SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK PATHFINDER STRATEGIC CREDIT LP and BC INVESTMENT LLC, -against- Plaintiffs, BERAU CAPITAL RESOURCES PTE. LTD., PT BERAU COAL ENERGY TBK, PT ARMADIAN TRITUNGGAL, PT BERAU COAL, EMPIRE CAPITAL RESOURCES PTE. LTD., WINCHESTER INVESTMENT HOLDINGS PLC, ARIES INVESTMENTS LIMITED, SEACOAST OFFSHORE INC., and MAPLE HOLDINGS LIMITED, Defendants. x x Electronically Filed Index No.: 651304/2017 IAS Part 53 (Hon. Charles E. Ramos) ORAL ARGUMENT REQUESTED Motion Seq. No. 001 DEFENDANTS' MEMORANDUM OF LAW IN REPLY TO THE OPPOSITION OF PLAINTIFFS TO DEFENDANTS' MOTION TO DISMISS THE COMPLAINT AND FOR ALTERNATIVE RELIEF SCHNADER HARRISON SEGAL & LEWIS LLP By: Theodore L. Hecht Kenneth R. Puhala 140 Broadway, Suite 3100 New York, New York 10005-1101 (212) 973-8000 Email: thecht@schnader.com kpuhala@schnader.com Attorneys for Defendants Berau Capital Resources Pte. Ltd, PT Berau Coal Energy TBK, PT Armadian Tritunggal, PT Berau Coal, Empire Capital Resources Pte. Ltd., Winchester Investment Holdings PLC, Aries Investments Limited, Seacoast Offshore Inc. and Maple Holdings Limited PHDATA 5997021 2 1 of 15
TABLE OF CONTENTS Page TABLE OF AUTHORITIES ii PRELIMINARY STATEMENT 1 REPLY STATEMENT OF FACTS 3 A. The Letters 3 1. BCI 3 2. Pathfinder 4 REPLY ARGUMENT 6 POINT I THE COURT SHOULD DISMISS THE COMPLAINT IN ITS ENTIRETY 6 POINT II ALTERNATIVELY, THE COURT SHOULD GRANT DEFENDANTS' MOTION PURSUANT TO CPLR 3024(b) 10 CONCLUSION 11 PHDATA 5997021_2 2 of 15
TABLE OF AUTHORITIES Page(s) Cases Allan Appelstein TTEE FBO D.C.A. v. Province of Buenos Aires, 415 F.3d 242 (2d Cir. 2004) 8. 9 Justinian Capital SRC v. West LB AG, No. 155, 2016 N.Y. LEXIS 3419 (October 27, 2016) 4 Mixed Astoria LLC v. 36-02 35th Ave., Dev., LLC, 116 A.D.3d 745 (2d Dep't 2014) 8 Pathfinder Strategic Credit LP v. PT Berau Coal Energy TBK, et. al. (Index No. 651303/2017) Rovello v. Orofino Realty Co., Inc., 40 N.Y.2d 633 (1976) 6 Springwell Navigation Corp. v. Sanluis, 81 A.D.3d 557 (1st Dep't 2011) 9. 10 Springwell Navigation Corp. v. Sanluis Corp., 46 A.D.3d 377 (1st Dep't 2007) 9. 10 Wells Fargo Bank, N.A. v. Marchione, 69 A.D.3d 210-11 (2d Dep't 2009) 8, 9 Zuckerman v. City of New York, 49 N.Y.2d 557 (1980) 6 Statutes Judiciary Law 489 4 CPLR 602(a) CPLR 3013 5 CPLR 3024(b) 10. 11 CPLR 3211 6 CPLR 3211(a) 6 CPLR 3211(c) 6 11 PHDATA 5997021_2 3 of 15
PRELIMINARY STATEMENT Defendants Berau Capital Resources Pte. Ltd., (the "Issuer"), PT Berau Coal Energy TBK (the "Parent Gurantor"), PT Armadian Tritunggal, PT Berau Coal, Empire Capital Resources Pte. Ltd., Winchester Investment Holdings PLC, Aries Investments Limited, Seacoast Offshore Inc. and Maple Holdings Limited (collectively, the "Subsidiary Guarantors") submit this memorandum in reply to the opposition of plaintiffs Pathfinder Strategic Credit LP ("Pathfinder") and BC Investment LLC ("BCI") (collectively "plaintiffsl to defendants' preanswer motion to dismiss and for other alternative relief. As discussed in greater detail below, plaintiffs' arguments are unavailing and the Complaint should be dismissed. First, plaintiffs ineffectually submit a series of hearsay letters, as purported proxies, attached to an attorney affirmation which is incompetent to authenticate the letters and renders them inadmissible as evidence of standing. Critically, plaintiffs have failed to submit their own affidavits or that of the registered holder of Notes in order to establish standing and capacity to bring this action. See discussion in Point I infra. Second, the letters on their face fail to authorize any lawsuit against the Subsidiary Guarantors, but only against the Issuer and the Parent Guarantor, requiring that the Court dismiss the Complaint as against these defendants on this ground. See discussion in Reply Statement of Fact and Point I infra. Third, plaintiffs' letters concerning BCI, all dated after the time that this lawsuit was filed, cannot defeat defendants' motion to dismiss because plaintiffs must establish that they Defendants also moved to strike or dismiss plaintiffs' demand for attorneys' fees. Plaintiffs' have admitted in their opposition that their demand was improper and concede that the Court should dismiss the claim. PHDATA 5997021_2 4 of 15
