MARTIN GLENN, UNITED STATES BANKRUPTCY JUDGE.
Pending before the Court are four motions to dismiss (the "Motions to Dismiss") the adversary proceeding complaint (the "Complaint," ECF Doc. # 1)
The Plaintiffs seek to avoid and recover initial transfers of approximately €1.57 billion made by Hellas II from bank accounts outside the United States (the "U.S.") to parent entities, and to avoid and recover subsequent transfers of approximately €973.7 million made to the defendants in this case. The defendants allegedly played various roles in an orchestrated restructuring, whereby Hellas II and its related entities issued over €1 billion in debt securities to fund the redemption of convertible equity securities issued by Hellas II's parent and held by special purpose vehicles controlled by many of the defendants. The Plaintiffs also seek to recover certain amounts paid by Hellas II as consulting fees to two groups of defendants based on an unjust enrichment claim.
The foreign main proceeding underlying the Debtor's chapter 15 case, in which Hosking and Mackay were appointed as liquidators, is pending in the United Kingdom (the "U.K."); however, Hellas II and several of its related companies were previously based in Luxembourg, and Hellas II's underlying business was a Greek telecommunications company. Some, but not all, of the money transferred from accounts outside the U.S. found its way to transferees in the U.S.; some, but not all, of that money found its way to transferees in New York.
The Plaintiffs allege actual and constructive fraudulent transfer claims against all of the named Defendants and an unnamed class of transferees (the "Transferee Class") based only on the application of the New York Debtor and Creditor Law ("NYDCL").
Resolution of these issues requires considerable analysis and results in this
For the reasons detailed below, the Motions to Dismiss for lack of personal jurisdiction are granted in part and denied in part. The Motions to Dismiss on all other grounds are granted in part and denied in part.
In June 2005, eight investment funds (the "Sponsors"), allegedly created by TPG Capital and Apax Partners, acquired approximately 80% of the equity in TIM Hellas Communications S.A. ("TIM Hellas"), a Greek telecommunications services provider, through a special purpose vehicle ("Troy GAC") in a leveraged transaction. (See Compl. ¶¶ 84-89.) In preparation for the acquisition of TIM Hellas, in March 2005 TPG and Apax allegedly organized a group of entities under Luxembourg law, including Hellas Telecommunications, S.àr.l. ("Hellas"), Hellas Telecommunications I, S.à.r.l. ("Hellas I"), Hellas II, Hellas Telecommunications Finance SCA ("Hellas Finance"), and other related entities. (See Compl. ¶ 86.) Hellas II and Hellas Finance were wholly owned by Hellas I, which in turn was wholly owned by Hellas. (Id. ¶ 87.) Hellas, the ultimate parent of the Hellas entities, was wholly owned by the Sponsors. (Id.) The Sponsors acquired the remaining shares of TIM Hellas in November 2005 through Troy GAC, and the acquisition was principally funded by debt issued by the Hellas entities. (See id. ¶ 91.) Subsequently, the Sponsors' equity interests in TIM Hellas were cancelled and TIM Hellas merged into Troy GAC; the surviving entity became a wholly owned subsidiary of Hellas II. (See id. ¶ 92.)
Also in mid-June 2005, Hellas issued 490,000 convertible preferred equity certificates ("CPECs") to the Sponsors with a par value of €49 million. (Id. ¶ 97.) At the same time, Hellas I — the direct subsidiary of Hellas and direct parent of Hellas II — issued 490,000 CPECs to Hellas, and Hellas II issued an equivalent number of CPECs to Hellas I. (Id.)
TPG and Apax allegedly used Hellas and its related entities to acquire Q-Telecom, a business unit of a large mobile network operator in Greece, in a stock purchase deal that closed on January 31, 2006. (See id. ¶ 104.) The acquisition was principally financed with debt issued by a
The Plaintiffs allege that TPG and Apax "put in motion plans to dispose of [Hellas II]'s subsidiaries in a sale to a third party" in June 2006. (Id. ¶ 112.) However, the sale process purportedly did not generate interest at the prices sought by TPG and Apax, and subsequently "they instead took steps to extract those returns from [Hellas II] under the guise of a purported `refinancing' of its debt." (Id. ¶ 116.)
In December 2006, through a multi-step transaction (the "December 2006 Transaction"), (i) Hellas II issued €960 million and $275 million of Floating Rate Subordinated Notes due 2015 (the "Sub Notes"); (ii) Hellas Finance and certain subsidiaries of Hellas issued additional series of notes, the proceeds of which were transferred or loaned to Hellas II; and (iii) Hellas II transferred a total of approximately €1.57 billion to its parent, Hellas I, of which approximately €978.7 million was paid to redeem CPECs issued by Hellas II. (Id. ¶¶ 117-118.) Subsequently, Hellas I paid approximately €973.7 million to Hellas to redeem CPECs issued by Hellas I, and Hellas then paid the Sponsors approximately €973.7 million to redeem CPECs issued by Hellas (the "December 2006 CPEC Redemption"). (Id. at 118.) The remaining portion of the €1.57 billion transferred from Hellas II to Hellas I was allegedly used to retire other outstanding debt issued by the Hellas entities and to pay costs associated with the December 2006 Transaction. (See id.)
In February 2007, TPG and Apax sold Hellas and its subsidiaries to Weather Investments S.p.A., later renamed WIND Telecom S.p.A. ("Weather Investments"), a stock corporation organized under the laws of Italy. (Id. ¶ 143.) Weather Investments purchased 100% of the equity of Hellas for €500 million, €6,435,736 of which was allocated toward the purchase of the remaining CPECs previously issued by Hellas to the Sponsors at the par value of €1 per CPEC. (Id. ¶ 145.) Hellas II's financial statements for the year ending December 31, 2007 indicated that its debt-service obligations grew and resulted in a net financial loss of more than €259.5 million; its "leverage remained high at 12.4x EBIT, while its cash interest coverage declined to 1.2x EBIT." (Id. ¶ 148.) On or about June 5, 2008, Apax Partners paid €500 million to Weather Investments for a 5% equity stake in the company. (Id. ¶ 149.) Additionally, Hellas II "paid a minimum of €1.22 million in additional `consulting fees' to Hellas I and, directly or indirectly, Hellas I then paid approximately those same amounts to TPG and Apax (the "Consulting Fees Transfer")." (Id. ¶ 142.)
In 2009, Hellas II began considering a potential restructuring of its capital structure. (See id. ¶ 151.) Accordingly, in August 2009 Hellas II "moved its center of main interests from Luxembourg to the United Kingdom, including among other steps by moving its head office and operating office to London, England." (Id.) On November 26, 2009, the High Court of Justice of England and Wales (the "High Court") approved placing Hellas II into administration in England and appointed joint administrators (the "Administrators"). (Id.) On December 1, 2011, the High Court discharged the Administrators
The Plaintiffs allege that Hellas II was insolvent at the time of the December 2006 CPEC Redemption and that the Defendants received portions of the proceeds of such transaction from one or more Sponsors. (See id. ¶¶ 23-74, 118.) The Plaintiffs seek to avoid the initial transfer of €1.57 billion from Hellas II to Hellas I as an actual or constructive fraudulent transfer under the NYDCL, and to recover the alleged subsequent transfers to the Defendants. (See id. ¶¶ 155-168.) The initial transfers were made from accounts maintained in London, England. (See Lestelle Decl. Ex. A at 10, ECF Doc. # 93-1.) Also pursuant to the NYDCL, the Plaintiffs seek to avoid and recover the Consulting Fees Transfer allegedly paid to TPG and Apax.
On February 16, 2012, the Debtor filed a chapter 15 petition for recognition of its foreign proceeding in this Court. (See ECF Doc. # 1, Case No. 12-10631.) The Court entered an order granting recognition of the Debtor's foreign main proceeding on March 14, 2012. (See ECF Doc. # 17, Case No. 12-10631.) This adversary proceeding was commenced nearly two years later, on March 13, 2014. (See ECF Doc. # 1.)
The Motions to Dismiss include: (1) the motion to dismiss for lack of personal jurisdiction filed by Apax
The Plaintiffs filed two memoranda of law in opposition to the Motions to Dismiss for lack of personal jurisdiction: an opposition to both the Apax/TPG Motion and the TCW Motion (the "PJ Opposition," ECF Doc. # 83), and a separate opposition to the DB Motion (the "DB Opposition," ECF Doc. # 79).
In response, (1) Apax and TPG filed a reply in support of the Apax/TPG Motion (the "Apax/TPG Reply," ECF Doc. # 91)
The Plaintiffs filed a supplemental memorandum of law in opposition to the DB Motion (the "DB Supplemental Opposition," ECF Doc. # 104),
Pursuant to the Court's Order Scheduling Oral Argument and Directing Supplemental Briefing (the "Supplemental Briefing Order," ECF Doc. # 115), the Court scheduled a hearing on the Motions to Dismiss and directed the parties to submit supplemental briefs on choice of law issues. In response to the Supplemental Briefing Order, the Defendants filed a supplemental memorandum of law (the "Defendants' Supplemental Brief," ECF Doc. # 122),
On December 3 and 16, 2014 (together, the "Hearing") the Court heard oral argument on the Motions to Dismiss and took the matter under submission. This Opinion follows.
All of the Defendants except for Apax N.Y. argue that the Complaint should be dismissed for lack of personal jurisdiction pursuant to Federal Rule of Civil Procedure ("FRCP") 12(b)(2), arguing that the Plaintiffs have failed to adequately allege that either general (i.e.all-purpose) or specific jurisdiction exists over these Defendants. Apax, TPG, and TCW all contend that the applicable forum by which their minimum jurisdictional contacts are to be assessed is New York, rather than the U.S. (See Apax/TPG Mot. at 2; TCW Mot. at 8.) They argue that, following the Supreme Court's recent decision in Daimler AG v. Bauman, ___ U.S. ___, 134 S.Ct. 746, 187 L.Ed.2d 624 (2014), a defendant is generally only subject to general jurisdiction in its place of incorporation, principal place of business, or domicile; general jurisdiction exists over a foreign defendant only when its contacts with the forum state "are so `continuous and systematic as to render [it] essentially at home' in the forum state." (Apax/TPG Mot. at 5 (citing Daimler, 134 S.Ct. at 761 (alteration in original) (citation omitted)); see TCW Mot. at 7.) Since New York is not the state of incorporation, principal place of business, or domicile of any of the Defendants moving to dismiss for lack of personal jurisdiction, and the Plaintiffs have not otherwise sufficiently alleged that such Defendants are "at home" in New York, the Defendants argue that they are not subject to general jurisdiction. (See Apax/TPG Mot. at 7-17; TCW Mot. at 9-14.) DB also argues that it is not subject to general jurisdiction even if the relevant forum for assessing its minimum contacts is the U.S., because it was neither incorporated in the U.S. nor is the U.S. where its principal place of business is located. (See DB Mot. at 3 n.1.) According to all of the Defendants, the Plaintiffs have also failed to adequately allege that the Court has specific jurisdiction over the Defendants, because none of the Defendants' suit-related conduct bears a sufficient nexus to New York or the U.S. (See Apax/TPG Mot. at 2; TCW Mot. at 14; DB Mot. at 6-7.)
