Opinion
652146/10
12-16-2011
ACP Master, Ltd., et al., Plaintiffs, v. Vitro S.A.B. de C.V., et al., Defendants. Elliott International, L.P., et ano, Plaintiffs, v. Vitro S.A.B. de C.V., et al., Defendants.
For Plaintiffs: Friedman Kaplan Seiler & Adelman, LLP Attorneys for ACP Master, Ltd., et al. Edward A. Friedman, Esq. Dechert, LLP Attorneys for Elliott International and Liverpool Ltd. Partnership For Defendants: Milbank Tweed Hadley & McCloy LLP One Chase Manhattan Plaza
APPEARANCES:
For Plaintiffs: Friedman Kaplan Seiler & Adelman, LLP Attorneys for ACP Master, Ltd., et al. Edward A. Friedman, Esq. Dechert, LLP Attorneys for Elliott International and Liverpool Ltd. Partnership
For Defendants: Milbank Tweed Hadley & McCloy LLP One Chase Manhattan Plaza
Bernard J. Fried, J.
This decision addresses motion sequence number 008 in the action bearing index number 652146-2010 (the ACP Action) and motion sequence number 006 in the action bearing index number 652223-2010 (the Elliott Action). In the ACP Action and the Elliott Action (the Actions), ACP Master, Ltd., Aurelius Capital Master, Ltd. and Aurelius Convergence Master, Ltd. (collectively, ACP), as well as Elliott International L.P. and The Liverpool Limited Partnership (collectively, Elliott, and together with ACP, Plaintiffs), seek partial summary judgment in the amount of unpaid interest due on certain Notes (as defined below) issued by Vitro S.A.B. de C.V. (Vitro SAB) and guaranteed by most of its subsidiaries, including the defendants in the above-captioned Actions (Defendants, and as guarantors, Guarantors).
In their renewed motions filed on or about August 2, 2011 (motion sequence numbers 006 and 008), Plaintiffs seek partial summary judgment in their favor against all Defendants - except Vitro SAB and Vitro Packaging de Mexico S.A. de C.V. (VPM), both of which are in bankruptcy proceedings - on a joint and several basis and in the amount of (i) the unpaid interest on the Notes as of the date of such motions, and (ii) the interest on such unpaid interest at the rates specified in the Notes, from the date of such motions until the date paid. Defendants oppose the motions, and oral argument on such motions was held before me on October 14, 2011. For the reasons stated herein, the motions are granted to the extent set forth herein.
The following facts are generally undisputed. Vitro SAB is a holding company organized under the laws of Mexico, and is one of Mexico's largest glass manufacturers, which conducts almost all of its operations through its subsidiaries. Defendants are Vitro SAB's subsidiaries and are Guarantors of its obligations under the notes issued by Vitro SAB, which will mature in 2012, 2013 and 2017 (the Notes), pursuant to the relevant indentures for such Notes (the Indentures). The aggregate principal amount of the Notes exceeds $1.2 billion, and since 2009, Vitro SAB has been in default on its payment obligations under the Notes. Plaintiffs are amongst some of the noteholders with respect to the Notes. Wilmington Trust, N.A. (Wilmington), not a party to this action, is the successor indenture trustee for the 2012 and 2017 Notes. In December 2010, Vitro SAB filed for voluntary bankruptcy relief in the District Court of Nuevo Leon in Mexico (the Mexican Court) under Mexico's bankruptcy laws, along with a prepackaged plan of reorganization (the Concurso Plan). In April 2011, the foreign representatives of Vitro SAB commenced a Chapter 15 case under the U.S. Bankruptcy Code in the U.S. Bankruptcy Court for the Southern District of New York, but the bankruptcy venue was transferred to the U.S. Bankruptcy Court for the Northern District of Texas (the Bankruptcy Court) shortly thereafter. Notably, none of the Defendants - except for Vitro SAB and VPM - has filed for bankruptcy relief in Mexico, the United States or any other jurisdiction.
