In re Levis

• Decision Date: 13 January 2017
• Docket Number: CASE NO. 14-02953 EAG
• Parties: IN RE: MARIO SAMUEL LEVIS, DEBTOR.
• Court: U.S. Bankruptcy Court — District of Puerto Rico

IN RE: MARIO SAMUEL LEVIS, DEBTOR.

CASE NO. 14-02953 EAG

UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF PUERTO RICO

January 13, 2017

CHAPTER 11

OPINION AND ORDER

Doral Financial Corporation ("DFC") moves the court for entry of summary judgment denying the objection to its proof of claim filed by debtor Mario Samuel Levis. The debtor's objection to DFC's proof of claim is twofold. First, the debtor alleges that the amounts included in the proof of claim for advancements in legal fees are overstated. Second, the debtor argues that he is not liable for the amounts disbursed by DFC in legal fees alleging that these are contingent, unliquidated, and disputed. DFC's position is that these issues were already addressed and rejected in final judgments entered pre-petition by the state court and that the debtor's objection to the proof of claim is barred by the Rooker-Feldman doctrine and res judicata principles. For the reasons stated below, the court denies DFC's motion for summary judgment.

I. JURISDICTION

This court has jurisdiction over the subject matter and the parties pursuant to 28 U.S.C. §§ 1334 and 157(a), Local Civil Rule 83K(a), and the General Order of Referral of title 11

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Proceedings to the United States Bankruptcy Court for the District of Puerto Rico, dated July 19, 1984 (Torruella, C.J.).¹ This is a core proceeding in accordance with 28 U.S.C. § 157(b).

II. PROCEDURAL BACKGROUND

The debtor filed a petition for relief under chapter 11 of the Bankruptcy Code on April 11, 2014. [Dkt. No. 1.] On August 15, 2014, DFC filed proof of claim number 8 in the amount of $24,440,750.60 for advancement of legal fees and expenses. [Claims Register 8-1.] On February 13, 2015, the debtor filed his objection to the proof of claim. [Dkt. No. 86.] On July 22, 2015, DFC replied to the debtor's objection and then supplemented on September 4, 2015 its objection with certified translations of the exhibits attached thereto. [Dkt. Nos. 109 & 118.] The court scheduled the objection to claim and its answer for a hearing on November 13, 2015. [Dkt. No. 121.] But, at the request of the parties, the court rescheduled said hearing for January, 22, 2016. [Dkt. Nos. 126 & 127.]

On January 19, 2016, the parties filed a joint pretrial report on the objection to claim. [Dkt. No. 134.] On January 22, 2016, the court held a hearing on the objection to claim, and granted DFC 45 days to move for summary judgment, and the debtor 28 days to respond thereafter. [Dkt. No. 137.] The court also set a pretrial conference for July 22, 2016. [Dkt. No. 137.] On January 29, 2016, the debtor supplemented his part of the pretrial report. [Dkt. No. 139.] On February 29, 2016, DFC did likewise. [Dkt. No. 157.]

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On March 7, 2016, DFC filed a motion for summary judgment, which included a factual background section with proposed uncontested facts. [Dkt. No. 160.] And, on April 4, 2016, the debtor opposed the motion for summary judgment arguing, among other grounds, that DFC failed to submit a separate statement of uncontested facts. [Dkt. No. 164.] On April 29, 2016, DFC filed a separate statement of material facts in support of its motion for summary judgment and a reply to the debtor's opposition. [Dkt. No. 172 & 174.] On May 4, 2016, the debtor opposed DFC's separate statement of facts. [Dkt. No. 176.]²

On August 19, 2016, the court held a hearing on this contested matter. [Dkt. Nos. 205 & 206.] On August 29, 2016, the debtor requested the court to take judicial notice of certain documents in relation to federal and state court proceedings submitted as supporting exhibits to his opposition. [Dkt. No. 209.]

III. UNCONTESTED FACTS

The following facts are uncontested pursuant to Rule 56 and Local Civil Rule 56, made applicable to these proceedings by Bankruptcy Rules 9014(c) and 7056 and Local Bankruptcy Rules 1001-1(b) and (d).

The debtor is a former Senior Executive Vice President and Treasurer of DFC. [DFC's Factual Background/Proposed Statement of Uncontested Facts ("DFC's SUF") at ¶ 4, Dkt. No. 160; Debtor's reply to DFC's SUF ("Debtor's reply") at ¶ 4, Dkt. No. 164, p. 5.] The debtor resigned from his position in August 2005, after an investigation by the Securities and

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Exchange Commission and the initiation of civil actions filed against him and other directors and officers of DFC. [DFC's SUF at ¶ 5, Dkt. No. 160; Debtor's reply at ¶ 5, Dkt. No. 164, p. 5.] The debtor retained the services of the firms of Greenberg Traurig; Stephen E. Kaufman, P.G.; and Black, Srebnick, Kornspan & Stumpf to assist him in the civil actions and subsequent criminal proceedings, and requested that DFC advance the payment of the fees of these professionals. [DFC's SUF at ¶ 6, Dkt. No. 160; Debtor's reply at ¶ 6, Dkt. No. 164, p. 5.]

The debtor executed an undertaking to repay the fees and expenses disbursed by DFC in his defense if it was ultimately determined that he was not entitled to be indemnified under Article IX of the bylaws of DFC or pursuant to Puerto Rico Law. [DFC's SUF at ¶ 26, Dkt. No. 160; Debtor's reply at ¶ 26, Dkt. No. 164, p. 6; DFC's Exhibit 2, Dkt. No. 160, p. 48.] The disbursements made by DFC for the defense of the debtor were made pursuant to the dispositions of Section 1 of Article IX of DFC's By-laws and the undertaking agreement signed by the debtor. [DFC's SUF at ¶ 7, Dkt. No. 160; Debtor's reply at ¶ 7, Dkt. No. 164, p. 5.]

