Talisman Capital Alt. Invs. Fund, Ltd. v. Mouttet (In re Mouttet)

Decision Date16 May 2013
Docket NumberBankruptcy No. No. 12–14490–LMI.,Adversary No. 12–01842–LMI.
Citation493 B.R. 640
PartiesIn re Paul G. MOUTTET, Debtor. Talisman Capital Alternative Investments Fund, Ltd. and EGE, Ltd., Plaintiff, v. Paul G. Mouttet et al., Defendants.
CourtU.S. Bankruptcy Court — Southern District of Florida

OPINION TEXT STARTS HERE

Roy M. Hartman, Esq., Miami, FL, for Plaintiff.

Jeffrey N. Schatzman, Alvin B. Davis, Joseph A. DeMaria, David S. Turken, Bryan T. West, Miami, FL, Ryon M. McCabe, West Palm Beach, FL, Eyal Berger, Esq., Ft. Lauderdale, FL, for Defendants.

AMENDED ORDER ON MOTIONS TO DISMISS1

LAUREL M. ISICOFF, Bankruptcy Judge.

This matter came before the Court on October 3, 2012 and February 27, 2013 2 on motions to dismiss filed by all of the defendants.3 The Court has considered the Complaint, the motions to dismiss, the responses filed by the Plaintiffs, and the many replies. The Court has also considered the extensive and well-presented arguments of all counsel. For the reasons outlined below, the Complaint is dismissed, in some instances without prejudice and with leave to amend, and in other instances, with prejudice.4

Introduction

This case, at least as the story has been told to date, is about a soured business relationship between a private funding source (albeit using various financing vehicles) and a group of business people and companies this group created, either separately or together, to create a casino and lottery enterprise in Jamaica. The basis of this dispute is three of the deals that have left the funding source unsatisfied. Two of the disputes relate to loans, one not repaid, and one not repaid in full. The third dispute involves the equity piece of a loan, which equity the funding source did not ultimately obtain. Litigation about these three disputes has already taken place in Jamaica, New York, and Miami.5

The Plaintiffs now seek to turn this soured business relationship into conspiracies, criminal enterprises allegedly masterminded by the Debtor—Gerard Mouttet. However, in 801 paragraphs and 290 pages, the Plaintiffs have failed to successfully plead their case, and this Complaint, at least, must be dismissed.

Factual Background6

In 2002 a group of individuals decided to bring the lottery to Jamaica. Ian Levy (“Levy”), Paul Hoo (“Hoo”), Peter Stewart, Gerry Mouttet (Mouttet), and members of the Mouttet family negotiated with Epsilon Global Master Fund L.P. (“Epsilon Global”) and Epsilon Global Master Fund II, L.P. (“Epsilon Global II”), two of the assignors of Talisman Capital Alternative Investments Fund, Ltd. (Talisman), for a $30 million loan in order for Supreme Ventures Limited (“SVL”) to obtain a lottery and gaming license in Jamaica. The loan was structured through a related entity, Atlantic Marketing Services Limited (“Atlantic”)—$29.5 million was paid to Atlantic and $500,000 was paid directly to SVL. The Atlantic $29.5 million loan (the “29.5 Million Loan”) was secured by a lien on the marketing service fees paid by SVL to Atlantic and was to mature in 2005. Atlantic was owned by the Debtor and various other persons. SVL was owned by Levy, Hoo, and Peter Stewart.

At the same time, Epsilon Global Equities Limited n/k/a EGE Ltd. (EGE) entered into a Forward Share Sale Agreement (the “FSSA”) with SVL, Hoo, Peter Stewart, and Levy. Pursuant to the FSSA, EGE had a future right to purchase up to 17% of the shares in SVL. EGE never received the SVL stock. In 2007, EGE sued Hoo, Levy, SVL, Janette Stewart (as the administratix of the estate of Peter Stewart) (“Stewart”), and Martyn Veira in a Jamaican court alleging that EGE was the owner of SVL stock and the dividends associated with that stock. The Jamaican court ruled against EGE, holding that EGE “failed to surrender the Transfer of Shares documents for registration of its shares or tender the $1 per share on the Acquisition Date as required by the Agreements” and that by its failure to comply with the FSSA, the agreement was discharged. A final judgment was entered (the “Jamaican Judgment”).7 EGE appealed the Jamaican Judgment; that appeal is pending.

Between 2003 and 2005, Epsilon Global, Epsilon Global II, and Westford Special Situations Master Fund L.P. (“Westford,” together with Epsilon Global and Epsilon Global II, the “Original Lenders”) made three additional loans: a $8,415 million dollar loan to SVL in 2003 for SVL to buy out a competitor, a $2.27 million loan to Atlantic in 2004 for SVL to expand into Central America, and a $3.25 million loan to SVL in 2005 for SVL to buy a video gaming lounge operator (the “Repaid Loans”).

