FLAME S.A. v. INDUSTRIAL CARRIERS, INC. et al
Filing
489
MEMORANDUM OPINION - CONCLUSION: For the reasons herein, the Court FINDS that: 1) ICI, Vista, FBP, and Viktor Baranskiy are alter egos of each other and 2) ICI fraudulently transferred its assets as well as the charter of the HARMONY FALCON t o Vista. ICI, Vista, FBP, and Viktor Baranskiy are therefore are jointly and severally liable up to the value of the CAPE VIEWER to Flame and Glory Wealth. A separate Judgment in accordance with Rule 58 of the Federal Rules of Civil Procedure will issue. IT IS SO ORDERED. Signed by District Judge Robert G. Doumar and filed on 9/19/14. Copies distributed to all counsel of record 9/19/14.(ldab, )
IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF VIRGINIA
NORFOLK DIVISION
FLAME S.A.,
Plaintiff,
GLORY WEALTH SHIPPING PTE LTD.,
Consolidated Plaintiff,
CIVIL NO. 2:13-cv-658
NOBLE CHARTERING, INC.,
Intervening Plaintiff
INDUSTRIAL CARRIERS, INC., VISTA
SHIPPING, LTD., and FREIGHT BULK
PTE. LTD., et al,
Defendants.
MEMORANDUM OPINION
The Court issues this Memorandum Opinion as a result of a bench trial in this matter to
resolve Plaintiffs' claims of alter ego and fraudulent transfer against Defendant, Freight Bulk
Pte, Ltd ("FBP"), and its related entities, through a maritime attachment.
On November 22, 2013, Plaintiff, Flame S.A. ("Flame") moved the Court to grant a writ
of judicial attachment for the M/V CAPE VIEWER ("CAPE VIEWER" or "Vessel") under
Supplemental Admiralty Rule B, which ship ostensibly titled in the name of FBP. The Vessel
was attached November 29, 2013. After many, many motions, a bench trial was held to
determine: (1) whether FBP, Vista Shipping Ltd. ("Vista"), Industrial Carriers, Inc. ("ICI"), and
Viktor Baranskiy are alter egos of one another, and (2) whether ICI fraudulently transferred
1
funds and contracts to Viktor Baranskiy, Vista, and FBP in order to avoid its creditors.
The bench trial began August 26, 2014 and ended abruptly on September 4, 2014 when
Viktor Baranskiy, a named Defendant, and his pro hac vice attorney, Sergei Kachura, fled the
area in the middle of Baranskiy's cross examination while testifying. Plaintiffs have filed posttrial briefs under the Court's direction. The Court now issues the following Findings of Fact and
Conclusions of Law, as required by Rule 52(a) of the Federal Rules of Civil Procedure.
This was a simple case that became complex. The case involves a company and a man.
The company, ICI, was in dire straits and defaulted on its obligations to Flame and Glory Wealth
Pte Ltd. ("Glory Wealth"), among others; that man, Viktor Baranskiy, went on to amass multimillions in assets in an organization comprised of numerous entities. Viktor Baranskiy did so by
succeeding to and with the assets of ICI in forming and maintaining numerous companies,
including Vista. Vista was brought about by ICI's actions in 2008 and thereafter. None of Viktor
Baranskiy's many organizations or assets, except the CAPE VIEWER, is located in Virginia.
None of the entities involved in this litigation does business in Virginia or is present in Virginia
for purposes of process. The only link between these companies and the Commonwealth of
Virginia is the CAPE VIEWER, which is owned by FBP, which in turn is owned by Freight Bulk
Ltd, which in turn is owned by Hachi Holding, all of which are controlled by Viktor Baranskiy
and ultimately from and because of ICI. The CAPE VIEWER, with title in FBP, was chartered
by Noble to carry coal owned by Vitol S.A. ("Vitol"). Neither Noble nor Vitol has any
relationship other than utilizing the CAPE VIEWER, with FBP and its affiliated companies. It is
this chain of debt, ownership, and events that the Court considers.
For the reasons set forth herein, the Court FINDS that FBP, Vista, Viktor Baranskiy, and
ICI are alter egos of one another and that ICI fraudulently transferred assets to Vista and Viktor
Baranskiy, in order to hinder, delay, and defraud its creditors. Judgment for the Plaintiffs will be
entered in a separate Order.
I.
FACTUAL FINDINGS
A. Procedural History
On November 22, 2013, Flame brought the instant suit against ICI and co-Defendants
Vista and FBP. ECF No. 1. Flame moved this Court to issue an order for the attachment of the
CAPE VIEWERpursuant to its verified complaint. ECF No. 3. The Court granted the attachment
in its November 22, 2013 Order, ECF No. 7, and the Vessel was attached on November 29,
2013. On December 2,2013, FBP moved to vacate the attachment. ECF No. 11.
Glory Wealth attempted to intervene on December 17, 2013. ECF No. 31. After initially
denying Glory Wealth's motion to intervene, the Court entered an order of attachment on behalf
of Glory Wealth on December 19, and consolidated Glory Wealth's claim with Flame's on
December 20, 2013. ECF No. 39. On December 27, 2013, FBP filed a motion to vacate Glory
Wealth's attachment. ECF No. 40.
After hearing argument on FBP's motions to vacate on January 7, 2014, the Court
directed Glory Wealth and Flame to file Amended Complaints by January 9, which they did.
ECF Nos. 50, 55. The Court entered an Opinion and Order on January 10,2014, determining that
admiralty jurisdiction existed over Flame's claims, certifying that question for expedited appeal
to the Fourth Circuit, and reserving judgment on the alter ego question until the appeals process
completed. Flame S.A. v. Indus. Carriers. Inc.. 2014 WL 108897 (E.D. Va. Jan. 10, 2014), ECF
57. The Fourth Circuit accelerated its briefing schedule, heard oral argument on May 14, 2014,
and affirmed this Court on August 5, 2014. Flame S.A. v. Freight Bulk Pte. Ltd.. 2014 WL
3828075,
F.3d
(4th Cir. Aug. 5, 2014).
FBP filed Motions to Vacate both Flame's Amended Complaint and Glory Wealth's
3
Amended Complaint in mid-March, ECF Nos. 103, 105, which this Court denied on May 20,
2014. Flame S.A. v. Indus. Carriers. Inc.. 2014 WL 2114688,
F.Supp.2d
(E.D. Va. May
20, 2014), ECF No. 249.
On April 11, 2014, Noble and Vitol filed motions to intervene in the instant case as
Intervening Plaintiffs. ECF Nos. 158, 161. Both parties requested to intervene for the purpose of
preserving the right to assert in rem claims against the CAPE VIEWER. Id. Vitol voluntarily
dismissed itself from the case on May 21,2014. ECF No. 251.
On March 27, 2014, FBP filed counterclaims against Flame. ECF No. 121. The Court
struck these counterclaims, on Flame's motion, on May 12, 2014. ECF No. 229. That same day
Plaintiffs Flame and Glory Wealth adopted each other's allegations against the Defendants and
the Court did so recognize and combine them.
On April 1, 2014, FBP substituted counsel from Mayer Brown LLP for its previous
attorneys, Chalos & Co., P.C. On June 3, 2014, Mayer Brown LLP withdrew from its
representation, and FBP continued with pro hac vice admitted attorney, Sergei Kachura, and with
its local counsel, Patrick Brogan. That same day, FBP moved to dismiss Glory Wealth's
Amended Complaint. ECF No. 266. The Court denied this motion on July 17, 2014. Flame S.A.
v. Indus. Carriers. Inc.. 2014 WL 3544847,
F.Supp.2d
(E.D. Va. July 17, 2014), ECF
No. 330.
On June 12, 2014, the Court continued the trial date in light of the numerous discovery
issues in the case. ECF No. 281. Twelve days later, the Court granted in part and denied in part
Flame's Motion to Strike FBP's affirmative defenses. Flame S.A. v. Indus. Carriers. Inc.. 2014
WL 2871432 (E.D. Va. June 24, 2014).
On July 25, 2014, Noble filed a Motion to Bifurcate its claims for trial, ECF No. 335. On
July 30, 2014, Flame filed a motion for leave to file a Second Amended Complaint and join
additional parties. ECF No. 349. At a pretrial conference on August 18, 2014, this Court granted
Noble's motion for a separate trial and denied Flame's motion. ECF Nos. 406, 420; see Flame
S.A. v. Indus. Carriers. Inc.. 2014 WL 4202470 (E.D. Va. Aug. 22, 2014).
