Fred Wilpon, Saul Katz, and their families and affiliated enterprises (the “Wilpon/Katz Group”) last week formally requested the dismissal of the adversary proceeding commenced by Irving Picard, the trustee of Bernard L. Madoff Investment Securities LLC (“BLMIS”). In a two hour hearing before U.S.

In a decision that was not surprising but nevertheless disappointing, the U.S. Court of Appeals for the Second Circuit recently affirmed the order of the U.S. Bankruptcy Court concluding that the “net equity” calculation for distributions back to Madoff victims should be based on the Net Investment Method, the total of actual deposits and withdrawals, and not the last statement amount listed on the final brokerage account statement. As a result, claw back law suits against the inaptly named “net winners” are sure to continue unabated.

Background

In a decision likely to affect thousands of Madoff investors, the Second Circuit Court of Appeals on Aug. 16, 2011 unanimously upheld the method used by the liquidating trustee for Bernard L.

The United States Court of Appeals for the Second Circuit found in favor of the trustee (the Trustee) presiding over the liquidation of Bernard L. Madoff Investment Securities (BMIS), affirming the Trustee’s calculation of “net equity” in the BMIS liquidation. The Trustee calculates net equity to determine the value of claims submitted by victims of Madoff’s massive fraud.

The Bottom Line:

Following the Second Circuit’s recent precedent in an Enron appeal (also the subject of a Basis Points blog post), Judge Peck of the United States Bankruptcy Court for the Southern District of New York concluded that the redemption of notes prior to maturity was exempt from preference actions under the safe harbor provision of Bankruptcy Code § 546(e). Official Comm. of Unsecured Creditors of Quebecor World (USA) Inc. v. Am. United Life Ins. Co., No. 08-10152 (Bankr. S.D.N.Y. July 27, 2011).

In a case of first impression, the U.S. Court of Appeals for the Second Circuit has held that a claim for damages based on a chapter 11 debtor’s failure to issue shares of its common stock in exchange for a claimant’s stock in another company pursuant to a termination agreement is subject to mandatory subordination.

In Rombro v. Dufrayne (In re Med Diversified, Inc.), 461 F.3d 251 (2d Cir. 2006), the court held that the claim “arose from” the purchase of the debtor’s stock within the meaning and purpose of the Bankruptcy Code’s subordination provision.

On March 7, 2007, the Second Circuit Court of Appeals held that "in the Chapter 11 context, whether a pre-plan settlement's distribution plan complies with the Bankruptcy Code's priority scheme will be the most important factor for a Bankruptcy Court to Consider in approving a settlement under Bankruptcy Rule 9019." In re Iridium Operating LLC, No. 05-2236 (2d Cir. March 7, 2007)

The Supreme Court unanimously held on March 20, 2007, that an unsecured lender could recover contractbased legal fees “incurred in [post-bankruptcy] litigation” on “issues of bankruptcy law.” Travelers Casualty & Surety Co. of America v. Pacific Gas & Elec. Co., __ U.S. __ (March 20, 2007). Op., at 1, 3. In doing so, the court vacated a summary ruling by the Ninth Circuit last year. 167 Fed. Appx. 593 (9th Cir. 2006) (held, “attorney fees… not recoverable in bankruptcy for litigating issues ‘peculiar to federal bankruptcy law.’“), citing In re Fobian, 951 F.2d 1149, 1153 (9th Cir.

I. In re Iridium Operating LLC