Source: https://de.scribd.com/document/394817547/Appellant-Petitioner-s-Reply-Brief-In-Re-Ocean-Rig-UDW-Inc-Second-Circuit-Court-of-Appeals-Case-No-18-1374
Timestamp: 2019-08-23 21:20:18
Document Index: 480192774

Matched Legal Cases: ['§ 304', '§ 1101', '§ 1122', '§ 1519', '§ 1520', '§ 1521', '§ 1520', '§ 1515', '§ 1515', '§ 1515', '§1515', '§ 1520', '§ 1520', 'art 3', '§ 1520', '§ 1101', '§ 1122']

Appellant/Petitioner's Reply Brief (In Re: Ocean Rig UDW Inc., Second Circuit Court of Appeals Case No. 18-1374) | Chapter 11 | Bankruptcy
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11 Collier bankr.cas.2d 715, Bankr. L. Rep. P 70,140, 5 Employee Benefits Ca 2455 Granada Wines, Inc., Debtor v. New England Teamsters and Trucking Industry Pension Fund, 748 F.2d 42, 1st Cir. (1984)
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mntttb &tatt- <!Court of ~ptal-
Case 18-1374, Document 74, 11/26/2018, 2441759, Page2 of 28
The Appellant has appellate standing. 14
The Appeal is not equitably moot. 20
CERTIFICATE OF COMPLIANCE 28
Case 18-1374, Document 74, 11/26/2018, 2441759, Page3 of 28
(S.D.N.Y. 1994) 24
Hertz Corp. v. Friend, 559 U.S. 77 (2010) 19-20
In re Barnet, 737 F.3d 238 (2d Cir. 2013) 21
(Bankruptcy S.D.N.Y. 2007),
aff’d 389 B.R. 325 (S.D.N.Y. 2008) passim
In re BGI, Inc., 772 F.3d 102 (2d Cir. 2014) 20, 23
In re Charter Communications, Inc.,
691 F.3d 476 (2d Cir. 2012) 21, 26
Cohens v. Virginia, 6 Wheat. 264 (1821) 23
In re City of Detroit, 504 B.R. 191,
(Bankr. E.D. Mich. 2013) 25
In re City of Detroit, 838 F.3d 792 (6th Cir. 2016) 25
(Bankr. S.D.N.Y. 2016) passim
In re DBSD North America, Inc.,
634 F.3d 79 (2d Cir. 2011) 15
In re Fairfield Sentry Ltd., 714 F.3d 127
(2d Cir. 2013) passim
FritoLay, Inc. v. LTV Steel Co. (In re Chateaugay Corp.),
10 F.3d 944 (2d Cir.1993) 21
Case 18-1374, Document 74, 11/26/2018, 2441759, Page4 of 28
In re Ocean Rig UDW Inc., 570 B.R. 687
(Bankr. S.D.N.Y. 2017) passim
(2d Cir.1988) 16
Lexmark International, Inc. v. Static Control Components, Inc.,
134 S. Ct. 1377 (2014) 23-24
Sprint Communications, Inc. v. Jacobs,
690 F.3d 864 (2013) 23
11 U.S.C. § 304 8, 24
11 U.S.C. § 1101 21
11 U.S.C. §§ 1122-1129 21
11 U.S.C. § 1519 6
11 U.S.C. § 1520 passim
11 U.S.C. § 1521 passim
Federal Rule of Appellate Procedure 32 28
Federal Rule of Appellate Procedure 39 8
Federal Rule of Bankruptcy Procedure 1007 6
United States Department of Justice Civil Resource Manual 12-13
Case 18-1374, Document 74, 11/26/2018, 2441759, Page5 of 28
The Appellant is a shareholder of Ocean Rig UDW Inc. (ticker symbol
ORIG) (“Ocean Rig”). [District Court Docket No. 22, pages 8-9]. On March 24,
2017, winding up petitions were filed for Ocean Rig and three of its subsidiaries in
the Cayman Islands. Four petitions were filed, one for each of the Ocean Rig
debtors. The debtors’ representatives explained “[a]s a consequence of the filing
of winding up petitions and the commencement of the Cayman Provisional
Liquidation Proceedings, the Debtors have triggered defaults and cross-defaults
under their financial indebtedness and have exposed themselves to any number of
adverse actions in the United States.” [Bankruptcy Court Docket No. 3, page 15].
On March 27, 2017, the day that provisional liquidators were appointed in the
Cayman Islands, chapter 15 petitions for the Ocean Rig debtors were filed with the
The contemporaneous filing pattern was a problem in Bear Stearns, one of
the first chapter 15 cases brought after Congress enacted this new chapter of the
Bankruptcy Code in 2005. In re Bear Stearns High-Grade Structured Credit
Strategies Master Fund, 374 B.R. 122 (Bankruptcy S.D.N.Y. 2007), aff’d 389 B.R.
