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ABBEY v. MODERN AFRICA ONE

February 18, 2004.

HASSAN ABBEY & YUSSUR ABRAR, Plaintiffs
v.
MODERN AFRICA ONE, LLC, et al., Defendants



The opinion of the court was delivered by: ELLEN S. HUVELLE, District Judge

MEMORANDUM OPINION

Plaintiffs Hassan Abbey and Yussur Abrar bring this action against Defendants Modern Africa One, LLC ("Modern Africa"), Stephen Cashin, and Niles Helmboldt to recover compensatory and punitive damages, attorneys' fees and costs, and injunctive relief in connection with defendants' actions as majority shareholders of Warsun International Communications, Inc. ("Warsun") and for their alleged interference with plaintiffs' ownership interest in Warsun's Nigerian subsidiary.*fn1 Warsun has filed for Chapter 11 bankruptcy and is currently in Chapter 7 liquidation proceedings before the United States Bankruptcy Court for the Eastern District of Virginia, Alexandria Division ("Bankruptcy Court"). Defendants have moved pursuant to 18 U.S.C. § 1404(a) and 28 U.S.C. § 1412 to transfer venue of this matter to that court, or alternatively, to dismiss this action on the basis that plaintiffs have failed to state a claim as to Count VI, and as to the remaining claims, they are barred by the doctrines of Page 2 collateral estoppel, waiver and the Bankruptcy Court's entry of a preliminary injunction and its approval of the sale of Warsun assets to Modern Africa. Having considered the pleadings and relevant law, the Court will deny the motion to transfer; grant the motion to dismiss Counts III, VI and those claims that do not properly belong to plaintiffs as opposed to the corporate entities; deny the motion to dismiss Counts I, II, IV, V, and VII; and stay these proceedings pending resolution of the adversary proceeding which is currently pending in the Bankruptcy Court.

BACKGROUND

 I. The Parties

  The parties to this action include individuals and companies associated with Warsun, a New York corporation that provided facilities-based telecommunications services in Africa. Warsun filed for Chapter 11 bankruptcy on August 13, 2002, and is currently in Chapter 7 liquidation proceedings. Plaintiffs Hassan Abbey and Yussur Abrar hold a minority interest in Warsun, and they served as officers and directors of Warsun until the summer of 2002.

  Modern Africa, an investment fund of Modern Africa Growth and Investment Company (the "Fund"), was established to make equity investments in Africa, particularly in manufacturing and communications enterprises. Modern Africa invested $6,000,000 in Warsun in the form of a secured loan in 1999 and another $4,000,000 over the next three years. (Nyirjesy Decl. ¶ 3.) In return, Modern Africa received one share of Warsun stock and warrants to obtain 700,000 additional shares, the equivalent of a 70% equity stake. (Id.) Modern Africa currently owns 985,714 shares of Warsun stock. (Defs.' Ex. 10 [Pls.' Objection to Mot. to Sell Assets] Page 3 ¶ 44.) Defendants Stephen Cashin and Niles Helmboldt are members of Modern Africa Fund Managers, LLC, a limited liability company that managed and administered the Fund. Cashin served as a member of the board of Warsun and managing director of Modern Africa. Helmboldt served as chairman of the boards of both Warsun and Modern Africa.

  Warsun Network Solutions, Ltd. ("Warsun Nigeria") is a Warsun subsidiary. It was established in August 2000 in Nigeria, the largest telecommunications market in Africa, to obtain telecommunications licenses and to establish a system of software and equipment that would enable Warsun's African affiliates to deliver and receive communications from local Internet Service Providers ("ISPs") and telecommunications carriers. (Am. Compl. ¶¶ 75, 77.) Ownership of Warsun Nigeria is in dispute. Plaintiffs (along with Chidi Ibisi who is not a party to this action) claim an ownership interest in Warsun Nigeria (id. ¶ 81), while defendants maintain that 100% of Warsun Nigeria's shares belonged to Warsun. (Defs.' Mot. at 7 n.2.) This dispute is at the heart of an adversary proceeding now pending before the Bankruptcy Court.

