FOR THE FIFTH CIRCUIT. No In the Matter of: Vitro, S.A.B. de C.V., Vitro, S.A.B. de C.V.,

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1 Case: Document: Page: 1 Date Filed: 07/03/2012 IN THE UNITED STATES COURT OF APPEALS FOR THE FIFTH CIRCUIT No In the Matter of: Vitro, S.A.B. de C.V., Debtor Vitro, S.A.B. de C.V., v. Appellant, Ad Hoc Group of Vitro Noteholders, Wilmington Trust NA, U.S. Bank, NA, Appellees. APPEAL FROM THE UNITED STATES BANKRUPTCY COURT FOR THE NORTHERN DISTRICT OF TEXAS APPELLANT S FOR PRELIMINARY INJUNCTION EXTENDING EXISTING TRO PENDING APPEAL THOMPSON & KNIGHT LLP David M. Bennett State Bar No Richard B. Phillips, Jr. State Bar No Katharine Battaia Clark State Bar No Cassandra Ann Sepanik State Bar No Routh Street, Suite 1500 Dallas, Texas Telephone: (214) Facsimile: (214) MILBANK, TWEED, HADLEY & M C CLOY LLP Andrew M. Leblanc 1850 K Street, NW, Suite 1100 Washington, DC Telephone: (212) Facsimile: (212) MILBANK, TWEED, HADLEY & M C CLOY LLP Alan J. Stone Jeremy C. Hollembeak 1 Chase Manhattan Plaza New York, New York Telephone: (212) Facsimile: (212) Attorneys for Alejandro Francisco Sánchez Mújica and Javier Arechavaleta Santos as Foreign Representatives of Vitro, S.A.B. de C.V.

2 Case: Document: Page: 2 Date Filed: 07/03/2012 TABLE OF CONTENTS Page Preliminary Statement...1 Argument...4 A. The Anti-Injunction Act Does Not Apply to the Relief Sought in the Enforcement Motion...5 B. The Bankruptcy Court Did Not Deny the Relief That Vitro Seeks In the Emergency Motion...7 C. Contrary to the Appellees Arguments, Vitro Has Shown a Likelihood of Success on the Merits The Court Should Apply a De Novo Standard of Review This Court Is Likely to Reverse the Bankruptcy Court s Decision that the Guarantee Novation Feature Prevents Enforcement of the Concurso Plan a. The Bankruptcy Court Erred in Concluding That Section 1506 of the Bankruptcy Code Prevents Enforcement of the Concurso Plan b. The Bankruptcy Court Erred in Not Enforcing the Concurso Plan Under Section 1507 of the Bankruptcy Code c. The Bankruptcy Court Erred in Not Enforcing the Concurso Plan Under Section 1521 of the Bankruptcy Code D. The Appellees Have Failed to Rebut Vitro s Argument That It Will Suffer Irreparable Harm Absent Extension of the TRO E. The Appellees Have Not Shown That They Will Be Harmed By Extension of the TRO F. Public Interest Favors Extension of the TRO G. This Court Should Reject the Appellees Request for a Bond Pending Appeal i-

3 Case: Document: Page: 3 Date Filed: 07/03/2012 Conclusion Certificate of Service ii-

4 Case: Document: Page: 4 Date Filed: 07/03/2012 TABLE OF AUTHORITIES CASES Page Argo Fund Ltd. v. Bd. of Dirs. of Telecom Argentina, S.A. (In re Bd. of Dirs. of Telecom Argentina, S.A.), 528 F.3d 162 (2d Cir. 2008)...15 Atl. Coastline R.R. v. Brotherhood of Locomotive Eng rs, 398 U.S. 281 (1970)...6 Bank of Mississippi v. Knight, 208 F.3d 514 (5th Cir. 2000)...11 Bowen v. Doyle, 880 F.Supp. 99 (W.D.N.Y. 1995)...23 Can. S. Ry. Co. v. Gebhard, 109 U.S. 527, 537 (1883)...20 Crowe & Dunlevy, P.C. v. Stidham, 640 F.3d 1140 (10th Cir. 2011)...23 Cunard S.S. Co., Ltd. V. Salen Reefer Servs. AB, 773 F.2d 452, 457 (2d Cir. 1985)...15 Davis v. Sheldon (In re Davis), 691 F.2d 176 (3d Cir. 1982)...6 Diorinou v. Mezitis, 237 F.3d 133 (2d Cir. 2001)...11 Fla. Businessmen for Free Enter. v. City of Hollywood, 648 F.2d 956 (5th Cir. 1981)...24 Hilton v. Guyot, 159 U.S. 113 (1895)...11 In re Bd. of Dirs. of Multicanal S.A., 314 B.R. 486 (Bankr. S.D.N.Y) iii-

5 Case: Document: Page: 5 Date Filed: 07/03/2012 In re Bd. of Dirs. of Telecom Argentina, S.A., No. 06 Civ.2352 NRB, 2006 WL (S.D.N.Y.), aff d, 528 F.3d 162 (2d Cir. 2008)...15 In re Blackwell, 270 B.R. 814 (Bankr. W.D. Tex. 2001)...19 In re Ionica PLC, 241 B.R. 829 (Bankr. S.D.N.Y. 1999)...17 In re McCombs, 659 F.3d 503 (5th Cir. 2011)...10, 11 In re McLain, 516 F.3d 301 (5th Cir. 2008)...10, 12 In re Metcalfe & Mansfield Alt. Inv., 421 B.R. 685 (Bankr. S.D.N.Y. 2010)...16 In re Petition of the Bd. of Dirs. of Hopewell Int l Ltd., 238 B.R. 25 (Bankr. S.D.N.Y. 1999)...15 In re Petition of Garcia Avila, 296 B.R. 95 (Bankr. S.D.N.Y. 2003)...15, 18, 19 In re San Patricio County Cmty. Action Agency, 575 F.3d 553 (5th Cir. 2009)...12 In re Sphere Holdings, 162 B.R. 639 (E.D.N.Y. 1994)...28 In re United Marine, Inc., 197 B.R. 942 (Bankr. S.D. Fla. 1996)...18 In re Vitro, S.A.B. de C.V., 455 B.R. 571 (Bankr. N.D. Tex. June 24, 2011)...10 In re Young, 416 Fed.Appx. 392 (5th Cir. 2011)...10, 12 Int l Transactions, Ltd. v. Embotelladora Agral Regiomontana, SA de CV, 347 F.3d 589 (5th Cir. 2003)...14, 20 -iv-

