Segarra–Miranda v. Perez–Padro

• Decision Date: 13 September 2012
• Docket Number: Civil No. 12–1026 (SEC).
• Citation: 482 B.R. 59
• Parties: Wilfredo SEGARRA–MIRANDA, Appellant, v. Meisy A. PEREZ–PADRO, et al., Appellees.
• Court: U.S. District Court — District of Puerto Rico

482 B.R. 59

Wilfredo SEGARRA–MIRANDA, Appellant,

v.Meisy A. PEREZ–PADRO, et al., Appellees.

Civil No. 12–1026 (SEC).

United States District Court, D. Puerto Rico.

Sept. 13, 2012.

Charles P. Gilmore, Patrick D. O'Neill–Cheyney, O'Neill & Gilmore, San Juan, PR, for Appellant.

Julio C. Gomez, Gomez LLC Attorney at Law, Westfield, NJ, for Appellees.

OPINION AND ORDER

SALVADOR E. CASELLAS, Senior District Judge.

After six years of pretrial proceedings and a two-week trial, the Chapter 7 Trustee filed this appeal seeking to vacate the bankruptcy court's dismissal of his three remaining causes of action: the first, for breach of fiduciary duties; the fifth, for prepetition transfers for less than equivalent value; and the sixth, for collection of loans made to insiders.¹ Defendants/Appellees (“Defendants”) are two former directors and shareholders of now defunct Almacenes Riviera, Inc. (“ARI”), a family-owned corporation that operated several retail department stores in Puerto Rico. Although the Trustee has launched a myriad of appellate challenges, most of them presume error in the bankruptcy court's conclusions that (1) certain claims within the first cause of action were time barred; and (2) the Trustee failed to carry his burden of proof as to his claim of fiduciary duty violations for payment of illegal dividends as well as to the fifth and sixth causes of action. Because the Trustee failed to identify a reversible error in those conclusions, the Court need not reach any of the other issues raised, and the bankruptcy court's decision is AFFIRMED.

Factual and Procedural BackgroundThe Events Preceding the Trial

Incorporated in 1972, ARI's founding shareholders were Jose Perez Cordera (held 78% of ARI's shares) and Aldo Gonzalez–Alvarez (“Gonzalez”).² As the business prospered over the years, affiliated entities were incorporated and additional stores were opened around Puerto Rico. In 1994, after twenty-two years at ARI's helm, Perez Cordera passed away leaving his majority stake to three heirs: 33.5% to his widow Maria P. Cordera (“Maria Cordera”), 22% to his daughter Meisy Perez–Padron (“Perez”), and 22% to his son Jose P. Cordera, Jr. (“Cordera Jr.”). Thereafter, Gonzalez, Perez, Maria Cordera, and Cordera Jr. continued running ARI's affairs, as both corporate managers and board directors.

In March of 1995, ARI issued a Corporate Resolution authorizing its then Vice President Cordera Jr. to execute a $95,000 option to purchase real property (the “Real Property”) with a price of $1,900,000. All board members but Gonzalez believed the Real Property to be suitable for a shopping center with an ARI store, an automotive store such as Pep Boys, and a series of other small supporting independent stores. Accordingly, the option contract was promptly executed; and October 30, 1995 was set as its expiration date. The process to obtain the requisite governmental approvals to build the shopping center began immediately. But the government denied each proposal ARI presented. Therefore, when October 30 came around, ARI had yet to decide whether to execute the option, and it paid an additional $5,000 to extend the expiration date until November 30, 1995.

On November 28, 1995, Maria Cordera, Perez, and Cordera Jr. incorporated YSIEM, S.E. The next day, Gonzalez executed a Consent and Release Letter on behalf of ARI, authorizing YSIEM to purchase the Real Property upon the reimbursement of the option price ARI had paid. The same day Gonzalez also released any interest he could claim in YSIEM. Then, the date the option was set to expire, YSIEM purchased the Real Property for the $1,900,000 stated price, even though ARI had the wherewithal to acquire it.

Months later, in March or April of 1996, YSIEM and Pep Boys entered into a lease agreement through which Pep Boys agreed to build, at its own expense, an automotive service center and retail store on the Real Property. Their contract was amended several times in the months that followed. And it became a public instrument in January 1997, binding YSIEM and Pep Boys to a long-term lucrative business relationship.

ARI's financial affairs deteriorated in the interim. Late in November 1996, a violent explosion occurred across the street from its main store and headquarters, forcing a two-week operational shutdown at the site. The explosion also caused physical damages to ARI's store, requiring external financing to cover expensive emergency repairs.

