The fallout from Industrial Carriers Inc.'s ("ICI") unsuccessful application for the granting of a petition for bankruptcy in Greece in 2008 continued to play out in the United States District Court for the Eastern District of Virginia recently. In Flame S.A. v. Indus. Carriers, Inc., 39 F.Supp.3d 769 (E.D. Va. 2014), the District Court was called upon to determine whether plaintiffs, judgment creditors who brought fraudulent conveyance claims against ICI and related companies, could recover against the defendants as alter egos of one another.
Plaintiffs Flame S.A.'s ("Flame") and Glory Wealth Pte Ltd.'s ("Glory Wealth") claims arose out of unrelated breaches of contract by ICI sometime in 200809. Flame obtained a judgment against ICI in London's High Court of Justice, Queen's Bench Division, Commercial Court Registry for $19,907,118.36. Glory Wealth obtained a London Arbitration Award against ICI in the amount of $46,382,772.91. Both were able to domesticate those awards in the United States District Court for the Southern District of New York.
In October 2013, Flame registered its judgment in the Eastern District of Virginia and sought to recover against ICI and alleged related entities, Freight Bulk Pte, Ltd. ("FBP") and Vista Shipping Ltd. ("Vista"). On November 22, 2013, Flame asked the Court to enter an Order of Attachment under Supplemental Admiralty Rule B to attach the M/V CAPE VIEWER ("CAPE VIEWER"), ostensibly owned by FBP, which the Court granted the same day. In December 2013, Glory Wealth sought relief against the same entities in the Eastern District of Virginia and attachment of the CAPE VIEWER under Rule B. The Court issued Glory Wealth's Order of Attachment and consolidated Flame and Glory Wealth's actions.
The only link between ICI and the Commonwealth of Virginia was the presence of the CAPE VIEWER. In order to recover, Flame and Glory Wealth would have to prove that ICI, FBP, Vista, and Viktor Baranskiy ("Baranskiy"), the person allegedly at the helm of all of these companies, were alter egos of one another, and that ICI fraudulently transferred funds and contracts to Baranskiy, Vista and FBP in order to avoid its creditors.
After "many, many" motions and a bench trial, Flame and Glory Wealth succeeded in their efforts. In order to reach a conclusion favorable to Plaintiffs, the Court considered complex evidence showing, among other things, that: (a) ICI was controlled by Baranskiy and his father; (b) ICI established companies to avoid its creditors; (c) ICI conveyed the charter of a ship to Vista when ICI was insolvent and tried to hide that Vista profited from the charter; (d) ICI funded Vista; (e) ICI transferred assets out of its accounts immediately before its rejected bankruptcy in order to hide funds from creditors; (f) ICI and Vista shared the same employees performing substantially the same tasks; (g) Baranskiy was the conduit for ICI to the Vista Group and another entity; (h) Vista and other entities intermingled cash and did not conduct arm'slength transactions all of which mirrored ICI's actions; (i) Vista and other entities commingled funds, disregarded the corporate form, and used financial transfers to avoid creditors; and (j) Vista's CFO was totally dominated by Baranski, Baranskiy used Vista's funds as his own, and Baranskiy disregarded the corporate forms of his companies to avoid the problems of any one entity.
Significantly, although Plaintiffs were unable to obtain certain additional discovery, they were aided by Baranskiy's desertion in the middle of his trial testimony. His testimony before his departure had been inconsistent and poor. On the second morning of it, Baranskiy abandoned the case by not appearing in Court, and taking his inhouse, lead trial attorney with him. The Court noted that this is, "the first case in which the undersigned participated where a critical defense witness and representative of the main defendant abandoned his case in the middle of his cross examination at trial . . . ." These circumstances led the Court to find that had Baranskiy stayed for the remainder of the trial, his testimony would have been substantially against his own interests in relation to Vista, ICI and another entity.
In another twist, Flame attempted to obtain personal jurisdiction over Baranskiy, and thus all of his alter egos, by serving him while he attended trial. This could have allowed Flame and Glory Wealth to recover against the defendants directly, and not merely up to the value of the CAPE VIEWER, as permitted under Rule B. However, the District Court did not permit service upon a witness in this manner. Baranskiy's presence at trial was based on his position was the corporate representative of FBP, which he controls, and was not a personal appearance. To permit service upon Baranskiy here would have a chilling effect on witness appearances, and justice would suffer. Moreover, the Court noted that permitting personal jurisdiction over ICI and Vista when neither entity had any contact with Virginia with the exception of the CAPE VIEWER would obviate due process and would open American corporations to similar far reaching attempts by foreign courts to exercise sweeping power.