Kraken Invs. Ltd. v. Jacobs (In re Alander-O'Reilly Galleries, LLC), 11-CV-6133 (CS)
Decision Date | 09 July 2012 |
Docket Number | No. 11-CV-6133 (CS),11-CV-6133 (CS) |
Parties | In re: SALANDER-O'REILLY GALLERIES, LLC, Debtor. KRAKEN INVESTMENTS LIMITED, Appellant, v. ALAN M. JACOBS, in his capacity as the Liquidation Trustee of the SOG Liquidation Trust, Appellee. |
Court | United States District Courts. 2nd Circuit. United States District Courts. 2nd Circuit. Southern District of New York |
Appearances:
David I. Faust, Esq.
Petra v.Z. Davenport, Esq.
Faust Oppenheim LLP
New York, New York
Counsel for Appellant
Robert J. Feinstein, Esq.
Ilan D. Scharf, Esq.
Pachulski Stang Ziehl & Jones LLP
New York, New York
Counsel for Appellee
Seibel. J.
Before the Court is the appeal of Kraken Investments Limited ("Kraken"), (Doc. 1), filed on September 1, 2011, from an Order of the United States Bankruptcy Court for the Southern District of New York, dated August 1, 2011 (the "Order"), (Bankr. Doc. 990),1 denying Kraken's motion for relief from the automatic bankruptcy stay to pursue arbitration. For the reasons stated below, the Bankruptcy Court's Order is AFFIRMED.
Kraken is a limited company incorporated in the British Virgin Islands with its principal place of business in Jersey, Channel Islands. (Bankr. Doc. 941 ¶ 4.) Kraken is owned by Dr. Ronald Fuhrer, a citizen and resident of Israel who owns and operates an art gallery there. (Id. ¶¶ 1,4.) Salander-O'Reilly Galleries, LLC ("SOG" or "Debtor"), owned by Lawrence Salander, operated an art gallery in New York City. (Trustee Br. 5.)2
(Id. § 1.4, at 2-3.) The Loan Agreement granted the Bank a security interest in the "Collateral," which included all of SOG's "inventory":
(Id. § 6.1(a), at 15.) SOG, pursuant to the Loan Agreement, represented:
With respect to the Collateral at the time the Collateral becomes subject to the Bank's security interest, the Borrower represents, warrants and covenants that. . . [t]he Borrower shall be the sole owner, free and clear of all liens, claims, security interests and encumbrances except for Permitted Liens and liens in favor of the Bank, of and fully authorized to sell, transfer, pledge and/or grant a security interest in each and every item of its Collateral.
(Id. § 6.2, at 15.)4 After execution of the Loan Agreement, the Bank perfected its security interest in the Collateral by, among other things, filing a UCC-1 financing statement. (Sharf Decl. Ex. G; see Trustee Br. 10.)
On May 3, 2006, Kraken and SOG entered into an agreement (the "Consignment Agreement"), , whereby Kraken consigned a painting, "Madonna and Child" by Sandro Botticelli (the "Botticelli"), to SOG for one year after receipt of the painting. (Id. ¶ 1.) Under the Agreement, SOG would feature the Botticelli at an exhibition and use its best efforts to sell the painting, the asking price for which would be $9.5 million. (Id. ¶¶ 6, 8.) If the painting sold, Kraken would receive no less than $8.5 million, and SOG would receive the difference between the actual sale price and Kraken's share. (Id. at ¶ 9.) The Agreement also referred all disputes between the parties to arbitration in Jersey and stated that Jersey law would control:
Any disputes between the parties, including any disputes regarding this agreement, will be referred to arbitration. The sole arbitrator to be appointed will be a former Judge of the Royal Court of Jersey, Channel Islands, with the only competent Court to be the Royal Court of Jersey, Channel Islands. Jersey, Channel Islands law will apply to this agreement, including the Arbitration (Jersey) Law 1998.
(Id. ¶11.) Kraken delivered the Botticelli to SOG on May 11, 2006. (Kraken Br. 4.)5 Kraken did not file a UCC-I financing statement registering its interest in the consigned property. (Id.) When the consignment period expired on May 11, 2007, SOG requested a short extension, to which Kraken agreed. (Id.)6 Thereafter, Kraken requested that SOG return the Botticelli, but SOG did not return it. (Id.; see Trustee Br. 7.)
Months before the commencement of SOG's bankruptcy, artists and owners of artwork sued SOG and its owner in multiple actions asserting, among other things, rights to artwork consigned to or held by SOG, fraud, and unpaid debts. (Trustee Br. 7.) In one action, Lennox v. Salander O'Reilly Galleries, No. 602917/2007, the New York Supreme Court issued a preliminary injunction which enjoined the disposition of any artwork at SOG's gallery and prohibited SOG or its agents from accessing the premises except by order of the court. (Id.) As a result of this injunction, SOG closed its gallery on or about October 19, 2007. (Id.) On October 25, 2007, Kraken commenced an action by way of an order to show cause in New York State Supreme Court, seeking seizure of the Botticelli. (Id. at 8.)
Due to the large number of potential claims to artwork in SOG's possession, the Bankruptcy Court entered an order dated March 11, 2008 (the "Protocol Order"), (Scharf Decl. Ex. D), approving the Protocol,7 the purpose of which was to "identify all claims against and interests in all of the Artwork in the Debtor's possession, custody or control, to determine which Artworks are not property of the Debtor's estate, and to resolve disputed claims to Artwork in a fair, orderly and efficient manner." (Protocol 1.) Under the Protocol, a party (an "Art Claimant") could "assert that certain Artwork is not property of the Debtor's estate under section 541 of the Bankruptcy Code" because the "Artwork is held by the Debtor ... on consignment." (Id.) The Art Clamaint could do so by filing an Art Claims Form8 by the Art Claims Bar Date of June 15, 2008. (Protocol Order 2.) After the Art Claims Bar Date, a Working Group9determined whether each piece of artwork subject to an Art Claim was property of the bankruptcy estate. (Protocol 6.) If a member of the Working Group asserted with a good faith basis that an artwork was part of the bankruptcy estate, the work was labeled as a "Claimed Estate Asset." (Id.) An artwork unanimously determined not to be property of the estate -including "Artworks that are subject to perfected consignment agreements in accordance with the UCC by the relevant consignor ... and Artworks subject to consignment agreements that expired or were terminated in accordance with their terms" - was labeled as a "Non-Estate Asset" and returned to the Art Claimant. (Id. at 6-7.)...
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