In response, the Plaintiffs argue that the U.S. — not New York — is the pertinent forum with respect to which a defendant's minimum jurisdictional contacts are to be assessed where, as here, nationwide service of process is authorized by a federal statute. (See Apax/TPG Mot. at 11-12.) According to the Plaintiffs, all of the Defendants' contacts with the U.S. are sufficient to subject them to personal jurisdiction. (Id. at 17; DB Supp. Opp. at 1.) The Apax, TPG, and TCW Defendants with their residence, principal place of business, or place of incorporation in the U.S. are subject to general jurisdiction; the remaining foreign Apax and TPG Defendants are subject to specific jurisdiction based on their suit-related conduct purposefully directed at the U.S. (See Apax/ TPG Mot. at 17-18.) DB is subject to general jurisdiction because its New York operations are so substantial and of such a nature as to render it at home in New York. (See DB Supp. Opp. at 1.) The Plaintiffs contend that DB is also subject to specific jurisdiction because, through its wholly-owned and controlled subsidiary, Deutsche Bank Securities Inc. ("DBSI"), DB marketed and sold Sub Notes to U.S. investors, and proceeds from the Sub Notes were used to fund the December 2006 CPEC Redemption. (Id. at 2-12.)
The Defendants also collectively move to dismiss the Complaint for lack of subject matter jurisdiction and failure to state a claim pursuant to FRCP 12(b)(1) and (6), respectively. (See Defs.' Mot. at 1.) First, the Defendants argue that the Complaint
Finally, the Defendants argue that the Complaint fails to state a claim for five separate reasons.
The Plaintiffs contend that the Court has subject matter jurisdiction over their claims under section 1334 of title 28 of the U.S.Code. (Opp. at 48.) According to the Plaintiffs, "whether this action falls within this Court's `core' or `non-core' jurisdiction is irrelevant to whether this Court possesses subject matter jurisdiction, which it plainly does." (Id. at 48-49.) The Plaintiffs also argue that New York law, rather than Luxembourg or U.K. law, governs their claims. (See Pls.' Supp. Opp. at 1.) However, even if the Court were to apply Luxembourg or U.K. law to their claims, the Plaintiffs contend that they would still have standing to pursue their claims.
The Plaintiffs also maintain that they have adequately alleged their claims at this pleading stage and therefore the Motions to Dismiss should be denied.
On a motion to dismiss under FRCP 12(b)(2), a plaintiff bears the burden of making "a prima facie showing `through its own affidavits and supporting materials'
Rule 7004(f) of the Federal Rules of Bankruptcy Procedure (the "Bankruptcy Rules") provides:
FED. R. BANKR. P.7004(f). Pursuant to Bankruptcy Rule 7004(d), "[t]he summons and complaint and all other process except a subpoena may be served anywhere in the United States." Id. 7004(d). The Defendants were served pursuant to Bankruptcy Rule 7004 (PJ Opp. at 17), and they do not object to service (see "Response Extension Stipulation," ECF Doc. 7, ¶ 1 ("The Defendants waive any objection to the manner or validity of service of process in the above-captioned action.")). Accordingly, the Defendants are subject to personal jurisdiction so long as constitutional due process requirements are met. See Bickerton v. Bozel S.A. (In re Bozel S.A.), 434 B.R. 86, 97 (Bankr.S.D.N.Y.2010) ("Since [the defendant] does not contend that service of process was improper [under Bankruptcy Rule 7004], he is subject to personal jurisdiction in this Court so long as the Due Process requirements are satisfied.").
"To establish personal jurisdiction over a defendant, due process requires a plaintiff to allege (1) that a defendant has `certain minimum contacts' with the relevant forum, and (2) that the exercise of jurisdiction is reasonable in the circumstances." In re Terrorist Attacks on Sept. 11, 2001, 714 F.3d 659, 673 (2d Cir.2013) (citing Int'l Shoe Co. v. Washington, 326 U.S. 310, 316, 66 S.Ct. 154, 90 L.Ed. 95 (1945); World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 297, 100 S.Ct. 559, 62 L.Ed.2d 490 (1980)).
In assessing the sufficiency of a defendant's "minimum" contacts, courts distinguish between "general" and "specific" personal jurisdiction. Id. General, or "all-purpose," jurisdiction over a foreign defendant allows a court to hear any and all claims against such defendant. Daimler, 134 S.Ct. at 754 (citing Goodyear Dunlop Tires Operations, S.A. v. Brown, 564 U.S. ___, ___, 131 S.Ct. 2846, 2851, 180 L.Ed.2d 796 (2011)). Specific jurisdiction over a foreign defendant allows a court to hear claims that "aris[e] out of or relate[ ] to the defendant's contacts with the forum...." Helicopteros Nacionales de Colom.,
Only a narrow set of affiliations with a forum will subject a defendant to general jurisdiction in that forum. Daimler, 134 S.Ct. at 760. An individual's paradigm basis for general jurisdiction is his or her domicile. Id. "With respect to a corporation, the place of incorporation and principal place of business are `paradig[m]... bases for general jurisdiction.'" Id. (citing Lea Brilmayer et al., A General Look at General Jurisdiction, 66 TEX. L. REV. 721, 735 (1988)). These paradigms are sufficient, but not exclusive, bases for general jurisdiction. See id. ("Goodyear did not hold that a corporation may be subject to general jurisdiction only in a forum where it is incorporated or has its principal place of business; it simply typed those places paradigm all-purpose forums."). At the same time, however, "engag[ing] in a substantial, continuous, and systematic course of business" in a forum is not alone sufficient to render a defendant subject to general jurisdiction in such forum. Id. at 761. Rather, beyond the paradigm bases for general jurisdiction over a corporation, general jurisdiction exists where such corporation's "affiliations with the State are so `continuous and systematic' as to render [it] essentially at home in the forum State." Id. (quoting Goodyear, 564 U.S. at ___, 131 S.Ct. at 2851)).
Central to the determination of whether the Defendants are subject to general jurisdiction is the issue whether their minimum contacts are to be assessed with respect to New York or the U.S. If the pertinent forum for assessing minimum jurisdictional contacts is the U.S., then each Defendant who is "at home" in the U.S. is subject to general jurisdiction; however, if minimum contacts must be assessed with respect to New York, then each Defendant's contacts with New York must be evaluated in order to determine whether it is "essentially at home" in New York. See id. at 761.
The Plaintiffs contend that a nationwide minimum contacts test is all that is required where a federal statute provides for nationwide service of process, and here, Bankruptcy Rule 7004(d) — a federal rule implicitly authorized by Congress and thus tantamount to a statute — authorizes nationwide service of process. (PJ Opp. at 12-13.) In support for their position, the Plaintiffs cite to several cases holding that a national minimum contacts standard applies to cases implicating Bankruptcy Rule 7004, adversary proceedings asserting purely state law claims, and even to an adversary proceeding related to a chapter 15 case. (Id. at 13-15 (collecting cases).)
The Defendants argue that the "Plaintiffs ignore Bankruptcy Rule 7004(f) which expressly requires that personal jurisdiction under this rule be `consistent with the Constitution and laws of the United States.'" (Apax/TPG Mot. at 12 (quoting FED. R. BANKR.P. 7004(f)).) The Defendants contend that nationwide service of process does not subject a defendant to personal jurisdiction in any bankruptcy court in the country in light of Daimler, particularly where, as here, the suit is based solely on state law claims arising out of foreign transactions and therefore has
"[I]n federal question cases ... no inquiry into a defendant's `minimum contacts' with the forum state is needed to exercise jurisdiction pursuant to Bankruptcy Rule 7004; rather, only a federal `minimum contacts' test is required, whereby the Fifth Amendment's Due Process Clause limits a bankruptcy court's exercise of personal jurisdiction over a defendant." Enron Corp. v. Arora (In re Enron Corp.), 316 B.R. 434, 444 (Bankr.S.D.N.Y.2004) (citing cases); see also Bozel, 434 B.R. at 99 (finding that, in the context of an adversary proceeding commenced in a bankruptcy proceeding, "the minimum contacts analysis should evaluate the defendant's contacts with the United States as a whole, not merely contacts with the forum state" (citation omitted)); British Am. Ins. Co. Ltd. v. Fullerton (In re British Am. Ins. Co. Ltd.), Adv. Proc. No. 11-03118(EPK), 2013 WL 1881712, at *2 (Bankr.S.D.Fla. Apr. 30, 2013) (applying nationwide minimum contacts test to evaluate defendant's jurisdictional contacts in an adversary proceeding commenced in a chapter 15 proceeding). The rationale for this holding is that the sovereign exercising jurisdiction under 28 U.S.C. § 1334 is the U.S., not the particular state in which the federal court is situated. See Diamond Mortg. Corp. of Ill. v. Sugar, 913 F.2d 1233, 1244 (7th Cir.1990) ("Since section 1334 provides federal question jurisdiction, the sovereign exercising its authority over the [defendants] is the United States, not the State of Illinois. Hence, whether there exist sufficient minimum contacts between the [defendants] and the State of Illinois has no bearing upon whether the United States may exercise its power over the [defendants] pursuant to its federal question jurisdiction."); see also Owens-Illinois, Inc. v. Rapid Am. Corp. (In re Celotex Corp.), 124 F.3d 619, 630 (4th Cir.1997) ("[W]hen an action is in federal court on `related to' jurisdiction, the sovereign exercising authority is the United States, not the individual state where the federal court is sitting." (citing Diamond, 913 F.2d at 1244; Am. Freight Sys., Inc. v. W.A. Walker & Assocs., Inc. (In re Am. Freight Sys., Inc.), 153 B.R. 316, 321 (D.Kan.1993); J.T. Moran Fin. Corp. v. Am. Consolidated Fin. Corp. (In re J.T. Moran Fin. Corp.), 124 B.R. 931, 943 (S.D.N.Y.1991)).
