Wilmington Trust, Natl. Assn. v Vitro Automotriz, S.A. DE C.V.

[*1] Wilmington Trust, Natl. Assn. v Vitro Automotriz, S.A. DE C.V. 2011 NY Slip Op 52189(U) Decided on December 5, 2011 Supreme Court, New York County Fried, J. Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. This opinion is uncorrected and will not be published in the printed Official Reports.

Decided on December 5, 2011
Supreme Court, New York County

Wilmington Trust, National Association, solely in its capacity as indenture trustee, Plaintiff,

against

Vitro Automotriz, S.A. DE C.V., et al., Defendants.



652303/11



APPEARANCES:

For Plaintiff:

Hogan Lovells US LLP

875 Third Avenue

New York, New York 10022

Sanford M. Litvack, Esq.

Scott W. Reynolds, Esq.

For Defendants:

Milbank, Tweed, Hadley & McCloy LLP

One Chase Manhattan Plaza

New York, New York 10005

Alan J. Stone, Esq.

Renee Sekino Wolfe, Esq.

Bernard J. Fried, J.

This decision addresses motion sequence numbers 001 and 003 in the action bearing index number 652303-2011. The motion for partial summary judgment by plaintiff Wilmington Trust, National Association (Wilmington) seeks a declaratory judgment in its favor, against all defendants in the above-captioned action except for VVP Auto Glass Inc. (collectively, the Defendants), confirming [*2]the Defendants' obligations under specific provisions of certain Indentures (as defined below) in which they are parties (motion sequence number 001). In opposition, the Defendants' motion seeks to dismiss plaintiff's cause of action for declaratory judgment (Count II of plaintiff's complaint), pursuant to CPLR 3211 (a) (2) (motion sequence number 003). For the reasons set forth below, Defendants' motion is denied, and plaintiff's motion is granted to the extent stated herein.

The following facts are generally undisputed. Wilmington is the successor indenture trustee with respect to certain senior notes issued by non-party Vitro SAB de C.V. (Vitro SAB) that are due February 1, 2012 and February 1, 2017 (the Notes). Vitro SAB, one of Mexico's largest glass manufacturers, is a holding company organized under the laws of Mexico. The Defendants are affiliates/subsidiaries of Vitro SAB, and are guarantors of its obligations under the Notes, which were issued pursuant to two indentures dated February 1, 2007 (the Indentures). Since 2009, Vitro SAB has defaulted on its payment obligations under the Notes, which totaled over $1.3 billion in outstanding amount.

In December 2010, Vitro SAB filed for voluntary bankruptcy relief in the District Court of Nuevo Leon in Mexico (the Mexican Court) under Mexico's bankruptcy laws, along with a prepackaged plan of reorganization (the Concurso Plan). In April 2011, the foreign representatives of Vitro SAB commenced a Chapter 15 case under the U.S. Bankruptcy Code in the U.S. Bankruptcy Court for the Southern District of New York, but the bankruptcy venue was transferred to the U.S. Bankruptcy Court for the Northern District of Texas (the Bankruptcy Court) shortly thereafter. Notably, none of the Defendants has filed for bankruptcy relief in Mexico, the United States or any other jurisdiction.

On June 24, 2011, the Bankruptcy Court issued a preliminary injunction in favor of Vitro SAB to protect its assets, but denied injunctive relief as to the non-debtor Defendants who, as stated above, are guarantors of the Notes (in such capacity, the Guarantors). By decision dated June 29, 2011, the Mexican Court also denied similar relief requested for Vitro-SAB's non-debtor affiliates, including the Defendants.[FN1]

On August 17, 2011, Wilmington commenced the instant action in this court, alleging the failure of the Defendants to pay the sums owed under the guaranties for the Notes (the Guaranties). In its complaint, Wilmington asserts two causes of action: breach of contract and declaratory judgment. The Defendants filed an answer asserting affirmative defenses; they also filed a motion in the Bankruptcy Court seeking to stay the instant action for declaratory relief. In a decision dated October 26, 2011, the Bankruptcy Court denied the Defendants' motion for a bankruptcy stay, reasoning that the instant action "is not against a debtor, and the declaratory judgment [sought by Wilmington] does not seek control over a debtor or the estate." Kelly Reply Affirmation, Exhibit B, Order On Motion To Enforce Automatic Stay, at 2. Oral argument on these motions was held by [*3]me on November 7, 2011.

