Bankr. Estate of Norske Skogindustrier ASA v. Cyrus Capital Partners, L.P. (In re Bankr. Estate of Norske Skogindustrier ASA)

• Citation: 629 B.R. 717
• Decision Date: 29 April 2021
• Docket Number: Adv. Pro. No. 18-01846 (MG),Case No. 18-13571 (MG)
• Parties: IN RE: The BANKRUPTCY ESTATE OF NORSKE SKOGINDUSTRIER ASA, Debtor in a Foreign Proceeding. The Bankruptcy Estate of Norske Skogindustrier ASA, Plaintiff, v. Cyrus Capital Partners, L.P., et al. Defendants.
• Court: United States Bankruptcy Courts. Second Circuit. U.S. Bankruptcy Court — Southern District of New York

629 B.R. 717

IN RE: The BANKRUPTCY ESTATE OF NORSKE SKOGINDUSTRIER ASA, Debtor in a Foreign Proceeding.The Bankruptcy Estate of Norske Skogindustrier ASA, Plaintiff,

v.Cyrus Capital Partners, L.P., et al. Defendants.

Case No. 18-13571 (MG)

Adv. Pro. No. 18-01846 (MG)

United States Bankruptcy Court, S.D. New York.

Signed April 29, 2021

HOLLAND & KNIGHT LLP, Attorneys for the Bankruptcy Estate of Norske Skogindustrier ASA, 31 W 52nd Street, 12th Floor, New York, New York 10019, By: Warren E. Gluck, Esq., 150 North Riverside Plaza, Suite 2700, Chicago, Illinois 60606, By: Richard A. Bixter, Jr., Esq.

BOIES SCHILLER FLEXNER LLP, Attorneys for the Cyrus Defendants, 55 Hudson Yards, New York, New York 10001, By: Anastasia Cembrovska, Esq., Duane L. Loft, Esq.

FRIEDMAN KAPLAN SEILER & ADELMAN LLP, Attorneys for the GSO Defendants, 7 Times Square, 28th Floor, New York, New York 10036, By: Anne E. Beaumont, Esq., Andrew Englander, Esq., Eric Seiler, Esq.

MEMORANDUM OPINION AND ORDER GRANTING IN PART AND DENYING IN PART MOTIONS TO DISMISS

MARTIN GLENN, UNITED STATES BANKRUPTCY JUDGE

Table of Contents

I. BACKGROUND...––––

A. PROCEDURAL BACKGROUND ...––––

1. The Norwegian Bankruptcy ...––––

2. The Chapter 15 Proceeding ...––––

3. The Adversary Proceeding ...––––

B. FACTUAL BACKGROUND ...––––

1. The First Restructuring ...––––

2. The Defendants' Positions in the Norske Enterprise Following the First Restructuring ...––––

3. The Second Restructuring ...––––

4. The "Upstreaming and Transfer" and the Defendants' Positions in the Norske Enterprise Following the Second Restructuring ...––––

II. STANDARD OF REVIEW ...––––

III. CHOICE OF LAW ...––––

A. APPLICABLE CHOICE OF LAW RULES ...––––

B. THE ALLEGED CONDUCT ...––––

C. THE INTERNAL AFFAIRS DOCTRINE ...––––

D. CONCLUSION ...––––

IV. TIMELINESS...––––

A. THE PLAINTIFF'S AVOIDANCE CLAIMS ARE TIMELY UNDER SECTION 108(a) OF THE BANKRUPTCY CODE ...––––

B. THE PLAINTIFF'S SECTION 17-1 CLAIMS ARE TIMELY ...––––

C. EVEN IF SECTION 108 DID NOT APPLY TO THE AVOIDANCE CLAIMS, THE TIMELINESS OF THE AVOIDANCE CLAIMS UNDER THE RECOVERY ACT PRESENTS A DISPUTED ISSUE OF FACT THAT PRECLUDES GRANTING DISMISSAL ...––––

