IN RE FAIRFIELD SENTRY LTD
- Summarized by Jonathan Batiste , Rensselaer Polytechnic Institute
- 6 months 3 weeks ago
- Case Type:
- Business
- Case Status:
- Affirmed in part and Reversed in part
- Citation:
- No. 22-2101-bk(L) (2nd Circuit, Aug 05,2025) Published
- Tag(s):
-
- Ruling:
- The circuit court reversed part of the district court’s affirmation of the bankruptcy court’s judgment and affirmed the rest. The forum-selection clause in Debtors’ and Defendants’ contract established personal jurisdiction over Defendants as the controversy that created the claims related to the contract. The § 546(e) safe harbor barred Plaintiffs’ claims because the intentional fraudulent transfer carve-out did not apply, because the safe harbor bars claims under foreign law seeking to avoid the transactions it covers, and because the claims sought similar remedies as avoidance actions.
- Procedural context:
- Debtors were put into liquidation proceedings in the British Virgin Islands (“BVI”). Plaintiffs initiated proceedings against Defendants in the BVI. Plaintiffs filed actions against Defendants in the United States. The bankruptcy court granted recognition of the BVI proceedings as a foreign main proceeding under chapter 15 of the Code. The matters were appealed to the district court and then appealed again to the circuit court.
- Facts:
- Debtors were investment funds based in the British Virgin Islands (“BVI”) that invested in Bernard L. Madoff Investment Securities, a Ponzi scheme exposed in 2008. The revelation forced Debtors into liquidation in the BVI. Plaintiffs, liquidators appointed by the foreign court to represent the bankruptcy estates, initiated proceedings to recover funds from Defendants, investors who received redemption payments from Debtors before the collapse. Plaintiffs filed about 300 actions in the United States to recover redemption payments worth more than $6 billion. The bankruptcy court recognized the BVI proceedings as foreign main proceedings under chapter 15 of the Bankruptcy Code in 2010. Plaintiffs and Defendants appealed the bankruptcy court decisions made from 2018 to 2020. The matters were appealed to the district court and then to the circuit court. The circuit court found that Plaintiffs’ actions had a discoverable relationship to the contract between Debtors and Defendants that documented the issuance and purchase of securities. The forum-selection clause established personal jurisdiction because of the discoverable relation between the dispute and the agreement. § 546(e) applies extraterritorially and to common-law claims. § 546(e) applies extraterritorially through § 561(d). Foreign common-law avoidance claims fall within the § 546(e) safe harbor in chapter 15 cases. Plaintiffs did not allege actions attributable to Debtors that would fall under the intentional fraudulent transfer carve-out of the § 546(e) safe harbor. Therefore, the carve-out did not apply to Plaintiffs’ claims. Whether claims are avoidance claims for purposes of the safe harbor depends on the remedy sought. Plaintiff’s claims fell under the safe harbor because they sought a similar remedy to an avoidance action under the Code. Therefore, the circuit court reversed the district court’s decision that allowed the claims to proceed. The court otherwise affirmed the district court’s judgment.
- Judge(s):
- Nardini, Menashi, and Lee
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