had standing and capacity on the date that they commenced this action by filing a summons. See Point I infra. While plaintiffs have submitted letters dated June 21, 2016 concerning Pathfinder only, plaintiffs admit that the letters do not encompass the scope of claims that Pathfinder is attempting to assert in this lawsuit and are therefore ineffective. Fourth, plaintiffs continue to refuse to allege when they acquired any beneficial interest in the Notes, from whom they acquired their alleged interests and the principal amount that they are alleging as damages. In a case supposedly based on recovery of sum certain promissory Notes, defendants are entitled to receive notice of these basic elements of the alleged causes of action. Alternatively, the Court should strike the scandalous and irrelevant allegations in the unverified Complaint. Plaintiffs argue that they placed these allegations in the Complaint for "context" in conjunction with their misguided effort to have this case assigned to another Justice of this Court hearing completely unrelated cases. Smearing an extended family in Indonesia, and introducing material that has nothing to do with the elements of the Complaint's two causes of action, do not offer context; rather, they are intended only to harass and unfairly prejudice. Forum shopping is not authorized by this Court's rules for referring related cases and, in any event, the authorized procedures for applying to a Justice to accept a related case do not involve putting in a complaint allegations irrelevant to its causes of action. If plaintiffs were truly interested in relevant context, they would have submitted admissible proof of their standing, and pleaded when they acquired the Notes, from whom, and the specific principal amount that they are alleging as damages. The only reasonable inference that can be derived is that plaintiffs are attempting to mask the inadequacies of their Complaint, which the Court should dismiss. 2 PHDATA 5997021_2 5 of 15
REPLY STATEMENT OF FACTS2 A. The Letters 1. BCI On the date that this action was commenced, March 10, 2017, BCI did not have a proxy from the registered holder of the Notes (Cede & Co.) as required by the Indenture's express terms and as required to have standing to bring this action. See "Plaintiffs' Consolidated Brief In Opposition to Defendants' Motion to Dismiss and For Alternative Relief' ("Plaintiffs' Br.") 3 at 4 ("The April 2017 proxies [i.e., the unauthenticated letters dated April 6, 2017 submitted by plaintiffs (see affirmation of Daphne T. Ha dated April 28, 2017 ("Ha Aff.")), Ex. 3] were obtained after Plaintiffs filed the Complaints....") BCI asserts, unsupported by any affidavit, that it "was created after the June 2016 proxies were issued to Pathfinder4 and thus BCI started acquiring Notes after that date."5 Plaintiffs' Br. at 4. 2 The Reply Statement of Facts is based solely on allegations and documents not found in the Complaint and raised for the first time in plaintiffs' opposition. 3 Without making a proper motion pursuant to CPLR 602(a), Pathfinder and BCI are attempting to consolidate this action with another pending action styled Pathfinder Strategic Credit LP v. PT Berau Coal Energy TBK, et. al. (Index No. 651303/2017) ("Action No. 1"). Although both actions were commenced on the same day, BCI is not a plaintiff in Action No. 1 and the two actions involve different transactions. No doubt, that is why the plaintiffs in the two actions chose to file them separately. Similar to plaintiffs' false assertion that the instant case and Action No. 1 are related to other unrelated cases pending or otherwise concluded before another Justice of this Court involving completely different parties and transactions, plaintiffs' unauthorized attempt to consolidate this case with Action No. 1 is apparently designed to prejudice the different defendant parties in the two cases by blurring the pleading defects. 4 See discussion infra, concerning the June 2016 letters. 5 If BCI invested in Notes after June 2016, it acquired its interest after the Issuer had been declared in default and its acquisition was made with the apparent primary purpose of bringing...continued 3 PHDATA 5997021 2 6 of 15