1. Section 5-15 ...––––

2. Relation Back ...––––

V. THE RECOVERY ACT CLAIMS...––––

A. SECTION 5-9 LEGAL STANDARD ...––––

1. Improper Transaction ...––––

2. Intentional Fraud and Rule 9(b) ...––––

B. THE PLAINTIFF FAILS TO ADEQUATELY PLEAD A SECTION 5-9 CLAIM AGAINST GSO ...––––

1. The 5-9 Claim Against GSO Does Not Meet the Pleading Requirements of Rule 9(b) ...––––

2. Whether the Plaintiff Has Sufficiently Alleged the Elements of Section 5-9

3. Conclusion ...––––

C. THE PLAINTIFF FAILS TO ADEQUATELY PLEAD A SECTION 5-9 CLAIM AGAINST CYRUS ...––––

D. THE FAC PROPERLY PLEADS A SECTION 5-5 CLAIM AGAINST GSO ...––––

1. Payment of a Debt ...––––

2. Ordinary/Non-Ordinary Payments ...––––

3. Related Party ...––––

VI. THE SECTION 546(E) SAFE HARBOR ...––––

A. THE REQUIREMENTS OF SECTION 546( E )...––––

1. Qualifying Transaction ...––––

2. Qualifying Participant ...––––

3. The Qualifying Transaction Is Made by or to (or for the Benefit of) a Qualifying Participant ...––––

B. THE SAFE HARBOR IN THE CONTEXT OF A MOTION TO DISMISS ...––––

C. THE EXCEPTION ...––––

VII. THE COMPANIES ACT CLAIM ...––––

A. SECTION 17-1 LEGAL STANDARD ...––––

1. Section 17-1(1) – Primary Liability ...––––

2. Section 17-1(2) – Secondary Liability ...––––

3. Preemption ...––––

B. THE PLAINTIFF ADEQUATELY STATES A SECTION 17-1 CLAIM AGAINST THE DEFENDANTS ...––––

1. The Plaintiff States a Claim Under Section 17-1(1) ...––––

2. The Plaintiff States a Claim Under 17-1(2) ...––––

3. The Plaintiff is Permitted to Allege Damages Generally ...––––

VIII. UNJUST ENRICHMENT UNDER NORWEGIAN LAW...––––

A. NORWEGIAN CASELAW ...––––

B. LEGAL SCHOLARSHIP ...––––

C. CONCLUSION ...––––

IX. CONCLUSION ...––––

This adversary proceeding arises out of alleged fraudulent transfers totaling over 30 million euros from Norske Skogindustrier ASA ("Norske Skogindustrier," "Norske ASA," or the "Debtor"), a Norwegian limited liability company, to the Defendants (defined below). Specifically, the Defendants allegedly pressured Norske ASA to effectuate a scheme that included Norske ASA repurchasing notes held by the Defendants and that, by doing so, Norske ASA and other creditors of Norske ASA were harmed.¹ The Bankruptcy Estate of Norske ASA (the "Estate" or the "Plaintiff") seeks avoidance of the alleged fraudulent transfers, damages for the Defendants' alleged violations of Norwegian statutory and non-statutory law, and damages under a theory of unjust enrichment.

Pending before the Court are two motions to dismiss the FAC. The first is the motion of defendants Crescent I, L.P., CRS Master Fund, L.P., Cyrus Capital Partners, L.P., Cyrus Opportunities Master Fund II, Ltd., and Cyrus Select Opportunities Master Fund, Ltd. (collectively, the "Cyrus Defendants" or "Cyrus"). ("Cyrus Motion," ECF Doc. # 27.) The Cyrus Motion is supported, inter alia , by a memorandum of law (the "Cyrus Memo," ECF Doc. # 45) and the declaration of Knut Ro ("Ro"), the Cyrus Defendants' Norwegian law expert ("Ro Decl.," ECF Doc. # 47). The second is the motion of defendants GSO Aiguille Des Grands Montets Fund I LP, GSO Aiguille Des Grands Montets Fund II LP, GSO Aiguille Des Grands Montets Fund III LP, GSO Cactus Credit Opportunities Fund (Cayman) LP, GSO Capital Partners LP, GSO Churchill Partners LP, GSO Coastline Credit Partners (Cayman) LP, GSO Credit Alpha Trading (Cayman) LP, GSO Credit-A Partners (Cayman) LP, GSO Oasis Credit Partners (Cayman) LP, GSO Palmetto Opportunistic Investment Partners (Cayman) LP, GSO Special Situations Master Fund LP, and Steamboat Credit Opportunities Master Fund LP (collectively, "GSO" or the "GSO Defendants" and, with the Cyrus Defendants, the "Defendants," and, with the Plaintiff, the "Parties"). ("GSO Motion," ECF Doc. # 32, and, with the Cyrus Motion, the "Motions.") The GSO Motion is supported, inter alia , by a memorandum of law (the "GSO Memo," ECF Doc. # 32-1) and the declaration of Kristoffer Aasebø ("Aasebø"), the GSO Defendants' Norwegian law expert ("Aasebø Decl.," ECF Doc. # 32-2).

