting resolution of their cases. However joinder or consolidation of the Cases to the within action, explicitly waiving the Trustee s rights (as well as those of other defendants), is not the solution. BACKGROUND A. Joinder to Abel Ms. Chaitman filed 124 joinders seeking to join the defendants whom she represents with Picard v. Abel, Adv. Pro. No. 10-04381 (Bankr. S.D.N.Y.) (BRL); No. 11 Civ. 7766 (S.D.N.Y.) (JSR) (ECF No. 1) (the Abel Action ). The Trustee consented to that request for all but four of the defendants requested by Ms. Chaitman and proposed consolidation with the Abel Action accordingly. See Warshavsky Decl. at Exhibit 6. B. Prior History The Trustee s efforts to reach an accord with Ms. Chaitman and her clients are stymied due to a personalization of the issues. In this case alone, Ms. Chaitman wrongly accused the Trustee of having an impermissible fee arrangement, publicly questioning his integrity based on 4
Case 1:11-cv-03775-JSR Document 48 Filed 12/30/11 Page 9 of 26 the alleged statement of an unidentified witness 3 and then wrongly accusing the Trustee of issuing a press release commenting on this litigation. 4 This is just the latest in a litany of attacks including, inter alia: (i) suing the Trustee for breach of fiduciary duty; 5 (ii) challenging the reasonableness of the Trustee s settlements, on the one hand, for recovering too much and on the 3 During a hearing on July 28, 2010, Ms. Chaitman alleged that the nature of the Trustee s compensation arrangement created a conflict because he was a quasi-governmental actor based on an alleged conversation with an unspecified lawyer in New Jersey. The Court recognized the tenuous nature of Ms. Chaitman s allegation as set forth in the following dialogue: THE COURT: The compensation of Mr. Picard, according to Ms. Chaitman, is on a percentage basis. MR. BELL: That is incorrect. THE COURT: Well, I don t know that, all I know is what she is alleging. THE COURT: That may be. Let me let you off the hook for the moment, and I want to inquire of Ms. Chaitman: What is the basis for these allegations? MS. CHAITMAN: Your Honor, the basis is that I have been informed by a personal friend of Mr. Picard that he was compensated THE COURT: Who? MS. CHAITMAN: A lawyer in New Jersey. THE COURT: Who? MS. CHAITMAN: You know, unfortunately I can t remember his name, but let me finish. What happened was he told me Mr. Picard was compensated on the basis of 33 to 50 percent of the billing Baker & Hostetler collected. THE COURT: Did you have any other basis? MS. CHAITMAN: No. When we argued THE COURT: So wait a minute, let me just forgive me for interrupting, but on the basis of some hearsay comment from someone who may or may not have had personal knowledge, and who must be so little known to you that you can t even remember his name, you made an allegation of unethical or biased approach by Mr. Picard? That seems an awfully weak read to make such an allegation. Transcript of Oral Argument at 7-8, 12, Picard v. Greiff, No. 11 Civ. 3775 (JSR) (S.D.N.Y. July 28, 2011). 4 Transcript of Oral Argument at 13-14, Picard v. Greiff, No. 11 Civ. 3775 (JSR) (S.D.N.Y. Nov. 10, 2011). 5 Peskin v. Picard, Adv. Pro. No. 09-01272 (BRL) (Bankr. S.D.N.Y. 2009), aff d 09 Civ. 8730 (JGK) (S.D.N.Y. 2010), appeal docketed, No. 10-04789 (2d Cir. Nov. 23, 2010). 5
Case 1:11-cv-03775-JSR Document 48 Filed 12/30/11 Page 10 of 26 other, for not recovering enough; 6 (iii) objecting to procedures to efficiently administer the cases; 7 (iv) challenging that the Department of Justice may seek the Trustee s assistance in connection with the Madoff forfeiture; 8 (v) suing the directors and the president of SIPC personally; 9 (vi) moving to compel the Trustee s production of his investigative reports and financial records; 10 and (vii) testifying to Congress that the Trustee s methodologies are improper and that he has breached his duties to BLMIS customers. 11 6 See, e.g., Picard v. Picower, Adv. Pro. No. 09-1197 (BRL) (Bankr. S.D.N.Y.) (objection to Trustee s motion for entry of order approving $5 billion settlement and issuance of permanent injunction, denied) (ECF No. 32), (appeal of Court s order approving $5 billion settlement and issuing permanent injunction) (ECF No. 45); BLMIS, Adv. Pro. No. 08-01789 (BRL) (Bankr. S.D.N.Y.), (ECF No. 3860) (motion to vacate Levy settlement order, denied), (ECF No. 4005) (notice of appeal of order denying motion to vacate Levy settlement order). 7 See, e.g., BLMIS, Adv. Pro. No. 08-01789 (BRL) (Bankr. S.D.N.Y.), (ECF No. 2567) (opposition on customer motion), (ECF No. 3110) (objection to avoidance action procedures motion, overruled), (ECF No. 3111) (objection to settlement approval procedures motion, overruled). 