AJ Ruiz Consultoria Empresarial S.A. v. Bank of China Limited

Background

AJ Ruiz Consultoria Empresarial S.A. is the judicial administrator and foreign representative of several entities owned by Milton and Salim Schahin. Those entities, called the Debtors, entered reorganization proceedings in Brazil in 2015; the proceedings became a bankruptcy in 2018. A bankruptcy court in the Southern District of Florida recognized the Brazilian case as a foreign main proceeding under Chapter 15 in 2019.

Between 2007 and 2009, defendants in this case and a related case loaned approximately $800 million to three other Schahin-owned entities: Black Gold Drilling LLC, Baerfield Drilling LLC, and Soratu Drilling LLC. Those entities used the loans to build two oil rigs. In 2014, they sold rights in the rigs through a sale-leaseback transaction with Industrial and Commercial Bank of China and used part of the proceeds to repay the defendants’ loans.

The plaintiff alleged that the rigs were sold below fair value while the Schahin Group was in financial distress, with the involvement of two executives who allegedly planned to benefit from the transaction. The plaintiff asserted claims for unjust enrichment and aiding and abetting breach of fiduciary duty. The defendants disputed that account, characterizing the transaction as a legitimate refinancing and arguing, among other things, that the Debtors and the drilling companies were legally separate entities.

After the plaintiff filed amended complaints, Judge Castel referred both cases to the bankruptcy court under the district’s standing order. The plaintiff moved to withdraw the reference under 28 U.S.C. § 157(d), which permits a district court to take a bankruptcy-related proceeding back from the bankruptcy court for cause. Served defendants opposed the motion.

Court’s analysis

The court applied factors from Second Circuit precedent, including whether the claims were core or non-core bankruptcy matters, efficient use of judicial resources, delay and cost, uniformity in bankruptcy administration, prevention of forum shopping, and related considerations. The plaintiff had the burden of showing that withdrawal was warranted.

The court assumed that the plaintiff’s state-law claims were non-core, meaning that the bankruptcy court could not enter a final judgment on them. But that fact did not require immediate withdrawal. The bankruptcy court could manage the case and provide a report and recommendation to the district court on dispositive matters.

The court found that efficiency and uniformity favored leaving the case in bankruptcy court at that stage. The claims resembled bankruptcy matters involving allegedly undervalued transfers and preferential payments to creditors. The bankruptcy court also could address the threshold issue of whether the drilling companies’ assets were part of the Debtors’ bankruptcy estates, which affected whether the plaintiff could bring the claims.

The court acknowledged that the bankruptcy court was new to this specific bankruptcy and could issue only a report and recommendation on dispositive motions. Even so, the court concluded that the bankruptcy court’s general experience with bankruptcy disputes would help it handle discovery, settlement, dispositive motions, and proposed findings. If a jury trial became necessary, the case could be withdrawn when it was ready for trial. The court found no reason to suspect improper forum shopping, but said withdrawal at the current stage would still create inefficiency.

Disposition

Judge Lorna G. Schofield denied the plaintiff’s motion to withdraw the bankruptcy reference without prejudice to a renewed motion when the case is trial-ready. The clerk was directed to close the motion at Docket Number 1.