The Motions seek dismissal of the FAC, filed on January 30, 2020,² which asserts the following five counts:

• Count I: avoidance action under the Norwegian Recovery Act of 8 June 1984 No. 59 (the "Recovery Act") § 5-9 ("Section 5-9") against the GSO Defendants and John Does 1-100 (FAC ¶¶ 152–67);

• Count II: avoidance action under Recovery Act § 5-5 ("Section 5-5") against the GSO Defendants and John Does 1-100 (id. ¶¶ 168–80);

• Count III: avoidance action under Section 5-9 against the Cyrus Defendants (id. ¶¶ 181–96);

• Count IV: a claim for damages under the Norwegian Public Limited Liability Companies Act of 13 June 1997 (the "Companies Act") § 17-1 ("Section 17-1") and similar "Norwegian non-statutory law" against the Defendants (id. ¶¶ 197–205); and

• Count V (pled in the alternative): unjust enrichment, against the Defendants (id. ¶¶ 206–14).

The FAC and the Motions raise issues of choice of law, timeliness, sufficiency of the pleadings, and the applicability of the section 546(e) safe harbor and section 561(d).

The Plaintiff filed an opposition brief to the Motions (the "Opposition," ECF Doc. # 51), as well as the declaration of Egil Horstad (the "Horstad Decl.," ECF Doc. # 50). The GSO Defendants filed a reply memorandum of law. ("GSO Reply," ECF Doc. # 53.) The GSO Reply is supported by the reply declaration of Kristoffer Aasebø. ("Aasebø Reply," ECF Doc. # 54.) The Cyrus Defendants filed a reply in support of their motion to dismiss. ("Cyrus Reply," ECF Doc. # 55.) The Cyrus Reply is supported by the supplemental declaration of Knut Ro. ("Ro Supplement," ECF Doc. # 56.)

On December 10, 2020, this adversary proceeding and the chapter 15 case were reassigned to me. Thereafter, the Cyrus Defendants filed a notice of the motion and refiled the Cyrus Memo and the Ro Declaration. (ECF Doc. ## 66, 67, 69.) The Plaintiff filed a supplemental opposition brief (the "Supplemental Opposition," ECF Doc. # 71) and the Defendants filed a joint supplemental memorandum of law (the "Supplemental Memorandum," ECF Doc. # 72) in support of their Motions; both the Supplemental Opposition and the Supplemental Memorandum address a recent decision in Fairfield Sentry Limited v. Theodoor GGC Amsterdam (In re Fairfield Sentry Limited), Adv. Proc. No. 10-03496 (SMB), 2020 WL 7345988 (Bankr. S.D.N.Y. Dec. 14, 2020), reconsideration denied , No. 10-13164 (SMB), 2021 WL 771677 (Bankr. S.D.N.Y. Feb. 23, 2021). The Parties also filed extensive exhibits. (ECF Doc. # 79 (the "Estate Exhibits"); ECF Doc. # 94 (the "GSO Exhibits"); ECF Doc. ## 95 & 96 (the "Cyrus Exhibits").)

Shortly before the scheduled February 3 hearing, an issue arose of a potential conflict involving Plaintiff's Norwegian law expert, Egil Horstad; the hearing was adjourned to allow the Plaintiff to replace its Norwegian law expert. The Plaintiff then withdrew the Horstad Declaration and submitted the declaration of Bjørn Åge Hamre ("Hamre"). ("Hamre Decl.," ECF Doc. # 90.) The Defendants' experts then provided supplemental declarations responding to the Hamre Declaration. ("Second Ro Supplement," ECF Doc. # 92; "Aasebø Supplement," ECF Doc. # 93.)

On March 24, 2021, the Court held a hearing on the Motions (the "Hearing"). After nearly eight hours of cross examination of expert witnesses and argument by the Parties, the Court took the matter under submission.

For the reasons discussed below, the Court GRANTS the Motions in part as to Counts I, III, and V, and DISMISSES those counts.³ The Court DENIES the Motions in part as to Counts II and IV. The Court GRANTS the Plaintiff leave to amend the complaint within 21 days of the filing of this opinion.

I. BACKGROUND

This case has a substantial and complex factual and procedural history with relevant events occurring in at least four different countries and proceedings taking place before several different judges and ...