Markwood Investments Ltd. v. Neves (In re Neves)
Markwood Investments Ltd. v. Neves (In re Neves)
Opinion of the Court
This matter came before me for the last time on January 17, 2017,
The dispute before me today is whether to give comity to a Sequestration Order dated October 31, 2014 (the “Sequestration Order”), issued by the Civil and Criminal Court of Rome, Unit for the Application of Preventive Measures against Harmful Persons (the “Italian Court”), in connection with a criminal proceeding pending in Italy, and to consider what impact comity would have on events flowing from that Sequestration Order. Most significant for this dispute was the appointment of a judicial administrator to control assets of the named criminal suspects, including control of Markwood and Golden Dawn. Because I find that the Sequestration Order was not rendered by fraud and does not violate American public policy notions of what is decent and just, comity is given to the Sequestration Order, and the consequences flowing therefrom, including the settlement between the Judicial Administrator, Dr. Sebastiani (the “Judicial Administrator”) on behalf of Markwood and Golden Dawn, and the Defendant, Neves, of all claims and disputes between them.
FACTUAL
The dispute between Markwood, Golden Dawn, and one of their principals—Salvatore Frieri (“Salvatore”) and Neves, spans many years, and culminated in Neves’ bankruptcy, his waiver of his bankruptcy discharge, the filing of this adversary proceeding, and, ultimately a five day trial.
After the trial I wrote a detailed opinion and entered judgment in favor of Golden Dawn with respect to two promissory notes, for a total judgment amount of $13,793,141.80 (plus interest), and entered judgment in favor of Neves with respect to
The present iteration of this long dispute started when Golden Dawn sought to collect on the Amended Final Judgment, including serving discovery in aid of execution. On October 23, 2015, Neves filed the Comity Motion as well as an Omnibus Motion to Stay Action and for Protective Order (the “Motion to Stay”)(ECF # 1376), alleging that Golden Dawn should not be permitted to pursue collection of the Amended Final Judgment because Golden Dawn and Markwood were now controlled by a judicial administrator appointed by the Italian Court in a criminal proceeding involving Salvatore Frieri.
Despite counsel for Plaintiffs claiming to have no knowledge of such events
The Sequestration Order also appointed the Judicial Administrator to take possession and control of the seized and sequestered assets. The Sequestration Order was entered pursuant to Italian law known as the “Anti-Mafia Code,” which consolidated all existing laws against criminal organizations and established specifically regulated tools to counter criminal organizations including seizure and confiscation of their assets.
The Italian Court ordered the sequestration and seizure based on its preliminary findings that, inter alia, the principals of Golden Dawn and Markwood, Salvatore and Arturo (collectively the “Frieris”), were involved in past and ongoing criminal activity including cocaine trafficking, money laundering and tax crimes in Italy, including tax evasion. The Sequestration Order also found that Salvatore, along with Arturo, used Markwood and Golden Dawn in the commission of tax crimes, because, while nominally offshore, the companies’ administrative offices and tax residences are in Italy.
Salvatore received notice of the Sequestration Order as evidenced by his signa
In response to the Motion to Stay, Plaintiffs argued that the Sequestration Order had nothing to do with the litigation in the United States. “The [Sequestration Order] has no bearing on this proceedings and should be disregarded....” Plaintiffs’ Response to Defendant’s Omnibus Motion to Stay and For Protective Order (ECF # 1392). Plaintiffs argued that (a) the Sequestration Order was not final, and therefore not subject to comity; (b) the Plaintiffs were not subject to the Sequestration Order, but rather were still controlled by their officers and directors, to wit, Arturo; and (c) the Sequestration Order was not enforceable outside of Italy absent recognition through the criminal treaty process.
After an initial hearing on the Comity Motion and the Motion to Stay in late October
Arturo, on his own behalf and on behalf of Golden Dawn and Markwood, immediately filed an appeal
At a hearing on December 21, 2015,
The Italian Court has now ruled on the Reclamo, and has affirmed, in an order dated March 16, 2016, (the “Reclamo Order”), the validity of the Sequestration Order with respect to the interests of Arturo, and the authority of Dr. Sebastiani as Judicial Administrator to administer the assets of Markwood and Golden Dawn. The Reclamo Order also affirmed the settlement between the Judicial Administrator and Neves, as well as the Settlement Order.
