Opinion ID: 2780845
Heading Depth: 3
Heading Rank: 4

Heading: Bankruptcy Court’s Summary Judgment Order

Text: On January 20, 2012, the bankruptcy court, sua sponte, entered an order granting summary judgment in favor of the Redmond Group in the Fisher Island and Little Rest cases, as the court had indicated it was inclined to do. The bankruptcy court noted that, despite being given the opportunity to do so, the Zeltser Group chose not to raise any issues of disputed fact or otherwise point to specific record evidence potentially raising a disputed factual issue. The bankruptcy court also noted that SP Trustees had replaced Miselva as trustee of the Valmore Trust. After reviewing the record and drawing all reasonable inferences in favor of the Zeltser Group, the bankruptcy court found, as a matter of law, that Fisher Limited, Grosvenor, and their respective subsidiaries (including Fisher Island and 19 Case: 12-15595 Date Filed: 02/20/2015 Page: 20 of 57 Little Rest) were assets of the Valmore Trust. Final summary judgment was entered as follows: the Valmore Trust, through its trustee (currently SP Trustees) owned (1) 100% of Fisher Limited, which (through an intermediary) owned 100% of Fisher Island, and (2) 100% of Grosvenor, which owned 85% of Little Rest, with the remaining 15% of Little Rest owned by an individual not directly involved in the ownership dispute. Three groups appealed the bankruptcy court’s January 20, 2012 summary judgment order to the district court: (1) the Zeltser Group (still purporting to represent Fisher Island and Little Rest), (2) the Petitioning Creditors, and (3) five non-party entities affiliated with the Zeltser Group, including Fisher Limited, Grosvenor, and Areal Group (“Areal”) 6 (collectively, the “non-party appellants”). These appeals were consolidated by U.S. District Court Judge Kathleen Williams. E. Trial in Mutual Benefits Case 1. Denial of Summary Judgment On February 13, 2012, the Redmond Group moved for summary judgment on the ownership issue in the Mutual Benefits case. The Redmond Group sought a determination that Mutual Benefits was owned by 24 investors, and that the Test Trust was the ultimate owner of Kayley, the largest investor of Mutual Benefits. The Zeltser Group responded, inter alia, that the bankruptcy court lacked authority 6 Areal is apparently a wholly owned subsidiary of Areal Plus Group, the assignor of the Note, as well as a creditor and former partner of Imedinvest. 20 Case: 12-15595 Date Filed: 02/20/2015 Page: 21 of 57 to make a final determination as to ownership, and could not make any such determination without joinder of all the alleged owners of Mutual Benefits (i.e., the investors). On August 28, 2012, the bankruptcy court denied the Redmond Group’s motion, finding that genuine issues of material fact raised by the Zeltser Group’s response precluded summary judgment. The bankruptcy court subsequently set the matter for a two-day bench trial, to begin on April 11, 2013—over two years after the case was filed. 2. Pre-Trial and Motion for Continuance In October 2012, the parties filed their lists of intended witnesses and exhibits. The Zeltser Group named 36 witnesses it intended to call at trial as part of its case-in-chief, including Galina Orlowskaya, Natasha Bransburg, and Petitioning Creditor Oxana Adler, 7 and identified hundreds of exhibits. The bankruptcy court ordered the parties to submit sworn declarations of their intended witnesses’ direct testimony at least 10 days before trial. In response, the Redmond Group filed the declaration of W. Shaun Davis, the president and sole director of Mutual Benefits. The Zeltser Group filed the declaration of Oxana Adler. 7 Adler, who is apparently an attorney licensed in Russia, told the Examiner that she has represented Imedinvest and its affiliates (including Badri and the Alleged Debtors) for more than 14 years. The claims she asserted in the involuntary petitions arose out of legal services allegedly provided to the Alleged Debtors. 21 Case: 12-15595 Date Filed: 02/20/2015 Page: 22 of 57 On April 1, 2013, the Zeltser Group filed a motion for an extension of time to file the direct testimony declarations of Orlowskaya and Bransburg and for a 60day continuance of the trial. According to the Zeltser Group, Orlowskaya and Bransburg did not want to give their testimony at that time because they were concerned for their personal safety in light of the March 23, 2013 death of Russian businessman Boris Berezovsky. The motion did not specify any connection between the witnesses and Berezovsky, or otherwise explain the relevance of his death to the Mutual Benefits bankruptcy proceeding. 8 The bankruptcy court denied the motion for continuance. 