Bankruptcy judges cannot rule or recommend rulings on fraudulent-transfer suits by the liquidator of Bernard L. Madoff's brokerage under the U.S. Constitution, defendants said in a brief to U.S. District Judge Jed S. Rakoff in New York, Bloomberg News reported yesterday. Suits that aim to "augment" a bankrupt firm's estate are based on common-law claims and by law require a ruling by a district judge, they said on Monday in the filing. Judge Rakoff ruled in May, in a case involving the Refco litigation trust, that bankruptcy judges do not have power to make final rulings on claims for fraudulent transfers and unjust enrichment. His law clerk sent the decision, which cited a U.S. Supreme Court's ruling in Stern v. Marshall, to lawyers for the Madoff trustee and defendants in related lawsuits, according to an e-mail obtained by Bloomberg. Bankruptcy judges can issue reports and recommendations to district judges, Rakoff said in the Refco opinion.
