{Unofficial Transcript. Original transcript by GoTranscript.com. Corrected by JM.}
UNITED STATES BANKRUPTCY COURT
DISTRICT OF NEVADA
Case: 16-50644-btb
PATRICK CANET
Case type: bk Chapter: 15
Hearing: 10/1/2019 starting at 2:32 pm
Hearing on Margolin’s Motion to Dismiss and M.Li’s (Sadri/Koroghli’s Counsel) Motion to Withdraw
The Court: Uh, Patrick Canet, case number 1650644, two matters.
[background noise]
Francis?
Mr. Zorio: Good morning, your Honor, Arthur Zorio on behalf of Mr. Jed Margolin.
Mr. Francis: Matt Francis from Brownstein on behalf of Mr. Margolin as well.
Mr. Hartman: And Jeff Hartman on behalf of Mr. Canet.
The Court: And on the phone please.
Mr. Li: Good morning your Honor. Yanxiong Li on behalf of Fred Sadri as trustee of Star Living Trust, uh, and individually, Ray Koroghli individually and as trustee of Koroghli Management Trust along with, uh, S. Koroghli.
The Court: Thank you. Counsel? And we've kind of switched parts of the spectrum in bankruptcy Court with this hearing. These two hearings.
Mr. Zorio: As always, if you have any-any specific questions, your Honor, I'd rather cut to the chase and answer those. Otherwise I've got a very short presentation.
The Court: Please go ahead.
Mr. Zorio: Okay. This began by a petition recognizing a foreign proceeding filed around, um, I believe May of 2016. Relying on a now 21-year-old document indicating that Computer World is in a liquidation proceeding in Paris, France and that Mr. Zandian was ordered to pay a judgment or to pay the creditors in that bankruptcy. After the hearing on that where we opposed, we were presented with an order and according to the local rule, we were asked to approve or disapprove the order. And the local rule is very clear, the approval or disapproval does not consent to the order being entered. It doesn't mean that you have withdrawn your objections. It only means that if your order is consistent with the pronouncement of the Court. However, in the opposition that Mr. Canet filed to our motion, he seems to indicate that our non-disapproval of that order indicates we consented to Mr. Canet being here.
The Court: He's wrong.
Mr. Zorio: He's wrong. In addition, that order was never submitted to the Court. Uh, the rule requires the order to be submitted within 35 days or the petition can be deemed withdrawn. It's been three years. Even in response to our motion to dismiss, an order was-has not been submitted to this Court confirming or recognizing the Chapter 15. Nothing has been done for three years in this bankruptcy. There's been no coordination with the French Court about anything. We have not seen one order from this French Court in this proceeding that supposedly has been active for over 21 years indicating what is going on in that case, indicating who is involved in that case. Nothing.
In our motion we have presented evidence that Mr. Zandian, the petitioner, {consent} states that Mr. Zandian is a citizen of Iran. We've presented to the Court an email from Mr. Zandian admitting he's living in Iran. Under 5th-- Code section 1517(b)(1), in order for this proceeding to be recognized as a main forum proceeding, the Center Of Main Interest for Mr. Zandian must be in Paris, France. However, the only evidence before this Court is his Center Of Main Interest is in Iran. What's interesting is Mr. Canet presents a letter in his Opposition. A letter brought from a purportedly French attorney. Last name, I believe is Hyest. I may have pronounced that wrong.
It's not a sworn affidavit according to our rules of evidence, it's inadmissible. But it's interesting what's written in that document. It says that person has knowledge of the liquidation proceeding in France. And nowhere in that document does it say what's happening in that proceeding. It doesn't say that that proceeding is currently active after 21 years. It doesn't say that Mr. Zandian is a resident of France. It doesn't do anything to dispute the issues we've raised in our motion. Even though this person purports in a hearsay document to have knowledge of that liquidation proceeding.