 II. Bankruptcy Proceedings

  Despite Modern Africa's investments, by mid-2002 Warsun, like much of the telecommunications industry, was in financial difficulty. It was at this time that Warsun's board terminated plaintiffs as officers, and plaintiffs resigned as directors of the company. Thereafter, its board determined that bankruptcy was the only viable alternative for survival of the company, and on August 13, 2002, Warsun filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code. Page 4

  Shortly thereafter, Warsun entered into an asset purchase agreement ("APA") to sell all of the company's assets to Modern Africa as part of the bankruptcy proceeding. On December 16, 2002, plaintiffs objected to this sale, claiming that Warsun and Modern Africa were acting in bad faith and requesting that the Bankruptcy Court prohibit the sale and subordinate Modern Africa's debt investment to the interests of Warsun's other creditors. (Defs.' Ex. 10 [Pls.' Objection to Mot. to Sell Assets].) The Bankruptcy Court conducted a hearing, and over plaintiffs' objections, it approved the sale on December 20, 2002, and it barred, pursuant to § 363 of the Bankruptcy Code, any claims relating to those assets that arose prior to the closing of the sale. (Defs.' Ex. 11 ["363 Order"] at 2.) Listed among the assets sold in this transaction were 6 million shares of common stock of Warsun Nigeria, "representing all of the shares of common stock held by [Warsun] in such entity" (Defs.' Ex. 1 [Asset Purchase Agreement Schedule 1.4]), except apparently it was stipulated that "the assets and shares of Warsun Nigeria would be sold subject to the parties' dispute, and that Modern Africa could not acquire such assets to the extent that it is later determined by a Nigerian court that Warsun is not entitled to such assets." (Pls.' Opp. at 18.)*fn2 Modern Africa later assigned all of the assets it purchased to Disco very Tel in return for a substantial equity stake in that company.

  In a related matter, an adversary proceeding against Abrar and Abbey is currently pending in the Bankruptcy Court.*fn3 In that action, initiated on September 11, 2002, Warsun alleges that plaintiffs (1) violated the automatic stay by pursuing litigation in Nigeria in violation Page 5 of the automatic stay; (2) conspired to injure Warsun in its trade, reputation, and business in violation of Virginia's business conspiracy statute; and (3) breached the fiduciary duties they owed to Warsun as officers and directors by surreptitiously and improperly obtaining personal ownership interests in Warsun Nigeria. (Defs.' Ex. 3 [Adversary Proceeding Compl.] ¶¶ 22-29.)*fn4 Because Warsun sold all of its assets, including its interest in Warsun Nigeria, to Modern Africa after initiating the adversary proceeding, and because Modern Africa in turn assigned the assets to DiscoveryTel, on January 6, 2004 the Bankruptcy Court granted a motion to substitute DiscoveryTel as plaintiff in the adversary proceeding. In its Order issued on January 6, 2004, the Bankruptcy Court also set a pretrial conference for February 23, 2004 in the adversary proceeding. The crux of that matter relates to the ownership of Warsun Nigeria, i.e., whether DiscoveryTel or plaintiffs own the stock of Warsun Nigeria.*fn5

  Shortly after the adversary proceeding was initiated, plaintiffs filed suit in a Nigerian court to prevent Modern Africa, DiscoveryTel, Cashin, and Helmboldt from interfering with their interests in Warsun Nigeria.*fn6 Prompted perhaps by this action in Nigeria, on September 11, 2002, Warsun asked the Bankruptcy Court to enjoin the plaintiffs from violating the automatic stay. (Am. Compl. ¶ 230.) Finding that the plaintiffs had violated the automatic stay, the Bankruptcy Court issued a preliminary injunction on September 19, 2002, enjoining plaintiffs Page 6 from undertaking any litigation in any other court to determine ownership rights of Warsun Nigeria.*fn7 (Defs.' Ex. 6 [Prelim. Inj.].)

