Estudios v. Swiss Bank Case Analysis

In Estudios, Proyectos e Inversiones de Centro America, S.A. (EPICA) v. Swiss Bank Corp. (Overseas) S.A., 507 So. 2d 1119 (Fla. 3d DCA 1987), the court upheld a prejudgment attachment of a corporation’s horse farm for its controlling shareholder’s debt. The Third District treated the corporation and its shareholder as one because he had formed it and moved the farm into it to hide assets from his creditors.

The remedy reaches only assets the shareholder hid in the corporation from a creditor he already owed. In Braswell v. Ryan Investments the Third District denied it, because the corporation had held the marital home since 1997, before the former wife’s claims arose. The ruling decided nothing on the merits; on rehearing the court said the findings on the attachment motion would not bind anyone at trial.

The Loan, the Guaranty, and the Attachment

Banque Nationale de Paris extended credit to Administracion Central Industrial y Agropecuaria, S.A., and Raul Garcia Granados guaranteed the company’s notes along with other individuals and corporations. Swiss Bank Corporation (Overseas) S.A. allegedly took a 32% assignment of the bank’s interest in the notes. The borrower defaulted at the end of 1984, and Swiss Bank sued the alleged debtors and guarantors.

Swiss Bank filed an emergency motion for a writ of attachment together with its complaint, and the trial judge granted it. The sheriff seized El Conquistador Farms, a horse-breeding farm in Ocala that was ostensibly owned by EPICA, along with horses, other personal property, and business records. EPICA moved to dissolve the writ, the trial court denied the motion after a hearing, and EPICA took a non-final appeal.

Under Florida’s attachment statute, a defendant’s motion to dissolve must be granted unless the plaintiff proves the grounds for the writ and a reasonable probability of winning the underlying case. EPICA did not dispute that Swiss Bank had proved both, including the ground that EPICA was removing its property from the state. It argued instead that prejudgment attachment lies only against a debtor, and EPICA owed Swiss Bank nothing. Swiss Bank conceded that EPICA was neither a debtor nor a guarantor on the original debt and answered that EPICA was Granados’ alter ego.

What Reverse Piercing Requires

Outsider reverse piercing lets a creditor treat a corporation as its controlling shareholder’s alter ego and collect his personal debt from the corporation’s assets. The Third District stated the rule this way: a corporation’s veil is pierced where its controlling shareholder formed or used the corporation to defraud creditors by evading liability for preexisting obligations. The usual result is that the shareholder becomes liable for corporate debts, but the same remedy holds the corporation liable for a controlling shareholder’s debts where he formed or used it to secrete assets and avoid preexisting personal liability.

Florida requires proof of improper conduct before any veil is pierced, a rule the Florida Supreme Court reaffirmed in 1984 in Dania Jai-Alai Palace v. Sykes, the first authority the Third District cited. Under that decision a court will not disregard a corporation unless it was organized or used to mislead creditors or to perpetrate a fraud on them. The court drew the reverse form of the remedy from a 1981 bankruptcy decision, In re Kassuba.

Where a creditor proves that the controlling shareholder organized or used the corporation to deceive or defraud his personal creditors, the corporation’s separate existence is disregarded and the corporation and the shareholder are treated as one and the same. In a prejudgment attachment, once the creditor makes a sufficient showing that the corporation is the debtor’s alter ego, the corporation is treated as the debtor and its property may be attached to secure a judgment the creditor may later win.

The Evidence Against Granados

The Third District found substantial record support for piercing EPICA’s veil. Although Granados vehemently denied it, the evidence showed that he controlled EPICA and owned a controlling interest. It also showed that he had created EPICA and moved the farm into it in 1981 to secrete his personal assets from his creditors. The court said the evidence on the motion supported the conclusion that Granados formed and used EPICA to defraud his creditors.

The court said its decision was buttressed by a secret document that Granados admitted writing, which plainly revealed that he owned all of EPICA’s shares. The same document described a complicated network of foreign corporations, EPICA among them, that he secretly controlled to hide his and his family’s personal assets from their creditors. Because EPICA was Granados’ alter ego, it stood as Swiss Bank’s debtor, and the attachment of its property to satisfy a possible judgment against Granados was proper.

What the Court Reversed and Left Open

The attachment of EPICA’s financial and property records could not stand. Attachment exists to make sure assets are available to satisfy a possible final judgment, and the statute directs the writ only at a debtor’s goods and chattels, lands, and tenements. The court reversed the order as far as it kept EPICA’s records under the writ, following its decision in Cerna v. Swiss Bank Corp., a related case, and affirmed the order in every other respect.

