Pg 1 of 9 Baker & Hostetler LLP Hearing Date: April 27, 2016 45 Rockefeller Plaza Time: 10:00a.m. New York, NY 10111 Telephone: (212) 589-4200 Objection Deadline: April 20, 2016 Facsimile: (212) 589-4201 Time: 5:00p.m. David J. Sheehan Lauren J. Resnick 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 UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK SECURITIES INVESTOR PROTECTION CORPORATION, v. Plaintiff, BERNARD L. MADOFF INVESTMENT SECURITIES LLC, Adv. Pro. No. 08-01789 (SMB) SIPA LIQUIDATION (Substantively Consolidated) Defendant. In re: BERNARD L. MADOFF, Debtor. IRVING H. PICARD, Trustee for the Liquidation of Bernard L. Madoff Investment Securities LLC, Adv. Pro. No. 09-01503 (SMB) Plaintiff, v. THE ESTATE OF MARK D. MADOFF and ANDREW H. MADOFF, individually and as Executor of the Estate of Mark D. Madoff, Defendants. MEMORANDUM OF LAW IN SUPPORT OF THE TRUSTEE S MOTION FOR ENTRY OF AN ORDER UNDER SECTION 6513 OF THE NEW YORK CIVIL PRACTICE LAW AND RULES EXTENDING THE NOTICE OF PENDENCY FILED AGAINST CERTAIN REAL PROPERTY IN NEW YORK COUNTY OWNED BY DEFENDANT ANDREW H. MADOFF
Pg 2 of 9 TABLE OF CONTENTS Page I. INTRODUCTION...1 II. THE TRUSTEE S LITIGATION...2 III. ARGUMENT...3 A. This Court is Authorized to Grant the Relief Requested by the Trustee...3 B. The Trustee Has Demonstrated Good Cause for an Extension of the Notice of Pendency...4 IV. CONCLUSION...6 - i -
Pg 3 of 9 TABLE OF AUTHORITIES Page(s) Cases In re Anthony Sicari, Inc., 144 B.R. 656 (Bankr. S.D.N.Y. 1992), aff d, 151 B.R. 60 (S.D.N.Y. 1993)...3 Christiana Bank & Trust Co. v. Dalton, No. 06 CV 3206 (JS) (ETB), 2009 WL 4016507 (E.D.N.Y. Nov. 17, 2009)...4 Dollar Dry Dock Sav. Bank v. Hudson St. Dev. Assocs., No. 92 Civ. 3737 (SAS), 1995 WL 412572 (S.D.N.Y. July 12, 1995)...4 In re Harry C. Partridge, Jr. & Sons, Inc., 121 B.R. 2 (Bankr. S.D.N.Y. 1990)...4, 5 L & L Painting Co. v. Columbia Sussex Corp., 225 A.D.2d 670 (2d Dep t 1996)...4 Richard J. Zitz, Inc. v. Pereira, 965 F.Supp. 350 (E.D.N.Y. 1997)...3 Stassou v. Casini & Huang Const., Inc., 203 A.D.2d 357 (2d Dep t 1994)...5 U.S. v. Letscher, 83 F.Supp.2d 367 (S.D.N.Y. 1999)...4 Statutes 15 U.S.C. 78aaa, et seq...1 15 U.S.C. 78lll(4)...1 Rules NY CPLR 6513...1, 2, 4 - ii -
Pg 4 of 9 I. INTRODUCTION Irving H. Picard (the Trustee ), as trustee for the liquidation of the business of Bernard L. Madoff Investment Securities LLC ( BLMIS ) and the substantively consolidated estate of Bernard L. Madoff ( Madoff ) under the Securities Investor Protection Act, 15 U.S.C. 78aaa, et seq. ( SIPA ), by his undersigned counsel, most respectfully moves this Court for an order under section 6513 of the New York Civil Practice Law and Rules ( NY CPLR 6513 ) extending the Notice of Pendency filed by the Trustee in the New York County Clerk s Office against defendant Andrew Madoff s real property located at 433 East 74th Street, Apartment 5A, New York, New York 10021-3901, also known as Lot 1109, Block 1469 (the 433 East 74th Street Property ) for an additional three-year period from the date upon which the order is entered. On October 2, 2009, the Trustee filed this action against several Madoff family defendants seeking, among other things, the recovery of certain transfers of Customer Property (as defined by SIPA 78lll(4)) initially made by BLMIS or Madoff to or for the benefit of the defendants. Defendant Andrew H. Madoff 1 received or benefitted from several of these transfers, some of which were used to purchase real property, including the 433 East 74th Street Property. The Trustee alleged that the properties the defendants purchased with Customer Property should be held in trust for the Trustee s use, benefit, and account. On July 10, 2012, in order to preserve his recovery rights against the 433 East 74th Street Property, the Trustee filed the Notice of Pendency with the New York County Clerk s Office. 1 Mark Madoff passed away on December 11, 2010 and Andrew Madoff passed away on September 3, 2014. Thereafter, the Trustee and Martin Flumenbaum, Executor of defendant Andrew Madoff s estate, entered into several stipulations extending the Trustee s time to substitute Mr. Flumenbaum, and Andrew Madoff s estate, for Andrew Madoff in this proceeding while the parties engaged in settlement discussions, with the most recent stipulation extending the Trustee s time to substitute to April 8, 2016. ECF No. 227. The parties have agreed to submit a stipulation to be so ordered by this Court substituting the proper parties into the action.
