Opinion
Civil Action No. 17-22072-Civ-Scola Bankruptcy Case No. 16-01315-BKC-LMI
2022-03-03
IN RE: MASSA FALIDA DO BANCO CRUZIERO DO SUL, S.A., Debtor in Foreign Proceeding Laspro Consultores Ltda., Plaintiff v. Alinia Corporation and 110 CPS, Inc., Defendants.
Arnoldo B. Lacayo, Daniel Matthias Coyle, Gregory Stewart Grossman, Sequor Law, PA, Katherine Alena Sanoja, GST, LLP, Miami, FL, for Plaintiff. Brett Michael Amron, Jeremy James Hart, Zakarij Neil Laux, Bast Amron LLP, Miami, FL, for Defendants.
Arnoldo B. Lacayo, Daniel Matthias Coyle, Gregory Stewart Grossman, Sequor Law, PA, Katherine Alena Sanoja, GST, LLP, Miami, FL, for Plaintiff.
Brett Michael Amron, Jeremy James Hart, Zakarij Neil Laux, Bast Amron LLP, Miami, FL, for Defendants.
Order Adopting Bankruptcy Judge's Proposed Findings of Fact and Conclusion of Law
Robert N. Scola, Jr., United States District Judge
This matter is before the Court on the U.S. Bankruptcy Court for the Southern District of Florida's ("Bankruptcy Court") entry of its proposed findings of fact and conclusions of law ("PFFCL") as to the parties’ cross-motions for summary judgment pursuant to 28 U.S.C. § 157(c)(1). For the reasons below, the Court overrules the Defendants’ objection (ECF. No. 10) and adopts the Bankruptcy Court's PFFCL (PFFCL, ECF No. 228 in Bankruptcy Case No. 16-01315-BKC-LMI) (the "Bankruptcy Case"). The Court also denies the Defendants’ related motion (ECF No. 13) as moot .
1. Background
This case involves adversarial proceedings before the Bankruptcy Court. Plaintiff Laspro Consultores Ltda. ("Laspro") represents the trustee of Banco Cruzeiro do Sul ("BCSUL"), which is the subject of a Brazilian bankruptcy proceeding. Defendants Alinia Corporation and 110 CPS, Inc. are entities that belong to the previous controlling shareholders of BCSUL. The Brazilian proceeding seeks to recover real estate and artwork held by the Defendants on the basis of alleged misappropriation by the Defendants’ owners. In 2016, Laspro filed an amended complaint against the Defendants in the Bankruptcy Court alleging thirty-six counts stemming from that alleged misappropriation. In 2021, the Bankruptcy Court entered its PFFCL on the parties’ cross-motions for summary judgment, which is now before the Court.
The PFFCL recommends that the Court deny Plaintiff Laspro's motion and partially grant the Defendants’ motion. (PFFCL 36.) Laspro timely objected to the following statement contained in the PFFCL "insofar as it may be a finding of fact and/or conclusion of law[,]" which concerns Laspro's expert witness, Alvin Hommerding: "I already held that it appears Mr. Hommerding did not opine that the money is traceable." (Pl. Obj., ECF No. 10 ¶¶ 8, 10.) That was Laspro's only objection.
The Defendants filed no objection of their own and timely responded to Laspro's objection. (Def. Resp., ECF No. 12.) They argued that the Bankruptcy Court's statement was a "finding of fact" and "therefore, reviewable on a ‘clearly erroneous standard.’ " (Id. 7.) At the same time, the Defendants also admitted that the traceability of the allegedly misappropriated funds would remain irrelevant until the underlying litigation in Brazil is resolved. (Id. 9.) Laspro filed no reply nor sought leave to, thus closing briefing on the matter.
However, days after submitting their above response, the Defendants moved the Court for "an order adopting the Bankruptcy Court's" PFFCL "pursuant to" 28 U.S.C. § 157(c)(1) and Fed. Bankr. P. 9033. (Def. Mot., ECF No. 13). Neither Section 157(c)(1) nor Rule 9033 authorizes a party to move a district court for such an order. The procedure is clear: once a party's objection(s) have been briefed, the matter rests with the Court. The additional briefing prompted by the Defendants’ motion was unnecessary. That motion is denied as moot.
2. Legal Standard
The Defendants’ assertion of a "clearly erroneous" standard is incorrect. (See Def. Resp. 7). The Court may enter an order on the basis of the Bankruptcy Court's PFFCL "after reviewing de novo those matters to which any party has timely and specifically objected." 28 U.S.C. 157(c)(1). Specifically, the Court's de novo review extends to "any portion of the bankruptcy judge's findings of fact or conclusions of law to which specific written objection has been made ...." Fed. Bankr. P. 9033 (emphasis added).
To back up the application of a "clearly erroneous" standard, the Defendants cite to Rule 8013 and two Second Circuit decisions, none of which apply. Rule 8013 governs motion practice in the context of appeals to district courts under 28 U.S.C. § 158, which is not the case here. See Fed. Bankr. P. 8001. And because this not an appeal, the Defendants’ reliance on In re Motors Liquidation Co. , 957 F.3d 357 (2d Cir. 2020) is misplaced. So too is Defendants’ reliance on U.S. v. Bershchansky , 788 F.3d 102 (2d Cir. 2015), which involves an appellate court's approach to its review of a district court's ruling on a motion to suppress in a child pornography case. Simply, Laspro's objection is subject to de novo review. See, e.g. , 28 U.S.C. 157(c)(1) ; In re Williford , 222 Fed. App'x. 843 (11th Cir. 2007).
Separately, as part of the extraneous briefing on the Defendants’ motion discussed above, Laspro asserted that the Court is not to make, or adopt, findings of fact in entering an order on the cross-motions for summary judgment. (See Pl. Resp. 2-3, ECF No. 14.) However, Fed. R. Civ. P. 56, which applies by virtue of Fed. Bankr. P. 7056, authorizes the Court to "enter an order stating any material fact – including an item of damages or other relief – that is not genuinely in dispute and treating the fact as established in the case" when denying relief requested by a motion for summary judgment. Fed. R. Civ. P. 56(g). Such is the case here.
3. Discussion
Regardless, the statement Laspro objected to is neither a finding of fact nor a conclusion of law. The statement is underlined below:
"The Plaintiff [Laspro] argues that he has demonstrated through the testimony of Alvin Hommerding that all the money used to purchase the Penthouse can be traced ... However, I find that the Plaintiff has confused the burden of proof. I have already found Mr. Hommerding's testimony on many things to be of questionable value. In fact, I already held that it appears Mr. Hommerding did not opine that the money is traceable.17 Because the Defendants have expert testimony that there are other sources of funds from which the purchases can be made, which testimony I ruled is admissible, the Defendants have satisfied their ‘burden’ under Rule 56 of demonstrating this material fact is ‘genuinely disputed’ ... Thus, summary judgment is not appropriate."
17 Memorandum Opinion on Motions to Exclude Expert Reports and Testimony of Alvin Hommerding and Lopes Machado Consultores at 10 n.23 (ECF #202).
(PFFCL 33) (citation omitted). The contended statement is a reference to a previous holding—a narrow one at most—that the Bankruptcy Court made in a footnote when ruling on the parties’ cross-motions to exclude expert testimony in May 2020.
At that point in time, the Bankruptcy Court admitted Mr. Hommerding's expert testimony—a ruling favorable to Laspro—while noting as follows:
"[T]he Court agrees with the Defendants that Mr. Hommerding did not explain what information was triangulated from what documents against what other information to arrive at what conclusions23, just collectively what documents he and his team used for this cross-checking.
23 A good example of this is Mr. Hommerding's testimony regarding the tracing of the payments to purchase the artwork and apartments. It is unclear what information Mr. Hommerding or his team looked at to render an opinion regarding what money was used to purchase the artwork and the apartments available although the Court notes that it appears that Mr. Hommerding is not opining that the money is traceable. See Hommerding Deposition page 223."
