OPINION AND ORDER
PEDRO A. DELGADO HERNÁNDEZ, District Judge.
Madeleine Candelario initiated this action against UBS Financial Services in 2008 under Article 1802 of the Puerto Rico Civil Code, P.R. Laws Ann. tit. 31 § 5141, claiming that UBS negligently released some $12 Million from accounts controlled by Candelario's former husband, David Efrón. These assets had been restrained pursuant to an order issued by the Court of First Instance of Puerto Rico ("CFI") to satisfy Efrón's unpaid obligations to Candelario. The obligations originated in the division of community property resulting from their divorce in 2001.
After UBS removed the restraints, approximately $11 Million were eventually removed from the accounts, such that when the CFI finally ordered the assets liquidated to pay Candelario, $1.1 Million remained. From those $1.1 Million, UBS paid a loan of about $800,000.00 that Efrón had obtained from UBS Bank USA in the State of Utah, and provided Candelario a check for $351,000.00. Pursuant to 28 U.S.C § 1332, Candelario has sued to collect the difference here.
In 2010, the court (Casellas, J.) granted Candelario's motion for summary judgment, concluding that UBS was negligent in releasing the accounts based on an oral order included in an uncertified copy of a minute of proceeding that had not been notified to the parties, and which even lacked the judge's signature. Judge Casellas concluded that Efrón was liable to Candelario for $3,808,739.48.
The case was tried before the undersigned between December 4, 2014 and December 12, 2014 (Docket Nos. 330, 333, 335, 338, 341, 342, 345).
To facilitate review, the material has been organized under the following topics:
I. BASIC FACTUAL BACKGROUND
In 1983, Candelario and Efrón were married, and constituted a legal conjugal partnership. In May 2001, the marriage ended in divorce. The same month, the CFI ordered Efrón to pay Candelario a monthly payment of $50,000.00 as part of her participation in the assets of their partnership.
In March 2005, the CFI decreased the monthly payment to $20,000.00. In January 2006, the Puerto Rico Court of Appeals increased to $50,000.00 the monthly amount to be paid by Efrón. In February 2006, it issued an Amended Judgment to provide that legal interest on this obligation would be retroactive to June 4, 2001.
In October 2006, the CFI issued an Order and Writ of Execution providing, among other things, for the attachment of Efrón's real and personal property. Third parties were to retain the property and to remit to the CFI funds sufficient to satisfy the principal sum of $4,160,522.61 with interest at the rate of 10.50% per annum from June 4, 2001. The same month, UBS was served with the Order and attached Efrón's accounts.
In February 2007, UBS released the accounts, which at that time had assets worth over $12,000,000.00. Then Efrón started making withdrawals. By July 2007 the value of the accounts had decreased to $1,155,367.71. In August 2007 the CFI issued an Order for the Sale of Assets, requiring UBS to sell and liquidate Efrón's assets in the accounts until the amount of $4,160,512.61 was reached; to issue a check payable to Candelario for that amount; and to maintain Efrón's accounts frozen until the amount of interest accrued on the debt as of the payment date was calculated and the CFI ordered otherwise.
In September 2007, UBS liquidated the securities; wired $810,071.87 to UBS Bank USA to pay a loan that entity had made to Efrón; and paid Candelario the remaining $351,783.13. Candelario claims UBS was negligent in releasing the accounts in February 2007 in violation of the October 2006 attachment order, and seeks payment of $3,808,739.48
II. PROCEDURAL DEVELOPMENTS
On August 8, 2008, Candelario initiated the action alleging that UBS failed to conserve and negligently released Efrón's assets in February 2007 — despite the CFI's October 2006 attachment order.
On April 3, 2009, UBS moved for summary judgment, arguing that Candelario's claims (1) are time-barred, (2) lack merit because the October 2006 Order had been orally vacated by a CFI Judge, Charles Jiménez-Nettleship, during a hearing held on November 13, 2006; and (3) that the restraints on the accounts were removed after review of the order, the minutes of the hearing where the order was issued, Candelario's unsuccessful appeals to the Puerto Rico Court of Appeals and Supreme Court, and the rulings of those courts.
On May 6, 2009, Candelario filed a cross motion for summary judgment, pointing out that the November 2006 oral order did not affect the validity of the October 2006 attachment order, because the minutes in which the order appears were never signed by the CFI Judge or certified and notified to the parties as required by Rule 32(b)(1) of the Rules for Administration of the Court of First Instance of Puerto Rico, P.R. Laws Ann. tit. 4 Ap. II-B, R. 32(b)(1).
On October 20, 2009, the court requested that the Puerto Rico Supreme Court certify whether an order included in a minute of proceeding lacking the judge's signature was valid; on November 13, 2009, the Supreme Court declined Certification, and on January 13, 2010, the court entered summary judgment finding UBS negligent and liable to Candelario for $3,808,739.48. Id. at 303-304.
UBS appealed the decision (Docket No. 90). In turn, Candelario moved for reconsideration as to the damages award, alleging that the judgment should be amended to order that UBS deposit all sums in Efrón's accounts as of February 2007; in her view, the purpose of the writ of execution had been to provide her with an alternate source of funds to collect Efrón's unpaid obligations (Docket No. 93). On April 9, 2010, the court denied Candelario's motion, noting that the October 2006 Order ". . . did not impose any additional obligation upon UBS aside from the attachment of certain properties in an amount sufficient to [pay] . . . $4,160.522.61 plus interest, that is, the amount already partially paid to Plaintiff by UBS and the remaining amount awarded in [the court's] January 2019 Judgment."
On June 4, 2010, three weeks before the due date for its appellate brief, UBS moved to set aside the damages award under Rule 60(b) of the Federal Rules of Civil Procedure (Docket No. 110). To that end, it alleged that a 2010 decision of the Puerto Rico Court of Appeals revealed that Candelario had received payments from Efrón, which contradicted her position in this forum, that the decision constituted newly discovered evidence, evinced fraud, misrepresentations, or misconduct by Candelario, and raised the possibility that the judgment here may had been satisfied.
In response, the court stated that it was inclined to grant UBS' motion partially, expressing interest in receiving evidence showing that Candelario "may have received funds from Efrón since 2001 satisfying the amounts owed in this suit" (Docket No. 115 at p. 3). Because the CFI had scheduled an evidentiary hearing, however, the court held in abeyance UBS's motion, ordering the parties to keep it informed about the state court proceedings.
The CFI delayed eight months in holding the evidentiary hearing, finally holding the hearing on March 4, 2011 (Docket No. 157, Exh. A). But before the CFI could enter judgment, Efrón filed a bankruptcy petition staying the proceedings (Docket No. 137). In the meantime, UBS requested that this court reopen the discovery process to allow new interrogatories, a document request, a deposition of Candelario, and a subpoena to and a deposition of Efrón (Docket No. 121), all of which the court denied, finding that ordering discovery was a waste of resources, especially considering that the issue of payments, if any, made by Efrón to Candelario was before the CFI (Docket No. 136 at p. 2).
Along the same line, UBS pressed for a hearing on damages, whereas Candelario maintained that the judgment entitling her to payments from Efrón remained unpaid (Docket Nos. 138-142, 157, 161, 163-165). The court heard the parties at an in-chambers conference (Docket No. 159), concluded that additional delay of a decision on UBS's Rule 60(b) motion was unnecessary, and denied the motion.
Similarly, the court stated that UBS had over seven (7) months of discovery to corroborate Candelario's version of the facts, but there was no record evidence that it did so.
The First Circuit vacated the judgment because, approaching the record from a UBS-friendly vantage under Rule 56 of the Federal Rules of Civil Procedure, it found that more than one inference concerning the reasonableness of UBS' conduct could be gleaned from the facts.
The First Circuit identified a number of factors that could lead a trier of fact to conclude that UBS acted reasonably, including: (1) the absence of any Puerto Rico case holding unsigned minutes are facially defective; (2) that UBS's outside counsel reviewed the minutes before UBS released the accounts; (3) Candelario's failed to raise the signature issue either in her communiqués with UBS or in her motion to reconsider with the Puerto Rico Supreme Court; and (4) UBS's compliance manual, which "plausibly suggests that something short of signed minutes may suffice."
