Preview
FILED: NEW YORK COUNTY CLERK 10/05/2022 05:22 PM INDEX NO. 650438/2009
NYSCEF In re Fisher
DOC. NO. Island
865 Investments, Inc., 778 F.3d 1172 (2015) RECEIVED NYSCEF: 10/05/2022
25 Fla. L. Weekly Fed. C 914
NBC LLC, Axafina, INC., Petitioning
KeyCite Yellow Flag - Negative Treatment
Creditors, et al., Plaintiffs–Appellees,
Distinguished by In re Millennium Lab Holdings II, LLC., 3rd Cir.(Del.), v.
December 19, 2019
778 F.3d 1172 Fisher Island Investments, Inc., Little Rest
United States Court of Appeals, Twelve, Inc., Defendants–Appellants.
Eleventh Circuit. In re Fisher Island Investments, Inc.,
Mutual Benefits Offshore Fund, Ltd.,
In re FISHER ISLAND INVESTMENTS,
Little Rest Twelve, Inc., Debtors.
INC., Little Rest Twelve, Inc., Debtors.
Solby Westbrae Partners, et al., Plaintiffs,
JWL Entertainment Group,
Mutual Benefits Offshore Fund Ltd.,
Inc., et al., Plaintiffs,
Zeltser Group, Movant–Appellant,
Fisher Island Limited, Grosvenor
v.
Trading House Limited, Areal
Fisher Island Investments, Inc.,
Group, Plaintiff–Appellants,
Mutual Benefits Offshore Fund, Ltd.,
v.
Little Rest Twelve, Inc., Redmond
Solby+Westbrae Partners, 19 SHC, Corp., Ajna
Group, Respondents–Appellees.
Brands, Inc., 601/1700 NBC LLC, Axafina,
In Re: Mutual Benefits
Inc., Oxana Adler LLM, Petitioning Creditors,
Offshore Fund, Ltd., Debtor.
Fisher Island Investments, Inc., Little
Zeltser Alleged Debtor Mutual Benefits
Rest Twelve, Inc., Defendants–Appellees.
Offshore Fund Ltd., Plaintiff–Appellant,
In re Fisher Island Investments, Inc.,
v.
Mutual Benefits Offshore Fund, Ltd.,
Mutual Benefits Offshore Fund,
Little Rest Twelve, Inc., Debtors.
Ltd., Defendant–Appellee.
Solby Westbrae Partners, et al., Plaintiffs,
Fisher Island Investments, Inc., Mutual Nos. 12–15595, 13–15256, 13–
Benefits Offshore, Ltd., Little Rest Twelve, 15259, 14–11700, 14–11771.
|
Inc., Zeltser Group, Movants–Appellants,
Feb. 20, 2015.
v.
Fisher Island Investments, Inc., Synopsis
Background: Order was entered by the United States
Mutual Benefits Offshore Fund, Ltd.,
Bankruptcy Court for the Southern District of Florida,
Little Rest Twelve, Inc., Redmond A. Jay Cristol, J., resolving dispute as to ownership of
Group, Respondents–Appellees. putative debtor, for purpose of deciding whether involuntary
Chapter 11 petition was contested or had been consented to.
In Re Fisher Island Investments, Inc.,
Competing ownership group appealed. The District Court, K.
Little Rest Twelve, Inc., Debtors. Michael Moore, J., 508 B.R. 762, affirmed. Appeal was taken.
JWL Entertainment Group,
Inc., et al., Plaintiffs,
Solby+Westbrae Partners, 19 SHC, Holdings: The Court of Appeals, Hull, Circuit Judge, held
that:
CORP., Ajna Brands, Inc., 601/1700
© 2022 Thomson Reuters. No claim to original U.S. Government Works. 1
FILED: NEW YORK COUNTY CLERK 10/05/2022 05:22 PM INDEX NO. 650438/2009
NYSCEF In re Fisher
DOC. NO. Island
865 Investments, Inc., 778 F.3d 1172 (2015) RECEIVED NYSCEF: 10/05/2022
25 Fla. L. Weekly Fed. C 914
[1] bankruptcy court, even as non-Article-III court, had both clear error and itslegal conclusions de novo.
statutory and constitutional authority to finally decide who Fed.Rules Bankr.Proc.Rule 8013, 11 U.S.C.A.
owned putative debtors;
13 Cases that cite this headnote
[2] issue did not have to be litigated in adversary proceeding;
[4] Bankruptcy Conclusions of law; de novo
[3] putative debtors' immediate parents did not have requisite review
financial stake in bankruptcy court's order to qualify as
On appeal in bankruptcy case, the Court
“persons aggrieved”;
of Appeals reviews district court's legal
determinations de novo.
[4] bankruptcy court did not abuse its discretion in denying
eleventh-hour request for continuance; and 7 Cases that cite this headnote
[5] court did not err, much less clearly err, in finding that
[5] Bankruptcy Particular proceedings or
individual, as president and sole director of putative debtor,
issues
had exclusive authority to retain counsel to represent debtor.
Bankruptcy Bankruptcy judges
Bankruptcy court, even as non-Article-III
Affirm. court, had both statutory and constitutional
authority to finally decide who owned putative
debtors, and thus whether involuntary petitions
West Headnotes (19) were contested or uncontested, as threshold
issue criticalto administration of involuntary
cases and directly affecting debtor-creditor
[1] Bankruptcy Scope of review in general relationship, which was necessarily resolved by
Bankruptcy Conclusions of law; de novo bankruptcy court through process of adjudicating
review petitioning creditors' claims.
In bankruptcy case, the Court of Appeals
6 Cases that cite this headnote
sits as second court of review and examines
independently factual and legaldeterminations
of bankruptcy court, employing same standards [6] Bankruptcy Consent to or Waiver of
of review as district court. Objections to Jurisdiction or Venue
Even assuming that issue regarding ownership
11 Cases that cite this headnote
of putative debtors was non-core matter, alleged
ownership group, by expressly consenting
[2] Bankruptcy Scope of review in general to bankruptcy court's final adjudication of
On appeal from districtcourt's affirmance of ownership issue, by expressly representing that
bankruptcy court's order, the Court of Appeals bankruptcy court was only court that could
reviews bankruptcy court's decision. resolve ownership issue, and by litigating issue
in bankruptcy court for five months and filing
23 Cases that cite this headnote motion for partialsummary judgment thereon,
waived any argument to the contrary.
[3] Bankruptcy Conclusions of law; de novo 8 Cases that cite this headnote
review
Bankruptcy Clear error
[7] Bankruptcy Nature and form; adversary
On appeal from districtcourt's affirmance of proceedings
bankruptcy court's order, the Court of Appeals
reviews bankruptcy court's factual findings for
© 2022 Thomson Reuters. No claim to original U.S. Government Works. 2
FILED: NEW YORK COUNTY CLERK 10/05/2022 05:22 PM INDEX NO. 650438/2009
NYSCEF In re Fisher
DOC. NO. Island
865 Investments, Inc., 778 F.3d 1172 (2015) RECEIVED NYSCEF: 10/05/2022
25 Fla. L. Weekly Fed. C 914
Issue regarding ownership of putative debtors,
and whether involuntary petitions were contested [10] Bankruptcy Presentation of grounds for
or uncontested, was not one involving “validity review
[of an] interest in property,” such as would Parties that totally failed to raise any purported
have to be litigatedin adversary proceeding, factual dispute in response to bankruptcy court's
but could be pursued as contested matter, in invitation to submit briefing in opposition to its
connection with emergency motion to strike grant of summary judgment to moving parties
answers filed by one alleged ownership group with regard to their ownership of putative debtors
admitting to allegations in involuntary petitions, could not refuse to raise disputed issues before
especially where bankruptcy court afforded bankruptcy court then later claim on appeal
the two competing ownership groups with that disputed issues precluded entry of summary
essentially the same procedural protections judgment on ownership issue.
applicable in adversary proceedings. Fed.Rules
Bankr.Proc.Rule 7001(2), 11 U.S.C.A. 5 Cases that cite this headnote
5 Cases that cite this headnote
[11] Bankruptcy Right of review and persons
entitled;parties; waiver or estoppel
[8] Bankruptcy Parties To determine whether a person or entity has
Mandatory joinder requirements do not standing to appeal bankruptcy court's order, the
apply in contested matters. Fed.Rules Court of Appeals applies “person aggrieved”
Bankr.Proc.Rules 1018, 7019, 11 U.S.C.A.; doctrine as prudential standing requirement.
