Outreach v. Ya Global Inv.S
| Decision Date | 06 October 2010 |
| Docket Number | Case No.: 09-15985 (DHS),Adv. No.: 09-01712 (DHS),Adv. No.: 09-01415 (DHS) |
| Parties | Global Outreach, S.A., Plaintiff, Official Committee of Unsecured Creditors of Global Outreach, S.A. Intervenor-Plaintiff. v. YA Global Investments, L.P., Defendant. and YA Global Investments, L.P., Plaintiff, v. Global Outreach, S.A., et al., Defendants, Official Committee of Unsecured Creditors of Global Outreach, S.A. Intervenor-Defendant. |
| Court | U.S. Bankruptcy Court — District of New Jersey |
NOT FOR PUBLICATION
OPINION
Kasen & Kasen
David A. Kasen, Esq.
Counsel for Global Outreach, S.A.
Stevens & Lee, P.C.
John C. Kilgannon, Esq.
Counsel for Official Committee of Unsecured Creditors of Global Outreach, S.A.
Alec P. Ostrow, Esq. (admitted pro hac vice)
Counsel for Official Committee of Unsecured Creditors of Global Outreach, S.A.
Sills, Cummis & Gross P.C.
Joshua Nicholas Howley, Esq.
Jack M. Zackin, Esq.
George R. Hirsch, Esq.
Counsel for YA Global Investments, L.P.
Hellring Lindeman Goldstein & Siegal LLP
Richard B. Honig, Esq.
Chapter 11 Trustee
Martha R. Hildebrandt, Esq.
U.S. Department of Justice
Office of the United States Trustee
United States Trustee
Before the Court are four competing summary judgment motions in two consolidated adversary proceedings. All claims arise from a lending arrangement and various security provisions between the Debtor-Plaintiff, Global Outreach, S.A. ("Debtor"), and creditor, YA Global Investments, L.P ("YA"). At the center of this dispute are two obligations under the various loan documents known as the equity participation payments which comprise $22.05 million and $15.89 million, respectively, of YA's $92,682, 620.70 proof of claim and the transfer of title to real property by the Debtor to a Costa Rican trust, which granted a mortgage on the property to YA.
The Debtor seeks partial summary judgment declaring that the equity participation payments are not a valid debt and, therefore, YA's claim is disallowed to the extent of those payments.1 The Official Committee of Unsecured Creditors of Global Outreach, S.A. (the "Committee") was authorized to intervene and prosecute causes of action on behalf of the Debtor by an Order of this Court, dated September 21, 2009. (Adv. Pro. 09-01415-DHS, Dkt. No. 36.) The Committee seeks summary judgment on several counts of its Intervenor Complaint The Committee contends that the Debtor's transfer of title to the real property in Costa Rica to a trust established under Costa Rican law was a fraudulent transfer. The Committee further alleges that, because YA obtained its mortgage on the real property from the trust with knowledge of the avoidability of that transfer, YA is not a good-faith transferee. Consequently, the Committee contends that the property held by the trust should be returned to the estate free and clear of YA's mortgage liens. With regard to the equity participation payments, the Committee advocates four alternative treatments ranging from recharacterization as equity to equitable subordination.
YA has filed (i) opposition and a cross-motion in response to the Debtor's summary judgment motion (Adv. Pro. No. 09-1415), (ii) a summary judgment motion seeking dismissal of the Committee's Intervenor Complaint (Adv. Pro. No. 09-1415), and (iii) a summary judgment motion seeking dismissal of the Debtor's amended complaint and counterclaims (Adv. Pro. No. 09-1712).
The Court has jurisdiction over this motion pursuant to 28 U.S.C. § 1334 and the Standing Order of Reference from the United States District Court for the District of New Jersey dated July 23, 1984. This matter is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(A), (B), (E), (H) and (K). Venue is proper under 28 U.S.C. §§ 1408 and 1409.
In 2004, the Debtor, through its president, Anil Kothari ("Kothari"), endeavored to acquire land in Guanacaste, Costa Rica for development as a luxury resort including a hotel, golf course, and condominiums. By early 2006, the Debtor had assembled over 550 acres of land for the resort by acquiring entities that held parcels of land and acquiring options to acquire others. (Id.) The Debtor had also secured commitments from various prestigious brand names including Hyatt Hotels and Greg Norman. (Id.)
