Judge Jed Rakoff

Refco was one of the country’s largest commodities brokerages. After a 2005 revelation that Refco insiders fraudulently used customers’ money to fund the firm’s expenses and hide its insolvency, Refco sought Chapter 11 bankruptcy. An adversary proceeding by Kirschner, trustee of the Refco Litigation Trust, charged Dhillon, Lipoff and the MSD Family Trusts (collectively movants)— former Refco executives and coconspirators in the Refco fraud—with fraudulently receiving $80 million from Refco affiliate RGL. Kirschner sought to avoid as fraudulent, or to recover as unjust enrichment, the money transferred from RGL to the movants. District court held that under Stern v. Marshall, bankruptcy court lacked constitutional authority to enter final judgment on the trustee’s claims against movants. Thus those claims must be adjudicated by an Article III court. However, bankruptcy court had lawful authority to conduct proceedings and issue a report and recommendation to district court on movants’ dismissal motion, provided it was subject to de novo review. Deeming the fraudulent conveyance claims presented “core” claims, district court directed the adversary proceeding’s return to bankruptcy court for further proceedings.