Zardinovsky v. Fund (In re Arctic Glacier Int'l, Inc.)

255 F.Supp.3d 534

IN RE: ARCTIC GLACIER INTERNATIONAL, INC., Debtors in a Foreign Proceeding.

Eldar Brodski Zardinovsky a/k/a Eldar Brodski a/k/a Eldar Brodski (Zardinovsky), EB Books, Inc., EB Design, Inc., EB Online, Inc., EB Imports, Inc., Lazdar Inc., Eldar Brodski Inc., Y Capital Advisors Inc., Valley West Realty Inc., Ruben Brodski, Ruben Brodski Inc., Ester Brodski, and Yehonathan Brodski, Appellants,

v.Arctic Glacier Income Fund, James E. Clark, Gary A. Filmon, David R. Swaine, and Hugh A. Adams, Appellees.

Bank. No. 12-10605 (KG). Adv. Proc. No. 15-51732 (KG). Civ. No. 16-617 (SLR).

United States District Court, D. Delaware.

Signed June 14, 2017

Kevin S. Mann, Esquire, of Cross & Simon, LLC, Wilmington, Delaware. Counsel for Eldar Brodski Zardinovsky a/k/a Eldar Brodski a/k/a Eldar Brodski (Zardinovsky), EB Books, Inc., EB Design, Inc., EB Online, Inc., EB Imports, Inc., Lazdar Inc., Eldar Brodski Inc., Y Capital Advisors Inc., Valley West Realty Inc., Ruben Brodski, Ruben Brodski Inc., Ester Brodski, and Yehonathan Brodski.

Paul N. Heath, Esquire, Marcos A. Ramos, Esquire, and Brendan J. Schlauch, Esquire, of Richards Layton & Finger, P.A., Wilmington, Delaware; David Woodcock, Esquire, Mark W. Rasmussen, Esquire, Arielle S. Tobin, Esquire, and Allison L. Fuller, Esquire, of Jones Day, Dallas, Texas. Counsel for Arctic Glacier Income Fund, James E. Clark, Gary A. Filmon, David R. Swaine, and Hugh A. Adams.

MEMORANDUM OPINION

ROBINSON, Senior District Judge

I. INTRODUCTION

Appellants Eldar Brodski Zardinovsky and others (collectively "plaintiffs")¹ filed this appeal on July 19, 2016. (D.I. 1) The appeal arises from an opinion and order entered by the bankruptcy court on July 13, 2016 dismissing a post-petition adversary proceeding complaint filed by plaintiffs against debtor Arctic Glacier Income Fund ("AGIF") and defendants James E. Clark, Gary A. Filmon, David R. Swaine, and Hugh A. Adams (collectively, the "individual defendants,"² and together with AGIF, the "defendants"). Zardinovsky, et al. v. Arctic Glacier Income Fund, et al. (In re Arctic Glacier Int'l, Inc.) , 2016 WL 3920855, No. 15-51732 (KG) (Bankr. D. Del. July 13, 2016).

Following confirmation of AGIF's Plan of Arrangement ("Plan") under Canada's Companies' Creditors Arrangement Act (the "CCAA"), plaintiffs purchased units in AGIF between December 16, 2014 and January 22, 2015. On January 22, 2015, pursuant to the Plan's distribution procedure, defendants made distributions to those who held units as of December 15, 2014—in other words, to those who sold their units to plaintiffs. The complaint alleges that under U.S. securities law, defendants should have made distributions to plaintiffs, rather than to the selling unitholders.³ Defendants moved to dismiss the complaint on the bases that: (i) various releases contained in the confirmed Plan and confirmation orders insulate defendants from liability, and (ii) under the doctrine of res judicata , defendants were only obligated to make distributions pursuant to the Plan, not U.S. securities law and, therefore, defendants violated no law in making the distributions. The bankruptcy court agreed with defendants and dismissed the complaint. See Arctic , 2016 WL 3920855, at *1. For the reasons set forth herein, the court will affirm.

II. BACKGROUND⁴

A. Insolvency Proceedings

AGIF was an income trust based in Canada which owned a group of companies that manufactured and distributed packaged ice.⁵ AGIF was listed on the Canadian Securities Exchange ("CSE") under the symbol "AG.UN." AGIF's units traded on the U.S.-based Over–The–Counter ("OTC") market under the symbol "AGUNF." (A7, ¶ 34; A11, ¶ 55) On February 22, 2012, AGIF and its affiliates commenced insolvency proceedings in Canada under the CCAA. (A6, ¶ 26) The same day, the Canadian court appointed a monitor, and the monitor commenced ancillary proceedings in the bankruptcy court under Chapter 15 of the Bankruptcy Code. In the CCAA proceedings, under the supervision of the monitor and the Canadian court, AGIF sold substantially all of its assets, and the proceeds were sufficient to pay AGIF's secured creditors in full. (A5, ¶ 27) The remaining proceeds were held by the monitor pending determination of the amount of creditor claims and the filing of the Plan to govern distribution of the remaining proceeds to unsecured creditors and, to the extent that all creditors could be paid in full, to make distributions to AGIF's unitholders.

