By Grant McCool and Jonathan Stempel
The decision by U.S. District Court Judge Colleen McMahon in Manhattan is one of the largest setbacks for the trustee, Irving Picard, who has spent nearly three years liquidating Bernard L Madoff Investment Securities LLC.
JPMorgan had been Madoff's main bank for two decades. McMahon's decision wipes out about $19 billion of Picard's case against the largest U.S. bank, a person familiar with the matter said.
"The trustee's theories fail," McMahon wrote in an opinion released on Tuesday.
She returned what is left of the cases to the U.S. bankruptcy court in Manhattan for further proceedings.
McMahon followed a similar decision in July by her colleague, Jed Rakoff, in a case against HSBC Holdings Plc, in concluding that Picard exceeded his power.
A spokeswoman for Picard did not immediately respond to a request for comment. JPMorgan said in a statement the bank is pleased with the decision. Torie von Alt, a spokeswoman for Switzerland-based UBS, had no immediate comment.
UBS, METS SETBACKS
Picard has filed roughly 1,050 lawsuits seeking more than $94 billion since Madoff's firm collapsed on December 11, 2008.
The JPMorgan lawsuit is his second-largest after a $58.8 billion case against defendants, including Bank Medici AG founder Sonja Kohn and Italy's UniCredit SpA.
Rakoff also handles that case. In September, he also capped potential damages in Picard's lawsuit against the owners of the New York Mets baseball team, who were also former Madoff customers, at $386 million, down from an original $1 billion.
And in July, in rejecting Picard's "convoluted theories" as to standing, Picard took away $8.6 billion of the trustee's claims against HSBC and other defendants.
McMahon wrote that "I am persuaded" by Rakoff's analysis, saying that Picard lacks standing to pursue claims that properly belong to former Madoff customers.
She likened Picard's position to that of a garage owner who trying to sue on behalf of a customer whose car got scratched while stuck in traffic, before it was parked in the garage.
"What interest could the garage possibly have in going after the stranger?" she wrote. "The garage would have no legal standing to vindicate that injury.
The bulk of Picard's cases are "clawback" lawsuits against former Madoff customers that Picard believes took too much cash out of the firm before its collapse.
In contrast, the lawsuits against JPMorgan, UBS, HSBC, UniCredit and "feeder funds" that steered client money to Madoff accused the defendants of ignoring red flags about Madoff's fraud, often to win more fees or commissions.
JPMorgan argued that Picard failed to show anyone at the bank had "actual knowledge" of Madoff's crimes, or "deliberately collaborated" with Madoff to win banking fees.
The trustee has said he has recovered $8.6 billion to cover roughly $17.3 billion of valid customer claims. Madoff, 73, is serving a 150-year prison sentence.
The cases are Picard v. JPMorgan Chase & Co et al, U.S. District Court, Southern District of New York, No. 11-00913; and Picard v. UBS AG et al in the same court, No. 11-04212.
(Reporting by Grant McCool and Jonathan Stempel; editing by Tim Dobbyn and Andre Grenon)