In re Soundview Elite Ltd.

• Decision Date: 06 November 2018
• Docket Number: Adv. Pro. No. 15-01346 (MKV) (Consolidated),Case No. 13-13098 (MKV) (Post Confirmation), Case No. 15-12273 (MKV) (Jointly Administered)
• Citation: 594 B.R. 108
• Parties: IN RE SOUNDVIEW ELITE LTD., et al., Chapter 11, Post-Confirmation Debtors. In re Richcourt Euro Strategies Inc., et al., Chapter 15, Debtors in Foreign Proceedings. Corinne Ball, as Plan Administrator of Soundview Elite Ltd., et al. and Ian Morton and Martin Trott, as Joint Liquidators of Richcourt Euro Strategies Inc., et al., Plaintiffs. v. Soundview Capital Management Ltd., et al., Defendants.
• Court: U.S. Bankruptcy Court — Southern District of New York

594 B.R. 108

IN RE SOUNDVIEW ELITE LTD., et al., Chapter 11, Post-Confirmation Debtors.In re Richcourt Euro Strategies Inc., et al., Chapter 15, Debtors in Foreign Proceedings.Corinne Ball, as Plan Administrator of Soundview Elite Ltd., et al. and Ian Morton and Martin Trott, as Joint Liquidators of Richcourt Euro Strategies Inc., et al., Plaintiffs.

v.Soundview Capital Management Ltd., et al., Defendants.

Case No. 13-13098 (MKV) (Post Confirmation)

Case No. 15-12273 (MKV) (Jointly Administered)

Adv. Pro. No. 15-01346 (MKV) (Consolidated)

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

Signed November 6, 2018

ARCHER & GREINER, PC, Counsel for Plaintiff Corinne Ball, as Chapter 11 Trustee of Debtor Soundview Elite Ltd., 630 Third Avenue, Seventh Floor, New York, NY 10017, By: Gerard DiConza, Esq.

ALPHONSE FLETCHER, JR., Pro Se Defendant, 188 Minna St., Apt. 34C, San Francisco, CA 94105.

DECISION GRANTING PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT AGAINST ALPHONSE "BUDDY" FLETCHER

MARY KAY VYSKOCIL, UNITED STATES BANKRUPTCY JUDGE:

The Chapter 11 Trustee has moved for Summary Judgment on some, but not all, of its claims against Defendant Alphonse "Buddy" Fletcher [ECF No. 207]. In support of her Summary Judgment Motion, the Trustee filed a memorandum of law [ECF No. 210] and the declarations of Geoffrey Varga (the "Varga Dec'l.") [ECF No. 208] and Gerard DiConza (the "DiConza Dec'l.") [ECF No. 211]. In accordance with Local Bankruptcy Rule 7056-1(b), the Trustee's motion is supported by a statement of undisputed material facts, dated July 8, 2016 ("Trustee's Stmt. of Facts") [ECF No. 209]. Fletcher has not filed an opposition to the motion. The Trustee filed a reply memorandum of law in further support of the Summary Judgment Motion (the "Reply Brief") [ECF No. 213] to address the applicable legal standard in light of the absence of any opposition to the Motion. On September 20, 2018, the Court heard argument on the Summary Judgment Motion (the "Summary Judgment Hearing"). Fletcher did not appear at the Summary Judgment Hearing.

The Trustee seeks judgment as a matter of law on three claims for breach of fiduciary duty and two claims for fraudulent transfer, as well as summary judgment dismissing all of Fletcher's counterclaims. For the reasons stated below, the Trustee is entitled to judgment on her fiduciary breach and fraudulent transfer claims, as well as against Fletcher's counterclaims.

BACKGROUND

Procedural Background

Soundview Elite and its affiliated entities (collectively, the "Soundview Funds"), open-ended investment companies registered in the Cayman Islands, filed for chapter 11 bankruptcy on September 24, 2013. In early 2014, this Court approved the appointment of Corinne Ball to serve as Chapter 11 Trustee for the jointly administered cases [Case No. 13-13098 ("Main Case"), ECF No. 160]. Later that year, a number of related investment funds incorporated in the British Virgin Islands (the "BVI Funds") were placed into liquidation and assigned joint liquidators, who filed cases in this Court under chapter 15 of the Bankruptcy Code [Case No. 15-12273]. Pursuant to a Cross-Border Insolvency Protocol [Main Case, ECF No. 502], Ms. Ball is authorized to prosecute claims on behalf of both the Soundview Funds and the BVI Funds (together, the "Richcourt Funds" or the "Funds").

On September 23, 2015, the Trustee filed her Complaint [ECF No. 1] commencing this Adversary Proceeding against several insiders of the Funds, including Alphonse Fletcher, Jr. Thereafter, the Trustee filed an Amended Complaint [ECF. No. 52]. The Amended Complaint asserted twenty-one causes of action, including claims for breaches of fiduciary duty, turnover, fraudulent transfers and disallowance of claims.

The Trustee now moves, pursuant to Federal Rules of Bankruptcy Procedure Rule 7056 and Federal Rules of Civil Procedure Rule 56, for summary judgment on five of those causes of action against Defendant Fletcher, three based on breaches of fiduciary duty (counts nos. 3, 5 and 8) and two for fraudulent transfers (counts nos. 15 and 18). See Amended Complaint ¶¶ 326-358; 374-405; 421-438; 498-507; 522-530.