6 Case: Document: Page: 6 Date Filed: 07/03/2012 Lavie v. Ran (In re Ran), 607, F.3d 1017 (5th Cir. 2010)...13 Michael Miller Fabrics, LLC v. Studio Imps. Ltd., Inc., No. 12 CV 3858, 2012 WL (S.D.N.Y. June 7, 2012)...23 Poplar Grove Planting & Refining Co., Inc. v. Bache Halsey Stuart, 600 F.2d 1189 (5th Cir. 1979)...31, 32, 33 Republic Supply Co. v. Shoaf, 815 F.2d 1046 (5th Cir. 1987)...13, 14, 15 Shultz v. La Trailer Sales, Inc., 428 F.2d 61 (5th Cir. 1970)...19 Three J Farms, Inc. v. Plaintiffs Steering Comm. (In re Corrugated Container Antitrust Litig.), 659 F. 2d 1332 (5th Cir. 1981), cert. denied, 456 U.S. 936 (1982)...6 Travelers Indemn. Co. v. Bailey, 557 U.S. 137 (2009)...13 STATUTES 11 U.S.C. Chapter , 16, U.S.C U.S.C U.S.C U.S.C , 11, 13, 16, U.S.C passim 11 U.S.C U.S.C passim 11 U.S.C , U.S.C v-

7 Case: Document: Page: 7 Date Filed: 07/03/2012 OTHER AUTHORITIES Fed. R. App. P Fed. R. Bankr. P Federal Rules of Bankruptcy Procedure passim Federal Rules of Civil Procedure Rule , 32 S. REP , at 29, reprinted in 1978 U.S.C.C.A.N. 5787, 5815, 1978 WL vi-

8 Case: Document: Page: 8 Date Filed: 07/03/2012 The Foreign Representatives 1 of Vitro SAB hereby submit this reply (the Reply ) to (i) Appellees Objection to Emergency Motion for Preliminary Injunction Extending Existing TRO Pending Appeal (the Ad Hoc Group Objection ) filed by the Ad Hoc Group of Noteholders and Wilmington Trust, N.A., solely in its capacity as indenture trustee (collectively the Ad Hoc Group Appellees ), and (ii) Appellee U.S. Bank National Association s Objection to Appellant s Emergency Motion for Preliminary Injunction Pending Appeal (the U.S. Bank Objection, and collectively with the Ad Hoc Group Objection, the Objections ) filed by U.S. Bank, solely in its capacity as indenture trustee. PRELIMINARY STATEMENT In the Objections, the Ad Hoc Group Appellees and U.S. Bank (collectively the Appellees ) spend 70 pages trying to convince this Court, through myriad legal and factual arguments, that Vitro SAB is not entitled to a temporary extension of a TRO that has been in place for nearly five months. The Appellees contend that, rather than preserve the status quo pending this appeal by extending the TRO, this Court should stand idly by while the Appellees launch fresh attacks on Vitro, its customers, and other parties with whom it does business in direct contravention of the decisions of the Mexican District Court. Having succeeded in 1 Capitalized terms used but not otherwise defined herein have the meanings ascribed to them in the Emergency Motion. FOR PRELIMINARY INJUNCTION PAGE 1

9 Case: Document: Page: 9 Date Filed: 07/03/2012 getting this Court to reject the motion to expedite Vitro SAB s appeal, the Appellees ask that this Court permit this barrage to continue for months while the appeal is briefed. Vitro SAB desperately needs the TRO to preserve the value of its business during its appeal. Notwithstanding the length of their submissions, and their attempts to expand the single reason stated by the Bankruptcy Court for refusing to enforce the decision of the Mexican District Court, the Appellees arguments fall flat, because they misapply legal standards, rely upon an inaccurate assessment of the record before the Bankruptcy Court, and incorporate supposed facts that do not exist. The Ad Hoc Group Appellees begin their Objection with a misguided citation to the Anti-Injunction Act, contending that this Act prevents the Court from issuing injunctive relief to enjoin the Collection Actions (as defined below). This argument, which the Ad Hoc Group Appellees never raised in the Bankruptcy Court in response to Vitro s request for the TRO, must fail that Act is plainly inapplicable where, as here, the Bankruptcy Code authorizes the injunctive relief. Next, the Ad Hoc Group Appellees contend that the Bankruptcy Court already denied the relief that Vitro seeks when it entered a supposed PI Denial Order. This argument strains credulity, however, as the record clearly shows that the Bankruptcy Court never even heard Vitro s request for a preliminary injunction pending this appeal, much less decided it. FOR PRELIMINARY INJUNCTION PAGE 2

10 Case: Document: Page: 10 Date Filed: 07/03/2012 The Appellees each address the elements of the preliminary injunction test, but these arguments fare no better. First, with respect to Vitro SAB s likelihood of success, the Appellees erroneously rely upon an abuse of discretion standard of review, pretending that the Bankruptcy Court s decision resulted from a wellreasoned, fact-based inquiry. The Appellees are simply wrong. The Bankruptcy Court s conclusion was based entirely on a single erroneous legal conclusion that the Guarantee Novation Feature is unenforceable regardless of whether the Bankruptcy Court purported to reach that conclusion under section 1506, 1507, or 1521 of the Bankruptcy Code. This legal conclusion must be reviewed de novo, and it should be reversed on appeal under controlling precedent. Second, with respect to irreparable harm, the Appellees erroneously assert that Vitro (i) does not owe inconsistent obligations under the New Notes and the Old Notes, ignoring the plain language of both debt instruments, and (ii) will not be harmed by the Collection Actions, even though controlling Fifth Circuit precedent establishes that Vitro s potential loss of customers to competitors justifies a stay pending appeal. The Appellees are also wrong that Vitro has an adequate remedy at law, because, among other things, Vitro cannot commence insolvency proceedings to restructure debts that have already been discharged in Mexico. FOR PRELIMINARY INJUNCTION PAGE 3

