JAMES L. GARRITY, Jr., Bankruptcy Judge.
Cinque Terre Financial Group Limited (the "
The matter before the Court is the Liquidator's motion pursuant to Rule 9019 of the Federal Rules of Bankruptcy Procedure, for an order approving a settlement agreement (the "
In the Maritime Action and the Bankruptcy Motions, the Liquidator contends that the Registry Funds should be paid to the Debtor, not CTEL Malta/Elemento. His theory is that CTEL Malta/Elemento is an alter ego of the Debtor and, in any event, that it used the Debtor's funds to acquire the Naphtha Fuel from PetroPeru, without the Debtor's knowledge or consent. Since the commencement of that litigation, the Liquidator has conducted informal discovery of CTEL Malta/Elemento. In response to the Liquidator's requests, CTEL Malta/Elemento has produced records from the bank account that is the source of the funds that it used to pay for the Naphtha Fuel (the "
Chemoil initially objected to the Motion.
Centauro objects to the Settlement Agreement
This Court has jurisdiction to finally adjudicate the Motion pursuant to 28 U.S.C. §§ 1334 and 157(a) and (b)(1) 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, dated January 31, 2012 (Preska, C.J.). This is a core proceeding. See 28 U.S.C. § 157(b)(2)(P). This memorandum of decision and order constitutes the Court's findings of fact and conclusions of law pursuant to Rule 52(a) of the Federal Rules of Civil Procedure, applicable here pursuant to Rules 7052 and 9014(c) of the Federal Rules of Bankruptcy Procedure.
The Debtor was placed in liquidation in the BVI (the "
When he took office, the Liquidator had limited access to the Debtor's books and records, and little insight into the Debtor's business operations. Indeed, the Liquidator commenced this case to obtain this Court's assistance with his investigation of the activities of the Debtor's former managers and directors in various jurisdictions including, but not limited to, Switzerland, the United States, and Central America. See Verified Petition at ¶ 3 [ECF No. 2]; MacKellar Dec. at ¶ 13. Since his appointment, the Liquidator has determined that Bazzoni was the Debtor's sole shareholder and Rothenberg served as its chief financial officer. See MacKellar Dec. at ¶¶ 15-16. He also maintains that Bazzoni, Rothenberg and Ruben Alejandro Goldstein ("
The Liquidator maintains that after he took office, the Former Officers used the Debtor's assets and, in effect, continued the Debtor's operations, without the Liquidator's knowledge or consent, through the following entities that they created under Malta law: CTEL Malta/Elemento, CT Energia Holding Ltd., and CT Energia Oil and Gas Ltd. He asserts that the Former Officers did so in an effort to avoid paying creditors of the Debtor. See Property Mot. at ¶¶ 6, 7.
To date, CTEL Malta/Elemento has not received the proceeds from the SKEA sale (the "
Chemoil is a Panama corporation that asserts a $3.9 million claim against the Debtor based upon the Debtor's alleged default under a 2014 contract to purchase fuel oil. It contends that CTEL Malta/Elemento is an alter ego of the Debtor and that the Naphtha Sale Proceeds belong to the Debtor, not to CTEL Malta/Elemento. On March 14, 2017, with the Liquidator's consent, Chemoil filed a complaint in the Texas Court, seeking a writ of maritime attachment on the Naphtha Sale Proceeds, in satisfaction of its claim against the Debtor (the "
On April 4, 2017, the Texas Court authorized SKEA to deposit the Naphtha Sale Proceeds into the court's registry (i.e. the Registry Funds) and dismissed SKEA from the action. See Chemoil Obj. at 3; Property Mot., Ex. B (Order granting SKEA's motion to deposit the Naphtha Sale Proceeds into the Texas Court's Registry). Chemoil maintains that the Registry Funds should be turned over to the Liquidator and thereafter paid to the Debtor's creditors, less an amount equal to Chemoil's costs and reasonable attorneys' fees expended in litigating the Maritime Action. Chemoil Obj. at ¶ 7.
CTEL Malta/Elemento opposes the relief Chemoil seeks in the Maritime Action on grounds, among other, that it is not subject to the personal jurisdiction of that court and, in any event, that the Texas Court lacks subject matter jurisdiction to adjudicate the action. See Property Mot. at ¶ 26. The proceedings in the Maritime Action have been adjourned pending the resolution of the Motion.
