In re Int'l Oil Trading Co.

• Decision Date: 08 February 2016
• Docket Number: CASE NO.: 15–21596–EPK
• Citation: 545 B.R. 336
• Parties: In re: International Oil Trading Company, LLC, Alleged Debtor.
• Court: U.S. Bankruptcy Court — Southern District of Florida

545 B.R. 336

In re: International Oil Trading Company, LLC, Alleged Debtor.

CASE NO.: 15–21596–EPK

United States Bankruptcy Court, S.D. Florida, West Palm Beach Division .

Signed February 8, 2016

Ryan K. Higgins, Houston, TX, David L. Rosendorf, Esq., Coral Gables, FL, Charles W. Throckmorton, Esq., Miami, FL, for Alleged Debtor.

Gregory S. Grossman, Astigarraga Davis Mullins & Grossman, PA, Miami, FL, for Creditor.

ORDER GRANTING MOTION FOR SUMMARY JUDGMENT

Erik P. Kimball

, Judge, United States Bankruptcy Court

THIS MATTER came before the Court upon Mr. Al–Saleh's Motion for Summary Judgment as to Involuntary Petition [ECF No. 54] (the "Motion for Summary Judgment") filed by petitioning creditor Mohammad Al–Saleh, the Alleged Debtor's Memorandum in Opposition to Mr. Al–Saleh's Motion for Summary Judgment as to Involuntary Petition [ECF No. 116] (the "Response") filed by International Oil Trading Company, LLC ("IOTC USA"), and Mr. Al–Saleh's Reply to IOTC's Response [ECF No. 118] (the "Reply"). The Court has considered the Motion for Summary Judgment, the Response, the Reply, and the record in the above-captioned bankruptcy proceeding, and grants the Motion for Summary Judgment [ECF No. 54] in full for the reasons stated herein.

I. Background

The following facts are not in dispute.

The Parties

Mr. Al–Saleh is a citizen of The Hashemite Kingdom of Jordan. He resides in Amman, Jordan.

IOTC USA is a Florida limited liability company founded by Harry Sargeant, III and Mustafa Abu–Naba'a in 2005. Mr. Sargeant is an American citizen who resides in Florida. Mr. Abu–Naba'a is a resident of the Dominican Republic. The sole member of IOTC USA is International Oil Trading Company, Ltd. ("IOTC Bahamas"), formerly known as International Oil Trading Company FZCO ("IOTC Dubai"). As a result of their ownership in IOTC Bahamas and other entities, Mr. Sargeant and Mr. Abu–Naba'a have controlled IOTC USA at all relevant times.¹ Pl. Exh. 55 at 14 (deposition transcript of Kevin Kirkeide, IOTC USA Chief Financial Officer).²

Mr. Al–Saleh has never had an ownership interest in IOTC USA. Pl. Exh. 51 (admission of IOTC USA). For reasons described below, Mr. Al–Saleh has stated that he considers himself a "partner" in certain activities conducted by IOTC USA. Def. Exh. 11 at 124–130 (Mr. Al–Saleh deposition).^{3 ,4}

The Military Contracts

Mr. Sargeant and Mr. Abu–Naba'a have known each other since the 1970s and have conducted business together for several decades. In 2003, they became interested in transporting fuel through Jordan to Iraq on behalf of the United States government. The work entailed taking delivery of shipments at the port of Aqaba, Jordan, transferring the fuel to trucks, and transporting the product many hundreds of miles through dangerous territory to Baghdad, Iraq. The work would be conducted via contracts (the "Military Contracts") with a branch of the United States Department of Defense that became known as the Defense Logistics Agency (the "DLA").

Mr. Sargeant and Mr. Abu–Naba'a created a Jordanian company to undertake the project and obtain the contracts. They called the company International Oil Trade Center ("IOTC Jordan"), and each took a 50% stake.

In order to successfully bid for the Military Contracts, IOTC Jordan needed to provide assurance of permission from the Jordanian government to transport the fuel across its territory. IOTC Jordan recruited Mr. Al–Saleh to obtain the required permissions. In exchange for Mr. Al–Saleh's services, Mr. Sargeant and Mr. Abu–Naba'a gave Mr. Al–Saleh a one-third ownership stake in IOTC Jordan. Through this transaction, Mr. Sargeant and Mr. Abu–Naba'a caused Mr. Al–Saleh to believe that Mr. Al–Saleh obtained a one–third stake in the entire enterprise contemplated by Mr. Sargeant and Mr. Abu–Naba'a. See Pl. Exhs. 8–28 (transcript of jury trial resulting in finding of fraud by IOTC USA, Mr. Sargeant, and Mr. Abu–Naba'a, and judgment in favor of Mr. Al Saleh in amount of $28.8 million).

Mr. Al–Saleh's understanding proved incorrect. IOTC Jordan was in fact only one of many entities controlled in whole or in part by Mr. Sargeant that participated in the Military Contracts. Beginning at least in 2005 with the founding of IOTC USA, Mr. Sargeant and Mr. Abu–Naba'a ensured that the Military Contracts were not awarded to IOTC Jordan. Instead, IOTC USA took the contracts and, with Mr. Sargeant and Mr. Abu–Naba'a, diverted a substantial portion of the profits away from Mr. Al–Saleh. See id. Mr. Sargeant and Mr. Abu–Naba'a nevertheless involved Mr. Al–Saleh in the performance of the Military Contracts by arranging for IOTC Bahamas (then IOTC Dubai) to enter into an agreement with IOTC Jordan whereby IOTC Jordan would actually perform the fuel transport services in exchange for payment of expenses. Def. Exh. 10 (the "Service Agreement").

