In re Coudert Bros. LLP
| Decision Date | 19 August 2013 |
| Docket Number | Case No. 06-12226 (RDD) |
| Parties | In re: Coudert Brothers LLP, Debtor. |
| Court | U.S. Bankruptcy Court — Southern District of New York |
Appearances:
STERN TANNENBAUM & BELL LLP, by David S. Tannenbaum and Karen S. Frieman for Development Specialists, Inc.
HUGHES HUBBARD & REED LLP by Edward J.M. Little and Lisa A. Cahill for Statek Corporation.
MEMORANDUM OF DECISION ON REMAND ON STATEK'S
Statek Corporation ("Statek") filed a proof of claim in this case, Claim 239 (the "Claim"), to which the debtor, Coudert Brothers LLP ("Coudert") obejected.1 After briefing and a hearing, this Court issued an order on July 21, 2009 disallowing the Claim (the "Claim Disallowance Order"), holding that New York's choice of law rules and New York's borrowing statute, NY CPLR § 202, barred the Claim under New York's statute of limitations. The Court also concluded that, even if federal or English law governed, as Statek had argued, the Claim was time barred.
Statek moved for reconsideration of the Claim Disallowance Order under 11 U.S.C. § 502(j), and, applying the standard under Fed. R. Civ. P. 59,2 the Court denied that motion in an order dated September 8, 2009 (the "Reconsideration Order"). In its reconsideration motion, Statek argued that this Court, as the "transferee court" of Statek's prepetition action against Coudert, should follow the law of the "transferor court," Connecticut, including Connecticut's choice of law and timeliness rules, citing Van Dusen v. Barrack, 376 U.S. 612 (1964), and, in its reply brief, Ferens v. John Deere Co., 494 U.S. 516 (1990). Statek had not previously made this argument in its response to the Plan Administrator's claim objection; Statek's reconsideration motion was the first time Statek contended that Connecticut's choice of law rules should apply. Previously, the parties had argued that New York, California, federal, or English law should govern the issue of the timeliness of the Claim. As Statek acknowledged in its reply brief on the reconsideration motion, Statek Reply 4, Aug. 20, 2009.
The Court denied Statek's reconsideration motion on two grounds: first, because Statek had not raised the argument upon which the motion was based before the Court issued the Claim Disallowance Order from which Statek now sought relief, In re Coudert Bros. LLP, 2009 Bankr. LEXIS 2602, at *8-*9 (Bankr. S.D.N.Y. Sept. 8, 2009), and, alternatively, because the Courtconcluded that it was not the "transferee" court of Statek's prepetition Connecticut tort action but, instead, was determining the Claim that Statek had filed in this case, which required application of New York's choice of law rules and borrowing statute under Bianco v. Erkins (In re Gaston & Snow), 243 F.3d 599 (2d Cir. 2001), cert. denied, 534 U.S. 1042 (2001). In re Coudert Bros. LLP, 2009 Bankr. LEXIS 2602 at *10-*13.
Statek appealed the Claim Disallowance Order and the Reconsideration Order to the District Court, which affirmed both orders in one ruling. In re Coudert Bros. LLP, 2010 U.S. Dist. LEXIS 58467, at *10 (S.D.N.Y. June 11, 2010). The District Court did not, however, address this Court's first alternative basis for the Reconsideration Order, that it was improper to premise a motion to be decided under the Rule 59 standard on a new argument that could have been made before the Court issued the original order. Instead, it affirmed on the basis of this Court's choice of law analysis. Id. at *5-*10. Indeed, Statek does not appear to have addressed the first basis for the Reconsideration Order in its appeal.
On appeal, the Second Circuit found that Statek's appeal of the Claim Disallowance Order was untimely, depriving it and the District Court of appellate jurisdiction, and, therefore, remanded to the District Court with instructions to dismiss. Statek Corp. v. Dev. Specialists, Inc. (In re Coudert Bros. LLP), 673 F.3d 180, 185-86, 191 (2d Cir. 2012). With regard to the Reconsideration Order, the Second Circuit concluded that this Court and the District Court "should not have applied the choice of law rules of New York, the state in which it sits, but instead the choice of law rules of Connecticut, where Statek filed its pre-bankruptcy action seeking damages that later constituted its claim against the bankruptcy estate." Id. at 182 (citing Van Dusen, 376 U.S. at 638; Ferens, 494 U.S. at 524).
