In re Miami Metals I, Inc.

• Decision Date: 15 October 2021
• Docket Number: Case No. 18-13359 (SHL) (Jointly Administered)
• Citation: 634 B.R. 249
• Parties: IN RE: MIAMI METALS I, INC., et al., Liquidated Debtors.
• Court: U.S. Bankruptcy Court — Southern District of New York

634 B.R. 249

IN RE: MIAMI METALS I, INC., et al., Liquidated Debtors.

Case No. 18-13359 (SHL) (Jointly Administered)

United States Bankruptcy Court, S.D. New York.

Signed October 15, 2021

AKERMAN LLP, Counsel for the Debtors, 2001 Ross Avenue, Suite 3600, Dallas, TX 75201, By: Yelena E. Archiyan, Esq.

LUSKIN, STERN & EISLER LLP, Attorneys for Senior Lenders, Eleven Times Square, New York, NY 10036, By: Michael Luskin, Esq., Stephan A. Hornung, Esq., Alex Talesnick, Esq.

BORGES & ASSOCIATES, LLC., Attorneys for SCMI US Inc., 575 Underhill Blvd – Ste 118, Syosset, New York 11791, By: Wanda Borges, Esq., Sue L. Chin, Esq.

SHUMAKER, LOOP & KENDRICK, LLP, Counsel to Mitchell Levine, and Erie Management Partners, LLC, 101 E. Kennedy Blvd., Suite 2800, Tampa, Florida 33602, By: Steven M. Berman, Esq.

STEINHILBER SWANSON LLP, Co-Counsel to Mitchell Levine, and Erie Management Partners, LLC, 112 W. Washington, Suite 850, Madison, WI 53703, By: Michael P. Richman, Esq.

ARNOLD & PORTER KAYE SCHOLER LLP, Attorneys for Tiffany & Co., 250 West Fifth Street, New York, NY 10019, By: Benjamin Mintz, Esq.

MEMORANDUM OF DECISION ON CROSS MOTIONS FOR SUMMARY JUDGMENT OF THE SENIOR LENDERS, SCMI AND THE LEVINE PARTIES

SEAN H. LANE, UNITED STATES BANKRUPTCY JUDGE

Before the Court are motions for summary judgment filed by the Senior Lenders in this case as to two groups of customers of the above-captioned Debtors (the "Debtors"): 1) SCMI US Inc. ("SCMI"); and 2) Mitchell Levine and Erie Management Partners, LLC (the "Levine Parties").¹ See Memorandum of Law in Support of the Senior Lenders’ Motion for Summary Judgment as to Customer Statement of SCMI US Inc. [ECF No. 1731] ("Senior Lenders’ SCMI Motion"); Memorandum of Law in Support of the Senior Lenders’ Motion for Summary Judgment as to Customer Statements of Mitchell Levine and Erie Management Partners, LLC [ECF No. 1759] ("Senior Lenders’ Levine Motion"). SCMI and the Levine Parties have filed cross motions for summary judgment against the Senior Lenders as well. See Motion for Summary Judgment as to Title Property Claim of Mitchell Levine and Erie Management Partners, LLC and Supporting Memorandum of Law [ECF No. 1752] ("Levine's Motion"); Memorandum of Law of SCMI US Inc. in Support of Cross-Motion for Summary Judgment and in Opposition to the Senior Lenders’ Motion for Summary Judgment [ECF No. 1769] ("SCMI's Motion").

The motions concern who owned precious metals deposited by these customers with the Debtors. If the metals were owned by the Debtors, the metals—or their cash equivalent—is available to pay the claims of the Senior Lenders in these bankruptcy cases. If the metals were owned by the customers, the customers are entitled to receive the full value of the metals.

In support of their respective summary judgment motions, the parties have submitted statements of undisputed facts and various evidence.² On October 19, 2020, a hearing on these arguments took place before this Court. For the reasons set forth below, the Court denies the cross motions as to SCMI, grants the Senior Lenders’ motion as to the Levine Parties and denies the motion filed by the Levine Parties.

BACKGROUND

A. The Chapter 11 Cases

The Debtors were in the business of refining precious metals that they received from their customers. Each Debtor filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code on either November 2, 2018 or November 21, 2018 [ECF No. 1 in each Debtor case] (the "Petition Date").

On December 23, 2019, the Court entered an order confirming the Debtors’ Second Amended Joint Chapter 11 Plan of Liquidation [ECF No. 1491-2] (the "Plan"). See Findings of Fact, Conclusions of Law, And Order Pursuant to Sections 1129(a) and (b) of the Bankruptcy Code and Rule 3020 of the Federal Rules of Bankruptcy Procedure Confirming Debtors’ Second Amended Joint Chapter 11 Plan of Liquidation [ECF No. 1668]. The Effective Date of the Plan occurred on January 7, 2020, and the Plan was substantially consummated. See Notice of (A) Occurrence of the Effective Date of Plan, (B) Deadline to File Administrative Claims and (C) Deadline to File Rejection Damages Claims [ECF No. 1682].