325 (S.D.N.Y. 2008). In Bear Stearns, chapter 15 recognition was unopposed and
the Bankruptcy Court denied chapter 15 recognition of its own initiative because it
was not satisfied that the debtors’ Cayman Islands presence really amounted to
more than a letterbox. More recently, in the Creative Finance case, recognition of
Case 18-1374, Document 74, 11/26/2018, 2441759, Page6 of 28
British Virgin Islands companies’ foreign cases was denied. In re Creative
Finance Ltd., 543 B.R. 498, 501 (Bankr. S.D.N.Y. 2016) (“Cases that are very
familiar to the international insolvency community (including, especially, the
SPhinX cases, the Bear Stearns cases, and their progeny) make clear that a COMI
[a center of main interests] in the jurisdiction in which the foreign representative
was appointed is essential to recognition as a foreign main proceeding. And while
a COMI can (and not infrequently does) change from the jurisdiction in which a
foreign debtor actually did business to a ‘letterbox’ jurisdiction,’ it can do so only
where material activities have been undertaken in the jurisdiction in which the
foreign proceeding was filed”).
The Bankruptcy Court in Creative Finance explained that when debtors’
proceedings in another country do not qualify for chapter 15 recognition debtors
lose the benefits of U.S. injunctive relief previously ordered. See id. at 524
(“Obviously upon the denial of recognition, the foreign representative (here the
Liquidator) becomes ineligible to obtain the benefits of section 1520, or to obtain
the additional benefits potentially available under section 1521. Also, when
recognition is denied, a U.S. court must consider the extent to which any interim
relief previously authorized under section 1519 or otherwise, should come to an
end.”); Brief for the Appellant filed with the Court of Appeals (the “Opening
Brief), pages 34-35.
Case 18-1374, Document 74, 11/26/2018, 2441759, Page7 of 28
In the present case, the chapter 15 petitions were met with objections. One
of the objections, filed on behalf of a group of secured creditors (i.e. not Highland
Capital Management, the creditor discussed on page 10 of the Response, which
decided to pursue a Cayman and Marshall Islands litigation strategy described in
the Bloomberg article ‘Bankruptcy Tourists’ Battle for Assets From Caymans to
Marshall Islands, https://www.bloomberg.com/news/articles/2017-11-16/highland-
s-ocean-rig-bet-fail-in-caymans-try-marshall-islands), included:
Given the nature of the Debtors’ acknowledged efforts to manufacture
COMI in the Cayman Islands, it will come as no surprise that the Group
intends to object to the relief sought at the Petition Hearing.
The Debtors’ filings tell a story of a streamlined and largely consensual
restructuring plan, with a few dissenting trouble-makers attempting to muck
up the works. There is, however, another, very important side to the story.
The Debtors are controlled and managed by Mr. George Economou, a Greek
shipping magnate.
Specifically, between fiscal year 2013 and fiscal year 2016, [Ocean Rig]
paid over $155 million to George Economou [and his nephew former Ocean
Rig CFO] Anthony Kandylidis and their affiliated entities on account of
these related-party agreements, in addition to $27.1 million of management
compensation received, and dividends received from the Company during
It appears now from publicly-available information that the Debtors moved
money into an unrestricted subsidiary under the debt documents for the
primary purpose of removing cash from the reach of their creditors,
including the holders of the Secured Notes. Of primary concern is how the
Debtors subsequently used [Ocean Rig Investments, Inc.] once it had been
capitalized: on April 5, 2016, the Debtors used ORI to purchase
approximately $49.9 million worth of [Ocean Rig] shares that were held by
Dryships (again, which is controlled by Mr. Economou).
Case 18-1374, Document 74, 11/26/2018, 2441759, Page8 of 28
On April 14, 2016, a mere nine days after the Debtors’ repurchase of
Dryships stock, UDW [referring to Ocean Rig UDW Inc.] redomiciled from
the Marshall Islands to the Cayman Islands. According to UDW’s Form 20-
F filing dated December 31, 2016, UDW and its subsidiaries’ business,
assets, liabilities, subsidiaries, principal locations, and directions and officers
were the same before and after the redomiciliation. In other words, the only
change was that UDW was registered in the Cayman Islands instead of in the
Marshall Islands. All of UDW’s subsidiaries, including DRH, continue to
be domiciled in the Marshall Islands. The Debtors also continued to operate
out of their Greece and Cyprus offices even after the redomiciliation to the
Cayman Islands. The implications of UDW’s sudden and artificial move is
clear: the Debtors and their affiliates were fleeing from the scene of the
[Bankruptcy Court Docket No. 26, pages 3, 6–12].1
Thus, the Appellant is not the only party to come forward expressing
concerns to the Bankruptcy Court with respect to the Ocean Rig debtors’
qualification for chapter 15 recognition. Requiring chapter 15 recognition under
the standards set by Congress as a condition to granting comity distinguishes
chapter 15 from its predecessor, section 304 of the Bankruptcy Code. See Bear
Stearns, 374 B.R. at 132 (“The Petitioners’ reliance on the discretionary and
flexibility attributes of caselaw under former section 304 of the Bankruptcy Code
This filing is among the filings designation as part of the record on appeal from
the Bankruptcy Court to the District Court, and from the District Court to this
Court. [District Court Docket No. 32]. The Appellant focuses on the substance of
the Response and Supplemental Appendix, and does not go through the numerous
problems with the Appellees’ submissions under the general rules governing
federal appellate briefing and the particular rules that apply to bankruptcy appeals.