On April 7, 2017, the Liquidator filed a motion in this Court seeking a determination that the Registry Funds are property of the Debtor, and a direction that those funds be deposited in this Court, in the event the Texas Court determines that it lacks subject matter jurisdiction over the Maritime Action. See Property Mot. at 8.
Property Mot. at ¶ 29. Specifically, and in part, in the Property Motion, the Liquidator argues that after commencement of the BVI Liquidation Proceedings, the Former Officers continued to operate the Debtor, "using resources of Debtor through other foreign corporate entities which they controlled . . . . to avoid paying creditors of Debtor," including the use of the License and the Debtor's funds to purchase the Naphtha Fuel for the benefit of CTEL Malta/Elemento, whom as a result, the Liquidator argues "is the alter-ego of Debtor." Property Mot. at ¶¶ 6-7, 29.
That same day, the Liquidator filed a motion pursuant to sections 362(k)(1) and 1520(a)(1) of the Bankruptcy Code to sanction CTEL Malta/Elemento and the Former Officers (collectively, the "
On April 7, 2017, the Liquidator also filed the Stay Relief Motion seeking to modify the automatic stay nunc pro tunc to March 14, 2017, to permit Chemoil, as a creditor of the Debtor, to prosecute the Maritime Action. [Hereinafter, the Property Motion, Sanctions Motion and Stay Relief Motion collectively will be referred to as the "
The Liquidator has not taken steps to prosecute any of the Bankruptcy Motions. Rather, as discussed below, after he filed them, he initiated settlement discussions with Chemoil and CTEL Malta/Elemento. Those discussions yielded the Settlement Agreement.
Centauro is party to a 2009 joint venture agreement with the Debtor and CTEL BVI pursuant to which Centauro raised capital for the Debtor to use in oil transactions. Centauro contends that over the life of that agreement, the Debtor misappropriated more than $21 million of its funds. See Centauro I, 2016 WL 5719793, at *2. To resolve that dispute, in May 2015, the Debtor and CTEL BVI executed the Centauro Note that obligates them to make monthly payments of $500,000 to Centauro until the full balance of $21,092,213 (plus interest) is paid. Id. Bazzoni signed the Note on behalf of both the Debtor and CTEL BVI, in his capacity as Chief Executive Officer of both companies. Id. at *1. The Debtor and CTEL BVI failed to make any payments under the Centauro Note. Id. at *2.
On November 17, 2015, Centauro filed a complaint (the "
Upon the commencement of the chapter 15 case, the litigation was stayed as against the Debtor, however CTEL BVI and the Non Signatory Defendants moved to dismiss the Complaint. By Memorandum Opinion and Order dated September 30, 2016, the District Court dismissed the Complaint against Bazzoni and the rest of the Non-Signatory Defendants, for lack of personal jurisdiction, without prejudice to Centauro's right to seek leave to amend its complaint. See Centauro I, 2016 WL 5719793 at *6. In doing so the District Court held that (i) BVI law governed resolution of whether the Non Signatory Defendants were alter egos of CTEL BVI, (ii) in the BVI, the substantive law governing alter ego liability is English law; and (iii) that Centauro had not alleged sufficient facts to demonstrate that under applicable English law, the Non Signatory Defendants were CTEL BVI's alter egos. Id. at *5.
On October 21, 2016, entauro moved to amend the Complaint. The proposed amended complaint (the "
The AC Defendants opposed the motion to amend the Complaint, arguing, among other things, that the Amended Complaint failed to plausibly allege facts sufficient to establish personal jurisdiction over the AC Non-Signatory Defendants on an alter ego theory. The District Court granted Centauro leave to file the Amended Complaint against Bazzoni, CT Energia Ltd. and CTEL Malta/Elemento, but not CTOG or CT Energia Holdings. See Centauro II, 2017 WL 3726754 at *5.
The record reflects that subsequent to the filing of the Bankruptcy Motions, the Liquidator engaged in a lengthy and detailed assessment of the merits of the Maritime Action and each of the Bankruptcy Motions. In addition, his counsel conducted settlement discussions with CTEL Malta/Elemento's counsel. See generally MacKellar Dec. II. Apparently, from the outset of those discussions, CTEL Malta/Elemento conceded that it used the License to acquire the Naphtha Fuel without the Debtor's or Liquidator's knowledge or consent. Nonetheless, it denied that the Registry Funds belonged to, or should be paid to, the Debtor since (i) the Fuel Acquisition Funds were not the Debtor's funds, and (ii) it is not an alter ego of the Debtor. Thus, in connection with the settlement discussions, the Liquidator focused his review on those issues. See MacKellar Dec. II at ¶¶ 5, 7-9.
