Firefighters' Ret. Sys. v. Citgo Grp. Ltd.

FIREFIGHTERS' RETIREMENT SYSTEM, ET AL. v. CITGO GROUP LIMITED, ET AL

CIVIL ACTION NO. 13-373-SDD-EWD

UNITED STATES DISTRICT COURT MIDDLE DISTRICT OF LOUISIANA

July 6, 2016

NOTICE

Please take notice that the attached Magistrate Judge's Report has been filed with the Clerk of the U. S. District Court.

In accordance with 28 U.S.C. '636(b)(1), you have 14 days after being served with the attached report to file written objections to the proposed findings of fact, conclusions of law, and recommendations set forth therein. Failure to file written objections to the proposed findings, conclusions and recommendations within 14 days after being served will bar you, except upon grounds of plain error, from attacking on appeal the unobjected-to proposed factual findings and legal conclusions accepted by the District Court.

ABSOLUTELY NO EXTENSION OF TIME SHALL BE GRANTED TO FILE WRITTEN OBJECTIONS TO THE MAGISTRATE JUDGE'S REPORT.

Signed in Baton Rouge, Louisiana, on July 6, 2016.

/s/_________

ERIN WILDER-DOOMES

UNITED STATES MAGISTRATE JUDGE

REPORT AND RECOMMENDATION

Before the Court is a Motion to Transfer¹ filed by certain defendants: Grant Thornton International, Ltd.; Citgo Group Limited; Citgo Banking Corporation, N.V.; Citgo Technology Management, Inc.; Citgo (Canada) Inc.; Citgo Fund Services (Bermuda) Ltd.; Citgo Bank Nederland, N.V., Dublin Branch; Alphonse Fletcher, Jr.; Fletcher Asset Management, Inc.; Denis Kiely; Peter M. Zayfert; Duhallow Financial Services, LLC; and Skadden, Arps, Slate, Meagher & Flom LLP (collectively, "Movants"). Plaintiffs, Firefighters' Retirement System, Municipal Employees' Retirement System of Louisiana, and New Orleans Firefighters' Pension & Relief Fund (collectively "Plaintiffs" or the "Louisiana Funds") oppose the Motion to Transfer.² Movants have filed a Reply.³ For the reasons set forth herein, it is the recommendation⁴ of this Court that the Motion to Transfer be DENIED.

I. Background

Plaintiffs filed suit in Louisiana state court against 23 defendants, asserting claims under the Louisiana Securities Act and Louisiana Unfair Trade Practices Act, as well as third party beneficiary, unjust enrichment, breach of contract, negligent misrepresentation, and general tortclaims.⁵ The matter was removed pursuant to 28 U.S.C. § 1452(a), and jurisdiction is maintained in this Court pursuant to 28 U.S.C. § 1334(b).⁶

Plaintiffs' claims arise from a $100 million investment loss. In April of 2008, the Louisiana Funds purchased 100,000 Series N Shares offered and issued by FIA Leveraged Fund ("Leveraged") for $100 million.⁷ Plaintiffs allege that they acquired the Series N shares based on misrepresentations of the Fletcher Defendants, Citgo Defendants, and Investment Advisor Defendants.⁸ After a series of investment transactions initiated by Leveraged, in March of 2011, Plaintiffs sought to redeem their Series N shares.⁹ Ultimately, the shares went unredeemed and the Plaintiffs determined that the investment was illiquid and, thus, the N shares, for which there was no market, were valueless.¹⁰

Leveraged was a feeder fund which Plaintiffs allege was formed primarily to invest in Fletcher Income Arbitrage, Ltd. ("Arbitrage").¹¹ In subsequent briefing, Movants have explained that Arbitrage was an intermediate-level fund in the master/feeder structure of the Fletcher-runfunds.¹² Movants explain that assets of Arbitrage were invested in another intermediate-level fund, Fletcher International, Inc. ("International") which in turn invested its assets in the ultimate master fund, Fletcher International Ltd. (the "Debtor").¹³ On June 29, 2012, Fletcher International Ltd. filed a voluntary petition under 11 U.S.C. §§ 101 et seq. (the "Bankruptcy Case") in the Bankruptcy Court for the Southern District of New York (the "New York Bankruptcy Court").¹⁴

Each of the Louisiana Funds filed a proof of claim on January 18, 2013 in the Bankruptcy Case.¹⁵ The Plaintiffs' proofs of claim each had the same attachment, which explained the factual and legal basis for their claims against the Debtor. Therein, Plaintiffs explained their $100 million investment in the Leveraged Series N shares, which was then invested in Arbitrage and Debtor. Plaintiffs alleged that the Debtor is the master fund in a group of affiliated private investment funds that include Leveraged and Arbitrage as part of the master-feeder fund structure of the Fletcher Funds. Therefore, unable to redeem their shares from Leveraged, the Plaintiffs claimed that Debtor, as the alter ego of Leveraged, was liable for breach of contract between Leveraged and the Plaintiffs as well as conspiring and aiding and abetting Leveraged's fraud on the Plaintiffs.

