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Trikona Advisers Limited v. Chugh

United States Court of Appeals, Second Circuit

January 18, 2017

Trikona Advisers Limited, Plaintiff-Appellant,
Rakshitt Chugh, individually, and as Trustee of the RC Family Trust, Peak XV Capital Advisers LLC, Peak XV Capital LLC, Peak XV GP LLC, ARC Capital LLC, Peak XC Fundamental Value Limited Partnership, Defendants-Appellees. [*]

          Argued: August 22, 2016

         Appeal from the United States District Court for the District of Connecticut. No. 11 Civ. 2015 - Stefan R. Underhill, Judge.

          Andrew B. Bowman, Westport, CT, for Plaintiff- Appellant.

          John G. Balestriere (Stefan Savic, on the brief), Balestriere Fariello LLP, New York, NY, for Defendants-Appellants.

          Before: Walker, Chin, and Lohier, Circuit Judges.

          John M. Walker, Jr., Circuit Judge:

         Plaintiff Trikona Advisers, Ltd. ("TAL") appeals from a decision of the district court for the District of Connecticut (Stefan R. Underhill, J.) granting summary judgment in favor of defendants Rakshitt Chugh, ARC Capital LLC, and other related corporate entities (the "Chugh Defendants"). TAL's complaint alleged breaches of fiduciary duty by Chugh, a former partner and fifty- percent owner of TAL, and the other defendants. The district court held that TAL's claims had previously been determined in Chugh's favor in a proceeding in the Cayman Islands, and that TAL was collaterally estopped from asserting them in the Connecticut action. On appeal, TAL argues that the district court incorrectly applied the doctrine of collateral estoppel and further argues that Chapter 15 of the United States Bankruptcy Code prevents the district court from giving preclusive effect to the Cayman court's factual findings. We find TAL's arguments meritless and therefore AFFIRM the judgment of the district court.


         I. Factual Background

         TAL is an investment advisory company. Its two beneficial owners, Chugh and Aashish Kalra, formed the company in 2006 as a vehicle for helping foreign investors invest in Indian real estate and infrastructure. Each man held a fifty percent equity stake in TAL through entities controlled by them. Chugh's shares were owned by ARC Capital LLC ("ARC") and Haida Investments ("Haida"), and Kalra's shares were owned by Asia Pacific Investments, Ltd. ("Asia Pacific"). At the same time, the two men formed Trinity Capital Plc., a closed-end fund listed on the London Stock Exchange, through which they solicited investments. Kalra and Chugh managed Trinity through TAL. Trinity paid TAL a fee for its management services, calculated at two percent of Trinity's net asset value plus a performance fee.

         The 2008 economic crisis took its toll on TAL and soured the relationship between Chugh and Kalra. Trinity's shareholders began pressuring the Trinity board to sell the company's assets and distribute capital which, while it might benefit the shareholders, would reduce TAL's management fees by lowering Trinity's net asset value. Chugh and Kalra differed on how to respond to the Trinity board's proposed asset sale: Kalra opposed the move, while Chugh wanted to be more conciliatory to the shareholders. TAL tried to prevent the sell-off by acquiring the shares of QVT, one of Trinity's main shareholders, but the deal collapsed when TAL could not secure the necessary financing. Frustrated, Kalra advocated taking legal action against QVT for breach of contract, but was ultimately dissuaded from that course by Chugh and outside legal counsel.

         At the same time that the QVT deal collapsed, TAL also engaged in a series of ill-fated transactions with a German fund manager called SachsenFonds Holdings GmbH. At Kalra's behest, SachsenFonds agreed to invest £45 million in three of Trinity's existing real estate investments, and to co-invest a further £45 million with Trinity in five additional real estate acquisitions. The latter agreement failed to gain the approval of Trinity's second- largest shareholder, which was still pressing Trinity to sell assets and did not want the company investing in new property acquisitions. To further this goal, Trinity ousted Chugh and another TAL-affiliated director from Trinity's board and replaced them with directors who favored the selloff. Trinity then began liquidating its assets, resulting in a decline in its net asset value and a corresponding reduction in TAL's fees. In early 2009, SachsenFonds itself became a victim of the global credit crunch and was unable to perform its remaining contractual obligations to Trinity. In an attempt to avoid liability for its default, SachsenFonds brought suit against Trinity and TAL, as well as Chugh and Kalra individually, alleging that they had fraudulently induced it to invest in Trinity.

