Searching over 5,500,000 cases.


searching
Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

Paloian v. Grupo Serla S.A. de C.V.

June 17, 2010

GUS A. PALOIAN, NOT INDIVIDUALLY BUT SOLELY IN HIS CAPACITY AS THE CHAPTER 7 TRUSTEE OF GGSI LIQUIDATION, INC., ET AL., PLAINTIFF/APPELLEE/CROSS-APPELLANT,
v.
GRUPO SERLA S.A. DE C.V. A/K/A GRUPO EMPRESARIAL SERLA, S.A. DE C.V.; EDITORIAL COMERCIAL, S.A. DE C.V.; SERGIO EDWARDO GUARNEROS TRUJILLO; J.P. MORGAN CHASE BANK, N.A., INDIVIDUALLY AND AS SUCCESSOR-IN-INTEREST TO FIRST NATIONAL BANK OF CHICAGO, A NATIONAL BANKING ASSOCIATION; AND UNION INDUSTRIAL MEXICANA, S.A. DE C.V., DEFENDANTS/APPELLANTS/CROSS-APPELLEES.



The opinion of the court was delivered by: Joan Humphrey Lefkow United States District Judge

Adversary No. 03 A 03888

OPINION AND ORDER

This case arises from the appeals of defendant/appellant/cross-appellee J.P. Morgan Chase Bank, N.A., successor by merger to Bank One, N.A. ("the Bank"), and plaintiff/appellee/cross-appellant Trustee Gus A. Paloian ("the Trustee") of two decisions of the bankruptcy court entered September 7, 2006 and November 27, 2006, respectively.*fn1 In an adversary proceeding, the Trustee sought to recover damages for the Bank's alleged violations of the automatic stay, § 9-207 of the Uniform Commercial Code ("U.C.C."), and § 549 of the Bankruptcy Code.*fn2 This court's jurisdiction rests in 28 U.S.C. § 158(a)(1), which governs appeals from "final judgments, orders, and decrees" of the bankruptcy court. For the following reasons, the bankruptcy court's decision will be affirmed in part and reversed in part.

STANDARD OF REVIEW

On appeal, the district court reviews the bankruptcy court's factual findings for clear error and its legal conclusions de novo. Monarch Air Serv., Inc. v. Solow (In re Midway Airlines, Inc.), 383 F.3d 663, 668 (7th Cir. 2004). "Mixed questions of law and fact are subject to de novo review." Freeland v. Enodis Corp., 540 F.3d 721, 729 (7th Cir. 2008) (citing Mungo v. Taylor, 355 F.3d 969, 974 (7th Cir. 2004)). A finding of fact is clearly erroneous "when although there is evidence to support it, the reviewing court on the entire evidence is left with the definite and firm conviction that a mistake has been committed." Anderson v. Bessemer City, 470 U.S. 564, 573, 105 S.Ct. 1504, 84 L.Ed. 2d 518 (1985). "[D]ue regard shall be given to the opportunity of the bankruptcy court to judge the credibility of the witnesses." Fed. R. Bankr. P. 8013.

BACKGROUND

I. Facts

In 1997, Goss Graphic Systems, Inc. ("Goss") sold a printing press for $5,948,860 to Editorial Comercial, a Mexican entity of which Guarneros was the general administrator and president.*fn3 Editorial Comercial made a $100,000 cash down payment, granted Goss a security interest in the printing press, and executed a pledge giving Goss the right to request a judicial sale of the printing press if Editorial Comercial did not perform its payment obligations (the "Pledge Agreement").

To finance the remainder of the purchase price, Grupo Serla and Editorial Comercial together executed a promissory note ("the Grupo Serla Note") for $5,370,000 payable to Goss. Guarneros personally guaranteed this note. The Bank financed the sale by purchasing the Grupo Serla Note from Goss for its full amount pursuant to a Note Purchase Agreement. The Note Purchase Agreement provided that if Editorial Comercial failed to make payments on the Grupo Serla Note, Goss was liable to the Bank for 15% of Editorial Comercial's outstanding obligations. Exporters Insurance Company Ltd. ("Exporters") provided an insurance policy for the Bank's benefit to cover the remaining 85%,*fn4 but Goss was liable for this amount if the insurance policy did not apply. The Note Purchase Agreement further provided:

After the purchase hereunder, following [prior] written notice to [Goss], the [Bank] may sell, transfer, pledge, negotiate, grant participations in or otherwise dispose of all or any part of the Notes purchased by the [Bank] under this Agreement to any party without increasing [Goss's] obligations hereunder, and any such party shall enjoy all the rights privileges, and obligations of the [Bank] under this Agreement with respect to such transferred notes.

