PICARD v. HSBC BANK PLC
454 B.R. 25 (2011)
Irving H. PICARD, Plaintiff,
HSBC BANK PLC, Alpha Prime Fund Limited, HSBC Securities Services (Luxembourg) S.A., HSBC Bank Bermuda Limited, HSBC Fund Services (Luxembourg) S.A., HSBC Private Bank (Suisse) S.A., HSBC Private Banking Holdings (Suisse) S.A., HSBC Bank (Cayman) Limited, HSBC Securities Services (Bermuda) Limited, HSBC Bank USA, N.A., HSBC Institutional Trust Services (Bermuda) Limited, HSBC Securities Services (Ireland) Limited, HSBC Institutional Trust Services (Ireland) Limited, HSBC Holdings PLC, Defendants.
Irving H. Picard, Plaintiff,
Alpha Prime Fund Limited, HSBC Bank PLC, HSBC Securities Services (Luxembourg) S.A., HSBC Bank Bermuda Limited, HSBC Fund Services (Luxembourg) S.A., HSBC Private Bank (Suisse) S.A., HSBC Private Banking Holdings (Suisse) S.A., HSBC Bank (Cayman) Limited, HSBC Securities Services (Bermuda) Limited, HSBC Bank USA, N.A., HSBC Institutional Trust Services (Bermuda) Limited, HSBC Securities Services (Ireland) Limited, HSBC Institutional Trust Services (Ireland) Limited, HSBC Holdings PLC, UniCredit S.p.A., Pioneer Alternative Investment Management Limited, Defendants.
Nos. 11 Civ. 763 (JSR), 11 Civ. 836 (JSR).
United States District Court, S.D. New York.
July 28, 2011.
Evan A. Davis, Cleary Gottlieb Steen & Hamilton, LLP, Todd E. Duffy, Anderson Kill & Olick, P.C., James Elliot Lahm, Patrick Kevin Slyne, Stull Stull & Brody, New York, NY, Timothy Joseph Burke, Stull, Stull & Brody, Los Angeles, CA, Helen Davis Chaitman, Phillips Nizer LLP, New York, NY, for Defendants.
JED S. RAKOFF, District Judge.
Though it sometimes seems otherwise, not every litigant has the right to appear in federal court. A would-be litigant must first establish "standing" to pursue his or her claims, by demonstrating, among other things, the existence of a "case or controversy" and a personal stake in the outcome of the case. In this particular case, the Court is called upon to determine whether Irving Picard (the "Trustee"), the trustee appointed pursuant to the Securities Investor Protection Act for the consolidated liquidation of Bernard L. Madoff Investment Securities ("Madoff Securities"), has standing to pursue common law claims against third parties who allegedly violated a duty to Madoff Securities' customers by failing to detect Madoff's fraud. For the reasons stated herein, the Court answers this question in the negative and thus dismisses the Trustee's common law claims against the "HSBC Defendants"1 and the "UCG/PAI Defendants."2
By way of background, after it was revealed in December 2008 that Madoff Securities was "a giant Ponzi scheme," SEC v. Madoff, 08 Civ. 7891 (S.D.N.Y. Dec. 11, 2008), the company went into bankruptcy. See Securities Investor Protection Corporation v. Bernard L. Madoff Investment Securities, LLC, Adv. Pro. No. 08-01789 (S.D.N.Y.Bankr.Dec. 11, 2008). Shortly thereafter, on December 15, 2008, the Trustee was appointed to manage the consolidated liquidation of Madoff Securities. On July 15, 2009, the Trustee commenced adversary proceeding No. 09-1364A (BRL) (the "Trustee's Action") in the Bankruptcy Court. The 165-page Amended Complaint in that action, filed on December 5, 2010, in addition to seeking to recover some $2 billion in preferential or fraudulent transfers (Counts 1-19), seeks to recover under various common law theories such as unjust enrichment, aiding and abetting fraud, and aiding and abetting breach of fiduciary duty (Counts 20-24), no less than $6.6 billion in damages from the HSBC Defendants and approximately $2 billion in damages from a group of thirty-six other defendants, including the UCG/PAI Defendants — all premised on their alleged failure to adequately investigate Madoff Securities despite being confronted with "myriad red flags and indicia of fraud." Am. Compl. ¶¶ 1, 318, 332, 557.
The question of whether the Trustee can pursue such common law claims, either on behalf of customers or on behalf of the estate, raises substantial, unresolved issues of federal non-bankruptcy law.3 Accordingly, on April 12, 2011, the Court withdrew the reference of this action to the Bankruptcy Court for the limited purpose of addressing two threshold issues of
non-bankruptcy federal law: (1) whether the Trustee has standing to bring his common law claims against the HSBC Defendants and the UCG/PAI Defendants, and (2) whether the common law claims against these defendants are preempted by the Securities Litigation Uniform Standards Act ("SLUSA"). See Order, April 13, 2011 (confirming April 12 ruling from the bench); Picard v. HSBC Bank PLC, 450 B.R. 406 (S.D.N.Y.2011) (elaborating the reasons for the withdrawal of the reference).
Both the HSBC Defendants and the UCG/PAI Defendants subsequently moved to dismiss the common law claims, contending that the Trustee lacks standing to bring these claims and that these claims are barred by SLUSA. Because the Court concludes that the Trustee lacks standing to assert the common law claims, the Court need not address whether these claims are preempted by SLUSA.
Standing under Article III of the United States Constitution "is a threshold issue in all cases, since putative plaintiffs lacking standing are not entitled to have their claims litigated in federal court." Shearson Lehman Hutton, Inc. v. Wagoner, 944 F.2d 114, 117 (2d Cir.1991). To meet Article III requirements, the Trustee must demonstrate (i) a concrete and particularized "injury in fact," (ii) that can be fairly traced to the defendants' conduct, and (iii) that can be redressed by a favorable decision. Bogart v. Israel Aerospace Indus. Ltd., No. 09 Civ. 4783(LAP), 2010 WL 517582, at *3-4 (S.D.N.Y. Feb. 5, 2010) (citing Denney v. Deutsche Bank AG, 443 F.3d 253, 263 (2d Cir.2006)). Moreover, to satisfy "prudential" limitations on standing, "a party must `assert his own legal rights and interests, and cannot rest his claim to relief on the legal rights or interests of third parties.'" Wight v. BankAmerica Corp., 219 F.3d 79, 86 (2d Cir.2000) (quoting Warth v. Seldin, 422 U.S. 490, 499, 95 S.Ct. 2197, 45 L.Ed.2d 343 (1975)).