Fairfield Sentry Ltd., et al. v. Citibank NA London, et al.

Petitioners are foreign liquidators seeking to recover assets for innocent investors in foreign-based funds who lost billions of dollars in the infamous Ponzi scheme orchestrated by Bernard L. Madoff. In related proceedings, the domestic SIPC trustee has recovered substantial sums for the benefit of U.S.-based victims of Madoff’s fraud. But when petitioners invoked Chapter 15 of the Bankruptcy Code to seek assistance in asserting foreign-law claims for the benefit of foreign victims, the Second Circuit held that the Code extinguished those claims—even though the whole point of Chapter 15 is to facilitate international comity and recovery efforts by foreign liquidators. That decision turns Chapter 15 on its head and flouts bedrock principles of U.S. law. Notwithstanding the strong presumption against extraterritorial application of U.S. law, the Second Circuit atextually extended a “safe harbor” shielding domestic securities transactions from certain domestic-law claims to create a novel, U.S.-law defense to foreign-law claims targeting foreign conduct. Making matters worse, the court broke with every other court to address the issue in holding that the safe harbor’s restriction on the Code’s “avoidance powers” directly bars common-law claims that exist irrespective of any bankruptcy. The upshot is that the promise of Chapter 15 is rendered illusory and foreign victims of Madoff’s fraud are left holding the bag, while U.S. victims get meaningful relief. The question presented is: Whether the Bankruptcy Code’s safe harbor for securities settlement payments, 11 U.S.C. §546(e),