The opinion of the court was delivered by: Stuart Bernstein, Chief Judge, Bankruptcy
MEMORANDUM DECISION GRANTING
MOTION FOR PRELIMINARY INJUNCTION
Grupo Tribasa, S.A., de C.V. ("Tribasa") and its subsidiary, [ Page 2]
Triturados Basálticos y Derivados, S.A. de C.V. ("Triturados," and collectively with Tribasa, the "Debtors") are Mexican corporations, and debtors under Mexico's Ley de Concursos Mercantiles, or Business Reorganization Act, which became effective on May 13, 2000 (the "Mexican Act"). They contemplate funding their plan with the proceeds of a third party certain bond offering described below. Through their representative, they commenced this ancillary case under 11 U.S.C. § 304 when a group of creditors attempted to enforce their New York judgments aggregating approximately $13 million against those proceeds.
After granting a limited temporary restraining order that prohibited execution on the bond proceeds, I conducted an evidentiary hearing in connection with the Debtors' motion for a preliminary injunction. For the reasons that follow, I conclude that the Debtors are entitled to preliminary injunctive relief restraining the New York judgment creditors from interfering with or taking steps to enforce their judgments against the bond proceeds, or the toll road receipts that will be used to repay the bond debt, pending approval of the Debtors' plan or other disposition of their Mexican bankruptcy case. [ Page 3]
A. The Mexican Toll Road Program
At the beginning of the 1990s, the Mexican government initiated a Toll Road Program for the purpose of providing a means of communication and increasing socioeconomic and cultural development.*fn2 Under the Toll Road Program, the Mexican government granted a concession, or license, for a specific duration, to build (or improve) toll roads. During the period covered by the concession, the concessionaire was entitled to collect tolls paid by the users of the road, and after paying certain amounts to the government, keep the balance. Thus, the concessionaire acquired a right to a stream of future income measured by the net toll receipts.
Instead of waiting to collect future revenues, the [ Page 4]
concessionaire could realize the proceeds immediately through the process of securitization. Reduced to its basic terms, a securitization works in the following manner: the concessionaire assigns its toll collection rights to a trust. The trust issues debt, and pays the net proceeds from the sale of the debt in accordance with the trust or other related agreements. The proceeds may be payable to third parties, the concessionaire, or a combination of the two. The trust then collects the tolls, and uses the collections to pay the principal and interest on the debt. After the debt has been paid in full, the remaining collection rights, if any, revert to the concessionaire.
The Debtors, along with various non-debtor affiliates, are engaged, inter alia, in the construction and operation of toll roads in Mexico. Tribasa acquired numerous concessions through direct and indirect subsidiaries but only two — the ArmeríaManzanillo Toll Road (the "Armería Road") and the EcatepecPiramides Toll Road (the "Ecatepec Road," and collectively with the Armería Road, the "Tribasa Toll Roads") — are involved in this case. Prior to 1993, Promotora de Autopistas del Pacifico, S.A. de C.V. ("PAPSA"), a/k/a the Armería-Manzanillo Concession Company acquired the concession rights to the Armería Road. The [ Page 5]
concession expires in July 2015. In addition, Promotora y Administradora de Carreteras, S.A. de C.V. ("PACSA"), a/k/a Ecatepec-Piramides Concession Company acquired the concession rights prior to 1993 in the Ecapetec Road. This concession expires in December 2011.
In November 1993, PAPSA and PACSA (sometimes referred to collectively as the "Concessionaires") completed a securitized financing based on the combined revenues of the Tribasa Toll Roads. The securitization worked in the manner described earlier. The Concessionaires transferred their collection rights to the Armería-Epatepec Trust (the "Old Trust"). BBVA Bancomer, S.A. ("Bancomer"), a Mexican bank, serves as trustee (the "Old Trustee") of the Old Trust.
The Old Trust issued notes totaling $110 million that bore interest at the annual rate of 10.5%. The scheduled amortization contemplated repayment in November 2005, but permitted repayment through December 2011. The Old Trustee has been repaying the debt in accordance with the 2011 schedule.
C. The Lipstick Parties' Judgments
In a separate 1993 transaction, Tribasa issued notes [ Page 6]
guaranteed by Triturados under its Global Medium-Term Note Program. (See Kaplan Declaration, Ex 5.) The notes and the guarantees were governed by New York law, (id. § 19.1), and the parties submitted to the jurisdiction and venue of the state and federal courts in New York county in the event of litigation arising out of or relating to notes issued under the program. (Id. § 19.2.)
In 1996, Smith Management, apparently acting on behalf of Lipstick Ltd., Barbara Stovall, Gary Smith, Jeffrey A. Smith, John W. Adams, Mary Hilderman Smith, Randall D. Smith, Russell B. Smith and Thomas J. Trzanowski (collectively the "Lipstick Parties"), purchased two separate series of notes having an aggregate face value of $9.5 million.*fn3 (See id. ¶¶ 1, 6.) In 1999, the Debtors defaulted on both series, and the Lipstick Parties commenced an action in New York State Supreme Court. In May 2000, they recovered their first set of default judgments against each of the Debtors in the approximate sum of $6 million. On September 5, 2000, they obtained a second default judgment against Triturados in the approximate sum of $6.3 million, and on [ Page 7]
November 30, 2001, a corresponding default judgment against Tribasa. On March 22, 2002, they obtained their third set of default judgments against the Debtors in the approximate sum of $700,000.00. As of today, the Lipstick Parties hold judgments aggregating approximately $13 million against each of the Debtors. (Id., Ex. 7.)