 III. The D.C. Action

  It is against this backdrop that plaintiffs have brought the current action. In their Amended Complaint, plaintiffs allege the following: (1) breach of fiduciary duty to plaintiffs, as minority shareholders of Warsun, by Modern Africa (Count I); (2) conversion of plaintiffs' interest in Warsun (Count II);*fn8 (3) violations of 18 U.S.C. § 1962(c) and (d), the Racketeer Influenced and Corrupt Organization Act ("RICO") (Count IV); (4) conversion of plaintiffs' interest in Warsun Nigeria (Count V); (5) interference with plaintiffs' prospective economic advantage (Count VI); and (6) conspiracy (Count VII). On October 6, 2003, defendants moved to transfer these claims to the Bankruptcy Court, or in the alternative, to dismiss plaintiffs' claims. Plaintiffs oppose defendants' motion, arguing that the claims in this case are unrelated to those raised by the bankruptcy proceeding, including the adversary proceeding, and thus, this matter is not properly transferrable, and it is not subject to dismissal based on Fed.R. Civ. P. 12(b)(6) or any of the rulings or orders entered by the Bankruptcy Court. Page 7

  LEGAL ANALYSIS

 I. Motion to Transfer

  Defendants seek transfer of this case pursuant to 28 U.S.C. § 1404(a) and § 1412.*fn9 The threshold question in deciding a transfer motion is determining whether this action could have been brought in the proposed transferee court at the time the complaint was filed. Thus, this Court must determine first whether the Bankruptcy Court would have had jurisdiction over this action. This involves a two-part analysis. First, the bankrupcty court must have subject matter jurisdiction over the matter under 28 U.S.C. § 1334(b). In re Fed. Deposit Ins. Corp. v. Majestic Energy Corp., 835 F.2d 87, 90 (5th Cir. 1988). "[T]he district courts shall have original but not exclusive jurisdiction of all civil proceedings arising under title 11 [of the Bankruptcy Act], or arising in or related to cases under title 11." 28 U.S.C. § 1334(b). Thus, there is federal jurisdiction not only when the claim arises under title 11 or in a title 11 case, but also if the claim is "at least `related to' a case under Title 11." Searcy v. Knostman, 155 B.R. 699, 703 (Bankr. S.D. Miss. 1993). The usual articulation of the test for determining whether a claim is "related to" a bankruptcy case is "whether the outcome of that proceeding could conceivably have any effect on the estate being administered in bankruptcy." Pacor, Inc. v. Higgins, 743 F.2d 984, 994 (3d Cir. 1984)); see also Celotex Corp. v. Edwards, 514 U.S. 300, 308 & n. 6 (1995) (applying the Pacor test); In re McGuirl, No. 90-00141, 90-00142, 2001 WL 1798478, at *6 (Bankr. Page 8 D.D.C. Nov. 30, 2001) (same); Atkinson v. Kestell, 954 F. Supp. 14, 16 (D.D.C. 1997) (same).

  Second, if subject matter jurisdiction is found under § 1334(b), then the extent to which a bankruptcy court, rather than a district court, can adjudicate the matter must be determined pursuant to 28 U.S.C. § 157. Fed. Deposit Ins. Corp., 835 F.2d at 90 (the bankruptcy court's power to adjudicate the case depends on whether the matter is a "core" or "non-core" proceeding). A bankruptcy obtains its jurisdiction by referral from the federal district court under 28 U.S.C. § 157(a). Exercising this referred jurisdiction, a bankruptcy court may hear and determine "core proceedings" — those that "aris[e] under" title 11 of the Bankruptcy Code or "aris[e] in" a case brought under that title. 28 U.S.C. § 157(b)(1) ("Bankruptcy judges may hear and determine all cases under title 11 and all core proceedings arising under title 11, or arising in a case under title 11 . . . and may enter appropriate orders and judgments. . . .") (emphasis added)).*fn10 Other proceedings that are otherwise related to title 11 cases are considered non-core Page 9 proceedings. "A bankruptcy judge may hear a proceeding that is not a core proceeding but that is otherwise related to a case under title 11." 28 U.S.C. § 157(c)(1) ...


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