(ECF No. 202 10 in the Bankruptcy Case) (emphasis added). In May 2020, the Bankruptcy Court was ruling on the basis of Mr. Hommerding's deposition testimony, without the benefit of hearing Mr. Hommerding live. (See id. ; see also Tr. Oral Arg. on Mot. Summ. J. 72-73, 75-78, ECF No. 11.) Logically, that gave rise to the Bankruptcy Court's language concerning what it understood Mr. Hommerding's testimony "appeared" to offer at that point in time, which holding the Court does not now disturb. Additional testimony from Mr. Hommerding may be forthcoming thereby detracting from any sort of preclusive effect the Bankruptcy Court's May 2020 holding could be said to have. (See Order on Mot. for Reconsideration 3, ECF No. 224 in the Bankruptcy Case.)
The statement as contained in the PFFCL presents as mere dictum and cannot be divorced from its context. Its function is to simply point to both sides’ competing expert testimony to allow for the conclusion that the money's traceability remains in genuine dispute. That fact, in turn, supports the Bankruptcy Court's conclusion that Laspro's motion for summary judgment should be denied. Nowhere does the PFFCL establish a "finding that Hommerding did not testify that dividends paid to the Indio da Costas could be traced to the purchase of the Apartments and Art ..." as the Defendants purport. (See Def. Resp. 7.)
Last but not least, Laspro objected to the statement in the PFFCL "insofar as it may be a finding of fact and/or a conclusion of law ...." (Pl. Obj. ¶ 8.) Having found that the statement does not constitute a finding of fact or a conclusion of law in the context of the PFFCL, the Court has disposed of Laspro's objection. Simply put, the statement is a reference to the Bankruptcy Court's understanding of Mr. Hommerding's deposition testimony as of May 2020.
4. Conclusion
Accordingly, the Court adopts the Bankruptcy Court's PFFCL (ECF No. 228 in Bankruptcy Case No. 16-01315-BKC-LMI) and denies the Defendants’ motion (ECF No. 13) as moot . This case shall remain administratively closed until notice from the Bankruptcy Court that this case is ready for trial.
Done and ordered , in chambers at Miami, Florida, on March 3, 2022.
Attachment
UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF FLORIDA
MIAMI DIVISION
Tagged Opinion
In re: MASSA FALIDA DO BANCO CRUZEIRO DO SUL S.A., Debtor in a Foreign Proceeding,
LASPRO CONSULTORES LTDA., a Brazilian Sociedade Limitada, Plaintiff,
v.
ALINIA CORPORATION, a British Virgin Island Company Limited by Shares, 110 CPS, INC., a British Virgin Islands Company Limited by Shares, Defendants.
Case No. 14-22974-BKC-LMI
Chapter 15
Adv. Case No. 16-1315-LMI
PROPOSED FINDINGS OF FACT AND CONCLUSIONS OF LAW ON PLAINTIFF'S MOTION FOR FINAL SUMMARY JUDGMENT OR, ALTERNATIVELY, MOTION FOR PARTIAL SUMMARY JUDGMENT AND DEFENDANTS’ MOTION FOR PARTIAL SUMMARY JUDGMENT
THIS MATTER came before the Court on June 22, 2020 at 1:30 p.m. (the "Hearing"), on Motion for Final Summary Judgment or, Alternatively, Motion for Partial Summary Judgment (the "Plaintiff's Motion") (ECF #152) filed by the Plaintiff, Laspro Consultores Ltda. represented by Oreste Nestor de Souza Laspro ("Laspro" or "Plaintiff"); and on Motion to Abate or Stay and for Partial Summary Judgment (the "Defendants’ Motion") (ECF #153) filed by Defendants Alinia Corporation ("Alinia") and 110 CPS, Inc. ("CPS") (collectively the "Motions for Summary Judgment"). I have considered the memoranda and exhibits submitted by the Parties in support of, and in opposition to, the Motions for Summary Judgment, the affidavits of Rafael Pimenta and exhibits thereto submitted by the Defendants, the reports and deposition transcripts of Roberto Oliveira, the Plaintiff's expert on Brazilian law and Wallace Corbo, the Defendants’ expert on Brazilian law, and the report and deposition transcript of Andrew Thorp, Esq., the Plaintiff's expert on the law of the British Virgin Islands. I have also heard the arguments of counsel at the Hearing. For the reasons set forth below, I issue the following proposed findings of fact and conclusions of law, that the Plaintiff's Motion be denied, and the Defendants’ Motion be granted in part and denied in part.
Plaintiff, Laspro Consultores, Ltda.’s Response To Defendants’ Motion to Abate/Stay and For Partial Summary Judgment (ECF #164); Defendants’ 110 CPS, Inc. and Alinia Corporation Reply Memorandum In Support of Their Motion to Abate of Stay and for Partial Summary Judgment (ECF #174); Plaintiff's Motion for Final Summary Judgment or, Alternatively, Motion for Partial Summary Judgment (ECF #152); Defendants’ 110 CPS, Inc. and Alinia Corporation Response to Plaintiff's Motion for Summary Judgment (ECF #165); Plaintiff's Reply to Defendants’ Response to Motion for Final Summary Judgment or, Alternatively, Motion for Partial Summary Judgment (D.E. 165) (ECF #181).
The Defendants filed a Motion for Withdrawal of Reference in its Entirety and Objection to Entry of Final Orders and Judgments by the Bankruptcy Court (ECF #62) which the District Court granted by order dated June 21, 2017 (ECF #74) (the "Referral Order"). Pursuant to that order, I was directed to submit proposed findings of fact and conclusions of law on any case dispositive motions, in accordance with 28 U.S.C. § 157(c)(1).
I previously denied that portion of the Defendants’ Motion requesting me to stay or abate this adversary proceeding. Order on Defendants’ 110 CPS, Inc. and Alinia Corporation Motion to Abate or Stay and for Partial Summary Judgment (D.E. 153) (ECF #190).
INTRODUCTION AND ARGUMENTS OF THE PARTIES
This case concerns the claims of the Plaintiff, the trustee of a Brazilian bank, Banco Cruzeiro do Sul ("BCSUL"), which is the subject of a Brazilian bankruptcy proceeding (the "Main Case"), which claims seek to recover assets in New York (Apartments and Artworks more fully described below) held by the Defendants, Alinia and CPS (collectively the "Defendants"), British Virgin Island entities that are in turn owned by the former controlling shareholders of the bank who were also members of the board of directors. The controlling shareholders are Luis Felippe Indio da Costa ("Felippe") and Luis Octavio Indio da Costa ("Octavio") (collectively the "Indio da Costas").
PROCEDURAL HISTORY OF THIS ADVERSARY PROCEEDING
On October 12, 2016, Laspro filed an Amended Complaint in this Court against Alinia and CPS (the "Amended Complaint") (ECF #25). The Amended Complaint alleges that the Brazilian Bankruptcy Court decreed BCSUL's bankruptcy because "(1) BCSUL was insolvent; (2) BCSUL did not have sufficient assets to pay at least half of its unsecured debt; (3) there was evidence of bankruptcy crimes; and (4) the complexity of the transactions justified direct monitoring by the Judicial branch in a regular bankruptcy proceeding." Am. Compl. ¶44.
The Amended Complaint alleges that the Indio da Costas "participated in a scheme of falsified loans pursuant to which funds were diverted from BCSUL ... and diverted by Felippe and Octavio for their benefit." Am. Compl. ¶9. The Amended Complaint alleges that Felippe and Octavio inflated valuations of various assets owned by the Debtor and paid themselves dividends based on these inflated valuations. According to the Amended Complaint, Felippe and Octavio used these diverted funds and improperly paid dividends to purchase property located in New York – a penthouse (the "Penthouse") and an apartment ("Apartment 6B") (collectively the "Apartments") and artwork located therein (the "Artwork"). Am. Compl. ¶¶18, 19, 31, 38.
The Amended Complaint asserted a total of thirty-six counts against the Defendants. The claims fall into four basic categories. First, claims of Constructive Trust/Equitable Lien are alleged with respect to the Penthouse, Apartment 6B and the Artwork (Counts I, XIII and XXV respectively). In these counts, the Plaintiff requests that the Court impose a constructive trust on each of the Apartments and the Artwork; or in the alternative, an equitable lien in favor of the Trustee. The Amended Complaint also includes four counts for fraudulent conveyance under New York law against each of the Apartments and the Artwork based on New York law (Counts II, III, IV and V with respect to the Penthouse; Counts XIV, XV, XVI and XVII with respect to Apartment 6B; and Counts XXVI, XXVII, XXVIII and XXIX with respect to the Artwork). Each of these counts requests the Court set aside and disregard the transfers of the Apartments and the Artwork to the Defendants.