On April 23, 2014, the Court overruled FBP's objections to Magistrate Judge Leonard's
discovery order. Flame S.A. v. Indus. Carriers. Inc.. 2014 WL 1681426 (E.D. Va. Apr. 23,
2014), ECF No. 192. On April 30, 2014, Magistrate Judge Leonard sanctioned FBP for violating
the Court's discovery order, ordering FBP to pay Flame reasonable fees and expenses. ECF No.
210. On August 8, 2014, Judge Leonard ordered the following sanctions against FBP for again
violating the Court's ordered discovery:
1. FBP and Vista were deemed alter egos of one another;
2. The loan from Sea Traffic Shipping Co. ("Sea Traffic") to FBP for the purchase
of the CAPE VIEWER was deemed a sham transaction for the sole purpose of
avoiding creditors;
3. Had any ICI documents been produced by FBP in compliance with the Court's
discovery orders, those documents would have beenfavorable to the Plaintiffs and
harmful to the Defendants;
4. FBP was prohibited at trial from: offering any evidence with respect to
repayments made under the loan agreement between Sea Traffic and FBP for the
purchase of the CAPE VIEWER; and
5. Reasonable attorneys' fees and expenses were ordered paidjointly by FBP and its
counsel.
Flame S.A. v. Indus. Carriers. Inc.. 2014 WL 3895933, at *13 (E.D. Va. Aug. 8, 2014)
objections overruled. 2014 WL 4214837 (E.D. Va. Aug. 26, 2014). On August 18, 2014, FBP
filed a motion objecting to the sanctions ordered by Judge Leonard. ECF No. 404. After
performing both de novo and clearly erroneous or contrary to law review, this Court overruled
FBP's objections and determined that Judge Leonard's findings and sanctions were correct.
Flame S.A. v. Indus. Carriers. Inc.. 2014 WL 4214837,
F.Supp.2d
(E.D. Va. Aug. 26,
2014), ECF No. 430. Judge Leonard also permitted Flame and Glory Wealth to disclose their
expert rebuttal reports on the eve of trial as a sanction for FBP's untimely disclosure of its own
expert reports. Order, ECF No. 400.
On August 21,2014, the Courtdenied FBP's motion to permitViktor Baranskiy to testify
from Odessa, Ukraine, which was in the midst of conflict. Flame S.A. v. Indus. Carriers. Inc..
2014 WL 4181958 (E.D. Va. Aug. 21, 2014), ECF Nos. 406, 415. A bench trial commenced
August 26,2014.
ViktorBaranskiy appeared with his counsel and testified on direct examination.
On September 4, 2014 Viktor Baranskiy, then in the midst of cross-examination by
Flame, deserted the case with his lead trial counsel, Sergei Kachura. Flame's cross examination
therefore was abridged, and Glory Wealth never had any opportunity to cross Viktor Baranskiy.
FBP's local counsel (This Court requires local counsel once they enter a case to remain
throughout the case.) then rested its case, and the Court heard argument. The matter is ripe for
decision.
B. Relevant Stipulated Facts
The parties stipulated to the following relevant facts, and these do not include the facts
found by the Court which have not been stipulated.
1.
The Parties
Plaintiff Flame is a corporation or other business entity duly organized and existing under
and by virtue of the laws of Switzerland, with an office and principal place of business in
Switzerland. Consolidated Plaintiff Glory Wealth is a corporation or other business entity duly
organized and existing under and by virtue of the law of Singapore, with an office and principal
place of business in Singapore. Intervenor PlaintiffNoble is a British Virgin Islands corporation
with its principal place of business in the British Virgin Islands. Defendant ICI is a corporation
or other business entity duly organized and existing under and by virtue of the laws of the
Marshall Islands. Defendant Vista is a corporation or other business entity duly organized and
existing under and by virtue of the laws of the British Virgin Islands. Defendant FBP is a
corporation or other business entity duly organized and existing under and by virtue of the laws
of Singapore. Defendant Viktor Baranskiy is a foreign citizen and resident of the Ukraine and the
sole, ultimate beneficial owner of all companies in a group of companies known as the "Palmira
Group," including Vista and FBP. Defendant Sergei Baranskiy is a foreign citizen and resident of
a foreign country and Viktor's father. Sergei Baranskiy was Chairman of the board of directors
of ICI from June through October 2008.
The Court's additional findings of fact will follow in the various analyses below. See
infra I.C.
1.
The Dispute
a.
Flame's Claims
Flame and ICI entered into four (4) Forward Freight (Swap) Agreements ("FFAs") dated
March 12, May 19, August 14, and August 29 of 2008. Under the terms and conditions of the
FFAs, ICI defaulted and breached the FFAs when ICI applied to the Piraeus Multimember Court
of First Instance, in Greece, for the granting of a petition for bankruptcy. ICI's bankruptcy
application was rejected on the basis that the Center of Main Interest was not in Greece. Flame
then commenced an action in London, England against ICI to recover the amounts due and
owing under the FFAs. The High Court of Justice, Queen's Bench Division, Commercial Court
Registry entered a judgment for Flame against ICI and ordered ICI to pay Flame a total of
$19,907,118.36.
Flame commenced an action against ICI on December 22, 2010 in the United States
District Court for the Southern District of New York, seeking recognition of the foreign
judgment and invoking the Court's admiralty jurisdiction pursuant to 28 U.S.C. § 1333 and Rule
9(h) of the Federal Rules of Civil Procedure. That court recognized Flame's judgment against
ICI on September 14,2011, and Flame's judgment was entered on October 4, 2011.
Flame registered itsjudgment in the Eastern District of Virginia on October 11, 2013. On
November 22,2013, Flame filed a Verified Complaint against ICI, Vista, and FBP and asked the
Court to enter an Order of Attachment under Supplemental Admiralty Rule B, which the Court
granted the same day. On December 2, 2013, FBP filed a Motion to Vacate the attachment,
which the Court denied on January 10, 2014. On January 9, 2014, Flame filed an Amended
Complaint.
b.
Glory Wealth's Claims
On or about June 5, 2008, ICI time chartered from Glory Wealth the vessel M/V
MINERAL CAPEASIA for a period of twelve to thirteen (12-13) months via fixture recap
pursuant to the New York Produce Exchange Form with Rider Clauses (the "Glory Wealth
Charter"). Under this Charter, the daily charter hire rate required to be paid by ICI to Glory
Wealth was $183,000.00 per day payable fifteen (15) days in advance. ICI failed to pay the
8
fourth installment of hire, which became due on September 17, 2008, or any further payments
due under the Glory Wealth Charter.
Glory Wealth commenced arbitration against ICI in London pursuant to clause forty-five
(45) of the Glory Wealth Charter. The London Arbitration Panel issued the Award, dated
October 29,2009. The United States District Court for the Southern District of New York issued
a default judgment against ICI in the amount of $46,382,772.91 on May 12, 2014. On December
18, 2013, Glory Wealth filed a Verified Complaint against ICI, Vista, and FBP seeking an Order
of Attachment of the CAPE VIEWER under Supplemental Admiralty Rule B. The Court issued
an order of attachment the next day and consolidated Flame and Glory Wealth's attachment
actions on December 20, 2013.
c
Noble's Claims
On December 21,2012, Noble entered into a contract of affreightment with Vitol to carry
one cargo of coal per quarter in 2013 from Norfolk, Virginia to various potential discharge
portions including Le Havre, France. On October 17,2013, Noble entered into a trip time charter
agreement to deliver cargo being loaded at Norfolk, Virginia to various discharge ports,
including Le Havre, France. On November 8 and 29, 2013, Noble supplied 320.935 metric tons
of LSFO, 60.058 metric tons of LSMGO, and 800.85 metric tons of HSFO bunkers to the Vessel
in the total amount of $736,541.75 in connection with its trip time charter. On November 14 and
29, 2013, Noble paid hire to Vista in the total amount of $911,214.65 in connection with the trip
time charter. On November 28, 2013, the CAPE VIEWER presented at the DTA terminal in
Norfolk, Virginia to receive a load of coal pursuant to the trip time charter and voyage time
charter. The CAPE VIEWER was loaded with 104,606.893 metric tons of coal before it was
taken off berth and moved to anchor.1
C. Additional Factual Findings
The Court makes these additional factual findings based on the evidence and testimony at
trial.
a.
