12-1645 (L)
In Re: Bernard L. Madoff Investment Securities LLC




                                  In the
                      United States Court of Appeals
                         For the Second Circuit
                                              ________

                           AUGUST TERM 2012
         Nos. 12-1645-bk(L), 12-1646-bk(CON), 12-1651-bk(CON),
                   12-1669-bk(CON), 12-1703-bk(CON)

          IN RE: BERNARD L. MADOFF INVESTMENT SECURITIES LLC,
                                Debtor.

   SUSANNE STONE MARSHALL, individually and to the extent she
      purports to represent a class of those similarly situated,
 ADELE FOX, individually and to the extent she purports to represent
                 a class of those similarly situated,
                        Claimants-Appellants,

                                                     v.

                IRVING H. PICARD, Trustee for the Liquidation of
                 Bernard L. Madoff Investment Securities LLC,
                                   Appellee,

                SECURITIES INVESTOR PROTECTION CORPORATION,
                                  Intervenor.*
                                   ________

         The Clerk of Court is directed to amend the official caption in this case to
         *

conform to the listing of the parties above.
2                                                   No. 12-1645-bk(L)




           Appeal from the United States District Court
              for the Southern District of New York.
           No. 10 Civ. 7101 (JGK)—John G. Koeltl, Judge.
                              ________

                     ARGUED: DECEMBER 6, 2012
                     DECIDED: JANUARY 13, 2014
                            ________

Before: CABRANES, RAGGI, and CARNEY, Circuit Judges.
                            ________

       Once again, we are asked to review the liquidation
proceedings involving Bernard L. Madoff Investment Securities LLC
(“BLMIS”)—the investment enterprise created by Bernard L. Madoff
to effect his now-infamous Ponzi scheme. These consolidated
appeals arise out of a permanent injunction entered by the United
States Bankruptcy Court for the Southern District of New York
(Burton R. Lifland, Bankruptcy Judge) and affirmed by the United
States District Court for the Southern District of New York (John G.
Koeltl, Judge), enjoining state law tort actions brought by appellants,
two of Madoff’s defrauded “investors,” against the estate of Jeffry
M. Picower, one of Madoff’s alleged co-conspirators, and related
defendants (collectively, “Picower defendants”). We consider two
questions: (1) whether the Bankruptcy Court had the authority
under the Bankruptcy Code to enjoin appellants’ actions as
“derivative” of adversary proceedings brought by the trustee for the
BLMIS estate, Irving Picard (“Picard” or the “Trustee”), against the
Picower defendants; and, if indeed authorized by the Bankruptcy
Code, (2) whether the exercise of such authority transgressed the
limitations imposed by Article III of the United States Constitution.
3                                                    No. 12-1645-bk(L)




      First, we conclude that appellants’ complaints impermissibly
attempt to “plead around” the Bankruptcy Court’s injunction
barring all claims “derivative” of those asserted by the Trustee.
Although appellants seek damages that are not recoverable in an
avoidance action, their complaints allege nothing more than steps
necessary to effect the Picower defendants’ fraudulent withdrawals
of money from BLMIS, instead of “particularized” conduct directed
at BLMIS customers. Second, we conclude that the Bankruptcy
Court operated within the confines of Article III of the United States
Constitution, as recently interpreted by the Supreme Court in Stern
v. Marshall, 131 S. Ct. 2594 (2011). Accordingly, we hold that the
Bankruptcy Court did not exceed the bounds of its authority under
the Bankruptcy Code or run afoul of Article III.

      Affirmed.
                              ________

                   HELEN DAVIS CHAITMAN (Peter W. Smith, on the
                   brief), Becker & Poliakoff, LLP, New York, NY, for
                   Claimant-Appellant Susanne Stone Marshall.

                   LISA S. BLATT (Michael L. Bernstein, Charles A.
                   Malloy, Isaac B. Rosenberg, on the brief), Arnold &
                   Porter LLP, Washington, DC; (Richard L. Stone,
                   on the brief), Palm Beach, FL; (James W. Beasley,
                   Jr., Joseph G. Galardi, on the brief), Beasley Hauser
                   Kramer & Galardi, P.A., West Palm Beach, FL, for
                   Claimant-Appellant Adele Fox.
4                                                    No. 12-1645-bk(L)




                   DAVID J. SHEEHAN (Deborah H. Renner, Tracy L.
                   Cole, Keith R. Murphy, Thomas D. Warren, on the
                   brief), Baker & Hostetler LLP, New York, NY, for
                   Appellee.

                   Josephine Wang, General Counsel, Kevin H. Bell,
                   Senior Associate General Counsel for Dispute
                   Resolution, Lauren Attard, Assistant General
                   Counsel, Securities Investor Protection
                   Corporation, Washington, DC, for Intervenor.
                              ________

JOSÉ A. CABRANES, Circuit Judge:

       Once again, we are asked to review the liquidation
proceedings involving Bernard L. Madoff Investment Securities LLC
(“BLMIS”)—the investment enterprise created by Bernard L. Madoff
to effect his now-infamous Ponzi scheme. These consolidated
appeals arise out of a permanent injunction entered by the United
States Bankruptcy Court for the Southern District of New York
(Burton R. Lifland, Bankruptcy Judge) and affirmed by the United
States District Court for the Southern District of New York (John G.
Koeltl, Judge), enjoining state law tort actions asserted by appellants,
two of Madoff’s defrauded “investors,” against the estate of Jeffry
M. Picower, one of Madoff’s alleged co-conspirators, and related
defendants (collectively, “Picower defendants”). We consider two
questions: (1) whether the Bankruptcy Court had the authority
under the Bankruptcy Code to enjoin appellants’ actions as
“derivative” of adversary proceedings brought by the trustee for the
BLMIS estate, Irving Picard (“Picard” or the “Trustee”), against the
Picower defendants; and, if indeed authorized by the Bankruptcy
Code, (2) whether the Bankruptcy Court transgressed the limitations
5                                                                No. 12-1645-bk(L)




on its authority imposed by Article III of the United States
Constitution.

