Baeshen v. Arcapita Bank B.S.C.(c) (In re Arcapita Bank B.S.C.(c))
| Decision Date | 17 November 2014 |
| Docket Number | Case No. 12–11076 SHL,Adv. Pro. No. 13–01677 SHL |
| Citation | 520 B.R. 15 |
| Parties | In re: Arcapita Bank B.S.C.(c), et al., Reorganized Debtors. Khalid Ahmed A. Baeshen, Osama Ahmed A. Baeshen, Sahar Ahmed A. Baeshen, and Sumayya Ahmed A. Baeshen, Plaintiffs, v. Arcapita Bank B.S.C.(c), Arcapita Investment Holdings Limited, Arcapita LT Holdings Limited, Windturbine Holdings Limited, AEID II Holdings Limited, and Railinvest Holdings Limited, Defendants. |
| Court | U.S. Bankruptcy Court — Southern District of New York |
Milbank, Tweed, Hadley & McCloy, LLP, Counsel for the Reorganized Debtors and the New Holding Companies, One Chase Manhattan Plaza, New York, N.Y. 10005, By: Dennis F. Dunne, Esq., Evan R. Fleck, Esq., Lena Mandel, Esq., and 1850 K Street, N.W., Suite 1100, Washington, D.C. 20006, By: Andrew M. Leblanc, Esq.
Baker & Hostetler LLP, Counsel for Khalid Ahmed A. Baeshen, Osama Ahmed A. Baeshen, Sahar Ahmed A. Baeshen, and Sumayya Ahmed A. Baeshen, 45 Rockefeller Plaza, New York, N.Y. 10111, By: Regina L. Griffin, Esq., Marc Skapof, Esq., James W. Day, Esq.Chapter 11
Before the Court is a motion (the “Motion”) by the above-referenced reorganized debtors (the “Debtors” or “Arcapita”), seeking to dismiss the Plaintiffs' complaint (the “Complaint”) in the above-captioned adversary proceeding. The Complaint alleges that certain funds in the possession of the Debtors are not property of the estate, but rather belong to the Plaintiffs. The Debtors allege that the Plaintiffs' Complaint is precluded under the doctrine of res judicata because the classification and treatment of the Plaintiffs' monetary claims against the Debtors were conclusively determined in the confirmation order entered in this case in June 2013 [ECF No. 1262] (the “Confirmation Order”). For the reasons stated below, the Court agrees with the Debtors and dismisses the Complaint as an impermissible attempt to collaterally attack the Confirmation Order.
Founded in 1996, Arcapita was an alternative investment vehicle and investment bank offering Shari'ah-compliant investment opportunities.1 Compl. ¶ 26. Its headquarters were located in Bahrain. Compl. ¶ 28. The Plaintiffs entered into an investment account agreement with Arcapita, placing a total of $10,262,957.36 for investment purposes in four bank accounts at Arcapita (collectively, the “Mudarib Accounts”). Compl. ¶¶ 2–3, 8. Of this total amount, $3,012,223.55 was never invested by Arcapita and remained in the Mudarib Accounts (the “Undeployed Placement”). Compl. ¶ 31. The Mudarib Accounts were governed by two agreements between the Plaintiffs and Arcapita: (1) the First Islamic Application and Agreement for the Opening of an Investment Account; and (2) the Arcapita Application and Agreement for the Opening of an Investment Account (together, the “IA Agreements”). Compl. ¶ 3. According to the IA Agreements, the relationship between the Plaintiffs and Arcapita was governed by Bahraini law. Compl. ¶ 4.
The IA Agreements set forth the general conditions governing these investment accounts with Arcapita. Compl. Ex. A–B. Pursuant to the IA Agreements, Arcapita was appointed by the Plaintiffs to act as Mudarib—an investment manager—with respect to the funds in the Mudarib Accounts. Compl. ¶ 5, Ex. A–B. Under this arrangement, an investor retained title to its investments unless or until the funds were invested in or with third parties. Compl. ¶ 7. The IA Agreements provided that investors could retrieve balances, or parts thereof, upon written notice. Compl. Ex. A–B. The IA Agreements also provided that Arcapita would receive 0.50% per annum of profits earned from investing cash balances in the Mudarib Accounts. Compl. Ex. B.
In December 2010, Arcapita commenced a Rights Offering to its shareholders, including the Plaintiffs, which offered each investor the opportunity to purchase up to 1,666,667 shares in Arcapita, potentially providing a total capital infusion of $500 million. Compl. ¶ 39, Ex. C. If the Rights Offering failed, shareholders would be notified and any affected subscription amounts, together with any profits, would be credited to the shareholders' investment accounts. Compl. ¶ 46, Ex. C. The Plaintiffs participated and placed $462,568.00 with Arcapita (the “Rights Offering Investment”). Compl. ¶ 40. As it turned out, the Rights Offering was ultimately unsuccessful and thus no shares were issued to subscribing shareholders, including the Plaintiffs. Compl. ¶¶ 42–43.
