In re Lee

Decision Date04 June 2012
Docket NumberCase No. 09-21367-JNF,Case No. 09-21377-JNF
PartiesIn re RAYMOND CHO-MIN LEE and PRISCILLA HWANG LEE, Debtors in Foreign Proceedings
CourtU.S. Bankruptcy Court — District of Massachusetts

Chapter 15

(Jointly Administered)

MEMORANDUM
I. INTRODUCTION

The matter before the Court is the "Motion for an Order Pursuant to 11 U.S.C. §§ 1521(a)(5) and 1521(b) Directing the Turnover of All Assets of the Debtors Located in the United States to the Foreign Representatives" (the "Turnover Motion") filed by John Robert Lees ("Mr. Lees") and Mat Ng (collectively, the "Foreign Representatives"). Raymond Cho-Min Lee ("Raymond Lee") and Priscilla Hwang Lee ("Priscilla Lee") (jointly, the "Foreign Debtors") filed an Objection to the Turnover Motion. Additionally, Oasis Development Enterprises, Inc. ("ODE") and East-West Enterprises Co., Ltd. ("EWE"), and their affiliates (collectively, the "US Companies") filed an Opposition to the Turnover Motion. The Court conducted a trial with respect to the Turnover Motion on February 6, 2012. Prior to the commencement of the trial, the parties narrowed the disputed issuesabout the turnover of assets sought by the Foreign Representatives. The only remaining dispute among the parties concerns whether the Foreign Representatives are entitled to the turnover of the Foreign Debtors' equity interests in the US Companies.

At the trial, two witnesses, Mr. Lees and Jodie S. Garzon ("Ms. Garzon"), Senior Vice President of Finance and Controller of Oasis Consulting, Inc. ("OCI"), testified and 43 exhibits were admitted into evidence. At the conclusion of the trial, the Court directed the parties to file supplemental briefs.

The salient legal issues presented are 1) whether the Foreign Representatives are entitled to the turnover of the Foreign Debtors' equity interests in the US Companies; and 2) whether "the interests of the creditors and other interested entities, including the debtor," will be "sufficiently protected," if the Turnover Motion is granted and economic control of the Foreign Debtors' equity interests passes to the Foreign Representatives and, if not, whether the Turnover Motion should be denied. See 11 U.S.C. § 1522(a). Subsidiary issues, which are unresolved by existing case law, include who has, and what is, the burden of proof relative to whether the interests of the creditors and other interested entities, including the debtor, are sufficiently protected under applicable provisions of Chapter 15 of the Bankruptcy Code.

Most of the material facts necessary to decide the issues are not in contention. Rather, the ramifications of the "turnover" of the Foreign Debtors' equity interests to the Foreign Representatives are vigorously contested, although neither the Foreign Debtors nor the US Companies disagree that the Foreign Representatives have "stepped into the shoes"of the Foreign Debtors with respect to their equity interests in the US Companies pursuant to Hong Kong law. In short, the Foreign Debtors and the US Companies maintain that allowance of the Turnover Motion will trigger defaults under various mortgages encumbering properties owned by entities in which the Foreign Debtors have direct or indirect equity interests and expose Raymond Lee to huge potential liabilities with respect to guaranties he executed in conjunction with financing of properties owned directly or indirectly by ODE and EWE. In addition, they maintain that rights of first refusal and other transfer restrictions in the articles of organization or operating agreements of companies in which the Foreign Debtors have equity interests will render "turnover" a problematic and fruitless endeavor.

II. FACTS
A. The Turnover Motion

Through their Turnover Motion, the Foreign Representatives seek an order pursuant to 11 U.S.C. §§ 1521(a)(5) and 1521(b) directing the turnover of all assets of the Foreign Debtors located in the United States. As noted above, the parties resolved their disputes as to the assets of the Foreign Debtors in the United States except for the equity interests in the US Companies. With respect to the equity interests, the Foreign Representatives stated the following in their Turnover Motion:

Given the current real estate market, it is likely that the Equity Interests have limited liquidation value at this time. The Foreign Representatives intend to evaluate the Equity Interests to determine whether holding the Equity Interests in trust for the benefit of creditors (in the hope that the market will rebound) or conducting a public sale pursuant to section 363 of theBankruptcy Code, would maximize value to the Foreign Debtors' estates. Akin to a Chapter 7 Trustee, the Foreign Debtors [sic] can "step into the shoes" of the Debtors with respect to the ownership of the Equity Interests. . . .The Foreign Debtors [sic] acknowledge that any action they take with respect to the sale or liquidation of the Equity Interests must comply with the applicable provisions of any stockholder agreement governing the Equity Interests and US law.
B. Background

