Bancor Grp. v. Rodriguez

1

BANCOR GROUP INC., and STITCHING PARTICULIER FONDS FRANEKER, derivatively on behalf of EASTERN NATIONAL BANK, N.A., Plaintiffs, v. GABINA RODRIGUEZ, LOUIS FERREIRA, CESAR GOMEZ VALERO, KEITH PARKER, CARLOS RODRIGUEZ, and GUSTAVO MACIAS, Defendants.

No. 22-20201-CV-GAYLES/TORRES

United States District Court, S.D. Florida

January 3, 2024

REPORT AND RECOMMENDATION ON DEFENDANTS' MOTION TO DISMISS FOR LACK OF SUBJECT MATTER JURISDICTION

EDWIN G. TORRES CHIEF UNITED STATES MAGISTRATE JUDGE

This matter is before the Court on Defendants' motion to dismiss Plaintiffs' complaint for lack of subject matter jurisdiction. [D.E. 417]. The motion is fully briefed. [D.E 433, 435, 438]. Accordingly, Defendants' motion is ripe for disposition. After careful consideration of the briefing the relevant authority, and for the reasons discussed below Defendants' motion to dismiss should be DENIED.^[1]

I. BACKGROUND

On the eve of trial, Defendants filed their third motion to dismiss the case against them. Conscious that the deadline for dispositive motions passed a long time ago, Defendants couched their recent arguments as a challenge to the Court's subject matter jurisdiction - a challenge that may be raised at any time. FED. R. CIV. P. 12(h). But this is not really a Rule 12(b)(1) motion; it is an attempt to engineer a dismissal by leveraging the Court's equitable power. The problem Defendants have, however, is that Defendants waived long ago any right they may have had to seek such relief and get out from under this complaint. And even if we were to overlook Defendants' waiver, we also find that Defendants' arguments still fail as a matter of law.

This is a shareholder derivative lawsuit brought against former and current members of Eastern National Bank's board of directors. it could go without saying, but shareholder derivative suits may be brought only by the shareholders of the corporate entity in question. See, e.g., Gollust v Mendell, 501 U.S. 115, 125-26 (1991) (discussing Article iii standing); FED. R. CIV. P. 23.1(b) (discussing standing under the Federal Rules).

Plaintiffs alleged in their verified complaint that they own shares in the Bank. [D.E. 1 at ¶¶ 1, 2]. In Defendants' answer, they unequivocally admitted that Plaintiffs own shares in the Bank. [D.E. 105 at ¶¶ 1, 2]. And since that admission, Plaintiffs status as shareholders has not been at issue. indeed, Defendants do not dispute that Plaintiffs, as shareholders, have previously been allowed to vote at shareholder meetings and to receive dividend payments. In other words, the fact of Plaintiffs' shareholder status has been established in this case (and in reality) for years.

Nevertheless, Defendants represented on the eve of trial that the admission in their answer was based on assumption, a faulty one at that because on second thought they “no longer believe” that Plaintiffs are actually shareholders of the Bank. [D.E. 417 at 2]. To be clear, it is not that Defendants “no longer believe” that Plaintiffs physically possess shares in the Bank; it is undisputed that they do. Rather, Defendants submit, the historical context surrounding Plaintiffs' ownership of these shares counsels in favor of the Court employing the equitable doctrine of judicial estoppel to deem Plaintiffs' ownership interest in the relevant shares terminated.

The historical context surrounding the ownership of Plaintiffs' shares in the Bank may seem somewhat complicated, but the material facts are straightforward. Juan Santaella, one of the principals behind Plaintiffs, personally filed for bankruptcy more than 20 years ago. See, e.g., In re Santaella, 298 B.R. 793, 795 (Bankr. S.D. Fla. 2002) (discussing the background of the case).^[2] During that proceeding, Mr. Santaella disclosed an interest in Valcorp Securities as one of his assets. Mr. Santaella claimed that his Valcorp asset was exempted from the bankruptcy estate, however, because he and his wife owned Valcorp as tenants by the entirety. See 11 U.S.C. § 522(b)(3)(B) (defining the tenancy by the entirety exemption).

The relevance of Valcorp is that it previously owned the shares in the Bank that Plaintiffs now rely upon for standing. The journey of the relevant shares is as follows. In 1999, Valcorp acquired 63 shares in the Bank. In 2000, Mr. Santaella filed a voluntary Chapter 7 bankruptcy petition. In 2001, Valcorp acquired 63 additional shares in the Bank. In 2005, Valcorp transferred its 126 shares in the Bank to Plaintiff Franeker.^[3] In 2018, the bankruptcy court approved the settlement agreement between Mr. Santaella and the Trustee. In 2019, the Trustee filed his final report certifying that Mr. Santaella's bankruptcy estate had been fully administered, including Valcorp - an asset that the Trustee identified as property owned by Mr. Santaella as a tenant by the entirety and therefore an asset that provided no value to the bankruptcy estate. That same year, the bankruptcy court closed the case and Plaintiff Franeker transferred 63 shares in the Bank to Plaintiff Bancor. Plaintiffs filed this lawsuit a few years later.

