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Home / Case News / 2nd Circ. Stays the Clawback in the Madoff Bankruptcy Case Pending the US Supreme Court Petition

2nd Circ. Stays the Clawback in the Madoff Bankruptcy Case Pending the US Supreme Court Petition

April 29, 2019, Southern District of New York – In February 2019, the United States Court of Appeal for the Second Circuit unanimously reversed the dismissal of 88 adversary proceedings, wherein the Trustee sought to clawback the stolen customer property for the BLMIS estate. The Trustee aimed to recover the alleged transfers, that Madoff fraudulently transferred from a U.S. bank to BLMIS account holders (which in turn sent the money abroad ) for the benefit of customer-victims of Madoff’s frauds. The Court had denied rehearing and rehearing en banc with no call for a response and no noted dissent on the issue earlier this month.

After that, the Defendant-Appellees requested the court to stay the issuance of the mandate in this appeal under Fed. R.App. 41(d)(1) pending the disposition of their impending petition for a writ of certiorari in the United States Supreme Court.

On April 18, 2019, the Trustee filed the opposition brief to the Defendant’s motion to stay, alleging that the Court’s earlier unanimous ruling was correct and did not conflict with any decision of the Supreme Court of the United States or another court of appeals. The Trustee contended that the Defendants’ argument related to “good cause” for a stay was unsupported. Further, the Trustee argued that merely having to expend resources to litigate on remand has long been rejected as a cognizable showing of irreparable injury. The Trustee asserted that the Defendants’ suggestion that further delay in this 10-year-old litigation does not matter was ironic, in light of Defendants’ emphasis at oral argument on the length of time that the claims at issue have remained unresolved.

In its opposition brief, the Trustee argued that public interest favors moving these 88 adversary proceedings toward a final resolution to enable the return of stolen customer property to its rightful owners—without unnecessary further delay.

However, on April 23, 2019, the panel of Circuit Judges Dennis Jacobs, Rosemary Pooler, and Richard Wesley granted a stay of the February order issued by them pending a writ of certiorari, which the litigants plan to file. The Defendants purportedly intend to present to the US Supreme Court two questions about the Second Circuit’s order.

1. According to the Defendants, the panel incorrectly expanded the reach of US bankruptcy law to allow Irving Picard, to unwind foreign financial transactions remotely related to domestic ones made by a US debtor. They asserted that the panel misapplied precedent, resulting in a decision that undermines the presumption against extraterritoriality and is in conflict with relevant decisions of the Supreme Court.

2. The second issue potentially relates to the alleged conflict with the other courts of appeals which have dealt with the application of international comity in dismissals over foreign insolvency proceedings involving foreign investment funds.

The case is In re Irving H. Picard, Trustee for the Liquidation of Bernard L. Madoff Investment Securities LLC on appeal from the United States Bankruptcy Court for the Southern District of New York; Case No. 17-2992