To that end, the Liquidator requested that CTEL Malta/Elemento provide him with (i) bank records evidencing the source of the Fuel Acquisition Funds; and (ii) sworn statements from individuals with knowledge relating to (a) the source of the Fuel Acquisition Funds, and (b) CTEL Malta/Elemento's relationship with Bazzoni and the Debtor. See MacKellar Dec. II at ¶¶ 3-9. As part of its response, CTEL Malta/Elemento produced bank records showing that in early 2016, an entity identified as Brightpark Investments LLC ("
The Liquidator also received three declarations from Paul Perlicz ("
The Settlement Agreement resolves all of the Debtor's claims against CTEL Malta/Elemento (and against Rothenberg) relating, in any way, to the Naphtha Transaction, including their competing claims to the Registry Funds. In doing so, it resolves all the issues raised among those parties in the Bankruptcy Motions and the Maritime Action. It does not address any matter relating to the Centauro Litigation. See generally, Settlement Agreement. The principal terms of the settlement, with the method of disbursement modified by the parties,
The Liquidator explains that he calculated the Settlement Payment based on the aggregate of: (i) the fees and costs incurred by the Debtor and Chemoil (as of the settlement date) in connection with the Bankruptcy Motions and Maritime Action; (ii) the profit realized on the SKEA Sale (after vetting it with industry participants, including Chemoil, and concluding that it represents a fair market rate); and (iii) an appropriate amount in addition to those sums as a sanction for acquiring the Naphtha Fuel, in part by means of the unauthorized use of the licensure rights. See MacKeller Declaration at ¶ 11.
Courts favor bankruptcy settlements, because "they minimize costly litigation and further parties' interests in expediting the administration of the bankruptcy estate." Motors Liquidation Co., 555 B.R. 355, 364-65 (Bankr. S.D.N.Y. 2016) (citing Myers v. Martin (In re Martin), 91 F.3d 389, 393 (3d Cir. 1996)); see also Police & Fire Retirement System of the City of Detroit v. Ambac Financial Group, Inc. (In re Ambac Financial Group, Inc.), Case No. 11 Civ. 7529, 2011 WL 6844533 at *2 (S.D.N.Y. 2011) ("[s]ettlements help clear a path for the efficient administration of the bankrupt estate"). Section 105(a) of the Bankruptcy Code provides that "[t]he court may issue any order . . . that is necessary or appropriate to carry out the provisions of this title." 11 U.S.C. §105(a). Bankruptcy Rule 9019(a) vests the court with the authority to "approve a compromise or settlement." Fed. R. Bankr. P. 9019(a). The rule has been applied in chapter 15 cases. See, e.g., In re Grant Forest Prod. Inc., Case No. 10-11132, 2012 WL 3017090, at *1 (Bankr. D. Del. Apr. 11, 2012) (approving chapter 15 consent order under Rule 9019); In re Grand Prix Assocs. Inc., No. 09-16545, 2009 WL 1850966, at *6 (Bankr. D.N.J. June 26, 2009) (applying Rule 9019 in approving settlement in chapter 15 case). It empowers bankruptcy courts to approve settlements if they are "fair and equitable" and in the "best interests of the estate." Michael Vaughn, William Fertig, and Elliot Bossen v. The Drexel Burnham Lambert Group, Inc., and Republic National Bank of New York (In re Drexel Burnham), 134 B.R. at 499, 505 (Bankr. S.D.N.Y. 1991) (citing Protective Comm. For Indep. Stockholders of TMT Trailer Ferry, Inc. v. Anderson, 390 U.S. 414, 424 (1968)); see also In re Chemtura Corp., 439 B.R. 561-593-94 (Bankr. S.D.N.Y. 2010); In re Lehman Bros. Holdings, 435 B.R. 122, 134 (S.D.N.Y. 2010). In Motorola v. Committee of Unsecured Creditors (In re Iridium Operating LLC), 478 F.3d 452 (2d Cir. 2007), the Second Circuit, guided by TMT Trailer Ferry, held that the factors to be considered in determining whether a settlement is fair and equitable are interrelated and require the court to evaluate:
Id. at 462 (internal citations omitted) (the "