11 Case: Document: Page: 11 Date Filed: 07/03/2012 Third, while Vitro will suffer irreparable harm absent a preliminary injunction, the Appellees have not shown that they will suffer any harm, much less substantial harm, if the injunction is granted. In their Objections, the Appellees claim that Vitro will attempt to divert assets from their reach, but they provide no support for this claim and fail to explain why the TRO s restrictions on Vitro s activities added at their insistence below will not adequately protect them. Fourth, the Appellees unsuccessfully argue that an extension of the TRO will disserve the public interest because it may have an adverse impact on the United States economy. The Bankruptcy Court expressly rejected this argument after trial on the Enforcement Motion, in which the Appellees sought to establish this fact through expert testimony. Finally, the Appellees argue that, if this Court does grant the Emergency Motion, it should require Vitro to post a bond in the full amount of the Appellees judgments pending the Appeal. Contrary to the Appellees arguments, however, the applicable rules do not require Vitro to post a bond, and this Court should not require one where doing so would be detrimental to both Vitro and those of its creditors who consented to the Concurso Plan. ARGUMENT Vitro has satisfied each of the four elements for injunctive relief. Before responding to the Appellees arguments on each of the four elements, however, FOR PRELIMINARY INJUNCTION PAGE 4

12 Case: Document: Page: 12 Date Filed: 07/03/2012 two threshold arguments raised by the Ad Hoc Group Appellees must be addressed: (i) the Anti-Injunction Act argument; and (ii) the argument that the Bankruptcy Court already denied Vitro s request for a preliminary injunction. This Court should reject both of those arguments for the reasons discussed below. A. The Anti-Injunction Act Does Not Apply to the Relief Sought in the Enforcement Motion Contrary to the Ad Hoc Group Appellees assertions, the Anti-Injunction Act, 2 by its very terms, does not apply here to prevent this Court from issuing injunctive relief. Importantly, the Appellees did not argue that the Bankruptcy Court lacked the authority under the Anti-Injunction Act to issue the TRO, thus conceding that the Federal Courts have the authority to enjoin state court actions in these circumstances. This implicit concession was appropriate because the Anti- Injunction Act contains three express exceptions, two of which are applicable here. One exception is that the Anti-Injunction Act does not preclude a federal court from issuing injunctive relief that Congress has expressly authorized. 3 Here, the relief that Vitro seeks for itself and the Old Guarantors 4 was expressly U.S.C. 2283, which provides: A court of the United States may not grant an injunction to stay proceedings in a state court except as expressly authorized by Congress, or where necessary in aid of its jurisdiction, or to protect or effectuate its judgments. Id. See, e.g., Fed. R. Bankr. P (noting that the rule is meant to protect the rights of all parties in interest ) (emphasis added). FOR PRELIMINARY INJUNCTION PAGE 5

13 Case: Document: Page: 13 Date Filed: 07/03/2012 authorized by Congress under sections 105, 5 as well as under sections 1507 and 1521 of the Bankruptcy Code, and under Federal Rule of Bankruptcy Procedure Although the Ad Hoc Group Appellees contend that Congress has not authorized injunctive relief for non-debtors, that argument ignores relevant precedent which Vitro will outline in its appellate brief and is belied by the fact that the Bankruptcy Court itself extended injunctive relief to the Old Guarantors pending its decision on the Enforcement Motion. Based upon this exception alone, the Anti-Injunction Act argument must fail. Additionally, injunctive relief is appropriate under the exception in the Anti- Injunction Act that allows a court to issue injunctive relief to aid in the exercise of its jurisdiction. 6 The Appellees actions to enforce state-court judgments against Vitro and seize its assets in the United States, including assets of the Old Guarantors (the Collection Actions ), threaten to interfere with this Court s authority to decide the issues presented in Vitro s appeal. Specifically, as 5 6 The legislative history of section 105 expressly provides that [section 105] is also an authorization, as required under [the Anti-Injunction Act], for a court of the United States to stay the action of a state court. S. Rep , at 29, reprinted in 1978 U.S.C.C.A.N. 5787, 5815, 1978 WL 8531; see also, e.g., Davis v. Sheldon (In re Davis), 691 F.2d 176, 177 (3d Cir. 1982) ( [t]he Bankruptcy Code... is an expressly authorized exception to the [Anti-Injunction Act] ). See Three J Farms, Inc. v. Plaintiffs Steering Comm. (In re Corrugated Container Antitrust Litig.), 659 F. 2d 1332, 1334 (5th Cir. 1981), ), cert. denied, 456 U.S. 936 (1982) ( [the second] exception to the Anti-Injunction Act means that injunctions may be issued where necessary to prevent a state court from so interfering with a federal court s consideration or disposition of a case as to seriously impair the federal court s flexibility and authority to decide that case. ) (citing Atl. Coastline R.R. v. Bhd. of Locomotive Eng rs, 398 U.S. 281, 295 (1970)). FOR PRELIMINARY INJUNCTION PAGE 6