VPM, one of the Guarantors, has a bankruptcy proceeding in Mexico and a Chapter 15 case in the United States.
On June 24, 2011, U.S. Bankruptcy Court Judge Russell Nelms issued a preliminary injunction in favor of Vitro SAB to protect its assets, but denied injunctive relief as to the non-debtor Defendants. By decision dated June 29, 2011, the Mexican Court also denied similar relief requested for Vitro-SAB's non-debtor affiliates. On August 17, 2011, Wilmington commenced an action in this court (#652303-2011), alleging the failure of the Guarantors to pay the sums owed under the guaranties for the Notes (the Guaranties). In its complaint, Wilmington asserts two causes of action, namely, breach of contract and declaratory judgment. Defendants filed a motion in the Bankruptcy Court seeking to stay Wilmington's action for declaratory relief. In a decision dated October 26, 2011, the Bankruptcy Court denied Defendants' motion for a bankruptcy stay. Thereafter, I granted declaratory relief on December 5, 2011. This action is presently pending.
As noted above, Plaintiffs, in the instant two actions, now seek partial summary judgment against Defendants/Guarantors. In setting forth the standards for granting or denying a motion for summary judgment, pursuant to CPLR 3212, the Court of Appeals stated, in Alvarez v Prospect Hospital (68 NY2d 320, 324 [1986]), the following:
As we have stated frequently, the proponent of a summary judgment motion must make a prima facie showing of entitlement to judgment as a matter of law, tendering sufficient evidence to demonstrate the absence of any material issues of fact ... Once this showing has been made, however, the burden shifts to the party opposing the motion for summary judgment to produce evidentiary proof in admissible form sufficient to establish the existence of material issues of fact which require a trial of the action [internal citation omitted].
The courts uniformly scrutinize summary judgment motions, as well as the facts and circumstances of each case, to determine whether relief may be granted. Andre v Pomeroy, 35 NY2d 361, 364 (1974)(because entry of summary judgment "deprives the litigant of his day in court it is considered a drastic remedy which should only be employed when there is no doubt as to the absence of triable issues"). However, conclusory allegations unsupported by competent evidence are insufficient to defeat a summary judgment motion. Alvarez, 68 NY2d at 324-25. Also, summary judgment is granted in favor of the movant if there are no material triable issues of fact. Francis v Basic Metal, 144 AD2d 634 (2d Dept 1988). Furthermore, to obtain summary judgment with respect to the unpaid notes and guaranties, the plaintiff must "establish a prima facie case by proof of the agreement and a failure to make payments called for thereunder." SCP (Bermuda) v Bermudatel Ltd., 224 AD2d 214, 216 (1st Dept 1996).
Here, in the parties' Joint Statements of Undisputed Facts, Defendants do not dispute that the Indentures, Notes and Guaranties are valid and enforceable instruments, and that Vitro SAB and the Guarantors have been in payment default, including the failure to make the required interest payments thereunder. Yet, Defendants argue that partial summary judgment cannot be granted in favor of Plaintiffs because of the following purportedly disputed issues: (1) Plaintiffs failed to show that they have made a proper demand upon the Guarantors; (2) Plaintiffs failed to established their ownership of the Notes; (3) the limitation on the amount of the Guaranties under the Indentures raises triable issue of fact as to each Guarantor's obligation (the Limitation Provision); (4) any grant of partial summary judgment would disrupt Vitro SAB's restructuring in the Mexico proceedings; and (5) these motions are procedurally defective because Plaintiffs failed to sever Vitro SAB and VPM from the other Defendants. Defendants' Opposition Brief, at 13-21. These arguments are analyzed below. Demand Upon the Guarantors
Defendants argue that a proper demand upon the Guarantors is a precondition under the Indentures that triggers their legal duty to pay, and that the acceleration notices given to Vitro SAB did not constitute a proper demand made upon the Guarantors under the Indentures. However, whatever procedural defects that might have existed prior to the filing of these renewed motions have been cured, because Defendants neither deny that they have received the demand letters delivered to them by the indenture trustees on April 27, 2011, nor do they allege that the demand letters were somehow deficient. Berman Affidavit dated August 10, 2011, Exhibits A and B (demands for the 2012 and 2017 Notes), and Moran Affidavit dated August 11, 2011, Exhibit A (demand for the 2013 Notes). Indeed, during oral argument on these motions, counsel for Defendants conceded that "they did make a new demand and they mooted that issue. We are not pressing that issue at this point." Hearing Transcript of 10/14/2011, at 29. Hence, there are no disputed facts with respect to the "demand" issue. Ownership of the
Defendants also allege that Plaintiffs have not established "the most essential of facts as the basis for their claims against Defendants," namely, proof of ownership of the Notes and the precise amount of unpaid interest on the Notes. Defendants' Opposition Brief, at 15. They also argue that Plaintiffs' claims and assertions must be tested by Defendants in discovery. Id.
