Tradewinds Airlines Inc. v. Soros et al

Filing 236

OPINION AND ORDER re: (215 in 1:08-cv-05901-JFK) MOTION to Strike Portions of G. Subramanian's Expert Report and to Exclude Testimony at Trial filed by Tradewinds Airlines Inc., (219 in 1:08-cv-05901-JFK) MOTION To Strike Expert Testimony Concerning Capitalization filed by Pernendu Chatterjee, George Soros, (221 in 1:08-cv-05901-JFK) MOTION for Summary Judgment filed by Pernendu Chatterjee, George Soros: For the foregoing reasons, Defen dants' motion for summary judgment is granted. Defendants' motion to strike portions of Bienenstock's expert report and Plaintiffs' motion to strike portions of Subramanian's expert report are denied as moot. The Clerk is directed to remove these two cases from the docket of this Court. (Signed by Judge John F. Keenan on 3/31/2015) (tn)

USDC SDNY
DOCUMENT
ELECTRONICALLY FILED
DOC #: _________________
DATE FILED: Mar. 31, 2015

UNITED STATES DISTRICT COURT
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW NEW YORK
SOUTHERN DISTRICT OF YORK
-----------------------------------X
-----------------------------------------------------------x
TRADEWINDS AIRLINES, INC.,
: :
In re FANNIE MAE 2008 SECURITIES
08 Civ. 7831 (PAC)
: :
LITIGATION
09 MD 2013 (PAC)
Plaintiff,
: :
: :
OPINION & ORDER
-against:
-----------------------------------------------------------x
:
GEORGE SOROS and PURNENDU
:
CHATTERJEE,
:
:
No. 08
HONORABLE PAUL A. CROTTY, United States District Judge:Civ. 5901 (JFK)
Defendants.
:
No. 10 Civ. 8175 (JFK)
-----------------------------------X
COREOLIS HOLDINGS, INC. and
:
Opinion and Order
BACKGROUND1
TRADEWINDS HOLDINGS, INC.,
:
:
The early years of this decade saw a boom in home financing which was fueled, among
Plaintiffs,
:
:
other things, by low interest rates and lax credit conditions. New lending instruments, such as
-against:
:
subprime mortgages (high credit risk loans) and Alt-A mortgages (low-documentation loans)
GEORGE SOROS and PURNENDU
:
CHATTERJEE,
:
kept the boom going. Borrowers played a role too; they took on unmanageable risks on the
:
Defendants.
:
assumption that the market would continue to rise
-----------------------------------X and that refinancing options would always be
APPEARANCES
available in the future. Lending discipline was lacking
For Plaintiff TradeWinds Airlines, Inc.: in the system. Mortgage originators did
SUSMAN GODFREY LLP
not hold William Christopher Carmodythan carry the rising risk on their books, the
By: these high-risk mortgage loans. Rather
Shawn J. Rabin
originators sold Buland into the secondary mortgage market, often as securitized packages
Cory their loans
Megan O’Hara Easley
known as mortgage-backed securities (“MBSs”). MBS markets grew almost exponentially.
For Plaintiffs Coreolis Holdings, Inc.
But then the housing bubble burst. In 2006, the demand for housing dropped abruptly
and TradeWinds Holdings, Inc.:
RESSLER & RESSLER
and home prices began to fall. In light of the changing housing market, banks modified their
By: Ellen R. Werther
Bruce J. Ressler
lending practices and became unwilling to refinance home mortgages without refinancing.
For Defendant George Soros:
BUTLER, FITZGERALD, FIVESON & McCARTHY, P.C.
By: Raymond Fitzgerald
1
Unless otherwise indicated, all references cited as “(¶ _)” or to the “Complaint” are to the Amended Complaint,
David J. McCarthy
dated June 22, 2009. For purposes of this Motion, all allegations in the Amended Complaint are taken as true.
1

WILLKIE FARR & GALLAGHER LLP
By: Martin B. Klotz
Alison R. Levine
For Defendant Purnendu Chatterjee:
MORRISON COHEN LLP
By: Kristin T. Roy
POSTERNAK BLANKSTEIN & LUND LLP
By: Dustin F. Hecker
James Kruzer
JOHN F. KEENAN, United States District Judge:
Plaintiffs TradeWinds Airlines, Inc. (“TradeWinds
Airlines”), Coreolis Holdings, Inc. (“Coreolis”), and TradeWinds
Holdings, Inc. (“TradeWinds Holdings”) hold an unsatisfied North
Carolina default judgment against C-S Aviation Services, Inc.
(“C-S Aviation”).

Plaintiffs brought the instant actions to

pierce the corporate veil of C-S Aviation and recover from the
company’s alleged alter egos, Defendants George Soros and
Purnendu Chatterjee.
Before the Court are three motions.

The first is

Defendants’ motion for summary judgment on Plaintiffs’ veilpiercing claims.

Defendants also move to strike a portion of

expert testimony pertaining to the capitalization of C-S
Aviation offered by Martin J. Bienenstock.

Plaintiffs move to

strike portions of Guhan Subramanian’s expert report.

For the

reasons that follow, Defendants motion for summary judgment is
granted.

The motions concerning the expert reports are denied

as moot.

2

I. Background
A. Facts
Soros and Chatterjee have had a business relationship
stretching back to the 1980s. (SF ¶ 13.)1

They each created a

firm to provide advisory services for investment funds:

Soros

formed Soros Fund Management (“SFM”); (SF ¶¶ 5–6.) and
Chatterjee formed Chatterjee Management Company (“CMC”). (SF
¶¶ 11–12, 217–18.)

SFM earned management fees from the

investment activities of the entities it advised. (SF ¶ 14.)

In

the 1980s and early 1990s, Chatterjee would bring investment
ideas to SFM, and SFM and CMC would manage the investments. (SF
¶ 13.)