Pg 5 of 9 Under NY CPLR 6513, the Trustee s Notice of Pendency was scheduled to expire on July 10, 2015, three years after it was filed. The parties entered into two six-month extensions of the Notice of Pendency, each so ordered by this Court, ultimately extending the Notice of Pendency s expiration to June 1, 2016. (ECF Nos. 221 & 226.) To avoid the burden of additional motion practice, on March 30, 2016, the Trustee requested that Defendants agree to an additional extension of the Notice of Pendency s expiration but Defendants did not respond to the Trustee s request. (Declaration of David J. Sheehan, hereinafter the Sheehan Declaration, at Exhibit B). Section 6513 of the NY CPLR authorizes this Court to order an extension of the Notice of Pendency for good cause shown. As set forth more fully herein and in the accompanying Sheehan Declaration, the Trustee has demonstrated the requisite good cause for this Court to order a further extension of the Notice of Pendency. Absent an order from this Court extending the Notice of Pendency, the Notice of Pendency will immediately lapse, jeopardizing the Trustee s rights against the property should he prevail in this adversary proceeding. The Trustee, therefore, seeks an order from this Court pursuant to NY CPLR 6513 extending the Notice of Pendency for an additional period of three years from the date upon which the order is entered. II. THE TRUSTEE S LITIGATION On October 2, 2009, the Trustee commenced the above-captioned adversary proceeding against Andrew Madoff, Mark Madoff, Shana Madoff, and Peter Madoff. (Sheehan Declaration at 5). The Trustee alleged, among other things, that certain transfers of Customer Property from BLMIS and/or Madoff were used to purchase property for the defendants, including Andrew Madoff s 433 East 74th Street Property, and that such property should be held in 2
Pg 6 of 9 constructive trust for the Trustee s use, benefit and account. 2 (Id). Specifically, Madoff purported to loan Andrew Madoff at least $4,485,000 pursuant to a promissory note in 2008 for the purchase of the 433 East 74th Street property. That money, however, was wired directly to Andrew Madoff s real estate agents and lawyers from the BLMIS 703 Account. The Trustee has not discovered any evidence that this loan was ever serviced or repaid. (Id). On July 10, 2012, the Trustee caused a Notice of Pendency to be filed, recorded, and indexed against the 433 East 74th Street Property by the New York County Clerk s Office. (Id. at 7). The parties subsequently agreed and stipulated to two additional extensions of the Notice of Pendency, so ordered by this Court, through June 1, 2016. (ECF No. 221 & 226). Absent the relief the Trustee seeks from this Court, the Notice of Pendency will expire on June 1, 2016. III. ARGUMENT A. This Court is Authorized to Grant the Relief Requested by the Trustee A notice of pendency is a provisional remedy that may be filed in any action pending before a New York or federal court in which the judgment demanded would affect the title to, or the possession, use or enjoyment of, real property. In re Anthony Sicari, Inc., 144 B.R. 656, 657 n.1 (Bankr. S.D.N.Y. 1992) (internal citation and quotations omitted), aff d, 151 B.R. 60 (S.D.N.Y. 1993). The purpose of a notice of pendency is to provide any potential purchaser of the real property with notice that the property is the subject of a pending litigation. Richard J. Zitz, Inc. v. Pereira, 965 F.Supp. 350, 354 (E.D.N.Y. 1997). New York law provides that the court, upon motion of the plaintiff and upon such notice as it may require, for good cause shown, may grant an extension of a notice of pendency. NY 2 The Trustee filed an Amended Complaint on November 7, 2011 and a Second Amended Complaint on May 4, 2012, which added the current and former spouses of Andrew Madoff and Mark Madoff as defendants in the action and alleged additional avoidable and recoverable initial and subsequent transfers. The Trustee has since settled with the current and former spouses. 3
