Aviva Sports, Inc. v. Fingerhut Direct Mktg., 09-cv-1091 (JNE/HB)

Decision Date12 November 2021
Docket Number09-cv-1091 (JNE/HB)
PartiesAviva Sports, Inc., Plaintiff, v. Fingerhut Direct Marketing, Inc., et al., Defendants.
CourtU.S. District Court — District of Minnesota
ORDER

HILDY BOWBEER, UNITED STATES MAGISTRATE JUDGE

This matter is before the Court on Plaintiff's Motion to Compel Production of Manley Documents and Enforce the Court's Prior Discovery Order [ECF No. 1099]. Plaintiff ASI Inc., f/k/a Aviva Sports Inc. (Aviva) moves the Court to compel the production of documents belonging to Defendant Manley Toys Ltd. (“Manley”) pursuant to the Court's December 30, 2015, post-judgment discovery order [ECF No. 924], as corrected [ECF No. 925]. Manley has been dissolved as a corporate entity, and those documents are now in the possession of two foreign nationals, Mat Ng and John Robert Lees (“Liquidators”), who served as Manley's liquidators in recent Hong Kong liquidation proceedings. Because the Court finds it has subject-matter jurisdiction over the case and limited specific personal jurisdiction over the Liquidators, the Court grants the motion.

I. Background

The history of this case is complicated, and the Court recounts only those facts necessary for the resolution of the present motion.

A. Discovery Derails the Case

Aviva filed suit in this matter on May 11, 2009. [ECF No. 1.] Its original Complaint named several companies, including the Hong Kong-based toy manufacturer Manley Toys, Ltd. and its U.S. counterpart, Toy Quest, Ltd. (Id. ¶¶20-21.) After extensive litigation, in August 2013 the court awarded Aviva a default judgment of approximately $8.5 million including damages for Manley's falsely advertised products, attorneys' fees and costs and sanctions. [ECF No. 827.] To date, Aviva has collected “almost nothing” on its judgment. (Calland Decl. ¶1 [ECF No. 1102].)

In December 2015 Aviva filed a motion to compel post-judgment discovery responses from Manley. [ECF No. 915.] Aviva sought a variety of financial and other documents, including documents about assets and asset transfers, sales, profits, products, customers, distributors, licensing, insurance, corporate structure and ownership, and intercorporate relationships (hereafter “Manley Documents”). (See Calland Decl. Ex. 1 [ECF No. 1102-1].) Manley did not file an opposition to the motion and did not appear at the motion hearing. [See ECF No. 922.] On December 30, 2015, the court granted Aviva's motion. [ECF No. 924.] (as corrected [ECF No. 925], hereafter the “Production Order”). The court ordered Manley to respond to Aviva's first set of post-judgment requests for production by no later than January 29, 2016, and indicated that if Manley failed to respond Aviva would be permitted to “seek appropriate relief from the Court.”

(Id. ¶¶4-5.) Manley never responded to Aviva's discovery requests, and the information sought in those discovery requests is the subject of the current motion.[1]

B. Manley Starts Bankruptcy Proceedings in Hong Kong and New Jersey

The large judgment caused Manley to commence simultaneous Hong Kong voluntary winding-up and United States ancillary bankruptcy[2] proceedings. It was a turnkey operation. On March 11, 2016, a notice of a “Creditors' Meeting” under Hong Kong law was sent to all of Manley's known creditors via regular mail and published in three Hong Kong newspapers. In re Manley Toys Ltd., 580 B.R. 632, 636 (Bankr. D. N.J. 2018). The date of the meeting was March 22, 2016. On that day, Manley's shareholders passed a special resolution initiating a voluntary winding-up proceeding under Section 228A(1)(c) of the Hong Kong Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32) (Hong Kong Liquidation law”).[3] (See Verified Pet. Pursuant to 11 U.S.C. §§ 105(a), 1504, 1507, 1509, 1515, 1517, 1519, 1521, and 1525 for Entry of an Ord. Recognizing Foreign Main Proceeding and Granting Further Relief and Add'l Assist. (hereafter Chapter 15 Petition) at 5, Calland Decl. Ex. 2 [ECF No. 11012].) At the simultaneous meeting of creditors, [4] a Committee of Inspection (“COI”)- consisting entirely of affiliated entities-was appointed, and the COI appointed Ng and Lees as “Appointed Liquidators and Foreign Representatives.” In re Manley Toys Ltd., 580 B.R. at 636; (see Aug. 20, 2021 Liquidators Letter to Mag. Judge [ECF No. 1146]); see also Hong Kong Liquidation Law §§ 241 (concerning meeting of creditors), 243 (concerning committee of inspection.). The COI also authorized the Liquidators to take actions under Hong Kong Law and commence Chapter 15 proceedings in the United States. (See Exhibit B to Chapter 15 Petition [Bankr. ECF No. 2-2 at 3].)