The Amended Complaint also seeks damages from the Defendants for aiding and abetting Felippe and Octavio in breaching their fiduciary duty to BCSUL, converting BCSUL's funds, and committing fraud against BCSUL. These aiding and abetting claims are asserted against the Defendants with respect to each of the Apartments and the Artwork (Counts VI, VII and VIII for the Penthouse; Counts XVIII, XIX and XX for Apartment 6B; Counts XXX, XXXI and XXXII for the Artwork).
Finally, the Amended Complaint includes four separate claims based in Brazilian law. Each of the Brazilian law claims is asserted with respect to each of the Apartments and the Artwork. Counts IX, XXI and XXXIII assert a violation of the Brazilian Consumer Protection Code. Counts X, XXII and XXXIV allege violations of Article 186 of the Brazilian Civil Code. Counts XI, XXIII and XXXV allege violation of Article 884 of the Brazilian Civil Code. Counts XII, XXIV and XXXVI allege a claim based in Article 130 of the Brazilian Bankruptcy and Judicial Reorganization Law.
All of the counts of the Amended Complaint depend upon proof that BCSUL was insolvent in 2007 and 2010 and between those times, and that during such times of insolvency the Indio da Costas improperly paid themselves dividends that were not due, thus fraudulently conveying the bank's funds to themselves, and then using the improperly paid dividends to purchase the Apartments and the Artwork.
Alinia and CPS filed a Motion to Dismiss the Amended Complaint (the "Motion to Dismiss") (ECF #29) arguing that the New York constructive trust and fraudulent transfer claims should be dismissed because Chapter 15 of the Bankruptcy Code, 11 U.S.C. § 1521(a)(7), prohibits a foreign trustee such as Laspro from bringing avoidance actions pursuant to sections 544 and 548 of the Bankruptcy Code. ( 11 U.S.C. §§ 544, 548 ). The Defendants also moved to dismiss the aiding and abetting counts arguing that a corporation cannot aid and abet its principals as a matter of New York law. The Defendants also made various arguments urging the dismissal of the causes of action based in Brazilian law.
I denied the Motion to Dismiss as it related to the New York constructive trust/equitable lien and fraudulent conveyance counts, the claims based on Articles 186 and 884 of the Brazilian Civil Code and Article 130 of the Brazilian Bankruptcy and Judicial Reorganization Law. I granted the Motion to Dismiss with regard to the counts alleging a violation of the Brazilian Consumer Protection Law. I ruled that dismissal of the aiding and abetting counts was not appropriate at that stage of the case, but indicated this would be revisited at the time of summary judgment or trial. In re Massa Falida do Banco Cruzeiro do Sul, S.A., 567 B.R. 212 (Bankr. S.D. Fla. 2017).
Consequently, Counts IX, XXI and XXXIII are not the subject of this recommended ruling.
The Plaintiff and the Defendants filed their Motions for Summary Judgment on July 15, 2019. I denied the Defendants’ request to abate by order dated October 15, 2019 and denied the Defendants’ motion for reconsideration by order dated January 8, 2020.
Order on Defendants’ 110 CPS, Inc. and Alinia Corporation Motion to Abate or Stay and for Partial Summary Judgment (ECF #190).
Order Denying Defendant's Motion for Reconsideration of Order Denying Motion to Stay (ECF #197).
The Plaintiff's Motion is based largely upon multiple final orders rendered in Brazil, which moved BCSUL through a progression of administrative proceedings, extra-judicial liquidation and ultimately to a full judicial bankruptcy (the "Insolvency Orders"). The Insolvency Orders, according to the Plaintiff, were based upon an investigative report, referred to throughout this litigation as the BACEN Report. The BACEN Report was prepared on behalf of the Brazilian banking regulatory authority during a period when BCSUL was under extra-judicial liquidation; the BACEN Report concluded BCSUL was insolvent due primarily to a "Fake Salary Loan Scheme." The Plaintiff asserts the Insolvency Orders are entitled to comity, that these orders have offensive non-mutual collateral estoppel effect because the Defendants are entities owned and controlled by the former shareholders, and, consequently, the Plaintiff is entitled to summary judgment on all remaining counts of the Amended Complaint.
The Plaintiff asserts that he is entitled to summary judgment on his unjust enrichment/constructive trust claims by virtue of the findings in the BACEN Report that BCSUL was not profitable and was insolvent when the dividends were declared and because the facts are uncontroverted that at least a portion of these funds were used to purchase the Apartments and Artwork. The Plaintiff asserts that he is entitled to summary judgment on his constructively fraudulent conveyance claims under the same facts: BCSUL was insolvent or operating with unreasonably small capital, the bank paid dividends to the shareholders/directors despite its lack of profitability and insolvency and without fair consideration, and at least a portion of these funds were used to purchase the Apartments and Artwork.
The Plaintiff also asserts he is entitled to summary judgment on his claims that require the Plaintiff to prove the intent of the Indio da Costas (actual intent fraudulent conveyance/transfer theories under Brazilian and New York Law as well as the Plaintiff's other Brazilian statutory claims) because the BACEN Report establishes that the Fake Salary Loan Scheme occurred and was perpetrated by the Indio da Costas.
Defendants argue that the Plaintiff is not entitled to summary judgment because the Insolvency Orders are not determinative of the ultimate liability of the Indio da Costas. Defendants point to the pendency of four proceedings in Brazil involving claims by the public prosecutor against the Indio da Costas for damages and claims by the Indio da Costas against certain entities that were involved in the analysis contained in the BACEN Report (the "Brazilian Liability Actions"). Some of the Brazilian Liability Actions have been joined together. Defendants argue that none of the Insolvency Orders are entitled to comity and do not have a collateral estoppel effect on the issues involved in this adversary proceeding.
The Brazilian Liability Actions have not been resolved and a subsequent expert analysis by a court-appointed expert is still pending. See discussion infra Section F.
Defendants further argue that since some of the Brazilian Liability Actions assert that entities involved during the initial administrative proceedings actually caused BCSUL's insolvency, then nothing regarding the Fake Salary Loan Scheme, the causes of BCSUL's insolvency, or even the timing of BCSUL's insolvency, has been finally determined. Defendants assert that Brazilian law should apply to the claims in this dispute and, since Brazilian law applies, the Plaintiff's aiding and abetting theories should be dismissed. Finally, Defendants once again argue that they are entitled to summary judgment on certain claims because the Plaintiff is prohibited from asserting U.S. state-law avoidance actions under Chapter 15 of the Bankruptcy Code.
After hearing argument on the Motions for Summary Judgment, I directed the parties to submit competing proposed findings of fact and conclusions of law, portions of each of which are incorporated in this submission to the District Court for its review in accordance with the Referral Order.
PROPOSED FINDINGS OF FACT
The Court makes the following proposed findings of undisputed facts.
A. Parties and Background
1. Plaintiff is the authorized foreign trustee of Brazilian Debtor, Massa Falida de Banco Cruzeiro do Sul (the "Estate of BCSUL" or "Debtor"). See Am. Compl. ¶1; Answer and Affirmative Defenses to Am. Compl. ¶1 (ECF #61).
2. BCSUL was a Brazilian Bank established in 1989. See Am. Compl. ¶7; Answer ¶7.
3. BCSUL specialized in making consigned credit loans ("CC Loans"). CC Loans are loans to employees of Brazilian federal, state, local and municipal governments and to military and civil pensioners that are repaid by installment payments directly deducted from the borrowers’ salaries by the Brazilian institutions that employ or pay them. See Octavio Dep. 60:19-20 (ECF #147).
4. Alinia is a British Virgin Islands corporation. See Am. Compl. ¶5; Answer ¶5.
5. At all material times, Felippe was an indirect controlling shareholder of BCSUL, and a member of the board of directors of BCSUL. See Felippe Dep. 40:17-41:8 (ECF #148); Octavio Dep. 29:2-30:1.
