18-10509-shl Doc 1543 Filed 06/22/20 Entered 06/22/20 17 ... · 18-10509-shl Doc 1543 Filed 06/22/20 Entered 06/22/20 17:50:47 Main Document Pg 11 of 12. 9 WHEREFORE, the Trustee

Hearing Date and Time: July 13, 2020 at 10:00 a.m. EDT Objection Deadline: July 6, 2020

JENNER & BLOCK LLP Marc Hankin Carl Wedoff 919 Third Avenue New York, New York 10022 (212) 891-1600 Angela Allen (admitted pro hac vice) William A. Williams (admitted pro hac vice) 353 North Clark Street Chicago, Illinois 60654 (312) 222-9350 Counsel for the Chapter 11 Trustee UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK

In re: FIRESTAR DIAMOND, INC., et al.

Debtors.1

Chapter 11 No. 18-10509 (SHL)

(Jointly Administered)

NOTICE OF HEARING ON TRUSTEE’S MOTION FOR ORDER IN ACCORDANCE WITH THE TRUSTEE’S MODIFIED FIRST AMENDED JOINT CHAPTER 11 PLAN

DETERMINING CLAIM AMOUNTS FOR THE FIRESTAR DISPUTED CLAIMS RESERVE

On June 22, 2020, Chapter 11 Trustee Richard Levin (the “Trustee”) filed the annexed

Motion for Order in Accordance With the Trustee’s Modified First Amended Joint Chapter 11 Plan Setting

the Amount of the Firestar Disputed Claims Reserve (the “Motion”). A hearing on the Motion will be

held before the Honorable Sean H. Lane of the United States Bankruptcy Court for the Southern

District of New York on July 13, 2020 at 10:00 a.m. (Eastern Daylight Time), or as soon thereafter

as counsel may be heard (the “Hearing”). In accordance with General Order M-543 (March 20,

1 The Debtors and the last four digits of their respective taxpayer identification numbers are as follows: Firestar Diamond, Inc. (2729), Fantasy, Inc. (1673), and Old AJ, Inc. f/k/a A. Jaffe, Inc. (4756).

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2020), the hearing will be conducted telephonically only. Registration may be arranged at

www.court-solutions.com.

Objections, if any, to approval of the Motion and entry of the proposed order must: (i) be

made in writing; (ii) state with particularity the grounds therefor; (iii) be filed with the

Bankruptcy Court (with a copy to the Judge’s chambers); and (iv) be served upon (a) counsel to

the United States Trustee for Region 2, 201 Varick Street, Suite 1006, New York, NY 10014 (Attn:

Richard Morrissey, Esq.); (b) counsel to the Trustee, Jenner & Block LLP, 919 Third Avenue, New

York, New York 10022 (Attn: Carl Wedoff, Esq.); (c) counsel to the Debtors, Klestadt Winters

Jureller Southard & Stevens, LLP, 200 West 41st St., 17th Floor, New York, NY 10036 (Attn: Ian

Winters, Esq.); and (d) counsel to Punjab National Bank, Cleary, Gottlieb, Steen & Hamilton LLP,

One Liberty Plaza, New York, NY 10006 (Attn: Sean O’Neal) so as to be received by each of them

no later than July 6, 2020 (the “Objection Deadline”).

If no responses or objections are served by the Objection Deadline, the relief may be

granted as requested in the Motion without further notice or a hearing. You need not appear at

the Hearing if you do not object to the relief requested in the Motion. The Hearing may be

continued or adjourned from time to time without further notice other than an announcement of

the adjourned date or dates at the Hearing or at a later hearing.