At the same time, the First Circuit recognized a number of factors allowing a different inference, pointing out that: (1) UBS' lawyers should have advised UBS that Rule 32(b) requires the judge's signature, but did not do so; (2) UBS could have asked the judge to clarify any doubts concerning the impact of the minutes (something it had no trouble doing, as shown by an earlier motion to clarify the first attachment order), but did not do so; and (3) UBS could have taken other legal steps to protect itself such as filing an interpleader action, but once again, UBS did not do so. Thus, the court remanded the case for trial, stating that the mere fact that UBS had its lawyers look the minutes over before unfreezing Efrón's accounts was insufficient to show that it acted reasonably; that UBS had the duty to review the documents for their "substantive content;" and that, on remand, this court consider what steps UBS took in the process, beyond having its attorney review the documents.
III. FACTUAL FINDINGS AND LEGAL CONCLUSIONS
The evaluation of whether UBS is liable to Candelario requires an initial examination of UBS' organization, of the judicial dispute between Candelario and Efrón, and of how the dynamics of that dispute impacted the interaction between UBS and Candelario to produce the outcome challenged here.
1. UBS: Relevant Organizational Aspects
UBS is a financial services firm with branches throughout the United States and Puerto Rico. Tr. VI at p. 32:6-11. It has a Legal Department in Weehawken, New Jersey with approximately 50 attorneys. Tr. III at pp. 111:1-112:6; Tr. VI at p. 49:20-22. Puerto Rico is considered both a region and a division. Tr. VI at 32:24-25. Each division has at least one in-house "Division Counsel" who works out of Weehawken and is responsible for overseeing legal matters in the division. The Division Counsel's job for Puerto Rico was shared by two UBS employees operating out of New Jersey, Francine Hoyt and Andrea Wolff. Tr. VI at pp. 36:23-37:11; Tr. VI at 38:23-25; 98:18-24. There was also a General Counsel for Puerto Rico, Héctor Becil, who supervised Hoyt and Wolff. Tr. VI at pp. 98:25-99:13.
UBS has a Legal Processing and Control Group, also referred to as the Subpoena, Levy and Garnishment Group ("SLG Group"). Tr. III at p. 112:21-23. The group is responsible for processing and responding to the various types of restraints that the Firm receives, including complying with court-ordered garnishment of client assets. Tr. III at pp. 112:25-113:8; PX 1 at p. 2. The SLG group has the authority to make decisions regarding the proper handling of court documents. Tr. VI at p. 89:6-13. It has an attorney at the head of the group. Tr. III at p. 113:9-10; Tr. VI at p. 48:11-25.
UBS's branch offices must forward to the SLG Group, by mail or fax, all matters related to restraints. The SLG Group reviews court documents and decides on the appropriate response. In cases involving attachments, when court documents are in Spanish, the practice at UBS was for local Division Control employees to send the documents to the SLG group with a summary setting forth what was being required of UBS. UBS Financial Services Compliance Bulletin, No. 06-15 (September 21, 2006), provides that once a legal restraint is placed on an account, it can only be "released upon receipt of a court order or other instructions from the court." PX 1 at p. 4.
For many years, UBS in Puerto Rico has used the services of Mr. Guillermo Bobonis as outside counsel. When Division Counsel had questions about legal matters concerning Puerto Rico, they would speak to Mr. Bobonis and in some instances, involve General Counsel Becil. Tr. VI at pp. 101:19-102:7. After consulting with outside counsel, Division Counsel would assess the issue and discuss it amount themselves internally to assure that they were all on the same page. Tr. VI at pp. 102:13-19; 166:14-167:1. Mr. Bobonis gave his opinion; the New Jersey-based attorneys would discuss it internally among themselves to insure that they were all on the same page.
In Puerto Rico, UBS has branches and a Division Control Office. The Office is in charge of handling court orders, subpoenas, levies and garnishments jointly with the legal department. In 2006-2007, the head of the Office was Luz Nereida Colón. She served as the legal liaison between the business side and the legal department; and was charged with understanding risk exposure across the Division in Puerto Rico. Tr. III at pp. 106:8-23. In situations in which there were threats of lawsuits against the firm by competing sides in controversy, Ms. Colón would consult with Division Counsel.
2. Parallel Litigation: Candelario and Efrón
Candelario and Efrón were married from 1983 to 2001.
On October 9, 2006, Judge Jiménez Nettleship of the CFI issued an attachment order providing for the attachment of Efrón's assets (Docket No. 300 at pp. 87-88, "Stipulations Regarding Facts and Documents," Stipulation No. 12);
On October 20, 2006, a Marshal served the attachment order on UBS (Docket No. 300 at p. 88, Stipulation No. 14). That day, Elie Marie Berríos, Associate Division Control Officer in San Juan, faxed the documents to the SLG Group in Weehawken. PX 11. Consistent with the regular practice at UBS with respect to Puerto Rico, Ms. Berríos included in her fax a brief explanation of what the Spanish-language documents meant and what was being required of UBS. Tr. VI at pp. 84:15-85:2; PX 11.
Ms. Berríos explained that "if any position is found under [Mr. Efrón's name], the monies must be consigned [sic] in the court." PX 11, UBS bates-stamp no. 428. In an email later that day, Ms. Berríos wrote, "[l]et's make sure to freeze all the accounts." PX 11, UBS bates-stamp no. 430. By 5:20 p.m. on October 20, 2006, the accounts had been frozen, as confirmed in an email sent by SLG Group employee Irma Veitch, to Ms. Berríos. DX 10. At that time, there were close to $12 Million in Efrón's accounts. Tr. VI at pp. 23:21-24:5;
On October 20, 2006, Ms. Berríos sent the documents by fax to Mr. Bobonis. PX 12. That same day, Mr. Bobonis had a phone conversation with Efrón's attorney. After speaking with Efrón's attorney, he contacted the CFI, and spoke directly with Judge Jiménez Nettleship, who confirmed that the attachment order was still in effect. Then Ms. Colón stated in a memo dated October 26 that UBS would "execut[e] the sale of positions and consign the amount of $4,160,522.61 [. . .] to comply with the court order." PX 13.
On October 27, 2006, Mr. Bobonis spoke with UBS Regional Manager Eugenio Belaval, who requested that Mr. Bobonis file a motion in court seeking clarification, rather than proceeding to liquidate the accounts. Mr. Bobonis prepared and filed a Motion to Clarify, mentioning certain ambiguities in the attachment order, including whether the 4.16 Million dollar amount included interest; and that UBS should not be held liable for any losses incurred by virtue of the sale of the assets. According to Ms. Colón, UBS had decided to file the motion because "the client [Efrón] and the FA [broker] are hysterical with this garnishment" and both sides in the Candelario/Efrón litigation "were threatening us." PX 16. Efrón had also called UBS Puerto Rico CEO Miguel Ferrer and told him that only liquid funds could be consigned.
On October 20, 2006, SLG Group employee Irma Veitch notified officials of the UBS USA Bank, with whom Efrón had a credit line, that in compliance with the court order, it had to shut down the line owed to that entity. PX 16; DX 177, UBS bates-stamp no. 1163. Craig Darvin, an Associate General Counsel in Weehawken, with responsibility for the operations of the UBS USA Bank, asked Ms. Veitch for details of the attachment. In response, Ms. Veitch told him that the monies had to be deposited in court, through outside counsel, and that she was awaiting further communication from Mr. Bobonis. PX 16; DX 177, UBS bates-stamp nos. 1161 and 1162. Division Counsel Francine Hoyt and Andrea Wolff were copied on these emails.
3. Oral Order
Efrón asked the CFI to reconsider the attachment order. A hearing was held on November 13, 2006, during which Judge Jiménez Nettleship orally ruled that he was setting aside the orders and attachment annotations. The next day, Mr. Bobonis wrote to Division Counsel Francine Hoyt and Andrea Wolff, as well as to the Division Control employees in Puerto Rico, Ms. Colón and Elie M. Berríos, to inform them that "the judge decided to set aside the order to attach assets of David Efrón," and that UBS could "expect to receive a written order in the near future." DX 178, UBS bates-stamp no. 1058.