The Complaint alleges that in 2005 certain of the defendants named in the Complaint as the “Federal RICO Defendants 8 requested that the $29.5 Million Loan be modified. The Complaint alleges the Original Lenders were told the purpose of the modification was to make it possible for SVL to seek a traditional lending source and pay back the $29.5 Million Loan. In connection with that modification, the Original Lenders released their lien on the marketing service fees, $14,635,628 was paid to the Original Lenders to satisfy the Repaid Loans and the $500,000 loan to SVL, and the parties executed some kind of modification agreement (the 2005 Modification Agreement”).9 In 2006 SVL stock was sold through an Initial Public Offering (“IPO”) through which Hoo, Levy, and Stewart received $7.3 million in proceeds, which proceeds were transferred to the Original Lenders to repay a portion of the $29.5 Million Loan. In 2007, in exchange for the Original Lenders' agreement to further extend the maturity date of the $29.5 Million Loan, the Debtor executed a personal guarantee (the “First Guarantee”). The balance of the $29.5 Million Loan remains unpaid.

Additionally, in 2007, Westford lent Supreme Gaming Corporation Worldwide (“SGCW”) $13.6 million to pursue the expansion of a lottery business in Central America (the “$13.6 Million Loan”); this loan was also guaranteed by the Debtor (the “Second Guarantee”). The $13.6 Million Loan was never repaid. The Complaint alleges that, unbeknownst to the Plaintiffs, between 2006 and 2007, SVL and Mouttet sought and obtained $16.5 million in additional financing from Thomas J. Petters, pledging SVL stock as collateral for the loan (the “Petters Loan”). The Complaint alleges the SVL Stock pledged to secure the Petters Loan was supposed to have been used to obtain the traditional bank loan to pay off the balance of the $29.5 Million Loan.

In 2009, the $29.5 Million Loan and the $13.6 Million Loan were assigned to Talisman.10 Talisman brought an action in the District Court for the Southern District of Florida against the Debtor seeking recoverybased on the First Guarantee and the Second Guarantee (collectively the Mouttet Guarantees). The Debtor filed this bankruptcy case immediately prior to a scheduled March 12, 2012 trial date. Talisman filed a motion for relief from stay which this Court granted. Subsequently the Debtor agreed to entry of a judgment in District Court on the Mouttet Guarantees (the “Guarantee Judgment”) stipulating to a $70,073,454 damage award and allowing a claim by Talisman for that amount in the Debtor's bankruptcy.

Procedural Background

The Plaintiffs filed this 24 count Complaint on August 19, 2012. The Complaint names 31 defendants,11 including the Debtor and five Relief Defendants.12 Six of the 24 counts ask this Court to determine as non-dischargeable all the debts and claims asserted by EGE and Talisman against the Debtor in the Complaint (the “Core Counts”). The balance of the counts seek recovery from a variety of defendants; most of the counts seek relief against defendants other than the Debtor, based primarily on Federal RICO and Florida RICO. On the same day the Complaint was filed, the Plaintiffs also filed a Motion for Withdrawal of Reference and to Transfer Adversary Proceeding to the U.S. District Court (ECF # 2). In the Motion for Withdrawal of Reference the Plaintiffs stated that this Court does not have subject matter jurisdiction over any claims asserted against any of the defendants other than the Debtor.

On January 2, 2013 the District Court entered its Order on Motion to Withdraw Reference (ECF # 199) in which the District Court agreed that this Court does not have subject matter jurisdiction over the Federal RICO claims. The District Court severed Counts I–XVIII of the Complaint (the “Severed Claims”) and withdrew the reference as to the Severed Claims only. The District Court denied the Motion to Withdraw Reference with respect to the Core Claims. Nonetheless, the District Court referred the Severed Counts back to this Court “for proposed findings of fact and conclusions of law as to all case-dispositive motions, as well as for final disposition of all non-dispositive motions....”

Although, with respect to the Severed Counts, this Court proposes the District Court affirm its prior order that this Court does not have subject matter jurisdiction, and that, therefore, Counts I–XVIII must be dismissed without prejudice in order for the Plaintiffs to refile a complaint in the District Court, this Court will nonetheless address the other issues raised by the defendants because (a) the District Court may not accept this Court's proposal regarding subject matter jurisdiction and (b) many of the issues relate to the Core Counts, either directly or indirectly.13

Lack of Subject Matter Jurisdiction

Bankruptcy jurisdiction is set forth in 28 U.S.C. § 1334.14 Bankruptcy jurisdiction lies in the District Court but the statute specifically provides that all bankruptcy matters may be referred by the District Court to the Bankruptcy Court. Whether bankruptcy jurisdiction is being exercised by the Bankruptcy Court or the District Court, any civil proceeding filed under the umbrella of section 1334 must either arise in,15 arise under,16 or be related to 17 the bankruptcy case. In order for a civil proceeding to be related to the bankruptcy case, the “outcome of...

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