BCI now submits three unauthenticated letters purportedly from Cede & Co., the holder of the Notes issued under the Indenture's terms. See Ha Aff., Ex. 3. Each letter is dated April 6, 2017 - nearly one month after the commencement of the lawsuit - and has identical language, to wit: "Cede & Co.,... as holder of record of the Notes, hereby authorizes... the Beneficial Holder [which the letter defines as BCI]... to take the following action(s): With respect to the Notes that are beneficially owned in the aggregate by the Beneficial Holder [i.e., BCI] as of the date of this authorization letter, to take any action against the Issuer, Parent Guarantor, or Trustee relating to the Notes which Cede & Co., as holder of the Notes, is entitled to take under the Indenture or the Notes." Id. (emphasis added). Notably, the letters fail to authorize any action against the Subsidiary Guarantors. See id. Furthermore, BCI, by its own admission, did not have authorization to bring any action against the Issuer and Parent Guarantor on the date that it commenced this lawsuit. Neither BCI nor Cede & Co. submit affidavits to authenticate the letters or attest to the purported proxies' effectiveness. The letters themselves are not sworn to or acknowledged. 2. Pathfinder Plaintiffs allege in their brief that Cede & Co. sent letters dated June 21, 2016 which purportedly authorize Pathfinder to "take any action against the Issuer, Parent Guarantor, or Trustee relating to the Notes which Cede & Co., as holder of the Notes, is entitled to take under the Indenture or Notes" (Plaintiffs' Br. at 4 ( citing Ha Aff., Ex. 1) (emphasis added)), but Continued from previous page this lawsuit. As a result, BCI's acquisition is likely champertous in violation of Judiciary Law 489. See Justinian Capital SRC v. West LB AG, No. 155, 2016 N.Y. LEXIS 3419, at *6-7 (October 27, 2016). 4 PHDATA 5997021_2 7 of 15
obtained proxies "after Plaintiffs filed the Complaints because Plaintiffs acquired the Notes and increased their holdings after the June 2016 proxies were first issued by Cede." Plaintiffs' Br. at 4. 6 Plaintiffs' allegation concerning Pathfinder, to the extent pertinent to the Note issue in the instant action (i.e., the Notes due in 2015), are all dated June 21, 2016.7 The June 21, 2016 letters concerning Pathfinder, like the letters concerning BCI, fail on their face to provide authorization to bring any action against the Subsidiary Guarantors; rather, such authorization is provided as to only the Issuer, Parent Guarantor or Trustee. Neither Pathfinder nor Cede & Co. have submitted affidavits to authenticate the letters or attest to their effectiveness. The letters themselves are not sworn to or acknowledged. 6 Pathfinder's assertion appears to concern only Action No. 1 where causes of action under the 2017 Notes are alleged. Pathfinder's allegation that it had increased its holdings since June 2016 is belied by the letters themselves, which appear to show that Pathfinder's alleged beneficial interest declined between June 2016 and April 2017. Compare Ha Aff. Ex. 1 (purporting to show a proxy for Reg S 2017 Notes in the principal amount of $35,036,000 with Ex. 2 purporting to show a proxy for Reg S 2017 Notes in the principal amount of $14,276,000). 7 Given Pathfinder's assertion that it believes that it needed to obtain additional letters to bring Action No. 1, the failure to obtain post-lawsuit letters for its causes of action in the instant action strongly infers that it no longer has a beneficial interest in the 2015 Notes. For this reason, among others, defendants are entitled to notice, as required by CPLR 3013, as to the principal amount alleged as damages. 5 PHDATA 5997021_2 8 of 15
REPLY ARGUMENT POINT I THE COURT SHOULD DISMISS THE COMPLAINT IN ITS ENTIRETY There can be no genuine dispute that plaintiffs failed to allege in the Complaint any basis to find that they have standing to sue under the Indenture and Notes. In opposing defendants' CPLR 3211(a) motion to dismiss, however, they had an opportunity to submit affidavits or admissible evidence that could properly be considered on a motion for summary judgment in order to show standing. See CPLR 3211(c); see also Rovello v. Orofino Realty Co., Inc., 40 N.Y.2d 633, 635 (1976) ("CPLR 3211 (subd.