JWL Entertainment Group, Inc. v. Fisher Island Ltd. (In re Fisher Island Investments, Inc; In re Little Rest Twelve Inc.; and In re Mutual Benefits Offshore Fund, Ltd..)
- Citation:
- JWL Entertainment Group, Inc. v. Fisher Island Ltd. (In re Fisher Island Investments, Inc; In re Little Rest Twelve Inc.; and In re Mutual Benefits Offshore Fund, Ltd..), Case No. 12-15595 (11th Cir. Feb. 20, 2015) .]
- Tag(s):
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- Ruling:
- In five consolidated appeals involving a dispute as to the ownership of three related involuntary bankruptcy debtors, the Eleventh Circuit affirmed the District Court’s (i) denial of the Zeltser Group’s motion to withdraw the reference of the alleged debtors’ Fisher Island and Little Rests cases under Stern v. Marshall; (ii) affirmance of the Bankruptcy Court’s entry of summary judgment in favor of the Redmond Group as to all three debtors; and (iii) dismissal, for lack of standing, certain non-party appeals of the bankruptcy court’s summary judgment orders.
- Procedural context:
- Five consolidated appeals were made of four orders: (I) the district court's denial of the Zeltser Group's motion to withdraw the reference of the ownership issue; (ii) the district court's affirmance of summary judgment in favor of the Redmond Group in the Fisher Island and Little Rest cases; (iii) the district court's dismissal, for lack of standing, of certain non-party appeals from the bankruptcy court's summary judgment order; and (iv) the district court's affirmance of the bankruptcy court's final judgment in favor of the Redmond Group in the Mutual Benefits case.
- Facts:
- Five consolidated bankruptcy appeals of four orders arose out of an ownership dispute relating to three involuntary bankruptcy debtors: Fisher Island Investments, Inc. (“Fisher Island”), Little Rest Twelve, Inc. (“Little Rest Twelve”), and Mutual Benefits Offshore Fund, Ltd. (“Mutual Benefits”) (collectively, the “Alleged Debtors”). The bankruptcy dispute was “but a small part of global litigation that began with the unexpected death of Arkadi (“Badri”) Patarkatsishvili in February 2008.
Two competing factions, referred to by the Court as the Zeltser Group and the Redmond Group (named for each group’s lead attorney), claimed ownership and right to control each of the Alleged Debtors in the involuntary bankruptcy proceedings. As a result of the ownership dispute, attorneys from both factions appeared as counsel in each of the bankruptcy proceedings, claiming that the other had no authority to appear and act on behalf of the Alleged Debtors. The Zeltser Group immediately admitted to each of the allegations in the involuntary petitions and the Redmond Group argued that the involuntary petitions were filed solely as an attempt to delay state court litigation pending in Florida and New York. In order to adjudicate the underlying issues of the bankruptcy cases, the bankruptcy court had to first determine who owned each of the Alleged Debtors.
The Court first addressed whether the district court erred in denying the Zeltser Group’s motion to withdraw the reference of the Alleged Debtors’ Fisher Island and Little Rest cases under the U.S. Supreme Court decision, Stern v. Marshall. Noting that the Zeltser Group conceded to the district court that the ownership issue was a core matter that “arises under” or “arises in a case under” chapter 11, the Court found that, at least in this case, the ownership issue was a core proceeding under 28 U.S.C. § 157(b)(2)(A),(O) because the court could not adjudicate the underlying debt without first determining the ownership of the Alleged Debtors.
The Court next addressed the validity of the bankruptcy court’s summary judgment in favor of the Redmond Group as to the ownership of each of the Alleged Debtors. Among the “laundry list of objections” included in the appeals, the Zeltser Group argued that the bankruptcy court failed to comply with Bankruptcy Rule 7056(f), which requires the court to give parties notice and opportunity to be heard before sua sponte granting summary judgment and that the bankruptcy court erred in allowing the ownership issue to proceed as a contested matter as opposed to an adversary proceeding, without requiring the joinder of certain alleged “indispensable” parties. The Court found all arguments to be without merit, noting that the Zeltser Group “forfeited its belated adversary proceeding and mandatory joinder arguments by failing to raise them before the bankruptcy court in any sort of timely manner.” Reviewing the requirements of Bankruptcy Rule 7001 and Rule 9014, the Court determined that the ownership dispute was not a “proceeding to determine the validity….[of an] interest in property” under Rule 7001(2), and thus, an adversary proceeding was not necessary. In addition, because the dispute was appropriately decided as a contested matter, the mandatory joinder rule (Rule 7019) did not apply. Noting the Zeltser Group’s “total failure to raise any purported factual dispute in response to the bankruptcy court’s December 29, 20011 invitation to submit briefing,” the Court found the bankruptcy court’s sua sponte entry of summary judgment in favor of the Redmond Group to be proper.
With respect to the last issue on appeal as to whether certain non-parties had standing to appeal the summary judgment entered in favor of the Redmond Group, the Court found that under the “aggrieved party” doctrine, the non-parties lacked standing because they failed to demonstrate that they were “directly and adversely affected pecuniarily by the order.”
- Judge(s):
- HULL, JULIE CARNES and WALKER (Hon. John Walker, Jr., U.S. Circuit Judge for the Second Circuit, sitting be designation).
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