14 Case: Document: Page: 14 Date Filed: 07/03/2012 discussed further below, if Vitro does not obtain a preliminary injunction pending appeal, any determination that the Concurso Plan should be enforced in the United States may be rendered ineffectual. 7 B. The Bankruptcy Court Did Not Deny the Relief That Vitro Seeks In the Emergency Motion The Ad Hoc Group Appellees contend that the Bankruptcy Court has already ruled on Vitro SAB s request for a preliminary injunction and, therefore, this Court must consider the Emergency Motion based upon the abuse of discretion standard. This argument misrepresents the record in this case. When Vitro SAB filed the Enforcement Motion in the Bankruptcy Court on March 2, 2012, it simultaneously commenced an adversary proceeding in which it moved for the TRO and a preliminary injunction pending the Bankruptcy Court s ruling on the Enforcement Motion. After a hearing, the Court granted Vitro s motion for the TRO, subsequently extending it on three separate occasions with agreement of the parties, ultimately through June 29, Significantly, the Bankruptcy Court never set a hearing on the motion for a preliminary injunction. Given this fact, the 7 Furthermore, the TRO, which Vitro seeks to extend, expressly provides that it does not apply to the prosecution of any action against a Non-Debtor Guarantor that has not been reduced to judgment as of the date hereof to the extent necessary to reduce the claims asserted in such actions to judgments. In re Vitro, S.A.B. de C.V., No HDH- 15, Extended Limited Temporary Restraining Order to Maintain Status Quo (Bankr. N.D. Tex. Mar. 26, 2012) (attached as Exhibit 7 to the Affidavit of Jeremy C. Hollembeak (the Hollembeak Affidavit ) contained in Vitro SAB s Appendix to the Emergency Motion). Thus, the Anti-Injunction Act does not interfere with pending litigation and, therefore, is arguably not even implicated. FOR PRELIMINARY INJUNCTION PAGE 7

15 Case: Document: Page: 15 Date Filed: 07/03/2012 Ad Hoc Group Appellees suggestion that the Bankruptcy Court adjudicated that motion is patently absurd. Notably, neither the Enforcement Denial Order 8 nor the Memorandum Opinion 9 which adjudicated Vitro SAB s request for a permanent injunction enforcing the Concurso Plan even referenced Vitro s motion for a preliminary injunction, much less made findings with respect to it. To the contrary, both the Enforcement Denial Order and the Memorandum Opinion (i) extended the TRO through June 29, 2012, and (ii) expressly invited Vitro SAB to seek further injunctive relief from this Court. 10 Thus, far from denying Vitro SAB s requests for injunctive relief, the Bankruptcy Court consistently protected Vitro SAB and the Old Guarantors to allow itself and this Court to decide the ultimate issue of enforcement of the Concurso Plan without concern for Vitro s destruction in the interim. Accordingly, based upon even a perfunctory review of the record, this Court should reject the Appellees meritless argument that the Bankruptcy Court has In re Vitro, S.A.B. de C.V., No HDH-15, Order Denying Motion of Vitro S.A.B. de C.V. for an Order Pursuant to 11 U.S.C. 105(A), 1507, And 1521 to (i) Enforce The Mexican Plan f Reorganization of Vitro S.A.B. de C.V., (II) Grant a Permanent Injunction, and (III) Grant Related Relief (Bankr. N.D. Tex. June, 15, 2012) (the Enforcement Denial Order ) (attached as Exhibit 9 to the Hollembeak Affidavit). In re Vitro, S.A.B. de C.V., No HDH-15, Memorandum Opinion (Bankr. N.D. Tex. June, 13, 2012) (the Memorandum Opinion ) (attached as Exhibit 8 to the Hollembeak Affidavit). Mem. Op. at 29. FOR PRELIMINARY INJUNCTION PAGE 8

16 Case: Document: Page: 16 Date Filed: 07/03/2012 already ruled upon Vitro s request and should instead review the Emergency Motion based upon the de novo standard of review. C. Contrary to the Appellees Arguments, Vitro Has Shown a Likelihood of Success on the Merits The Appellees contend that Vitro is not likely to succeed on the merits based on (i) a misleading assessment of the Bankruptcy Court s decision and (ii) a misapplication of relevant law, including the applicable standard of review. In their Objections, the Appellees cite to evidence they presented at trial in an effort to suggest that the holding contained in the Enforcement Denial Order was based on an extensive review of the factual record and lengthy legal analysis of a number of issues. Nothing could be further from the truth. Even a cursory review of the Memorandum Opinion makes clear that the Bankruptcy Court actually ruled against the Appellees on all factual issues presented at the trial and ruled on in the decision and spent only two and a half pages addressing the single legal issue the purported release for the Old Guarantors that formed the basis for its decision. Thus, contrary to the Appellees arguments, this Court should review this single legal issue under a de novo standard of review and, in undertaking such a review, is likely to reverse the FOR PRELIMINARY INJUNCTION PAGE 9

17 Bankruptcy Court s decision based on binding Fifth Circuit precedent and other applicable law The Court Should Apply a De Novo Standard of Review The Appellees assertion that this Court should review the Enforcement Denial Order solely for abuse of discretion is wrong. It is well-established in this Court that both conclusions of law and mixed questions of law and fact are reviewed de novo, not for abuse of discretion. 12 Here, the Bankruptcy Court s decision in the Enforcement Denial Order was based entirely on a single (albeit erroneous) legal conclusion: the Guarantee Novation Feature precluded enforcement of the Concurso Plan under chapter 15 of the Bankruptcy Code. 11 The Ad Hoc Group Appellees spend several pages of their Objection reciting various purported background facts which allegedly demonstrate that Vitro SAB carried out an illicit scheme to impair the rights of its creditors. This Court should ignore these purported facts, because they lack support in the record and were not relevant to the Bankruptcy Court s decision. For example, the Ad Hoc Group Appellees assert in their Objection that Vitro SAB and Fintech Investment Ltd. colluded to manufacture intercompany claims. (Ad Hoc Obj. at 7, n. 7.) This assertion is inaccurate and not supported by the Bankruptcy Court order that the Ad Hoc Group Appellees cited as the basis for their allegation, which actually indicates that [t]he nature of, and motivation behind, these Intercompany Claims is of great dispute between the parties and provides no indication that it agrees with the Ad Hoc Group Appellees version of events. In re Vitro, S.A.B. de C.V., 455 B.R. 571, 574 (Bankr. N.D. Tex. June 24, 2011). In addition, in the Memorandum Opinion, the Bankruptcy Court made no mention of Fintech or these intercompany transactions in its findings. (See generally Mem. Op.). Fintech, with other Consenting Noteholders (defined below) and creditors bound by the Concurso Plan, will FOR PRELIMINARY INJUNCTION PAGE 10

