1st Source Bank v. Neto et al
Filing
87
OPINION AND ORDER denying 72 Motion for Preliminary Injunction. Signed by Judge William C Lee on 2/19/17. (nal)
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF INDIANA
SOUTH BEND DIVISION
1ST SOURCE BANK,
Plaintiff,
v.
JOAQUIM SALLES LEITE NETO and
WELLS FARGO BANK NORTHWEST,
NATIONAL ASSOCIATION, solely as
Owner Trustee under a Trust Agreement
Dated as of June 25, 2009,
Defendants.
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Cause No. 3:15-CV-261
OPINION AND ORDER
This matter is before the Court on the Emergency Motion for an Injunction Pending
Appeal filed by the Defendant, Joaquim Salles Leite Neto, on January 12, 2017 (Docket Entry
72). Plaintiff 1st Source Bank filed a response in opposition on January 24 (DE 76) and Neto
filed a reply on January 31 (DE 77). After seeking and receiving the Court’s permission to do so,
1st Source filed a sur-reply on February 15, 2017 (DE 83), so the matter is fully briefed. For the
reasons discussed below, the motion is DENIED.
BACKGROUND
The underlying facts of this case were detailed in this Court’s Opinion and Order entered
on December 12 , 2016 (DE 63); 1st Source Bank v. Neto, 2016 WL 7187247 (N.D.Ind. Dec. 12,
2016). A brief summation of those facts is sufficient now and goes something like this.
Defendant Neto, a Brazilian citizen who engages in “international business affairs,” entered into
a trust agreement with Wells Fargo Bank to purchase an aircraft, a Dassault Falcon 2000, to use
in Neto’s various business endeavors. Since Neto is a foreign national he could not register the
plane in the U.S. so the aircraft was placed in a trust. Defendant Wells Fargo Bank (which is not
a party to this motion) is the Owner Trustee of the trust and holds title to the aircraft. Wells
Fargo, in turn, borrowed $6 million from 1st Source, pledged the aircraft as collateral, and Neto
signed a Personal Guarantee backing the loan. On June 20, 2012, almost exactly three years after
the purchase of the aircraft, the plane was seized by Brazilian tax authorities in connection with
an investigation into an alleged scheme to avoid paying Brazilian import tax on the aircraft.1 1st
Source brought this action on June 24, 2015, seeking to recover unpaid loan amounts it claims
are past due and for which Neto is personally liable. While this case was pending, 1st Source
filed a second lawsuit against Neto–this one in Brazil–which Neto characterizes as “vexatious
and oppressive” as well as duplicative of this case. 1st Source argues that it is merely exercising
its rights under the express language of the Personal Guarantee that Neto signed.2 Neto argues
that 1st Source should be enjoined from pursuing the action against him in Brazil, at least until
his appeal of this Court’s previous order is resolved by the Seventh Circuit. In its previous order,
the Court denied Neto’s original motion to enjoin 1st Source from pursuing the Brazilian action
and it is that ruling that is pending on appeal. In support of his present motion, Neto reiterates the
arguments he presented in his original motion to enjoin, to wit: 1st Source’s insistence on
pursuing litigation in Brazil while simultaneously litigating the same issues in this Court is
1
Neto stated in a previous brief that his plane was one of “approximately 20 aircraft
[seized] as part of a specious investigation into Brazilian citizens’ alleged evasion of importation
tax on the aircraft by registering those planes in other countries.” Defendant’s Memorandum in
Support of Motion to Enjoin, (DE 43), p. 3.
2
The clause in the Personal Guarantee that is the subject of this suit is Section 3.02.
See Court’s Opinion and Order of Dec. 12, 2016, pp. 4-5; Defendant’s Memorandum, pp. 5-6;
Plaintiff’s Response, p. 2.
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unnecessarily duplicative, vexatious, and contrary to the language of the Personal Guarantee that
he signed. 1st Source argues that it has every right to pursue both cases simultaneously, that this
Court’s ruling on Neto’s original motion to enjoin was properly decided, and that “Neto [now]
seeks a second bite at the apple,” in his attempt to forestall the Brazilian action. Plaintiff’s
Response, p. 1.