The Appellant reserves all rights including but not limited to with respect to costs
under Federal Rule of Appellate Procedure 39.
Case 18-1374, Document 74, 11/26/2018, 2441759, Page9 of 28
is misplaced.”); 11 U.S.C. §§ 1520 and 1521 (specifying relief available to debtors
“Upon recognition” of their foreign proceedings in the United States). That a
foreign court exercises jurisdiction over foreign debtors based on, for example,
satisfaction of local requirements such as local registration (as do American
bankruptcy courts) does not mean that there is a basis for U.S. bankruptcy courts to
recognize the foreign case or the rulings in that case as a matter of comity. In re
Ocean Rig UDW Inc., 570 B.R. 687, footnote 6 (Bankr. S.D.N.Y. 2017) (“To the
extent that a determination of center (or ‘centre,’ as spelled elsewhere) of main
interests is relevant to eligibility to file proceedings in other countries, and has
been decided by the foreign court, it may well be appropriate for a U.S. bankruptcy
court to give deference or comity to the determination of the foreign court in the
jurisdiction in which the foreign proceeding is filed. But since the Cayman Court
has not decided the issue here, no issue of deference or comity arises.”).
In addition to the winding up petitions in the Cayman Islands initiating
provisional liquidation proceedings filed in March of 2017 (Financial Services
Division Cause Nos. FSD0057/2017, FSD0059/2017, FSD0056/2017 and
FSD0058/2017), four other scheme of arrangement proceedings were filed on
behalf of the debtor appellees in the Cayman Islands in May of 2017 (Financial
Services Division Cause Nos. FSD101/2017, FSD102/2017, FSD100/2017 and
FSD103/2017).
Case 18-1374, Document 74, 11/26/2018, 2441759, Page10 of 28
Chapter 15 petitions for the four schemes of arrangement proceedings were
not filed per the statutory requirements for chapter 15 petitions in the Bankruptcy
Code and Federal Rules of Bankruptcy Procedure. These are fatal defects with
respect to recognition of the four scheme of arrangement proceedings. See 11
U.S.C. § 1515(a) (“A foreign representative applies to the court for recognition of
a foreign proceeding in which the foreign representative has been appointed by
filing a petition for recognition”); 11 U.S.C. § 1515(b) (“A petition for recognition
shall be accompanied by . . .”) (emphasis added); 11 U.S.C. § 1515(c) (“A petition
for recognition shall also be accompanied by . . .”) (emphasis added); Federal Rule
of Bankruptcy Procedure 1007(a)(4) (“In addition to the documents required under
§1515 of the Code, a foreign representative filing a petition for recognition under
chapter 15 shall file with the petition . . .”) (emphasis added).
After discussing with the Appellant and counsel for the Appellees how the
recognition trial and later the same week conducting a trial on Ocean Rig’s chapter
15 recognition request, the Bankruptcy Court limited its post-trial Memorandum
Opinion [Bankruptcy Court Docket No. 129] to the four liquidation proceedings
that were pending when the chapter 15 petitions were filed. See Opening Brief,
page 10 footnote 4. That the recognition order [Bankruptcy Court Docket No. 130]
entered by the Bankruptcy Court the same day it entered the Memorandum
Opinion did not mention the Appellant by name [Response, page 37-38, 41-42]
Case 18-1374, Document 74, 11/26/2018, 2441759, Page11 of 28
reflects that the debtors provided the form of recognition order that was used
[Bankruptcy Court Docket No. 118] as is typical for debtors’ counsel in
bankruptcy cases. The opening lines of the Memorandum Opinion entered by the
Bankruptcy Court following the recognition trial did and referenced the four
proceedings pending before the Grand Court of the Cayman Islands as of the
chapter 15 petition date. In re Ocean Rig UDW Inc., 570 B.R. at 689. That the
Bankruptcy Court limited its post-trial analysis to the four provisional liquidation
proceedings is clear also from the Conclusion of the Memorandum Opinion. See
id. at 707. However the Recognition Order entered by the Bankruptcy Court the
same day as the Memorandum Opinion recognized the four liquidation
proceedings and the four scheme of arrangement proceedings.
