Docket: CASE NO. 09-33043-BKC-LMI; ADV. NO. 10-2122-BKC-LMI
Court: United States Bankruptcy Court, S.D. Florida.; May 2, 2017; Us Bankruptcy; United States Bankruptcy Court
The memorandum opinion and order issued by Chief United States Bankruptcy Judge Laurel M. Isicoff addresses the request for comity made by defendant Fabrizio Dulcetti Neves concerning a Sequestration Order from the Italian Court issued on October 31, 2014. This Sequestration Order involves a criminal proceeding in Italy and appoints a judicial administrator to manage the assets of criminal suspects, including those of the plaintiffs, Markwood Investments Ltd. and Golden Dawn Corporation. The court determines that the Sequestration Order was not obtained through fraud and does not contravene U.S. public policy, thereby granting comity to the order and its consequences.
The case involves a protracted dispute between Neves, Markwood, Golden Dawn, and their principal Salvatore Frieri, culminating in Neves' bankruptcy and subsequent legal proceedings. A five-day trial resulted in a judgment favoring Golden Dawn for $13,793,141.80 on two promissory notes, while Neves was favored concerning a fraud claim. The original judgment was amended in 2015, altering the outcomes for both parties. Following the amendment, Neves filed a motion to seek international comity and to stay collection efforts by Golden Dawn, arguing that the judicial administrator’s control over Markwood and Golden Dawn precluded collection actions.
On October 30, 2014, the Italian Court issued a Sequestration Order that seized the assets of Golden Dawn and Markwood, owned by Salvatore and Arturo Frieri, due to their involvement in criminal activities, including cocaine trafficking and tax crimes. Salvatore has historically claimed control of these companies, though Arturo now asserts this title. The Sequestration Order, enacted under Italy's Anti-Mafia Code, appointed a Judicial Administrator to oversee the seized assets and was based on preliminary findings of criminal activity by the Frieris. Salvatore was notified of the order, signed a Notification Report on November 6, 2014, and was provided a defense attorney to contest the order. In response to a Motion to Stay, Plaintiffs contended that the Sequestration Order was irrelevant to the U.S. litigation, argued it was not final or enforceable outside Italy, and asserted that they remained under the control of Arturo. Following initial hearings, Neves settled litigation with Golden Dawn and Markwood, resulting in a Settlement Agreement signed by the Judicial Administrator, which included a General Release, Satisfaction of Judgment, and withdrawal of claims in Neves' bankruptcy case. The Italian Court subsequently approved the Settlement Agreement, affirming the Judicial Administrator's jurisdiction over the relevant assets.
Arturo, representing himself and the entities Golden Dawn and Markwood, appealed the Sequestration Order and Settlement Order in the Italian Court, primarily contesting the Judicial Administrator's authority to act for Markwood and Golden Dawn and her ability to enter into the Settlement Agreement. He argued that the Judicial Administrator incorrectly calculated the debt at $7,430,000 instead of $13,793,141.80, failed to address the non-dischargeability of the debt, and that the $1,000,000 settlement was insufficient given the misappropriation of significant funds by Neves. Arturo also claimed he and the other parties were not informed about the negotiation or execution of the Settlement Agreement. During a hearing on December 21, 2015, the court indicated it would not conduct parallel proceedings while the appeal was ongoing in Italy. Subsequently, the Italian Court ruled on March 16, 2016, affirming the validity of the Sequestration Order and the Judicial Administrator's authority, along with the settlement with Neves. On December 13, 2016, the Plaintiffs filed a Motion to Deny Comity, arguing that Neves did not prove the Italian Court had jurisdiction over the U.S. assets or the parties involved, and criticized the fairness of the procedures under the Anti-Mafia Code, particularly regarding ex parte communications. They also alleged that the Reclamo Order might have been obtained fraudulently due to reliance on ex parte submissions, including an affidavit from Neves's counsel, and requested that comity not be granted to the Sequestration Order.
Neves contends that comity should be granted because the Plaintiffs did not contest the Sequestration Order and that U.S. courts typically recognize Italian judgments. Neves asserts that granting comity would necessitate acceptance of the Settlement Agreement terms, including dismissal of appeals, withdrawal of claims in bankruptcy, and acknowledgment of the Amended Final Judgment's release and satisfaction.
Comity is a common law principle allowing U.S. courts to defer to foreign judgments. The seminal Supreme Court case, Hilton v. Guyot, defines comity not as an absolute obligation or mere courtesy but as recognition of foreign legal acts, balancing international duties and the rights of citizens under U.S. laws. The court must assess four factors to determine the appropriateness of comity: the foreign court's competence and adherence to civilized procedures, absence of fraud, alignment with American public policy, and the need to respect the foreign judgment or defer to concurrent foreign proceedings.
