INTERNATIONAL PETROLEUM PRODUC V. BLACK G
- Case Type:
- Business
- Case Status:
- Affirmed
- Citation:
- 22-15109 and 22-16341 (9th Circuit, Sep 16,2024) Published
- Tag(s):
-
- Ruling:
- An order reversing a bankruptcy court's decision to deny recognition of a foreign insolvency proceeding does not trigger the automatic stay of 11 U.S.C. § 1120 nunc pro tunc to the date of the bankruptcy court's denial order, nor are acts taken between the entry of the denial order and the entry of a subsequent order reversing the bankruptcy court void. In addition, the automatic stay did not protect the debtor's insiders, who had been found liable for the debtor's obligations, because the alter ego liability is not property of the debtor's foreign bankruptcy trustee.
- Procedural context:
- Following the debtor's failure to respond to post-judgment discovery, the United States District Court entered a $1 million award to the judgment creditor. The debtor then commenced a bankruptcy proceeding in the Principality of Monaco, where it was formed. The trustee moved to have the foreign proceeding recognized by the United States Bankruptcy Court for the Northern District of California. The bankruptcy court refused. The debtor appealed to the Ninth Circuit BAP, which reversed the bankruptcy court.
Meanwhile, the district court had entered an order holding the debtor's insiders liable for the debtor's obligations and awarded the judgment creditor another $146,000 for attorney's fees and costs.
The debtor and its insiders appealed to the Ninth Circuit, arguing that the BAP's reversal of the bankruptcy court resulted in the automatic stay becoming effective on the date the bankruptcy court entered the order rejecting recognition of the foreign proceeding. The debtor and its insiders also argued on appeal that the district court's order finding the insiders had alter ego liability was void because it was entered in violation of the imputed stay.
- Facts:
- International Petroleum Products and Additives Co. ("IPAC") entered into a distribution agreement with Black Gold S.A.R.L. ("Black Gold"), a company formed in the Principality of Monaco. Black Gold had two owners, the husband and wife team of Lorenzo and Sofia Napoleoni. Black Gold breached its obligations to IPAC. Worse, Lorenzo Napoleoni stole IPAC's trade secrets and formed PXL Chemicals BV, a Netherlands company. PXL directly competed with IPAC, telling its customers that its products were knock-offs of IPAC's products. In deposition, Mr. Napoleoni admitted that PXL was using IPAC's trade secrets.
IPAC and Black Gold arbitrated their dispute in California. After the arbitrator awarded IPAC $1 million in damages, costs, and attorney's fees, IPAC filed suit to enforce the arbitration award under 9 U.S.C. § 9. The U.S. District Court granted IPAC the requested relief, and IPAC commenced discovery to find assets that could be used to satisfy the judgment.
Black Gold stonewalled IPAC's discovery, lodging baseless objections. The district court granted IPAC's motion to compel and ordered Black Gold to comply within 50 days. Rather than complying with the court's order, Black Gold produced less than 100 documents and failed to answer IPAC's interrogatories for nearly ten months.
IPAC noticed the Napoleonis' depositions. In response, Black Gold commenced an insolvency proceeding in Monaco. The trustee petitioned the United States Bankruptcy Court for the Northern District of California to recognize the Monaco bankruptcy proceeding. The bankruptcy court entered an order enjoining IPAC from further discovery or collection actions until the court ruled on whether it would recognize Black Gold's petition.
On March 15, 2021, the bankruptcy court entered an order denying recognition of Black Gold's foreign bankruptcy proceeding because the foreign proceeding was a sham designed to frustrate IPAC's collection efforts. Neither Black Gold nor the Napoleonis asked the bankruptcy court to extend the provisional stay while Black Gold appealed the bankruptcy court's decision to the BAP.
On appeal, the BAP reversed the bankruptcy court, finding that the public policy exception to recognition (11 U.S.C. § 1506) did not apply.
Meanwhile, IPAC had continued its collection efforts and moved to have the district court hold the Napoleonis liable for Black Gold's sanctions for discovery misconduct. The district court did so, applying alter ego liability to the Napoleonis. The Napoleonis timely appealed.
At this time, the Ninth Circuit stayed collection efforts against Black Gold, but not against the Napoleonis. The Napoleonis then argued to the district court that the § 1520 stay should apply to them on the theory that the alter ego claim was property of Black Gold's bankruptcy estate. The district court rejected that argument and ordered the Napoleonis to pay about $146,000 in attorney's fees and costs, on top of the $1 million they already were obligated to pay IPAC.
- Judge(s):
- Carlos T. Bea, David F. Hamilton,* and Morgan Christen, Circuit Judges [*United States Court of Appeals for the Seventh Circuit, sitting by designation]
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