Soros shared fees earned from the investment activity

managed by SFM and CMC with Chatterjee. (SF ¶ 15.)
In the early 1990s, Chatterjee shared his idea for an
aircraft leasing business with Soros, and the two men started
one. (SF ¶ 20.)

In addition to other possible unknown

contributors, Quantum Industrial Partners, LDC (“QIP”), a fund
advised by SFM, invested, as did three funds collectively known
as the Winston Funds that CMC advised. (SF ¶¶ 21–22, 24, 28,
216.)

S-C Aviation Investments, Inc., (“S-C Aviation”) a

corporation owned by Soros, also invested. (SF ¶¶ 21, 31, 215.)

1

“SF” refers to the parties’ Rule 56.1 Statement of Material Facts, as
fully set forth in Defendants’ Reply to Plaintiffs’ Response. (ECF No.
232.)

3

Collectively, QIP, the Winston Funds, and S-C Aviation will be
referred to as “the Investors.”
While his ownership interest varied over time, Soros owned
approximately 0.2 percent of QIP from 1994 until 1999, and
approximately 15 percent from 2000 through 2003. (SF ¶¶ 25–26,
215.)

The parties dispute the ownership interests of QIP, the

Winston Funds, and S-C Aviation in the aircraft leasing
business.

Defendants assert that each owned approximately one-

third of the aircraft leasing business. (SF ¶¶ 27, 30, 32.)
Plaintiffs contend, based on Soros’s recollection during his
deposition, that QIP’s ownership interest was approximately 50
percent, while the Winston Funds and S-C Aviation each owned 25
percent. (SF ¶¶ 27, 30, 32, 219.)

The parties also contest

whether Chatterjee or other investors in the Winston Funds
contributed the majority of the capital for the aircraft leasing
business. (SF ¶¶ 29, 219.)

In addition to the contributions

from the Investors, funding was also obtained through a series
of loans from financial institutions. (SF ¶ 49.)
In order to understand the ultimate decision reached here,
it will be necessary for the Court to recite the complicated
corporate and financial structure and occurrences that C-S
Aviation was involved in over the years.

The structure of the

aircraft leasing business changed over time, but in general it
took the following form.

Special purpose trusts held legal

4

title to each aircraft, and some trusts held title to multiple
aircraft. (SF ¶ 34.)

First Security Bank, N.A., which later

became known as Wells Fargo Bank, Northwest, N.A. (“Wells
Fargo”), was the original trustee of the special purpose trusts.
(SF ¶¶ 35, 230.)
The beneficiary of each special purpose trust was a
separate special purpose vehicle (“SPV”) — organized either
under Delaware law as a limited liability company or Cayman
Islands law as a limited duration company — that was the
beneficial owner of one and sometimes multiple aircraft. (SF
¶¶ 37, 223.)

S-C Aircraft Holdings LLC (“S-C Holdings”) and P-G

Aircraft Holdings LLC (“P-G Holdings”) owned the SPVs either
directly or through their respective wholly-owned subsidiaries
S-C Newco LLC (“S-C Newco”) and P-G Newco LLC (“P-G Newco”). (SF
¶ 39.)

P-G Holdings, S-C Holdings, P-G Newco, and S-C Newco are

collectively referred to as the “Holding Companies.”

The

Investors owned S-C Holdings and P-G Holdings either directly or
through affiliates. (SF ¶ 40.)

None of the SPVs or Holding

Companies had their own employees. (SP ¶¶ 45, 222.)

Loans

procured by S-C Holdings, P-G Holdings from financial
institutions others, as well as contributions from the Investors
and others, helped fund the aircraft leasing business. (SP
¶ 49.)

5

In 1994, C-S Aviation was incorporated under Delaware law.
(SF ¶ 59.)

C-S Aviation provided management services for the

aircraft leasing business, including finding aircraft to
purchase and buyers and lessees for the aircraft, and arranging
for maintenance and storage of the aircraft. (SF ¶ 62; Easley
Decl. Ex 14 ¶ 8.)

C-S Aviation entered into Management

Agreements with at least some of the SPVs, although Plaintiffs
contend that it is unclear whether it was with all of the SPVs.
(SF ¶ 63; Klotz Decl. Ex. 48.)

Under the original Management

Agreements, C-S Aviation received fees for its services to the
SPVs based on aircraft purchase prices, rental income, and
financing. (SF ¶¶ 103, 315–16.)
Soros was never a shareholder, director, or officer of C-S
Aviation. (SF ¶ 258.)

Chatterjee was a director and sole

shareholder of C-S Aviation at least until July 2003. (SF ¶¶ 60,
246, 251.)

Although C-S Aviation’s certificate of incorporation

authorized the company to issue one thousand shares with a par
value of one dollar per share, Chatterjee paid $100 for $1,000
worth of stock. (SF ¶¶ 245, 247.)

C-S Aviation had directors

and officers, but the parties dispute whether they functioned as
such. (SF ¶ 69.)

C-S Aviation managed a fleet that ranged from

22 to 60 aircraft. (SF ¶ 67.)

It had a peak of 22 employees in

1999 and eight employees in July 2003. (SF ¶ 68.)

6

Soros, Chatterjee, and others involved in the aircraft
leasing business also used the name “C-S Aviation” to refer to
the aircraft leasing business in general. (SF ¶¶ 263–64, 281–82,
295–96.)

Indeed, Soros was not aware that C-S Aviation was also

a separate and distinct management company until after it ceased
operations. (SF ¶ 269.)
C-S Aviation also had accountants that prepared financial
statements for at least some periods, although the parties
dispute how regularly this was done. (SF ¶¶ 70, 72–73.)

The

accountants also maintained separate bank accounts and
accounting records for some of the SPVs and Holding Companies.
(SF ¶¶ 75–76.)