Following being precluded at the trial on the Ocean Rig chapter 15 debtors
recognition request from introducing testimony concerning the schemes of
arrangements, the Appellant pointed out the inconsistency and asked that the
Memorandum Opinion and the Recognition Order be conformed to track each
other. [Bankruptcy Court Docket No. 131]. The Bankruptcy Court declined.
[Bankruptcy Court Docket No. 134]. The provisional liquidation proceedings and
the scheme of arrangement proceedings all having been recognized, the Appellant
timely appealed their recognition to the District Court. [Notice of Appeal,
Bankruptcy Court Docket No. 140]. The Appellees complain that the Appellant
Case 18-1374, Document 74, 11/26/2018, 2441759, Page12 of 28
did not oppose or appeal a later order entered by the Bankruptcy Court on
September 20, 2017 [Response, page 19] and also, confusingly, refer to this order
as the Enforcement Order, using the defined term differently from the District
Court. [Response, page 13, footnote 9]. This is not a valid complaint because
broad scope relief entered under 11 U.S.C. §§ 1520 and 1521 in this later order is
only available “Upon recognition.” Recognition is an express statutory condition
precedent to relief, and recognition was timely appealed via the Notice of Appeal
filed on September 7, 2017. Among the issues that should be taken up on remand
is whether the Bankruptcy Court had jurisdiction to enter the further and even more
expansive relief with respect to the schemes on September 20, 2017 only available
“Upon recognition” under 11 U.S.C. §§ 1520 and 1521 once it was divested of
jurisdiction by the recognition order appeal to the District Court on September 7,
2017. The use of “Enforcement Order” to characterize the order entered by the
Bankruptcy Court following the Appellant’s timely filed notice of appeal does not
matter analytically because the jurisdictional analysis is a substance over form
analysis. United States Department of Justice Civil Resource Manual, Section 191,
Termination of Bankruptcy Jurisdiction, Part 3, Effect of Appeal on Court’s
Jurisdiction, available on www.justice.gov/jm/civil-resource-manual-191-
termination-bankruptcy-jurisdiction (“The filing of a notice of appeal is an event of
jurisdictional significance – it confers jurisdiction on the appellate court and
Case 18-1374, Document 74, 11/26/2018, 2441759, Page13 of 28
divests the trial court of its control over those aspects of the case involved in the
appeal. . . . Although the filing of an appeal divests the lower court of its control
over matters on appeal, the court retains jurisdiction to implement or enforce the
order or judgment but not to expand upon or alter it.”).
The Appellees’ characterization of the agreement by some creditors to
support scheme of arrangement proceedings is the “agreement described the
anticipated distributions to be made to affected creditors and made clear that
UDW’s [i.e. the Ocean Rig parent company’s] existing shareholders would be
effectively wiped out.” [Response, page 8]. This is not so. The Bankruptcy
Court’s description is accurate: “The four schemes propose a major restructuring of
the Foreign Debtors’ financial debt, issuing new debt and cash and converting
much of their fixed debt into equity, very substantially diluting the current equity
ownership of [Ocean Rig parent company] UDW.” In re Ocean Rig UDW Inc.,
570 B.R. at 690. The Appellant, a diluted shareholder, timely sought District
Court review not of the terms of the schemes of arrangement but of whether the
requirements of chapter 15 had been met such that there was a basis for injunctions
limiting her recourse in the United States. This is a U.S. law issue, not a Cayman
Islands issue so it was raised in the U.S. not in the Cayman Islands. See In re
Ocean Rig UDW Inc., 570 B.R. at 687, footnote 6 (“since the Cayman Court has
not decided the issue here, no issue of deference or comity arises.”).
Case 18-1374, Document 74, 11/26/2018, 2441759, Page14 of 28
The Appellant has appellate standing.
The Appellant has appellate standing to contest the bases for being enjoined
and dismissal of the appeal for lack of appellate standing should be reversed.
Enjoined shareholders in a deeply insolvent enterprise brought the recognition
challenge and appeals that led to the seminal chapter 15 ruling by this Court In re
Fairfield Sentry Ltd., 714 F.3d 127 (2d Cir. 2013). The Appellees struggle in their
Response with Fairfield, which became one of the leading chapter 15 cases
nationwide, because it arose in the context of a challenge to chapter 15 recognition
by shareholders of deeply insolvent companies.
The Appellees contend that the Appellant’s position with respect to Fairfield
is that it is a “blanket endorsement of ‘shareholder appellate standing to contest
chapter 15 . . . rulings.’” [Response, pages 42-43 (citing Opening Brief, page 22)].
What the Appellant stated rather was that “Second Circuit case law reflects
shareholder appellate standing to contest chapter 15 recognition rulings.”
