Bankruptcy Rule 2004

Rule 2004 of the Federal Rules of Bankruptcy Procedure (Bankruptcy Rule 2004) is a crucial pre-litigation discovery tool to investigate potential Avoidance Actions ' causes of action under Chapter 5 of the Bankruptcy Code ' in light of the stringent federal Twombly/Iqbal pleading requirements that are applicable in bankruptcy litigation, and which effectively makes it more difficult for debtors and trustees to sufficiently plead claims for relief.

Specifically, in Bell Atl. Corp. v. Twombly, the Supreme Court adopted a heightened “plausibility” standard requiring a plaintiff's claim to provide “more than labels and conclusions, and a formulaic recitation of the elements of a cause of action” in order to survive a motion to dismiss. 550 U.S. 544, 545 (2007). Subsequently, in Ashcroft v. Iqbal , the Supreme Court then clarified the “plausibility” standard enunciated in Twombly, by holding that “a complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face” for a plaintiff to prevail on a motion to dismiss. 556 U.S. 662, 678 (2009).

Stricter Scrutiny By the Courts

Since the Twombly and Iqbal decisions, the days of asserting “bare-bones” allegations and pleading “threadbare recitals of the elements” are gone. See Iqbal , 556 U.S. at 678. This is evidenced in the growing number of bankruptcy court decisions concerning preference claims asserted under Bankruptcy Code ' 547 and fraudulent transfer claims under Bankruptcy Code ' 548, where courts are imposing stricter scrutiny of avoidance actions and dismissing claims, in whole or in part, upon their failure to meet the heightened pleading requirements. See generally Steven S. Flores, Pleading in the Alternative: Emerging Bankruptcy Court Trends After Twombly and Iqbal, No. 5 Norton Bankr. L. Adviser 2, 2-3 (2011).

Moreover, courts will hold plaintiffs accountable and take Bankruptcy Rule 2004 discovery into consideration in evaluating whether the plaintiff has satisfied the particularized standard required for pleading intentional fraud claims. For example, in In re Old CarCo LLC, the bankruptcy court dismissed an intentional fraudulent transfer claim, when, inter alia, the plaintiff had an ample opportunity to take Bankruptcy Rule 2004 discovery to investigate any potential claims, but still was unable to sufficiently satisfy the particularized standard required for pleading intentional fraud claims. 435 B.R. 169, 192 (Bankr. S.D.N.Y. 2010).

In short, Twombly and Iqbal have impacted bankruptcy pleading practice and increased the utility of Bankruptcy Rule 2004 in developing avoidance action strategies. See generally , Robert J. Keach and Halliday Moncure, Rule 2004 As a Pre-Litigation Tool in a Post- Twombly/Iqbal World: Part I, Am. Bankr. Inst. J. 28, 79, 79, 82 Oct. 2010.

Debtors and trustees, as well as other parties in interest with a stake in Avoidance Action recoveries, now need to be cognizant of the timing, scope and broad powers of Bankruptcy Rule 2004 in the administration of a case when assessing potential causes of action and the probability of success in prosecuting such claims in light of the District Court for the Southern District of New York's recent decision Securities Investor Protection Corporation v. Bernard L. Madoff Investment Securities LLC (Madoff), 2014 WL 1651952, at *5 (S.D.N.Y. April 27, 2014).

The Decision In Madoff

In Madoff, the district court ruled that the bankruptcy court had to dismiss fraudulent transfer complaints brought by the Madoff Trustee appointed under the Securities Investor Protection Act of 1970 (SIPA) against defendants ' which included investment funds, their customers and individual investors ' who had received funds in the highly publicized Madoff Ponzi scheme. The court so ruled because the Madoff Trustee failed to properly allege that the defendant Madoff investors did not act in good faith. See id. at *5.

As a threshold matter, when a debtor or trustee seeks to avoid an intentional fraudulent transfer, it must comply with the pleading requirements of Federal Rule of Civil Procedure 9(b), and in alleging a fraud, “a party must state with particularity the circumstances constituting fraud.” See In re Old CarCo LLC, 435 B.R. at 191. Good faith, in turn, is an affirmative defense to a fraudulent transfer claim seeking to recover on a theory of actual fraud under 11 U.S.C. ” 548(c) and 550(b)(1). An affirmative defense would typically be required to be raised by the defendant. However, in Madoff, the burden of pleading bad faith was shifted to the Madoff Trustee to demonstrate that the claim for relief was sufficiently plead in accordance with the Twombly/Iqbal standards, in addition to the requirement already required under Federal Rule of Civil Procedure 9(b).