The accountants paid expenses of the SPVs and

Holding Companies out of their respective accounts, but
sometimes they borrowed from other SPVs, Holding Companies, or
C-S Aviation to pay those expenses. (SF ¶¶ 77, 79, 334, 350–51.)
“Due to” and “due from” entries appear on C-S Aviation’s general
ledger, marking at least some of the times when C-S Aviation
advanced funds to pay the expenses of an SPV. (SF ¶ 80.)
Similarly, C-S would mark “due to” and “due from” entries on the
relevant SPVs’ or Holding Companies’ general ledgers at a least
some of the times that an SPV or Holding Company borrowed from
another SPV or Holding Company. (SF ¶ 80)
C-S Aviation lost money in all but two of the years it was
in operation and had “substantial negative equity” of roughly $1

7

million to $2.5 million, for the period from 1995 to July 2003.
(SF ¶¶ 104–06, 306)

Chatterjee and his affiliated companies

loaned substantial funds to C-S Aviation, although the amount he
loaned and the amount that he was paid back are contested. (SF
¶¶ 107–09, 307–08.)
In 1995, Soros and Chatterjee entered into what has been
called the “First Side Letter.” (SF ¶¶ 16, 253; Klotz Decl. Ex.
21.)

Pursuant to the First Side Letter, Soros and his

affiliates would pay CMC half of any fees that Soros or an
affiliate like SFM received on identified investments. (SF
¶ 17.)

Soros and his affiliates were entitled to a set-off of

50 percent of the fees Chatterjee and his affiliates earned
directly on the investments. (SF ¶ 18.)
In October 1996, Soros organized Soros Fund Management LLC
(“SFM LLC”) in Delaware.

(SF ¶ 7.)

On January 1, 1997, Soros

then assigned the rights and obligations of SFM to SFM LLC in
the Master Contribution, Assignment and Assumption. (SF ¶ 8;
Klotz Decl. Ex. 16.)

Soros served as the chairman of SFM LLC

from January 1, 1998 through December 31, 2004. (SF ¶ 9.)

SFM

LLC was an investment advisor for Quantum Industrial Holdings,
Ltd. (“QIH”). (SF ¶ 10.)

QIP, one of the Investors, is a

consolidated subsidiary of QIH. (SF ¶ 22.)

SFM and then SFM

LLC, along with other outside advisors, advised investment
programs conducted by QIH and QIP. (SF ¶ 24.)

8

Five of the SPVs’ aircraft, referred to as “Five MD-82s,”
were subject to a 1997 Securitization Agreement, under which
they were leased to TransWorld Airlines (“TWA”). (SF ¶ 130.)

C-

S Aviation managed the Five MD-82s pursuant to five servicing
agreements with the trusts holding legal title to the aircraft.
(SF ¶ 131.)

Under the Securitization Agreement, there were four

tranches of debt (A, B, C, and D) issued by each of the Five MD82 owners. (SF ¶ 133.)
(Id.)

QIP was a Tranche D certificate holder.

The parties dispute whether Soros and the Winston Funds

guaranteed QIP for their portion of losses resulting from QIP’s
exposure to Tranche D. (SF ¶ 243.)
In December 1998, Soros and Chatterjee entered into the
“Restructuring Agreement.” (SF ¶¶ 142, 259; Klotz Decl. Ex. 70.)
The Restructuring Agreement transferred control of the
management and conduct of the business of certain Chatterjee
entities to Soros or his agent or designee. (SF ¶ 265.)

As

discussed in greater detail later, the parties disagree about
whether Chatterjee, through the Restructuring Agreement,
transferred control of C-S Aviation to SFM LLC or to Soros
personally together with his agents. (SF ¶¶ 143, 260–61.)
Neither Chatterjee nor CMC participated in C-S Aviation’s
management decisions after late 1998 or 1999. (SF ¶¶ 274–75.)
In 1999, SFM LLC, on behalf of the Investors, wanted to
sell the aircraft leasing business and C-S Aviation as a going

9

concern. (SF ¶¶ 146, 260–61, 284.)

C-S Aviation engaged Morgan

Stanley to sell the aircraft leasing business and C-S Aviation
in March 1999, but the sale failed and SFM LLC decided to
attempt to wind down the aircraft leasing business by selling
off the aircraft piecemeal over time. (SF ¶¶ 147–48.)
On September 24, 1999, S-C Newco and P-G Newco — the
subsidiaries of S-C Holdings and P-G Holdings — entered into a
credit agreement (the “Credit Agreement”) with a group of
lenders (the “Lenders”) represented by Bankers Trust Company
Americas (“Bankers Trust”) as Administrative Agent and Morgan
Stanley Senior Funding, Inc. as Syndication Agent. (SF ¶ 50;
Klotz Decl. Ex. 38.)

After Deutsche Bank Trust Company

(“Deutsche Bank”) acquired Bankers Trust, Deutsche Bank became
the Administrative Agent for the Lenders. (SF ¶ 51.)

S-C Newco

and P-G Newco borrowed approximately $210 million under the
Credit Agreement. (SF ¶ 52.)
In connection with the Credit Agreement, S-C Holdings and
P-G Holdings transferred their interests in 23 SPVs, which each
owned an aircraft, to S-C Newco and P-G Newco, respectively. (SF
¶ 53.)

The loan under the Credit Agreement was secured by S-C

Holdings and P-G Holdings pledging 100 percent of their
respective equity interests in S-C Newco and P-G Newco as the
Collateral. (SF ¶ 55.)

Additional security took the form of

mortgages on the pledged aircraft; a security interest in S-C

10

Newco’s and P-G Newco’s equity interest in each of the SPVs that
owned a mortgaged aircraft; and a security interest in certain
bank accounts at Deutsche Bank, including accounts where
aircraft lease proceeds were deposited (the “Collateral
Accounts”). (SF ¶ 56.)

