Patriarch Partners Agency Services, LLC v. Zohar CDO 2003-1, Ltd. et al

Filing 259

ORDER denying 249 Motion to Change Venue. For the reasons discussed above, Defendants have failed to demonstrate by clear and convincing evidence that transfer to Delaware is warranted. Accordingly, the motion to transfer is denied. The Clerk of the Court is respectfully directed to terminate the motion at ECF No. 249. SO ORDERED. (Signed by Magistrate Judge Katharine H. Parker on 2/24/2023) (vfr)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
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PATRIARCH PARTNERS AGENCY SERVICES, LLC,

02/24/2023

Plaintiff,
-against-

ORDER
16-CV-04488 (VM) (KHP)

ZOHAR CDO 2003-1, LTD. et al.,
Defendants.
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KATHARINE H. PARKER, UNITED STATES MAGISTRATE JUDGE.

Presently before the Court is a motion by Defendant/Counterclaim Plaintiff pursuant to
28 U.S.C. § 1404(a) to transfer this case to the Bankruptcy Court in Delaware. (ECF No. 249.)
For the reasons discussed below, the motion to transfer is denied.
BACKGROUND
This case involves a dispute between Patriarch Partners Agency Services, LLC (“PPAS”)
and funds (the “Zohar Funds”) for which PPAS served as Administrative Agent under various
credit agreements. The Zohar Funds are special purpose vehicles that issue securities in the
form of collateralized loan obligations secured by the funds’ assets. Certain of the Zohar Funds
are Delaware limited liability companies and others are Cayman Island companies, but all of
their principal places of business are New York. PPAS is a Delaware limited liability company
with its principal place of business in New York. Affiliates of PPAS served as Collateral
Managers for the funds. See Zohar CDO 2003-1, LLC v. Patriarch Partners, LLC, 2016 WL
6248461, at *1 (Del. Ch. Oct. 26, 2016), aff'd, 165 A.3d 288 (Del. 2017) (describing history of
relationship of and litigation between various Patriarch entities and the Zohar Funds).
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On or about February 5, 2016, affiliates of PPAS gave written notice that they would
resign as Collateral Manager for the funds in March 2016 upon appointment of a successor.
Alvarez & Marsal Zohar Management LLC (“AMZM”) was identified as a successor and entered
into collateral management agreements with the Zohar Funds. The transition did not go
smoothly and resulted in the Zohar Funds suing Patriarch Partners LLC in Delaware for breach
of contract for failing to produce certain books and records to the funds. Zohar later added
PPAS as a defendant in that action. Zohar won that action, and Patriarch was required to
produce certain documents and information. Id. at *18.
During the pendency of the 2016 Delaware action, on June 14, 2016, the Zohar Funds
purported to terminate PPAS as Administrative Agent for the funds and appoint Alvarez &
Marsal Zohar Agency Services, LLC (“AMZAS”) as successor Administrative Agent. The
purported termination resulted in PPAS filing this action. Specifically, on June 15, 2016, PPAS
sued the Zohar Funds and AMZAS in New York state court asserting that its appointments were
irrevocable, seeking declaratory relief, an injunction prohibiting its termination as
Administrative Agent, and damages in the form of fees due to it as Administrative Agent. (See
ECF Nos. 1, 46.) The Zohar Funds removed the action to this Court. The Zohar Funds contend
any irrevocable appointment is unenforceable as a matter of law. In addition to defending
against the claims of PPAS, in January 2017, the funds lodged counterclaims asserting, among
other things, that PPAS breached its contractual obligations to the funds, and seeking a
declaration that they properly terminated PPAS and damages for PPAS’s alleged failure to
deliver to the Zohar Funds certain notices, documents, requests, demands and monies
concerning and/or from borrowers under the credit agreements. (ECF No. 68.)
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For approximately two years, the parties engaged in motion practice and extensive
discovery in this District, including document discovery, third-party discovery, and several
depositions.
On March 11, 2018, the Zohar Funds filed for chapter 11 bankruptcy in the United States
Bankruptcy Court for the District of Delaware. As a result of these proceedings (“Bankruptcy
Proceedings”), this action was automatically stayed in accordance with 11 U.S.C. § 362. (See
ECF No. 205.) On May 21, 2018, the Bankruptcy Court approved a settlement among the
debtors and various creditors and affiliated entities, including PPAS. That settlement involved
monetization of certain assets and involved a lengthy process. On June 21, 2022, the
Bankruptcy Court confirmed the Third Amended Joint Plan of Liquidation Under Chapter 11 of
the Bankruptcy Code.
During the pendency of the Bankruptcy Proceedings and in connection with a
settlement, Ankura Trust Company LLC (“Ankura”) replaced PPAS as Administrative Agent to
several portfolio company borrowers. As part of the settlement and monetization process,
other debt interests of the Zohar Funds were monetized or abandoned. Also, as a result of
Ankura’s appointment, PPAS dismissed the claims in this action against AMZAS. (ECF No. 246.)