      First, we conclude that appellants’ complaints impermissibly
attempt to “plead around” the Bankruptcy Court’s injunction
barring all claims “derivative” of those asserted by the Trustee.
Although appellants seek damages that are not recoverable in an
avoidance action, their complaints allege nothing more than steps
necessary to effect the Picower defendants’ fraudulent withdrawals
of money from BLMIS, instead of “particularized” conduct directed
at BLMIS customers. Second, we conclude that the Bankruptcy
Court operated within the confines of Article III of the United States
Constitution, as recently interpreted by the Supreme Court in Stern
v. Marshall, 131 S. Ct. 2594 (2011). Accordingly, we hold that the
Bankruptcy Court did not exceed the bounds of its authority under
the Bankruptcy Code or run afoul of Article III.

                                 BACKGROUND

       Following Madoff’s arrest in December 2008, the Securities
and Exchange Commission filed a civil complaint against Madoff
and BLMIS in the United States District Court for the Southern
District of New York, alleging that they had operated a Ponzi
scheme through BLMIS’s investment-advisor activities.             On
December 15, 2008, upon an application filed by the Securities
Investment Protection Corporation (“SIPC”),1 the District Court
entered a protective order placing BLMIS in liquidation under the
Securities Investor Protection Act (“SIPA”), appointing Picard as the

        1  The Securities Investor Protection Corporation is “a nonprofit corporation
consisting of registered broker-dealers and members of national securities exchanges that
supports a fund used to advance money to a SIPA trustee.” In re Bernard L. Madoff Inv.
Sec. LLC, 654 F.3d 229, 232-33 (2d Cir. 2011).
6                                                           No. 12-1645-bk(L)




Trustee, and referring the case to the United States Bankruptcy
Court for the Southern District of New York.2 See Order, SEC v.
Bernard L. Madoff and Bernard L. Madoff Inv. Sec. LLC, No. 08 Civ.
10791 (LLS) (S.D.N.Y. Dec. 15, 2008), ECF No. 4.

                                        A

       SIPA establishes procedures for the expeditious and orderly
liquidation of failed broker-dealers, and provides special protections
to their customers. A trustee’s primary duty under SIPA is to
liquidate the broker-dealer and, in so doing, satisfy claims made by
or on behalf of the broker-dealer’s customers for cash balances. In re
Bernard L. Madoff Inv. Sec. LLC, 654 F.3d 229, 233 (2d Cir. 2011). In a
SIPA liquidation, a fund of “customer property” is established—
consisting of cash and securities held by the broker-dealer for the
account of a customer, or proceeds therefrom, 15 U.S.C. § 78lll(4)—
for priority distribution exclusively among customers, id. § 78fff-
2(c)(1). The Trustee allocates the customer property so that
customers “share ratably in such customer property . . . to the extent
of their respective net equities.” Id. § 78fff-2(c)(1)(B).

      In order to calculate a customer’s “net equity,” Picard chose
the “net investment method,” under which the amount owed to
each customer by BLMIS was “the amount of cash deposited by the
customer into his BLMIS customer account less any amounts already
withdrawn by him.” Sec. Investor Prot. Corp. v. Bernard L. Madoff Inv.
Sec. LLC (In re Bernard L. Madoff Inv. Sec. LLC), 424 B.R. 122, 125
(Bankr. S.D.N.Y. 2010). In other words, BLMIS customers had net
equity only to the extent that their total cash deposits exceeded their
total cash withdrawals. Id. at 142. On March 1, 2010, the

       2 In April 2009, Madoff was forced into an involuntary Chapter 7 bankruptcy
proceeding, which was later consolidated with BLMIS’s SIPA liquidation.
7                                                                    No. 12-1645-bk(L)




Bankruptcy Court entered an order approving the “net investment
method” (the “Net Equity Decision”), which we subsequently
affirmed. See id. at 135, 140, aff’d, 654 F.3d 229 (2d Cir. 2011).

       Following these proceedings, appellants each filed claims in
the liquidation proceeding against the BLMIS estate. Picard allowed
appellant Marshall’s claim for $30,000, but he denied two claims
filed by Fox on the grounds that she was a so-called “net winner,”
meaning that she had already withdrawn more than she deposited.

                                             B

      On May 12, 2009, Picard commenced an adversary proceeding
against the Picower defendants in the United States Bankruptcy
Court for the Southern District of New York (the “New York
action”), alleging that they had made hundreds of improper
withdrawals from BLMIS totaling $6.7 billion. 3 The complaint
asserted claims for fraudulent transfers, avoidable preferences, and
turnover under the Bankruptcy Code and New York’s Uniform
Fraudulent Conveyance Act, N.Y. Debt. & Cred. Law §§ 270-281.

       While settlement talks were ongoing in the New York action,
appellants filed complaints in the United States District Court for the
Southern District of Florida on behalf of putative classes allegedly
adversely affected by the Trustee’s method for calculating net equity
(the “Florida actions”). Marshall purported to represent the
interests of BLMIS account holders who had not filed SIPA claims
with the Trustee or whose SIPA claims were disallowed either in
whole or in part. In her parallel suit, Fox allegedly represented the
interests of BLMIS customers designated “net winners” and thus not


      3   This figure was later increased to $7.2 billion to reflect additional withdrawals.
8                                                                    No. 12-1645-bk(L)




entitled to any compensation in the SIPA litigation.        Their
complaints asserted claims for civil conspiracy, conversion, and
conspiracy to violate the Florida Civil Remedies for Criminal
Practices Act, see Fla. Stat. § 772.101 et seq.

       On May 3, 2010, the Bankruptcy Court in New York granted
the Trustee’s application for a preliminary injunction, thereby
enjoining the Florida actions. The Court held that the Florida
actions violated the District Court’s December 15, 2008 Protective
Order, usurped causes of action belonging to the estate in violation
of the Bankruptcy Code’s automatic stay provision, see 11 U.S.C.
§ 362(a),4 and undermined the Bankruptcy Court’s jurisdiction over
administration of the BLMIS estate, see 11 U.S.C. § 105(a).5 See Sec.
Investor Prot. Corp. v. Bernard L. Madoff Inv. Secs. LLC (In re Bernard L.
Madoff Inv. Sec. LLC), 429 B.R. 423, 430, 433-37 (Bankr. S.D.N.Y. 2010).

