Asarco LLC v. Americas Mining Corp.
| Decision Date | 14 April 2009 |
| Docket Number | Civil No. 1:07-CV-00018. |
| Citation | 404 B.R. 150 |
| Parties | ASARCO LLC, Southern Peru Holdings, LLC, Plaintiffs, v. AMERICAS MINING CORPORATION, Defendant. |
| Court | U.S. District Court — Southern District of Texas |
George Irvin Terrell, Michael C. Massengale, Rebeca Aizpuru Huddle, Samuel Wollin Cooper, Baker Botts, L.L.P., Garland Doty Murphy, IV, Smyser, Kaplan & Veselka, L.L.P., Houston, TX, James R. Prince, Eric A. Soderlund, Fernando Rodriguez, Jr., Jack L. Kinzie, Thomas Edward O'Brien, Baker Botts, L.L.P., Dallas, TX, Kevin M. Sadler, Baker Botts, L.L.P., Austin, TX, Shelby A. Jordan, Jordan Hyden, et al., Corpus Christi, TX, Michael J. Urbis, Jordan Hyden, et al., Brownsville, TX, for Plaintiff ASARCO LLC and Southern Peru Holdings, LLC.
Charles A. Beckham, Jr., Brian F. Antweil, Elizabeth Brooks Hamilton, Kirk L. Worley, Mark Ryan Trachtenberg, Haynes & Boone, LLP, Houston, TX, David R. Gelfand, Luc A. Despins, Stacey J. Rappaport, Alan J. Stone, Melanie Westover, Milbank, Tweed, Hadley & McCloy, LLP, New York, NY, David S. Cohen, Milbank Tweed, et al., Washington, DC, for Defendant Americas Mining Corporation.
J.A. Tony Canales, Canales & Simonson, PC, Corpus Christi, TX, for Movant Daniel Tellechea.
Evelyn H. Biery, Zack A. Clement, Mark Allan Worden, Sharon Marie Beausoleil-Mayer, Fulbright Jaworski LLP, Houston, TX, Louis Raymond Strubeck, Jr., John N. Schwartz, Fulbright & Jaworski, Dallas, TX, for Intervenor Official Committee of Unsecured Creditors of ASARCO LLC.
Jacob Lee Newton, Robert T. Brousseau, Sander L. Esserman, Steven A. Felsenthal, Jo E. Hartwick, Stutzman Bromberg, et al., Dallas, TX, for Intervenor Official Committee of Unsecured Creditors of the Subsidiary Debtors.
Debra L. Innocenti, John H. Tate, II, Raymond W. Battaglia, Oppenheimer, Blend, Harrison & Tate, San Antonio, TX, for Future Claims Representative Robert C. Pate.
Charles A. Beckham, Jr., Elizabeth Brooks Hamilton, Haynes & Boone, LLP, Houston, TX, David R. Gelfand, Luc A. Despins, Stacey J. Rappaport, Alan J. Stone, Milbank, Tweed, Hadley & McCloy, LLP, New York, NY, David S. Cohen, Milbank Tweed, et al., Washington, DC, for Counter Claimant Americas Mining Corporation.
AMENDED MEMORANDUM OPINION AND ORDER
Plaintiffs ASARCO LLC (hereinafter "ASARCO") and Southern Peru Holdings, LLC (both of which are currently in bankruptcy) brought an adversary action in this Court, in their capacities as debtors in possession and on behalf of ASARCO's creditors, to recover from Defendant Americas Mining Corporation (hereinafter "AMC") stock representing 54.18% of the outstanding shares of Southern Peru Copper Company (hereinafter "SPCC") and damages resulting from having been wrongly deprived of this stock ownership.1 The Court held a four-week bench trial and has previously issued its findings of facts and conclusions of law on the issue of liability. Specifically, the Court found AMC liable for actual fraudulent transfer, aiding and abetting a breach of fiduciary duty, and conspiracy. The Court granted leave for each side to file additional briefing on the issue of damages and also heard oral argument. Subsequently, the Court ordered the parties into a mediation, which was held on multiple occasions over a period of time, but which ultimately concluded unsuccessfully. The Court now issues this Memorandum Opinion and Order to reach the issue of damages and dispose of all pending motions.
Plaintiff ASARCO LLC is the successor in interest to ASARCO Incorporated,3 a company that had been involved in the domestic and international mining industries for over a century. One of the primary products from its mining operations was, and still is, copper, and among its international assets was the controlling interest (54.18%) in SPCC, a publicly traded Peruvian copper company. In late 1999, Grupo Mexico S.A.B. de C.V. (hereinafter "Grupo"), a Mexican corporation also involved in the mining industry, acquired ASARCO for a purchase price of over $2 billion, and ASARCO became a wholly owned subsidiary of Grupo. For a variety of reasons, including debt from this acquisition, ASARCO carried a high debt load, which included a $450 million Revolving Credit Agreement (hereinafter "Revolver") financed by a consortium of 19 banks headed by Chase Manhattan Bank and Chase Securities Inc. (hereinafter referred to jointly as "Chase") and secured by, inter alia, the stock ASARCO held in SPCC. Shortly after acquiring ASARCO, Grupo created the Southern Peru Holding Company (hereinafter "SPHC") as a wholly owned subsidiary of ASARCO and then had ASARCO transfer ownership of the stock to SPHC. SPHC's sole function was to own and hold the SPCC stock. In October of 2000, Grupo formed AMC as a wholly owned subsidiary whose function was to hold ASARCO's stock.