On December 13, 2016, the Plaintiffs filed a Motion to Deny Comity, to Lift Temporary Stay, and to Strike Notice of Satisfaction of Final Judgment and Amended Final Judgment (ECF #1448) (the “Comity Objection”).
Neves argues that I should grant comity because the Plaintiffs never challenged the entry of the Sequestration Order itself, and Italian judgments are routinely recognized by the United States. Furthermore, Neves argues that once I grant comity to the Sequestration Order, the terms of the Settlement Agreement must be accepted-the dismissal of the appeals, the withdrawal of proofs of claim in the bankruptcy case, and the recognition of the release and satisfaction of the Amended Final Judgment.
ANALYSIS
Comity is a common law rule by which courts in the United States give deference to' foreign judgments. As I wrote in Talisman Capital Alternative Investments Fund, Ltd. v. Mouttet, 493 B.R. 640 (Bankr. S.D. Fla. 2013),
In Hilton v. Guyot, 159 U.S. 113, 16 S.Ct. 139, 40 L.Ed. 95 (1895) (“Hilton”) the Supreme Court issued what has been described as the seminal decision on comity. The Supreme Court described comity “neither as a matter of absolute obligation, on the one hand, nor of mere courtesy and good will upon the other but it is the recognition which one nation allows within its territory to the legislative, executive or judicial acts of another nation, having due regard both to international duty and convenience, and to the rights of its own citizens or of other persons who are under the protection of its laws.” 159 U.S. at 163, 164, 16 S.Ct. 139.
Thus, to determine whether comity is appropriate, this Court must evaluate:
(1)whether the foreign court was competent and used proceedings consistent with civilized jurisprudence;
(2) whether the judgment was rendered by fraud;
(3) whether the foreign judgment was prejudicial because it violated American public policy notions of what is decent and just; and
(4) whether to respect the judgment of a foreign tribunal or to defer to parallel foreign proceedings.
Ungaro-Benages v. Dresdner Bank AG, 379 F.3d 1227, 1238 (11th Cir. 2004).
Neves has the initial burden, as the proponent of comity, to show that the Italian Court was competent and used proceedings consistent with civilized jurisprudence. See Bank Melli Iran v. Pahlavi, 58 F.3d 1406 (9th Cir. 1995). Neves was required to describe the process by which the Sequestration Order was obtained, why that process is not unfair, and why it does not offend the United States’ notions of justice.
According to the Declaration of Prof. Paola Severino di Benedetto (ECF # 1375-3) (the “Severino Affidavit”) the Sequestration Order was issued pursuant to a provision of the Anti-Mafia Code that “applies preventive measures to those who are considered, based on the facts, usually dedicated to criminal trafficking upon proof by the prosecutor with sufficient evidence that the goods or assets have no clear legal origin and are not proportionate to the value/cost and the income reported or alleged by the suspect and his family.” Id. at 4. According to the Severino Affidavit, defense counsel was appointed for Salvatore and the Italian Court held a hearing at which Salvatore had the opportunity to contest the Sequestration Order. There is no dispute that Salvatore received actual notice of the hearing. There is no record that Salvatore contested the Sequestration Order. According to the Severino Affidavit, the Clerk of Court was charged with serv
Assuming Neves has met that burden, the Plaintiffs must prove that the Sequestration Order violates American public policy notions of what is decent and just. See Bank Melli Iran, 58 F.3d at 1409.
I will first address the original concerns raised by the Plaintiffs in objecting to Neves’ request for comity—that the Sequestration Order was not final, that the Judicial Administrator did not have the authority to act on behalf of the Plaintiffs, and that because the Sequestration Order is extraterritorial, it is only enforceable through the criminal treaty process.
While comity is not routinely considered for a non-final order—if, in fact, the Sequestration Order was a non-final order for purposes of comity when it was first entered—there is no hard and fast rule. See Ma v. Continental Bank N.A., 905 F.2d 1073 (7th Cir. 1990); Daniels v. Powell, 604 F.Supp. 689, 693 (N.D. Ill. 1985) (“American courts have granted comity to foreign liquidation proceedings regardless of whether a final judgment has been entered”). More significantly, I abated any proceedings in the United States relating to the Sequestration Order, including the request for comity, during the Reclamo process. The Italian Court has now ruled, and, according to Plaintiffs counsel, the next move is an appeal, or further appeal, which indicates that the Sequestration Order is now final enough. Any stay of the effect of the Sequestration Order pending appeal must be sought in Italy under whatever procedures are available under Italian law.