                                             C

       On December 17, 2010, the Trustee and the Picower
defendants entered into a settlement agreement (the “Settlement
Agreement”), whereby the Picower defendants agreed to return $5
billion to the BLMIS estate, out of the proceeds of a $7.2 billion civil
forfeiture they simultaneously agreed to make to the U.S. Attorney’s



        4  The relevant provision of 11 U.S.C. § 362(a) states that “an application filed
under section 5(a)(3) of the Securities Investor Protection Act of 1970 [(SIPA)], operates as
a stay, applicable to all entities, of . . . any act to obtain possession of property of the
estate or of property from the estate or to exercise control over property of the estate.” Id.
§ 362(a)(3).
        5   Under 11 U.S.C. § 105(a), the Bankruptcy Court has authority to “issue any
order, process, or judgment that is necessary or appropriate to carry out the provisions of
this title.”
9                                                                     No. 12-1645-bk(L)




Office.6 In return, the Trustee agreed to release any other claims he
might have had against the Picower defendants relating to BLMIS.
The Trustee further agreed as part of the settlement to seek a
narrowly-tailored permanent injunction from the Bankruptcy Court
barring any BLMIS customer from suing the Picower defendants for
certain claims arising from or related to Madoff’s Ponzi scheme.

      On December 17, 2010, the Trustee filed his motion for
approval of the Settlement Agreement and for a permanent
injunction pursuant to Rules 2002 and 9019 of the Bankruptcy Rules
and section 105(a) of the Bankruptcy Code.           SIPC and the
government filed a statement in support of the Trustee’s motion. On
January 13, 2011, the Bankruptcy Court approved the Settlement
Agreement, and issued the permanent injunction as follows:

        [A]ny BLMIS customer or creditor of the BLMIS estate
        who filed or could have filed a claim in the liquidation,
        anyone acting on their behalf or in concert or
        participation with them, or anyone whose claim in any
        way arises from or is related to BLMIS or the Madoff


        6   Pursuant to 18 U.S.C. § 981(a)(1)(C), “[a]ny property, real or personal, which
constitutes or is derived from proceeds traceable to . . . any offense constituting ‘specified
unlawful activity’ . . . , or a conspiracy to commit such offense,” is subject to forfeiture to
the government. “Specified unlawful activity” is defined in 18 U.S.C. § 1956(c)(7)(A) to
include any offense listed under 18 U.S.C. § 1961(1), which in turn lists, among other
offenses, violations of 18 U.S.C. §§ 1341 (mail fraud), 1343 (wire fraud), and “fraud in the
sale of securities.” In a complaint dated December 17, 2010, the government commenced
a civil action pursuant to these statutes, seeking forfeiture of $7.2 million “traceable to the
Ponzi scheme orchestrated by Bernard L. Madoff (‘Madoff’) that was paid to Jeffry M.
Picower.” Joint App’x 3238. In its complaint, the government stated its intention, upon
the entry of a final order of forfeiture to the government, “to request that the funds be
distributed to victims of the fraud,” id. at 3239, pursuant to 21 U.S.C. § 853(i)(1), which
provides that the “Attorney General is authorized to . . . restore forfeited property to
victims.”
10                                                 No. 12-1645-bk(L)




      Ponzi scheme, is hereby permanently enjoined from
      asserting any claim against the Picower BLMIS
      Accounts or the Picower Releasees that is duplicative or
      derivative of the claims brought by the Trustee, or which
      could have been brought by the Trustee against the
      Picower BLMIS Accounts or the Picower Releasees . . . .

Special App’x 31 (emphasis supplied). At the January 13, 2011
motion hearing, the Bankruptcy Court made clear that, under its
interpretation of the injunction, the claims in appellants’ Florida
actions were barred as duplicative and derivative of those asserted
in the Trustee’s complaint. See Joint App’x 309 (Bankruptcy Court
stating that, “[Fox and Marshall’s claims] are subsumed in the prior
injunctive paragraph”).

      On March 26, 2012, the District Court, on appeal, affirmed the
January 13 Order, holding that the settlement was fair and
reasonable, and that the issuance of the permanent injunction was a
proper exercise of the Bankruptcy Court’s authority under section
105(a). See Fox v. Picard (In re Madoff), 848 F. Supp. 2d 469, 491
(S.D.N.Y. 2012). The Court also agreed that the claims asserted in
appellants’ Florida actions were “duplicative or derivative” of those
claims that could have been or were asserted by the Trustee in the
New York action and, accordingly, were barred by the terms of the
injunction. Id. at 489.

      This timely appeal followed.

                           DISCUSSION

     The relevant standards of review are familiar ones. “On
appeal from the district court’s review of a bankruptcy court
11                                                                 No. 12-1645-bk(L)




decision, we review the bankruptcy court decision independently,
accepting its factual findings unless clearly erroneous but reviewing
its conclusions of law de novo.” Swimelar v. Baker (In re Baker), 604
F.3d 727, 729 (2d Cir. 2010) (internal quotations omitted). As
relevant here, “[t]he standard of review for the grant of a permanent
injunction, including an anti-suit injunction, is abuse of discretion.”
Paramedics Electromedicina Comercial, Ltda. v. GE Med. Sys. Info. Techs.,
Inc., 369 F.3d 645, 651 (2d Cir. 2004); see also Sims v. Blot (In re Sims),
534 F.3d 117, 132 (2d Cir. 2008) (explaining the term of art “abuse of
discretion” as a ruling based on “an erroneous view of the law or on
a clearly erroneous assessment of the evidence, or . . . a decision that
cannot be located within the range of permissible decisions.”
(internal quotations and citations omitted)).

       At the January 13, 2011 hearing, the Bankruptcy Court stated
explicitly that the Florida actions were among the claims enjoined by
the permanent injunction.7 Accordingly, the principal issue before
us is whether the injunction, as applied to bar the Florida actions,
was a proper exercise of the Bankruptcy Court’s jurisdiction over
non-debtor third-parties. Appellants contend that the injunction
exceeded the Bankruptcy Court’s powers under the Bankruptcy
Code and under Article III of the United States Constitution. We
consider these contentions in turn.

