Court: District Court, S.D. New York; April 29, 2014; Federal District Court
Captain Hani Alsohaibi appeals a Bankruptcy Court order affirming Arcapita Bank B.S.C.(c)'s objection to his claim. Arcapita, a Bahrain bank specializing in Sharia-compliant investments, structured transactions through Cayman Islands entities, allowing private investors to acquire interests in target companies indirectly. Alsohaibi invested $1 million and later an additional $300,000 in Fuselage Capital Ltd., associated with Cirrus Industries, and $100,000 in four Syndication Companies linked to Bahrain Bay Developments, maintaining a net investment of $160,219.58. He also invested $213,120.83 in two Syndication Companies tied to Riffa Golf, resulting in a net investment of $327,782.62. Additionally, he holds a deposit account with Arcapita.
In March 2012, Arcapita and its subsidiaries filed for Chapter 11 bankruptcy, but the Syndication Companies Alsohaibi invested in were not part of the bankruptcy proceedings. On August 25, 2012, Alsohaibi requested the dismissal of the bankruptcy and alleged illegal operations by Arcapita, which was denied. On August 29, 2012, he filed a proof of claim against Arcapita for $1,039,032.33 but later contended that the aggregate amount should be $1,527,139.35 based on submitted paperwork. The Reorganized Debtors objected to his claim, citing discrepancies with their records and its basis on equity interests in non-debtor entities.
Alsohaibi's bank account had a balance of $148.91 on the filing date of the bankruptcy, contrary to his claim of $104.84. Arcapita disputed Alsohaibi's claim, asserting it should be adjusted to $148.91 due to denied liability for his investments. Following this, Alsohaibi engaged an attorney who filed a response. On November 21, 2013, Bankruptcy Judge Lane approved the reduction of Alsohaibi’s claim to $148.91, prompting him to appeal the decision.
In reviewing the appeal, bankruptcy court findings of fact are examined for clear error, while conclusions of law are assessed de novo. Under bankruptcy law, creditors can file a proof of claim, which serves as prima facie evidence of its validity. An objecting party must initially demonstrate the claim’s insufficiency, after which the burden shifts to the claimant to prove the claim's validity by a preponderance of the evidence.
Claims refer to rights to payment, while equity securities represent ownership shares in a corporation. Creditors have claims against the debtor, whereas equity security holders do not possess the same rights to payment and can only file a proof of interest. An allowed proof of claim requires more than mere equity ownership, as it is viewed with skepticism when stockholders attempt to claim creditor status during bankruptcy. The Reorganized Debtors supported their objection to Alsohaibi’s claim with declarations, including one from Steven Kotarba, indicating that Alsohaibi's claim did not align with Arcapita's records and involved recovery of funds exchanged for equity interests.
Amin Ebrahim Jawad, an associate at Arcapita, provided a declaration that included share purchase agreements for Alsohaibi's investments in Cirrus Industries, Bahrain Bay Development, and Riffa Golf, along with an account statement and a portfolio statement dated June 30, 2013. Alsohaibi criticized the declarations for being self-serving and hearsay but did not expand on these claims. The court found the declarations adequately authenticated the attached records. Alsohaibi contended that Arcapita violated Federal Rule of Appellate Procedure 10(a) by submitting evidence related to his claim but did not specify which evidence he objected to, merely referencing 'Statements and Schedules.' The court ruled that Bankruptcy Rule 8006 governs such submissions, allowing documents from the underlying bankruptcy to be used in appeal records. The bankruptcy court determined that Alsohaibi's claim, aside from a small bank balance, was based on his equity in non-Debtor entities, not on any obligation from the Debtors. Although Alsohaibi argued that his investments were unprofitable, this did not establish a claim against Arcapita. He also claimed the court erred by not applying foreign law governing his investment relationship, citing Bahrain law and Sharia law, but failed to present the actual agreement or clarify how he could recover under either Bahrain or Cayman Islands law. Alsohiabi made a vague allegation regarding Arcapita's solicitation in Saudi Arabia but did not substantiate this claim or connect it to a valid legal theory. Overall, he did not articulate a clear basis for his claim outside of his equity ownership in non-Debtor companies.
Alsohaibi's counsel presented two arguments regarding his claims: one based on 'unlawful solicitation' under Saudi law, which was not previously raised or substantiated in his filings, and an alternative claim of liability under Bahrain law. This lack of clarity failed to establish a valid claim against Arcapita. The bankruptcy court determined that Arcapita effectively disproved the legitimacy of Alsohaibi’s claims, which were linked to equity investments in non-debtor entities, and Alsohaibi did not meet the burden of proof required for his claim to be recognized. Therefore, the court properly upheld Arcapita's objection.
Alsohaibi further contended that Arcapita violated Federal Rule of Civil Procedure 44.1 and Bankruptcy Rule 9017 by not providing notice of reliance on foreign law. However, it was determined that Arcapita did not invoke foreign law, and it was Actually Alsohaibi who sought to rely on it, leaving Arcapita compliant with the rules.
Regarding jurisdiction, Alsohaibi objected to the Southern District of New York handling the proceedings, citing exclusive jurisdiction clauses in his contracts with Arcapita for Bahrain and the Cayman Islands. However, it was noted that a debtor-in-possession is not restricted by such clauses if the litigation constitutes a core proceeding, which a claim objection does, thereby validating the bankruptcy court's jurisdiction.
Additionally, Alsohaibi claimed one of his Cirrus purchase agreements was 'forged' due to a discrepancy in the execution location; however, the court found his argument vague and unsubstantiated, with no impact on the underlying claim based on equity investment.
In conclusion, the bankruptcy court's ruling was affirmed, and all pending motions were terminated, marking the case closed. The relevant syndication companies and agreements were identified, but Alsohaibi did not produce the contract supporting his jurisdictional claim.
