United States District Court, E.D. Virginia, Norfolk Division
For FLAME S.A., Plaintiff: Steven Michael Stancliff, LEAD ATTORNEY, Crenshaw Ware & Martin PLC, Norfolk, VA; Lauren Brooke Wilgus, William Robert Bennett , III, PRO HAC VICE, Blank Rome LLP (NY-NA), New York, NY.
For FREIGHT BULK PTE. LTD., Defendant: Patrick Michael Brogan, LEAD ATTORNEY, Davey & Brogan PC, Norfolk, VA; George Michael Chalos, PRO HAC VICE, Chalos & Co, P. C., Oyster Bay, NY.
For Glory Wealth Shipping Pte Ltd., Consolidated Plaintiff: Michelle Theresa Hess, LEAD ATTORNEY, Holland & Knight LLP, New York, NY.
Robert G. Doumar, Senior United States District Judge.
The Court issues this Memorandum Opinion as a result of a bench trial in this matter to resolve Plaintiffs' claims of alter ego and fraudulent transfer against Defendant, Freight Bulk Pte, Ltd (" FBP" ), and its related entities, through a maritime attachment.
On November 22, 2013, Plaintiff, Flame S.A. (" Flame" ) moved the Court to grant a writ of judicial attachment for the M/V CAPE VIEWER (" CAPE VIEWER" or " Vessel" ) under Supplemental Admiralty Rule B, which ship ostensibly titled in the name of FBP. The Vessel was attached November 29, 2013. After many, many motions, a bench trial was held to determine: (1) whether FBP, Vista Shipping Ltd. (" Vista" ), Industrial Carriers, Inc. (" ICI" ), and Viktor Baranskiy are alter egos of one another, and (2) whether ICI fraudulently transferred funds and contracts to Viktor Baranskiy, Vista, and FBP in order to avoid its creditors.
The bench trial began August 26, 2014 and ended abruptly on September 4, 2014 when Viktor Baranskiy, a named Defendant, and his pro hac vice attorney, Sergei Kachura, fled the area in the middle of Baranskiy's cross examination while testifying. Plaintiffs have filed post-trial briefs under the Court's direction. The Court now issues the following Findings of Fact and Conclusions of Law, as required by Rule 52(a) of the Federal Rules of Civil Procedure.
This was a simple case that became complex. The case involves a company and a man. The company, ICI, was in dire straits and defaulted on its obligations to Flame and Glory Wealth Pte Ltd. (" Glory Wealth" ), among others; that man, Viktor Baranskiy, went on to amass multi-millions in assets in an organization comprised of numerous entities. Viktor Baranskiy did so by succeeding to and with the assets of ICI in forming and maintaining numerous companies, including Vista. Vista was brought about by ICI's actions in 2008 and thereafter. None of Viktor Baranskiy's many organizations or assets, except the CAPE VIEWER, is located in Virginia. None of the entities involved in this litigation does business in Virginia or is present in Virginia for purposes of process. The only link between these companies and the Commonwealth of Virginia is the CAPE VIEWER, which is owned by FBP, which in turn is owned by Freight Bulk Ltd, which in turn is owned by Hachi Holding, all of which are controlled by Viktor Baranskiy and ultimately from and because of ICI. The CAPE VIEWER, with title in FBP, was chartered by Noble to carry coal owned by Vitol S.A. (" Vitol" ). Neither Noble nor Vitol has any relationship other than utilizing the CAPE VIEWER, with FBP and its affiliated companies. It is this chain of debt, ownership, and events that the Court considers.
For the reasons set forth herein, the Court FINDS that FBP, Vista, Viktor Baranskiy, and ICI are alter egos of one another and that ICI fraudulently transferred assets to Vista and Viktor Baranskiy, in order to hinder, delay, and defraud its creditors. Judgment for the Plaintiffs will be entered in a separate Order.
