Krys v. Farnum Place, LLC
On September 26, 2014, Bancroft obtained a unanimous victory before the Second Circuit in Krys v. Farnum Place, LLC (In re: Fairfield Sentry Limited), 768 F.3d 239 (2d Cir. 2014). In 2010, Bancroft client Kenneth Krys, the liquidator and foreign representative of Fairfield Sentry Limited, a British Virgin Islands entity, signed an agreement to trade to Farnum Place its claim on the estate of Bernard Madoff under the Securities Investor Protection Act (SIPA). Days later, the value of the SIPA claim dramatically increased due to an unrelated settlement by the Madoff estate. Krys asked the bankruptcy court to prohibit the trade under section 363 of the Bankruptcy Code as no longer financially justifiable. The bankruptcy court refused even to conduct a section 363 hearing because, in its view, the SIPA claim was not “property within the territorial jurisdiction of the United States.” The district court affirmed. On appeal, the Second Circuit vacated and remanded, holding that the SIPA claim was “property within the territorial jurisdiction of the United States” and that comity did not require deferral to the BVI courts. The decision is the first by a federal court of appeals to address the interplay between two important portions of the Bankruptcy Code: Chapter 15, which concerns cross-border insolvencies, and section 363, which concerns U.S. Bankruptcy Court approval of sales of estate property outside the ordinary course of business. On remand, the bankruptcy court not only conducted the section 363 hearing but prohibited the trade, fully vindicating Bancroft’s appellate victory. Paul D. Clement argued the case before the Second Circuit and George W. Hicks, Jr. assisted with the briefing.