In March 2020, the Zohar Funds initiated an adversary proceeding related to the chapter
11 proceeding in the Bankruptcy Court in Delaware (“Adversary Proceeding”). The Adversary
Proceeding involves claims against PPAS and various of its affiliates as well as a number of other
entities and persons who are not parties to the instant litigation. It involves upwards of 42
claims and counterclaims. It is this Court’s understanding that discovery in the Adversary
Proceeding case is expected to be extensive and to be completed in November 2023.
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On August 1, 2022, the Bankruptcy Court issued an order providing for the transfer of
the Zohar Funds’ litigation assets, including the claims and counterclaims in this action, to two
litigation trusts and the appointment of a Trustee for the litigation trusts. Accordingly, the
Trustee has now been substituted for the Zohar Funds as Defendant and Counterclaim Plaintiff
in this action. (ECF No. 236.) On September 13, 2022, the Bankruptcy Court in Delaware closed
the Bankruptcy action, bringing an end to the automatic stay.
As this case stands now, PPAS seeks certain fees owed to it for the period between
when the Zohar Funds purported to terminate its services as Administrative Agent and the time
it ceased to be Administrative Agent. Counterclaims for money damages, fees and costs related
to PPAS’s alleged conduct and contractual breaches also still remain. The parties in this case
have agreed with the parties in the Delaware Adversary Proceeding to coordinate or share
discovery, to the extent it overlaps, in the two proceedings.
Through the instant motion, the Trustee seeks to transfer this case to the Delaware
Bankruptcy Court in which the Adversary Proceeding is pending.
LEGAL STANDARD
A federal civil case may be transferred to any other district where it might have been
brought in the first instance or to any other district to which all parties consent “for the
convenience of the parties and witnesses” and “in the interest of justice.” 28 U.S.C. § 1404(a).
The transfer analysis thus requires first, an assessment of whether the action could have been
brought in the proposed transferee court, and second, whether transfer is appropriate. Megna
v. Biocomp Labs. Inc., 220 F. Supp. 3d 496, 497. (S.D.N.Y. 2016). The second step requires
analysis of the following factors: the convenience of witnesses and the parties, the locus of
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operative facts, the location of relevant documents and relative ease of access to sources of
proof, the availability of process to compel the attendance of unwilling witnesses, the court’s
familiarity with governing law, the relative financial means of the parties, and the weight
afforded to the plaintiff’s choice of forum. Id. at 498 (citation omitted). Where the parties
have a contractual forum-selection clause, that clause generally should control, and the Court
should not consider the parties’ so-called private interests in its analysis. Atl. Marine Const. Co.
v. U.S. Dist. Ct., 571 U.S. 49, 63 (2013).
The movant bears the burden of proving by “clear and convincing evidence” that
transfer is appropriate. N.Y. Marine & Gen. Ins. Co. v. LaFarge N. Am., Inc., 599 F.3rd 102, 11314 (2d Cir. 2010).
ANALYSIS
Defendant’s motion falters at the first step of the transfer analysis. That is, PPAS could
not have brought this action in Delaware in the first instance. All of the initial defendants in this
action would not have been subject to personal jurisdiction in the District of Delaware at the
time this action was filed. Specifically, three of the Zohar Fund defendants are Cayman Islands
companies with their principal places of business in New York. Thus, they are not subject to
general jurisdiction in Delaware. Daimler AG v. Bauman, 571 U.S. 117, 137 (2014).
Additionally, none of the initial defendants were subject to specific jurisdiction in
Delaware because none of the conduct alleged in the claims related to or arose out of their
contacts with Delaware. Helicopteros Nacionales de Columbia, S.A. v. Hall, 466 U.S. 408, 414
(1984). Rather, the conduct occurred in New York – the principal place of business for PPAS,
the Zohar Funds, and AMZAS.
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The Trustee argues that PPAS could have originally sued the funds in Delaware because
they consented to jurisdiction in Delaware by litigating related matters there, including the
litigation involving Patriarch’s duties as Collateral Manager and the bankruptcy proceeding.
This argument is unpersuasive because the Second Circuit has held that “[a] party’s consent to
jurisdiction in one case . . . extends to that case alone” and does not open the party up to other
lawsuits in the same jurisdiction where the other party does not consent and no other basis for
jurisdiction exists. Klinghoffer v. S.N.C. Achille Lauro Ed Altri-Gestione Motonave Achille Laura in
Admmistrazione Straordinaria, 937 F.2d 44, 50 n.5 (2d Cir. 1991). PPAS does not consent to
litigate this case in Delaware.
Notably, the relevant credit agreements out of which the claims and counterclaims in
this action arise also contain forum selection clauses designating New York as the forum to
bring “any Action with respect to any Credit Document.” Croscill Agmt. 10.2(a). Indeed,