        7 We need not be detained by the fact that the injunction does not expressly refer
to the Florida actions because it broadly enjoins “any claim . . . that is duplicative or
derivative of the claims brought by the Trustee.” Special App’x 31. The scope of an
injunction “turns upon the intent and effect of the bankruptcy court’s” order, and, thus,
“[a] bankruptcy court’s interpretation of its own order warrants customary appellate
deference.” Casse v. Key Bank Nat’l Ass’n (In re Casse), 198 F.3d 327, 333 (2d Cir. 1999)
(internal quotation omitted). At the January 13, 2011 hearing, the Court made clear that
appellants’ actions “are subsumed in the . . . injunctive paragraph.” Joint App’x 309.
Accordingly, the question presented is whether the injunction, as applied by the Bankruptcy
Court to bar appellants’ claims, was a proper exercise of its authority, or whether
appellants’ actions assert independent claims beyond the reach of the Bankruptcy Court.
12                                                                  No. 12-1645-bk(L)




                                            A.

       Only recently we reaffirmed that “the touchstone for
bankruptcy jurisdiction [over a non-debtor’s claim] remains whether
its outcome might have any ‘conceivable effect’ on the bankruptcy
estate.” Quigley Co. v. Law Offices of Peter G. Angelos (In re Quigley
Co.), 676 F.3d 45, 57 (2d Cir. 2012) (citation and internal quotation
omitted). In a SIPA liquidation, the bankruptcy estate encompasses
“all legal or equitable interests of the debtor in property as of the
commencement of the case.” 11 U.S.C. § 541(a)(1).8 Such interests
include “causes of action possessed by the debtor at the time of
filing,” Jackson v. Novak (In re Jackson), 593 F.3d 171, 176 (2d Cir.
2010), and “[a]ny interest in property that the trustee recovers”
under specified Bankruptcy Code provisions, 11 U.S.C. § 541(a)(3).
“Every conceivable interest of the debtor, future, nonpossessory,
contingent, speculative, and derivative, is within the reach of [the
bankruptcy estate].” Chartschlaa v. Nationwide Mut. Ins. Co., 538 F.3d
116, 122 (2d Cir. 2008) (brackets and citation omitted).

      A claim based on rights “derivative” of, or “derived” from,
the debtor’s typically involves property of the estate. See In re
Quigley, 676 F.3d at 57 (“[W]e have treated whether a suit seeks to
impose derivative liability as a helpful way to assess whether it has
the potential to affect the bankruptcy res . . . .”). By contrast, a

        8  Although a SIPA liquidation is not a traditional bankruptcy, a SIPA trustee’s
authority to bring claims in administering a SIPA liquidation is coextensive with the
powers of a Title 11 bankruptcy trustee. See 15 U.S.C. § 78fff-1(a) (SIPA trustee “vested
with the same powers and title with respect to the debtor and the property of the debtor,
including the same rights to avoid preferences, as a trustee in a case under Title 11”); id.
§ 78fff(b) (SIPA liquidation proceedings “shall be conducted in accordance with, and as
though it were being conducted under . . . Title 11”). Accordingly, we rely on statutes
and case law relating to Title 11 bankruptcy actions.
13                                                  No. 12-1645-bk(L)




bankruptcy court generally has limited authority to approve releases
of a non-debtor’s independent claims. See Deutsche Bank AG v.
Metromedia Fiber Network, Inc. (In re Metromedia Fiber Network, Inc.),
416 F.3d 136, 141-43 (2d Cir. 2005). As one federal appeals court has
explained:

      The point is simply that the trustee is confined to
      enforcing entitlements of the [debtor]. He has no right
      to enforce entitlements of a creditor. He represents the
      unsecured creditors of the [debtor]; and in that sense
      when he is suing on behalf of the [debtor] he is really
      suing on behalf of the creditors of the [debtor]. But
      there is a difference between a creditor’s interests in the
      claims of the [debtor] against a third party, which are
      enforced by the trustee, and the creditor’s own direct—
      not derivative—claim against the third party, which
      only the creditor . . . can enforce.

Steinberg v. Buczynski, 40 F.3d 890, 893 (7th Cir. 1994). Put another
way, “when creditors . . . have a claim for injury that is
particularized as to them, they are exclusively entitled to pursue that
claim, and the bankruptcy trustee is precluded from doing so.”
Hirsch v. Arthur Andersen & Co., 72 F.3d 1085, 1093 (2d Cir. 1995).

      In light of these principles, we note that the parties have not
objected, nor could they have objected, to the plain text of the
injunction. The injunction, by its own terms, is limited to third-party
claims based on derivative or duplicative liability or claims that
could have been brought by the Trustee against the Picower
releasees. See Special App’x 31. Insofar as such claims are truly
duplicative or derivative, they undoubtedly have an effect on the
14                                                     No. 12-1645-bk(L)




bankruptcy estate and, thus, are subject to the Bankruptcy Court’s
jurisdiction. See In re Quigley, 676 F.3d at 57.

       We have defined so-called “derivative claims” in the context
of bankruptcy as ones that “arise[] from harm done to the estate”
and that “seek[] relief against third parties that pushed the debtor
into bankruptcy.” Picard v. JPMorgan Chase & Co. (In re Bernard L.
Madoff Inv. Sec. LLC) (“JPMorgan Chase”), 721 F.3d 54, 70 (2d Cir.
2013). In assessing whether a claim is derivative, we inquire into the
factual origins of the injury and, more importantly, into the nature of
the legal claims asserted. See Johns-Manville Corp. v. Chubb Indem.
Ins. Co. (In re Johns-Manville Corp.) (“Manville III”), 517 F.3d 52, 67 (2d
Cir. 2008). While a derivative injury is based upon “a secondary
effect from harm done to [the debtor],” an injury is said to be
“particularized” when it can be “directly traced to [the third party’s]
conduct.” St. Paul Fire & Marine Ins. Co. v. PepsiCo, Inc., 884 F.2d 688,
704 (2d Cir. 1989).

        Most of this Circuit’s jurisprudence on a bankruptcy court’s
authority to enjoin derivative claims in liquidation proceedings
stems from what has been aptly characterized as “the long saga of
litigation arising from the bankruptcy of the Johns-Manville
Corporation (‘Manville’), a major national asbestos concern.” In re
Quigley, 676 F.3d at 55. A brief comparison of two cases from that
saga helps illustrate the principles just described.