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Dated: June 22, 2020 Respectfully submitted, New York, New York

JENNER & BLOCK LLP By: /s/ Marc Hankin Marc Hankin Carl Wedoff 919 Third Avenue New York, New York 10022 (212) 891-1600 [email protected] [email protected] Angela Allen (admitted pro hac vice) William A. Williams (admitted pro hac vice) 353 North Clark Street Chicago, Illinois 60654 (312) 222-9350 [email protected] [email protected] Counsel for the Chapter 11 Trustee


Hearing Date and Time: July 13, 2020 at 10:00 a.m. EDT Objection Deadline: July 6, 2020

JENNER & BLOCK LLP Marc Hankin Carl Wedoff 919 Third Avenue New York, New York 10022 (212) 891-1600 Angela Allen (admitted pro hac vice) William A. Williams (admitted pro hac vice) 353 North Clark Street Chicago, Illinois 60654 (312) 222-9350 Counsel for the Chapter 11 Trustee UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK


Debtors.2



TRUSTEE’S MOTION FOR ORDER DETERMINING CLAIM AMOUNTS FOR THE

FIRESTAR DISPUTED CLAIMS RESERVE IN ACCORDANCE WITH THE TRUSTEE’S MODIFIED FIRST AMENDED JOINT CHAPTER 11 PLAN

Richard Levin, not individually but solely as chapter 11 trustee (the “Trustee”) for Firestar

Diamond, Inc. (“Firestar”) submits this motion (“Motion”) under sections 105(a), 502(c), and

1142(b) of the Bankruptcy Code, 11 U.S.C. §§ 101–1532, and Rule 3021 of the Federal Rules of

Bankruptcy Procedure (“Bankruptcy Rules”) for entry of an order, substantially in the form

attached as Exhibit A (the “Proposed Order”), and in accordance with the Trustee’s Modified First

Amended Joint Chapter 11 Plan (the “Modified Plan”), filed concurrently herewith,3 determining

2 The Debtors and the last four digits of their respective taxpayer identification numbers are as follows: Firestar Diamond, Inc. (2729), Fantasy, Inc. (1673), and Old AJ, Inc. f/k/a A. Jaffe, Inc. (4756). 3 Capitalized not defined in this Motion have the meaning provided in the Modified Plan.


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under section 5.14.2 of the Modified Plan that the Cash to be reserved on account of the Bank

Claims and Corporation Bank Claim (defined below) be based on Disputed Claim amounts of

$0.00. In support of the Motion, the Trustee respectfully states:

JURISDICTION & VENUE

1. This Court has jurisdiction over the Motion under 28 U.S.C. §§ 157 and 1334(b).

2. Venue is proper in this District under 28 U.S.C. §§ 1408 and 1409.

3. The Motion is a core proceeding under 28 U.S.C. § 157(b)(2) in which the Court

may constitutionally enter a final order, and the Trustee consents to the entry of a final order by

the Court.

BACKGROUND

4. On February 26, 2018, each of the Debtors filed a voluntary petition for relief under

chapter 11 of the Bankruptcy Code commencing these chapter 11 cases.

5. On June 14, 2018, the Court entered an order approving the appointment of the

Trustee. [Dkt. 227.]

6. Before the date of the filing of the chapter 11 petitions, each of the Debtors

conducted business as wholesalers of fine jewelry. Since his appointment, the Trustee has

managed the Debtors’ estates to maximize recoveries for the Debtors’ creditors.

The Modified Plan

7. On November 20, 2019, the Court entered an order confirming the Trustee’s First

Amended Joint Chapter 11 Plan [Dkt. 1262.]

8. Concurrently with this Motion, the Trustee has filed the Modified Plan and motion

to confirm the Modified Plan to permit the Trustee (in addition to the Liquidating Trustee) to

make distributions on Allowed Claims. See Modified Plan §§ 1.1.26, 5.12.3.


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9. Under the Modified Plan, each Holder of an Allowed General Unsecured Claim in

Class FD5, AJ5, or AJ5 is to receive a Pro Rata share of one or more Distributions of Cash from

the Trustee or Available Cash from the Liquidating Trust for each respective Debtor. See Modified

Plan §§ 3.2.5.2, 3.3.5.2, 3.4.5.2.

