Universal Towers Investimentos E Participacoes v. Constrazza Int'l, Inc. (In re Universal Towers Constr., Inc.)

641 B.R. 691

IN RE: UNIVERSAL TOWERS CONSTRUCTION, INC.

Universal Towers Investimentos E Participacoes, LTDA, Appellant,

v.Constrazza International, Inc., Appellee.

Case No: 6:21-cv-1665-PGB

United States District Court, M.D. Florida, Orlando Division.

Signed July 09, 2022

Attorneys for Appellant, Universal Towers Investimentos E Participacoes, LTDA, Andrew V. Layen, Esq., Baker & Hostetler LLP, Orlando, Florida 32801.

Attorneys for Appellee, Constrazza International Construction, Inc., Eric N. Assouline, Esq., Assouline & Berlowe, P.A., Miami, FL 33131, Peter E. Berlowe, Esq., Assouline & Berlowe, P.A., Miami, FL 33131

Attorneys for Debtor, Universal Towers Construction, Inc., Christopher R. Thompson, Esq., Burr & Forman, P.A., Orlando, FL 32801

ORDER

PAUL G. BYRON, UNITED STATES DISTRICT JUDGE

The instant appeal is the latest battle in a longstanding feud between Appellant Universal Towers Investimentos E Participacoes, LTDA ("Universal Towers "), the sole remaining shareholder of Universal Towers Construction, Inc. (the "Debtor "), and Appellee Constrazza International, Inc. ("Constrazza "), a former shareholder.

Specifically, Universal Towers appeals two rulings issued by the United States Bankruptcy Court, Middle District of Florida (the "Bankruptcy Court "), in two related proceedings. First, in the Debtor's bankruptcy proceeding, the Bankruptcy Court issued an Order Allowing Claims of Constrazza as a Class 3B Unsecured Creditor. (Doc. 10-2). Second, in the related adversary proceeding, the Bankruptcy Court issued an Opinion Granting Summary Judgment in Favor of Constrazza and Against Universal Towers as well as an accompanying Order of Final Judgment. (Docs. 9-2, 9-14). Accordingly, the following causes are before the Court:

1. Universal Tower's respective initial briefs (Docs. 18, 22), Constrazza's responses in opposition (Docs. 21, 26), and Universal Tower's replies thereto (Docs. 23, 27); and

2. Constrazza's Renewed Motion to Dismiss the Appeal of the Order Allowing Claims of Constrazza as a Class 3B Unsecured Creditor (Doc. 16 (the "Motion to Dismiss ")) and Universal Tower's response in opposition (Doc. 17).

After reviewing the entirety of the record, including the briefs filed by all parties, the Court, for the reasons set forth below: grants Constrazza's Motion to Dismiss; affirms, in the alternative, the Bankruptcy Court's Order Allowing Claims of Constrazza as a Class 3B Unsecured Creditor; and dismisses as moot Universal Towers’ appeal of the Bankruptcy Court's Opinion Granting Summary Judgment in Favor of Constrazza and Against Universal Towers and the accompanying Order of Final Judgment.

I. BACKGROUND

A. The State Court Action

At the Debtor's formation on May 18, 1998, its original shareholders were Constrazza and Joao Arcanjo Ribeiro ("Ribeiro "), a Brazilian citizen and the owner of Universal Towers. (Doc. 14-2, pp. 4–8). Thereafter, Ribeiro was convicted for numerous crimes, and on January 16, 2009, the First Federal Court of Mato Grasso, Brazil, appointed Francisco F. Bomfim ("Bomfim ") as judicial administrator of Ribeiro's assets, which included the authority to manage the Debtor's affairs on behalf of Universal Towers. (Id. at pp. 5, 8). Over the years, Bomfim and Constrazza had multiple disputes concerning the Debtor's management, culminating in Bomfim's dilution of Constrazza's 35 percent ownership interest in the Debtor to approximately three percent through a series of unauthorized debt conversion agreements on April 15, 2015. (Id. at pp. 8–11, 14).

On September 4, 2015, Constrazza initiated an action against Bomfim and the Debtor in the Ninth Judicial Circuit in and for Orange County, Florida (the "State Court "), seeking judicial dissolution of the Debtor. (Id. at pp. 2, 11). In response, on November 12, 2015, the Debtor elected to purchase Constrazza's shares pursuant to section 607.1436(1) of the Florida Code.¹ (Id. at pp. 3, 11). Constrazza then filed an Amended Complaint, dropping the petition for judicial dissolution of the Debtor, and adding claims for breach of fiduciary duty as to Bomfim in his individual capacity (Count I), declaratory relief as to Bomfim, Universal Towers, the Debtor, and other involved parties (Counts II, III, IV, V, and VI), and judicial appointment of a provisional receivership, custodianship, or provisional director as to the Debtor (Count VII). (Id. at p. 3).