6. At all material times, Felippe was the sole officer and director of Alinia and indirect owner of Alinia. See Am. Compl. ¶¶19, 20, 23, 24; Answer ¶¶19, 20, 23, 24; Alinia's Resps. and Objs. to First Set of Interrogs. 9-11; Felippe Dep. 191:16-192:5.
7. CPS is a British Virgin Islands corporation. See Am. Compl. ¶6; Answer ¶6.
8. At all material times, Octavio was an indirect controlling shareholder of BCSUL, and a member of the board of directors of BCSUL. See Octavio Dep. 114:19-115:5.
9. Octavio is an officer and/or director of CPS and an indirect owner of CPS. See Am. Compl. ¶¶28-30; Answer 28-30; CPS’ Resps. and Objs. to First Set of Interrogs. 12.
B. Felippe and Alinia
10. On July 9, 2008, Felippe purchased an apartment located at 60 East 55th St., Penthouse 2, in New York City, NY (the "Penthouse") for USD $5,750,000.00 (the "PH2 Funds"). See Am. Compl. ¶19; Answer ¶19; Alinia's Resps. and Objs. to First Set of Interrogs. 1.
11. Subsequently, Felippe created a trust called Correas Trust. Correas Trust is a British Virgin Islands trust of which Felippe is the settlor and sole beneficiary. See Am. Compl. ¶20; Answer ¶20.
12. Felippe transferred the Penthouse to Alinia on May 4, 2011 as a shareholder contribution and without receiving payment of money from Alinia. See Am. Compl. ¶21; Answer ¶21; Alinia's Resps. and Objs. to First Set of Interrogs. 7-8.
13. On or around the same time, Felippe transferred all shares of Alinia to Correas Trust such that Correas Trust became the sole shareholder of Alinia. See Am. Compl. ¶23; Answer ¶23; Alinia's Resps. and Objs. to First Set of Interrogs. 11.
14. Felippe remained as the sole director of Alinia. See Am. Compl. ¶24; Answer ¶24; Alinia's Resps. and Objs. to First Set of Interrogs. 9.
15. Subsequently, Alinia was transferred from Correas Trust back to Felippe. See Octavio Dep. 191:16-192:5.
C. Octavio, Felippe and CPS
16. At all material times, Octavio was a majority shareholder of Star Investimentos e Participações. See CPS’ Resps. and Objs. to First Set of Interrogs. 18.
17. At all material times, Felippe was a minority shareholder of Star Investimentos e Participações. See CPS’ Resps. and Objs. to First Set of Interrogs. 17; Alinia's Resps. and Objs. to First Set of Interrogs. 18.
18. At all material times, Star Investimentos e Participações Ltda, a Brazilian entity, was the owner of the shares of CPS. See CPS’ Resps. and Objs. to First Set of Interrogs. 19.
19. On June 9, 2010, CPS purchased 170 shares of 110 Central Park South Corporation ("Apt. 6B Shares"), an apartment corporation (a co-op) that owns the building and land located at 110 Central Park South, New York, NY 10019 and a long-term proprietary lease (the "Apt. 6B Lease") for the premises located at 110 Central Park South, Unit 6B, New York, NY 10019 (the "Apt. 6B") for approximately USD $5,000,000.00 (the "Apt. 6B Funds"). See Octavio Dep. 190:6-19, 247:12-248:4; Am. Compl. ¶31.
Purchase of the shares gives the owner a right to the lease of the corresponding premises.
D. The Insolvency Orders
20. On June 4, 2012, the Central Bank of Brazil ("BACEN") placed BCSUL, along with its four affiliated companies, under Temporary Special Administration (the "TSAR") of the Credit Guarantee Fund ("FGC"), which is responsible for administering Brazil's deposit insurance program. See Verified Petition ¶16 (Main Case, ECF #2).
21. On September 14, 2012, because the FGC could not find a buyer, BACEN placed BCSUL into extra-judicial liquidation (the "Brazilian Extra-Judicial Liquidation Proceeding"), ending the TSAR. The initially appointed Liquidator was Mr. Sergio Rodrigues Prates, however, on May 24, 2013 Eduardo Felix Bianchini ("Bianchini") was appointed by BACEN to serve as the liquidator of BCSUL and its affiliated entities. Id. ¶¶18-20.
22. On February 22, 2013, an "Inquiry Commission" appointed by BACEN prepared a report on the financial condition of BCSUL and the various actions of Felippe, Octavio and others regarding BCSUL based upon its investigation into BCSUL (the "BACEN Report").
23. The BACEN Report contains findings regarding the CC Loans, the invalidity of some of those loans, and the responsibility of the Indio da Costas and others for the existence of these invalid accounting entries.
24. On May 29, 2015, BACEN rendered its decision, 170/2015-BCB/DELIQ, OF MAY 29, 2015 authorizing Bianchini to petition the courts to place BCSUL into bankruptcy (the "BACEN Bankruptcy Directive") (ECF #152-2).
25. On August 12, 2015, the Second Bankruptcy and Judicial Reorganization Court (the "Brazilian Bankruptcy Court") ordered full judicial bankruptcy proceedings of BCSUL stating that "[t]he requirements for a bankruptcy decree of the financial institution and the legal entities in the economic group are present and have been proven," noting that (1) BCSUL was insolvent; (2) BCSUL did not have sufficient assets to pay at least half of its unsecured debt; (3) there was evidence of bankruptcy crimes; and (4) that the complexity of the transactions justified direct monitoring by the judicial branch in a regular bankruptcy proceeding. See Judgment of Bankruptcy and Order Nominating Adjud. Administradores Judiciais Ltda – EPP, as judicial trustee, represented by Vânio Cesar Pickler Aguiar, dated August 12, 2015 (the "Bankruptcy Order") (ECF #152-3).
26. The Indio da Costas, acting on behalf of BCSUL and its affiliates, and Felippe individually, appealed the BACEN Bankruptcy Directive before the Court of Justice for the State of São Paulo (the "Brazilian Appeals Court"). On August 10, 2016, the Brazilian Appeals Court upheld the decision adjudicating the bankruptcy of BCSUL. See Banco Cruzeiro do Sul, S.A. et al. v. Banco Cruzeiro do Sul, S.A. et al., Bankruptcy Estate, Court of Appeals of the State of São Paulo, Case: 2180570-25.2015.8.26.0000 (the "Order Affirming the Bankruptcy Directive") (ECF #152-4). 27. In addition, BACEN rendered its decision Decisão 331/2016-DIORF on December 12, 2016 which decision decreed that the Indio da Costas and other former BCSUL directors and officers were prohibited from being involved in banking for the period of time set forth in the decision (the "BACEN Administrative Decision") (ECF #152-5). According to the Plaintiff's Motion, that decision was affirmed on appeal, but there is no copy of that decision attached to the Plaintiff's Motion ("Order Affirming BACEN Administrative Decision").
28. Between February 19, 2013 and November 22, 2016, the Indio da Costas, both individually and on behalf of BCSUL, filed numerous motions, appeals and challenges to the BACEN Bankruptcy Directive, the Bankruptcy Order, the BACEN Administrative Decision and the Order Affirming BACEN Administrative Decision (collectively the "Insolvency Orders"). Roberto Garcia de Assis Oliveira ("Oliveira") Dep. 138:21-139:21 (ECF #144-3); Wallace de Almeida Corbo ("Corbo") Dep. 171:17-172:25, 196:13-198:20 (ECF #144-4).
29. Aside from prevailing on a motion to replace a prior trustee, these motions, appeals and challenges were unsuccessful. See Insolvency Orders discussed supra.
30. The BACEN Report, as an administrative act, is self-enforceable, mandatory in nature, as well as presumed true. Oliveira Dep. 55:10-13. There are proceedings to appeal those administrative decisions, which the Indio da Costas clearly pursued. However, as I will address in more detail later in this memorandum, the BACEN Administrative Decision, while the ultimate arbiter of the fate of the bank, is not an ultimate decision regarding causation or responsibility for loss, and the BACEN Report is subject to collateral attack at a later time. Oliveira Dep. 57:14-19.
This process of intervening in the bank, selling or liquidating the bank, and possibly placing the bank into bankruptcy is similar to the process by which the Federal Deposit Insurance Corporation (the "FDIC") places insured banks into receivership. Thus, while ultimately the decision regarding insolvency may be determined later by a court to have been made in error, the bank liquidation has already occurred. See In re Southeast Banking Corp. , 93 F.3d 750, 751-52 (11th Cir. 1996).
