In what may be the beginning of the final chapter of more than a decade of litigation involving efforts to recover $41 million of the fictitious profits paid to certain investors in Bernard Madoff's defunct brokerage firm as part of the largest Ponzi scheme in history, the U.S. Supreme Court on May 3, 2021, denied a petition to review a 2020 decision by a three-judge panel of the U.S. Court of Appeals for the Second Circuit. The decision held that the investors did not have a defense to avoidance and recovery on the basis that they received the payments "for value." See Picard v. Gettinger (In re Bernard L. Madoff Investment Securities LLC), 976 F.3d 184 (2d Cir. 2020), cert. denied sub nom. Gettinger v. Picard, No. 20-1382, 2021 WL 1725218 (U.S. May 3, 2021).
In particular, the Second Circuit panel ruled that the investors could not rely on a Bankruptcy Code provision insulating good-faith transferees from avoidance liability because that provision conflicts with the Securities Investor Protection Act ("SIPA"), which prioritizes customers over general creditors and only selectively incorporates the Bankruptcy Code to the extent not inconsistent with SIPA's provisions. The Second Circuit also ruled that the trustee overseeing the brokerage firm's liquidation properly figured the amount subject to recovery despite calculating the defendants' liability by netting the amounts they received since the firm's inception against the amounts each defendant invested in the firm since its inception.
The Supreme Court's refusal to review the decision is the most recent claw-back victory for the Securities Investor Protection Corp. and the Madoff firm's liquidation trustee, who has recovered more than $13.3 billion and distributed $12.4 billion to investors defrauded by the $65 billion Ponzi scheme.
A more detailed discussion of the Second Circuit's decision can be accessed here.
On May 24, 2021, the Supreme Court denied a petition to review a 2020 ruling by the U.S. Court of Appeals for the Fifth Circuit that the Coal Act of 1992 did not prevent chapter 11 debtor Westmoreland Coal Co. ("Westmoreland") from modifying its retired employees' health care benefits under section 1114 of the Bankruptcy Code. See Holland v. Westmoreland Coal Co., No. 20-880, 2021 WL 2044552 (U.S. May 24, 2021). The Coal Act was enacted to ensure that retired miners retained access to company-provided health care during a time when many coal companies were repudiating lifetime benefit promises.
Enacted in 1988, section 1114 governs the circumstances under which a chapter 11 debtor or bankruptcy trustee may modify or stop paying "retiree benefits." The provision defines "retiree benefits" as:
payments to any entity or person for the purpose of providing or reimbursing payments for retired employees and their spouses and dependents, for medical, surgical, or hospital care benefits, or benefits in the event of sickness, accident, disability, or death under any plan, fund, or program (through the purchase of insurance or otherwise) maintained or established in whole or in part by the debtor prior to filing a petition commencing a case under this title.
11 U.S.C. § 1114(a).
After Westmoreland filed for chapter 11 protection in 2018, its miners' benefit plans asked the bankruptcy court for a declaration that the company's Coal Act obligations could not be modified or eliminated in bankruptcy because, among other things, they did not qualify as "retiree benefits." The bankruptcy court ruled against the plans, holding that those obligations met the definition and could therefore be wiped out. The plans appealed to the Fifth Circuit, which upheld the bankruptcy court's decision. See Matter of Westmoreland Coal Co., 968 F.3d 526 (5th Cir. 2020), cert. denied sub nom. Holland v. Westmoreland Coal Co., No. 20-880, 2021 WL 2044552 (U.S. May 24, 2021). The plans filed a petition for a writ of certiorari with the Supreme Court, which denied the petition without opinion, leaving the Fifth Circuit's decision undisturbed.
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