In reaching this decision, the court shifted the burden to the Madoff Trustee to sufficiently plead bad faith because requiring the defendant securities investors to demonstrate good faith in transfers related to the disposition of securities would frustrate the intent of SIPA, under which there is “no inherent duty [for a securities investor] to inquire about his stockbroker.” SIPC v. Bernard L. Madoff Inv. Sec., LLC, 2014 WL 1651952 at *3. To the extent the interests of SIPA and the Bankruptcy Code were in conflict, the court ruled that the Bankruptcy Code “must yield” to SIPA. Id.

The Duty of'a Trustee

With this limitation, the court found that absent a particularized allegation that plausibly demonstrated bad faith, the Madoff Trustee could not otherwise establish a “plausible claim” to recover the monies that the Madoff defendants received from their securities accounts. Id . at *5. In so ruling, the court's Madoff decision exemplifies the notion that a trustee prosecuting fraudulent transfer claims in a case being administered under SIPA must thoroughly assess the potential defenses to the cause of action before commencing the action. This will constrain a trustee when trying to diligence a large number of transfers and evaluate potential defendants, often times with a limited budget and without the benefit of complete and accurate information.

Bankruptcy Rule 2004 As a Pre-Litigation Tool

Bankruptcy Rule 2004(a) provides that a court may order the examination of “any entity” upon request of any party in interest. The scope of the Bankruptcy Rule 2004 examination is intended to be broad, permitting discovery on acts, conduct, property and the financial condition of the debtor, as well as any matter that may affect the administration of a debtor's estate. Bankruptcy Rule 2004 examinations are an important litigation tool that can be used for “discovering assets, examining transactions, and determining whether wrongdoing has occurred.” In re Enron Corp., 281 B.R. 836, 840 (Bankr. S.D.N.Y. 2002). Frequently compared with a “fishing expedition,” a Bankruptcy Rule 2004 examination permits broader discovery than that allowed under the Federal Rules of Civil Procedure permit. Despite its reach, Bankruptcy Rule 2004 may not be used to harass, abuse or inquire into irrelevant matters, and “examinations should not be overly disruptive or costly.” In re Lufkin, 255 B.R. 204, 209 (Bankr. E.D. Tenn. 2000). The matters of an examination must be relevant to the debtor's affairs or the administration of the estate.

Thus, in In re Enron Corp., the bankruptcy court denied a request for Rule 2004 discovery due to proponents' failure to establish a “nexus” between the requested materials the proponents as parties in interest in the bankruptcy case. 281 B.R. 836, 842 (Bankr. S.D.N.Y. 2002).

In the context of Avoidance Actions, debtors and trustees typically have access to the information necessary to build their case against a potential defendant well before they commence an adversary proceeding.If not, Bankruptcy Rule 2004 equips them with extensive pre-litigation discovery powers to gather such information to avoid re-pleading and/or surviving a motion to dismiss.

As the court noted in Angel v. Ber Care Inc. (In re Caremerica Inc.), a debtor or trustee theoretically has had access to the debtor's books and records for up to two years prior to the time period in which he or she has to bring such causes of action. 409 B.R. 737, 754 (Bankr. E.D.N.C. 2009). “One of the primary purposes of a Bankruptcy Rule 2004 examination is as a pre-litigation device.” In re Washington Mut. Inc., 408 B.R. 45, 53 (Bankr. D. Del. 2009). Thus, when a debtor or a trustee fails to sufficiently plead avoidance actions in accordance with the Twombly/Iqbal standards, bankruptcy courts have been initially reticent in their willingness to dismiss the claims. See, e.g., In re Dreier LLP, 453 B.R. 499 (Bankr. S.D.N.Y. 2011); In re Caremerica Inc., 409 B.R. at 754. Taking it one step further however, the district court's decision in Madoff demonstrates a lack of sympathy for the trustee by shifting the burden on the trustee to investigate and properly plead against an affirmative defense. SIPC v. Madoff Inv. Sec. LLC, 2014 WL 1651952 at *5.

Avoidance Actions can produce a significant source of recovery for bankruptcy estates, particularly in mega-cases where there are hundreds or thousands of claims. While the case law is still developing, and evaluation is case-specific, Madoff and prior decisions implicate, among other things, that debtors and trustees may be failing to properly utilize the broad powers of Bankruptcy Rule 2004 or not using it early or precisely enough when preparing for Avoidance Action litigation.