Neves has the burden to demonstrate that the Italian Court was competent and followed fair procedures. The Severino Affidavit details that the Sequestration Order was issued under the Anti-Mafia Code, which permits preventive measures against assets lacking clear legal origin. The affidavit states that defense counsel was appointed, Salvatore had a hearing opportunity, and there is no evidence he contested the order. Notably, the Anti-Mafia Code allows for appeals to challenge seizure orders.
If Neves meets this burden, the Plaintiffs must prove that the Sequestration Order violates American public policy, which requires that the judgment must clearly undermine public interest or the confidence in law administration.
Concerns raised by the Plaintiffs regarding Neves’ request for comity include the assertion that the Sequestration Order was non-final, that the Judicial Administrator lacked authority to act for the Plaintiffs, and that the extraterritorial nature of the Sequestration Order necessitated enforcement through criminal treaties. Although comity is typically not applied to non-final orders, American courts have recognized comity for foreign liquidation proceedings without a final judgment. Proceedings related to the Sequestration Order were abated during the Reclamo process, and the Italian Court's ruling now suggests the order is sufficiently final, with any necessary stays to be pursued in Italy.
The Plaintiffs also argued that the Judicial Administrator had not dissolved the boards of Golden Dawn or Markwood, implying that the boards retained authority to act on their behalf. Furthermore, they contended that the extraterritorial seizure of assets was unauthorized, as both entities are not Italian companies. However, the Sequestration Order explicitly found that both corporations had their administrative offices or tax residence in Italy, contradicting the Plaintiffs' arguments. This finding supports allegations of tax crimes against the Frieris and clarifies that the Sequestration Order does not extend to assets outside Italy.
Neves' Sur-Surreply and the Plaintiffs’ concession during a hearing highlight that U.S. Courts do not review the factual findings of foreign courts. The focus of the comity determination is on the process leading to a judgment rather than the underlying facts. Additionally, relevant documents indicate that both Golden Dawn and Markwood are based in Italy, reinforcing that this case does not involve circumstances warranting the invocation of international criminal treaties for asset seizure under the Anti-Mafia Code.
The Sequestration Order designated the "shares, share capital, and company assets" of Golden Dawn and Markwood as sequestered assets, restricting Salvatore, Arturo, and their legal representatives from handling these assets without the Deputy Judge's authorization. Consequently, any actions taken by individuals claiming to represent these companies, aside from the Judicial Administrator, lacked authority due to the absence of Deputy Judge-sanctioned pleadings in the related proceedings. The Italian Court upheld this view in the Reclamo Order, affirming that the Judicial Administrator exclusively manages the companies' assets and holds 100% of their share capital, effectively overruling the Plaintiffs' challenges regarding authority and comity.
The Plaintiffs raised several arguments in the Comity Objection, asserting that the Italian Court lacks jurisdiction over non-Italian citizens and U.S. assets, that the Anti-Mafia Code's procedures are unjust, and that the Reclamo Order was fraudulently obtained. However, the court clarified its limited role in assessing whether to grant comity to the Sequestration Order, noting that federal courts typically recognize foreign trustees and receivers. The court emphasized a historical precedent favoring the deference to properly instituted foreign court orders and observed that Arturo did not contest the Judicial Administrator's appointment but rather focused on the scope of that authority. Ultimately, the court indicated that it need not evaluate claims of extraterritorial jurisdiction since the Italian Court had classified Golden Dawn and Markwood as Italian entities for jurisdiction purposes.
The Italian Court's brief dismissal of jurisdiction concerns does not empower this Court to assess the validity of the Italian Court's jurisdiction findings. Plaintiffs argue that the Sequestration Order was issued ex parte, without notice to Arturo, Golden Dawn, or Markwood, thereby violating due process. However, U.S. courts have established that ex parte procedures in foreign jurisdictions do not inherently contravene U.S. standards of fairness, provided affected parties receive timely notice and a chance to contest the orders. Relevant case law, such as In re Cozumel Caribe and In re Petroforte Brasileiro, supports this position, showing that U.S. courts recognize foreign ex parte orders if there are mechanisms for appeal and evidence submission in the originating jurisdictions. Plaintiffs reference issues regarding the Settlement Agreement and Italian Court deliberations as further due process violations. Nonetheless, both the Settlement Order and the Reclamo Order are appealable, although this availability is not pertinent to the comity analysis. The case In re Enercons Virginia illustrates that subsequent ex parte orders clarifying a trustee’s authority do not negate the original order's validity for comity purposes, as they merely elucidate existing authority rather than establishing new grounds.
The Sequestration Order and the appointment of the Judicial Administrator were not contested in Italy. The Reclamo primarily examined the Judicial Administrator's authority to represent Golden Dawn and Markwood, enter into a Settlement Agreement without notifying relevant parties, and whether the settlement amount was disproportionately low compared to the claims' value. The Reclamo Order affirmed the Judicial Administrator’s authority, subject to the Italian Court's approval, but did not modify the Sequestration Order or affect the comity analysis under Hilton and Ungaro-Benages.
