U.S. Bankruptcy Chief Judge Laurel M. Isicoff in the Southern District of Florida has settled a long-running dispute over who really owned a string of defendant companies, siding with the trustee, who can now recover more than $600 million in assets and interest in a bankruptcy case.

The debtor, Leonidas Ortega Trujillo, a Miami businessman from a wealthy Ecuadorian family, filed for Chapter 7 bankruptcy protection in June 2015. But since 1996, he had been in litigation with the Ecuadorian government, represented by Boston K&L Gates partner Michael DeMarco and Miami partner Jeffrey Kucera, over the failure of what once was the country’s fourth-largest bank, run by the family.

After a 10-week trial, Isicoff found that although Trujillo wasn’t the named owner of the corporate defendants, he was the one who controlled and benefited from them.

That means the debtor will no longer get the bankruptcy discharge he had been granted in 2017.

Kozyak, Tropin & Throckmorton partner Corali Lopez-Castro, attorney for the trustee, alleged Trujillo had only filed for Chapter 7 bankruptcy protection to shake off a judgment against him in the government’s lawsuit, which was litigated in the Bahamas.

“We had to start peeling this onion to figure out what is going on,” Lopez-Castro said.

It was the most complicated case of Lopez-Castro’s 29-year career, with thousands of pages and hundreds of exhibits. But it boiled down to one question: Is the debtor the equitable owner of a Panama foundation that housed and distributed millions in assets?

Lopez-Castro and her all-female team—Dyanne Feinberg, Maia Aron and Mindy Kubs—had to build their argument using testimony from the debtor, his family and their employees—all adverse witnesses. The defense fell apart because of inconsistent testimony, according to the opinion.

Brett D. Lieberman and Paul L. Orshan represented the defendants until 2018, according to online case files. They did not respond to requests for a comment by deadline. Court records show no attorney appearance for Trujillo at this stage in the litigation.

A 10-week trial is almost unheard of in bankruptcy court, according to Lopez-Castro, who said the case was broken into segments, beginning July 2018 and ending in January.

“Every time I went back to trial, my kids would be like, ‘You still have that trial?’” she said.

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What happened?

In the Bahamas case, the courts continually ruled against the Ecuadorian government—until the Judicial Committee of the Privy Council in London, the highest court of appeal for British territories and commonwealth countries, stepped into the fray.

The court reversed, entering a $191 million judgment in March 2015 and awarding $381 million in costs and interest. That judgment has since grown to more than $600 million as interest accrued at the rate $105,000 per day, according to Lopez-Castro.

When Trujillo filed for bankruptcy months later, the trustee filed an adversary proceeding, alleging some assets hadn’t been disclosed. Among the alleged hidden assets: a group of language schools that Trujillo claimed his family operated.

Lopez-Castro’s team found that in 2003 Trujillo had transferred his assets into a foundation in Panama. At first, he and his wife were the named beneficiaries, then they transferred ownership to their children.

“Because the litigation has been going on for 20 years, [Trujillo] has had a long time to plan where to put his assets,” Lopez-Castro said.

At trial, Lopez-Castro presented evidence that between 2010 and 2015, millions in gifts and distributions came out of that foundation, all of which went to debtor Trujillo. After the bankruptcy, Trujillo’s wife received them. Lopez-Castro said she also found it strange that each of the debtor’s three children eventually renounced their interest in the foundation.

The trustee filed an adversary proceeding after discovering that the foundation owned another Panamanian foundation, which owned Inlingua, a group of language schools in Florida. The complaint alleged Trujillo was the true owner of that foundation, and therefore the language schools.

Trujillo moved to dismiss and argued at trial that the plaintiffs’ nominee theory is only available when the IRS is a party to the case.

But Isicoff disagreed, and found ownership of the assets “appear to be as irrelevant to the family as who should be an officer or director at any particular time of any given entity.”

The ruling means that the trustee is entitled to accounts relating to corporate assets. And with more than $600 million at stake, Lopez-Castro says litigation will flow from this opinion.

As well as the Ecuadorian government, students from the language school have become creditors in Trujillo’s bankruptcy.

“There’s so much tragedy here,” Lopez-Castro said. “They decided to close the doors to Inligua (when) days before they had told students, ‘We’re staying open,’ and people paid. We got hundreds of phone calls from students.”

Lopez-Castro said it was hard to decide what the key exhibits should be, and how many to include, given the sheer volume of documents involved.

“I felt like I got a Ph.D. in evidence during the trial,” she said.

Lopez-Castro said she tried to remain skeptical of her own case throughout to avoid “falling in love” with it and overlooking something crucial.

“I’ve lived with this case for so long. … It took so much of my time that it feels really satisfying to know that the case I thought would prevail and the case I thought we could prove was in fact proven,” she said. “And for my client Robert Anguiera, it took a lot of courage to bring this case and continue with the litigation of this case.”

Read the opinion:

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