In setting forth the standards for granting or denying a motion for summary judgment, pursuant to CPLR 3212, the Court of Appeals noted, in Alvarez v Prospect Hospital (68 NY2d 320, 324 [1986]), the following:

As we have stated frequently, the proponent of a summary judgment motion must make a prima facie showing of entitlement to judgment as a matter of law, tendering sufficient evidence to demonstrate the absence of any material issues of fact. Failure to make such prima facie showing requires a denial of the motion, regardless of the sufficiency of the opposing papers. Once this showing has been made, however, the burden shifts to the party opposing the motion for summary judgment to produce evidentiary proof in admissible form sufficient to establish the existence of material issues of fact which require a trial of the action [internal citations omitted].

The courts have uniformly scrutinized motions for summary judgment, as well as the facts and circumstances of each case, to determine whether relief may be granted. Andre v Pomeroy, 35 NY2d 361, 364 (1974)(because entry of summary judgment "deprives the litigant of his day in court, it is considered a drastic remedy which should only be employed when there is no doubt as to the absence of triable issues"); Martin v Briggs, 235 AD2d 192, 196 (1st Dept 1997)(in considering a motion for summary judgment, "evidence should be analyzed in the light most favorable to the party opposing the motion"). Conclusory allegations unsupported by competent evidence, however, are insufficient to defeat a summary judgment motion. Alvarez, 68 NY2d at 324-25. Also, summary judgment is granted in favor of the movant if there are no material and triable issues of fact. Francis v Basic Metal, 144 AD2d 634 (2d Dept 1988). Further, a court "may render a declaratory judgment having the effect of a final judgment as to the rights and other legal relations of the parties to a justiciable controversy whether or not further relief is or could be claimed." CPLR 3001.

In support of its motion for summary judgment, Wilmington relies primarily upon the following provisions of the Indentures: (1) the Indentures, the Notes and the Guaranties are governed by New York law (Indentures, § 11.08); (2) the parties to the Indentures, including the Guarantors and Vitro SAB, consent to the courts of New York (federal and state) as the proper forum for any legal action (Indentures, § 11.09); (3) each Guarantor absolutely and unconditionally guarantees, jointly and severally, the full and punctual payment of all amounts payable under the Notes and the Guaranties (Indentures, § 10.01); (4) the obligation of each Guarantor will not be released, discharged or otherwise affected by any settlement, compromise, waiver or release in respect of any obligation of Vitro SAB under the Indentures and the Notes, or by any insolvency, bankruptcy or reorganization proceeding affecting Vitro SAB or its assets or any resulting release or discharge of its obligations under the Indentures and the Notes (Indentures, § 10.02 (1), (3)); (5) each Guarantor expressly acknowledges and agrees that the Guaranties are governed by New York law, and any rights and privileges that such Guarantor might have under Mexican law shall be inapplicable to the Guaranties (Indentures; § 10.04); and (6) the Guaranties can be discharged if the Notes have been paid in full or with the consent or all of the Noteholders (Indentures, §§ 8.01, 9.02, 10.03 and 10.09). Based on the above provisions, Wilmington seeks declaratory relief confirming the Defendants' obligations under the Indentures, the Notes and the Guaranties.

Notwithstanding the foregoing provisions of the Indentures, which the Defendants do not argue are unclear or ambiguous, they oppose the summary judgment motion for declaratory relief. [*4]The Defendants argue, as a preliminary matter, that there is a material issue of fact regarding Mexican law that must be tried, before this court can issue any judgment. Defendants' Opposition Brief, at 12-13. Indeed, even though the Indentures expressly state that New York law applies, the Defendants argue that Mexican law "must be applied by this Court," because there is caselaw support for the proposition that "every person who deals with a foreign corporation impliedly subjects himself to such laws of the foreign government." Defendants' Opposition Brief, at 13, quoting Canada S. Ry. Co. v Gebhard, 109 US 527, 537 (1883) (emphasis added).

Even if the 1883 case cited by the Defendants stands for the proposition that a person who deals with a foreign corporation (such as Vitro SAB) "impliedly" subjects itself to the laws of the foreign country, the Guarantors (some appear to be U.S. or European companies) have stated unambiguously in the Indentures that "each Guarantor expressly acknowledges that this Guaranty is governed by the laws of the State of New York and expressly agrees that any rights and privileges that such Guarantor might otherwise have under the laws [of] Mexico shall not be applicable to this Guaranty." Indentures, § 10.04 (emphasis added). The Defendants do not assert that an implied-in-law consent overrides an expressed contractual agreement that encompasses a bargained-for right and obligation, or that the agreement is otherwise against public policy. Yet, they contend there is a triable issue of fact that precludes summary judgment because (1) under Articles 1991 and 2223 of the Federal Civil Code of Mexico, the obligations of Vitro SAB and the Guarantors under the Indentures can be modified (including by novation) in a restructuring proceeding of Vitro SAB, even if the Guarantors are not debtors in that proceeding; and (2) in Section 10.04 of the Indentures (captioned "Waiver by the Guarantors"), Articles 1991 and 2223 were not specifically listed among the enumerated articles of Mexican laws waived by the Guarantors, and therefore, the waiver by the Guarantors is unenforceable.