STANDARD OF REVIEW
Another district court, also addressing an emergency motion for injunction pending
appeal, explained as follows:
Requests for stays or injunctions pending appeal are governed by Fed.R.Civ.P.
62(c), which provides that “[w]hile an appeal is pending from an interlocutory
order . . . that grants, dissolves, or denies an injunction, the court may suspend,
modify, restore, or grant an injunction on terms for bond or other terms that secure
the opposing party’s rights.” Fed.R.Civ.P. 62(c); see also Fed.R.App.P. 8(a)
(providing that where a stay of an injunction pending appeal has been denied by a
district court, the request for a stay may be renewed in the appellate court). Such a
stay is generally considered “extraordinary relief” and the moving party bears a
“heavy burden of proof.” Winston-Salem/Forsyth County Bd. of Educ. v. Scott,
404 U.S. 1221, 1231, 92 S.Ct. 1236, 31 L.Ed.2d 441 (1971) (Burger, C.J., in
chambers). A decision concerning a stay pending appeal is similar in nature to a
decision granting or denying a preliminary injunction. Specifically, to make a stay
determination, a court must consider: (1) “whether the stay applicant has made a
strong showing that he is likely to succeed on the merits” on appeal; (2) “whether
the applicant will be irreparably injured absent a stay”; (3) “whether issuance of
the stay will substantially injure the other parties interested in the proceeding”;
and (4) “where the public interest lies.” Hilton v. Braunskill, 481 U.S. 770, 776,
107 S.Ct. 2113, 95 L.Ed.2d 724 (1987); Glick v. Koenig, 766 F.2d 265, 269 (7th
Cir. 1985).
Cmty. Pharmacies of Indiana, Inc. v. Indiana Family & Soc. Servs. Admin., 823 F.Supp.2d 876,
878 (S.D. Ind. 2011). A movant’s “[f]ailure to meet the likelihood of success factor may be
excused where the applicant has made a particularly strong showing on the other three factors.”
E.E.O.C. v. Quad/Graphics, Inc., 875 F.Supp. 558, 560 (E.D.Wisc. 1995). The Seventh Circuit
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summarized the applicable standard of review as follows:
The standard for granting a stay pending appeal mirrors that for granting a
preliminary injunction. In re Forty-Eight Insulations, Inc., 115 F.3d 1294, 1300
(7th Cir. 1997). Stays, like preliminary injunctions, are necessary to mitigate the
damage that can be done during the interim period before a legal issue is finally
resolved on its merits. The goal is to minimize the costs of error. See Stuller, Inc.
v. Steak N Shake Enters., Inc., 695 F.3d 676, 678 (7th Cir. 2012); Roland Mach.
Co. v. Dresser Indus., Inc., 749 F.2d 380, 388 (7th Cir. 1984). To determine
whether to grant a stay, we consider the moving party’s likelihood of success on
the merits, the irreparable harm that will result to each side if the stay is either
granted or denied in error, and whether the public interest favors one side or the
other. See Cavel Int'l, Inc. v. Madigan, 500 F.3d 544, 547-48 (7th Cir. 2007);
Sofinet v. INS, 188 F.3d 703, 706 (7th Cir. 1999); In re Forty-Eight Insulations,
115 F.3d at 1300. As with a motion for a preliminary injunction, a “sliding scale”
approach applies; the greater the moving party’s likelihood of success on the
merits, the less heavily the balance of harms must weigh in its favor, and vice
versa. Cavel, 500 F.3d at 547-48; Sofinet, 188 F.3d at 707.
In re A & F Enterprises, Inc. II, 742 F.3d 763, 766 (7th Cir. 2014).