Viktor Baranskiy's Testimony Was At Times Not Credible and At
Other Times Debilitating to His Positions
Perhaps most important in this case is the desertion of Viktor Baranskiy in the middle of
his testimony. Prior to his departure, Viktor Baranskiy's testimony had been inconsistent and
poor. After the beginning of cross-examination, his story and his sworn statements began to
unravel. Viktor Baranskiy's trial testimony differed substantially from his December 5,2013
Declaration and December 12, 2013 deposition testimony, which were made under the
penalty of perjury. Consequently, the Court FINDS that Viktor Baranskiy's testimony was
at times false, inaccurate, contradictory, and untruthful. Trial Tr. 151:22-159:6, Sept. 3, 2014,
ECF No. 456; Trial Tr. 5:20-6:13, Sept. 4,2014, ECF No. 454.
Viktor Baranskiy then abandoned the case on the second morning of his testimony by not
appearing in Court. He took his in-house, and lead trial attorney, Sergei Kachura, with him. It is
the first case in which the undersigned participated where a critical defense witness and
representative of the main defendant abandoned his case in the middle of his cross examination
at trial, leaving only local counsel to complete the trial and post-trial proceedings. Then again
this case has been a first for this Court on many levels.
For these reasons, the Court FINDS that Viktor Baranskiy's abrupt departure prejudiced
Flame and Glory Wealth. The Court also FINDS that, had Viktor Baranskiy stayed for the
remainder of his cross-examination, his testimony would have been substantially against his own
1 The CAPE VIEWER presented at the DTA terminal at 01:15 on November 29, 2013 and commenced
loading coalat 02:30. The Vessel wasattached laterthatmorning and never filled to its contracted capacity.
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interests in relation to Vista, Palmira, and ICI. Trial Tr. 5:14-19, Sep. 4,2014, ECF No. 454.
b.
The Baranskiys Controlled ICI
At the time of ICI filed for its rejected bankruptcy, its shareholders consisted of close
family and
friends
of
the
Baranskiys.
Sergei
Baranskiy,
Viktor's
father,
was
President//Chairman/Director of the Board and owned thirty-three percent (33%) of ICI.
Pis.'Joint Exs. 251 at 1,252 at 2; (Test, of Jeffrey Katz); PI. GW Ex. 414 at 4. Viktor Baranskiy
owned eighteen percent (18%) of ICI. PI. GW Ex. 414 at 4; Pis.' Joint Ex. 155 at 2; Trial Tr.
153:7-154:19, Sept. 3, 2014, ECF No. 456; PI. GW Ex. 426 at 24:17-25:11. Viktor and his father
therefore controlled a majority of ICI, and Viktor completed important work ("making money")
on behalf of ICI from its chartering department. Trial Tr. 34:13-35:6, Sept. 3, 2014, ECF No.
456. The remaining shareholders had close ties to the Baranskiys. Consequently, the Court
FINDS that Sergei and Viktor Baranskiy controlled ICI.
c.
ICI's Insolvency
A balance book analysis performed by Jeffrey Katz shows that ICI was insolvent as early
as June 30, 2008. PI. GW Ex. 415 at 43; (Test, of Jeffrey Katz). A cash flow analysis was
unable to be completed because ICI's documents were not produced.
PI. GW's Ex. 413 at 11;
(Test, of Jeffrey Katz). Glory Wealth's expert concluded that ICI became insolvent no later than
mid-September. Trial Tr. 54:17-18, Aug. 28-29, 2014, ECF No. 449. Based on the evidence
presented, the expert testimony, and the fact that ICI's documents were not produced, the Court
FINDS that ICI's insolvency began in July 2008 and continued through October 2008 and
thereafter.
See//»/roII.B.l.
11
d.
ICI Created Corporations to Avoid Rule B Attachments and
Creditors
The Court FINDS that ICI established corporations in order to avoid creditors. In his
deposition, Viktor Baranskiy admitted that companies like Weaver and others "were set up to
avoid Ruby [sic Rule B] attachment[s]
" PI. GW Ex. 426 at 71:17-72:11. This exemplifies
ICI's understanding of maritime attachments and its use of the corporate form to avoid creditors
in the maritime industry. Viktor Baranskiy, who controlled ICI with his father, also created a
whole host of companies for owning vessels, such as Hachi Holding, which owns Freight Bulk
Ltd., which owns FBP, which, in turn, owns the CAPE VIEWER. PI. GW. Ex. 426 at 24:14-16,
41:22-42-8, 81:15-17. Clearly he continuously persisted in making sure that every ship or two
were titled by a different company.
The Court acknowledges that Viktor Baranksiy's deposition testimony was likely
referring to Rule B attachments under the Winter Storm regime created by the Second Circuit,
Winter Storm Shipping. Ltd. v. TPI. 310 F.3d 263 (2d Cir. 2002), which permitted maritime
attachments of wire transfers, before the Second Circuit later overruled itself. Shipping Corp. of
India Ltd. v. Jaldhi Overseas Pte Ltd.. 585 F.3d 58 (2d Cir. 2009). Nevertheless, the rationale for
the use of separate corporate forms remains to avoid creditors, no matter Viktor Baranskiy's
understanding that creditors are only those possessing the judgment of the court. PI. GW Ex.
426 at 72:12-73:1.
The Court FINDS that ICI, which Viktor Baranskiy and his father controlled and
established entities to avoid creditors and take advantage of the peripatetic nature of maritime
assets.
e. ICI Conveyed The Charter of the M/V Harmony Falcon to Vista
Viktor Baranskiy worked as a chartering manager for ICI. He chartered ships onbehalf of
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ICI to transport coal to China on behalf of Metlnvest, a Ukrainian company, and its shipping
arm, Fayette International Holding, Ltd. The M/V HARMONY FALCON ("HARMONY
FALCON") was owned by Falcon Shipping, a Vietnamese Corporation. Pis.' Joint Ex. 6; PI.
GW Ex. 426 at 133. ICI3 chartered the ship carrying cargo owned by Fayette, International, Pis.'
Joint Ex. 6, and listed the HARMONY FALCON in ICI's rejected Greek bankruptcy filing as
one of ICI's vessels. Pis.' Joint Ex. 5.
The charter rate for the HARMONY FALCON was
$18,000 per day. Pis.' Joint Ex. 6.
Vista paid that same charter rate for the same ship and route and cargo despite the drop in
shipping rates which occurred in the fall of 2008. PI. GW Ex. 413 at 5-7; Pis.' Joint Ex. 6. The
date of delivery of the vessel was September 28, 2008, Pis.' Joint Ex. 6, which is before the date
Vista claimed to begin operations. Indeed, according to Viktor Baranskiy's declaration, Vista
began operating in November 2008. PI. GW Ex. 426 at 32.4 However, a payment for ocean
freight from Trend Index to Vista on October 23, 2008 for nearly $850,000.00 for a contract
dated September 22, 2008 confirms that Vista began operations much earlier than Viktor
Baranskiy admitted, Pis.' Joint Ex. 232, in either his declaration or on the stand. All of this took
place when ICI was clearly insolvent. In addition, a Vista employee listed all Vista charters in an
email sent on February 5, 2014 to a prospective client laying out Vista's bona fides to gain the
client's confidence and did not include the HARMONY FALCON charter. Pis.' Joint Ex. 44;
Trial Tr. 179:13-181-20, Sept. 3, 2014, ECF No. 456. The above information was hidden in one
fashion or another from the creditors of ICI.
Auster Marine Co., a subsidiary of ICI, paid the bunker rates for the HARMONY
3Constantin Voinarovsky was the ICI employee who likely chartered the HARMONY FALCON. PI. GW
Ex. 422 at 62:25-63:4. He later worked for Vista. See infra I.C.h.
4 Viktor Baranskiy changed the story at trial, testifying that Vista began trading in October, Trial Tr.
158:24-159:3, Sept. 3, 2014, ECF No. 456, which is after Auster paid for the bunkers on October 2, 2008. PI. GW
Ex.431.