10. On June 22, 2020, the Trustee, after determining that all conditions to the Plan

Effective Date were met under section 7.2 of the Modified Plan, filed a Notice of Expected Plan

Effective Date, stating his intention to declare the Modified Plan effective under section 7.5 of the

Modified Plan and to set July 15, 2020 as the Effective Date.

11. Under section 5.12.3 of the Modified Plan, the Initial Distribution Date shall be

within 30 days after the Effective Date. Modified Plan § 5.12.3.

12. On any Distribution Date, the Trustee or Liquidating Trustee “shall establish a

separate Disputed Claims Reserve on account of Disputed Claims within the Class receiving

Distributions.” Modified Plan § 15.4.1. The Trustee or Liquidating Trustee shall reserve: (i) “the

Pro Rata proportion of all Cash allocated for Distribution on account of each Disputed Claim”;

(ii) “such lesser amount as may be agreed to by the Holder of the [Disputed] Claim . . . and the

Liquidating Trust”; or (iii) “in such amount as may otherwise be determined by order of the

Bankruptcy Court.” Modified Plan § 15.4.2.

The Bank Claims

13. On May 8, 2020, the Court issued an Order [Dkt. 1492] (“Disallowance Order”)

disallowing the filed claims of Firestar Diamond BVBA (Firestar Claim No. 12 and Firestar Claim

No. 11); Bank of India (Bharat Diamond Bourse Branch) (Firestar Claim No. 55); Bank of India

(London Branch) (Firestar Claim No. 17); and Union Bank of India (UK) Ltd. (Firestar Claim No.

16) (such claims, the “Bank Claims,” and such claimants, the “Bank Claimants”) for the reasons


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set forth in the Court’s April 22, 2020 Memorandum of Decision, In re Firestar Diamond, Inc., ___ B.R.

___, 2020 WL 1934896 (Bankr. S.D.N.Y. Apr. 22, 2020) [Dkt. 1482] (the “Decision”).

14. The Bank Claims are based on amounts purportedly due to the Bank Claimants

from certain foreign non-debtor affiliates (the “Non-Debtor Affiliates”) of the Debtors, which

had received tens of millions of dollars in fraudulent transfers and preferences from the Debtors.

The Trustee objected to the Bank Claims under Section 502(d) of the Bankruptcy Code because

the Non-Debtor Affiliates had not repaid the fraudulent transfers and preferences received from

the Debtors. [See Dkt. 1121, 1157, 1158, 1161, 1231, 1232, 1233, 1234.] The Trustee argued that

because the Bank Claims were based on the Debtors’ dealings with the Non-Debtor Affiliates,

they are subject to disallowance in the same way as if the Non-Debtor Affiliates filed the claims.

15. In response, the Bank Claimants argued that, regardless of any defenses that the

Trustee might have against Non-Debtor Affiliates, the Bank Claims are not subject to

disallowance because section 502(d) disallowance does not travel with the “claim,” but with the

“claimant.” [See Dkt. 1209, 1215, 1216, 1217.]

16. As set forth in the Decision, the Court found the authority supporting the Trustee’s

position persuasive and disallowed the Bank Claims. See Decision, 2020 WL 1934896, at *4-5

(citing In re KB Toys Inc., 736 F.3d 247 (3d Cir. 2013); Enron Corp. v. Avenue Special Situations Fund

II, LP (In re Enron Corp.), 340 B.R. 180 (Bankr. S.D.N.Y. 2006); In re Metiom, Inc., 301 B.R. 634 (Bankr.

S.D.N.Y. 2003); In re Motors Liquidation Co., 529 B.R. 510, 572 n.208 (Bankr. S.D.N.Y. 2015); In re

Wash. Mut., Inc., 461 B.R. 200, 256 n.44 (Bankr. D. Del. 2011) and collecting secondary authority).


