Oliner v. Kontrabecki, Misc. No. 04-0010 CRB.

CourtUnited States District Courts. 9th Circuit. United States District Courts. 9th Circuit. Northern District of California
Writing for the CourtBreyer
Citation305 B.R. 510
PartiesAron OLINER, as Chapter 11 Trustee of The Kontrabecki Group LP, and Lehman Brothers Holdings Inc., Plaintiff-Appellees, v. John KONTRABECKI, Defendant-Appellant. In re Central European Industrial Development Company, LLC d/b/a CEIDCO, Debtor. In re The Kontrabecki Group, LP, Debtor.
Decision Date10 February 2004
Docket NumberBankruptcy No. 02-30419-11-DM.,Adversary No. 03-3264 DM.,Misc. No. 04-0010 CRB.,Bankruptcy No. 02-30421-11-DM.
305 B.R. 510
Aron OLINER, as Chapter 11 Trustee of The Kontrabecki Group LP, and Lehman Brothers Holdings Inc., Plaintiff-Appellees,
John KONTRABECKI, Defendant-Appellant.
In re Central European Industrial Development Company, LLC d/b/a CEIDCO, Debtor.
In re The Kontrabecki Group, LP, Debtor.
Misc. No. 04-0010 CRB.
Bankruptcy No. 02-30419-11-DM.
Bankruptcy No. 02-30421-11-DM.
Adversary No. 03-3264 DM.
United States District Court, N.D. California.
February 10, 2004.

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Peter J. Benvenutti, Sarah A. Troops, Heller, Ehrman, White & McAuliffe LLP, San Francisco, CA, Mark S. Kaufman, McKenna, Long & Aldridge LLP, Atlanta, GA, for Plaintiffs.

William P. Keane, Dean M. Gloster, Kelly Ann Woodruff, Tyler Gerking, Farella, Braun & Martel, LLP, San Francisco, CA, for Defendants.


BREYER, District Judge.

Now before the Court is a motion by John Kontrabecki ("Kontrabecki") for leave to appeal the Order of the United States Bankruptcy Court ("bankruptcy court") granting Motion of Lehman Brothers Holdings Inc. ("Lehman") for coercive contempt sanctions. This order was issued on September 22, 2003, and modified on October 20, 2003.

The issue is whether Kontrabecki is entitled to an "appeal as of right" under 28 U.S.C. section 158(a)(1), which grants the district courts of the United States "jurisdiction to hear appeals ... from final judgments, orders, and decrees" of bankruptcy courts; or, alternatively, whether this Court should exercise its jurisdiction under 28 U.S.C. section 158(a)(3) to grant leave for appeal "from other interlocutory orders and decrees" of bankruptcy courts.

To determine whether this Court has jurisdiction to review the bankruptcy court's coercive civil contempt order, this Court examined the proceedings below. After reviewing the record and the memoranda submitted by both parties, the Court DECLINES to grant leave to appeal.


A. The Initial Actions of John Kontrabecki

On February 15, 2002, The Kontrabecki Group ("TKG") and Central European Industrial Development Company ("CEIDCO") filed voluntary Chapter 11 bankruptcy. On January 17, 2003, the bankruptcy court ordered the appointment of a Chapter 11 trustee. On January 28, 2003, Aron Oliner ("Trustee") was appointed as trustee.

From the time the bankruptcy petition was filed, until Oliner's appointment as trustee, Kontrabecki was the chief executive officer of CEIDCO, which was the sole managing partner of TKG. Kontrabecki was also the fiduciary and responsible person for TKG and CEIDCO in their Chapter 11 cases. By virtue of these positions, on January 13, 2003, Kontrabecki controlled TKG. Findings of Fact and Conclusions of Law with Respect to Order Granting Partial Summary Judgment, Adversary Proceeding No. 03-3264, September 19, 2003 at 2.

When TKG petitioned for bankruptcy, it owned one hundred percent (100%) of the issued and outstanding shares of two Polish limited liability companies: Warszawskie Centrum Dystrybucyjne Sp Zo.o ("WDC") and Centrum Biznesu Ozarow Sp

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Zo.o ("OBC"). Id. at 2-3. On January 13, 2003, WDC and OBC purported to issue new shares to Piotr Kukulka ("Kukulka"). Kukulka received eight hundred (800) shares of WDC for 400,000 Polish zlotys (approximately U.S. $105,000), and ninety-two (92) shares of OBC for 46,000 zlotys (approximately U.S. $12,000). As a result of these share dilution transactions, Kukulka acquired control over fifty-three percent (53%) of WDC and ninety-two percent (92%) of OBC. Id. at 3.

On January 13, 2003, Kontrabecki gave Zygmunt Laskowski and Ryszard Leszek Bozym written powers of attorney authorizing them to vote TKG's shares in WDC and OBC, respectively, in favor of issuing the new shares and waiving TKG's preemptive rights. Id. at 3. Kontrabecki did so without seeking the approval of the bankruptcy court or giving notice to other parties in the TKG bankruptcy case. Id. at 3-4.