13
FALCON. PI. GW Ex. 431. Additionally, a wire transfer of $188,000 made to Falcon Shipping
for the charter was made through Trend Index, a cash conversion company, Pis.' Joint Ex. 8,
from the Baltic Investment Bank of Riga Latvia without any explanation where the cash came
from. Pis.' Joint Ex. 8; (Test, of Jeffrey Katz). Ultimately, Vista made about $1.7 million profit
for the charter of the HARMONY FALCON, (Test, of Jeffrey Katz); Pis.' Joint Ex. 6 at 1, 7,
which sum ICI would have been entitled. Vista also retained all of the other sums advanced to
them by or through ICI and its agents or companies.
These facts, coupled with the negative inferences attached to both FBP's refusal to
produce ICI documents and Viktor Baranskiy's abrupt departure during trial, lead the Court to
FIND that: 1) Vista began operating while ICI was insolvent and before ICI filed for bankruptcy;
2) Vista performed ICI's charter of the HARMONY FALCON because ICI either conveyed or
provided that charter to Vista at a time when ICI was insolvent; and 3) ICI and Vista purposely
tried to hide the fact that Vista made substantial sums from the HARMONY FALCON
transaction accomplished by and through the efforts of Viktor Baranskiy.
f.
ICI Funded Vista
Although Viktor Baranskiy claims he was paid bonuses as ICI was insolvent, he was not.5
Rather, these payments from ICI were made in order to capitalize Vista's business. Viktor
Baranskiy's testimony has been inconsistent throughout this matter on the value of his bonuses.
At first Viktor Baranskiy said that his bonus payments from ICI were around $500,000.00, PI.
GW Ex. 426 at 33:17-34:8, but he later amended that amount, testifying that he earned threetimes that much in bonuses for a total of $1.5 million. Trial Tr. 19:4-25, Sept. 3, 2014, ECF No.
456. These inconsistent and rising amounts were used to mask and explain the evidence of ICI's
5Viktor Baranskiy claims that he received roughly SI million in cash dollars from his mother ina suitcase.
PI. GW Ex. 426 at 103:9-14, 136:17-137:10. (Manna from heaven.)
14
transfers to Vista, in the total amount of $1.58 million, which were made on the eve of ICI's
rejected bankruptcy and used to capitalize Vista. Def. FBP Ex. 1113. Ultimately, Vista received
millions of dollars from ICI or its subsidiaries into its Swiss Bank Account.
Id
Vista also
received over $2.75 million from Fayette to charter the HARMONY FALCON, id, which
charter Vista took from ICI.
Without ICI's records to explain these payments' provenance, and with the negative
inference concomitant with both this failure to produce the records and with Viktor Baranskiy's
departure in the midst of trial, the Court FINDS that ICI's monies were not paid as bonuses and
were instead used to help capitalize Vista and especially to hinder, delay, and defraud creditors.
Moreover, other funds received by Vista were directly or indirectly related to ICI and also were
designed to hinder, delay, and defraud creditors. The Court also FINDS that Vista received the
payments for the charter of Harmony Falcon, which it received from ICI. These findings
evidence a commingling of funds as well as a siphoning of funds into Vista. The Court therefore
FINDS that ICI funded Vista.
g. ICI and Its Subsidiaries
At the time of ICI's rejected bankruptcy filing, ICI controlled the following subsidiaries:
Weaver Investment, Inc. ("Weaver"), Selene Ship Management S.A., Auster Marine, Co.,
Treselle Navigation Ltd., Cardinia Management Co., and Tempest Service, Inc. Pis.' Joint Ex.
161 at 9. ICI routinely requested third parties to pay Weaver Investment, Inc., not ICI. PI. GW
Exs. 407, 408, 421, 428; (Test, of Alessandro Ballerini). As already found, ICI's insolvency
began in July 2008 and continued through October 2008 and thereafter.
Weaver received wire transfers in the total sum of $478 million in 2008 into its HSBC
account, which is the same bank ICI uses. Trial Tr. 19:14-16, 24:19-22, Aug. 28-29, 2014, ECF
15
No. 449. This total would not include checks. Jd at 22:12-20. Of the total, only $2.5 million
left the account via wire transfer. Id. at 22:4-6. Interbank transfers from Weaver to ICI cannot
be ruled out, nor can checks or bags of cash,6 as possible gateways for at least some of the
monies' destinations from the Weaver account.
Id at 24:5-10, 56:18-24.
From September
through October 2008 alone, Weaver received $32.6 million in wire transfers, PI. GW Ex. 428;
Trial Tr. 21:3-6, Aug. 28-29, 2014, ECF No. 449, which was not disclosed to the bankruptcy
Court in Greece. Pis.' Joint Ex. 252; Trial Tr. 21:7-10, Aug. 28-29, 2014, ECF No. 449. In fact,
ICI disclosed only $4.5 million in cash in its rejected bankruptcy filing and not the money paid
into Weaver. Pis.' Joint Ex. 252 at 16-17.7
In addition, affiliated companies, including Branwyn, Syriana, Noxana, and Phaedra,
having the same address as ICI were making withdrawals from ICI and designating the
withdrawals as c/o ICI; in total they withdrew approximately $1.8 million from ICI the week
before ICI filed for bankruptcy. PI. GW Ex. 415 at 14-15; (Test, of Jeffrey Katz).
Without ICI's records but with the negative inferences that attach to this lack of
production and to Viktor Baranskiy's abrupt departure from trial, as well as the facts above, the
Court FINDS that: 1) ICI transferred assets to Vista while ICI was insolvent; 2) ICI did not
disclose all of its assets in the rejected Greek bankruptcy, 3) ICI used Weaver to hide its assets;
and 4) ICI transferred assets out of its accounts immediately preceding its rejected bankruptcy in
order to hide funds from creditors.
h. ICI and Vista Share Employees and Businesses
ICI and Vista shared the same employees performing substantially the same tasks. Vista
6Viktor Baranskiy claimed that as much as a $800,000 dollars ofcash were carried around Odessa by him.
Trial Tr. 72:8-74:11.
7At trial, Grant Lyon testified that this total was $3.5 million. Trial Tr. 26:11-27:1, Aug. 28-29, 2014, ECF
No. 449.
16
employed Michael Ivanov, Vladimir Ivanov, Constantin Voinarovsky, and Vladimir Yudaev,
among others. Pis.' Joint Ex. 3; Trial Tr. 100:2-7, 172:15-18, Sept. 3, 2014, ECF No. 456. Mr.
Michael Ivanov, Mr. Voinarovsky, and Mr. Yudaev were among Vista's first employees. Trial
Tr. 41:12-42:23, Sept. 3,2014, ECF No. 456.
At ICI, Mr. Michael Ivanov worked in the chartering department, Pis.' Joint Ex. 4; at
Vista, he was the head of chartering, Pis.' Joint Ex. 3. At ICI, Mr. Vladimir Ivanov worked in
the operations department, Pis.' Joint Ex. 4; at Vista, he ran the operations department, Pis.' Joint
Ex. 3. At ICI, Mr. Voinarovsky worked in the chartering department and most likely chartered
the HARMONY FALCON, PI. GW Ex. 422 at 62:25-63:4; Trial Tr. 174:12-15, Sept. 3, 2014,
ECF No. 456; he quickly left Vista andjoined Milestone, Trial Tr. 41:16-19 Sept. 3, 2014, ECF
No. 456; PI. Flame Ex. 385 at 2. At ICI, Mr. Yudaev worked in the operations department, Pis.'
Joint Ex. 4; at Vista, he worked as a chartering manager, Pis.' Joint Ex. 3. In addition, at ICI,
Viktor Baranskiy worked as a charterer as well as owning and controlling the corporation with
his father; at Vista, Viktor Baranskiy worked on the HARMONY FALCON'S charter and
controlled the company. Trial Tr. 180:6-11, Sept. 3, 2014, ECF No. 456; PI. GW. Ex. 426 at
81:18-19. The Court therefore FINDS that ICI and Vista shared the same employees performing
substantially the same tasks. The Court also FINDS that Viktor Baranskiy was the conduit for
ICI to the Vista Group and the Palmira Group.
i.
