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In re Application of Penner

United States District Court, D. Massachusetts

November 22, 2017

In re Application of MICHAEL PENNER and STUART SYBERSMA in their capacity as Joint Official Liquidators of BTU POWER COMPANY IN OFFICIAL LIQUIDATION for Granting Leave to Conduct Discovery for Use in Proceeding in Foreign Tribunal Pursuant to 28 U.S.C. §1782, Applicants.


          Indira Talwani, United States District Judge.

         November 22, 2017 Michael Penner and Stuart Sybersma have filed a Renewed Application for Order Granting Leave to Conduct Discovery for Use in Proceeding in Foreign Tribunal [#7] (“application”) in their capacity as Joint Official Liquidators (“JOLs”) of BTU Power Company, a Cayman Islands corporation. The application seeks leave pursuant to 28 U.S.C. § 1782(a) to conduct limited discovery in the United States related to the JOLs' filing of proceedings in the Grand Court of the Cayman Islands (“Grand Court”) against BTU Power Company's former director, Wael Almazeedi. The JOLs seek information and documents from Alessandro Ucciferri, Geoffrey Kent, Daniel Rorabaugh, Tiedemann & Associates, P.C., and Bank of America Corporation (collectively the “Respondents”), all located in the District of Massachusetts.[1] For the reasons that follow, the JOLs' application is GRANTED.

         I. Background

         Prior to the appointment of the JOLs, Almazeedi served as the sole director of BTU Power Company. In a 2003 agreement, Almazeedi delegated responsibility for managing BTU Power Company to BTU Power Management Company (“the Manager”). Almazeedi and his wife, Mitsue Oishi, served as majority owners of the Manager.

         In November 2011, some preference shareholders of BTU Power Company filed a winding up petition in the Grand Court. All BTU Power Company preference shareholders ultimately supported an amended version of this petition. In January 2012, the Grand Court issued a Winding Up Order that placed BTU Power Company in official liquidation, appointed the JOLs, and authorized the JOLs to take any action necessary in connection with the winding up of BTU Power Company.[2] Specifically, the Winding Up Order contemplated:

The JOLs investigating the claims made in the [Winding Up] Petition against Mr. Almazeedi and the Manager and, if the JOLs are so advised, bringing such action or actions in the name of [BTU Power Company] as against Mr. Almazeedi and/or the Manager as may be considered appropriate.

         First Michael Penner Aff't Ex. 2 [“Winding Up Order”] [#9-2].

         Through the application here, the JOLs seek to conduct discovery of specific individuals and companies located in the District of Massachusetts for such an action before the Grand Court, namely proceedings against Almazeedi claiming breach of fiduciary duty, misappropriation of corporate funds, and unjust enrichment. As of the filing of their written submissions, the JOLs had not yet instituted the planned legal proceedings against Almazeedi in the Grand Court, see Second Michael Penner Aff't ¶¶ 3-4 [#31]. At a show cause hearing on November 20, 2017, the JOLs' counsel informed the court that the JOLs filed a writ of summons in the Grand Court on November 10, 2017, thereby initiating proceedings.

         To understand the relevance of the discovery that the JOLs request, it is necessary to look to the JOLs' allegations against Almazeedi.[3] According to the JOLs, Almazeedi caused BTU Power Company to incur roughly $31 million in “restructuring costs” that (1) provided no benefit to BTU Power Company, (2) lacked the approval of the BTU Power Company shareholders, in violation of BTU Power Company's Articles of Confederation, and (3) appear to have been paid to entities owned and controlled by Almazeedi and Oishi. See First Michael Penner Aff't ¶¶ 8-9. The JOLs contend that these payments were made to other companies that Almazeedi created and controlled, including BTU Ventures and BTU Industries Holdings, and that Almazeedi created such entities under the umbrella of larger entities under his control, including QGen Industries and the BTU Group. Id. at ¶¶ 12-15. The JOLs also allege that Almazeedi caused BTU Power Company to provide unsecured loans of more than $ 9.3 million to the Manager. Id. at ¶¶ 8-9. Finally, they contend Almazeedi drained BTU Power Company's accounts prior to the issuance of the Winding Up Order, causing BTU Power Company to pay the Manager $ 623, 606 in “pre-paid management fees” and $650, 000 in “advance legal fees.” Id.

         The JOLs seek discovery from the following individuals and companies: (1) Alessandro Ucciferri, who was employed as a Controller of QGen Industries from 2007 to 2012, senior accountant for BTU Industries Holdings from 2007 to 2009, and a financial accounting services consultant for BTU Ventures from 2005 to 2009; (2) Geoffrey Kent, who was employed as Controller of BTU Ventures from 2008 to 2010; (3) Philip Rorabaugh, who was employed as Senior Vice President of Asset Management for BTU Ventures from 2009 to 2012; (4) Teidemann & Associates, P.C., an accounting and financial advisory firm that was engaged to provide services to various BTU Group companies, including BTU Power Company; and (5) Bank of America Corporation, a financial institution at which BTU Ventures and BTU Industries Holdings maintained at least one checking account each. Id. at ¶¶ 16-20.

         II. Discussion

         Congress provided in 28 U.S.C. § 1782 a means for taking discovery in the United States for use in foreign proceedings. A district court has authority to grant a § 1782 application when (1) the person from whom discovery is sought “resides or is found” in the district in which the court sits; (2) the discovery is for use before a “foreign or international tribunal”; (3) the application is made by an “interested person”; and (4) the application does not require disclosure of privileged materials. See § 1782(a). Here, all § 1782(a) requirements are met. The Respondents are found in the District of Massachusetts, the JOLs are interested persons, and there is no claim that the application requires disclosure of privileged materials. In his papers, Almazeedi argued that the JOLs had not shown that the requested discovery was for use before a foreign tribunal as no such proceedings against Almazeedi had been initiated. In response, the JOLs pointed out that under Intel Corp. v. Advanced Micro Devices, Inc., 542 U.S. 241, 259 (2004), § 1782(a) applies so long as foreign adjudicative proceedings are “within reasonable contemplation.” With the writ of summons now filed, adjudicative proceedings are pending before the Grand Court, and the court need not weigh the likelihood of future proceedings.

         Satisfaction of these statutory elements “authorizes, but does not require, discovery assistance.” Intel, 542 U.S. at 247. Intel provides four discretionary factors to guide district courts when deciding whether to grant a § 1782(a) application that meets these elements. The court addresses each factor in turn.

         First is whether those from whom the applicants seek discovery are participants in the foreign proceeding. When they are, “the need for § 1782(a) aid generally is not as apparent as it ordinarily is when evidence is sought from a nonparticipant in the matter arising abroad.” Intel, 542 U.S. at 264. While Almazeedi will be a participant in the Grand Court action for which the JOLs seek this discovery, none of the Respondents from whom the JOLs seek discovery will be. Almazeedi even concedes that the Respondents are two steps removed from BTU Power Company. See ...

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