Centauro's objections to the Settlement Agreement are not predicated on the application of the Iridium Factors to the proposed settlement. Rather, Centauro contends that the Motion should be denied because the settlement is not "fair and equitable" based on what it perceives will be prejudice to its claims against CTEL Malta/Elemento in the Centauro Litigation if the Court approves the Settlement Agreement. See Centauro Supp. Obj. at 6. Centauro notes that for more than a year it has been asserting in the Centauro Litigation that CTEL Malta/Elemento is the alter ego of CTEL BVI in an effort to hold CTEL Malta/Elemento "liable [to it] to the same extent as CTEL [BVI] for [its] breach of contract and fraud." See Centauro Obj. at 5. Centauro asserts that since the District Court has determined that it properly stated an alter ego claim with respect to the relationship among CTEL BVI, Bazzoni, and CTEL Malta/Elemento, it has a "live controversy" with Bazzoni, and CTEL Malta/Elemento in the District Court that may be impacted by the Settlement Agreement. See Centauro Supp. Obj. at 2. Centauro notes that in the Bankruptcy Motions, the Liquidator asserts that CTEL Malta/Elemento is an alter ego of the Debtor, not of CTEL BVI. Id. It argues that "by approving the [Settlement Agreement] on that basis [i.e. that CTEL Malta/Elemento is an alter ego of the Debtor] there is a risk that this Court will issue a decision that is at odds with the District Court, which has been considering the alter ego issue far longer — since at least October 21, 2016 when Centauro moved to amend its complaint to name [CTEL Malta/Elemento] as an alter ego defendant." Id. at 2-3. Centauro asserts that in circumstances like these, "where multiple courts are considering similar issues involving the same or overlapping parties," this Court should defer to the Centauro Litigation, in accordance with the "first-filed" legal doctrine, "which instructs that `where there are two [or more] competing lawsuits, the first suit should have priority,' absent special circumstances." Id. at 3 (quoting First City Nat. Bank and Trust Co. v. Simmons, 878 F.2d 76, 79 (2d Cir. 1989) (quotation marks and citations omitted)). Thus, Centauro argues that "given the overlapping legal and factual issues, and the fact that the District Court is already considering these issues, this Court should stay its decision on the [Motion] until the resolution of any proceedings involving [CTEL Malta/Elemento] in the District Court." See Centauro Supp. Obj at 4. Centauro asserts that such relief is particularly appropriate given the existing Order of Attachment in the Centauro Litigation, which it says may apply to CTEL Malta/Elemento's property as an alter ego of CTEL BVI. Id. at 3-4. Centauro also contends that "[g]iven the uncertainty about [CTEL Malta/Elemento's] true owners and its relationship to CTEL [BVI] allowing this [Settlement Agreement] to go forward, and allowing [CTEL Malta/Elemento] to dispose of that property [i.e. its approximately $12,200,000 share of the Registry Funds], would likely render any further attachment proceedings in the District Court moot." Id. at 4.
The Court finds no merit to this argument. There is no dispute that in assessing the merits of the Motion, the Court must "look to the fairness of the settlement to other persons; i.e. the parties who did not settle." In re Nutritional Sourcing Corp., 398 B.R. 816, 837 (Bankr. D. Del. 2008) (internal quotation marks and citation omitted). Nonetheless, as previously noted, in reviewing the Motion, the Court's focus is on whether the Settlement Agreement is "fair and equitable" and in the best interests of the Debtor and its creditors. Centauro's concerns regarding the impact that the settlement may have on its claims against CTEL BVI and CTEL Malta/Elemento in the Centauro Litigation are not relevant to the Court's assessment of the Settlement Agreement. Moreover, Centauro's assertion that the disbursement of the Registry Funds to CTEL Malta/Elemento undermines the Order for Attachment rings hollow since Centauro made no effort in the Texas Court to assert a claim to those funds. In any event, Centauro misapprehends the Court's function in resolving the Motion. On a motion to approve a settlement under Rule 9019, the Court does not decide underlying questions of law or fact. Cosoff v. Rodman (In re W.T. Grant Co.), 699 F.2d 599, 608 (2d Cir.), cert. denied, 464 U.S. 822, 104 S.Ct. 89, 78 L.Ed.2d 97 (1983). In resolving the Centauro Litigation, it may be necessary for the District Court to determine whether CTEL Malta/Elemento is the alter ego of CTEL BVI. In contrast, in resolving the Motion, the Court merely must "canvass the issues and [determine] whether the settlement falls below the lowest point in the range of reasonableness." W.T. Grant Co., 699 F.2d at 608 (internal quotation marks and citation omitted). In doing so, the Court need not, and will not, rule on whether CTEL Malta/Elemento is an alter ego of the Debtor, CTEL BVI or any other party. Thus, the issues that this Court must consider in resolving the Motion do not overlap, at all, with those before the District Court in the Centauro Litigation. Accordingly, the "first filed" doctrine is not applicable, and the Court will not stay its consideration of the Motion.