[05:01]
We've presented evidence that the majority of the purported debt in the French proceeding is owed to a creditor that cannot be paid. The petitioner has admitted in Requests For Admissions in-in the adversary proceeding that they are not an approved creditor, this bank of, uh, Bank of Melli of Iran. We've presented the CFR section as well as the Executive Order in the United States where you cannot pay money to the Bank of Melli because it's an instrumentality of the country of Iran. So there's no dispute that you can't pay that creditor. That's the majority of the supposed debt owed. The remaining debt is around 150,000 euros as we've calculated. And the evidence that we've provided from the French Courts that we've been able to obtain indicate that Mr. Canet has collected over 150,000 euro already and may have collected even between 300,000 and 450,000 euro. Now again, what's this letter from this French attorney say about the money that's been received by Mr. Canet in the French proceeding with knowledge of this French proceeding? Zero. Nothing. This contention that we've made in our motion with the supporting evidence has not been disputed, that the debt that's allegedly owed in the French proceeding has completely been satisfied.
At the hearing in 2016, Mr. Hartman represented to this Court that if you recognize this proceeding as a Chapter 15, he will file a Chapter 7 either voluntary or involuntary. He's never done that. Now it's interesting, I've done a lot of reading on Chapter 15, I'm not an expert on Chapter 15, it's an interesting area. Maybe one day I would be, but there is no proceeding in the United States that's currently ongoing under Chapter 11 to marshal the assets of the debtor or to administer the debtor's estate. The only thing that's supposedly happening here is a recognition that there is a foreign main proceeding in France, but yet we have no idea what is going on with the foreign main proceeding. We have no direction from a French Court. Nothing. And it bears noting your Honor that the adversary proceeding that was pending was to wrest from Mr. Margolin title to real property and put it into the name of Mr. Zandian, but yet back in 20-- in June of 2016 when we filed our opposition to the petition for recognition we notified Mr. Canet that we, Mr. Margolin, has a fraudulent transfers case pending against Mr. Zandian for fraudulently transferring several parcels of property into the names of his family members and friends and he never appeared in that action, Mr. Zandian never did. All that is left to do was for the Court to enter the order, transferring those parcels back into Mr. Margolin's name. Now with this information, you would expect a bankruptcy trustee to say, "Aha. Okay, well there's a fraudulent transfer action out there. There's multiple parcels of property that belonged to the estate. I'm going to go get those."
You know what Mr. Hartman's done with the regards to those properties? Nothing. Zero. A common theme on my presentation, your Honor, is we've heard nothing from the French Court. We don't know what's going on in the French Court. We don't know if this proceeding is even currently active or if there is a current proceeding. It's been 21 years and yet we're here and the only party that is being-- you know thrown up against the fence is Mr. Margolin.
Mr. Canet's Opposition says, well, Mr. Margolin isn't a creditor, hasn't filed a claim in the French proceeding, yet that's a nice statement yet there's- there's no requirement that he do so. In fact, code section 1522 mandates that this Court in, uh, in-in, uh, prosecuting a Chapter 15 protect creditors here in the United States. One of the interesting reasons why a Chapter 7 would have been a good idea, because then there's set procedures in a Chapter 7. Hasn't been done. Mr. Margolin is a creditor to the tune of over $2 million, Mr. Zandian owes him.
[10:18]
[background noise]
With regard to the Limited Opposition of Mr. Sadri and Koroghli, the non-final interlocutory order entered in the adversary proceeding provides for them their one-third interest in the properties and provides for Mr. Zandian to have one-third interest in various properties. That adversary proceeding had to do with title to those properties. Yet Docket #39, which is the motion for summary judgment, Sadri and Koroghli admit that the adversary proceeding had to do with title to those properties. It was not a proceeding to invalidate a lien. Mr. Margolin had title to those properties prior to the institution of this Chapter 15 and prior to the institution of the adversary proceeding. Section 349(b)(1) that is relied upon exclusively by Sadri and Koroghli does not apply. Section 349(b)(3) applies. 349(b)(3) states that, unless the Court for cause orders otherwise, a dismissal of a case, other than under section 742, revests the property of the estate in the entity in which such property was vested in immediately before the commencement of the case.
Now, there's some commentary in Nash, a Ninth Circuit opinion that we've cited and quoted. That the property to- to be revested is property that at the time of dismissal was in the estate. It has some commentary about what, uh, what happens to property that's been transferred out of the estate before, uh, the dismissal, and it indicates in there that property transferred out of the estate in the hands of third parties is not revested, however, property in the estate is revested into the hands of the people who had it previously.