18 Case: Document: Page: 18 Date Filed: 07/03/2012 Although the Appellees assert that the Bankruptcy Court gave three independent statutory bases for its denial (i.e., sections 1506, 1507, and 1521 of the Bankruptcy Code), they fail to note that each of these three bases was merely a separate rationale for the same incorrect legal conclusion. Like all legal conclusions reached by a bankruptcy court, this Court will review the Bankruptcy Court s decision de novo. 13 Furthermore, despite the Appellees protestations to the contrary, the Enforcement Denial Order did not require the Bankruptcy Court to make determinations based on factual findings. 14 Indeed, there is no dispute, and thus no testimony presented at trial, that the Concurso Plan, in applying Mexican law, includes a novation of the obligations of parties secondarily liable on the bond indentures, specifically that modification of the primary obligor s (Vitro SAB s) obligations under the Old Notes resulted in a modification of the obligations of the Old Guarantors under the Old Notes. Accordingly, the Bankruptcy Court did not In re McCombs, 659 F.3d at 507; see also Diorinou v. Mezitis, 237 F.3d 133, (2d Cir. 2001) (holding that in considering whether to enforce foreign judgment, courts apply de novo standard as they would on review of a judgment in an action to enforce a judgment of a court within the United States and courts also apply de novo standard in considering whether to accept adjudication of foreign court on particular issue) (citing Hilton v. Guyot, 159 U.S. 113, (1895) and Bank of Miss. v. Knight, 208 F.3d 514, 516 (5th Cir. 2000)). The only factual findings that the Bankruptcy Court made were decided in Vitro s favor. Specifically, the Bankruptcy Court concluded, based on a review of the evidence presented at trial, that (i) the Concurso Approval Order was not the product of corruption, (ii) enforcement of the Concurso Plan would have not an adverse impact on the credit markets in the United States, and (iii) the Concurso process was not procedurally unfair. (Mem. Op. at ) FOR PRELIMINARY INJUNCTION PAGE 11

19 Case: Document: Page: 19 Date Filed: 07/03/2012 resolve any factual disputes or exercise any discretion, but rather simply found that this single feature of the Concurso Plan rendered the plan unenforceable in the United States. Moreover, the purported determinations that the Bankruptcy Court made under sections 1507 and 1521 of the Bankruptcy Code, including its conclusion that the Appellees would receive less under the Concurso Plan than they would under chapter 11, were at most mixed questions of law and fact, which are also subject to de novo review. 15 Accordingly, because the Enforcement Denial Order presents only conclusions of law and mixed questions of law and fact, the Court should review the decision de novo This Court Is Likely to Reverse the Bankruptcy Court s Decision that the Guarantee Novation Feature Prevents Enforcement of the Concurso Plan It is likely that the Bankruptcy Court s decision not to enforce the Concurso Plan and Concurso Approval Order will be reversed on appeal. As discussed in the Emergency Motion, the Bankruptcy Court committed reversible error by concluding that it could not enforce the Guarantee Novation Feature. For the In re McLain, 516 F.3d at 307; In re Young, 416 Fed. Appx. at 394. In re San Patricio Cnty. Cmty. Action Agency, 575 F.3d 553, 557 (5th Cir. 2009) (when reviewing acts of bankruptcy court, [w]e provide no deference to legal conclusions and analyze them anew. ). FOR PRELIMINARY INJUNCTION PAGE 12

20 Case: Document: Page: 20 Date Filed: 07/03/2012 reasons set forth below, each of the Bankruptcy Court s conclusions are likely to be reversed on appeal. 17 a. The Bankruptcy Court Erred in Concluding That Section 1506 of the Bankruptcy Code Prevents Enforcement of the Concurso Plan Section 1506 should be invoked only under exceptional circumstances concerning matters of fundamental importance for the United States. 18 Section 1506 applies only if the policy at issue is a fundamental policy of the United States. The Appellees attempt to avoid Republic Supply Co. v. Shoaf, 815 F.2d 1046 (5th Cir. 1987) and its progeny 19 fails because these cases involve consideration of the same underlying policy of enforcing judgments rendered in fair processes even if the same judgment would not be rendered here. 20 To affirm Although Vitro SAB intends to completely set forth the bases for reversal in its forthcoming brief on the merits -- and reserves all of its rights to do so -- Vitro SAB hereby responds only to the most egregious mischaracterizations and tilted intimations in the Objections. Additionally, Vitro SAB will address the possible meritorious objections in its brief on the merits in the event the Court wishes to address those objections rather than remand them to the Bankruptcy Court. Lavie v. Ran (In re Ran), 607, F.3d 1017, 1021 (5th Cir. 2010) (emphasis added). See also Travelers Indemn. Co. v. Bailey, 557 U.S. 137, 154 (2009) (vacating order refusing to enforce injunction protecting non-debtors in confirmed chapter 11 plan, explaining [t]he willingness of the Court of Appeals to entertain this sort of collateral attack cannot be squared with res judicata and the practical necessity served by that rule. It is just as important that there should be a place to end as there should be a place to begin litigation, and the need for finality forbids a court called upon to enforce a final order to tunnel back for the purpose of reassessing prior jurisdiction de novo. ) (emphasis added) (internal quotations and citations omitted). Compare Republic Supply, 815 F.2d at 1051, n.9 ( Republic contends that the bankruptcy court s action is a drastic overreaching of its allotted powers, which should not be condoned by enforcing the judgment, and that enforcement would also undermine a creditor s ability to rely on a guaranty. ), with Mem. Op. at 27, 28 (enforcement FOR PRELIMINARY INJUNCTION PAGE 13