Cash Conversion Companies
Redbridge and Trend Index are both cash conversion companies. PI. Flame Ex. 384B at
209:21-210:2; Trial Tr. 104:2-8, Aug. 28-29, 2014, ECF No. 449. They convert wire transfers to
cash and vice-versa. These are red flags for fraud, (Test, of Jeffrey Katz), and can be conduits
when placed between a debtor and a recipient. Trial Tr. 100:17-22, Aug. 28-29, 2014, ECF No.
17
449.
The cash conversion companies were used to funnel money from ICI to Vista. For
example, Syriana Marine, an affiliated company of ICI's, sent money to Redbridge and shortly
after Redbridge sent money to Vista. PI. GW Ex. 415 at 15, 17; (Test, of Jeffrey Katz). Trend
Index also wired Vista $1.5 million on October 24, 2008 as remittance orders, which was nine
days after ICI's rejected bankruptcy filing. Def. FBP Ex. 1113 at 1; Trial Tr. 105:22-107:11,
Aug. 28-29,2014, ECF No. 449.
The Court therefore FINDS that ICI and Vista used cash conversion companies to mask
payments from ICI to Vista and from affiliated third parties in and out of Vista.
In addition, Palmira Group funds are also routinely siphoned to cash conversion
companies, which convert funds earned in various currencies to cash, in U.S. dollars. PI. Flame
Ex. 384A at 38:13-18; Trial Tr. 17:6-14, Aug. 26, 2014, ECF No. 441. The U.S. dollars are then
placed into "cash boxes" at a local bank. PI. Flame Ex. 384A at 34:6-7, 36:6-38:18. In effect,
the funds of many different companies within the Palmira Group are routinely converted to cash
and intermingled within a single cash box. Id at 40:22-41:4, 187:24-188:9, 201-06; Pis.' Joint
Ex. 146; Trial Tr. 4:6-12, Aug. 26, 2014, ECF No. 441; Trial Tr. 72:18-22, Sept. 3, 2014, ECF
No. 456. Employee salaries are low, but cash bonuses are provided. PI. Flame Ex. 384A at
40:20-25, 41:2-4. The money is kept in a bank box and is converted from wire transfers into
cash, ]d at 38:7-18.
The Court therefore FINDS that the Palmira and Vista entities intermingled cash and did
not conductarm's-length transactions all of which mirrored ICI's actions,
j.
Vista and Palmira and Their Subsidiaries
As of June 2012, forty companies made up the Vista Group, which Viktor Baranskiy
18
controlled. PI. Flame Ex. 384A at 14:22-24. The Palmira Group supplanted the Vista Group
sometime between March and July 2013, id at 30:2-6, PI. Flame Ex. 384B at 175:23-179-20,
and Viktor Baranskiy controls all of the sixty Palmira Group companies, which overlap with the
Vista Group of companies. PI. Flame Ex. 384A at 33:25-34:2-3; 49:16-20. Vista Shipping Ltd.
is now a part of the Palmira Group. Id at 59:18-19. The Court therefore FINDS that Viktor
Baranskiy controls every entity that comprised and/orcomprises the Vista Groupand the Palmira
Group.
Ekaterina Bobrenko further testified that the companies within the Palmira Group
routinely transfer money to one another, without the usual corporate formalities of written loan
agreements or other documentation. PI. Flame Ex. 384B at 169, 256:9-16. Bobrenko also
testified that many Palmira Group companies do not have bank accounts. Id at 183:16-23.
Moreover, as a general practice, the Palmira Group of companies often leaves a particular
constituent company's bank account undercapitalized and then transfers funds from other
Palmira entities on an as-needed basis in order to pay expenses or buy vessels. Id at 125:18-25,
135:3-20,256:5-20.
In addition, according to the sanctions leveled against FBP, the Sea Traffic "loan,"
whereby Vista provided Sea Traffic funds which Sea Traffic then transferred to FBP for the
purchase of the CAPE VIEWER, PI. GW Ex. 426 at 161:4-12, was a sham transaction used to
avoid creditors.
The Court therefore FINDS that the Palmira and Vista entities commingled funds,
disregarded the corporate form, and used financial transfers to avoid creditors,
k.
Vista's Chief Financial Officer
Vista and now Palmira's Chief Financial Officer ("CFO"), Ekaterina Bobrenko, is CFO
19
in name only. Ms. Bobrenko has taken no accounting courses. PL Flame Ex. 384A 15:21-23.
She cannot make wire transfers on behalf of the Palmira Group. Id at 30:7-13. She has made
transfers on behalf of and on the instruction of Viktor Baranskiy without an invoice. Id at
44:20-22. And she was not working on the financial audit for the Viktor Baranskiy companies
but instead was preparing for this trial. Id at 81:18-25. Viktor Baranskiy also withdrew cash
payments for his personal use from Alpen Shipmanagement Co. ("Alpen"), which belongs to the
Vista Group, PL Flame Ex. 384B at 134:7-9, including funds for a private school in Switzerland
and a skiing vacation to that alpine nation. kL at 248:20-23, 252:3-8; Trial Tr. 24:9-15, Aug. 26,
2014, ECF No. 441. A weak CFO coupled with a dominant Chief Executive Officer ("CEO") is
a red flag for fraud and can allow inappropriate activities in companies like those of Viktor
Baranskiy. (Test, of Jeffrey Katz).
Her testimony establishes that she exercises almost no leadership over the financial
affairs of the Palmira Group companies. Instead, she follows the orders of Viktor Baranskiy, and
her daily job duties involve making transfers at Viktor Baranskiy's direction and without
invoices, and managing the employees of the accounting department.
The Court therefore FINDS that Vista's CFO was totally dominated by Viktor Baranskiy,
that Viktor Baranskiy used Vista's funds as his own, and that Viktor Baranskiy disregarded the
corporate forms of his companies to avoid any problems of any one entity.
1.
Vista's Loan Agreements
Sergei Bararnskiy is currently a shareholder of Chaika Agency Co. Ltd. ("Chaika"),
PL Flame Ex. 388 at 14-15, which provides chartering and operational services to Milestone
Shipping S.A. ("Milestone"). PL Flame Ex. 385 at 5. Chaika is controlled by Sergei Baranskiy
and Vladimir Tarasov, who are both shareholders and directors of Industrial Carriers. Milestone
20
and Chaika share an address and are located at 1 Chernomorskaya Str., Apt. 34, 65014, Odessa,
Ukraine, the same address as Diamant8 and IC Ukraine, both ICI-related entities. Pis.' Joint Ex.
251 at 1; PL Flame Exs. 385 at 7, 388 at 5; PL GW Ex. 426 at 39:10-17. Sergei Baranskiy,
Viktor's father, is a shareholder of Milestone. Vladimir Tarasov, a fourteen percent (14%)
shareholder of ICI, Pis.' Joint Ex. 161 at 35, is also a shareholder of Milestone Shipping S.A.
Trial Tr. 45:20-46:6, Sept. 3, 2014, ECF No. 456. Milestone was founded at the end of 2008,
which was on or about the time ICI had filed for bankruptcy. Trial Tr. 45:20-22, Sept. 3, 2014,
ECF No. 456; PL Flame Ex. 385 at 1.
Milestone provided approximately $7.2 million to Vista and its related companies
Palmira Enterprises and Alpen in 2009 and 2010. Pis.' Joint Exs. 124, 126-29, 133, 135, 140.
One of the "loans" from Milestone to Vista is actually signed on behalf of Palmira, not Vista, by
Viktor Baranskiy. Pis.' Joint Ex. 124 at 2. And transfers have continued, with $10.2 million
transferred from Milestone in more ostensible, alleged loans from 2011 through 2013. Pis.' Joint
Exs. 130-32, 134, 136-39. All of these "loans" are to be repaid "according to financial liquidity
of the company." Pis.' Joint Exs. 124, 126-140. These funds were for business expenses and
operations. PL Flame Ex. 384B at 125:18-25, 135:3-20. Palmira and Alpen then repaid most of
these "loans," and did so without interest. Def. FBP Exs. 1075, 1096. Vista also has made a
loan to Milestone in 2008; that transfer from Vista to Milestone was most likely to cover
"everyday activities." PL Flame Ex. 384B at 117:23-118:15.
Thus Milestone continues to provide short term alleged loans to the Vista and Palmira
Groups without consideration or enforceable contracts to fund everyday business expenses and
operations. And the Vista and Palmira Groups then repaid them but never with interest, and Vista
8 Diamant was created by Sergei Baranskiy and Viktor Baranskiy's godfather among other persons. PI.
GW Ex. 85 at 15-20.