The Credit Agreement also purports to

allow the Lenders to terminate the Management Agreements between
the SPVs and C-S Aviation in the event of a default, although
Plaintiffs point to language in the Management Agreements that
requires 60 days’ written notice before termination. (SF ¶ 57;
Klotz Decl. Ex. ¶ 48.)
In 2000, the Management Agreements were amended (the
“Amended Management Agreements”). (SF ¶¶ 113, 322; Klotz Decl.
Exs. 54–55.)

The Amended Management Agreements established a

new compensation structure whereby C-S Aviation would be
reimbursed its operating expenses in discharging its duties
under each respective amended management agreement. (SF ¶¶ 114,
322.)
After TWA went bankrupt in early 2001, C-S Aviation
negotiated a deal whereby American Airlines agreed to purchase
the Five MD-82s. (SF ¶ 134.)

The sale proceeds from the

American Airlines deal satisfied the first three tranches of
debt, but were insufficient to repay Tranche D in full. (SF
¶ 135.)

The parties dispute whether Chatterjee and others at C-

S Aviation agreed to waive C-S Aviation’s right to its sales fee

11

in relation to the sale of the Five MD-82s in order to reduce
Tranche D’s losses. (SF ¶¶ 136, 341–43, 348.)
In the immediate aftermath of the September 11th attacks,
there was a global downturn in the aviation industry. (SF
¶ 168.)

P-G Newco and S-C Newco defaulted on the Credit

Agreement and entered into a Second Amendment to the Credit
Agreement to cure the default in December 2001. (SF ¶ 238; Easly
Decl. Ex. 64.)

The Second Amendment to the Credit Agreement

required, among other things, that Soros enter into a “Put and
Call Agreement,” which he did on December 18, 2001. (SF ¶¶ 239–
40; Easly Decl. Ex. 65.)

Under the Put and Call Agreement,

Deutsche Bank could, under certain circumstances, “put” at least
one aircraft to Soros and require him to purchase it. (SF ¶ 241)
He could not be forced to purchase more than one aircraft before
January 30, 2003.

Although the put and call agreement

contemplated a maximum of “two” put aircraft in certain
circumstances, the parties dispute whether and when Soros was
required to purchase a second “put” aircraft.

QIP and the

Winston Funds agreed to reimburse Soros for their pro rata share
of payments made under the Put and Call Agreement. (SF ¶ 242.)
In 2002, P-G Newco and S-C Newco had trouble making their
Credit Agreement loan payments. (SF ¶ 169.)

Several times

during 2002, they were only able to make quarterly loan payments
because of additional capital contributions made by the

12

Investors to the aircraft leasing business. (SF ¶ 171.)

On

December 31, 2002, S-C Newco and P-G Newco did not make the
quarterly loan payment that was due. (SF ¶¶ 172, 356–57.)
During this time, SFM LLC made decisions concerning the priority
of payments that C-S Aviation would make. (SF ¶ 361.)
In January 2003, S-C Newco and P-G Newco were in default on
their obligations to Deutsche Bank under the Credit Agreement.
(SF ¶¶ 118, 174, 457.)

In January and February 2003, C-S

Aviation’s operating Citibank account received $5 million in
cash from certain Deutsche Bank accounts of the SPVs and Holding
Companies. (SF ¶¶ 119, 366-72.)

Of that amount, $4 million was

then transferred to S-C Newco and P-G Newco accounts at Natexis
Bleichroeder, a bank. (SF ¶¶ 123, 373.)

C-S Aviation’s board of

directors did not take action with regard to these transfers.
(SF ¶ 380.)
On January 30, 2003, TradeWinds sent a letter to C-S
Aviation discussing potential claims TradeWinds had against C-S
Aviation concerning tortuous interference, equipment
misrepresentation, and fraudulent inducement into a contract.
(SF ¶ 453.)

In that letter, TradeWinds asserted that potential

liability was in excess of $12.5 million. (Id.)
In February 2003, Deutsche Bank notified the Holding
Companies that they had defaulted and that all of their
obligations under the Credit Agreement were due immediately. (SF

13

¶ 175; Klotz Decl. Ex. 100.)

That April, Deutsche Bank told the

Holding Companies that it intended to exercise its right to
dispose of the Collateral by public auction or sale. (SF ¶ 176.)
During the resulting negotiations concerning the default,
Plaintiffs claim that Soros negotiated a discount of the
purchase price of the Put and Call Agreement, but Defendants
argue that Soros actually agreed to buy a second plane before he
had to and negotiated at length for how many planes he would buy
and how much they would cost. (SF ¶ 392.)

In any event, Soros

ultimately entered into the “Soros Letter Agreement” that
resolved his personal liability under the Put and Call Agreement
for $13,777,069.30. (SF ¶ 393; Klotz Decl. Ex. 58.)

TradeWinds

reasserted its claims against C-S Aviation in a fax sent June 5,
2003. (SF ¶ 454.)
On July 25, 2003, Deutsche Bank, the Holding Companies, and
the subsidiaries of S-C Newco and P-G Newco entered into an
“Acceptance Agreement.” (SF ¶ 125; Klotz Decl. Ex. 58.)

C-S

Aviation was not a party to the Acceptance Agreement. (SF
¶ 405.)

Pursuant to the Acceptance Agreement, all but

$594,337.93 of the money in the Bleichroeder Accounts was
transferred to Deutsche Bank. (SF ¶ 126.)

The remaining

$594,337.93 was transferred to an Akin Gump escrow account,
where it went toward, inter alia, severance payments for C-S
Aviation employees and Akin Gump legal fees. (SF ¶¶ 127, 395.)

14

Akin Gump represented Soros, C-S Aviation, the SPVs, and Holding
Companies. (SF ¶ 383.)

The escrow was funded using cash from

the SPVs’ accounts. (SF ¶ 396.)
The Acceptance Agreement also included provisions requiring
(1) the obligors under the agreement to turn over the equity
interests of S-C Newco and P-G Newco as partial satisfaction of
$10,000 of the remaining balance of the Credit Agreement; (2) CS Aviation’s employees to resign or be terminated; and (3)
termination of the Management Agreements. (SF ¶ 178.)