On or about November 16, 2006, Candelario presented a Motion in Aid of Jurisdiction and Petition for Mandamus in the Puerto Rico Court of Appeals, requesting the Court to stay the oral order, and to require the CFI to comply with its ministerial duty to order execution of the February 2006 Judgment (Docket No. 300 at p. 95, Stipulations Nos. 30 and 31). On November 21, 2006, the Court of Appeals denied Candelario's petition for lack of jurisdiction, stating that the oral ruling "does not appear in a signed minute or notified order." It was, according to the Court of Appeals "something . . . still before the [CFI], under its consideration and pending a written decision."
On or about December 15, 2006, Candelario filed a petition for certiorari with the Puerto Rico Supreme Court challenging the Court of Appeals' decision (Docket No. 300 at p. 91, Stipulation No. 35). She argued that Mandamus was a proper remedy, because she had an undisputed right to the execution of the final Judgment and the CFI had refused to comply with its ministerial duty to execute the prior mandate. On February 15, 2007, the Puerto Rico Supreme Court denied the petition because the record lacked "the necessary documents reflecting what was ruled in the oral hearing . . . on November 13, 2006." The Order was officially notified to the parties on February 16, 2007. Tr. III at p. 204:15-18.
4. Decision to Release Restraints.
On February 14, 2007, Efrón provided UBS with 23 pages of documents, in Spanish, consisting of Candelario's Petition for mandamus in the Court of Appeals; the November 21, 2006 Court's Judgment denying the Mandamus; and a "Minute" of the November 13, 2006 hearing before the CFI. Tr. III at pp. 153:21-154:3. Ms. Colón received the documents, and made a preliminary decision to release restraints on Efrón accounts. Tr. III at pp.173:20-174:5. The minute she reviewed is not certified for authenticity, does not bear the signature of the CFI judge; and contains no indication that it was officially notified to the parties.
On February 15, 2007, Ms. Colón sent the 23 pages with a cover page by fax to Mr. Bobonis, PX 18; Tr. III at p. 163:10-24, who told Ms. Colón that he agreed with her decision. Tr. III at p. 178:25-179:7. The same day, Ellie Berríos sent a fax to the SLG Group requesting the release of the restraints. She included the same pages which Efrón had delivered to UBS. Characterizing the documents as "a Court Order and other documentation," she asked SLG to "remove the restriction from the account." DX 32.
Moreover, in the fax, Ms. Berríos provided the following summary of the 24 pages:
Contrary to what the summary stated, the Supreme Court had not confirmed a judicial ruling. Rather, it had denied on jurisdictional grounds the petition for certiorari that Candelario filed. Considering the interlocutory character of the order, the Court could have asserted jurisdiction thereafter.
5. Implementation of Decision
In the morning of February 16, 2007, Ms. Berríos informed SLB that Efrón was requesting $50,000.00 from his account, PX 24, UBS bates-stamp no. 572, and that the request for release of the restraints had been made the previous day.
Later that morning, Ms. Colón informed attorney Andrea Wolff that the "Court Order" and other documentation had been sent to SLG the previous day and that Division Control had requested the restraints to be removed. PX 24, UBS bates-stamp nos. 572-573. In her email to attorney Wolff, she provided the same summary which Ms. Berríos had sent to SLG the previous day, mentioning the "court order" and "other documentation."
Ms. Wolff was confused by the email. She asked Ms. Colón what was being requested of her. "You lost me. Not sure what this means or if you need something from us." PX 24, UBS bates-stamp no. 584. Ms. Colón responded by saying it was just "FYI" ("For your Information"). The restraints were removed on that day (Docket No. 300 at p. 96, Stipulation No. 38);
6. Lack of Disclosure
On February 5, 2007, a hearing was held in a related case between Candelario and Efrón. During that hearing, Efrón's attorney made reference to a "minute" of the November 13, 2006 hearing. Ms. Michelle Pirallo, Candelario's attorney, asked Efrón's attorney for a copy of the minute, but Efrón's attorney never provided it. Ms. Pirallo sent a law clerk to the CFI to obtain a copy of the minute, but the clerk was turned away and could not get access to the file. Ms. Pirallo then went to the court herself, but was told that she did not appear as counsel of record.
On February 9, 2007, Ms. Pirallo sent a letter to Mr. Bobonis, which he received on February 21, 2007, requesting that UBS maintain the assets frozen. She informed Mr. Bobonis that the "verbal order" issued by Judge Jiménez Nettleship was not final and binding ("final y firme"), that Judge Jiménez Nettleship had never issued a written order vacating the attachment, and that no Resolution had been issued. PX 25, UBS bates-stamp 98; DX 44. On February 21, 2007, Mr. Bobonis responded to this letter, indicating that he had the opportunity to read the minute and the judgment (sentencia) of the Court of Appeals; and that he did not understand what the Supreme Court had to do with the enforcement (ejecución) of a judgment that presumably already was final and binding. PX 25, UBS bates-stamp no. 495 (Spanish version) and UBS No. 90 (English version). He did not inform Ms. Pirallo that UBS had released the restraints some five days earlier.
On February 27, 2007, Mr. Bobonis sent to Ms. Pirallo, vía fax, an unofficial copy of the minute that Efrón had provided to UBS. PX 24, UBS bates-stamp no. 100. Two days later, on March 1, 2007, Ms. Pirallo sent to Mr. Bobonis a copy of a Motion for Reconsideration which she had filed with the Supreme Court; the motion included the minutes Bobonis had sent her. PX 25, UBS bates-stamp 413. She asked Mr. Bobonis to assure her that UBS would maintain the restraints on the accounts, noting that the CFI never notified the minute of the November 13, 2006 hearing and that for that reason the revocation of the attachment order was not final and unreviewable.
On March 2, 2007, Ms. Pirallo filed an urgent motion with the CFI, requesting formal notification of the minutes (Docket No. 300 at p. 97, Stipulation No. 42);
7. Prelude to Mandamus and Sales Order
On April 20, 2007, Ms. Pirallo filed a second urgent motion requesting the CFI to notify the minutes (Docket No. 300 at p. 97, Stipulation No. 45);
8. New Judge
By June 2007, a new judge, Arlene Sellés Guerini had been assigned to the Candelario/Efrón divorce case. On June 18, 2007, she took note of the pending motions. Rather than ruling on the motions (which included the May 9th motion), however, she issued an order, which reads as follows:
On June 20, 2007, Ms. Pirallo presented a second Mandamus Petition in the Court of Appeals arguing that the June 18 order by Judge Sellés did not comply with the "final and binding" judgment of February 16, 2006. PX 34, UBS bates-stamp nos. 870-872. On July 19, 2007, the Court of Appeals granted the mandamus, ordering Judge Sellés to issue the necessary orders or resolutions to execute the mandate issued after the February 16 judgment of the Court of Appeals. To assure prompt action on the mandamus, the mandate in this second mandamus case was to issue immediately, "without any delays." PX 34, UBS bates-stamp no. 877.
9. Order of Sale
On July 23, 2007, Ms. Pirallo sent a copy of the mandamus decision to Mr. Bobonis, asking him to "confirm that UBS has maintained David Efrón's funds frozen, since there never has been any order which was notified, vacating the execution of the February 16, 2006 Judgment of the Court of Appeals." PX 35. There is no evidence that Mr. Bobonis ever answered Ms. Pirallo's letter. Nonetheless, he sent the letter, along with the Second Mandamus Petition and the Judgment of the Court of Appeals issuing the Mandamus, to Ms. Colón, advising her that the Court of Appeals Judgment was entered in the court file on July 20, 2007. PX 36, UBS bates-stamp 866.
On August 6, 2007, Ms. Pirallo filed another motion with the CFI, requesting that Judge Sellés order UBS to sell the assets immediately and to make the amount of $4,160,522.61 available to the plaintiff, and to order UBS to freeze the Efrón accounts until the balance due and the interest on that balance, as well as amounts due on the ongoing obligation, were calculated. PX 37, UBS bates-stamp nos. 894-896. She sent a copy of this motion to Mr. Bobonis, who in turn, forwarded it to Ms. Colón. PX 37, UBS bates-stamp no. 893.
On August 20, 2007, Judge Sellés ordered that all assets, up to the sum of $4,160,522.61 be sold, relieving UBS of responsibility for any loss incurred. Once the assets were sold, UBS was to issue a check in that amount to Madeleine Candelario. Finally, the Judge ordered that UBS "maintain all of David Efrón's accounts frozen" until the interest on the debt could be calculated, or the court ordered otherwise. PX 39, UBS bates-stamp nos. 776-778;
The Order of Sale was served on UBS on Monday, August 27, 2007.