8 See United States v. Madoff, No. 09-CR-213 (DC) (S.D.N.Y.) (ECF No. 110) (reconsideration motion denied). 9 See Canavan v. Harbeck, No. 10-CV-00954 (FSH) (PS) (D.N.J.). 10 See BLMIS, Adv. Pro. No. 08-01789 (BRL) (Bankr. S.D.N.Y.) (ECF No. 4045) (motion denied). 11 See, e.g., Financial Management, Work Force, and Operations at the SEC: Who s Watching Wall Street s Watchdog: Joint Hearing before the Comm. On Oversight & Gov t Reform, 112 th Cong. 59-60 (March 3, 2011) (written testimony of Helen Davis Chaitman), http://oversight.house.gov/images/stories/testimony/3-10-11_helendavischaitman_ Testimony.pdf; Testimony of Helen Davis Chaitman, Esq. Before the Subcomm. on Capital Mkts., Ins., and Gov t Sponsored Enterprises, 110th Cong. 1-24 (Dec. 9, 2009), http://www.house.gov/apps/list/hearing/financialsvcs_dem/chaitman.pdf. 6
Case 1:11-cv-03775-JSR Document 48 Filed 12/30/11 Page 11 of 26 C. Greiff s Motion to Withdraw the Reference and Facts Relevant to Proposed Consolidation Greiff filed a Motion for Mandatory Withdrawal of the Reference (the Motion ) in Picard v. Greiff, Adv. Pro. No. 10-04357 (Bankr. S.D.N.Y.) (BRL); No. 11 Civ. 3775 (S.D.N.Y.) (JSR) (ECF No. 1) (the Greiff Action ) on June 2, 2011. By virtue of reference in a footnote, Ms. Chaitman, purported to file the Motion on behalf of 313 defendants in 108 separate clawback actions. Motion, 1 nn.1 and 2. From the outset, the Trustee pointed out that there was no procedural basis permitting withdrawal of the reference in 108 actions where no motions to withdraw such references were filed. See Trustee s Memorandum of Law in Opposition to Defendant s Motion for Mandatory Withdrawal of the Reference, 1 n.3 (ECF No. 11). This Court noted this procedural infirmity during the hearing on the Motion. See Transcript of Oral Argument at 3, Picard v. Greiff, 11 Civ. 3775 (S.D.N.Y. July 28, 2011). Notwithstanding, Greiff has repeatedly amended his caption by adding et al. in an attempt to unilaterally add parties to this action. On September 15, 2011, this Court withdrew the reference to the Greiff Action for the limited purpose of addressing two discrete legal issues, namely: (1) whether the Trustee may avoid transfers BLMIS made in order to satisfy antecedent debts, and (2) whether 11 U.S.C. 546(e) applies to this case, limiting the Trustee s ability to avoid transfers. (ECF No. 19). Greiff added a variety of issues to his papers including challenging whether Madoff truly operated a Ponzi scheme. On October 24, 2011, the Court issued a ruling that none of the new issues raised by Greiff other than the methodology for calculating fictitious profits would require briefing. (ECF No. 29). These issues are sub judice on Greiff s motion to dismiss, which were fully briefed on November 1, 2011. After the Greiff Action was fully briefed, and nearly five months after the Motion was 7
Case 1:11-cv-03775-JSR Document 48 Filed 12/30/11 Page 12 of 26 filed, Ms. Chaitman filed a subsequent Motion for Mandatory Withdrawal of the Reference in the Abel Action. Thereafter, in a series of machinations intended to rectify the joinder misstatement identified above in the Greiff Action, beginning on November 4, 2011, Ms. Chaitman filed 124 joinders seeking to join the Cases to the Abel Action. The last of these joinders was filed as recently as December 9, 2011 (see Picard v. Speer, Adv. Pro. No. 10-05217 (Bankr. S.D.N.Y.) (BRL)). In the interim, on November 10, 2011, at the hearing on Defendant Greiff s motion to dismiss the Greiff Action, Ms. Chaitman represented to the Court that she filed 121 motions to withdraw the reference to the Greiff Action. See Transcript of Oral Argument at 4, Picard v. Greiff, 11 Civ. 3775 (S.D.N.Y. Nov. 10, 2011) (a copy of the Transcript is attached as Exhibit 1 to the Warshavsky Decl.). However, this was incorrect. Ms. Chaitman had actually filed 121 joinders to the Abel Action, not this action. She also failed to disclose that 22 of these Cases (including the Abel Action) interpose an entirely new legal issue, i.e., whether IRA withdrawals are protected from being avoided as fraudulent transfers. See Exhibit 2 of Warshavsky Decl. The IRA withdrawal issues are not implicated in the Greiff Action. Ms. Chaitman further neglected to disclose to the Court that two of the Cases that she seeks to consolidate with the Greiff Action involve statutory insiders because the defendants therein are relatives of the Debtor Mr. Madoff s wife s sister and her husband. 12 12 The matters of Picard v. Joan Roman, 11 Civ. 7936 (JSR) and Picard v. Robert Roman, 11 Civ. 7937 (JSR), involve Mr. Madoff s sister-in-law and her husband, who are relatives of the Debtor within the meaning of Bankruptcy Code sections 101(31)(A)(i) and 101(45). See 11 U.S.C. 101(31)(A)(i) and 101(45) ( [t]he term relative means individual related by affinity or consanguinity within the third degree as determined by the common law, or individual in a step or adoptive relationship within such third degree. ). 8
