ASI INC. et al v. FOREIGN LIQUIDATORS et al
Filing
39
OPINION. Signed by Judge Renee Marie Bumb on 5/3/2019. (rtm, )
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW JERSEY
CAMDEN VICINAGE
IN RE: MANLEY TOYS LIMITED,
Debtor in a Foreign
Proceeding.
---------------------------ASI, INC.,
Appellant,
Civ. Nos. 18-2836, 18-2838 (RMB)
v.
OPINION
FOREIGN LIQUIDATORS, et al.,
Appellees.
APPEARANCES:
HELLRING LINDEMAN GOLDSTEIN & SIEGAL LLP
By: Richard B. Honig, Esq.
Matthew E. Moloshok, Esq.
One Gateway Center
Newark, New Jersey 07102
and
WEISBROD MATTEIS & COPLEY PLLC
By: Stephen A. Weisbrod, Esq.
1200 New Hampshire Avenue NW
Suite 600
Washington, DC 20036
Counsel for Appellant
ARCHER & GREINER PC
By: Stephen M. Packman, Esq.
Douglas G. Leney, Esq.
One Centennial Square
Haddonfield, New Jersey 08033
and
1
GOODWIN PROCTOR LLP
By: Daniel M. Glosband, Esq.
100 Northern Avenue
Boston, Massachusetts 02210
Counsel for Appellees
BUMB, UNITED STATES DISTRICT JUDGE:
On March 22, 2016, Manley Toys Limited (“the Debtor”)
commenced a creditors’ voluntary liquidation in Hong Kong,
pursuant to Hong Kong law.
Mat Ng and John Robert Lees were
appointed as liquidators (“the Liquidators”), and on the same
day, the Liquidators filed a Chapter 15 case and motion in the
United States Bankruptcy Court for the District of New Jersey.
The Bankruptcy Court granted the motion, and recognized the Hong
Kong liquidation as a “foreign main proceeding,” 11 U.S.C. §
1502(4) (“the Recognition Decision”).
Aviva appealed that
decision to this Court, and this Court recently affirmed the
Recognition Decision in its entirety.
See In re Manley Toys
Ltd., 597 B.R. 578 (D.N.J. 2019). 1
Aviva presently appeals from the Bankruptcy Court’s
subsequent denial of relief from the provisional stay that the
Bankruptcy Court imposed in connection with the Chapter 15
petition.
Also before this Court is Aviva’s application to
“supplement the record on appeal.”
1
For the reasons stated
Aviva has appealed this Court’s decision to the Court of
Appeals for the Third Circuit.
2
herein, the Court will remand the case for further proceedings
consistent with this Opinion.
I.
FACTUAL BACKGROUND
As the Court’s opinion affirming the Bankruptcy Court’s
Recognition Decision should make apparent, this case is
factually, legally and procedurally complex.
Thus, the Court
will not repeat the lengthy discussion of the facts set forth in
the previous Opinion which is available at In re Manley Toys
Ltd., 597 B.R. 578 (D.N.J. 2019).
Relevant to the instant appeal, on the same day that the
Liquidators filed the Chapter 15 Petition with the Bankruptcy
Court, the Liquidators moved for provisional relief, including a
provisional stay pursuant to 11 U.S.C. §§ 362 and 1519(a). 2
opposed the motion.
Aviva
After holding a hearing on the matter, on
2
In contrast to a Chapter 11 proceeding for example, a stay
upon the filing of a Chapter 15 petition is not automatic. If a
provisional stay is warranted, the Bankruptcy Court must enter an
order imposing a stay during the time between the Chapter 15
petition and a decision whether to recognize the foreign
proceeding. See In re Pro-Fit Holdings Ltd., 391 B.R. 850, 858
(Bankr. C.D. Cal. 2008) (“To authorize relief during the gap
period between the time of filing a petition for recognition and
the court ruling on recognition, § 1519(a) provides that ‘the
court may grant relief of a provisional nature,’ at the request
of the foreign representative, where relief is urgently needed to
protect the assets of the debtor or the interests of the
creditors.”); see also, In re Manley Toys Ltd., 2018 WL 1033426,
at *3 (Bankr. D.N.J. Feb. 14, 2018) (citing Pro-Fit); In re Innua
Canada Ltd., 2009 WL 1025088 at *2 (Bankr. D.N.J. Mar. 25, 2009)
(citing Pro-Fit).
3
April 1, 2016, the Bankruptcy Court granted provisional relief in
relevant part as follows:
[p]ursuant to 11 U.S.C. §§ 362 and 1519(a)(1), all
persons and entities are stayed, without limitation,
from the commencement or continuation of any and all
litigation by, against or with respect to the Debtor,
including, but not limited to, the litigation identified
in the Verified Petition (the “Litigation Claims”) and
any other actions, motions, discovery, trials and
proceedings, and including the enforcement of any
claims, causes of action, judgments, writs of execution,
levies, garnishments or attempt of enforcement or relief
against the Debtor, or against any property of the
Debtor, in the United States and from any act to obtain
possession of, exercise control over, transfer, dispose
of or encumber property of the Debtor in the United
States, including, but not limited to, the US Assets, or
take any other actions with respect to assets of the
Debtor, absent Court approval.
