17‐2992(L)
In re Picard
UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT
______________
August Term 2018
(Argued: November 16, 2018 | Decided: February 25, 2019)
Docket Nos. 17‐2992(L),
17‐2995, 17‐2996, 17‐2999, 17‐3003, 17‐3004, 17‐3005, 17‐3006, 17‐3007, 17‐3008,
17‐3009, 17‐3010, 17‐3011, 17‐3012, 17‐3013, 17‐3014, 17‐3016, 17‐3018, 17‐3019,
17‐3020, 17‐3021, 17‐3023, 17‐3024, 17‐3025, 17‐3026, 17‐3029, 17‐3032, 17‐3033,
17‐3034, 17‐3035, 17‐3038, 17‐3039, 17‐3040, 17‐3041, 17‐3042, 17‐3043, 17‐3044,
17‐3047, 17‐3050, 17‐3054, 17‐3057, 17‐3058, 17‐3059, 17‐3060, 17‐3062, 17‐3064,
17‐3065, 17‐3066, 17‐3067, 17‐3068, 17‐3069, 17‐3070, 17‐3071, 17‐3072, 17‐3073,
17‐3074, 17‐3075, 17‐3076, 17‐3077, 17‐3078, 17‐3080, 17‐3083, 17‐3084, 17‐3086,
17‐3087, 17‐3088, 17‐3091, 17‐3100, 17‐3101, 17‐3102, 17‐3106, 17‐3109, 17‐3112,
17‐3113, 17‐3115, 17‐3117, 17‐3122, 17‐3126, 17‐3129, 17‐3132, 17‐3134, 17‐3136,
17‐3139, 17‐3140, 17‐3141, 17‐3143, 17‐3144, 17‐3862.
IN RE: IRVING H. PICARD, TRUSTEE FOR THE LIQUIDATION OF BERNARD
L. MADOFF INVESTMENT SECURITIES LLC
______________
Before:
JACOBS, POOLER, AND WESLEY, Circuit Judges.
These eighty‐eight consolidated appeals come from dozens of related orders
of the United States Bankruptcy Court for the Southern District of New York
(Bernstein, J.). Plaintiff‐Appellant Irving H. Picard, Trustee for the Liquidation of
Bernard L. Madoff Investment Securities LLC (“Madoff Securities”), alleges that
Madoff Securities transferred property to foreign entities that subsequently
transferred it to other foreign entities, including the hundreds of Appellees. The
Trustee contends that Madoff Securities’ transfers are avoidable (meaning
“voidable”) as fraudulent under § 548(a)(1)(A) of the Bankruptcy Code. He
thereby seeks to recover the property from the Appellees using § 550(a)(2) of the
Bankruptcy Code. These actions were dismissed on the grounds that the
presumption against extraterritoriality and international comity principles limit
the scope of § 550(a)(2) such that the trustee of a domestic debtor cannot use it to
recover property that the debtor transferred to a foreign entity that subsequently
transferred it to another foreign entity. We disagree and hold that neither doctrine
bars recovery in these actions. Accordingly, we VACATE the judgments of the
bankruptcy court and REMAND for further proceedings.
_________________
ROY T. ENGLERT, JR., Robbins, Russell, Englert, Orseck, Untereiner
& Sauber LLP, Washington, D.C. (David J. Sheehan, Seanna R.
Brown, Torello H. Calvani, Catherine E. Woltering, Baker &
Hostetler LLP, New York, NY, for Plaintiff‐Appellant Irving H.
Picard; Howard L. Simon, Windels Marx Lane & Mittendorf,
LLP, New York, NY; Matthew B. Lunn, Young Conaway
Stargatt & Taylor, LLP, New York, NY, Special Counsel for the
Trustee, on the brief), for Plaintiff‐Appellant.
JOSEPHINE WANG, General Counsel (Kevin H. Bell, Senior
Associate General Counsel for Dispute Resolution, Nathanael
S. Kelley, Associate General Counsel, on the brief), Securities
Investor Protection Corporation, Washington, D.C., for
Intervenor Securities Investor Protection Corporation.
FRANKLIN B. VELIE, Sullivan & Worcester LLP, New York, NY;
THOMAS J. MOLONEY, Cleary Gottlieb Steen & Hamilton
LLP, New York, NY (Diarra M. Guthrie, Samuel P. Hershey,
Cleary Gottlieb Steen & Hamilton LLP, New York, NY;
Timothy P. Harkness, David Y. Livshiz, Jill K. Serpa,
Freshfields Bruckhaus Deringer US LLP, New York, NY;
Marshall R. King, Gibson, Dunn & Crutcher LLP, New York,
NY; Jonathan G. Kortmansky, Mitchell C. Stein, Sullivan &
Worcester LLP, New York, NY, on the brief), for Defendants‐
2
Appellees HSBC Holdings plc, et al., UBS AG, et al., First Peninsula
Trustees Limited, et al., and BA Worldwide Fund Management
Limited.
Eugene R. Licker, Ballard Spahr LLP, New York, NY, for Defendants‐
Appellees Lighthouse Investment Partners, LLC, Lighthouse
Supercash Fund Limited, and Lighthouse Diversified Fund Limited.
Dean A. Ziehl (Harry D. Hochman, Alan J. Kornfeld, on the brief),
Pachulski Stang Ziehl & Jones LLP, New York, NY, for Amicus
Curiae National Association of Bankruptcy Trustees, in support of
Plaintiff‐Appellant.
Roger P. Sugarman, Kegler, Brown Hill + Ritter, Columbus, OH, for
Amici Curiae Professors of Conflict of Laws, in support of Plaintiff‐
Appellant.
Andrea Dobin (Henry M. Karwowski, on the brief), Trenk, DiPasquale,
Della Fera & Sodono, P.C., West Orange, NJ, for Amici Curiae
Bankruptcy Law Professors, in support of Appeal and Reversal.
David Molton, Brown Rudnick LLP, New York, NY, for Amicus Curiae
Kenneth Krys, as Liquidator and Foreign Representative of Fairfield
Sentry Limited, Fairfield Sigma Limited, and Fairfield Lambda
Limited, in support of Plaintiff‐Appellant and partial reversal.
Daniel M. Sullivan (Matthew Gurgel, Benjamin F. Heidlage, on the
brief), Holwell Shuster & Goldberg LLP, New York, NY, for
Amici Curiae Brian Child, Christopher Hill, Nilani Perera, Martin
Trott, and Andrew Willins, in support of Defendants‐Appellees.
George T. Conway III (Emil A. Kleinhaus, Joseph C. Celentino, on the
brief), Wachtell, Lipton, Rosen & Katz, New York, NY, for
Amicus Curiae Securities Industry and Financial Markets
Association, in support of Defendants‐Appellees.
3
Richard A. Kirby, FisherBroyles, LLP, Washington, D.C. (Carole
Neville, Dentons, New York, NY; Richard Levy, Pryor
Cashman LLP, New York, NY, on the brief), for Amici Curiae Lanx
BM Investments, LLC, et al., in support of Defendants‐Appellees.