In this case, your Honor we are on record about Sadri and Koroghli's plan with their one-third interest. They can have their one-third interest. Mr. Zandian is entitled to his one-third interest. Sadri and Koroghli are not to be prejudiced in the slightest. Oh, excuse me. Oh, sorry, I-I used the wrong name. Mr. Margolin is entitled to his one-third interest, if I can correct the record, I misspoke. Upon dismissal of this punitive Chapter 15, that interlocutory order goes away. What happens to title to the real-- to the real property? It vests back into Mr. Margolin's name.
Sadri and Koroghli not only rely on the wrong code section, but they also make an argument that, "Well, that's a windfall because it makes the order go away, and therefore it shouldn't happen." Well, wait a minute that's what the code says, the order does go away. So that circular argument is just saying, it's unfair because the code says that's what's supposed to happen. They've not provided this Court with any cause why it should not implement Code section 394(b)(3). And finally, your Honor, I don't believe this Court properly has subject matter jurisdiction over anything. I don't believe there's a proper chapt--
The Court: That's good.
Mr. Zorio: Yes. your Honor, I don't because it no, the Chapter 15 should be dismissed. This order that it was based upon is 21 years old and there's been nothing done for three years. We have no idea what's going on with it with the supposed bankruptcy in France. Mr. Hartman is a diligent lawyer, he's in front of your Honor many, many times a week. He didn't submit the order for over three years. He hasn't gone after assets where there's evidence that there's been fraudulent transfers. He hasn't submitted to this Court orders from the- from the Court of France indicating what is going on there. Nothing. The Chapter 15 should be dismissed and the interlocutory order in the adversary proceeding should be vacated. Thank you, your Honor.
The Court: Thank you, Counsel. Mr. Hartman?
Mr. Hartman: I want to hear from Mr. Li first on the thought on that.
The Court: Sure Mr. Li, go ahead.
Mr. Li: Thank you, your Honor. Uh, your Honor, let me just start, uh, by saying that, uh, we really didn't know what subsection of 349 uh, Mr. Margolin was, uh, alluding to in his original motion, uh, his original motion essentially consists of one statement uh, that cites to section 349(b). I took a look at it. I addressed two that I thought was the most pertinent. Um, I think (b)(2) probably has the language since we're talking about any orders, judgments or transfers ordered. Um, and, interestingly, the Reply filed by Mr. Margolin doesn't address our argument in opposition based on subsection (b)(2).
Uh, so I think I want to emphasize that because uh, factually, what happened here was when we filed the adversary proceeding, Mr. Margolin had title of interest in three of the nine undivided parcels. Mr. Margolin asserted a lien only over six of the nine undivided parcels. So at the initial instance, it-it-it seems like with respect to the lien over the six parcels, (b)(1), c, or (b)(1) really would be the most applicable here. Um, because that actually refers to liens. However, um, that doesn't talk about a lien that's voided pursuant to a violation of NRS 17.1 [unintelligible 00:17:23]
The Court: I'm sorry Counsel, you're breaking up. Could you move to or from the-the speaker?
Mr. Li: Uh-huh?
The Court: You're-you're breaking up, we can't understand you.
Mr. Li: Hello.
The Court: Yes, sir.
Mr. Li: Oh, okay, so, uh, you know, I've gotta make this brief. Um, the-the judgment your Honor entered was to void Mr. Margolin's lien, pursuant to a violation of NRS 17.150(4) because Mr. Margolin did not properly create a lien pursuant to that statute. On the face of the uh, summary judgment, uh, it's not under any of the provisions that's covered by uh, section 349, uh, as to judgments or liens that may be, uh, vacated or voided uh, upon dismissal of the case. So really, what-- this isn't a judgment that should be affected by the dismissal at all. That's really our primary position. Our fallback position is, your Honor that um, 349(b) under Title 11 i-is not a mandatory rule. It-it says that unless the Court for cause orders otherwise. So Mr. Margolin has a burden to show uh, that it falls under here which it doesn't, and the Court can still decide, if it does, to not vacate the order for cause. Well, um, in our Opposition, we've pointed out that there's nothing in Mr. Margolin's motion that really, uh, says anything about dilatory actions on our end. Uh, there is no fault or prejudice that's suffered, um, by Mr. Margolin, uh, with the judgment, uh, standing where it does. Uh he simply could just go and rerecord and actually comply with the statute, and, uh, recording the lien correctly this time and foreclose upon it, should this Court decide that the case should be dismissed. Um, there is no basis for vacating it. Um, so with that, I'm not sure, your Honor has any other questions, I will go ahead and submit.
