Making Sense of the Settlement Between the Owners of the Mets and Picard in the Madoff Case

On March 19, 2012, the day the trial of the lawsuit by Irving Picard, the bankruptcy trustee in the Madoff case, against the owners of the Mets was to begin, the parties reached a settlement of Picard’s claims.  The material terms of the settlement were placed on the record before District Court Judge Jed Rakoff.  A transcript of the proceeding can be found here.

Under the settlement, which is subject to Court approval on motion under Rule 9019 of the Federal Rules of Bankruptcy Procedure, Picard is to be paid $162 million in satisfaction his claims against Saul Katz and Fred Wilpon.  At first blush, this appears to be a great victory for Picard, as he claimed this was the amount of “profits” withdrawn by Katz and Wilpon during the six years before the Ponzi scheme was discovered.  The $162 million settlement sum is inclusive of $83 million previously awarded to him.

Picard originally demanded $1 billion in his complaint, which sum was reduced to $386 million following a ruling by Judge Rakoff in September 2011.

Significantly, Katz and Wilpon will not need to go out of pocket to pay the $162 million for some time and avoids their risk of liability on Picard’s “willful blindness” claims.   For the next three years, by assignment, Picard will be be able to retain funds that would otherwise be paid to Katz and Wilpon to reimburse them as wronged customers.  Should the amount retained by Picard from distributions assigned by Katz and Wilpon be insufficient to pay the entire $162 million, Katz and Wilpon will have to pay the balance in equal payments at the end of the fourth and fifth years.  In the unlikely event Picard recovers more than $162 million for Katz and Wilpon as creditors, he will have to pay them any amount above the $162 million.

Former New York Governor Mario Cuomo served as mediator between the parties.

While each side has painted the settlement as fair to the parties and appeared to be relieved that the trial was averted, other interested parties and commentators have been critical of the settlement.  Counsel for hundreds of Madoff victims, Helen Chaitman, called the settlement an “incredible defeat” for Picard.  Others contend that Picard feared to adjucate his “willful blindness” claim as the outcome could impact several other lawsuits that have not be tried as of yet.

Given that Bankruptcy Code Section 502(d) provides that the claim of a creditor against whom a judgment has been awarded and fails to pay said judgment may be subject to disallowance,  I am somewhat puzzled by the outcome.  To the extent that Picard was awarded judgment on any of his claims against the Met’s owners and they failed to satisfy the judgment, he could have sought to disallow their claims in the Madoff estate, thereby precluding them from participating in distributions to be made in the future.  At the same time, Picard would have his remedies as a judgment creditor.

Mets fans had been rooting for Picard in the hope that if a substantial judgment had been entered against Katz and Wilpon they be forced to sell the team.

The views expressed on this post are mine and do not necessarily reflect the views of LH&M.

This entry was posted in Bankruptcy and tagged , , , . Bookmark the permalink. Follow any comments here with the RSS feed for this post. Both comments and trackbacks are currently closed.
  • LH&M is considered a debt relief agency.
    LH&M helps people file for bankruptcy relief under the Bankruptcy Code.

    Attorney advertisement. Prior results do not guarantee a similar outcome.