(c)), by providing that 'either party may submit any evidence that could properly be considered on a motion for summary judgment', leaves this question [of whether a party opposing a CPLR 3211(a) motion may submit affidavits] free from doubt"). But a bare affirmation of an attorney, who demonstrates no personal knowledge of the facts asserted, is "without any evidentiary value and is thus unavailing." Zuckerman v. City of New York, 49 N.Y.2d 557, 563 (1980). In the instant case, in an effort to preserve their unverified Complaint and demonstrate standing, one of plaintiffs' attorneys attaches a series of letters to her affirmation. See Ha Aff., Ex. 1-3. Plaintiffs fail to submit any affidavits from either Pathfinder, BCI, or Cede & Co. swearing to the authenticity of the letters or verifying plaintiffs' authorization to bring this action. Plaintiffs' counsel's affirmation does not demonstrate that she has any personal knowledge of the authenticity of the letters and, rather than state that she has personal knowledge, counsel merely asserts that she is "familiar with the facts and circumstances set forth herein." (see Ha Aff. 1). Counsel's statement is inadequate to serve as a foundation to establish 6 PHDATA 5997021_2 9 of 15
the admissibility of the letters. The letters are not made under oath or acknowledged and do not show any sign that they are authoritative. The Indenture indisputably requires plaintiffs to obtain valid proxies in order to have standing to bring this action. Although given a fair opportunity to introduce competent evidence through affidavits that they have such proxies, they have failed to do so. The Court should dismiss the Complaint in its entirety. Plaintiffs argue that "Defendants do not and indeed cannot contest their liability to Plaintiffs. So they ask this Court to dismiss Plaintiffs' actions on the highly technical (and ultimately specious) ground that Plaintiffs lack standing to sue." Plaintiffs' Br. at 1. Contrary to plaintiffs' argument, defendants can, and have, contested liability to plaintiffs by showing that they did not have standing to bring this action, which is a required bedrock principle for any party to assert a claim. The requirement is not specious as courts in New York require that only a party with standing may bring a claim against another party. Whether standing is perceived by plaintiffs as "highly technical" (and it is really a highly elementary legal principle), or whether plaintiffs did not understand the terms of the Indenture, is not the issue. Because the Complaint's allegations fail to establish standing (the Complaint does not even allege that any plaintiff was granted a proxy from the registered Noteholder), the issue is whether plaintiffs, in their opposition, have submitted admissible evidence sufficient to supplement the unverified Complaint in order to show standing. They have not, and the Court should dismiss the Complaint. Additionally, the letters which plaintiffs allege are proxies from the holder of the Note, Cede & Co., on their face, do not authorize either Pathfinder or BCI to bring an action against any Subsidiary Guarantor (i.e., defendants PT Armadian Tritunggal, PT Berau Coal, 7 PI-IDATA 5997021_2 10 of 15
Empire Capital Resources Pte Ltd., Winchester Investment Holding PLC, Aries Investment Limited, Seacoast Offshore Inc. and Maple Holdings Limited), and the Court should dismiss the Complaint as against these parties for this reason as well. BCI concedes that the letters which it relies upon are dated April 6, 2017 - a date after the date this lawsuit was filed on March 10, 2017. Pathfinder asserts that its June 21, 2016 letters are no longer operative because its alleged investment has since changed. It is axiomatic that a party suing on a negotiable instrument must have standing prior to filing a lawsuit. See Wells Fargo Bank, N.A. v. Marchione, 69 A.D.3d 210-11 (2d Dep't 2009) (the Appellate Division, when affirming the Supreme Court's dismissal of a complaint, held: "In sum, inasmuch as the assignment [of a note and mortgage to Wells Fargo] was not made until after the summons was filed, Wells Fargo had no standing to bring this action"); see also MLCFC 2007-9 Mixed Astoria LLC v. 36-02 35th Ave., Dev., LLC, 116 A.D.3d 745, 747 (2d Dep't 2014) ("[T]he plaintiff failed to demonstrate its prima facie entitlement to judgment as a matter of law