Centauro also contends that the Court should deny the Motion because the Galindez and Perlicz Declarations are defective, and as such, the Liquidator misplaces his reliance on them as support for the Motion. In particular, Centauro focuses on the portions of the Galindez Declaration in which Galindez describes actions that Bazzoni took in 2015 and early 2016 — before Galindez was employed by CTEL Malta/Elemento, and in doing so, suggests Bazzoni's motive in taking those actions. See Centauro Supp. Obj at 4-5.
Those assertions are not persuasive. First, Bazzoni is not a party to the Settlement Agreement and is not covered by the Debtor's narrow release in that agreement. The proposed settlement does not enable Bazzoni to take any action, or prejudice the Debtor's, Centauro's or any other party in interest's rights against Bazzoni. Moreover, in assessing the merits of the Settlement Agreement, "[i]t is not necessary for the [C]ourt to conduct a `mini-trial' of the facts or the merits underlying [each] dispute." In re Adelphia Commc'ns Corp., 368 B.R. 140, 225 (Bankr. S.D.N.Y. 2007). Instead, the Court is required to be "apprised of those facts that are necessary to enable it to evaluate the settlement and to make a considered and independent judgment." In re Dewey & LeBoeuf LLP, 478 B.R. 627, 640-41 (Bankr. S.D.N.Y. 2012). Centauro does not challenge the authenticity of the bank records submitted in support of the Motion or the corporate documents evidencing the transactions leading up to Cisneros' acquisition of CTEL Malta/Elemento. Nor does it deny that, with the appropriate foundation, those records are admissible in evidence. Saks Int'l, Inc. v. M/V Exp. Champion, 817 F.2d 1011, 1013 (2d Cir. 1987) ("[t]he principal precondition to admission of documents as business records pursuant to Fed. R. Evid. 803(6) is that the records have sufficient indicia of trustworthiness to be considered reliable") (citing United States v. Mendel, 746 F.2d 155, 166 (2d Cir.1984), cert. denied, 469 U.S. 1213 (1985)). The Court will consider those records in assessing the merits of the Motion. Cf. Nuevo Pueblo, LLC v. Napolitano (In re Nuevo Pueblo, LLC), 608 Fed. Appx. 40, 42 n. 2 (2d Cir. May 5, 2015) (summary order) (in affirming approval of Rule 9019 motion, the Second Circuit rejected appellant's contention that settling parties' testimony regarding the settlement was hearsay, finding that "[t]he bankruptcy court properly considered the testimony to determine the positions of the Trustees (standing in the shoes of the Debtors) and [the other settling party], and to identify the issues the parties would have litigated.") (citations omitted). Even without the Galindez and Parlicz Declarations, the record is sufficient for the Court to make a "considered and independent judgment" on the merits of the Settlement Agreement. In re Dewey & LeBoeuf LLP, 478 B.R. at 641.
The Court now turns its attention to its analysis of the Iridium Factors and whether to approve the Motion. Iridium Factor No. 4 is not relevant to that assessment since no parties in interest other than the Debtor's creditors have taken a position on the Motion. Application of Iridium Factor No. 3 is neutral, if not irrelevant, since there is both support for, and opposition to, the Settlement Agreement. No one questions the competency of the Liquidator's counsel (Iridium Factor No. 5) or the nature and scope of the narrowly drawn release in the Settlement Agreement (Iridium Factor No. 6). Application of those factors favors approving the settlement. So does application of Iridium Factor No. 7, since the evidence described above demonstrates that the Settlement Agreement is the product of an arm's length negotiation by and among the Liquidator, Chemoil, and CTEL Malta/Elemento.