       In MacArthur Co. v. Johns-Manville Corp. (In re Johns-Manville
Corp.) (“Manville I”), 837 F.2d 89 (2d Cir. 1988), plaintiff, a distributor
of Manville’s asbestos products, alleged that it was coinsured under
Manville’s insurance policies. Id. at 90. As part of Manville’s
settlement with its insurers, the bankruptcy court entered an
injunction relieving the insurers of all obligations related to the
15                                                                   No. 12-1645-bk(L)




disputed policies and channeling all insurance claims to the
proceeds of the settlement. Id. Plaintiff challenged the court’s
authority to issue such an order, asserting that its contract-based
claims against the insurers were independent from Manville’s. We
rejected this contention, asserting that

        [plaintiff’s] rights as an insured vendor are completely
        derivative of Manville’s rights as the primary insured.
        Such derivative rights are no different in this respect
        from those of the asbestos victims who have already
        been barred from asserting direct actions against the
        insurers.9     [Plaintiff] asserts contractual obligations
        whereas the direct action plaintiffs’ claims sounded in
        tort; nevertheless, in both instances, third parties seek to
        collect out of the proceeds of Manville’s insurance
        policies on the basis of Manville’s conduct. In both
        cases, plaintiffs’ claims are inseparable from Manville’s
        own insurance coverage and are consequently well
        within the Bankruptcy Court’s jurisdiction over
        Manville’s assets.

Id. at 92-93 (citation omitted). In other words, the claims of both the
plaintiff and the asbestos victims were “derivative” of Manville’s—
whether or not they sounded in tort or contract—because they all
sought compensation for the same type of asbestos-related injuries
caused by Manville’s products. Accordingly, we held that the



        9 The “direct actions” referred to here concerned tort claims brought by asbestos
workers against insurers under a Louisiana statute that afforded injured persons a cause
of action against the insurers when the plaintiff has an independent cause of action
against the insured. In In re Davis, 730 F.2d 176 (5th Cir. 1984), the Fifth Circuit held that
the bankruptcy court had authority to stay such actions. Id. at 183-84.
16                                                                  No. 12-1645-bk(L)




bankruptcy court had the authority to funnel all claims against the
policies to a single proceeding in the bankruptcy court. Id. at 93.

       In Manville III, however, we held that plaintiffs’ claims against
Travelers Insurance were independent of Manville’s.10 Plaintiffs
alleged in this instance that Travelers had acquired knowledge
regarding the dangers of asbestos, but “influenced Manville’s
purported failure to disclose its knowledge of asbestos hazards.”
517 F.3d at 58 (alteration omitted). In the course of the proceedings,
the bankruptcy court entered a “Clarifying Order” specifying that
these lawsuits were barred by the prior injunction. Id. at 59. We
held, however, that such claims were non-derivative. Whereas the
Manville I plaintiffs sought “indemnification or compensation for the
tortious wrongs of Manville,” the Manville III plaintiffs sought “to
recover directly from Travelers . . . for [Travelers’] own alleged
misconduct,” namely, violations under state law of “an independent
legal duty in its dealing with plaintiffs.” Id. at 63; see also Travelers
Indem. Co. v. Bailey, 557 U.S. 137, 143 & n.2 (2009).

       We recently had occasion to apply the distinction drawn in
Manville III in another case arising out of the SIPA-liquidation of
BLMIS. In JPMorgan Chase, the Trustee sued various financial
institutions, alleging that they had aided and abetted Madoff’s
fraud. 721 F.3d at 59. In holding that the Trustee lacked standing to
bring such claims on behalf of BLMIS customers, we noted that the
claims were not derivative: they were brought “on behalf of
thousands of customers against third-party financial institutions for

        10 Manville III was reversed by the Supreme Court on narrow procedural
grounds, see Travelers Indem. Co. v. Bailey, 557 U.S. 137 (2009); however, in Johns-Manville
Corp. v. Chubb Indem. Ins. Co. (In re Johns-Manville Corp.) (“Manville IV”), 600 F.3d 135 (2d
Cir. 2010), we reaffirmed the jurisdictional analysis, see id. at 152 (clarifying that the
Supreme Court “did not contradict the conclusion of [Manville III’s] jurisdictional
inquiry”).
17                                                                  No. 12-1645-bk(L)




their handling of individual investments made on various dates in
varying amounts.” Id. at 71.

      In the following section, we explain why the Florida actions
are predicated upon secondary harms flowing from BLMIS as in
Manville I rather than upon a particularized injury traceable to the
Picower defendants’ conduct as in Manville III and JPMorgan Chase.

                                            B

                                            (1)

       The Trustee’s complaint in this case asserts fraudulent
conveyance claims against the Picower defendants under the
Bankruptcy Code and New York law.11 It alleges that the Picower
defendants withdrew billions of dollars from their BLMIS
accounts—funds belonging to BLMIS’s defrauded customers—and,
because the Picower defendants knew or should have known that
they were profiting from such fraud, the withdrawals were thus
avoidable. Although state law typically provides creditors with the
right to assert fraudulent conveyance claims,


        11 The Bankruptcy Code authorizes the Trustee to assert claims for the recovery
of so-called “fraudulent transfers” against “the initial transferee of such transfer[s].” 11
U.S.C. § 550(a)(1). A transfer is deemed to be fraudulent—and therefore “avoidable”
under the Bankruptcy Code—if the transfer was made “with actual intent to hinder,
delay, or defraud any entity to which the debtor was or became . . . indebted,” id.
§ 548(a)(1)(A), or if the debtor “received less than a reasonably equivalent value in
exchange for such transfer,” id. § 548(a)(1)(B). A recipient of a transfer is entitled to a
“good faith” defense upon a showing that it took the transfer “for value” and “in good
faith.” Id. § 548(c). The presence of “good faith” depends upon, inter alia, “whether the
transferee had information that put it on inquiry notice that the transferor was insolvent
or that the transfer might be made with a fraudulent purpose.” In re Bayou Grp., LLC, 439
B.R. 284, 310 (S.D.N.Y. 2010).
18                                                   No. 12-1645-bk(L)




      [a] typical fraudulent transfer claim is perhaps the
      paradigmatic example of a claim that is “general” to all
      creditors . . . . It is normally the debtor’s creditors, and
      not the debtor itself, that have the right to assert a
      fraudulent transfer claim outside of bankruptcy, but in
      bankruptcy such a claim is usually brought by the
      trustee, for the benefit of all creditors. This is because
      the claim is really seeking to recover property of the
      estate.