[19:57]
The Court: Thank you. Mr. Hartman, do you have anything to add?
Mr. Hartman: Thank you, your Honor. Uh, I-I will, uh, also concede that I'm not an expert in Chapter 15. Um,
The Court: Nor am I.
Mr. Hartman: And, um, it’s, um, accurate to say that the Paris proceeding has been pending for a very long time. Um, my other experience with dealing with matters in France is not dissimilar to that. Um, it doesn't help the fact that they basically take the month of August off every year, uh, and that nothing gets done in that case. But, um, a couple of things. There's been adequate time, of course, where Mr. Margolin could have filed his motion to dismiss the case much earlier than now.
And in the meantime, uh, has participated in the language, excuse me, in the adversary proceeding with respect to the, uh, the nine parcels of land in Washoe County. Uh, and with respect to that, yesterday I filed my Complaint under 363(h)(2), um, to obtain an order authorizing the sale of that property because, uh, as I alluded to in my papers, uh, although Mr. Li and I have exchanged settlement offers, we were unable to reach an agreement with respect to the disposition of those nine parcels.
And so the bankruptcy code does provide a mechanism for, uh, proceeding to sell the interest of the estate and the interest of a co-owner with the estate. Um, I don't know exactly what the market is with respect to that property, but it's certainly something that, uh-uh, would generate a significant amount of money for claimants. In that regard, now, Mr. Margolin has not filed a claim in this case and he hasn't filed a claim in the French proceeding.
And, uh, I think that-- and again, I, I'm not challenging, uh, Mr. Zo-Zorio but I don't think the-the state of the law is that they don't have to participate by filing, claiming and attending Chapter 15 in the foreign country. Because that's basically the lead case, this is an ancillary proceeding and in order to ultimately participate in the distribution of assets from the main case, they would have to file a claim there. They haven't filed a claim here, they haven’t filed a claim there. So, um, what I would request, uh, and it’s, is a fair statement by Mr. Zorio to say that, uh, we don't have a statement from Mr. Canet regarding the-the current status of the Chapter 15 in Paris. So my only request would be, uh, a continuance for 30 days, uh, give me two weeks to provide a-an extensive declaration for Mr. Canet regarding the status of those proceedings, and also an analysis, which I would prepare, and of course, Mr. Zorio would have an opportunity to respond regarding the requirement for filing a claim in order to be able to participate in the distribution process.
And if this Court ultimately determines to dismiss the case, so be it. If the Court determines that this case should be converted into a Chapter 7, an independent trustee appointed, so be it. So that's my position.
The Court: Do you want to make a response, Counsel?
[23:47]
Mr. Zorio: Yes, your Honor. On that last point, it’s curious that there’s a statement made that this case maybe should be converted to a Chapter 7. your Honor, there's no authority for this Court to convert the chap-- the proceeding going on in France if there is a proceeding going on in France.
The Court: Why? I certainly can't affect the French proceeding.
Mr. Zorio: Correct.
The Court: But I could convert this to a Chapter 7 here.
Mr. Zorio: Well, that's my point. There is no conversion. What-what's the conversion? Here we're-we're recognizing a foreign proceeding. Mr. Hartman, when he originally appeared, arguing this case in June of 2016, or September of 2016, he said he wants it to a Chapter 7, voluntary or involuntary, against Mr. Zandian. He hasn't done so. I'm not aware of any authority in Chapter 11 or elsewhere that allows a proceeding under Chapter 15, I’ve read Chapter 15 several times. I've read the-I've read the Model Law on Cross Border Insolvency, the judicial perspective that's provided by the UN and I’ve-- There's nothing that says that this Court can convert a recognition of a foreign Main Proceeding into a U.S. Chapter 7. Somebody is going to have to, either Mr. Zandian file a voluntary Chapter 7 or Mr. Hartman's going to have to file an involuntary Chapter 7. With regard to filing a claim, again there is no procedure for Mr. Margolin to file a claim under Chapter 15. 1522 says protection of creditors and other interest-interested persons.