Case 1:11-cv-03775-JSR Document 48 Filed 12/30/11 Page 13 of 26 And, Ms. Chaitman did not disclose that she seeks to consolidate two other actions that she has settled in principle with the Trustee. 13 On November 15, 2011, during a conference with Ms. Chaitman and the Chambers of the Honorable Jed S. Rakoff ( Chambers ), Oren Warshavsky, counsel for the Trustee, advised the Court that the Trustee would agree to consolidate the Cases with the Greiff Action, treating them all as though they have been withdrawn and filed motions to dismiss along with Greiff, provided that the Trustee s absolute right to amend the complaints against the defendants in each of those actions, pursuant to Rule 15 of the Federal Rules of Civil Procedure, was preserved for a period of twenty-one (21) days after any decision by the Court in the Greiff Action. See Warshavsky Decl. at 4. Counsel for the Trustee also sought to preserve his objection to the withdrawal of the reference in those actions. Id. During this Chambers conference, Ms. Chaitman indicated that at least 40 of the Cases were not ripe for consolidation because the joinders in those cases had not yet been transmitted to the District Court, and that approximately 20 of the joinders would not be to the Greiff Action but would be to a different case Picard v. Blumenthal, Adv. Pro. No. 10-04582 (Bankr. S.D.N.Y.) (BRL); No. 11 Civ. 4293 (S.D.N.Y.) (JSR) ( Blumenthal Action ). Id. In a follow-up discussion with the Court on the same day, the parties were informed that these 122 Cases would not be consolidated with the Greiff Action. Warshavsky Decl. at 5. Despite the November 15 conferences, Ms. Chaitman s office sent an email to Chambers on November 22, 2011, titled Cases to be consolidated with Picard v. Greiff, enclosing a list of 13 There are settlements in principle in both Picard v. S&P Associates, General Partnership, Adv. Pro. No. 10-05195 (Bankr. S.D.N.Y.) (BRL); 11 Civ. 8223 (S.D.N.Y.) (JSR); and Picard v. P&S Associates, General Partnership, Adv. Pro. No. 10-05193 (Bankr. S.D.N.Y.) (BRL); 11 Civ. 8222 (S.D.N.Y.) (JSR), and proposed settlement agreements were sent to Ms. Chaitman. 9
Case 1:11-cv-03775-JSR Document 48 Filed 12/30/11 Page 14 of 26 124 Cases in which Ms. Chaitman represents certain defendants. (A copy of the Email, dated November 22, 2011, is annexed as Exhibit 3 to the Warshavsky Decl.) When the Trustee objected to this communication, Ms. Chaitman stated that the communication did not seek joinder to the instant action. After additional correspondence in which counsel for the Trustee sought her availability for a Chambers conference, Ms. Chaitman responded As you know, Judge Rakoff indicated that there will be no joinder, in view of your position. Hence, I frankly have no idea why you are making such an issue of this... Your posturing is silly. See Email from Helen Davis Chaitman, dated November 25, 2011, attached as Exhibit 4 to Warshavsky Decl. Although the Trustee disagrees that the Court s indication was based solely on his request to preserve rights, (i.e., it was also based upon the fact that certain of the Cases had not yet been filed and certain others sought to raise new issues), Ms. Chaitman s understanding here is unequivocal. Nonetheless, to ensure that there was no confusion, on November 28, 2011, the Trustee convened a conference with the Court and Ms. Chaitman to clarify that the Trustee had not consented to the consolidation of the Cases with the Greiff Action. Ms. Chaitman agreed and once again indicated that she was not attempting such joinder. During this conference, Chambers confirmed that the November 22 email was not seeking consolidated with the Greiff Action and the list was viewed merely as an updated roster of Ms. Chaitman s clients. See Warshavsky Decl. at 8. In a decision issued on November 28, 2011, the Court suggested that the parties stipulate to the consolidation of the Greiff Action with other similarly situated actions. See Opinion, 2 n. 1 (emphasis added), at Exhibit 5 to Warshavsky Decl. By email dated December 13, 2011, the Trustee proposed to stipulate to the consolidation of all but four of Ms. Chaitman s Cases to the 10