Defendants' contentions are unpersuasive. The Indentures specifically state that New York (not Mexican) law governs, and such statement was contractually agreed to by the parties (Indentures, § 11.08). Also, the subject provision of Section 10.04 also expressly states, in relevant part, that the laws of Mexico "shall not be applicable to the Guaranty, including, but not limited to [a listing of certain articles] the Federal Civil Code of Mexico ...." (emphasis added). It is axiomatic that the phrase "including, but not limited to" has an expansive meaning, because it intends to cover or convey a non-exhaustive listing of items. Matter of Johnsen v ACP Distrib., Inc., 31 AD3d 172, 177 (1st Dept 2006)("the words including but not limited to' were illustrative only, and did not limit the broad scope of the terms employed'")(internal citation omitted). Had the contract parties intended to limit the scope of Mexican law articles that are inapplicable to the Guaranties, they could have easily deleted the subject phrase.

The Defendants also have failed to adequately address or rebut other relevant provisions of the Indentures that are relied on by Wilmington in support of its motion for declaratory relief, as summarized above. For example, the Defendants have failed to challenge the provision which states that the Guarantors' obligations cannot be released, discharged or otherwise affected by "any change in the corporate existence, structure or ownership of the Company [i.e., Vitro SAB], or any insolvency, bankruptcy, reorganization or other similar proceeding affecting the Company or its assets ...." Indentures, § 10.02 (3).Further, the Texas Bankruptcy Court has stated in its June 24, 2011 decision, which, inter alia, denied the request of the foreign representatives of Vitro SAB to enjoin the lawsuits by the noteholders against the non-debtor Guarantors, that if the injunction were [*5]granted: the noteholders will have to adjudicate their claims and appeals in the Mexican legal system even though the notes were issued under indentures governed by New York law, underwritten by U.S. banks, and registered with the SEC. This illustrates the intent to have access to the U.S. courts. The harm to the noteholders far outweighs the harm to the Debtor ....

In re Vitro S.A.B. de C.V., 455 BR 571, 581 (Bankr ND Tex 2011). Therefore, access to the U.S. courts, including this court, was intended by the parties to the Indentures.

In addition, the United States Supreme Court has stated that rights and interests in property should be analyzed and determined in accordance with state law: Property interests are created and defined by state law. Unless some federal interest requires a different result, there is no reason why such interests should be analyzed differently simply because an interested party is involved in a bankruptcy proceeding. Uniform treatment of property interests by both state and federal courts within a State serves to reduce uncertainty, to discourage forum shopping, and to prevent a party from receiving "a windfall merely by reason of the happenstance of bankruptcy."

Butner v U.S., 440 US 48, 55 (1979). Accord In re Laughlin, 602 F3d 417, 422 (5th Cir 2010)(rights and interests in property are governed by state law). Therefore, the fact that Vitro SAB has filed for bankruptcy relief in Mexico (albeit it is a foreign proceeding) does not affect a determination of the rights and obligations of the parties (Wilmington and the Guarantors) under the Indentures and Guaranties, which are governed by New York law. Whether such rights and obligations may be modified or otherwise affected by the Mexican bankruptcy law is not an issue for me, because the instant motions do not require me to construe Mexican bankruptcy law.

The Defendants further argue that a declaratory judgment cannot be issued because of a purported lack of a "justiciable controversy." Defendants' Opposition Brief, at 16-18. It is black letter law that an action for declaratory judgment requires "an actual controversy between genuine disputants with a stake in the outcome," and that it may not be used as "a vehicle for an advisory opinion." Long Is. Light. Co. v Allianz Underwriters Ins. Co., 35 AD3d 253, 253 (1st Dept 2006) (internal quotation marks and citation omitted). In particular, Defendants assert that, at the present stage, the Concurso Plan proposed by Vitro SAB, which contains provisions (as noted below) that extinguish the obligations of the Guarantors under the Indentures and the Guaranties, "has not yet been finalized by the Conciliador, much less has such plan been approved by Vitro SAB's creditors or the Mexican District Court," and the controversy identified by Wilmington is "not yet ripe for determination." Defendants' Opposition Brief, at 17-18.

