Small Business Admin. v. Echevarria

Citation864 F. Supp. 1254
Decision Date09 September 1994
Docket NumberNo. 91-0033-CIV.,91-0033-CIV.
PartiesSMALL BUSINESS ADMINISTRATION, Plaintiff, v. Guido ECHEVARRIA, Sr. et al., Defendants.
CourtU.S. District Court — Southern District of Florida

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

Jeffrey Roth, Jeffrey Roth P.A., Coral Gables, FL, Arlene P. Messinger, Small Business Admin., Office of Litigation, Washington, DC, for plaintiff.

Richard Siegmeister, Miami, FL, for Guido Echevarria, Sr. and Maria Echevarria.

Gary Brookmyer, Miami, FL, for Alexander Echevarria and Maria Echevarria.

FINDINGS OF FACT AND CONCLUSIONS OF LAW

K. MICHAEL MOORE, District Judge.

THIS CAUSE came before the Court for a non-jury trial on Plaintiff Small Business Administration's claim for damages arising out of the Defendants' management of a Small Business Investment Company in contravention of Small Business Administration rules and regulations. Having considered all the evidence, including the testimony of the witnesses, and being otherwise duly advised, the Court enters its Findings of Fact and Conclusions of Law pursuant to Fed.R.Civ.P. 52.

I. FINDINGS OF FACT

This is an action by the Small Business Administration ("SBA"), as Receiver for Trans Florida Capital Corporation ("Trans Florida") to recover damages from former principals of Trans Florida, Guido Echevarria, Sr., ("Guido"), Mercedes Echevarria ("Mercedes") and Alexander Echevarria ("Alexander"). Guido and Mercedes are married and are the parents of Alexander. The suit also seeks damages from Alexander's wife, Maria Teresita ("Maite") Echevarria, ("Maite"). The complaint alleges that Defendants violated regulations governing Licensees under the Small Business Investment Act of 1958 as amended, 15 U.S.C. § 671 et seq., ("SBIA") by using Trans Florida to make loans to entities in which they held ownership interests.

This Court has jurisdiction over this matter pursuant to 28 U.S.C. § 754 because this matter is ancillary to a receivership proceeding pending in this Court under case number 88-0299-CIV-KEHOE. This Court also has jurisdiction over this matter pursuant to 28 U.S.C. § 1345 because it has been commenced by the Plaintiff, an agency of the United States, which has authority to sue pursuant to 28 U.S.C. § 754.

Trans Florida was a Small Business Investment Company ("SBIC") licensed under the Act. As such, it engaged primarily in lending money to minority-owned businesses that could not otherwise obtain financing. The money it loaned consisted of private capital and matching funds from the SBA. The Plaintiffs filed their 27-count complaint on January 7, 1991, alleging claims for conversion, common law theft and breach of fiduciary duty, under Florida law, and federal civil RICO, pursuant to 18 U.S.C. §§ 1962, 1963, 1964, et seq.

Pursuant to Fed.R.Civ.P. 41(a)(1), the Plaintiffs voluntarily dismissed without prejudice all counts against the Defendants with the exception of the following: (1) Count I for conversion as to Defendants Guido Echevarria, Sr., Alexander Echevarria and Mercedes Echevarria; (2) Count VI for conversion as to Defendant Guido Echevarria, Sr.; (3) Count XI for conversion as to Defendant Guido Echevarria, Sr.; (4) Count XII for civil theft as to Defendant Guido Echevarria, Sr., Alexander Echevarria and Mercedes Echevarria; Count XXII for civil theft as to Guido Echevarria, Sr. (6) Count XXIII seeking the imposition of a constructive trust against Defendants Guido Echevarria, Sr., Alexander Echevarria and Maite Echevarria; (7) Count XXIV for foreclosure on an equitable lien against Defendants Alexander Echevarria and Maite Echevarria; (8) Count XXV for breach of fiduciary duty as to Guido Echevarria, Sr., Alexander and Mercedes Echevarria; (9) Count XXVI for an accounting as to Guido Echevarria, Sr., Alexander and Mercedes Echevarria; (1) Count XXVII for federal and state civil RICO violations as to Guido Echevarria, Sr., Alexander Echevarria and Mercedes Echevarria.

The Court denied the Defendants Alexander and Maite Echevarria's Motion for Partial Summary Judgment on the following counts: I, II, XII, XIII, XXIII, XXIV, XXV and XXVII (DE # 132) on April 20, 1994 (DE # 154). In the same Order, the Court also denied the Plaintiff's Cross-Motion for Partial Summary Judgment on counts I, XII, XXIII, XXIV, XXV and XVII (DE # 136). After the conclusion of a three day, non-jury trial, April 29 through May 2, 1994, the Court directed the parties to submit supplemental briefs on the issues of: (1) whether the tort of conversion requires a showing of intent under Florida law and (2) the effect of loan assignments on the allegations in the Plaintiff's Complaint.1

In approximately February, 1981, Trans Florida applied to the SBA for a license to operate as an SBIC. On December 17, 1981, the SBA approved the application for a license to operate. This was confirmed by a December 29, 1981 letter from the SBA to Trans Florida. On November 4, 1982, Trans Florida applied to the SBA for permission to transfer control of the corporation. The new controlling shareholders of Trans Florida were to be Alexander Echevarria and Oswald Morales ("Morales"). Alexander was to obtain a 28 percent ownership interest and Morales was to obtain a 25 percent ownership interest in Trans Florida. On January 7, 1983, the SBA granted approval for the transfer of control. At or about that time, Alexander began to participate in the operations of Trans Florida.