         The wide-ranging financial and legal fallout from TAL's unsuccessful deal with SachsenFonds further soured the relationship between TAL and Trinity. In December of 2009, Trinity cited the failed transaction as a breach of TAL's management agreement and terminated its contractual relationship with TAL. TAL responded by commencing an arbitration with Trinity, which the parties settled.

         With the collapse of the SachsenFonds deal, TAL essentially ceased to function as a going concern and made no serious attempts to enter into any new business or investment relationships. Kalra and Chugh blamed each other for the collapse of TAL's business, and by 2009 their relationship had deteriorated to the point that they could no longer work together. They each used portions of TAL's assets, along with customer information, to establish new, separate companies, Peak XV (Chugh) and Duranta (Kalra), so that each could attempt to build new real estate investment businesses. The souring of Kalra and Chugh's relationship culminated on January 11, 2012, when, with no notice to Chugh, TAL's board of directors voted to remove him as a director. This left Kalra exclusively in charge of TAL. Thereafter, Kalra proceeded to treat TAL and its assets as his own and Chugh was excluded from further involvement in the business.

         II. Procedural History

         TAL's collapse spawned a number of legal proceedings in the United States and abroad, two of which are relevant here: a wind-up proceeding in the Cayman Islands and the federal civil suit in Connecticut that is the subject of this appeal.

         A. The Wind-Up Proceeding

         On February 13, 2012, ARC and Haida, which held Chugh's TAL shares and were controlled by Chugh, filed a petition in the Grand Court of the Cayman Islands, seeking to "wind up" TAL, a Cayman corporation. The suit sought to liquidate the business and divide its assets between Chugh and Kalra. Asia Pacific, which held Kalra's TAL shares and was controlled by Kalra, opposed Chugh's petition. Under Cayman Islands law, a court may order a company to be wound up if it is "of opinion that it is just and equitable" to do so. Cayman Islands Companies Law V.92 (2013 Revision). Chugh argued to the Cayman court that it would be just and equitable to liquidate the company because: (1) TAL had experienced a "loss of substratum, " i.e. a loss of its ability to "carry on the business for which it was established, " due to its dire financial condition and the complete breakdown in trust between Kalra and Chugh; (2) Kalra had wrongfully caused Chugh to be removed from TAL's board and thereby deprived Chugh of his "legitimate expectation of being involved in [TAL's] management"; and (3) after he had removed Chugh from the board, Kalra proceeded to misuse TAL's assets for his sole benefit.

         Kalra opposed the wind-up by asserting the affirmative defense that Chugh had breached his fiduciary duty to TAL in several ways, and that his removal from the board was therefore justified. Specifically, Kalra argued that: (1) Chugh intentionally sabotaged TAL's attempt to acquire QVC's shares in Trinity and had "caused" TAL to pay QVT £2 million for covenants of "extremely limited value"; (2) Chugh had later "prevented" TAL from bringing suit against QVT for breach of contract, over Kalra's objections; (3) Chugh "forced" Kalra to agree to an unfavorable settlement with Trinity in the breach of contract arbitration arising out of the failed SachsenFonds deal; and (4) Chugh "stole" TAL's assets and customer information for use in establishing Peak XV and interfered in the distribution of payments due to Kalra. Kalra framed these arguments as jurisdictional defenses, arguing that if any one of these allegations were true, Chugh would be precluded from invoking the Cayman court's equitable jurisdiction under the doctrine of unclean hands.

         The Cayman court tried the wind-up proceeding over seven days in January of 2013. At the trial's conclusion, the court granted Chugh's petition. It found that "each of" Chugh's allegations was supported by evidence, and that these allegations "taken together" supported a finding that it was just and equitable to wind up TAL. It also rejected each of Kalra's affirmative defenses, concluding that there was "no merit whatsoever in the allegations made against Mr. Chugh." Kalra appealed this judgment, first to the Court of Appeal of the ...

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