Discovery requests and document production can be a timely process, and the majority of courts prohibit use of Bankruptcy Rule 2004 once an adversary proceeding has been commenced. See In re Drexel Burnham Lambert Group Inc., 123 B.R. 702, 711 (Bankr. S.D.N.Y. 1991); see also In re Washington Mutual Inc., 408 B.R. at 45. As a result debtors and trustees should consider employing the rule earlier in the case to assess the universe of viable claims ' and following Madoff, certain defenses as well ' before pursuing Avoidance Actions. Thus, even though debtors, trustees and creditor committees have already been using Bankruptcy Rule 2004 as a pre-litigation tool to investigate actual or intentional fraudulent conduct claims, they will need to more carefully craft their Bankruptcy Rule 2004 discovery requests and focus on areas of inquiry in a manner specific enough to gather evidentiary support to sufficiently plead a transferee's bad faith.

In that regard, consider the spectrum of specificity in several pre-Madoff decision document requests in cases concerning actual or intentional fraudulent conduct. First, there is the trustees' generalized document request in In re Kenneth Ira Starr, et al., Case No. 11-10219-ALG (Bankr. S.D.N.Y.) [Dkt. No. 86], (i.e., “[a]ll documents relating to the transfer of any monies, stock or other securities and/or investment distributions and/or salary and/or other compensation ' during the [relevant period] ' including, without limitation, bank statements, securities account statements, checks, securities and/or stock transfer documents, financial statements, W-2 statements, 1099 forms, and portions of Passage's tax returns evidencing any of the foregoing”).

There was also a more specific trustee document request in In re Bayou Group, LLC, et al., Case No. 06-22306-ASH (Bankr. S.D.N.Y.) [Dkt. No. 70], where document request number 5 sought “[a]ll documents and things ' concerning any fraudulent or criminal conduct, Ponzi scheme, or any other type of misconduct, by any of the Bayou entities.” Finally, in a manner almost anticipating the burden shifting of the Madoff decision, the trustee sought an even more specific document request in In re Dreier LLP, Case No. 08-15101-SMB (Bankr. S.D.N.Y.) [Dkt. No. 383], where document request number 25 sought “[a]ny and all documents evidencing [y]our knowledge of any illegal activity by the Debtor or any activity of the Debtor which [y]ou considered to be suspicious.”

The potential recovery yield may very well justify the time and costs of utilizing Bankruptcy Rule 2004 for discovery requests of the sort sought in In re Dreier LLP . Alternatively, it may force a debtor or trustee to limit their inquiry to pursue only preference actions, or only allege a “constructive” fraudulent transfer under ' 548(a)(1)(b), which would not require the specificity of demonstrating that a potential defendant did not act in good faith.

Broader Implications of Madoff

Madoff could result in further burden shifting that ultimately could creep into bankruptcy fraudulent transfer and preference law, just as some commentators have noted the way that the presumption of insolvency under preference law has been extended to fraudulent transfer actions under ' 548. See Steven S. Flores, Leo Muchnik and Neil Berger, Constructive Fraudulent Transfer Claims Under ' 548, Am. Bankr. Inst. J. 38, No. 5, 101, 102 May, 2014 (examining how courts have extended the ' 547 insolvency presumption into constructive fraudulent transfer actions under ' 548). It is worth following this more closely going forward, since the presumption of insolvency “shift that is underway is significant.” Id.

Alternatively, Madoff may be limited in its application in light of the specific interaction with SIPA. There were commentators, however, who similarly suggested that that Twombly and Iqbal might not apply beyond antitrust field. See, e.g., Kendall W. Hannon, Much Ado About Twombly? A Study on the Impact of Bell Atlantic Corp. v. Twombly on 12(b)(6) Motions, Notre Dame L. Rev. 1811, 1826 (2008) (speculating that the Supreme Court's consideration of the magnitude of discovery costs in antitrust actions might limit application).

Conclusion

At a minimum, Madoff supports a reassessment of the time table, and the strategic use of Bankruptcy Rule 2004 ' particularly in the context of alleging “actual” fraudulent transfer actions ' so that it is employed earlier in the administration of a case in order to comprehend the universe of potential claims and assess which ones are worth pursuing based on the merits and a cost/benefit analysis.

Jeffrey R. Gleit is a Partner and Brian F. Moore is Of Counsel at Togut, Segal & Segal, LLP in New York. Contact them at [email protected] and [email protected], respectively.

