REPLY OF LAWRENCE R. VELVEL TO TRUSTEE'S MEMORANDUM
OPPOSING LEAVE TO APPEAL
A. Lawrence R. Velvel has moved for leave to interlocutorily appeal the provisions of the Procedural Rules, ordered on November 10th, which severely limit discovery, prohibit deposing the Trustee without a special order of the Court, and order mandatory mediation even though the Trustee's counsel, Mister Hirschfield, stated in open court that the Trustee would not consider litigation risk.
In opposing Velvel's request for leave to appeal, the Trustee, per Messrs. Sheehan and Hirschfield, spends much time arguing that Velvel has no standing to appeal any of the Procedural Rules because those rules do not apply to him. The lack of applicability exists, they say, because the Trustee (unexpectedly) did not file a Notice of Applicability in Velvel's case.
Velvel has responded to this argument in his December 17th "Reply . . . To The Trustee's Objection To A Partial Stay Of The Orders Of November 10, 2010," which correctly characterizes this low litigation trick pulled by the Trustee and his counsel. Velvel's response need not be reiterated here, but only incorporated here by reference. All that need be added here is that on December 17th, only four days after learning of the Trustee's tactic in the Trustee's Objection to a partial stay, Velvel himself, as the Trustee concedes to be his right, filed a Notice of Applicability of the procedures ordered on November 10th. Thus, at this point the Procedures certainly do apply to him beyond any conceivable further argument to the contrary by the Trustee, and the Trustee's argument, per Messrs. Sheehan and Hirschfield, that Velvel has no standing because the Procedures do not apply to him can have no purchase.
B. In his Memorandum objecting to Velvel's motion to interlocutorily appeal certain provisions of the Orders of November 10th, the Trustee also spends considerable time claiming that there can be no appeal here because Velvel's Notice of Appeal was filed on December 1st, whereas the time for filing ran out on November 24th, fourteen days after the Orders were signed on November 10th. This argument has no force, however, due to the Trustee's own actions.
The Trustee has extensively and repeatedly propounded, in not one but two briefs so far, that the Procedural Orders of November 10th did not apply in Velvel's case because the Trustee (unexpectedly) did not file a Notice of Applicability in Velvel's case even though that case is prototypical of the cases the orders were designed for -- cases against concededly innocent investors who were victimized by Madoff. Because the Procedural Orders of November 10th did not apply in Velvel's case, he could not appeal any of the orders. That would seem to go without saying, since one has never heard of a litigant being able to appeal an order that does not apply to him, and such is, indeed, the Trustee's exact argument. The Procedural Rules did not apply to Velvel's case until December 17th, when Velvel himself filed a Notice of Applicability. Thereafter, Velvel filed a new Notice of Appeal on December 20th, only three days after the Procedural Orders became applicable to him. The December 20th Notice of Appeal is the one that governs because it is the only one filed after the Procedural Rules became applicable to Velvel's case, and, being filed within three days of such applicability, is well within any possible time limit (not to mention that two of the three days were a Saturday and a Sunday).
Even were the question to revolve around the fact that the original Notice of Appeal, filed before the Procedures were applicable to Velvel, was filed on December 1st (a point the issues does not revolve around now, as discussed), still the Notice of Appeal would suffice in the circumstances of this case even though it was filed seven days after November 24th. It is long established (though not mentioned by the Trustee) that an extension to file a notice of appeal can be granted if there was what is called "excusable neglect." Here, under the case law of both the Supreme Court and the Second Circuit, there was excusable neglect for not filing the initial Notice of Appeal until December 1st. Pioneer Investment Services Co. v. Brunswick Associates Ltd. Partnership, 507 U.S. 380 (1993); Bolarinwa v. Williams, 593 F.3d 226 (2nd Cir. 2010); Williams v. KFC National Management Co., 391 F.3d 411 (2nd Cir. 2004); U.S. v. Hooper, 9 F.3d 257 (2nd Cir. 1993); U.S. v. Desdune, 104 F.3d 354 (2nd Cir. 1996). The delay of seven days beyond November 24th caused no conceivable prejudice to the Trustee, and the Trustee claims none, nor did the seven day delay have any impact in the administration of justice in this Court, and again the Trustee claims none. For as with Velvel's own case, the vast preponderance of cases to which the Procedures are applicable, perhaps even all such cases, were not even filed by the Trustee until the period December 1 -" December 11. Little wonder that the Trustee does not even claim prejudice to him or harm to the administration of justice from the fact that the initial Notice of Appeal was filed on December 1st rather than on or before November 24th.