Note Purchase Agreement art. VII(A).

Guarneros and His Companies failed to make payments on the Grupo Serla Note as agreed, even though the printing press was in their possession and being used to produce commercially acceptable products.*fn5 The Bank formally notified Guarneros and His Companies that they were in default on July 30, 2008. In September 1998, the Bank also notified Goss that, pursuant to the Note Purchase Agreement, Goss was required to pay 15% of the outstanding obligations, or $724,950, and $29,608.61 of accrued interest toward the repurchase of the Grupo Serla Note. Goss made this payment on September 15, 1998. Subsequently, Guarneros and His Companies made one payment of $75,000 on the Grupo Serla Note to Goss on October 15, 1998, which Goss forwarded to the Bank on December 21, 1998.

In May 1999, the Bank and Goss jointly sued Guarneros and His Companies in DuPage County, Illinois.*fn6 The parties pled alternatively that the Bank or Goss or both were entitled to recover the amounts due and owing on the Grupo Serla Note. On August 26, 1999, Goss made a claim under the Exporters policy for the balance due to the Bank (85% of the total amount outstanding under the Grupo Serla Note), but, after an investigation, Exporters denied coverage. Although the Bank continued to send Guarneros and His Companies demand notices for payment on the Grupo Serla Note, it also requested that Goss pay the remaining 85% due under the Note.

On December 15, 2000, Goss and the Bank executed the Note Repurchase Agreement, which provided that Goss would repurchase the remaining 85% due under the Grupo Serla Note by delivering a promissory note ("the Repurchase Note") to the Bank for $5,675,495.12. The Note Repurchase Agreement provided, in relevant part, Whereas, [Goss] and the Bank entered into a Note Purchase Agreement dated August 1, 1997 (the "Note Purchase Agreement");

Whereas, pursuant to the Note Purchase Agreement, [Goss] sold the Bank certain obligations of Editorial Comercial, S.A. and Grupo Serla, S.A. de C.V. evidenced by one promissory note in the principal amount of US$5,370,000 (the "Grupo Serla Note");

Whereas, [Goss] has repurchased 15% of the Grupo Serla Note from the Bank by paying the Bank the principal amount of US$805,000 plus accrued interest;

Whereas, the Bank has demanded that [Goss] repurchase the remaining 85% of the Grupo Serla Note by paying the Bank the principal amount of US$4,564,500 plus interest through December 15, 2000 in the amount of US$1,110,995.12.

NOW, THEREFORE, in consideration of the mutual promises and covenants as expressed herein, and good and valuable consideration, the Parties hereto agree as follows:

1. [Goss] shall repurchase the remaining 85% of the Grupo Serla Note from the Bank in accordance with the terms of [the Repurchase Note].

2. Upon the Bank's receipt of payment in full in immediately available funds of all amounts due and payable by [Goss] under or in connection with the Repurchase Note, the Bank shall endorse and return the Grupo Serla Note to [Goss] or as a court of competent jurisdiction shall otherwise direct.

3. This Agreement shall become effective upon the later to occur of (I) the execution of counterparts hereof by the Parties and (ii) the receipt by the Bank of the Repurchase Note duly executed by [Goss].

Note Repurchase Agreement. The Repurchase Note set out an installment schedule for payments to be completed by May 31, 2001. It had different interest and default interest rates than the Grupo Serla Note. The Repurchase Note also provided:

The Bank may at any time assign this Note and its rights hereunder to any affiliate, and the Bank or subsequent holder of this Note may at any time assign this Note and its rights hereunder to a financial institution, or, with the consent of [Goss] which consent shall not be unreasonably withheld or delayed, to any other person or entity, provided, however, that such consent shall not be required if any of the events in the first sentence of the immediately preceding paragraph has occurred and is continuing.

Repurchase Note at 2. The first sentence of the preceding paragraph reads,

In addition to, and without limitation of, any rights of the Bank under applicable law, if any amount payable hereunder is not paid within 5 days after the same becomes due, there is any material adverse change in [Goss's] financial condition, there is a material default under any agreement governing indebtedness of [Goss], any petition is filed by or against [Goss] under the Federal Bankruptcy Code or similar state law or if [Goss] becomes insolvent, howsoever evidenced, the Bank may declare all unpaid principal and interest payable hereunder immediately due and payable.*fn7 Id.

Once the Note Repurchase Agreement was executed, the Bank stopped sending Guarneros and His Companies demand notices for payments due under the Grupo Serla Note. The Bank's internal computer system reflected that the Grupo Serla Note was paid in full on December 15, 2000. On that date, however, a new commitment was set up in the system for the Repurchase Note. A Bank employee testified at trial that this was for accounting purposes, so as to avoid double-counting of assets. The notices sent to Goss reflected amounts due under and terms of the Repurchase Note.

