In re: Helen Lyvuong v. Huongsen Production Import & Export Co Ltd a/k/a Senprodimex Vietnam; Noemi Landrau Rivera, Trustee

Opinion

THE DISTRICT OF PUERTO RICO 2 IN RE: 3 HELEN LYVUONG CASE NO. 11-09150 MCF 4 CHAPTER 7

5 Debtor(s) 6 HUONGSEN PRODUCTION IMPORT & ADVERSARY NO. 12-00014 EXPORT CO LTD A/K/A SENPRODIMEX

Plaintiff 8 HELEN LYVUONG FILED & ENTERED ON 12/23/2013 9 NOEMI LANDRAU RIVERA ,TRUSTEE 10 Defendant(s) 11 OPINION AND ORDER 12

13 Before the Court is a Motion for Summary Judgment filed by the 14 Plaintiff Huongsen Production & Export Import Co. Ltd. a/k/a Senprodimex 15 Vietnam (hereafter “Plaintiff”), objecting to the discharge of Defendant, 16 Helen Lyvuong (hereafter “Debtor”), pursuant to 11 U.S.C. § 17 523(a)(2)(A),(a)(4)&(a)(6).1 18

19 UNCONTESTED FACTS 20 1) Plaintiff is a limited liability company organized under the laws of 21 Vietnam. 22 2) Debtor is the sole officer and agent of SANCO Metals, LLC 23 (hereinafter “SANCO”). 24 3) On July 2, 2010, Plaintiff, along with Linh Hoang and Tung Mai filed 25 a lawsuit before the United States District Court for the District

1 Unless expressly stated otherwise, all statutory references are to Title 11 of the United States Code, 11 U.S.C. § 101, et seq., as amended by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, Pub. L. No. 109-8 (the “Bankruptcy Code”). 1 1 of Puerto Rico against Debtor as well as Sanco Metals LLC, Sanco 2 Metal & Recycling Center-Puerto Rico, Michael Nguyen, Jorge P. 3 Adorno-Del-Valle, Puerto Rico Salvage & Demolition Corp, Corporacion 4 LAREB, Hector Ayala-Vega, Zen America Capital Corporation, Mike Hai- 5 Tran, and Hiep Dang. (Case No. 10-1610 (SEC)). 6 4) On September 12, 2011, the District Court issued an Opinion and 7 Order in favor of Plaintiff Huongsen Production Import & Export Co. 8 9 Ltd. a/k/a Senprodimex Vietnam, Linh Hoang, and Tung Mai against 10 Debtor, Sanco Metals LLC, Sanco Metal & Recycling Center-Puerto 11 Rico, Michael Nguyen, Corporacion Lareb, Hector Ayala-Vega 12 (collectively referred to as “SANCO Group”).(Case No. 10-1610 13 (SEC)). 14 5) In the Opinion and Order, the District Court found the following 15 uncontested facts: 16 A) SANCO Group and Corporación LAREB (hereinafter “LAREB”) signed a 17 contract on October 1, 2009, to acquire the rights to the metal that 18 19 would later be sold to Plaintiff. 20 B) Plaintiff (buyer) and SANCO Group (seller) entered into an agreement 21 for the acquisition of metal from the Lafayette Mill in Arroyo, 22 Puerto Rico (hereinafter “the Mill”). 23 C) As a condition prior to signing the contract, Plaintiff required 24 SANCO Group to provide the following: 25 1. An Inspection Report certifying that the Mill contained approximately 30,000 tons of metal.