Although

C-S Aviation ceased operations on July 25, 2003, C-S Aviation
was not formally wound down. (SF ¶¶ 179, 425, 439.)
Windshear Leasing, LLC took over management of the aircraft
that C-S Aviation used to manage. (SF ¶¶ 180, 441.)

Windshear

was staffed primarily with former C-S Aviation employees and
operated out of C-S Aviation’s former offices at SFM LLC’s New
York headquarters, using C-S Aviation’s old furniture and
computer equipment valued at approximately $22,000. (SF ¶¶ 182,
443, 444.)

After the C-S Aviation ceased operations, former

employees sometimes conflated Windshear and C-S Aviation. (SF
¶ 449.)
B. Procedural History
On November 14, 2003, Deutsche Bank sued TradeWinds
Airlines and its former parent companies, TradeWinds Holdings
and Coreolis, in North Carolina Superior Court.

15

In February

2004, TradeWinds Airlines, TradeWinds Holdings, and Coreolis
filed an amended third-party complaint against C-S Aviation, its
parent companies, and Wells Fargo.

The third-party complaint

alleged that C-S Aviation, acting as the agent of the other
third-party defendants, made false representations to induce
TradeWinds Airlines, TradeWinds Holdings, and Coreolis to lease
C-S Aviation aircraft.

TradeWinds Airlines, TradeWinds

Holdings, and Coreolis settled with Wells Fargo and C-S
Aviation’s parent companies.

C-S Aviation failed to answer the

North Carolina third-party complaint, and a default judgment was
entered against it.
On June 30, 2008, three days after obtaining the $54.87
million default judgment against C-S Aviation in the North
Carolina court, TradeWinds Airlines commenced this action to
pierce the company’s corporate veil and recover the judgment
from Soros and Chatterjee.

In 2010, TradeWinds Holdings and

Coreolis commenced their veil-piercing action against Soros and
Chatterjee, and the actions have since been litigated together.
Plaintiffs allege that long-time business partners Soros and
Chatterjee operated C-S Aviation as their alter ego by, inter
alia, undercapitalizing it, ignoring corporate formalities,
siphoning corporate funds, and, ultimately, stripping the
company of its assets.

According to Plaintiffs, these actions

16

rendered the company unable to satisfy the North Carolina
default judgment.
On February 23, 2009, this Court stayed these proceedings
pending the North Carolina trial and appellate courts’ review of
the default judgment.

When the second group of plaintiffs filed

their complaint in 2010, those proceedings were stayed as well.
Soros and Chatterjee successfully moved to have the North
Carolina trial court set aside the default judgment; however,
the court did not set aside the entry of default.

After a six–

day trial on the question of damages, the trial court entered
final judgments in favor of Plaintiffs.
The North Carolina Court of Appeals unanimously affirmed
the default judgment, TradeWinds Airlines, Inc. v. C-S Aviation
Servs., 733 S.E.2d 162 (N.C. Ct. App. 2012), and the North
Carolina Supreme Court denied review, rendering the judgment
final on June 12, 2013. TradeWinds Airlines, Inc. v. C-S
Aviation Servs., 743 S.E.2d 189 (N.C. 2013).
Defendants now move for summary judgment on the veilpiercing claims and to strike a portion of expert testimony
pertaining to the capitalization of C-S Aviation.

Plaintiffs

move to strike expert testimony that they say provides legal
opinions, opines on the ultimate legal question, and comments on
Plaintiffs’ state of mind.

17

II. Discussion
A. Legal Standard
“[S]ummary judgment is appropriate where there exists no
genuine issue of material fact and, based on the undisputed
facts, the moving party is entitled to judgment as a matter of
law.” Easterling v. Collecto, Inc., 692 F.3d 229, 233 (2d Cir.
2012) (internal quotation marks omitted).

A fact is “material”

if it could affect the outcome of the case under the governing
substantive law. Spinelli v. City of N.Y., 579 F.3d 160, 166 (2d
Cir. 2009).

A dispute is “genuine” if there is evidence that

could allow a “reasonable jury” to “return a verdict for the
nonmoving party.” McElwee v. Cnty. of Orange, 700 F.3d 635, 640
(2d Cir. 2012) (internal quotation marks omitted).
On summary judgment, the moving party can discharge its
burden by pointing to the “absence of evidence to support the
nonmoving party’s case.”
317, 325 (1986).

Celotex Corp. v. Catrett, 477 U.S.

The nonmoving party must then show “specific

facts” establishing a genuine triable issue. Wrobel v. Cnty. of
Erie, 692 F.3d 22, 30 (2d Cir. 2012).

Courts “must construe the

evidence in the light most favorable to the non-moving party and
draw all reasonable inferences in its favor.” Gary Friedrich
Enters., LLC v. Marvel Characters, Inc., 716 F.3d 302, 312 (2d
Cir. 2013).

“Summary judgment is appropriate when the record

taken as a whole could not lead a rational trier of fact to find

18

for the non-moving party.” Smith v. Cnty. of Suffolk, 776 F.3d
114, 121 (2d Cir. 2015) (internal quotation marks omitted).
B. Analysis
The Court notes at the outset that it has not considered
Subramanian’s challenged expert report in evaluating Defendant’s
motion for summary judgment.

To give the Plaintiffs the benefit

of all their potential evidence, the Court also assumes, for the
purposes of this motion, that the Bienenstock expert report
would be admissible.
The parties agree that Delaware law controls the analysis
of the veil-piercing issue since C-S Aviation is a Delaware
corporation.