Plaintiffs argue against granting comity to the Sequestration Order, claiming the Reclamo Order may have been fraudulently obtained. They assert the Italian Court’s finding that one million Euros for the Release was reasonable indicates a possible misunderstanding or misrepresentation regarding the Amended Judgment's collectability. However, the Reclamo Order is part of the Italian judicial process reviewing the Sequestration Order, and any claims of fraud should be pursued in Italian courts. The Plaintiffs aim to evade the consequences of the Settlement Agreement, which includes withdrawing claims and satisfying judgments, but these concerns were rejected in the Reclamo Order.
Even if fraud were present in the settlement process, it remains a matter for the Italian judiciary, as U.S. courts have historically granted comity to foreign settlements despite allegations of fraud or undisclosed negotiations. Precedents include *Fleeger v. Clarkson Co. Ltd.*, which upheld a Canadian court-approved settlement despite claims of fraud, and *Applewhaite v. the SS Sunprincess*, where settlements negotiated without notice were also recognized due to international comity. Ultimately, the U.S. Court's acknowledgment of the Sequestration Order aligns with U.S. public policy, affirming the Italian Court's competence and adherence to proper legal proceedings. The Sequestration Order was not obtained through fraud and was part of a legitimate criminal case under Italy’s Anti-Mafia Code, with Salvatore Frieri having been served and given the chance to contest it. Arturo Frieri has also had, and will continue to have, opportunities to challenge the Sequestration Order regarding his assets.
Neves' request for comity regarding the Sequestration Order is granted, while the Plaintiffs' request to deny comity is overruled. The Release is deemed effective and enforceable, and the Satisfaction of Judgment is recognized as valid. The withdrawal of claims by Golden Dawn and Markwood in the Bankruptcy Case is acknowledged. The parties are instructed to proceed in appellate courts following this Order. It is determined that only the Judicial Administrator, Dr. Sebastiani, had the authority to represent the Plaintiffs; actions taken by Arturo Frieri on their behalf were unauthorized. The opinion continues to refer to the resisting parties as the Plaintiffs to avoid confusion. Disputes regarding facts presented are noted, and interested readers are directed to the Memorandum Opinion for further details. The Plaintiffs and Defendant have filed Notices of Appeal. An email from Neves’ counsel about asset seizures was denied by Golden Dawn and Markwood, despite the Sequestration Order being served previously. The Settlement Agreement remains confidential, and while the Plaintiffs sought its disclosure, it is deemed unnecessary given the ruling on the Sequestration Order. The nature of the Reclamo was clarified as a motion to reconsider during a December 22, 2016 hearing, which addressed the Sequestration Order's implications and the chapter 7 Trustee's settlement with Neves, questioning the Plaintiffs' counsel's authority to object.
The Reclamo Order was issued while the case was under the District Court’s jurisdiction. In response, the District Court required the Plaintiffs to clarify why their appeals were not moot. The Plaintiffs subsequently filed a motion to compel for documents they believed would demonstrate fraud in obtaining the Reclamo Order. Instead of addressing these matters, the District Court returned jurisdiction to the Bankruptcy Court, citing the need for it to resolve issues of comity and mootness linked to the Italian Court's subsequent actions.
The process is likened to U.S. civil forfeiture, where ex parte restraining orders can be issued, allowing property to be seized without prior notice, though defendants can later contest the seizure. The Plaintiffs did not claim that the Sequestration Order was fraudulent. It is noted that no stay was requested by the Plaintiffs. Arturo Frieri’s attorney is Dr. Sarzana, and the Reclamo Order confirmed the sequester of Golden Dawn and Markwood, granting the Judicial Administrator total control. The Sequestration Order also indicated that Arturo was living with Salvatore, a claim Arturo contested by asserting his residency in Colombia but did not provide evidence to support this. Despite this, Arturo was involved in the Reclamo and litigated the Sequestration Order in Switzerland, indicating he had adequate notice and opportunity to be heard.
The discussion also references procedural rules allowing ex parte requests for examinations and temporary restraining orders without prior notice in certain conditions. Furthermore, the extradition of defendants under the Anti-Mafia Code supports the notion that U.S. courts trust its procedural safeguards.
Plaintiffs have not claimed any fraud related to the Sequestration Order. In light of serious accusations regarding the Miller Affidavit, an in camera review was conducted, revealing that the allegations are unfounded as the affidavit aligns with its description in the Reclamo Order. However, this review and conclusion do not aim to influence any potential further evaluations by Italian courts regarding the Sequestration, Reclamo, or Settlement Orders, as those courts will assess the evidence independently. Additionally, Neves introduced the act of state doctrine in the Sur-surreply, which prevents U.S. courts from questioning the validity of acts by recognized foreign sovereigns within their territory. Although this doctrine may be applicable, it is unnecessary to consider its relevance or timing due to the granted request for comity.