On March 13, 2020, after a four-day bench trial, the State Court issued an Order of Final Judgment. (Id. at pp. 2, 25). As a preliminary matter, the State Court held that Constrazza could not extinguish its petition for judicial dissolution by filing the Amended Complaint under section 607.1436(2) of the Florida Code,² and it proceeded to determine the fair value of Constrazza's shares to facilitate the Debtor's election under section 607.1436(4) of the same.³ (Id. at pp. 12–13). However, the State Court also held that Bomfim committed "a myriad of violations of the shareholder agreement, [b]y-laws and [preexisting] loan agreements," listing those violations as follows:

• "Bomfim repeatedly took major corporate action without unanimous consent and over Constrazza's expressed objection," including the execution of the debt conversion agreements and the issuance of new stock under those agreements. (Id. at pp. 14–15).

• "Bomfim did not offer the new stock [issued] under the [d]ebt [c]onversion [a]greements to Constrazza and did not obtain Constrazza's written consent prior to the issuance of the new stock." (Id. at p. 15).

• Bomfim did not obtain written bank approval prior to the stock transfers. (Id. at p. 16).

• "The debt, which was the impetus for the conversion, [was] suspect," and "[t]he corporate minutes reflect[ed] repeated objections on the grounds that the underlying debt did not exist." (Id. ). And, relatedly, "Bomfim repeatedly engaged in transactions directly with entities controlled by himself." (Id. at pp. 15–16). "As justification for the debt restructuring, Bomfim maintained that [the Debtor] was ‘insolvent’ due to the principal and interest due on related party debts ... Yet, a careful review of the purported related party debt (all of which Bomfim controlled) undermines its validity.... [The Debtor] does not appear to have been truly insolvent. [The Debtor] was paying all of its operating expenses and was current in its payments to [its lender]. Indeed, as of December 31, 2014, [the Debtor] had accumulated over [eight million dollars] in cash and marketable securities. The auditors never raised the issue of insolvency and consistently issued only unmodified (clean) opinions." (Id. at pp. 16–17).

Thus, the State Court declared the debt conversion agreements "unauthorized and invalid," and it used the shareholder distribution percentage that existed prior to Bomfim's unauthorized execution of those agreements to determine the fair value of Constrazza's shares "as of the day before the date on which the petition for judicial dissolution was filed, September 3, 2015."⁴ (Id. at pp. 13–19, 21–22). The State Court then liquidated Constrazza's 35 percent ownership interest in the Debtor into a fixed debt of $135,857.54 per share, or $9,605,128.40 total, due within 10 days of the date of the Order of Final Judgment.⁵ (Id. ). It concluded: "Upon payment of the $9,605,128.40 required herein by [the Debtor] to [Constrazza], [the Debtor] shall be deemed to be the owner of [Constrazza's] [ ] shares ..." (Id. at p. 22).

Turning to the Amended Complaint, the State Court remarked that its enforcement of the Debtor's election vitiated many of the issues raised therein. (Id. at pp. 19–20). For example, as to Counts II, III, IV, and V, the State Court reiterated that its Order of Final Judgment reversed the shares issued under the debt conversion agreements and the resulting dilution of Constrazza's ownership interest in the Debtor. (Id. at pp. 20–21). Additionally, as to Count VII, the State Court denied the request for a receiver, custodian, or provisional director as "unnecessary" because "[the Debtor] appears to be financially healthy" and because "[the Debtor] shall purchase Constrazza's shares at the ordered value," noting its "intent [for the Debtor's] shareholders go their separate ways as soon as possible after payment." (Id. at p. 21). However, as to Count I, the State Court provided a more detailed analysis, finding the evidence insufficient to hold Bomfim individually liable for breach of fiduciary duty:

[Bomfim's] position as an officer and director of [the Debtor] was unenviable and was a result of the Brazilian Court's appointment to manage the affairs of [the Debtor] on behalf of [Universal Towers]. The relationship of the two shareholders at the time of the appointment was strained and did not improve with time.... [Bomfim's] actions, some of which were outside of what was permitted by the [s]hareholder [a]greement and [b]y-laws, appear to the Court to be an effort to keep [the Debtor] financially viable. The Court has concerns about the appearance of a conflict of interest and apparent self-dealing by [Bomfim]. Likewise, the Court finds the explanation of the drastic reduction of Constrazza's ownership interest by [Bomfim], the alleged motivation of that decision due to debt owed to entities controlled by [Bomfim], and the purported dire financial situation of [the Debtor] is not credible. This [O]rder of [Final Judgment] addresses the reduction of value to Constrazza's shares based on [Bomfim's] unilateral and unauthorized decisions. However, the evidence is insufficient to establish [Bomfim] is individually liable for breaching his fiduciary duties to [ ] shareholder Constrazza.

(Id. at p. 20).

Shortly after the Order of Final Judgment, on May 29, 2020, the State Court supplemented Constrazza's award with $2,067,515.41 in statutory prejudgment interest, for a total of $11,672,643.81. (Doc. 14-3). This sum remains outstanding.

B. The Bankruptcy Proceeding

On July 3, 2020, the Debtor filed a...