LaMonica v. CEVA Grp. PLC (In re CIL Ltd.)

582 B.R. 46

IN RE: CIL LIMITED, Debtor.

Salvatore LaMonica, as Chapter 7 Trustee For CIL Limited, Plaintiff,

v.CEVA Group PLC, CEVA Holdings LLC, CEVA Logistics Finance B.V., Gareth Turner, and Mark Beith, Defendants.

Case No. 13–11272–JLG

Adv. Proc. No. 14–02242–JLG

United States Bankruptcy Court, S.D. New York.

Signed January 5, 2018

AKIN GUMP STRAUSS HAUER & FELD LLP, One Bryant Park, New York, New York 10036 By: David M. Zensky, Esq., Dean L. Chapman Jr., Esq., Counsel for Defendants CEVA Group Plc, CEVA Holdings LLC, and CEVA Logistics Finance B.V.

FRIEDMAN KAPLAN SEILER & ADELMAN LLP, 7 Times Square, New York, New York 10036 By: Scott M. Berman, Esq., Christopher L. McCall, Esq., Eric Seiler, Esq., Attorneys for Defendants Gareth Turner and Mark Beith

KASOWITZ, BENSON, TORRES LLP, 1633 Broadway, New York, New York 10019 By: Robert Novick, Esq., Howard W. Schub, Esq.

MEMORANDUM DECISION GRANTING IN PART AND DENYING IN PART, DEFENDANTS' MOTIONS TO DISMISS AMENDED COMPLAINT

HON. JAMES L. GARRITY, JR., UNITED STATES BANKRUPTCY JUDGE:

Introduction

In the spring of 2013, CIL Limited ("CIL " or the "Debtor "), the chapter 7 debtor herein, was a holding company known as CEVA Logistics Limited, that was controlled by several investment funds operated by Apollo (defined below). Its sole asset was its direct and indirect ownership of 100% of the equity of CEVA Group PLC ("CEVA Group "), a holding company that controlled a number of operating entities comprising the CEVA Enterprise (defined below). At that time, CIL's debt consisted of unsecured PIK Notes (defined below) totaling at least €103 million, while CEVA Group's secured and unsecured indebtedness totaled approximately €2.1 billion and €575 million, respectively. In April 2013, CIL acquiesced to and participated in an out-of-court restructuring and recapitalization of CEVA Group (the "CEVA Restructuring "). As a part of that restructuring transaction, CIL caused CEVA Group to issue new shares of its stock (defined below as the "CEVA Equity Transfer ") to a newly created entity (defined below as "CEVA Holdings "). One consequence of that transfer was that CIL was left with a 00.01% interest in CEVA Group. The newly issued shares eventually were used to equitize a portion of CEVA Group's indebtedness, including unsecured debt held by Apollo. At the end of that process, Apollo, which owned (through CIL) almost 100% of CEVA Group prior to the CEVA Restructuring, was left with a 21% ownership interest in recapitalized CEVA Group. For CIL, the CEVA Restructuring transaction was overseen by its then directors, Gareth Turner ("Turner ") and Mark Beith ("Beith ," and collectively with Turner, the "Directors "), who were advised by professionals in the United States and Cayman Islands.

CIL is a Cayman Islands exempted company. After the CEVA Equity Transfer, but before all steps in the CEVA Restructuring were completed, on April 2, 2013, CEVA Logistics Limited changed its name to "CIL Limited" (i.e., the Debtor) and filed a petition commencing provisional liquidation proceedings in the Grand Court of the Cayman Islands. Those proceedings are on-going. A few weeks later, on April 22, 2013 (the "Petition Date ") three Cayman-based PIK Noteholders (defined below) filed an involuntary petition under chapter 7 of the Bankruptcy Code against CIL in this Court. On May 14, 2013, the Court entered an order for relief against CIL.

Salvatore LaMonica is the court-appointed chapter 7 trustee of the CIL estate (the "Trustee "). He contends that CIL's interest in the CEVA Group equity had value at the time of the CEVA Equity Transfer and that CIL received nothing in consideration for the loss of its ownership interest in CEVA Group. He says that CIL was stripped of its interests in CEVA Group at the behest of Apollo, who allegedly conceived of and orchestrated the CEVA Restructuring, including the CEVA Equity Transfer, from its offices in New York City. He maintains, in substance, that through the issuance of the new shares of CEVA Group, Apollo sought to enhance its ownership interest in CEVA Group by "leapfrogging" the PIK Noteholders in the CEVA capital structure. Moreover, he maintains that to make matters worse, CEVA Group or one of its controlled subsidiaries is holding nearly €14 million of cash that belongs to CIL (the "CIL Cash ") and has unjustifiably refused to return it to the Debtor's estate. In this adversary proceeding, the Trustee seeks relief against the Directors, as well as CEVA Group, CEVA Holdings and a related company, CEVA Logistics Finance B.V. ("CEVA Finance ," and collectively with CEVA Group and CEVA Holdings, the "CEVA Defendants ," and with the Directors, the "Defendants ").