Highland Capital Mgmt. LP v. Chesapeake Energy Corp. (In re Seven Seas
Petroleum, Inc.), 522 F.3d 575, 589 n.9 (5th Cir. 2008).

        Appellants Marshall and Fox argue that their complaints
assert non-derivative conspiracy-based claims predicated upon the
Picower defendants’ direct participation in the theft of BLMIS
customers’ funds. However, the allegations in appellants’ respective
Florida complaints echo those made by the Trustee. With regard to
the Picower defendants’ knowledge of the fraud, each complaint
alleges: (1) that the Picower defendants’ account supposedly
achieved implausibly high rates of return, see Joint App’x 707, 1358,
2584; (2) that, unlike other investors, the Picower defendants were
sufficiently close to Madoff to be privy to BLMIS’ trading records,
see id. at 722, 1349, 2584; and (3) that the Picower defendants knew of
fictitious and backdated trading activity in their accounts, see id. at
724, 1359, 2593. See also Sec. Investor Prot. Corp. v. Bernard L. Madoff
Inv. Sec. LLC, 477 B.R. 351, 358-78 (Bankr. S.D.N.Y. 2012) (chart
comparing allegations in Trustee’s complaint with those in the
Florida complaints, appended as Exhibit A to the opinion of the
Bankruptcy Court). In fact, the Florida complaints cite the factual
allegations contained in the Trustee’s complaint in New York’s
bankruptcy court multiples times in support of their claims.
19                                                   No. 12-1645-bk(L)




       Appellants rightly note that overlapping allegations may give
rise to a multiplicity of claims. As the Fifth Circuit has explained,
“there is nothing illogical or contradictory about saying that [a third-
party defendant] might have inflicted direct injuries on both the
[estate’s creditors] and [the debtor estate] during the course of
dealings that form the backdrop of both sets of claims.” In re Seven
Seas, 522 F.3d at 587; see, e.g., Bankers Trust Co. v. Rhoades, 859 F.2d
1096, 1101 (2d Cir. 1988) (finding that a creditor had “standing to
bring a RICO claim, regardless of the fact that a bankrupt [debtor]
might also have suffered an identical injury” because “[creditor]
does not seek recovery for injuries suffered by [debtor] but for
injuries it suffered directly”).

       We are nonetheless wary of placing too much significance on
the labels appellants attach to their complaints, lest they circumvent
the Net Equity Decision by “pleading around” the automatic stay
and permanent injunction. Cf., e.g., Cabiri v. Gov’t of Republic of
Ghana, 165 F.3d 193, 200 (2d Cir. 1999) (“In an effort to plead around
the proviso [preserving immunity for torts of misrepresentation] the
complaint is cast in terms of the intentional infliction of emotional
distress. However cast, the wrongful acts alleged to have caused the
injury are misrepresentations . . . .”). The only allegations of the
Picower defendants’ direct involvement in the Ponzi scheme are that
they prepared false documentation, recorded and withdrew fictional
profits, and filed false statements in connection with their tax
returns. See Joint App’x 1366 (Marshall Complaint); id. at 2600-01
(Fox Complaint). Appellants characterize these allegations as “the
Picower Defendants work[ing] hand-in-glove with Madoff and
BLMIS to perpetrate the Ponzi scheme.” Fox Br. 24; see also Marshall
Br. 31. But, as Judge Richard J. Sullivan recently explained in a case
predicated upon the same alleged conspiratorial acts,
20                                                  No. 12-1645-bk(L)




      [t]he . . . Complaints plead nothing more than that the
      Picower Defendants traded on their own BLMIS
      accounts, knowing that such “trades” were fraudulent,
      and then withdrew the “proceeds” of such falsified
      transactions from BLMIS. All the “book entries” and
      “fraudulent trading records” that the Complaints allege
      refer to nothing more than the fictitious records BLMIS
      made, for the Picower Defendants, to document these
      fictitious transactions. In other words, the Complaints
      plead nothing more than that the Picower Defendants
      fraudulently withdrew money from BLMIS.

A & G Goldman Partnership v. Picard (In re Bernard L. Madoff Inv. Sec.,
LLC), No. 12 CIV. 6109 RJS, 2013 WL 5511027, at *7 (S.D.N.Y. Sept.
30, 2013) (citation omitted).

                                  (2)

       The case law upon which appellants rely to argue that they
have alleged “particularized” injuries directly traceable to the
Picower defendants is inapposite. Appellant Marshall draws our
attention to Cumberland Oil Corp. v. Thropp, 791 F.2d 1037 (2d Cir.
1986), in which we held that a plaintiff’s cause of action for
conspiracy to defraud “was not merely an artful repleading of
[fraudulent conveyance] claims.” Id. at 1043. But in Cumberland Oil,
the plaintiff did not assert merely the “right . . . to recover
misappropriated assets,” but “alleged with particularity that
misrepresentations of facts [about debtor’s financial health] were
made by [defendant] in furtherance of a conspiracy to defraud.” Id.
at 1042-43. The complaints here, however, do not allege that the
Picower defendants made any such misrepresentations to BLMIS
21                                                   No. 12-1645-bk(L)




customers. Rather, as in Manville I, appellants’ alleged injuries are
inseparable from, and predicated upon, a legal injury to the
estate namely, the Picower defendants’ fraudulent withdrawals
from their BLMIS accounts of what turned out be other BLMIS
customers’ funds.