I. FACTUAL FINDINGS
A. Procedural History
On November 22, 2013, Flame brought the instant suit against ICI and co-Defendants Vista and FBP. ECF No. 1. Flame moved this Court to issue an order for the attachment of the CAPE VIEWER pursuant to its verified complaint. ECF No. 3. The Court granted the attachment in its November 22, 2013 Order, ECF No. 7, and the Vessel was attached on November 29, 2013. On December 2, 2013, FBP moved to vacate the attachment. ECF No. 11.
Glory Wealth attempted to intervene on December 17, 2013. ECF No. 31. After initially denying Glory Wealth's motion to intervene, the Court entered an order of attachment on behalf of Glory Wealth on December 19, and consolidated Glory Wealth's claim with Flame's on December 20, 2013. ECF No. 39. On December 27, 2013, FBP filed a motion to vacate Glory Wealth's attachment. ECF No. 40.
After hearing argument on FBP's motions to vacate on January 7, 2014, the Court directed Glory Wealth and Flame to file Amended Complaints by January 9, which they did. ECF Nos. 50, 55. The Court entered an Opinion and Order on January 10, 2014, determining that admiralty jurisdiction existed over Flame's claims, certifying that question for expedited appeal to the Fourth Circuit, and reserving judgment on the alter ego question until the appeals process completed. Flame S.A. v. Indus. Carriers, Inc., 2014 WL 108897 (E.D. Va. Jan. 10, 2014), ECF
The Fourth Circuit accelerated its briefing schedule, heard oral argument on May 14, 2014, and affirmed this Court on August 5, 2014. Flame S.A. v. Freight Bulk Pte. Ltd., 762 F.3d 352, 2014 WL 3828075 (4th Cir. Aug. 5, 2014).
FBP filed Motions to Vacate both Flame's Amended Complaint and Glory Wealth's Amended Complaint in mid-March, ECF Nos. 103, 105, which this Court denied on May 20, 2014. Flame S.A. v. Indus. Carriers, Inc.,
__ F.Supp.2d __, 24 F.Supp.3d 493, 2014 WL 2114688 (E.D. Va. May 20, 2014), ECF No. 249.
On April 11, 2014, Noble and Vitol filed motions to intervene in the instant case as Intervening Plaintiffs. ECF Nos. 158, 161. Both parties requested to intervene for the purpose of preserving the right to assert in rem claims against the CAPE VIEWER. Id. Vitol voluntarily dismissed itself from the case on May 21, 2014. ECF No. 251.
On March 27, 2014, FBP filed counterclaims against Flame. ECF No. 121. The Court struck these counterclaims, on Flame's motion, on May 12, 2014. ECF No. 229. That same day Plaintiffs Flame and Glory Wealth adopted each other's allegations against the Defendants and the Court did so recognize and combine them.
On April 1, 2014, FBP substituted counsel from Mayer Brown LLP for its previous attorneys, Chalos & Co., P.C. On June 3, 2014, Mayer Brown LLP withdrew from its representation, and FBP continued with pro hac vice admitted attorney, Sergei Kachura, and with its local counsel, Patrick Brogan. That same day, FBP moved to dismiss Glory Wealth's Amended Complaint. ECF No. 266. The Court denied this motion on July 17, 2014. Flame S.A. v. Indus. Carriers, Inc., __ F.Supp.2d __, 24 F.Supp.3d 513, 2014 WL 3544847 (E.D. Va. July 17, 2014), ECF No. 330.
On June 12, 2014, the Court continued the trial date in light of the numerous discovery issues in the case. ECF No. 281. Twelve days later, the Court granted in part and denied in part Flame's Motion to Strike FBP's affirmative defenses. Flame S.A. v. Indus. Carriers, Inc., 2014 WL 2871432 (E.D. Va. June 24, 2014).