Rule 2004 of the Federal Rules of Bankruptcy Procedure (Bankruptcy Rule 2004) is a crucial pre-litigation discovery tool to investigate potential Avoidance Actions ' causes of action under Chapter 5 of the Bankruptcy Code ' in light of the stringent federal Twombly/Iqbal pleading requirements that are applicable in bankruptcy litigation, and which effectively makes it more difficult for debtors and trustees to sufficiently plead claims for relief.

Specifically, in Bell Atl. Corp. v. Twombly, the Supreme Court adopted a heightened “plausibility” standard requiring a plaintiff's claim to provide “more than labels and conclusions, and a formulaic recitation of the elements of a cause of action” in order to survive a motion to dismiss. 550 U.S. 544, 545 (2007). Subsequently, in Ashcroft v. Iqbal , the Supreme Court then clarified the “plausibility” standard enunciated in Twombly, by holding that “a complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face” for a plaintiff to prevail on a motion to dismiss. 556 U.S. 662, 678 (2009).

Stricter Scrutiny By the Courts

Since the Twombly and Iqbal decisions, the days of asserting “bare-bones” allegations and pleading “threadbare recitals of the elements” are gone. See Iqbal , 556 U.S. at 678. This is evidenced in the growing number of bankruptcy court decisions concerning preference claims asserted under Bankruptcy Code ' 547 and fraudulent transfer claims under Bankruptcy Code ' 548, where courts are imposing stricter scrutiny of avoidance actions and dismissing claims, in whole or in part, upon their failure to meet the heightened pleading requirements. See generally Steven S. Flores, Pleading in the Alternative: Emerging Bankruptcy Court Trends After Twombly and Iqbal, No. 5 Norton Bankr. L. Adviser 2, 2-3 (2011).

Moreover, courts will hold plaintiffs accountable and take Bankruptcy Rule 2004 discovery into consideration in evaluating whether the plaintiff has satisfied the particularized standard required for pleading intentional fraud claims. For example, in In re Old CarCo LLC, the bankruptcy court dismissed an intentional fraudulent transfer claim, when, inter alia, the plaintiff had an ample opportunity to take Bankruptcy Rule 2004 discovery to investigate any potential claims, but still was unable to sufficiently satisfy the particularized standard required for pleading intentional fraud claims. 435 B.R. 169, 192 (Bankr. S.D.N.Y. 2010).

In short, Twombly and Iqbal have impacted bankruptcy pleading practice and increased the utility of Bankruptcy Rule 2004 in developing avoidance action strategies. See generally , Robert J. Keach and Halliday Moncure, Rule 2004 As a Pre-Litigation Tool in a Post- Twombly/Iqbal World: Part I, Am. Bankr. Inst. J. 28, 79, 79, 82 Oct. 2010.

Debtors and trustees, as well as other parties in interest with a stake in Avoidance Action recoveries, now need to be cognizant of the timing, scope and broad powers of Bankruptcy Rule 2004 in the administration of a case when assessing potential causes of action and the probability of success in prosecuting such claims in light of the District Court for the Southern District of New York's recent decision Securities Investor Protection Corporation v. Bernard L. Madoff Investment Securities LLC (Madoff), 2014 WL 1651952, at *5 (S.D.N.Y. April 27, 2014).

The Decision In Madoff

In Madoff, the district court ruled that the bankruptcy court had to dismiss fraudulent transfer complaints brought by the Madoff Trustee appointed under the Securities Investor Protection Act of 1970 (SIPA) against defendants ' which included investment funds, their customers and individual investors ' who had received funds in the highly publicized Madoff Ponzi scheme. The court so ruled because the Madoff Trustee failed to properly allege that the defendant Madoff investors did not act in good faith. See id. at *5.

As a threshold matter, when a debtor or trustee seeks to avoid an intentional fraudulent transfer, it must comply with the pleading requirements of Federal Rule of Civil Procedure 9(b), and in alleging a fraud, “a party must state with particularity the circumstances constituting fraud.” See In re Old CarCo LLC, 435 B.R. at 191. Good faith, in turn, is an affirmative defense to a fraudulent transfer claim seeking to recover on a theory of actual fraud under 11 U.S.C. ” 548(c) and 550(b)(1). An affirmative defense would typically be required to be raised by the defendant. However, in Madoff, the burden of pleading bad faith was shifted to the Madoff Trustee to demonstrate that the claim for relief was sufficiently plead in accordance with the Twombly/Iqbal standards, in addition to the requirement already required under Federal Rule of Civil Procedure 9(b).