1. The Restraining Notices
On May 31, 2000, after the first set of default judgments had been obtained, the Lipstick Parties mailed restraining notices and information subpoenas to the Debtors in Mexico. (Id., Ex. 8.) The Debtors failed to respond to the information subpoenas, and by order filed July 1, 2001, Justice Charles E. Ramos held the Debtors in civil contempt. (Id., Ex. 14.) Each was fined $250.00, but could purge the contempt by providing complete and accurate responses to the information subpoenas by August 30, 2001. (Id.)
The Debtors did not purge the contempt, and Justice Ramos issued a warrant for the arrest of David Penaloza Sandoval, the Debtors' president. (See id., Exs. 15, 16.) The court's order was affirmed by the Appellate Division, First Department. Lipstick Ltd. v. Grupo Tribasa. S.A. de C.V., 758 N.Y.S.2d 317 [ Page 8]
2. The Turnover of the ITA stock
On December 11, 2000, the Lipstick Parties commenced a special proceeding in New York Supreme Court to compel the Debtors to turnover Tribasa's shares in Inversiones Tecnicas y Aeroportuarios ("ITA"). (Kaplan Declaration ¶ 13.) After the Debtors defaulted on the turnover order, the Lipstick Parties obtained an order, issued on November 15, 2001 and filed on November 30, 2001, directing Tribasa to deliver the ITA stock to the Lipstick Parties or the Sheriff of the City of New York together with the documents needed to transfer title. (Id., Ex. 10.)
The Debtors again failed to comply with an order issued by Justice Ramos. As a result, and by order filed in November 2002, Justice Ramos held the Debtors, as well as Mr. Sandoval and his wife, Maria Adriana Alanis de Penaloza, in criminal contempt, fined each contemnor $500.00, and sentenced the Sandovals to up to 30 days in jail. (Id., Exs. 21, 22.)
3. The Transfer of $7 million
In July and August of 2000, Tribasa transferred $7 million [ Page 9]
in violation of the restraining notices to National Financiera, a sister bank to Banco Nacional de Comercio Exterior, S.N.C. ("Bancomext"). (Id., Ex. 18, at 4-5.) As a result, Justice Ramos again held the Debtors and the Sandovals in civil contempt. Justice Ramos also fined the Debtors $500.00 and awarded a $7 million judgment against the Sandovals, jointly and severally. (See Kaplan Declaration, Exs 18, 19). The fines and contempts could be purged by the payment of $7 million into court by December 10, 2002,*fn4 (id., Ex. 19), but the contempt was never purged.
4. The Judgment Execution
On April 25, 2001, the Lipstick Parties also delivered an execution to the Sheriff of the City of New York. (Id., Ex. 11.) The execution related to the initial May 1, 2000 default judgment against Triturados in the principal sum of approximately $4.7 million, plus post judgment interest. (Id., Ex. 11.) The schedule annexed to the execution contained a "partial list" of [ Page 10]
Triturados' assets. The list included Triturados' interest in the ITA shares, the funds collected by the Debtors under their toll road concessions, and "any residual interest in such concessions." Nothing was collected through the execution.
D. The Mexican Bankruptcy Proceedings
On October 16, 2001, the Bancomer and two other bank creditors of the Debtors initiated involuntary bankruptcy proceedings against the Debtors in the First District Court for Civil Matters of Mexico City. (Declaration of Alfonso M. Lopez Melih Pursuant to 28 U.S.C. § 1746, dated July 1, 2003 ("Melih Declaration"), at ¶ 39.) On March 22, 2002, the Mexican court rejected the Debtors' challenges and declared the Debtors eligible for reorganization.*fn5 (Id. ¶¶ 40-41; Ex. B.) This was the equivalent of an order for relief under title 11. On the same day, the Mexican court issued an order suspending any decree of attachment or enforcement against the Debtors' rights or properties, pending the conclusion of the conciliation stage. [ Page 11]
(Id. ¶ 42; Ex. B, p. 26.)
The conciliation stage referred to the procedure under the Mexican Act. After a bankruptcy petition is granted, the Federal Institute of Business Reorganization Specialists (the "Institute"), an arm of the Mexican federal judiciary, appoints a conciliator. (Mexican Act, Art. 43.) The conciliator performs roles roughly analogous to a chapter 11 trustee, and among other things, mediates and proposes a plan, and thereafter, attempts to get it approved. Natalie Martin, Que es la Differencia?: A Comparison of the First Days of a Business Reorganization Case in Mexico and the United States, 10 U.S.-Mex. L.J. 73, 81-82 (2002).
A conciliator was appointed in the Debtors' case on April 8, 2002. (Melih Declaration ¶ 43.) As part of his many duties, the conciliator reviewed the claims submitted by the Debtors' creditors, including the Lipstick Parties, (id.), and served provisional creditor lists and rankings on the Debtors and each of the putative creditors. (Id. ¶ 45.)
The Lipstick Parties appeared through Mexican counsel, and objected to the conciliator's provisional list on three grounds: their claims were stated in Mexican pesos rather than United [ Page 12]
States dollars, they did not reflect the exchange rate used and they did not include interest. (Id.) The conciliator accepted the objections, and submitted a revised calculation of the amount of their claims. (Id.)
On September 16 and 20, 2002, the First District Court issued orders acknowledging and ranking the claims of the creditors of Tribasa and Triturados, respectively. (Id. ¶ 46; Exs. D, E.) According to the orders, approximately 1,500 creditors held claims exceeding $1 billion. (Id. ¶ 46.) The Lipstick Parties' claims were ranked as common or ...