_________________
WESLEY, Circuit Judge:
These eighty‐eight consolidated appeals arise from the ongoing fallout of
Bernard Madoff’s Ponzi scheme. As alleged, Bernard L. Madoff Investment
Securities LLC (“Madoff Securities”) fraudulently transferred billions of dollars to
foreign investors, including the feeder funds at issue here. These feeder funds, the
initial transferees of that property, subsequently transferred it to other foreign
investors, a group that includes the hundreds of Appellees. Irving H. Picard, the
Appellant and Trustee for the Liquidation of Madoff Securities, alleges these
transfers are fraudulent, and thus avoidable (meaning “voidable”), under
§ 548(a)(1)(A) of the Bankruptcy Code. Invoking § 550(a)(2) of the Bankruptcy
Code, the Trustee sued the Appellees to recover the property. The question before
us is whether, where a trustee seeks to avoid an initial property transfer under
§ 548(a)(1)(A), either the presumption against extraterritoriality or international
comity principles limit the reach of § 550(a)(2) such that the trustee cannot use it
4
to recover property from a foreign subsequent transferee that received the
property from a foreign initial transferee.
Following an order of the United States District Court for the Southern
District of New York (Rakoff, J.),1 the United States Bankruptcy Court for the
Southern District of New York (Bernstein, J.)2 dismissed the Trustee’s actions,
holding in each that either the presumption against extraterritoriality or
international comity principles prevent the Trustee from using § 550(a)(2) to
recover this property. We disagree and hold that neither doctrine bars recovery in
these actions. Accordingly, we vacate the judgments below and remand to the
bankruptcy court for further proceedings.
BACKGROUND
Bernard Madoff orchestrated the largest Ponzi scheme in history through
Madoff Securities, his New York investment firm. He enticed investors to buy into
alleged investment funds by promising returns that seemed, and were, too good
to be true. Rather than invest the money, Madoff commingled it in a checking
1 Sec. Inv’r Prot. Corp. v. Bernard L. Madoff Inv. Sec. LLC (SIPC I), 513 B.R. 222 (S.D.N.Y.),
supplemented by 12‐MC‐115, 2014 WL 3778155 (S.D.N.Y. July 28, 2014).
Sec. Inv’r Prot. Corp. v. Bernard L. Madoff Inv. Sec. LLC (SIPC II), AP 08‐01789 (SMB), 2016
2
WL 6900689 (Bankr. S.D.N.Y. Nov. 22, 2016).
5
account he held with JPMorgan Chase in New York. See, e.g., In re Bernard L. Madoff
Inv. Sec. LLC., 721 F.3d 54, 59–60 (2d Cir. 2013). When investors wanted to
withdraw their funds, Madoff sent them checks from this account. Id. at 73. In
effect, Madoff paid his investors using money he received from other investors. In
2008, his fraudulent enterprise collapsed.
On December 15, 2008, the Securities Investment Protection Corporation,
acting pursuant to the Securities Investor Protection Act of 1978 (“SIPA”), 15
U.S.C. §§ 78aaa et seq., petitioned the United States District Court for the Southern
District of New York for a protective order placing Madoff Securities into
liquidation. See, e.g., In re Bernard L. Madoff Inv. Sec. LLC, 740 F.3d 81, 84 (2d Cir.
2014). As we previously explained:
SIPA establishes procedures for the expeditious and orderly
liquidation of failed broker‐dealers, and provides special protections
to their customers. A trustee’s primary duty under SIPA is to
liquidate the broker‐dealer and, in so doing, satisfy claims made by
or on behalf of the broker‐dealer’s customers for cash balances. In a
SIPA liquidation, a fund of “customer property” is established—
consisting of cash and securities held by the broker‐dealer for the
account of a customer, or proceeds therefrom, 15 U.S.C. § 78lll(4)—for
priority distribution exclusively among customers, id. § 78fff–2(c)(1).
The Trustee allocates the customer property so that customers “share
ratably in such customer property . . . to the extent of their respective
net equities.” Id. § 78fff–2(c)(1)(B).
6
Id. at 85 (alteration in original) (citation omitted). The Southern District court
issued the protective order, appointed Picard as Trustee, and referred the case to
the United States Bankruptcy Court for the Southern District of New York. Id. at
84–85 (citing Order, SEC v. Bernard L. Madoff and Bernard L. Madoff Inv. Sec. LLC,
08‐10791 (LLS) (S.D.N.Y. Dec. 15, 2008), ECF No. 4).
Some debtors, such as Madoff Securities, complicate a SIPA trustee’s task
by unlawfully transferring customer property prior to the formation of a
liquidation estate. To ensure that these transfers do not prevent a trustee from
ratably distributing customer property, SIPA authorizes trustees to “recover any
property transferred by the debtor which, except for such transfer, would have
been customer property if and to the extent that such transfer is voidable or void
under the provisions of [the Bankruptcy Code].” 15 U.S.C. § 78fff–2(c)(3).
The Bankruptcy Code, in turn, provides various means for trustees to avoid
a debtor’s transfers and, to the extent that a transfer is avoided, to recover the
transferred property. See 11 U.S.C. §§ 541 et seq. Section 550(a)(1) allows trustees to
recover property from the debtor’s initial transferee. And § 550(a)(2) permits a
trustee to recover property from any subsequent transferee.
7
Many of Madoff Securities’ direct investors were “feeder funds.” A feeder
fund is an entity that pools money from numerous investors and then places it into
a “master fund” on their behalf. A master fund—what Madoff Securities
advertised its funds to be—pools investments from multiple feeder funds and then
invests the money.
Three foreign feeder fund networks that invested with Madoff Securities are
relevant to many of these appeals:
Fairfield Greenwich Group is a network of funds operating in New York
whose funds are organized in the British Virgin Islands (“BVI”), where
Fairfield is in liquidation. In those proceedings, the bankruptcy court found,
liquidators other than Picard have “brought substantially the same claims
[that Picard brings here] against substantially the same group of defendants
to recover substantially the same transfers [that Picard seeks to recover].”
SIPC II, 2016 WL 6900689, at *13.
The Kingate Funds is a network of funds organized in the BVI. Kingate is
currently in liquidation proceedings in the BVI and Bermuda. Liquidators
in those nations have brought substantially the same claims Picard brings
here “against substantially the same defendants to recover substantially the
same transfers” with “limited success.” Id. at *14.
The Harley International (Cayman) Limited Funds network is located in the
Cayman Islands, where it is currently in liquidation. Picard pursued some
relief in those proceedings in 2010.
8
Many of these feeder funds placed all or substantially all of their assets into Madoff
Securities’ investment vehicles. Fairfield, for example, invested 95% of its funds
with Madoff Securities.
When a feeder fund investor wants to withdraw her money, she effectively
needs to recover it from the master fund. The investor initiates a withdrawal by
informing the feeder fund, which itself makes a withdrawal request from the
master fund. The master fund then transfers the money to the feeder fund (the
initial transfer), which subsequently transfers the money to its investor (the
subsequent transfer).