Nor was there any intent to delay beyond the time when the period for filing the Notice of Appeal ran out. Velvel was under the mistaken impression that the period for filing was 30 days long, as with the filing of notices of appeal from District Courts to Courts of Appeal. He thought -- mistakenly but innocently and in good faith -- that he had just over another week after December 1st to file a Notice of Appeal.  And, when apprised of the fact that the Procedures unexpectedly had not been made applicable in his case by the Trustee, Velvel immediately filed a Notice of Applicability and immediately filed a new Notice of Appeal, which is the only Notice of Appeal which counts, as discussed above.
Finally, the delay in filing was short: the initial Notice of Appeal was filed only seven days after November 24th.
For these reasons, even if the filing of the initial Notice of Appeal were the question here (which it is not), an extension of the time to file until December 1, 2010 should be granted under the case law of the Supreme Court and the Second Circuit. But in fact, of course, the filing of December 1st was mooted by the Trustee's unexpected failure to file a Notice of Applicability in Velvel's case, and was superseded by Velvel's Notice of Appeal filed on December 20th, only a week after he learned what the Trustee had done and only four days after Velvel himself filed a Notice of Applicability (with two of the three days being Saturday and Sunday).
C. The second sentence -- almost the very beginning -- of Velvel's Motion for an Interlocutory Appeal says the two aspects of the Procedures that he wishes to appeal "are highly material, of public interest and importance, and are nearly certain to be dispositive of results in the case." Ignoring this statement entirely, the Trustee, per Messrs. Sheehan and Hirschfield, pretends Velvel has ignored the standards courts use in determining whether to grant an interlocutory appeal. The Trustee, per counsel, also either ignores entirely the reasons given in Velvel's Motion as to why the objectionable provisions are material, important and controlling, or simply dismisses their importance and impact without any explanation or reason as to why they allegedly are unimportant.
The Trustee's Memorandum, per Messrs. Sheehan and Hirschfield, pretends that the procedures' limitations on discovery can "have no substantive impact on the litigants' legal rights." (Memorandum, p. 10.) The Memorandum having made such a statement, one would think it was submitted by a tyro fresh out of law school rather than by two highly experienced Wall Street lawyers. But the comment is pretense. Two veteran lawyers like Messrs. Sheehan and Hirschfield know that discovery often makes all the difference in a case. Indeed, the limitations on discovery which they prevailed upon this Court to accept were designed to do exactly that.
The limitations on discovery are designed to preclude discovery on many of the crucial relevant issues of the case, and to prevent discovery of material that could lead to other highly relevant facts and issues. Such limitations are illegal. Oppenheimer Fund, Inc. v. Sanders, 437 U.S. 340, 351-52 (1978); Compudyne Corp. v. Shane, 244 F.R.D. 282, 283 (S.D.N.Y. 2007). The list of issues which are already known to be critical (even before discovery), or which discovery could show to be relevant and crucial, but on all of which discovery is barred, is impressive -- and is not even denied by the Trustee.
For example, contrary to the uniform financial practice of every hedge fund, mutual fund, and bank with interest bearing accounts in the country -- contrary to every one of them -- SIPC and the Trustee have not credited victims with the interest earned for them by Madoff's admitted nightly sweep for decades of every dollar in the 703 account into short term, interest bearing Treasury and money market instruments.
Why did the Trustee and SIPC refuse to credit victims' accounts, under their CICO method, with earnings that the accounts should have been credited with, and that accounts are credited with by every financial institution in the country? Was this done (as might seem self evident but nonetheless should be the subject of proof obtained by discovery), because even under CICO there might be few people who would have negative net equities, and who would not receive SIPC advances, if victims' accounts were credited with the earnings that the accounts should have been credited with? Similarly, there might be many fewer innocent victims subject to clawbacks if victims were properly credited with interest on short term instruments. For such interest is defacto cash-in by these victims, and could cause the amount they took out not to be greater than the amount they put in under the CICO method used by the Trustee and SIPC. And, in these respects, just how much would the accounts collectively have been credited with, and just how much would individual accounts have been credited with, if CICO -- which takes account of cash-in -- had been properly calculated to include the cash-in derived from the short term instruments? These are issues which are crucial, which can control the outcome of this case because of their impact on net equity and clawbacks, and which cry out for discovery instead of being hidden under the veil of secrecy imposed to the maximum extent possible by SIPC and the Trustee.