Fed.Rules Civ.Proc.Rule 19, 28 U.S.C.A.
5 Cases that cite this headnote
2 Cases that cite this headnote
[12] Bankruptcy Right of review and persons
[9] Bankruptcy Parties entitled;parties; waiver or estoppel
Even assuming that mandatory joinder Under “person aggrieved” doctrine, person has
requirements applied in contested matter arising standing to appeal bankruptcy court's order
out of emergency motion to strike the answers only when he is directly and adversely affected
to involuntary bankruptcy petitions filed by one pecuniarily by order; in other words, he must
of two competing groups claiming ownership have a financial stake in the appealed order such
of putative debtors, ownership group did not that the order diminishes his property, increases
meet its burden of proving that parties who his burdens or impairs his rights.
were not joined were both necessary and
indispensable to proceeding, where ownership 5 Cases that cite this headnote
group, by admitting to alleged debt at outset
of proceedings, indicated that it believed [13] Bankruptcy Right of review and persons
that involuntary petitions could be adjudicated entitled;parties; waiver or estoppel
without any additional parties and failed to Bankruptcy court order that merely identified
articulateeven a single non-conclusory reason putative debtors' immediate parents as part of
for why bankruptcy court could not grant ownership chain, for purposes of deciding what
complete relief among existing parties without entities had ultimate authority to appoint counsel
joining the over a dozen non-parties identified to represent putative debtors in involuntary
by it. Fed.Rules Bankr.Proc.Rules 1018, 7019, Chapter 11 proceedings, did not disturb parents'
11 U.S.C.A.; Fed.Rules Civ.Proc.Rule 19, 28 ownership of debtors or “award” parents to
U.S.C.A. ownership group that it determined had ultimate
authority to act, such that parents did not have
2 Cases that cite this headnote
requisite financial stake in bankruptcy court's
© 2022 Thomson Reuters. No claim to original U.S. Government Works. 3
FILED: NEW YORK COUNTY CLERK 10/05/2022 05:22 PM INDEX NO. 650438/2009
NYSCEF In re Fisher
DOC. NO. Island
865 Investments, Inc., 778 F.3d 1172 (2015) RECEIVED NYSCEF: 10/05/2022
25 Fla. L. Weekly Fed. C 914
order to qualify as “persons aggrieved” with counsel to represent debtors, where motion for
standing to appeal. continuance was not filed until ten days before
scheduled trial date.
[14] Bankruptcy Right of review and persons
entitled;parties; waiver or estoppel [18] Bankruptcy Harmless error
Party that did not contest, as substantive Even assuming that bankruptcy court, in ruling
error,any of districtcourt's fact finding as to on motions to dismiss or for judgment on
inauthenticity of pledge agreement purportedly partial findings, was required to consider
showing party'specuniary interest in putative witness credibilityand to weigh the evidence
debtor, and that submitted no other evidence presented, and that court applied wrong legal
that it had any such financial stake, was not standard in treating motions as analogous
“person aggrieved” with standing to appeal order to ones for summary judgment, any such
determining which of two competing ownership error was harmless, where bankruptcy court
groups was owner of debtor, with authority to ultimately found nonmoving party's testimonial
appoint counsel to represent putative debtor in and documentary evidence to be credible and
involuntary Chapter 11 proceeding. persuasive, and entered final judgment on that
basis, and where there was no indication that,
1 Cases that cite this headnote had bankruptcy court applied proper standard,
it would have granted these motions mid-trial.
[15] Bankruptcy Procedure Fed.Rules Civ.Proc.Rule 52(c), 28 U.S.C.A.
Bankruptcy court does not abuse its discretion in
denying motion for continuance unless its ruling
severely prejudices the moving party. [19] Bankruptcy Attorneys
Bankruptcy court did not err, much less clearly
1 Cases that cite this headnote err, in finding that individual, as president and
sole director of putative debtor, had exclusive
[16] Bankruptcy Procedure authority to retain counsel to represent debtor in
involuntary Chapter 11 case.
Court considers four factors to determine
whether denial of continuance constitutes an
abuse of discretion: (1) moving party's diligence
in its efforts to ready case for trial; (2) likelihood
that need for continuance would have been
West Codenotes
remedied had continuance been granted; (3)
extent to which granting continuance would have Recognized as Unconstitutional
inconvenienced court and opposing party; and 28 U.S.C.A. § 157(b)(2)(C)
(4) extent to which moving party might have
suffered harm as result of the denial. Attorneys and Law Firms
2 Cases that cite this headnote *1176 Bruce D. Katz, Bruce D. Katz & Associates, New
York, NY, Stewart Mark Mirmelli, The Mirmelli Law Firm,
PA, Miami, FL, Craig Pugatch, Chad P. Pugatch, Rice Pugatch
[17] Bankruptcy Determination of Issues;
Robinson & Schiller, PA, Fort Lauderdale, FL, for Plaintiff–
Dismissal
Appellants.
Bankruptcy court did not abuse itsdiscretion
in denying request for continuance of trialto George Leo Zinkler, III, Rice Pugatch Robinson & Schiller,
determine which of two competing ownership PA, Fort Lauderdale, FL, PatriciaAnn Redmond, Stearns
groups owned putative debtors and had authority Weaver Miller Weissler Alhadeff & Sitterson,PA, Parker
to reply to involuntary petitions and to retain Davidson Thomson, Dwayne Antonio Robinson, Clayton
© 2022 Thomson Reuters. No claim to original U.S. Government Works. 4
FILED: NEW YORK COUNTY CLERK 10/05/2022 05:22 PM INDEX NO. 650438/2009
NYSCEF In re Fisher
DOC. NO. Island
865 Investments, Inc., 778 F.3d 1172 (2015) RECEIVED NYSCEF: 10/05/2022
25 Fla. L. Weekly Fed. C 914
P. Solomon, John F. O'Sullivan, Hogan Lovells U.S., LLP,
Joseph Lester Rebak, Tew Cardenas, LLP, Miami, FL, Martin
I. BACKGROUND
Paul Russo, Gusrae Kaplan Nusbaum, PLLC, New York, NY,
Darin A. Dibello, Dibello & Lopez PA, Coral Gables, FL, for These bankruptcy proceedings are but a small part of global
Defendants–Appellees. litigationthat began with the unexpected death of Arkadi
(“Badri”) Patarkatsishviliin February 2008. Badri was an
Eun K. Chang, Rice Pugatch Robinson & Schiller, PA, Fort
extremely wealthy businessman and one-time presidential
Lauderdale, FL, for Plaintiff–Appellants and Defendants–
candidate from the Republic of Georgia. The resulting contest
Appellees.
between two factions over the ownership and control of
Appeals from the United States District Court for the Badri's assets, purportedly worth billions of dollars,has
Southern District of Florida. D.C. Docket Nos. 1:12–cv– spawned litigationin the Republic of Georgia, the United
20939–KMW, 11–17047–AJC, 1:12–cv–20018–PCH, 11– Kingdom, Liechtenstein, the British territory of Gibraltar, and
bkc–17047–AJC, 1:12–cv–20939–KMW, 11–bkc–17047– both state and federal courts in the United States. On one
AJC, 1:12–cv–20018–PCH, 11–bkc–17047–AJC, 1:13–cv– side of this protracted legal battleis the Redmond Group,
22331–KMM, 11–bkc–17051–AJC. consisting of Badri's immediate family and led by Badri's
widow, Inna Gudavadze. The other side—the Zeltser Group
Before HULL, JULIE CARNES, and WALKER,* Circuit —is led by Joseph Kay, Badri's distant relative and former
Judges. employee.
