A Manhattan federal judge on Tuesday narrowed a $1 billion lawsuit against owners of the New York Mets baseball team by the trustee seeking money for victims of Bernard Madoff's epic fraud.
U.S. District Judge Jed Rakoff said the trustee, Irving Picard, can still pursue $300 million of fictitious profits and $700 million of principal from the Mets owners.
But he said the latter sum could be recovered only by showing that the owners willfully blinded themselves to Madoff's fraud.
Rakoff also dismissed nine of 11 counts raised in what he facetiously referred to as Picard's short and plain 373-page complaint against the Mets owners, including Fred Wilpon, Saul Katz and others at Sterling Equities.
One of the surviving claims alleges actual fraud. The other would require the defendants' claims against the bankruptcy estate of Madoff's firm to be subordinated to those of others.
Picard had been seeking money that he claimed the Mets owners took from Bernard L. Madoff Investment Securities LLC, where they were customers.
The owners countered that there was no showing they knew they were helping Madoff commit fraud, or acted in bad faith.
Rakoff dismissed claims accusing the Mets owners of constructive fraud, saying Picard may instead recover net profits stemming from actual fraud simply by proving that the defendants did not provide value for the monies received.
In addition, the trustee may recover the return of the defendants' principal only by proving that the defendants willfully blinded themselves to Madoff Securities' fraud, the judge added.
A spokeswoman for Picard said the trustee had no comment pending a thorough evaluation of the opinion. Lawyers for the Mets owners were not available for comment.
Mario Cuomo, the former New York governor mediating the dispute, also had no immediate comment.
The lawsuit prompted the owners of the Mets, which have been losing tens of millions of dollars a year, to consider selling part of the Major League Baseball team.
Talks to secure a $200 million investment from hedge fund manager David Einhorn broke down three weeks ago, prompting the owners to say they will seek other investors.
Rakoff also oversees other lawsuits brought by Picard on behalf of former Madoff customers, including the largest, a $58.8 billion case against defendants including Bank Medici AG founder Sonja Kohn and Italy's UniCredit SpA.
Madoff, 73, pleaded guilty to running an estimated $65 billion Ponzi scheme in March 2009. He is serving a 150-year prison term.
The case is Picard v. Katz et al, U.S. District Court, Southern District of New York, No. 11-03605.
(Reporting by Grant McCool and Jonathan Stempel in New York; Editing by Robert MacMillan, Bernard Orr)