Opinion
Case No. 15-20614-LMI Adv. Case No. 16-01277-LMI Adv. No. 16-01197-LMI
2019-07-22
IN RE: Leonidas Ortega TRUJILLO, Debtor. Robert A. Angueira, Chapter 7 Trustee, Plaintiff, v. Leonidas Ortega Trujillo, et al., Defendants. Interamerican Asset Management Fund Limited, Plaintiff, v. Leonidas Ortega Trujillo, Defendant.
MEMORANDUM OPINION DETERMINING DEBTOR'S CORPORATE OWNERSHIP INTERESTS ON THE PETITION DATE
The findings of fact and conclusions of law in this opinion are applicable to both Adv. Pro. No. 16-01277 and Adv. Pro. No. 16-01197. The Court will enter separate final judgments in each of Adv. Pro. No. 16-01277 and Adv. Pro. No. 16-01197.
Laurel M. Isicoff, Chief United States Bankruptcy Judge
There are two plaintiffs in these consolidated adversary proceedings, the largest creditor of the Debtor and the Trustee administering the Debtor's bankruptcy estate. The Debtor is defendant Leonidas Ortega Trujillo ("LOT" or the "Debtor"). Plaintiff Robert A. Angueira (the "Trustee") is the chapter 7 trustee of LOT's bankruptcy estate. Plaintiff Interamerican Asset Management Fund Limited ("IAMF" and, together with the Trustee, the "Plaintiffs") is a judgment creditor of LOT with the largest claim against LOT's bankruptcy estate.
The defendants in these proceedings are the Debtor, his son Leonidas Ortega Amador ("Leonidas"), and seven (7) entities (collectively, the "Corporate Defendants") that the Trustee alleges are alter egos of the Debtor. Two of the seven Corporate Defendants, Panama Investment Moon Corporation ("PIMC") and LTG Foundation ("LTG"), were formed or incorporated in Panama (together, the "Panamanian Defendants"), and five of the Corporate Defendants were formed or incorporated in Florida (collectively, the "Florida Defendants"). The Florida Defendants are (i) TLG The Language Group, LLC ("TLG"), (ii) I.F. Multicultural Interactive Solutions, LLC ("IF MIS"), (iii) TL2 Travel Live & Learn, LLC ("TL2"), (iv) Infiservice Corp. ("Infiservice"), and (v) Grupo IF-USA, Corp. ("Grupo IF").
The Debtor filed a voluntary petition for relief under chapter 7 of the Bankruptcy Code on June 11, 2015 (the "Petition Date"). The following year, 2016, the Plaintiffs filed these consolidated adversary proceedings. Both Plaintiffs allege that the Debtor has undisclosed ownership interests in the Corporate Defendants. The Trustee seeks to recover those ownership interests for the Debtor's bankruptcy estate, and IAMF seeks to bar the Debtor from discharging his debts because the Debtor did not disclose these ownership interests in his bankruptcy schedules.
11 U.S.C. §§ 101 et seq.
The Court conducted a consolidated bench trial between July 2018 and January 2019. What follows is a chronological overview of the Debtor's financial rise and fall, without which it is impossible to parse through the voluminous documentary and testimonial evidence introduced at trial. The Court draws both from that evidence and from the parties’ joint pretrial stipulation to make the findings of fact below.
Some of the background facts regarding IAMF are also taken from the findings made by the Judicial Committee of Her Majesty's Privy Council in the Bahamian Action (hereinafter defined).
Historical Background
The Debtor is the eldest of six brothers born to an evidently wealthy Ecuadorian family. The Ortega family's holdings were extensive and consolidated, at least in part at some point, in Conticorp S.A. ("Conticorp"), a conglomerate with investments in the automotive, insurance, real estate, legal advisory, educational, financial, tourism, and social work industries. The Debtor served as president of Conticorp.
Conticorp, though a subsidiary, owned an Ecuadorian bank, Banco Continental S.A. ("Banco Continental"), which failed, causing its liquidation. The bank failure also triggered litigation that culminated in the entry of two significant judgments against the Debtor. At some point prior to Banco Continental's failure, the Debtor and two of his brothers formed IAMF, a mutual fund incorporated and based in the Bahamas, which was an indirect subsidiary of Banco Continental. The Ortega family formed ABP Corporation ("ABP Corp."), evidently as a successor to Conticorp. ABP Corp. acquired the businesses formerly owned by Conticorp and had the same or similar shareholders as Conticorp. At some point, the Ortega family also formed Fundacion ABP, whose purpose is unclear, as well as what appear to be various shelf corporations. The Debtor was named president of ABP Corp.
The Ortega family holdings may well exceed what is described in this opinion, but neither the extent nor nature of those other holdings are relevant to this opinion.
At some point, presumably when Banco Continental was forced into liquidation, the Ortega family lost its indirect control of IAMF, because in 1996, IAMF filed suit in the Bahamas alleging, inter alia , fraud in connection with transfers of substantially all of IAMF's assets in exchange for valueless global depository receipts connected to the Banco Continental failure (the "Bahamian Action"). In 1997, IAMF added the Debtor, two of his brothers, Jaime Ortega Trujillo and Luis Ortega Trujillo, and Conticorp as defendants in the Bahamian Action. The Bahamian Action went on for almost 20 years, until it finally reached the Judicial Committee of Her Majesty's Privy Council (the "Privy Council") , whose judgment against the Debtor precipitated the filing of the Debtor's bankruptcy case. But a great deal occurred between 1996 and the Privy Council's ruling.
The Privy Council is the jurisdictional counterpart of the Supreme Court of the United Kingdom for appeals from the courts of Commonwealth Countries and is constituted with five justices of the Supreme Court. See https://www.jcpc.uk/about/judicial-committe.html.
In 1998, the Debtor and his brothers Jaime and Luis filed a defamation action against Banco Central in the United States District Court for the Southern District of Florida (the "District Court") alleging that Banco Central had issued a press release regarding the Ortegas’ involvement in a bank-fraud scheme. Ultimately, however, the Debtor and his brothers voluntarily dismissed the Florida action. In 2002, the District Court entered a $720,566.33 judgment against the three for attorney fees incurred by the defendants (the "Attorney-Fee Judgment").
Banco Central was a co-plaintiff with IAMF in the Bahamian Action.
The Court takes judicial notice of the pleadings filed in the District Court for the Southern District of Florida, Case No. 98-0373-CIV-King. See Plaintiff's Request for Judicial Notice [ECF # 228 in the Trustee Proceeding].
Interamerican Asset Management Fund Limited v. Ortega T. (In re Ortega T.) , 573 B.R. 284, 288-89 (Bankr. S.D. Fla. 2017).
In 1996, the Debtor moved to Miami, Florida and began taking English lessons at a language school operating under the trade name "Inlingua." The school obviously made an impression on the Debtor because in 2000, the Ortega family, through an American entity – Infiservice, purchased from a man named Donald Tuck the assets of the eight Inlingua schools that Mr. Tuck operated. The Debtor guaranteed Infiservice's payment obligations to Mr. Tuck.
Infiservice was incorporated in Florida in 1990.