because it did not establish that it had standing as the lawful holder of or assignee of the subject note on the date it commenced this action.") (citations omitted). Inasmuch as plaintiffs admit that they lacked valid proxies from Cede & Co. on the date that it filed the summons in the instant case, plaintiffs had no standing to bring the action and the Complaint should be dismissed. Plaintiffs argue that the purported proxies allegedly acquired after the lawsuit are sufficient to establish standing and avoid dismissal of the Complaint because, according to plaintiffs, "finding otherwise would merely result in the refiling of the complaint upon authorization, which would be 'a completely wasteful repetition of proceedings that have already occurred.' Plaintiffs' Br. at 6 (citing Allan Appelstein TTEE FBO D.C.A. v. Province of Buenos Aires, 415 F.3d 242, 246 (2d Cir. 2004)). While plaintiffs look to a Second Circuit decision for 8 PHDATA 5997021 2 11 of 15
this proposition, they ignored Appellate Division precedent which expressly rejected the proposition, holding to the contrary and requiring dismissal of the Complaint. See e.g., Wells Fargo, 69 A.D.3d at 210-11 ("Wells Fargo also argues that if the action were to be dismissed, the result would be a waste of judicial resources, as it would commence another action as soon as the original action was dismissed. Wells Fargo might have reached this conclusion earlier in its calculus to commence the lawsuit prior to the execution of the assignment"). Plaintiffs here should have reached the conclusion earlier in their calculus to commence this lawsuit prior to obtaining valid proxies. Moreover, plaintiffs' characterization of the Allan Appelstein court's decision is misleading and the phrase they exploit is out-of-context and plainly dicta. The Second Circuit held that the issuer (Buenos Aires) "waived the argument that the Indenture does not give [the plaintiff] standing to sue. Buenos Aires did not raise the argument anywhere in its answer... [and] Buenos Aires previously conceded that the permission [the plaintiff] received was effective... Although Buenos Aires now argues [for the first time on appeal] that [the plaintiff] should not be allowed to proceed 'on the basis [of the noteholder's] ex post ratification of a suit,' we believe that Buenos Aires should he held to its apparent prior concession." Allan Appelstein, 415 F.3d at 245-46. The instant defendants have not waived their objection to plaintiffs' attempted ex post ratification and make no such concession. Plaintiffs argue that in Springwell Navigation Corp. v. Sanluis Corp., 46 A.D.3d 377 (1st Dep't 2007) ("Springwell 1"), a "case cited in Defendants' brief, the beneficial owner cured a purported lack of capacity by obtaining authorization from the registered holder." See Plaintiffs' Br. at 6. Plaintiffs then cite to a second, separate action, Springwell Navigation Corp. v. Sanluis, 81 A.D.3d 557, 577 (1st Dep't 2011) ("Springwell II"), improperly suggesting that 9 PHDATA 5997021 2 12 of 15
the court permitted plaintiff, post-commencement in the first action, Springwell I, to cure the lack of standing. Id. This Court may take judicial notice that Springwell II was indeed a second separate action after the Appellate Division in the first action (Springwell 1) dismissed the complaint. The Springwell plaintiff later commenced the second action (Springwell 11) after it obtained a proxy from Cede & Co., the registered holder (which was acknowledged under oath before a notary public). See Springwell II, Index No. 600600/2009 (Sup. Ct. N.Y. Co. filed Feb. 25, 2009), NYSCEF, Doc. 31-1 (copy of Springwell complaint, attaching copy of proxy sworn to on February 3, 2009 as exhibit at 117-18)). See also, Springwell I, Index No. 600743/2005 (Sup. Ct. N.Y. Co. filed Apr. 14, 2005), NYSCEF, Doc. 2 (motion for summary judgment in lieu of complaint showing New York County index number different than that of Springwell II). POINT II ALTERNATIVELY, THE COURT SHOULD GRANT DEFENDANTS' MOTION PURSUANT TO CPLR 3024(b) Plaintiffs, resisting the striking of irrelevant and scandalous material from the Complaint, argue that the material is necessary to provide this Court with a "basis" to transfer the case to another Justice of this Court. See