Case 1:11-cv-03775-JSR Document 48 Filed 12/30/11 Page 15 of 26 Abel Action. See Email, dated December 13, 2011, attached as Exhibit 6 to Warshavsky Decl. It is the Trustee s position, as more fully set forth below, that there are numerous reasons why the Cases are not similarly situated actions, thus precluding consolidation with the Greiff Action. See Warshavsky Decl. at Exhibit 7; infra Section I. D. Prior Joinders and Consolidations In the Consolidation Motion, Ms. Chaitman now states that the Cases she seeks to consolidate involve 124 substantively identical complaints against 380 defendants Consolidation Motion, 1. Ms. Chaitman s Consolidation Motion, however, fails to disclose that the Cases at issue actually involve over 420 defendants, at least 43 of whom are not represented by Ms. Chaitman and to whom notice of the Consolidation Motion was not given. Id. Indeed, several of the Cases have multiple defendants who are represented by other counsel, and other defendants whose representation status is unclear. 14 Ms. Chaitman also failed to disclose that four of the Cases that she is seeking to consolidate with the Greiff Action include parties whose claims have already been joined to other actions. For example, in Picard v. Robert Potamkin, Adv. Pro. No. 10-04352 (Bankr. S.D.N.Y.) (BRL); 11. Civ. 4401 (S.D.N.Y.) (JSR) and 11 Civ. 8012 (S.D.N.Y.) (JSR) ( Potamkin Action ), a joinder was filed on June 28, 2011 by Milberg LLP on behalf of Robert Potamkin and Alan Potamkin to the motion to withdraw the reference in the Blumenthal Action. See Warshavsky Decl. at Exhibit 7; infra Section I. On October 14, 2011, this Court withdrew the reference in the Blumenthal Action and all joinders thereto. Ms. Chaitman represents RAR 14 Nine of the adversary proceedings proposed for consolidation have multiple defendants where certain of the other defendants are represented by other counsel or are unrepresented. See Warshavsky Decl. at Exhibit 7; infra Section I. 11
Case 1:11-cv-03775-JSR Document 48 Filed 12/30/11 Page 16 of 26 Entrepreneurial Fund, Ltd. and Russell Oasis in the Potamkin Action, but did not seek to join the Blumenthal Action. Rather, those entities filed a joinder to the motion to withdraw the reference currently pending in the Abel Action. That motion has not yet been heard. This means that in the Potamkin Action, two defendants have been joined to the Blumenthal Action for which the reference has been withdrawn as to certain claims and a motion to dismiss is sub judice; two defendants seek to join the Abel Action for which the motion to withdraw the reference is currently pending; and one defendant has not moved to withdraw the reference and thus remains in the Bankruptcy Court. Now, Greiff in an unrelated action seeks to consolidate his action with all of the defendants and claims in the Potamkin Action. Likewise, in Picard v. The Harnick Brothers Partnership, Adv. Pro. No. 10-05157 (Bankr. S.D.N.Y.) (BRL); 11 Civ. 4729 (S.D.N.Y.) (JSR) ( Harnick Action ), another of the Cases that Ms. Chaitman seeks to consolidate with the Greiff Action, two defendants have already joined the Blumenthal Action defendants Gary Harnick and the Harnick Brothers Partnership. See Warshavsky Decl. at Exhibit 7; infra Section I. Ms. Chaitman represents seven other defendants who did not move to join the Blumenthal Action, but sought joinder to the motion to withdraw the reference in the Abel Action, which is currently pending. Thus, at present, two defendants are joined to the Blumenthal Action while seven others seek joinder to the Abel Action. Id. This confusion is repeated in Picard v. Joseph S. Popkin Revocable Trust Dated February 9, 2006, Adv. Pro. No. 10-04712 (Bankr. S.D.N.Y.) (BRL); 11 Civ. 4726 (S.D.N.Y.) (JSR) and 11 Civ. 8013 (S.D.N.Y.) (JSR) ( Popkin Trust Action ). There, two defendants represented by Seeger Weiss LLP, have been joined to the Blumenthal Action. Ms. Chaitman represents one defendant and seeks to have her joined to the Abel Action. There are also three 12