21
once provided a loan to Milestone for similar y business activities. However, these so called loan
agreements do not have repayment terms and are given without consideration. Given Milestone's
connections with ICI, the amounts transferred to Vista, Palmira, and Alpen by Milestone and
vice versa constitute continuing transfers from and to ICI shareholders and their entities. The
transactions also evidence a relationship between ICI shareholders and across ostensibly
"separate" business entities.
The Court therefore FINDS that Vista: 1) received funding from Milestone; 2) continues
to enjoy funding from Milestone; 3)does not engage in arm's length transactions with Milestone;
and 4) receives funds without security and with unusual terms of credit from Milestone and
provides the same. It further FINDS that Milestone and Vista were so close asto be virtually part
of each other, and thatall of these actions were controlled by Viktor Baranskiy and his father.
II.
CONCLUSIONS OF LAW
A. Jurisdiction
The Court has jurisdiction over Flame's attachment pursuant to 28 U.S.C. § 1333. Flame
S.A. v. Indus. Carriers. Inc.. 2014 WL 108897 (E.D. Va. Jan. 10, 2014) affd, Flame S.A. v.
Freight Bulk Pte. Ltd.. 2014 WL 3828075,
F.3d
(4th Cir. Aug. 5,2014).
Glory Wealth's underlying arbitration award covers a breach of charter party between it
and ICI. The Court has jurisdiction over admiralty claims pursuant to 28 U.S.C. § 1333, and
charter party contracts sound in admiralty. The Volunteer. 28 F. Cas. 1260 (C.C.D. Mass. 1834)
(Story, J.).
B. Judge Leonard's Sanctions
1.
ICI's Documents
The Court has repeatedly found that Viktor Baranskiy, and thus FBP, has control over
ICI's documentation. The Court based its conclusions on E.I. DuPont de Nemours & Co. v.
22
Kolon Indus.. Inc.. 286 F.R.D. 288, 292 (E.D. Va. 2012), and Steele Software Svs.. Corp. v.
DataOuick Info. Svs.. Inc.. 237 F.R.D. 561, 564 (D. Md. 2006). The Court explained its
reasoning in its April 23, 2014 Opinion and Order, Flame S.A.. 2014 WL 1681426, ECF No.
192, and its August 26, 2014 Order, Flame S.A.. 2014 WL 4214837,
F.Supp.2d
, ECF
No. 430. In addition, the Court made the following conclusion of law regarding Viktor
Baranskiy's control over ICI's documents.
ICI is a Marshall Islands corporation, and The Marshall Islands adopt Delaware law,
except where the Marshall Islands Business Corporations Act conflicts with Delaware law, in
which case Marshall Island law controls.9 MIBCA, Division I, § 13; see Litwin v. OceanFreieht.
Inc.. 865 F. Supp. 2d 385, 397 (S.D.N.Y. 2011) (citing Rosenauist v. Economou et al.. Supreme
Court Case No. 2010-002, at 10 (Supreme Court, Republic of Marshall Islands Oct. 5, 2011)).
Under Marshall Islands law:
Any shareholder or holder of a voting trust certificate in person or by an attorney
or other agent, may during the usual hours of business inspect, for a purpose
reasonably related to his interests as a shareholder, or as the holder of a voting
trust certificate, and make copies or extracts from the share register, books of
account, and minutes of all proceedings.
MIBCA, Division 8, § 81. Delaware law makes similar provision. Del. Code title 8, subchapter
VII, § 220. Under either provision, Viktor Baranskiy, an eighteen percent (18%) shareholder in
ICI, had the means and authority to inspect and make copies of the ICI documents, which were
not produced although they were required by discovery. The Court FINDS that these documents
would be adverse to the Defendant's defense.
9This provision does not apply to resident domestic corporations. MIBCA, Division 1, § 13. ICI was
based in Greece and the Ukraine.
23
C. Alter Ego
1.
Determining Whether Entities Are Alter Egos
All parties to the trial agree that federal common law applies.10 Courts in the Fourth
Circuit apply federal common law and may look to state law in situations where there is no
admiralty rule on point. Ost-West-Handel Bruno Bischoff GmbH v. Project Asia Line. 160 F.3d
170, 176 (4th Cir. 1998) (citing Bvrd v. Bvrd. 657 F.2d 615, 617 (4th Cir. 1981); Bell v. Tug
Shrike. 332 F.2d 330, 332-33 (4th Cir. 1964)). In the Fourth Circuit, the federal maritime,
common law alter ego factors are set forth in Vitol. S.A. v. Primerose Shipping Co.. 708 F.3d
527, 544 (4th Cir. 2013). These factors include:
gross undercapitalization, insolvency, siphoning of funds, failure to observe
corporate formalities and maintain proper corporate records, non-functioning of
officers, control by a dominant stockholder, and injustice or fundamental
unfaimess[,]. .. intermingling of funds; overlap in ownership, officers, directors,
and other personnel; common office space; the degrees of discretion shown by the
allegedly dominated corporation; and whether the dealings of the entities are at
arm's length.
Id. (citations and internal quotation marks omitted). "The conclusion to disregard the corporate
entity may not, however, rest on a single factor, whether undercapitalization, disregard of [a]
corporation's formalities, or what-not, but must involve a number of such factors; in addition, it
10 The Second Circuit has recently held that admiralty courts must engage in Lauritzen choice of law
analysis to determine the law applicable to piercing the corporate veil in admiralty actions. Blue Whale Corp. v.
Grand China Shipping Dev. Co.. 722 F.3d 488, 497-500 (2d Cir. 2013). Under a Lauritzen choice of law analysis,
federal common law, or Vitol. would result. Lauritzen v. Larsen. 345 U.S. 571, 583-91 (1953). Specifically, the
wrongful acts took place in a number of nations, including Ukraine, Greece, the British Virgin Islands, Latvia,
Switzerland, Singapore, and the Marshall Islands. The CAPE VIEWER flies the Singaporean flag. Plaintiffs are
Singaporean and Swiss corporate entities. Defendants are from various nations: FBP isa Singaporean entity; Vista is
a British Virgin Islands entity; ICI is Marshall Islands Company operated from Ukraine and to a lesser extent,
Greece, where its bankruptcy application was filed and rejected; and Sergei Baranskiy and Viktor Baranskiy are
Ukrainian citizens. The places of the underlying contracts at issue may be numerous. The property at issue in this
dispute, the CAPE VIEWER, is under attachment in this district. A foreign forum would not be easily accessible
herebecause the action is basedon the attachment available only where the CAPE VIEWER is located. Finally, "the
basic tenet upon which Lauritzen is premised will be satisfied here by using federal common law because its
application reflects an implicit 'resol[ution of] conflicts between competing laws by ascertaining and valuing points
of contact between the transaction and the states or governments whose competing laws are involved."' Blue Whale
Corp.. 722 F.3d at 499 (citing Lauritzen. 345 U.S. at 582.). The location of the CAPE VIEWER being the strongest
point ofcontact in this dispute and for the many competing factors, federal common law will apply.
24
must present an element of injustice or fundamental unfairness." De Witt Truck Brokers. Inc. v.
W. Rav Flemming Fruit Co.. 540 F.2d 681, 687 (4th Cir. 1976). An element of injustice or
fundamental unfairness is the most important factor. Ost-West-Handel. 160 F.3d at 176. "[T]he
question of whether to pierce the corporate veil is a fact-intensive inquiry .... and it is only in
those 'extraordinary cases, such as the corporate form being used for wrongful purpose,' where
'courts will pierce the corporate veil and disregard the corporate entity.'" Vitol. 708 F.3d at 544.
In addition, the alter ego analysis is not limited to the time a second or subsequent company
forms but is more flexible and functional. N.L.R.B. v. Crossroads Elec. Inc.. 178 Fed. App'x
528, 534-35 (6th Cir. 2006).
2. The Effects of a Determination that Entities Are Alter Egos
Natural persons can be the alter ego of a corporation and vice versa. See e^,
Walkovszkv v. Carlton. 18 N.Y. 2d 414, 417 (1966). Alter egos are jointly and severally liable
for the debts of one another. MedRehab v. Evangeline of Natchitoches. Inc.. 1998 WL 671287,
at *1 (E.D. La. Sept. 24,1998); see 18 Am. Jur. § 51 at 698-700 (2d ed. 2013).