The actual entity that was set up to receive the stock, at least according to the documents in evidence, was IF MIS.
During roughly the same time frame, 1998 through 2003, the Debtor formed and funded the Panamanian Defendants. In 1998, the Debtor and his brothers formed PIMC. In 1998, the Debtor and his brothers also incorporated Panama Investment Star Corporation ("Panama Star") in Panama. At some point, apparently, PIMC became the sole shareholder of Panama Star; by 2002, Panama Star became the sole shareholder of its own shareholder, PIMC.
The record does not reflect any particular reason why PIMC or Panama Star were formed; perhaps they were created as what are called in the United States "shelf corporations", that is, corporations formed to be "at the ready" in case needed.
Panama Star does not play a big role in this saga other than as an illustration that corporate formalities were of little importance to the Ortega family.
On February 8, 2003, PIMC was party to a Share Purchase Agreement (the "2003 Share Purchase Agreement") that obligated ABP Corp. to (i) pay PIMC more than two million dollars over ten years in exchange for the purported sale of shares in four Ecuadorian companies, and (ii) transfer to PIMC a Miami, Florida condominium unit owned by a Florida corporation, Crown Investments II, LLC ("Crown Investments"). The 2003 Share Purchase Agreement purports to ratify a December 26, 2001 sale by PIMC, as "seller," to Profinance Enterprises Corp. ("Profinance"), a Panamanian corporation and subsidiary of ABP Corp., as "buyer," of shares representing a 100% interest in four Ecuadorian companies: (a) Inmobiliaria Tigui S.A.; (b) Inmobiliaria 705 S.A.; (c) Predial Notipax S.A.; and (d) Inversiones L.O.T. S.A. According to the 2003 Share Purchase Agreement, these four companies (collectively, the "Ecuadorian Real Estate Companies") separately owned various parcels of real property in Ecuador. The 2003 Share Purchase Agreement is silent as to the true owner of the shares of the Ecuadorian Real Estate Companies. PIMC, which did not own the shares of the companies, instructed the unnamed "former owners" to transfer the shares to Profinance in exchange for certain consideration, none of which, at least as documented, flowed to the "former owners". For purposes of the transaction, the shares of the Ecuadorian Real Estate Companies were valued in the aggregate at $1,550,000. The bulk of the proceeds, $800,000, was to be paid to PIMC over a period of 10 years, at 16% annual interest, for a total of $2,166,638. PIMC also received additional consideration valued at $150,000 through the transfer of unspecified rights to the Crown Investments real property in Miami. The 2003 Share Purchase Agreement also provided for additional payments, including payments to Gullwing International Corp. (an entity allegedly owned or controlled by the Debtor's daughter, Maria Cristina Ortega de Marcos) and to Inversiones Emergentes S.A. (an entity allegedly owned or controlled by the Debtor's daughter, Ghislaine Ortega de Roca).
The Debtor wore multiple hats on both sides of this transaction. As of December 26, 2001, the Debtor was the President of PIMC. The Debtor also executed the 2003 Share Purchase Agreement on behalf of ABP Corp., the parent company of Profinance.
While it appears various of the children and the Debtor lived in these properties while they lived in Ecuador, ownership of these properties, like everything else the Ortegas owned, was somewhat blurred. The actual ownership of these shares and the underlying real estate, similar to the interest in the other companies in which the Debtor and his family are involved, appear to be as irrelevant to the family as who should be an officer or director at any particular time of any given entity.
The 2003 Share Purchase Agreement specified that all of the described payments were to be made by the paying agent, Infiservice, which would, if necessary, use the funds of ABP Corp. to make those payments. The agreement did not require any payments to be made by the putative "buyer," Profinance. Thus, the terms of the 2003 Share Purchase Agreement provided that PIMC would sell assets that it did not own, and Profinance was not required to pay for the assets it purchased. The following chart illustrates the transaction.
Pl. Ex. 3.
Id.
On February 17, 2003, the Debtor created LTG Foundation, a Panamanian foundation ("LTG"). The timing of the Debtor's formation of LTG, in which the Debtor placed everything he owned, coincided with writs of garnishment that were issued in January 2003 in connection with the Attorney-Fee Judgment.
At the time of its formation, the sole beneficiaries of LTG were the Debtor and his wife, Maria Cristina Amador de Ortega ("Sra. Ortega"). The Debtor's three adult children were contingent beneficiaries, in the case of the death of the Debtor and his wife. In December 2005, the Rules of LTG were amended to substitute the Debtor's three grown children, Ghislaine Ortega de Roca ("Ghislaine"), Cristina Ortega de Marcos ("Tinita"), and defendant Leonidas Ortega Amador ("Leonidas"), as beneficiaries of LTG.
Notwithstanding the change in beneficiaries, the Debtor was the only person who received benefits from LTG until the filing of his bankruptcy petition on June 11, 2015 (the "Petition Date"), after which money was paid to Sra. Ortega for a time. None of the Debtor's children have ever received a distribution from LTG. Although the source of funds varied from year to year, between 2010 and the Petition Date, the Debtor received payments directly and indirectly from LTG totaling $2,825,371. These payments initially consisted of sums due to PIMC that were paid by ABP Corp. affiliates under the 2003 Share Purchase Agreement, and thereafter consisted of funds paid by Infiservice or its affiliates after their ownership was transferred to PIMC pursuant to the 2013 Agreements, as illustrated below. The Debtor testified that all of these payments were ultimately from LTG, through Leonidas, who decided from where the payments would be made. In 2010, according to the Debtor's income tax return, the Debtor received a total of $685,981 in purported gifts. These payments were made by companies owned and/or controlled by ABP Corp. entities including Bolivar Compania de Seguros del Ecuador, and other related entities, in payment of the debt to PIMC owed under the 2003 Share Purchase Agreement. In 2011, according to the Debtor's income tax return, the Debtor received a total of $784,000 in purported gifts. These payments were sums owed to PIMC under the 2003 Share Purchase Agreement, and were made by ABP Corp.-related entities in payment of the debt to PIMC owed under the 2003 Share Purchase Agreement. These sums were paid directly to the Debtor (or to his designee, "Magister") by the ABP Corp.-related entities Bolivar Compania de Seguros del Ecuador and Seguros Bolivar Inv. In 2012, according to the Debtor's income tax return, the Debtor received a total of $650,000 in purported gifts. In 2013, according to the Debtor's income tax return, the Debtor received a total of $175,390 in purported gifts. The payments were made directly to the Debtor by IF MIS, and by Infiservice to the United States Treasury, for the Debtor's prior income tax obligations. In 2014, according to the Debtor's income tax return, the Debtor received a total of $285,000 in purported gifts. These sums were directly paid to the Debtor by TLG. In 2015, according to the Debtor's income tax return, the Debtor received a total of $245,000 in purported gifts. Some of the monies were paid directly to the Debtor by TLG, and some were paid to the Debtor by his son, Leonidas.
On May 22, 2003, LTG acquired 100% of the shares of PIMC for the sum of $10,000.00, which $10,000 was funded by the Debtor.
The evidence showed that the Debtor directed from where some of these payments would be made.
