AJ Ruiz Consultoria Empresarial S.A. v. Banco Bilbao Vizcaya Argentaria, S.A.

Background

AJ Ruiz Consultoria Empresarial S.A. moved for permissive withdrawal of the reference under 28 U.S.C. § 157(d), Federal Rule of Bankruptcy Procedure 5011, and Local Bankruptcy Rule 5011-1. A withdrawal of the reference would move the adversary proceeding from the Bankruptcy Court to the District Court. All defendants who had been served opposed the motion.

The dispute concerns loans of approximately $800 million made from 2007 to 2009 to three drilling companies that used the funds to build two oil rigs. In 2014, the drilling companies sold rights in a sale-leaseback transaction with Industrial and Commercial Bank of China and used part of the proceeds to repay the defendants’ loans. AJ Ruiz is the judicial administrator and foreign representative of other entities owned by Milton and Salim Schahin. Those entities, called the Debtors in the opinion, share the same ultimate owner as the drilling companies but are separate groups with no overlap between them. The Debtors entered bankruptcy proceedings in Brazil, which a Florida Bankruptcy Court recognized as a foreign main proceeding under Chapter 15.

AJ Ruiz asserted state-law claims for unjust enrichment and aiding and abetting breach of fiduciary duty. It alleged that the defendants, together with two executives, sold the oil rigs below fair value while the Schahin Group was in financial distress, benefiting from the sale and obtaining repayment ahead of other creditors. The defendants described the transaction as a legitimate refinancing and argued, among other things, that the plaintiff lacked standing, the court lacked personal jurisdiction, venue was improper, immunity applied, and the complaints failed to state a claim. The opinion did not decide those underlying claims or defenses.

Standard for withdrawing the reference

Bankruptcy matters in this district are automatically referred to the Bankruptcy Court. Under 28 U.S.C. § 157(d), a District Court may withdraw the reference for cause. The court considered factors including whether the claims were core or non-core, efficient use of judicial resources, delay and costs, consistent bankruptcy administration, and possible forum shopping. AJ Ruiz had the burden of showing that withdrawal was warranted.

The parties did not dispute, and the court assumed, that the plaintiff’s claims were non-core claims. That meant the Bankruptcy Court could not enter a final judgment on them, but it could issue a report and recommendation on dispositive motions. The court explained that the need for an eventual District Court ruling does not require withdrawal at an earlier stage.

Reasoning

The court found that efficiency and uniformity favored keeping the case in the Bankruptcy Court. The plaintiff’s allegations resembled bankruptcy-related avoidance claims involving transfers for less than reasonably equivalent value and preferential transfers, even though the plaintiff did not bring claims under the Bankruptcy Code. The case also raised whether the drilling companies’ assets were part of the Debtors’ bankruptcy estates, a threshold issue affecting whether the plaintiff could bring the claims.

The court concluded that the Bankruptcy Court’s general experience with bankruptcy matters would help it address the issues in the first instance, manage discovery and settlement, and prepare proposed findings and conclusions for the District Court. If the case required a jury trial, the court stated that the reference could be withdrawn when the case became ready for trial. The court found no reason to suspect improper forum shopping but stated that withdrawal at the current stage would create inefficiency.

Disposition

The motion to withdraw the bankruptcy reference is DENIED without prejudice to any renewed motion to withdraw when the case is trial ready. The Clerk of Court was directed to close the motion at Docket Number 1. This order addressed where and when the case should proceed; it did not resolve the merits of the plaintiff’s claims.