From 2003 to roughly 2010, the IOTC entities entered into contracts with the DLA. The Military Contracts required the entities to transport fuel on a requirements basis through Jordan to Iraq. To finance the massive undertaking, IOTC USA arranged a credit facility with ABN Amro Bank ("ABN"). To secure the financing, ABN obtained an assignment of all rights to proceeds under certain contracts. ABN duly perfected that security interest. Mr. Al–Saleh is not a signatory on the ABN credit facility. Pl. Exh. 51.

Florida Action Complaint and Pre–Trial Motion

In 2008, Mr. Al–Saleh sued IOTC USA, Mr. Sargeant, and Mr. Abu–Naba'a (collectively, the "Defendants") in Palm Beach County, Florida. Case No. 50–2008–CA–010187–XXXX–MB–AJ (the "Florida Action");⁵ Def. Exh. 1. In the complaint, Mr. Al–Saleh alleged that the Defendants had intentionally defrauded him by creating IOTC USA and funneling the Military Contracts into that entity, cutting Mr. Al–Saleh out of the business. Def. Exh. 1.

The parties conducted discovery and disputed jurisdictional issues for over two years. Pl. Exh. 2 at 2 (the "Motion to Amend"). Finally, in November 2010, Mr. Al–Saleh filed a notice of trial readiness, and the Florida court set the matter for trial to be held in July, 2011. Id.

The Defendants rushed to complete discovery to prepare for trial. Id. at 2–3. Finally, in May 2011, the Defendants filed the Motion to Amend, asking the Florida court to vacate the order setting trial, permit the Defendants to amend their affirmative defenses and interpose a counterclaim, and allow intervention by a third party, IOTC Bahamas. Id.

In the Motion to Amend, the Defendants sought to add 23 affirmative defenses. Id. at 11, sub-Exh. A. In addition, the Defendants sought to add a counterclaim to their initial response to the complaint. Pl. Exh. 2 at 11, sub-Exh. B. The counterclaim would also serve as a complaint, with intervening party IOTC Bahamas as plaintiff. Id. The proposed affirmative defenses were substantially similar to the proposed counterclaim and complaint. The Defendants and IOTC Bahamas asserted three claims that they now attempt to re-assert as recoupment claims against Mr. Al–Saleh in the above–captioned involuntary bankruptcy proceeding.

First, the Defendants alleged that Mr. Al–Saleh engaged in "theft and/or diversion and/or misappropriation of funds earmarked for the payment of services provided by the National Resource Development Company (the "NRDC") to IOTC Jordan." Pl. Exh 2, sub-Exh. A at 3, paras. 13, 14. The Defendants asserted that Mr. Al–Saleh unlawfully retained $3 million that he was supposed to deliver to NRDC for payment of fees owed to a third party. Pl. Exh. 2 at 5. The Defendants and IOTC Bahamas also raised this NRDC-related claim in various counts of their proposed counterclaim and complaint. Pl. Exh. 2, sub-Exh. B.

Second, the Defendants alleged that Mr. Al–Saleh "engaged in business ventures with non-party, IOTC Jordan's competition." Pl. Exh 2, sub-Exh. A at 3, paras. 13, 14. The Defendants later identified two competing parties, Supreme Fuels Trading FZE ("Supreme Fuels") and Al–Jasem. Pl. Exh. 2 at 4–5. The Defendants specifically alleged that Mr. Al–Saleh colluded with Supreme Fuels and Al–Jasem in direct competition with the IOTC entities for several of the Military Contracts (the "Competition Claim"). Id. In addition, the Defendants alleged that Mr. Al–Saleh improperly assisted Supreme Fuels in the filing of a bad faith lawsuit.⁶ Id. The Defendants and IOTC Bahamas also raised the Competition Claim in various counts of their proposed counterclaim and complaint. Pl. Exh. 2, sub-Exh. B.

Third, the Defendants alleged that Mr. Al–Saleh "hindered IOTC Jordan's performance of its own obligations under agreements it was a party to." Pl. Exh 2, sub-Exh. A at 3, paras. 13, 14. The Defendants identified those agreements as subcontracts with Supertrucker, a Jordanian trucking operation that performed transportation work under the Military Contracts. Pl. Exh. 2 at 5. The Defendants asserted that Mr. Al–Saleh deliberately inflated the subcontract price for Supertrucker in exchange for a secret commission or kickback (the "Supertrucker Claim"). Id. The Defendants and IOTC Bahamas also raised the Supertrucker Claim in various counts of their proposed counterclaim and complaint. Pl. Exh. 2, sub-Exh. B.

The Florida court heard the Motion to Amend on June 9, 2011. Pl. Exh. 5. With regard to the newly proposed affirmative defenses, the court denied the motion "without prejudice". The Florida court specifically stated "that by agreement from plaintiff's counsel the defenses can be introduced at trial as to all the proposed new affirmative defenses, and if procedurally the defendant believes it is necessary and seek to leave to amend during trial the affirmative defenses to conform with the evidence, as any party can do, that the court will entertain that motion." Id. at 136 (hearing transcript, p. 25). Thus, while not permitting formal amendment to the answer prior to trial, the Florida court specifically permitted presentation of all of the proposed new affirmative defenses at trial with the...