There is no record of which entity made the $650,000 in payments to the Debtor in 2012. A handwritten notation on a page from the Debtor's accountant's work papers for 2012 represents the only support provided to the Debtor's accountant to substantiate the purported gifts for 2012. However, the Corporate Representative of PIMC and LTG testified that PIMC received approximately $600,000 in 2012 which related to payments made under the 2003 Share Purchase Agreement and that these funds were transferred to the Debtor.
The chart below illustrates the payments and sources:
| Year | Amount | Source |
|---|---|---|
| 2010 | $ 685,981 | Companies owned or controlled by ABP Corp. in payment of debt to PIMC under the 2003 Share Purchase Agreement. Paid directly to the Debtor by the ABP Corp. entities. |
| 2011 | $ 784,000 | Same as above, paid to the Debtor or his designee. |
| 2012 | $ 650,000 | LTG | 2013 | $ 175,390 | LTG, IF MIS, and Infiservice |
| 2014 | $ 285,000 | TLG | 2015 | $ 245,000 | TLG, PIMC/LTG, Leonidas Ortega Amador |
| Total | $ 2,825,371 |
One of the Debtor's nephews, Jose Luis Ortega, came up to help operate the language schools. The Debtor's son, Leonidas, continued to work in the family insurance business in Ecuador, although, ultimately, he came to the U.S. to help operate the language schools. The Debtor's daughter Tinita went into business in the U.S. with two of her cousins – operating a nursery school that was owned, it appears, by ABP Corp., or perhaps by Tinita and her cousins. There is conflicting evidence.
However, family discord developed between the brothers, and when, in 2010 the Debtor tendered his resignation as president of ABP Corp. to be effective when he turned 60, his brothers kicked him out immediately and, apparently, terminated whatever income the Debtor had been receiving as an employee of ABP Corp. and its various entities.
In 2013, the families made a final split the terms of which are reflected in two agreements – a Settlement Agreement (the "Settlement Agreement") and a Debt Settlement and Payment Agreement (the "Debt Settlement Agreement") – each signed on or about December 4, 2013 (collectively the "2013 Agreements") that divided up ownership of the ABP Corp. companies, dealt with the unpaid ABP Corp. note held by PIMC, and addressed other family issues.
The Settlement Agreement outlined the terms by which the Debtor and other parties relinquished their rights in several family companies and foundations in exchange for consideration. The parties relinquishing their rights in the family companies and foundations were referred to as the "divestees," and included the Debtor (on his behalf, on behalf of his wife, and on behalf of the members of his lineage), LTG, and Jorge Reyes Tous (on behalf of Arizona Management Foundation and other companies). The family companies and foundations as to which rights were being relinquished by the divestees included ABP Foundation, ABP Corp. (and any business that was the direct or indirect property of ABP Corp.), and other family-owned foundations.
Jorge Reyes Tous was a friend of the Debtor who had invested in ABP Corp. personally and through his companies and foundations. Thus, the Debtor's separation from ABP Corp. also entailed the separation of Reyes Tous and the entities he owned from ABP Corp.
In exchange for the relinquishment of their rights in these companies and foundations, the divestees were to receive $3,430,000 to be paid to PIMC as the "Recipient." PIMC was to receive $3 million under a payment plan, after an offset of a $560,000 debt owed by the "Creditors" as defined in the Debt Settlement Agreement (described below). The Settlement Agreement did not specify how the consideration paid in exchange for the relinquishment by the divestees of their rights and benefits was to be allocated among them, but instead, left such responsibility to the divestees themselves.
The Debt Settlement Agreement, also executed on December 4, 2013, sets forth the terms by which various family companies and foundations were to settle certain debts owed to several parties. The family companies and foundations referred to in the Debt Settlement Agreement as the "Debtors" included Raices Foundation, ABP Corp., ABP Foundation, ABP Services International, Inc., and Unidad Corporativa Foundation. The following parties were referred to as the "Creditors," and the agreement sets forth the debts purportedly owed to the "Creditors" as set forth below.
The Debt Settlement Agreement provided for certain smaller payments on behalf of the Debtor, including $160,000 or more in payments to the IRS on behalf of the Debtor, up to $26,000 in reimbursements to the Debtor, and $130,000 to be deducted from the $560,000 debt owed by the "Creditors." The bulk of the consideration under the Debt Settlement Agreement was the transfer of shares valued at $8,310,000, to PIMC, as "Recipient." PIMC was to receive 100% of the shares of Banlane, a Bahamian company, which in turn owned 100% of the shares of Infiservice, which shares were valued at $5,750,000 for purposes of the transaction. Infiservice, in turn, owned 100% of the shares of IF MIS and TLG. The Debt Settlement Agreement also provided for PIMC to receive the shares of TL2, which were valued at $2,560,000.
The terms of the two agreements are illustrated below.
| Summary of Debts Being Settled | ||
|---|---|---|
| Party | Amount | |
| PIMC | $ | 2,708,251 |
| LTG Foundation | $ | 1,900,000 |
| Debtor | $ | 330,000 |
| Maria Cristina Ortega de Marcos | $ | 1,027,672 |
| Ghislaine Ortega Amador de Roca | $ | 200,000 |
| Sanvicente Holding Corp. | $ | 1,506,368 |
| Mercedes Cardinal Living Trust | $ | 1,016,772 |
| TOTAL | $ | 8,689,063 |
On March 23, 2015, the Privy Council finally entered its ruling in the Bahamian Action, resulting in a judgment in favor of IAMF and against the Debtor and his two brothers, Jaime and Luis, which judgment now exceeds $600 million (the "IAMF Judgment") . In response, the Debtor filed for relief under chapter 7 of the Bankruptcy Code on June 11, 2015.
The IAMF Judgment held the Debtor, two of his brothers, and Conticorp jointly and severally liable in the amount of $191,983,517. The judgment accrues interest at a rate of $105,000 per diem (at 6% compound interest). On July 14, 2015, after the Petition Date, the Privy Council issued an additional judgment for costs and interest, awarding IAMF an additional $381,886,435 in compound interest through March 31, 2015 and continuing thereafter, plus costs. The total amount of the judgment now exceeds $600 million, including additional awards of interest and costs.
In April 2016, at an "extraordinary meeting", LTG's board of directors - its then sole remaining beneficiary, defendant Leonidas, together with his sisters Tinita and Ghislaine - ratified the $2.8 million in distributions made to the Debtor between 2010 and 2015, and the $500,000 in distributions made to Sra. Ortega between 2015 and 2016. The minutes reflect that during that same post-petition "extraordinary" meeting, the Board of Directors "established with immediate and binding effect" that the beneficiaries of LTG are the Debtor's children, Leonidas, Tinita and Ghislaine, or their heirs. Presumably this post-petition designation, identified as an amendment to the LTG by-laws, was designed to remedy the issues raised by the fact that in February of 2014, Tinita had renounced her beneficial interest in LTG and that in October of 2015, Ghislaine renounced her beneficial interest in LTG.
The following year, in July or August of 2017, Leonidas renounced his beneficial interest in LTG.
