JAMES L. GARRITY, JR., Bankruptcy Judge.
In this adversary proceeding, William A. Brandt, Jr., as the chapter 11 trustee (the "Trustee") of CFG Peru Investments Pte. Ltd. (Singapore) ("CFG Peru"), is seeking to recover damages from The Hongkong and Shanghai Banking Corporation Limited ("HSBC"), that CFG Peru allegedly suffered by reason of actions taken by HSBC in enforcing its rights against China Fishery Group Limited (Cayman) ("CFGL") and China Fisheries International Limited (Samoa) ("CFIL"), as borrowers and/or guarantors under that certain Club Facility (defined below). The matter before the Court is CFGL's motion pursuant to Rule 24 of the Federal Rules of Civil Procedure (the "Federal Rules")
The Court has jurisdiction over this Motion pursuant to 28 U.S.C. §§ 1334(a) and 157(a) and the Amended Standing Order of Referral of Cases to Bankruptcy Judges of the United States District Court for the Southern District of New York (M-431), dated January 31, 2012 (Preska, C.J.). This is a core proceeding under 28 U.S.C. § 157(b)(2)(O).
The Pacific Andes Group of companies collectively constitutes the world's twelfth largest seafood company. See Rule 1007 Declaration ¶ 29. N.S. Hong Investment (BVI) Limited ("N.S. Hong") is the ultimate, indirect owner of the entities that comprise the Pacific Andes Group. See id., Ex. A (corporate structure). On June 30, 2016, N.S. Hong, CFGL, CFG Peru, CFIL, and various affiliated entities filed voluntary petitions for relief under chapter 11 of the Bankruptcy Code in this Court. From time to time thereafter, certain of their affiliates followed suit. In all, 37 members of the Pacific Andes Group are chapter 11 debtors herein (collectively, the "Debtors").
The China Fishery Group of companies (the "CF Group") is part of the Pacific Andes Group. Among other things, the CF Group engages in fishing, fishmeal and fish oil processing, and production of anchovies in Peru for worldwide distribution (the "Peruvian Business"). See Rule 1007 Declaration ¶¶ 37-38, 44. CFGL is a public company incorporated under the laws of the Cayman Islands. See id. ¶ 57. It directly and indirectly controls the CF Group. CFG Peru is itself an indirectly owned subsidiary of CFGL and, together with 12 other Debtors, is part of the CF Group. The group includes three non-Debtor entities: Sustainable Fishing Resources S.A.C., CFG Investments S.A.C. ("CFGI"), and Corporacion Pesquera Inca S.A.C. ("Copeinca"). See id. ¶¶ 38, 49. The latter two — CFGI and Copeinca (together, the "Peruvian Opcos") — are subsidiaries of CFG Peru and the CF Group's main operating entities.
The Peruvian Opcos and Debtor CFIL (collectively, the "Club Borrowers") are parties to a $650 million Facility Agreement, dated March 20, 2015 (as amended from time to time, the "Club Facility"). See id. ¶ 96. Debtor CFGL is a joint and several guarantor under the Club Facility. See id. HSBC is among the lenders (the "Club Lenders") under that facility. Between April 30, 2014 and November 11, 2015, the Club Lenders and Club Borrowers entered into eight extension and waiver agreements relating to the obligations under the Club Facility (collectively, the "Extension and Waiver Agreements"). See id. ¶¶ 100-102. On November 25, 2015, after the eighth Extension and Waiver Agreement lapsed, HSBC initiated an action in the High Court of the Hong Kong Special Administrative Region (the "Hong Kong Court"), seeking: (1) the winding up of CFGL and CFIL, and (2) the ex parte appointment of joint provisional liquidators. See id. ¶ 114. Following receipt of the application, the Hong Kong Court appointed Messrs. Beighton, Middleton, and Power of KPMG LLP to serve as the joint provisional liquidators for CFGL and CFIL (the "Hong Kong JPLs"). See id. ¶ 115. Based on the Hong Kong Court's appointment of the Hong Kong JPLs, HSBC commenced a winding up petition against CFGL in the Grand Court of the Cayman Islands (the "Cayman Court"). HSBC sought the appointment of joint provisional liquidators for CFGL. Following a hearing on December 8, 2015, the Cayman Court appointed Messrs. Beighton, Power, and Lawson to serve as provisional liquidators over CFGL (the "Cayman JPLs," and together with the Hong Kong JPLs, the "JPLs").
CFGL and CFIL challenged the appointment of the Hong Kong JPLs in the Hong Kong Court. On January 5, 2016, following a multi-day trial, the court discharged and terminated the appointment of the Hong Kong JPLs (the "JPL Discharge Order"). See id. ¶ 119.