2. A letter from LAREB, the previous owner, as proof of SANCO Group’s ownership of the Mill’s metal.

2 1 D) As requested, SANCO Group delivered the “Inspection Report by CIS 2 Inspection Company” to Plaintiff, validating that it contained 3 approximately 30,000 tons of metal. The document was signed by 4 Carlos Diah, as the person who performed the Inspection and prepared 5 the document. 6 E) Subsequently, records showed that neither Carlos Diah nor CIS 7 Inspection Company had done business in the United States or Puerto 8 9 Rico during the past seven years. 10 F) On November 4, 2009, SANCO Group obtained an Assignment Letter from 11 Hector Ayala, LAREB’s president, stating the transfer to SANCO Group 12 of a Sugar Plant located at Arroyo, Puerto Rico. 13 G) Thereafter, Jorge Adorno, SANCO Group’s Regional Sales Manager at 14 that time, presented the assignment letter to Plaintiff. 15 H) On November 9, 2009, Plaintiff and Debtor, in representation of 16 SANCO, negotiated and signed the contract to purchase the metal 17 located at the Mill. The price fixed for the transaction was 18 19 $2,280,000.00. 20 I) On December 15, 2009, LAREB and SANCO Group signed a second contract 21 whereby SANCO Group acquired from LAREB all the rights and assets of 22 the Mill. 23 J) The aforementioned contract contained a clause whereby LAREB 24 acquired the rights to remove the steel and scrap metal from the 25 Mill. This contract allowed LAREB a period of six months to retrieve

all the material acquired. K) SANCO Group did not inform Plaintiff of the existence of the LAREB- SANCO Group Contract II. 3 1 L) “In April 2010, an estimate by Gregorio Hernandez C.E. determined 2 the amount of metal present at the Mill to be 3,000 tons +/-50%, and 3 ‘[a] virtual certainty that there are less than 15,000 metric tons 4 of steel at the Mill.’ Furthermore, portions of the Mill contained 5 asbestos and lead.”2 6 6) Based on the aforementioned undisputed facts, the District Court 7 concluded the following: 8 9 A) SANCO Group (including Debtor) concealed from Plaintiff that Michael Nguyen (not Diah) had prepared the Inspection Report. 10 B) Diah had not done business in Puerto Rico for the last seven 11 years.

12 C) CIS Inspection Company was neither a federally registered 13 trademark nor a copyright.

14 7) In the Opinion and Order, the District Court annulled the contract 15 between Plaintiff and SANCO Group because “Plaintiff’s consent, an 16 essential element for the contract’s existence, was vitiated with 17 dolo [contractual deceit].” 18 8) On September 12, 2011, the District Court issued the following 19 Partial Judgment against SANCO Group: 20 21 Pursuant to the Opinion and Order of even date, Plaintiffs’ motion for partial judgment is GRANTED in part and DEFERRED 22 in part. Accordingly, SANCO shall pay Plaintiff the amount 23 of $2,280,000 with their fruits, and the value with its interest. 24 9) Debtor did not oppose Plaintiff’s Motion for Summary Judgment in the 25 instant case.

SUMMARY JUDGMENT STANDARD

2 U.S. District Court’s Opinion and Order, Case No. 10-1610 (SEC) at page 12 4 1 Summary judgment is proper only where there is no genuine issue as 2 to any material fact and the moving party is entitled to a judgment as a 3 matter of law. Fed. R. Civ. P. 56(c); Fed. R. Bankr. P. 7056. 4 The party moving for summary judgment must demonstrate an absence of 5 evidence to support the nonmoving party's case. Celotex Corp. v. Catrett, 6 477 U.S. 317, 325 (1986). In order to determine if this burden is met, 7 the court must view the record in the light most favorable to the 8 9 nonmoving party and give that party the benefit of all reasonable 10 inferences in its favor. Cadle Co. v. Hayes, 116 F.3d 957, 959 (1st Cir. 11 1997). Once the moving party has made a preliminary showing that no 12 genuine issue of material fact exists, “the nonmovant must contradict the 13 showing by pointing to specific facts demonstrating that there is, 14 indeed, a trialworthy issue.” National Amusements, Inc. v. Town of 15 Dedham, 43 F.3d 731, 735 (1st Cir. 1195)(citing Celotex, 477 U.S. at 324). 16 COLLATERAL ESTOPPEL 17 18 Plaintiff contends that based on the Opinion and Order rendered by 19 the District Court against Debtor, in which it granted the claims for 20 contractual deceit, Debtor is not entitled to discharge, pursuant to § 21 523 of the Bankruptcy Code on the basis of collateral estoppel.3 22 Collateral estoppel, also referred to as issue preclusion, prevents 23 the re-litigation of an issue that has been already determined in a prior 24 court proceeding. The following four elements should be satisfied in 25 order to invoke this doctrine: 1) the issue sought to be precluded is the