E. This Court's Recognition of the Foreign Main Proceeding and Laspro
31. On June 4, 2014, Bianchini, as Liquidator, Laspro's predecessor in interest, filed the petition for recognition under Chapter 15 of the Bankruptcy Code to obtain recognition of the Brazilian Extra-Judicial Liquidation Proceeding as a foreign main proceeding. See Petition (Main Case, ECF #1).
Chapter 15 is the statutory adoption (with some changes) of the Model Law on Cross-Border Insolvency also known as UNCITRAL.
32. This Court entered an order recognizing the Brazilian Extra-Judicial Liquidation Proceeding as a foreign main proceeding on July 14, 2014. See Order Granting Recognition (Main Case, ECF #16).
33. The Petition was filed, and recognition granted, approximately one year before the Bankruptcy Order was issued.
34. This Court substituted Laspro as the Foreign Representative of BCSUL in the Chapter 15 Main Case on May 24, 2016. See Order Granting Omnibus Motion to Substitute Foreign Representative for Banco Cruzeiro do Sul A.A. and Notice of Subsequent Information (Main Case, ECF #29). F. Brazilian Liability Actions
35. In addition to BCSUL's bankruptcy case, there is litigation pending in the Brazilian Bankruptcy Court, consisting of the following actions: (1) In Re the Bankrupt Estate of Cruzeiro do Sul Holding Financeira, S. A; Public Prosecutor's Office of the State of Sao Paulo v. Luis Felippe Indio da Costa, Luis Octavio Indio da Costa et al. Case No. 0031093-21.2013.8.26.01; (2) In Re the Bankrupt Estate of Banco Cruzeiro do Sul; Public Prosecutor's office of the State of Sao Paulo v. Cruzeiro do Sul Holding Financeira, S.A., Luis Felippe Indio da Costa, Luis Octavio Indio da Costa, et al. Case No. 0031335-77.2013.8.26.0100 (collectively the "Public Prosecutor Actions") (Decl. of Rafael Barud Casqueira Pimenta (the "July Pimenta Declaration") Ex. 1-2 (ECF #153-6)); (3) the Indio da Costas’ action against the FGC and the individuals appointed as Special Temporary Administrators of BCSUL, styled: BCSUL represented by Felippe Indio da Costa and Luis Octavio Indio da Costa and the Bankruptcy Estate represented by Laspro Consultores Ltda. v. Fundo Garantidor de Credito, Celso Antunes, Jose Alfredo Lattaro, Fabio Mentone and Sergio Rodrigues Prates, Case No. 1117507.8.26.0100 (the "FGC Action") (July Pimenta Decl. Ex. 3 (ECF #153-6)); and (4) Luis Felippe Indio da Costa and Luis Octavio Indio da Costa, v. Fundo Garantidor de Credito and IMS Tecnologie Servicios, Ltda, and IMS Cobranca e Servicios, Ltda., Case No 1068262-83.2017.8.26.0100 (the "IMS Action") (July Pimenta Decl. Ex. 5 (ECF #153-6)).
36. The Public Prosecutor Actions were filed by the Public Prosecutor's office – later succeeded by Laspro – based on Law 6,024/74 (the "Liquidation Law") against the Indio da Costas and several of the former members and directors of BCSUL. One of the Public Prosecutor Actions refers to events and seeks to impose liability relating to the Indio da Costas’ administration of BCS Holdings ("BCSUL Holding Claim"); while the other refers to events and seeks to impose liability relating to the Indio da Costas’ administration of BCSUL (the "Bank Liability Claim"). In the Bank Liability Claim, Laspro seeks damages from the Indio da Costas (among other former administrators) for the benefit of the Estate of BCSUL in the amount of BRL 2.236 Billion, equivalent to the alleged deficit of BCSUL. See Decl. of Rafael Barud Casqueira Pimenta ("June Pimenta Declaration") ¶¶5-6 (ECF #219).
37. In the FGC Action, BCSUL and the Indio da Costas have filed a claim against (i) FGC; (ii) Celso Antunes; (iii) Jose Alfredo Lattaro; (iv) Fabio Mentone; and (v) Sergio Rodrigues Prates (collectively the "FGC Defendants"), alleging damages of at least BRL 2.5 billion caused during the FGC Defendants’ administration of BCSUL during the TSAR through which the Indio da Costas were removed from the management of BCSUL in June 2012. The Indio da Costas allege in the FGC Action that it was the acts and omissions of the FGC Defendants that caused the insolvency and bankruptcy of BCSUL.
38. The Public Prosecutor Actions were filed in 2013, while the FGC Action was filed in 2015. The Public Prosecutor Actions and the FGC Action have been consolidated for discovery and trial and are pending before the Second Bankruptcy and Reorganization Court of Sao Paulo. See June Pimenta Decl. (ECF #219). The Public Prosecutor Actions and the FGC Action will be referred to collectively as the "Brazilian Liability Actions."
39. The Brazilian Bankruptcy Court has appointed a legal expert, Mrs. Eliza Fazan (the "Brazilian Forensic Accounting Expert") to determine, among other tasks, when and how BCSUL became insolvent in order to determine who should be held responsible for the damages caused to BCSUL. See June Pimenta Decl. ¶¶ 8, 12 (ECF #219). Mrs. Fazan has defined the scope of her work as follows: "review the accounting consistency of the BACEN Report [...] analyze documents necessary to clarify the issues under dispute: as to the administrators, the inconsistencies mentioned in the [Public Prosecutor's] statement of claim and the intentional participation of the administrators in such act[s] [...] analyze the contracts deemed to be fraudulent, verification of the balance sheets." June Pimenta Decl. ¶8 (ECF #219).
40. The IMS Action was filed in 2017 but has not been consolidated with the Public Prosecutor Actions and the FGC Action. The IMS Action seeks the rescission of the contract retaining IMS to investigate BCSUL's CC Loan portfolio and the return of the approximately U.S. $30,000,000.00 that IMS was paid to investigate the CC Loan portfolio. See July Pimenta Decl. ¶9 (ECF #153-6).
41. The Brazilian Liability Actions all seek a determination of who is responsible for the insolvency of BCSUL and therefore who is liable for damages that would be paid to the Estate of BCSUL. See id. at ¶8.
42. Laspro joined the FGC Action and the IMS Action as plaintiff because the eventual beneficiary of the relief sought in these actions is the Estate of BCSUL. Laspro is obligated to take over the legal representation of the Estate of BCSUL in any of the lawsuits involving rights or assets of the Estate of BCSUL. See Corbo Dep. 233:25-234:19.
The Defendants have argued that because Laspro is a plaintiff in these actions, he is estopped from pursuing this adversary proceeding, because those actions seek to impose liability on actors other than the Indio da Costas. I do not agree, since Laspro is required to participate as the legal representative of the Estate of BCSUL.
PROPOSED CONCLUSIONS OF LAW
Based upon the preceding findings of undisputed material facts, the Court makes the following proposed conclusions of law.
A. Summary Judgment Standard
Summary judgment is appropriate "if the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(c) made applicable to this adversary proceeding pursuant to Fed. R. Bankr. P. 7056.
An issue is genuine if "a reasonable trier of fact could return judgment for the non-moving party." Miccosukee Tribe of Indians of Fla. v. United States , 516 F.3d 1235, 1243 (11th Cir. 2008) (quoting Anderson v. Liberty Lobby, Inc. , 477 U.S. 242, 247-48, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986) ). A fact is material if it "would affect the outcome of the suit under the governing law." Id. (quoting Anderson , 477 U.S. at 247-48, 106 S.Ct. 2505 ).
The moving party shoulders the initial burden of showing the absence of a genuine issue of material fact. Shiver v. Chertoff , 549 F.3d 1342, 1343 (11th Cir. 2008). Once the moving party satisfies this burden, the nonmoving party "must present evidence beyond the pleadings showing that a reasonable jury could find in its favor." Id. If the evidence advanced by the non-moving party "is merely colorable, or is not significantly probative, summary judgment may be granted." Anderson , 477 U.S. at 249-50, 106 S.Ct. 2505 (internal citations omitted).