In reply, Plaintiffs submitted various documents, such as copies of Defendants' prior requests for production of documents and Plaintiffs' responses thereto. Fourmaux Affirmation dated August 29, 2011, Exhibits A-D, F-G. Thus, Defendants' argument that there is insufficient evidence to prove ownership, and that they did not have a sufficient opportunity to conduct discovery, is unavailing. Further, ACP and its affiliate have affirmed that they hold their Notes in a specific brokerage account. Prieto Affidavit dated August 11, 2011, Exhibits A and B. Based on the foregoing, as well as the record made by the parties in these Actions, Plaintiffs have tendered sufficient evidence to establish their ownership of the Notes, and Defendants have failed to produce any evidentiary proof that shows the contrary. The Limitation Provision
The issue as to the calculation of the unpaid interest, and the interest on unpaid interest, is discussed below.
Defendants assert that, based on the Indentures, the amount of each Guarantor's payment obligation is limited to a value that would not have rendered such Guarantor insolvent at the time that the guaranteed obligation was incurred. Specifically, Defendants rely on Section 10.07 of the Indentures, which provides, in relevant part, that "the Trustee, the Holders and the Guarantors hereby irrevocably agree that the obligations of each Guarantor under its Note Guaranty are limited to the maximum amount that would not render the Guarantor's obligations subject to avoidance under applicable fraudulent conveyance provisions of the United States Bankruptcy Code ...." Indentures, ¶ 10.07 (the Limitation Provision). In essence, Defendants assert that, because of the Limitation Provision, this court must analyze the maximum amount of the guaranteed obligation assumed by each Guarantor, which is an extensive undertaking that raises complex issues of fact, the resolution of which cannot be accomplished in the context of a summary judgment motion. Defendants' Opposition Brief, at 15-17.
Defendants' argument relying on the Limitation Provision is unpersuasive. First, Defendants do not (and cannot) deny that they did not raise this argument in their answer - which in essence, is an affirmative defense that their liability is purportedly limited by a contractual provision - and thus constituted a waiver of such defense. Centaur Props., LLC v Farahdian, 29 AD3d 468, 468 (1st Dept 2006). Also, they do not deny Plaintiffs' assertion that the Limitation Provision is intended to protect lenders, such as Plaintiffs, in the event that the Guaranties are challenged as a fraudulent conveyance by other creditors or a bankruptcy trustee, a hypothetical situation that has not occurred in any proceeding. See ACP 4/4/11 Reply Brief, at 5, citing, inter alia, Pu v Mitsopoulos (67 AD3d 561 [1st Dept 2009])(only creditors of a debtor can challenge a fraudulent conveyance). Indeed, Defendants failed to cite any caselaw or legal authority that supports a contrary position.
In light of the foregoing, it is unnecessary to determine whether each Guarantor's obligation is limited by the Limitation Provision of the Indentures, because such provision does not raise or implicate an issue of disputed fact. The Mexican Bankruptcy Proceedings
It is also unnecessary to determine whether the statements of Bankruptcy Judge Nelms - which indicated his rejection of Defendants' interpretation of the Limitation Provision made in the context of the involuntary Chapter 11 petitions filed against Vitro SAB's subsidiaries - are applicable to the instant dispute. Hearing transcript of 10/14/11, at 32-36; ACP Reply Brief, at 5.