In applying Iridium Factors No. 1 and No. 2, the Court must balance the litigation risks, including attendant costs, delays, and collection risks (if the litigation is successful), against the benefits to the parties if the settlement is approved. There is no question that if the Registry Funds remain on deposit with the Texas Court, or are deposited in this Court if the Texas Court determines that it lacks subject matter jurisdiction over the Maritime Action, there is minimal "collection risk" to the Liquidator if the Liquidator successfully prosecutes the Property and/or Sanctions Motions. However, there certainly appears to be "litigation risk" to the Liquidator if he is forced to litigate either matter. The issue that is central to the Property Motion is whether the Registry Funds are the Debtor's property. As discussed above, in pursuing that motion, the Liquidator's theory was that he could establish the Debtor's right to those funds either by showing that CTEL Malta/Elemento used the Debtor's funds to acquire the Naphtha Fuel, or that CTEL Malta/Elemento is the Debtor's alter ego. In arguing that the Settlement Agreement is in the best interests of the Debtor and its creditors, the Liquidator contends that based upon the documents produced by CTEL Malta/Elemento, it is not likely that he will be able to trace the Naphtha Acquisition Funds to the Debtor. Moreover, he maintains that it is not likely that he will be able to establish that CTEL Malta/Elemento is the Debtor's alter ego since the corporate records show that at all times relevant to the Naphtha Transaction, Cisneros, and not Bazzoni, controlled CTEL Malta/Elemento.
In evaluating the merits of the Motion, and particularly the application of Iridium Factors Nos. 1 and 2 to the Settlement Agreement, the Court "may rely on the opinions of the Debtor, the parties to the settlement, and the professionals, in evaluating the necessary facts, and it should factor in the debtor's exercise of its business judgment in recommending the settlement." In re Sabine Oil & Gas Corp., 555 B.R. 180, 257 (Bankr. S.D.N.Y. 2016) (citations omitted). Still, the Court recognizes that "[w]hile the [C]ourt may give weight to the [Liquidator's] opinion that the settlement is fair and equitable . . . it may not simply adopt the [Liquidator's] position without making its own independent inquiry." Id. (citations and internal quotation marks omitted). Turning first to the Property Motion, the Court notes that in part, section 1521 of the Bankruptcy Code sets forth the relief that may be granted upon the recognition of a foreign proceeding, whether main or nonmain, at the request of the foreign representative, "where necessary to protect the assets of the debtor or the interests of the creditors[.]" 11 U.S.C. § 1521(a). Section 1521(a)(7) provides that in addition to the relief enumerated in sections 1521(a)(1)—(6) (none of which are relevant to the Property Motion), the Court may "grant[] any additional relief that may be available to a trustee, except for relief available under sections 522, 544, 545, 547, 548, 550, and 724(a)." 11 U.S.C. § 1521(a)(7). Courts interpret that provision to mean that the Court may "allow a foreign representative to utilize turnover [under section 542 of the Bankruptcy Code] subject, as § 1521 requires, to sufficient protections under section 1522." In re AJW Offshore, Ltd., 488 B.R. 551, 558 (Bankr. E.D.N.Y. 2013). Accord In re Irish Bank Resolution Corp. Ltd. (in Special Liquidation), 559 B.R. 627, 644 (Bankr. D. Del. 2016) (noting that "[b]y referring to § 363, a section which authorizes the trustee to `use, sell, or lease . . . property of the estate,' the drafters of § 542(a) made it clear that the turnover obligation applies to property of the estate [under § 541] (the equivalent term of art used in chapter 15 is property of the debtor `within the territorial jurisdiction of the United States')") (quoting (internal quotation marks omitted). See also In re ABC Learning Centers Ltd., 445 B.R. 318, 341 (Bankr. D. Del. 2010), aff'd, 728 F.3d 301 (3d Cir. 2013) (recognizing foreign main proceeding, and without further discussion, ordering right to use of sections 542 and 543 turnover provisions). The Registry Funds are plainly within the territorial jurisdiction of the United States. To prevail on the Property Motion, the Liquidator would have to establish that the Registry Funds belong to the Debtor, not CTEL Malta/Elemento.