Opinion Though complicated by “an ever-shifting labyrinth of
corporations, trusts, partnerships, holding companies, and
HULL, Circuit Judge: interested individuals,” the parties' competing positions on the
ownership issue are essentially as follows. According to the
These consolidated bankruptcy appeals arise out of a dispute
Redmond Group, Fisher Island and Little Rest are owned by
between two competing groups—appellee the Redmond
the Valmore Trust and Mutual Benefits is owned by the Test
Group and appellant the Zeltser Group1—over ownership of, Trust—both Gibraltar trusts that were set up for the benefit
and control over, three involuntary *1177 debtors: Fisher of Badri and his family. According to the Zeltser Group,
Island Investments, Inc. (“Fisher Island”), Little Rest Twelve, Imedinvest Partners (“Imedinvest”), a partnership formed in
Inc. (“Little Rest”), and Mutual Benefits Offshore Fund, Ltd. the Republic of Georgia, owns Fisher Island, Little Rest, and
(“Mutual Benefits”) (collectively, the “Alleged Debtors”).2 Mutual Benefits.
We refer to this dispute as the “ownership issue.”
The dispute over ownership and control did not begin in the
Litigation of the ownership issue in three bankruptcy cases bankruptcy court. In a lawsuit filed by the then-trustee of the
has yielded five consolidated appeals of four orders: (1) Valmore Trust, the Supreme Court of Gibraltar considered
the district court's order denying the Zeltser Group's motion whether Badri or Kay was the beneficiary of the Valmore
to withdraw reference of the ownership issue; (2) the Trust. In 2009, after a nearly two-year proceeding, the
district court's affirmance of the bankruptcy court's summary Gibraltar Court concluded that the vast majority of the assets
judgment order in favor of the Redmond Group in the Fisher in the Valmore Trust were funded by Badri and held for the
Island and Little Rest cases; (3) the districtcourt'sorder benefit of Badri's immediate family. After Kay abandoned
dismissing, for lack of standing, certain non-party appeals his appeal of that judgment, the Gibraltar Court declared that
from the bankruptcy court's summary judgment order; and Kay had no interest in the assets of the Valmore Trust, which
(4) the district court's affirmance of the bankruptcy court's belonged solely to Badri. The Gibraltar Court's decision
final judgment in favor of the Redmond Group in the Mutual *1178 entailed an implicit finding that the Valmore Trust
Benefits case. was valid.
After careful review of the record and the parties' briefs, and Before the filing of the involuntary petitions in March 2011,
with the benefit of oralargument, we affirm allorders on the Zeltser Group advanced its theory of ownership in state
appeal. courts in New York and Florida. In the New York action,
attorney Emanuel Zeltser claimed, on behalf of Imedinvest
© 2022 Thomson Reuters. No claim to original U.S. Government Works. 5
FILED: NEW YORK COUNTY CLERK 10/05/2022 05:22 PM INDEX NO. 650438/2009
NYSCEF In re Fisher
DOC. NO. Island
865 Investments, Inc., 778 F.3d 1172 (2015) RECEIVED NYSCEF: 10/05/2022
25 Fla. L. Weekly Fed. C 914
and Joseph Kay, that the Valmore Trust was a “sham” and in the involuntary petitions against the Alleged Debtors and
that Imedinvest, of which Kay was allegedly the managing consenting to the relief requested by the Petitioning Creditors.
partner, was the owner of LittleRest. On July 22, 2011,
the New York court issued a decision rejecting the sham The next day, the Redmond Group, through attorney
trust argument on multiple grounds, determining that Zeltser Redmond, filed an emergency motion to strike the Zeltser
had no authority to represent LittleRest, and substituting Group's answers. The Redmond Group, claiming to be the
attorneys for the Redmond Group as counsel for Little actual authorized representatives of the Alleged Debtors,
Rest. See Little Rest Twelve, Inc. v. Visan, No. 600676/2007 alleged that the involuntary petitions were improperly filed in
(N.Y.Sup.Ct.N.Y.Cnty. July 22, 2011) (order substituting an attempt to stay the state court litigation in Florida and New
counsel). Similarly, attorney Darin DiBello represented Kay York. To adjudicate the underlying debt, the bankruptcy court
in litigating the ownership and representation of Fisher Island had to decide who owned the Alleged Debtors, and thus who
in the Florida action. See Motion to Strike Complaint, Fisher had the authority to retain counsel.
Island Invs., Inc. v. Baker, No. 10–14866 (11th Jud. Cir. of
Miami–Dade Cnty., Fla. Mar. 15, 2010). In response to the motion to strike, the Zeltser Group asked
the bankruptcy court to deny the relief sought therein until
resolving the question of who had the authority to act on
behalf of the Alleged *1179 Debtors. Notably, the Zeltser
II. BANKRUPTCY COURT PROCEEDINGS
Group stated in its response that “the issues of proper
A. Involuntary Petitions ownership and control over the Alleged Debtor[s] should be
On March 17, 2011, a group of six individuals and entities litigated in due course before this Court.”
—Solby+Westbrae Partners; 19 SHC, Corp.; Ajna Brands,
Inc.; 601/1700 NBC, LLC; Axafina, Inc.; and Oxana Faced with these contradictory claims, the bankruptcy
Adler (collectively, the “Petitioning Creditors”)—filed three court held a hearing on March 25, 2011. The bankruptcy
separate involuntary Chapter 11 bankruptcy petitions in the court noted that it was highly unusual that the Alleged
U.S. Bankruptcy Court for the Southern District of Florida Debtors, as represented by the Zeltser Group, immediately
against Fisher Island, Little Rest, and Mutual Benefits. The consented to the involuntary petitions. As to the ownership
involuntary petitions were filed as the parties anticipated key issue, attorney Zeltser contended that Imedinvest, a “loose
rulings on the ownership issue in the New York and Florida investment partnership” owned all three of the Alleged
litigations. Debtors. According to Zeltser, Badri had been a partner of
Imedinvest, and it was on behalf of Imedinvest and other
The involuntary petitions asserted claims against the Alleged entities that the Note debt had been incurred.
Debtors for approximately $32.4 million, $28.5 million
of which was based on a promissory note (the “Note”) Counsel for the Redmond Group denied that Imedinvest had
purportedly executed by the Alleged Debtors and assigned to any ownership interest in the Alleged Debtors. Instead, the
three of the Petitioning Creditors by a non-party, Areal Plus Redmond Group asserted that the Valmore Trust ultimately
Group. The Petitioning Creditors, asserting that the Alleged owned Fisher Island and Little Rest through itstrustee,
Debtors were “affiliates,”moved the bankruptcy court to Miselva Establissement (“Miselva”). The Redmond Group
jointly administer the three cases and to appoint a trustee to also asserted that Mutual Benefits was comprised of several
take control and possession of the Alleged Debtors' assets. investors, the largest of which was Kayley Investments, N.V.