In Cerna, the same bank had attached property titled to a woman who was not a debtor, claiming that Granados had fraudulently transferred it to her or still owned it. The Third District upheld that attachment, because prejudgment attachment reaches assets a debtor has fraudulently transferred to a third party to evade preexisting liability or still equitably owns. It refused to let her records be attached because they have no value of their own and were sought only for discovery.

The same decision quashed writs of garnishment on her bank and brokerage accounts. Garnishment does not run against a third party until a judgment has been entered against that party, while attachment creates a lien on property that a later judgment can reach.

On June 23, 1987, the court granted EPICA’s motion for clarification while adhering to its opinion. That ruling could not reach the merits of the bank’s claim, the court said, and settled only that the trial court properly refused to dissolve the writ on the facts presented. The trial court’s findings and legal conclusions on that motion would not bind anyone at the trial on the merits. The rest of EPICA’s motion for rehearing was denied, and the Florida Supreme Court declined review.

The Preexisting-Liability Limit in Braswell

In Braswell v. Ryan Investments, Ltd., 989 So. 2d 38 (Fla. 3d DCA 2008), the Third District held that reverse piercing is available only where the shareholder formed or used the corporation to secrete assets and avoid a preexisting personal liability. Renee Braswell held roughly $24 million in judgments against her now-deceased former husband, who had failed to pay her under a March 2000 marital settlement agreement.

Ryan Investments, Ltd. had held title to the marital home since its purchase in 1997. Mrs. Braswell sought to execute on the home, arguing that the company was her former husband’s alter ego and that he had put the home in its name to defraud her. The trial court ruled against her after a bench trial, and the appellate court affirmed because the preexisting-liability condition was not satisfied.

Title had gone into the corporation years before the divorce case began or her claims arose, so Mr. Braswell could not have used the corporation to secrete the home from debts that did not yet exist. The court called that failure fatal and tied it to the general rule that a creditor may rely on a shareholder’s improper transaction only where it caused the creditor’s loss.

All corporate piercing rests on equitable principles, the court added, and Mrs. Braswell’s position was weak in equity as well. She knew the home belonged to the corporation and had sued the corporation in the divorce to reach the home as a marital asset. Under the settlement she had given up any interest in the home in exchange for the payments her judgments enforced.

Mrs. Braswell was right that under Estudios the corporation need not have been formed at the time of its improper use, and the court said the trial court had ruled nothing to the contrary. What it rejected was her further argument that the improper use need only come before the creditor’s later attempt to reach the asset, however many years later and however unrelated to the misconduct.

What Estudios Means for Florida Entity Owners

A Florida corporation shields its assets from an owner’s personal creditors only if the owner did not form or use it to hide assets from a creditor he already had. Reverse piercing is the creditor’s remedy against an entity filled with personal assets after the liability arose, and it reaches the entity’s property itself. Assets an owner moved into an entity to keep them from a creditor he already owed are exposed. What the entity already held before the liability existed is beyond this remedy, and in Braswell that alone defeated the claim.

Both decisions involved corporations. Florida’s LLC statute gives a member’s personal creditor only a charging order, except that a court may order a sole member’s interest sold. The same section leaves alter ego, equitable lien, and constructive trust untouched, so the charging-order rule does not itself bar the argument against an LLC. The Florida Supreme Court has said that people who do business in corporate form may rely on its liability protection unless the corporation is formed or used for an illegal, fraudulent, or unjust purpose.

Swiss Bank did not need to set aside the 1981 transfer of the farm as a fraudulent transfer. Once EPICA was shown to be Granados’ alter ego, the farm was attachable as the debtor’s own property, and in Cerna the same court held that property a debtor fraudulently transferred to a third party can be attached before judgment as well. After judgment, a Florida creditor can raise an alter-ego claim in proceedings supplementary under section 56.29.

Ordinary veil piercing in Florida requires proof of alter ego, improper conduct, and causation, and reverse piercing carries the same improper-purpose requirement in the other direction. A creditor turns to reverse piercing when a charging order against the member’s distributions, or a foreclosure sale of a single member’s interest, will not reach what the owner put inside the entity.

Most Florida charging order decisions hold a member’s creditor to a lien on distributions, while Estudios lets a creditor reach the entity’s property itself when the owner used the entity to hide assets from him. How far a Florida court will respect an entity’s separateness against a creditor is the question running through the Florida asset protection case law.