Despite having been served pursuant to Bankruptcy Rule 7004(f), the Defendants argue that a nationwide minimum contacts test is inappropriate where, as here, the Plaintiffs' claims are all based on state law and the Plaintiffs' only jurisdictional hook to federal court is the Debtor's chapter 15 proceeding. (See Apax/ TPG Mot. at 12; TCW Mot. at 8.) However, the fact that the Plaintiffs' claims are grounded in state law is not dispositive. See Diamond, 913 F.2d at 1244 (holding that nationwide minimum contacts test applies to non-core bankruptcy proceedings involving state law claims, where service has been made pursuant to Bankruptcy Rule 7004(d)); see also J.T. Moran, 124 B.R. at 942-43 (noting in dicta that nationwide minimum contacts continue to satisfy due process requirements even after withdrawal of the reference of non-core state law claims). Nationwide contacts satisfy due process requirements where the court has federal jurisdiction and nationwide service of process is authorized under an applicable federal statute. Indeed, courts have routinely held that a nationwide minimum contacts test applies where nationwide service of process is authorized by federal law. See, e.g., Enron, 316 B.R. at 444 (noting that, after the 1996 amendments to the Bankruptcy Rules, "courts have recognized in federal question cases
With the exception of TPG London, which the Plaintiffs allege is organized under U.K. law and has a principal place of business in England (see Compl. ¶ 31), all TPG Defendants are subject to general jurisdiction because the U.S. is their domicile, place of incorporation, or principal place of business. See Daimler, 134 S.Ct. at 760. The Plaintiffs allege, and TPG admits, that Bonderman resides in Fort Worth, Texas and that Coulter resides in San Francisco, California.
The paradigm bases for general jurisdiction are similarly alleged with respect to each TCW Defendant.
By contrast, the Plaintiffs do not allege that the U.S. is the domicile, place of incorporation, or principal place of business for any Apax Defendant moving under the Apax/TPG Motion. Nor do the Plaintiffs allege facts establishing that any Apax Defendant's contacts with the U.S. are sufficiently continuous and systematic so as to render it "at home" in the U.S. See Daimler, 134 S.Ct. at 761. Thus, no Apax Defendant moving under the Apax/TPG Motion is subject to general jurisdiction.
As to DB, for which an alleged paradigm basis of general jurisdiction in the U.S. is also lacking, the analysis is more nuanced. While Daimler suggests that a corporate defendant's place of incorporation and principal place of business are two paradigm forums where it would be subject to general jurisdiction, the Supreme Court did not hold that such paradigm forums represent the only places where a defendant
In sum, all Defendants are subject to general jurisdiction, with the exception of TPG London and each Apax Defendant moving under the Apax/TPG Motion (collectively, the "Non-U.S. Defendants"). The Court considers whether these Non-U.S. Defendants are subject to specific jurisdiction below.
The Plaintiffs allege that specific jurisdiction exists over the Non-U.S. Defendants by virtue of their suit-related conduct directed at the U.S., including (i) their role in orchestrating the marketing and sale of U.S. dollar-denominated Sub Notes in order to partially fund the December 2006 CPEC Redemption; and (ii) their subsequent transfer of proceeds of the December 2006 CPEC Redemption to the U.S. (See PJ Opp. at 4-10.) More specifically, the Plaintiffs assert that, in light of diminished interest in an auction of Hellas II's subsidiaries to potential bidders, in an October 27, 2006 presentation to Apax and TPG, DB proposed "an aggressive recapitalization that will allow shareholders to realize a significant dividend." (Id. at 5 (quoting Ashley Decl. Ex. 8 at 07190) (internal quotation marks omitted).) In support of this allegation, the Plaintiffs point to a December 8, 2006 email in which TPG London's "Philippe Costeletos reported to TPG President David Bonderman that `we decided to move ahead with a recap' and `w[e] are issuing a 2nd unsecured €1.1 billion FRN [i.e., Sub Notes].'" (Id. at 6 (alterations in original) (quoting Ashley Decl. Ex. 11 at 10661).) This email indicates that proceeds of the recapitalization would "`repay the current €540 million PIK and distribute €900 million to shareholders,' including `€400 million to TPG (on an initial investment of €194 million).'" (Id. (quoting Ashley Decl. Ex. 11 at 10661).) The email further indicates that if all went according to plan, TPG London "anticipated wiring funds to Fort Worth on December 19th." (Id. (quoting Ashley Decl. Ex. 11 at 10661).)
The Plaintiffs allege that after the fully subscribed Sub Notes were issued, proceeds from the dollar-denominated tranche of Sub Notes were held in a New York bank account maintained by DB, and such proceeds were subsequently transferred to Hellas II. (Id. (citing Ashley Decl. Ex. 21 at 1942).) According to the Plaintiffs, Apax and TPG then announced an "outsized dividend" (id.), collectively received €800 million in proceeds of the December 2006 CPEC Redemption (see id. at 9 (citing Compl. ¶¶ 26, 36-38, 40-43, 49-63; Ashley Decl. Exs. 30-34), and transferred approximately €516 million of those proceeds to the U.S. (id. (citing Compl. ¶¶ 26, 36-38, 40-43, 49-63; Ashley Decl. Exs. 30-34)). Specifically, the Plaintiffs assert that "Apax Europe VI GP Co. Ltd., Apax Europe VI GP, L.P., Apax Europe VI-A, L.P., and Apax Europe VI-1, L.P. acknowledge receipt of Apax's €400 million share, of which on December 29, 2006 they distributed €115 million to 57 investors in the U.S. (with €16 million distributed in New York)." (Id. at 10 (citing Ashley Decl. Ex. 37).) The Plaintiffs allege that "TPG acknowledges that the full amount of its €400 million share of the proceeds was transferred to the U.S. on December 27, 2006, of which $296 million was distributed that same day to 150 investors in the U.S. (with $45 million distributed in New York)." (Id. (citing Ashley Decl. Ex. 38).)
Apax and TPG argue that the Plaintiffs improperly group the various Apax and TPG Defendants together, referring to them collectively as "Apax or "TPG" in the Complaint. (Apax/TPG Reply at 1.) As such, Apax and TPG contend that the Complaint fails to adequately allege that specific jurisdiction exists over any Non-U.S. Defendant individually. (See id.) In any event, Apax and TPG argue that DB's contacts with the U.S. do not support the exercise of specific jurisdiction over any Non-U.S. Defendant because the Plaintiff's claims are not sufficiently related to DB's alleged U.S. contacts. (See id. at 2.) Because the Plaintiffs' claims are premised on an initial fraudulent conveyance between Hellas II and Hellas I, and on subsequent transfers to the Non-U.S. Defendants, all of which "occurred entirely overseas," Apax and TPG contend that the "potential `transferee' liability of the Non-U.S. Defendants does not depend on how or to whom DB marketed Sub Notes in the U.S." (Id. ("[T]his case is about the transfers, not the Sub Notes sales." (citation omitted)).) Apax and TPG also argue that the dollar-denominated Sub Notes sales and the transfers underlying the Plaintiffs' claims are too attenuated to support the exercise of specific jurisdiction over the Non-U.S. Defendants in light of the fact that (i) "the U.S. tranche represented only 18% of the Sub Notes offering, which primarily was marketed in Europe" (id. at 3 (emphasis omitted)); and
Moreover, Apax and TPG argue that transfers of proceeds of the December 2006 CPEC Redemption from the Non-U.S. Defendants to the U.S. are not sufficiently connected to the Plaintiffs' claims because the "[P]laintiffs seek to impose transferee, not transferor, liability on the Non-U.S. Defendants based solely on transfers made to them, not by them." (Id. at 6 (emphasis in original).) Accordingly, any Non-U.S. Defendant's transfer of proceeds made subsequent to its receipt thereof bears no relationship to the Plaintiffs' claims and is therefore irrelevant to a determination of whether specific jurisdiction may be exercised over such Non-U.S. Defendant.
"The inquiry whether a forum State may assert specific jurisdiction over a nonresident defendant focuses on the relationship among the defendant, the forum, and the litigation." Walden v. Fiore, ___ U.S. ___, 134 S.Ct. 1115, 1121, 188 L.Ed.2d 12 (2014) (quoting Keeton v. Hustler Magazine, Inc., 465 U.S. 770, 775, 104 S.Ct. 1473, 79 L.Ed.2d 790 (1984)) (internal quotation marks omitted). The defendant's suit-related conduct with the forum must form the basis for specific jurisdiction. See id. at 1121; Picard, 418 B.R. at 80 ("Specific personal jurisdiction exists where a foreign defendant `purposefully direct[s] his activities at residents of the forum,' and the underlying cause of action `arise[s] out of or relate[s] to those activities.'" (quoting Burger King Corp. v. Rudzewicz, 471 U.S. 462, 472, 105 S.Ct. 2174, 85 L.Ed.2d 528 (1985))). "Where the claim arises out of, or relates to, the defendant's contacts with the forum — i.e., specific jurisdiction [is asserted] — minimum contacts [necessary to support such jurisdiction] exist where the defendant purposefully availed itself of the privilege of doing business in the forum and could foresee being haled into court there." Licci ex rel. Licci v. Lebanese Canadian Bank, SAL, 732 F.3d 161, 170 (2d Cir.2013) (alteration in original) (quoting Bank Brussels Lambert v. Fiddler Gonzalez & Rodriguez, 305 F.3d 120, 127 (2d Cir.2002)).
Chew, 143 F.3d at 29 (citations and internal quotation marks omitted).
In this case, the alleged contacts between the Non-U.S. Defendants and the U.S. are not sufficiently related to the Plaintiffs' claims such that specific jurisdiction over the Non-U.S. Defendants exists. The Plaintiffs allege that "[t]hrough the December 2006 Transaction and the December 2006 CPEC Redemption, [Hellas II] transferred approximately €1.57 billion in cash proceeds to its parent Hellas I, of which at minimum €973,657,610 was transferred" ultimately to the Defendants. (Compl. ¶¶ 156, 162). The remainder of the approximately €1.57 billion transferred to Hellas I was used to pay other outstanding debt and transaction costs associated with the December 2006 Transaction. (Id.) Of the €1.57 billion transferred from Hellas II to Hellas I, only 13% was comprised of the $275 million attributable to the dollar-denominated Sub Notes. (DB Reply at 7 n.6.) The dollar-denominated Sub Notes only constituted a fraction of the entire Sub Notes offering, which in turn was "only one series of three separate notes issuances used to fund the ultimate transfer from Hellas II ... to Hellas I, of which `€978,659,712 was paid to Hellas I in redemption of outstanding CPECs.'" (Id. at 7 (citations omitted).)
No cause of action is asserted in this case challenging the sale of the Sub Notes; nor is it clear that the Plaintiffs, as foreign representatives (as opposed to the trustee under the note indenture or the note holders), would have standing to challenge that sale.