In order to pierce the corporate veil under

Delaware law, Plaintiffs must show that (1) C-S Aviation and
Soros or Chatterjee “operated as a single economic entity” and
(2) “an overall element of injustice or unfairness is present.”
Fletcher v. Atex, Inc., 68 F.3d 1451, 1457 (2d Cir. 1995)
(alterations and internal quotation marks omitted).
Consistent with their burden on a summary judgment motion,
Defendants point to a lack of evidence supporting either prong
of the veil-piercing analysis.

They also argue, in the

alternative, that they cannot be held liable for the North
Carolina default judgment without being afforded an opportunity
to contest the underlying action on the merits.

19

As this Court has previously acknowledged, relevant
considerations for whether Defendants and C-S Aviation operated
as a “single economic entity” include
whether the corporation was adequately capitalized for
the corporate undertaking; whether the corporation was
solvent; whether dividends were paid, corporate records
kept, officers and directors functioned properly, and
other corporate formalities were observed; whether the
dominant shareholder siphoned corporate funds; and
whether, in general, the corporation simply functioned
as a façade for the dominant shareholder.
TradeWinds Airlines, Inc. v. Soros, Nos. 08 Civ. 5901, 10 Civ.
8175, 2012 WL 983575, at *6 (S.D.N.Y. Mar. 22, 2012) (quoting
Fletcher, 68 F.3d at 1458).

Some combination of these factors

is required because none is alone sufficient to disregard the
corporate form. See Wilson v. Thorn Energy, LLC, 787 F. Supp. 2d
286, 295 (S.D.N.Y. 2011).

This analysis is used to determine

whether there has been a “mingling of the operations of the
entity and its owner.” See NetJets Aviation, Inc. v. LHC
Commc’ns, LLC, 537 F.3d 168, 176 (2d Cir. 2008).
Plaintiffs point to evidence that they claim establishes
that C-S Aviation (1) was undercapitalized, (2) did not observe
corporate formalities, (3) commingled funds, and (4) allowed
Soros and Chatterjee to siphon cash from C-S Aviation to benefit
themselves.

In addition to the evidence they present here,

Plaintiffs also reference a previous case where a veil-piercing
claim concerning C-S Aviation, Soros, and Chatterjee survived
summary judgment. See Jet Star Enters., Ltd. v. Soros, No. 05
20

Civ. 6585, 2006 WL 2270375 (S.D.N.Y. Aug. 9, 2006).

There, the

following issues of fact precluded summary judgment:
whether Soros and Chatterjee, through their agents at
SFM:
1)failed to adequately capitalize CS Aviation;
2) commingled CS Aviation’s assets with the assets of
other entities that Soros and Chatterjee owned and/or
controlled (i.e., the LLCs); 3) disregarded CS
Aviation’s formal management structure.
Id. at *7 (footnote omitted).
Before turning to the specific evidence that Plaintiffs set
forth and analyzing it in light of the relevant considerations,
the Court observes a broad problem with Plaintiffs’ evidence
that makes summary judgment appropriate.

Consideration of the

evidence Plaintiffs set forth could not lead a rational trier of
fact to conclude that there was a “mingling of the operations”
of C-S Aviation and Soros and Chatterjee.

At most, the evidence

suggests that C-S Aviation may have been intertwined with SFM
LLC, the Holding Companies, the Investors, and the SPVs.

But

given Plaintiffs’ theory of this case — that Soros and
Chatterjee are C-S Aviation’s alter egos — Plaintiffs have
advanced no argument and offer no evidence that the corporate
forms of SFM LLC, the Holding Companies, the Investors, or the
SPVs should be disregarded.

Indeed, Plaintiffs specifically

argue that this is not a double-veil piercing case. (Pl. Mem.
19.)

The absence of evidence suggesting a “mingling of the

operations” of C-S Aviation and Soros and Chatterjee is fatal to
Plaintiffs’ claims.
21

This problem arises from the fact that Chatterjee
transferred control of C-S Aviation to SMF LLC in the
Restructuring Agreement. See also Jet Star, 2006 WL 2270375, at
*1 (“They agreed that control of CS Aviation would be
transferred to Soros Funds Management LLC (“SFM”)”); id. at * 6
(“Chatterjee and Soros executed a ‘Restructuring Agreement’ in
1999 whereby Chatterjee granted SFM ‘control of his investment’
in CS Aviation.”).

Plaintiffs maintain that control was handed

over to Soros, but the plain terms of the agreement do not
support such a reading.
Agreement states:

Exhibit 3 to the Restructuring

“P. C. [Chatterjee] agrees to grant SFM

control of his investment in C-S Aviation including the possible
sale of C-S Aviation.” (Klotz Decl. Ex. 70.)

The Restructuring

Agreement incorporates Exhibit 3 in two subsections of section
4.

Section 4(a) refers to “the amounts owed under the various

loan agreements and/or instruments listed on Exhibit 3 hereto in
accordance with the payment terms and dates set forth in Exhibit
3 hereto.”

Similarly, section 4(d) mentions “any obligations

. . . existing under the loan agreements and other instruments
set forth on Exhibit 3 hereto.” (Id.)
Plaintiffs’ attempt to characterize Exhibit 3 as only a
term sheet that was not incorporated into the agreement is
unpersuasive and not supported by the deposition testimony they
cite.

While Soros testified that it was “meant to be a term

22

sheet which was then converted into a final agreement” and
agreed that the “final Restructuring Agreement is what’s
controlling,” that was in context of a question whether “without
the Restructuring Agreement that followed, [the term sheet]
would constitute the final [Restructuring Agreement].” (Easly
Decl. Ex. 11 at 102.)

Of course Exhibit 3 would not stand on

its own without the Restructuring Agreement, but the
Restructuring Agreement was finalized and it incorporated
Exhibit 3.
Plaintiffs’ argument concerning section 1(a) and Exhibit 2
of the Restructuring Agreement cannot overcome Exhibit 3’s plain
terms.

Section 1(a) provides “Soros shall be vested with the

complete control of the management and conduct of the business
of the Entities [listed on Exhibit 2].”

