Byju's Alpha, Inc. v. Camshaft Capital Fund, LP (In re Byju's Alpha)

661 B.R. 109

IN RE: BYJU'S ALPHA, INC., Debtor.

BYJU's Alpha, Inc., Plaintiff, v. Camshaft Capital Fund, LP, Camshaft Capital Advisors, LLC,Camshaft Capital Management, LLC, Inspilearn LLC, and Riju Ravindran, Defendants.

Case No. 24-10140 (JTD)

Adv. No. 24-50013 (JTD)

United States Bankruptcy Court, D. Delaware

Signed April 3, 2024

Robert S. Brady, Kenneth J. Enos, Jared W. Kochenash, Young, Conaway, Stargatt & Taylor, LLP, Wilmington, DE, for Plaintiff BYJU's Alpha, Inc.

William E. Chipman, Jr., Joseph B. Cicero, Ryan Lindsay, Chipman Brown Cicero & Cole, LLP, Wilmington, DE, Kenneth P. Coleman, Sheron Korpus, David M. Max, Kasowitz Benson Torres LLP, New York, NY, for Defendant Riju Ravindran.

Evan T. Miller, Saul Ewing LLP, Wilmington, DE, for Defendant Camshaft Capital Advisors, LLC.

Re: Adv. D.I. 31, 56, 80 & 84

MEMORANDUM OPINION

JOHN T. DORSEY, UNITED STATES BANKRUPTCY JUDGE.

Plaintiff, BYJU's Alpha (the "Debtor") brought this adversary proceeding against defendants Camshaft Capital Fund, LP, Camshaft Capital Advisors, LLC, Camshaft Capital Management (collectively, "Camshaft"), Inspilearn LLC, and Riju Ravindran (together with Camshaft, the "Defendants"), asserting claims for fraudulent transfer, breach of fiduciary duty, and violation of the automatic stay.¹ After being stonewalled when trying to locate the $533 million at issue in this proceeding, the Debtor filed the instant motion seeking a temporary restraining order requiring the Defendants to deposit the funds in this court's registry (the "Motion").² The parties argued the Motion at a hearing on March 14, 2024, during which I also heard argument on my previously issued order to show cause regarding why Camshaft and its principal William Cameron Morton ("Morton") should not be held in civil contempt ("Show Cause Order").³ I ruled on both the Motion and the Show Cause Order from the bench. Upon the Defendants' appeal, I have elected to write this supplementary opinion pursuant to Local Rule 8003-2 in further support of my March 14 ruling, in which I held Camshaft and Mr. Morton in civil contempt and granted a preliminary injunction maintaining the status quo. The basis for each of these rulings is set forth below.

JURISDICTION AND VENUE

The Court has subject matter jurisdiction over this adversary proceeding pursuant to 28 U.S.C. § 1334(b). This matter is a core proceeding pursuant to 28 U.S.C. § 157(b)(2). Venue is proper pursuant to 28 U.S.C. § 1409(a).

BACKGROUND

Debtor is a special purpose financing vehicle and formerly an indirect subsidiary of Think and Learn Private, Ltd. ("T&L"), an Indian corporation focused on providing accessible education technology. T&L is a family-run business; its three-member board consists of founder Byju Ravindran, his younger brother Riju Ravindran, and Byju's wife, Divya Gokulnath. During all times relevant to this dispute, Riju served as the sole director of the Debtor.

In November 2021, the Debtor, along with other BYJU's entities, took out a $1.2 billion term loan from lenders, which it defaulted on in less than four months.⁴ In April 2022, shortly after this initial default, Riju Ravindran authorized the first of six transfers to Camshaft, totaling over $533 million in exchange for an ownership interest in Camshaft.⁵ "[T]hese funds appeared to make up more than 90% of Camshaft's regulatory assets under management."⁶ The Debtor's bank accounts show no sign of having received any return from this purported investment in Camshaft.⁷

The Debtor continued defaulting on its loan covenants after the Camshaft transfers. By October 2023, there were at least four defaults on the covenants under the credit agreement between the Debtor, its affiliates, and the lenders.⁸ Each of the defaults enabled the lenders to exercise remedies, which they did on March 3, 2023.⁹ The lenders' agent GLAS Trust Company LLC ("GLAS") then accelerated the loans and replaced Riju Ravindran with Timothy Pohl to serve as the Debtor's sole director and officer.¹⁰ Subsequent litigation in the Delaware Court of Chancery affirmed Pohl's appointment.¹¹ The Debtor filed for chapter 11 protection in February 2024 and filed this adversary proceeding in an attempt to recover the $533 million transferred to Camshaft. The Debtor alleges, inter alia, that the transfers qualify as actual and constructive fraudulent transfers under both 11 U.S.C. §§ 544, 548, and applicable state law, and that the transactions constitute a breach of Riju Ravindran's fiduciary duty to the Debtor.¹²

