The US Court of Appeals for the Second Circuit affirmed the district court’s dismissal of common law claims brought by Irving H. Picard (Trustee), trustee for Bernard L. Madoff Investment Securities (BLMIS), against several banks. The Second Circuit found that the Trustee was barred by the doctrine of in pari delicto and lacked standing to bring claims on behalf of customers of BLMIS.
Under New York law, the doctrine of in pari delicto bars one wrongdoer from recovering against another. The Second Circuit found that the doctrine applied to the Trustee, who stands in the shoes of BLMIS, and barred him from asserting claims against defendants for wrongdoing in which Madoff participated.
The court also found that the Trustee lacked standing to bring claims on behalf of BLMIS’s customers. In arguing that his status as a Securities Investor Protection Act (SIPA) trustee gave him standing to assert claims on behalf of BLMIS’s customers, the Trustee relied heavily on a Second Circuit case overruled by the Supreme Court. The Second Circuit clarified that the case has no precedential effect and rejected the Trustee’s additional standing arguments based on the text of SIPA and principles of common law bailment.
Picard v. JP Morgan Chase & Co. (In re Bernard L. Madoff Investment Securities), Nos. 11-5044, 11-5051, 11-5175, 11-5207 (2d Cir. June 20, 2013).