In re Fin. Oversight & Mgmt. Bd. for P.R.

633 B.R. 437

IN RE: The FINANCIAL OVERSIGHT AND MANAGEMENT BOARD FOR PUERTO RICO, as representative of The Commonwealth of Puerto Rico et al., Debtors.

In re: The Financial Oversight and Management Board for Puerto Rico, as representative of Puerto Rico Electric Power Authority, Debtor.

Autoridad de Energía Eléctrica de Puerto Rico, Plaintiff,

v.Vitol S.A. and Vitol Inc., Defendants.

No. 17 BK 3283-LTS (Jointly Administered)

No. 17 BK 4780-LTS

Adv. Proc. No. 19-453-LTS

United States District Court, D. Puerto Rico.

Signed September 27, 2021

MCCONNELL VALDÉS LLC, By: Eduardo A. Zayas-Marxuach, 270 Muñoz Rivera Avenue, Hato Rey, Puerto Rico 00918, Counsel for Vitol Inc.

SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP, By: Christine A. Okike, Bram A. Strochlic, Shana A. Elberg, 4 Times Square, New York, New York 10036, Counsel for Vitol Inc.

SUSMAN GODFREY, LLP, By: Neal S. Manne, Alexander L. Kaplan, Weston L. O'Black, Michael C. Kelso, Florence T. Chen, 1000 Louisiana Street, Suite 5100, Houston, Texas 77002, Counsel for Vitol Inc.

THE LAW OFFICES OF ANDRÉS W. LÓPEZ, P.S.C., By: Andrés W. López, 902 Fernández Juncos Ave. Miramar, San Juan, Puerto Rico 00907, Counsel for Vitol S.A.

O'NEILL & BORGES LLC, By: Hermann D. Bauer, 250 Muñoz Rivera Ave., Suite 800, San Juan, PR 00918-1813, PROSKAUER ROSE LLP By: Martin J. Bienenstock, Jeffrey W. Levitan, Timothy W. Mungovan, Paul V. Possinger, Chantel Febus, Laura Stafford, Margaret A. Dale, Eleven Times Square, New York, NY 10036 and Lary Alan Rappaport, 2029 Century Park East, Suite 2400, Los Angeles, CA 90067-3010, Attorneys for the Financial Oversight and Management Board for Puerto Rico in its capacity as representative for Puerto Rico Electric Power Authority (PREPA).

PROMESA Title III

OPINION AND ORDER REGARDING MOTIONS FOR SUMMARY JUDGMENT BY VITOL INC. , VITOL S.A. , AND THE PUERTO RICO ELECTRIC POWER AUTHORITY

LAURA TAYLOR SWAIN, United States District Judge

Vitol Inc. ("VIC") and Vitol S.A. ("VSA" and, together with VIC, "Vitol") are named as defendants in two civil actions brought by the Puerto Rico Electric Power Authority ("PREPA") (Docket Entry No. 1-10 in Adv. Proc. No. 19-453, the "2009 Complaint;" Docket Entry No. 1-56 in Adv. Proc. No. 19-453, the "2012 Complaint"),² that were originally filed in and later consolidated by the Commonwealth of Puerto Rico Court of First Instance, San Juan Part (the "Commonwealth Court;" see Docket Entry No. 3-12 at 5). PREPA challenges the validity of six fuel supply contracts (the "Contracts") between Vitol and PREPA concerning the purchase and sale of, in the aggregate, over $3.89 billion in fuel oil and seeks, inter alia, rescission of the Contracts and recovery of the full value or gross profits thereof under Act No. 458 of December 29, 2000. 3 L.P.R.A. § 928 et seq. ("Law 458"). On September 16, 2019, Vitol filed a single pleading containing its consolidated answers and counterclaim to the 2009 Complaint and the 2012 Complaint claiming, inter alia, that all six Contracts are valid and that PREPA still owes VIC $28,489,560.16 plus interest for fuel contractually delivered and received. (Docket Entry No. 3-11, the "Vitol Answers and Counterclaim.")

Before the Court are Vitol Inc. & Vitol S.A.’s Motion for Summary Judgment (Docket Entry No. 37, the "Vitol Motion"), and the Puerto Rico Electric Power Authority's Notice of Cross-Motion Pursuant

to Bankruptcy Rule 7056 for Summary Judgment on Claims and Counterclaims (Docket Entry No. 48), and accompanying Memorandum of Points and Authorities in Support of Puerto Rico Electric Power Authority's Cross-Motion for Summary Judgment and Opposition to Vitol's Motion for Summary Judgment (Docket Entry No. 53, the "PREPA Motion" and, together with the Vitol Motion, the "Cross-Motions"), filed by the Financial Oversight and Management Board of Puerto Rico (the "Oversight Board") on behalf of PREPA. Through the Vitol Motion, VIC and VSA seek summary judgment in their favor with respect to all Causes of Action asserted in the 2009 Complaint and the 2012 Complaint, and VIC seeks summary judgment on its counterclaim against PREPA for breach of contract, demanding the recovery of $28,489,560.16, plus interest, for delivered fuel for which PREPA has declined to pay. Through the PREPA Motion, the Oversight Board seeks summary judgment in its favor on Causes of Action 1 and 2 of its 2009 Complaint, on Causes of Action 1, 2, 3, 4, 5, 6 and 8 of its 2012 Complaint, and on Counterclaims 1, 2, 3, 6, and 7 of Vitol's Answers and Counterclaim. The Oversight Board also opposes the Vitol Motion, including VIC's Counterclaim seeking payment of the outstanding $28,489,560.16 and any Counterclaims seeking declaratory relief concerning the six Contracts.