[Response, page 22]. The Appellees argue appellate standing was not addressed or
disputed in Fairfield. Appellate standing was not an issue in the Fairfield case for
the same reasons it should not have been litigated in the present case – an enjoined
party challenging on appeal the bases for injunctive relief cutting off his or her
rights is a person aggrieved by the injunction. For the avoidance of repetition, the
Appellant refers back to pages 15-24 of the Opening Brief concerning the appellate
Case 18-1374, Document 74, 11/26/2018, 2441759, Page15 of 28
standing standards and how they are met by the Appellant in this Ocean Rig
The Appellees do not address many of the points raised in the Opening Brief
concerning errors in the Ocean Rig District Court’s analysis warranting reversal
under the applicable de novo standard of review. Footnote 24 on page 44 of the
Response takes the position that the Fairfield Sentry Ltd. shareholders were
entitled to proceeds of the liquidation, citing the Ocean Rig District Court’s
discussion there was no indication Fairfield Sentry had creditors. Fairfield Sentry
had creditors. [Opening Brief, pages 23-24 (citing Fairfield District Court ruling)].
The same footnote also argues that the Ocean Rig shareholders “had no prospect of
recovery.” This is not true. Shareholders other than management were diluted but
not out of the money and management shareholders took a 9.31% stake.
[Response, page 33]. Moreover, this Judicial Circuit has declined to adopt a bright
line rule prohibiting appeals by out of the money appellants. See In re DBSD
North America, Inc., 634 F.3d 79 (2d Cir. 2011) (“We think it plain that we should
not forbid all appeals by out-of-the-money creditors. Such a rule would bar a large
percentage of creditors in bankruptcy court, perhaps a majority of them, from ever
reaching the district court or this Court, however erroneous the orders of the
bankruptcy court might be. . . . Such a result might benefit this Court's docket, but
would disserve the protection of the parties' rights and the development of the law.
Case 18-1374, Document 74, 11/26/2018, 2441759, Page16 of 28
We should not raise the standing bar so high, especially when it is a bar of our own
creation and not one required by the language of the Code, which ‘does not contain
any express restrictions on appellate standing.’”) (citing Kane v. Johns-Manville
Corp., 843 F.2d 636, 642 (2d Cir.1988)).
The final point in the footnote speculates that the Fairfield shareholder
appellants probably would not have pursued a derivative action if they would not
have shared in recoveries. A ruling that followed the appeal to this Court of
recognition in Fairfield explains why the shareholders did not have recovery
rights. The Bankruptcy Court presiding over the Fairfield chapter 15 cases, in the
context of ruling on the shareholders’ objections to the Fairfield liquidators’
request for approval to transfer Fairfield claims, was presented with a challenge to
the shareholders’ standing. Following briefing on standing in that context, the
Court noted that the shareholders’ standing was challenged on the bases they
lacked an economic interest in the Fairfield British Virgin Islands case, were acting
adversely to shareholders and creditors of that estate, and were not registered
shareholders with a right to receive distributions from Fairfield under British
Virgin Islands law. In re Fairfield Sentry Ltd., 10-13164 (Bankr. S.D.N.Y. Nov.
22, 2016), Pages 8-9. The Bankruptcy Court did not decline to reach the merits,
did not reach the issue of standing and ruled in favor of the shareholders on their
Case 18-1374, Document 74, 11/26/2018, 2441759, Page17 of 28
Appellees assert that the Opening Brief “devotes two sentence to a new
theory of standing” based on being enjoined and that the argument is unpreserved
because the Appellant’s opposition to the motion to dismiss filed with the District
Court mentioned the Recognition Order injunctions only in passing and did not
contend the injunctions made her a person aggrieved. [Response, page 37]. This is
not true. See District Court Docket No. 22, pages 6-8, 10-11, 13. At issue before
the Bankruptcy Court was whether Congress’ standards for injunctive relief under
chapter 15 of the Bankruptcy Code are met. The Appellant is not a party to an
Ocean Rig chapter 11 case (though one could have been filed because foreign
companies are eligible to file chapter 11 cases) and the Ocean Rig debtors did not
make chapter 11 plans with provisions that the Appellant is challenging, a pattern
in some chapter 11 appellate standing cases. Chapter 11 plans are often hundreds
of pages long and concern resolution of intertwined matters under the Bankruptcy
Code. The challenge here is to the bases for injunctions in a brief chapter 15 order
that can only be properly entered when debtors have sufficiently substantial
connection to the country where their foreign proceedings are pending as of the
chapter 15 petition date to satisfy standards set by Congress. As explained in the
discussion of why it was an abuse of discretion to dismiss the appeal on equitable
mootness grounds - nothing happens to the Cayman Islands restructuring if
recognition is reversed.