D. Fraudulent Transfer
In admiralty, courts apply federal common law and may look to state law in situations
where there is no admiralty rule on point. Ost-West-Handel. 160 F.3d at 176.11'12 The Court has
already applied Virginia law to this case with respect to fraudulent transfer when it determined
that under Virginia law, no statute of limitation applies to fraudulent transfers under Va. Code
§55.80, but laches instead is the test. Op. & Order at 11, ECF No. 249. Unlike the substantial
precedent examining alter ego in admiralty, there is no admiralty rule on point for fraudulent
11 Under the Lauritzen choice of law analysis, conducted above, federal common law would result. See
supra note 10.
12 The Plaintiffs agree that Virginia law applies, although Glory Wealth also seeks the application of
Delaware law, whereas FBP did not propose any applicable law.
25
transfer, the Court therefore applies Virginia law to the question of fraudulent transfer.
The Virginia Code provides that:
Every gift, conveyance, assignment or transfer of, or charge upon, any estate, real or
personal, every suit commenced or decree, judgment or execution suffered or
obtained and every bond or other writing given with intent to delay, hinder or defraud
creditors, purchasers or other persons of or from what they are or may be lawfully
entitled to shall, as to such creditors, purchasers or other persons, their representatives
or assigns, be void. This section shall not affect the title of a purchaser for valuable
consideration, unless it appear that he had notice of the fraudulent intent of his
immediate grantor or of the fraud rendering void the title of such grantor.
Va. Code §55-80. The statute requires the transfer be made with the intent to hinder or delay. 9A
Michie's Jurisprudence § 12 at 17 (2010). The intent to defraud one creditor renders the
transfer void as to all creditors. Id. at 17-18. Both the grantor and grantee must have the same
fraudulent purpose. Id. § 14 at 19. Intent is inferred from the circumstances surrounding a
transfer; these circumstances are known as "badges of fraud." These badges include: the
relationship ofthe parties, the grantor's insolvency, pursuit ofthe grantor by creditors atthe time
of the transfer, want of consideration, retention of the property by the grantor, and fraudulent
incurrence of indebtedness after the conveyance, gross inadequacy of price, no security taken for
the purchase money, unusual length of credit, and bonds taken at long period. Id. § 15 at 22.
Once a prima facie case of fraud is demonstrated, the burden shifts to the party attempting to
claim the transfer was fair. Id Clearly thesebadges of fraud have been proven in this case.
E. The Court Does Not Have Personal Jurisdiction Over the
Defendants
None of the Defendants in this case are present in the Eastern District of Virginia, with the
exception of the CAPE VIEWER remaining at attachment in the Chesapeake Bay. Flame and
Glory Wealth have pursued claims under Supplemental Admiralty Rule B, which permits the
attachment of a vessel in a district where the defendant is not found. Supplemental Rule B(l)(a).
The rule is titled "In Personam Actions: Attachment and Garnishment," but does not confer
26
traditional inpersonam jurisdiction over a party owning a vessel but rather Supplemental Rule B
inpersonam jurisdiction. This distinction is important because the action is limited to the value
of the attached vessel and is better understood as conferring quasi in rem jurisdiction.
Woodlands Ltd. v. Nationsbank. N.A.. 164 F.3d 628 (4th Cir. 1998) ("A Rule B attachment case
is, therefore, a quasi in rem action instituted for the purpose of (1) asserting jurisdiction over the
defendant in personam through the property and (2) to assure satisfaction of any judgment.").
Flame argues that its service of Viktor Baranskiy while he attended trial was proper; that
service of one alter ego amounts to service of all alter egos; and that the service of Viktor
Baranskiy therefore confers personal jurisdiction in this Court over ICI, Vista, Viktor Baranskiy,
and FBP. The Court does not agree.
Service of ICI and Vista was likely proper for notice. Flame Served ICI in the Marshall
Islands. ECF No. 339. Glory Wealth served ICI in New York and the Marshall Islands. ECF
Nos. 264, 436. Both Flame and Glory Wealth served Vista under the terms of the Hague
Convention in the British Virgin Islands. ECF Nos. 320, 362.13 However, neither Defendant has
any contacts with the Eastern District of Virginia and service must still comport with due
process.14 Therefore, in order to obtain personal jurisdiction under the theories of service via
13 Flame also seems to have served Vista in the British Virgin Islands earlier in this matter but did not
request default based onthat apparent service. ECF No. 131.
14 When an admiralty Court's in personam jurisdiction isinvoked, personal jurisdiction depends upon valid
service comporting with due process. 1Thomas J. Schoenbaum, Admiralty and Maritime Law § 3-2 at 116-17
(5th ed. 2013). Courts apply a three-prong test to determine whether minimum contacts exist to satisfy due process.
Id. at 117 n.20. Here, neither Vista, ICI, nor even Viktor Baranskiy has purposely directed their activities toward the
forum state or purposely availed themselves of the privileges of conducting activities here beyond the CAPE
VIEWER'S presence; Plaintiffs' causes ofaction arose years ago when ICI defaulted on its obligations and did not
rise from any forum-related contacts with the exception of the attachment of the vessel; and for the reasons
articulated in this section, personal jurisdiction would be unfair and unreasonable over these foreign entities. ]d
(citing Nuovo Pienone. SpA v. Storman Asia M/V. 310 F.3d 374, 378 (5th Cir. 2002) (citing Burger King Corp. y.
Rudzewicz. 471 U.S. 462, 474 (1985)). Indeed, personal jurisdiction here would "offend traditional notions of fair
play and substantial justice," Int'l Shoe Co. v. State ofWash.. Office ofUnemployment Comp. &Placement, 326
U.S. 310, 316 (1945) and erode the purposes of Supplemental Rule B. For these reasons and those articulated
elsewhere in this Memorandum Opinion, the Court concludes that it cannot exercise personal jurisdiction over ICI
and Vista.
27
alter ego advanced by Flame, Flame's service of Viktor Baranskiy must have been proper. It was
not.
Suitors and witnesses are immune from service of process in federal courts. 62b Am. Jur.
§ 22 at 614 (2d ed. 2013).15 The doctrine of immunity results when the individual claiming
immunity came into the jurisdiction for the convenience of the court. Idu at 615. Generally
nonresident litigants are "privileged from service of process while going to, attending, or
returning from, court," and this rule is "especially true where parties may be examined as
witnesses, or where such a party is attending a trial to testify as a witness." Id. §27 at 617-618
Viktor Baranskiy attended the trial after the Court denied FBP's motion to permit him to
testify from Odessa, Ukraine. Mem. Op., ECF No. 415. Flame S.A.. 2014 WL 4181958, ECF
No. 415. The Court wrote then, and it emphasizes now, the importance of observing the
demeanor, comportment, and answers of important witnesses. Id No witness was more
important in this matter than Mr. Baranskiy, and his arrival and appearance at trial was for the
Court's convenience as fact-finder. Viktor Baranskiy's disappearance mid-trial attests to the
critical nature of his testimony, as his answers were becoming confused and contradictory and to
the detriment of FBP's positions. Viktor Baranskiy's presence was based on his position as the
corporate representative of FBP, which he controls, and was not a personal appearance. His
attorney also objected to the service during a break in the trial. Thus Viktor Baranskiy's
appearance was as a witness and litigant and based upon the convenience ofthe Court.
Permitting service upon Viktor Baranskiy under these circumstances would have a
chilling effect on witness appearances. Witnesses will simply refuse to appear, and justice will
suffer. Under such a regime, the jury and the Court will be forced to rule upon half-explanations
15 Virginia law contains substantially the same immunity and is similarly based on the benefit conferred on
the Court and the administration ofjustice. 14B MlCHlE'S JURISPRUDENCE § 4 at 604-07. (2010). Thus Virginia law
also bars service on Viktor Baranskiy.
28
and stories, not the complete record. The Court will not create such a regime, even in part.