On July 25, 2014, Noble filed a Motion to Bifurcate its claims for trial, ECF No. 335. On July 30, 2014, Flame filed a motion for leave to file a Second Amended Complaint and join additional parties. ECF No. 349. At a pretrial conference on August 18, 2014, this Court granted Noble's motion for a separate trial and denied Flame's motion. ECF Nos. 406, 420; see Flame S.A. v. Indus. Carriers, Inc., 2014 WL 4202470 (E.D. Va. Aug. 22, 2014).
On April 23, 2014, the Court overruled FBP's objections to Magistrate Judge Leonard's discovery order. Flame S.A. v. Indus. Carriers, Inc., 2014 WL 1681426 (E.D. Va. Apr. 23, 2014), ECF No. 192. On April 30, 2014, Magistrate Judge Leonard sanctioned FBP for violating the Court's discovery order, ordering FBP to pay Flame reasonable fees and expenses. ECF No. 210. On August 8, 2014, Judge Leonard ordered the following sanctions against FBP for again violating the Court's ordered discovery:
1. FBP and Vista were deemed alter egos of one another;
2. The loan from Sea Traffic Shipping Co. (" Sea Traffic" ) to FBP for the purchase of the CAPE VIEWER was deemed a sham transaction for the sole purpose of avoiding creditors;
3. Had any ICI documents been produced by FBP in compliance with the Court's discovery orders, those documents would have been favorable to the Plaintiffs and harmful to the Defendants;
4. FBP was prohibited at trial from: offering any evidence with respect to repayments made under the loan agreement between Sea Traffic and FBP for the purchase of the CAPE VIEWER; and
5. Reasonable attorneys' fees and expenses were ordered paid jointly by FBP and its counsel.
Flame S.A. v. Indus. Carriers, Inc., 2014 WL 3895933, at *13 (E.D. Va. Aug. 8, 2014) objections overruled, 39 F.Supp.3d 752, 2014 WL 4214837 (E.D. Va. Aug. 26, 2014). On August 18, 2014, FBP filed a motion objecting to the sanctions ordered by Judge Leonard. ECF No. 404. After performing both de novo and clearly erroneous or contrary to law review, this Court overruled FBP's objections and determined that Judge Leonard's findings and sanctions were correct. Flame S.A. v. Indus. Carriers, Inc.,
__ F.Supp.2d __, 39 F.Supp.3d 752, 2014 WL 4214837 (E.D. Va. Aug. 26, 2014), ECF No. 430. Judge Leonard also permitted Flame and Glory Wealth to disclose their expert rebuttal reports on the eve of trial as a sanction for FBP's untimely disclosure of its own expert reports. Order, ECF No. 400.
On August 21, 2014, the Court denied FBP's motion to permit Viktor Baranskiy to testify from Odessa, Ukraine, which was in the midst of conflict. Flame S.A. v. Indus. Carriers, Inc., 2014 WL 4181958 (E.D. Va. Aug. 21, 2014), ECF Nos. 406, 415. A bench trial commenced August 26, 2014.
Viktor Baranskiy appeared with his counsel and testified on direct examination.
On September 4, 2014 Viktor Baranskiy, then in the midst of cross-examination by Flame, deserted the case with his lead trial counsel, Sergei Kachura. Flame's cross examination therefore was abridged, and Glory Wealth never had any opportunity to cross Viktor Baranskiy. FBP's local counsel (This Court requires local counsel once they enter a case to remain throughout the case.) then rested its case, and the Court heard argument. The matter is ripe for decision.
B. Relevant Stipulated Facts
The parties stipulated to the following relevant facts, and these do not include the facts found by the Court which have not been stipulated.