(“Kayley”). In turn, Kayley was legally owned by the Test
Trust.
B. Ownership Issue
Two sets of attorneys—representing the Zeltser Group and During the hearing, the Zeltser Group specifically requested
the Redmond Group, respectively—entered appearances of that the bankruptcy court decide the ownership issue.
record in the bankruptcy court, both purporting to act on Attorney Zeltser claimed that the New York and Florida
behalf of the Alleged Debtors. On March 21, 2011, four state courts could not determine ownership, and informed the
days afterthe involuntary petitions were filed, the Zeltser bankruptcy court that it, as the “ultimate Court of equity,” was
Group, through attorney DiBello, filed answers on behalf of the “only court” that could resolve the issue. Furthermore, the
the Alleged Debtors, immediately admitting to the allegations
© 2022 Thomson Reuters. No claim to original U.S. Government Works. 6
FILED: NEW YORK COUNTY CLERK 10/05/2022 05:22 PM INDEX NO. 650438/2009
NYSCEF In re Fisher
DOC. NO. Island
865 Investments, Inc., 778 F.3d 1172 (2015) RECEIVED NYSCEF: 10/05/2022
25 Fla. L. Weekly Fed. C 914
bankruptcy court's decision on the issue, presumably after a
short “ownership hearing,” would be “dispositive.” The Examiner explained that the ownership dispute with
respect to Mutual Benefits was different from Fisher Island
The Redmond Group laterfiled answers and motions to and Little Rest in that Mutual Benefits was never held
dismiss on behalf of the Alleged Debtors, denying the within the Valmore Trust. The Examiner's review indicated
allegations in the involuntary petitions,raising affirmative that W. Shaun Davis, through his management company,
defenses, and seeking dismissal of the petitions as filed in bad Triangle International Management Limited (“Triangle”),
faith. Thus, whether the petitions were contested depended on owned 100% of Mutual Benefits' voting shares. All of Mutual
a threshold determination of which group was authorized to Benefits' other shareholders, including Kayley, held non-
represent the Alleged Debtors in the proceedings. voting shares. Mutual Benefits was therefore controlled by its
voting shareholder, Triangle.
C. Discovery and Examiner's Report The Examiner generally found the Zeltser Group's story with
On March 31, 2011, the bankruptcy court granted in part respect to ownership to be inconsistent and irreconcilable
the Petitioning Creditors' motion to jointly administer the with, or unsupported by, the record. For instance, the
three cases. Although the bankruptcy court doubted how the Zeltser Group provided little extrinsic evidence to prove the
“three widely disparate business operations” were affiliates, existence of Imedinvest. In fact, Joseph Kay and his sister
itgranted the motion “for the sole purpose of conducting testified in connection with the Gibraltar proceeding in 2009
one trial regarding the validity of the ... Note, the assignment that they were unfamiliar with Imedinvest. The Examiner
of the Note and determination of who are the legitimate also determined that the Zeltser Group had submitted
representatives and attorneys for the three alleged involuntary certain documentation in “an intentional effort to mislead or
debtors.” The bankruptcy court also appointed a Chapter 11 misrepresent material facts to a court.”
Examiner to investigate the ownership issue, among other
things.3 After several months of extensive discovery in accordance
with the Schedule Order (as well as extensions), which
At the bankruptcy court's direction, the parties conferred produced more than 200,000 pages of documents, the record
regarding discovery and pre-trial procedures and agreed to was closed on November 30, 2011.
a case management order. On June 7, 2011, the bankruptcy
court issued the agreed “Case Management and Schedule
Order in Contested Matter Setting Filing and Disclosure D. Summary Judgment in Fisher Island and Little Rest
Requirements for Pre-Trial and Trial” (the “Schedule Order”) Cases
(emphasis added). Notably, the Schedule Order provided
1. Motion for Partial Summary Judgment
for extensive discovery, including mandatory disclosures of
Notwithstanding the Examiner's unfavorable report, on
witnesses *1180 and documents, interrogatories, requests
November 21, 2011, the Zeltser Group moved for partial
for admission, document requests, depositions, and expert
summary judgment on the ownership issue in the Fisher
reports. The Schedule Order directed the parties to submit
findings of fact rather than jury instructions, and noted that Island and LittleRest cases.4 The Zeltser Group sought a
the bankruptcy court would set a trial date for “this contested determination that:(1) the Valmore Trust was invalid; (2)
matter” at the pre-trial conference. neither Gibraltar law nor United Kingdom law applied to
the proceedings; and (3) JWL Entertainment Group, Inc.
On November 18, 2011, the Examiner issued a 96-page report (“JWL”), a Delaware corporation, was the equitable owner of
addressing the ownership of the Alleged Debtors and the Fisher Island and Little Rest.
claims of the Petitioning Creditors. The Examiner found that
the Valmore Trust was the ultimate owner of both Fisher The Zeltser Group's ownership theory was twofold. First,
Island and Little Rest. As to Mutual Benefits, the Examiner the Valmore Trust5 was a “sham” and invalid because Kay,
found that Kayley was ultimately owned by the Test Trust. and not Badri, was the settlor and beneficiary. Alternatively,
Accordingly, the attorneys for the Redmond Group (not the Fisher Island Limited (“Fisher Limited”) and Grosvenor
Zeltser Group) were authorized to represent the Alleged Trading Holding Limited (“Grosvenor”), which the Zeltser
Debtors. Group acknowledged were the respective parent companies
© 2022 Thomson Reuters. No claim to original U.S. Government Works. 7
FILED: NEW YORK COUNTY CLERK 10/05/2022 05:22 PM INDEX NO. 650438/2009
NYSCEF In re Fisher
DOC. NO. Island
865 Investments, Inc., 778 F.3d 1172 (2015) RECEIVED NYSCEF: 10/05/2022
25 Fla. L. Weekly Fed. C 914
*1181
of Fisher Island and Little Rest, were transferred from production of the Examiner's report. The bankruptcy court
trustee Miselva to JWL. JWL was then transferredout of then set forth the material facts concerning the formation
the Valmore Trust to Imedinvest. The Zeltser Group argued and operation of the Valmore Trust, as well as the Gibraltar
that, pursuant to these transactions, JWL held equitable and New York litigations. The “Material Facts” section made
ownership of Fisher Island and LittleRest. Paradoxically, no mention of the Examiner or his report. Based on these
the Zeltser Group maintained that the bankruptcy court material facts, the bankruptcy court rejected the argument
lacked jurisdiction to resolve any issue regarding the JWL that the Valmore Trust was a sham and declined to reverse
transactions. any findings made by the Gibraltar Court. Furthermore, the
bankruptcy court determined that the JWL transaction was
In opposition to the partial summary judgment motion, the abandoned and that pursuant to the unrebutted expert opinion
Redmond Group argued that the Gibraltar Court's judgment submitted by the Redmond Group, neither legal nor beneficial
precluded the bankruptcy court from determining the validity ownership of Fisher Limited or Grosvenor passed to JWL.