B. Comity and Collateral Estoppel
Laspro contends that the BACEN Report has been "adjudicated", the Fake Salary Loan Scheme proven, including the involvement of the Indio da Costas, and the BACEN Report's conclusion that BCSUL was insolvent between 2007 and 2010 has been established as an adjudicated fact. Laspro asserts that since BCSUL was insolvent at this time, the dividends paid to the Indio da Costas were improper and constituted fraudulent conveyances of BCSUL's assets, unjustly enriching the Indio da Costas. Laspro claims he can trace the improperly paid dividends to the purchase of the Apartments and Artwork, thus, justifying the avoidance of the Defendants’ title and the return of these assets to the Estate of BCSUL. Laspro argues that by giving comity to the Insolvency Orders and applying collateral estoppel to the "adjudicated" BACEN Report, he is entitled to summary judgment on almost all remaining counts of the Amended Complaint. Laspro asserts that offensive collateral estoppel applies to prevent Defendants "from re-litigating the issue of whether or not the Indio da Costas perpetrated the bankruptcy crimes and fraud based on the findings of fact by the Brazilian Appeals Court and the Brazilian Bankruptcy Court" in the Insolvency Orders. Pl.’s Mot. for Summ. J. ¶89 (ECF #152).
Federal courts will apply collateral estoppel with respect to foreign judgments to which the court has given comity, assuming the elements required for collateral estoppel are met. See In re Mouttet , 493 B.R. 640, 656 (Bankr. S.D. Fla. 2013), aff'd in part, rev'd in part , No. 13-22222-CIV, 2020 WL 5993925 (S.D. Fla. Oct. 9, 2020). Thus, first I must determine which of the Insolvency Orders, if any, are entitled to comity and then what impact the grant of comity has on the application of collateral estoppel to resolve the competing requests for summary judgment. See Interamerican Asset Management Fund Ltd. v. Ortega T. ("Ortega") , 573 B.R. 284, 291 (Bankr. S.D. Fla. 2017).
1. Comity
"Comity is a common law rule by which courts in the United States give deference to foreign judgments." In re Neves, 570 B.R. 420, 426 (Bankr. S.D. Fla. 2017). The seminal case on comity is Hilton v. Guyot, 159 U.S. 113, 16 S.Ct. 139, 40 L.Ed. 95 (1895), in which the Supreme Court described comity as:
Neither a matter of absolute obligation, on the one hand, nor of mere courtesy and good will upon the other. But it is the recognition which one nation allows within its territory to the legislative, executive or judicial acts of another nation, having due regard both to international duty and convenience, and to the rights of its own citizens, or of other persons who are under the protection of its laws.
159 U.S. at 163-64, 16 S.Ct. 139. Thus, to determine whether comity is appropriate, this Court must evaluate:
(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 foreign judgment was prejudicial because it 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.
Ungaro–Benages v. Dresdner Bank AG, 379 F.3d 1227, 1238 (11th Cir. 2004). Comity is particularly important in cross border insolvencies. In re Rede Energia S.A. , 515 B.R. 69, 89 (Bankr. S.D.N.Y. 2014). Chapter 15 of the Bankruptcy Code allows U.S. bankruptcy courts to handle ancillary cases consistent with principles of international comity and respect for the laws and judgments of other nations. Victrix Steamship Co., v. Salen Dry Cargo A.B. , 825 F.2d 709 (2d Cir. 1987) ; In re SPhinX, Ltd. , 351 B.R. 103 (Bankr. S.D.N.Y. 2006). As the court stated in In Re Oi S.A. 587 B.R. 253 (Bankr. S.D.N.Y. 2018), comity "is the central concept to be addressed.... [and] the [U.S.] court shall cooperate to the maximum extent possible with a foreign court." Id. at 264. (internal citations omitted).
U.S. courts have frequently granted comity to foreign orders and judgments in cases involving foreign insolvency proceedings in Latin America, including Brazilian insolvency proceedings. See Finanz AG Zurich v. Banco Economico S.A. , 192 F.3d 240, 246 (2d Cir. 1999) ; In re Petroforte Brasileiro de Petroleo Ltda. , 542 B.R. 899, 908 (Bankr. S.D. Fla. 2015) ; In re OAS S.A. , 533 B.R. 83 (Bankr. S.D.N.Y. 2015) ; In re Rede Energia S.A. , 515 B.R. 69.
Laspro asks that I give comity to all of the Insolvency Orders and to the BACEN Report. However, Laspro has not cited to any case that suggests that a report laying out findings that is relied upon in the entry of an order or judgment is entitled to comity; indeed, counsel has conceded there is no such case. Therefore, I find that the BACEN Report is not entitled to comity as it is clearly not an adjudication of anything; it is the evidentiary support for the Insolvency Orders.
The Plaintiff argues that I have already given comity to these orders by virtue of the Order Granting Recognition (Main Case, ECF #16). However, BCSUL was not placed into bankruptcy until after Chapter 15 recognition. I was asked to recognize, and gave recognition to, the Brazilian Extra-Judicial Liquidation Proceeding, which, at the time, consisted of the administrative liquidation that started after FGC was unable to find a buyer for BCSUL. See Verified Petition for Recognition of Foreign Main Proceeding (Main Case, ECF #2).
I will now turn to the Insolvency Orders. Both Corbo on behalf of the Defendants, and Oliveira on behalf of the Plaintiff, agree that BACEN's decision that it was appropriate to place BCSUL in liquidation and then bankruptcy were all related administration proceedings, which were based in large part, if not exclusively, on the findings in the BACEN Report. I must view these orders collectively because it is only collectively that comity can be analyzed. All of these orders stem from the same administrative act – the closure of a bank and the consequences of that closure, and the process to contest those orders is intertwined.
I cannot address the Order Affirming BACEN Administrative Decision. It is not clear what that order is because I could not find a copy of any such order in the record. The Plaintiff's Motion states the decision was issued by the "Counsel of Appeals for the Federal Financial System" but never describes what that is. However, neither the BACEN Administrative Decision or the Order Affirming BACEN Administrative Decision play a role in this dispute as the BACEN Administrative Decision imposes administrative penalties, including restrictions on the ability of the Indio da Costas and others to participate in future banking activities. The Plaintiff relies on these decisions to underscore the import of the BACEN Report. However, it does not matter how many administrative decisions stem from the findings in the BACEN Report; the BACEN Report is still not entitled to comity.
The appeal of the BACEN Bankruptcy Directive and the Bankruptcy Order was brought by Felippe, BCSUL and the other companies in the BCSUL group which had been placed in bankruptcy by the Bankruptcy Order. The appellants apparently argued that some of the companies in the BCSUL group were solvent and profitable and should not have been included in the bankruptcy. The Brazilian Appeals Court rejected these and other arguments and affirmed the decision placing the BCSUL group of companies in bankruptcy. The Brazilian Appeals Court noted that the petition for bankruptcy filed by Bianchini in accordance with the BACEN Bankruptcy Directive had complied with applicable law and had properly alleged grounds for the bankruptcy. Thus, the Brazilian Appeals Court affirmed that Bianchini had made the legally required allegations to place BCSUL in bankruptcy and that the proper procedures had been followed in so doing, including finding that it was appropriate to include solvent members of the BCSUL group as part of an "economic group."
The Indio da Costas, BCSUL and its affiliates did have the right to contest the insolvency proceedings, and did so, as evidenced by the Order Affirming the Bankruptcy Directive. Indeed, the Defendants’ own expert – Corbo-acknowledged that there is no basis to assume the shareholders were denied due process with respect to the "specific issue of interference or intervention in the financial institution." Corbo Dep. 176:16-22 (ECF #144-4). Based on the deposition testimony of both experts, the Indio da Costas and other affected parties had the opportunity to fully contest the administrative directives and the consequent bankruptcy order, and courts of the United States have regularly recognized that the courts of Brazil are entitled to the respect of comity for their decisions.