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17. On May 20, 2020, the Bank Claimants filed notices of appeal of the Disallowance

Order to the District Court for the Southern District of New York. [Dkt. 1500, 1503.] The appeals

are currently pending. 4

The Corporation Bank Claim

18. On November 30, 2018, the Trustee’s claims agent received a proof of claim

[Firestar Claim No. 50] (the “Corporation Bank Claim”)5 filed by Corporation Bank as purported

custodian for Firestar International Private Limited (“FIPL”) and Firestar Diamond International

Private Limited (“FDIPL,” and together with Corporation Bank and FIPL, the “Defendants”) in

the amount of $5,546,254,00. The proof of claim attaches a number of bills of exchange, invoices,

and shipping documents and asserted that the Corporation Bank Claim is fully secured based on

these attachments. Like some of the Bank Claims, the Corporation Bank Claim relies on amounts

purportedly due from Firestar to FIPL and FDIPL rather any direct claim against the Debtors.

19. On January 11, 2019, the Trustee commenced an adversary proceeding against

FIPL, FDIPL, and Corporation Bank as Defendants. [Adv. Proc. 19-1002, Dkt. 1.] The Complaint

4 Ilse Mertens and Eddy Van Camp, the Belgian receivers of Firestar Diamond BVBA (the “Receivers”), filed claims against Firestar (Firestar Claim No. 12 (the “Firestar Claim”)) and Old AJ, Inc. (see Firestar Claim No. 11 (the “Jaffe Claim”)). Although the Jaffe Claim states that the claim is against A. Jaffe, Inc., the proof of claim was listed on the claims register maintained by the claims agent as proof of claim number 11 against Firestar. The Receivers did not respond directly to the Trustee’s objections. Instead, Union Bank of India and Bank of India (Antwerp Branch) argued that they were entitled to the amounts identified in the Firestar Claim. [See Dkt. 1215, 1216.] No party disputed the Trustee’s objection to the Jaffe Claim, and the Court’s disallowance of the Jaffe Claim is not subject to the pending appeals. To the extent the Bank Claimants argue that the Jaffe Claim has not been disallowed by a final, non-appealable order, the Trustee reserves all rights and requests the Court determine that the Cash to be reserved on account of the Jaffe Claim be based on a Disputed Claim amount of $0.00. 5 Corporation Bank filed a duplicate proof of claim [Firestar Claim No. 63] for the Corporation Bank Claim, which was disallowed under the Court’s March 5, 2019 Order Granting First Omnibus Objection to Claims [Dkt. 725].


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sought to avoid Defendants’ asserted security interests under section 544(a) of the Bankruptcy

Code and preserve the security interests for the benefit of the estate.

20. On April 22, 2019, Corporation Bank filed an answer to the Complaint. [Adv. Proc.

19-1002, Dkt. 11.]

21. On January 15, 2020, the Court so-ordered a stipulation under which Corporation

Bank withdrew its answer without prejudice to its ability to pursue its “entire claim in the

underlying bankruptcy case on an unsecured basis.” [Adv. Proc. No. 19-1002, Dkt. 29.]

22. On February 19, 2020, the Court entered a default judgment in the adversary

proceeding, avoiding Defendants’ purported security interests in property of the Firestar estate.

[Adv. Proc. No. 19-1002, Dkt. 35.]

23. The Trustee intends to file a stipulation with Corporation Bank under which the

Trustee and Corporation Bank Claim stipulate that the Corporation Bank Claim shall be treated

as a Disputed Claim.

Relief Requested

24. By this Motion, the Trustee requests that the Court, under Bankruptcy Code

sections 105(a), 502(c) and 1142(b), Bankruptcy Rule 3021, and section 5.14.2 of the Modified Plan,

enter the Proposed Order determining that the Cash to be reserved on account of the Bank Claims

and Corporation Bank Claim be based on Disputed Claim amounts of $0.00. Establishing the

Reserves based on these amounts is a necessary step in concluding these chapter 11 cases and

maximizing distributions to Holders of Allowed Claims.