Case 18-1374, Document 74, 11/26/2018, 2441759, Page18 of 28
As of the chapter 15 petition date, March 27, 2017, the debtors did not have
a center of main interests in the Cayman Islands under Fairfield, which requires an
examination of the facts as of the time of the chapter 15 petition, and includes a
look-back for manipulation. See Fairfield, at 130 (“the relevant time period is the
time of the Chapter 15 petition, subject to an inquiry into whether the process has
been manipulated.”); In re Creative Finance Ltd., 543 B.R. 498, 518-19 &
footnote 124 (Bankr. S.D.N.Y. 2016) (Fairfield Sentry sent still another important
message. . . . Though the relevant time period for the determination of COMI is the
time of the chapter 15 petition, it is ‘subject to an inquiry as to whether the process
has been manipulated.’ That caveat was important enough to get across that the
Fairfield Sentry court mentioned it, one way or another, seven times.”) (original
emphasis). As of the chapter 15 petition date, the schemes of arrangement were
not pending and could not be recognized. The provisional liquidation proceedings
could have proceeded to a liquidation of the debtors, with no schemes of
arrangement proceedings being filed. [Response, pages 11-12, discussing decision
to promote schemes in May 2017]. With respect to the provisional liquidation
proceedings, a center of main interests could not lie in the Cayman Islands under
Fairfield because the Ocean Rig liquidators were appointed in the Cayman Islands
contemporaneously with the filing of the chapter 15 petitions in the U.S. Fairfield,
714 F.3d at 137 (“a court may consider the period between the commencement of
Case 18-1374, Document 74, 11/26/2018, 2441759, Page19 of 28
the foreign insolvency proceeding and the filing of the Chapter 15 petition to
ensure that a debtor has not manipulated its COMI in bad faith.”); In re Creative
Finance Ltd., 543 B.R. 498, 518 (Bankr. S.D.N.Y. 2016) (“The effect of [the
Fairfield] holding is that in instances in which a foreign representative has engaged
in significant pre-U.S. filing work to operate (or even liquidate) the foreign debtor
in the jurisdiction where the foreign insolvency proceeding was commenced (even
if in a letterbox jurisdiction), the COMI can be found to have shifted from the
foreign debtor's original principal place of business to the new locale.
Though Fairfield Sentry's holding would not have made a difference in Bear
Stearns or Basis Yield (because each was filed in the U.S. virtually immediately
after the Cayman filing), Fairfield Sentry now provides a means for U.S.
recognition of letterbox jurisdiction insolvency proceedings — so long as the estate
fiduciaries in those jurisdictions do enough work.”).
These are among the reasons the debtors’ requests for chapter 15 recognition
should not have been granted under the standards set by Congress. Chapter 15
recognition is the statutory condition precedent under 11 U.S.C. §§ 1520 and 1521
for broad scope injunctive relief, by their terms. Each of the statutes opens with
“Upon recognition.” There are approaches to determining where a center of main
interests is as of the chapter 15 petition including approaches that look to the
Supreme Court’s “nerve center” test expressed in Hertz Corp. v. Friend, 559 U.S.
Case 18-1374, Document 74, 11/26/2018, 2441759, Page20 of 28
77 (2010) or the “widely adopted list” referenced by this Court of Appeal’s
Fairfield ruling. Fairfield at 137. In this case the Bankruptcy Court entered a
ruling based in large part on sympathy for a restructuring narrative advanced by
advisors to the debtors’ management that benefitted the debtors’ management. The
narrative is undermined by what happened after the debtors got broad scope
injunctive relief from the Bankruptcy Court only available upon recognition, and
diluted the Ocean Rig shareholders. [Response, footnote 14 (discussing 1 for 9,200
reverse stock split) & footnote 15 (citing Joint Proxy Statement discussing
company sale negotiations following shareholder dilution, and Appellees’ counsel
representing management in connection with management agreement payout
negotiations)].
The District Court should not have dismissed the appeal for lack of appellate
The Appeal is not equitably moot.