The Defendants argue that I should not grant comity to any of the Insolvency Orders because the Indio da Costas did not have the opportunity to contest their personal liability and responsibility. However as recognized by the BACEN Report itself, as well as the Brazilian Bankruptcy Court, the issues of causation, liability for monetary damages and forfeiture of personal property to pay for those damages were not adjudicated by the Insolvency Orders. Thus, the inability of the Indio da Costas to contest liability in the administrative actions should not be a bar to granting comity.
Oliveira explained that BACEN may unilaterally seize or freeze a bank owner's assets to secure the claims of creditors pending a final, judicial determination of liability. See Expert Rebuttal Report of Oliveira ¶¶39, 40, 43, 44, 63, 68 and 70 (ECF #220-5, Ex. 3). In fact, the Apartments and Artwork are subject to such a freeze order. See also Corbo Dep. 221(ECF #144-4).
There is no dispute that the Indio da Costas, on behalf of BCSUL and themselves individually, pursued the remedies available to them to contest the BACEN's administrative decision to place BCSUL in liquidation and then in bankruptcy. There has been no suggestion that the administrative process violates public policy. Indeed, as I already noted indirectly, this process is not dissimilar to the process by which the FDIC takes over United States banks. Thus, I find that under the factors set forth in Hilton and Ungaro-Benages, it is appropriate to grant comity to the Insolvency Orders. However, does that mean anything in the context of this adversary proceeding? I find that it does not.
Corbo seemed to testify that a determination of personal liability and damages in the summary administrative process would violate the Constitution of Brazil, see Corbo Dep. 56-70 (ECF #144-4), but based on my proposed findings and conclusions, it is not necessary to address that issue.
2. Collateral Estoppel
"Under the judicially-developed doctrine of collateral estoppel, once a court has decided an issue of fact or law necessary to its judgment, that decision is conclusive in a subsequent suit based on a different cause of action involving a party to the prior litigation." United States v. Mendoza , 464 U.S. 154, 158, 104 S.Ct. 568, 78 L.Ed.2d 379 (1984). Collateral estoppel requires a final ruling on an issue in one case that will preclude the losing party from re-litigating the same issue in another proceeding. Id.
Federal courts have allowed the use of foreign judgments to preclude relitigation on the same issue in a U.S. court. Accord Diorinou v. Mezitis , 237 F.3d 133 (2d Cir. 2001). While normally the preclusive effect of a judicial order is determined by the law of the jurisdiction that issued the order, federal courts often apply U.S. law in determining whether to apply preclusive effect to a foreign judgment. Ortega, 573 B.R. at 292 ; Diorinou , 237 F.3d at 139-40. However, a U.S. court must still look to the law of the particular jurisdiction to confirm whether the elements have been satisfied.
To successfully invoke collateral estoppel, the proponent must show four elements:
(1) the issue at stake must be identical to the one involved in the prior litigation; (2) the issue must have been actually litigated in the prior suit; (3) the determination of the issue in the prior litigation must have been a critical and necessary part of the judgment in that action; and (4) the party against whom the earlier decision is asserted must have had a full and fair opportunity to litigate the issue in the earlier proceeding.
Matter of McWhorter , 887 F.2d 1564, 1566 (11th Cir. 1989). The proponent of the application of collateral estoppel has the burden of proving that each of these elements has been satisfied. Id. The identity of issues requirement is strictly applied in cases of offensive and defensive collateral estoppel such that the issue must be exactly the same and not merely similar in nature and close in time. Id. at 1568.; see also Pleming v. Universal–Rundle Corp. , 142 F.3d 1354, 1359-60 (11th Cir. 1998).
The Plaintiff seeks to bar the Defendants from litigating issues that the Plaintiff asserts were previously fully decided, using "offensive non-mutual collateral estoppel." See Mendoza, 464 U.S. at 158, 104 S.Ct. 568 ; Hercules Carriers, Inc., v. Claimant State of Fla., Dep't of Transp. , 768 F.2d 1558, 1578 (11th Cir. 1985) ("The courts have broadened the scope of [collateral estoppel] in recent years by abandoning the requirement of mutuality of parties."). The Plaintiff argued, without apparent disagreement by the Defendants, that collateral estoppel can be applied against corporate defendants where the principals of the corporations had the opportunity to fully litigate an issue in a prior proceeding. The relationship between the corporation and the shareholder in the context of the litigation must be sufficiently close such that the interests of the nonparty to the prior dispute were adequately represented. Griswold v. County of Hillsborough , 598 F.3d 1289, 1292 (11th Cir. 2010) ("[T]he doctrine of virtual representation provide[s] in essence that ‘a person may be bound by a judgment even though not a party if one of the parties to the suit is so closely aligned with his interests as to be his virtual representative.’ "); see also In re Gottheiner , 703 F.2d 1136, 1137 (9th Cir. 1983) (barring owner of company from contesting non-dischargeability suit by government where government had prevailed in earlier suit against owner's company).
However, I do not need to address whether and to what extent "offensive collateral estoppel" should be applied in this adversary proceeding because I find that the Plaintiff cannot rely on collateral estoppel in support of the Plaintiff's Motion.
Laspro argues that the Defendants cannot relitigate the issues of BCSUL's lack of profitability or insolvency, including when insolvency occurred, whether there was a Fake Salary Loan Scheme, and, if so, the role of the Indio da Costas in that scheme. This is because all of these issues, or at least BCSUL's insolvency when the dividends allegedly used to buy the Apartments and Artwork were distributed to the India da Costas, were established by the Insolvency Orders and the BACEN Report. Laspro argues that all the elements for collateral estoppel are met because there were "express findings in each of the Insolvency Orders necessary to support the valid and final judgment on the merits for the Brazilian Insolvency Orders." Pl.’s Mot. for Summ. J. ¶85 (ECF #152). Laspro argues that because the BACEN Report findings underlie the Insolvency Orders, the Defendants are precluded from relitigating those findings in this adversary proceeding.
I disagree. The declarations, depositions and reports of the parties’ experts make clear that none of the Insolvency Orders is a final judgment on the issues of whether the Fake Salary Loan Scheme actually took place, whether BCSUL was insolvent while the Indio da Costas were in control, or whether dividends were improperly paid during the time BCSUL was insolvent, all of which issues are crucial elements of the Amended Complaint.
For purposes of certain counts, only whether and when BCSUL was insolvent is relevant; whether this was a Fake Salary Loan Scheme or the involvement of the Indio da Costas is not.
I find that while the statements in the Insolvency Orders on which Laspro relies for his collateral estoppel argument appear to be identical to the issues in this adversary proceeding, the findings in the BACEN Report were not actually litigated. Indeed, the opportunity to fully and fairly litigate those issues is why the Brazilian Liability Actions were filed; the prior proceedings were more summary in nature. Thus, it is not appropriate to apply collateral estoppel as requested by the Plaintiff.
There is no dispute that BACEN has strong, extensive, and unilateral regulatory power over the Brazilian banking industry. It is also undisputed that BACEN has the right to instruct a bank liquidator such as Bianchini to petition the Brazilian Bankruptcy Court to place an intervened bank such as BCSUL into bankruptcy. But both the Plaintiff's and Defendants’ experts agree that neither the original decisions by BACEN, nor the appellate confirmation of those actions, were final decisions adjudicating the actual cause or timing of BCSUL's insolvency for the purposes of establishing the liability of the Indio da Costas for that insolvency. This is underscored not only by the pendency of the Brazilian Liability Actions, the purposes of which are to determine who is liable for BCSUL's insolvency and what was the cause of that insolvency (which necessarily relates to timing), but also the Brazilian Bankruptcy Court's appointment of the independent expert to review de novo all of the findings set forth in the BACEN Report.
The BACEN Report itself acknowledges that the purpose of its investigation of BCSUL "is to provide [the] elements for the filing of a civil liability lawsuit, as established in Article 45 [(of the Liquidation Law)] to determine the existence of loss." BACEN Report at 239 (ECF #152-1). "By express legal provision, the liability of the ex-administrators will be determined in a separate action, in which they will certainly be assured the ample defense guaranteed by the Constitution and due legal process." Id. at 244. The BACEN Report acknowledges that its "Investigation Commission" lacks "jurisdictional authority" to determine "legal matters relative to civil liability." Id.