25. Section 502(c) of the Bankruptcy Code provides that this Court has the authority

to estimate “any contingent or unliquidated claim, the fixing or liquidation of which, as the case

may be, would unduly delay the administration of the estate.” See, e.g., In re Enron Corp., No. 01-

16034 (AJG), 2006 WL 544463, at *2 (Bankr. S.D.N.Y. Jan. 17, 2006). Avoiding a delay in


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distributions to creditors is an appropriate ground for estimating disputed claims and is

consistent with the chapter 11 policy that “reorganization must be accomplished quickly and

efficiently.” Enron, 2006 WL 544463, at *3.

26. This Court has broad discretion to value claims under section 502(c). See, e.g.,

Bittner v. Borne Chem. Co., 691 F.2d 134, 135 (3d Cir. 1982) (“Congress intended the [estimation]

procedure to be undertaken initially by the bankruptcy judges, using whatever method is best

suited to the particular contingencies at issue”); Enron, 2006 WL 544463, at *4 (“[A] bankruptcy

court is free to use the best method available to it under the circumstances to value the claim.”).

Estimation does not require absolute precision—the bankruptcy judge does not need to be

“clairvoyant,” and “need only arrive at a reasonable estimate of probable value of the claim.” In

re Baldwin-United Corp., 55 B.R. 885, 898 (Bankr. S.D. Ohio 1985).

27. The Court also has extensive authority over the property of the estate administered

under the Modified Plan under Bankruptcy Code section 1142(b) and to issue any order necessary

to implement the provisions of the Modified Plan and the Bankruptcy Code. See 11 U.S.C. §

1142(b) (“The court may direct the debtor and any other necessary party to execute or deliver or

to join in the execution or delivery of any instrument required to effect a transfer of property dealt

with by a confirmed plan, and to perform any other act, including the satisfaction of any lien, that

is necessary for the consummation of the plan.”); Enron, 2006 WL 544463, at *2.

28. The Modified Plan requires that the Trustee to “implement such procedures as [he]

deems necessary to make Distributions under this Plan so as to efficiently and economically

assure prompt and proportionate Distributions.” Modified Plan § 5.12.1. In connection with any

Distribution, the Trustee or Liquidating Trustee must establish a Disputed Claims Reserve for

any Disputed Claims in a Class receiving distributions. Modified Plan § 5.14.1. The Modified

Plan provides that the Court may determine the amount to be reserved for a Disputed Claim. See


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Modified Plan § 5.14.2. The Trustee or Liquidating Trustee must make an Initial Distribution

within 30 days after the July 15, 2020 Effective Date. Modified Plan § 5.12.3.

29. The Bank Claims and the Corporation Bank Claim are Disputed Claims, which, if

Allowed, would be General Unsecured Claims in Class FD5. For the reasons set forth in the

Decision, these claims are subject to disallowance under section 502(d) and are not entitled to

Distribution under the Modified Plan. Absent a $0.00 Firestar Disputed Claim Reserve, Initial

Distributions to Holders of Claims in Class FD5 would be reduced pro rata by the Face Amount

of the Bank Claims and Corporation Bank Claim, delaying and significantly reducing the

Distribution amount. Where, as here, a bankruptcy court has already disallowed a claim,

determining the amount to reserve in a disputed claims reserve on account of the claim at $0.00

is appropriate, notwithstanding an appeal. See Enron, 2006 WL 544463, at *6 (“As the Court may

estimate a claim based upon the ruling of another court or a non-binding arbitral decision, it

certainly may base its estimation on its own ruling and the claimant's likelihood of success on

appeal.”).

Reservation of Rights

30. Nothing in this Motion should be construed as the Trustee conceding the validity

of the Bank Claims, Corporation Bank Claim, or any other Claim. The Trustee expressly reserves

the right to amend, modify, or supplement the relief requested herein and to object to, or seek

estimation of, the Bank Claims, the Corporation Bank Claim, and to any or all of the Claims filed

or deemed filed against the Debtors’ estates on any proper basis whatsoever.