Finally, the Court notes that permitting personal jurisdiction over ICI and Vista when
neither entity has any contact with the Eastern District of Virginia with the exception of the
CAPE VIEWER (as a consequence of the Court's finding below that the entities are alter egos),
obviates due process and would open American corporations to similarly far-reaching attempts
by foreign courts to exercise sweeping power. Global service and consequent personal
jurisdiction of foreign parties with no connection to the United States District Court in question
are not attributes of federal civil procedure, nor has such a scheme ever been.
III.
APPLICATION
A. ICI, VISTA, Viktor Baranskiy, and FBP Are Alter Egos of Each
Other
As the Court has already concluded in its sanctions, Vista and FBP are alter egos of each
other. Flame S.A.. 2014 WL 3895933, at *13; Flame S.A.. 2014 WL 4214837, at *12
F.Supp.2d
, ECFNo. 430.
The Court has drawn adverse inferences against FBP, which was and is controlled by
Viktor Baranskiy, for its failure to provide any ICI documents to Plaintiffs in violation ofthe
Court's April 30, 2014 discovery Order. ECF No. 377 at 24. Thus, to the extent documents were
not provided to the Plaintiffs, the Court FINDS that the contents ofthose documents would have
been helpful to Plaintiffs and harmful to Defendants. In addition, the Court found further
negative inferences from Viktor Baranskiy's disappearance mid-way through his cross
examination by Flame. These inferences coupled with the facts present here support a finding
that ICI, Vista, Viktor Baranskiy, and FBP are alter egos ofone another under the Vitol factors.
The Vitol factors include:
gross undercapitalization, insolvency, siphoning of funds, failure to observe
corporate formalities and maintain proper corporate records, non-functioning of
29
officers, control by a dominant stockholder, and injustice or fundamental
unfairness[,] . .. intermingling of funds; overlap in ownership, officers, directors,
and other personnel; common office space; the degrees of discretion shown by the
allegedly dominated corporation; and whether the dealings of the entities are at
arm's length.
Vitol, 708 F.3d at 544. No one single factor can support an alter ego finding, De Witt. 540 F.2d
at 687, but the factor of injustice or fundamental unfairness is the most important in an alter ego
analysis. Ost-West-Handel. 160 F.3d at 176.
The findings of fact have shown ICI was insolvent at the time of Vista's beginning. ICI's
funds were siphoned through cash conversion companies to Vista and Viktor Baranskiy. Viktor
Baranskiy uses Vista's funds for his personal expenses and enjoyment. Neither ICI nor Vista and
its affiliated companies observe corporate formalities, with some Vista and Palmira companies
having no bank account and freely transferring each other funds. Vista's CFO is not a
functioning director but a tool of Viktor Baranskiy. Viktor Baranskiy controls all the Vista and
Palmira companies, making all decisions for each company within the groups. He and his father
control ICI through their majority interest in the corporation. ICI's money funded Vista, and the
many Vista and Palmira companies continue to intermingle their funds via sham transactions
whereby funds are transferred between one company or another in disregard of corporate
formalities and on an as-needed basis. These transfers are disguised as "loans," but are, in reality,
security- and interest-free transfers of funds. ICI and Vista have a substantial overlap in
ownership, with Viktor Baranskiy controlling Vista, and he and his father controlling ICI. ICI
and Vista employed the same individuals in substantially the same roles. ICI's subsidiary,
Columbus Maritime, hung its sign over Vista's office space in 2009. Trial Tr. 169:4-23, ECF
No. 456. No Vista or Palmira company has discretion to act without Viktor Baranskiy's word.
ICI created corporations to avoid creditors, especially Rule B attachments. Finally, this entire
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web of companies, their financial intermingling, and the many facts found here work a great
injustice and fundamental unfairness against the creditors of ICI, Vista, Viktor Baranskiy, and
FBP, as pursuing these entities and their related companies becomes extremely difficult and
corrupts normal business dealings.
All these factors lead inevitably to the conclusion that ICI, Vista, Viktor Baranskiy, and
FBP are alter egos of one another, and the Court so FINDS.
As a consequence of this finding, ICI, Vista, Viktor Baranskiy, and FBP are liable for
each other's debts. MedRehab. 1998 WL 671287, at *1; see 18 Am. Jur. § 51 at 698-700 (2d ed.
2013). In this matter, this liability rises up to the value of the CAPE VIEWER. The same
effect—that is liability up to the value of the Vessel—would result with respect to ICI and Vista,
which were likely properly served, under a default judgment, as the Court has already concluded
that it cannot exercise personal jurisdiction over either. See supra § II.E.
B. ICI Fraudulently Transferred the Charter of the M/V HARMONY
FALCON AND ASSETS TO VlSTA
The Court has drawn adverse inferences against FBP for its failure to provide any ICI
documents to Plaintiffs in violation of the Court's April 30, 2014 discovery Order. ECF No. 377
at 24. Therefore, to the extent documents were not provided to the Plaintiffs, the Court FINDS
that the contents of those documents would have been helpful to the Plaintiffs and harmful to
Defendants. Additionally, the Court FINDS that Viktor Baranskiy's testimony on cross
examination would have been detrimental to FBP's positions. This inference coupled with the
facts present here support a finding that ICI fraudulently transferred the charter of the
HARMONY FALCON and assets to Vista.
The Virginia Code provides that:
Every gift, conveyance, assignment or transfer of, orcharge upon, any estate, real or
personal, every suit commenced or decree, judgment or execution suffered or
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obtained and every bond or other writinggiven with intentto delay, hinder or defraud
creditors, purchasers or other persons of or from what they are or may be lawfully
entitled to shall, as to such creditors, purchasers or other persons, their representatives
or assigns, be void. This section shall not affect the title of a purchaser for valuable
consideration, unless it appear that he had notice of the fraudulent intent of his
immediate grantor or of the fraud rendering void the title of such grantor.
Va. Code §55-80. The statute requires the transfer be made with the intent to hinder or delay. 9A
Michie's Jurisprudence § 12 at 17 (2010). Both the grantor and grantee must have the same
fraudulent purpose. Id. § 14 at 19. Intent is inferred from the circumstances surrounding a
transfer; these circumstances are known as "badges of fraud." These badges include: the
relationship ofthe parties, the grantor's insolvency, pursuit of the grantor by creditors atthe time
of the transfer, want of consideration, retention of the property by the grantor, fraudulent
incurrence of indebtedness after the conveyance, gross inadequacy of price, no security taken for
the purchase money, unusual length ofcredit, and bonds taken at long period, Id § 15 at 22, all
of which exist in this case.
As concluded above, ICI, Vista, Viktor Baranskiy, and FBP are alter egos. ICI was
insolvent at the time it gave the charter of the HARMONY FALCON to Viktor Baranskiy's
Vista and made money transfers to Viktor Baranskiy's Vista. Viktor Baranskiy and Vista gave
no consideration for the charter of the HARMONY FALCON nor the initial funds of Vista,
which were not commissions for Viktor Baranskiy's work. After providing the HARMONY
FALCON charter and its assets to Vista, ICI officially filed for bankruptcy in Greece. Vista paid
nothing for the charter ofthe HARMONY FALCON but made a substantial profit on the charter
and received substantial funds from or through ICI, which it continued to retain. Finally,
Milestone, an ICI offshoot, continues to provide ostensible "loans," which are in reality securityand interest-free transfers of funds to Vista for operational expenses made with indefinite
repayment periods.
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These badges of fraud coupled with the negative inferences resulting from FBP's
discovery and trial abuses evidence ICI's and Vista's intent to hinder, delay, and defraud ICI's
creditors and did so. Therefore, the Court FINDS that ICI fraudulently transferred its assets as
well as the charter of the HARMONY FALCON to Vista.
IV.
CONCLUSION
For the reasons herein, the Court FINDS that: 1) ICI, Vista, FBP, and Viktor Baranskiy
are alter egos of each other and 2) ICI fraudulently transferred its assets as well as the charter of
the HARMONY FALCON to Vista. ICI, Vista, FBP, and Viktor Baranskiy are therefore are
jointly and severally liable up to the value of the CAPE VIEWER to Flame and Glory Wealth. A
separate Judgment in accordance with Rule 58 of the Federal Rules of Civil Procedure will issue.
The Clerk is DIRECTED to forward a copy of this Memorandum Opinion to all Counsel
of Record.
IT IS SO ORDERED.
UNITED STATES DISTRICT JUDGE
Norfolk, VA
September / ^, 2014
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