[25:30]
When this Court grants relief under Section 1521, or 1519, it must consider the rights of those people like Mr. Margolin. There's been no request for relief under 1521, all they've done is institute an adversary proceedings. I want to make a point with regard to Mr. Li’s commentary on, uh, the applicability of Section 349(b)(2). In their Opposition, they say 349(b)(2) doesn't apply. They say, “Nothing in plain language in section 349(b)(2) suggests that it applies to judgments based on violation of statutory requirements”. 349(b)(3) applies to the dismissal of this case. It is self-executing because it says, “Unless otherwise ordered by the Court on cause being shown, the parties will be put back in the same place they were in prior to the institution of bankruptcy”. That is the plain language of the code and that is the intent of Congress that we’ve quoted in our-our briefs.
Mr. Hartman asked for more time to have Mr. Canet explain to this Court the status the French proceeding. Respectfully, your Honor, Mr. Canet’s credibility should be suspect here. Mr. Canet didn’t provide a letter saying he had knowledge of the French proceeding and that Mr. Margolin hadn't filed a proof of claim in that proceeding. They have a letter from some purported attorney in France, saying they have virtual knowledge of the proceeding and there's been no claim made there.
The Code allows for communication with the French Court. With the Court, in order to assist that Court in its proceedings here in the United States. We have recognized a Foreign Main, if we have recognized the Foreign Main Proceeding, your Honor, communication must be made with that French Court. It hasn't been done.
The Court: And who was supposed to make that, me?
Mr. Zorio: Well, under--
The Court: I don't know.
Mr. Zorio: Under 2002(q) it provides this Court with that ability. Under, uh, Code Section 1525 and 27, it provides this Court with that ability. With due notice to the parties, but yes, that is possible, your Honor.
[28:22]
The Court: I, well, I’ve a question. Do any of us have any idea what's going on with the French Court?
Mr. Zorio: I have a suspicion.
The Court: I’ll-I’ll take your suspicion but that’s only a suspicion.
Mr. Zorio: My suspicion, your Honor, is the order that was entered 21 years ago is no longer enforceable and should go away.
The Court: That's-that's not shocking. Um-
Mr. Zorio: My, you know, you asked for a suspicion,
The Court: No, I’m-I’m not [crosstalk]
Mr. Zorio: Allow me to speculate there is a French-- There-there is commentary that I found regarding a French Code provision that says, “Judgments are no longer valid after 10 years”. This is 21 years old. And you know, if you look at Docket #18 which was a supposed status report.
The Court: Hang on. Docket what number, I'm sorry, 15?
Mr. Zorio: Sure, Docket 18.
The Court: 18, sorry.
Mr. Zorio: And I’m-I’m specifically referring to the attachment 18-1 exhibit A.
The Court: Hang on. All right. What page?
Mr. Zorio: Uh, page 204 of the, uh, of the Docket.
The Court: And this is Status Report? Is that what it is?
Mr. Zorio: I’m sorry, your Honor?
The Court: Is this Status Report of a Reply Re: the French Proceeding against Zandian?
Mr. Zorio: Yes.
The Court: Okay. Go ahead.
Mr. Zorio: So this is Docket #18-1, it's Exhibit A. On page 204, it purports to say Certificate - and this is a hearsay document- it says, Certificate regarding the insolvency proceedings, a search in the corporate register for persons registered in this register and in the general repertoire of cases of the Court for persons not registered regarding proceedings for, and it lists, I guess, types of proceedings, receivership and liquidation of assets, judicial reorganization, liquidation protection, judicial reorganization liquidation. And that's this concerning Gholam Zandian Jazi. And then there's three, uh, I don't know what they are. One is dated 7 April 1998 that says judicial liquidation. Okay.
Then it's 16 December 2015 and it says appointing Canet-Morand taken in person of Maitre Canet. I don't know what that is. And then it says 2 February 2015 Order of the Presiding Judge on 2 February 2015 appointing Mr. Albert Vertrocchia as Bankruptcy Judge to replace previously appointed Bankruptcy Judge. This says nothing about what's going on in the purported proceeding that's related to the, what was it, April 3, 1998 document that's attached to the petition for recognition. Who are the creditors of the bankruptcy?
