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Duff & Phelps, LLC v. Vitro S.A.B. de C.V.

United States District Court, S.D. New York

January 21, 2014

DUFF & PHELPS, LLC, Plaintiff,
v.
VITRO S.A.B. DE C.V., Defendant

For Duff& Phelps, LLC, Plaintiff: William M. Dolan, LEAD ATTORNEY, PRO HAC VICE, Brown & Kelly, Buffalo, NY; Aaron Benjamin Lauchheimer, Brown Rudnick LLP (NYC), New York, NY.

For Vitro S.A.B.de C.V., Defendant: Alan Joseph Stone, LEAD ATTORNEY, Milbank, Tweed, Hadley & McCloy LLP, New York, NY; Matthew John Latterner, Milbank, Tweed, Hadley & McCloy LLP (NYC), New York, NY; Patrick Daniel Marecki, Milbank, Tweed, Hadley & McCloy LLP, Los Angeles, CA.

OPINION

Page 376

OPINION & ORDER

PAUL A. ENGELMAYER, United States District Judge.

Plaintiff Duff & Phelps, LLC (" Duff & Phelps" ), as successor-in-interest to Chanin Capital Partners, LLC (" Chanin" ),

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brings this action against Vitro S.A.B. de C.V. (" Vitro" ), a glass manufacturer based in Mexico. Duff & Phelps asserts claims for breach of contract and unjust enrichment arising from Vitro's refusal to pay Chanin a $3.25 million " Restructuring Fee," which, according to Chanin, was triggered, under a contract between the two, by Vitro's settlement with its noteholders, entered on March 14, 2013.

Vitro now moves to dismiss for lack of subject matter jurisdiction, pursuant to Federal Rule of Civil Procedure 12(b)(1). According to Vitro, the contract between Vitro and Chanin, which provided for a Restructuring Fee, was discharged during Vitro's Mexican bankruptcy proceeding. Accordingly, Vitro claims that the Court, under the doctrine of international comity, should abstain from re-litigating Chanin's claim for a Restructuring Fee.

For the reasons that follow, Vitro's Rule 12(b)(1) motion is denied. However, in the interest of international comity, the Court will stay discovery in this case for three months. During this time, Vitro may seek to obtain clear proof, which is lacking on the current record, that the Mexican District Court's intent, in adjudicating Vitro's bankruptcy, was to discharge Chanin's claim to a Restructuring Fee. Vitro is directed to submit any such evidence to the Court by April 22, 2014. Absent proof of such discharge, the parties will, at that time, proceed to discovery.

Separately, Vitro moves to dismiss Duff & Phelps' claim for unjust enrichment under Rule 12(b)(6). For the reasons given below, that motion is also denied.

I. Background[1]

A. Vitro's Efforts to Restructure Its Debt

Vitro is the parent corporation for a large glass manufacturing enterprise based in Mexico. Compl. ¶ 7; Santos Decl. ¶ 3. In early 2009, Vitro announced that it would restructure substantially all of its debt, which, at that time, totaled approximately $3.7 billion. Santos Decl. ¶ ¶ 4-5. This amount included $1.216 billion in outstanding principal for notes issued under three separate indentures: (1) $300 million in 8.625% Senior Notes due 2012; (2) $225 million in 11.75% Senior Notes due 2013; and (3) $700 million in

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9.125% Senior Notes due 2017 (collectively the " Old Notes" ). Id. In February 2009, Vitro started restructuring negotiations with an ad hoc committee of entities that beneficially held a majority of the outstanding principal in the Old Notes (" Ad Hoc Group" ). Id. ¶ 6. To facilitate negotiations, Vitro agreed to pay the fees and expenses of the Ad Hoc Group's legal counsel and financial advisor. Id. The Ad Hoc Group's financial advisor was Chanin. Id.

On July 17, 2009, Vitro executed a letter agreement with Chanin. Id. ¶ 7; Compl. Ex. 1 (" Letter Agreement" ). Chanin agreed to provide financial advisory services to the Ad Hoc Group, including the performance of due diligence concerning Vitro's business, capital structure, and debt capacity. Santos Decl. ¶ 7. Vitro agreed to pay Chanin: (1) a monthly retainer of $250,000 during a three-month Initial Term and $100,000 during a one-month Extension Term; (2) $175,000 per month if Chanin was retained by the Ad Hoc Group during the " Restructuring Engagement" ; and (3) reasonable, necessary, and documented out-of-pocket expenses. Letter Agreement ¶ ¶ 4(a), 5(a)(i), 6. In addition, if Vitro entered into a " Transaction" during the Restructuring Engagement (or " within 12 months from the effective termination . . . or expiration of the Restructuring Engagement" ), Vitro would pay Chanin a one-time, cash " Restructuring Fee." Id. ¶ 5(a)(ii). The amount of this fee was to be the greater of $2.5 million or 1.0% of the " cash, securities or other property actually received by the Noteholders, in the aggregate . . . if the value of such cash and securities exceeds $375,000,000," provided, however, that the fee could not exceed $5 million. Id. The Restructuring Fee would thus fall somewhere between $2.5 million and $5 million.