The breach of fiduciary duty claims are based on Fletcher's failure to timely and properly disclose to investors of the Funds his acquisition of the Richcourt Funds (count no. 3), on three instances of defalcation by Fletcher following his acquisition of the Richcourt Funds (count no. 5), and based on the so-called "New Year's Eve Transaction" and Related Agreements (count no. 8). The two fraudulent transfer claims each seek to avoid the same two transfers made to Fletcher, based on alternative theories, either under Section 548(a)(1)(B) of the Bankruptcy Code, which is applicable to transfers made at a time when a debtor is insolvent and within two years of bankruptcy filing (count no. 18), or alternatively pursuant to Section 544 of the Bankruptcy Code, which allows the Trustee to bring fraudulent transfer claims on behalf of the estate under state law, here pursuant to Sections 273, 274, 275, 278, and 279 of the New York Debtor and Creditor Law (count no. 15).

Factual Background

The relevant facts, as set forth in the Statement of Undisputed Facts are not disputed and therefore deemed true, to the extent that they are supported by competent evidence. See Fed. R. Civ. P. 56(e).

The Richcourt Acquisition

Prior to their bankruptcy, the Richcourt Funds carried on business as open-ended investment companies with each fund registered as a mutual fund in the Cayman Islands or British Virgin Islands. See DeConza Dec'l at Exh. 9 (Soundview July 2009 Investment Brochure). At their peak in June 2008, the Richcourt Funds had approximately $1.55 billion under management. DeConza Dec'l, Exh. 13 at 14:13-16; 15:14-23 (Fletcher Deposition from November 5, 2013). At that time, the Citco Group and its affiliates ("Citco") owned, managed and controlled the Richcourt Funds through Richcourt Holding Inc. ("RHI"). See DeConza Dec'l, Exh. 6 at ¶ 96 (Direct Testimony/Affidavit of Fletcher on Motions to Dismiss, Convert, or Appoint a Trustee).¹

In June 2008, persons affiliated with Citco asked Alphonse Fletcher, Jr. if he would be interested in bidding for the purchase of the management shares in the Richcourt Funds. DeConza Dec'l, Exh. 6 at ¶ 96 (Fletcher's Direct Testimony/Affidavit). At the time, Fletcher, through his wholly-owned Fletcher Asset Management Inc. ("FAM"), managed a number of other investment funds, including: (a) Fletcher Income Arbitrage Fund, Ltd. ("Arbitrage"); (b) FIA Leveraged Fund Ltd. ("Leveraged"); (c) Fletcher Fixed Income Alpha Fund, Ltd. ("Alpha"); (d) Fletcher International Inc. ("FII"); and (e) Fletcher International, Ltd. (Bermuda) ("FILB") (collectively, the "Fletcher Funds"). Stmt. of Facts at ¶ 5-6; Deconza Dec'l, Exh. 5 at 13-14 (FILB Trustee's Report and Disclosure Statement).

Fletcher was interested in the offer for several reasons, including the potential to earn significant management fees of at least $5 million per year over the next five years. Deconza Dec'l, Exh. 6 at ¶ 96). On June 20, 2008, Citco sold 85% of RHI to Fletcher,² (see DeConza Dec'l at Exh. 10) (Share Purchase Agreement), giving Fletcher ownership of 85% of the management shares in the Richcourt Funds (the "Richcourt Acquisition"). Fletcher was appointed director and chairman of RHI. See DeConza Dec'l at Exh. 8 (Fletcher's Consent to Act as Director); DeConza Dec'l, Exh. 9 at 22 (Soundview July 2009 Investment Brochure).

Fletcher quickly installed a team of directors who were aligned with him. As of July 2009, RHI's directors were Fletcher, Ermanno Unternaehrer, Denis Kiely, Stewart Turner and Fletcher's brother, Todd Fletcher. Kiely and Turner previously had been employees of FAM. See DeConza Dec'l at Exh. 12 (Resolutions of Board of Directors). Kiely has described himself as Mr. Fletcher's "right-hand man." See DeConza Dec'l, Exh. 5 at 44 (citing Kiely SEC Dep. 409:6-7, Apr. 17, 2012).

Fletcher was personally responsible for managing the business affairs of the Richcourt Funds, including supervising the activities of the administrators and subadministrators and maintaining corporate records (see DeConza Dec'l, Exh. 11 at 19 (Declaration of Fletcher Pursuant to Local Rule 1007-2) ), and was also a member of the Richcourt Funds' investment management team. See DeConza Dec'l, Exh. 22, Ladner Tr. at 132:22-133:8 (Ladner Deposition). On September 4, 2012, Fletcher was appointed director of each of the individual Richcourt Funds. See DeConza Dec'l at Exh. 4 (Fletcher's Proof of Claim Against the Soundview Funds' Estates).

Failure to Disclose the Richcourt Acquisition

Although Fletcher acquired the management shares of the Richcourt Funds from Citco in June 2008, he did not notify the Richcourt Fund investors for a number of months. See DeConza Dec'l, Exh. 13, Fletcher Tr. at 36:4-13 (Fletcher Deposition).

Soon after the Richcourt Acquisition, Lehman Brothers collapsed, and in September 2008 RHI's access to credit expired. Stmt. of Facts at ¶ 35-36; DeConza Dec'l, Exh. 5 at 77. In November 2008, Fletcher began investing assets of the Richcourt Funds into Arbitrage, one of the Fletcher Funds. Stmt. of Facts at ¶ 38; DeConza Dec'l, Exh. 5 at 223. Between November 2008 and March 2010, Fletcher removed $61.7 million of cash from the Richcourt Funds and invested it into various Fletcher funds. Stmt. of Facts at ¶ 39; DeConza Dec'l, Exh. 5 at 223.

In a letter to investors dated December 30, 2008, the Richcourt Acquisition was described as an equity investment by FAM instead of a change in control. DeConza Dec'l at Exh. 15 (December 2008 Letter). The letter notified investors that they would be barred from cashing out their investments because the Board of Directors had decided, in light of the recent financial crisis, that they would not honor requests to redeem investments that were dated less than one month earlier. Id.

In January 2009, the directors of the Richcourt Funds again...