Corali Lopez-Castro of Kozyak Tropin & Throckmorton.
Corali Lopez-Castro of Kozyak Tropin & Throckmorton. (Photo: J. Albert Diaz/ALM)

A bankruptcy judge in Miami reversed herself and allowed a trustee to pursue a debtor’s corporate alter egos in bankruptcy.

The question before U.S. Bankruptcy Court Chief Judge Laurel Isicoff was whether trustee Robert Angueira had standing to peer behind the corporate curtain and liquidate the assets of an offshore foundation and several other companies linked to wealthy Miami-Dade businessman Leonidas Ortega Trujillo, whose family once controlled Ecuador’s fourth largest bank.

Isicoff’s own legal precedent had prevented a trustee representing an individual debtor from piercing the corporate veil of that debtor’s companies.

But in a Nov. 29 ruling, she shifted focus from protecting shareholders to safeguarding creditors and preventing “the abuse of the corporate structure.”

“Now having to address this issue directly, this court agrees … that the trustee does have authority to bring the alter ego claim,” she ruled.

Trujillo has been involved in cross-border litigation with the Ecuadorian government since 1996 over allegations of fraud in the failure of family-run Banco Continental S.A. After the bank’s collapse, Ecuador’s central bank took over another Trujillo family operation–a Bahamas-based mutual fund called Interamerican Asset Management Fund Ltd., which has since become the largest creditor in the bankruptcy case playing out in federal court in Miami and other litigation in London and the Caribbean.

Angueira argued Trujillo engaged in a complex fraud to avoid paying income tax and hide his assets from creditors. He claimed Trujillo created a network of corporations to serve as alter egos, then filed for bankruptcy protection after the Ecuadorian government won a judgment of more than $600 million against him through the Interamerican Asset Management Fund. He claimed the debtor established a Panamanian foundation, Fundacion LTG, where he transferred all interests from a multinational conglomerate with investments in automotive, insurance, real estate, legal advisory, education, financial, tourism and social work industries in the U.S. and Ecuador.

“The only person who ever got a distribution from the foundation was the debtor himself,” said Angueira’s attorney, Corali Lopez-Castro of Kozyak Tropin & Throckmorton in Miami. “He’s gotten millions of dollars since that foundation was set up in 2003.”

Angueira’s five-count amended complaint included an action for declaratory judgment, an accounting, turnover of property to the bankruptcy estate, alter ego and to pierce the corporate veil. It later voluntarily dismissed the accounting claim.

But Trujillo sought to dismiss the entire suit on arguments the trustee failed to state a claim that could end in relief, lacked standing to assert the claim for alter ego, and that that the move for turnover and accounting were premature. He claimed a trustee representing a debtor’s estate had no legal standing to pursue alter ego claims against the debtor’s companies—an assertion that matched Isicoff’s earlier findings in an unrelated case, In re Kodsi, in January 2015. He argued that as trustee for his estate, Angueira had stepped into his shoes and could not act against his own companies.

At first the judge seemed inclined to agree.

“Intuitively, it does not make sense that such a cause of action could exist,” she wrote. “The trustee of an individual debtor bankruptcy should only be able to bring an alter ego action if an individual could bring an alter ego action against one of its own corporate entities. That didn’t seem logical.”

But Isicoff changed direction with a Nov. 29 ruling that cleared the way for Angueira to pursue his lawsuit against Trujillo and eight defendant companies. She relied on an Eleventh Circuit Court of Appeal ruling in In re Icarus Holding LLC that permitted the action, if the trustee’s claim was allowed under state law and common to all creditors. She then denied Angueira’s push for declaratory judgment, but reversed herself in his favor in his pursuit of the foundation’s assets.

“This court recedes from its holding in Kodsi with respect to its holding that Florida law does not recognize veil piercing and alter ego as remedies when the debtor is an individual,” she ruled.