Case 1:11-cv-03775-JSR Document 48 Filed 12/30/11 Page 17 of 26 additional defendants, including the Estate of Joseph S. Popkin, Sharon Popkin, and Mark Popkin, who did not move to withdraw the reference, and thus remain in Bankruptcy Court. See Warshavsky Decl. at Exhibit 7; infra Section I. In Picard v. Lehrer, Adv. Pro. No. 10-05259 (Bankr. S.D.N.Y.) (BRL); No. 11 Civ. 8269 (S.D.N.Y.) (JSR); and No. 11 Civ. 8679 (S.D.N.Y.) (JSR) ( Lehrer Action ), yet another adversary proceeding proposed for consolidation with the Greiff Action, Ms. Chaitman represents only one of seventeen defendants. Seven other defendants are represented by five different law firms, and four additional defendants are unrepresented. Id. Five other defendants in the Lehrer Action, who are not represented by Ms. Chaitman, have already filed joinders to Picard v. Goldstein, Adv. Pro. No. 10-04482 (Bankr. S.D.N.Y.) (BRL); 11 Civ. 8491 (S.D.N.Y.) (JSR) ( Goldstein Action ), wherein a motion to withdraw the reference is pending before this Court. See Warshavsky Decl. at Exhibit 7; infra Section I. On December 6, 2011, during a conference with the Court concerning the effect of the joinders in the Blumenthal Action, this Court advised that any defendant who has not joined in any of the motions to withdraw the reference or the motions to dismiss are not impacted by any of the rulings on said motions and thus remain in the jurisdiction of the Bankruptcy Court on all pending claims. Certainly, several of the Cases have been splintered within themselves into multiple civil actions before this Court, with several other defendants still under the jurisdiction of the Bankruptcy Court. This fractionalization of the Cases is compounded by the currently pending application to join all of the Cases to the Abel Action including those with defendants previously joined to other actions in the District Court and now, a consolidation of the Cases with the Greiff Action. The Trustee has continued to work with all counsel to ensure a uniform 13
Case 1:11-cv-03775-JSR Document 48 Filed 12/30/11 Page 18 of 26 approach, and other than the current application, this has worked without issue. In each of these other cases, this fractionalization has been handled and resulted in minimal disruption. Ms. Chaitman s machinations would have effects beyond her clients cause confusion as to which ruling applies to which party, place actions in markedly different procedural postures together, eliminate rights and claims to the severe prejudice of the Trustee, and result in inconsistent adjudication of facts and legal issues within actions. ARGUMENT Greiff seeks to consolidate the within action with the 125 Cases, 15 which involve over 420 defendants. The Consolidation Motion relies upon Ms. Chaitman s declaration of the facts and the very broad argument that common claims and issues render consolidation appropriate. However, the facts that Ms. Chaitman does not disclose to this Court make overwhelmingly clear that while certain claims or certain facts may be common to only certain the Cases, consolidation of the Greiff Action with the multitude of Cases which the movant seeks to consolidate would be inappropriate, substantially prejudicial to the Trustee and other parties, and would result in confusion and disorder to the matters pending before this Court and the Bankruptcy Court. These reasons, which are set forth fully below, provide more than sufficient grounds for denying the Consolidation Motion. I. THE MOTION TO CONSOLIDATE SHOULD BE DENIED BECAUSE DISPARATE CLAIMS AND ISSUES EXIST, AND THE TRUSTEE WOULD SUFFER SIGNIFICANT PREJUDICE AS A RESULT OF CONSOLIDATION Pursuant to F.R.Civ.Pr. Rule 42(a), a federal district court may consolidate civil actions [that] involv[e] a common question of law or fact. [Consolidation] should be prudently 15 Despite the repeated references in the Consolidation Motion to 124 Cases, Ms. Chaitman is actually seeking to consolidate 125 Cases (including the Abel Action) with the Greiff Action. 14
Case 1:11-cv-03775-JSR Document 48 Filed 12/30/11 Page 19 of 26 employed as a valuable and important tool of judicial administration, invoked to expedite trial and eliminate unnecessary repetition and confusion. Devlin v. Transportation Communs. Int l Union, 175 F.3d 121, 130 (2d Cir. 1999) (internal citations and quotations omitted). In considering whether consolidation is appropriate the court must weigh: whether the specific risks of prejudice and possible confusion [are] overborne by the risk of inconsistent adjudications of common factual and legal issues, the burden on parties, witnesses, and available judicial resources posed by multiple lawsuits, the length of time required to conclude multiple suits as against a single one, and the relative expense to all concerned of the single-trial, multiple-trial alternatives. Johnson v. Celotex Corp., 899 F.2d 1281, 1285 (2d Cir. 1990) (citations omitted). The appropriateness of consolidating actions depends on whether the interest of judicial economy outweighs the potential for delay, confusion and prejudice that may result from consolidation. Bank of Montreal v. Eagle Assocs., 117 F.R.D. 530, 532 (S.D.N.Y. 1987); see Caronia v. Hustedt Chevrolet, Nos. 05-3526, 05-4148, 