King v. Export Dev. Can. (In re Zetta Jet USA, Inc.)

• Decision Date: 29 July 2020
• Docket Number: Case No.: 2:17-bk-21386-SK,Adv No: 2:19-ap-01383-SK
• Citation: 624 B.R. 461
• Court: U.S. Bankruptcy Court — Central District of California
• Parties: IN RE: ZETTA JET USA, INC., Debtor(s). Jonathan D. King, Plaintiff(s), v. Export Development Canada, Glove Assets Investment Limited, Minsheng Business Aviation Limited, Minsheng Financial Leasing Co., Ltd., Li Qi, Truly Great Global Limited, Universal Leader Investment Limited, Yuntian 3 Leasing Company Designated Activity Company, Yuntian 4 Leasing Company Designated Activity Company, Defendant(s).

624 B.R. 461

IN RE: ZETTA JET USA, INC., Debtor(s).Jonathan D. King, Plaintiff(s),

v.Export Development Canada, Glove Assets Investment Limited, Minsheng Business Aviation Limited, Minsheng Financial Leasing Co., Ltd., Li Qi, Truly Great Global Limited, Universal Leader Investment Limited, Yuntian 3 Leasing Company Designated Activity Company, Yuntian 4 Leasing Company Designated Activity Company, Defendant(s).

Case No.: 2:17-bk-21386-SK

Adv No: 2:19-ap-01383-SK

United States Bankruptcy Court, C.D. California, Los Angeles Division.

Signed July 29, 2020

Date: July 22, 2020

John K. Lyons, DLA Piper LLP (US), Chicago, IL, for Plaintiff(s).

Joshua M. Mester, Jones Day, Brian K. Condon, Arnold & Porter Kaye Scholer LLP, Oscar D. Ramallo, Los Angeles, CA, Daniel T. Moss, David S. Torborg, Jones Day, Washington, DC, Michael J. Edelman, Vedder Price, New York, NY, Allison B. Hudson, Vedder Price P.C., Chicago, IL, Scott H. Olson, Vedder Price, San Francisco, CA, for Defendant(s).

COURT'S MEMORANDUM OF DECISION ON: 1) "MOTION TO DISMISS COUNTS II, III, VI, VII, IX, X, XI, XII, AND XV OF ADVERSARY COMPLAINT," FILED BY YUNTIAN 3 LEASING COMPANY DESIGNATED ACTIVITY COMPANY AND YUNTIAN 4 LEASING COMPANY DESIGNATED ACTIVITY COMPANY, DOCKET #32; AND 2) "MOTION TO DISMISS COUNTS II, VI, VII, XI, XII, AND XV OF ADVERSARY COMPLAINT," FILED BY MINSHENG BUSINESS AVIATION LIMITED, DOCKET #44

Sandra R. Klein, United States Bankruptcy Judge

On 7/22/20, the Court heard: 1) the "Motion to Dismiss Counts II, III, VI, VII, IX, X, XI, XII, and XV of Adversary Complaint" (Y3/Y4 Motion), Docket #32, filed by Yuntian 3 Leasing Company Designated Activity Company and Yuntian 4 Leasing Company Designated Activity Company; and 2) the "Motion to Dismiss Counts II, VI, VII, XI, XII, and XV of Adversary Complaint" (Minsheng Motion), Docket #44, filed by Minsheng Business Aviation Limited.

Appearances were as noted on the record. All parties were given an opportunity to be heard. At the conclusion of the 7/22/20 hearing, the Court took the Y3/Y4 Motion and the Minsheng Motion under submission. A Copy of the Court's Memorandum of Decision is attached hereto.

Attachment

Before the Court are a: 1) "Motion to Dismiss Counts II, III, VI, VII, IX, X, XI, XII, and XV of Adversary Complaint" (Y3/Y4 Motion), filed by Yuntian 3 Leasing Company Limited Designated Activity Company (Yuntian 3) and Yuntian 4 Leasing Company Designated Activity Company (Yuntian 4, and together with Yuntian 3, Y3/Y4), AP Docket #32;¹ and 2) a "Motion to Dismiss Counts II, VI, VII, XI, XII, and XV of Adversary Complaint" (Minsheng Motion) filed by Minsheng Business Aviation Limited (Minsheng Business), AP Docket #44.² In support of the Y3/Y4 Motion, Y3/Y4 filed: 1) a "Declaration of Sushil Nair" (Nair 12/9/19 Decl.); 2) a "Declaration of Jeremy John Richmond" (Richmond 12/9/19 Decl.); 3) a "Declaration of David S. Torborg" (Torborg 12/9/19 Decl.); and 4) "Unpublished Opinions," AP Docket #s 32-34.