The second and third issues originally raised by the Plaintiffs are that, since the Judicial Administrator had not removed the boards of either Golden Dawn or Markwood, the boards, meaning Arturo, rather than the Judicial Administrator, still had the right to act on behalf of Golden Dawn and Markwood. And finally, that because Markwood and Golden Dawn were not Italian companies, the extraterritorial seizure of assets was not authorized through the appropriate criminal treaties. See Independent Legal Opinion of Lawyer Fulvio Sarzana di S. Ippolito (the “Sarza-
Both these arguments are directly-contradicted by the language of the Sequestration Order. The Sequestration Order made a specific finding that, notwithstanding the “domiciles” of Golden Dawn and Markwood, the two corporations “actually had their administrative offices or tax residence ... in Italy.” In fact, this finding is part of the basis for the preliminary findings that the Frieris were engaged in tax crimes. Because the Italian Court made specific findings that the corporations are “resident” in Italy, the Sequestration Order does not purport to exercise control over assets located outside of Italy. As argued by Neves in his Sur-Surreply in Support of Motion Seeking International Comity (the “Sur-Surreply”) (EOF # 1466) and conceded by the Plaintiffs at the hearing on January 17, 2017, it is not the role of a United States Court to review the factual findings of a foreign court. In re Fisher Island Investments, Inc., 2011 WL 6962755 (Bankr. S.D. Fla. 2011). It is the process leading to a judgment or order, not the facts leading to a judgment or order, that dictates the comity determination. Moreover, while it is not appropriate for me, in making a determination of comity, to review the factual findings of a foreign court, In re Fisher Island Investments, Inc., 2011 WL 6962755 at *1, it is telling that the promissory notes, which formed the basis for the Amended Final Judgment, clearly list the primary address of both Golden Dawn and Mark-wood as being in Italy. Consequently, even if there are circumstances when a sequestration of assets under the Anti-Mafia Code does invoke international criminal treaties, this is not such a circumstance.
As for the issue of authority, the Sequestration Order identified the “shares, share capital and company assets” of, among others, Golden Dawn and Mark-wood. as sequestered assets, and prohibited Salvatore (as a named suspect), Arturo (as a registered third party) and “legal representatives of the current account and security holders” from “performing any act without the authorization of the Deputy Judge involving, in whole or in part, the removal of the aforementioned assets from the sequestration ordered with this decree.” Thus, it is clear that whomever was purporting to act on behalf of Golden Dawn and Markwood, other than the Judicial Administrator, had no authority to act, notwithstanding that the “board” had not been removed by the Judicial Administrator, because no pleading that has been filed in this adversary proceeding or the Bankruptcy Case purportedly in the name of the Plaintiffs has been authorized by the Deputy Judge of the Italian Court.
Moreover, these arguments, raised in the Reclamo, were rejected by the Italian Court in the Reclamo Order. With respect to the issue of authority, the Italian Court found “[t]his Court ordered the sequestration, in their entirety, of the share capital, the shares and the assets of the companies Golden Dawn Corporation and Markwood Investments Limited. Therefore, the Judicial Administrator is the holder and representative of 100% of the share capital of both societies. Said assets are solely managed by the Judicial Administrator, without the claimants or the third-party formal owners who were subject to the sequestration being able to speak as to the issues.” Thus, the original grounds raised by the Plaintiffs challenging comity are overruled.
It is unremarkable for a federal court to exercise comity to orders appointing trustees and receivers. See BCCI Holdings (Luxembourg), Societe Anonyme v. Khalil, 20 F.Supp.2d 1, 4-5 (D.D.C. 1997) (“The recognition of liquidators or trustees appointed by foreign courts to act as receivers empowered to sue and be sued on behalf of insolvent corporations is neither unusual nor contrary to federal law”). Massi v. Holden, 2011 WL 6181258, at *4 (D. Minn. 2011) (“There is a long and consistent precedent of deferring to receivership orders issued by a properly-instituted court of a foreign country that has jurisdiction”). And, in this case, Arturo, acting on his own behalf and on behalf of Markwood and Golden Dawn, has not contested the appointment of the Judicial Administrator in the Reclamo, focusing the arguments, instead, on the extent of the Judicial Administrator’s authority and the consequences to Arturo’s property resulting from that appointment.