Thus, by these maneuvers a four-tier corporate family was established: Grupo wholly owned AMC, which wholly owned ASARCO, which wholly owned SPHC, which owned the majority of stock in SPCC. The boards of each of these subsidiaries were stocked with various Grupo employees or loyal retainers, creating an integrated and overlapping hierarchy of control within the Grupo corporate family.
In addition to the debt from the 1999 acquisition, ASARCO was also beset with legal problems resulting from various environmental and asbestos claims. By the fall of 2001, ASARCO's financial difficulties became critical. In October 2001, ASARCO engaged the law firm of Sidley Austin to provide bankruptcy and restructuring advice. In late 2001, Grupo or one of its principals (through AMC) loaned $41.75 million to ASARCO to keep it afloat, however the financial problems continued to mount throughout 2002. Toward the latter part of 2002, Chase began to apply increasing pressure on ASARCO for payment in full on the Revolver and threatened to foreclose on its security interests (including the SPCC stock) if the debt was not paid. Moreover, $100 million worth of outstanding bonds—the so-called "Yankee Bonds"—were coming due on February 3, 2003.
Most AMC/Grupo/ASARCO insiders believed that ASARCO had only two feasible courses of action: bankruptcy or the sale of assets. ASARCO's best and most valuable asset was ASARCO's stock in SPCC. As early as 2001, AMC/Grupo concluded that the most viable option to alleviate ASARCO's financial situation was to sell the SPCC shares. However, AMC/Grupo, being in the copper business themselves, did not want to relinquish control of this valuable asset. Various legal and financial experts were hired to help effectuate a restructuring and, if possible, an inter-company sale of the SPCC stock, including the law firm of Squire, Sanders & Dempsey and the consulting firm of Ernst & Young Corporate Finance (hereinafter "EYCF").
While various permutations were proposed, Grupo ultimately decided to have ASARCO sell the SPCC shares to AMC, and the transaction was closed on March 31, 2003. Testimony at trial suggested that various, but not all, of ASARCO's lending banks had indicated to AMC/Grupo that paying off the Yankee Bonds could make refinancing outstanding debt obligations significantly easier. In addition, evidence was introduced suggesting that Inbursa, a Mexican bank that owned, or whose principals owned, a large number of the Yankee Bonds, was demanding full payment as a condition of its financing the AMC purchase of the SPCC stock. Regardless of the reason, part of the transaction included the payment by ASARCO of $100 million plus interest to the Yankee Bond holders.
Despite some measure of relief from these debt obligations as a result of the sale of the stock to AMC, ASARCO continued to find itself in difficult financial straits. Throughout the post-transaction years prior to its bankruptcy filing (i.e., 2003-2005), ASARCO continued to survive hand to mouth. Cash flow problems increased, and asbestos-related and environmental liabilities continued to mount. ASARCO put a number of its subsidiaries into bankruptcy in early 2005, and ASARCO followed these subsidiaries into Chapter 11 on August 9, 2005. SPHC filed a voluntary petition for Chapter 11 protection the next year. On February 2, 2007, Plaintiffs brought various claims against AMC in their capacities as debtors in possession and on behalf of AS ARCO's unpaid creditors.
After a four-week bench trial, this Court issued its findings of fact and conclusions of law on the issue of liability. ASARCO LLC v. Americas Mining Corp., 396 B.R. 278 (S.D.Tex.2008). Specifically, the Court found AMC liable for:
A. actual-intent fraudulent transfer under Delaware's version of the Uniform Fraudulent Transfer Act, Del. Code Ann. tit. 6 § 1304(a)(1), id. at 394;
B. aiding and abetting a breach of fiduciary duty under New Jersey law, id. at 394 n. 133, 413; and
C. civil conspiracy under Arizona law, id. at 416; see id. at 419-21.
Plaintiffs brought their claim for actual-intent fraudulent transfer pursuant to 11 U.S.C. § 544(b), which provides that a "trustee may avoid any transfer of an interest of the debtor in property ... that is voidable under applicable [state] law by a creditor" holding an allowable unsecured claim. 11 U.S.C. § 544(b)(1). Trustees and debtors in possession use § 544(b) as a conduit to assert state-law-based fraudulent-transfer claims in bankruptcy. This Court held that Delaware's version of the Uniform Fraudulent Transfer Act was the applicable state law under the facts of this case. See ASARCO LLC, 396 B.R. at 364-65; ASARCO LLC v. Americas Mining Corp., 382 B.R. 49, 64 (S.D.Tex.2007).4
Section 550 of the Bankruptcy Code, however, provides the remedies available if a plaintiff prevails on a § 544 cause of action. Thus, "to the extent that a transfer is avoided under section 544 ... of...
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