Uh, what pro- what proceedings have taken place to collect money? Is-is-is there a creditor matrix? Is there, uh, are there hearings? We have no nothing. Zero. And again, Mr.-Mr. Hartman had a chance to come up here and say, "Oh yeah, well you know, even though we've got this letter from this person who supposedly knows something about this bankruptcy, uh, um, we do have a Center Of Main Interest COMI. It is satisfied." No, that has never been presented to this Court.
He didn't come here and say, Oh yeah, well we've- we've- we've got information that you know, there- there still is debt owed. No. Nothing. Respectfully, there should be a great concern to this Court that we have a supposed proceeding recognizing a French matter and we have no idea what's going on with the French matter.
The Court: Well, here's what I'm going to do. I'm going to continue this for 60 days. I'm going to see if I can figure out, and I am not promising that I can figure out what's going on in the French Court, but, um, somebody smarter than me up the judicial chain here, I suspect, can tell me how to contact somebody there who can tell us what's going on, um, and figure it out.
And I think we need to-- I think that needs to be done before we proceed here. Cause-cause I frankly just don't know. And um, it sounds to me like other people don't know a lot about it so I'm-I'm not criticizing anybody, but this is my first, uh, cross border insolvency case. Um, hopefully my last, but I will-- Let's continue this for 60 days or thereabouts, and we'll-- I'll see what I can do about finding out and if it-if for some reason it takes longer than that because God knows what, um, we'll move it out. But I'd like to find out what's going on there, if-if anything, It may be dead. I don't know.
Mr. Hartman: May we have a date, your Honor?
The Court: We're getting one. Sorry.
The Clerk: I'm working on it.
The Court: Go ahead.
Mr. Zorio: Oh, I have that section of the French code that-that has the 10-year statute limitations if, your Honor, would like it for the record. Take me a moment to get to my notes.
The Court: I just need to find somebody who really speaks French.
Mr. Zorio: Let's see. It's L111-4 of the Civil Enforcement Procedures Code.
Mr. Hartman: Can you repeat that, Mr. Zorio?
Mr. Zorio: Absolutely. It's, um, L111-4 of the Civil Enforcement Procedures Code. I'm just checking to see if I've got a different- a different reference to it. If I do, I'll give it to you. Just one minute.
I apologize, your Honor.
The Court: No-no. No problem.
Mr. Zorio: I moved my notes around and - yeah, that's the best reference I have here.
The Court: Okay, well let-let me see what I can find out. Um, what do we have in about 60 days that will work for the [unintelligible 00:34:56] calendar.
The Clerk: Counsel, do you prefer a morning or an afternoon session?
Mr. Zorio: It doesn't matter to me your Honor.
Mr. Hartman: It doesn't matter to me.
The Court: Okay. Doesn't matter to me.
The Clerk: So at the 60 day mark, gentlemen, we are looking at December the 5, that's a Thursday, at 10 am, and I'll block the morning.
The Court: And we'll be celebrating the one month anniversary at however many years of Guy Fawkes Day then.
[laughter]
Mr. Hartman: Again?
The Court: Again. [laughs]
Mr. Hartman: That-that, uh, that date and time would be fine with me.
The Court: Okay.
Mr. Zorio: Sorry, your Honor. Just for clarification the matters that are on calendar today are continued?
The Court: Yeah, we will just continue. I'm really just trying to figure out what's going on, and I apologize that I don't know more about this, but anyway, let's find out.
Mr. Francis: your Honor, let me -- if I may. Um, there has been another Adversary Proceeding filed, is it prudent to stay current proceedings until you have a hearing on it in 60 days?
The Court: Mr. Hartman?
Mr. Hartman: No objection.
The Court: Let's continue that. Yeah. Thank you. We'll be in recess.
Mr. Hartman: Thank you, your Honor.
The Clerk: All rise.
Male Speaker: I don't think he can hear you.
[36:15]
The Clerk: Mr. Li, are you there?
Mr. Li: Yeah, I'm-I'm here. I have another Motion To Withdraw, two actually.
The Court: They are both granted.
Mr. Li: Oh, okay. Thank you, your Honor. Um, we'll get the proposal in just a minute.
The Court: Thank you very much.
Mr. Li: Thank you,
The Clerk: Thank you, your Honor.
[00:36:41] [END OF AUDIO]