Because Madoff Securities did not invest the money it received from the
feeder funds, the invested funds accrued no actual gains, despite representations
to the contrary by Madoff Securities personnel. When a feeder fund’s investor
initiated a withdrawal, Madoff Securities transferred commingled investor money
from its JPMorgan Chase account in New York to the feeder fund, which
subsequently transferred the money to its investor.
Initial Subsequent
Master Fund
transfer transfer Investor
(Madoff Feeder Fund
(Appellees)
Securities)
9
The hundreds of Appellees are foreign subsequent transferees that invested
in foreign feeder funds. In the bankruptcy court below, the Trustee sued the
Appellees under § 550(a)(2) of the Bankruptcy Code to recover property the
Appellees allegedly received from Madoff Securities via foreign feeder funds.3 The
Trustee contended that Madoff Securities’ initial transfers to the feeder funds were
avoidable as fraudulent under § 548(a)(1)(A) of the Bankruptcy Code.
The United States District Court for the Southern District of New York,
Judge Rakoff, withdrew the reference to the bankruptcy court to determine
whether § 550(a)(2) allows the Trustee to recover this property. In a July 2014
decision, the court held on two grounds that the Trustee could not proceed with
these actions. First, it held that the presumption against extraterritoriality limits
the scope of § 550(a)(2), such that a trustee may not use it to recover property that
one foreign entity received from another foreign entity. Second, and alternatively,
the court held that international comity principles limit the scope of § 550(a)(2) on
these facts. The district court did not dismiss any of the Trustee’s complaints but
3 The Appellees contest whether the money the feeder funds sent them came entirely from
Madoff Securities. For the purpose of these appeals, however, the Appellees assume that
the Trustee could trace the money back to Madoff Securities. We make the same
assumption.
10
instead remanded to the bankruptcy court for further proceedings consistent with
its opinion.
On remand, and following further factual development, the United States
Bankruptcy Court for the Southern District of New York, Judge Bernstein, applied
the district court’s reasoning and dismissed the Trustee’s claims against the
Appellees.
First, the court dismissed the claims against the Appellees that invested with
Fairfield, Kingate, and Harley on international comity grounds. The court found
that the United States “has no interest in regulating the relationship between [these
funds] and their investors or the liquidation of [these funds] and the payment of
their investors’ claims.” SIPC II, 2016 WL 6900689, at *14. It also found that the
foreign nations where those entities are in liquidation “[have] a greater interest
[than the United States] in regulating the activities that gave rise to the Trustee’s
subsequent transfer claims, particularly the validity or invalidity of payments by
[the funds] to [their] investors and service providers.” Id. at *16; see also id. at *14.
Second, the bankruptcy court dismissed the recovery claims against the
remaining Appellees under the presumption against extraterritoriality.
Interpreting our precedent and the district court’s opinion, the bankruptcy court
11
concluded that the factors relevant to determining whether the transactions were
extraterritorial were the locations from which the transfers were made and sent
and the location or residence of the initial and subsequent transferee. The court
dismissed the Trustee’s claims because he had not alleged facts sufficient to
support a domestic nexus under these criteria.4
The Trustee appealed the orders dismissing the recovery actions. We
consolidated those appeals and now resolve them under the following principles.
DISCUSSION
We begin by unpacking the statutory scheme relevant to these appeals.
“SIPA serves dual purposes: to protect investors, and to protect the
securities market as a whole.” In re Bernard L. Madoff Inv. Sec. LLC, 654 F.3d 229,
235 (2d Cir. 2011). To achieve these purposes, SIPA allows courts to appoint
trustees, such as Picard, and endow them with certain authority over liquidation
estates. This authority includes the power to “allocate customer property of the
4 The court also found that some feeder funds had no connection to their country of
organization, were managed and operated in the United States, and made their
subsequent transfers from New York. It denied the motions to dismiss the actions
involving their subsequent transfers and granted the Trustee leave to amend so he could
show whether those transactions were domestic.
12
debtor,” 15 U.S.C. § 78fff–2(c)(1), which SIPA defines as “cash and securities . . . at
any time received, acquired, or held by or for the account of a debtor from or for
the securities accounts of a customer, and the proceeds of any such property
transferred by the debtor, including property unlawfully converted,” id. § 78lll(4).
“Whenever customer property is not sufficient to pay in full the claims
[against the debtor], the trustee may recover any property transferred by the
debtor which, except for such transfer, would have been customer property if and
to the extent that such transfer is voidable or void under the [Bankruptcy Code].”
Id. § 78fff–2(c)(3).
The Trustee alleges Madoff Securities’ initial transfers to the feeder funds
are avoidable as fraudulent under § 548(a)(1)(A) of the Bankruptcy Code. That
section provides:
The trustee may avoid any transfer . . . of an interest of the debtor in
property, or any obligation . . . incurred by the debtor, that was made
or incurred on or within 2 years before the date of the filing of the
petition, if the debtor voluntarily or involuntarily . . . made such
transfer or incurred such obligation with actual intent to hinder,
delay, or defraud any entity to which the debtor was or became, on or
after the date that such transfer was made or such obligation was
incurred, indebted . . . .
11 U.S.C. § 548(a)(1)(A).
13
Only once a transfer is avoided may a trustee recover the underlying
property. Section 550(a), the recovery provision, states:
Except as otherwise provided in this section, to the extent that a
transfer is avoided under section 544, 545, 547, 548, 549, 553(b), or
724(a) of this title, the trustee may recover, for the benefit of the estate,
the property transferred, or, if the court so orders, the value of such
property, from . . . (1) the initial transferee of such transfer or the
entity for whose benefit such transfer was made; or . . . (2) any
immediate or mediate transferee of such initial transferee.
Id. § 550(a).5 Relevant here is § 550(a)(2), as the Trustee seeks to recover property
from subsequent transferees.
I. The Presumption Against Extraterritoriality
The presumption against extraterritoriality is a canon of statutory
construction. RJR Nabisco, Inc. v. European Cmty., 136 S. Ct. 2090, 2100 (2016). It
provides that, “[a]bsent clearly expressed congressional intent to the contrary,
federal laws will be construed to have only domestic application.” Id. This canon
helps “avoid the international discord that can result when U.S. law is applied to
conduct in foreign countries.” Id. It also reflects the “commonsense notion that
5 Section 550(b) limits a trustee’s ability to recover under § 550(a)(2) from certain
subsequent transferees who received property in good faith.
14
Congress generally legislates with domestic concerns in mind.” Id. (quoting Smith
v. United States, 507 U.S. 197, 204 n.5 (1993)).
An action may proceed if either the statute indicates its extraterritorial reach
or the case involves a domestic application of the statute. The courts below found
that neither criterion was satisfied and accordingly dismissed these actions.6
Because the reach and applicability of a statute are questions of statutory
interpretation, we review a lower court’s application of the presumption against
extraterritoriality de novo. See, e.g., Roach v. Morse, 440 F.3d 53, 56 (2d Cir. 2006).