       Appellant Fox relies on our decision in Hirsch v. Arthur
Anderson & Co., and the Fifth Circuit’s in In re Seven Seas, to argue
that her claims allege “particularized” injuries traceable to the
Picower defendants. In Hirsch, the Trustee sought to sue Arthur
Anderson & Co. for helping perpetuate the debtors’ Ponzi scheme
by distributing misleading private placement memoranda to
investors. 72 F.3d at 1087-89. And in In re Seven Seas, bondholders
alleged that a secured creditor had knowingly used misleading
financial information to induce them to purchase unsecured notes
issued by the debtor. 522 F.3d at 578-81. In both cases, the Courts
held that the claims alleged an injury that was direct, and not merely
derivative, of an injury to the debtor. See Hirsch, 72 F.3d at 1094
(holding that the claims “are the property of those investors, and
may be asserted only by them and to the exclusion of [the Trustee]”);
In re Seven Seas, 522 F.3d at 586 (holding that the claims alleged “a
direct injury . . . that was independent of any injury to [the debtor]”).

      As just noted, however, appellants have not alleged that the
Picower defendants took any such “particularized” actions aimed at
BLMIS customers. They have not alleged, for instance, that the
Picower defendants made any misrepresentations to appellants.
Appellants respond that their respective complaints allege “that the
Picower Defendants’ wrongful conduct ensured the fraud’s success
by inducing [them] and other customers to invest (and remain invested)
in BLMIS.” Fox Br. 25 (emphasis supplied); see also Marshall Br. 31.
We do not think that the complaints can reasonably be read in this
22                                                    No. 12-1645-bk(L)




way. Allegations that the Picower defendants knowingly reaped the
benefits of Madoff’s scheme through fraudulent withdrawals, and
effected such withdrawals through backdating trades and recording
fictional profits, does not amount to a particularized claim that they
directly participated in defrauding BLMIS customers by inducing
them to invest.

                                   (3)

       Appellants’ final contention is that their complaints are
particularized and non-derivative because of the nature of the relief
sought. Whereas the Trustee sought the recovery of assets BLMIS
transferred to the Picower defendants, appellants seek damages for
(1) the loss on the reasonable return on their investments, (2) taxes
paid on fictitious gains, and (3) monetary losses should they be sued
by the Trustee for the recovery of their own withdrawals from
BLMIS—none of which is recoverable in an avoidance action under
the Bankruptcy Code. See 11 U.S.C. § 550(a) (“[T]he trustee may
recover, for the benefit of the estate, the property transferred, or . . .
the value of such property . . . .”). Yet appellants’ claimed damages,
also suffered by all BLMIS customers, still remain mere secondary
harms flowing from the Picower defendants’ fraudulent
withdrawals and the resulting depletion of BLMIS funds. Cf. Sec.
Investor Prot. Corp. v. Bernard L. Madoff Inv. Sec. LLC, 491 B.R. 27, 36
(S.D.N.Y. 2013) (“[Investors’] actions relate to [investment
manager’s] fraud on his own investors—not Madoff’s fraud at the
expense of his customers—and therefore are independent claims
based on separate facts, theories, and duties than the Trustee’s
fraudulent transfer claims against [investment manager].”).

     We conclude, therefore, that appellants purported conspiracy-
based claims against the Picower defendants are “derivative” of
23                                                                  No. 12-1645-bk(L)




those asserted by the Trustee in his fraudulent conveyance action,
and, therefore, the Bankruptcy Court was authorized to enjoin those
actions.12

       We note that we affirm without prejudice to appellants
seeking leave to amend their complaints. There is conceivably some
particularized conspiracy claim appellants could assert that would
not be derivative of those asserted by the Trustee. That question,
however, is not properly before us, and is a question in the first
instance for the United States District Court for the Southern District
of Florida.

                                            C

       We turn now to whether the Bankruptcy Court, an Article I
court, exceeded the jurisdictional limits established by Article III of
the United States Constitution. Both appellant Fox and Marshall’s
arguments in this regard are premised upon the Supreme Court’s
recent holding in Stern v. Marshall, 131 S. Ct. 2594 (2011). In Stern, a

        12 The Bankruptcy Court also articulated alternative bases for its injunction. In In
re Metromedia Fiber Network, Inc., we held that a bankruptcy court could permit the
nonconsensual release of creditors’ claims against third parties upon a finding of “truly
unusual circumstances” that “render the release terms important to [the] success of the
[underlying bankruptcy reorganization plan].” 416 F.3d at 143. The District Court found
such circumstances present in the instant case on the basis of the size of the estate’s
recovery and on the importance of the injunction to prevent those who are not SIPA
payees under the Net Equity Decision from circumventing that decision and
undermining the liquidation plan. See In re Madoff, 848 F. Supp. 2d at 490. Because we
hold that appellants’ claims are property of the estate in that they are “derivative” of the
Trustee’s fraudulent conveyance action, we do not address whether this case satisfies the
stringent standard laid out in Metromedia for injunctive relief.
        In addition, because we find that appellants’ claims are derivative of the
Trustee’s claims for fraudulent withdrawals, the fact that the Trustee lacks standing to
bring bona fide conspiracy claims on behalf of BLMIS customers under JPMorgan Chase is
irrelevant.
24                                                                  No. 12-1645-bk(L)




widow filed a state law counterclaim in her Chapter 11 bankruptcy
case to recover for her stepson’s alleged tortious interference with an
inheritance gift she expected from her deceased husband. Id. at
2601. The Court observed that the Constitution generally reserves
the power to adjudicate such common law claims to courts
established under Article III. Id. at 2608-09. One exception to this
principle is a category of cases involving “public rights.”13 Id. at
2613. The Court held, however, that the counterclaim at issue did
not fall within any of the formulations of that exception because it
neither derived from, nor was dependent upon, any agency
regulatory regime, and was not limited to a particularized area of
the law. Id. at 2614-15. Accordingly, the Court invalidated the
portion of the Bankruptcy Code authorizing bankruptcy judges to
enter final judgments on claims and counterclaims, such as the
widow’s, which are exclusively based upon some legal right
guaranteed by state law. Id. at 2620.