Defendants' newly-found argument rests on the premise that Mr. Santaella, during these bankruptcy proceedings, improperly failed to disclose his ownership of the shares he held in the Bank by virtue of his ownership interest in Valcorp (even though he disclosed his interest in Valcorp and the bankruptcy court ultimately ruled that Valcorp was exempted from the bankruptcy estate). Had Mr. Santaella disclosed these shares, Defendants argue, the Trustee would have theoretically treated the shares as assets of the bankruptcy estate and hence would have presumably forced the sale of those shares so that their value could be redistributed to Mr. Santaella's creditors in accordance with the bankruptcy code. Consequently Plaintiffs never would have owned their shares in the Bank because those shares would have been clawed from Mr. Santaella's possession by the Trustee before Mr. Santaella could have transferred the shares to Plaintiffs. And Defendants conclude that Mr. Santaella's failure to expressly disclose these shares in the Bank during his bankruptcy proceeding justifies a profound exercise of this Court's equitable power -i.e., a finding that Plaintiffs are judicially estopped from relying on their ownership of these shares to prove their standing in this shareholder derivative action.

Defendants do not dispute, however, that no claim or defense of estoppel such as this was ever raised before during this saga, and specifically was not identified as an affirmative defense in Defendants' answers to the complaints filed against them. To the contrary, they at all times admitted as a matter of fact that Plaintiffs were shareholders. The pending motion seeks to, in effect, claw back these admissions and their failure to plead defenses to the contrary that they rely upon now.

II. ANALYSIS

Federal courts are courts of “limited jurisdiction.” Trump v. United States, 54 F.4th 689, 694 (11th Cir. 2022) (quoting Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S. 375, 377 (1994)). Accordingly, federal courts “possess only that power authorized by Constitution and statute, which is not to be expanded by judicial decree.” Id. A component of this jurisdictional framework involves the doctrine of standing, which “gives meaning to Article III's cases-and-controversies” requirement by identifying the disputes that are “appropriately resolved through the judicial process.” Susan B. Anthony List v. Driehaus, 573 U.S. 149, 157 (2014) (quoting Lujan v. Defenders of Wildlife, 504 U.S. 555, 560 (1992)). To establish Article III standing, a plaintiff must show (1) an injury in fact, (2) a sufficient causal connection between the injury and the conduct complained of, and (3) a likelihood that the injury will be redressed by a favorable decision. Id. at 157-58. The federal rules impose a similar standing requirement for shareholder derivative actions. See FED. R. CIV. P. 23.1(b).

Defendants submit that Plaintiffs do not have standing because they should be judicially estopped from claiming an ownership interest in the Bank. If Plaintiffs are not shareholders, Defendants argue, then they are not in a proper position to assert that the Bank - the entity Plaintiffs purport to represent in this lawsuit - has been injured by Defendants' conduct.

But this argument fails for two reasons. First, Defendants waived it by admitting that Plaintiffs are in fact shareholders. Second, even if the argument had not been waived, the law governing judicial estoppel does not provide for the exercise of that judicial power under these circumstances. The newly-found theory is meritless.

A. Defendants waived their standing argument.

To reiterate, Defendants admitted in their answer that Plaintiffs are shareholders. Absent an amendment to the pleading, these judicial admissions conclusively establish the fact of Plaintiffs' bona fide shareholder status. See, e.g., Reliable Contracting Group, LLC v. Dept. of Veterans Affairs, 779 F.3d 1329, 1334 (Fed. Cir. 2015) (“[I]t is clear from other circuits that judicial admissions, which ‘have the effect of withdrawing a fact from issue and dispensing wholly with the need for proof of the fact,' are limited to formal admissions made in, for example, a complaint, answer, or pretrial order.”); see also Almand v. DeKalb Cnty., 103 F.3d 1510, 1514 (11th Cir. 1997) (“The answer admits the facts alleged in paragraph 3, but we wonder whether the admission has effect for conclusions of law that are set out in the complaint.”); Ferguson v. Neighborhood Housing Svcs. of Cleveland, Inc., 780 F.2d 549, 551 (6th Cir. 1986) (“As NHS has admitted facts establishing federal subject matter jurisdiction over the...