Misfortune stroke again soon thereafter. In the spring of 1997, ARI's Comptroller detected that Cordera Jr. (ARI's President at the time) had misappropriated $441,676.99 in corporate funds. The Comptroller immediately apprised all other shareholders, and Cordera Jr.'s employment was eventually terminated. The shareholders also decided to liquidate Cordera Jr.'s ownership stake at ARI, and, after months of internal deliberations, they executed a so-called Stock Purchase Agreement (the “Purchase Agreement”) for that purpose. The Purchase Agreement called for ARI to acquire Cordera Jr.'s shares at a $2,000,000 price, payable in four installments: a first installment of $500,000, less a write-off of the amount Cordera had misappropriated; and three subsequent installments of $500,000, the last payable in January 2000. Although the Comptroller objected to the payment plan, the shareholders (Gonzalez, Perez and Maria Cordera) approved it, and it went into effect automatically.

Some time later, ARI entered into a two-tier financing agreement with Banco Bilbao Vizcaya Argentaria (“BBVA”) comprised of a $800,000 term loan and a $1,200,000 line of credit. Another term loan followed in December 1999, this one from Hamilton Bank in the amount of $2,500,000. In February 2000, BBVA increased its line of credit from $1,200,000 to $2,000,000. Hamilton Bank did the same in December 2001 through a refinancing that provided ARI's with an addition $300,000.³

ARI and its affiliates filed for Chapter 11 bankruptcy protection in October 2002, amidst a downturn in both sales and working capital, and apparently unable to obtain additional external financing.⁴ But reorganization attempts came to a halt in 2004, when the Chapter 11 bankruptcy case was converted to a Chapter 7 liquidation, and Wilfredo Segarra Miranda became the Chapter 7 Trustee. The instant complaint followed in August 2005.

The Trial and the Bankruptcy Court's Rulings

The complaint reached the trial stage six years later, in the summer of 2011. ⁵ By then, the Trustee had settled all claims against Gonzalez, and the causes of action before the bankruptcy court were the ones underlying this appeal. Gonzalez, Perez, and Cordera Jr. were among the fifteen witnesses who testified during the two-week trial. The bankruptcy court also heard testimony from ARI's Comptroller, its auditors and accountants, the parties' accounting experts, and from a court appointed examiner.

Post-trial submissions came next, the court issuing a specific post-trial order, which included the following two questions:

1. In light of Stern v. Marshall [––– U.S. ––––, 131 S.Ct. 2594, 180 L.Ed.2d 475] 2011 WL 2472792 [ (2011) ] ... does this Court have jurisdiction to enter a final judgment on these causes of action?

2. Whether the remaining causes of action pled in the Third Amended complaint are time barred?

In re Almacenes Riviera Inc., Chapter 7 No. 02–10788, Adv. No. 05–00186, Docket # 450.

The bankruptcy court's opinion followed a month after the post-trial submissions were on file. With brief affirmative remarks about its jurisdiction to enter a final judgment, the court moved on to its second post-trial inquiry. On that front, it determined that the events underlying most of the claims of fiduciary duty violations had occurred after the three-year statute of limitations applicable under Puerto Rico's Corporate law.

In pertinent part, the bankruptcy court's analysis began with the Trustee's claim that Defendants had violated their fiduciary duties by transferring to YSIEM the option to purchase the Real Property, and thus relinquishing the opportunity to pursue the business venture with Pep Boys. According to the Trustee, such a claim was still alive because “defendants [had] failed to meet their burden of showing full disclosure of the opportunity to Mr. Gonzalez.” Adv. No. 05–00186, Docket # 458, p. 5. The bankruptcy court, however, concluded otherwise, noting first that Gonzalez had (1) signed the so-called Release Letter because he thought the acquisition was a bad business idea for ARI; and (2) participated in meetings where the possible venture with Pep Boys was discussed. Adv. No. 05–00186, Docket # 458, pgs. 31–32. The court then added:

[A]ny claim against Maria Cordera, Perez or Cordera [Jr.] related to YSIEM's purchase and development of the [Real Property] is time barred. Contrary to the trustee's argument that the leasing opportunity was not fully disclosed to Gonzalez, the Court finds that he had actual knowledge of the potential lease agreement with Pep Boys and was not interested in the venture. Gonzalez received no financial benefit from the transaction and if he felt that the development of the property was a business opportunity taken from ARI group, Gonzalez could have filed suit against the remaining defendants for breach of fiduciary duty as early as November 30, 1995, the date of the property purchase, or certainly by the time that the lease agreement became a public instrument in 1997. As a result, any action for this alleged breach expired as early as 1998, and at the very least in the year 2000.

Id.

Next, the bankruptcy court took on the Trustee's allegation that Defendants had breached their duty of care when buying out Cordera Jr. through the Purchase Agreement. The Trustee's post-trial submission stated that Defendants had failed to point out any “event on the record that would have lead the trustee or any of the creditors of the ARI group to have discovered the damage caused to...