Irving Picard, the trustee of Bernard L. Madoff Investment Securities LLC (“BLMIS”), and Fred Wilpon and Saul Katz, the owners of the New York Mets, and their families and affiliated enterprises (the “Wilpon/Katz Group”), each submitted their final arguments last week in support of their respective motions for summary judgment. As previously discussed on this site, Judge Jed S. Rakoff’s rulings on the motions could largely resolve this year-long legal battle.
Judge Rakoff’s decision last September dismissed most of the counts set forth in Picard’s complaint and substantially narrowed the focus of Picard’s adversary proceeding. Section 548(a) of the Bankruptcy Code allows a trustee to avoid transfers made up to two years prior to the commencement of the bankruptcy case if made with deliberate fraudulent intent. However, the rights of a good faith transferee are recognized and protected under Section 548(c). That section provides that a transferee “that takes for value and in good faith” may retain the property transferred to it “to the extent that such transferee . . . gave value to the debtor in exchange” for such transfer.
The briefs filed last week showed each side closely adhering to the paths provided by Judge Rakoff in his ruling last year. Rakoff strongly intimated that no value was provided with respect to the $83 million of fictitious profits received by the Wilpon/Katz Group in the two year period before the filing of the BLMIS case, and Picard accordingly contends now that no material facts or valid defenses exist with respect to those payments. On the other hand, Rakoff ruled that the Wilpon/Katz Group’s invested principal clearly did provide “value” to BLMIS, thus requiring Picard to demonstrate a lack of “good faith” in order to recover payments that constituted the return of such principal. The Wilpon/Katz Group argues strenuously that Picard’s mélange of supposed “red flags” fails to approach the standard of “willful blindness” that Judge Rakoff stated must be shown in order to show an absence of good faith.
Judge Rakoff must find with respect to each motion that there are no genuine factual issues to be determined at a full trial. Picard would appear to have the stronger chance for immediate success here. Unless Judge Rakoff determines to apply a different legal standard now than he did last year, the issue of fictitious profits looks to be clear and straight forward. On the other hand, the issue of good faith appears to be less susceptible to immediate disposition. While it does not appear that Picard will be able to satisfy Rakoff’s “willful blindness” standard, Judge Rakoff will probably allow Picard to present his evidence to a jury.