On 1/31/20, Jonathan D. King (King), in his capacity as chapter 7 trustee (Trustee) of Zetta Jet USA, Inc. (Zetta USA) and Zetta Jet PTE, Ltd. (Zetta Singapore), filed a "Combined Opposition to Motions to Dismiss Adversary Complaint by Defendants Yuntian 3 Leasing Company Limited Designated Activity Company, Yuntian 4 Leasing Company Limited Designated Activity Company, Minsheng Business Aviation Limited, Universal Leader Investment Limited, Glove Assets Investment Limited, and Truly Great Global Limited" (Opposition).³ AP Docket #55. In support of the Opposition, the Trustee filed a "Declaration of John K. Lyons" (Lyons 1/31/20 Decl.). AP Docket #55.

On 2/21/20, Y3/Y4 and Minsheng Business filed a "Reply in Further Support of Their Motions to Dismiss Counts II, III, VI, VII, IX, X, XI, XII, and XV of Adversary Complaint" (Reply). AP Docket #61. On 3/23/20, Y3/Y4 and Minsheng Business filed a "Request for Judicial Notice in Support of Defendants Motions to Dismiss" (Y3/Y4 RJN) and a "Supplemental Declaration of David S. Torborg" (Torborg 3/23/20 Decl.) in support of the Y3/Y4 Motion. AP Docket #s 93, 95. On 5/5/20, the Trustee filed a "Limited Omnibus Objection to Requests for Judicial Notice" (Objection to Y3/Y4 RJN), AP Docket #123, and a "Request for Judicial Notice in Support of Trustee's Oppositions to Motions to Dismiss Filed by Defendants" (Trustee RJN). AP Docket #122. On 7/13/20, Y3/Y4 filed a "Reply to Objections to Defendants Yuntian 3 Leasing Company Limited Designated Activity Company, Yuntian 4 Leasing Company Designated Activity Company, and Minsheng Business Aviation Limited's Request for Judicial Notice in Support of Defendants' Motions to Dismiss" (Y3/Y4 RJN Reply). AP Docket #149.

On 7/22/20, the Court held a hearing on the Y3/Y4 Motion and the Minsheng Motion during which counsel for the Trustee, Y3/Y4 and Minsheng Business appeared and were given an opportunity to be heard. At the conclusion of the hearing, the Court took the Motions under submission. Based on the argument in the pleadings and argument of counsel during the hearing, and for the reasons stated in the analysis below, the Court rules as follows: the Y3/Y4 Motion and Minsheng Motion are granted regarding Counts II, III, VI, IX, X, XI, and XII, with leave to amend, and are denied regarding Counts VII and XV. This memorandum constitutes the Court's findings of facts and conclusions of law regarding the legal sufficiency of the counts at issue in the Y3/Y4 Motion and the Minsheng Motion.

I. Facts

a. Bankruptcy Cases

On 9/15/17, Zetta USA and Zetta Singapore filed chapter 11 petitions (collectively, Cases). Zetta USA Docket #1; Zetta Singapore Docket #1. King was appointed as the chapter 11 trustee, and after the Cases were converted, he was appointed as the chapter 7 trustee. Zetta USA Docket #s 159, 452, 458.

b. Adversary Proceeding

On 9/13/19, the Trustee filed an adversary complaint (Complaint) against: 1) Yuntian 3, 2) Yuntian 4, 3) Minsheng Financial Leasing Co., Ltd. (Minsheng Financial),⁴ 4) Minsheng Business, 5) Export Development Canada (EDC), 6) UL, 7) GA, 8) TG, and 9) Li Qi (collectively, the Defendants), which alleges that Zetta Singapore was formed and run by a con artist, Geoffrey Cassidy (Cassidy), who, over a two-year period, with the help of the Defendants, obtained $10 million from kickbacks, bribes and embezzlement, while saddling the Debtors with almost $500,000,000 in unsustainable debt incurred by purchasing overpriced aircraft in a down market. AP Docket #1.