Bankruptcy Procedural History
The Debtor filed for bankruptcy relief on June 11, 2015. On April 25, 2016, IAMF filed an adversary proceeding against the Debtor seeking a determination that the IAMF Judgment was non-dischargeable under 11 U.S.C. § 523, and that the Debtor should not receive a discharge pursuant to 11 U.S.C. § 727. That adversary proceeding is numbered 16-01197 (the "IAMF Proceeding").
IAMF's complaint (the "IAMF Complaint") has six counts, only three of which remain unadjudicated. The first three counts of the IAMF Complaint are counts in which IAMF sought to except only the IAMF Judgment debt from the Debtor's discharge under 11 U.S.C. § 523. The Debtor prevailed on all three of those counts, leaving pending only IAMF's objection to the Debtor's receipt of a general discharge of his debts under 11 U.S.C. § 727. On June 7, 2016, the Trustee filed adversary proceeding number 16-01277 (the "Trustee Proceeding") against the Debtor, his son, Leonidas, and the Corporate Defendants (collectively, the "Defendants"). The operative complaint in the Trustee Proceeding is the Trustee's Second Amended Complaint (the "SAC" or the "Complaint"). The SAC is a three-count complaint in which the Trustee seeks (i) to pierce the corporate veil of the Corporate Defendants as alter egos of the Debtor (Count 1), (ii) a declaratory judgment determining that the Debtor was, on the Petition Date, the equitable owner of the Corporate Defendants (Count 2), and (iii) to compel turnover of the Corporate Defendants, or their value, to the Trustee for the benefit of the Debtor's bankruptcy estate (Count 3).
By agreed order dated October 12, 2016, the Court dismissed Count II of the IAMF Complaint [ECF #35 in the IAMF Proceeding]. On June 21, 2017, in an opinion on cross-motions for summary judgment, the Court granted the Debtor summary judgment on Counts I and III of the IAMF Complaint. Interamerican Asset Management Fund Limited v. Leonidas Ortega T. (In re Ortega T.) , 573 B.R. 284 (Bankr. S.D. Fla. 2017).
Count IV (11 U.S.C. § 727(a)(4)(A) ), Count V (11 U.S.C. § 727(a)(5) ), and Count VI (11 U.S.C. § 727(a)(3) ) of the IAMF Complaint are still at issue.
On October 11, 2017, the Court entered an order consolidating for trial the entirety of the Trustee Proceeding with the discrete issue in the IAMF Proceeding of "whether the Debtor holds an undisclosed interest in [the Corporate Defendants]." The Court conducted a consolidated bench trial on July 18, 19, 20, 23, and 24, 2018, November 15 and 16, 2018, December 17 and 18, 2018, and January 7, 2019.
Order Granting Unopposed Motion to Consolidate Adversary Proceedings for Limited Purposes and Setting Certain Deadlines, Adv. Pro. No. 16-01197, ECF #90.
At the close of the Plaintiffs’ case-in-chief, the Corporate Defendants moved ore tenus for a judgment on partial findings, which motion the Court denied. Angueira v. Trujillo (In re Trujillo) , 607 B.R. 734 (Bankr. S.D. Fla. 2019) (the "Partial Findings Opinion"). Having considered all of the evidence, including the testimony of many witnesses, some introduced through deposition designations and some by live testimony, the Court makes the findings of fact and conclusions of law set forth herein.
Legal Analysis
COUNT I: ALTER EGO
In Count I, the Trustee alleges that the Debtor exercised dominion and control over each of the Corporate Defendants "such that their independent identity is non-existent and they are merely alter egos of the Debtor." The Trustee has failed to demonstrate he is entitled to relief under Count I. The Trustee has failed to present the Court with any legal framework to determine whether, under Panamanian law, the concept of "alter ego" or "piercing the corporate veil" even exists, so there is no basis upon which the Court can determine whether the Trustee is entitled to the relief he seeks in regards to LTG or PIMC. Nor has the Trustee provided any basis for this Court to find that U.S. law on alter ego or piercing the corporate veil would apply with respect to those foreign entities. Regarding the Florida Defendants, the Trustee has failed to prove all of the elements of the relief he seeks; to the extent the evidence might be interpreted to show the Florida Defendants are alter egos of one another, that is a matter for the state court. A general principle of corporate law is that shareholders of a corporation are protected against "personal liability unless it be shown that the corporation is formed or used for some illegal, fraudulent or other unjust purpose which justifies piercing the corporate veil." Dania Jai-Alai Palace, Inc. v. Sykes , 450 So. 2d 1114, 1121 (Fla. 1984). To pierce the corporate veil under Florida law, three factors must be satisfied:
The assets of the Florida Defendants are subject of state liquidation proceedings filed under Chapter 727 of the Florida Statutes. I.F. Multicultural Interactive Solutions, LLC and Infiservice Corp. (together, the "Assignors") assigned their assets to Leslie Osborne for purposes of filing an assignment for the benefit of creditors ("ABC") in Florida state court. On November 12, 2018, Mr. Osborne filed ABC petitions in Broward County, Florida on behalf of the Assignors [ECF #303 in the Trustee Proceeding]. The online records of the Broward County courts indicate that on February 12, 2019, the ABCs were transferred to Miami-Dade County, Florida and are pending under case numbers 2019-004962-CA-01 and 2019-004925-CA-01, respectively. As of July 19, 2019, both ABCs remain open.
(1) the shareholder dominated and controlled the corporation to such an extent that the corporation's independent existence was in fact non-existent and the shareholders were in fact alter egos of the corporation;
(2) the corporate form must have been used fraudulently or for an improper purpose;
(3) the fraudulent or improper use of the corporate form caused injury to the claimant.
This Court has already concluded in the Partial Findings Opinion that, notwithstanding the common reference to "shareholder" in alter ego cases, the focus of Florida law is on who holds the equitable ownership and benefit of the corporate entity, rather than on formal share ownership, and accordingly that formal shareholder status is not a prerequisite to imposition of alter ego liability. [ECF# 328 in the Trustee Proceeding]. See also Smallwood v. Moretti , 128 So. 2d 628, 629 (Fla. 3d DCA 1961) ("[I]t is possible under some circumstances for one to own stock in a corporation though no certificate has been issued to him." (citation omitted)).
Gasparini v. Pordomingo , 972 So. 2d 1053 (Fla. 3d DCA 2008) (citations omitted).
Florida law also recognizes "reverse" veil piercing, by which, considering the same three factors, a corporate entity may be held liable for the debts of an individual debtor. See, e.g. , Estudios, Proyectos e Inversiones de Centro America, S.A. (Epica) v. Swiss Bank Corp. (Overseas) S.A. , 507 So. 2d 1119 (Fla. 3d DCA 1987) (upholding decision to pierce corporate veil and allow attachment of corporation's property to satisfy judgment against individual, where evidence reflected that individual debtor "has established an intriguing and complicated network of foreign corporations, which he secretly controls, for the express purpose of hiding his and his family's personal assets from their creditors," including the defendant corporation); see also 381651 Alberta, Ltd. v. 279298 Alberta, Ltd. , 675 So. 2d 1385 (Fla. 4th DCA 1996) (upholding judgment that "family trust corporation" that held title to all of individual judgment debtor's personal property and two condominiums in which he and his family lived was alter ego of individual); Barineau v. Barineau , 662 So. 2d 1008 (Fla. 1st DCA 1995) (holding that a non-profit corporation, even though it has no stock ownership, may be an alter ego of an individual).