On November 24, 2009, the Foreign Representatives filed a "Verified Petition Seeking Entry of Order Recognizing Foreign Main Proceeding Pursuant to 11 U.S.C. §§ 1515 and 1517 and Relief Pursuant to 11 U.S.C. §§ 1520 and 1521" of the Bankruptcy Code against the Foreign Debtors. At the time the Foreign Representatives filed their petitions, the Foreign Debtors had been adjudged bankrupts on August 31, 2009 following the filing of petitions in the High Court of the Hong Kong Special Administrative Region Court of First Instance on April 28, 2009 and May 27, 2009. The Hong Kong petitions were filed by Value Partners Strategic Equity Fund ("Value Partners") and Winchesto Finance Company Limited ("Winchesto"), entities to whom the Foreign Debtors owed substantial sums relating to the failure of Oasis Hong Kong Airlines Limited, a low-cost, long-haul airline founded by the Foreign Debtors in 2005. The liquidated debt of the Foreign Debtors in the Hong Kong proceedings is approximately $33 million, excluding significant contingent debt owed to the Bank of China.

At the time they were adjudged bankrupts in Hong Kong, the Foreign Debtors held significant property interests in the United States. For purposes of the present dispute, the Debtors have direct and indirect ownership interests in over 20 properties through theirownership interests in tiers of corporations, limited liability companies, and single-asset, special purpose entities. The Debtors' ownership interests are undisputed.1

The top tier entities in which the Foreign Debtors have interests are OCI, ODE and EWE. In summary,2 ODE is a Massachusetts real estate investment and management corporation, headquartered in Lynn, Massachusetts. It is the controlling entity of a group of real estate investment companies known as the Oasis Group, comprised of 16 properties. Raymond Lee is its Chairman, President, and Chief Executive Officer. Priscilla Lee is its Co-President and co-Chief Executive Officer.

OCI also is a Massachusetts corporation. It provides employees and human resources, accounting, and other services to ODE, which has no employees of its own. OCI employs 10 people, most of whom work in its offices in Lynn, Massachusetts. Raymond Lee is OCI's President, and both Foreign Debtors serve as directors.

The Foreign Debtors collectively own 71.4% of the shares of ODE, as well as 71.4% of the shares of OCI. Raymond Lee owns 38.1% of each company; Priscilla Lee owns 33.3%.

As noted above, the Oasis Group's portfolio currently is comprised of 16 commercial properties with more than 1,475,000 square feet of space leased to over 80 tenants. All of the properties except one are located in Massachusetts. The non-Massachusetts property is located in Las Vegas, Nevada. Specifically, Oasis Ten Milk Street Associates, Inc. owns Oasis Ten Milk Street LLC, which, in turn, owns a Class B office building located at 10 Milk Street, Boston, Massachusetts. The Foreign Debtors own 40.48% of Oasis Ten Milk Street LLC and EWE owns 27.932%. Raymond Lee is President of both Oasis Ten Milk Street Associates, Inc. and Oasis Ten Milk Street, LLC.

The Foreign Debtors also own 45.25% of ODE Asia, LLC (EWE owns 32.71%), which, in turn, owns 100% of Oasis Net Leased Holdings LLC. Oasis Net Leased Holdings LLC is a limited liability company, which holds the membership interests of 11 single-asset, special purpose entities comprising the so-called Net Leased Portfolio. Each of the special purpose entities, whose membership interests are held by Oasis Net Leased Holdings LLC, are owned in part by other individual investors. In total, over 30 individual and institutional investors have invested in one or more of the Oasis Group companies.

EWE directly owns five commercial real estate properties in Massachusetts with more than 150,000 square feet leased to over 60 tenants. Raymond Lee is the Chairman and President of EWE. He, his brother David C. Lee, and his sister Karen C. Lee, each own one third of EWE. EWE owns 99% of Oasis Northwoods, LLC, which is the record owner of a property located at 222 Rosewood Drive, Danvers, Massachusetts. That entity is in receivership.

Two other properties, which are, or were, part of the Oasis Group, are implicated in the Turnover Motion by reason of guaranty agreements executed by Raymond Lee, which will be discussed in more detail below, namely 700 Longwater Drive, Norwell, Massachusetts and 50 Dunham Road, Beverly, Massachusetts. The property located at 700 Longwater Drive is owned by Oasis 700 Longwater LLC, and was obtained with financing from Column Financial, Inc., and the property located at 50 Dunham Road was owned by Fifty Dunham Road LLC. According to Nancy B. Adams ("Ms. Adams"), the principal of Broadwater Financial, in an Affidavit which was accepted into evidence:

In December 2011, Fifty Dunham Road, LLC, which is managed by Oasis Development Enterprises, Inc., sold the real
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