Xochipala legal challenge explained.I asked about posting the explanation of the Amparo issue and Adam said "sure, post it. It may be helpful." So here's the explanation he provided me...
ACQUISITION AND REGISTRATION OF XOCHIPALA
Minera Xochipala (“MX”), a wholly owned Mexican subsidiary of Oroco Resource Corp., acquired a 100% interest in the Xochipala Property in January, 2007, including the interest purchased from the estate of a Mexican citizen, Carlos Camacho (the “Camacho Estate”), which constituted fifty percent (50%) of the Celia Gene concession and all (100%) of the Celia Generosa concession (collectively, the “Camacho Interest”). MX concurrently acquired the other fifty percent (50%) interest of the Celia Gene concession from another party.
At the time, an old option agreement for the Xochipala Concessions (the “Old Option Agreement”) remained registered on title, though it had expired in 2002. Between 1999 and 2001 the Old Option Agreement and liens stemming from it (the “Prior Liens “) were also registered on title against the benefit to the Camacho Estate from the Old Option Agreement (but not against the Xochipala Concessions themselves). The Regulations to the Mining Law require the cancellation of the registration of an agreement within 90 days of the expiration of the agreement. In the opinion of the Oroco’s Mexican legal counsel, by proper operation of the Mining Law and its Regulations, the registration of the Old Option Agreement should have been cancelled at the time of its expiry in 2002, and with it, the registration of the Prior Liens attached to it.
Following Oroco’s acquisition of the Xochipala Property in 2007, its subsidiary, MX, applied in March, 2008 to the Public Registry of Mining (the “PRM”) for registration of its acquisition. In October, 2009, the PRM rejected Minera Xochipala’s application for reasons which were considered incorrect at law by Minera Xochipala’s legal counsel. Minera Xochipala filed an appeal of the PRM decision in November, 2009. In a decision rendered in July, 2011, the Federal Tribunal of Tax and Administrative Justice (the “Federal Tribunal”) nullified the rejection and sent the matter back to the PRM for reconsideration.
In February, 2012, at the request of the PRM, MX provided a letter to the PRM in which it acknowledged that the Prior Liens were registered and that it consented to their proper legal effect. Oroco’s counsel deemed this to be of no consequence since by proper application of the mining law the “proper legal effect” of liens which should no longer exist should be nil.
The 2010 Attachment (put in place by Chilpancingo Court; see below) was not referenced or acknowledged in the letter. Following this, on July 12, 2012, the PRM registered the Xochipala Property to MX. It is important to note that the PRM made this registration effective as of the March 4, 2008, the date of MX’s original filing for registration. It is also important to know that the PRM made this decision while in possession of, and fully considering the significance, of both MX’s application for registration and the Civil Court orders (see below).
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In 2010, while Minera Xochipala’s application was before the Federal Tribunal, a judgment debtor against the Camacho Estate applied to a Guerrero State court (the “State Court”) for enforcement of his judgment. The Civil Court was not advised of MX’s acquisition of the Camacho Interest, or of its being a party with an interest in the Xochipala Concessions. Unaware that the Camacho Estate had sold the Camacho Interest to Minera Xochipala in 2007, and without notice to MX, the State Court attached the Camacho Interest in February of 2010 (when it no longer was an asset of the Camacho Estate), auctioned the Camacho Interest in July, 2011, and issued an order to the PRM to register the Camacho Interest in the name of the winning bidder, Mr. Avinadain Bautista. In September, 2011 the Civil Court issued an order to the PRM to register the Camacho Interest to Mr. Bautista.
In July, 2012, in possession of both Civil Court orders and MX’s application for registration of its acquisition of the Xochipala Concessions, which maintained its priority as of March, 2008, the PRM registered the Xochipala Concessions to MX on the basis that as MX’s application was first in time; pursuant to the Mining Law it had priority. As the PRM advised the Civil Court, upon the registration of the concessions to MX, effective as of the March 4, 2008 filing date, the Camacho Interest left the Camacho Estate. Consequently, it was not an asset of the Camacho Estate available to be sold for the settlement of debts of the Camacho Estate.
Subsequent to the registration of the Xochipala Property to MX on July 12, 2012, MX took the precautionary step of filing an “amparo” petition with the Federal Court of Mexico to have the State Court’s order struck altogether. As part of that process, MX also obtained an injunction prohibiting the PRM from complying with any order of the State Court with regard to the Camacho Interest.
The MX Amparo is a petition to the Federal Court by the Company’s subsidiary, Minera
Xochipala, S.A. de C.V. (“MX”) to set aside the auction by a Guerrero State Civil Court
(the “Civil Court”) in 2011 of what the Civil Court mistakenly believed to be the estate of
Carlos Camacho’s (the “Camacho Estate”) 50% interest in the Celia Gene concession and 100% interest in the Celia Generosa concession (the “Camacho Interest”).
AMPARO CHALLENGE
On October 15, 2012, Minera Xochipala was served with notice of an “amparo” petition, filed by Mr Bautista, seeking to set aside the registration of the Xochipala Property to MX. The Petitioner’s amparo is based on the refusal by the PRM to comply with the Guerrero Order.
On October 30, 2012, the Federal Court joined the two amparo petitions, the Bautista Amparo and the MX Amparo, in order to resolve both in a single decision. The “constitutional hearing” closing the submission of evidence and arguments phase of the proceedings occurred on February 15, 2013.
AMPARO COURT DECISION AND APPEALS
In June of 2013 the Company received the decision of the Federal Court with regard to the joined MX Amparo and “Bautista Amparo. The Federal Court dismissed the Bautista Amparo and denied the MX Amparo.
The Federal Court dismissed the Bautista Amparo without consideration of its merits, on the grounds that an amparo petition was the wrong process for what he was seeking. The Federal Court was of the opinion that the appropriate process is a civil lawsuit against MX, the Company’s subsidiary and the registered holder of the Xochipala Concessions. Oroco’s counsel is of the opinion that this was incorrect, that the amparo court should rule on the merits of the case, and should rule against the petitioner, and in the event that the petitioner should seek to take civil action against MX, the petitioner would likely have difficulty obtaining standing to do so.
The court denied the MX Amparo assuming that, in accepting in February, 2012 the
existence of Prior Liens registered with the PRM (though not against the Xochipala Concessions themselves) prior to the Company’s acquisition of the Xochipala Concessions, MX also accepted the attachment of the Xochipala Concessions in February 2010 (the “2010 Attachment”) by the Civil Court, which attachment was part of the process leading to the auction and adjudication of the Camacho Interest by the Civil Court to Mr. Bautista. In the opinion of the Federal Court, by accepting the existence of the Prior Liens, and thus, the 2010 Attachment, MX is deemed to have notice of the 2010 Attachment and the subsequent auction and adjudication to Mr. Bautista. Consequently, it’s constitutional right to not have property taken without notice and due process was not violated. As an amparo is a petition for protection from a violation of constitutional rights by a government body, and as MX’s constitutional rights were ruled not to have been violated, its petition was denied.
MX has filed an appeal against the decision of the Federal Court. It is its opinion that in accepting the Prior Liens it was not accepting the attachment, as, amongst other things, the liens should have been struck with the expiry of the Option Agreement in 2002, and the liens were registered against the benefit to the Camacho Estate from the Old Option Agreement but not against the Xochipala concessions themselves.