While "the corporate veil may not be pierced absent a showing of improper conduct," Dania Jai-Alai Palace , 450 So. 2d at 1121, courts have found misconduct where "the corporation was organized or employed to mislead creditors or to work a fraud upon them." Id . at 1120 (quoting Advertects, Inc. v. Sawyer Industries, Inc., 84 So. 2d 21, 23 (Fla. 1955) ). See also Steinhardt v. Banks , 511 So. 2d 336, 339 (Fla. 4th DCA 1987) ("Florida decisions uniformly hold that courts will look through the screen of corporate entity to the individuals who compose it in cases in which the corporation ... was organized or used to mislead creditors or to perpetrate a fraud upon them, or to evade existing personal liability.") (quoting Tiernan v. Sheldon , 191 So. 2d 87, 89 (Fla. 4th DCA 1966) ).
The Court finds that there is no question that the Debtor dominated the Florida Defendants during much of the period prior to his bankruptcy, both before and after the "family divorce." That domination was not absolute, as other family members, both locally and through ABP Corp., were involved in operating the Florida Defendants, and the language schools were owned prior to 2013 by ABP Corp. through Infiservice and IF MIS. However, the overwhelming weight of the evidence showed that, while others may have run the language schools day to day, and while there were board meetings for the various corporations which the Debtor attended only as a "consultant", in truth, the Debtor was the "Godfather", the ultimate decider, whatever he was called, with respect to the operations of the language schools. The evidence showed that the Debtor was identified on a variety of different documents, depending on various factors (primarily expediency), as president or director of different entities irrespective of what formal corporate records might indicate. There were corporate documents filed with the state of Florida, documents signed in Panama and Ecuador, bank applications, contracts - an endless parade of documents - in which the Debtor's role was represented in a way that may or may not have been accurate at the time such document was signed. , Nevertheless, whatever his title, the Debtor had the ultimate veto in matters relating to the language schools.
During the Debtor's depositions, there were several instances in which he testified that a document or an email that identified him in a particular capacity was "a mistake".
This is not unique to the Debtor. The evidence presented showed that Sra. Ortega, Leonidas and Tinita served in a variety of corporate capacities, and especially in the case of Sra. Ortega and Tinita, with apparently little or no knowledge or understanding of their positions. In fact, the record was very clear that in the case of Sra. Ortega, and at least until 2017 with respect to Tinita, these wives apparently signed whatever their husbands told them to sign, without, it seems, understanding or caring what their signatures were for.
"Veto" power is what the Debtor held when he was President of ABP Corp. with respect to all ABP Corp. decisions, and so this veto power was consistent with the authority the Debtor exercised in all family matters, at least, until his ouster from control of ABP Corp. in 2010.
However, the Plaintiffs failed to show any evidence that the Florida Defendants were formed or used "fraudulently or for an improper purpose". The evidence shows that the language schools were each formed for a legitimate purpose, and those companies that operated were operated for a legitimate purpose. The language schools were real companies, with employees, students, and a valid business purpose in which they were engaged, conducting business in various locations around the state.
Grupo IF was apparently never active and was dissolved in 2017.
It is true that the evidence showed that the corporate meetings for all of the Florida Defendants were conducted at the same time; indeed, the Debtor and Tinita testified that all of the language schools "function as just one company," that they were essentially "the same." But even if the Florida Defendants were viewed as one, either internally or externally, there was no evidence that the Florida Defendants were controlled for the benefit of the Debtor. Even the fact that the Debtor took money out of various of the corporations – "the gifts" from LTG – or that some of the Debtor's personal expenses were paid from one or another of the Florida Defendants does not mean the Florida Defendants were operated fraudulently or for an improper purpose or solely for the Debtor's benefit. The evidence shows the opposite was true. Moreover, the Florida Defendants appear to have been functioning and paying their respective or collective debts until the costs of this litigation overwhelmed them financially.
Indeed, as the Court observed on more than one occasion, many members of the family "fed at the corporate trough" and were apparently paid from one or the other of the Florida Defendants based on a variety of roles.
As the Trustee has failed to prove the second element required for relief under Count I, judgment shall be entered in favor of the Corporate Defendants and against the Trustee with respect to Count I of the Complaint.
COUNT II: EQUITABLE OWNERSHIP
In Count II of the Complaint, the Trustee requests entry of a declaratory judgment establishing
that (i) the Debtor is the true equitable owner of [the Corporate Defendants]; (ii) the Debtor's equitable ownership interest in [the Corporate Defendants] is property of the Estate; and (iii) the Debtor holds his equitable interest in [the Corporate Defendants] in trust for the benefit of the Estate.
SAC, pp.22-23. In support of his request, the Trustee cites 28 U.S.C. § 2201 and 11 U.S.C. § 541.
Section 2201 of Title 28 of the United States Code authorizes the Court to enter declaratory judgments. It reads, in pertinent part, as follows: "In a case of actual controversy within its jurisdiction, ... any court of the United States ... may declare the rights and other legal relations of any interested party seeking such declaration." 28 U.S.C. § 2201(a). Bankruptcy courts commonly award declaratory judgments to bankruptcy trustees seeking to resolve disputed ownership interests and recover undisclosed assets for bankruptcy estates. See, e.g., Woodard v. Hammons (In re Chesley ), 551 B.R. 663 (Bankr. M.D. Fla. 2016) (determining that a debtor was the equitable owner of a boat on the bankruptcy petition date and entering summary judgment in favor of a chapter 7 bankruptcy trustee who filed an adversary proceeding seeking a declaratory judgment that the boat is property of the bankruptcy estate); Genova v. ESM Realty Trust (In re Stoll ), 330 B.R. 470 (Bankr. S.D.N.Y. 2005) (granting summary judgment to a chapter 7 bankruptcy trustee "on the issue of whether the Debtor's interest in the trusts are [sic] property of the bankruptcy estate" and discussing beneficial and equitable ownership interests in nominee trusts and trust property).
Section 541 of the Bankruptcy Code liberally defines property of the estate to include "all legal or equitable interests of the debtor in property as of the commencement of the case." 11 U.S.C. § 541(a)(1). "The determination of what constitutes property of the estate is a question of federal law, even though the ‘nature and existence of a debtor's right to property is determined by looking at state law.’ " Woodard v. Hammons (In re Chesley) , 551 B.R. 663, 670 (Bankr. M.D. Fla. 2016) (citations omitted).
Florida law long has recognized equitable or beneficial interests as a form of property ownership. See Partial Findings Opinion at *3. This general rule applies even to ownership interests in intangible things, such as corporate forms or trust arrangements. See, e.g., Acoustic Innovations, Inc. v. Schafer , 976 So. 2d 1139, 1142, 1144-45 (Fla. 4th DCA 2008) (Although the plaintiff, Shafer, "abandoned his claim for declaratory relief," the "trial court determined that Shafer was, at all material times, the equitable and beneficial owner of fifty percent of [defendant] Acoustic's stock."); Brevard County v. Ramsey , 658 So. 2d 1190, 1196 (Fla. 5th DCA 1995) ("In a trust relationship, the trust beneficiary possesses an equitable ownership in the trust property, while the trustee possesses legal title to the property") (citing 76 Am.Jur.2d Trusts § 1 (1992) (citing Restatement (Second) of Trusts § 2 (footnotes omitted))).