Exhibit 2, in turn,

lists a series of named entities and also includes “any other
investments or investment vehicles with respect to which
Chatterjee provides investment advice to any of Soros, the Soros
Affiliates” and, inter alia, QIP or its affiliates. (Klotz Decl.
Ex. 70.)

While Plaintiffs provide a portion of the deposition

testimony of SFM LLC’s Rule 30(b)(6) witness Gavin Murphy
indicating that C-S Aviation was generally considered an
“investment,” they bring forth no evidence to support the second
requirement under Exhibit 2 that Chatterjee provided investment
advice as to C-S Aviation.

Moreover, Exhibit 3 also refers to

23

Chatterjee’s “investment in C-S Aviation,” underscoring the
importance of the advice portion of Exhibit 2.
does not serve to transfer control to Soros.

Thus, Exhibit 2

Instead, pursuant

to Exhibit 3, control of C-S Aviation was passed to SFM LLC.
Plaintiffs then point to testimony suggesting that Soros
and employees at SFM LLC did not view C-S Aviation as a separate
entity from the aircraft leasing business. (SF ¶¶ 269, 282, 295–
97.)

Soros testified that he was not aware that the aircraft

leasing business “had a separate and distinct company named C-S
Aviation.” (SF ¶ 269.)

One of SFM LLC’s employees said that he

did not recognize a distinction between funding C-S Aviation and
the aircraft leasing business because it was part of the same
investment. (SF ¶ 282.)

Another employee was unaware of many of

the specifics of C-S Aviation, including its name and who owned
it. (SF ¶ 295–97.)
But this testimony only goes to show that C-S Aviation may
not have been treated as distinct from SFM LLC or the other
entities making up the aircraft leasing business.

It is not

sufficient to raise a triable issue that C-S Aviation was not
viewed as separate from Soros, and Plaintiffs provide no
additional testimony that makes that connection explicit.
Plaintiffs attempt to save their claims by citing to Jet
Star and NetJets.

Neither commands a different result.

In Jet

Star, the court noted in a footnote that “triable issues of fact

24

exist as to whether certain SFM employees functioned as Soros
and Chatterjee’s agents, and operated CS Aviation for Soros and
Chatterjee’s personal benefit.” Jet Star, 2006 WL 2270375, at *7
n.18.

For that reason, the court concluded it would not be

necessary to first pierce the corporate veil to reach SFM LLC.
See id.

However, the court did not cite authority for that

proposition, and it is at odds with the respect owed to the
corporate form generally and to SFM LLC’s corporate identity
specifically. See Nat’l Gear & Piston, Inc. v. Cummins Power
Sys., LLC, 861 F. Supp. 2d 344, 376 (S.D.N.Y. 2012) (“[A]
plaintiff seeking to persuade a Delaware court to disregard
corporate structure faces a difficult task.” (internal quotation
marks omitted)).

Moreover, the one case that cites Jet Star for

that proposition involves an absentee owner and his proxy within
the same company. See Ridge Clearing & Outsourcing Solutions,
Inv. v. Khashoggi, No. 07 Civ. 6611, 2011 WL 3586455, at *7–10
(S.D.N.Y. Aug. 12, 2011).

Thus, while the SFM LLC’s employees’

actions could implicate Soros through SFM LLC, their actions do
not tie Soros directly to C-S Aviation.
As for NetJets, while the court considered payments made to
and from other entities the defendant controlled, there are at
least two facts that distinguish it from this case.

First, none

of the other companies had a business relationship with the
company that was allegedly the defendant’s alter ego. See

25

NetJets, 537 F.3d at 180–81.

Here, C-S Aviation had a business

relationship with the SPVs because it was a party to the
Management Agreements with them.

Second, in NetJets, the

defendant owned the other companies he made payments through.
See id.

Here, Defendants only indirectly own the Holding

Companies and SPVs through the Investors.
With the above in mind, the Court now turns to Plaintiffs’
evidence meant to show that Soros and Chatterjee were a “single
economic entity” with C-S Aviation.
1. Undercapitalization
The Court will assume for the sake of this motion that C-S
Aviation was undercapitalized but will set forth Plaintiffs’
evidence nevertheless.

Plaintiffs assert that C-S Aviation was

undercapitalized because Chatterjee only paid $100 for $1,000
shares when establishing C-S Aviation. (SF ¶¶ 245, 247.)
Chatterjee also provided loans, noted on the general ledger, to
help cover some of C-S Aviation’s expenses. (SF ¶¶ 107–09, 307–
08.)

Plaintiffs also point to testimony from Soros where he

suggested that he was more concerned with the aircraft leasing
business making a profit than C-S Aviation being profitable. (SF
¶ 270.)

Even accepting the above as adequate,

undercapitalization alone is insufficient to pierce the
corporate veil. See In re BH S & B Holdings LLC, 420 B.R. 112,
136 (Bankr. S.D.N.Y. 2009).

26

2. Disregard of Corporate Formalities
As for disregard of corporate formalities, much of
Plaintiffs evidence is premised on their mistaken belief that
the Restructuring Agreement transferred control of C-S Aviation
to Soros.

Plaintiffs present evidence, by way of deposition

testimony, that SFM LLC employees — Frank Sica, Colin Raymond,
and Michael Pruzan — exercised control over C-S Aviation and
made decisions that should have been approved by the board of
directors, despite not being officers of the company and only
Raymond being a director.

But that evidence actually

underscores that at most SFM LLC dominated C-S Aviation, not
Soros or Chatterjee.
Plaintiffs also claim that there was only one board of
director’s meeting documented in the C-S Aviation minute book,
and that no directors were present at that meeting (SF ¶¶ 302–
03.)

The minute book contains, however, several unanimous

written consents up through July 2000. (SF ¶ 301.)

Unanimous

written consents are appropriate under C-S Aviation’s by-laws
and Del. Code Ann. tit. 8, § 141(f).