The Focus of § 550(a) in These Actions Is on the
Debtor’s Fraudulent Transfer of Property to the
Initial Transferee.
The Supreme Court teaches that we must look to a statute’s “focus” to
determine whether a case involves a domestic application of that statute.
If the conduct relevant to the statute’s focus occurred in the United
States, then the case involves a permissible domestic application even
if other conduct occurred abroad; but if the conduct relevant to the
6 Although the Supreme Court has referred to this extraterritoriality analysis as a “two‐
step framework,” these “steps” need not be sequential. See id. at 2101 & n.5. Courts
generally begin by asking whether the statute indicates its extraterritorial reach, but they
are free “in appropriate cases” to begin by asking whether the case involves an
extraterritorial application of the statute. Id. at 2101 n.5. This is an appropriate case for
beginning with the latter question because we hold that the transactions here were
domestic, and the extraterritorial reach of a statute is of no moment when a case is truly
a domestic matter.
15
focus occurred in a foreign country, then the case involves an
impermissible extraterritorial application regardless of any other
conduct that occurred in U.S. territory.
RJR Nabisco, 136 S. Ct. at 2101. The Supreme Court recently explained how to
identify a statute’s focus in WesternGeco LLC v. ION Geophysical Corp., 138 S. Ct.
2129 (2018).
WesternGeco involved § 271(f) of the Patent Act, which prohibits the export
of component parts of a patented product for assembly abroad. Id. at 2135 (citing
35 U.S.C. § 271(f)(2)). Plaintiffs alleging infringement under § 271(f)(2) can recover
damages under 35 U.S.C. § 284. Id. The Federal Circuit held that § 271(f) does not
allow plaintiffs to recover for lost foreign sales and vacated a jury award premised
on such damages. Id. (citing WesternGeco LLC v. ION Geophysical Corp., 791 F.3d
1340, 1343 (Fed. Cir. 2015)). Reversing, the Supreme Court explained that “[t]he
focus of a statute is ‘the object of its solicitude,’ which can include the conduct it
‘seeks to regulate,’ as well as the parties and interests it ‘seeks to protect’ or
vindicate.” Id. at 2137 (brackets omitted) (quoting Morrison v. Nat’l Austl. Bank Ltd.,
561 U.S. 247, 267 (2010)). “When determining the focus of a statute, we do not
analyze the provision at issue in a vacuum.” Id. (citing Morrison, 561 U.S. at 267–
69). Instead:
16
If the statutory provision at issue works in tandem with other
provisions, it must be assessed in concert with those other provisions.
Otherwise, it would be impossible to accurately determine whether
the application of the statute in the case is a “domestic application.”
And determining how the statute has actually been applied is the
whole point of the focus test.
Id. (citation omitted) (citing RJR Nabisco, 136 S. Ct. at 2101).
Applying this principle, the Court identified the “overriding purpose” of
the damages provision, § 284, as a remedy for infringement, because it asks how
much a plaintiff is due because of infringement. See id. (quoting General Motors
Corp. v. Detox Corp., 461 U.S. 648, 655 (1983)). But because there is more than one
way to infringe, the focus of § 284 depends on “the type of infringement that
occurred.” See id. In WesternGeco, that meant turning to § 271(f)(2), which the Court
found focuses on domestic conduct because it regulates “the domestic act of
‘suppl[ying] in or from the United States.’” Id. at 2137–38 (brackets in original)
(quoting 35 U.S.C. § 271(f)(2)).
Thus, the Court held that “the focus of § 284, in a case involving
infringement under § 271(f)(2), is on the act of exporting components from the
United States,” which is “domestic infringement.” Id. at 2138. It rejected an
argument that the statute focuses on damages, even though it authorizes them,
17
because “what a statute authorizes is not necessarily its focus.” Id. Instead, the
Court found that damages are “merely the means by which the statute achieves its
end of remedying infringements.” Id.
WesternGeco helps resolve two issues relevant to these cases: (1) whether we
should look to the pertinent avoidance provision (here, § 548(a)(1)(A)) in
determining the focus of § 550(a), and (2) the focus of § 550(a) in these actions.
1. We Must Look to § 548(a)(1)(A) to Determine the
Focus of § 550(a) in These Cases Because the
Provisions Work “In Tandem.”
No one disputes that, in an action where a trustee seeks to recover property
under § 550(a), we must at a minimum look to that section. The dispute is whether
we must additionally look to the avoidance provision that enables a trustee’s
recovery. Section 550(a) applies only “to the extent that a transfer is avoided under
section 544, 545, 547, 548, 549, 553(b), or 724(a) of this title.” 11 U.S.C. § 550(a). In
other words, a trustee cannot use § 550(a) to recover property unless the trustee
has first avoided a transfer under one of these provisions.
Like the infringement and damages provisions of the Patent Act, the
Bankruptcy Code’s avoidance and recovery provisions work “in tandem.” See
WesternGeco, 138 S. Ct. at 2137. In any given case, “it would be impossible to
18
accurately determine” the focus of § 550(a) without asking why a trustee can use
it—i.e., the purpose of the avoidance provision that enables the recovery action.
See id. (“[D]etermining how the statute has actually been applied is the whole point
of the focus test.”). Just as the focus of § 284 of the Patent Act depends on the
infringement provision that enables a plaintiff to seek damages, the focus of
§ 550(a) of the Bankruptcy Code depends on the avoidance provision that enables
a trustee to recover property.
Thus, to determine § 550(a)’s focus in a given action, a court must also look
to the relevant avoidance provision.
2. When Working In Tandem with § 548(a)(1)(A),
§ 550(a) Regulates a Debtor’s Fraudulent Transfer of
Property, and It Therefore Focuses on the Debtor’s
Initial Transfer.
The focus of a statute is the conduct it seeks to regulate, as well as the parties
whose interests it seeks to protect. See id. The district court found that § 550(a)
focuses on “the property transferred” and “the fact of its transfer.” SIPC I, 513 B.R.
at 227. On this theory, it concluded that a recovery action under § 550(a)(2)
regulates the subsequent transfer of property: that from the initial transferee to the
subsequent transferee.
19
But the harm to the estate as a result of its unlawful depletion began with
the initial transfer. Section 548(a)(1)(A) allows a trustee to “avoid any
transfer . . . of an interest of the debtor in property” that the debtor “made . . . with
actual intent to hinder, delay, or defraud any entity to which the debtor was or
became, on or after the date that such transfer was made or such obligation was
incurred, indebted.” 11 U.S.C. § 548(a)(1)(A). A general purpose of “the
Bankruptcy Code’s avoidance provisions, including 11 U.S.C. § 548, [is]
protect[ing] a debtor’s estate from depletion to the prejudice of the unsecured
creditor.” In re Harris, 464 F.3d 263, 273 (2d Cir. 2006) (Sotomayor, J.) (agreeing
with In re French, 440 F.3d 145, 150 (4th Cir. 2006)). Thus, § 548(a)(1)(A)’s purpose
is plain: it allows a trustee, for the protection of an estate and its creditors, to avoid
a debtor’s fraudulent, hindersome, or delay‐causing property transfer that
depletes the estate. See In re French, 440 F.3d at 150 (“[Section] 548 focuses not on
the property itself, but on the fraud of transferring it.”).