11. Efrón's Accounts
During the relevant time frame, Efrón had three accounts in UBS: (1) an Investment Account (JX60059), (2) a REPO Account (WR 00855), and (3) a Credit Line (5V-50203) with UBS Bank USA.
These figures account for the following transactions:
i. Basic Analysis
Under Article 1802 of the Puerto Rico Civil Code, "[a] person who by an act or omission causes damage to another through fault or negligence" may be held liable for the damage. P.R. Laws Ann. tit. 31 § 5141;
Luz Nereida Colón made the decision to release the restraints after receiving the 23 pages Efrón sent to UBS on February 14, 2007. Those pages included the November 2006 decision of the Court of Appeals in response to Candelario's first mandamus petition, and the unsigned minute of the proceeding where the oral order was issued. The Court of Appeals' decision made specific reference to Rule 32(b), which expressly requires a judge's signature in minutes with resolutions or orders, which must be notified to the parties. Further, it stated that the order was not in a signed minute or a notified order, and that the matter was under the consideration of the CFI, pending a written decision ("dictamen escrito"). It is apparent that no judge signed the minute that Efrón gave UBS, and that the package Ms. Colón reviewed did not include a written decision by a judge.
After Ms. Colón made the decision to release those restraints, the remaining back-up control systems at UBS failed to review those materials carefully. Division Control employee Ellie Marie Berríos sent the documents to the SLG Group, along with the "summary" which was used to describe the Spanish-language documents. SLG had decisional authority as to the appropriate response to subpoenas, levies or garnishments, and if there were issues or questions it could raise them to its manager or to regional or outside counsel. Tr. VI at p. 89:1-13. But it did not question what Ms. Berríos described as a "Court Order." Even if personnel in SLG could not read Spanish, they could have easily ascertained that the document purporting to be a "Court Order" was not signed by a judge, nor was a written decision by a judge.
The final control mechanism within UBS' organization would have been Regional Counsel in Weehawken. Puerto Rico had the benefit of two Regional Attorneys, Andrea Wolff and Francine Hoyt, as well as General Counsel, Héctor Becil. However, they were not consulted. On February 15, 2007, Ms. Colón informed Division Counsel Andrea Wolff that the "Court Order" and other documentation had been sent to SLG the previous day, and that Division Control had requested that the restraints be removed. In her email to attorney Wolff, Ms. Colón provided the same summary which Ms. Berríos had sent to SLG the previous day, mentioning the "Court Order" and "other documentation." Ms. Wolff was confused by the email, asking Ms. Colón what was being requested of her. "You lost me. Not sure what this means or if you need something from us." Ms. Colón responded by saying it was just "FYI" ("For your Information"). Even so, during trial Ms. Wolff testified that she did not have an issue with releasing the restraints on February 16th, because the email so informing her stated that it had been discussed with Mr. Bobonis. Tr. VI at pp. 71:21-72:1. As UBS has pointed out, "there is no evidence to suggest that Wolff would have done anything differently" (Docket No. 357 at p. 92). Thus, the Legal Department did not conduct an independent review of the matter.
Candelario's attorney informed Mr. Bobonis by letter dated February 9, 2007, that Judge Jiménez-Nettleship never issued a written resolution vacating the attachment order, that his resolution had not been notified and therefore, that it was not final and binding.
Candelario's attorney's assertion that Judge Jiménez Nettleship had not issued a written resolution was correct. Based on the cases cited in the preceding paragraph, her representation that, without notice, the issue was not beyond review was accurate.
Nevertheless, UBS argues that the decision it made to release Efrón's account was reasonable, stating that it is undisputed that the CFI orally set aside the attachment order and denied Candelario's oral motion for reconsideration of that ruling; Candelario and Efrón treated the oral order as immediately effective, Candelario by filing the first mandamus petition and Efrón by paying her $200,000 pursuant to the oral order; and that UBS awaited written confirmation of the order, sought and relied on Mr. Bobonis' advice, and followed what it describes as the custom and practice of local practitioners and of the financial services industry (Docket No. 357 at pp. 8,10, 67-74, 90). Critical to its theory are the testimonies of Ms. Colón and Mr. Bobonis, and of its expert witnesses, Judge German Brau and Ms. Lorena Kerns. The court now focuses on those testimonies.
ii. Luz Nereida Colón
Ms. Colón testified that she made a preliminary decision right away to release the restraints after reviewing the documents that Efrón provided to UBS on February 14, 2007. Tr. III at pp. 153:21-154:3; 173:20-174:5; 176:18-25. She said that her decision was based on the unsigned minute and the other documents received at that time, and that even though her practice was to review all documents, she could not recall having read through each of the documents that UBS received on February 14th. Tr. III at p. 178:9-15. She could not say one way or the other, and could not recall having considered the Supreme Court's resolution in making the initial determination that the restraints should be released, but said that she may have considered it. Tr. III at p. 205:4-15.
Ms. Colón recognized that UBS had a duty to determine whether the minutes releasing an attachment were facially valid under Puerto Rico law. Tr. IV at pp. 37:20-38:1. However, she could not recall having read the November 2006 Court of Appeals' opinion, though she stated that she probably did. Tr. IV at pp. 39:24-40:5. That opinion includes the text of Rule 32(b)(1). Ms. Colón asserted that she probably noticed the reference to Rule 32(b)(1) in the opinion, although she could not say for sure. Tr. IV at p. 40:22-25. She could not remember if she read the part of the rule stating that minutes must be signed if they contain an order, and could not say one way or the other if she checked the minute to see if it was signed by the judge. Tr. IV at p. 41:9-42:8; Tr. IV at p. 50:10-21. Similarly, she could not recall if she saw or read the part of the opinion stating that the matter was still under the consideration of the CFI, awaiting a written order. Tr. IV at 44:11-46:3; 50:10-21.
Ms. Colón asserted that she started working with UBS in 2000; since then has processed hundreds of orders attaching or releasing accounts. Tr. III at p. 231:6-16. She did not specify if any of those orders — other than the one here — was included in unsigned minutes. She acknowledged UBS' policy of not removing restraints on accounts except upon receipt of a court order or other instructions from a court. She could not recall if UBS was mentioned in the minute. Tr. IV at p. 68:10-25. When shown the minute during trial, she said it contained instructions to UBS even though the minute does not mention UBS. Tr. IV at p. 70:10-73:3.
Ms. Colón pointed out that her responsibilities included risk assessment. Tr. IV at pp. 77:19-24; 78:14-16. She said that those assessments are "embedded" in what she and everyone does in UBS, stated that for every decision she needed to consider different possible consequences, but asserted that it was not something to be done or conducted in connection with every matter. Tr. III at pp. 139:19-140:11; Tr. IV at pp. 86:8-15; 97:22-98:5. She could not remember having considered or discussed the possibility that it might be prudent for UBS to file a motion clarifying what its obligations were here, because for her, the copy of the minute reflected an oral order on what UBS needed to do. And she could not recall having considered whether Mr. Bobonis should call the court to confirm what to do, but did not think she considered it. She did not know whether the SLG Group or Division Counsel conducted a risk assessment. Tr. IV at pp. 88:15-21; 90:16-21; 91:4-10; 96:1-7. The risk assessment she conducted here was to consult with Mr. Bobonis.
At another level, Ms. Colón asserted in a response to interrogatories as UBS representative in this litigation, that Candelario had exhausted all of her appeals. She said that exhaustion meant there was no other recourse to obtain a different judgment. Tr. III at p. 204:3-5. She did not remember whether she considered the Supreme Court's resolution denying review when she made the initial determination that restraints should be released. Tr. III at p. 205:11-15. She could not recall the conversation she had with Mr. Bobonis, whether he said that Candelario had exhausted appeals, or what documents were reviewed at that time. Tr. III at p. 199: 5-15; Tr. III at p. 237:21-23.
