Opinion ID: 2780845
Heading Depth: 2
Heading Rank: 2

Heading: Ownership Issue

Text: Two sets of attorneys—representing the Zeltser Group and the Redmond Group, respectively—entered appearances of record in the bankruptcy court, both purporting to act on behalf of the Alleged Debtors. On March 21, 2011, four days after the involuntary petitions were filed, the Zeltser Group, through attorney DiBello, filed answers on behalf of the Alleged Debtors, immediately admitting to the allegations in the involuntary petitions against the Alleged Debtors and consenting to the relief requested by the Petitioning Creditors. The next day, the Redmond Group, through attorney Redmond, filed an emergency motion to strike the Zeltser Group’s answers. The Redmond Group, claiming to be the actual authorized representatives of the Alleged Debtors, alleged that the involuntary petitions were improperly filed in an attempt to stay the state court litigation in Florida and New York. To adjudicate the underlying debt, the bankruptcy court had to decide who owned the Alleged Debtors, and thus who had the authority to retain counsel. In response to the motion to strike, the Zeltser Group asked the bankruptcy court to deny the relief sought therein until resolving the question of who had the authority to act on behalf of the Alleged Debtors. Notably, the Zeltser Group 10 Case: 12-15595 Date Filed: 02/20/2015 Page: 11 of 57 stated in its response that “the issues of proper ownership and control over the Alleged Debtor[s] should be litigated in due course before this Court.” Faced with these contradictory claims, the bankruptcy court held a hearing on March 25, 2011. The bankruptcy court noted that it was highly unusual that the Alleged Debtors, as represented by the Zeltser Group, immediately consented to the involuntary petitions. As to the ownership issue, attorney Zeltser contended that Imedinvest, a “loose investment partnership” owned all three of the Alleged Debtors. According to Zeltser, Badri had been a partner of Imedinvest, and it was on behalf of Imedinvest and other entities that the Note debt had been incurred. Counsel for the Redmond Group denied that Imedinvest had any ownership interest in the Alleged Debtors. Instead, the Redmond Group asserted that the Valmore Trust ultimately owned Fisher Island and Little Rest through its trustee, Miselva Establissement (“Miselva”). The Redmond Group also asserted that Mutual Benefits was comprised of several investors, the largest of which was Kayley Investments, N.V. (“Kayley”). In turn, Kayley was legally owned by the Test Trust. During the hearing, the Zeltser Group specifically requested that the bankruptcy court decide the ownership issue. Attorney Zeltser claimed that the New York and Florida state courts could not determine ownership, and informed the bankruptcy court that it, as the “ultimate Court of equity,” was the “only court” 11 Case: 12-15595 Date Filed: 02/20/2015 Page: 12 of 57 that could resolve the issue. Furthermore, the bankruptcy court’s decision on the issue, presumably after a short “ownership hearing,” would be “dispositive.” The Redmond Group later filed answers and motions to dismiss on behalf of the Alleged Debtors, denying the allegations in the involuntary petitions, raising affirmative defenses, and seeking dismissal of the petitions as filed in bad faith. Thus, whether the petitions were contested depended on a threshold determination of which group was authorized to represent the Alleged Debtors in the proceedings.