Arcapita and its affiliated the Debtors filed voluntary petitions for relief in this Court under Chapter 11 of the Bankruptcy Code in early 2012. Compl. ¶ 55.2 In late August 2012, the Plaintiffs filed four proofs of claim that were designated as claim numbers 376, 377, 378 and 379 (the “Claims”). Compl. ¶ 58. The Claims sought payment in the total sum of $10,262,597.36, which constituted the aggregate amount that the Plaintiffs had invested in the Mudarib Accounts, including the Undeployed Placement and the Rights Offering Investment.3 Compl. ¶ 58. In early February 2013, the Debtors filed the first Joint Plan of Reorganization of Arcapita Bank B.S.C.(c) and Related Debtors Under Chapter 11 of the Bankruptcy Code (the “First Plan”) and the Disclosure Statement in Support of the Joint Plan of Reorganization of Arcapita Bank B.S.C.(c) and Related Debtors Under Chapter 11 of the Bankruptcy Code (the “First Disclosure Statement”). Compl. ¶ 61.
The First Disclosure Statement explained how the claims of Arcapita investors were addressed in the Plan:
The Plan contemplates that a third-party investor's [Unrestricted Investment Account] position, RIA position and/or Murabaha position with Arcapita at the Petition Date gives rise to general unsecured claims against Arcapita Bank (the “Investor Claims ”)....The Investor Claims are classified in Class 5(a).4
First Disclosure Statement at 39. The Plaintiffs' share of this class—essentially, the Plaintiffs' Undeployed Placement—was approximately $3,012,223.55. Under the First Plan, therefore, $3,012,223.55 of the Plaintiffs' Claims was classified as a general unsecured claim. First Plan, at 5.
The First Disclosure Statement further disclosed that, “[t]he rights of the Rights Offering Participants to receive the Arcapita Bank Shares contemplated by the Rights Offering give rise to Subordinated Claims against Arcapita Bank....” First Disclosure Statement, at 40. “The Rights Offering Claims are classified in Class 8(a).” Id. The Plaintiffs' claims relating to the Rights Offering—their Rights Offering Investment—totaled $452,568.00. Under the First Plan, therefore, $452,568.00 of the Plaintiffs' Claims was treated as a subordinated claim, meaning that such claims were subordinated in priority to all claims that were senior or equal to the claim. First Plan, at 7.
In late April 2013, the Debtors filed the Second Amended Joint Plan of Reorganization of Arcapita Bank B.S.C.(c) and Related Debtors Under Chapter 11 of the Bankruptcy Code (the “Second Plan”) and the Second Amended Disclosure Statement in Support of the Second Amended Joint Plan of Reorganization of Arcapita Bank B.S.C.(c) and Related Debtors Under Chapter 11 of the Bankruptcy Code (the “Second Disclosure Statement”). The treatment of the Plaintiffs' claims remained the same. Compl. ¶ 63. Pursuant to the Second Plan, therefore, Class 5(a) claims remained classified as general unsecured claims and Class 8(a) claims against Arcapita remained classified as subordinated claims. Second Plan, at 6–7.
Another party with unspent funds in a Mudarib Account filed a limited objection to the Second Plan on May 30, 2013. Compl. ¶ 66. That party, Mounzer Nasr, was unrelated to the Plaintiffs here. Mr. Nasr's objection argued that money in his account that was held in trust by the Debtors was not property of the Debtors' estates. Id . To resolve the objection of Mr. Nasr, the Debtors included a carve-out in the Confirmation Order. That carve-out reserved Mr. Nasr's right to argue that any property held by the Debtors or Reorganized Debtors was not property of the Debtors' estates, and Mr. Nasr retained his right to pursue remedies in connection with this argument.See Confirmation Order ¶ 65. While the Plaintiffs did not join in Mr. Nasr's objection, they did actively participate in these bankruptcy cases by joining in an objection to the Debtors' request for replacement postpetition financing, an issue that was scheduled for hearing one day prior to the hearing on confirmation of the Plan.5 The Plaintiffs' objection was overruled.
On June 17, 2013, the Court entered the Confirmation Order. Compl. ¶ 68. On September 17, 2013, the Plan became effective. Compl. ¶ 70.
Almost five months after confirmation and two months after the Plan went effective, the Plaintiffs filed the Complaint in this case. The Complaint asserts that, under Bahraini law, the Debtors never held a legal or equitable interest in the Plaintiffs' Undeployed Placement and the Rights Offering Investment that totaled approximately $3,464,791.66 (the “Funds”), and therefore, the Funds were never property of the estate for purposes of Section 541 of the Bankruptcy Code. Compl. ¶ 1. The Plaintiffs' Complaint seeks a judgment: (1) declaring that the Funds are not property of the Debtors' estates and never vested with the reorganized debtors; (2) compelling the reorganized debtors to turn over the Funds; and (3) awarding the Plaintiffs prejudgment interest. Compl. ¶ 15.
In analyzing a motion to dismiss under Rule 12(b)(6) of the Federal Rules of Civil Procedure, a court looks to whether a plaintiff has pleaded “enough facts to state a claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). As is the case with any motion to dismiss, the Court accepts the allegations in the Complaint as true. See id. at 555, 127 S.Ct. 1955.
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