Goss made all but the last two scheduled payments pursuant to the Repurchase Note. Thus, in addition to having earlier paid $925,728.17 under its obligations pursuant to the Grupo Serla Note, Goss paid the Bank $4,250,000 on the Repurchase Note, leaving $1,425,495.12 in principal outstanding.

In May 2001, Guarneros and His Companies agreed to sell certain assets, including the printing press, to Quebecor World Inc. ("Quebecor") for $13,000,000. The printing press was valued at $4,000,000, the highest valued single asset involved in the transaction. All assets were required to be free and clear of all liens, claims, and liabilities at closing, or else Quebecor would withhold money as necessary until the liens were removed. On June 25, 2001, Guarneros traveled to Chicago to negotiate with Goss to settle any liens or claims related to the printing press. During this meeting, Goss represented that it owned the Grupo Serla Note. Guarneros, on behalf of Grupo Serla, executed a handwritten summary of terms for agreement ("Agreement in Principal" [sic]) with Goss in which he would pay Goss $2,700,000 for the printing press "as is, where is," and Goss would release any security interest, pledge, or retention of title in the printing press.*fn8 Goss's management approved the agreement the same day. Joseph Krasovec, counsel for Goss and the Bank in the DuPage litigation, received a typewritten draft of the Agreement in Principal from Spiegel and responded inquiring why the Bank was left out of the agreement. Krasovec notified the Bank of the Agreement in Principal on July 2, 2001.

On July 5, 2001, Guarneros executed the final agreement with Quebecor for the asset sale, representing it had agreed to pay Goss $2,700,000 for the printing press so that it would be free of all encumbrances. Goss, meanwhile, engaged a lawyer in Mexico to enforce the Pledge Agreement. These efforts were unsuccessful, however, as a Mexican judge required that Goss present the original Grupo Serla Note, not a copy, and the Bank continued to hold the original. Goss informed the Bank of the Quebecor sale and its attempts to enforce the Pledge Agreement on August 9, 2001.

On September 10, 2001, Goss filed a Chapter 11 petition.*fn9 Goss listed the Note Purchase Agreement as an executory contract in its schedules. The Bank was not listed as a secured creditor. In its proof of claim filed on November 21, 2001, the Bank claimed it was owed $1,425,495.12 in principal and $73,559.91 in interest. Even after Goss's bankruptcy filing, the Bank continued to send notices to Goss requesting payment on the Repurchase Note.*fn10 On September 20, 2001, after an inquiry, the Bank was informed that the Quebecor sale was to close in November, that the Agreement in Principal was subject to bankruptcy court approval, and that Goss did not believe that any of the proceeds from the Agreement in Principal would be paid to the Bank. This was because Goss believed that the amounts it owed the Bank were a prepetition liability that would be dealt with in the plan of reorganization.

After the Bank evaluated its potential recovery under a confirmed plan, it determined that it would recover little, if anything, under such a plan. The Bank, through its lawyer, Mark Page, notified William O'Connor, the Chicago-based attorney for Guarneros and His Companies, that the Bank desired to be part of the settlement discussions between O'Connor's clients and Goss as the Bank, not Goss, owned the Grupo Serla Note on which Guarneros and His Companies remained obligated. On October 12, 2001, Krasovec informed the Bank that he saw a potential conflict of interest between Goss and the Bank in future proceedings and directed Goss's Mexican counsel in the pledge proceedings to request any documents directly from Goss. On October 16, 2001, Quebecor issued two checks, for $1,600,000 and $200,000, payable to Grupo Serla. Grupo Serla endorsed these checks to Goss and intended to hand them over once Guarneros and His Companies received assurance that Goss, and not the Bank, owned the Grupo Serla Note. To investigate further, John Adams, an agent of Guarneros and His Companies, met with O'Connor and the Bank's representatives.*fn11 At this meeting, Chicago counsel for Guarneros and His Companies suggested that the Bank sell the Grupo Serla Note directly to its makers, Grupo Serla and Editorial Comercial. Although Adams had in his possession the two checks indorsed to Goss, after the meeting, Guarneros and His Companies decided to abandon negotiations and the Agreement in Principal with Goss and instructed Quebecor to cancel the two checks.

On November 15, 2001, Quebecor informed Guarneros that Goss had contacted it about the pledge proceedings in Mexico and indicated that Goss was still owed $5,940,000 for the press. Quebecor decided to withhold $5,000,000 from the total sale price until it had evidence that the printing press was free of all encumbrances. Grupo Serla responded by notifying Quebecor that the Bank, not Goss, had the collection rights on the ...


Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.