same as that involved in the prior action; 2) the issue must have been

3 Plaintiff mentions in passing that Debtor has violated Section 727 of the Bankruptcy Code. 5 1 actually litigated; 3) the issue was determined by a valid and binding 2 final judgment; and 4) the determination of the issue was essential to 3 the judgment. The party asserting collateral estoppel bears the burden of 4 showing that it applies. In re National Med. Imaging, LLC, 439 B.R. 837 5 (Bankr. E.D. Pa. 2009). 6 The Supreme Court held in Grogan v. Garner, 498 U.S. 279 (1991) that 7 collateral estoppel principles apply in proceedings to determine the 8 9 dischargeability of a debt in bankruptcy under 11 U.S.C. § 523(a), and 10 that a bankruptcy court can apply the collateral estoppel doctrine to 11 those elements of the claim that are the same elements required for 12 discharge and which were previously determined. 13 The factors that support the conclusion that a decision is final for 14 the purpose of issue preclusion are the following: 1) the parties were 15 fully heard, 2) the judge's decision is supported by a reasoned opinion, 16 and 3) the earlier opinion was subject to review or was in fact reviewed. 17 Restatement (Second) of Judgments, § 13 (1982)(a judgment may be "final" 18 19 for purposes of issue preclusion if the earlier adjudication was 20 "sufficiently firm to be accorded conclusive effect"); Tausevich v. Board 21 of Appeals, 402 Mass. 146 (1988). 22 The District Court granted in part and deferred in part the 23 Plaintiff’s Motion for Partial Summary Judgment and issued a Partial 24 Judgment in which it ordered SANCO Group including the Debtor to pay 25 Plaintiff the amount of $2,280,000.00. The Opinion and Order states that

Plaintiffs asked that the District Court to “defer consideration with respect to their fraud and tort claims against SANCO [Group], until after Plaintiffs have had a chance to obtain discovery on the additional facts 6 1 asserted by SANCO [Group]’s opposition.”4 This circumstance does not 2 provide a conclusive effect to the District Court’s Partial Judgment. 3 It appears that the District Court’s Opinion and Order is not final 4 pursuant to Fed. R. Civ. P. 54(b) since it did not express the language 5 required by the statute. Rule 54(b) of Civil Procedure establishes the 6 following: 7 When an action presents more than one claim for relief-- 8 whether as a claim, counterclaim, crossclaim, or third-party 9 claim--or when multiple parties are involved, the court may direct entry of a final judgment as to one or more, but fewer 10 than all, claims or parties only if the court expressly determines that there is no just reason for delay. Otherwise, 11 any order or other decision, however designated, that adjudicates fewer than all the claims or the rights and 12 liabilities of fewer than all the parties does not end the action as to any of the claims or parties and may be revised 13 at any time before the entry of a judgment adjudicating all 14 the claims and all the parties' rights and liabilities.

15 Based on the fact that the District Court’s decision is not final, 16 17 Plaintiff has not established all the elements that the doctrine of 18 collateral estoppel requires. Therefore, the doctrine cannot be applied 19 to the present issue. 21 - False pretenses, false representation, or actual fraud 22 § 523(A)(2)(a)) 23 Plaintiff alleges that the debt owed by Debtor is non-dischargeable 24 given that it was obtained by false pretenses, false representation or 25 actual fraud, acts proscribed by Section 523(a)(2)(A). In support of this