For purposes of this
Order, the term “US Assets” shall mean all of the
Debtor’s assets of any kind in the United States.
(Bankruptcy Docket 16-15374-JNP (“Bankr. Docket”), Docket No. 18)
On September 13, 2016, Aviva moved the Bankruptcy Court for
relief from the Provisional Stay Order. (Bankr. Docket No. 144)
The Bankruptcy Court held a hearing on September 27, 2016, and on
October 25, 2016 entered an order in part granting and in part
reserving decision on Aviva’s motion.
(Id. at Docket No. 159)
Most relevantly to the instant appeal, in the Order, the
Bankruptcy Court reserved decision on “whether Aviva may seek
injunctive sanctions against Manley for violating the Minnesota
Federal Court’s post-judgment discovery orders or to compel
compliance with such orders,” and “whether the Liquidators are
estopped from arguing that this Chapter 15 proceeding or the Hong
4
Kong ‘liquidation’ prohibit, limit or otherwise affect such alter
ego claims.”
(Bankr. Docket No. 159, p. 4 of 5)
As noted by the Bankruptcy Court, “[t]hereafter between
October 2016 and May 2017, . . . several additional briefs [were
filed] on the matter.”
In re Manley Toys Ltd., 2018 WL 1071167
at *1 (Bankr. D.N.J. Feb. 23, 2018). 3
As set forth in the
Bankruptcy Court’s opinion addressing the remainder of Aviva’s
Stay Relief Motion, the relief Aviva sought was multifaceted and
broad.
The Bankruptcy Court ultimately granted in part and
denied in part the remainder of Aviva’s motion.
Id.
Aviva timely appealed the Bankruptcy Court’s Stay Relief
Order to this Court on February 28, 2018.
On March 12, 2019--
over a year after the appeal was filed-- Aviva sought relief from
this Court to “supplement the record on appeal.”
Specifically,
Aviva has asked this Court to consider two exhibits: (1) a
February 18, 2019 letter from Liquidator Matt Ng notifying
3
Those additional submissions included a 173-page
“Supplemental Letter” (Bankr. Docket No. 189), a 64-page
Declaration (Bankr. Docket No. 190), and a 77-page “Second
Declaration” (Bankr. Docket No. 206), all filed by Aviva.
Also during this time period, several other motions were
filed by Aviva and other parties, including a Motion to Compel
Aviva’s compliance with the provisional stay filed by Toy Quest
Ltd.; a Motion to Compel Discovery from Toy Quest Ltd. filed by
Toys R Us, Inc.; a Motion for Sanctions filed by Aviva; and a
Motion to Compel Toy Quest Ltd. to Produce Documents and Answer
Interrogatories filed by Aviva. It would appear, based on the
numerous docketed orders granting the various parties’
applications to shorten time, that many of these applications
were addressed by the Bankruptcy Court on an expedited schedule.
5
creditors, including Aviva, of a “Proposed Settlement” between
the Debtor and Toy Quest Ltd.; and (2) Aviva’s written objection
to the Proposed Settlement, dated March 1, 2019.
In response to Aviva’s application, this Court issued an
Order to Show Cause “why this Court, sitting as an appellate
court reviewing the Bankruptcy Court’s decision, has jurisdiction
to consider evidence that was not before the Bankruptcy Court
when it rendered that decision.” (District Court Docket 18-2836,
Docket No. 35; District Court Docket 18-2838, Docket No. 33)
Both Aviva and the Liquidators timely filed responses to this
Court’s Order, and the issue is now ripe for decision.
II.
LEGAL STANDARD
This Court has jurisdiction to hear appeals from the
Bankruptcy Court’s final orders pursuant to 28 U.S.C. § 158(a).
The Bankruptcy Court’s decision to deny stay relief is reviewed
for abuse of discretion.
In re: Stone Res., Inc., 482 F. App’x
719, 722 (3d Cir. 2012).
III. ANALYSIS
The Court first addresses Aviva’s application to supplement
the record and then addresses the merits of the appeal from the
Bankruptcy Court’s Stay Relief Order.
A.
As stated by this Court in its Order to Show Cause, the
issue is whether this Court may consider evidence that was not
6
before the Bankruptcy Court and, indeed, could not possibly have
been before the Bankruptcy Court because such evidence did not
come into existence until well after the Notice of Appeal was
filed.
Aviva asserts that this Court may take judicial notice
“that the Liquidators proposed the settlement, that they admitted
they lacked the funds to prosecute the claims, [and] that the
potential defendants [to Aviva’s proposed fraudulent transfer and
alter ego claims] funded the professionals who negotiated all
sides of the deal.” (District Court Docket 18-2838, Docket No.
34, p. 4) 4
The Liquidators disagree.
While the Liquidators state that
they would have no objection to the Court judicially noticing the
existence of the letters, they assert that the Court cannot
appropriately take judicial notice of the substance of those
letters, as Aviva asks this Court to do. (District Court Docket
18-2838, Docket No. 35, p. 5-6) 5
4
Aviva additionally argues that this Court has “inherent
authority to consider new facts or evidence” and that “the
interests of justice [and] extraordinary circumstances” justify
the Court doing so in this case. (District Court Docket 18-2838,
Docket No. 34, p. 4) In light of the disposition of this appeal,
the Court does not rule on this argument.