subsection (a) of the relevant provision says that any such action “may be brought only in the
New York State courts sitting in New York County or the federal courts of the United States of
America for the Southern District of New York and sitting in New York County.” Id. While it is
true that subsection (b) states that each party to the credit agreement “accepts for itself and in
respect of its property, generally and unconditionally, the non-exclusive jurisdiction of” the
New York state and federal courts, in subsection (c) the parties also “irrevocably waive[] any
objection, including, without limitation, any objection to the laying of venue or based on the
grounds of forum non conveniens, which it may now or hereafter have to the bringing of any
Action” in the New York state and federal courts in New York County. Croscill Agmt. 10.2. The
waiver of objection to jurisdiction in New York County requires the provision to be construed as
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a mandatory forum selection clause mandating that this case be brought in New York County.
ICICI Bank Ltd. v. Essar Global Fund Ltd., 565 B.R. 241, 253 (S.D.N.Y. 2017); Akers Biosciences,
Inc. v. Martin, 2015 WL 1054971, at *4 (S.D.N.Y. Mar. 10, 2015). The Zohar Funds argue that
subsection (b) renders the jurisdiction in New York County non-exclusive, but this interpretation
would not give effect to the other provisions of Section 10.2 of the agreement stating that “any
Action with respect to any Credit Document” may “only” be brought in New York County and
waiving objections to venue here. Such a construction would violate established contract
interpretation principles. AmTrust N. Am., Inc. v. KF&B Inc., 2020 WL 6306444, at *30 (S.D.N.Y.
Oct. 27, 2020) (contracts should be interpreted so as to give effect to all of their provisions).
Given the forum selection provision, PPAS had to commence an action in New York
County because its claims involved an alleged breach of a provision of the credit agreements. It
would have violated this provision by bringing the action in Delaware. Likewise, under the
provision, the Zohar Funds waived any objection to litigation in this forum. Similarly, because
the Zohar Funds’ counterclaims likewise involve breach of the credit agreements, they too were
obliged to bring them only in the state or federal courts in New York County. If they had
brought the counterclaims in Delaware, PPAS could have invoked the forum selection provision
to argue Delaware was an inappropriate venue.
In light of the mandatory forum selection clause designating New York as the
appropriate forum for this action, the Court must find that all factors relating to the parties’
private interests weigh against transfer to Delaware. Alt. Marine, 571 U.S. at 64.
Although the Court may consider arguments about the public-interest factors in the
circumstances presented, the United States Supreme Court has stated that such factors “will
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rarely” prevail in favor of transfer. Id. at 51. The rationale for this rule is that the “interest of
justice” is generally deemed to be served by “holding parties to their bargain.” Id. at 66. The
public-interest factors include “the administrative difficulties flowing from court congestion;
the local interest in having localized controversies decided at home; and the interest in having
the trial of a diversity case in a forum that is at home with the law. Id. at 62 n.6 (citation
omitted). These factors do not weigh in favor of transfer in this case.
First, both New York and Delaware are busy districts. See Encompass Aviation, LLC
v. Surf Air Inc., 2018 WL 6713138, at *10 (S.D.N.Y. Nov. 30, 2018) (finding “no evidence of
administrative concerns” where movant sought transfer to California because “[t]hey are
equally busy in California”); see also https://www.uscourts.gov/statistics/table/na/civil-justicereform-act-cjra/2021/03/31 (showing that as of March 2022, this district had fewer motions per
judge pending for more than six months than the District of Delaware). Thus, the
administrative difficulties are not materially different in Delaware. This factor is neutral.
Second, the issues here involve conduct that occurred in New York by parties with principal
places of business in New York and at least some key witnesses in New York. In contrast, none
of the conduct at issue took place in Delaware. Thus, the local interest factor weighs against
transfer. Third, while a Delaware Court can certainly decide matters of New York law (which all
parties agree applies here), this Court is equally competent to do so and is in fact the district at
home with the law. Thus, this factor weighs against transfer. In sum, the public factors weigh
against transfer.

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CONCLUSION
For the reasons discussed above, Defendants have failed to demonstrate by clear and
convincing evidence that transfer to Delaware is warranted. Accordingly, the motion to
transfer is denied.
The Clerk of the Court is respectfully directed to terminate the motion at ECF No. 249.
SO ORDERED.
Dated: February 24, 2023
New York, New York

______________________________
KATHARINE H. PARKER
United States Magistrate Judge

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