B. Plan, Sanction Order, and Recognition Order

AGIF held a meeting of unitholders to consider and vote on the Plan, and notice of the meeting was provided to all unitholders. (See A350–401) The Canadian court determined there had been sufficient notice of the meeting to unitholders, as well as sufficient service of documents related to the meeting. (A587, ¶ 3) The Plan was approved by 99.81% of all unitholders who voted, and over 65% of unitholders voted. (A199; A441–43) The Plan and orders contained provisions that released defendants from liability for any actions or omissions related to, arising out of, or connected with the Plan. Each unitholder was deemed to have consented and agreed to all provisions of the Plan, including the releases. (A592, ¶ 19(a)) The Plan, once approved, was binding not only on unitholders but also on their "successors and assigns." (A161, ¶ 1.3) The Canadian court approved and sanctioned the Plan pursuant to the CCAA on September 5, 2014 (the "Sanction Order"). The plan implementation date occurred on January 22, 2015. (A8–9, ¶¶ 39, 45; A584–604) The Sanction Order declared that the terms of the Plan governed the conduct of AGIF and related parties as of the date of signing, and authorized them "to take all steps and actions necessary or appropriate to implement the Plan":

[T]he Arctic Glacier Parties,⁶ the Monitor and the CPS,⁷ as the case may be, are hereby authorized and directed to take all steps and actions necessary or appropriate to implement the Plan in accordance with and subject to its terms and conditions, and enter into, adopt, execute, deliver, complete, implement and consummate all of the steps, ... distributions, payments, deliveries, allocations, instruments, agreements and releases contemplated by, and subject to the terms and conditions of, the Plan, and all such steps and actions are hereby approved. Further, to the extent not previously given, all necessary approvals to take such actions shall be and are hereby deemed to have been obtained from the Directors, Officers, or Trustees, as applicable ....

(A589–90, ¶ 12) On September 16, 2014, the bankruptcy court entered an order (A460–66) ("Recognition Order")⁸ recognizing the Sanction Order and giving "full force and effect in the United States" to its provisions. (A462, ¶ 2) The Recognition Order provided that "due and sufficient notice" of both the motion seeking approval and the Sanction Order itself had been given and that "no other or further notice need be provided." (A461)

C. Distribution Procedures Under the Plan and Orders

The Plan provides detailed procedures for the distribution to unitholders. Section 6.2 limits distributions "to each Registered Unitholder, as of the applicable Unitholder Distribution Record Date." (A168, § 6.2) Section 6.2 of the Plan provided that the monitor would declare a record date that would determine which unitholders were eligible to receive the distribution, and that the transfer agent would pay the distribution to each registered unitholder as of the record date. Specifically, the Plan provided:

The Monitor shall declare a Unitholder Distribution Record Date prior to any distribution .... On the Plan Implementation Date or on any Distribution Date, as the case may be, the Monitor shall transfer amounts as determined by the Monitor in accordance with the [Plan] ... to the Transfer Agent .... [I]n no event later than five (5) Business Days following receipt of the Unitholder Distribution, the Transfer Agent shall distribute each Unitholder Distribution ... to each Registered Unitholder, as of the applicable Unitholder Distribution Record Date... based on each Registered Unitholder's Pro Rata Share ....

(A168, § 6.2) (emphasis added) The Plan further provided that the unitholder distribution record date must be "at least 21 days prior to a contemplated Unitholder Distribution ..." (A159, § 1.1)

Section 8.3 of the Plan provides the steps and transactions to be undertaken on the plan implementation date:

The steps, transactions, settlements and releases to be effected in the implementation of the [Plan] shall occur, and be deemed to have occurred, in the following order without any further act of formality ...

(a) the Monitor ... shall use the Available Funds to fund the following reserves and distribution cash pools in the order specified below:

(i) Administrative Costs Reserve;

(ii) Insurance Deductible Reserve;

(iii) Unresolved Claims Reserve;

(iv) Affected Creditors' Distribution Cash Pool; and

(v) Unitholders' Distribution Cash Pool;

and administer such reserves and distribution cash pools pursuant to and in accordance with the [Plan];

* * *

(d) the steps, assumptions, distributions, transfers, payments, contributions, liquidations, dissolutions, wind-ups, reduction of capital, settlements and releases set out in Schedule "B" of the [Plan] shall be deemed to be completed in the order specified therein ...

(A174, § 8.3) (emphasis added) Schedule "B" to the Plan provides specific instructions as to steps to be taken on the plan implementation date:

In order to effect the wind-up, liquidation and dissolution of certain of the Arctic Glacier Parties to facilitate the satisfaction of Proven Claims and a distribution by the Fund to Unitholders pursuant to and in accordance with the [Plan], the following steps, assumptions, distributions, transfers, payments, contributions, liquidations, dissolutions, wind-ups, reduction of capital, settlements and releases shall be deemed to occur (a) immediately after the

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