Thust the Second Circuit reversed that portion of the District Court's order affirming this Court's Reconsideration Order and remanded the case to the District Court "with instructions to REMAND IN PART to the bankruptcy court with instructions to apply Connecticut's choice of law rules in deciding Statek's motion for reconsideration." Id. at 191. On August 4, 2012, District Judge Hellerstein entered an order consistent with the Second Circuit's ruling, in relevant part remanding Statek's reconsideration motion to this Court with instructions to apply Connecticut's choice of law rules in deciding the motion. Case 09 Civ. 9561, Dkt. No. 25.
This Court held a non-evidentiary hearing on the remand, after briefing, and requested supplemental briefs, which the parties submitted. Having reviewed the Second Circuit's opinion and remand, the District Court's remand, the parties' briefs, including those filed in the District Court and the Second Circuit, and also having listened to the recording of the parties' oral argument before the Second Circuit, the Court concludes that (a) Statek never raised on appeal to either the District Court or the Second Circuit that portion of the Reconsideration Order denying Statek's motion on the basis that its new argument could have been, but was not, raised before the Court entered the Claim Disallowance Order, and (b) the Second Circuit did not explicitly or implicitly decide that alternative ground for the Reconsideration Order. Having applied Connecticut's choice of law rules as required by the remand, the Court therefore continues to conclude that Statek's reconsideration motion should be denied. To do otherwise would negate well established precedent strictly construing reconsideration motions to prohibit a litigant from raising new legal theories that it could have raised but did not until after it lost on its original theories.
Statek's amended complaint, upon which the Claim against Coudert is based, states that, having obtained a favorable decision on January 5, 1996 from the Delaware Court of Chancery determining that Hans Frederick Johnston ("Johnston") and Sandra Spillane ("Spillane") were not lawful directors of Statek's parent, Technicorp International II, Inc. ("TCI II"), and had concealed payments to themselves of almost $6 million in undocumented and interest free loans between 1984 and 1992, TCI II caused Johnston and Spillane to be removed as directors and officers of Statek. Amended Complaint ¶¶ 11-13. Then, on June 26, 1996, Statek and TCI II commenced an action against Johnston, Spillane and entities controlled by them for fraud, breach of fiduciary duty and corporate waste, id. ¶ 14; and on May 31, 2000 the Delaware Chancery Court issued an opinion in that action finding that Johnston and Spillane had wrongfully diverted $10,501,329 from TCI II and $19,812,942 from Statek, which was implemented in a joint and several judgment dated September 7, 2000 against Johnston and Spillane in the aggregate amount of $30,314, 271. Id. ¶¶ 18, 23.
Statek's sole claim against Coudert, for breach of professional and fiduciary duties, id. ¶ ¶ 60-62, is premised on Coudert's failure to provide Statek with complete files and an accounting arising out of services Coudert rendered to Statek or to Johnston and Spillane that were billed to Statek. More specifically, Statek asserts that on July 12, 1996 it requested information from Coudert, including "a complete copy of the files arising out of and relating to the services Coudert had rendered." Id. ¶¶ 27, 28.3 Coudert provided some information and files in response, id. ¶ 29, but, although "Coudert confirmed that it had no other Statek Files or information about other Statek services it had rendered," id. ¶ 30, Coudert failed to provide additional Statek Files and information about other services that it had rendered related to Statek, id. ¶¶ 31, 32, and didnot account to Statek for all Statek's funds that it had disbursed out of a London account. Id. ¶ 37. The amended complaint does not say when Statek learned of this failure, but it states that as a result of investigations between 2002 and 2004 by the trustee appointed in Johnston's English bankruptcy case under the United Kingdom's Insolvency Act of 1986, the trustee learned that Coudert had additional files and other information related to Statek. Id. ¶¶ 38-56. Statek also asserts that Coudert continues to fail to provide Statek with all of the Statek Files and other Statek-related information and fails to account for Statek's funds that it disbursed from its accounts. Id. ¶ 61.
The amended complaint states that Coudert's incomplete responses to the information demands hindered, delayed and frustrated Statek's ability to discover and recover misappropriated Statek assets from Johnston, Spillane and others and deprived it of capital that it could have used profitably, giving rise to the Claim of approximately $85,000,000, id. ¶¶ 5, 62-63, a figure that Statek reconfirmed in footnote 2 in its Memorandum of Law in reply to Coudert's objection to its Claim.
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