SAYING it is unfair and inequitable, New York-based Hughes Hubbard & Reed LLP is opposing and objecting to the Imperial Pacific International judgment creditors’ proposed plan for distribution of auction proceeds.
HHR, through attorney Richard Miller, filed its opposition in the District Court for the NMI on Wednesday. HHR opposes the petition of Joshua Gray for an order to show cause, and objects to the plan to distribute proceeds from auctions of IPI’s property to current judgment creditors.
The law firm is a creditor of IPI.
On Dec. 5, 2023, HHR sued IPI in Superior Court to recover unpaid legal fees and costs totaling almost $8.6 million.
Citing a previous ruling, HHR said to distribute receivership assets pro rata only to judgment creditors, to the exclusion of all others harmed by the debtor’s delinquency, defeats the “fundamental purpose” of a receivership, which is “to protect the estate property and ultimately return that property to the proper parties.” If assets were distributed prematurely, “only a handful of victims would receive close to full compensation while the pro rata shares available to the…other victims would be significantly diminished,” HHR stated.
It added that the stipulation expressly and intentionally excludes creditors “who do not yet have a final judgment against IPI, ostensibly because there is no fair or efficient way to include creditors who are still litigating their claim.”
But excluding non-judgment creditors is not fair either, HHR added.
“The Consenting Judgment Creditors imply that creditors without judgments have not ‘diligently prosecuted their claims’ or made poor strategic litigation choices. Those assumptions are themselves unfair and unsupported. Some judgment creditors simply lucked out when IPI declined to defend on claims for a sum certain and therefore were able quickly to obtain a default judgment. Other individuals and businesses who, like HHR, recently provided ongoing services to IPI inevitably would have their claims filed later.”
It is fundamentally unfair to exclude them from any distribution, HHR added.
Moreover, it said, the stipulation does not propose that the court make any effort to account for creditors’ claims that have not yet been reduced to a judgment.
This intentional omission is unfair and inequitable, HHR said.
Under the proposed distribution plan, the entire proceeds of the seven auctions already held, approximately $1.5 million, would be consumed by the consenting judgment creditors, leaving nothing for creditors who do not have a judgment.
“It appears that only one further auction, set for February 23, 2024, is assured. The proposed plan makes no provision for reserving cash for later judgment creditors and adding them to the Consenting Judgment Creditors,” HHR said.
“HHR has a clear and strong breach of contract claim in Commonwealth Superior Court against IPI for compensatory damages in a sum certain: $8,583,158.54. The stipulated plan would effectively, and unfairly, cut HHR and any other non-judgment creditors out of any recovery from the receivership,” HHR said.
IPI’s former director of operations, Joshua Gray successfully sued the casino investor for racial discrimination and wrongful termination.
Represented by attorneys Aaron Halegua and Bruce Berline, Gray was awarded by the federal court a total of $5.68 million in compensatory and punitive damages.
After the federal court allowed Gray to participate in the receivership proceedings, he applied for a writ of execution, which the court granted.
One of Gray’s attorneys, Halegua, filed a petition for an order to show cause concerning the distribution of the proceeds from the liquidation of IPI’s gaming equipment.
He also provided the court a copy of the “Stipulation by Judgment Creditors Concerning the Distribution of Auction Proceeds,” dated Dec. 12, 2023.
The stipulation is between all of the known judgment creditors of IPI, including the CNMI government, which holds a tax lien against IPI, and the limited receiver, Clear Management.
Halegua said the stipulation sets forth a distribution plan for the nearly $1.5 million in available auction proceeds, as well as any funds that subsequently become available, to be distributed to the judgment creditors of IPI, including the CNMI government, in a fair, equitable and efficient manner.
On Oct. 26, 2021, the federal court appointed Clear Management as the limited receiver to liquidate IPI’s casino gaming equipment.
Since the limited receivership commenced, Clear Management has conducted several auctions of IPI’s gaming equipment.
IPI owes judgment creditors in federal and local courts, including the tax lien held by the CNMI Division of Revenue and Taxation against it, a total of $21,108,568.71.
