Hedge Funds Can't Escape Octaviar Suit Over Conveyance

http://www.law360.com/bankruptcy/ar...ds-can-t-escape-octaviar-suit-over-conveyance
By Tom Zanki
Law360, New York (August 28, 2014, 3:45 PM ET) -- A New York federal judge on Wednesday refused to dismiss a complaint brought by liquidators of Australia-based Octaviar Administration Pty Ltd. against Fortress Investment Group LLC and affiliates over an allegedly fraudulent conveyance, finding defendants’ willingness to move the case to Australia a contradiction of an earlier position.
Judge P. Kevin Castel denied the motion to dismiss on grounds of judicial estoppel — a principle that precludes a party from taking a position in a case that is contrary to a position they have taken in earlier legal proceedings.

The “defendants' earlier position, expressed unequivocally to the bankruptcy court, that they would not consent to the jurisdiction of Australian courts is clearly inconsistent with their current willingness to consent,” Judge Castel wrote.

“Having previously refused to consent and impliedly asserted that the Australian courts lack jurisdiction, defendants’ sudden change of heart where consent advances a forum non conveniens may fairly be described as ‘deliberately changing positions according to the exigencies of the moment,’“ Castel added.

Attorneys for the defendants, including American hedge fund Drawbridge Special Opportunities Fund LP, the parent company of Fortress, could not immediately be reached for comment.

Octaviar, which first sought bankruptcy relief in the U.S. in April 2012, is a unit of the Octaviar Ltd. conglomerate and was ordered to be liquidated by the Supreme Court of Queensland in July 2009.

In February, Octaviar’s liquidators, Katherine Elizabeth Barnet and William John Fletcher, sued Drawbridge in New York state court for $210 million, claiming Drawbridge siphoned off funds belonging to Octaviar while it was insolvent.

According to the February complaint, Drawbridge’s funds in New York siphoned off the proceeds of Octaviar’s sale of a group of companies known as the “Stella group” that should have gone to Octaviar. Drawbridge and its subsidiaries then concealed their wrongdoing through a series of transactions to prevent the liquidators from recovering their claims, the complaint says.

Octaviar Administration Pty Ltd. in June won Chapter 15 recognition in a New York bankruptcy court. Over the objections of Drawbridge, U.S. Bankruptcy Judge Shelley C. Chapman found that Octaviar meets the provision of the Bankruptcy Code requiring debtors to prove that they have property or a place of business in the U.S. in order to receive protection.

Barnet and Fletcher, who have filed a similar suit in Australian court, alleged that when Drawbridge learned about the deteriorating financial situation of the larger group of affiliated Octaviar companies, it devised a scheme to divert funds away from Octaviar for its own benefit.

Drawbridge argued in its objection to the liquidators’ bid for Chapter 15 relief that their case “is all about the litigation tactics of the petitioners, who seek to use this court to validate yet more unnecessary and duplicative litigation in the U.S. courts that should have been part of their case in Australia.”

At its height, Octaviar Ltd. consisted of more than 400 companies that employed more than 3,000 people in Australia, New Zealand and the United Arab Emirates, according to court documents.

Barnet and Fletcher are represented by Madlyn Primoff, Angela Vicari and Joseph Otchin of Kaye Scholer.

Drawbridge is represented by David F. Heroy, Jacob M. Kaplan and Erin E. Broderick of Baker & McKenzie LLP and Lee S. Attanasio, John G. Hutchinson and Nicholas K. Lagemann of Sidley Austin LLP.

The case is Barnet et al v. Drawbridge Special Opportunities Fund LP et al, case number 14-cv-1376, in U.S. District Court in New York.

--Additional reporting by Stephanie-Russell Kraft. Editing by Philip Shea.


Related Articles

• • Fortress Targeted In $200M Clawback By Bankrupt Aussie Co.
  • Australia's Octaviar Prevails On 2nd Bid For Ch. 15 Relief
  • 2nd Circ. Says Foreign Cos. Can't Skirt Key Bankruptcy Rule