Florida law has no clear standard for determining whether someone is the equitable or beneficial owner of assets, business entities or estate-planning vehicles, nominally owned by another. See Partial Findings Opinion at *3 ("Florida, like many states, does not have a bright-line test for determining nominee ownership." (citations omitted)). The cases are fact specific, and the determinative facts often overlap with indicia germane to nominee cases. See Shades Ridge Holding Co. v. United States , 888 F.2d 725, 729 (11th Cir. 1989) (identifying the following factors as determinative in nominee cases: (i) control over the nominee and the nominee's assets, (ii) family relationships, and (iii) use of nominee's assets). See Towerhouse Condominium, Inc. v. Millman, 475 So. 2d 674 (Fla. 1985). The most critical factor usually is control. Shades Ridge , 888 F.2d at 728 ("The issue ... depends on who has ‘active’ or ‘substantial’ control."); see also Christensen v. Bowen , 140 So. 3d 498, 501 (Fla. 2014) (In the context of the "beneficial ownership" or "bare legal title" exception to the dangerous instrumentality doctrine, a titleholder of a motor vehicle who "demonstrates that he or she does not have the authority to exert any dominion or control over the vehicle ... is not a beneficial owner of the vehicle." (citation omitted)). A second factor is who is receiving the benefits of the asset. See Gary J. Rotella & Assocs., P.A. v. Bellassai (In re Bellassai) , 451 B.R. 594, 601 (Bankr. S.D. Fla. 2011) (finding consumer debtor had an undisclosed equitable interest in a corporation when he had the corporation's "uninterrupted going concern directly support his lifestyle").
See Russell v. Southeast Housing, LLC, 162 So. 3d 262, 268-69 (Fla. 3d DCA 2015) (With respect to real estate, "[w]here legal title to property is held by one party but other significant rights concerning the property are held by another party, the determination of who possesses equitable or beneficial ownership turns on the allocation between the parties of the property rights .... There is no single ‘stick’ in the bundle of rights ... whose possession reflects equitable ownership; instead[,] the allocation of the rights must be viewed in their entirety." (citation omitted)).
In the Complaint, the Trustee did not specify the theory of equitable ownership upon which he was relying. However, in Plaintiffs’ Emergency Verified Motion for Prejudgment Writ of Attachment and Preliminary Injunctive Relief [ECF #281 in the Trustee Proceeding], filed on October 12, 2018, the Trustee cited Menchise v. Steffen (In re Steffen) , 464 B.R. 450 (Bankr. M.D. Fla. 2012), aff'd , 611 F. Appx. 677 (11th Cir. 2015), and addressed elements of a nominee theory, to demonstrate the "likelihood of success on the merits" that is required for injunctive relief.
Based on the evidence, the Court finds that on the Petition Date, the Debtor was the true beneficiary of LTG, not his children, and consequently, on the Petition Date, the Debtor was the equitable and beneficial owner of the Corporate Defendants, due to his interest in LTG. Any interest the Debtor's children had in LTG from time to time was nominal and not related to real interests as beneficiary. LTG was probably set up partly as an asset protection vehicle and clearly, according to the Debtor, for estate planning purposes. Everything that was put into LTG was originally the Debtor's. The Debtor testified that in 2003 he transferred to LTG everything he owned – all of his assets, all of his rights "and everything in my life." Leonidas testified that this transfer included his father's one seventh interest in all the Ortega family investments. Tinita testified that her father told her that LTG was set up to receive the benefits from ABP Corp.
The Corporate Defendants claim that the Debtor's children and their spouses were the owners of the properties owned by the Ecuadorian Real Estate Companies that were the subject of the 2003 Share Purchase Agreement and that is why the children were the beneficiaries of LTG. There was no credible evidence that the properties in Ecuador were owned by the Debtor's children and their respective spouses; the testimony was, at best, conflicting. It is not believable that these entities, supposedly owned by the Debtor's adult children and their spouses, would have been transferred by them with no distribution or written promise of future distribution made to any of them at the time of transfer. Moreover, since the Debtor, Tinita, and Leonidas all testified that the Debtor transferred everything he owned to LTG in 2003, the Court is not persuaded that one asset (the payment obligations to PIMC arising from the 2003 Share Purchase Agreement) would dictate ownership of everything placed into LTG. In sum, based on the totality of the evidence, including the way in which this family treated all of its assets, the Court finds that the Debtor owned directly or indirectly the Ecuadorian Real Estate Companies when the transaction memorialized in the 2003 Share Purchase Agreement was consummated.
Tinita testified that the underlying real estate was owned by her, her siblings and their spouses. However, Leonidas testified that the property had been purchased "with family money" and that "everyone" contributed to purchasing the property.
Remember that PIMC "sold" the stock in February of 2003 and the Debtor bought PIMC for LTG in May of 2003, but the adult children (and not their spouses ) were not named beneficiaries of LTG until 2005.
Maria Yip's testimony, that one of the Ecuadorian Real Estate Companies must have belonged to the Debtor because it had "LOT" in its name, is not persuasive.
That the children's declared beneficial interest in LTG was nominal only is also evidenced by the fact that Tinita, Ghislaine and ultimately even Leonidas renounced their respective beneficial interests. Tinita's claims that she never really intended to renounce her beneficial interest, and since her renunciation was never implemented, it never really happened, are not supported by the evidence. First, the February 20, 2014 minutes of the LTG Board of Directors note that Tinita had renounced her interest in LTG and that this "irrevocable and reasonable relinquishment" shall "have full legal effect." Moreover, at Tinita's Rule 2004 testimony on October 16, 2015, Tinita testified unequivocally that she had relinquished her interest in LTG because of "personal interests." ("I conceded my rights. ... I quit."). Tinita repeatedly testified she was no longer a beneficiary. She also testified that she and her husband decided that she should no longer be a beneficiary based on "personal interests", that "it", meaning LTG, "was [of] no interest to me." And Tinita testified that there was no reason why she would be interested in where LTG got its money. That being the case, the Court finds that Tinita's testimony that she and her husband actually had owned the Ecuadorian Real Estate Companies and expected to be compensated through LTG is not believable. Consequently, as of the Petition Date, neither Ghislaine nor Tinita had revoked their renunciation of interest, so that on the Petition Date, Leonidas was the "sole" beneficiary of LTG. The post-petition "extraordinary meeting" in which the three siblings voted that they were all now going to be the beneficiaries of LTG doesn't change the fact that, on the Petition Date, the Debtor was the sole true beneficiary of LTG. ,
Tinita's October 2015 2004 examination testimony is so markedly different from her deposition testimony in 2018 that the Court finds that Tinita's testimony from 2018 should be given very little, if any, weight.
Leonidas revoked his beneficial interest after the extraordinary meeting in response to what he viewed as his sisters’ unfair partition of the Infiservice spoils.