In reaching this decision, the court shifted the burden to the Madoff Trustee to sufficiently plead bad faith because requiring the defendant securities investors to demonstrate good faith in transfers related to the disposition of securities would frustrate the intent of SIPA, under which there is “no inherent duty [for a securities investor] to inquire about his stockbroker.” SIPC v. Bernard L. Madoff Inv. Sec., LLC, 2014 WL 1651952 at *3. To the extent the interests of SIPA and the Bankruptcy Code were in conflict, the court ruled that the Bankruptcy Code “must yield” to SIPA. Id.

The Duty of'a Trustee

With this limitation, the court found that absent a particularized allegation that plausibly demonstrated bad faith, the Madoff Trustee could not otherwise establish a “plausible claim” to recover the monies that the Madoff defendants received from their securities accounts. Id . at *5. In so ruling, the court's Madoff decision exemplifies the notion that a trustee prosecuting fraudulent transfer claims in a case being administered under SIPA must thoroughly assess the potential defenses to the cause of action before commencing the action. This will constrain a trustee when trying to diligence a large number of transfers and evaluate potential defendants, often times with a limited budget and without the benefit of complete and accurate information.

Bankruptcy Rule 2004 As a Pre-Litigation Tool

Bankruptcy Rule 2004(a) provides that a court may order the examination of “any entity” upon request of any party in interest. The scope of the Bankruptcy Rule 2004 examination is intended to be broad, permitting discovery on acts, conduct, property and the financial condition of the debtor, as well as any matter that may affect the administration of a debtor's estate. Bankruptcy Rule 2004 examinations are an important litigation tool that can be used for “discovering assets, examining transactions, and determining whether wrongdoing has occurred.” In re Enron Corp., 281 B.R. 836, 840 (Bankr. S.D.N.Y. 2002). Frequently compared with a “fishing expedition,” a Bankruptcy Rule 2004 examination permits broader discovery than that allowed under the Federal Rules of Civil Procedure permit. Despite its reach, Bankruptcy Rule 2004 may not be used to harass, abuse or inquire into irrelevant matters, and “examinations should not be overly disruptive or costly.” In re Lufkin, 255 B.R. 204, 209 (Bankr. E.D. Tenn. 2000). The matters of an examination must be relevant to the debtor's affairs or the administration of the estate.

Thus, in In re Enron Corp., the bankruptcy court denied a request for Rule 2004 discovery due to proponents' failure to establish a “nexus” between the requested materials the proponents as parties in interest in the bankruptcy case. 281 B.R. 836, 842 (Bankr. S.D.N.Y. 2002).

In the context of Avoidance Actions, debtors and trustees typically have access to the information necessary to build their case against a potential defendant well before they commence an adversary proceeding.If not, Bankruptcy Rule 2004 equips them with extensive pre-litigation discovery powers to gather such information to avoid re-pleading and/or surviving a motion to dismiss.

As the court noted in Angel v. Ber Care Inc. (In re Caremerica Inc.), a debtor or trustee theoretically has had access to the debtor's books and records for up to two years prior to the time period in which he or she has to bring such causes of action. 409 B.R. 737, 754 (Bankr. E.D.N.C. 2009). “One of the primary purposes of a Bankruptcy Rule 2004 examination is as a pre-litigation device.” In re Washington Mut. Inc., 408 B.R. 45, 53 (Bankr. D. Del. 2009). Thus, when a debtor or a trustee fails to sufficiently plead avoidance actions in accordance with the Twombly/Iqbal standards, bankruptcy courts have been initially reticent in their willingness to dismiss the claims. See, e.g., In re Dreier LLP, 453 B.R. 499 (Bankr. S.D.N.Y. 2011); In re Caremerica Inc., 409 B.R. at 754. Taking it one step further however, the district court's decision in Madoff demonstrates a lack of sympathy for the trustee by shifting the burden on the trustee to investigate and properly plead against an affirmative defense. SIPC v. Madoff Inv. Sec. LLC, 2014 WL 1651952 at *5.

Avoidance Actions can produce a significant source of recovery for bankruptcy estates, particularly in mega-cases where there are hundreds or thousands of claims. While the case law is still developing, and evaluation is case-specific, Madoff and prior decisions implicate, among other things, that debtors and trustees may be failing to properly utilize the broad powers of Bankruptcy Rule 2004 or not using it early or precisely enough when preparing for Avoidance Action litigation.