Thus, it is clear that, even if the Insolvency Orders were fully adjudicated, for purposes of collateral estoppel the question is what was fully adjudicated - for the decisions putting BCSUL in a liquidation – that it was appropriate to do so; for the Bankruptcy Order – that there were sufficient grounds for Bianchini to put BCSUL and its affiliates into bankruptcy; for the Order Affirming the Bankruptcy Directive – that it was appropriate for BACEN to authorize Bianchini to put BCSUL and its affiliates into bankruptcy; for the BACEN Administrative Order – that the Indio da Costas and others were prohibited from engaging in the "banking business" under the conditions described therein. That the factual findings of the BACEN Report supported those decisions is of no moment when the BACEN Report itself states it cannot be used for the purposes for which the Plaintiff wishes to rely in this adversary proceeding. Consequently, while the Insolvency Orders may be entitled to comity, those orders means no more or less than BACEN's decision to put BCSUL into an administrative liquidation and subsequent bankruptcy was proper – decisions that no U.S. court could or should weigh in on. See Diorinou, 237 F.3d 133 (decision of Greek court regarding a mother's retention of children in Greece was entitled to deference but U.S. Court had the separate authority to determine whether father's removal of children from Greece was wrongful for purposes of the Hague Convention).
While BACEN's conclusions have, subject to an administrative appeal process, finality with respect to liquidation and possible bankruptcy, BACEN's conclusions and administrative sanctions are not binding on the courts who must determine, in one or more separate proceedings, the liability of the ex-officers, directors and shareholders. The findings of the BACEN Report regarding BCSUL's lack of profitability or insolvency, including when insolvency occurred, whether there was a Fake Salary Loan Scheme, and, if so, the role of the Indio da Costas in that scheme have not been fully adjudicated and therefore, are not entitled to collateral estoppel effect. Consequently, the Plaintiff will have to prove all of these required elements before a trier of fact.
C. Other Issues Of Material Disputed Fact
The Plaintiff argues that he has demonstrated through the testimony of Alvin Hommerding that all the money used to purchase the Penthouse can be traced to the unauthorized dividends, and that a percentage of the money used to buy the Apt. 6B Shares can be traced to the unauthorized dividends. However, the Defendants’ expert Mr. Vidal testified that the Indio da Costas had other sources of funds from which they could have purchased the Apartments and the Artwork. That testimony, despite the Plaintiff's characterization, is not speculative. The Plaintiff argues that the Defendants have failed to show how those other sources could be traced to the purchase of the Apartments. However, I find that the Plaintiff has confused the burden of proof. I have already found Mr. Hommerding's testimony on many things to be of questionable value. In fact, I already held that it appears Mr. Hommerding did not opine that the money is traceable. Because the Defendants have expert testimony that there are other sources of funds from which the purchases can be made, which testimony I ruled is admissible, the Defendants have satisfied their "burden" under Rule 56 of demonstrating this material fact is "genuinely disputed." Even if the Plaintiff proves all of the issues for which he hoped to rely on collateral estoppel, he will still need to prove that the Apartments and Artwork were purchased with the unauthorized dividends. Thus, summary judgment is not appropriate.
Memorandum Opinion on Motions to Exclude Expert Reports and Testimony of Alvin Hommerding and Lopes Machado Consultores at 10 n.23 (ECF #202).
Memorandum Opinion on Motions to Exclude Expert Reports and Testimony of Alvin Hommerding and Lopes Machado Consultores (ECF #202).
For all of these reasons, the Plaintiff's Motion is DENIED.
THE DEFENDANTS’ MOTION FOR SUMMARY JUDGMENT
A. The Plaintiff Has Standing to File the Amended Complaint
The Defendants argue yet again that 11 U.S.C. § 1521(a)(7) precludes a foreign trustee such as Laspro, from bringing avoidance actions as permitted by sections 544 and 548 of the Bankruptcy Code. Defendants cite to In re Condor Insurance Ltd., 601 F.3d 319 (5th Cir. 2010) in support of their argument. While I admire Defendants’ persistence, I must remind them again, that I have already rejected this argument, at least once or twice. See In re Massa Falida do Banco Cruzeiro do Sul, S.A. , 567 B.R. 212.
B. Brazilian Law Applies to the Fraudulent Conveyance and Aiding and Abetting Claims
Courts generally treat fraudulent conveyance claims as torts for choice of law purposes. In re Palm Beach Fin. Partners, L.P. , 2014 WL 12498025, at *5 (Bankr. S.D. Fla. 2014). The New York aiding and abetting claims are also tort claims and so subject to the same analysis. Consequently, I look to the Restatement (Second) of Conflict of Laws sections 6 and 145. See In re Hionas, 361 B.R. 269, 276 (Bankr. S.D. Fla. 2006) ; Canon Latin Am., Inc. v. Lantech, S.A. , 2011 WL 13101029, at *11 (S.D. Fla. 2011) (applying Restatement §§ 145 and 6 to a fraudulent transfer case to determine that the laws of Costa Rica apply).
Restatement (Second) of Conflict of Laws § 6 (1971) states:
(1) A court, subject to constitutional restrictions, will follow a statutory directive of its own state on choice of law.
(2) When there is no such directive, the factors relevant to the choice of the applicable rule of law include
(a) the needs of the interstate and international systems,
(b) the relevant policies of the forum,
(c) the relevant policies of other interested states and the relative interests of those states in the determination of the particular issue,
(d) the protection of justified expectations,
(e) the basic policies underlying the particular field of law,
(f) certainty, predictability and uniformity of result, and
(g) ease in the determination and application of the law to be applied.
Restatement (Second) of Conflict of Laws § 145 (1971) states:
(1) The rights and liabilities of the parties with respect to an issue in tort are determined by the local law of the state which, with respect to that issue, has the most significant relationship to the occurrence and the parties under the principles stated in § 6.
(2) Contacts to be taken into account in applying the principles of § 6 to determine the law applicable to an issue include:
(a) the place where the injury occurred,
(b) the place where the conduct causing the injury occurred,
(c) the domicile, residence, nationality, place of incorporation and place of business of the parties, and
(d) the place where the relationship, if any, between the parties is centered.
These contacts are to be evaluated according to their relative importance with respect to the particular issue.
In this case, the initial transfers took place in Brazil. More importantly, this adversary proceeding is about an alleged fraudulent scheme perpetrated by Brazilian shareholders/directors of a Brazilian bank that was put into Brazilian insolvency proceedings by a Brazilian banking authority and which primarily affected Brazilian creditors and victims. The entirety of the alleged fraudulent scheme occurred in Brazil. And, of course, Brazil has a strong interest in regulating the conduct of Brazilian banks and members of the board of directors of Brazilian banks, as well as seeing funds allegedly diverted from a Brazilian bank via a scheme perpetrated in Brazil, returned to the Brazilian bankruptcy estate to repay Brazilian creditors.
The only significant contact with New York is that the properties which were ultimately purchased with the allegedly improperly distributed dividends happen to be located in New York. However, this is simply not sufficient to outweigh the factors and interests favoring application of Brazilian law.
As a result, Defendants are entitled to judgment as a matter of law on Counts II – VIII, XIV – XX, and XXVI - XXXII of the Amended Complaint and these counts should be dismissed with prejudice.
CONCLUSION
In sum, based on my proposed findings of fact and conclusions of law I recommend to the District Court that the Plaintiff's Motion be denied and that the Defendants’ Motion be granted in part and denied in part.
I have already dismissed Counts IX, XXI and XXXIII of the Amended Complaint with prejudice and that dismissal has not been appealed.
Based on my proposed findings of fact and conclusions of law, Counts II – VIII, XIV – XX, and XXVI – XXXII of the Amended Complaint should be dismissed with prejudice.
The parties should be directed to proceed to trial on the remaining counts of the Amended Complaint. ORDERED in the Southern District of Florida on January 15, 2021.
The Defendants’ expert, Corbo, testified that the clawback avoidance claims based on Article 130 (Counts XII, XXIV, and XXXVI) are subject to the "sole jurisdication" of the bankruptcy court in Brazil. However, the bankruptcy court in Brazil authorized the filing of the adversary proceeding. Moreover, the Defendants’ did not cite to this testimony as a basis for summary judgment, and merely referred to the testimony in summarizing the testimony of the various experts. (ECF #153, p. 14).
/s/ Laurel M. Isicoff