The U.S. Court of Appeals for the Second Circuit has dismissed an appeal involving the settlement of class action securities claims pertaining to the Bernie Madoff Ponzi scheme. The claims, having been settled, were brought by 118 plaintiffs, who were individual and institutional investors in Madoff feeder funds managed by Fairfield Greenwich Group.
The appeal was brought by non-settling defendants, challenging a portion of the settlement agreement that provides that investors who file claims under the settlement submit to the district court's jurisdiction for the sole purpose of participating in the settlement and not for any other purpose. The challenging defendants asserted that the district court erred in approving this provision because district courts cannot permit litigants to agree to insulate themselves from personal jurisdiction if it would otherwise be created as a result of the settlement, according to the opinion.
The plaintiffs argued that the non-settling defendants lacked standing to object, in response to which the defendants contended that they have standing because the provision in question prejudices their rights to assert that participation in the settlement should bar or limit investor claims against them in other litigation.
The Second Circuit, however, agreed with the plaintiffs, concluding that the non-settling defendants did have standing, and thus the court dismissed the appeal. The court's opinion states, "In reaching this result, we join our sister courts in holding that a settlement which does not prevent the later assertion of a non-settling party's claims…does not cause the non‐settling party 'formal' legal prejudice. For these reasons, we conclude that the non‐settling defendants do not have standing to object to the settlement. In view of this conclusion, we decline to address the remaining issues argued on appeal."