       Appellant Fox argues that, in light of Stern, “the [bankruptcy]
court improperly wielded powers reserved for Article III courts by
permanently enjoining her claims.” Fox Br. 53. According to Fox,
her state law conspiracy claims are akin to the widow’s tortious
interference counterclaims in that they are “in no way derived from
or dependent upon bankruptcy law,” but instead “exist[ed] without
regard to any bankruptcy proceeding.” Stern, 131 S. Ct. at 2618. As
noted above, however, appellants’ purported tort claims are, in
essence, disguised fraudulent transfer actions, which belong

        13Although the contours of this exception have not been precisely delineated, the
Supreme Court broadly defined cases involving a “public right” as those “in which the
claim at issue derives from a federal regulatory scheme, or in which resolution of the
claim by an expert government agency is deemed essential to a limited regulatory
objective within the agency’s authority. In other words, . . . what makes a right ‘public’
rather than private is that the right is integrally related to particular federal government
action.” Stern, 131 S. Ct. at 2613 (2011).
25                                                  No. 12-1645-bk(L)




exclusively to the Trustee. Accordingly, appellants’ claims are
distinct from those in Stern held to be beyond the powers of a
bankruptcy court.

       Appellant Marshall, in turn, argues that, in light of Stern, the
Bankruptcy Court lacked jurisdiction to enter a final judgment on
the Trustee’s fraudulent transfer action against the Picower
defendants. In Stern, the Supreme Court drew an analogy between
the widow’s tortious interference claim and a trustee’s fraudulent
conveyance action against a noncreditor, id. at 2614, which, under
Granfinanciera, S.A. v. Nordberg, 492 U.S. 33 (1989), does not fall
within the “public rights” exception. See Stern, 131 S. Ct. at 2614
(“[The debtor’s] counterclaim—like the fraudulent conveyance claim
at issue in Granfinanciera—does not fall within any of the varied
formulations of the public rights exception in this Court’s cases.”).
As the Court explained in Granfinanciera:

      There can be little doubt that fraudulent conveyance
      actions by bankruptcy trustees . . . are quintessentially
      suits at common law that more nearly resemble state-
      law contract claims brought by a bankrupt corporation
      to augment the bankruptcy estate than they do
      creditors’ hierarchically ordered claims to a pro rata
      share of the bankruptcy res. They therefore appear
      matters of private rather than public right.

Granfinanciera, 492 U.S. at 56 (citation omitted). Therefore, according
to Marshall, the Bankruptcy Court did not have authority to enter
final judgment on the Trustee’s fraudulent transfer claims against
the Picower defendants, much less to issue the accompanying order
enjoining all duplicative and derivative actions.
26                                                                     No. 12-1645-bk(L)




       Yet Granfinanciera held that a fraudulent conveyance claim is a
matter of private right when asserted against “a person who has not
submitted a claim against a bankruptcy estate.” Id. at 36 (emphasis
supplied). The Court reaffirmed this limitation of Granfinanciera’s
holding in Stern. See Stern, 131 S. Ct. at 2617 (“[A] preferential
transfer claim can be heard in bankruptcy when the allegedly
favored creditor has filed a claim, because then the ensuing
preference action by the trustee become[s] integral to the
restructuring of the debtor-creditor relationship.” (internal
quotations omitted; brackets in original)). In this case, unlike in
Granfinanciera, the Picower defendants filed a proof of claim against
the BLMIS estate. In order to rule on that claim, the Bankruptcy
Court was required to first resolve the fraudulent transfer issue. Cf.
id. at 2617 (noting that the “factual and legal determinations” the
bankruptcy court was required to make “were not disposed of in
passing on objections to [creditor’s] proof of claim” (internal
quotations omitted)).14

       Accordingly, the Bankruptcy Court’s authority under the
Bankruptcy Code to approve the settlement between the Trustee and
the Picower defendants and to permanently enjoin appellants’
disguised fraudulent transfer claims does not run afoul of Article III
of the United States Constitution.

        14  In addition, the Supreme Court has recently granted a petition for a writ of
certiorari, in the wake of Stern, concerning the scope of a bankruptcy court’s authority to
adjudicate fraudulent conveyance claims upon a non-creditor’s consent. See Executive
Benefits Ins. Agency v. Arkison, 133 S. Ct. 2880 (2013); see also Petition for Writ of Certiorari
at I, Arkison, 133 S. Ct. at 2880 (2013) (No. 12-1200), 2013 WL 1329527 (question presented
is “[w]hether Article III permits the exercise of the judicial power of the United States by
bankruptcy courts on the basis of litigant consent, and, if so, whether ‘implied consent’
based on a litigant’s conduct, where the statutory scheme provides the litigant no notice
that its consent is required, is sufficient to satisfy Article III”). Depending upon the
Court’s ruling in Arkison, the Picower defendants may have consented to the Bankruptcy
Court’s approval of the settlement and issuance of the injunction through their course of
conduct in the proceedings.
27                                               No. 12-1645-bk(L)




                         CONCLUSION

     To summarize:

     (1) Allegations in the Florida actions of a conspiracy between
         Madoff and the Picower defendants echo those made by
         the Trustee in his New York action for the recovery of
         fraudulent transfers. Although common facts can give rise
         to multiple claims, the Florida actions impermissibly
         attempt to “plead around” the Bankruptcy Court’s
         injunction barring all “derivative” claims in that they
         allege nothing more than steps necessary to effect the
         Picower defendants’ fraudulent withdrawals of money
         from BLMIS.

     (2) Appellants have not alleged “particularized” injuries
         directly traceable to the Picower defendants. The Picower
         defendants are alleged to have knowingly reaped the
         benefits of Madoff’s scheme through fraudulent
         withdrawals, but they are not alleged to have made any
         misrepresentations to induce investments in BLMIS or to
         have taken any other actions that could reasonably be
         understood as aimed at BLMIS customers.

     (3) Although the Florida actions assert claims for damages that
         are not recoverable in an avoidance action under the
         Bankruptcy Code, appellants’ claims are still “derivative”
         of the Trustee’s: they are predicated upon mere secondary
         harms flowing from the Picower defendants’ fraudulent
         withdrawals and the resulting depletion of BLMIS funds.
28                                                 No. 12-1645-bk(L)




      (4) The Bankruptcy Court did not run afoul of Article III of the
          United States Constitution, as interpreted by the Supreme
          Court in Stern v. Marshall, in enjoining the Florida actions
          and approving the settlement of the Trustee’s fraudulent
          transfer claims with the Picower defendants.

       Accordingly, the judgment of the District Court is AFFIRMED
without prejudice to Fox and Marshall seeking leave to amend their
complaints in the United States District Court for the Southern
District of Florida. Of course, we intimate no view on an
appropriate disposition of any such motion for leave to amend.