The bank records clearly call into question whether the Liquidator can establish that the Naphtha Acquisition Funds originated with the Debtor. There is plainly litigation risk associated with that claim. That is equally the case with regard to the Liquidator's assertion that CTEL Malta/Elemento is the Debtor's alter ego. The Debtor is incorporated in the BVI. In analyzing whether CTEL Malta/Elemento is an alter ego of the Debtor, the Court first will be required to determine which jurisdiction's substantive law governs resolution of that issue. See Centauro I, 2016 WL 5719793 at *3. Except in circumstances where a "significant federal policy, calling for the imposition of a federal conflicts rule, exists," bankruptcy courts apply the choice-of-law rules of the forum state to determine which state's substantive law governs. Bianco v. Erkins (In re Gaston & Snow), 243 F.3d 599, 607 (2d Cir. 2001). The dispute between the Debtor and CTEL Malta/Elemento involves property questions which are resolved through application of local law. See, e.g., Koreag, Controle et Revision S.A. v. Refco F/X Assocs., Inc. (In re Koreag, Controle et Revision S.A.), 961 F.2d 341, 349 (2d Cir. 1992). Accordingly, no such overriding federal policy or interest is present here. New York is the forum state and under its choice-of-law rules, "the law of the jurisdiction having the greatest interest in the litigation will be applied." Kalb, Vooris & Co. v. Am. Fin. Corp., 8 F.3d 130, 132 (2d Cir. 1993) (quoting Intercontinental Planning Ltd. v. Daystrom, Inc., 24 N.Y.2d 372, 382 (1969)). "In cases [like this one] where the court must determine whether a corporate form will be disregarded, the law of the state of incorporation [of the entity whose form is to be disregarded] governs." Centaruo I, 2016 WL 5719793 at *3 (citing Kalb, Vooris & Co., 8 F.3d at 132). Here the law of the BVI is relevant because the Liquidator seeks to disregard the Debtor's corporate form. In Centauro I, the District Court found that under BVI law, courts will look to the law of England in assessing the viability of an alter ego claim. The District Court found that English law recognizes "veil piercing," and that "(1) plaintiffs seeking to pierce the corporate veil under English law must allege and prove that defendants misused a corporate façade; (2) the misuse must have occurred after the liability arose (`the temporal requirement'); and (3) there is a preference under English law for fraud claims directly against individual defendants." Centauro I, 5719793, at *4 (quoting Tianbo Huang v. iTV Media, Inc., 13 F.Supp.3d 246, 249 (E.D.N.Y. 2014)); Accord In re Tyson, 433 B.R. 68 (S.D.N.Y. 2010). In support of the Property Motion, the Liquidator contended that Bazzoni formed CTEL Malta/Elemento to defraud the Debtor's creditors. Specifically, he asserted that Bazzoni used the Debtor's resources, including the Debtor's funds and the License, and orchestrated CTEL Malta/Elemento's acquisition of the Naphtha Fuel, to the detriment of the Debtor's creditors. There is plainly risk associated with the Liquidator's assertion that CTEL Malta/Elemento is an alter ego of the Debtor because the corporate records produced on behalf of CTEL Malta/Elemento show that it was controlled by Cisneros, not Bazzoni or any of his confederates, when CTEL Malta/Elemento acquired the Naphtha Fuel.
In support of the Sanctions Motion the Liquidator says that CTEL Malta/Elemento violated the automatic stay by: (i) contesting Chemoil's claim in the Maritime Action that the Registry Funds belong to the Debtor, and (ii) using the License, without the Debtor's or Liquidator's consent or approval, to purchase the Naphtha Fuel from PetroPeru. See Sanctions Mot. at 32. The Court is not aware of any legal support for the Liquidator's first contention. However, CTEL Malta/Elemento's unauthorized use of the License arguably violated section 362(a)(3) of the Bankruptcy Code. That section bars "any act to obtain possession of property of the estate or of property from the estate or to exercise control over property of the estate." 11 U.S.C. § 362(a)(3). See, e.g., Geltzer v. Brizinova (In re Brizinova), 554 B.R. 64, 79-83 (Bankr. E.D.N.Y. 2016) (trustee's contention that defendants continued to operate debtor's business post-petition, was sufficient to state a claim that defendants violated the automatic stay by exercising control over property of the debtor's estate post-petition). Assuming, arguendo, that CTEL Malta/Elemento violated the automatic stay by using the License, the Liquidator will nonetheless assume litigation risk if he litigates the Sanctions Motion. First, the Liquidator misplaces his reliance on § 362(k) of the Bankruptcy Code as the predicate for obtaining an award of sanctions. See Sanctions Mot. at ¶ 5. That section applies only to individual debtors. See 11 U.S.C. § 362(k) ("an individual injured by any willful violation of a stay provided by this section may