Notice

31. The Trustee has provided notice of this Motion to: (a) the Office of the United

States Trustee; (b) all parties who have formally requested notice in the Debtors’ cases; and (c) the

Bank Claimants and Corporation Bank.


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WHEREFORE, the Trustee respectfully requests that this Court enter an Order

substantially in the form of the attached Proposed Order and grant such other and further relief

as this Court deems just and proper.

Dated: June 22, 2020 Respectfully submitted, New York, New York

JENNER & BLOCK LLP By: /s/ Marc Hankin Marc Hankin Carl Wedoff 919 Third Avenue New York, New York 10022 (212) 891-1600 [email protected] [email protected] Angela Allen (admitted pro hac vice) William A. Williams (admitted pro hac vice) 353 North Clark Street Chicago, Illinois 60654 (312) 222-9350 [email protected] [email protected] Counsel for the Chapter 11 Trustee


Exhibit A Proposed Order

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UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK


Debtors.6



[PROPOSED] ORDER IN ACCORDANCE

WITH THE TRUSTEE’S MODIFIED FIRST AMENDED JOINT CHAPTER 11 PLAN DETERMINING CLAIM AMOUNTS FOR THE FIRESTAR DISPUTED CLAIMS RESERVE

Upon consideration of the Motion for Order in Accordance With the Trustee’s Modified First

Amended Joint Chapter 11 Plan Determining Claim Amounts for the Firestar Disputed Claims Reserve

(the “Motion”) filed by Richard Levin in his capacity as Trustee of the three Debtors in these

jointly administered cases (the “Trustee”), seeking entry of an order under sections 105(a), 502(c),

and 1142(b) of the Bankruptcy Code, 11 U.S.C. §§ 101–1532, and Rule 3021 of the Federal Rules of

Bankruptcy Procedure (“Bankruptcy Rules”) for entry of an order, substantially in the form

attached as Exhibit A (the “Proposed Order”), and in accordance with the Trustee’s Modified First

Amended Joint Chapter 11 Plan (the “Modified Plan”) determining the amount to reserve in the

Disputed Claims Reserve on account of the Bank Claims and Corporation Bank Claim be based

on Disputed Claim amounts of $0.00,7 as more fully described in the Motion; and appropriate

notice under the circumstances of the Objection having been provided, and it appearing that no

other or further notice need be provided; and the Court having found and determined that the

relief sought in the Motion that is granted hereby is in the best interests of the Debtors’ estates,

6 The Debtors and the last four digits of their respective taxpayer identification numbers are as follows: Firestar Diamond, Inc. (2729), Fantasy, Inc. (1673), and Old AJ, Inc. f/k/a A. Jaffe, Inc. (4756). 7 Capitalized not defined in this Order have the meaning provided in the Motion or the Modified Plan.


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creditors, and all parties in interest, and that the legal and factual bases set forth in the Motion

establish just cause for the relief granted herein; and after due deliberation and sufficient cause

appearing therefor, it is

ORDERED that the Motion is granted; and it is further

ORDERED that, under sections 105(a), 502(c), and 1142(b) of the Bankruptcy Code,

Bankruptcy Rule 3021, and section 15.14.2 of the Modified Plan, for purposes of reserves in the

Firestar Disputed Claims Reserve, the reserves on account of the Bank Claims [Firestar Claim No.

11, 12, 16, 17, 55] and Corporation Bank Claim [Firestar Claim No. 50] shall be based on Disputed

Claim amounts of $0.00; and it is further

ORDERED that this Court shall retain jurisdiction to hear and determine all matters

arising from or related to the implementation and/or interpretation of this Order.

Dated: New York, New York July __, 2020

_______________________________________ HONORABLE SEAN H. LANE UNITED STATES BANKRUPTCY JUDGE


Documents

18-10509-shl Doc 1543 Filed 06/22/20 Entered 06/22/20 17 ... · 18-10509-shl Doc 1543 Filed 06/22/20 Entered 06/22/20 17:50:47 Main Document Pg 11 of 12. 9 WHEREFORE, the Trustee