The absence of consistent

board minutes is a factor that a jury could consider in weighing
the sufficiency of the evidence.
At this point, however, the Court notes that even looking
at this evidence in the light most favorable to Plaintiffs, they
have only presented facts that are “material” in that they could

27

affect the outcome of the case.

That C-S Aviation was

undercapitalized and failed to keep minutes are factors that a
jury could weigh in deciding whether to pierce the corporate
veil.

However, this evidence does not yet demonstrate a

“genuine” dispute because alone it is not sufficient to allow a
rational trier of fact to return a verdict for Plaintiffs.
Whatever this evidence may say about C-S Aviation as a “distinct
entity” it is inadequate to show that Soros and Chatterjee, as
opposed to SFM LLC or the other entities that make up the
aircraft leasing business, did not treat it as a distinct
entity. See NetJets, 537 F.3d at 177 (“Stated generally, the
inquiry initially focuses on whether ‘those in control of a
corporation’ did not ‘treat[ ] the corporation as a distinct
entity’ . . . .” (quoting Irwin & Leighton, Inc. v. W.M.
Anderson Co., 532 A.2d 983, 989 (Del. Ch. 1987) (first
alteration in original)).
3. Commingling
Turning to the evidence regarding commingling, the Court
notes that Plaintiffs provide no evidence that Soros or
Chatterjee commingled their own funds with those of C-S
Aviation. See also Jet Star, 2006 WL 2270375, at *5 (“Plaintiff
has failed to demonstrate that Soros or Chatterjee received any
assets from CS Aviation or benefited from the transfer of any
assets to Deutsche Bank.”)

It is also worth noting that there

28

are no allegations that SMF LLC commingled its finances with C-S
Aviation.
Plaintiffs instead point to what they characterize as
commingling of C-S Aviation’s funds with other entities in the
aircraft leasing business.

This was sometimes accomplished by

C-S Aviation transferring money from one SPV to pay the
obligations of another SPV.

Other times C-S Aviation would

transfer its own money to pay the obligation of an SPV.

These

transfers were duly marked on the ledgers of the transferring
and receiving entities as “due to” or “due from.” (SF ¶ 80.)
Although Plaintiffs speculate that the transfers may not always
have been marked as such, they point to no such instances.
Plaintiffs claim that all of these transfers were void
because they violated provisions in the SPVs’ LLC Agreements
that required the SPVs “be managed and administered exclusively
outside of the United States.” (SF ¶ 224.)

While that language

does appear in the LLC agreements, Plaintiffs are wrong about
its effect.

The agreements limit the powers of the manager

appointed by the SPV. (Klotz Decl. Ex. 37.)

The manager was an

entity called Curacao Corp. Co N.V., not C-S Aviation. (Id.)
Plaintiffs also allege that C-S Aviation transferred money
from the SPVs’ and Holding Companies’ Deutsche Bank accounts to
C-S Aviation’s own account at another bank to avoid Deutsche
Bank seizing the funds after defaulting on the Credit Agreement.

29

Plaintiffs claim that money was C-S Aviation “dividend’d” money.
Although C-S Aviation’s president, Jim Walsh, testified that
money was at times “dividend’d up” to the aircraft owners (SF ¶
338.), he also clarified that C-S Aviation did not pay dividends
to anybody. (Klotz Decl. Ex. 123 at 186.)

Rather, the dividend

was paid directly by the aircraft owners to the Investors. (Id.)
Having considered Plaintiffs evidence as to the commingling
of funds, the Court concludes that it does not support the
existence of a disputed material fact.

None of the evidence

suggests that Soros or Chatterjee commingled their own funds
with that of C-S Aviation.

Nor does it suggest that Soros or

Chatterjee directed those transfers.

Even Plaintiffs

characterize the transfers as done “[u]nder the management of
SFM.” (Pl. Mem. 16.)
4. Siphoning
The Court now addresses whether Soros and Chatterjee
siphoned money from C-S Aviation.

Plaintiffs allege that Soros

and Chatterjee siphoned $947,000 from C-S Aviation by waiving a
sales fee that instead went to QIP.

According to Plaintiffs,

Chatterjee and Colin Raymond waived the fee.

Plaintiffs assert

that this benefited Soros personally because he had guaranteed
QIP’s losses on securitization, so this reduced the amount for
which he was on the hook. (SF ¶ 346–47.)

30

They present no

evidence that Soros was involved in the decision such that he
can be said to have siphoned the funds.
Moreover, neither Soros nor Chatterjee received any direct
benefit.

Chatterjee did not even receive an indirect benefit

because Chatterjee had no interest in QIP.

Soros, who did not

make the decision to waive the fee, only had a 15 percent
interest in QIP at the time.

Plaintiffs have not presented

sufficient evidence to demonstrate the existence of a disputed
material fact as to siphoning.
Considering all the evidence presented by Plaintiffs as to
the “single economic entity” prong of the veil-piercing
analysis, the Court concludes that a rational trier of fact
could not return a verdict in Plaintiffs’ favor because they
have failed to show that Soros and Chatterjee personally
dominated C-S Aviation.

Plaintiffs having failed to present

sufficient evidence on the first prong, the Court need not
consider whether Plaintiffs have satisfied the second prong or
whether due process requires litigation of the claims underlying
the default judgment.

Defendants are therefore entitled to

summary judgment on the veil-piercing claims against them.
motions concerning the expert reports are denied as moot.

31

The

III. Conclusion
For the foregoing reasons, Defendants' motion for summary
judgment is granted.

Defendants' motion to strike portions of

Bienenstock's expert report and Plaintiffs' motion to strike
portions of Subramanian's expert report are denied as moot.
The Clerk is directed to remove these two cases from the
docket of this Court.
SO ORDERED.

Dated:

New York, New York
March 31, 2015

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32

United States District Judge