1. The Parties
Plaintiff Flame is a corporation or other business entity duly organized and existing under and by virtue of the laws of Switzerland, with an office and principal place of business in Switzerland. Consolidated Plaintiff Glory Wealth is a corporation or other business entity duly organized and existing under and by virtue of the law of Singapore, with an office and principal place of business in Singapore. Intervenor Plaintiff Noble is a British Virgin Islands corporation with its principal place of business in the British Virgin Islands. Defendant ICI is a corporation or other business entity duly organized and existing under and by virtue of the laws of the Marshall Islands. Defendant Vista is a corporation or other business entity duly organized and existing under and by virtue of the laws of the British Virgin Islands. Defendant FBP is a corporation or other business entity duly organized and existing under and by virtue of the laws of Singapore. Defendant Viktor Baranskiy is a foreign citizen and resident of the Ukraine and the sole, ultimate beneficial owner of all companies in a group of companies known as the " Palmira Group," including Vista and FBP. Defendant Sergei Baranskiy is a foreign citizen and resident of a foreign country and Viktor's father. Sergei Baranskiy was Chairman of the board of directors of ICI from June through October 2008.
The Court's additional findings of fact will follow in the various analyses below. See infra I.C.
1. The Dispute
a. Flame's Claims
Flame and ICI entered into four (4) Forward Freight (Swap) Agreements (" FFAs" ) dated March 12, May 19, August 14, and August 29 of 2008. Under the terms and conditions of the FFAs, ICI defaulted and breached the FFAs when ICI applied to the Piraeus Multimember Court of First Instance, in Greece, for the granting of a petition for bankruptcy. ICI's bankruptcy application was rejected on the basis that the Center of Main Interest was not in Greece. Flame then commenced an action in London, England against ICI to recover the amounts due and owing under the FFAs. The High Court of Justice, Queen's Bench Division, Commercial Court Registry entered a judgment for Flame against ICI and ordered ICI to pay Flame a total of $19,907,118.36.
Flame commenced an action against ICI on December 22, 2010 in the United States District Court for the Southern District of New York, seeking recognition of the foreign judgment and invoking the Court's admiralty jurisdiction pursuant to 28 U.S.C. § 1333 and Rule 9(h) of the Federal Rules of Civil Procedure. That court recognized Flame's judgment against ICI on September 14, 2011, and Flame's judgment was entered on October 4, 2011.
Flame registered its judgment in the Eastern District of Virginia on October 11, 2013. On November 22, 2013, Flame filed a Verified Complaint against ICI, Vista, and FBP and asked the Court to enter an Order of Attachment under Supplemental Admiralty Rule B, which the Court granted the same day. On December 2, 2013, FBP filed a Motion to Vacate the attachment, which the Court denied on January 10, 2014. On January 9, 2014, Flame filed an Amended Complaint.
b. Glory Wealth's Claims
On or about June 5, 2008, ICI time chartered from Glory Wealth the vessel M/V MINERAL CAPEASIA for a period of twelve to thirteen (12-13) months via fixture recap pursuant to the New York Produce Exchange Form with Rider Clauses (the " Glory Wealth Charter" ). Under this Charter, the daily charter hire rate required to be paid by ICI to Glory Wealth was $183,000.00 per day payable fifteen (15) days in advance. ICI failed to pay the fourth installment of hire, which became due on September 17, 2008, or any further payments due under the Glory Wealth Charter.
Glory Wealth commenced arbitration against ICI in London pursuant to clause forty-five (45) of the Glory Wealth Charter. The London Arbitration Panel issued the Award, dated October 29, 2009. The United States District Court for the Southern District of New York issued a default judgment against ICI in the amount of $46,382,772.91 on May 12, 2014. On December 18, 2013, Glory Wealth filed a Verified Complaint against ICI, Vista, and FBP seeking an Order of Attachment of the CAPE VIEWER under Supplemental Admiralty Rule B. The Court issued an order of attachment the next day and consolidated Flame and Glory Wealth's attachment actions on December 20, 2013.
c. Noble's Claims
On December 21, 2012, Noble entered into a contract of affreightment with Vitol to carry one cargo of coal per quarter in 2013 from Norfolk, Virginia to various potential discharge portions including Le Havre, France. On October 17, 2013, Noble entered into a ...