In re Bruetman, 99 B 09107
| Citation | 259 BR 649 |
| Decision Date | 08 March 2001 |
| Docket Number | 99 A 00811.,No. 99 B 09107,99 B 09107 |
| Parties | In re Martin BRUETMAN, Debtor. Diego Herbstein, Plaintiff, v. Martin Bruetman, Defendant. |
| Court | United States Bankruptcy Courts. Seventh Circuit. U.S. Bankruptcy Court — Northern District of Illinois |
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Richard Steck, Chicago, IL, for Plaintiff.
Martin E. Bruetman, pro se.
AMENDED MEMORANDUM OPINION ON CROSS MOTIONS FOR SUMMARY JUDGMENT ON COUNTS I AND II1
This adversary proceeding relates to the Chapter 7 bankruptcy petition filed by Martin Bruetman ("Bruetman" or "Debtor") on March 22, 1999 under 11 U.S.C. § 101 et seq. Diego Herbstein ("Herbstein" or "Plaintiff") filed a five count Amended Adversary Complaint ("Adversary Complaint") seeking to deny Bruetman's discharge and to determine the dischargeability of a debt owed to him by Bruetman. The debt is evidenced by a judgment entered in the U.S. District Court for the Southern District of New York on August 10, 1992.2
Herbstein moved for summary judgment on Counts I and II of this Adversary in which the debt thereby arising is alleged to be nondischargeable under 11 U.S.C. §§ 523(a)(2)(A) and 523(a)(4) respectively. The basis for Plaintiff's motion is his argument that due to entry of that District Court judgment the doctrine of collateral estoppel applies and precludes Debtor from contesting nondischargeability of the judgment debt alleged in those two counts. Bruetman objects to application of collateral estoppel because the New York case never went to trial, and argues that the judgment was by way of default as a sanction for his failure to give ordered discovery. He also contends that Herbstein is judicially estopped to assert collateral estoppel.
Bruetman filed his own cross motion for summary judgment on Counts I and II. He contends that issues asserted in those counts were fully litigated in Argentina courts and were there determined adversely to Herbstein. Bruetman contends that the decisions there are entitled to recognition under principles of comity and that doctrines of res judicata and collateral estoppel preclude Herbstein from arguing that the judgment debt is nondischargeable.
Dr. Bruetman appeared here pro se, though his filings demonstrated some sophisticated knowledge of law suggestive of behind-the-scenes legal counseling. However, he has lost on the merits.
For reasons stated below, the New York District Court default judgment is given collateral estoppel effect and Plaintiff's motion for summary judgment on Counts I and II herein will be allowed, while Defendant's cross motion for summary judgment on Counts I and II will be denied.
The parties filed their statements supporting and opposing summary judgment under Local Bankruptcy Rule 402M and 402N as required for consideration of Herbstein's motion for summary judgment, and briefs. That briefing was completed and Dr. Bruetman was told from the bench that nothing further would be considered on Plaintiff's motion. While he did file a Rule 402N statement and affidavit opposing Plaintiff's motion, he did not contest the facts and proceedings shown in the New York case on which the judgment for Plaintiff rests.
Bruetman filed a Rule 402M statement with his cross-motion for summary judgment (originally considered despite a contrary reference in the earlier Opinion). However, a schedule was not set giving Plaintiff an opportunity to file a Rule 402N response to Bruetman's asserted facts and response to the cross motion for summary judgment. This Opinion assumes arguendo the accuracy and authenticity of every document and fact asserted by Bruetman in connection with his motion (which said documents and facts are not, however, treated as responsive to Herbstein's motion since they were not offered in response thereto). Since his cross motion thereby considered is factually inadequate to support summary judgment as a matter of law, briefing by Plaintiff opposing that motion is unnecessary.
The following undisputed facts appear from filings:
In late 1986 or early 1987, Bruetman solicited Herbstein to invest money in a business venture to set up a sophisticated medical diagnostic center to be established in Buenos Aires, Argentina. According to Bruetman's proposal, the diagnostic center would provide its services to the Guemes Hospital in Buenos Aires.
Under Bruetman's proposal, he and Herbstein were to provide equal amounts of capital to fund the venture. In April 1987, Herbstein began sending payments to Bruetman through the mail or through wire transfers. Herbstein also made payments directly to a bank account in Argentina set up to begin establishing the proposed company. By June 1987 Alta Technologia Medica S.A. ("Altec-1") was incorporated in Argentina. Bruetman became the President and Chief Executive Officer, Herbstein became Vice President. Both men were to be equal owners of the company stock.