5
The Court does not address the separate, but related
evidentiary question of whether the evidence is admissible either
as non-hearsay, or under an exception to the hearsay rule.
7
While the Liquidators are likely correct on this issue 6, the
Court does not decide it.
Remanding to the originating court--
in this case the Bankruptcy Court-- is an available alternative
to judicially noticing facts.
Cf. In re Capital Cities/ABC,
Inc.’s Application for Access to Sealed Transcripts, 913 F.2d 89,
98 (3d Cir. 1990) (declining to supplement the record on appeal
and remanding the case to the district court “to give [Appellant]
an opportunity to introduce into the record” the newspaper
articles and wire service releases that were not a part of the
district court record).
Given the nature of the evidence Aviva asks this Court to
consider in this appeal, and additionally for the reasons set
forth next, the Court concludes that a remand to the Bankruptcy
Court is the most prudent and efficient disposition of this
appeal under the circumstances.
B.
Aviva asserts that the Bankruptcy Court failed to consider
two of its arguments in support of its motion for relief from the
Bankruptcy Court’s stay order.
Specifically, Aviva asserts that
6
See Werner v. Werner, 267 F.3d 288, 295 (3d Cir. 2001)
(“We will not judicially notice the truth of the contents of the
meeting minutes. . . . Taking judicial notice of the truth of the
contents of a filing from a related action could reach, and
perhaps breach, the boundaries of proper judicial notice. We
will neither notice nor consider the substance of the Board
minutes in adjudicating this appeal. Judicially noticing the
existence and the filing of the corporate minutes [however] is a
different matter.”).
8
the Bankruptcy Court failed to address its arguments that stay
relief is warranted based on (a) Manley’s and its Principals’
alleged “outrageous bad faith” actions in the Minnesota Federal
Action and (b) principals of judicial estoppel.
The Bankruptcy Court’s order of October 25, 2016 partially
granted stay relief but reserved decision on the issues raised in
this appeal.
Most relevantly, in the Order, the Court reserved
decision on “whether Aviva may seek injunctive sanctions against
Manley for violating the Minnesota Federal Court’s post-judgment
discovery orders or to compel compliance with such orders,” and
“whether the Liquidators are estopped from arguing that this
Chapter 15 proceeding or the Hong Kong ‘liquidation’ prohibit,
limit or otherwise affect such alter ego claims.”
(Bankr. Docket
16-15374, Docket No. 159, p. 4 of 5)
Aviva filed briefs in the Bankruptcy Court specifically
discussing these and other issues (Bankr. Docket 16-15374, Docket
No. 144-1, 152), and these and other issues were discussed with
the Bankruptcy Court during oral argument on the Motion for Stay
Relief (Id. Docket No. 157), yet the Bankruptcy Court’s decision
of February 23, 2018 does not appear to address the bad faith 7 nor
7
On appeal, Aviva refers to Manley’s and its Principals’
asserted “bad faith” conduct. Before the Bankruptcy Court, Aviva
referred to the same conduct as “morally culpable” conduct.
(Bankr. Docket 16-15374, Docket No. 144-1, p. 9-10; Docket No.
152 p. 5-6)
9
the estoppel issues.
Since the “cause” analysis must consider
the totality of the circumstances 8, remand is appropriate to
ensure that the Bankruptcy Court did, indeed, consider the
totality of the circumstances and did not inadvertently overlook
arguments Aviva raised, as Aviva contends here. 9
IV.
CONCLUSION
For the foregoing reasons, the Court will remand this case
for: (a) further consideration of Aviva’s application for stay
relief, and (b) a decision as to whether the Bankruptcy Court’s
consideration in that regard will include the letters Aviva has
sought to introduce into the record of this appeal.
An
appropriate Order shall issue on this date.
Dated: May 3, 2019
__ s/ Renée Marie Bumb _____
RENÉE MARIE BUMB
UNITED STATES DISTRICT JUDGE
8
The Court shall grant relief from the automatic stay “for
cause.” 11 U.S.C. § 362(d)(1). “‘Section 362(d)(1) does not
define ‘cause,’ leaving courts to consider what constitutes cause
based on the totality of the circumstances in each particular
case.’” In re: Stone Res., Inc., 482 F. App’x 719, 722 (3d Cir.
2012) (quoting Baldino v. Wilson (In re: Wilson), 116 F.3d 87, 90
(3d Cir. 1997)).
9
That this Court is unable to decide the stay relief issue- which Aviva would clearly prefer to a remand-- is due, at least
in part, to Aviva’s “include everything and the kitchen sink”
litigation strategy which is evident in the briefs it has filed
in this Court and the Bankruptcy Court. When a litigant buries
an already overburdened Bankruptcy Court with a mountain of
papers and a litany of arguments, the possibility that the
Bankruptcy Court might inadvertently overlook one or two of
numerous arguments becomes, unfortunately, almost inevitable.
10
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?