On March 24, 2014, the trustee in the Bankruptcy Case filed a Second Amended Plan of Liquidation (the "Plan") in the Bankruptcy Case.¹⁶ On March 28, 2014, a confirmation order confirming the Plan was signed by the New York Bankruptcy Court (the "Confirmation Order").¹⁷In the Plan, Plaintiffs were referred to as the "Louisiana Pension Funds" and their claims against the Debtor were allowed in the amount of $3,000,000.00.¹⁸ Per Section 10.6 of the Plan:

Notwithstanding anything to the contrary in the Confirmation Order or this Plan...the waiver of claims, releases and injunctions provided for herein shall not operate to waive, release, enjoin or in any way determine or limit any claims, including any claims as to quantum or measure of damages, of...the Louisiana Pension Funds against any person or entity other than against the Debtor, the Estate, and the Trustee.¹⁹

As further explained in the New York Bankruptcy Court's Confirmation Order, "the Plan Release and the Plan Injunction do not waive, release, enjoin or in any way determine or limit any claims, including any claims as to quantum or measure of damages, of third parties, including the Louisiana Pension Funds...against any person or entity (other than the Debtor, the Estate, and the Trustee), including, without limitation, with respect to their investments in Leveraged and Arbitrage."²⁰ Per the Confirmation Order, the Louisiana Pension Funds remained "free to assert any and all claims and defenses they may have, including without limitation, claims reserved in Article 10 of the Plan" in inter alia "any proceedings against any person or entity (other than the Debtor, the Estate, and the Trustee) in any federal, state, or foreign court or any other appropriate forum."²¹

Although Movants moved to transfer the instant case to the New York Bankruptcy Court on August 14, 2013,²² a ruling on the Motion to Transfer was delayed due to an appeal to theUnited States Court of Appeal for the Fifth Circuit related to jurisdictional issues.²³ That appeal was concluded on August 31, 2015 - after entry of the New York Bankruptcy Court's Confirmation Order on March 28, 2014.²⁴ The current procedural posture of the Bankruptcy Case is now significantly different than when the Motion to Transfer was filed and does not, in this Court's opinion, support transfer at this juncture.

II. Law and Analysis

A. Legal Standard

Movants seek transfer of this suit to the New York Bankruptcy Court pursuant to 28 U.S.C. § 1412. Plaintiffs oppose the Motion to Transfer, and contend that in actions "related to"²⁵ title 11 cases, 28 U.S.C. § 1404(a) controls the analysis of whether transfer is proper.²⁶

Pursuant to 28 U.S.C. § 1412, "[a] district court may transfer a case or proceeding under title 11 to a district court for another district, in the interest of justice or for the convenience of the parties." 28 U.S.C. § 1404(a) provides that "[f]or the convenience of parties and witnesses, in the interest of justice, a district court may transfer any civil action to any other district or division where it might have been brought or to any district or division to which all parties have consented." Because section 1412 does not include the threshold requirement that the transferee court be one in which the case "might have been brought"²⁷ and because the statute is written in the disjunctive, the requirements for transfer under section 1412 appear to be less burdensome on the party seeking transfer. See, In re Adkins Supply, Inc., 2015 WL 1498856, at *6 (Bankr. N.D. Tex. March 27, 2015) ("In considering the text of the two statutes, the two considerations - the convenience of the parties (and witnesses) and the interest of justice - are stated in the conjunctive under § 1404 but in the disjunctive under § 1412. This implies that § 1412 might be a more generous to the moving party.").

Nevertheless, "courts essentially apply the same factors in analyzing transfers under §§ 1404(a) and 1412." Campbell v. Williams, 2015 WL 3657627, at *2 (S.D. Tex. June 12, 2015). "Furthermore...choosing one transfer provision over the other generally has no effect in the ultimate transfer decision." Id. See also, South Louisiana Ethanol, LLC v. Southern Scrap Material Co., LLC, 2011 WL 5196540, at *4 (M.D. La. Sept. 26, 2011) ("District courts in the Fifth Circuit have found that when an action could have been brought in the district or divisionwhere the bankruptcy court is located, Sections 1404(a) and 1412 largely include the same criteria for transfer of cases, and therefore apply Section 1404(a).") (collecting cases); Bayou Steel Corp. v. Boltex Manufacturing Co., LP, 2003 WL 21276338, at *1 (E.D. La. June 2, 2003) (noting that the analysis is "essentially the same" under either provision when "[t]he threshold step under section 1404 (i.e., determining that the transferee forum is one in which the action could have been commenced originally)" has been met.).

Section 1412 permits the transfer of an adversary proceeding under title 11 to a district court in another district if such transfer is (1) in the interest of justice; or (2) for the convenience of the parties. "Although satisfaction of either principle is sufficient to support a transfer, 'the decision of whether to transfer venue is within the...