To be sure, the December 2006 CPEC Redemption could have been accomplished if Hellas II never even issued the dollar-denominated Sub Notes. Hellas II possessed over €1 billion before accounting for the proceeds from the dollar-denominated Sub Notes, an amount greater than the amount allegedly transferred to the Defendants. (See Compl. ¶ 18 (alleging that approximately €200 million was transferred to Hellas II from a subsidiary, and €960 million of proceeds were received by Hellas II from the issuance of the euro-denominated Sub Notes).) Accordingly, the Plaintiffs fail to allege that the sale of the dollar-denominated Sub Notes was the proximate, let alone "but for," cause of the December 2006 CPEC Redemption.
Additionally, any attempt of the Plaintiffs to implicate the Non-U.S. Defendants by way of the transfer of the December 2006 CPEC Redemption proceeds is unpersuasive because (1) the Non-U.S. Defendants were the recipients, not the transferors of such proceeds, and (2) the Non-U.S. Defendants' receipt of those proceeds occurred abroad, not in the U.S. (See Ashley Decl. Ex. 37 (flow of funds document indicating a foreign country of origin for each transfer of redemption proceeds made by an Apax Defendant); id. Ex. 38 (flow of funds document indicating no transfers from TPG London to the U.S.).) Any subsequent transfer of redemption proceeds made by the Non-U.S. Defendants to recipients in the U.S. is irrelevant to their liability as transferees and therefore cannot constitute sufficient minimum contacts for purposes of establishing specific jurisdiction. The Apax/ TPG Motion is therefore
In determining the reasonableness of exercising jurisdiction over a defendant, "the defendant's contacts with the forum State must be such that maintenance of the suit does not offend traditional notions of fair play and substantial justice." World-Wide Volkswagen, 444 U.S. at 292, 100 S.Ct. at 580 (internal quotation marks omitted) (quoting Int'l Shoe, 326 U.S. at 316, 66 S.Ct. 154). "The Court must take into account five factors in this inquiry: (1) the burden that the exercise of jurisdiction will impose on the defendant; (2) the interests of the forum state in adjudicating the case; (3) the plaintiff's interest in obtaining convenient and effective relief; (4) the interstate judicial system's interest in obtaining the most efficient resolution of the controversy; and (5) the shared interest of the states in furthering substantive social policies." Schutte Bagclosures Inc. v. Kwik Lok Corp., No. 12 Civ. 5541(JGK), ___ F.Supp.3d ___, ___, 2014 WL 4802917, at *7 (S.D.N.Y. Sept. 29, 2014) (citations omitted). Where constitutional minimum contacts have been established, "often the interests of the plaintiff and the forum in the exercise of jurisdiction will justify even the serious burdens placed on the alien defendant." Bozel, 434 B.R. at 100 (quoting Asahi, 480
The Defendants subject to general jurisdiction do not satisfy their burden of making a compelling case that the exercise of general jurisdiction would be unreasonable. The TPG Defendants raised this argument for the first time in their Reply Brief, stating in a conclusory fashion that "it would be unreasonable to exercise personal jurisdiction over [them] because none of them had reason to expect being haled into court in New York in relation to the claims in this litigation, and neither the [Plaintiffs] nor any Moving Defendant has meaningful ties to the forum." (Apax/TPG Mot. at 17 n.9.) Neither TCW nor DB address whether it would be unreasonable for the Court to exercise personal jurisdiction over them.
The burden on these Defendants to litigate in this Court is not great, as each such Defendant is "at home" in the U.S. and is represented by counsel in the U.S. The U.S. has a significant interest in adjudicating this adversary proceeding, since it facilitates the foreign Plaintiffs' efforts to maximize the value of the Debtor's estate. See In re British Am. Ins. Co. Ltd. v. Fullerton (In re British Am. Ins. Co. Ltd.), Adv. Proc. Nos. 11-03118, 11-03117(EPK), 2012 WL 4508611, at *5 (Bankr.S.D.Fla. Sept. 28, 2012) ("By enacting chapter 15 of the Bankruptcy Code, Congress exhibited a clear intent for the United States to participate in a coordinated manner with insolvency proceedings taking place in foreign nations."). The Plaintiffs also have an interest in obtaining convenient and effective relief. Finally, at this time, there does not appear to be another more efficient forum for resolving the Plaintiffs' claims, as they arise under New York law with which this Court is familiar. Accordingly, with respect to the TPG, DB, and TCW Defendants subject to general jurisdiction, the exercise of personal jurisdiction over such Defendants is reasonable under the circumstances. The Apax/TPG Motion is therefore
In ruling on a motion to dismiss for lack of subject matter jurisdiction pursuant to FRCP 12(b)(1), "the district court must take all uncontroverted facts in the complaint (or petition) as true, and draw all reasonable inferences in favor of the party asserting jurisdiction." Tandon v. Captain's Cove Marina of Bridgeport, Inc., 752 F.3d 239, 243 (2d Cir.2014) (citing Amidax Trading Grp. v. S.W.I.F.T. SCRL, 671 F.3d 140, 145 (2d Cir.2011) (per curiam)). A motion to dismiss for lack of subject matter jurisdiction is properly granted where the court "lacks the statutory or constitutional power to adjudicate it." Mastafa v. Chevron Corp., 770 F.3d 170, 177 (2d Cir.2014) (quoting Makarova v. United States, 201 F.3d 110, 113 (2d Cir.2000)) (internal quotation marks omitted). Where the parties dispute jurisdictional facts, the court must decide issues of fact by reference to evidence beyond the pleadings, including affidavits. Tandon, 752 F.3d at 243 (quoting APWU v. Potter, 343 F.3d 619, 627 (2d Cir.2003)). In the event of such a dispute, "the party asserting subject matter jurisdiction `has the burden of proving by a preponderance of the evidence that it exists.'" Id. (quoting Makarova, 201 F.3d at 113).
According to the Defendants, the Complaint should be dismissed on the basis that "the Court lacks core subject matter
According to the Plaintiffs, the Defendants do not contest the Court's subject matter jurisdiction over the claims at issue in this adversary proceeding pursuant to 28 U.S.C. § 1334; rather, the Defendants conflate the concepts of "subject matter jurisdiction" and "core proceedings" by asserting that "the Court lacks core subject matter jurisdiction over this dispute." (Opp. at 48 (quoting Defs.' Mot. at 45).) The Plaintiffs maintain that the U.S.Code's division of proceedings into "core" and "non-core" has nothing to do with subject matter jurisdiction, but instead "allocates the authority to enter final judgment between the bankruptcy court and the district court." (Id. (quoting Stern v. Marshall, ___ U.S. ___, 131 S.Ct. 2594, 2607, 180 L.Ed.2d 475 (2011)) (internal quotation marks omitted).) The Plaintiffs argue that the determination of whether their adversary proceeding is "core" or "non-core" is irrelevant to the Court's subject matter jurisdiction, which exists. (Id.)
Section 1334 of title 28 of the U.S.Code provides federal district courts with jurisdiction over "all civil proceedings arising under title 11, or arising in or related to cases under title 11." 28 U.S.C. § 1334(b). District courts may refer "any or all cases under title 11 and any or all proceedings arising under title 11 or arising in or related to a case under title 11 ... to the bankruptcy judges for the district." Id. § 157(a). Section 157 also divides matters referred to the bankruptcy court into two categories: core and non-core proceedings. See generally id. § 157.
While Stern v. Marshall, ___ U.S. ___, 131 S.Ct. 2594, 180 L.Ed.2d 475 (2011), and its progeny limit the authority of a bankruptcy judge to enter final orders or judgment on core claims that would not be resolved as part of the claims allowance process, the bankruptcy court's jurisdiction remains unaffected, and the court may submit proposed findings of fact and conclusions of law. As the Supreme Court stated in Stern, "[s]ection 157 [of title 28] allocates the authority to enter final judgment between the bankruptcy court and the district court. That allocation does not implicate questions of subject matter jurisdiction." Stern, 131 S.Ct. at 2607; see also Residential Funding Co. v. UBS Real Estate Sec., Inc., 515 B.R. 52, 62 (Bankr. S.D.N.Y.2014) (concluding that Stern did not alter the subject matter jurisdiction of the bankruptcy courts); Geron v. Peebler (In re Pali Holdings, Inc.), 488 B.R. 841, 848 n. 26 (Bankr.S.D.N.Y.2013) ("Stern,
This Court has "related to" subject matter jurisdiction over this adversary proceeding under 28 U.S.C. § 1334. Section 1334(b) provides that "district courts shall have original but not exclusive jurisdiction of all civil proceedings arising under title 11, or arising in or related to cases under title 11." 28 U.S.C. § 1334(b). In the Second Circuit, the test for determining the existence of related to jurisdiction under 28 U.S.C. § 1334 is whether the outcome of a proceeding might have any "conceivable effect" on the bankrupt estate, or whether the proceeding has a "significant connection" with the bankrupt estate. See Publicker Indus. Inc. v. United States (In re Cuyahoga Equip. Corp.), 980 F.2d 110, 114 (2d Cir. 1992).
"[C]ommencement of a chapter 15 case does not create an `estate' as that term is used in the Bankruptcy Code." In re JSC BTA Bank, 434 B.R. 334, 341 (Bankr.S.D.N.Y.2010). However, in the context of a case under former Bankruptcy Code section 304 — the precursor to chapter 15 — the Second Circuit noted that "[t]he fact that a § 304 proceeding, by definition, involves a bankruptcy estate located abroad does not short circuit the `related to' analysis." Parmalat Capital Fin. Ltd. v. Bank of Am. Corp., 639 F.3d 572, 579 (2d Cir.2011). In Parmalat, the Second Circuit held that the district court properly exercised removal jurisdiction over the foreign debtors' state law civil action filed in state court, finding that the foreign debtors' civil action seeking damages might have a conceivable effect on their bankruptcy estates, and therefore the district court had "related to" jurisdiction over the state law action. See id. n. 7 ("State law claims are `related to' § 304 proceedings so long as they satisfy [the] `related to' test set forth in Cuyahoga, 980 F.2d at 114. Nothing more is required.").
The outcome of this adversary proceeding would clearly have an effect on the Debtor's foreign estate, as it could potentially recover approximately €1 billion for the benefit of the estate. See Cuyahoga, 980 F.2d at 114 (holding that certain section 502 and 506(c) claims were related to the debtors' bankruptcy cases where such "claims bring into question the very distribution of the estate's property"). Notwithstanding that the Plaintiffs' claims are all state law claims brought in an adversary proceeding related to a chapter 15 proceeding, this adversary proceeding is related to a case under title 11. See Parmalat, 639 F.3d at 579.
