“THE validity of Century Estate Investment Limited’s alleged senior mortgage interest is highly questionable because the situation exhibits many of the ‘badges of fraud’ indicative of a fraudulent conveyance,” said Aaron Halegua, one of the lawyers of Joshua Gray.
A former director of operations of Imperial Pacific International, Gray prevailed in his discrimination lawsuit against the casino investor.
“Century Estate essentially objects to appointing a limited receiver based on its alleged senior security interest in some of Imperial Pacific International’s property subject to plaintiff’s writ,” Halegua said.
“However,” he added, “there are serious questions as to the validity of Century Estate’s alleged security interest because it appears to arise from a fraudulent conveyance intended to defraud IPI’s creditors.”
Century Estate, an investment firm from the British Virgin Islands, wants to intervene in the receivership proceedings involving Gray’s lawsuit against IPI.
Century Estate is also opposing the petition of Gray to appoint a receiver to sell the casino investor’s properties.
Represented by attorney Matthew Gregory, Century Estate stated that it has first priority as a secured creditor, having executed a loan to financially rescue IPI.
According to Century Estate, it loaned IPI more than $9 million on Feb. 1, 2022, for “the purpose of maintaining ongoing construction, surviving its debts and reviving low cash flow.”
But Halegua said Century Estate’s opposition has no merit.
Citing a ruling of the CNMI Superior Court in 2003, Halegua said Century Estate’s transaction presents numerous “badges of fraud.”
“First, the alleged conveyance of the security interest is between closely related parties. The signatory for Century Estate in the few documents that were provided is Xu Zhongxiang who is also the executive director of IPI’s parent company, Imperial Pacific International Holdings.
“Second, the timing of IPI’s alleged transactions demonstrates an intent to obstruct creditors.
“When the first loan was allegedly made, on Dec. 15, 2022, plaintiff’s motion for a default judgment requesting $2.9 million in compensatory damages and multiple times that amount in punitive damages had already been pending for two months.
“Further, IPI only made its first UCC filing related to the alleged security interest on Dec. 21, 2022, just a few days after IPI dropped its appeal in the USA Fanter case, meaning that the auctioning of its assets would proceed.
“The second UCC filing was made by IPI on July 3, 2023, at 4:10 p.m. — just hours after plaintiff made its petition for a writ of execution.
“Third, the conveyance is secret and concealed.
“Despite all the litigation and proceedings over IPI’s assets, this alleged $10 million loan and corresponding security interest was never mentioned.
“Fourth, IPI has remained in possession of the collateral property, and Century Estate has never sought to take possession of or liquidate this property.
“Fifth, IPI has long decried its financial difficulties, but transferring an interest in virtually all of its real and personal property to Century Estate only leaves IPI closer to insolvency.
“Thus, numerous ‘badges of fraud’ are clearly present,” Halegua said.
He added that “since Century Estate provided only the template mortgage documents and UCC filings for this alleged $10 million loan, plaintiff gave Century Estate an opportunity to provide other evidence to substantiate the validity of this transaction.”
Halegua said on Sept. 24, 2023 (New York time), he sent an email to the attorneys for Century Estate and IPI stating the concern that “this was a fraudulent conveyance” and requesting that they “provide documents to substantiate the transaction, such as the actual loan agreement, evidence of money transferred to IPI (i.e., consideration for its security interest), and evidence of Century Estate’s efforts to collect the allegedly unpaid debt from IPI.”
Halegua said “neither Century Estate nor IPI ever acknowledged the email, let alone responded.”
He said Century Estate “has utterly failed to refute the evidence that the security interest constitutes a fraudulent conveyance for an improper purpose and the transfer should be deemed void.”
Accordingly, Halegua said, “this alleged security interest should not provide any basis to deny plaintiff’s petition to appoint a limited receiver to liquidate these assets.”
He said IPI’s objection also has no merits.
Halegua requested the court not to permit IPI and Century Estate to obstruct and delay plaintiff’s right to seek to collect on its judgment.
“If Century Estate is able to establish its priority to the collateral, it may make a motion as to how the proceeds of any liquidation should be distributed. However, the liquidation should proceed,” he added.
Besides Halegua, attorney Bruce Berline also represented Gray in his discrimination lawsuit against IPI.
On May 30, 2023, the District Court for the NMI granted Gray a default judgment against IPI. The following day, the court entered a judgement awarding Gray $5,686,182.20 against IPI.
On Oct. 26, 2021, the District Court appointed Clear Management as receiver for the purpose of selling IPI’s gaming equipment to satisfy a judgment awarded to USA Fanter Corporation Ltd.
USA Fanter sued the casino investor for its failure to pay the full amount due to plaintiff under their construction contract for labor and materials provided for the improvement of IPI’s real property in Garapan.
The lawsuit stated that IPI had paid USA Fanter $300,000 only and the unpaid balance due was not less than $2,089,345.28.
The District Court issued a final judgment in favor of USA Fanter.
After the court allowed Gray to participate in the receivership proceedings, he applied for a writ of execution, which the court granted, to have IPI’s vehicles, liquor, crystal dragons, computer hardware, furniture and equipment, including casino-related and security equipment, and other non-exempt personal property sold in an auction to satisfy judgment.
Aaron Halegua