By July 1987, Herbstein's payments to Altec-1 had totalled about $447,000. According to Herbstein, those funds were intended as his capital contribution to the business, in exchange for which Herbstein was to be given 50% of Altec 1's issued stock.
By August 1987, Altec-1 had entered into an agreement with the Guemes Foundation to import, install, and operate medical equipment purchased from Phillips Export B.V. ("Philips"). In exchange for Altec 1's services, it was to receive a portion of the revenue generated from use of the equipment.
However, by late 1987, Herbstein alleges that he discovered that Bruetman was using Altec-1's time, money, personnel, overhead and resources to develop another business unrelated to the Guemes Hospital services. Those other transactions purportedly benefitted Bruetman and High Tech, another corporation in which Bruetman was controlling shareholder and Board Chairman.
Herbstein and Bruetman then agreed to some changes. Altec-1 was renamed Imagenes Por Computacion ("IXC"), and Bruetman formed a new business venture which was also named Alta Technologia Medica S.A. ("Altec-2"). Altec-2 was to have nothing to do with the Guemes diagnostic center but would instead pursue and benefit the interests of Bruetman and High Tech. In mid 1988 Bruetman transferred all of his shares in IXC to Altec-2. High Tech then owned 49% of Altec-2 stock; Bruetman's son Carlos held 43% thereof, and Herbstein held 8%.
IXC assumed responsibility for contractual obligations previously held by Altec-1 for providing and servicing sophisticated medical imaging equipment for the diagnostic center of the Guemes Hospital. Plaintiff and Bruetman transferred their capital contributions and financial interests in what had been Altec-1 to IXC and thereby became the sole and co-equal shareholders of IXC. Bruetman became the President, Chief Executive Officer and Chairman of the Board; Plaintiff became the Vice President.
Disputes later arose between Herbstein and Bruetman. In March of 1989, Bruetman filed a request with the Criminal Courts in Argentina for an investigation concerning his allegations of fraud. Herbstein was joined in that proceeding as a respondent. On October 10, 1990 a decision was rendered in that criminal proceeding, but that decision (discussed further below) merely ruled that no one was to be prosecuted and the action was to be "temporarily dismissed", a dismissal that turned out to be permanent.
In August 1989, Herbstein filed a civil Complaint in the Commercial Division of the Argentine court system. That suit requested removal of Directors Bruetman, the President of IXC and another director. It also sought determination that the Directors sought to be removed had wrongfully carried out their duties as Directors of IXC. To support that request, Herbstein alleged certain facts that he claimed to constitute wrongful discharge of corporate duties that damaged the corporation business. Herbstein sought therein compensation for damages that he allegedly suffered in consequence of the various defendants' actions in managing the corporation.
On October 16, 1989, before any ruling in the Argentine civil case, Herbstein filed a Complaint in the United States District Court for the Southern District of New York. That Complaint contained several complicated and detailed claims against different combinations of defendants including Bruetman. It alleged that Bruetman fraudulently misrepresented to Herbstein in the business deal between them that all money transferred by Herbstein would be used to fund Altec-1 operations. Those funds, some paid directly to Bruetman and others to a bank account set up for the business venture, were allegedly diverted to benefit Bruetman and High Tech. Moreover, Herbstein alleged that when IXC was formed, Bruetman promised Herbstein that he would be credited with all his capital contributions to Altec-1, but contended that he was never fully credited for all his capital contributions. He also alleged in that suit that several defendants, including Bruetman, sent a letter to him in New York which misrepresented both IXC's financial status and Herbstein's obligations to Altec-2 and High Tech. These and other allegations were contained in a five-count Complaint (the "New York Complaint" or "New York Case").
On January 17, 1990, Bruetman and other defendants moved to dismiss Herbstein's New York District Court case on the grounds of comity because of the then pending Argentine civil proceedings, or alternatively for forum non conveniens. Alternatively, those defendants moved to stay the New York Case until the civil proceedings in Argentina were resolved. On July 11, 1990, the District Court denied these motions. Afterwards, on August 10, 1992, a judgment was entered against Bruetman in the District Court suit under circumstances more fully described below.
One year later on August 5, 1993, in Argentina, the lower court issued a ruling...
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