In re Birting Fisheries, Inc.

• Decision Date: 03 October 2003
• Docket Number: Bankruptcy No. 93-09932.,Adversary No. 03-01137.,BAP No. WW-03-1231-MACRY.
• Citation: 300 B.R. 489
• Parties: In re BIRTING FISHERIES, INC., Debtor. Odd-Bjorn Huse, Appellant, v. Huse-Sporsem, A.S., Appellee.
• Court: U.S. Bankruptcy Appellate Panel, Ninth Circuit

300 B.R. 489

In re BIRTING FISHERIES, INC., DebtorOdd-Bjorn Huse, Appellant, v.Huse-Sporsem, A.S., Appellee.

BAP No. WW-03-1231-MACRY.

Bankruptcy No. 93-09932.

Adversary No. 03-01137.

United States Bankruptcy Appellate Panel of the Ninth Circuit.

Argued and Submitted July 25, 2003.

Filed October 3, 2003.

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Michael A. Gossler, Montgomery, Purdue, Blankenship & Austin, Seattle, WA, for Odd Bjorn Huse.

John S. Kaplan, Perkins Coie, Seattle, WA, for Huse-Sporsem, A.S.

Before: MARLAR, CARROLL,¹ and RYAN, Bankruptcy Judges.

OPINION

MARLAR, Bankruptcy Judge.

INTRODUCTION

This appeal examines the bankruptcy court's exclusive jurisdiction to collaterally attack a state court's domestication order of a foreign judgment.The appellant filed a complaint in bankruptcy court to enjoin enforcement of the order, and renewed his state court defense that the foreign judgment conflicted with, or was precluded by, the confirmed chapter 11 plan and the Code.²

We conclude that the bankruptcy court had exclusive jurisdiction to determine whether the foreign judgment conflicted with bankruptcy law or bankruptcy court orders.In the absence of a conflict, we AFFIRM the bankruptcy court's summary judgment and dismissal of the complaint.

FACTS

Birting Fisheries, Inc.("BFI"), a Washington commercial fishing corporation, filed a chapter 11 bankruptcy petition in 1993.At that time, its owners were Huse-Sporsem, A.S. ("Huse-Sporsem"), a Norwegian corporation (75%), and Bjorn Nymark("Nymark")(25%).

Four individuals owned equal one-fourth shares of Huse-Sporsem, including Odd-Bjorn Huse("Huse"), the appellant herein, Nymark, Paul K. Huse, and Frank Sporsem.Huse was also BFI's vice president and manager, as well as a creditor.The sole director of Huse-Sporsem was Unni Waagsholm("Waagsholm").

BFI's major secured lender was Christiania Bank og Kreditkassen ("CBK").At the time of its bankruptcy filing, BFI owed CBK more than $25 million.CBK also financed Huse-Sporsem, which had pledged virtually all of its assets to CBK, except that its shares in BFI were later exempted from the collateral.

Waagsholm was not consulted concerning BFI's plan negotiations.Instead, an extraordinary general shareholders' meeting was held during February 1994 to discuss the infusion of new equity in order to "cram down" CBK.Frank Sporsem did not attend, but sent a letter stating that "our duty is to do everything to ensure that [Huse-Sporsem] remains the owner of BFI ...."Norwegian Judgment³at 18.Paul Huse, Huse, and Nymark signed the minutes, whereby it was resolved that Huse-Sporsem did not have enough funds to contribute new equity, but that the shareholders had preferential rights in the event of the infusion of new capital.The Plan and Disclosure Statement, filed in May 1994, indicated that the individual shareholders would contribute a total of $250,000 for their participation rights in the reorganized debtor.However, that amount was insufficient to satisfy CBK and the plan was not confirmed.

In June, the amount of new value was increased to $1 million in the First Amended Plan and First Amended Disclosure Statement.Frank Sporsem decided he could not make the new value payment and instead agreed to take a cash payment in exchange for his release of his interest in BFI.He signed an agreement to that effect in August 1994.

Around the same time, in June 1994, BFI, Huse-Sporsem, and others initiated lender liability claims against CBK seeking $25 million in damages.In August, the parties reached a global settlement ("Settlement").Briefly, CBK agreed to restructure BFI's debt in order to facilitate repayment, to write off all of Huse-Sporsem's obligations to CBK-a value in excess of $10 million, and to release any claims against BFI and the individual shareholders of Huse-Sporsem.In return, the lender liability claims were released.

The parties also agreed to a restructuring of BFI's ownership, whereby the BFI shareholders would transfer their stock to a new general partnership to be known as Bochica Partners("Bochica").Bochica's ownership consisted of Nymark, Paul Huse, Huse, and Mark Steel.The Settlement was signed by the four shareholders of Huse-Sporsem, including Frank Sporsem.