of the Valmore Trust. The Gibraltar Court's factual findings,
including itsimplicit finding that the Valmore Trust was The bankruptcy court stated that, pursuant to Federal Rule of
valid, were entitled to comity, and a New York state court Bankruptcy Procedure 7056(f), it was “inclined to determine
specifically declined to find that the Valmore Trust was a as a matter of law” that Miselva (then trustee of the Valmore
sham. Furthermore, the JWL transaction was abandoned. Trust) owned Fisher Limited and Grosvenor. The parties did
Even assuming the transaction was completed, Miselva was not dispute that Fisher Limited owned Fisher Island and
stillthe legal and beneficialowner of Fisher Limited and Grosvenor owned Little Rest. Thus, the bankruptcy court was
Grosvenor, as indicated in an unrebutted expert opinion in effect notifying the parties that itintended to rule that
submitted by the Redmond Group. The Zeltser Group did not the Valmore
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FILED: NEW YORK COUNTY CLERK 10/05/2022 05:22 PM INDEX NO. 650438/2009 NYSCEF In re Fisher DOC. NO. Island 865 Investments, Inc., 778 F.3d 1172 (2015) RECEIVED NYSCEF: 10/05/2022 25 Fla. L. Weekly Fed. C 914 NBC LLC, Axafina, INC., Petitioning KeyCite Yellow Flag - Negative Treatment Creditors, et al., Plaintiffs–Appellees, Distinguished by In re Millennium Lab Holdings II, LLC., 3rd Cir.(Del.), v. December 19, 2019 778 F.3d 1172 Fisher Island Investments, Inc., Little Rest United States Court of Appeals, Twelve, Inc., Defendants–Appellants. Eleventh Circuit. In re Fisher Island Investments, Inc., Mutual Benefits Offshore Fund, Ltd., In re FISHER ISLAND INVESTMENTS, Little Rest Twelve, Inc., Debtors. INC., Little Rest Twelve, Inc., Debtors. Solby Westbrae Partners, et al., Plaintiffs, JWL Entertainment Group, Mutual Benefits Offshore Fund Ltd., Inc., et al., Plaintiffs, Zeltser Group, Movant–Appellant, Fisher Island Limited, Grosvenor v. Trading House Limited, Areal Fisher Island Investments, Inc., Group, Plaintiff–Appellants, Mutual Benefits Offshore Fund, Ltd., v. Little Rest Twelve, Inc., Redmond Solby+Westbrae Partners, 19 SHC, Corp., Ajna Group, Respondents–Appellees. Brands, Inc., 601/1700 NBC LLC, Axafina, In Re: Mutual Benefits Inc., Oxana Adler LLM, Petitioning Creditors, Offshore Fund, Ltd., Debtor. Fisher Island Investments, Inc., Little Zeltser Alleged Debtor Mutual Benefits Rest Twelve, Inc., Defendants–Appellees. Offshore Fund Ltd., Plaintiff–Appellant, In re Fisher Island Investments, Inc., v. Mutual Benefits Offshore Fund, Ltd., Mutual Benefits Offshore Fund, Little Rest Twelve, Inc., Debtors. Ltd., Defendant–Appellee. Solby Westbrae Partners, et al., Plaintiffs, Fisher Island Investments, Inc., Mutual Nos. 12–15595, 13–15256, 13– Benefits Offshore, Ltd., Little Rest Twelve, 15259, 14–11700, 14–11771. | Inc., Zeltser Group, Movants–Appellants, Feb. 20, 2015. v. Fisher Island Investments, Inc., Synopsis Background: Order was entered by the United States Mutual Benefits Offshore Fund, Ltd., Bankruptcy Court for the Southern District of Florida, Little Rest Twelve, Inc., Redmond A. Jay Cristol, J., resolving dispute as to ownership of Group, Respondents–Appellees. putative debtor, for purpose of deciding whether involuntary Chapter 11 petition was contested or had been consented to. In Re Fisher Island Investments, Inc., Competing ownership group appealed. The District Court, K. Little Rest Twelve, Inc., Debtors. Michael Moore, J., 508 B.R. 762, affirmed. Appeal was taken. JWL Entertainment Group, Inc., et al., Plaintiffs, Solby+Westbrae Partners, 19 SHC, Holdings: The Court of Appeals, Hull, Circuit Judge, held that: CORP., Ajna Brands, Inc., 601/1700 © 2022 Thomson Reuters. No claim to original U.S. Government Works. 1 FILED: NEW YORK COUNTY CLERK 10/05/2022 05:22 PM INDEX NO. 650438/2009 NYSCEF In re Fisher DOC. NO. Island 865 Investments, Inc., 778 F.3d 1172 (2015) RECEIVED NYSCEF: 10/05/2022 25 Fla. L. Weekly Fed. C 914 [1] bankruptcy court, even as non-Article-III court, had both clear error and itslegal conclusions de novo. statutory and constitutional authority to finally decide who Fed.Rules Bankr.Proc.Rule 8013, 11 U.S.C.A. owned putative debtors; 13 Cases that cite this headnote [2] issue did not have to be litigated in adversary proceeding; [4] Bankruptcy Conclusions of law; de novo [3] putative debtors' immediate parents did not have requisite review financial stake in bankruptcy court's order to qualify as On appeal in bankruptcy case, the Court “persons aggrieved”; of Appeals reviews district court's legal determinations de novo. [4] bankruptcy court did not abuse its discretion in denying eleventh-hour request for continuance; and 7 Cases that cite this headnote [5] court did not err, much less clearly err, in finding that [5] Bankruptcy Particular proceedings or individual, as president and sole director of putative debtor, issues had exclusive authority to retain counsel to represent debtor. Bankruptcy Bankruptcy judges Bankruptcy court, even as non-Article-III Affirm. court, had both statutory and constitutional authority to finally decide who owned putative debtors, and thus whether involuntary petitions West Headnotes (19) were contested or uncontested, as threshold issue criticalto administration of involuntary cases and directly affecting debtor-creditor [1] Bankruptcy Scope of review in general relationship, which was necessarily resolved by Bankruptcy Conclusions of law; de novo bankruptcy court through process of adjudicating review petitioning creditors' claims. In bankruptcy case, the Court of Appeals 6 Cases that cite this headnote sits as second court of review and examines independently factual and legaldeterminations of bankruptcy court, employing same standards [6] Bankruptcy Consent to or Waiver of of review as district court. Objections to Jurisdiction or Venue Even assuming that issue regarding ownership 11 Cases that cite this headnote of putative debtors was non-core matter, alleged ownership group, by expressly consenting [2] Bankruptcy Scope of review in general to bankruptcy court's final adjudication of On appeal from districtcourt's affirmance of ownership issue, by expressly representing that bankruptcy court's order, the Court of Appeals bankruptcy court was only court that could reviews bankruptcy court's decision. resolve ownership issue, and by litigating issue in bankruptcy court for five months and filing 23 Cases that cite this headnote motion for partialsummary judgment thereon, waived any argument to the contrary. [3] Bankruptcy Conclusions of law; de novo 8 Cases that cite this headnote review Bankruptcy Clear error [7] Bankruptcy Nature and form; adversary On appeal from districtcourt's affirmance of proceedings bankruptcy court's order, the Court of Appeals reviews bankruptcy court's factual findings for © 2022 Thomson Reuters. No claim to original U.S. Government Works. 