21 Case: Document: Page: 21 Date Filed: 07/03/2012 the Bankruptcy Court s decision, this Court would have to find that the policies it refused to enforce in Republic Supply are somehow transformed into immutable fundamental public policies when the release of the non-debtor guarantee at issue is approved by a foreign bankruptcy court in accordance with foreign law after a full and fair hearing, rather than by a domestic bankruptcy court arguably in breach of section 524(e) of the Bankruptcy Code. Vitro SAB respectfully submits the Court will find no valid basis to draw this untenable distinction. Nevertheless, the Appellees assert that [t]his case has nothing whatsoever to do with Republic Supply because that case involved enforcement of the approval of a reorganization plan confirmed and consummated in the United States. 21 Case law undermines this argument. Courts have recognized that the policy considerations underlying enforcement of foreign judgments as a matter of comity substantially overlap those underlying the enforcement of domestic judgments as a matter of res judicata. 22 As a result, courts presiding over cases ancillary to foreign bankruptcy proceedings should and do consider the policies precluded by policy of protection of third party claims in a bankruptcy case and would create a precedent without any seeming bounds ). Ad Hoc Obj. at See Int l Transactions, Ltd. v. Embotelladora Agral Regiomontana, SA de CV, 347 F.3d 589, 593 (5th Cir. 2003) ( The rationale underlying the grant of comity to a final foreign money judgment is similar to that underlying the application of res judicata to domestic judgments. ) (citing Cunard S.S. Co., Ltd. V. Salen Reefer Servs. AB, 773 F.2d 452, 457 (2d Cir. 1985)). FOR PRELIMINARY INJUNCTION PAGE 14

22 Case: Document: Page: 22 Date Filed: 07/03/2012 underlying the doctrine of res judicata when asked to enforce an order issued by a foreign bankruptcy court. 23 Notwithstanding that Vitro cited the Bankruptcy Court to all of the foregoing authority in its briefs and argument at the Enforcement Hearing, 24 the Memorandum Opinion is completely devoid of any discussion of the principles of finality and certainty underlying the doctrine of res judicata. 25 Tellingly, the Memorandum Opinion contains only a cursory discussion of In re Metcalfe & See, e.g., In re Bd. of Dirs. of Telecom Argentina, S.A., No. 06 Civ.2352 NRB, 2006 WL , at *5 (S.D.N.Y.), aff d, 528 F.3d 162 (2d Cir. 2008) (affirming bankruptcy court determination to give res judicata effect to Argentinean reorganization plan, and determination of objecting creditor s claim embodied therein); In re Petition of the Bd. of Dirs. of Hopewell Int l Ltd., 238 B.R. 25, 61 (Bankr. S.D.N.Y. 1999). It is entirely specious for the Appellees to imply that Vitro SAB did not adequately bring a case to the Bankruptcy Court s attention because it was cited in a footnote rather than in the text of the Enforcement Motion. Counsel for Vitro SAB spent several minutes discussing Republic Supply specifically the very provisions applicable to this appeal and its significance in closing argument at the Enforcement Hearing. (See Enforcement Hr g Tr. 135:20-137:12, June 7, 2012 (attached as Exhibit 5 to the Declaration of Jeff P. Prostok (July 2, 2012).) The Memorandum Opinion likewise contains no citation to, let alone any meaningful discussion of, numerous prior decisions that enforced foreign plans of reorganization over an objection that such enforcement violated the public policy of the United States. See, e.g., Enforcement Motion 46, 64 (attached as Exhibit 5 to the EM Appendix) (discussing Argo Fund Ltd. v. Bd. of Dirs. of Telecom Argentina, S.A. (In re Bd. of Dirs. of Telecom Argentina, S.A.), 528 F.3d 162 (2d Cir. 2008) (Sotomayor, J.) (enforcing Argentinean plan of reorganization)), 64 (discussing In re Bd. of Dirs. of Multicanal S.A., 314 B.R. 486 (Bankr. S.D.N.Y), aff d in substantial part, 331 B.R. 537 (S.D.N.Y. 2005) (enforcing Argentinean plan of reorganization)), 64 (discussing In re Petition of Garcia Avila, 296 B.R. 95 (Bankr. S.D.N.Y. 2003) (concluding Mexican debtor s proposed concurso plan did not violate U.S. public policy)), 72 (discussing In re Bd. of Dirs. of Hopewell Int l Ins. Ltd., 238 B.R. 25 (Bankr. S.D.N.Y. 1999) (enforcing Bermuda scheme of arrangement)). FOR PRELIMINARY INJUNCTION PAGE 15

23 Case: Document: Page: 23 Date Filed: 07/03/2012 Mansfield Alt. Inv., 421 B.R. 685, 699 (Bankr. S.D.N.Y. 2010), 26 which applied section 1506 to the same legal issue involved in this case whether a fundamental public policy of the United States precludes the enforcement of a foreign plan of reorganization containing non-debtor releases but which reached the opposite conclusion from the Bankruptcy Court. 27 In short, the Bankruptcy Court s analysis was insufficient, resulting in legal error that this Court should correct. b. The Bankruptcy Court Erred in Not Enforcing the Concurso Plan Under Section 1507 of the Bankruptcy Code The Bankruptcy Court also erred as a matter of law by denying enforcement of the Concurso Plan upon concluding it did not satisfy section 1507(b)(4) of the Bankruptcy Code because it included the Guarantee Novation Feature. As an initial matter, considerations set forth in section 1507(b) are just that The Bankruptcy Court devotes less than half a page of its 29-page Memorandum Opinion to its discussion of Metcalfe, as well as its bases for not reaching the same conclusion as the Metcalfe court, which it expressly noted were purely factual. (Mem. Op. at 25-26). Additionally, the Bankruptcy Court misstated several distinguishing facts in Metcalfe; referring, for example, to Metcalfe as a case that allowed for a limited third party release (Memorandum Opinion at 25) when, in fact, the release and injunction in Metcalfe was a very broad third-party non-debtor release and injunction. Metcalfe, 421 B.R. at 688 (emphasis added). Metcalfe, 421 B.R. at ( principles of enforcement of foreign judgments and comity in chapter 15 cases strongly counsel approval of enforcement in the United States of the third-party non-debtor release and injunction provisions included in the Canadian Orders, even if those provisions could not be entered in a plenary chapter 11 case ); id. at 698 ( 1506 does not preclude giving comity to the Canadian Orders in this case. ). FOR PRELIMINARY INJUNCTION PAGE 16