DISCUSSION
In his motion, Neto mostly reiterates the arguments he made in his original motion to
enjoin. That is, he contends that “the forum selection clause in . . . the [Personal] Guarantee does
not permit multiple, identical, simultaneous lawsuits . . .”; that “if the forum selection clause is
read to permit multiple, identical, simultaneous lawsuits around the world, then it is
unenforceable[.]”; and that “the duplicative nature of the suits is enough to warrant an antisuit
injunction.” Defendant’s Memorandum in Support of Emergency Motion for an Injunction
Pending Appeal (DE 73), p. 5. Neto argues that “each of these grounds for appeal has sufficient
merit to warrant granting an injunction pending appeal.” Id. Neto then dedicates the remainder of
his memorandum to rehashing these arguments, which the Court addressed in its previous
opinion. The Court concluded then that Neto was not entitled to a preliminary injunction
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preventing 1st Source from pursuing the Brazilian action, and he presents nothing new by way of
his present motion that persuades the Court that he is entitled to injunctive relief now. (That is
not to say that Neto presents nothing new at all–he does add a new wrinkle in his reply brief,
which is addressed below–but it does not change the calculus.) 1st Source also reiterates its
arguments from its previous briefs, asserts that this Court’s findings, analysis and conclusions in
its prior opinion and order were correct, and therefore “Neto has no likelihood of success on the
merits.” Plaintiff’s Response, p. 4.
The Court reaffirms its conclusion in its previous order that Neto’s arguments as to the
interpretation of Section 3.02 of the Personal Guarantee are insufficient to establish “a strong
likelihood” of success on the merits. That conclusion, and the Court’s reasoning, are set out in
the December 12, 2016, Opinion and Order and need not be repeated now. Because the Court
concludes that Neto has failed to demonstrate a likelihood of success on the merits, no further
discussion or analysis is necessary and his emergency motion for a stay pending appeal will be
denied for that reason. That said, some brief discussion of Neto’s arguments regarding
considerations apart from the likelihood of his success on the merits is warranted.
The Court referenced above that Neto presented a new “wrinkle” in his reply brief and
that issue warrants discussion even though, as the Court also stated, it does not change the
outcome. To begin, in his memorandum in support of his motion, Neto addressed the second
element of the “sliding scale” for assessing a movant’s request for a stay pending appeal, i.e.,
whether he would be irreparably harmed if a stay is not granted. He states that he would be
harmed because “[i]f the Court does not enjoin 1st Source from proceeding in Brazil pending the
appeal, Neto will be denied the benefit of the selected forum–namely this District Court. . . . [I]f
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the Brazilian action concludes first, it will have preclusive effect on this one, obviating the
purpose of litigating in the Northern District of Indiana in the first instance and undermining the
intent of the mandatory language in [Section 3.02].” Defendant’s Memorandum, p. 11. Neto
argues that if “1st Source proceeds in Brazil, then the Appellate Court would effectively be
divested of jurisdiction [and] Neto would be denied the right to appeal [this Court’s December 12
order] because the controversy could be eliminated prior to hearing the appeal.” Id. This is a
restatement of Neto’s argument in his original motion that he would be irreparably harmed if
forced to litigate in two jurisdictions. The Court was not persuaded by that argument then and is
not persuaded now, despite Neto’s attempt to ratch up the heat on the issue of harm. In his reply
brief, filed on January 31, 2017, Neto alleges for the first time that if a stay is not issued he could
potentially be harmed by what he terms the duplicative action because of the following:
[A]s a matter of right under highly aggressive Brazilian procedural rules and
based on nothing more than the service of a complaint, Neto’s assets will be
seized, assigned to a third-party depositary, and potentially sold with the proceeds
being provided to 1st Source–all before the Seventh Circuit hears Neto’s appeal,
and before the Bank even obtains a judgment against Neto–whether here or in
Brazil.