The Court will assume for purposes of this decision that it would not have authority to finally adjudicate the Plaintiffs' claims without the consent of the parties. The Court would still have authority to issue proposed findings of fact and conclusions of law, regardless of whether the claims are core or non-core. See Exec. Benefits Ins. Agency v. Arkison, ___ U.S. ___, 134 S.Ct. 2165, 2168, 189 L.Ed.2d 83 (2014) ("We hold today that when, under Stern's reasoning, the Constitution does not permit a bankruptcy court to enter final judgment on a bankruptcy-related claim, the relevant statute nevertheless permits a bankruptcy court to issue proposed findings of fact and conclusions of law to be reviewed de novo by the district court.") And, as already discussed, whether
There are three jurisdictions' laws potentially implicated in this case: New York law, U.K. law, and Luxembourg law.
The Complaint alleges three causes of action: Count I of the Complaint asserts an actual fraudulent conveyance claim against all the Defendants and the Transferee Class under NYDCL section 276; Count II asserts a constructive fraudulent conveyance claim against all Defendants and the Transferee Class under NYDCL sections 273, 274, 275, and 277; and Count III asserts an unjust enrichment claim against Apax and TPG only. (Compl. ¶¶ 155-173.) With respect to Counts I and III, the parties purport to agree that there is no actual conflict between New York law on the one hand and either U.K. law or Luxembourg law on the other. (See Defs.' Supp. Br. at 1 ("Defendants are not at this time aware of an actual conflict between New York law and either Luxembourg law or U.K. law that would require the Court to engage in a choice of law analysis regarding the First Cause of Action or the Third Cause of Action in the Complaint.");
With respect to Count II of the Complaint — the Plaintiffs' constructive fraudulent conveyance claim — the parties agree that there are differences between New York law and the laws of U.K. and Luxembourg. (See Defs.' Supp. Br. at 2-3; Pls.' Supp. Opp. 6.) The Plaintiffs, however, dispute the impact of such differences, arguing that the conflicts among the laws are not sufficiently material to constitute "actual conflict[s]" triggering the next inquiry of a New York choice of law analysis. (Pls.' Supp. Opp. at 6-7.) The Court disagrees.
Under NYDCL sections 273, 274, 275, and 277, as cited in the Complaint (see Compl. ¶¶ 161-168), "a transfer made without fair consideration constitutes a fraudulent conveyance, regardless of the intent of the transferor." Sharp Int'l Corp. v. State St. Bank & Trust Co. (In re Sharp Int'l Corp.), 403 F.3d 43, 53 (2d Cir.2005) (quoting HBE Leasing Corp. v. Frank, 48 F.3d 623, 633 (2d Cir.1995) (acknowledging that New York follows the Uniform Fraudulent Conveyance Act, which identifies several types of constructive fraud)). By contrast, the proffered U.K. and Luxembourg law equivalents to the NYDCL require proof of some degree of purpose or intent.
The Court therefore concludes that an "actual conflict" exists between New York law on the one hand and U.K. and Luxembourg law on the other as to Count II of the Complaint. See, e.g., Lyman Commerce Solutions, Inc. v. Lung, No. 12-cv-4398 (TPG), 2014 WL 476307, at *3 (S.D.N.Y. Feb. 6, 2014) (discussing the court's prior holding that an actual conflict exists between New York constructive fraudulent conveyance law, under which "a plaintiff need not prove [fraudulent] intent," and Iowa and Delaware law, under which "a plaintiff must still prove actual fraudulent intent" (citations and internal quotation marks omitted)); Fireman's Fund Ins. Co. v. Great Am. Ins. Co., 10 F.Supp.3d 460, 495 (S.D.N.Y.2014) (finding an actual conflict between Mississippi and Texas laws governing rescission of an insurance policy based on a misrepresentation of material fact because Mississippi law does not require a finding of an "intent to deceive," whereas "under Texas law, [the plaintiff] must prove intent to deceive and reliance, and any ambiguity will be construed in favor of coverage").
Upon the identification of an "actual conflict" among fraudulent conveyance laws, the New York choice of law analysis requires the Court to apply the "interest-analysis." See, e.g., Drenis v. Haligannis, 452 F.Supp.2d 418, 427 (S.D.N.Y.2006) (characterizing fraudulent
New York choice of law rules do not require a blind adherence to this rule. See Golden Archer Invs., LLC v. Skynet Fin. Sys., 908 F.Supp.2d 526, 539 (S.D.N.Y.2012) (noting that the court "do[es] not blindly follow the lex loci rule" in applying the interest analysis to conduct-regulating laws (citations and internal quotation marks omitted)). But when the alleged wrongful conduct occurs in a place different from the place of injury, the Second Circuit dictates that "it is the place of the allegedly wrongful conduct that generally has superior `interests in protecting the reasonable expectation of the parties who relied [on the laws of that place] to govern their primary conduct and in the admonitory effect that applying its law will have on similar conduct in the future.'" Licci ex rel. Licci v. Lebanese Canadian Bank, SAL, 739 F.3d 45, 50-51 (2d Cir. 2013) ("Licci II") (quoting Schultz v. Boy Scouts of Am., Inc., 65 N.Y.2d 189, 491 N.Y.S.2d 90, 480 N.E.2d 679, 684-85 (1985)); see also Lyman, 2014 WL 476307, at *3 (concluding that for fraudulent conveyance claims, "the location of injury does not control; instead, it is the location of the defendant's conduct that controls." (citation omitted)).
The Plaintiffs argue that New York has the greatest interest in seeing its law applied to their claims. (Pls.' Supp. Opp. at 9-15.) According to the Plaintiffs, (i) securities clearing house reports indicate that a greater number of Sub Notes were held by U.S. custodians than Luxembourg custodians (see Supp. Ashley Decl. Exs. 22-23, 42); (ii) the majority of U.S. custodians holding Sub Notes were located in New York (see id.); (iii) the offering memorandum and indenture for the dollar-denominated Sub Notes were governed by New York law, provided for Hellas II's consent to New York jurisdiction, and appointed a New York trustee, registrar, and paying agent for the Sub Notes (see Compl. ¶ 122); (iv) the Sub Notes were aggressively "marketed and sold to investors located in ... New York and elsewhere in the [U.S.]" (id. ¶ 121; Pls.' Supp. Opp. at 13-14); and (v) a greater sum of the December 2006 CPEC Redemption proceeds obtained by both Apax and TPG was ultimately distributed in New York than in Luxembourg (Pls.' Supp. Opp. at 14-15 (citing Compl. ¶¶ 118-19; Ashley Decl. Exs. 37-38, 50)).
By contrast, the Defendants assert that Luxembourg has a superior interest in seeing its laws applied to Count II because:
Applying the Second Circuit's holding in Licci II, if the Court only had to choose between New York and Luxembourg law, Luxembourg appears to have a greater interest than New York. According to the parties' arguments, the allegedly wrongful conduct occurred more substantially in Luxembourg, whereas the alleged injury occurred more substantially in New York.
Article 4 of the EU Insolvency Regulation indicates that the law of a debtor's Centre of Main Interests ("COMI") "continues to govern aspects of that entity's bankruptcy throughout the [European Union], including the choice of which avoidance law will control." Segaal Schorr, Comment, Avoidance Actions under Chapter 15: Was Condor Correct?, 35 FORDHAM INT'L L.J. 350, 360 (2011) (citations omitted). This article thus establishes a default rule that the law of the debtor's COMI governs the avoidance of antecedent transactions. See Nigel John Howcroft, Universal vs. Territorial Models for Cross-Border Insolvency: The Theory, the Practice, and the Reality that Universalism Prevails, 8 U.C. DAVIS BUS. L.J. 366, 414-15 (2008) [hereinafter Howcraft, Universal vs. Territorial]. Since August 2009, the Debtor's COMI is the U.K. (Compl. ¶ 151.) The Plaintiffs assert that the EU Insolvency Regulation's default rule effectively displaces the applicability of Luxembourg law and Luxembourg's interests in the instant case. (See Pls.' Supp. Opp. at 7-9.) However, the Plaintiffs ignore article 13 of the EU Insolvency Regulation, which provides an exception to the default rule, "enabl[ing] the disapplication of the [default rule] where the person who benefitted from the impugned transaction can prove that the law of another member state governs the transaction and that the transaction is valid under that law." Howcraft, Universal vs. Territorial, at 415.
In any event, the Court need not go further in determining which law applies to Count II of the Complaint. The Court concludes that either Luxembourg or U.K. law applies to Count II, not New York law. The Plaintiffs only pleaded Count II under New York law in their Complaint. Count II of the Complaint is therefore
The Plaintiffs' standing to assert Count I poses a threshold issue. See Official Comm. of Unsecured Creditors of the Debtors v. Austin Fin. Servs., Inc. (In re KDI Holdings, Inc.), 277 B.R. 493, 502-03 (Bankr.S.D.N.Y.1999) ("Standing is a jurisdictional requirement that must be met in order to have claims litigated in federal court." (citing Shearson Lehman Hutton, Inc. v. Wagoner, 944 F.2d 114, 117 (2d Cir.1991))). Because standing is a jurisdictional matter, "it is the burden of the `party who seeks the exercise of jurisdiction in his favor,' ... `to [clearly] allege facts demonstrating that he is a proper party to invoke judicial resolution of the dispute.'" Thompson v. Cnty. of Franklin, 15 F.3d 245, 249 (2d Cir.1994) (quoting FW/PBS, Inc. v. City of Dallas, 493 U.S. 215, 231, 110 S.Ct. 596, 107 L.Ed.2d 603 (1990)). The court may base its finding regarding a plaintiff's standing on the complaint, the complaint supplemented by undisputed facts, or the complaint and any disputed factual issues resolved by the court. See id. at 249.
"It is well settled that in order to set aside a fraudulent conveyance [under NYDCL section 276], one must be a creditor of the transferor; those who are not injured by the transfer lack standing to challenge it." Eberhard v. Marcu, 530 F.3d 122, 131-35 (2d Cir.2008) (concluding that the history and plain language of NYDCL section 276 dictate that creditors have standing to assert an actual fraudulent conveyance claim under New York law). Standing to assert a NYDCL actual fraudulent conveyance claim, however, is not necessarily limited to creditors only — other plaintiffs vested with the authority to assert claims on behalf of creditors, for example, have standing. See, e.g., id. at 132 (recognizing that other courts have held that "receivers [appointed by the Securities and Exchange Commission (the "SEC")] have standing to pursue fraudulently conveyed assets ... when one of the entities in receivership is a creditor of the transferor" (citing Troelstrup v. Index Futures Grp., Inc., 130 F.3d 1274 (7th Cir. 1997); Scholes v. Lehmann, 56 F.3d 750 (7th Cir.1995))); Barnet v. Drawbridge Special Opportunities Fund LP, No. 14-cv-1376 (PKC), 2014 WL 4393320, at *15 (S.D.N.Y. Sept. 5, 2014) ("In general, the
Here, the Plaintiffs are liquidators in the Debtor's U.K. insolvency proceeding, and foreign representatives before this Court under chapter 15 of the Bankruptcy Code pursuant to the Court's prior order granting recognition of the Debtor's U.K. insolvency proceeding. (See ECF Doc. # 17, Case No. 12-10631.) They are not creditors of the Debtor. The parties therefore dispute whether the Plaintiffs have standing to assert their NYDCL section 276 claim by way of some other authority vested in them as foreign representatives or U.K. liquidators.