24 FOR PRELIMINARY

25 Case: Document: Page: 25 Date Filed: 07/03/2012 distribution of assets by the Old Guarantors under section 1507(b)(4) conflicts with the plain meaning of the statute. Second, section 1507(b)(4) does not require the exacting inquiry into the amount of distributions provided under the Concurso Plan relative to a hypothetical chapter 11 plan that the Bankruptcy Court relied on. As one court has explained: At bottom, the [objecting creditors] argue that the Court should not grant comity because they may receive a smaller distribution on their unsecured claim in Mexico than they would receive on their unsecured claim under United States law. Section [1507(b)] does not, however, require that an unsecured creditor receive the same distribution in the foreign case and the hypothetical American bankruptcy. 32 Third, the Bankruptcy Court s analysis fails to account for the possibility that a distribution scheme similar to that in the Concurso Plan can be and often is approved in a chapter 11 plan. Under the Bankruptcy Code, equity may retain value even if creditors are not paid in full so long as all impaired classes of creditors accept the plan. 33 The Bankruptcy Court s conclusion erroneously In re Petition of Garcia Avila, 296 B.R. 95, 112 (Bankr. S.D.N.Y. 2003) (emphasis added). In fact, such a distribution scheme has been confirmed chapter 11 plans where, as here, there is no dissenting class of creditors. See, e.g., In re United Marine, Inc., 197 B.R. 942, (Bankr. S.D. Fla. 1996) (confirming chapter 11 plan accepted by all creditor classes over objection of dissenting unsecured creditor, where plan provided unsecured creditors with a 10% recovery on their claims but vested 100% of the equity in the reorganized debtor with the debtor s prepetition equity holders). FOR PRELIMINARY INJUNCTION PAGE 18

26 Case: Document: Page: 26 Date Filed: 07/03/2012 assumes there is no possibility that Vitro SAB could propose a plan that would be accepted by all classes in a hypothetical chapter 11 case. 34 Finally, if not reversed, the Bankruptcy Court s holding would be the first time ever that a U.S. court has concluded that a concurso plan that impairs unsecured creditors while leaving equity in control of the debtor fails to satisfy 1507(b)(4). 35 Indeed, rejecting a concurso plan when it represents a common distribution scheme approved under the LCM runs counter to the fact that when it enacted chapter 15, Congress can be fairly presumed to have been familiar with the wide variety of distributional schemes worldwide and section 1507(b)(4) should not therefore be construed to effectuate an intent clearly at odds with structure and overall purpose of [chapter 15] to provide a mechanism for cooperation with foreign proceedings. 36 The rejection also conflicts with the long-settled precedent that [b]usinesses that voluntarily deal with foreign entities impliedly subject themselves to the laws of the foreign government under which the corporation is organized which may affect the powers and obligations of This same erroneous assumption underlies the Bankruptcy Court s conclusion that the Concurso Plan violates the absolute priority rule under section 1129(b) of the Bankruptcy Code. See, e.g., In re Petition of Garcia Avila, 296 B.R. at (finding that concurso proceedings under LCM easily satisfied requirements of comity now incorporated into Bankruptcy Code section 1507(b)) (citations omitted)). See also Durango I and Durango II (discussed in Enforcement Motion 25-26). In re Blackwell, 270 B.R. 814, 830, n.20 (Bankr. W.D. Tex. 2001) (emphasis added) (citing Shultz v. La Trailer Sales, Inc., 428 F.2d 61, 65, (5th Cir. 1970)). FOR PRELIMINARY INJUNCTION PAGE 19

27 that corporation. 37 Accordingly, for the foregoing reasons, this Court is likely to reverse the Bankruptcy Court s decision under section 1507(b)(4). FOR PRELIMINARY INJUNCTION PAGE 20

28 Case: Document: Page: 28 Date Filed: 07/03/2012 Even if that were not the case, the Concurso Plan does protect the interests of creditors in the United States and provides an appropriate balance between these interests and those of other parties involved. As an initial matter, for the same reasons discussed above, it was inappropriate for the Bankruptcy Court to consider the distribution of assets of the Old Guarantors in its analysis. Additionally, the Bankruptcy Court s analysis is nothing more than a repackaging of its analysis of the Guarantee Novation Feature, which is properly addressed as a matter of public policy under section 1506, not as an issue of sufficient protection under section Accordingly, for these reasons, this Court is likely to reverse the Bankruptcy Court s decision under sections 1521 and D. The Appellees Have Failed to Rebut Vitro s Argument That It Will Suffer Irreparable Harm Absent Extension of the TRO As discussed in the Emergency Motion, Vitro will suffer serious irreparable harm if it does not obtain a preliminary injunction pending appeal due to, inter alia: (i) the inconsistent judgments that it faces in the United States (from the New York court judgments enforcing the Old Guarantees) and Mexico (from the Mexican District Court replacing the obligations under the Old Guarantees with the new obligations under the Concurso Plan), and (ii) the Collection Actions. The Appellees have failed to rebut either of these arguments in their Objections. The Appellees contend in their Objections that the fact that Vitro is obligated on both the old debt and the new debt is a result of its own actions and, FOR PRELIMINARY INJUNCTION PAGE 21

29 Case: Document: Page: 29 Date Filed: 07/03/2012 therefore, should not provide the basis for injunctive relief. This argument is meritless. Vitro obtained confirmation of the Concurso Plan in Mexico after the Mexican Court found that it fully complied with Mexican law. Because the Appellees, who actively participated in the process in Mexico, made clear they would ignore and act in contempt of the decision of the Mexican District Court, Vitro sought enforcement of the decision in the United States. But Vitro promptly implemented the Concurso Plan in Mexico in accordance with the requirement in the Concurso Approval Order that implementation occur within 60 working days of the effective date of the approval order. The Appellees ask that this Court punish Vitro for complying with the terms of its plan. The Appellees also argue that Vitro will not suffer irreparable harm as a result of the inconsistent judgments or the Collection Actions. This argument is wrong both factually and legally. First, the Appellees assertion that Vitro is not subject to duplicative and inconsistent sets of obligations under the Old Notes and the New Notes is plainly incorrect. Under the Concurso Plan, Vitro is required to make and indeed has been making payments under the New Notes to all beneficiaries thereof, including both (i) directly to those creditors who consented to the Concurso Plan, and (ii) to a trust for the benefit of those creditors, including the Appellees, who did not consent to the Concurso Plan and who have not yet acknowledged the binding effect of the Mexican District Court s judgment, which FOR PRELIMINARY INJUNCTION PAGE 22

