‘Plausibility’ evidently does not apply when pleading ‘related to’ bankruptcy jurisdiction.

- Rochelle Quick Take

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Case Type:
Case Status:
16-2173 (2nd Circuit, Feb 09,2018) Published
28 U.S.C. § 1334(b) gives U.S. district courts jurisdiction over actions that may result in the filing of a proof of claim in a bankruptcy case, potentially resulting in (1) the estate incurring administrative expenses, (2) litigation over whether the claim was timely filed, or (3) the dilution of distributions to other creditors. "Related to" jurisdiction in the Second Circuit is determined on a case-by-case basis, and is determined in light of whether there is a [any?] conceivable -- not necessarily probable -- impact on the bankruptcy estate.
Procedural context:
SPV OSUS Ltd. filed suit in New York state court against UBS AG and other foreign defendants, alleging that the defendants had aided and abetted Bernard Madoff's Ponzi scheme by steering investments to Madoff and to Bernard L. Madoff Investment Securities LLC. The defendants removed the action to the United States District Court for the Southern District of New York. SPV moved to remand, and the defendants moved to dismiss for lack of personal jurisdiction (a subset of the defendants also moved to dismiss because the complaint failed to adequately plead that their actions were the proximate cause of SPV's damages). The district court concluded that it had "related to" jurisdiction under 28 U.S.C. § 1334(b) and granted defendants' motions.
The plaintiff/appellant SPV OSUS Ltd. asserted that it was the assignee of a company that had directly invested funds with Bernard L. Madoff Investment Securities LLC ("BLMIS"). Nonetheless, SPV sued UBS AG and the other defendants alleging that the defendants had aided and abetted Madoff's Ponzi scheme by sponsoring and supporting two "European-based" feeder funds that "channeled" funds to Madoff and BLMIS. SPV alleged that the defendants' actions allowed Madoff and BLMIS to continue the fraudulent scheme (apparently when SPV's predecessor-in-interest was investing with BLMIS).
CALABRESI, POOLER, RAMOS (S.D.NY., sitting by designation)

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