On June 29, 2018, the Trustee commenced this adversary proceeding by filing his complaint (the "Complaint"). See ECF No. 1. In this action, the Trustee seeks to recover damages from HSBC and to equitably subordinate or disallow the more than $100 million in claims that HSBC has filed against certain of the Debtors herein. The Trustee's theory is that the actions HSBC took to enforce the Club Facility (all of which are detailed in the Complaint but include, without limitation, commencing the Hong Kong and Cayman winding up proceedings and causing those courts to appoint the JPLs) "exceeded the bounds of commercial reasonableness, damaged CFG Peru's equity interest in the Peruvian OpCos . . . and diminished recovery prospects for the CF Group's creditors . . . including CFG Peru." Complaint ¶ 1. He contends that HSBC's conduct gives rise to common law claims for negligence, breach of duty and tortious interference under Hong Kong law, Peruvian law and/or U.S. law, and that HSBC is liable to CFG Peru for damages caused to CFG Peru in both its capacity as the owner of the equity of the Peruvian OpCos and as a creditor of CFGL, N.S. Hong, CFIL and Smart Group. Id. ¶ 9. Specifically, he seeks to recover (a) damages of not less than $45 million resulting from, among other things, the Peruvian Business's lost revenue and profits, and (b) damages to the value of the Peruvian Business in the amount of not less than $200 million. Id. He also asserts that "given the extent to which HSBC exceeded the confines of permissible conduct and the damage it caused[,]" HSBC's claims should be disallowed or equitably subordinated. Id. ("Equity dictates that HSBC forfeited any entitlement to a recovery from the estates.").
By the Motion, CFGL seeks to intervene in this action, and join in and adopt the claims asserted by the Trustee in the Complaint. See Motion ¶ 1. It contends that as an indirect 100% shareholder of CFG Peru, and therefore the Peruvian OpCos, it stands in the same position as the Trustee. See id. It maintains that since its revenue was derived primarily from the Peruvian Business, and it is a joint and several obligor under the Club Facility, it was significantly harmed by the damages inflicted on the Peruvian Business by HSBC. See id. CFGL argues that it can intervene in the Adversary Proceeding as of right pursuant to Federal Rule 24(a)(1), because it is a "party in interest" under section 1109(b) of the Bankruptcy Code and, in any event, satisfies the requirements for mandatory intervention under Federal Rule 24(a)(2). Alternatively, CFGL asserts that because CFGL's claims against HSBC arise from the same facts and circumstances asserted in the Trustee's Complaint, it should be permitted to intervene pursuant to Federal Rule 24(b)(1)(B). Finally, CFGL requests that the Court dispense with the requirement for the filing of a separate complaint under Federal Rule 24(c). CFGL asserts that in contrast to a "typical" motion to intervene in a pending litigation, it is "not looking to assert new claims against HSBC," but rather "seeks only to join and adopt the claims asserted in the Trustee's Complaint as against HSBC." Id. ¶ 52. It maintains that given the "unique circumstances" of the adversary proceeding, it is "unnecessary for [it] to file a separate pleading at this time." Id.
Federal Rule 24(a)(1) states that, "[o]n timely motion, the court must permit anyone to intervene who . . . is given an unconditional right to intervene by a federal statute." Fed. R. Civ. P. 24(a)(1). In Term Loan Holder Comm. v. Ozer Grp., L.L.C. (In re Caldor Corp.), 303 F.3d 161, 162 (2d Cir. 2002), the Second Circuit held that section 1109(b) of the Bankruptcy Code creates an unconditional statutory right for "parties in interest" to intervene in adversary proceedings. That section provides that:
11 U.S.C. §1109(b). It is undisputed that CFGL is not among the entities identified in the statute as a "party in interest."
CFGL contends that it is a party in interest because (i) it was one of the entities over which the JPLs were directly appointed, (ii) it is an indirect 100% shareholder of CFG Peru, and (iii) it was "directly damaged" as a result of the appointment of the JPLs. See CFGL Reply ¶ 1. The Court is not persuaded. First, as an indirect shareholder, CFGL, in effect, concedes that any stake it may have in the outcome of the Adversary Proceeding is, as a factual and structural matter, conditional and indirect. Indeed, the outcome of the litigation may have no impact at all on CFGL and the other Debtors who are above CFGL in the capital structure if recoveries to creditors of the Peruvian Opcos do not leave any residual value to be upstreamed to CFG Peru's equity holders. Second, that CFGL was one of the entities over which the JPLs were appointed does not, without more, give rise to a direct pecuniary interest in the claims asserted against HSBC, and to be sure, CFGL did not and could not articulate any such nexus. Finally, CFGL's contention that it was "directly damaged" by HSBC's actions plainly contradicts its repeated statements and position that it is "not looking to assert new claims against HSBC" (Motion ¶ 52), but rather seeks to "join and adopt all claims asserted by the Trustee in the Trustee Complaint." (Motion ¶ 2). See also CFGL Reply ¶ 7 ("CFGL does not seek to modify or present any causes of action that are factually or legally distinct from those asserted in the Trustee's Complaint."). Instead, it is clear from the record of these cases and the parties' pleadings that CFGL's interest in the adversary proceeding is indirect at best, and simply too inchoate to constitute a "sufficient stake" for purposes of being designated a "party-in-interest" under section 1109(b) of the Bankruptcy Code. Accordingly, CFGL cannot intervene in this adversary proceeding as of right under Federal Rule 24(a)(1).