Upon recognition of a foreign proceeding, foreign representatives are entitled to certain mandatory relief pursuant to section 1520 of the Bankruptcy Code as well as the assistance of the U.S. Bankruptcy Court in administering the foreign main proceeding. See In re Atlas Shipping A/S, 404 B.R. 726, 738-39 (Bankr.S.D.N.Y. 2009).
Id. at 739 (citations and internal quotation marks omitted). In pertinent part, section 1521(a) of the Bankruptcy Code states:
11 U.S.C. § 1521(a).
The parties agree that the Plaintiffs, as foreign representatives in the Debtor's chapter 15 proceeding, do not have standing to assert Count I if the Plaintiffs need to rely on section 544 to provide that standing because section 1521(a)(7) of the Bankruptcy Code does not permit a foreign
The Plaintiffs assert, by way of a four-pronged argument, that they are vested with such authority. (See Dec. 16, 2014 Hr'g. Tr. at 15:8-19:25.) The Plaintiffs focus the first two prongs of their argument on the Debtor's U.K. insolvency proceeding. First, the Plaintiffs cite to the U.K. High Court's judgment converting the Debtor's prior U.K. administration into liquidation. (Dec. 16, 2014 Hr'g. Tr. 16:15-17:22.) According to the Plaintiffs, in this judgment, the High Court (1) converted the Debtor into a compulsory liquidation due to the request of "a significant portion of the unsecured creditors ... unopposed by any other creditor;" and (2) contemplated the role of the liquidators as including the investigation into the transactions now at issue before this Court to determine whether there were any viable claims that could be pursued. (Id.) Second, the Plaintiffs cite to a resolution of the U.K. Liquidation Committee comprised of certain of the Debtor's creditors that sanctioned the Plaintiffs to pursue this lawsuit in the U.S. (Id. at 18:9-25.)
Neither the judgment nor the resolution, however, provides evidence establishing that the Plaintiffs were granted express authority in the Debtor's U.K. insolvency proceeding to assert claims on behalf of the Debtor's creditors. The Plaintiffs ignore that the judgment does not specify that the Plaintiffs have standing to assert any or all of the potentially "viable claims," let alone claims on behalf of the Debtor's creditors. (See Pls.' Dec. 16, 2014 Hr'g. Binder, Tab 20, In the Matter of Hellas Telecommunications (Luxembourg) II SCA (in administration), [2011] EXHC 3176(Ch) ¶ 91.) The Plaintiffs further ignore that the resolution does not specifically sanction the Plaintiffs to pursue claims on behalf of the Liquidation Committee (i.e.creditors). (See Pls.' Dec. 16, 2014 Hr'g. Binder, Tab 21, Resolutions Considered at the Second Meeting of the Liquidation Committee Held on 20 February 2014 at 25 Farrington Street London EC4A 4AB, dated 28 February 2013.)
The second two prongs of the Plaintiffs' argument focus on U.K. statutory law. First, the Plaintiffs argue that they have authority to bring their NYDCL actual fraudulent conveyance claim outside of the U.K. and under New York law. (Moss. Decl. ¶¶ 30-44.) According to the Plaintiffs' expert, Moss, the Plaintiffs' assertion of the NYDCL actual fraudulent conveyance claim is "within the express powers granted liquidators by Article 5" of the U.K.'s chapter 15 equivalent, the Cross-Border Insolvency Regulations (the "CBIR"). (Id. ¶¶ 15, 34.) Article 5 of the CBIR provides that "[a] British insolvency officeholder [which includes U.K. liquidators] is authorized to act in a foreign State on behalf of a proceeding under British insolvency law, as permitted by the applicable foreign law." The Cross-Border Insolvency Regulations, 2006, No. 1030, art. 5; see also id. art. 2, ¶ (b) (defining "British insolvency officeholder"). Moss asserts that the Plaintiffs' NYDCL claim is brought "on behalf of" the Debtor's U.K. insolvency proceeding and that the only U.K. law restriction on the avoidance action is that it be in accordance with New York law. (Moss.Decl. ¶ 32.) The Plaintiffs assert that nothing in New York law prevents them from asserting their NYDCL actual fraudulent conveyance claim. According to the Plaintiffs, NYDCL section 276-a confers standing upon them to assert the NYDCL section 276 claim, and the Seventh Circuit's decision in Scholes v. Lehmann, 56 F.3d 750 (7th Cir.1995), holding that the SEC receiver had standing to assert a claim under Illinois's then-equivalent version of a NYDCL section 276 claim, further supports
Second, the Plaintiffs argue that the U.K.'s Insolvency Act vests the Plaintiffs, as liquidators, with the authority to assert claims not just on behalf of the company, but also on behalf of the company's creditors more broadly. (See Dec. 16, 2014 Hr'g. Tr. at 19:9-25.) The Plaintiffs primarily rely on paragraph 13 of schedule 4 of the Insolvency Act ("Paragraph 13"), which states that the liquidator has the "[p]ower to do all such other things as may be necessary for winding up the company's affairs and distributing its assets." Insolvency Act, 1986, c. 45, §§ 165, 167, sch. 4 ¶ 13. Moss explains that Paragraph 13 is known as a "sweep-up" provision and is to be interpreted broadly so as to "authori[ze] expressly anything `necessary' for the winding up" of a company. (Moss Decl. ¶ 39.) Moss opines that the NYDCL fraudulent conveyance claim is "undoubtedly `necessary' in order to reconstitute the estate for the creditors and to distribute the assets to creditors, which in turn is a `necessary' aspect of winding up the company." (Id.) Moss concludes that, "despite there being no specific mention of this in Schedule 4, liquidators have power under the Insolvency Act 1986 inter alia to take proceedings abroad in their own name and under a local statute, and not just to take proceedings in the name of or on behalf of the debtor company." (Id. ¶ 43.) In essence, Moss opines that the Plaintiffs have authority to bring their NYDCL fraudulent conveyance claim pursuant to this "sweep-up" provision of the Act. (Id. ¶¶ 39-41.)
By contrast, the Defendants' expert, Isaacs, disagrees with both of Moss's conclusions, opining that neither Article 5 of the CBIR nor Paragraph 13 of the Insolvency Act empowers a U.K. liquidator to bring claims outside of the U.K. and under New York law that belong to creditors. (Isaacs Reply Decl. ¶¶ 4, 11.) As to Article 5 of the CBIR, Isaacs underscores Moss's concession that the NYDCL claim may only be brought if permitted by the applicable foreign law. (Id. ¶ 6.) Isaacs opines that Article 5 does not vest a liquidator with the substantive authority to override foreign law — instead, it merely authorizes a liquidator to act in accordance with New York law. (Id. ¶¶ 9-10; see also id. ¶ 6 ("[i]f the Liquidators are not permitted by the [NY]DCL to bring fraudulent conveyance claims which belong to creditors, Article 5 does not authorize them to do so.").) The Defendants argue that because U.K. liquidators cannot act as or on behalf of creditors under U.K. law, it follows that the Plaintiffs are not permitted to assert their actual fraudulent conveyance claim under the NYDCL. (Defs.' Reply at 7-8.)
With regard to Paragraph 13, Isaacs opines that in spite of its function as a "sweep-up" provision, Paragraph 13 should not be read to confer substantive rights upon the liquidator that do not already exist via other U.K. statutes. (Isaacs Reply Decl. ¶ 11.4 (discussing Re Phoenix Oil & Transport Co Ltd (No 2) [1958] Ch 565 (rejecting liquidators' contention that the distribution of surplus assets is one of the "other things" which the liquidator had power to do under Paragraph 13, because the provision was properly regarded as a mopping-up provision at the end of a list of functions which the liquidator is enabled to perform in connection with the administration of the particular company's affairs and no more); Re MF Global Ltd [2013] 1 BCLC 552 at 565 ("While an administrator has power `to do all other things incidental to the exercise of the foregoing powers' (para 23 of Sch 1), the equivalent power of a liquidator is limited to doing `all such other things as may be necessary for winding
Based on the parties' arguments and the expert declarations, the Court concludes that U.K. law does not vest a liquidator with standing to assert claims on behalf of creditors broadly, despite there being clear authority vested in a liquidator to assert claims on behalf of the insolvent company. See Insolvency Act, 1986, c. 45 §§ 165, 167 sch. 4 ¶ 4; see also GOODE, PRINCIPLES OF CORPORATE INSOLVENCY LAW ¶ 5-04 (4th ed. 2011) ("On behalf of the creditors, the [U.K.] liquidator can bring proceedings in the name of the company in respect of causes of action vested in the company but he has no locus standing to pursue claims vested in persons qua creditors." (emphasis added)).
The parties agree that under the Insolvency Act, a liquidator involved in a winding up of a company by a U.K. court has the power to exercise any powers listed in parts I and II of schedule 4 of the Act "with the sanction of the court or liquidation committee," and to exercise any powers listed in part II of schedule 4 "with or without that sanction." Insolvency Act, 1986, c. 45, § 167; see also id. c. 45, §§ 165, 167, sch. 4. Here, only three of the enumerated powers in schedule 4 are potentially relevant to the question of a liquidator's standing: (i) "[p]ower to bring legal proceedings under section 213, 214, 238, 239, 242, 243 or 423" of the Act, id. c. 45, §§ 165, 167, sch. 4 ¶ 3A ("Paragraph 3A"); (ii) "[p]ower to bring or defend any action or other legal proceeding in the name and on behalf of the company," id. c. 45, §§ 165, 167, sch. 4 ¶ 4 ("Paragraph 4"); and (iii) "[p]ower to do all such other things as may be necessary for winding up the company's affairs and distributing its assets," id. c. 45, §§ 165, 167, sch. 4 ¶ 13.
It is clear from Paragraph 4 that a liquidator under U.K. law is vested with the authority to bring actions "in the name and on behalf of the company." Id. c. 45, §§ 165, 167, sch. 4 ¶ 4. It is also clear that under Paragraph 3A, a liquidator may assert a claim under the proffered U.K. equivalent to a NYDCL fraudulent conveyance claim, section 423 of the Insolvency Act — the only creditor-like standing that a liquidator appears to have under U.K. law.