30 Case: Document: Page: 30 Date Filed: 07/03/2012 is the only requirement to receive the entire distribution to which they are entitled. Because Vitro is obligated to perform on the New Notes, including those held for the benefit of the Appellees, Vitro is in fact subject to dual sets of obligations. Second, the Appellees argument is inconsistent with existing case law, as courts have repeatedly recognized that the mere risk of inconsistent judgments constitutes irreparable harm for purposes of granting a preliminary injunction. 38 Here, Vitro SAB faces much more than a risk of inconsistent judgments: it faces imminent enforcement of judgments in the United States that are wholly inconsistent with the extant judgment of the Mexican District Court. Third, the Appellees are also wrong that Vitro will not be harmed by their Collection Actions. The Appellees characterize the harm that the Collection Actions will cause to Vitro as a purely economic harm that could be redressed by an award of money damages. This assertion ignores the impact that the Collection Actions will have on Vitro s customer relationships. Through the Collection Actions, the Appellees seek to execute the judgments they obtained against the Old Guarantors in New York by, among other things, suing Vitro s customers and 38 See, e.g., Crowe & Dunlevy, P.C. v. Stidham, 640 F.3d 1140, 1157 (10th Cir. 2011) (affirming grant of preliminary injunction motion because there would be a significant risk that [plaintiff] would be subject to inconsistent judgments ); Michael Miller Fabrics, LLC v. Studio Imps. Ltd., Inc., No. 12 CV 3858, 2012 WL , at *7 (S.D.N.Y. June 7, 2012) (granting injunction to prevent further prosecution that... would create the risk of irreparable harm in the event of the issuance of inconsistent decisions ); Bowen v. Doyle, 880 F. Supp. 99, (W.D.N.Y. 1995) (noting that enforcing inconsistent judgments from different courts could creat[e] procedural nightmares by subjecting parties to contradictory orders from the two different courts ). FOR PRELIMINARY INJUNCTION PAGE 23

31 Case: Document: Page: 31 Date Filed: 07/03/2012 seizing customer payments owed to the Old Guarantors. This seizure of customer payments will be devastating to Vitro s business. Vitro, like any manufacturer, cannot possibly buy raw materials, manufacture product, and ship product to customers without an expectation of payment. Ultimately, and not surprisingly, unless it receives payment, Vitro will have no choice but to stop shipping product to customers, at which point those customers will have no choice but to seek immediately alternative suppliers. This potential loss of customers and revenue, which will go to Vitro s competitors, unquestionably constitutes a threat of irreparable harm to Vitro s business. Indeed, this Court has previously granted a stay pending appeal based on evidence that the movant, a supplier, risked losing customers to its competitors during the pendency of the Appeal. 39 In reaching its conclusion, this Court stated that [i]f customers are likely to stop patronizing a supplier because it can no longer continue to provide goods or services available elsewhere, the impossibility of calculating the value of this loss of goodwill amounts to irreparable injury. 40 Here, Vitro risks losing all of its customers against whom litigation is brought in See Fla. Businessmen for Free Enter. v. City of Hollywood, 648 F.2d 956, 958 (5th Cir. 1981) (finding irreparable harm where business that sold drug paraphernalia may lose not only profits... but also [may] lose sales... to competitors in nearby areas due to city ordinance proscribing the sale of such goods). See id. at 958, n.3. FOR PRELIMINARY INJUNCTION PAGE 24

32 Case: Document: Page: 32 Date Filed: 07/03/2012 the United States if it is no longer able to supply them with glass products. Accordingly, Vitro has plainly demonstrated a threat of irreparable harm. 41 Fourth, the Appellees are wrong that Vitro has adequate remedies at law. In the Objections, the Appellees suggest that Vitro could either (i) commence insolvency proceedings for all of the Old Guarantors, (ii) post a bond in New York to stay the Appellees judgments, or (iii) ask the New York court to grant comity to the Concurso Plan. Each of these arguments fails. As to the Appellees first argument, Vitro cannot in fact commence insolvency proceedings for the Old Guarantors to remedy the irreparable harm that will result from enforcement of the inconsistent judgments it faces. The reason for this is simple: the Old Guarantors obligations were expressly discharged by the Concurso Approval Order. Vitro cannot commence insolvency proceedings to restructure debt that no longer exists. Additionally, Vitro s theoretical ability to post a bond in New York is not an adequate remedy at law. As an initial matter, this Court, not a court in New York, should decide whether Vitro must post a bond to obtain an extension of the TRO pending appeal. But more importantly, assuming Vitro even has the ability to post 41 Significantly, the Bankruptcy Court also found a substantial threat of irreparable harm when these same considerations led the Bankruptcy Court to issue the TRO in March Contrary to the Appellees suggestions, the relevant facts and circumstances surrounding the irreparable harm inquiry have not changed overnight. Accordingly, this Court should likewise find that the Appellees enforcement actions demonstrate irreparable harm for purposes of this Motion. FOR PRELIMINARY INJUNCTION PAGE 25

33 a bond in the full amount of its former debts, it defies credulity to argue that it is an adequate remedy at law to require a company that has just emerged from an insolvency proceeding under its home laws to post a bond in the full amount of its reorganized debt held by objecting parties while it simultaneously performs its reorganized obligations. Such a remedy is not adequate it is completely inconsistent with the purpose of the reorganization process and the fresh start that bankruptcy is supposed to provide. Finally, any ability by Vitro to seek enforcement of the Concurso Plan in New York does not constitute an adequate remedy at law that precludes this Court from issuing an injunction. Contrary to the Appellees arguments, the Bankruptcy Court, in the first instance, and this Court, on appeal, are unquestionably the correct, and indeed only, forums FOR PRELIMINARY INJUNCTION PAGE 26