Discovery requests and document production can be a timely process, and the majority of courts prohibit use of Bankruptcy Rule 2004 once an adversary proceeding has been commenced. See In re Drexel Burnham Lambert Group Inc., 123 B.R. 702, 711 (Bankr. S.D.N.Y. 1991); see also In re Washington Mutual Inc., 408 B.R. at 45. As a result debtors and trustees should consider employing the rule earlier in the case to assess the universe of viable claims ' and following Madoff, certain defenses as well ' before pursuing Avoidance Actions. Thus, even though debtors, trustees and creditor committees have already been using Bankruptcy Rule 2004 as a pre-litigation tool to investigate actual or intentional fraudulent conduct claims, they will need to more carefully craft their Bankruptcy Rule 2004 discovery requests and focus on areas of inquiry in a manner specific enough to gather evidentiary support to sufficiently plead a transferee's bad faith.

In that regard, consider the spectrum of specificity in several pre-Madoff decision document requests in cases concerning actual or intentional fraudulent conduct. First, there is the trustees' generalized document request in In re Kenneth Ira Starr, et al., Case No. 11-10219-ALG (Bankr. S.D.N.Y.) [Dkt. No. 86], (i.e., “[a]ll documents relating to the transfer of any monies, stock or other securities and/or investment distributions and/or salary and/or other compensation ' during the [relevant period] ' including, without limitation, bank statements, securities account statements, checks, securities and/or stock transfer documents, financial statements, W-2 statements, 1099 forms, and portions of Passage's tax returns evidencing any of the foregoing”).

There was also a more specific trustee document request in In re Bayou Group, LLC, et al., Case No. 06-22306-ASH (Bankr. S.D.N.Y.) [Dkt. No. 70], where document request number 5 sought “[a]ll documents and things ' concerning any fraudulent or criminal conduct, Ponzi scheme, or any other type of misconduct, by any of the Bayou entities.” Finally, in a manner almost anticipating the burden shifting of the Madoff decision, the trustee sought an even more specific document request in In re Dreier LLP, Case No. 08-15101-SMB (Bankr. S.D.N.Y.) [Dkt. No. 383], where document request number 25 sought “[a]ny and all documents evidencing [y]our knowledge of any illegal activity by the Debtor or any activity of the Debtor which [y]ou considered to be suspicious.”

The potential recovery yield may very well justify the time and costs of utilizing Bankruptcy Rule 2004 for discovery requests of the sort sought in In re Dreier LLP . Alternatively, it may force a debtor or trustee to limit their inquiry to pursue only preference actions, or only allege a “constructive” fraudulent transfer under ' 548(a)(1)(b), which would not require the specificity of demonstrating that a potential defendant did not act in good faith.

Broader Implications of Madoff

Madoff could result in further burden shifting that ultimately could creep into bankruptcy fraudulent transfer and preference law, just as some commentators have noted the way that the presumption of insolvency under preference law has been extended to fraudulent transfer actions under ' 548. See Steven S. Flores, Leo Muchnik and Neil Berger, Constructive Fraudulent Transfer Claims Under ' 548, Am. Bankr. Inst. J. 38, No. 5, 101, 102 May, 2014 (examining how courts have extended the ' 547 insolvency presumption into constructive fraudulent transfer actions under ' 548). It is worth following this more closely going forward, since the presumption of insolvency “shift that is underway is significant.” Id.

Alternatively, Madoff may be limited in its application in light of the specific interaction with SIPA. There were commentators, however, who similarly suggested that that Twombly and Iqbal might not apply beyond antitrust field. See, e.g., Kendall W. Hannon, Much Ado About Twombly? A Study on the Impact of Bell Atlantic Corp. v. Twombly on 12(b)(6) Motions, Notre Dame L. Rev. 1811, 1826 (2008) (speculating that the Supreme Court's consideration of the magnitude of discovery costs in antitrust actions might limit application).

Conclusion

At a minimum, Madoff supports a reassessment of the time table, and the strategic use of Bankruptcy Rule 2004 ' particularly in the context of alleging “actual” fraudulent transfer actions ' so that it is employed earlier in the administration of a case in order to comprehend the universe of potential claims and assess which ones are worth pursuing based on the merits and a cost/benefit analysis.

Jeffrey R. Gleit is a Partner and Brian F. Moore is Of Counsel at Togut, Segal & Segal, LLP in New York. Contact them at [email protected] and [email protected], respectively.