Based on Ms. Colón's testimony and demeanor, the court concludes that she only read the unofficial copy of the facially defective minute, without concentrating her attention on (1) the content of the Court of Appeals' opinion in the first mandamus petition, (2) the text of Rule 32(b)(2) included in the opinion, or (3) the Court of Appeals' observation that the oral order was not contained in a signed minute or notified order, and that the matter was under the consideration of the CFI, awaiting a written decision (dictamen). Simply stated, the documents were not reviewed for their substantive content.
iii. Guillermo Bobonis
Mr. Bobonis has represented UBS in numerous legal proceedings, including arbitrations and lawsuits in local and federal court, and in matters involving the Office of the Commissioner of Financial Institutions of Puerto Rico, the New York Stock Exchange, the National Association of Securities Dealers, and the Financial Industry Regulatory Authority. Tr. I at pp. 122:1-17-123:1. He testified that Rule 32(b) is "dead letter," and that attorneys with whom he has spoken have commented that to him. Tr. II at pp. 140:19-141:9; 141:23-142:1. It is unclear how many attorneys he has spoken to about this issue (he did not say), or when or in what context those conversations occurred.
Even minimizing the hearsay-related trustworthiness limitations that his assertion entails, it lacks the hallmarks of persuasiveness typical of well-conducted surveys. As such, it does not have probative force.
Mr. Bobonis said that he has examined minutes that are not signed by judges and are not notified to the parties, and that such is the "general rule." Tr. II at pp. 139:5-19, 159:11-22. As this case shows, those cases do exist. That does not mean, however, that those requirements are being systematically ignored to the point of making the rule "dead letter." The requirement of a judge's signature only applies where the minutes contain an order or resolution issued in open court, and no study or survey was submitted suggesting, much less confirming Mr. Bobonis' view that neither judicial officers nor court personnel are complying with the requirements of Rule 32(b)(2) and were not complying with them as of February 2007.
In the same way, Mr. Bobonis' characterization is inconsistent with the report he provided to UBS on November 22, 2006, after being informed that Judge Jiménez Nettleship had orally set aside the attachment order. At that time, he advised UBS that it should expect a written order in the near future. The Puerto Rico Court of Appeals' opinion of November 2006 quotes Rule 32(b); its text specifies that minutes with an order issued in open court must be signed by the judge and notified to the parties. Moreover, it expressly states that the matter was under the consideration of the CFI, awaiting a written decision ("dictamen"). Unsigned minutes are not a decision in writing by a judge. Judge Jiménez Nettleship never issued any such decision.
Mr. Bobonis thought that the statements in the Court of Appeal's opinion, particularly the Court's observation that the matter was still before the CFI awaiting a written decision, were wrong. Tr. I at p. 220:10-14; Tr. II at p. 89: 10-16. He testified that what the Court of Appeals stated had nothing to do with practice in local courts. Tr. I at pp. 220:24-221:1. From his perspective, regardless of what the Court of Appeals stated, the minute was valid.
iv. German Brau
Judge Brau testified as an expert witness for UBS.
As for his own experience in the CFI, Judge Brau testified that each judge has about 1,000 active cases in the docket, with some 100 new cases assigned every month. DX 95 at p. 12:13-17. Minutes were brought to his attention several times a month; he could have 50 minutes or so to read and approve every week. DX 95 at p. 18:1-7. Because approval of the minutes did not really solve cases or move cases along, approval of minutes was not a priority for him. DX 95 at pp. 18:22-19:26. He stated that after he read the minutes, he would not have time to sign them and would tell the secretary to place the minutes in the official file. DX 95 at p. 20:4-11.
Why that was so is unclear, as reading a minute consumes more time than signing it, and in that sense, represents a marginal — almost a de minimis fraction of the time devoted to reading the document. Judge Brau said that placing the minute in the official file was the equivalent of signing it. DX 95 at p. 20:16-23. Nevertheless, he acknowledged that is not how Rule 32(b) reads. DX 95 at pp. 219:23-220:9. It would have been easy for the Puerto Rico Supreme Court, which adopted the rule, to state in Rule 32(b) or in another rule that placing a minute in the court file was the equivalent of signing it but it has never done so.
Judge Brau said that he would decide whether to read minutes and sign them. DX 95 at pp. 222:17-223:25. If he opted not to read them, the minutes would then be placed in the file without having been read by the judge even when, by his account, that meant the judge had approved them. DX 95 at pp. 228:12-229:21. He stated that reading the minute was not necessary, for if the judge thought he had a competent secretary he could delegate that responsibility.
The court is not persuaded by Judge Brau's opinion that during the relevant period, judges in the CFI were not signing minutes that contained orders. It is true that some judges were not signing those minutes (again, the case here is an example), but that does not mean most of them were not doing it, most of the time, and that, as a matter of practice or custom, Rule 32(b) was being honored more in the breach than in the observance. Judge Brau testified that the judges he knew were not signing minutes. DX 95 at p. 21:2-6. The court has no way of knowing how many such judges there were in the CFI.
Plaintiff's expert, Judge Carlos Cabán, stated on cross examination that it is not uncommon to find minutes in case files that have not been signed by a judge, and that it is the rule rather than the exception.
Judge Brau testified that while sitting in the Court of Appeals he reviewed cases with minutes. DX 95 at pp. 27:19-28:5. He was not asked if those minutes were not signed. If that is what he meant, those cases undoubtedly exist. But the Court of Appeals handles petitions for review of administrative agencies, as well as civil cases and criminal cases.
Even more, the Court of Appeals has acknowledged the need to comply with the signature requirement of Rule 32(b). In
UBS contends that as of February 2007, when it decided to remove the restraints on Efrón's accounts, there was only one published decision on the subject in Puerto Rico,
More important for the instant case, however, the course followed in Rivera-Vega does not distract from the Court of Appeals' statement in November 2006 to the effect that the oral order was not in a signed minute, and the matter was under the consideration of the CFI, awaiting a written decision.
Judge Brau stated that Rule 32(b) is directed to court employees. DX 95 at p. 91:8-13. The Rules for the Administration of the CFI, of which Rule 32(b) is part, are organized in five (5) sections ("partes"). Rule 32(b) is included in Section V, titled "Proceedings Relative to Judicial Work" ("Procedimientos Relativos a la Labor Judicial"). It requires the judge's signature in minutes containing resolutions or orders issued in open court. On its face, the obligation is imposed on judges rather than on administrative personnel or non-judicial staff.
Judge Brau pointed out that that there is a difference between validity and appealability, saying that non-compliance with the requirements of Rule 32(b) only affects the appealability of an order, not its validity,
Puerto Rico courts have not limited the consequences of not complying with the requirements of Rule 32(b) to appealability. In
Those holdings comport with the First Circuit's conclusion that a minute with an order lacking the judge's signature is facially invalid. While Judge Brau said that the First Circuit's opinion is contrary to custom and practice in Puerto Rico, DX 95 at p. 103:16-22, the factual basis for his conclusion is insufficient to accept his view as a fact in this case. In like manner, it does not account for the Court of Appeals' observation in November 2006 that the matter was before the CFI, under its consideration, and awaiting a written decision.
Even more, when the Court of Appeals issued the mandamus in July 2007, it did not mention the oral order despite the fact that the writing judge in that second mandamus case (Hon. Velázquez-Cajigas) was the writing judge in the first mandamus case of November 2006.
Judge Brau said that compliance with the signature requirement of Rule 32 would paralyze the judicial system. DX 95 at pp. 92:22-93:9.
v. Lorena Kern
Ms. Kern is the former head of retail compliance for Morgan Stanley Dean Witter. Tr. VI at p. 187:10-25. She has worked for Merrill Lynch and Dean Witter, and now consults with broker dealers on policies and procedures, and testifies as an expert witness on issues related to securities law and other matters. She testified that UBS's administration of Efrón's accounts was reasonable and consistent with custom and practice in the financial services industry. Tr. VI at p. 203:7-9; 205:9-10. Her view of reasonableness was based on Ms. Colón's consulting with Mr. Bobonis, and her opinion as to the adequacy of policies within the institution. Tr. VI at p. 243:4-7.
Ms. Kern mentioned that UBS had a procedure for handling subpoenas, writs and attachments, adopted a general policy statement that gave employees discretion and flexibility in responding, provided employees with some guidelines as to how these things need to be handled, and with resources available for guidance (a manager, local counsel, or in-house division counsel), and gave instructions for the SLG Group to handle the mechanics of placing and removing restraints on the accounts. Tr. VI at pp. 203:9-11,19-20; 221:5-222:15, 245:16-25. Likewise, UBS Financial Services Compliance Bulletin, No. 06-15, dated September 21, 2006, "addresses the Firm's policies and procedures for handling [. . . .] restraints." PX 1.