Pg 7 of 9 CPLR 6513. Federal courts, including the Bankruptcy Court, have routinely issued orders to extend a notice of pendency pursuant to NY CPLR 6513. See e.g., Christiana Bank & Trust Co. v. Dalton, No. 06 CV 3206 (JS) (ETB), 2009 WL 4016507, at *6 (E.D.N.Y. Nov. 17, 2009) (granting motion under CPLR 6513 to extend notice of pendency); U.S. v. Letscher, 83 F.Supp.2d 367, 380 n.10 (S.D.N.Y. 1999) (referencing an order of the court extending the notice of pendency for three years); Dollar Dry Dock Sav. Bank v. Hudson St. Dev. Assocs., No. 92 Civ. 3737 (SAS), 1995 WL 412572, at *10 (S.D.N.Y. July 12, 1995) (granting motion for three-year extension of notice of pendency); In re Harry C. Partridge, Jr. & Sons, Inc., 121 B.R. 2, 5 (Bankr. S.D.N.Y. 1990) (granting trustee s motion to extend notice of pendency). This Court has the authority to extend the Trustee s Notice of Pendency to ensure the collectability of a potential judgment against Andrew Madoff in this matter. B. The Trustee Has Demonstrated Good Cause for an Extension of the Notice of Pendency The Trustee has demonstrated good cause for extension of the Notice of Pendency as required under NY CPLR 6513. Courts have found the requisite good cause where the action was actively litigated during the notice of pendency period and would not be resolved before the expiration of the notice of pendency. See e.g., Dollar Dry Dock Sav. Bank, 1995 WL 412572, at *10 ( good cause for the extension has been shown because this action has been actively litigated during the past three (3) years and will not be resolved before the expiration of the Notice ); L & L Painting Co. v. Columbia Sussex Corp., 225 A.D.2d 670, 671 (2d Dep t 1996) (extending notice of pendency for one year because there was no evidence in the record of delay by the moving party). Courts have also extended notices of pendency where a failure to do so would allow the defendant to transfer the property to a bona fide purchaser in the interim and relegate the trustee to a cause of action for damages... [against a defendant who] might not 4
Pg 8 of 9 have the financial responsibility to satisfy the trustee s claim should he prevail in the adversary proceeding. In re Harry C. Partridge, Jr. & Sons, Inc., 121 B.R.at 4-5. The Trustee has actively engaged in the prosecution and attempted resolution of this matter against all defendants from the outset of this action, including litigating various motions, engaging in discovery, seeking leave to further amend the complaint, and engaging in settlement negotiations with all defendants. (Sheehan Declaration at 8). Indeed, the Trustee continued his efforts despite the fact that the proceeding was initially delayed due to motion practice in the district court. 3 Cf. Stassou v. Casini & Huang Const., Inc., 203 A.D.2d 357 (2d Dep t 1994) (good cause shown due to stay of proceeding). This action was furthered delayed during the past year, again through no fault of the Trustee, due to extensive settlement negotiations with the representatives of the estates of the Madoff brothers that recently concluded without a resolution. As a result, this action will not be resolved prior to the June 1st expiration of the Notice of Pendency. The expiration of the Notice of Pendency would allow for the potential sale to a third party free and clear of the Trustee s claims. Not only will this frustrate the Trustee s ability to execute on a future judgment, it would be profoundly unjust in light of his allegations that Andrew Madoff purchased the property with customer funds stolen from BLMIS. For the foregoing reasons, the Trustee requests that the Court issue an order extending the Notice of Pendency on the 433 East 74th Street Property for an additional three-year period from the date upon which the requested order is entered and direct that said order be filed, indexed, and recorded with the New York County Clerk s Office prior to June 1, 2016. 3 The deadlines in the Case Management Plan in this case began to lapse in August 2012. Since then, the Trustee has circulated revised Plans, which extended dates to advance discovery. Defendants delayed their responses to these proposals, never agreeing, and requiring further revisions as each draft became obsolete. This continued until the Defendants finally stated on September 4, 2013 that they would not participate in any further discovery. 5
Pg 9 of 9 IV. CONCLUSION Based on the foregoing, the Trustee respectfully requests that the Court enter an order granting the relief requested herein and such other and further relief as is just and proper. Dated: April 6, 2016 New York, New York BAKER & HOSTETLER LLP By: /s/ David J. Sheehan 45 Rockefeller Plaza New York, New York 10111 212.589.4200 212.589.4201 David J. Sheehan Email: dsheehan@bakerlaw.com Lauren J. Resnick Email: lresnick@bakerlaw.com 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 6