recover actual damages, including costs and attorneys' fees, and in appropriate circumstances, may recover punitive damages."). See also Maritime Asbestosis Legal Clinic v. LTV Steel Co., Inc. (In re Chateaugay Corp.), 920 F.2d 183, 186-87 (2d Cir. 1990) ("We now hold that a bankruptcy court may impose sanctions pursuant to § 362(h) [now 362(k)] . . . only for violating a stay as to debtors who are natural persons"). Moreover, even assuming that there are grounds for a corporate debtor to recover sanctions for stay relief violations, see, e.g., In re: Congregation Birchos Yosef, 535 B.R. 629, 635, 639 (Bankr. S.D.N.Y. 2015), appeal dismissed sub nom. Bais Din of Mechon L'Hoyroa v. Congregation Birchos Yosef (In re: Congregation Birchos Yosef), (No. 15-CV-6408, 2016 WL 5394755 (S.D.N.Y. Sept. 27, 2016) (sanctioning an entity in addition to individuals, and noting that "in addition to its power under § 362(k) of the Bankruptcy Code, the Court has general contempt power over violations of the automatic stay . . . as well as power under § 105(a) of the Bankruptcy Code . . . including the power to impose coercive sanctions to prevent such [stay] violations from continuing") (internal citation omitted), the scope of the automatic stay applicable in this chapter 15 case may not be broad enough to capture the alleged stay violation. Pursuant to section 1520(a)(1) of the Bankruptcy Code, upon recognition of a foreign proceeding, the automatic stay provisions of section 362 "apply to property of the debtor that is within the territorial jurisdiction of the United States." 11 U.S.C. § 1520(a)(1). See, e.g., In re JSC BTA Bank, 434 B.R. 334, 342 (Bankr. S.D.N.Y. 2010) (noting that the scope of the automatic stay in a chapter 15 case is intended to apply "only to property within the United States."); In re Fairfield Sentry Ltd. Litig., 458 B.R. 665, 679 (S.D.N.Y. 2011) ("Chapter 15 ancillary cases assert only territorial jurisdiction over a debtor's assets located here."). When used with reference to intangible property, like the License at issue here, the term "within the territorial jurisdiction of the United States" means "intangible property deemed under applicable nonbankruptcy law to be located within that territory, including any property subject to attachment or garnishment that may properly be seized or garnished by an action in a Federal or State court in the United States." 11 U.S.C. §1502(8). There has been no showing that the alleged stay violation by CTEL Malta/Elemento occurred within the territorial jurisdiction of the United States.
Whether to approve the Settlement Agreement lies within the Court's sound discretion. See In re Purofied Down Prods Corp., 150 B.R. 519, 522 (S.D.N.Y. 1993) ("A Bankruptcy Court's decision to approve a settlement should not be overturned unless its decision is manifestly erroneous and `a clear abuse of discretion'") (quoting Resolution Trust Corp., et al. v. The Official Committee of Unsecured Creditors of Frost Bros., Inc., et al. (In re Frost Bros.), Inc., No. 91 CIV. 5244, 1992 WL 373488, at *4 (S.D.N.Y. Dec. 2, 1992)). See also In re Delta Airlines, 374 B.R. 516, 522 (S.D.N.Y. 2007) ("The bankruptcy court will have abused its discretion if `no reasonable man could agree with the decision' to approve a settlement") (quoting In re Frost Bros., Inc., 1992 WL 373488, at *3). While the Court "may consider a creditor's objection to the proposed compromise, the objection is not controlling, and will not bar approval when a review of the settlement shows it does not `fall below the lowest point in the range of reasonableness.'" Michael Vaughn, William Fertig, and Elliot Bossen v. The Drexel Burnham Lambert Group, Inc., and Republic National Bank of New York (In re Drexel Burnham), 134 B.R. 499, 506 (quoting Cosoff v. Rodman (In re W.T. Grant Co.), 699 F.2d 599, 608 (2d Cir.), cert. denied, 464 U.S. 822, 104 S.Ct. 89, 78 L.Ed.2d 97 (1983)) (further internal citations omitted). As set forth above, the Court has considered Centauro's objections to the Motion and has undertaken an independent assessment of the merits of the Motion. The Court finds that the Settlement Agreement properly accounts for the risks to the Liquidator associated with litigating the Property, Stay Relief, and Sanctions Motions, and that the Settlement Agreement does not fall below the lowest point in the range of reasonableness.
Based upon the foregoing, Centauro's objections are OVERRULED, and the Motion is GRANTED.
IT IS SO ORDERED.
Centauro II, 2017 WL 3726754, at *3.
Mr. Perlicz's declarations also collectively provide substantially the same information as provided in the Galindez Declaration, with additional statements that none of the money CTOG received from Cedarbridge through Brightpark originated from the Debtor or any of its affiliates and insiders, or from Harvest Natural Resources, Inc. ("
Galindez Dec. at ¶ 6.
Centaruo Supp. Obj. at 4-5 (citation omitted).
Centauro Supp. Obj. at 5.