The U.S. Court of Appeals for the Second Circuit held today that the trustee for Bernard L. Madoff Investment Securities (BLMIS) lacks authority to pursue common-law claims for damages suffered by Madoff’s customers. Based on that ruling, the Court affirmed the dismissal of a variety of damages claims against JPMorgan, HSBC and other banks relating to Madoff’s historic Ponzi scheme. See Picard v. JPMorgan Chase & Co., No. 11-5044 (2d Cir. June 20, 2013). Our firm represented JPMorgan both in the district court and on appeal.
Since the Supreme Court’s landmark decision in Caplin v. Marine Midland, 406 U.S. 416 (1972), it has been well-established that a bankruptcy trustee — as the legal successor to the debtor — may not bring damages claims that belong to creditors. It is also well-established that, under the doctrine of in pari delicto, the bankruptcy trustee for a fraudulent debtor may not sue third parties for harms caused by the debtor’s own fraud.