Case of the Day: Talisman Capital Alternative Investment Fund v. Mouttet

The case of the day is Talisman Capital Alternative Investment Fund, Ltd. v. Mouttet (In re Moutett) (Bankr. S.D. Fla. 2013). According to the complaint, in 2002, a group of investors, including Gerry Mouttet, sought to begin a lottery in Jamaica. They obtained a $30 million loan from Epsilon Global Master Fund LP and Epsilon Global Master Fund II LP so that Supreme Ventures Ltd. could obtain a lottery and gaming license in the country. SVL received $500,000, while an affiliate, Atlantic Marketing Services Ltd., owned in part by Mouttet, received $29.5 million. The Atlantic portion of the loan was secured by a lien on service fees SVL was to pay to Atlantic. At the time of the loan, Epsilon Global Equities Ltd., known as EGE, entered into an agreement with SVL and its owners under which EGE would have the right to purchase 17% of the shares of SVL at a future date.

EGE ultimately sued SVL and its owners in a Jamaican court, alleging a breach of the share purchase agreement. EGE claimed that it was the owner of the SVL stock and the dividends it had not been paid. The Jamaican court ruled against EGE, holding that it had “failed to surrender the Transfer of Shares documents for registration of its shares or tender the $1 per share on the Acquisition Date as required by the Agreements,” and that its failure had discharged the agreement. After the Jamaican court entered its final judgment, EGE appealed, and the appeal was pending at the time of our case of the day.

The complaint alleges a complicated supposed RICO scheme. It’s 290 pages long. You figure it out—I don’t have the stamina. But for our purposes, the important point is that some of EGE’s claims against SVL and its owners and against some of the other defendants stood or fell with the allegation that EGE had an ownership interest in SVL.

On a motion to dismiss, the judge held that EGE’s claim was barred by res judicata as to SVL and its owners, and barred by collateral estoppel as to the other defendants. She held that under Hilton v. Guyot, 159 U.S. 113 (1895), the Jamaican decision was entitled to recognition as a matter of comity. Under Eleventh Circuit precedent, the four factors to be considered are: (1) whether the foreign court “was competent and used proceedings consistent with civilized jurisprudence;” (2) whether the judgment was “rendered by fraud;” (3) whether the judgment “violated American public policy notions of what is decent and just;” and (4) “whether to respect the judgment of a foreign tribunal or to defer to parallel foreign proceedings.” EGE’s argument was that the judgment was obtained by fraud, because the defendants in the Jamaica case successfully excluded a key document from evidence by challenging its authenticity, while Mouttet and another defendant later signed affidavits that contradict the position on authenticity the defendants took in Jamaica.

But the judge rejected this arguments on the grounds that EGE had not made the fraud argument to the Jamaican trial court, or even in the appellate proceedings that were still pending. Nor did EGE argue that anything precluded it from making its arguments in the Jamaican courts.

I think this is a sound decision, and it dovetails with my paper on Two Modes of Comity, which floats the idea that there is no really sound policy behind permitting case-specific challenges (e.g., this judgment was obtained by fraud) to foreign judgments, provided that the foreign judiciary was impartial and competent to decide such issues itself.

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