The appeal is not equitably moot and dismissal of the appeal for equitable
mootness should be reversed. The equitable mootness doctrine was developed
judicially "in response to the particular problems presented by the consummation
of plans of reorganization under Chapter 11” of the Bankruptcy Code. In re BGI,
Inc., 772 F.3d 102, 107 (2d Cir. 2014). Equitable mootness analysis is triggered
when a debtors’ chapter 11 organization plan has been “substantially
Case 18-1374, Document 74, 11/26/2018, 2441759, Page21 of 28
consummated” a defined term in chapter 11 of the Bankruptcy Code. See id. at 108
(citing In re Charter Communications, Inc., 691 F.3d 476 (2d Cir. 2012) and
FritoLay, Inc. v. LTV Steel Co. (In re Chateaugay Corp.), 10 F.3d 944 (2d
The Appellees assert that the Appellant “has offered no principled reason to
exclude chapter 15 from its [the doctrine of equitable mootness] ambit” [Response,
page 46]. Precedents of the U.S. Court of Appeals for the Second Circuit hold that
equitable mootness analysis is triggered by “substantial consummation.” See
Opening Brief, pages 28-32. It was Congress and not the Appellant that included
“substantial consummation” as a defined term in chapter 11 that is not applicable
in chapter 15. See In Barnet, 737 F.3d 238, 246-47 (2d Cir. 2013) (construction of
the Bankruptcy Code must be undertaken beginning with the language employed
by Congress, and so that effect is given to all of its provisions). Substantial
consummation is a term of art applicable in chapter 11 cases. It was placed by
Congress in chapter 11 and opens with “In this chapter.” Substantial
consummation requires “assumption by the debtor or by the successor to the debtor
under the plan of the business or of the management of all or substantially all of
the property dealt with by the plan.” 11 U.S.C. § 1101(2). Plans, in turn, must
meet certain requirements under chapter 11. See generally 11 U.S.C. §§ 1122-
1129. Schemes of arrangement are not plans satisfying chapter 11’s requirements,
Case 18-1374, Document 74, 11/26/2018, 2441759, Page22 of 28
as demonstrated for example by a distribution in this case contrary to the
Bankruptcy Code’s classification and priority provisions - management taking
9.31% of equity and non-management equity taking less, without creditors being
paid in full. There is no substantial consummation in schemes, and substantial
consummation is the trigger for equitable mootness analysis under the precedents
of this Judicial Circuit.
The District Court referred to “foreign bankruptcy proceedings that have
been substantially consummated” (A39). A foreign insolvency proceeding is
consummated as and per foreign law requirements, not U.S. law. And U.S.
substantial consummation statutes and case law do not apply to a foreign
insolvency proceeding as they do to domestic bankruptcy cases. There is also no
requirement or expectation that a chapter 15 appellant seek a stay under the
standards set by Congress or this Court’s precedents. See Opening Brief, pages 27-
32. It would be a departure from controlling law and precedent, inequitable, and
arguably unconstitutional to fault the Appellant for not seeking a stay insofar as it
would deprive the Appellant of the right to proceed with a chapter 15 appeal under
Title 28 of the U.S. Code pursuant to a standard not in existence when she
appealed. In Fairfield, the appellants were enjoined minority shareholders
appealing recognition of the debtors’ foreign proceedings in the U.S., and were not
Case 18-1374, Document 74, 11/26/2018, 2441759, Page23 of 28
required to appear in or seek stays of British Virgin Islands proceedings or try to
stay U.S. Bankruptcy Court orders to appeal to the District and Circuit Courts.
In the present case, as in Fairfield, the bases for chapter 15 injunctions were
appealed, not a confirmed chapter 11 reorganization plan, which is the context for
most equitable mootness cases. The context is not a liquidating chapter 11 plan, as
was the case in the Borders Bookstores (BGI) and Arcapita Bank cases [Response,
pages 45-46, 48-49]. The Appellees can offer no sound basis for expanding the
scope of equitable mootness doctrine to chapter 15 cases under the Bankruptcy
Code and under bankruptcy cases in this Judicial Circuit. Seemingly aware of this,
they try to manufacture a free-roving “exercise of discretion” basis for the District
Court’s ruling [Response, page 53], which is not consistent with the ruling’s
analysis and not consistent with Supreme Court jurisprudence. See Sprint
Communications, Inc. v. Jacobs, 690 F.3d 864 (2013) (“Federal courts, it was early
and famously said, have ‘no more right to decline the exercise of jurisdiction
which is given, than to usurp that which is not given.’ Cohens v. Virginia, 6
Wheat. 264, 404 (1821). Jurisdiction existing, this Court has cautioned, a federal
court’s ‘obligation’ to hear and decide a case is ‘virtually unflagging.’”); Lexmark
International, Inc. v. Static Control Components, Inc., 134 S. Ct. 1377 (2014)
(“Lexmark urges that we should decline to adjudicate Static Control’s claim on
grounds that are ‘prudential,’ rather than constitutional. That request is in some
Case 18-1374, Document 74, 11/26/2018, 2441759, Page24 of 28
tension with our recent reaffirmation of the principle that ‘a federal court’s
“obligation” to hear and decide’ cases within its jurisdiction ‘is “virtually
unflagging.””).
The Appellees mischaracterize what occurred in the Allstate case, brought
under section 304 of the Bankruptcy Code, the repealed predecessor to chapter 15.
Allstate was a case decided by (then District Judge now) Justice Sotomayor in
which the District Court reached the merits of the appeal. See Allstate Ins. Co. v.