The Plaintiffs renewed their argument that, contrary to United States law, the Italian government has improperly exercised jurisdiction over non-Italian citizens. I do not need to address whether the exercise of extraterritorial jurisdiction so offends notions of justice that the Sequestration Order should not be recognized, because, as I already described, the Italian Court found, in the Sequestration Order, that Golden Dawn and Markwood,
The Plaintiffs complain that the Sequestration Order was entered in an ex parte proceeding and without notice to Arturo, Golden Dawn or Markwood, and thus they were denied due process. United States courts have repeatedly recognized that ex parte procedures used in non-United States courts are not per se viola-tive of United States notions of fairness and due process. “Due process is not violated by the entry of ex parte orders, provided that notice and an opportunity to appear and defend are promptly given.” In re Cozumel Caribe, S.A. de C.V., 482 B.R. 96, 116 (Bankr. S.D.N.Y. 2012). So for
The Plaintiffs also point to the ex parte considerations relating to the Settlement Agreement and the Italian Court’s deliberations in connection with the Reclamo as being further evidence that due process was not met. However, the process following entry of the Sequestration Order, that is, the Settlement Order and the Reclamo Order, are both subject to appeal, although, for purposes of my comity decision, the availability of those remedies is .not relevant. The decision in In re Enercons Virginia, Inc., 812 F.2d at 1472, is instructive. There, the Italian trustee of a bankruptcy estate filed an action seeking a declaratory judgment that only he had the power to represent the bankrupt entity. Id. at 1471. When the bankrupt’s creditors attempted to challenge the trustee’s authority, the trustee obtained an order from the Italian court “clarifying that under Italian law, he, as bankruptcy trustee ... had ex parte exclusive authority” to represent the entity. Id. at 1471. The creditors argued that the Italian order should not be granted comity because the “proceeding failed to satisfy the American notion of due process” as it was issued ex parte and because the creditors “received no notice or opportunity to be heard until the time for appeal of the [ojrder had passed.” Id. at 1473. The court determined that the subsequent ex parte order was irrelevant to the court’s inquiry because the order to which the trial court actually granted comity was the “original [ojrder of the Italian court in which it first appointed” the trustee. Id. The later ex parte order “merely clarified the exclusive authority of [the trustee] inherent in his appointment.” Id. Thus, the later order was “insignificant in and of itself because it merely clarifies the effect of [the trustee’s] earlier appointment.” Id.
In this case, the Sequestration Order itself, including the appointment of the Judicial Administrator, was never challenged in Italy. Rather the focus of the Reclamo was the Judicial Administrator’s authority under the Sequestration Order to act on behalf of Golden Dawn and Markwood, to enter into the Settlement Agreement without notice to Arturo, Gold
The Plaintiffs also argue that I should not give comity to the Sequestration Order because the Reclamo Order may have been obtained by fraud
What the Plaintiffs really seek is to avoid the consequences of the Settlement Agreement—the withdrawal of the proofs of claim, the Satisfaction of Judgment and the Release. And, of course, that was the primary focus of the Reclamo, each and every point of which was specifically rejected in the Reclamo Order. But, even if there was, as Plaintiffs allege, fraud in the settlement process, or in the Italian Court’s review of the Settlement Agreement, that is an issue for the Italian courts. Courts have repeatedly granted comity to foreign settlements, even where a party alleged fraud in the-settlement or secret negotiations. For example, in Fleeger v. Clarkson Co. Ltd., 86 F.R.D. 388, 393 (N.D. Tex. 1980), the court granted comity to a settlement effectuated by a Canadian receiver, where the settlement was approved by the Canadian court. The Fleeger court noted “[i]f, as Plaintiff alleges, Defendants have worked a fraud upon the Supreme Court of Ontario, that court is the appropriate forum to decide that allegation.” Id. Similarly, in Applewhaite v. the SS Sunprincess, 150 F.Supp. 827 (S.D.N.Y. 1956), the court granted comity to settlements negotiated without notice to the aggrieved party where those settlements were approved by a Barbados court. Id. at 828 (“[A]s the Colonial Court of Admiralty in Barbados has approved these settlements, such action need not be reexamined here because of considerations of
In sum, this Court’s recognition of the Sequestration Order does not violate, but rather is consistent with, United States public policy of what is decent and just. First, the Italian Court is competent and utilizes proceedings consistent with civilized jurisprudence. Second, the Sequestration Order was not obtained by fraud but was entered as part of a criminal proceeding brought by the Public Prosecutor of Rome in accordance with Italy’s Anti-Mafia Code. Finally, Salvatore Frieri was personally served with the Sequestration Order shortly after it was entered and had the opportunity to be heard. And Arturo Frieri has had the opportunity, and has availed himself and will, according to his counsel, continue to avail himself of the opportunity, to challenge the Sequestration Order with respect to his assets.