Before the Court are motions by the CEVA Defendants and the Directors to dismiss miscellaneous counts of the Trustee's nineteen (19) Count amended complaint [ECF No. 21¹ ] (the "Amended Complaint ").² The CEVA Defendants seek to dismiss certain of the Counts against all or some of them, pursuant to Rules 12(b)(2) and (6) of the Federal Rules of Civil Procedure.³ Turner seeks to dismiss certain of the Counts alleged against him pursuant to Rule 12(b)(6). Beith has moved to dismiss all Counts asserted against him for lack of personal jurisdiction under Rule 12(b)(2), and has joined Turner's motion to dismiss.⁴ The Trustee opposes all of the motions.⁵ For the reasons discussed below, the Court grants in part, and denies in part, the motions.⁶

Jurisdiction

The Court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 1334 and 157(a) and (b)(1) and the Amended Standing Order of Referral of Cases to Bankruptcy Judges of the United States District Court for the Southern District of New York, dated January 31, 2012 (Preska, C.J.). This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(A).

Legal Standards and Scope of the Record

Rule 12(b)(2) provides for the dismissal of a defendant from a lawsuit based upon a lack of personal jurisdiction. As such, its focus is on the contacts between the defendant and the forum. As discussed below, in assessing the merits of a Rule 12(b)(2) motion, courts consider (i) whether the defendant has the requisite "minimum contacts" with the forum, and (ii) whether the exercise of jurisdiction over the defendant would be reasonable in the circumstances. See, e.g., Walden v. Fiore , 571 U.S. 227, 134 S.Ct. 1115, 1121, 188 L.Ed.2d 12 (2014). It is well settled that in deciding Rule 12(b)(2) motions, courts may review materials beyond the pleadings, including affidavits and other written materials. See, e.g. , MacDermid v. Deiter, 702 F.3d 725, 727 (2d Cir. 2012). See also Bensusan Restaurant Corp. v. King , 937 F.Supp. 295, 298 (S.D.N.Y. 1996) (noting that "[m]atters outside the pleadings ... may also be considered in resolving a motion to dismiss for lack of personal jurisdiction pursuant to Fed. R. Civ. P. 12(b)(2) without converting it into one for summary judgment."), aff'd , 126 F.3d 25 (2d Cir. 1997) ; Nationwide Mut. Ins. Co. v. Morning Sun Bus Co. , No. 10-cv-1777, 2011 WL 381612, at *3 (E.D.N.Y. 2011) ("In deciding a motion to dismiss for lack of personal jurisdiction, the Court may rely upon materials that are outside the pleading, including any affidavits submitted by the parties.") (citation omitted). Beith and CEVA Finance have submitted declarations in support of their respective Rule 12(b)(2) motions. See Declaration of Mark Beith in support of Motion to Dismiss [ECF No. 28] (the "Beith Declaration "); Declaration of Remco Van Der Pijl [ECF No. 38] (the "Pijl Declaration "). No one disputes that those materials should be included in the record of those motions. The Court has relied on them in resolving the Rule 12(b)(2) motions.

Rule 12(b)(6) has a different focus. It provides in relevant part:

(b) Every defense to a claim for relief in any pleading must be asserted in the responsive pleading if one is required. But a party may assert the following defense[ ] by motion ... (6) failure to state a claim upon which relief can be granted ...

Fed. R. Civ. P. 12(b)(6). Thus, a Rule 12(b)(6) motion tests the legal sufficiency of a plaintiff's claim for relief. See Patane v. Clark, 508 F.3d 106, 112 (2d Cir. 2007). In resolving the Rule 12(b)(6) motions, the Court will "assess the legal feasibility of the complaint, not ... assay the weight of evidence which might be offered in support thereof." Cooper v. Parsky , 140 F.3d 433, 440 (2d Cir. 1998) (internal quotation marks omitted). To overcome a motion to dismiss a complaint, the plaintiff must demonstrate that the complaint "contain[s] sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’ " Ashcroft v. Iqbal , 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (quoting Bell Atlantic Corp. v. Twombly , 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) ). Courts employ a two-prong approach in assessing the merits of Rule 12(b)(6) motions. See Pension Benefit Guar. Corp. v. Morgan Stanley Inv. Mgmt. Inc., 712 F.3d 705, 717 (2d Cir. 2013) (noting that Iqbal "creates a ‘two-pronged approach’ ... based on ‘[t]wo working principles.’ " (quoting Iqbal, 556 U.S. at 678–79, 129 S.Ct. 1937 )). First, the court must "accept as true all of the factual allegations set out in the plaintiff's complaint, draw inferences from those allegations in the light most favorable to plaintiff, and construe the complaint liberally." Rescuecom Corp. v. Google Inc. , 562 F.3d 123, 127 (2d Cir. 2009) (quotation marks and citation omitted). See also Boykin v. KeyCorp , 521 F.3d 202, 204 (2d Cir. 2008) (stating that "[i]n reviewing a motion to dismiss, [the court] accept[s] the allegations in the complaint as true.") (citation omitted). Second, the court must determine if those well–pleaded factual allegations state a "plausible claim for relief." Iqbal , 556 U.S. at 679, 129 S.Ct. 1937. To meet that standard, the plaintiff must "plead[ ] factual content that allows the...