The Complaint contains the following counts, which are at issue in Y3/Y4 Motion and the Minsheng Motion:

1) Avoidance and Recovery of Fraudulent Transfers (Plane 6 and Plane 7), under 11 U.S.C. §§ 548 and 550, against Li Qi, UL, GA, Yuntian 3, Minsheng Financial, and Minsheng Business (Count II);

2) In the Alternative, Avoidance and Recovery of Preference Transfer, under 11 U.S.C. §§ 547 and 550, against Yuntian 3 (Count III);

3) In the Alternative, Avoidance and Recovery of Fraudulent Transfers, under 11 U.S.C. §§ 548 and 550, against Minsheng Business and Yuntian 4 (Count VI);

4) In the Alternative, Turnover of Property of the Bankruptcy Estate, under 11 U.S.C. § 542, against Yuntian 4, Minsheng Business, and Minsheng Financial (Count VII);

5) Avoidance and Recovery of Preference Transfer, under 11 U.S.C. §§ 547 and 550, against EDC and Yuntian 4 (Count IX);

6) Avoidance and Recovery of Preference Transfer, under 11 U.S.C. §§ 547 and 550, against Yuntian 4 (Count X);

7) In the Alternative, Turnover of Property of the Bankruptcy Estate, under 11 U.S.C. § 542, against Yuntian 4, Minsheng Financial, and Minsheng Business (Count XI);

8) Avoidance and Recovery of Preference Transfers (Legal Fees Transfers), under 11 U.S.C. §§ 547 and 550, against Minsheng Business, Minsheng Financial, Yuntian 3, and Yuntian 4 (Count XII); and

9) Disallowance of Claims, under 11 U.S.C. § 502(d), against Minsheng Financial, Minsheng Business, Yuntian 3, Yuntian 4, UL, GA, and EDC (Count XV).

Complaint ¶¶ 179-209, 238-256, 270-307, 318-21.

II. Legal Standards

a. Motions to Dismiss Generally

Rule 12(b)(6) of the Federal Rules of Civil Procedure (FRCP or Rules) applies in adversary proceedings and provides that a party may assert the defense of "failure to state a claim upon which relief can be granted." Fed. R. Bankr. P. 7012(b) ; In re Kvassay, 2014 WL 2446181, at *9 (B.A.P. 9th Cir. May 30, 2014). A motion to dismiss under Rule 12(b)(6) challenges the sufficiency of the allegations in the complaint. Lee v. City of L.A., 250 F.3d 668, 688 (9th Cir. 2001) ; Student Loan Mktg. Ass'n v. Hanes, 181 F.R.D. 629, 634 (S.D. Cal. 1998). "A Rule 12(b)(6) dismissal may be based on either a ‘lack of a cognizable legal theory’ or ‘the absence of sufficient facts alleged under a cognizable legal theory.’ " Johnson v. Riverside Healthcare Sys., LP, 534 F.3d 1116, 1121 -22 (9th Cir. 2008) (quoting Balistreri v. Pacifica Police Dep't, 901 F.2d 696, 699 (9th Cir. 1990) ).

In resolving a Rule 12(b)(6) motion, the Court must construe the complaint in the light most favorable to the plaintiff, and accept all well-plead factual allegations as true. Johnson, 534 F.3d at 1122 ; Knox v. Davis, 260 F.3d 1009, 1012 (9th Cir. 2001). The Court, however, is not bound by conclusory statements, statements of law, and unwarranted inferences cast as factual allegations. Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555-57, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) ; Clegg v. Cult Awareness Network, 18 F.3d 752, 754-55 (9th Cir. 1994).

"While a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations, ... a plaintiff's obligation to provide the ‘grounds’ of his ‘entitle[ment] to relief’ requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Twombly, 550 U.S. at 555, 127 S.Ct. 1955 (citations omitted). A complaint "must contain either direct or inferential allegations respecting all the material elements...