Between August 2009 and July 2010, the Ad Hoc Group rejected three restructuring proposals made by Vitro. Santos Decl. ¶ 8. On October 18, 2010, Vitro learned that the Ad Hoc Group no longer held a majority of the Old Notes. Id. ¶ 9. In November 2010, " an impasse" was reached in the restructuring negotiations. Id. ¶ 8. By this time, the Ad Hoc Group included several new members who had purchased Old Notes in the secondary market. Id. ¶ 10. For reasons not relevant to this action, Vitro concluded that the Ad Hoc Group " had no intention of continuing to work together on a consensual restructuring plan." Id. ¶ 12. Vitro decided to cease payments to the Ad Hoc Group's legal counsel and to Chanin. Id. Up to that point, Vitro had paid Chanin $2.95 million in monthly fees and about $130,000 in expenses. See Latterner Decl. Ex. C.

On November 1, 2010, Vitro publicly launched a joint tender and exchange offer to all holders of the Old Notes, which contemplated Vitro entering into a voluntary judicial reorganization (or " concurso " ) proceeding in Mexico following the expiration of these offers. Santos Decl. ¶ 13. A concurso in Mexico is governed by the Ley de Concursos Mercantiles (" LCM" ) (the " Mexican Business Reorganization Act" ). Id. ¶ 14.

B. Vitro's Bankruptcy Proceedings in Mexico

On December 13, 2010, Vitro initiated a concurso proceeding in the Mexican District Court by filing a concurso petition (the " Mexican Bankruptcy Proceeding" ). Santos Decl. ¶ 14.

On April 8, 2011, Vitro's concurso petition was granted, and Vitro was declared in concurso mercantile. Id. Upon being declared in concurso mercantile, Vitro was ordered to stop payment of all outstanding debts other than those necessary to carry

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on its business, and the Mexican District Court ordered the appointment of an independent Conciliador to oversee bankruptcy proceedings. Id. ¶ 15.

Under the LCM, the Conciliador is responsible for compiling a list of creditors for the Mexican District Court, and for valuing and ranking each creditor's claim. Id. ¶ 16. On June 27, 2011, Chanin submitted its proof of claim to the Conciliador, requesting recognition of claims under the Letter Agreement. Id. ¶ 17; Latterner Decl. Ex. C (" Chanin Claim Recognition Application" ); Laucheimer Decl. Ex. A (same). Chanin's claims, which totaled $3,291,965.01, consisted of: (1) unpaid monthly fees and expenses accrued between November 2010 and June 2011 of $1,266,965.01; and (2) a Restructuring Fee of $2,025,000. See Chanin Claim Recognition Application.

On or about August 5, 2011, the Conciliador submitted to the Mexican District Court his recommendation for which creditors should be recognized and how each claim should be valued and ranked. Santos Decl. ¶ 18; Laucheimer Decl. Ex. B (" Counciliador Claims Recognition Recommendation" ); Latterner Decl. Ex. F (same). As to Chanin, the Conciliador recommended that the amounts requested be recognized only up to April 8, 2011, the date when Vitro was declared in concurso mercantile. See Counciliador Claims Recognition Recommendation (" The claim may be only partially recognized as this proposal considers recognizing indebtedness accrued through April 8, 2011, which is the date in which the reorganization judgment was issued and which must be used to determine the amount of the indebtedness of the merchant." ). Accordingly, the Conciliador recommended that the Mexican Bankruptcy Court recognize Chanin's claim for $869,733.81, or 2,224,938.56 UDI's.[2] Id.; Santos Decl. ¶ 18.

The Conciliador declined, however, to recognize Chanin's claim for a $2,025,000 Restructuring Fee. He explained:

The amount claimed by [Chanin] of $2,025,000 cannot be granted as it is subject to a condition precedent consisting of the closing of a certain transaction as agreed in clause 5-a-(ii) of the Letter Agreement that was entered into by and between [Chanin], White & Case LLP and the merchant.
Since such condition has not occurred as of the date the judgment was issued, thus no credit in favor of the creditor is susceptible of recognition. However, should the condition agreed upon under the above-referred agreement occur and in the event payment of this claim by the creditor is appropriate, the latter [creditor] will have the right to claim its payment through the proceedings and terms that it deems appropriate

Claims Recognition Recommendation.[3]

A week later, on August 12, 2011, the Mexican District Court issued a ruling that

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adopted in full the Conciliador 's recommendations with respect to Chanin's claim against Vitro. Santos Decl. ¶ 19; Latterner Decl. Ex. H (" Claims Recognition Ruling" ). The ruling thus recognized Chanin's claim for 2,224,938.56 UDI's, the same amount contained in the Conciliador 's recommendation. See Claims Recognition Ruling. The Mexican District Court did not make any specific comment regarding Chanin's ...


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