594 B.R. 108
Bankr. S.D.N.Y.2018Background
- Soundview Elite and related Richcourt/BVI funds (the "Funds") were investment companies that filed for Chapter 11/Chapter 15; Corinne Ball was appointed Chapter 11 Trustee.
- In June 2008 Alphonse "Buddy" Fletcher acquired 85% of Richcourt Holding Inc. (management shares), became chairman/director, and installed aligned directors; he managed fund affairs.
- Fletcher delayed and misrepresented disclosure of the acquisition to investors (first notice Dec. 2008; misleading Jan. 2009 letter) and thereafter transferred millions from the Richcourt Funds into various Fletcher-managed funds ($61.7M between Nov. 2008–Mar. 2010).
- On Dec. 31, 2012 Fletcher caused Soundview Elite to transfer $4M to FII in exchange for an equity stake in FILB (bankrupt), which proved worthless and benefitted Fletcher and his affiliates.
- Trustee sued Fletcher alleging breaches of fiduciary duty (failure to disclose, self-dealing/defalcations, New Year’s Eve transaction) and fraudulent transfers; Trustee moved for summary judgment and Fletcher did not oppose the motion or appear at argument.
- Court found undisputed facts supported Trustee: fiduciary relationship, breaches (nondisclosure, self-dealing, transfers), damages of $78M (expert methodology accepted), and avoidance of certain small transfers under §548; but bankruptcy court lacks final adjudicative authority absent Fletcher’s consent, so decision entered as proposed findings for district court review.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether bankruptcy court can enter final judgment absent defendant's consent | Trustee: Fletcher implicitly consented by not opposing summary judgment and by filing a proof of claim | Fletcher: expressly denied jurisdiction in his Answer and demanded jury trial; no knowing, voluntary consent | Court: No implied consent; consent must be knowing and voluntary—bankruptcy court lacks final adjudicative power under Stern, so decision treated as proposed findings to district court |
| Whether Fletcher owed fiduciary duties and breached them by nondisclosure and misrepresentations about the acquisition | Trustee: Fletcher was director/chair, owed duties; delayed and misrepresented acquisition and fund condition, harming investors | Fletcher: (no opposition to SJ; general denials in Answer) | Court: Fletcher was fiduciary; his failure to disclose and misleading letters breached duty of loyalty/candor |
| Whether post-acquisition transfers and New Year’s Eve Transaction were self-dealing and unfair | Trustee: transfers to Fletcher-controlled funds and $4M transaction were conflicted, procedurally/substantively unfair, provided little/no benefit to Funds | Fletcher: (no responsive evidence) | Court: Transactions constituted self-dealing breaches; Fletcher failed to prove entire fairness; transfers provided no value to Soundview |
| Damages and interest for fiduciary breaches | Trustee: aggregate damages $78M (expert Varga comparing hypothetical liquidation to actual recoveries); seek 9% pre-judgment interest under NY CPLR | Fletcher: (no competing damages or opposition) | Court: Accepted Varga methodology; awarded $78M plus pre-judgment interest at 9% (subject to district court entry); fraudulent-transfer damages subsumed in fiduciary award |
| Whether Trustee proved constructive fraudulent transfers under §548/NY law | Trustee: two transfers in early 2013 within two years of filing; no reasonably equivalent value; debtor insolvent | Fletcher: (no opposition) | Court: Summary judgment granted on §548 constructive fraudulent transfers; recoverable amounts subsumed in fiduciary damages |
| Whether Fletcher's counterclaims survive | Trustee: counterclaims lack merit or are barred by prior rulings and law-of-the-case; Fletcher abandoned prosecution | Fletcher: asserted multiple counterclaims (fee review, conflicts, disclosure, access to funds, claims against nonparties) | Court: All counterclaims dismissed (merits/law-of-the-case and for failure to prosecute); dismissal with prejudice |
Key Cases Cited
- Stern v. Marshall, 564 U.S. 462 (2011) (bankruptcy courts lack constitutional authority to enter final judgment on certain common-law/private-right claims absent consent or other exception)
- Wellness Int'l Network, Ltd. v. Sharif, 575 U.S. 665 (2015) (consent to adjudication by non-Article III tribunal must be knowing and voluntary)
- Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574 (1986) (summary judgment burden and inference rules)
- Anderson v. Liberty Lobby, Inc., 477 U.S. 242 (1986) (standard for genuine issue of material fact at summary judgment)
- Langenkamp v. Culp, 498 U.S. 42 (1990) (filing a proof of claim may subject creditor to the bankruptcy court's equitable power in claims allowance)
- Donovan v. Bierwirth, 754 F.2d 1049 (2d Cir. 1985) (relaxed causation/damages rules in fiduciary-breach cases; uncertainties resolved against wrongdoer)