The transactions at issue in this litigation took place in 1983, when Alexander and his parents owned almost one-half of the shares of Trans Florida (230,000 out of 500,000). Guido and Mercedes collectively owned 18 percent of the outstanding stock of Trans Florida while Alexander owned 28 percent of the outstanding stock.

A. U.S. PINE LOANS

Between February, 1983 and December 1983, Trans Florida loaned $262,500 to a company called U.S. Pine International Corp. ("U.S. Pine"). As a recipient of loan money from Trans Florida, U.S. Pine was a "Portfolio Concern" of Trans Florida. A Portfolio Concern is an entity that receives loans from an SBIC. 13 C.F.R. § 107.3. Of the $262,500 loan, three checks totaling $112,500 were signed by Alexander in his capacity as Vice-President, Director and Chief Financial Officer of Trans Florida. Alexander also signed the loan reports authorizing the distributions. At the time the U.S. Pine loans were made, Guido owned 15 percent of the U.S. Pine stock. This loan was never repaid to Trans Florida.

In December, 1983, approximately two weeks after the last loan by Trans Florida to U.S. Pine, Alexander and Maite contracted to purchase a residence from U.S. Pine located at 5800 Granada Boulevard, Coral Gables, Florida. Under the terms of the written contract, the price was set at $200,000, with a $50,000 deposit and a $150,000 bank loan to be obtained by Alexander and Maite. The sale closed in July, 1984.

Despite their representation on the loan application that a $50,000 cash deposit had been paid to U.S. Pine, Alexander and Maite never actually paid the deposit. Instead, they spent approximately $58,000 repairing and renovating the home. Most of the money was spent before they actually acquired title to the property. These expenditures are not reflected in the contract.

Following the completion of the renovations but prior to taking title to the home, Alexander and Maite had appraisals done on the home. The first, conducted on February 14, 1984, listed the value of the house as $258,500 (Pl.Ex. 16). The second, conducted four months laster on June 12, 1984, listed the home's value at $245,000 (Pl.Ex. 16). Alexander and Maite closed on the home in July, 1984. Alexander never sought or obtained permission from the SBA to purchase the home on the foregoing terms.

B. KEY LARGO MARINA AND KAWAMA LOANS

In April, 1983, Trans Florida provided $600,000 as a loan to Key Largo Marina Services, Inc. ("Key Largo Marina") to assist in the acquisition of a townhouse and marina project in Key Largo, Florida. The seller of the development was Paradise Yacht Club of Key Largo, ("Paradise Yacht"). Prior to 1983, Guido was a principal stockholder of Paradise Yacht, owning 50 percent of the stock and serving as its President and Director. The buyer of the property, Key Largo Marina, was also owned and controlled by Guido and several business associates. Guido owned 50 percent of the shares of Key Largo Marina. One of the two listed directors of Key Largo Marina was Alexander's father-in-law, Fernando Mirabal.

On April 29, 1983, Trans Florida, under signed directions from Defendant Alexander, caused two cashier's checks to be drawn on the bank account of Trans Florida, one for $300,000 payable to Kawama International Resorts Ltd., Inc. ("Kawama") (Pl.Ex. 27) and one for $300,000 payable to Key Largo Marina (Pl.Ex. 28). Kawama was also owned by Defendant Guido and his partners. Guido owned 50 percent of the stock and served as its President and Director2.

The cashier's checks payable to Kawama and Key Largo were endorsed to and deposited in the bank account of Paradise Yacht, Guido's company. (Pl.Ex. 30). Guido disbursed $400,000 of the money approximately two weeks later, by check. (Pl.Ex. 31). Another $136,000 was also disbursed by a check, signed by Defendant Guido to Euro Funds International, Inc. (Pl.Ex. 32). No such corporation exists in Florida. It is allegedly a Panamanian corporation owned by one of Guido's partners.

In exchange for the $600,000 of disbursements, Trans Florida only received a $300,000 mortgage on the Key Largo property. The discrepancy of $300,000 was never explained or accounted for by any of the Defendants. During the year after the initial $600,000 was paid out by Trans Florida, Trans Florida transferred an additional $295,000 to Kawama. One transfer was in September, 1983 by a check, signed by Alexander, for $200,000 (Pl.Ex. 35). The other transfer was in July, 1984 by a check, signed by Alexander and...

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