Defendants raise the argument that I should not rule on these motions because under the Concurso Plan currently filed in the Mexican bankruptcy proceedings, there is a "high probability" that the issues relating to the Notes and the Guaranties will be resolved by the Mexican Court, and that "it does not make sense for this Court to inject itself into the process and award an unwarranted priority to any particular creditors." Defendants' Opposition Brief, at 17-18. However, Defendants do not explain the relevance of such argument in the context of this summary judgment motion, which should be granted or denied, depending on whether material disputed facts exist. Indeed, the existence of the Mexican bankruptcy proceedings is an undisputed fact.
In any event, the Texas Bankruptcy Court has stated in its June 24, 2011 decision, which, inter alia, denied the request of the foreign representatives of Vitro SAB to enjoin the lawsuits by the noteholders against the non-debtor Guarantors, that if the injunction were granted:
the noteholders will have to adjudicate their claims and appeals in the Mexican legal system even though the notes were issued under indentures governed by New York law, underwritten by U.S. banks, and registered with the SEC. This illustrates the intent to have access to the U.S. courts. The harm to the noteholders far outweighsIn re Vitro S.A.B. de C.V., 455 BR 571, 581 (Bankr ND Tex 2011). Clearly, access to the U.S. courts, including this court, was intended by the parties to the Indentures, particularly where the Indentures contain a specific forum selection clause stating that any legal action arising under the Indentures may be commenced in the federal or state courts of New York.In addition, the United States Supreme Court has stated that rights and interests in property should be analyzed and determined in accordance with state law:
the harm to the Debtor ....
Property interests are created and defined by state law. Unless some federal interest requires a different result, there is no reason why such interests should be analyzed differently simply because an interested party is involved in a bankruptcy proceeding. Uniform treatment of property interests by both state and federal courts within a State serves to reduce uncertainty, to discourage forum shopping, and to prevent a party from receiving "a windfall merely by reason of the happenstance of bankruptcy."Butner v U.S., 440 US 48, 55 (1979); accord In re Laughlin, 602 F3d 417, 422 (5th Cir 2010)(rights and interests in property are governed by state law). Thus, the fact that Vitro SAB filed for bankruptcy relief in Mexico and has a Chapter 11 case in the United States does not affect a determination of the rights and obligations of the parties (Plaintiffs and Guarantors) under the Indentures and the Guaranties, which are contractually governed by New York law. Whether such rights and obligations may be modified or otherwise affected by Mexican bankruptcy law is not an issue for me, because the instant motions do not require me to construe Mexican bankruptcy law. Therefore, the existence of the Mexican bankruptcy proceedings is a non-issue. Severance of Vitro SAB and VPM
Based on their interpretation of CPLR 5012, Defendants argue that it is a condition precedent to directing any judgment that the court ordered a severance. In essence, Defendants argue that the motions are "procedurally defective" because Plaintiffs request entry of a judgment before an order of severance has been entered, and that Vitro SAB and VPM should have been severed from the other Defendants as these two entities are in bankruptcy. Defendants' Opposition Brief, at 18-21, citing, inter alia, Kharmah v Metro. Chiropractic Ctr. (288 AD2d 94 [1st Dept 2001]) (when defendants filed for bankruptcy, court granted plaintiff's motion to sever and permitted remaining parties to proceed).
CPLR 5012 provides that "[t]he court, having ordered a severance, may direct judgment upon ... one or more causes of action as to one or more parties" (emphasis added).