B. The Ownership Disputes

In the first month of these cases, the Debtors filed the Motion for Entry of Interim and Final Orders (I) Authorizing the Debtors to Use Cash Collateral (II) Granting Adequate Protection to the Secured Parties, (III) Scheduling a Final Hearing and (IV) Granting Related Relief [ECF No. 10] ("Cash Collateral Motion"), seeking Court authorization for the use of cash collateral. Various customers of the Debtors filed more than 40 objections and responses to the Cash Collateral Motion, asserting ownership interests in certain raw metals and other assets that the Debtors believed were property of the bankruptcy estate (collectively, the "Ownership Disputes"). To facilitate efficient resolution of the Ownership Disputes, the Court entered the Order Approving Uniform Procedures for Resolution of Ownership Disputes [ECF No. 395], which was subsequently amended on several occasions. See ECF No. 913, ECF No. 1196 and ECF No. 1516 (collectively, the "Uniform Procedures Order"). Under the Uniform Procedures Order, customers were categorized and grouped into various "buckets" for resolution based on the type of contract governing each customer's relationship with the Debtor. The Levine Parties and SCMI are part of the so-called Bucket 8 group of customers in this case.

The Court has already made rulings as to several of the Ownership Disputes.

In August 2019, the Court granted summary judgment for the Debtors and Senior Lenders on a subset of the Debtors’ customers in Bucket 1, whose relationships were governed by the so-called Standard Terms ("Standard Terms") of Debtor Republic Metals Corporation ("RMC"). See In re Miami Metals I, Inc. , 603 B.R. 727 (Bankr. S.D.N.Y. 2019) (the "Bucket One Decision"). In that decision, the Court concluded that the Standard Terms established a sale of precious metal to Debtor RMC as opposed to a bailment relationship where ownership remained with the customers. See id. at 735. In reaching its decision, the Court noted that the metal to be returned to the customers after refining by RMC was simply metal of "like kind," rather than the identical metal deposited by the customer or the same metal in altered form. Id. at 736. As such, the Court held that the disputed assets were property of the estate and that the subset of Bucket One customers lacked any ownership interests in the disputed assets. Id. at 742.

In January 2021, the Court denied summary judgment as to the Debtors and Senior Lenders with respect to customer Premier Gold Mines Limited, concluding that there were disputed issues of material fact as to whether the precious metal given by Premier Gold to Debtor RMC was a sale or a bailment. Decision and Order Denying Summary Judgment [ECF No. 1939] (the "Buckets 3-5 Decision"). More specifically, the Court concluded that there were material differences between the Standard Terms at issue in the Bucket One Decision and the agreement governing Premier Gold such that a trial was necessary to determine the intent of the parties. Id. at 23.

The cross motions for summary judgment currently before the Court address whether the agreements between the Debtor RMC and these customers are leases—with the precious metal in question remaining property of the customers—or agreements that conveyed the property to Debtor RMC. There are different agreements at issue in each set of motions, so the Court will discuss each separately.

C. SCMI

SCMI and RMC entered into a Master Agreement for Precious Metals Transactions in 2017 [ECF No. 1812-1] (the "Master Agreement"); see Senior Lenders’ 7056 Statement re SCMI ¶ 11. The Master Agreement is governed by New York law. Master Agreement, Section 12.2. The Master Agreement contains three annexes, and the parties agree that transactions at issue here are governed by Annex II, which is entitled "Leases." Senior Lenders’ 7056 Statement re SCMI ¶ 12; SCMI's 7056 Statement ¶¶ 12, 52. Annex II provides:

Pursuant to Clause 4.1, this Annex II sets out the terms of Leases, where a "Lease" means a Transaction for the bailment of Precious Metal, whereby one ... Party as bailor ("the Lessor") on an agreed date ("the Delivery Date") delivers an agreed quantity of Material ("the Leased Material") to the possession of the other Party as bailee ("the Lessee") at an agreed Delivery Location, on terms that the Lessee: (i) has the right to enjoy quiet possession of the Leased Material until an agreed future date ("the Expiry Date"), (ii) on the Expiry Date must redeliver the Leased Material to the Lessor at an agreed Delivery Location ("the Return Location") and (iii) must pay an agreed sum ("the Lease Fee") to the Lessor.

Senior Lenders’ 7056 Statement re SCMI ¶ 12; SCMI's 7056 Statement ¶ 12; Master Agreement, Annex II – Leases.

Pursuant to the Master Agreement, SCMI and RMC entered into eight transactions from October 2017 through November 2018. SCMI's 7056 Statement ¶ 53; Senior Lenders’ Response to SCMI's Statement ¶ 53. Under one such transaction, RMC leased 600,000 troy ounces of precious metals ("Toz") of silver from April 3, 2018 until May 3, 2018 for a fee of $15,557.³ Senior Lenders’ 7056 Statement re SCMI ¶ 36; SCMI's 7056 Statement ¶¶ 36, 53. At the expiration of that term, the lease was rolled over three times; first until July 3, 2018, then again until September 7, 2018, and for a third time until November 7, 2018. Id. Fees of $32,179.53, $33,968.00, and $28,880.86, respectively, were due for each of those three respective, subsequent terms. Id. On November 5, 2018—three days after these bankruptcy cases were filed—SCMI demanded return of the 600,000 Toz of silver as property of SCMI.⁴ SCMI's 7056 Statement ¶ 73; Senior Lenders’ Response to SCMI's Statement ¶ 73. On November 7, 2018, the final expiration date of the last rollover from the April 3rd...