In the latter part of August 1994, BFI then filed a Second Amended Plan ("Plan") and Second Amended Disclosure Statement.The Plan incorporated the substance of the Settlement concerning the transfer of ownership to the new general partnership.However, unlike the previous plans, this Plan did not require any infusion of new value.The Plan expressly retained bankruptcy court jurisdiction to interpret and enforce it.

The Plan was confirmed on September 30, 1994("Confirmation Order"), and the stock was transferred.Huse, for no "new value" consideration, now owned nearly 30% of the reorganized debtor.

The 1995 fishing season was prosperous.CBK accepted an early loan payoff and wrote off almost $8 million in BFI's debt.This good fortune resulted in $10 million equity for BFI.In January 1996, Norway Seafoods, AS, an unrelated company, purchased BFI for $9.35 million.Huse and Nymark personally received a total $3 million consideration/debt cancellation.

In 1996, Frank Sporsem learned about the sale and large profit, and launched an investigation.In 1997, the Plan was substantially consummated and a final decree was entered.

Norwegian Judgment

In 1998, Frank Sporsem initiated a shareholder derivative suit under the Norwegian Companies Act ("Companies Act") against Huse and others in Norway.At the same time, Huse-Sporsem was being liquidated in Norway.The suit, on behalf of Huse-Sporsem, alleged that Huse had violated Section 15-1 of the Companies Act,⁴ and sought damages for their loss of the BFI shares when they were transferred to Bochica for no consideration.

Huse fully litigated the merits of the action and raised, as a defense, the res judicata effect of the confirmed Plan.The Norwegian court ultimately entered judgment against Huse for breach of fiduciary duty and fraud, and ordered him to pay Huse-Sporsem $9 million in compensation.

Huse appealed the decision, and the Norwegian Court of Appeal proceedings took place between April and May 2001.The parties appeared and presented evidence: the Court of Appeal examined six witnesses and several new documents.

In August 2001, the Court of Appeal affirmed the judgment of compensation to Huse-Sporsem for the loss of its shares in BFI, but reduced the damages to $6.7 million.The damages were calculated using the value of Huse-Sporsem's 75 percent interest in BFI when the stock was transferred, which the Court of Appeal valued at $9 million.SeeNorwegian Judgmentat 23.

The Norwegian Judgment was memorialized in a careful and articulate 30-page decision, in which the Court of Appeal considered Huse's federal bankruptcy law arguments.The Court of Appeal found that the purported new value demand from CBK was "more likely ... invented as part of [BFI's] strategy from the outset ... to sever the ties between [Huse-Sporsem] and [BFI]."Id. at 21.It found that Huse did not inform Waagsholm about the ongoing negotiations and developments.It concluded that Huse violated his duty to act in the interests of Huse-Sporsem and his co-shareholders and was therefore liable under the Companies Act.

Concerning the transfer of ownership to Bochica and the Confirmation Order, the Court of Appeal stated:

It has been submitted by [Huse] that the question of new ownership was decided with legal and binding force through the Bankruptcy Court's order for a release from "Chapter 11."As regards this issue, the Court of Appeal is in doubt, but does nevertheless not find this to be decisive.The subject matter of the action is in reality whether [Huse] — as a shareholder of [Huse-Sporsem] and given his position with BFI-has acted in a manner entailing liability for damages partly through his contribution to inventing an unnecessary precondition for new ownership of the [BFI] shares, partly by leading [Huse-Sporsem] — represented by the sole director and one co-shareholder (Mr. Sporsem) — up the garden path as regards the dropping of the capital requirement, after which the [BFI] shares ultimately landed in new hands.In the Court's opinion, this issue must be considered under the liability rules of the Norwegian Companies Act.

Norwegian Judgmentat 21.

Huse's Opposition to Enforcement

In September 2002, Huse-Sporsem registered the Norwegian Judgment in Washington state court and initiated an action for recognition and enforcement, pursuant to Washington's Uniform Foreign Money-Judgments Recognition Act ("UFMJRA").SeeWash. Rev.Code Ann. §§ 6.40.010 to 6.40.915(West 1995).Huse opposed the action, arguing that the Norwegian Judgment conflicted with the confirmed Plan and was barred by res judicata.

After hearing argument, the state court determined that the Norwegian Judgment was outside the scope of the Confirmation Order.In January 2003, the state court denied Huse's motion and enforced the Norwegian Judgment.Huse's appeal of that order was pending when he finally sought relief in the bankruptcy court.In March 2003, Huse filed, in bankruptcy court, a motion to enjoin enforcement of the Norwegian Judgment and for declaratory relief; it was converted by the court into an adversary proceeding.Huse sought (1) a declaratory judgment that the Norwegian Judgment was barred by specific Plan and Code provisions, and (2) injunctive relief to prohibit enforcement of the Norwegian Judgment in state court.

Huse-Sporsem opposed the relief and moved to dismiss.It argued that the state court order recognizing and enforcing the Norwegian Judgment was res judicata.Furthermore, it maintained that the Plan did not release nondebtor liability.

The court deemed Huse's pleading to be both a complaint and a motion for summary...