573 B.R. 284
Bankr. S.D. Florida2017Background
- Defendant Leonidas Ortega Trujillo was an officer/shareholder of Conticorp and related banks; IAMF was a Bahamian fund that acquired related-party loans and later purchased GDRs in transactions orchestrated by the Respondents.
- IAMF sued the Respondents in the Bahamas alleging dishonest assistance, fraud, deceit and related claims; lower Bahamian courts largely ruled for the Debtor, but IAMF appealed only the dishonest-assistance ruling to the Privy Council.
- The Privy Council reversed on dishonest assistance, applying an objective standard and making factual findings, and entered a Damages Judgment (~US$191 million plus compound interest).
- IAMF filed a nondischargeability action in U.S. bankruptcy court under 11 U.S.C. §523(a)(2) (actual fraud) and §523(a)(6) (willful and malicious injury), relying solely on collateral estoppel from the Damages Judgment.
- Debtor argued the lower-court rulings (not appealed) preclude IAMF, and that the Privy Council findings do not satisfy the elements of §523(a)(2) or §523(a)(6).
- Court recognized the Privy Council judgment under comity but held that collateral estoppel does not render the judgment nondischargeable because dishonest assistance (as decided by the Privy Council) does not equate to the specific, subjective findings required under §§523(a)(2) or (a)(6).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Recognition of foreign judgment (comity) | Privy Council is respected UK tribunal; judgment should be recognized | No persuasive challenge to comity based on Privy Council procedure | Court recognized the Privy Council Damages Judgment under comity |
| Whether Privy Council findings collaterally estop on §523(a)(2) (actual fraud) | Damages Judgment on dishonest assistance supplies the factual findings to satisfy "actual fraud" under Husky and §523(a)(2) | Privy Council did not find subjective intent to defraud; dishonest assistance uses an objective standard and is not equivalent to §523(a)(2) fraud | Collateral estoppel unavailable; Privy Council did not make the subjective intent findings §523(a)(2) requires; IAMF not entitled to summary judgment on Count I |
| Whether Privy Council findings collaterally estop on §523(a)(6) (willful & malicious) | Objective standard used by Privy Council is compatible with willfulness; its factual findings establish substantial certainty of harm | §523(a)(6) requires a subjective showing that debtor actually knew injury was substantially certain; Privy Council explicitly disclaimed subjective intent requirement | Collateral estoppel unavailable; Privy Council findings inconsistent with the subjective willfulness standard; IAMF not entitled to summary judgment on Count III |
| Effect of lower-court rulings (not appealed) | (IAMF) reversed Privy Council judgment subsumes prior rulings; Privy Council factual findings control | (Debtor) lower-court rulings favorable to Debtor preclude IAMF on nondischargeability | Court refused to give preclusive effect to lower-court rulings reversed by the Privy Council; those rulings do not bar IAMF but do not help Debtor on §523 claims either |
Key Cases Cited
- Celotex Corp. v. Catrett, 477 U.S. 317 (summary judgment standard)
- Anderson v. Liberty Lobby, 477 U.S. 242 (summary judgment standard re: genuine issue)
- Grogan v. Garner, 498 U.S. 279 (collateral estoppel can apply in discharge proceedings but dischargeability is ultimately for bankruptcy court)
- Migra v. Warren City Sch. Dist. Bd. of Educ., 465 U.S. 75 (preclusive effect ordinarily determined by the rendering jurisdiction, but federal courts apply federal law to foreign judgments)
- Husky Int’l Elec. v. Ritz, 136 S. Ct. 1581 (actual fraud under §523(a)(2) can include fraudulent conveyance schemes but requires wrongful intent)
- Kawaauhau v. Geiger, 523 U.S. 57 (§523(a)(6) requires a deliberate or intentional injury)
- GDG Acquisitions, LLC v. Gov’t of Belize, 749 F.3d 1024 (comity/deference to respected foreign tribunals)
- In re PCH Assocs., 949 F.2d 585 (federal collateral estoppel elements)
- Kane v. Stewart Tilghman Fox & Bianchi, P.A. (In re Kane), 755 F.3d 1285 (‘‘substantial certainty’’ standard discussion for §523(a)(6))