In early 2005, Kothari began seeking additional financing to supplement the funds he had advanced to the Debtor. (Id. at 3, ¶2.) At this time, the Debtor began actively marketing and sold approximately two dozen option agreements to individual investors to acquire condominiums to be built at the resort. (Id.) In early 2006, the Debtor began issuing option-note agreements, which gave the holder the option of acquiring a condominium at a discount or recovering the principal plus interest on 15-days' notice. (Id.) Over the next ten months, the Debtor issued over 40 such option-note agreements. Each of the option-note agreements provided that the Debtor would be in default if it transferred its interest in the real property on which the condominiums were to be built. (Id.) The Debtor also issued at least six promissory notes during the summer and fall of 2007, having an aggregate principal amount of more than $900,000. (Id.) Throughout this time, the Debtor was also actively seeking construction financing in the range of $85-100 million to construct the hotel, golf course, and the initial condominiums. (Id. at 3, ¶5.) Despite its lack of construction financing, the Debtor twice announced firm ground breaking dates for the project, but was unable to consummate either due to a lack of funding. (Id. at 4, ¶¶7-8.)
In April of 2007, Jerome Killian, an accountant, introduced the Debtor to YA. (Id. at 5, ¶10.) The Debtor was seeking a mezzanine loan in the range of $35-38 million. (Id.)After the Debtor made two presentations to YA, Kothari was asked to complete a due-diligence questionnaire, which YA required potential borrowers to submit. (Id. at 5-6, ¶¶10-12.) Among other misrepresentations and omissions on the questionnaire, Kothari failed to disclose the existence of the option agreements or the promissory notes, his conviction for real estate fraud, his and his wife's personal bankruptcies, as well as numerous judgments against them. (Id. at 6, ¶13.) Nevertheless, YA discovered many of the omissions when it commissioned a report that showed Kothari's conviction as well as the personal bankruptcies of the Kotharis, the judgments against them, and the fact that the Kotharis' house was held by a family trust. (Id. at 6, ¶14.)
YA made an initial loan to the Debtor in the amount of $3.725 million on April 30, 2007. (Id. at 10, ¶24.) In connection with this initial loan, the Debtor, Kothari, Purple Skies Business, Sociedad de Responsabiliad Limitada, a wholly owned subsidiary of the Debtor ("Purple Skies"); YA; and Interlex Fideicomisos, S.A. ("Interlex") entered into the Azulera Project Guarantee Trust Agreement (the "Trust Agreement"). (Id.) Pursuant to the Trust Agreement, the Debtor transferred to Interlex, as trustee, all of its interests in the entities that held title to properties and its options to acquire additional properties. (Id.) The transfer of the properties to the trust was not disclosed to the option holders, despite it being an event of default under the option agreements. (Id. at 11, ¶25.) At the time of the transfer, much of the Debtor's previously issued debt had matured and, despite demands from some of the holders, no payments had been made. (Id. at 10, ¶23.)
Significantly, the stated purpose of the Trust Agreement is to "retain the Properties free of any mortgages, liens, encumbrances, attachments or any other rights in favor of a third party." (Id. at 12, ¶28; Cert. of John C. Kilgannon in Supp. of Mot. for Summ. J. of Intervenor Pl. Official Committee of Unsecured Creditors of Global Outreach, S.A. ("Kilgannon Cert."), Ex. J, Azulera Project Guarantee Trust Agreement ("Trust Agreement") § 10 at 6.) The Trust Agreement further provides:
(Trust Agreement 44, §§ 11.1-.2.) The Trust Agreement further empowered the trustee to "cause such Properties to be mortgaged in favor of Investor [YA], at the request of Investor, to secure the rights of Investor under the Loan Documents." (Trust Agreement 3, § 1.3; Committee Stmt. 12, ¶28.)
Between April 30, 2007 and July 2007, YA made three additional minor loans to the Debtor: $320,000.00 on or about May 18, 2007; $4.7 million on or about May 25, 2007; and $238,000.00 on or about June 25, 2007. (Committee Stmt. 12, ¶30.) On July 19, 2007, all of the Debtor's outstanding loans from YA were refinanced by a loan in the stated principal amount of $41 million. (Committee Stmt. 12, ¶31.) The documentation for this $41 million loan was comprised of a note for $41 million ("Note"), a Note Purchase Agreement, and several guaranties, including those of the Kotharis and Global Financial Group, LLC. (Committee Stmt. 12-13, ¶31.) The Trust Agreement was also amended by an Azulera Project Guarantee Trust Agreement ("Amended Trust Agreement"), dated July 19, 2007, to incorporate the new $41-million transaction.
The Note matured on January 1, 2010 and carried a stated interest...
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