CONCLUSION
There comes a time when all things must end.
a. Neves’ request for granting comity to the Sequestration Order is GRANTED.
b. The Plaintiffs’ Request to Deny Comity is OVERRULED,
c. The Release is effective and enforceable.
d. The Satisfaction of Judgment is valid.
e. The withdrawal of the proofs of claim filed by Golden Dawn and Markwood in the Bankruptcy Case are recognized.
f. The parties are ordered to proceed in the appellate courts consistent with the terms of this Order.
. The first hearing on this dispute was October 28, 2015, the second on January 25, 2016, the third on December 14, 2016, the fourth on December 22, 2016, and the fifth on January 17, 2017.
. Because I find that, in accordance with the Sequestration Order only the Judicial Administrator, Dr, Sebastiani, had the authority to act on behalf of the Plaintiffs, the actions taken in this adversary proceeding and in the main case on behalf of the Plaintiffs were not authorized. Rather, these were actions undertaken by Arturo Frieri, seeking to act through, and on behalf of, the Plaintiffs. Nonetheless, to avoid confusion, for purposes of this opinion I will continue to refer to the parties resisting comity as the Plaintiffs,
. These facts are based on representations of the parties in their various pleadings, on exhibits attached to those pleadings, and on affidavits filed in support of the pleadings. The parties do not dispute the translations of the Italian Court orders referred to in this opinion. Where the facts are disputed, I have noted that dispute.
. If the reader is interested in more details on this dispute, the factual background is included in the Memorandum Opinion (ECF # 1014).
. Case No. 15-21034-MGC The Plaintiffs’ Notice of Appeal and Election to Appeal is at ECF #1161 and the Defendant's Notice of Appeal and Election to Appeal is at ECF # 1027.
. On February 23, 2015, Neves’ counsel informed the Plaintiffs that Neves’ counsel had read on an Italian government website that the assets of Golden Dawn and Markwood had been seized. However, counsel for Golden Dawn and Markwood vehemently denied any seizure, although the Sequestration Order had been served on Salvatore Frieri long before that email exchange. The issue was introduced to me on October 23, 2015 when Neves filed his Motion to Stay.
.See Declaration of Prof. Paola Severino di Benedetto (ECF # 1375-3).
. Declaration of Prof. Paola Severino di Bene-detto.
. I ordered additional briefing on the Comity Motion.
. A copy of the Settlement Agreement has not been filed; Neves claims it is a confidential document. The Plaintiffs sought to have a copy of the Settlement Agreement, but in light of my ruling that the Sequestration Order is the only document for which comity is relevant, it is not necessary for me to detail whether and why Neves did not have to produce the Settlement Agreement
.Although the Plaintiffs described the Re-clamo initially as an appeal, at a hearing on December 22, 2016, counsel for the Plaintiffs stated that the Reclamo was more in the nature of a motion to reconsider.
. The issue of the effect of the Sequestration Order and the settlement came up at the hearing on the motion of the chapter 7 Trustee of Neves' Bankruptcy Case to approve his settlement with Neves (see main case 09-33043-BKC-LMI (ECF Main # 955) for the transcript) because the chapter 7 Trustee and Neves challenged the Plaintiffs counsel’s authority to prosecute an objection on behalf of the Plaintiffs to the Trustee’s settlement.