This Bulletin applies throughout the United States and in Puerto Rico. Tr. VI at p. 88:1-25. There are no specific local policies for Puerto Rico regarding the proper handling of subpoenas and court orders. After restraints are placed on an account, the matter is not deemed "closed" until "appropriate documentation" is received. According to the UBS policy document entitled "Subpoena, Levy and Garnishment (`SLG') Group Restraint Procedures," the following documents are examples of "appropriate documentation:" Release of Levy, Consent Order, Order of Dismissal, and letter of authorization. PX 2 at p. 6, UBS bates-stamp 631.
UBS Compliance Bulletin 06-15 also states that once a legal restraint is placed on an account, it can only be "released upon receipt of a court order or other instructions from the court." PX 1 at p. 4. In cases involving attachments, when court documents are in Spanish, the practice at UBS is for local Division Control employees to send the documents to the SLG group, and to prepare a summary setting forth what was being required of UBS. This summary would be sent it to Weehawken, for review.
From this perspective, Ms. Kerns does not believe that a financial institution like UBS is presumed to know what a valid order looks like. Tr. VI at p. 249:15-18. Rather, its obligation is to seek advice from counsel.
Ms. Kern admitted that she was not opining on the law, but on industry practice and the reasonableness of UBS' conduct. Tr. VI at p. 242:10-15. Nonetheless, she acknowledged that a financial institution like UBS has a duty to review the documents it receives, and that the review should not be an empty exercise. Tr. VI at p. 250:4-251:1. The facts show that the reviewing exercise here was empty. UBS was negligent in giving effect to an unsigned minute in February 2007 in violation of the October 2006 Writ of Attachment, despite the Court of Appeals' explicit finding in November 2006 that the matter was still under the consideration of the CFI and awaiting a written decision.
UBS contends it cannot be found negligent because in October 2006 it complied with each order that it received concerning Efrón's accounts, including the October 2006 attachment order and the August 2007 order of sale (Docket No. 357 at pp. 74-75). That UBS complied with those orders is undisputed. But it released restraints when it should not have done so. It cannot be faulted with acting deliberately to cause damages, but article 1802 of the Civil Code contemplates both fault and negligence.
In Puerto Rico, damages consist of compensation in money for loss caused by the wrongful act or omission of another.
In August 2007, the CFI ordered UBS to pay Candelario $4,160,512.61, and to keep Efrón's accounts frozen until payment of interest could be determined for unpaid amounts and until the court ordered otherwise. UBS paid Candelario $351,783.13. It should have paid her $4,160,512.61, and thus owes her the difference between what it should have paid and what it in effect paid. Correspondingly, it became liable to Candelario for $3,808,739.48 ($4,160,512.61-$351,783.13). The loss was not unforeseeable or random. The obligation is ongoing, and generates principal with state-imposed interest as part of the obligation itself every day that it remains unpaid.
UBS asserts that the maximum amount of its liability must be measured by the accounts' net value — the difference between the value of the assets less the amount owed to the credit line — at the time of the liquidation order (Docket No. 357, at p. 123). Candelario challenges UBS, pointing out that liability should be gauged against all of the assets that Efrón had in the accounts (approximately $12 Million) before he depleted them (Docket No. 355 at p. 117).
In January 2010, the court (Casellas, J.) held that UBS properly paid off the balance in Account JX-60059 before paying Candelario.
On remand, the court ruled that without evidence that UBS Bank USA demanded payments (and when and under what circumstances), the amount by which UBS' compliance with the October 2006 attachment order was to be measured, was the total (not the net) value of assets in Efrón's accounts as of that date.
In August 2006, Efrón and UBS Bank USA entered into a Credit Line Agreement. The line of credit was secured by a first priority lien in favor of UBS Bank USA, to be exercised against accounts held by Efrón with the security intermediary, which was UBS.
The Agreement gave the Bank the right to secure payment of the credit line obligations when the debt became due, by set-off against Efrón's UBS investments.
To that end, the Bank had discretion to terminate or cancel the line, in which event Efrón would have to pay the totality of the credit line obligation.
Candelario asserts there is no evidence that the Bank called in the line, accelerated the debt, or in fact, demanded that Efrón make certain payments. She claims that when the accounts were attached, the Bank did not exercise its contractual right to accelerate the debt, and that at no other point did it make a "demand," as it could have under the agreement. Similarly, she states that the Bank never exercised its rights to call in the line of credit, and that there is no evidence that the Bank called in the credit line until the end of August 2007, when Judge Sellés's sales order was served on UBS. UBS contends that demand was not required, and that the Bank did exercise its rights.
A security interest in investment property may be perfected by control. Candelario VII, 81 F.Supp.3d at 153. Both Utah law (Utah Code Ann. § 70A-9a-313(1)), which governed the Credit Line Agreement with Mr. Efrón, and the UCC, so permit. Candelario VII, 81 F.Supp.3d at 153. In the case of investment property held through a securities intermediary (UBS), the secured party (UBS Bank USA) could perfect by control transferring securities to an account in its own name; becoming the entitlement holder, arranging for the securities intermediary to act on instructions from the secured party to dispose of the positions, even though the debtor remains the entitlement holder.
Puerto Rico has adopted the UCC articles applicable to investment property and secured transactions.
These conditions appear to have been satisfied. As to the priority to be accorded this interest, the Commercial Transactions Act accepts that "[a] security interest of a secured party who has control over investment property has priority over a security interest of a secured party who does not have control over the investment property."
On a different level, the Credit Line Agreement states that UBS Bank USA could ". . . demand full or partial payment of the Credit Line Obligations, in its sole and absolute discretion and without cause, at any time" (Docket No. 23, Exh. 1S, Section 10(b)). In the event a collateral account were attached or subject to a levy (Section 10(a)(vii)), the credit line obligation would immediately become due and payable, and UBS Bank USA could, in its "sole and absolute discretion liquidate, withdraw or sell all or any part of the collateral and apply the same [...] to any amounts owed to the Bank . . ."
Section 10(a) of the Agreement also provides that no demand (call) or notice is required to liquidate the securities in a collateral account where collateral provided by a loan or any portion of it terminated, attached or subjected to a levy. Because this case involves one of the events specified in the agreement, there was no need for a formal demand or call. Additionally, the evidence shows that UBA Bank USA promptly requested UBS specifically to act on Efrón's collateral account after it was attached in October 2006, to insure payment of the credit line in the event Candelario obtained a liquidation order. Craig Darvin, attorney for UBS Bank USA, communicated with Adrea Wolff, UBS Division Counsel, to ensure that the credit line would be paid off, with first priority over all other claimants to the collateral in Efrón's account. Tr. IV at pp. 53:12-54:5; 156:19-21.
All in all, UBS Bank USA had a perfected interest in Efrón's collateral-account assets, had control over those assets, could liquidate the account without demand and apply the proceeds to pay off the credit line, and communicated with UBS to make sure that the loan on credit in Account 5V-50203 was paid. So, as originally held, "as of February 2007, Efrón's accounts had sufficient funds to satisfy said loan, as well as the Order and Writ of Execution."
3. Adjustments: Principal and Interest
Candelario received $215,000.00 from Efrón between June 2001 and August 2002, and $200,000.00 from Efrón between November 2006 and January 2007.
The amount owed is made up of two components: (1) $50,000.00 ongoing monthly payments as principal; and (2) 10.50% interest on unpaid amounts from June 2001, imposed by the CFI when it originally set the monthly payment to be made. As of October 2006, when the accounts were attached, that obligation amounted to $4,160,512.61, which the August 2007 sales order sought to satisfy. Nevertheless, because the obligation contains an interest component, UBS must apply the $1,002,640.00 to reduction of interest.