The Court heard oral argument on the Cross-Motions on April 29, 2021, and has considered carefully all of the arguments and submissions made in connection with the Cross-Motions.³ The Court has subject matter jurisdiction of this Adversary Proceeding under both 28 U.S.C. § 1332 and 48 U.S.C. § 2166(a). The Cross-Motions are each granted in part and denied in part, as follows.

I. BACKGROUND

The following facts are undisputed, unless otherwise indicated.⁴

A. Law 458

In December 2000, the Commonwealth Legislature enacted Law 458 as part of its anti-corruption code, aimed at prohibiting the granting of bids or contracts to persons convicted of certain crimes.⁵ Section 928 of the legislation provides in pertinent part as follows:

[N]o head of a government agency or instrumentality, [or] public corporation ... shall award any bid or contract for services, or the sale or delivery of goods to a natural or juridical person who has been convicted of, or has pled guilty to, committing a crime involving fraud, embezzlement, or misappropriation of public funds listed in § 928b of this title, at the federal or state level, any other jurisdiction of the United States, or any other country.

3 L.P.R.A. § 928 (emphasis added). Significantly, the statute defines "juridical person" to include "corporations ... that constitute, for these purposes, the alter ego of the juridical person or subsidiaries thereof." 3 L.P.R.A. § 928a. The crimes listed in section 928b include, in relevant part, "[a]ggravated misappropriation, in all its modalities," and the section further provides that, "[f]or the purposes of the federal jurisdiction, that of states and territories of the United States, or of any other country, the prohibition set forth in this chapter shall apply in cases of convictions for crimes whose constitutive elements are equivalent to those of the above stated crimes." 3 L.P.R.A. § 928b.

In addition to the prohibition imposed by section 928, section 928c establishes penalties:

The conviction or guilt for any of the crimes listed in § 928b of this title shall entail, in addition to any other penalty, the automatic rescission of all contracts in effect on said date between the person convicted or found guilty and any agency or instrumentality of the Commonwealth government, public corporation, municipality, the Legislative Branch or the Judicial Branch of Puerto Rico. In addition to the rescission of the contract, the Government shall have the right to demand the reimbursement of payments made with regard to the contract or contracts directly affected by the commission of the crime.

3 L.P.R.A. § 928c. Section 928e requires the inclusion of a penal clause in such contracts that "expressly set[s] forth the provisions contained [in] § 928c of this title," to be incorporated by reference wherever it is omitted. 3 L.P.R.A. § 928e. Section 928g provides that "[t]he remedies granted to the Commonwealth of Puerto Rico in this chapter are in addition to those established in the Civil Code of Puerto Rico, specifically to causes of action for general fraud, fraud in the negotiation of a contract, ... false or unlawful purpose, turpis causa, fault or negligence. All actions contemplated in the code of laws in effect and those added by this chapter shall be deemed to be cumulative, and may be alleged in the alternative." 3 L.P.R.A. § 928g.

Contractors (including juridical persons) seeking to enter into covered contracts are also required to "submit a sworn statement before a notary public stating if the natural or juridical person ... has been convicted of, or has plead[ed] guilty to, any of the crimes listed in § 928b of this title, or if he is under investigation in any legislative, judicial, or administrative procedure, whether in Puerto Rico, the United States, or any other country," to participate in such contracts, and "[i]f the information is in the affirmative, said person [must] specify the crimes for which he was found guilty or if he entered a plea of guilty." 3 L.P.R.A. § 928f.

B. Vitol's Corporate Structure

VSA is a subsidiary of Vitol Holding Sàrl and it was incorporated on March 2, 1972. (PREPA SUF Reply ¶¶ 7-8.) On June 5, 1990, VSA's board of directors authorized VSA to use the name Vitol S.A., Inc. (or "VIN") to refer to its branch office in the United States and any other jurisdiction where VSA was required to add to its name the word "incorporated." (Id. ¶ 9.) On August 5, 2005, Vitol officers expressed concerns about whether the Vitol group should be reorganized, citing "all our recent problems (congo /irs etc.)" as reasons they might "reconsider whether we should continue with a branch office in the us as opposed to a separate company." (Id. ¶ 15.)

On October 16, 2006, VIC was incorporated under Delaware law, and, on October 25, 2006, VIC's board of directors voted to sell all 1,000 of its shares to VSA for $1,000, to make VIC a subsidiary of VSA. (Id. ¶¶ 16-17, 23-25.) Also, on October 25, 2006, VIC's board of directors elected its officers, some of whom had held similar positions at VIN. (Id. ¶¶ 18, 29-30.) The Puerto Rico Secretary of State authorized VIC to do business in Puerto Rico on November 16, 2006. (Id. ¶ 19.)

On December 20, 2006, VIN and VIC sent a joint letter...