After extensive hearings, the bankruptcy court found that there was no genuine dispute as to the fact that Kontrabecki caused the WDC and OBC "share dilution transactions to occur, and did so intentionally." Id. at 4. The bankruptcy court further found that, at the time Kontrabecki authorized the votes to issue new shares and waive TKG's preemptive rights, he was "aware of TKG's bankruptcy case, had actual knowledge of the automatic stay of 11 U.S.C. section 362 applicable to TKG and its bankruptcy estate, and was quite familiar with bankruptcy proceedings." Id. at 4.

B. The Temporary Restraining Order and Preliminary Injunction

On February 12, 2003, Lehman and Trustee filed an adversary proceeding in the CEIDCO/TKG bankruptcy case. On February 14, the bankruptcy court issued a Temporary Restraining Order and Permanent Injunction ("TRO/PI"). The TRO/PI provided, in paragraph 2, that:

John Kontrabecki, and all persons under his direction or control, are hereby directed forthwith to

(a) take all steps necessary to immediately confirm that the issuance of additional shares of stock by WDC and OBC purportedly authorized by the shareholder action of TKG taken on or about January 13, 2003 was void ab initio and of no effect in Poland;

(b) instruct Defendant Piotr Kukulka to return said shares for cancellation or other appropriate action under Polish law and not to exercise any rights in respect thereof;

(c) take all steps available to him to immediately reverse, or otherwise cancel the effect of, the Polish registration of those shares, on or before February 27, 2003; and

(d) forward to Piotr Kukulka, Brian Burrough and other employees of WDC and OBC written instructions, prepared by the Trustee, to recognize the authority of the Boards of Managers of WDC and OBC appointed by the Trustee.

Temporary Restraining Order and Permanent Injunction, Adversary Proceeding No. 03-3264DM, February 14, 2003 at 4. Kontrabecki stipulated and agreed to entry of the TRO/PI. Id. at 1.

On March 7, 2003, after hearings were held on a motion by Lehman and Trustee that Kontrabecki be declared in contempt for violating the TRO/PI, the bankruptcy court issued a Consent Order. Pursuant to that order, Lehman provided Kontrabecki with a stock transfer document providing for Kukulka to transfer the shares that he had acquired in WDC and OBC back to TKG. Consent Order Modifying and Supplementing Preliminary Injunction, Adversary Proceeding No. 03-3264DM,

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March 7, 2003 at 2. The bankruptcy court ordered Kontrabecki "to sign and deliver" to Kukulka a letter instructing him to execute the transfer document. Id. at 3.

On March 17, the bankruptcy court held a hearing on the share dilution transactions and Kontrabecki's efforts to get Kukulka to unwind them. Kontrabecki invoked the Fifth Amendment and refused to answer all questions on the transactions and his discussions with Kukulka. Transcript, Status Conference Proceedings, Adversary Proceeding No. 03-3264DM, March 17, 2003 at 26-43. At the hearing, the bankruptcy court noted "[t]hat Mr. Kontrabecki through his counsel, agreed ... in this court previously, to take whatever steps that were within his control to unwind the stocks issuance." Id. at 48. Later in the hearing, the bankruptcy court declared:

And Mr. Kontrabecki, I'm going to order that you now finally, once and for all, fix the problem. You clearly are the first cause of the problem. I ... make a finding to that effect, that you are the cause for the dilution having occurred and what your counsel has previously acknowledged was a void act, and you have through [your counsel] previously offered to do what you can to fix it. I'm ordering you to fix it.

And if you can't fix it, you'll have to explain in your words, and not behind the Fifth privilege, why you can't fix it. And if you prefer ... I can't deny you your Fifth Amendment privilege, but I'm going to listen to the trustee and Lehman to fill in the blanks what it takes to fix it. So, my suggestions to you is ... to communicate ... that you are being directed to pay what it takes, and therefore, its coming out of your hide to get Mr. Kukulka under control. And your remedy will be to seek reimbursement of some or all of the funds later on in this Court, if you are able to do so.

Id. at 64.

The bankruptcy court subsequently held seven additional days of hearings on the motion for coercive contempt sanctions. During those hearings, Kontrabecki again took the Fifth Amendment.

C. The Initial Contempt Finding

On May 7, before putting on a defense, Kontrabecki made a Motion for Judgment. In denying that motion, the bankruptcy court found that "there's sufficient evidence for both the control of the Polish subsidiaries and Mr. Kukulka and also that Mr. Kontrabecki has failed to ... use his best efforts to comply with the Court's extant orders ...." Transcript, Hearing, Motion re: Contempt, Adversary Proceeding No. 03-3264DM, May 7, 2003 at 1-2. As evidence that "Kontrabecki does control OBC and WDC and Mr. Kukulka's nominal ownership and control of those entities," id. at 4, the bankruptcy court listed the following:

[O]n January 12th, Mr. Kontrabecki told his corporate counsel ... that he, Kontrabecki, could maintain control of the assets [WDC and OBC] through Lazy [another Polish company Kontrabecki controlled]. He also told him on or about that same day that he or his own company had provided the source of funding for [the Kukulka investment in OBC and WDC].


On January 13th of this year, Mr. Kontrabecki ... made the recapitalization occur....


On February 25th, [Kontrabecki] told ... his venture partner in this entire enterprise — that he, Mr. Kontrabecki,

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planned to use [OBC and WDC] to provide cash flow to pay Lehman.

On ... March 30, [Kontrabecki] told the New York Court that the subsidiaries had value....

He described later in that declaration ... that there was a $10 million equity in his mind, and that...

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