2 FILED: NEW YORK COUNTY CLERK 10/05/2022 05:22 PM INDEX NO. 650438/2009 NYSCEF In re Fisher DOC. NO. Island 865 Investments, Inc., 778 F.3d 1172 (2015) RECEIVED NYSCEF: 10/05/2022 25 Fla. L. Weekly Fed. C 914 Issue regarding ownership of putative debtors, and whether involuntary petitions were contested [10] Bankruptcy Presentation of grounds for or uncontested, was not one involving “validity review [of an] interest in property,” such as would Parties that totally failed to raise any purported have to be litigatedin adversary proceeding, factual dispute in response to bankruptcy court's but could be pursued as contested matter, in invitation to submit briefing in opposition to its connection with emergency motion to strike grant of summary judgment to moving parties answers filed by one alleged ownership group with regard to their ownership of putative debtors admitting to allegations in involuntary petitions, could not refuse to raise disputed issues before especially where bankruptcy court afforded bankruptcy court then later claim on appeal the two competing ownership groups with that disputed issues precluded entry of summary essentially the same procedural protections judgment on ownership issue. applicable in adversary proceedings. Fed.Rules Bankr.Proc.Rule 7001(2), 11 U.S.C.A. 5 Cases that cite this headnote 5 Cases that cite this headnote [11] Bankruptcy Right of review and persons entitled;parties; waiver or estoppel [8] Bankruptcy Parties To determine whether a person or entity has Mandatory joinder requirements do not standing to appeal bankruptcy court's order, the apply in contested matters. Fed.Rules Court of Appeals applies “person aggrieved” Bankr.Proc.Rules 1018, 7019, 11 U.S.C.A.; doctrine as prudential standing requirement. Fed.Rules Civ.Proc.Rule 19, 28 U.S.C.A. 5 Cases that cite this headnote 2 Cases that cite this headnote [12] Bankruptcy Right of review and persons [9] Bankruptcy Parties entitled;parties; waiver or estoppel Even assuming that mandatory joinder Under “person aggrieved” doctrine, person has requirements applied in contested matter arising standing to appeal bankruptcy court's order out of emergency motion to strike the answers only when he is directly and adversely affected to involuntary bankruptcy petitions filed by one pecuniarily by order; in other words, he must of two competing groups claiming ownership have a financial stake in the appealed order such of putative debtors, ownership group did not that the order diminishes his property, increases meet its burden of proving that parties who his burdens or impairs his rights. were not joined were both necessary and indispensable to proceeding, where ownership 5 Cases that cite this headnote group, by admitting to alleged debt at outset of proceedings, indicated that it believed [13] Bankruptcy Right of review and persons that involuntary petitions could be adjudicated entitled;parties; waiver or estoppel without any additional parties and failed to Bankruptcy court order that merely identified articulateeven a single non-conclusory reason putative debtors' immediate parents as part of for why bankruptcy court could not grant ownership chain, for purposes of deciding what complete relief among existing parties without entities had ultimate authority to appoint counsel joining the over a dozen non-parties identified to represent putative debtors in involuntary by it. Fed.Rules Bankr.Proc.Rules 1018, 7019, Chapter 11 proceedings, did not disturb parents' 11 U.S.C.A.; Fed.Rules Civ.Proc.Rule 19, 28 ownership of debtors or “award” parents to U.S.C.A. ownership group that it determined had ultimate authority to act, such that parents did not have 2 Cases that cite this headnote requisite financial stake in bankruptcy court's © 2022 Thomson Reuters. No claim to original U.S. Government Works. 3 FILED: NEW YORK COUNTY CLERK 10/05/2022 05:22 PM INDEX NO. 650438/2009 NYSCEF In re Fisher DOC. NO. Island 865 Investments, Inc., 778 F.3d 1172 (2015) RECEIVED NYSCEF: 10/05/2022 25 Fla. L. Weekly Fed. C 914 order to qualify as “persons aggrieved” with counsel to represent debtors, where motion for standing to appeal. continuance was not filed until ten days before scheduled trial date. [14] Bankruptcy Right of review and persons entitled;parties; waiver or estoppel [18] Bankruptcy Harmless error Party that did not contest, as substantive Even assuming that bankruptcy court, in ruling error,any of districtcourt's fact finding as to on motions to dismiss or for judgment on inauthenticity of pledge agreement purportedly partial findings, was required to consider showing party'specuniary interest in putative witness credibilityand to weigh the evidence debtor, and that submitted no other evidence presented, and that court applied wrong legal that it had any such financial stake, was not standard in treating motions as analogous “person aggrieved” with standing to appeal order to ones for summary judgment, any such determining which of two competing ownership error was harmless, where bankruptcy court groups was owner of debtor, with authority to ultimately found nonmoving party's testimonial appoint counsel to represent putative debtor in and documentary evidence to be credible and involuntary Chapter 11 proceeding. persuasive, and entered final judgment on that basis, and where there was no indication that, 1 Cases that cite this headnote had bankruptcy court applied proper standard, it would have granted these motions mid-trial. [15] Bankruptcy Procedure Fed.Rules Civ.Proc.Rule 52(c), 28 U.S.C.A. Bankruptcy court does not abuse its discretion in denying motion for continuance unless its ruling severely prejudices the moving party. [19] Bankruptcy Attorneys Bankruptcy court did not err, much less clearly 1 Cases that cite this headnote err, in finding that individual, as president and sole director of putative debtor, had exclusive [16] Bankruptcy Procedure authority to retain counsel to represent debtor in involuntary Chapter 11 case. Court considers four factors to determine whether denial of continuance constitutes an abuse of discretion: (1) moving party's diligence in its efforts to ready case for trial; (2) likelihood that need for continuance would have been West Codenotes remedied had continuance been granted; (3) extent to which granting continuance would have Recognized as Unconstitutional inconvenienced court and opposing party; and 28 U.S.C.A. § 157(b)(2)(C) (4) extent to which moving party might have suffered harm as result of the denial. Attorneys and Law Firms 2 Cases that cite this headnote *1176 Bruce D. Katz, Bruce D. Katz & Associates, New York, NY, Stewart Mark Mirmelli, The Mirmelli Law Firm, PA, Miami, FL, Craig Pugatch, Chad P. Pugatch, Rice Pugatch [17] Bankruptcy Determination of Issues; Robinson & Schiller, PA, Fort Lauderdale, FL, for Plaintiff– Dismissal Appellants. Bankruptcy court did not abuse itsdiscretion in denying request for continuance of trialto George Leo Zinkler, III, Rice Pugatch Robinson & Schiller, determine which of two competing ownership PA, Fort Lauderdale, FL, PatriciaAnn Redmond, Stearns groups owned putative debtors and had authority Weaver Miller Weissler Alhadeff & Sitterson,PA, Parker to reply to involuntary petitions and to retain Davidson Thomson, Dwayne Antonio Robinson, Clayton © 2022 Thomson Reuters. No claim to original U.S. Government Works. 4 FILED: NEW YORK COUNTY CLERK 10/05/2022 05:22 PM INDEX NO. 650438/2009 NYSCEF In re Fisher DOC. NO. Island 865 Investments, Inc., 778 F.3d 1172 (2015) RECEIVED NYSCEF: 10/05/2022 25 Fla. L. Weekly Fed. C 914 P. Solomon, John F. O'Sullivan, Hogan Lovells U.S., LLP, Joseph Lester Rebak, Tew Cardenas, LLP, Miami, FL, Martin I. BACKGROUND Paul Russo, Gusrae Kaplan Nusbaum, PLLC, New York, NY, Darin A. Dibello, Dibello & Lopez PA, Coral Gables, FL, for These bankruptcy proceedings are but a small part of global Defendants–Appellees. litigationthat began with the unexpected death of Arkadi (“Badri”) Patarkatsishviliin February 2008. Badri was an Eun K. Chang, Rice Pugatch Robinson & Schiller, PA, Fort extremely wealthy businessman and one-time presidential Lauderdale, FL, for Plaintiff–Appellants and Defendants– candidate from the Republic of Georgia. The resulting contest Appellees. between two factions over the ownership and control of Appeals from the United States District Court for the Badri's assets, purportedly worth billions of dollars,has Southern District of Florida. D.C. Docket Nos. 1:12–cv– spawned litigationin the Republic of Georgia, the United 20939–KMW, 11–17047–AJC, 1:12–cv–20018–PCH, 11– Kingdom, Liechtenstein, the British territory of Gibraltar, and bkc–17047–AJC, 1:12–cv–20939–KMW, 11–bkc–17047– both state and federal courts in the United States. On one AJC, 