On March 4, 2008, the debtor was indicted on one count of securities fraud and four counts of wire fraud under case number 08-cr-181 (TGP) in the United States District Court for the Southern District of New York. [DFC's SUF at ¶ 8, Dkt. No. 160; Debtor's reply at ¶ 8, Dkt. No. 164, p. 5.] DFC paid all invoices for attorney fees submitted by the debtor for about four years. [DFC's SUF at ¶ 9, Dkt. No. 160; Debtor's reply at ¶ 9, Dkt. No. 164, p. 5.] From May 2009 onward, DFC did not advance any attorney fees per invoices submitted by the debtor. [DFC's SUF at ¶ 10, Dkt. No. 160; Debtor's reply at ¶ 10, Dkt. No. 164, p. 5.]

After filing a civil suit in the Supreme Court of New York and multiple exchanges between DFC, the debtor, and their attorneys, DFC resumed paying the pending invoices

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presented by the debtor, but stopped doing so again after April 25, 2011. [DFC's SUF at ¶ 11, Dkt. No. 160; Debtor's reply at ¶ 11, Dkt. No. 164, p. 5.]

On April 29, 2010, after a trial, a jury found the debtor guilty of count one (securities fraud), and counts three and five (wire fraud) of the indictment. [DFC's SUF at ¶ 12, Dkt. No. 160; Debtor's reply at ¶ 12, Dkt. No. 164, p. 5.] On November 19, 2010, the District Court for the Southern District of New York sentenced the debtor to a term of 60 months imprisonment on those three counts. [DFC's SUF at ¶ 13, Dkt. No. 160; Debtor's reply at ¶ 13, Dkt. No. 164, p. 5.] The court also ordered the debtor to restitute DFC the amount of $1,894,262.00 as part of his sentence. [Id.]

On November 24, 2010, the debtor appealed his conviction and sentence to the U.S. Court of Appeals for the Second Circuit. [DFC's SUF at ¶ 14, Dkt. No. 160; Debtor's reply at ¶ 14, Dkt. No. 164, p. 5.] On July 18, 2012, the court of appeals confirmed the debtor's conviction on count one for securities fraud and count five for wire fraud of the indictment. [DFC's SUF at ¶ 15, Dkt. No. 160; Debtor's reply at ¶ 15, Dkt. No. 164, p. 6.] But, vacated the conviction on count three of the indictment and ordered a new trial on that count. [Id.]

On November 21, 2012, the debtor filed a petition for writ of certiorari before the U.S. Supreme Court seeking review of the appellate decision. [DFC's SUF at ¶ 16, Dkt. No. 160; Debtor's reply at ¶ 16, Dkt. No. 164, p. 6.] And on April 29, 2013, the U.S. Supreme Court denied the petition for writ of certiorari. [DFC's SUF at ¶ 17, Dkt. No. 160; Debtor's reply at ¶ 17, Dkt. No. 164, p. 6.]

Subsequently, the debtor's case was remanded to the district court for a new trial on count three. [DFC's SUF at ¶ 18, Dkt. No. 160; Debtor's reply to SUF at ¶ 18, Dkt. No. 164, p.

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6.] But, on October 3, 2013, the district court entered an order dismissing count three. [Id.] Finally, on February 21, 2014 the district court entered an amended judgment against the debtor reducing his term of imprisonment to 48 months for his conviction on counts one for securities fraud and five for wire fraud. [DFC's SUF at ¶ 18, Dkt. No. 160; Debtor's reply at ¶ 18, Dkt. No. 164, p. 6; DFC's Exhibit 5, Dkt. No. 160, pp. 86-91.] He was also ordered to restitute DFC the amount of $1,894,262.00 as part of his criminal sentence. [Id.]

On April 12, 2012, while the debtor's criminal conviction was pending at the court of appeals, the debtor filed a civil suit against DFC in the Puerto Rico Court of First Instance. [DFC's SUF at ¶ 19, Dkt. No. 160; Debtor's reply at ¶ 19, Dkt. No. 164, p. 6.] In the Puerto Rico complaint, the debtor claimed damages for breach of contract and requested the court to order DFC's specific performance with its alleged obligations under the corporate by-laws to advance fees. [DFC's SUF at ¶ 19, Dkt. No. 160; Debtor's reply at ¶ 19, Dkt. No. 164, p. 6.]

On April 19, 2013, after both parties filed dispositive motions, the Court of First Instance entered summary judgment dismissing the complaint filed by the debtor. [DFC's SUF at ¶ 20, Dkt. No. 160; Debtor's reply at ¶ 20, Dkt. No. 164, p. 6; DFC's Exhibit 6, Dkt. No. 160, p. 91-120.] Thereafter, the debtor appealed the judgment to the Puerto Rico Court of Appeals, which affirmed the judgment on September 30, 2013. [DFC's SUF at ¶¶ 21-22, Dkt. No. 160; Debtor's reply at ¶¶ 21-22, Dkt. No. 164, p. 6; DFC's Exhibit 7, Dkt. No. 160, p. 123-159.]

On November 25, 2013, the debtor filed a petition for writ of certiorari in the Supreme Court of Puerto Rico seeking to reverse the judgment entered by the Court of Appeals. [DFC's SUF at ¶ 23, Dkt. No. 160; Debtor's reply at ¶ 23, Dkt. No. 164, p. 6; DFC's Exhibit 10,...