Defendants' argument is not persuasive. CPLR 603, which governs issues of severance and separate trial, states, in part, that "[i]n furtherance of convenience or to avoid prejudice the court may order a severance of claims, or may order a separate trial of any claim, or of any separate issue [emphasis added]." Thus, the court is empowered under CPLR 603 to order severance, and such power can be exercised based upon its discretion. Indeed, because CPLR 603, unlike CPLR 602, does not use the words "upon motion," the court may order a severance sua sponte. Also, pursuant to CPLR 3212 (e), which governs partial summary judgment and severance, the court may grant summary judgment "as to one or more causes of action ... in favor of any one or more parties, to the extent warranted, on such terms as may be just." Therefore, CPLR 3212 (e) empowers me to enter an order granting partial summary judgment and severance at the same time, "to the extent warranted," and based upon my discretion. Banco Popular N. Am. v Lieberman, 75 AD3d 460 (1st Dept 2010)(granting partial summary judgment and ordering severance at the same time). Indeed, the fact that Vitro SAB and VPM are in bankruptcy requires severing them from these Actions because of the automatic stay under the Bankruptcy Code. See Hearing Transcript of 10/14/11, at 31 (automatic stay has "the functional effect of a severance").
As noted above, these motions seek money judgments with respect to (1) the unpaid interest on the Notes as of the date of such motions, and (2) the interest on such unpaid interest at the rates specified in the Notes, from the date of such motions until the date paid. After these motions were fully submitted and subsequent to the October 14, 2011 hearing on the motions, via a letter addressed to me dated November 15, 2011, Plaintiffs submitted various documentation, including affirmations and spreadsheets explaining how they calculated the various amounts for the money judgments. In response, in a letter addressed to me dated November 17, 2011, Defendants argued that they should be afforded a fair opportunity to test and review the calculations. Indeed, Defendants argued that these motions should be denied.
For the reasons explained above, the partial summary judgment motions are granted. However, the entry of money judgments in favor of Plaintiffs (in the amounts proposed by Plaintiffs) will be deferred until Defendants have a reasonable time period to review Plaintiffs' calculations. Any dispute arising in connection with such calculations shall be heard and determined by a Special Referee, in accordance with the procedures stated below.
Accordingly, for all of the foregoing reasons, it is
ORDERED that the instant renewed motions for partial summary judgment (motion sequence number 008 under index number 652146-10 and motion sequence number 006 under index number 652223-10) are granted in favor of the plaintiffs to the extent set forth below, with costs and disbursements to the defendants, except for Vitro S.A.B. de C.V. (Vitro SAB) and Vitro Packaging de Mexico S.A. (VPM), as taxed by the Clerk of the Court; and it is further
ORDERED that plaintiffs' claims in these actions against Vitro SAB and VPM are severed until such time as the bankruptcy stay currently in effect as to these entities is no longer in effect; and it is further
ORDERED that plaintiffs' claims in these actions against all other defendants for unpaid interest due on the Notes (as defined above) shall proceed; and it is further
ORDERED that partial summary judgment is granted in favor of the plaintiffs and against the defendants, except for Vitro SAB and VPM, with respect to such defendants' liabilities under the Indentures, the Notes and the Guaranties (as such terms are defined above) and their obligations to pay the unpaid interest on the Notes pursuant to the terms of the Indentures, the Notes and the Guaranties; and it is further
ORDERED that all issues arising in connection with the money judgments (computation of the amounts of unpaid interest on the Notes) against the defendants, except for Vitro SAB and VPM, are hereby referred to, pursuant to CPLR 4317 (b), a Special Referee or another person designated by the parties to serve as referee, to hear and determine all such issues; and it is further
ORDERED that within five (5) business days from the date of this decision and order, a copy of this decision and order with notice of entry, together with a completed Information Sheet, shall be served by plaintiffs' counsel upon the Special Referee Clerk in the Motion
Support Office in Room 119 M at 60 Centre Street, who is directed to place this matter on the calendar on the Special Referee's Part.
ENTER:
________________________
J.S.C.
1. Plaintiffs filed the renewed motions because Judge Kornreich stayed their original partial summary judgment motions, as a result of the TRO issued by the Bankruptcy Court (as defined below) on April 28, 2011 in Vitro SAB's Chapter 15 case. In fact, Judge Kornreich dismissed the original motions without prejudice.