The minutes of the LTG extraordinary meeting, as well as the minutes of the PIMC extraordinary meeting described in n. 45 infra , both state that the measures being voted on were motivated in significant part by the IAMF Judgment.
There is no dispute that the only assets of LTG are those that the Debtor put into LTG when it was created, the ownership of PIMC, which the Debtor paid for, and thereafter, anything the Debtor received in the nature of distributions from his family interests. And there is also no dispute that the only persons who ever received any distributions from LTG were the Debtor, and after he filed bankruptcy, his wife.
Apparently, the Debtor also received a salary from ABP Corp. as president. Leonidas testified that he started making distributions to the Debtor only after the Debtor stopped receiving a salary from ABP Corp. after he resigned as president.
Because the Court finds that the Debtor was, on the Petition Date, the actual holder of the beneficial interest in LTG, the Court finds that the Debtor is therefore, through LTG, the owner of all of the other Corporate Defendants. On the Petition Date, LTG owned PIMC, which in turn, owned all of the stock of TL2, as well as Banlane and, therefore, Infiservice. After the Petition Date, various family members made claims to, and received distributions of, stock in Infiservice, and now assert ownership of the language schools. That "ownership", even if the post-petition transfers had been valid, is consistent with the Ortega family motto – reality is flexible – and therefore, questionable. Moreover, as the Court has previously noted, for purposes of determining equitable ownership and property of the estate, what took place after the Petition Date is only relevant to bring context to the nature of the ownership interest on the Petition Date.
As the Corporate Defendants stipulated, according to the 2015 tax return, PIMC was the 100% owner of Infiservice.
According to the minutes of the "Extraordinary Session" of the Board of Directors of PIMC held on April 27, 2016, the shares of PIMC were to be distributed as follows:
a. LTG Foundation (90%)
b. Maria Cristina Ortega de Marcos (1%)
c. Ghislaine Ortega de Roca (1%)
d. Leonidas Ortega Amador (1%)
e. Arizona Management Foundation (6%)
According to the minutes of the "Extraordinary Session" of the Board of Directors of Infiservice held on April 27, 2016, the shares of Infiservice were to be held as follows:
a. PIMC (88%)
b. Maria Cristina Ortega de Marcos (8%)
c. Maria Cristina Amador de Ortega (1%)
d. Arizona Management Foundation (1%)
e. Ghislaine Ortega de Roca (1%)
f. Leonida Ortega Amador (1%).
Interestingly, but not surprisingly, the 2016 tax return of Infiservice reflects a vastly different ownership structure of Infiservice as follows:
a. PIMC (17.49%)
b. Maria Cristina Ortega de Marcos (47.5%)
c. Ghislaine Ortega de Roca (28.01%)
d. Arizona Management Foundation (7%)
And then, in a series of Assignment Agreements signed on an unspecified date in 2017, PIMC purported to assign shares of Infiservice to Maria Cristina Ortega de Marcos, Ghislaine Ortega de Roca, and Arizona Management Foundation, despite the fact that the 2016 tax return of Infiservice reflects that the shares purportedly assigned were already owned by the purported assignees, and not by PIMC. Under the Assignment Agreement, PIMC assigned the shares in Infiservice in the following percentages:
a. Maria Cristina Ortega de Marcos (35.9%)
b. Ghislaine Ortega de Roca (21.17%)
c. Arizona Management Foundation (6.44%)
In the Assignment Agreement, not only did PIMC purport to assign to Maria Cristina Ortega de Marcos, Ghislaine Ortega de Roca, and Arizona Management Foundation shares of Infiservice that they supposedly already owned (as reflected in Infiservice's 2016 tax return), but the supposed assignment of the shares is in a different percentage than what is reflected in the 2016 tax return.
The 2013 Agreements made clear that HOW the consideration flowing from the ABP Corp. side would be distributed was up to the "Creditors". "The parties agree that it is the sole responsibility of the ‘Creditors’ to determine how to exercise and distribute among them their rights, obligations, and/or interests in the shares of Banlane, Infiservice, if[sic]-Multiculatural InteractiveSolutions, TLG TheLanguageGroup LLC, HTE HousingTraveling and Entreteiment [sic] and TL2...." While the Corporate Defendants have argued that PIMC only received the shares to hold them for further distribution, the Corporate Defendants never presented any legal argument or evidence that would provide any basis to support specific rights of any of the parties in the shares transferred to PIMC such that PIMC's ownership interest was "bare legal title". Moreover, based on the ever-shifting post-petition ownership structures and ubiquitous inconsistency in the Corporate Defendants’ records regarding ownership, whether there actually has been a valid transfer is unclear, and even if a valid transfer occurred, it is clear that there were no specific enforceable rights against PIMC as of the Petition Date. Certainly no decision had been made as of the Petition Date. ,
The Debt Settlement Agreement stated that PIMC "or the company or institution designated by it" would receive the transfer of shares contemplated by the agreement, such that transfer to the "Recipient" would satisfy the obligations of ABP Corp. under the agreement.
On April 27, 2016, PIMC convened an "Extraordinary Session" of its shareholders and Board of Directors. The shareholders and Board of Directors of PIMC agreed to terminate the representation of PIMC as Recipient under the 2013 Agreements, and to transfer the shares of PIMC pursuant to the following ownership structure: (a) LTG Foundation (90%); (b) Maria Cristina Ortega de Marcos (1%); (c) Ghislaine Ortega de Roca (2%); (d) Leonidas Ortega Amador (1%); and (e) Arizona Management Foundation (6%). There is no explanation why the Debtor's children would receive a distribution of shares in an entity (PIMC) that they already supposedly owned through their status as purported beneficiaries of LTG.
This is highlighted by what happened to the stock of Infiservice post-petition. As detailed elsewhere in this opinion, Tinita ultimately claimed the majority of the stock of Infiservice for herself. Yet, in her 2015 2004 examination, Tinita testified that she had "heard of Infiservice" but wasn't sure how it was related to the language schools, or who or what owned the language schools. "I don't know if its [Infiservice] an owner of it or what. But it has something to do with Inlingua."
Accordingly, the Court finds that as of the Petition Date, PIMC was the owner of all of the interests transferred under the 2013 Agreements. Because, as of the Petition Date, the Debtor was the sole actual beneficiary of LTG, the Debtor had the sole ultimate ownership interest in all of LTG's assets, including PIMC and everything PIMC held on the Petition Date.
The minutes of the LTG "extraordinary meeting" of April 2016 lists LTG as owning 90% of the shares of PIMC, but then, in the same minutes, that interest is described as an 88% interest. This is just another example that ownership is a function of convenience, not reality, in the Ortega family. However, reality dictates what is property of the estate, and the Court finds reality is that all beneficial interest rested, at least on the Petition Date, in the Debtor.