Section 550(a) works in tandem with § 548(a)(1)(A) by enabling a trustee to
recover fraudulently transferred property. Recovery is the business end of
avoidance. In that sense, § 550(a) “is a utility provision, helping execute the policy
of § 548[(a)(1)(A)]” by “tracing the fraudulent transfer to its ultimate resting place
20
(the initial or subsequent transferee).” Edward R. Morrison, Extraterritorial
Avoidance Actions: Lessons from Madoff, 9 Brook. J. Corp. Fin. & Com. L. 268, 273
(2014); see also In re Ampal‐Am. Israel Corp., 562 B.R. 601, 613 (Bankr. S.D.N.Y. 2017)
(Bernstein, J.) (finding that when using § 550(a), “the trustee is essentially tracing
property into the hands of the recipient—no different than a trustee under non‐
bankruptcy law”).
We hold that, in recovery actions where a trustee alleges a debtor’s transfers
are avoidable as fraudulent under § 548(a)(1)(A), § 550(a) regulates the fraudulent
transfer of property depleting the estate.7 While § 550(a) authorizes recovery,
“what a statute authorizes is not necessarily its focus.” WesternGeco, 138 S. Ct. at
2138. When § 550(a) operates in tandem with § 548(a)(1)(A), recovery of property
7 Section 548(a)(1)(A) allows a trustee to avoid a transfer on three grounds: that the debtor
had “actual intent to [1] hinder, [2] delay, or [3] defraud any entity to which the debtor
was or became . . . indebted.” While this opinion concerns the third ground, we would
apply the same logic in a case where a trustee sought to avoid transfers on the theory that
the debtor sought to “hinder” or “delay” an entity. For example, if a trustee alleged that
a debtor made a transfer intended to delay an entity, the focus of § 550(a) in that action
would be on the delay‐causing transfer of property that depletes the estate.
Section 550(a) may serve different purposes depending on which of the Bankruptcy
Code’s avoidance provisions enables recovery. We express no opinion on the focus of
§ 550(a) in actions involving any avoidance provision other than § 548(a)(1)(A).
21
is “merely the means by which the statute achieves its end of” regulating and
remedying the fraudulent transfer of property. See id.
Thus, in actions involving both provisions, § 550(a) regulates the debtor’s
initial transfer. While the subsequent transfer may indirectly harm creditors by
making property more difficult to recover, it is the initial transfer that fraudulently
depletes the estate. Only the initial transfer involves fraudulent conduct, or any
conduct, by the debtor.
The language of § 548(a)(1)(A) reflects this focus. It allows a trustee to avoid
certain transfers “the debtor voluntarily or involuntarily . . . made.” 11 U.S.C.
§ 548(a)(1)(A) (emphasis added). This can mean only the initial transfer, because
the debtor has not made the subsequent transfer. Consequently, when a trustee
seeks to recover subsequently transferred property under § 550(a), the only
transfer that must be avoided is the debtor’s initial transfer. See Sec. Inv’r Prot. Corp.
v. Bernard L. Madoff Inv. Sec. LLC, 480 B.R. 501, 524 (Bankr. S.D.N.Y. 2012) (“[A]s a
court’s recovery power is generally coextensive with its avoidance power, it is
logical that the relevant transfer for purposes of the presumption against
extraterritoriality is only the transfer that is to be avoided, namely the initial
22
transfer.” (quotation marks omitted)); see also Sec. Inv’r Prot. Corp. v. Bernard L.
Madoff Inv. Sec. LLC, 501 B.R. 26, 30 (S.D.N.Y. 2013).
Two Supreme Court decisions reinforce this conclusion. In WesternGeco, the
Court found that “the focus of § 284, in a case involving infringement under
§ 271(f)(2), is on the act of exporting components from the United States.” 138 S.
Ct. at 2138. Here, the focus of § 550(a), in a case involving fraudulent transfers
avoidable under § 548(a)(1)(A), is on the debtor’s act of transferring property from
the United States. In Morrison, the Court held that § 10(b) of the Securities
Exchange Act of 1934 regulates “deceptive conduct in connection with the
purchase or sale of [certain] securit[ies],” meaning the statute focuses on
“purchase‐and‐sale transactions.” 561 U.S. at 266–67 (quotation marks omitted).
By analogy, § 550(a) regulates a debtor’s unlawful conduct—its fraudulent
transfer of property. The statute thus focuses on that initial transfer, rather than
the subsequent transfer made by the feeder fund.
The lower courts held, and the Appellees now argue, that the relevant
Bankruptcy Code provisions regulate the subsequent transfer of property. Their
readings erroneously overlook how § 548(a)(1)(A) shapes the focus of § 550(a)
here.
23
The district court, for example, correctly recognized that the
extraterritoriality analysis must consider “the regulatory focus of the Bankruptcy
Code’s avoidance and recovery provisions.” SIPC I, 513 B.R. at 227 (emphasis added).
And while we agree with the court’s finding that § 548(a)(1)(A) “focuses on the
nature of the transaction in which property is transferred,” id., we reject its
conclusion that the appropriate “transaction” to determine the extraterritoriality
question is the subsequent transfer. The only transfer § 548(a)(1)(A) is concerned
with is the initial transfer, as this is the only transfer “the debtor . . . made.” See 11
U.S.C. § 548(a)(1)(A).
The Appellees would have us ignore § 548(a)(1)(A) entirely and look only
to § 550(a)(2). For the reasons stated above, we refuse to “analyze the provision at
issue in a vacuum.” See WesternGeco, 138 S. Ct. at 2137.8
8 The Trustee contends that certain provisions of SIPA provide additional reasons for us
to find that § 550(a) focuses on domestic conduct in these actions. Because we reach that
holding without looking to SIPA, we express no opinion on whether SIPA is relevant to
the focus of the Bankruptcy Code’s avoidance and recovery provisions in cases where
SIPA trustees seek to use them.
24
These Actions Involve Domestic Applications of the
Bankruptcy Code Because § 550(a) Focuses on
Regulating Domestic Conduct.
Recognizing that, in these actions, § 550(a) focuses on the debtor’s initial
transfer of property, we must decide whether Madoff Securities’ transfers took
place in the United States such that regulating them involves a domestic
application of that statute. The lower courts, assuming the relevant transaction
was the subsequent transfer, weighed the location of the account from which and
to which the subsequent transfer was made, and the location or residence of the
subsequent transferor and transferee. See SIPC II, 2016 WL 6900689, at *25. We
decline to adopt this balancing test.