Pursuant to Article 1127 of the Puerto Rico Civil Code, P.R. Laws Ann. tit. 31 § 3177, payments on interest-bearing obligations must first be applied to interest, then to the principal. Id. If UBS had not negligently released Efrón's accounts, it would have been able to satisfy the amount that the Order provided for. A significant part of the $4,160,512.61 remains unpaid. That part is subject to the state interest component of the obligation, which will continue to accumulate until it is satisfied. Thus, the $1,002,640.00 must be applied to interest. The parties stipulated that if the Opinion and Order so provided, it would result in a damages calculation of $5,330,019.00 as of December 31, 2014, accruing interest of $26,550 per month thereafter (Docket No. 339 at ¶ 4). With that in mind, as of today, Candelario is owed $5,728,269.00,
C. Comparative Negligence
UBS alleges that Candelario was negligent, and completely responsible for her loss (Docket No. 357 at p. 98). Puerto Rico is a comparative negligence jurisdiction. As codified in Article 1802:
The comparative negligence standard was adopted in 1956 to replace the common-law doctrine of contributory negligence. Carlos J. Irizarry Yunque, Responsabilidad Civil Extracontractual 253 (6th ed. 2007). It abolishes doctrines that give all-or-nothing effect to certain types of plaintiff's negligence. At its core, if a plaintiff's own conduct is one of the adequate causes of her harm, then her award is reduced in proportion to the percentage of the harm she caused herself.
Candelario alleges that comparative negligence is not applicable in this case because the concept focuses on the cause of the initial injury-producing event and thus, on whether plaintiff contributed to production of the injury, rather than on subsequent events such as those UBS is essentially relying on (Docket No. 352, at p. 113: 23-25; Docket No. 55, at p. 98). The Puerto Rico Supreme Court does not appear to apply that strict timing standard. In
The Court applied comparative negligence principles to apportion damages, holding plaintiff 75% responsible,
UBS alleges that what Candelario and her legal team did or failed to do between October 2006 and August of 2007 was negligent on various fronts (Docket No. 357 at pp. 91-99). It argues that errors and mistaken tactical decisions precluded her then, and preclude her now, from recovering the full amount of the attachment order and interest accrued on Efrón's obligations since September 2007 (when UBS gave her the $351,000.00 check).
First, UBS contends that Candelario's attorneys should have drafted an attachment order similar to the Order of Sale issued by Judge Sellés in 2007.
Second, UBS claims that Candelario should have requested notification of the November 2006 hearing minutes (Docket No. 357 at p. 95). It maintains that when a party does not request notification of an oral interlocutory order, the Court of Appeals evaluates the timeliness of an appeal by reference to the date on which the minutes are prepared, and that by the time Candelario obtained the minutes, an appeal would have been deemed untimely.
Rules 65.3(a) and (b) of the Puerto Rico Rules of Civil Procedure in effect during 2006 and 2007, P.R. Laws Ann. tit. 32, Ap. III (1979), unambiguously state that the Clerk of the Court shall notify ("notificará") the parties of judgments, resolutions or orders, and of their registry and filing. And in
Ms. Pirallo testified that Efrón's attorney had said during a hearing in a related case on February 5, 2007, that there were minutes of the November 13th hearing (minutes of which Ms. Pirallo had not been notified). Tr. VII at pp. 30:15-31:4. Ms. Pirallo asked that attorney for a copy of those minutes, but never received them. Tr. VII at p. 31:4-8. She sent a law clerk to the CFI to get a copy of the minutes, to no avail, because the law clerk was not given access to the file. Tr. VII at pp. 31:12-32:3. Instead, he was told that Ms. Pirallo was not an attorney of record.
Third, UBS faults Candelario for not realizing until May 2007 that the minutes did not have a judge's signature. It argues that if it (UBS) was negligent, Candelario was comparatively negligent because Candelario's court filings discussing the effect of the CFI's rulings were part of the body of materials that UBS and Bobonis considered, and Candelario did not call or send any letters to Mr. Bobonis to state that the absence of the judge's signature was an issue here (Docket No. 357 at p. 105).
The argument falls short. Candelario did not have access to the official court file until after UBS had released the restraints. In the meantime, she filed the first mandamus petition in the Court of Appeals. In turn, the Court of Appeals issued a decision (1) quoting Rule 32(b), (2) stating that the oral order was not in a signed minute, and (3) pointing out that the matter was still under the consideration of the CFI, awaiting a written decision. As previously discussed, UBS was aware of those statements before it released the restraints. It cannot blame Candelario for its decision to do so, because it was privy to the procedural description of the case that the Court of Appeals had made in November 2006.
Fourth, UBS maintains that Candelario was negligent in not communicating with Mr. Bobonis until February 2007. To explain why, it asserts that when it released the accounts, it had the appellate filings and nothing else from Candelario, that by the time Ms. Pirallo wrote to Mr. Bobonis in February 2007 the accounts had been released, and that Ms. Pirallo's letter "was so suspect and contrary to what Bobonis knew to be the case, that he immediately concluded that it had been written to mislead UBS" (Docket No. 357 at p. 108). Thus, for UBS, the letter created immediate suspicion in a way contrary to what a diligent party should have done to preserve her claims to Efrón's accounts.
In that regard, the letter points out that the minute had not been notified (which was true), and without official notice, the oral order was not beyond review. As stated earlier, in the absence of notice, the period to seek interlocutory review had not begun. Besides, when UBS released the restraints on Efrón's accounts, it had copy of the Court of Appeals' judgment of November 2006, and acted without a written decision to which the Court of Appeals had referred, even though, as the Court of Appeals observed, the matter was under the consideration of the CFI. It was UBS who decided to release the restraints in those circumstances, not Candelario.
Fifth, UBS' expert (Judge Brau) testified that Candelario's damages are self-inflicted, noting that her attorneys failed to follow proper appellate procedures. DX 95 at pp. 75:20-76:2; 82:7-83:21. He said that a mandamus was an incorrect procedure for an interlocutory order and incorrectly suggested to the Court of Appeals that the CFI had failed to act rather than stating that the CFI had made a ruling that they had sought to challenge. DX 95, at pp. 75:17-76:14. It is conceivable that other attorneys may have adopted a different strategy. But the Court of Appeals entertained the mandamus petition that Candelario's attorney had filed as a petition for certiorari, and stated that the matter was under the consideration of the CFI, awaiting a written decision. The statement should have served as a red flag to UBS, leading it to realize that a written decision was needed. As for the substantive argument that Candelario's attorneys raised — that Judge Jiménez Nettleship acted without authority — the argument was adopted by the Court of Appeals in its July 2007 decision granting the second mandamus petition. It was not Candelario who acted negligently, but UBS.
Sixth, UBS posits that Ms. Pirallo should have requested the Court of Appeals to issue an order under Rule 83.1 of the Court of Appeals' Regulations, P.R. Laws Ann. tit. 4 App. XXII-B (2004).
Seventh, UBS states that Candelario's attorneys should have attached Efrón accounts in other institutions as a means of assuring execution of the judgment (Docket No. 357 at p. 93). Ms. Pirallo testified that Efrón's assets in UBS would have sufficed to satisfy Efrón's debt to Candelario. She correctly pointed out that from the point in 2003 or 2005 when she received information about Efrón's accounts in UBS, and the point where the order of attachment was served on UBS in 2006, Efrón had not moved the assets to another institution. Tr. VII at pp. 44:8-19; 45:3-9. Additionally, she exchanged letters with Mr. Bobonis, who opted not to inform her of UBS' decision.
Even though Candelario testified that Efrón is "dishonest" and would do whatever possible to keep assets from her (Docket No. 357 at p. 93), her counsel, mentioned that Candelario had been unable to obtain another attachment order for two years due to court proceedings in the Efrón litigation. Tr. VII at pp. 48:19-24; 54:12-57:23. Considering the contentious character of such litigation, her testimony was credible. The court is persuaded that all things considered, it was not unreasonable for Candelario to assume that UBS would refrain from lifting the restraints rather than permit Efrón to make withdrawals after February 15, 2007, and for that reason, that she did not act negligently as UBS states.
Statute of Limitations
UBS alleges that plaintiff's action is time barred (Docket No. 357 at p. 111).
The Puerto Rico Supreme Court recognizes two types of knowledge as sufficient to start the clock. First, a plaintiff may have actual knowledge of both the injury and of the identity of the person who caused it. In that case, the one-year period begins to run on the date a plaintiff obtains this knowledge.
With that mind, the statute of limitations begins running at the time a reasonably diligent person would discover sufficient facts to allow her to realize that she had been injured and to identify the party responsible for that injury.