On the same day, the Liquidators filed a petition under Chapter 15 of the United States Bankruptcy Code seeking recognition of the Hong Kong proceedings as foreign main proceedings. See Chapter 15 Petition; see also 11 U.S.C. §§ 101(23), 1517(a). By initiating the Chapter 15 proceedings, Manley sought protection of its U.S. assets, which almost solely consisted of claims against Toys “R” Us, Inc. for accounts receivable totaling $5, 000, 000. (See Chapter 15 Petition at 3.)

On March 28, 2016, the Liquidators, through counsel, informed this District Court that they had filed the Chapter 15 Petition. [ECF No. 956.] The Liquidators also informed the court that the bankruptcy court in New Jersey had granted them provisional relief in the form of “a stay of all proceedings against [Manley] in the United States.” (Id.; see also Mar. 24, 2016 Bankr. Ct. Mins [Text-Only Entry After Bankr. ECF No. 16].) Post-judgment enforcement stalled in this case in light of the stay.[5]

C. Role of the Liquidators and the Manley Documents

In theory, upon appointment, the Liquidators were required to “take into [their] custody, or under [their] control, all the property and things in action to which the company is or appears to be entitled.” Hong Kong Liquidation Law § 197; see also Hong Kong Liquidation Law § 251(1)(b) (powers and duties of liquidator in voluntary winding up). Additionally, the Liquidators had several powers and duties under Hong Kong Law including: “to bring or defend any action or other legal proceeding in the name and on behalf of the company. Hong Kong Liquidation Law § 199(1)(a). However, the Liquidators had to follow directions “given by the creditors . . . or by the committee of inspection.” Hong Kong Liquidation Law § 200(1). And, because Manley commenced a creditors voluntary winding-up, certain powers required an explicit sanction by the Committee of Inspection or creditors. See Hong Kong Liquidation Law § 251(a).

Practice followed theory. The COI resolved that:

1. The books and records of the Company and of the Liquidators may be destroyed after the Company is wound up at a time and in a manner selected by the Liquidators.
...
3. The Liquidators should be granted the power contained in Section 199(1) of the [Hong Kong Liquidation Law].

(ASI Ex. 44 at 2 [Bankr. ECF No. 43-35].) It is undisputed the Liquidators assumed control and took into custody the documents owned by Manley. Specifically, the Liquidators have in storage about twenty banker's boxes of financial statements, general ledgers, bank statements, purchase orders, invoices, bills of lading, and payment vouchers dating back to at least 2010. (See Calland Decl. Ex. 3 [ECF No. 1102-3].) Aviva claims these documents are subject to the Production Order and relevant to related litigation. See, e.g. ASI Inc. v. Aquawood LLC, Case No. 19-cv-763 (JRT/HB) (D. Minn.); Rennenger v. Aquawood, LLC, Case Nos. 4:19-cv-123, 131, 132, 134, 135 (S.D. Iowa) (consolidated sexual harassment actions).

D. Liquidation Unravels and Terminates

The Manley liquidation efforts, led by the Liquidators, unfolded in Hong Kong, with parallel proceedings in New Jersey. The record reflecting the proceedings in Hong Kong is sparse. From 2016 to today, the Liquidators purportedly conducted the liquidation pursuant to Hong Kong Liquidation law. In February 2019, the Liquidators disavowed investigations into any alter ego or fraudulent transfer claims. (Calland Decl. ¶ 14.) Rather, the Liquidators, on behalf of Manley, sought a settlement with Toy Quest in the Hong Kong courts that would have the Liquidators distribute to the independent creditors HK$300, 000 (approximately US$38, 700). (Id. ¶ 15.) The settlement included a waiver of fraudulent transfer, alter ego, or other claims against Toy Quest Ltd. and other affiliated companies or individuals. (Id.) The Hong Kong court rejected the settlement with the understanding the Liquidators would attempt to negotiate an enhanced settlement. (Id. ¶ 17.) The Liquidators ultimately concluded no settlement was likely and requested leave to withdraw the proposed settlement, which the Hong Kong court granted. (Liquidators Mem. Opp. Mot. Compel at 3 [ECF No. 1119].)

In New Jersey, the bankruptcy court ultimately granted recognition of the Hong Kong liquidation as a “foreign main proceeding.” In re Manley Toys Ltd., 580 B.R. 632 (Bankr. D.N.J. 2018), aff'd, 597 B.R. 578 (D.N.J. 2019). Although Aviva appealed to the Third Circuit the district court's decision affirming the bankruptcy court, the parties agreed to dismiss the appeal. [Bankr. ECF No. 429.] Before and after this decision, Aviva repeatedly sought relief from the stay to pursue alter ego and fraudulent transfer claims against Manley, which were ultimately allowed after the bankruptcy court determined the Liquidators “effectively abandoned” those claims, given the facts above. (Feb. 25, 2021 Ord. ¶ 6 [Bankr. ECF No. 419].)

After the Toy Quest settlement failed, the Liquidators gave notice on February 19, 2021, that the final meetings of creditors in the Hong Kong proceedings would take place on March 22, 2021. (See ...

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