We hold that a domestic debtor’s allegedly fraudulent, hindersome, or
delay‐causing transfer of property from the United States is domestic activity for
the purposes of §§ 548(a)(1)(A) and 550(a).9 The presumption against
extraterritoriality therefore does not prohibit that debtor’s trustee from recovering
9 We recognize that our holding cites two nexuses to the United States: (1) the debtor is a
domestic entity, and (2) the alleged fraud occurred when the debtor transferred property
from U.S. bank accounts. We express no opinion on whether either factor standing alone
would support a finding that a transfer was domestic.
25
such property using § 550(a), regardless of where any initial or subsequent
transferee is located.
Our rule follows the Supreme Court’s instruction that we look to “the
conduct relevant to the statute’s focus.” See, e.g., RJR Nabisco, 136 S. Ct. at 2101. The
relevant conduct in these actions is the debtor’s fraudulent transfer of property, not
the transferee’s receipt of property. When a domestic debtor commits fraud by
transferring property from a U.S. bank account, the conduct that § 550(a) regulates
takes place in the United States.
That resolves these cases. Madoff Securities is a domestic entity, and the
Trustee alleges it fraudulently transferred property to the feeder funds from a U.S.
bank account. These transfers are domestic activity. Because § 550(a) therefore
regulates domestic conduct, these cases involve domestic applications of the
statute.
Factoring the transferee’s receipt of property into our analysis would not
only misread the Bankruptcy Code’s avoidance and recovery provisions, but also
open a loophole. One can imagine a fraudster who, anticipating his downfall, gives
his entity’s property to friends and family members before a court freezes its
assets. The Bankruptcy Code’s avoidance and recovery provisions ordinarily
26
allow a trustee to claw back this property. But what would happen if the fraudster
transferred the property to a foreign entity that then transferred it to another
foreign entity? Under the Appellees’ theory of § 550(a), that transfer would make
the property recovery‐proof, even if the subsequent foreign transferee then sent
the property to someone located in the United States. The presumption against
extraterritoriality is not “a limit upon Congress’s power to legislate,” but a canon
of construction meant to guide our understanding of a statute’s meaning. See
Morrison, 561 U.S. at 255. We cannot imagine how it should guide us to read the
Bankruptcy Code’s creditor‐protection provisions in this self‐defeating way.
* * *
The lower courts erred by dismissing these actions under the presumption
against extraterritoriality. Because we find that these cases involve a domestic
application of § 550(a), we express no opinion on whether § 550(a) clearly indicates
its extraterritorial application.
II. International Comity
The second issue is whether the district court erroneously dismissed these
actions on international comity grounds. We apply international comity principles
in two ways: “[first,] as a canon of construction, [comity] might shorten the reach
27
of a statute; [and] second, [comity] may be viewed as a discretionary act of
deference by a national court to decline to exercise jurisdiction in a case properly
adjudicated in a foreign state, the so‐called comity among courts.” In re Maxwell
Commc’n Corp. plc by Homan, 93 F.3d 1036, 1047 (2d Cir. 1996). The first application
is “prescriptive comity” and asks a question of statutory interpretation: should a
court presume that Congress, out of respect for foreign sovereigns, limited the
application of domestic law on a given set of facts? See Hartford Fire Ins. Co. v.
California, 509 U.S. 764, 817 (1993) (Scalia, J., dissenting). The second application is
“adjudicative comity.” It asks whether, where a statute might otherwise apply, a
court should nonetheless abstain from exercising jurisdiction in deference to a
foreign nation’s courts that might be a more appropriate forum for adjudicating
the matter. See id.; see also Royal & Sun All. Ins. Co. of Canada v. Century Int’l Arms,
Inc., 466 F.3d 88, 93 (2d Cir. 2006).
We have previously declined to decide whether prescriptive and
adjudicative comity are “distinct doctrines.” See In re Maxwell, 93 F.3d at 1047.
Although prescriptive and adjudicative comity sometimes demand similar
28
analysis,10 each asks a different question and is rooted in a different legal theory.
We therefore treat them as distinct doctrines, albeit related ones.11
This distinction reveals the appropriate standard of review for a lower
court’s order dismissing a case on international comity grounds. Prescriptive
comity poses a question of statutory interpretation. We review those questions de
novo.12 See, e.g., Roach, 440 F.3d at 56. Adjudicative comity abstention, on the other
In particular, the existence of parallel proceedings can factor into both doctrines.
10
Compare In re Maxwell, 93 F.3d at 1048, 1052 (holding, in the context of applying a
prescriptive comity choice‐of‐law test, that the existence of parallel foreign proceedings
can factor into a foreign state’s interest in applying its law to a dispute), with Royal & Sun,
466 F.3d at 92 (explaining, as a principle of adjudicative comity, that the existence of
parallel foreign proceedings is sometimes a factor weighing in favor of abstention). Thus,
while this opinion focuses on prescriptive comity, we occasionally look to our
adjudicative comity precedent in assessing the weight of any foreign state’s interest in
applying its law.
11 Numerous courts and scholars have done the same. See, e.g., Hartford Fire Ins. Co., 509
U.S. at 817, 820 (Scalia, J., dissenting)); Mujica v. AirScan Inc., 771 F.3d 580, 598 (9th Cir.
2014) (“There are essentially two distinct doctrines [that] are often conflated under the
heading international comity.” (quotation marks omitted) (quoting In re S. African
Apartheid Litig., 617 F. Supp. 2d 228, 283 (S.D.N.Y. 2009)); Maggie Gardner, Retiring Forum
Non Conveniens, 92 N.Y.U. L. Rev. 390, 392 (2017); see also Royal & Sun, 466 F.3d at 92
(describing these doctrines as different) (citing Joseph Story, Commentaries on the
Conflict of Laws § 38 (1834)); JP Morgan Chase Bank v. Altos Hornos de Mexico, S.A. de C.V.,
412 F.3d 418, 424 (2d Cir. 2005) (“International comity, as it relates to this case, involves
not the choice of law but rather the discretion of a national court to decline to exercise
jurisdiction over a case before it when that case is pending in a foreign court with proper
jurisdiction.”).
The question of whether we review prescriptive comity dismissals de novo or for abuse
12
of discretion arose in In re Maxwell, 93 F.3d at 1051. Although this Court hinted that de
29
hand, concerns a matter of judicial discretion. We thus review adjudicative comity
dismissals for abuse of discretion. See, e.g., Royal & Sun, 466 F.3d at 92. “However,
because we are reviewing a court’s decision to abstain from exercising jurisdiction,
our review is ‘more rigorous’ than that which is generally employed under the
abuse‐of‐discretion standard.” Id. (quoting Hachamovitch v. DeBuono, 159 F.3d 687,
693 (2d Cir. 1998)). Thus, “[i]n review of decisions to abstain, there is little practical
distinction between review for abuse of discretion and review de novo.” Id.
(quoting Altos Hornos, 412 F.3d at 422–23).13
novo review should apply, we declined to decide the issue because the parties did not
dispute the appropriate standard of review. See id. (noting that “[b]ecause the doctrine in
theory is relevant to construing a statute’s reach, one might expect that [we should apply]
de novo review”). The Appellees dispute the appropriate standard here, but their
advocacy for abuse‐of‐discretion review relies on inapposite adjudicative comity cases.
See Appellee Br. 27 (citing, e.g., In re Vitamin C Antitrust Litig., 837 F.3d 175, 182 (2d Cir.
2016) (“We hold that the district court abused its discretion by not abstaining, on
international comity grounds . . . .”), vacated on other grounds by Animal Sci. Prods., Inc. v.
Hebei Welcome Pharm. Co. Ltd., 138 S. Ct. 1865 (2018); Altos Hornos, 412 F.3d at 422
(“Declining to decide a question of law on the basis of international comity is a form of
abstention, and we review a district court’s decision to abstain on international comity
grounds for abuse of discretion.”)).
13 The Appellees argue that the higher standard of review announced in Royal & Sun does
not bind us, either because that case relied on a decision applying its rule to Burford
abstention or because Royal & Sun “has been superseded” by later cases. Appellee Br. 28–
29; see also Burford v. Sun Oil Co., 319 U.S. 315 (1943). Both points are wrong. Royal & Sun
itself was not a Burford case; it involved adjudicative comity abstention. See 466 F.3d at
92. And the argument that our subsequent cases not using Royal & Sun’s “more rigorous”
language silently “superseded” that case is a nonstarter. See, e.g., Veltri v. Bldg. Serv. 32B‐
30
The lower courts held that comity principles require “choice‐of‐law analysis
to determine whether the application of U.S. law would be reasonable under the
circumstances, comparing the interests of the United States and the relevant
foreign state.” SIPC I, 513 B.R. at 231 (citing In re Maxwell, 93 F.3d at 1047–48). This
is a question of prescriptive comity because it asks whether domestic law applies,
rather than whether our courts should abstain from exercising jurisdiction. The
bankruptcy court and both parties agree with this framing. We therefore analyze
the lower courts’ decisions through the lens of prescriptive comity.14
* * *
At the threshold, “[i]nternational comity comes into play only when there is
a true conflict between American law and that of a foreign jurisdiction.” In re
Maxwell, 93 F.3d at 1049. A true conflict exists if “compliance with the regulatory
J Pension Fund, 393 F.3d 318, 327 (2d Cir. 2004) (“One panel of this Court cannot overrule
a prior decision of another panel, unless there has been an intervening Supreme Court
decision that casts doubt on our controlling precedent.” (citation, brackets, and quotation
marks omitted)).
14 In a footnote, the Appellees separately argue that we should decline to exercise
jurisdiction on adjudicative comity grounds. See Appellee Br. 68 n.33. “We do not
consider an argument mentioned only in a footnote to be adequately raised or preserved
for appellate review.” United States v. Restrepo, 986 F.2d 1462, 1463 (2d Cir. 1993) (per
curiam).
31
laws of both countries would be impossible.” Id. at 1050 (citing Hartford Fire, 509
U.S. at 799). In re Maxwell held that “a conflict between two avoidance rules exists
if it is impossible to distribute the debtor’s assets in a manner consistent with both
rules.” Id.15
The record is unclear about whether issues litigated in the feeder funds’
liquidation proceedings abroad would yield outcomes irreconcilable with the
relief the Trustee demands in these cases.16 While the Appellees allege that there
are conflicts, we merely assume without deciding that these conflicts exist.17
Prescriptive comity “guides our interpretation of statutes that might
otherwise be read to apply to [extraterritorial] conduct.” Id. at 1047. The doctrine
15 In that decision, the panel found a true conflict between English and domestic law
because “the parties . . . assumed that . . . English law would dictate a different
distributional outcome than would United States law.” Id.
The district court found that BVI courts had “already determined that Fairfield Sentry
16
could not reclaim transfers made to its customers under certain common law theories”
and found this conclusion in conflict with the relief the Trustee now demands. SIPC I, 513
B.R. at 232. The Trustee disputes this finding. We decline to decide whether this allegation
establishes a true conflict between domestic and foreign law.
These consolidated appeals involve hundreds of Appellees that invested with
17
numerous feeder funds, each involved in its own dispute below. Whether domestic
adjudication would conflict with foreign adjudication may turn on different facts in
different cases. The parties did not adequately brief us on how we should analyze these
distinctions under our comity precedent. We therefore decline to address the issue.
32
does not require clear evidence that a statute does not reach extraterritorial
conduct. Id. Rather, the doctrine is “simply a rule of construction” and “has no
application where Congress has indicated otherwise.” Id.
Comity in bankruptcy proceedings is “especially important” for two
reasons. Id. at 1048. “First, deference to foreign insolvency proceedings will, in
many cases, facilitate ‘equitable, orderly, and systematic’ distribution of the
debtor’s assets.” Id. (quoting Cunard S.S. Co. v. Salen Reefer Servs. AB, 773 F.2d 452,
458 (2d Cir. 1985)). “Second, Congress explicitly recognized the importance of the
principles of international comity in transnational insolvency situations when it
revised the bankruptcy laws.” Id. (citing 11 U.S.C. § 304 (repealed 2005)). In light
of these considerations, “U.S. courts should ordinarily decline to adjudicate
creditor claims that are the subject of a foreign bankruptcy proceeding,” Altos
Hornos, 412 F.3d at 424, because “[t]he equitable and orderly distribution of a
debtor’s property requires assembling all claims against the limited assets in a
single proceeding,” id. (brackets in original) (quoting Finanz AG Zurich v. Banco
Economico S.A., 192 F.3d 240, 246 (2d Cir. 1999)).
To enforce these principles, In re Maxwell announced a choice‐of‐law test.
This test “takes into account the interests of the United States, the interests of the
33
foreign state, and those mutual interests the family of nations have in just and
efficiently functioning rules of international law.” In re Maxwell, 93 F.3d at 1048.
The United States has a compelling interest in allowing domestic estates to
recover fraudulently transferred property. The prospect of recovery assures
creditors and investors that they will receive their fair share of property in the
event an American entity enters into bankruptcy or liquidation. Providing this
safeguard is an important goal of the Bankruptcy Code’s avoidance and recovery
provisions. See, e.g., Universal Church v. Geltzer, 463 F.3d 218, 224 (2d Cir. 2006)
(noting that a result that would undermine § 548(a)(2)’s avoidance provision
“would be absurd because it would defeat the entire purpose of allowing trustees
to protect and enhance the estate by avoiding [unlawful] transfers”). These
features consequently benefit the American economy by making domestic entities
more attractive to creditors and investors. Protecting these individuals, and
therefore protecting our securities market, are the key purposes of SIPA. See In re
Madoff Securities, 654 F.3d at 235.