Notably, the Concurso Plan states, in part, that "once this Agreement is approved by the Judge ... this Agreement, and the Restructuring Instruments issued by Vitro thereto, novate, substitute and extinguish the prior obligations, indentures ... and guarantees in which the Acknowledged Claims were stipulated or agreed upon and also extinguishes the personal guarantees that were granted by third parties and/or Vitro's direct or indirect subsidiaries ...." Plaintiff's Brief, at 9, quoting Concurso Plan, at A-16 (emphasis added). Tracking the language used in the Concurso Plan, Wilmington proposes that I issue a declaratory judgment, providing for, inter alia, that "the [*6]Guarantees cannot be novated, substituted, released, waived, discharged, modified, extinguished or otherwise affected by any reorganization plan resulting from any insolvency proceeding of Vitro SAB ...." Plaintiff's Brief, at 10. As discussed above, any declaratory relief in this court can only be in the context of determining the rights and obligations of the parties under the Indentures, which are governed by New York. Whether such rights and obligations can or cannot be novated, substituted, released or modified under the Mexican bankruptcy law is an issue for the Mexican Court.

Also, while the Defendants' factual summary of the approval process for the Concurso Plan in the Mexican proceeding appears valid, their legal conclusion of whether there is a justiciable controversy is flawed. It is undisputed that the controversy here involves, at a minimum, the issue of whether New York law (as urged by Wilmington) or Mexican law (as urged by the Defendants) should be applied to determine the parties' rights and obligations under the Indentures. As explained above, New York law governs. Therefore, pursuant to the relevant provisions of the Indentures, which are unambiguous and enforceable under New York law, any non-consensual (on the part of Wilmington and the noteholders) release, discharge or modification of the Guarantors' obligations is prohibited by the applicable terms of the Indenture. However, as discussed above, whether such prohibitive provisions may be modified or eliminated by applicable Mexican laws is not at issue here.

It is also noteworthy that in its pleadings, as well as during oral argument on these motions, Wilmington pointed out that the Guarantors had entered into a "lock-up agreement" with Vitro SAB to vote their "intercompany claims" against Vitro SAB in favor of the Concurso Plan, which, according to Wilmington, constituted an affirmative act by the Guarantors to disavow their obligations under the Indentures and the Guaranties. Plaintiff's Brief, at 6; Hearing Transcript of 11/7/2011, at 43-44. Thus, even though the Concurso Plan is not proposed by the Defendants, who are the non-debtor Guarantors, they have committed or locked-up themselves to take on a position that is prohibited by the Indentures and contrary to the position of Wilmington. In essence, this also constitutes a justiciable controversy.Finally, the Defendants argue that entry of a declaratory judgment will interfere with the Mexican bankruptcy proceeding, and that under principles of comity, I should defer to the Mexican Court. As explained above, granting a declaratory judgment in favor of Wilmington, to the extent stated herein, will not interfere with the Mexican Court proceeding, which is the proper jurisdiction to determine the issues that may arise in connection with the approval of the Concurso Plan, pursuant to applicable Mexican law. Also, whether any Concurso Plan that is ultimately approved by the Mexican Court may be enforced in the United States is an issue for the federal courts, including the Bankruptcy Court. However, it should be noted that "the doctrine of comity is not a rule of law, but one of practice, convenience and expediency." Ehrlich-Bober & Co. v University of Houston, 90 NY2d 574, 580 (1980)(citation omitted). Furthermore, "[i]f an action concerns a commercial transaction in New York, and it is a matter on which the New York courts would otherwise have proper jurisdiction, comity does not prevent the New York courts from exercising that jurisdiction." Sachs v Adeli, 26 AD3d 52, 55 (1st Dept 2005)(citing Ehrlich-Bober, 49 NY2d at 582).

Accordingly, for all of the foregoing reasons, it is

ORDERED that the partial summary judgment motion for declaratory relief (motion sequence number 001) by plaintiff Wilmington Trust, National Association, is granted to the extent [*7]set forth below, with costs and disbursements to the defendants as taxed by the Clerk of the Court; and it is further

ADJUDGED and DECLARED that New York law applies to the instant controversy and to the Indentures (as defined above), and that pursuant to the relevant provisions of the Indentures, which are unambiguous and enforceable under New York law, any non-consensual release, discharge or modification of the obligations of the Guarantors (as defined above) is prohibited by the applicable terms of the Indentures; and it is further

ORDERED that the motion of the defendants (motion sequence number 003) seeking dismissal of the declaratory judgment action (count II of plaintiff's complaint) is denied.

Dated: _________________

ENTER:

________________________

J.S.C. Footnotes

Footnote 1: The translated version of the Mexican Court decision stated, in relevant part, that "there must be no arrangement that authorizes measures which stops embargoes ordered in legal proceedings taken against the assets and rights of persons who are not subject to bankruptcy proceedings." Plaintiff's Reply Brief, Exhibit B, at 5.