05-4149, and 05-4230, 2009 WL 5216940, at *3 (E.D.N.Y. Dec. 29, 2009) (internal quotations omitted) (consolidation is generally appropriate, [s]o long as any confusion or prejudice does not outweigh efficiency concerns. ). A. Disparate Claims and Issues Exist It is evident that there are certain issues of law and fact common to the Cases at issue. In these Cases, the Trustee seeks to avoid and recover certain preferential transfers and/or fraudulent conveyances. However, the facts are not as clear cut as Ms. Chaitman makes them out to be. The underlying adversary proceedings in the Cases at issue are not one defendant adversary proceedings where one attorney represents the single defendant. In reality, nine of the Cases involve multiple defendants who are represented by counsel other than Ms. Chaitman or are unrepresented; four of the Cases have defendants that have already been joined or seek to be joined to another matter; and there are at least thirty-eight unrepresented and other defendants 15
Case 1:11-cv-03775-JSR Document 48 Filed 12/30/11 Page 20 of 26 who are still within the jurisdiction of the Bankruptcy Court. The multiple parties, multiple representations and multiple procedural postures render consolidation unwieldy and inappropriate. These multiple factors are exemplified in the Potamkin, Harnick, Popkin Trust and Lehrer Actions, which strongly compel against consolidation with the Greiff Action. Within each action, several defendants have been joined to the Blumenthal Action, some defendants have been joined to the Goldstein Action, several defendants are seeking joinder to the Abel Action and several defendants still remain within the jurisdiction of the Bankruptcy Court. Wholesale consolidation now as opposed to continuing along the orderly path already in place would lead to the complex questions of which party is affected by which ruling, how the potential for inconsistent rulings would be treated among the parties and how the adversary proceedings are to be tried with parties in different procedural and substantive postures. Moreover, several of the Cases proposed for consolidation involve different legal issues. As set forth above, twenty-two of the Cases proposed for consolidation raise a legal issue that was not addressed in the Greiff Action; two of the Cases involve statutory insiders, which are subject to different look back periods under certain provisions of the Bankruptcy Code; 16 and two of the Cases involve defendants that reached a settlement in principle with the Trustee. See Warshavsky Decl. at Exhibit 7. These issues, pertinent to the respective Cases, should not be consolidated to an action where the issues are wholly irrelevant. Nor should they be consolidated to an action where the Trustee has not had the opportunity to exercise his right to amend the complaints, and to brief and argue the substantive merits of the new claims. 16 For example, Bankruptcy Code section 547 provides that preferential transfers to insiders may be avoided during the one year period prior to the filing date. See 11 U.S.C. 547(b)(4)(B). 16
Case 1:11-cv-03775-JSR Document 48 Filed 12/30/11 Page 21 of 26 B. Substantial Prejudice Tellingly, Ms. Chaitman does not even touch upon the fact that the Trustee would be substantially prejudiced by the consolidation of cases at significantly different procedural postures and with substantively different claims. While Rule 42(a) is a vehicle to encourage judicial efficiency, the Rule should be applied to ensure judicial fairness above all else. Considerations of convenience and economy must yield to a paramount concern for a fair and impartial trial. Johnson, 899 F.2d at 1285. When substantial prejudice to a party opposing consolidation is demonstrated, the motion to consolidate must be denied. Rio Energy Intern., Inc. v. Hilton Oil Transport, 776 F.Supp. 120, 122 (S.D.N.Y. 1991). At present in the Greiff Action, the reference to the Bankruptcy Court has been withdrawn as to certain issues and there is currently pending a motion to dismiss based on those issues, which has been fully briefed and argued. The majority of the Cases that Ms. Chaitman seeks to consolidate to the Greiff Action are not at the same procedural posture. The reference has not been withdrawn in 122 of the Cases, and likewise no motions to dismiss or joinders to any pending motion to dismiss have been filed in any of the foregoing the Cases. If the Cases were consolidated with the Greiff Action, the Trustee would undoubtedly be prejudiced by the inability, in each of the respective Cases, to: (1) file an Amended Complaint as of right, as expressly provided by Rule 15; (2) argue and create a record that withdrawal of the reference is inappropriate; and (3) argue and create a record as to each claim or defense on a motion to dismiss, to the extent new or different grounds or facts are raised. For instance, the Trustee continues to believe that the invocation of Bankruptcy Code section 546(e) is not a proper basis for mandatory withdrawal of the reference and continues to believe that the same section of the Bankruptcy Code is inapplicable here, notwithstanding this Court s ruling in Picard v. Katz, No. 17