Plaintiffs' Br. at 8. Plaintiffs make this argument without specifying a single factual, non-frivolous basis, for that transfer and without any regard to this Court's rule governing the transfer of cases. Specifically, the Rules provide: RELATED CASES: In an effort to conserve judicial resources and avoid inconsistent rulings, the filing counsel must check off on the RJI whether a related case exists. If the new case is designated as related, it will automatically be assigned to the Justice who was assigned the earlier case provided that that case has not already been disposed of... [If not assigned to the earlier Justice] the filing attorney is free to argue to the Justice to whom the case is assigned that the matter ought to be assigned to the Justice who had handled the earlier case due to exceptional considerations of judicial efficiency and the like. If a party believes that such a 10 PHDATA 5997021_2 13 of 15
related-case designation and resulting assignment were made in error..., the issue should be raised before the assigned Justice, who may send the matter to the back office for a random reassignment or a transfer if the complaint is justified. See https://www.nycourts.govicourts/ljd/supctmanh/rjis-assignments.shtml Plaintiffs. when they filed the RJI in this case, falsely designated this case as related to completely unrelated cases before another Justice. The case, however, was not assigned to the other Justice, but assigned to IAS Part 53 (Hon. Edward E. Ramos). Plaintiffs have not made any argument to this Court that the case should be assigned to the Justice hearing the other cases due to any "exceptional considerations of judicial efficiency or the like." Plaintiffs have not made any showing that the assignment to this Court was made in error. Moreover, a party may argue to a Justice that cases are related by following the procedures clearly set out in the court rule, not by including allegations of relatedness in a complaint. It appears that Plaintiffs themselves do not truly believe that the cases before the other Justice are related. Rather, plaintiffs misguidedly believe that they can prejudice this Court by scurrying up defamatory images in an effort to achieve a result which they are not entitled to obtain. Plaintiffs' beliefs not only run afoul of CPLR 3024(b), but show contempt for, and unbridled cynicism directed to, the Court. CONCLUSION As defendants noted in their moving papers, plaintiffs' conduct falls below that which is required under Part 130. Here too, a reading of their opposition shows that they begrudgingly acknowledge that they filed a Complaint that failed to show standing and concede that their demand for attorneys' fees was improper, while disparaging defendants for making a motion based on the plain terms of the Indenture, the Notes and controlling case precedent. It 11 PHDATA 5997021 2 14 of 15
does appear that plaintiffs may have erroneously believed that a beneficial holder had standing or, for reasons unknown, they decided to by-pass that essential element. After putting defendants through the cost and expense of having to educate plaintiffs, or otherwise call their bluff, plaintiffs have submitted plainly inadequate, untimely and inadmissible purported proxies, continue to assert that they have a right to introduce utterly irrelevant material in this case that could never be introduced at a trial, and argue that the case should be transferred to another Justice without any regard to the Court's rules. True, defendants did not move for sanctions, but that does not make plaintiffs' frivolous conduct any more acceptable. The Court should dismiss the Complaint in its entirety and grant such alternative relied as it may deem just and proper. Dated: New York, New York May 4, 2017 Respectfully submitted, SCHNADER HARRISON SEGAL & LEWIS LLP By:c Theodore L. Hecht Kenneth R. Puhala 140 Broadway, Suite 3100 New York, New York 10005 Tel. No.: (212) 973-8000 Email: thecht@schnader.com kpuhala@schnader.com Attorneys for Defendants Berau Capital Resources Pte. Ltd., PT Berau Coal Energy TBK, PT Armadian Tritunggal, PT Berau Coal, Empire Capital Resources Pte. Ltd., Winchester Investment Holdings PLC, Aries Investments Limited, Seacoast Offshore Inc. and Maple Holdings Limited 12 PHDATA 5997021 2 15 of 15