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In re TPG Troy, LLC

United States Court of Appeals, Second Circuit

July 14, 2015

IN THE MATTER OF: TPG TROY, LLC, Debtor,
v.
TPG TROY, LLC, Appellee, CREST ONE SpA, LANSDOWNE CAPITAL SA, SPQR CAPITAL (CAYMAN) LTD., Appellants, T3 TROY, LLC, Consolidated-Appellee

Argued February 19, 2015.

Crest One SpA, Lansdowne Capital SA, and SPQR Capital (Cayman) Ltd. (together, the " Creditors" ) appeal from the March 4, 2014 decision and the March 6, 2014 order of the United States District Court for the Southern District of New York (Torres, J.): (1) affirming the May 9, 2013 decision of the United States Bankruptcy Court for the Southern District of New York (Glenn, B.J.) dismissing the Chapter 7 involuntary bankruptcy petitions filed by the Creditors against TPG Troy, LLC and T3 Troy, LLC (together, the " Troy Entities" ); (2) denying the Creditors' motion to withdraw the reference to bankruptcy court; and (3) affirming the July 18, 2013 opinion by the same bankruptcy court awarding the Troy Entities $513,427.16 in attorneys' fees and costs pursuant to 11 U.S.C. § 303(i)(1) . Finding no error in the decisions below, we affirm.

JARED B. STAMELL, Stamell & Schager, LLP (Andrew R. Goldenberg, on the brief), New York, N.Y., for Appellants Crest One SpA, Lansdowne Capital SA, and SPQR Capital (Cayman) Ltd.

MICHELE L. ANGELL, Kasowitz, Benson, Torres & Friedman LLP (Paul M. O'Connor III; Andrew K. Glenn, on the brief), New York, N.Y., for Appellees TPG Troy LLC, and T3 Troy LLC.

Before: WINTER, POOLER, SACK, Circuit Judges.

OPINION

POOLER, Circuit Judge :

Crest One SpA, Lansdowne Capital SA, and SPQR Capital (Cayman) Ltd. (together, the " Creditors" ) appeal from the March 4, 2014 decision and the March 6, 2014 order of the United States District Court for the Southern District of New York (Torres, J. ): (1) affirming the May 9, 2013 decision of the United States Bankruptcy Court for the Southern District of New York (Glenn, B.J. ) dismissing the Chapter 7 involuntary bankruptcy petitions filed by the Creditors against TPG Troy, LLC and T3 Troy, LLC (together, the " Troy Entities" ); (2) denying the Creditors' motion to withdraw the reference to bankruptcy court; and (3) affirming the July 18, 2013 opinion by the same bankruptcy court awarding the Troy Entities $513,427.16 in attorneys' fees and costs pursuant to 11 U.S.C. § 303(i)(1). Finding no error in the decisions of the courts below, we affirm.

BACKGROUND

This case is one of many commenced by the Creditors and others to recover losses incurred when subsidiaries of Hellas Telecommunications, s.a.r.l. defaulted on notes valued at roughly € 1.3 billion (the " Notes" ). The Troy Entities partially owned Hellas at the time the Notes were issued. The Troy Entities maintain they did not issue or guarantee the Notes, and had sold their interest in Hellas long before the default. Nevertheless, the Creditors and similarly interested parties are engaged in a vigorous global litigation campaign to recover their losses on the Notes from the Troy Entities and others.

At the time the involuntary bankruptcy petitions were filed, the Creditors were directly or indirectly involved in multiple lawsuits to recover on the Notes, including: (1) four actions in New York State Supreme Court seeking to recover on the Notes from the Hellas companies and other defendants, including the Troy Entities; (2) two actions in California and two in Delaware, all subsequently dismissed pending a decision on the New York State Supreme Court actions; (3) three actions in the Southern District of New York, two of which were dismissed for lack of standing; and (4) two European actions seeking to recover on the Notes.

On December 21, 2012, the Creditors filed involuntary petitions against the Troy Entities in bankruptcy court pursuant to 11 U.S.C. § 303, asserting that the Troy Entities were liable for the debts of the Hellas companies based on an alter ego theory. The Troy Entities moved to dismiss the petitions. The bankruptcy court dismissed the petitions on two grounds. First, the bankruptcy court concluded that dismissal was appropriate under 11 U.S.C. § 303(b)(1). In re TPG Troy, LLC, 492 B.R. 150, 159 (Bankr. S.D.N.Y. 2013). The court found there was a bona fide dispute as to whether a debt was owed, based on the " plethora of ongoing litigation," and the factual showing made by the Troy Entities as to whether they engaged in the transaction at issue. Id. at 160. Second, in the alternative, the bankruptcy court concluded abstention pursuant to 11 U.S.C. § 305(a)(1) was proper, given that litigation regarding the same transaction was already in progress in multiple other forums, and the primary issues implicated state, not federal, law. Id. at 160-61.

After the bankruptcy court dismissed the involuntary petitions, the Troy Entities moved to recover attorneys' fees, costs, and punitive damages pursuant to 11 U.S.C. § 303(i). The bankruptcy court declined to award punitive damages, but awarded the Troy Entities $513,427.16 in attorneys' fees and costs. In re TPG Troy, LLC, Nos. 12-14965, 12-14966, 2013 WL 3789344, at *5 (Bankr. S.D.N.Y. July 18, 2013). The bankruptcy court found that " [b]ased on the totality of the circumstances," a fee award was appropriate, and that the fees and costs sought were " reasonable under the circumstances." Id. at *4. The bankruptcy court declined to exercise its discretion to award punitive damages, finding that " [t]he amount of attorneys' fees and costs awarded by the Court in this case is very substantial and will hopefully serve as a deterrent to similar misconduct in the future." Id. at *5.

The Creditors appealed the dismissal of the involuntary petitions and the award of attorneys' fees and costs to the district court. The district court affirmed the bankruptcy court in full. This appeal followed. On appeal, the Creditors argue that this Court lacks jurisdiction to consider their own appeal on the basis of mootness, that they were entitled to a jury trial to determine whether attorneys' fees were warranted, and that bankruptcy court erred in awarding attorneys' fees.

DISCUSSION

Legal issues arising from potential mootness are reviewed de novo. Adams v. Zarnel (In re Zarnel ), 619 F.3d 156, 161 (2d Cir. 2010). " The district court-s order affirming the bankruptcy court is subject to plenary review. This court reviews conclusions of law de novo, and findings of fact under a clearly erroneous standard." Tudisco v. United States ( In re Tudisco ), 183 ...


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