Case 1:11-cv-03775-JSR Document 48 Filed 12/30/11 Page 22 of 26 11 Civ. 3605, 2011 WL 4448638 at *2-3 (S.D.N.Y. Sept. 27, 2011). 17 The Trustee is entitled to each of these rights in each of the respective Cases and should not be precluded from exercising those rights for the sake of illusory efficiency. Notably, prejudice also befalls other defendants in the Cases. As the Court has made clear, defendants who have not joined in the motions to withdraw and/or the motions to dismiss are not subject to any of the Court s rulings on the motions. As such, by consolidation with the Greiff Action, where a ruling on the motion to dismiss is shortly anticipated, those defendants would be subject to having their claims in a different procedural and substantive posture as the joined defendants. In other words, all claims whether withdrawn or dismissed would still remain pending against the other defendants and must be litigated accordingly. Interestingly, the other defendants have not moved for joinder or consolidation with the Greiff Action, 18 have no interest in the Greiff Action and were certainly not provided with notice by Ms. Chaitman to nevertheless consolidate their claims with the Greiff Action. 19 It is clear that the current procedural posture of the Greiff Action and the distinct substantive issues make consolidation of the Cases with the Greiff Action inappropriate. The 17 Notwithstanding this Court s rulings to the contrary, no other court has found that section 546(e) provides a basis for mandatory withdrawal of the reference under 28 U.S.C. 157(d). Walker, Truesdel, Roth & Assocs., et al. v. The Blackstone Group, L.P., et al. (In re Extended Stay, Inc.), 2011 WL 5532258, at *7 (S.D.N.Y. Nov. 10, 2011). Likewise, courts have held that a defense under section 546(e) is inappropriate in this context. 18 Notably, none of the other defendants represented by Ms. Chaitman have moved for consolidation. 19 Although Ms. Chaitman is putatively moving on behalf of Greiff, if the Court were inclined to permit the Trustee to preserve his right to amend his complaints against the other defendants in the event of any consolidation of the Cases, thereby delaying any opinion in the Greiff Action, the proposed consolidation would prejudice Greiff, the moving party herein. 18
Case 1:11-cv-03775-JSR Document 48 Filed 12/30/11 Page 23 of 26 Trustee is entitled to fully pursue his claims and to defend against any affirmative defenses. Elimination of the right to do so would result in severe prejudice to the Trustee. While consolidation is available to encourage judicial efficiency, it should not be granted when it undoubtedly would result is substantial delay, confusion and prejudice. Argo Comm. Corp. v. Centel Corp., et al., 91 Civ. 7226, 1992 WL 75144, *3-4 (S.D.N.Y. Mar. 30, 1992) (disparity in the procedural stages of litigation and distinct substantive issues between two cases precludes consolidation). C. The Trustee Did Not Consent To Consolidation Of The Cases. Ms. Chaitman makes much of the Trustee s statements with respect to the fully briefed issues in the Greiff Action. Specifically, during the November 10, 2011 hearing in the Greiff Action, counsel for the Trustee had the following colloquy with the Court: THE COURT: Let me interrupt for a minute here. Your adversary in a way has said that because she s now filed the motions to withdraw, that she, in effect, is suggesting we should treat this as argument for all those cases. Is that agreeable to you? MR. SHEEHAN: Yes. That s fine, your Honor. Because I believe that the facts would be the same for each. THE COURT: Very good. See Transcript of Oral Argument at 18, Picard v. Greiff, 11 Civ. 3775 (JSR) (S.D.N.Y. Nov. 10, 2011); Warshavsky Decl. at Exhibit 1. Ms. Chaitman believes that Mr. Sheehan s statement should be read as the Trustee agreeing to waive the right to amend complaints as of right, waive the right to object to withdrawal of the reference without the opportunity for briefing or argument, and waiver of the right to brief or argue new issues not previously contained, briefed and/or argued in the Greiff 19