Although liquidators have express authority to bring a section 423 claim on behalf of the company's creditors, it does not follow that liquidators have the authority to bring any or all claims on behalf of the company's creditors. Nothing in schedule 4 of the Insolvency Act, the CBIR, or any U.K. law presented to the Court by the parties leads to such a conclusion. Indeed, the Plaintiffs' expert concedes that the Plaintiffs' actual fraudulent conveyance claim was not brought under section 423 of the Insolvency Act, leaving open the question of the Plaintiffs' standing. (Moss Decl. ¶ 30.) Moss further concedes that the CBIR requires that actions brought by a U.K. liquidator abroad be "permitted by the applicable foreign law." (Id. ¶ 34 (citing CBIR, 2006, No 1030, art. 5).) The "applicable foreign law" in this case is New York law, and the Second Circuit has clearly set forth the standing requirements for plaintiffs seeking to assert a NYDCL section 276 claim. See Eberhard, 530 F.3d at 129-35. The Plaintiffs fail to satisfy their burden in establishing that they meet these requirements. See Thompson, 15 F.3d at 249 (holding that the "party who seeks the exercise of jurisdiction in his favor" bears the burden in establishing that he or she is the proper party to do so (citation omitted)).
First, the Plaintiffs cannot argue that they have standing under New York law without looking to U.K. law for supplemental vested authority. In light of the Second Circuit's (1) extensive examination of the history and plain language of NYDCL section 276, and (2) ultimate conclusion that section 276's standing restrictions stem from the section's purpose of affording relief to creditors, Eberhard, 530 F.3d at 129-35, the Court finds the Plaintiffs' reliance on NYDCL section 276-a — which merely authorizes a court to award attorney's fees to a successful section 276 plaintiff — unpersuasive.
Second, the Plaintiffs' reliance on a broad interpretation of the Insolvency Act's "sweep-up" provision, Paragraph 13, is wholly unsubstantiated. The Plaintiffs could not produce a single case supporting their argument and their expert's opinion that Paragraph 13 confers standing on U.K. liquidators to assert causes of action on behalf of a company's creditors.
The Court concludes that the Plaintiffs fail to meet their burden in establishing that they have standing to assert their NYDCL section 276 claim. Count I is therefore
Apax and TPG argue that Count III of the Complaint, asserting an unjust enrichment claim against Apax and TPG must be dismissed for three reasons: (1) the Plaintiffs lack standing to assert the unjust enrichment claim (Defs.' Mot. at 18-19); (2) the unjust enrichment claim is not timely (id. at 19-21); and (3) the Complaint fails to state a claim for unjust enrichment (id. at 33-35). As set forth below, the Court finds that at this stage in the pleadings, the Plaintiffs have adequately alleged standing to bring their unjust enrichment claim against the Apax and TPG Defendants over which the Court has personal jurisdiction (collectively, the "U.S. Apax/TPG Defendants"). The Court also concludes that the unjust enrichment claim is not barred by the applicable statute of limitations and that the Complaint adequately pleads the claim. Therefore, the Defendants' Motion to Dismiss Count III is
Apax and TPG argue that the Plaintiffs lack standing to bring their unjust enrichment claim under the Second Circuit's Wagoner rule, which holds that "[a] claim against a third party for defrauding a corporation with the cooperation of management accrues to creditors, not to the guilty corporation." (Defs.' Mot. at 18 (quoting Giddens v. D.H. Blair & Co. (In re A.R. Baron & Co.), 280 B.R. 794, 800 (Bankr. S.D.N.Y.2002)).) They contend that "[i]n federal court, prudential considerations deprive a bankruptcy trustee of standing even to bring a claim that would be barred
The Plaintiffs contend that Apax and TPG may not rely on an in pari delicto defense because they are not third parties; rather they are insiders who "advised and managed" Hellas II. (Opp. at 25.) According to the Plaintiffs, the in pari delicto defense may not be raised by insiders (id. (citing KDI Holdings, 277 B.R. at 518; Picard v. Madoff (In re Bernard L. Madoff Inv. Sec. LLC), 458 B.R. 87, 124 (Bankr.S.D.N.Y.2011)), and Hellas II's management "was comprised of TPG and Apax executives" (id. (citing Compl. ¶¶ 95, 125-27)). Specifically, the Plaintiffs assert that "[w]here, as alleged here, `controlling shareholder[s] forced the corporation to act for the benefit of the shareholder[s],' the in pari delicto defense is `unavailable.'" (Id. (citing KDI Holdings, 277 B.R. at 518; Krys v. Sugrue (In re Refco Inc. Sec. Litig.), 2010 WL 6549830, at *15 (S.D.N.Y. Dec. 6, 2010) ("[I]t would be absurd to allow a wrongdoing insider to rely on the imputation of his own conduct to the corporation as a defense."), adopted in relevant part by 779 F.Supp.2d 372 (S.D.N.Y.2011)).)
In response, Apax and TPG contend that only "[g]eneral partners, sole shareholders, and sole decision makers" are considered insiders barred from asserting an in pari delicto defense (Defs.' Reply at 17 (quoting Picard, 458 B.R. at 124)); however, the Plaintiffs have not alleged that any Apax or TPG Defendants had such a relationship to Hellas II (id. (citing Compl. ¶ 40)). To the contrary, "the Complaint concedes that the Sponsors, only one of which is a Defendant ... were the shareholders of Hellas II's ultimate parent." (Id. (citing Compl. ¶ 40)). Moreover, Apax and TPG argue that the Plaintiffs do not allege that any Apax or TPG Defendant was an officer or director of Hellas II; instead, they make "conclusory allegations that unspecified TPG and Apax Defendants `controlled' Hellas II...." (Id. at 17-18 (citing Compl. ¶ 95).) At the Hearing, counsel for Apax and TPG elaborated on this point, arguing that the allegations in the Complaint improperly lumped the Apax and TPG Defendants together, without specifying which such Defendants engaged in conduct amounting to any requisite degree of control. (See Dec. 16, 2014 Hrg. Tr. 49:21-50:3, 52:11-20.)
As discussed above, with the exception of the relief available under the Bankruptcy Code's avoidance powers, the Plaintiffs, as foreign representatives of the Debtor, may be granted any relief available to a trustee. 11 U.S.C. § 1521(a)(7). "As a general matter, a trustee stands in the shoes of the debtor and has standing to bring any action that the debtor could have instituted prepetition." Giddens, 280 B.R. at 799 (quoting Wagoner, 944 F.2d at 118). While a trustee has standing to bring claims belonging to the debtor, it does not have standing to assert claims on behalf of individual creditors. Id. (citations omitted); see Picard v. Taylor (In re
In Wagoner, the Second Circuit developed a prudential standing rule referred to as the Wagoner rule. McHale v. Citibank, N.A. (In re 1031 Tax Grp., LLC), 420 B.R. 178, 189-90 (Bankr. S.D.N.Y.2009) (citing Wight v. BankAmerica Corp., 219 F.3d 79, 86-87 (2d Cir. 2000)). The Wagoner rule provides that "when a bankrupt corporation has joined with a third party in defrauding its creditors, the trustee cannot recover against the third party for the damage to the creditors." Wagoner, 944 F.2d at 118; see Picard v. JPMorgan Chase & Co. (In re Bernard L. Madoff Inv. Sec. LLC), 721 F.3d 54, 63 (2d Cir.2013) ("The debtor's misconduct is imputed to the trustee because, innocent as he may be, he acts as the debtor's representative." (citations omitted)). Post-Wagoner, "courts in this Circuit have consistently held that bankrupt corporations, and trustees standing in the shoes of the bankrupt corporation, lack standing to assert claims against third parties for assisting in defrauding the company where corporate management conducted the alleged fraud." McHale, 420 B.R. at 197 (collecting cases).
"The doctrine of in pari delicto is a well-established principle of New York law based on the notion that `one wrongdoer may not recover against another.'" Sec. Investor Prot. Corp. v. Bernard L. Madoff Inv. Sec. LLC, 987 F.Supp.2d 311, 314 (S.D.N.Y.2013) (citation omitted). In pari delicto is an "equitable defense similar to the unclean hands doctrine," McHale, 420 B.R. at 197 (citation omitted), which "exists because, as a matter of equity, courts should not help plaintiffs profit from their wrongdoings," id. (citing Ross v. Bolton, 904 F.2d 819, 824 (2d Cir.1990)). "Although, under New York State law, in pari delicto is an affirmative defense, in federal court prudential considerations deprive a bankruptcy trustee of standing to even bring a claim that would be barred by in pari delicto." Picard v. HSBC Bank PLC, 454 B.R. 25, 29 (S.D.N.Y.2011) (citations omitted).
Both the Wagoner rule and the in pari delicto doctrine are "grounded in common law agency principles." Id. (citations omitted). Because a trustee in bankruptcy may assert whatever claims the debtor corporation may have brought prepetition, subject to all available defenses, "any wrongdoing imputed to the corporation under a theory of agency also taints the trustee's claims." Id. at 198-99. "Because management's misconduct is imputed to a corporation, and because a trustee stands in the shoes of the corporation, the Wagoner rule bars a trustee from suing to recover for a wrong that he himself essentially took part in." Id. (citing Wight, 219 F.3d at 87). Likewise, under the in pari delicto doctrine, "[t]raditional agency principles play an important role in an in pari delicto analysis." Kirschner v. KPMG LLP, 15 N.Y.3d 446, 912 N.Y.S.2d 508, 938 N.E.2d 941, 950 (2010) (emphasis added).
"It is a `fundamental principle of agency that the misconduct of managers within the scope of their employment will normally be imputed to the corporation.'" McHale, 420 B.R. at 199 (citing Wight, 219 F.3d at 86); see Kirschner, 912 N.Y.S.2d 508, 938 N.E.2d at 951 ("[A] corporation `is
Because both the Wagoner rule and in pari delicto doctrine "are grounded in substantive agency law, and identical tests appear to apply to both doctrines," this Court will analyze the parties' in pari delicto and Wagoner rule arguments together.