The location and control of the $533 million transferred to Camshaft (the "Transferred Funds") is at the heart of this adversary proceeding. Remarkably, the Debtor has been unable to glean any meaningful information as to present whereabouts of the Transferred Funds, despite diligent efforts to do so. The sparse information that has surfaced is particularly concerning. The Debtor's witness, its managing director Timothy Pohl, testified that in response to the lenders' decision to exercise remedies, Byju Ravindran explicitly told the lenders' advisors that "the money is someplace the Lenders will never find it."¹³ There is no dispute that the funds were transferred from the Debtor to Camshaft, but certain facts bring Camshaft's legitimacy into serious question. The address for its principal place of business, supplied by Camshaft to the SEC, is actually the address of an IHOP in Miami.¹⁴ Camshaft eventually provided an additional address, which points to a sparsely furnished room that shows no sign of regular activity.¹⁵ The Debtor alleges that Camshaft has no working telephone and publicly misrepresents its management team to include individuals who are unaware that they are being held out in such capacity.¹⁶ The evidence suggests that Mr. Morton is actually Camshaft's sole employee.

Even more concerning, any attempts to engage with Camshaft and its director, Mr. Morton, have failed. On February 16, I issued an order granting the Debtor's motion for expedited discovery, which required Camshaft to respond to the Debtor's interrogatories.¹⁷ Camshaft issued a response, but with an "attorneys' eyes only" designation.¹⁸ The perceived deficiency in the Camshaft's response caused the Debtor to call for an emergency status conference on February 27, which prompted Camshaft to agree to remove the "attorneys' eyes only" designations from its responses.¹⁹ After Camshaft's agreement, the parties tried to cancel the status conference less than an hour before its start time, to which I refused. Though the parties indicated at the status conference that they would continue discussions, within days Camshaft filed a motion for protective order ("Motion for Protective Order"),²⁰ seeking a ruling that it was not required to respond to the outstanding discovery on relevance grounds. At a hearing on March 1, I denied the Motion for Protective Order and ordered Camshaft to provide the requested information by the end of the day or return to the courtroom on March 4 for a status conference to discuss why I should not issue an order to show cause as to why Camshaft should not be held in contempt (the "March 1 Order").²¹ At the conclusion of the March 1 hearing I instructed Camshaft's counsel to inform Mr. Morton, as Camshaft's principal, that in the event a status conference to discuss the possibility of a contempt order was necessary, Mr. Morton's presence in the courtroom was expressly requested:

COURT: I would request that [Mr. Morton] be in the courtroom. I think it will be very important for him to be here. I think he needs to hear it from me directly.²²

COUNSEL: Understood, Your Honor. Thank you.²³

Camshaft refused to comply with the March 1 Order, and, on March 4, a status conference was held.²⁴ At the status conference, Camshaft's counsel explained, "As to the question of the documents, as officers of the Court, we advised Mr. Morton that he should produce the documents, he should produce the information, he declined. That is where we are today."²⁵ Camshaft's counsel continued, "[M]y client is not here today. I understood Your Honor's [request] that he appear. He is overseas and was not able to make it. He was actually on his way by the time Your Honor's order came out."²⁶

Having failed to comply with the March 1 Order, I issued the Show Cause Order,²⁷ to be heard on March 14, 2024, in conjunction with the Debtor's Motion for injunctive relief. When instructing the parties on the show-cause hearing, I stated:

I want to make it absolutely clear to Mr. Morton that one of the possible remedies[ ] I am going to impose for the contempt is civil confinement if he doesn't comply with the order[, a]nd I want to give him every opportunity to be heard on that before I impose that penalty.²⁸

The Show Cause Order specified:

IT IS HEREBY ORDERED THAT:

Mr. Morton shall appear in person on March 14, 2024, at 10:00 a.m. in . . . the United States Bankruptcy Court . . . and SHOW CAUSE why he and Camshaft should not be held in contempt of Court for their failure to comply with this Court's order. The Court shall consider all possible sanctions against Camshaft and Mr. Morton, including placing Mr. Morton in civil confinement until he purges himself of such contempt.²⁹

At 3:54 pm on the eve of the show cause hearing, my chambers received an email from Camshaft's counsel indicating that Mr. Morton "cannot attend in person" because he had "recently been hospitalized and thus remains overseas," but that he wished to appear in court via Zoom. Consistent with my chambers' procedures of only allowing witnesses to testify remotely upon a showing of good cause,³⁰ my Courtroom Deputy responded to the email and informed Camshaft's counsel that in order to evaluate Mr. Morton's request I would need (1) some proof that he had actually been hospitalized, (2) clarification as to whether he intended to have his own counsel appear at the show cause hearing, and (3) clarification as to whether he intended to comply with the order to produce...