On a different level, notice of the injury occurs when there exists some outward or physical signs through which the aggrieved party may become aware and realize that she has suffered an injurious after effect, which when known becomes a damage even if at the time its full scope and extent cannot be weighed.
UBS argues that Candelario had notice of the injury more than one year before filing this lawsuit. It states this is reflected in her April 20, 2007 motion seeking notification of the hearing minutes, in which her attorney wrote that Candelario was in a "state of defenselessness," that "UBS Financial, through its counsel, Guillermo Bobonis, insists, despite our warnings . . . that the verbal order issued by then Judge Charles Jiménez-Nettleship has legal effects and consequences, implying that it will unfreeze the funds attached at UBS," and that "[t]his action by UBS has the effect of placing the money [sic] deposited there at risk given the possibility of transfer by Atty. David Efrón" (Docket No. 357 at p. 112) It posits that to that end, she asked the CFI to order UBS to "maintain frozen the funds and/or investments deposited in the name of Atty. Efrón."
On that basis, UBS argues that, like the plaintiff in
From that framework, it is apparent that the action here is not time barred. The legal reasoning behind a plaintiff's loss of rights under a statute of limitations is that the plaintiff is deemed to have abandoned those rights.
Candelario was actively pursuing remedies in court, and in communication with Mr. Bobonis. At no point prior to August 2007 she was informed that most of the assets in Efrón's accounts were gone. Tr. at pp. 192-193. Nor was she told that assets served as collateral for a credit line that UBS would pay off prior to making payments to her.
After the April 2007 letter to Mr. Bobonis upon which UBS relies, Candelario filed a motion with the CFI specifically asking the Court to maintain the funds and/or investments frozen. DX 47, p. 194 at ¶ (d). Had UBS disregarded the attachment order by lifting the restraints in the accounts but paid the full amount to Candelario, UBS would not have damaged her. By extension, reasonable knowledge of the injury can only be attributed to Candelario on the date her counsel went to UBS to collect what turned out to be $351,000.00. Using Pan Am. Grain's terminology as an analogy, that was the date defendant "decided not to go ahead with the partnership contract."
Candelario alleges that the court should enter a finding of "obstinacy" against UBS and impose prejudgment interest and attorneys' fees pursuant to Rules 44.1(d) and 44.3(b) of the Puerto Rico Rules of Civil Procedure, P.R. Laws Ann. tit. 32, App. V, R. 44.1(d), 44.3 (b)(Docket No. 356 at p. 1). She argues that imposition of pre-judgment interest from the date of filing of the complaint is appropriate at the applicable legal rate (in addition to the 10.5% interest on the underlying obligation), and that with regard to attorney's fees, UBS should be obligated to pay her attorney's fees equal to the market value of the total time her attorneys have dedicated to this case since the date of the first remand in mid-2010 or, in the alternative, in the same amount as UBS has paid to its own attorneys during the same period.
The general "American Rule" is that each side bears its own litigation costs and that the prevailing party is not entitled to recover attorney's fees.
The purpose behind Rule 44.1(d) and Rule 44.3(b) is not to compensate the prevailing party, but to penalize a losing party that because of its obstinacy and insistent frivolous attitude has forced the other party to assume the pains, costs, efforts, and inconveniences of a litigation, needlessly.
1. Candelario's Perspective
Candelario alleges that UBS should be sanctioned for temerity (Docket No. 356 at p. 3). She complains that UBS has pursued a litigation strategy "based not on the search for truth, but rather on an interest in obfuscation and delay," and that along the way, UBS has showered her with unwarranted accusations, to the point of claiming that she had engaged in fraud upon the court, a claim UBS made not only in this court but also before he First Circuit.
In the end, Candelario complains that throughout this litigation, UBS has been obstinate, providing misinformation to the court, withholding documents, and provoking unwarranted delays; and has attempted to take advantage of the fact that she has limited resources and has been living on borrowed money, insufficient to pay mounting litigation expenses (Docket No. 356 at p. 11). For that reason, she asks the court to impose the sanctions provided under Rule 44 of the Puerto Rico Rules of Procedure. Id.
2. UBS' Perspective
UBS alleges that it has acted diligently and reasonably in litigating issues of first impression (Docket No. 358 at p. 1). It claims that much of the time elapsed in this case is due to factors beyond either party's control and not because of any alleged misconduct by UBS.
UBS argues that the length of this case is not due to "obstinacy" by UBS, but to circumstances attendant to complex litigation: engaging in discovery, awaiting decisions of motions and appeals, dealing with issues of first impression, coordinating with the court regarding multiple re-assignments of presiding judges, pursuing mediated resolutions, and ultimately, attempting to accommodate schedules of counsel and the court (Docket No. 358 at p. 12). It points out that this is precisely the opposite of "obstinacy."
A finding of obstinacy requires that the court determine a litigant to have been unreasonably adamant or stubbornly litigious, beyond the acceptable demands of the litigation, thereby wasting time and causing the court and the other litigants unnecessary expense and delay.
The case comes out of an acrimonious and long-running litigation related to a high-stakes divorce, presenting an issue of first impression. That issue does not preclude liability because it took place in a context where UBS should have realized that its decision to release the restraints on the accounts was unreasonably premature, with the predictable consequence of harming Candelario. But it cautions against sanctions, for in general, where novel issues are raised, a party cannot be held to have acted in an obstinate manner.
UBS' relative change in its post-remand position such as Candelario has described reflects the First Circuit's framing of the issues to be decided rather than inconsistent and contradictory positions found relevant in evaluating whether a party has been obstinate.
As to Mr. Bobonis' email of November 2006 to UBS, UBS' explanation for the belated discovery is not far-fetched. When Ms. Colón found the document she immediately forwarded it to UBS' record counsel, who in turn disclosed it to Candelario's attorney. Under a more effective filing system, the document should have been located much earlier either within UBS' or Mr. Bobonis' file. Nevertheless, it is uncertain what effect knowledge of its content would have had in the litigation, particularly in light of the fact that Candelario prevailed at summary judgment.
Finally, much of the time elapsed is more properly attributed to factors not uncommon in complex litigation beyond either party's control rather than misconduct by UBS. Considering the totality of circumstances, the court is persuaded that sanctions should not be imposed on UBS under Rules 44.1(d) and 44.3(b) of the Puerto Rico Rules of Civil Procedure.
To err is human. Alexander Pope, An Essay on Criticism (1711). UBS made a mistake, crossing the line in a situation that makes it negligent. It knew that the CFI had ordered it to restrain Efrón's accounts in October 2006, and that there was a subsequent oral order in November 2006 vacating the attachment order. Its attorney informed that the order had been orally vacated, stating that UBS should expect a written order in the future.
In the meantime, Efrón wanted the restraints lifted. So in February 2007 he gave UBS a copy of a facially invalid minute, not signed by any judge. Along with the unsigned minute, he provided UBS with copy of the Mandamus Petition that Candelario filed in the Court of Appeals in November 2006 with a motion in aid of jurisdiction, and more important, of the Court of Appeals' decision. In that decision, the Court of Appeals made specific reference to Rule 32(b), which expressly requires a judge's signature in minutes with resolutions or orders, which in turn must be notified to the parties. Further, it stated that the oral order was not in a signed minute or notified order, and that the matter was under the consideration of the CFI, awaiting a written decision.
Focusing on the disposition rather than on the content of the Court's decision, UBS concluded that the attachment no longer existed, and released the restraints. Its action was uncalled for.
With the benefit of having observed and heard the witnesses and examined the exhibits showing the parties' actions during the critical period, the court is persuaded that UBS did not review the documents for their substantive content. Whatever review it conducted was empty. UBS was concerned about Efrón, for at some point he had threatened UBS over UBS' handling or mishandling of a discovery matter related to the state case involving Candelario. To protect itself from Efrón, however, UBS could have filed a concise motion setting forth the elements that the Court of Appeals had pointed to, seeking guidance from the CFI just as it had done previously in the same litigation. As noted above, the cost would have been minimal — perhaps no more than $175 (the equivalent of one hour of Mr. Bobonis time) — compared with the potential liability it would face if found negligent (in excess of $4 Million). Instead, it released the restraints. Candelario is not to blame for those decisions; UBS is. Hence, the court finds by a preponderance of the evidence that: