Picard v. Katz, et al

Opinion and Order Partially Granting and Denying a Motion to Dismiss


On the Defendants' motion to dismiss under Fed.R.Civ.P. 12(b)(6), the District Court dismissed all of claims for relief on which the Trustee sought recovery for constructive fraud and preferences and the corresponding constructive fraud provisions of the New York Debtor and Creditor Law. The Court reasoned that the Bankruptcy Code precluded the Trustee from "bringing any action to recover from any of Madoff's customers any of the movies paid by Madoff Securities to those customers except in the case of actual fraud" since the transfers at issue qualified as "settlement payments" made by or to a stock broker excepted from avoidance under Section 546(e) of the Bankruptcy Code. The Trustee's first and eleventh claims, involving actual fraud, survived the motion as Section 546(e) expressly allows for actual fraud claims. In conclusion, the Court noted that as to the actual fraud claims, the Trustee could only recover the Defendants' principal upon "showing an absence of good faith on defendants' part based on their willful blindness."

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Reference Info:Decision | Federal, 2nd Circuit, New York | United States

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