In re Cil Ltd.
| Decision Date | 09 February 2018 |
| Docket Number | Case No. 13-11272-JLG |
| Parties | In re: CIL Limited, Debtor. |
| Court | U.S. Bankruptcy Court — Southern District of New York |
NOT FOR PUBLICATION
APPEARANCES:
JOHN D. WEBB, P.A.
10751 Deerwood Park Blvd., Ste. 105
Jacksonville, FL 32256
By: Jack Webb, Esq.
FRIEDMAN KAPLAN SEILER & ADELMAN LLP
7 Times Square
New York, New York 10036
By: Scott M. Berman, Esq.
Eric Seiler, Esq.
Jeffrey C. Fourmaux, Esq.
Alexander D. Levi, Esq.
KASOWITZ, BENSON, TORRES LLP
1633 Broadway
New York, New York 10019
By: Robert Novick, Esq.
Howard W. Schub, Esq.
David S. Rosner, Esq.
Special Counsel to Chapter 7 Trustee
Salvatore LaMonica, as the court appointed chapter 7 trustee (the "Trustee") for the estate of CIL Limited, the debtor herein ("CIL" or the "Debtor"), has filed a Motion to Enforce the Automatic Stay and Award Damages for Willful Stay Violations by the Putative Class Action Plaintiff and His Counsel [ECF No. 172] (the "Motion") pursuant to sections 105 and 362 of the Bankruptcy Code. He is seeking to enjoin Michael McEvoy ("McEvoy") and his professionals from prosecuting the lawsuit (the "Class Action") he commenced by filing a complaint (the "Florida Complaint") on August 3, 2017, in the United States District Court for the Middle District of Florida against defendants Gareth Turner ("Turner"), Mark Beith ("Beith," and together with Turner, the "Directors"), and Apollo Global Management, LLC ("Apollo," with the Directors, the "Defendants"), and declaring such action void.1 The Trustee maintains that McEvoy's continued prosecution of the Class Action violates section 362(a)(3) of the Bankruptcy Code because the claims at issue in that action belong to CIL, and continued pursuit of that action will interfere with his adversary proceeding in this Court against the Directors and others (the "Adversary Proceeding").2 Turner and Beith support the Motion.3 McEvoy opposes it.4 He asserts that the claims at issue in the Class Action are not estateproperty because they are direct claims against the Defendants that belong to him and the members of the putative class of Employee Investors (defined below) that he represents.
As explained below, based upon a review of the Florida Complaint, the Court finds that the claims alleged therein are derivative claims that constitute estate property. As McEvoy is prosecuting those claims in violation of the automatic stay, the Motion is granted.
The Court has subject matter jurisdiction over the Motion pursuant to 28 U.S.C. §§ 157 and 1334 and the amended standing order of reference for bankruptcy cases and related proceedings for the United States District Court for the Southern District of New York. See Am. Standing Order of Reference, No. M10-468, 12 Misc. 00032 (S.D.N.Y. Jan. 31, 2012) (Preska, C.J.). This is a core proceeding. See 28 U.S.C. § 157(b)(2)(G).
In the spring of 2013, the Debtor was a holding company known as CEVA Logistics Limited, that was controlled by several investment funds under the control of Apollo. Its sole asset was its direct and indirect ownership of nearly 100% of the equity of CEVA Group PLC ("CEVA Group"), itself a holding company for certain operating companies comprising one of the world's largest non-asset-based freight management and supply chain logistics companies (i.e., the "CEVA Logistics" operating entities). Its creditors consisted of the holders of certain payment-in-kind notes (the "PIK Noteholders"). In March 2013, CIL acquiesced to and participated in an out-of-court restructuring and recapitalization of CEVA Group (the "CEVARestructuring"). In one step in that restructuring transaction, CIL caused CEVA Group to issue new shares of its stock (the "CEVA Equity Transfer") to a newly created Apollo affiliate called CEVA Holdings, LLC ("CEVA Holdings"). Although CIL held the same number of CEVA Group shares before and after that stock transfer, a consequence of the transfer was that CIL's interest in CEVA Group was reduced from 100% to 00.01%. The newly issued shares eventually were used to equitize a portion of CEVA Group's indebtedness, including unsecured debt held by Apollo, and at the end of that process, Apollo, which prior to the CEVA Restructuring owned (through CIL) almost 100% of CEVA Group, held a 21% ownership interest in recapitalized CEVA Group. Turner and Beith, then CIL's directors and Apollo employees, oversaw the CEVA Restructuring transaction.
