Appeals Court Affirms Judgment for FKSA Client Against Bond Guarantors
FKSA attorneys won affirmance of an $85 million judgment in favor of the firm's client against 48 subsidiaries of bankrupt Mexican glass maker Vitro, S.A.B. de C.V. The subsidiaries had guaranteed payment on Vitro's bonds under indentures with New York choice-of-law and forum-selection clauses. After Vitro defaulted, and the subsidiaries refused to pay, Vitro petitioned a Mexican court for approval of a prepackaged reorganization plan that purports to extinguish its subsidiaries' guarantees under Mexican law. While that proceeding was pending, FKSA won summary judgment in New York state court against the Vitro subsidiaries for breach of the guarantees. After judgment was entered and an appeal filed in New York, the Mexican court approved the parent's reorganization plan.
In a unanimous opinion, the Appellate Division of the Supreme Court, First Department affirmed the decision and judgment below. The appellate court ruled in favor of FKSA's client on two key issues. First, the subsidiary-guarantors had argued that a fraudulent conveyance savings clause in the indentures required their net worth to be determined at trial before they could be held liable on the guarantees in any amount. The Appellate Division agreed with FKSA's client that the guarantors could not invoke the savings clause to avoid or limit their liability because "the limitation provision at issue could be triggered only by an allegation of a fraudulent conveyance, and no such allegation was made here."
Second, the guarantors had urged reversal on the ground that international comity required the New York court to defer to Vitro's Mexican bankruptcy proceeding and the Mexican court's adjudication concerning the guarantees. The Appellate Division held that extending comity to a foreign court was not warranted where the subsidiaries had executed an unconditional guaranty "that included the express agreement that their obligations would be governed by New York law, waived any rights under Mexican laws, and irrevocably submitted themselves to the jurisdiction of New York courts." The decision reaffirms New York's policy of protecting the expectations of participants in its capital markets who bargain for New York law and a New York forum.
FKSA's Edward A. Friedman argued the appeal, assisted by Jeffrey C. Fourmaux, Christopher L. McCall, and Bonnie M. Baker on the brief and in the trial court. The case is Aurelius Opportunities Fund IV, Ltd. v. Vitro, S.A.B. de C.V., Index No. 652146/2010 (Supreme Court, New York County).