When a debtor in American courts is also in liquidation proceedings in a
foreign court, the foreign state has at least some interest in adjudicating property
disputes. In appropriate cases, that interest will trump our own. See In re Maxwell,
34
93 F.3d at 1052. But no such parallel proceedings exist here—the feeder funds, not
Madoff Securities, are the debtors in the foreign courts.18 And the absence of such
proceedings seriously diminishes the interest of any foreign state in our resolution
of the Trustee’s claims.19
The only foreign jurisdictions potentially interested in these disputes are
those where a feeder fund that served as an initial transferee is in liquidation. But
these interests are not compelling. Although “U.S. courts should ordinarily decline
We agree with Judge Batts, who employed similar reasoning in declining to dismiss
18
class actions brought by Kingate investors against managers, consultants, administrators,
and auditors associated with Kingate on adjudicative comity grounds:
Although Defendants are correct that under Second Circuit law, foreign
bankruptcy proceedings are generally given extra deference, . . . it is the
[Kingate] Funds, rather than the Defendants, who are in liquidation in BVI
and Bermuda. Thus, it is not clear that the normal justification for deferring
to foreign bankruptcy proceedings, to allow “equitable and orderly
distribution of a debtor’s property,” would apply under these
circumstances.
In re Kingate Mgmt. Ltd. Litig., 09‐5386 (DAB), 2016 WL 5339538, at *35 (S.D.N.Y. Sept. 21,
2016) (citations and footnote omitted), affirmed, No. 16‐3450, 2018 WL 3954217 (2d Cir.
Aug. 17, 2018).
19 In re Maxwell itself emphasized the importance of parallel foreign proceedings to its
holding. See 93 F.3d at 1052 (“In the present case, in which there is a parallel insolvency
proceeding taking place in another country, failure to apply § 547 and § 502(d) does not
free creditors from the constraints of avoidance law, nor does it severely undercut the
policy of equal distribution. . . . [But] a different result might be warranted were there no
parallel proceeding [abroad]—and, hence, no alternative mechanism for voiding preferences . . . .”
(emphasis added)).
35
to adjudicate creditor claims that are the subject of a foreign bankruptcy
proceeding,” Altos Hornos, 412 F.3d at 424, the Trustee is not a creditor and his
claims are not the subject of a foreign bankruptcy or liquidation proceeding, see
SIPC II, 2016 WL 6900689, at *12 (“[T]here are no parallel foreign avoidance actions
in which the Trustee seeks to recover from the Subsequent Transferees.”).
Nor is the Trustee duplicating the liquidations of the feeder funds. The
proceedings have different means and goals. The Trustee’s task is tracing property
of the estate to net winners among the feeder funds’ investors. But the feeder
funds’ liquidations proceed under those funds’ organizing documents, which are
unlikely to discriminate between net winners and net losers.
Further, we defer to foreign liquidation proceedings because “[t]he
equitable and orderly distribution of a debtor’s property requires assembling all
claims against the limited assets in a single proceeding.” Altos Hornos, 412 F.3d at
424 (quoting Finanz AG, 192 F.3d at 246). This rationale makes sense where a
creditor, unable to recover against a debtor in foreign court, attempts to do so in
our courts. But in these cases, domestic law is also concerned with “equitable and
orderly distribution”—of the Madoff Securities estate. Consolidating the Trustee’s
claims in federal court is more “equitable and orderly” than forcing him to litigate
36
different claims in different countries. SIPA and the Bankruptcy Code envision a
unified proceeding, and we would frustrate this goal if we limited the reach of
§ 550(a) in these actions.
This is not to say the nations adjudicating the feeder funds’ liquidations
have no interest in these disputes. Those nations may wish to ensure that the
feeder funds’ creditors can recover as much property as possible. If the Trustee
succeeds in these recovery actions, his success might frustrate the efforts of those
entities’ trustees to recover the same property in foreign court.
But those are not the comity concerns our precedent discusses in explaining
when and why the Bankruptcy Code should give way to foreign law. Nor do we
find them compelling enough to limit the reach of a federal statute that would
otherwise apply here. The Bankruptcy Code gives us no reason to think Congress
would have decided that trustees looking to recover property in domestic
proceedings are out of luck when trustees in foreign proceedings may be
interested in recovering the same property. In fact, § 550(a)(2) suggests the
opposite: that by allowing trustees to recover property from even remote
subsequent transferees, Congress wanted these claims resolved in the United
States, rather than through piecemeal proceedings around the world.
37
We therefore hold that the United States’ interest in applying its law to these
disputes outweighs the interest of any foreign state. Prescriptive comity poses no
bar to recovery when the trustee of a domestic debtor uses § 550(a) to recover
property from a foreign subsequent transferee on the theory that the debtor’s
initial transfer of that property from within the United States is avoidable under
§ 548(a)(1)(A), even if the initial transferee is in liquidation in a foreign nation.
The lower courts, erroneously focusing on the subsequent transfer, found
that the jurisdictions adjudicating the feeder funds’ liquidations had a greater
interest in resolving these disputes than the United States. The bankruptcy court,
for example, concluded that “[t]he United States has no interest in regulating the
relationship between the [feeder funds] and their investors or the liquidation of
the [feeder funds] and the payment of their investors’ claims.” SIPC II, 2016 WL
6900689, at *14. It did so by assuming “[t]he United States’ interest is purely
remedial; the Bankruptcy Code allows the Trustee to follow the initial fraudulent
transfer into the hands of a subsequent transferee.” Id.
This conclusion rests on incorrect premises: that we should look only to
§ 550(a), assume the United States has purely remedial interests, and focus on the
subsequent transfer of property. As we have explained, § 548(a)(1)(A) informs
38
§ 550(a)’s focus in these actions. That focus is on regulating and remedying a
debtor’s fraudulent transfer of property, and this means the relevant transfer is the
debtor’s initial transfer. The domestic nature of those transfers, and our nation’s
compelling interest in regulating them, tips the scales of In re Maxwell’s choice‐of‐
law test in favor of domestic adjudication.
The district court found that “investors in these foreign funds had no reason
to expect that U.S. law would apply to their relationships with the feeder funds.”
SIPC I, 513 B.R. at 232. But the court’s premise is inaccurate. U.S. law is not
regulating the investors’ relationships with the feeder funds. It is regulating the
debtor’s property transfers to the feeder funds. Although regulating these
transfers with recovery actions will affect the subsequent transferees, that
consequence should not unfairly surprise them. When these investors chose to buy
into feeder funds that placed all or substantially all of their assets with Madoff
Securities, they knew where their money was going.
Finally, the district court observed that “the defendants here have no direct
relationship” with Madoff Securities. Id. But the reason § 550(a)(2)’s tracing
provision applies to subsequent transferees is ensuring that a trustee can recover
from entities with no direct relationship to the debtor. If the directness of a transfer
39
were relevant to a trustee’s ability to recover property under § 550(a)(2), we cannot
see how a trustee could ever recover property from any subsequent transferee,
foreign or domestic.
In sum, we find that prescriptive comity considerations do not limit the
reach of the Bankruptcy Code provisions in these actions.
CONCLUSION
We VACATE the bankruptcy court’s judgments dismissing these actions
and REMAND for further proceedings consistent with this opinion.
40