1:12–cv–20018–PCH, 11–bkc–17047–AJC, 1:13–cv– side of this protracted legal battleis the Redmond Group, 22331–KMM, 11–bkc–17051–AJC. consisting of Badri's immediate family and led by Badri's widow, Inna Gudavadze. The other side—the Zeltser Group Before HULL, JULIE CARNES, and WALKER,* Circuit —is led by Joseph Kay, Badri's distant relative and former Judges. employee. Opinion Though complicated by “an ever-shifting labyrinth of corporations, trusts, partnerships, holding companies, and HULL, Circuit Judge: interested individuals,” the parties' competing positions on the ownership issue are essentially as follows. According to the These consolidated bankruptcy appeals arise out of a dispute Redmond Group, Fisher Island and Little Rest are owned by between two competing groups—appellee the Redmond the Valmore Trust and Mutual Benefits is owned by the Test Group and appellant the Zeltser Group1—over ownership of, Trust—both Gibraltar trusts that were set up for the benefit and control over, three involuntary *1177 debtors: Fisher of Badri and his family. According to the Zeltser Group, Island Investments, Inc. (“Fisher Island”), Little Rest Twelve, Imedinvest Partners (“Imedinvest”), a partnership formed in Inc. (“Little Rest”), and Mutual Benefits Offshore Fund, Ltd. the Republic of Georgia, owns Fisher Island, Little Rest, and (“Mutual Benefits”) (collectively, the “Alleged Debtors”).2 Mutual Benefits. We refer to this dispute as the “ownership issue.” The dispute over ownership and control did not begin in the Litigation of the ownership issue in three bankruptcy cases bankruptcy court. In a lawsuit filed by the then-trustee of the has yielded five consolidated appeals of four orders: (1) Valmore Trust, the Supreme Court of Gibraltar considered the district court's order denying the Zeltser Group's motion whether Badri or Kay was the beneficiary of the Valmore to withdraw reference of the ownership issue; (2) the Trust. In 2009, after a nearly two-year proceeding, the district court's affirmance of the bankruptcy court's summary Gibraltar Court concluded that the vast majority of the assets judgment order in favor of the Redmond Group in the Fisher in the Valmore Trust were funded by Badri and held for the Island and Little Rest cases; (3) the districtcourt'sorder benefit of Badri's immediate family. After Kay abandoned dismissing, for lack of standing, certain non-party appeals his appeal of that judgment, the Gibraltar Court declared that from the bankruptcy court's summary judgment order; and Kay had no interest in the assets of the Valmore Trust, which (4) the district court's affirmance of the bankruptcy court's belonged solely to Badri. The Gibraltar Court's decision final judgment in favor of the Redmond Group in the Mutual *1178 entailed an implicit finding that the Valmore Trust Benefits case. was valid. After careful review of the record and the parties' briefs, and Before the filing of the involuntary petitions in March 2011, with the benefit of oralargument, we affirm allorders on the Zeltser Group advanced its theory of ownership in state appeal. courts in New York and Florida. In the New York action, attorney Emanuel Zeltser claimed, on behalf of Imedinvest © 2022 Thomson Reuters. No claim to original U.S. Government Works. 5 FILED: NEW YORK COUNTY CLERK 10/05/2022 05:22 PM INDEX NO. 650438/2009 NYSCEF In re Fisher DOC. NO. Island 865 Investments, Inc., 778 F.3d 1172 (2015) RECEIVED NYSCEF: 10/05/2022 25 Fla. L. Weekly Fed. C 914 and Joseph Kay, that the Valmore Trust was a “sham” and in the involuntary petitions against the Alleged Debtors and that Imedinvest, of which Kay was allegedly the managing consenting to the relief requested by the Petitioning Creditors. partner, was the owner of LittleRest. On July 22, 2011, the New York court issued a decision rejecting the sham The next day, the Redmond Group, through attorney trust argument on multiple grounds, determining that Zeltser Redmond, filed an emergency motion to strike the Zeltser had no authority to represent LittleRest, and substituting Group's answers. The Redmond Group, claiming to be the attorneys for the Redmond Group as counsel for Little actual authorized representatives of the Alleged Debtors, Rest. See Little Rest Twelve, Inc. v. Visan, No. 600676/2007 alleged that the involuntary petitions were improperly filed in (N.Y.Sup.Ct.N.Y.Cnty. July 22, 2011) (order substituting an attempt to stay the state court litigation in Florida and New counsel). Similarly, attorney Darin DiBello represented Kay York. To adjudicate the underlying debt, the bankruptcy court in litigating the ownership and representation of Fisher Island had to decide who owned the Alleged Debtors, and thus who in the Florida action. See Motion to Strike Complaint, Fisher had the authority to retain counsel. Island Invs., Inc. v. Baker, No. 10–14866 (11th Jud. Cir. of Miami–Dade Cnty., Fla. Mar. 15, 2010). In response to the motion to strike, the Zeltser Group asked the bankruptcy court to deny the relief sought therein until resolving the question of who had the authority to act on behalf of the Alleged *1179 Debtors. Notably, the Zeltser II. BANKRUPTCY COURT PROCEEDINGS Group stated in its response that “the issues of proper A. Involuntary Petitions ownership and control over the Alleged Debtor[s] should be On March 17, 2011, a group of six individuals and entities litigated in due course before this Court.” —Solby+Westbrae Partners; 19 SHC, Corp.; Ajna Brands, Inc.; 601/1700 NBC, LLC; Axafina, Inc.; and Oxana Faced with these contradictory claims, the bankruptcy Adler (collectively, the “Petitioning Creditors”)—filed three court held a hearing on March 25, 2011. The bankruptcy separate involuntary Chapter 11 bankruptcy petitions in the court noted that it was highly unusual that the Alleged U.S. Bankruptcy Court for the Southern District of Florida Debtors, as represented by the Zeltser Group, immediately against Fisher Island, Little Rest, and Mutual Benefits. The consented to the involuntary petitions. As to the ownership involuntary petitions were filed as the parties anticipated key issue, attorney Zeltser contended that Imedinvest, a “loose rulings on the ownership issue in the New York and Florida investment partnership” owned all three of the Alleged litigations. Debtors. According to Zeltser, Badri had been a partner of Imedinvest, and it was on behalf of Imedinvest and other The involuntary petitions asserted claims against the Alleged entities that the Note debt had been incurred. Debtors for approximately $32.4 million, $28.5 million of which was based on a promissory note (the “Note”) Counsel for the Redmond Group denied that Imedinvest had purportedly executed by the Alleged Debtors and assigned to any ownership interest in the Alleged Debtors. Instead, the three of the Petitioning Creditors by a non-party, Areal Plus Redmond Group asserted that the Valmore Trust ultimately Group. The Petitioning Creditors, asserting that the Alleged owned Fisher Island and Little Rest through itstrustee, Debtors were “affiliates,”moved the bankruptcy court to Miselva Establissement (“Miselva”). The Redmond Group jointly administer the three cases and to appoint a trustee to also asserted that Mutual Benefits was comprised of several take control and possession of the Alleged Debtors' assets. investors, the largest of which was Kayley Investments, N.V. (“Kayley”). In turn, Kayley was legally owned by the Test Trust. B. Ownership Issue Two sets of attorneys—representing the Zeltser Group and During the hearing, the Zeltser Group specifically requested the Redmond Group, respectively—entered appearances of that the bankruptcy court decide the ownership issue. record in the bankruptcy court, both purporting to act on Attorney Zeltser claimed that the New York and Florida behalf of the Alleged Debtors. On March 21, 2011, four state courts could not determine ownership, and informed the days afterthe involuntary petitions were filed, the Zeltser bankruptcy court that it, as the “ultimate Court of equity,” was Group, through attorney DiBello, filed answers on behalf of the “only court” that could resolve the issue. Furthermore, the the Alleged Debtors, immediately admitting to the allegations © 2022 Thomson Reuters. No claim to original U.S. Government Works. 