. At the time the Reclamo Order was entered, the mandate for this adversary proceeding was in the District Court. In response to the Reclamo Order, the District Court, on July 12, 2016, issued an Order to Show Cause requiring the Plaintiffs to explain why the appeals were not moot. On August 5, 2016, over four months after the Reclamo Order was issued and over three weeks after the Order to Show Cause, the Plaintiffs filed a motion to compel in the District Court seeking documents they claimed would prove the Reclamo Order was procured through fraud. Instead of ruling on the Order to Show Cause and the Motion to Compel, the District Court relinquished jurisdiction back to this Court on October 18, 2016. The District Court noted that because "the Reclamo Order was entered by the Italian Court after [the District] Court assumed appellate jurisdiction over this matter,” the Bankruptcy Court should "resolve the issues of comity and mootness raised as a result of subsequent proceedings before the Italian Court.”
.This process is not unlike the United States civil forfeiture procedures pursuant to which an ex parte restraining order may be issued and the property may be seized. While the initial seizure is done ex parte, the defendant, as well as third parties claiming an interest in the seized assets, have the right to challenge that seizure after it has occurred. See 18 U.S.C. § 981; Calero-Toledo v. Pearson Yacht Leasing Co., 416 U.S. 663, 94 S.Ct. 2080, 40 L.Ed.2d 452 (1974) (‘‘[ijmmediate seizure of a property interest without an opportunity for a prior hearing, is constitutionally permissible .... Due process is not denied when postponement of notice and hearing is necessary to protect the public from [harm]."),
. The Plaintiffs have never argued that the Sequestration Order was procured by fraud.
. I will assume there is no stay in place since the Plaintiffs have not argued that a stay has been entered.
. Dr. Sarzana is Arturo Frieri’s attorney.
. The Reclamo Order did not specifically address the jurisdictional argument other than to confirm multiple times that Golden Dawn and Markwood and their assets had been sequestered and that the Judicial Admin
. The Sequestration Order also stated that Arturo was living with Salvatore, a finding that Arturo did not contest in the Reclamo, except to argue, without reference to any exhibit, that Arturo is a resident of Colombia and had not been in Italy for 15 years. However, since Arturo did file the Reclamo, and, according to the Plaintiffs’ lawyers, Arturo also litigated the scope of the Sequestration Order in a Swiss court proceeding, Arturo has certainly had adequate notice of, and has been heard on, the Sequestration Order.
. See supra note 14 (discussing civil forfeiture proceedings). See also Bankr.R.Civ.P. 2004 (requests for 2004 exams are usually filed and granted ex parte); Fed.R.Civ.P. 65(b) (temporary restraining orders may be issued without written or oral notice if certain ■ requirements are met).
. The United States has also extradited defendants under both the predecessor to the Anti-Mafia Code, Lo Duca v. United States, 93 F.3d 1100 (2d Cir. 1996), and the current Anti-Mafia Code, United States v. Amabile, 2015 WL 4478466 (E.D.N.Y. July 16, 2015), evidencing some level of confidence by the United States courts in the procedural safeguards of t[ie Anti-Mafia Code.
. The Plaintiffs have never alleged any fraud in connection with the Sequestration Order.
. Because of the serious nature of the accusations leveled by the Plaintiffs with respect to the Miller Affidavit, I reviewed a copy of the Miller Affidavit in camera. And while my review is not relevant to my ruling, I find that the accusations are not well-founded, as the affidavit is consistent with how it is characterized in the Reclamo Order. However, neither my review nor my conclusion is intended to influence the Italian courts if they undertake any further review of the Sequestration Order, the Reclamo Order or the Settlement Order, as they will independently assess whatever evidence is put before them.
. In the Sur-surreply Neves raised, for the first time, the act of state doctrine. The act of state doctrine is a judicially-created rule that "precludes the courts of this country from inquiring into the validity of the public acts a recognized foreign sovereign power committed within its own territory.” Glen v. Club Mediterranee, S.A., 450 F.3d 1251, 1253 (11th Cir. 2006). While this argument may be correct, because I have granted the request for comity, I do not need to address either the applicability or the timeliness of this argument.
. With a nod and apologies to Geoffrey Chaucer.
Reference
- Full Case Name
- IN RE: Fabrizio Dulcetti NEVES, Debtor. Markwood Investments Ltd., and Golden Dawn Corporation v. Fabrizio Dulcetti Neves
- Cited By
- 1 case
- Status
- Published