Defendant’s Reply, p. 2 (boldface and italics in original). 1st Source responded to this assertion
by moving for leave to file a sur-reply. The Court granted that motion on February 15, 2017 (DE
82) and the sur-reply was docketed the same day. 1st Source argues in its sur-reply that Neto’s
assertion that his assets in Brazil might be subject to imminent seizure is not an accurate
representation of applicable Brazilian procedural law. 1st Source claims that “the suggestion that
the Brazilian is fast and very efficient is inaccurate. The case can become very complex,
depending on how Neto defends that action.” Plaintiff’s Sur-Reply, p. 1. In support of its
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argument 1st Source presents the affidavit of Ana Luisa Castro Cunha Derenusson, an attorney
and partner at the Brazilian law firm representing 1st Source in Brazil. Counsel states in her
affidavit that while Neto is correct that his assets in Brazil could be subject to seizure by the
Brazilian court, the process is not necessarily as fast as Neto implies and that he is not without
recourse under Brazilian law to challenge any such seizure. Id., Affidavit of Ana Luisa Castro
Cunha Derenusson (DE 83), pp. 2-3. Counsel states that Neto could, for example, file “a motion
for stay of execution (called “Embargos a Execucao”) . . . in which he can argue: unfeasible or
undue obligation; inaccurate attachment; excessive execution; or the Court’s lack of
jurisdiction.” Id., p. 3. 1st Source also presented an affidavit from another member of the same
law firm, who states that Neto has not yet been served in the Brazilian action, that 1st Source
already moved to temporarily stay the Brazilian action once (at the suggestion of this Court
following a hearing on Neto’s original motion for injunctive relief–see docket entry 50), and that
“[o]nce Neto is finally served, it is reasonably expected to take at least two to three years to fully
conclude the Brazilian lawsuit.” Plaintiff’s Response, Exhibit A, Affidavit of Luis Augusto Roux
Azevedo. So, argues 1st Source, while Neto’s assertion is grounded in truth, it does not present
the whole story, and the potential seizure of his assets in Brazil is not as easily or quickly
effectuated as he implies, nor is he without recourse to challenge such a seizure in the Brazilian
proceeding.
Neto’s latest assertion that he would be irreparably harmed if subjected to Brazilian law
regarding the payment of alleged debts (which was supported by an affidavit from his own
Brazilian counsel, Thiago Luis Carballo Elias–see Defendant’s Reply, Exhibit A, pp. 2-3) does
not change anything as to the present motion. The potential harm Neto claims he might suffer is
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certainly serious, given that he claims the Brazilian court could seize his assets even prior to a
final judgment, but as 1st Source points out, he is not helpless to challenge a seizure if it occurs.
More importantly for present purposes, this new allegation does not alter or outweigh this
Court’s conclusion that Neto has failed to demonstrate a strong likelihood of success on the
merits of his claim in the first place.3
As stated above, the relief Neto seeks is “considered ‘extraordinary relief’ and the moving
party bears a ‘heavy burden of proof.’” Cmty. Pharmacies of Indiana, Inc., 823 F.Supp.2d at 878
(quoting Winston-Salem/Forsyth County Bd. of Educ., 404 U.S. at 1231). This Court concludes
that Neto’s arguments fail to carry that burden. Accordingly, his emergency motion for an
injunction pending appeal will be denied. Neto can renew his motion in the appellate court
pursuant to Fed.R.App.P. 8(a)(2).
3
Neto also argues the third element of the analysis, i.e., “whether issuance of the stay will
substantially injure the other parties interested in the proceeding.” He says it won’t and that “the
injunction pending appeal would not deprive 1st Source of its alleged right to proceed in Brazil.
If 1st Source prevails on appeal, then it may proceed accordingly, having lost nothing but an
insignificant amount of time.” Defendant’s Reply, p. 13. 1st Source argues, however, that it
would suffer harm if a stay is granted in that it “would be deprived of its contractual right to
proceed in Brazil in order to attach Neto’s assets there[]” and that this harm “significantly
outweighs the non-existent, speculative harm proffered by Neto.” Plaintiff’s Response, p. 11.
While both sides complain about the harm they might suffer if the Court imposes or refuses to
impose a stay, neither side’s argument on this point is a game changer. This is especially true
given that Neto has recourse to address the potential seizure of his assets in Brazil (and if the
Court granted the stay, 1st Source would be harmed only because its efforts in Brazil would be
delayed). In other words, the alleged harm to either party does not rise to the level of
“irreparable” or “grave” so as to tip the scale either way. See, e.g., Westefer v. Snyder, 2010 WL
4000599 at *2 (S.D.Ill. Oct. 12, 2010) (“If the threat of irreparable harm is grave, a stay may be
appropriate even if the appellant’s prospects of success on the merits are not bright.”).
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CONCLUSION
For the reasons set forth above and in this Court’s Opinion and Order of December 12,
2016, the Emergency Motion for an Injunction Pending Appeal filed by the Defendant (DE 72) is
DENIED.
Date: February 19, 2017.
/s/ William C. Lee
William C. Lee, Judge
United States District Court
Northern District of Indiana
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