3. Trial Trial began as scheduled on April 11, 2013. The Redmond Group called Davis to testify in person and through his previously filed declaration. Davis testified as follows. He was the owner of Meridian Asset Management Ltd., which owned 99% of Triangle, which in turn owned all of the voting shares in Mutual Benefits. Davis was appointed as the president and sole director of Mutual Benefits in 2002 and continues to serve in that capacity. Kayley and 22 other 8 The Zeltser Group later submitted sworn declarations by Orlowskaya, Bransburg, and Adler, which stated that they had received threats of bodily harm from individuals associated with the Redmond Group. Adler vaguely declared that she believed Berezovsky’s death to be “intrinsically connected to his claims to assets [at issue] in the proceedings.” According to the Zeltser Group’s appellate briefs in this Court, Berezovsky is associated with Badri’s widow, Gudavadze. 22 Case: 12-15595 Date Filed: 02/20/2015 Page: 23 of 57 investors held non-voting shares in Mutual Benefits, which only entitled them to an economic interest in the profits and did not confer any voting power. Davis testified that he retained the Redmond Group attorneys in the bankruptcy case and that the Zeltser Group attorneys were not authorized to represent Mutual Benefits. Davis’s testimony was corroborated by various exhibits, many of which were admitted into evidence without objection. Attorney Zeltser then cross-examined Davis for four hours. Zeltser attempted to establish that Mutual Benefits defrauded its investors and that Davis was merely a “nominee” without any decision making power. Davis denied both propositions. At the close of the Redmond Group’s case-in-chief, the Zeltser Group orally moved for judgment on partial findings under Federal Rule of Civil Procedure 52(c) and for involuntary dismissal under Federal Rule of Civil Procedure 41(b). The Zeltser Group argued that the Redmond Group failed to meet its burden of establishing who owned Mutual Benefits based on Davis’s testimony—the sole evidence presented by the Redmond Group. The bankruptcy court found that the Redmond Group had presented a prima facie case and denied both motions. In doing so, the bankruptcy court reasoned that “a motion on Rule 52(c) or Rule 41 is in some way similar to a summary judgment motion; that is, it is not a time for 23 Case: 12-15595 Date Filed: 02/20/2015 Page: 24 of 57 making credibility choices. It is a time to determine whether there is evidence, if accepted, that . . . can constitute a prima facie case.” The Zeltser Group also renewed its motion for a continuance of the trial, citing the unavailability of Orlowskaya, Bransburg, and Adler. The bankruptcy court ruled that Orlowskaya and Bransburg would be allowed to testify at a continued trial date on April 27, 2013, if they were produced for depositions by April 18, 2013. However, the bankruptcy court refused to extend this limited continuance to Adler. The bankruptcy court stated that Adler’s extensive involvement in the case was a matter of public record and declined to give Adler “any further consideration” if “she chose not to be here today.” The bankruptcy court ordered the Zeltser Group to proceed with its case-inchief. Despite having submitted exhaustive lists of witnesses and exhibits, the Zeltser Group did not call any witnesses or offer any exhibits at trial. Instead, attorney DiBello informed the bankruptcy court that the Zeltser Group had nothing to present except for the testimony of Orlowskaya, Bransburg, and Adler. Because Orlowskaya and Bransburg did not appear for deposition by April 18, 2013, they were barred from testifying at all. The trial record was closed without any evidence proffered by the Zeltser Group. 24 Case: 12-15595 Date Filed: 02/20/2015 Page: 25 of 57 4. Bankruptcy Court’s Final Judgment On April 25, 2013, the bankruptcy court entered its findings of fact and conclusions of law in favor of the Redmond Group. The court found the Redmond Group’s testimonial and documentary evidence to be credible and persuasive, whereas the Zeltser Group failed to submit any evidence to support an alternative theory of ownership. The bankruptcy court found that Triangle owned the controlling “Managers Shares” of Mutual Benefits. As the controlling shareholder, Triangle appointed Davis as president and sole director of Mutual Benefits. Davis had the exclusive authority to retain counsel to represent Mutual Benefits, and, pursuant to that authority, Davis retained the Redmond Group’s attorneys in the involuntary bankruptcy proceeding. Accordingly, the bankruptcy court granted the Redmond Group’s motion to strike the Zeltser Group’s answer and set the Redmond Group’s motion to dismiss the involuntary petition for a hearing. Pursuant to its findings of fact and conclusions of law, the bankruptcy court entered a separate final judgment in favor of the Redmond Group. The final judgment determined that the Zeltser Group was not authorized to represent Mutual Benefits in the bankruptcy proceeding. The Zeltser Group (still purporting to represent Mutual Benefits) timely appealed the April 25, 2013 final judgment to the district court. 25 Case: 12-15595 Date Filed: 02/20/2015 Page: 26 of 57 On appeal, the district court granted the Redmond Group’s motion for leave to supplement the record, which attached deposition testimony from Bransburg in which she admitted that she did not know anything about Mutual Benefits and that she never had any relevant testimony to give at trial.