Reyes-Colon v. Banco Popular de Puerto Rico District Court of Puerto Rico, San Juan
- Case Type:
- Business
- Case Status:
- Affirmed in part and Reversed in part
- Citation:
- 22-1706 and 22-1715 (1st Circuit, Aug 01,2024) Published
- Tag(s):
-
- Ruling:
- On the first case, the Court concluded that the bankruptcy court had jurisdiction over the fee motion but that the fee motion was untimely, and accordingly, the Court affirmed. As to the second case, the Court concluded that the district court erred in denying the motion for withdrawal of reference as untimely and therefore vacated and remanded to the district court for further consideration of Reyes-Colón's motion for withdrawal of reference.
- Procedural context:
- These consolidated appeals stem from a Chapter 11 involuntary bankruptcy petition that appellee Banco Popular de Puerto Rico ("Banco Popular") filed in 2006 seeking to compel appellant Edgar Reyes-Colón into bankruptcy. The procedural posture of each appeal is slightly different, although both are appeals from district court decisions
connected to the underlying bankruptcy case. First, Reyes-Colón appeals from the district court's decision affirming the bankruptcy court's determination that it did not have subject-matter jurisdiction over Reyes-Colón's post-dismissal motion for fees and costs (Case No. 22-1706). Second, Reyes-Colón appeals from the district court's decision denying his motion for withdrawal of reference filed in a separate adversary proceeding (Case No. 22-1715).
- Facts:
- Appellant Reyes-Colón obtained a loan from appellee Popular Auto, Inc., ("Popular Auto") and guaranteed an affiliate's loan from Banco Popular. When Reyes-Colón allegedly failed to pay his debts, Banco Popular initiated an involuntary bankruptcy petition, which Popular Auto later joined. Not long after, however, the bankruptcy court dismissed the petition after concluding that Banco Popular had failed to join the requisite number of creditors despite having had a reasonable opportunity to do so. On appeal, the bankruptcy appellate panel determined that all of Reyes-Colón's creditors needed to be given notice and the opportunity for a hearing before the bankruptcy court could dismiss the petition. After lengthy proceedings, in 2016, the bankruptcy court again dismissed the
petition for lacking the requisite number of creditors ([§] 303(b) of the Bankruptcy Code requires that an involuntary
petition against a debtor have at least three petitioning creditors if, at the time the petition was filed, the debtor had twelve or more eligible creditors."). The Court of Appeals affirmed the bankruptcy court's dismissal of the petition given that Reyes-Colón had fifteen eligible creditors and only two had joined the involuntary petition. Judgment was entered on April 24, 2019, and mandate issued on June 19, 2019. On June 18, 2020, Reyes-Colón filed a motion for $902,489.85 in attorney's fees and costs pursuant to § 303(i)(1) of the Bankruptcy Code ("attorney's fees motion"). In response, Banco Popular contended that the bankruptcy court lacked subject-matter jurisdiction "to entertain
any further proceedings." The bankruptcy court agreed and denied the attorney's fees motion. Reyes-Colón appealed that decision to the District Court for the District of Puerto Rico, which affirmed.
After Reyes filed the attorney's fees motion, on June 29, 2020, he initiated an adversary proceeding in the bankruptcy court; the complaint alleged that Banco Popular filed the involuntary petition in bad faith, demanded a jury trial as to all issues so triable, and sought "compensatory, consequential, special, and punitive damages" (inclusive of the $902,489.85 already requested in the attorney's fees motion) pursuant to both the fees-and-costs and bad-faith provisions of 11 U.S.C. § 303(i) ("bad-faith complaint"). The adversary proceeding was referred to the
same bankruptcy judge who presided over the involuntary-petition case. On June 30, 2020, Reyes-Colón filed a
motion for withdrawal of bankruptcy reference ("motion for withdrawal"), seeking to have the district court take over the adversary proceeding and conduct a jury trial. In the same order denying Reyes-Colón's attorney's fees motion, the bankruptcy court referred the motion for withdrawal to the district court. The district court, after affirming the denial of the attorney's fees motion, issued an order denying the motion for withdrawal and dismissing the adversary proceeding, finding that the motion for withdrawal was untimely.
- Judge(s):
- Barron, Kayatta and Montecalvo
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