The Corporate Defendants have attacked the equitable ownership claim on two primary grounds. The first is that the Plaintiffs, at least with respect to the Panamanian Defendants, have never established the nature of ownership of or in a Panamanian trust. Thus, the Corporate Defendants argue, there is no legal framework for establishing equitable ownership to which the Court may apply the evidence presented at trial. While it is true that the Plaintiffs did not present any evidence to demonstrate what a Panamanian foundation is, the Corporate Defendants did, repeatedly, argue that the Debtor's adult children, collectively or individually, have been the beneficiaries of LTG since 2005, and that beneficial interest makes them, rather than the Debtor or his wife, the equitable owners of the assets of LTG. Thus, whatever are the details of what is a Panamanian foundation, there is no dispute in this case that whomsoever holds the beneficial interest in the foundation holds the beneficial interest in all of the foundation's assets.
The Defendant's position in this regard suggests that Panamanian law governing ownership interests in Panamanian foundations is similar to Florida law governing ownership interests in Florida trusts. See Brevard County v. Ramsey , 658 So. 2d at 1196.
Second, the Corporate Defendants argued in several pleadings that the Trustee HAD to be relying on either a "nominee" theory, which, according to the Corporate Defendants, is only available when the IRS is a party, OR on a resulting trust theory, the elements of which the Corporate Defendants argue, the Trustee failed to prove. For the reasons the Court detailed in the Partial Findings Opinion, if the Trustee were relying on a nominee theory, the Trustee could do so as a matter of law, and the Trustee does not need to prove the elements of a resulting trust in order to prove equitable ownership. See also n. 34 supra.
Because the Court finds that the Debtor was the sole actual beneficiary of LTG on the Petition Date, and because the Court finds that LTG owned 100% of PIMC on the Petition Date, and on the Petition Date, PIMC was the sole owner of TL2 and Banlane, and therefore Infiservice, the Court finds that the Debtor, as of the Petition Date, was the ultimate owner of PIMC and all of the Florida Defendants.
COUNT III: TURNOVER
In Count 3 of the Complaint, the Trustee seeks entry of a judgment (i) compelling the Corporate Defendants to turn themselves or their value over to the Trustee, (ii) granting the Trustee money damages in the amount of the value of the Corporate Defendants, plus interest and attorney's fees and expenses, and (iii) requiring the Corporate Defendants to provide the Trustee with an accounting. Pursuant to section 542 of the Bankruptcy Code, an entity "in possession, custody, or control" of property of a bankruptcy estate "shall deliver to the trustee, and account for, such property or the value of such property." 11 U.S.C. § 542(a).
Because, for the reasons set forth above, the Court finds that on the Petition Date, the Debtor was the sole beneficiary of LTG and therefore the ultimate owner of PIMC and therefore the Florida Defendants, the assets of LTG, including the shares of PIMC and the Florida Defendants, are property of the Debtor's bankruptcy estate, and, therefore, subject to turnover and accounting. However, there are some complications requiring a breakdown of each interest.
The Trustee has indicated he is not seeking turnover or accounting relating to Grupo IF, which entity was dissolved and has no value.
There are known and possibly unknown assets belonging to LTG. If the minutes of the LTG 2016 extraordinary meeting have any truth, then, in addition to its interest in PIMC, LTG also has, at a minimum, the right to receive money from ABP Corp. through its 90% or maybe 88% or maybe 100% ownership in PIMC. Because the Court has found that the Debtor had the sole equitable and beneficial ownership interest in all of the assets of LTG as of the Petition Date, the Court will enter a judgment in the Trustee's favor compelling turnover to the Trustee of all of the assets of LTG, or the value of such assets, and compelling LTG to provide the Trustee with an accounting.
While the Debtor and others testified that LTG had no bank accounts, the Court finds that testimony hard to believe. While, with one brief exception, LTG may not have had bank accounts in the United States, there is no doubt that there was some kind of depository in Ecuador, although the Debtor testified there was not. Indeed, Tinita testified "they" kept money in Ecuador so they wouldn't have to pay taxes. Bank accounts for LTG probably weren't necessary in the United States, since the Debtor and other family members just took money from whatever language school entity had available cash to pay funds, although, as the chart in this opinion evidences, sometimes Leonidas directed money to the Debtor from sources outside the United States. Whether, where and to what extent LTG has collectible assets will be something the Trustee will have to deal with. However, whatever assets are held by LTG must be turned over to the Trustee by whomsoever has custody or control of those assets.
The Debtor testified that he opened a bank account for each of LTG and PIMC on August 26, 2014, in each instance using money ($25,000 each) from his personal bank account at Suntrust Bank. According to the Debtor these were loans, but there is nothing to document that these moneys were loaned.
All of the assets of the Florida language schools are apparently now in an assignment for the benefit of creditors. ABCs require the turnover of the assets of a dissolving entity, the "assignor," to an assignee for liquidation and distribution in accordance with chapter 727 of the Florida Statutes. The stock in those assignors is not turned over to the assignee. Any assets remaining after satisfaction of creditor claims "shall be paid to the assignor," which, in this case, means IF MIS and Infiservice (the "Assignors"). To the extent the Assignors are entitled to any distribution in the ABCs, the Court finds that all such distributions shall be made, or if already made, shall be turned over, to the Trustee.
It is not clear what has happened to the assets of TL2 (the shares of which were valued in 2013 at over $2.6 million).
See n. 26 supra (discussing post-petition filing of assignments for the benefit of creditors ("ABC") by Infiservice and IF MIS). According to the Corporate Defendants, "[i]n an effort to reduce expense in the ABCs, [IF MIS] and TLG merged prior to the ABCs with [IF MIS] being the surviving entity." [DE #298 in Adv. Pro. No. 16-01277]
Fla. Stat. §§ 727.106, 107 (requiring delivery or turnover of assets of the estate to the assignee, not stock in the assignor).
Because the Trustee is entitled to turn over of the value of the Florida Defendants as of the Petition Date, the Court also finds cause to grant the Trustee's request for an accounting. To the extent that the aggregate amount of the distribution(s) that the Trustee might receive from the ABCs is less than the aggregate value of the shares of the Florida Defendants on the Petition Date, the Court finds cause to award the Trustee a money judgment in an amount equal to the post-petition diminution in the aggregate value of the shares in the Florida Defendants. The Court will set a separate proceeding on the amount of any money judgment; that amount cannot be calculated until the ABCs are concluded.
Because, through his equitable interest in LTG, the Debtor owned PIMC and TL2 on the Petition Date, the Trustee's requests for turnover and an accounting are granted with respect to PIMC and TL2. The Court will enter a judgment in the Trustee's favor compelling turnover to the Trustee of the shares of PIMC and TL2, or of the value of such shares, and compelling PIMC and TL2 to provide the Trustee with an accounting.
In sum, for the reasons set forth in this Memorandum Opinion,
it is ORDERED and ADJUDGED as follows:
1. The Defendants are entitled to judgment in their favor on Count 1 of the Complaint.
2. The Trustee is entitled to judgment in his favor on Count 2 and Count 3 of the Complaint.
3. IAMF is entitled to judgment in its favor on Count 4 of the IAMF Complaint.
4. The Trustee is directed to submit a final judgment in the Trustee Proceeding consistent with this Memorandum Opinion.
5. IAMF is directed to submit a final judgment on Count 4 in the IAMF Proceeding consistent with this Memorandum Opinion.
6. The Court shall hold a status conference to consider further proceedings related to any other relief sought by IAMF.