Hughes, 174 B.R. 884, 889 (S.D.N.Y. 1994) (“I reach the merits of Allstate’s
appeal.”). The Appellees discuss chapter 9 cases (bankruptcy proceedings of
American municipalities) from outside of this Judicial Circuit that are not binding
and not instructive arising as they do in a very different context. Equitable
mootness analysis varies among the Courts of Appeals as it is a judge-made
doctrine created and applied differently across Judicial Circuits. Moreover,
American chapter 9 cases raise public policy considerations absent in chapter 15
case filings following debt default triggered by Cayman Islands filings of a Greek
offshore oil drilling contractor. See Bennett v. Jefferson County, Alabama, 899
F.3d 1240 (11th Cir. 2018) (“If the interests of finality and reliance are paramount
to analysis of equitable mootness for a Chapter 11 private business with investors,
shareholders, and employees, . . . then these interests surely apply with greater
force to the County’s Chapter 9 Plan, which affects thousands of creditors and
Case 18-1374, Document 74, 11/26/2018, 2441759, Page25 of 28
residents.”) (citing In re City of Detroit, Michigan 838 F.3d 792, 803 (6th Cir.
2016)) (internal citations omitted); In re City of Detroit, Michigan 838 F.3d at 795
(“At the time of filing, the City [of Detroit] had over $18 billion in escalating debt,
over 100,000 creditors, hundreds of millions of dollars of negative cash flow,
crumbling infrastructure (e.g., some 78,000 abandoned structures, half classified as
‘dangerous’; another 66,000 blighted vacant lots; a crumbling water and sewer
system; 40% nonfunctioning streetlights; outdated computer systems and
software), and could not provide ‘the basic police, fire[,] and emergency medical
services that its residents need[ed] for their basic health and safety.’" In re City of
Detroit, 504 B.R. 191, 192 (Bankr. E.D. Mich. 2013)).
The District Court’s ruling with respect to equitable mootness includes
multiple errors of law (as set out in the Opening Brief at pages 24-36) including
creating a per se equitable mootness standard for this chapter 15 appeal. The
ruling should be reversed. See Koon v. United States, 518 U.S. 81, 100 (1996) (“A
district court by definition abuses its discretion when it makes an error of law.”).
“The Chateaugay factors ensure that there is no per se equitable mootness by
requiring a court to examine the actual effects of the requested relief. Finally, in
examining a debtor’s contentions that a claim is equitably moot, we cannot rely
solely on the debtors’ conclusory predictions or opinions that the requested relief
would doom the reorganized company. Instead Chateaugay II requires an
Case 18-1374, Document 74, 11/26/2018, 2441759, Page26 of 28
analytical inquiry into the likely effects of the relief an applicant seeks and must be
based on the facts.” Charter Communications, 691 F.3d at 482.
Appellees argue that the Appellant “seeks to upend the Recognition Order,
and, in turn, Ocean Rig’s entire $3.7B Cayman Islands-based restructuring”
[Response, page 44]. They do not explain how reversal of chapter 15 recognition
would upend the Cayman Islands restructuring. This is because the Cayman
Islands schemes of arrangement would not be affected by reversal of the
recognition order. Also unaffected would be the restructuring more broadly. As
the Appellees’ Corporate Disclosure Statement reflects, the majority of the Nasdaq
traded Ocean Rig parent company’s stock is held by sophisticated private equity
funds with the largest stake, 20.24%, held by affiliates of Elliott International
Capital Advisors. The private equity funds holding stakes during the pendency of
the District Court’s appeal did not intervene in the appeal. This is further
indication that, in fact, if chapter 15 recognition is reversed the restructuring would
not be “upended.” Were it otherwise the Ocean Rig publicly traded parent
company would have been obligated to disclose risks of the restructuring being
upended in its filings with the Securities and Exchange Commission. The Ocean
Rig debtors have in the appeal to the Court of Appeals cited numerous SEC filings,
asking the Court to take judicial notice that the contents of the filings were publicly
disclosed. [Response, page 9, footnote 5]. The Ocean Rig debtors are accountable
Case 18-1374, Document 74, 11/26/2018, 2441759, Page27 of 28
for, and this Court should notice, what is not disclosed in their SEC filings –
concerns being advanced to this Court that the Cayman Islands restructuring can be
upended on appeal. [District Court Docket No. 22, pages 18-19]. In the interests
of law and equity, the Appellees should be bound by what is in their SEC filings
and what is not for purposes of assessing their assertions on appeal with respect to
the effects of the appeal. The alternative is telling a Court of Appeals to which
SEC filings are cited one thing and regulators and the investing public relying on
disclosures in SEC filings another.
The Appellant has appellate standing. The appeal does not threaten the
restructuring, is not equitably moot, and should not have been dismissed.
The judgment below of the District Court dismissing the appeal should be
Case 18-1374, Document 74, 11/26/2018, 2441759, Page28 of 28
This brief is certifying as complying with the limitations for length set forth
in Federal Rule of Appellate Procedure 32(a)(7)(B). It is within the word
limitations because it contains no more than 6,100 words in total.
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