Case 1:11-cv-03775-JSR Document 48 Filed 12/30/11 Page 24 of 26 Action. Mr. Sheehan s statement speaks for itself and certainly with full disclosure of facts not presented to the Court does not support Ms. Chaitman s conclusory supposition. Procedurally, as noted above, at the time of oral argument, Ms. Chaitman incorrectly stated that she had filed 121 motions to withdraw the reference to the Greiff Action. See Exhibit 1 to Warshavsky Decl. The truth is that Ms. Chaitman actually filed 124 joinders to the Abel Action. No motions for joinder had been filed to the motion to withdraw the reference in the Greiff Action. No motions for joinder had been filed to the motion to dismiss in the Greiff Action. As such, any arguments in the Greiff Action could not and should not be applicable to any of the Cases. Substantively, if the joinders to the motion to withdraw the reference and motion to dismiss had been properly filed in the Greiff Action, and the Trustee decided against exercising his right to amend, then the arguments in Greiff that had been fully briefed and argued would apply to the Cases to the extent they are relevant. To the extent the Cases raised new arguments and issues, the Trustee did not waive his right to fully brief and argue those new issues when they are ripe, i.e., after an amended complaint is filed, after a reference is properly withdrawn and after a motion to dismiss is properly briefed, argued and presented to the Court. However, as the Court is aware, the Trustee has made the same argument with respect to his various positions. To the extent that the Court withdraws the reference with respect to all of Ms. Chaitman s clients, on all of the same issues, and those clients merely repeat the same arguments and it is anticipated that they would the Trustee absolutely would rest by his existing arguments as he has done in the past. The Trustee has made every effort to cooperate with the parties and to advance judicial efficiency. The Trustee has agreed to motions for joinder and/or consolidation where the parties 20
Case 1:11-cv-03775-JSR Document 48 Filed 12/30/11 Page 25 of 26 are in the same procedural posture, where there are common issues of law and fact, and where substantive claims have been properly presented to the Court. 20 The Trustee does not alter his efforts with respect to the Greiff Action. However, the Trustee has not and will not consent to joinder and/or consolidation of actions that have not been properly presented to the Court or where such joinder and/or consolidation is prejudicial to the rights of the Trustee to fully exercise his rights and pursue his claims. D. The Merits Of Any Anticipated Amended Complaint Are Irrelevant To The Issue Of Consolidation. In what can only be deemed as a last ditch effort, Ms. Chaitman injects a discussion of the substantive merits on the claims that the Trustee may pursue in an amended complaint. Such consideration of the merits of the claims is wholly irrelevant to the Trustee s right under Rule 15 to file amended complaints in the respective Cases. In re Prudential Sec. Inc. Ltd. P ships. Litig., 158 F.R.D. 562, 569 (S.D.N.Y. 1994) (rejecting defendants challenge to plaintiffs right to amend their complaints as of right in a consolidated proceeding and noting that [the] Court would have no opportunity to consider the substance of these amendments until a proper motion challenging the allegations in the amended complaint were brought. ); 9A Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure 2382 (3d ed. 2011) ( Consolidation also would not be proper if a party thereby seeks to circumvent the rules regarding amendment as of right in Rule 15(a). ). Ms. Chaitman s argument should not be countenanced. 20 See, e.g., Order Consolidating The Cases, Picard v. Hein, 11 Civ. 4936 (JSR) (S.D.N.Y. Nov. 7, 2011) (ECF No. 15). 21
Case 1:11-cv-03775-JSR Document 48 Filed 12/30/11 Page 26 of 26 CONCLUSION For the reasons discussed above, the Trustee respectfully requests that Defendant Greiff s Consolidation Motion be denied in its entirety. Date: December 30, 2011 New York, New York By: /s/oren J. Warshavsky BAKER & HOSTETLER LLP 45 Rockefeller Plaza New York, New York 10111 Telephone: (212) 589-4200 Facsimile: (212) 589-4201 David J. Sheehan Email: dsheehan@bakerlaw.com Oren J. Warshavsky Email: owarshavsky@bakerlaw.com Lan Hoang Email: lhoang@bakerlaw.com Nicholas J. Cremona Email: ncremona@bakerlaw.com Attorneys for Irving H. Picard, Trustee for the Substantively Consolidated SIPA Liquidation of Bernard L. Madoff Investment Securities LLC and Bernard L. Madoff 22