allegation, Plaintiff contends that Debtor has been hiding behind the

4 U.S. District Court’s Opinion and Order, Case No. 10-1610 (SEC) at page 4 (Docket # 220). 7 1 corporate fiction in order to avoid her responsibilities and to engage in 2 deceitful and wrongful transactions. Moreover, Plaintiff asserts that the 3 elements necessary to prove false pretenses, false representations, or 4 actual fraud are undeniably present in the case before this Court and 5 have been adjudicated by the District Court. 6 Section 523(a)(2)(A) of the Bankruptcy Code excepts from discharge 7 any debt "for money, property, services, or an extension, renewal, or 8 9 refinancing of credit to the extent obtained by false pretenses, a false 10 representation, or actual fraud." 11 U.S.C. § 523 (a)(2)(A). When 11 objecting to the discharge under § 523 (a)(2)(A), in order to establish 12 that a debt is nondischargeable because obtained by "false pretenses, a 13 false representation, or actual fraud," the First Circuit has held that a 14 creditor must show that 1) the debtor made a knowingly false 15 representation or one made in reckless disregard of the truth, 2) the 16 debtor intended to deceive, 3) the debtor intended to induce the creditor 17 to rely upon the false statement, 4) the creditor actually relied upon 18 19 the misrepresentation, 5) the creditor's reliance was justifiable, and 6) 20 the reliance upon the false statement caused damage. Palmacci v. 21 Umpierrez, 121 F.3d 781, 786 (1st Cir. 1997). The first two elements of 22 the Palmacci test describe the conduct required to show fraudulent 23 conduct, and the last four stand for the requirement that the claim of 24 the creditor objecting to discharge must arise as a consequence of the 25 debtor's fraud. McCrory v. Spigel (In re Spigel), 260 F.3d 27 (1st Cir.

2001). In Mitsubishi Motor Sales of Caribbean, Inc. v. Ortiz, 418 B.R. 11 (2009), the First Circuit made reference to Collier On Bankruptcy 8 1 for the definition of actual fraud: 2 As to actual fraud, Collier On Bankruptcy P 523.08[1][e] states: 3 Section 523(a)(2) covers "actual fraud" as well as false 4 pretenses and representations. Actual fraud, by definition, consists of any deceit, artifice, 5 trick, or design involving direct and active operation of the mind, used to circumvent and cheat another -- something said, 6 done or omitted with the design of perpetrating what is known to be a cheat or deception. The concealment of material facts 7 by a fiduciary may also be fraud. Mitsubishi, 418 B.R. at 19. 8 9 In alleging fraud, a party must state with particularity the 10 circumstances constituting fraud. Fed. R. Bankr. P. 7009. 11 As established in the uncontested facts, Plaintiff and SANCO Group 12 entered into an agreement for the acquisition of metal from the Lafayette 13 Mill and as a condition prior to signing the contract, Plaintiff required 14 SANCO Group to provide an Inspection Report certifying that the Mill 15 contained approximately 30,000 tons of metal and a letter from the 16 previous owner as proof of SANCO Group’s ownership over the Mill’s metal. 17 SANCO Group delivered the “Inspection Report by CIS Inspection Company” 18 19 as promised to Plaintiff, sustaining that it contained approximately 20 30,000 tons of metal. The document was signed by Carlos Diah, as the 21 person who performed the Inspection and prepared the document but 22 afterwards it was revealed that neither Carlos Diah nor CIS Inspection 23 Company had done business in the United States or Puerto Rico during the 24 past seven years. Finally, an estimate by Gregorio Hernandez C.E. 25 determined the amount of metal present at the Mill to be 3,000 tons +/-

50%, and, thereby establishing that there were less than 15,000 metric tons of steel at the Mill. Additionally, portions of the Mill contained asbestos and lead. 9 1 The proven undisputed facts detailed above show that Debtor made 2 || false representations regarding the Inspection Report and the amount of 3 metal supposedly sold to Plaintiff. These false representations an 4 concealment of essential facts regarding the Inspection Report induced justifiable reliance and as a consequence of that reliance Plaintiff

1 suffered a pecuniary loss of $2,280,000.00. Plaintiff would not have 3 signed the contract if it had known that the Inspection Report was false. 9 ||Based on the reasons stated above, this Court can conclude that the 10 |/amount of $2,280,000.00 must be excepted from discharge under □□ 11 |/523(a) (2) (A). 12 Plaintiff also objected to discharge pursuant to sections 523(a)(4) 13 and (a)(6). However, the Court need not enter into an analysis under M these subsections once having concluded that the debt is excepted fro discharge under § 523(a)(2)(A). 18 For the reasons aforementioned, Debtor is not entitled to al 19 |}discharge with respect to $2,280,000.00 owed by Debtor to Plaintiff unde 20 U.S.C. § 523(a)(2)(A). Consequently, Plaintiff’s unopposed Motion fo 21 Summary Judgment is granted. 23 San Juan, Puerto Rico, this 23 day of December, 2013. 24 28 Vtclach Glam Mildred Caban Flores U.S. Bankruptcy Judge