CIL is a Cayman Islands exempted company. After the CEVA Equity Transfer, but before all steps in the CEVA Restructuring were completed, CEVA Logistics Limited changed its name to "CIL Limited" (i.e., the Debtor) and filed a petition commencing liquidation proceedings in the Grand Court of the Cayman Islands. Those proceedings are on-going. A few weeks later, on April 22, 2013, three PIK Noteholders filed an involuntary petition under chapter 7 of the Bankruptcy Code against CIL in this Court. On May 14, 2013, this Court (Peck, J.) entered an order for relief against CIL and, thereafter, entered an order appointing the Trustee.
On July 3, 2013, the Trustee sought and thereafter obtained leave of this Court to conduct Rule 2004 discovery.6 Thereafter, he undertook an extensive discovery process to investigate the conduct that would eventually form the basis for the Adversary Proceeding that has been pending herein since December 2014. The Directors, CEVA Group and CEVA LogisticsFinance B.V. are among the defendants named in the Trustee's complaint (the "Amended Complaint").7 Apollo is not named in the complaint, although its affiliate CEVA Holdings is, and Apollo's role in the CEVA Equity Transfer and CEVA Restructuring is alleged throughout the Amended Complaint and goes to the heart of several of the Trustee's theories of recovery.
The gravamen of the Amended Complaint is that the CEVA Restructuring was a fraudulent transaction that was orchestrated by Apollo, for its benefit and to the detriment of the PIK Noteholders, pursuant to which CIL was stripped of its only valuable asset - its equity interest in CEVA Group - for no consideration. See Am. Compl. ¶¶ 2-3. The Amended Complaint alleges various causes of action arising from the CEVA Equity Transfer. Among them are claims against the Directors for breach of fiduciary duties, including duties of loyalty and fidelity to CIL, the duty to act in the bona fide best interests of CIL, a duty to avoid situations in which the Director had an interest that conflicts or that might conflict with the Director's duties to CIL, a duty to exercise powers as a director only for the purposes for which they were conferred and not for any improper or collateral purpose, a duty to disclose personal interests in contracts and transactions involving CIL, and a duty not to misapply or cause to be misapplied any assets or property of CIL. See Am. Compl. ¶¶ 179-90, and generally en passim. The Trustee also alleges claims against CEVA Group and CEVA Holdings for aiding and abetting, and dishonestly assisting and procuring, the Directors' breaches of duties. Id. ¶¶ 191-97. Further, the Amended Complaint includes fraudulent transfer claims against CEVA Group and CEVA Holdings for carrying out and receiving the CEVA Equity Transfer. These consist of claims for actual fraud - a transfer made with actual intent to hinder, delay, or defraud under 11 U.S.C. § 548(a)(1)(A), and analogous provisions of the U.K. Insolvency Act of 1986, CaymanIslands Companies Law, and the New York Debtor and Creditor Law made applicable by 11 U.S.C. § 544(b) - in addition to claims for constructive fraudulent transfer under 11 U.S.C. § 548(a)(1)(B) and other applicable statutes. See Am. Compl. ¶¶ 133-62. Recently, this Court granted in part motions filed by the defendants to dismiss certain causes of action alleged in the Amended Complaint. See LaMonica v. CEVA Group PLC (In re CIL Limited), No. 13-11272, 2018 WL 329893 (Bankr. S.D.N.Y. Jan. 5, 2018).
The CEVA Logistics entities are the product of Apollo's 2007 acquisition and combination of TNT Logistics ("TNT"), a global logistics company based in Hoopdorf, Netherlands, and EGL, Inc. ("Eagle"), a global freight management company based in Houston, Texas. Florida Compl. ¶ 7. Beginning in 2007, certain management-level employees of TNT, and later, after the creation of CEVA Logistics, certain of their counterparts at Eagle (collectively, the "Employee Investors"),8 exercised the opportunity to purchase restricted shares of stock (the "CIL Class A Shares") in the entity that would become CIL. Id. ¶ 19. At all times relevant to the Florida Complaint, the Employee Investors held roughly 344,000 shares of CIL's Class A Shares, which represented approximately 8.6% of CIL's Class-A equity. See id. ¶ 23. McEvoy contends that Apollo induced the Employee Investors to invest in CEVA Logistics by representing to them that they "would obviously participate in the management of CEVA Logistics and that CEVA Logistics was to be operated as a 'partnership' based upon good faith, mutual trust, and confidence." Id. ¶ 21.9 They held those shares at the time of the CEVARestructuring. The Employee Investors acknowledge that the value of their investment in CIL is derived from the value of CIL's ownership interest in the CEVA Group equity. Id. ¶ 55. They maintain that the CEVA Restructuring, generally, and the CEVA Equity Transfer, in particular, destroyed the value of their interests in the CIL Class A Shares, because through that transfer, "CIL agreed to allow CEVA Holdings to obtain all the equity in CEVA Global in exchange for no consideration." Id. ¶ 37. See also id. ¶ 15 (...
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