Federal Rule 24(a)(2) provides for intervention as of right by a party who
Fed. R. Civ. P. 24(a)(2). To intervene under this rule, the "applicant must (i) file timely, (ii) demonstrate an interest in the action, (iii) show an impairment of that interest from an unfavorable disposition, and (iv) have an interest not otherwise adequately protected. United States v. State of New York, 820 F.2d 554, 556 (2d Cir. 1984) (citing Restor-A-Dent Dental Labs., Inc. v. Certified Alloy Prods., Inc., 725 F.2d 871, 874 (2d Cir. 1984)). "Failure to satisfy any one of these requirements is sufficient grounds to deny the application." Id. at 556 (citation omitted); accord United States v. Pitney Bowes, Inc., 25 F.3d 66, 70 (2d Cir. 1994) ("The intervention application will be denied unless all four requirements are met."). The Trustee and HSBC contend that CFGL is not entitled to intervene as of right in this adversary proceeding because its interest in this litigation is adequately protected by the Trustee, and CFGL cannot establish otherwise. See, e.g., Trustee Objection ¶ 10; HSBC Objection ¶¶ 17-20. The Court agrees.
In this Circuit, "[w]hile the burden to demonstrate inadequacy of representation is generally speaking `minimal,' . . . we have demanded a more rigorous showing of inadequacy in cases where the putative intervenor and a named party have the same ultimate objective[.]" Butler, Fitzgerald & Potter v. Sequa Corp., 250 F.3d 171, 179 (2d Cir. 2001) (citations omitted). The Trustee is the Court appointed fiduciary of CFG Peru. As such, he has "the duty to maximize the value of the estate," and his fiduciary duty "runs to the shareholders as well as to creditors." Commodity Futures Trading Comm'n v. Weintraub, 471 U.S. 343, 355 (1985). See also In re Kazis, 257 B.R. 112, 114 (Bankr. D. Mass. 2001) (explaining that chapter 7 trustee "should . . . take into account the Debtor's equity within his consideration of the entire case"); ASARCO Inc. v. Elliott Mgmt. (In re ASARCO, L.L.C.), 650 F.3d 593, 601 (5th Cir. 2011) (stating, in the context of a section 363 sale, that the debtor or trustee must satisfy its "fiduciary duty to the debtor, creditors, and equity holders" in articulating a business justification for the sale) (citation omitted). Where, as here, there is an identity of interest between the existing litigant and the party seeking to intervene in the litigation, there is a presumption that the party already in the action is adequately representing the interests of the putative intervenor. See Sequa Corp., 250 F.3d at 179-180. To rebut that presumption, the intervening movant must "provide evidence of collusion, adversity of interest, nonfeasance or incompetence." Sec. Inv'r Prot. Corp. v. Bernard L. Madoff Inv. Sec. LLC, 550 B.R. 241, 254 (Bankr. S.D.N.Y. 2016) (citations omitted).
CFGL has not met its burden of overcoming the presumption that the Trustee is adequately representing the interests of CFGL in pursuing its claims against HSBC. CFGL asserts that because the Trustee represents only CFG Peru, "he may be less incentivized to proceed with the Adversary Proceedings" to the extent that he is successful in selling the Peruvian Business. See Motion ¶ 46; CFGL Reply ¶ 2. There is nothing in the record in support of that contention and the Trustee has not cited to any support. Nor has the Trustee presented any evidence of "collusion, adversity of interest, nonfeasance or incompetence" on the part of the Trustee. Moreover, the Trustee's actions thus far—for example, pursuing prelitigation discovery against HSBC under Bankruptcy Rule 2004—demonstrates that he is sufficiently motivated to "litigate vigorously and to present all colorable contentions" in this adversary proceeding. See Madoff, 550 B.R. at 254. As such, CFGL has not met its burden of proof. The Court denies CFGL's request for relief under Federal Rule 24(a)(2).
As relevant, Federal Rule 24(b) states that "[o]n timely motion, the court may permit anyone to intervene who . . . has a claim or defense that shares with the main action a common question of fact or law." Fed. R. Civ. P. 24(b)(1)(B). "A court's application of Rule 24(b) is discretionary — i.e., the court may use its own discretion in determining whether permissive intervention is appropriate for a specific party." Doral Center, Inc. v. Ionosphere Clubs, Inc. (In re Ionosphere Clubs, Inc.), 101 B.R. 844, 853-54 (Bankr. S.D.N.Y. 1989) (citation omitted). In exercising that discretion, courts will not permit a party to intervene in an action where "(1) the intervenor's interests are already adequately represented and (2) intervention would result in undue delay or prejudice to the original parties." Id. at 853 (quotations omitted). As discussed above, the Court concludes that CFGL's interests in this action are already adequately represented by the Trustee in the prosecution of these claims. Therefore, the Court denies CFGL's request to intervene in this adversary proceeding pursuant to Federal Rule 24(b)(1)(B).
Based upon the foregoing, the Motion is DENIED.
It is SO ORDERED.