6 FILED: NEW YORK COUNTY CLERK 10/05/2022 05:22 PM INDEX NO. 650438/2009 NYSCEF In re Fisher DOC. NO. Island 865 Investments, Inc., 778 F.3d 1172 (2015) RECEIVED NYSCEF: 10/05/2022 25 Fla. L. Weekly Fed. C 914 bankruptcy court's decision on the issue, presumably after a short “ownership hearing,” would be “dispositive.” The Examiner explained that the ownership dispute with respect to Mutual Benefits was different from Fisher Island The Redmond Group laterfiled answers and motions to and Little Rest in that Mutual Benefits was never held dismiss on behalf of the Alleged Debtors, denying the within the Valmore Trust. The Examiner's review indicated allegations in the involuntary petitions,raising affirmative that W. Shaun Davis, through his management company, defenses, and seeking dismissal of the petitions as filed in bad Triangle International Management Limited (“Triangle”), faith. Thus, whether the petitions were contested depended on owned 100% of Mutual Benefits' voting shares. All of Mutual a threshold determination of which group was authorized to Benefits' other shareholders, including Kayley, held non- represent the Alleged Debtors in the proceedings. voting shares. Mutual Benefits was therefore controlled by its voting shareholder, Triangle. C. Discovery and Examiner's Report The Examiner generally found the Zeltser Group's story with On March 31, 2011, the bankruptcy court granted in part respect to ownership to be inconsistent and irreconcilable the Petitioning Creditors' motion to jointly administer the with, or unsupported by, the record. For instance, the three cases. Although the bankruptcy court doubted how the Zeltser Group provided little extrinsic evidence to prove the “three widely disparate business operations” were affiliates, existence of Imedinvest. In fact, Joseph Kay and his sister itgranted the motion “for the sole purpose of conducting testified in connection with the Gibraltar proceeding in 2009 one trial regarding the validity of the ... Note, the assignment that they were unfamiliar with Imedinvest. The Examiner of the Note and determination of who are the legitimate also determined that the Zeltser Group had submitted representatives and attorneys for the three alleged involuntary certain documentation in “an intentional effort to mislead or debtors.” The bankruptcy court also appointed a Chapter 11 misrepresent material facts to a court.” Examiner to investigate the ownership issue, among other things.3 After several months of extensive discovery in accordance with the Schedule Order (as well as extensions), which At the bankruptcy court's direction, the parties conferred produced more than 200,000 pages of documents, the record regarding discovery and pre-trial procedures and agreed to was closed on November 30, 2011. a case management order. On June 7, 2011, the bankruptcy court issued the agreed “Case Management and Schedule Order in Contested Matter Setting Filing and Disclosure D. Summary Judgment in Fisher Island and Little Rest Requirements for Pre-Trial and Trial” (the “Schedule Order”) Cases (emphasis added). Notably, the Schedule Order provided 1. Motion for Partial Summary Judgment for extensive discovery, including mandatory disclosures of Notwithstanding the Examiner's unfavorable report, on witnesses *1180 and documents, interrogatories, requests November 21, 2011, the Zeltser Group moved for partial for admission, document requests, depositions, and expert summary judgment on the ownership issue in the Fisher reports. The Schedule Order directed the parties to submit findings of fact rather than jury instructions, and noted that Island and LittleRest cases.4 The Zeltser Group sought a the bankruptcy court would set a trial date for “this contested determination that:(1) the Valmore Trust was invalid; (2) matter” at the pre-trial conference. neither Gibraltar law nor United Kingdom law applied to the proceedings; and (3) JWL Entertainment Group, Inc. On November 18, 2011, the Examiner issued a 96-page report (“JWL”), a Delaware corporation, was the equitable owner of addressing the ownership of the Alleged Debtors and the Fisher Island and Little Rest. claims of the Petitioning Creditors. The Examiner found that the Valmore Trust was the ultimate owner of both Fisher The Zeltser Group's ownership theory was twofold. First, Island and Little Rest. As to Mutual Benefits, the Examiner the Valmore Trust5 was a “sham” and invalid because Kay, found that Kayley was ultimately owned by the Test Trust. and not Badri, was the settlor and beneficiary. Alternatively, Accordingly, the attorneys for the Redmond Group (not the Fisher Island Limited (“Fisher Limited”) and Grosvenor Zeltser Group) were authorized to represent the Alleged Trading Holding Limited (“Grosvenor”), which the Zeltser Debtors. Group acknowledged were the respective parent companies © 2022 Thomson Reuters. No claim to original U.S. Government Works. 7 FILED: NEW YORK COUNTY CLERK 10/05/2022 05:22 PM INDEX NO. 650438/2009 NYSCEF In re Fisher DOC. NO. Island 865 Investments, Inc., 778 F.3d 1172 (2015) RECEIVED NYSCEF: 10/05/2022 25 Fla. L. Weekly Fed. C 914 *1181 of Fisher Island and Little Rest, were transferred from production of the Examiner's report. The bankruptcy court trustee Miselva to JWL. JWL was then transferredout of then set forth the material facts concerning the formation the Valmore Trust to Imedinvest. The Zeltser Group argued and operation of the Valmore Trust, as well as the Gibraltar that, pursuant to these transactions, JWL held equitable and New York litigations. The “Material Facts” section made ownership of Fisher Island and LittleRest. Paradoxically, no mention of the Examiner or his report. Based on these the Zeltser Group maintained that the bankruptcy court material facts, the bankruptcy court rejected the argument lacked jurisdiction to resolve any issue regarding the JWL that the Valmore Trust was a sham and declined to reverse transactions. any findings made by the Gibraltar Court. Furthermore, the bankruptcy court determined that the JWL transaction was In opposition to the partial summary judgment motion, the abandoned and that pursuant to the unrebutted expert opinion Redmond Group argued that the Gibraltar Court's judgment submitted by the Redmond Group, neither legal nor beneficial precluded the bankruptcy court from determining the validity ownership of Fisher Limited or Grosvenor passed to JWL. of the Valmore Trust. The Gibraltar Court's factual findings, including itsimplicit finding that the Valmore Trust was The bankruptcy court stated that, pursuant to Federal Rule of valid, were entitled to comity, and a New York state court Bankruptcy Procedure 7056(f), it was “inclined to determine specifically declined to find that the Valmore Trust was a as a matter of law” that Miselva (then trustee of the Valmore sham. Furthermore, the JWL transaction was abandoned. Trust) owned Fisher Limited and Grosvenor. The parties did Even assuming the transaction was completed, Miselva was not dispute that Fisher Limited owned Fisher Island and stillthe legal and beneficialowner of Fisher Limited and Grosvenor owned Little Rest. Thus, the bankruptcy court was Grosvenor, as indicated in an unrebutted expert opinion in effect notifying the parties that itintended to rule that submitted by the Redmond Group. The Zeltser Group did not the Valmore