The in pari delicto doctrine "does not apply to the actions of fiduciaries who are insiders in the sense that they either are on the board or in management, or in some other way control the corporation." In re Optimal U.S. Litig., 813 F.Supp.2d 383, 400 (S.D.N.Y.2011) (emphasis in original) (quoting Refco, 2010 WL 6549830, at *15) (internal quotation marks omitted); see Mediators, 105 F.3d at 826-27 (noting that the Wagoner rule and the in pari delicto doctrine do not prevent "a bankruptcy trustee, suing on behalf of the debtor under New York law, [from] pursu[ing] an action for breach of fiduciary duty against the debtor's fiduciaries" (citing Keene Corp. v. Coleman (In re Keene Corp.), 164 B.R. 844, 853 (Bankr.S.D.N.Y. 1994))); Global Crossing Estate Representative v. Winnick, No. 04 Civ. 2558(GEL), 2006 WL 2212776, at *15 (S.D.N.Y. Aug. 3, 2006) ("[T]o the extent plaintiff can establish that defendants' alleged control and domination of [the debtor] rendered them corporate insiders and fiduciaries, Wagoner and the "in pari delicto" rules will not bar plaintiff's fiduciary duty claims."); see also Teras Int'l Corp. v. Gimbel, No. 13-CV 6788(VEC), 2014 WL 7177972, at *10 (S.D.N.Y. Dec. 17, 2014) (holding that breach of fiduciary duty claims against defendants alleged to be directors of bankrupt corporation were not barred by the in pari delicto doctrine). The rationale for not extending the in pari delicto defense to insiders is that "[i]n such cases, the element of mutual fault [in pari delicto] is not present, thereby rendering the defense unavailable." KDI Holdings, 277 B.R. at 518; see Kalb, Voorhis & Co. v. Am. Fin. Corp., 8 F.3d 130, 133 (2d Cir.1993) ("[W]here the parties do not stand on equal terms and one party controls the other, the in pari delicto doctrine does not apply." (citing Ross, 904 F.2d at 824 (2d. Cir.1990))).
"General partners, sole shareholders, and sole decision makers" are paradigmatic insiders for purposes of the in pari delicto doctrine under New York law. Picard, 458 B.R. at 124 (citing Devon Mobile Commc'ns Liquidating Trst v. Adelphia Commc'ns Corp. (In re Adelphia Commc'ns Corp.), 322 B.R. 509, 529 n. 18 (Bankr.S.D.N.Y.2005); Granite Partners, L.P. v. Bear, Stearns & Co., 17 F.Supp.2d 275, 308 (S.D.N.Y.1998)). However, "[e]ven a third-party professional, typically the quintessential outsider, may surrender
In KDI Holdings, the bankruptcy court rejected the defendants' in pari delicto defense, finding that the complaint sufficiently alleged that the defendants "may have gained control over the [d]ebtors," thereby rendering them insiders. 277 B.R. at 512. Specifically, the complaint alleged that the defendants, through a partnership with a family member that held an interest in certain unsecured creditors, were granted security interests in the debtors' assets in exchange for certain loans made by the defendants. See id. at 499. As a result of the defendants extending such loans, an entity formed by one of the defendants' family members gained control of the each of the debtors' voting stock. See id. Thereafter, individuals connected to the defendants were appointed as directors and managers of the debtors, "obtain[ing] unfettered control over the assets of the ... [d]ebtors and the performance of such [d]ebtors' massive pre-petition obligations." Id. (citation and internal quotation marks omitted). The court found that the plaintiff "alleged sufficient facts with regard to [the defendants'] insider status through domination and control to render the in pari delicto defense in applicable...." Id. at 518-19.
Here, the Complaint is replete with allegations that Apax and TPG dominated and controlled the management of Hellas II and exercised their control to accomplish the December 2006 CPEC Redemption. (See Compl. ¶¶ 95, 125-129.)
First, the Complaint alleges that "[a]t all relevant times, TPG and Apax directed and controlled the actions of the Sponsors, the Hellas Entities, [Hellas II], and [Hellas II]'s subsidiaries." (Id. ¶ 95.) The Plaintiffs allege that each of the eight Sponsors were formed, owned, and controlled by Apax and TPG. (See Compl. ¶¶ 40-47.) The Sponsors "collectively held all of the CPECs and common stock issued by Hellas," and through the Sponsors Apax and TPG "owned and controlled [Hellas II] and its affiliates and obtained proceeds from the December 2006 CPEC Redemption." (Id. ¶ 40.) Apax and TPG "install[ed] certain key personnel on the board of directors of TIM Hellas." (Id. ¶ 95 (noting that the six of the ten directors of TIM Hellas were employees of Apax and TPG, including three employees of Apax and three employees of TPG).) "Many of those same TPG and Apax personnel (and others) held overlapping positions of authority on the Board of Managers of Hellas (the sole manager of the Company) and in the management of the Sponsors," TPG, and Apax. (Id.)
Second, the Plaintiffs allege that Apax and TPG exercised their control in accomplishing the December 2006 CPEC Redemption. Specifically, the Plaintiffs allege that the applicable redemption agreement authorizing Hellas II's initial redemption of CPECs issued to Hellas I was executed by Giancarlo Aliberti and Matthias Calice — members of Apax Partners and TPG London, respectively — on behalf of both Hellas entities. (Id. ¶ 125.) A separate redemption agreement authorizing Hellas's redemption of CPECs issued to the Sponsors was also executed by Aliberti and Calice on behalf of Hellas and each of the eight Sponsors. (Id. ¶ 126.) Both redemption agreements recited that the applicable redemption price per CPEC had been "determined by the Board of Managers on the basis of the equity value of [Hellas II] and its Subsidiaries by resolutions adopted on December 18, 2006." (Id. ¶ 125-126.)
At this stage in the pleadings, the Court concludes that Apax's and TPG's group pleading argument fails and that the Plaintiffs have sufficiently alleged their standing to bring their unjust enrichment claim, as the allegations in the Complaint plausibly suggest that the U.S. Apax/TPG Defendants, through their affiliates, controlled Hellas II, thereby rendering them insiders. (See Compl. ¶¶ 23-32, 40 (describing the relationship among the TPG Defendants, and Bonderman and Coulter's degree of influence over TPG Defendants that allegedly owned and controlled the Sponsors and Hellas II); id. ¶¶ 33-40 (describing the relationship among the Apax Defendants. and Apax NY's chairman's degree of influence over the strategies and operations of the Apax Defendants generally).) Whether the U.S. Apax/TPG Defendants specifically exercised a requisite degree of control such that the Wagoner rule and in pari delicto doctrine do not apply to them raises factual issues that cannot be resolved on a motion to dismiss.
"Under New York law, the six-year limitations period for unjust enrichment accrues upon the occurrence of the wrongful act giving rise to a duty of restitution and not from the time the facts constituting the fraud are discovered." Cohen v. S.A.C. Trading Corp., 711 F.3d 353, 364 (2d Cir.2013) (citation and internal quotation marks omitted); see also N.Y. C.P.L.R. § 213(1) (McKinney 2014) (providing a statute of limitations of six years for claims "for which no limitation is specifically prescribed by law").
With regard to such claims, section 108(a) of the Bankruptcy Code provides:
11 U.S.C. § 108(a). "While there is no dispositive case law addressing whether [s]ection 108 relief is automatically applicable in ... chapter 15 cases, this question is squarely addressed by section 103(a) of the Code, which incorporates [s]ection 108 into a chapter 15 proceeding." In re Fairfield Sentry Ltd., 452 B.R. 52, 57 (Bankr.
The challenged transfers underlying the Plaintiffs' unjust enrichment claim occurred in December 2006, well over six years ago. However, the Debtor's chapter 15 petition was filed in February 2012, before the expiration of the six-year limitations period. Pursuant to section 108 of the Bankruptcy Code, made applicable to this case through section 103(a), the statute of limitations was tolled as of the filing of the chapter 15 petition. Consequently, the Plaintiff's unjust enrichment claim is therefore timely.
TPG and Apax argue that the Plaintiffs fail to state a claim as a result of the same pleading deficiencies that plague their NYDCL claims. (See Defs.' Mot. at 33.) Specifically, they contend that the Plaintiffs do not plead a sufficiently close relationship between TPG and Apax and the holders of the Sub Notes required to allege a claim for unjust enrichment under New York law. (Id. at 33.) Additionally, they argue that "the unjust enrichment claim fails because Plaintiffs have not alleged that it would be against `equity and good conscience' for the Defendants to retain any transfers made to them." (Id. at 34.)
In order to adequately plead an unjust enrichment claim a plaintiff must allege "that (1) the other party was enriched, (2) at [the plaintiff's] expense, and (3) that it is against equity and good conscience to permit the other party to retain what is sought to be recovered." Ga. Malone & Co. v. Rieder, 19 N.Y.3d 511, 950 N.Y.S.2d 333, 973 N.E.2d 743, 746 (2012) (quoting Mandarin Trading Ltd. v. Wildenstein, 16 N.Y.3d 173, 919 N.Y.S.2d 465, 944 N.E.2d 1104, 1110 (2011)). The New York Court of Appeals has clarified that "a plaintiff cannot succeed on an unjust enrichment claim unless it has a sufficiently close relationship with the other party." Id. (citation omitted). The relationship between the plaintiff and the other party must be one that is "not too attenuated," id. 950 N.Y.S.2d 333, 973 N.E.2d at 747 (citation and internal quotation marks omitted). and the plaintiff's complaint must indicate "a relationship between the parties that could have caused reliance or inducement," id. (quoting Mandarin, 919 N.Y.S.2d 465, 944 N.E.2d at 1111) (internal quotation marks omitted).
Here, the Plaintiffs have adequately alleged that a sufficient relationship exists between TPG and Apax, on the one hand, and Hellas II, on the other.
For the foregoing reasons, the Motions to Dismiss are granted in part and denied in part. The Apax/TPG Motion is
Insolvency Act, 1986, c. 45, § 423.
N.Y. DEBT. & CRED. LAW § 276-a (emphasis added).
Although the Defendants could not provide a case directly on point to the contrary, the Defendants' expert did provide case law holding that Paragraph 13 was not broadly construed in other circumstances. (See Isaacs Decl. ¶ 11.4 (discussing Re Phoenix Oil & Transport Co Ltd (No 2) [1958] Ch 565 (rejecting liquidators' contention that the distribution of surplus assets is one of the "other things" which the liquidator had power to do under Paragraph 13 because the provision is merely a sweep-up provision at the end of a list of functions which the liquidator is enabled to perform in connection with the administration of a company's affairs and no more); Re MF Global Ltd [2013] 1 BCLC 552 at 565 ("While an administrator has power `to do all other things incidental to the exercise of the foregoing powers' (para 23 of Sch 1), the equivalent power of a liquidator is limited to doing `all such other things as may be necessary for winding up the company's affairs and distributing its assets.'" (emphasis added))).)
Even though the Court concludes that both Counts I and II asserted under the NYDCL are dismissed with prejudice, the Court does not decide whether, on a motion for leave to amend the Complaint to assert fraudulent conveyance claims under U.K. or other foreign law, the Plaintiffs would have the requisite standing to assert such foreign law claims or the merits of such claims.
