Blue Citi LLC v. 5Barz International Inc.

Background

Blue Citi LLC previously won summary judgment on its breach-of-contract claim against 5Barz International Inc. The court entered a judgment totaling $302,991.48, consisting of damages, prejudgment interest, and attorneys’ fees. 5Barz filed an appeal, but it did not provide a bond or other security, so the district court retained authority to address enforcement of the judgment.

Blue Citi served 5Barz with a post-judgment information subpoena seeking information about 5Barz’s assets. The court ordered 5Barz to respond after it failed to comply, and the court later issued an order requiring 5Barz to explain why it and its officers should not be sanctioned or held in civil contempt. 5Barz eventually produced the requested information.

The information showed that one domestic bank account held $180 and that other accounts had zero or negative balances. 5Barz said it had no cash outside its bank accounts and no safe-deposit box. It did, however, report shares in foreign subsidiary and related companies, approximately $7 million in accounts receivable, unspecified patents, furniture, and equipment valued at about $26,525. It also reported eight pending judgments against it.

Receivership Analysis

A receiver is a person appointed by a court to administer, collect, manage, or sell a judgment debtor’s property to help satisfy a judgment. Applying New York law through Federal Rule of Civil Procedure 69, the court considered whether Blue Citi had adequate alternative enforcement remedies, whether a receiver would increase the likelihood of recovering the judgment, and whether failing to appoint one created a risk of fraud or insolvency.

The court held that Blue Citi lacked adequate alternatives because most of 5Barz’s reported assets were illiquid or not readily marketable, including interests in foreign companies, accounts receivable, and patents. The court also relied on 5Barz’s failure to comply with court orders in this case and another case in the district. The court found that a receiver would increase the likelihood of at least some recovery because 5Barz was unlikely to satisfy the judgment without one.

The court further found a significant risk that 5Barz would continue avoiding payment and that its assets might dissipate. The court considered 5Barz’s assertions that it was reorganizing its liabilities, expected to obtain a Nasdaq listing, and anticipated profits from its subsidiaries, but found those assurances unpersuasive. The court therefore concluded that appointing a receiver was appropriate.

Attorneys’ Fees

The contract underlying Blue Citi’s claim required 5Barz to pay reasonable attorneys’ fees and expenses incurred in enforcing the note. Blue Citi requested $5,552.50 for approximately 14.2 hours of work at $375 per hour, plus expenses. The court found the hourly rate reasonable but reduced the requested hours by 10% because the motion was similar to a motion in another case. The court awarded Blue Citi $4,997.25 in attorneys’ fees and expenses.

Disposition

Judge Valerie Caproni granted Blue Citi’s motion to appoint a receiver. The parties were directed to confer about the receiver’s identity and authority and submit a joint proposal by February 14, 2020. If they could not agree, each party had to submit three ranked candidates, along with the proposed hourly rate and professional resume. The court also awarded Blue Citi $4,997.25 in attorneys’ fees and expenses and directed the clerk to terminate the motion at docket entry 105.