Guallini-Indij v. Banco Popular de Puerto Rico
- Case Type:
- Consumer
- Case Status:
- Reversed and Remanded
- Citation:
- 23-1705 (1st Circuit, Mar 04,2026) Published
- Tag(s):
-
- Ruling:
- A debtor with a claim against a creditor may not be deprived of the opportunity to litigate the claim merely because the debtor initiated its litigation in bankruptcy court and subsequently received a discharge while its motion for the withdrawal of the reference was pending before the district court. The bankruptcy court erred by dismissing a pending adversary proceeding for lack of subject matter jurisdiction following the debtors' Chapter 13 discharge, and the district court erred by denying, as untimely, the debtors’ motion to withdraw the reference.
- Procedural context:
- After the Chapter 13 debtors received a discharge from the bankruptcy court, the bankruptcy court dismissed the debtors' pending adversary proceeding for lack of jurisdiction. The debtors appealed to the district court, which already had the debtors' motion to withdraw the reference under consideration. The district court affirmed the bankruptcy court's decision that it lacked subject matter jurisdiction and denied the debtors' motion for withdrawal of the reference.
The debtors appealed.
- Facts:
- In 2005, debtors and appellants Juan J. Guallini-Indij and Raquel Medina-Rampola (the "Guallinis") entered into a loan agreement and mortgage, secured by the Guallinis' home, with Banco Popular de Puerto Rico (the "bank").
About ten years later, the Guallinis experienced financial hardship and asked the bank to modify the loan agreement to avoid foreclosure. The bank rejected this request and stated that it would consider a short-sale offer (i.e., an offer that the debtors would sell the home and the bank would forgive any deficiency).
A few months later, the bank initiated foreclosure proceedings in state court. The bank moved for entry of default before the Guallinis tendered their first short sale offer to the bank. The bank rejected the short sale offer.
The Guallinis made a second short sale offer. The bank accepted the second offer provided that the short sale closed before November 2, 2016, the date set for the foreclosure sale.
The short sale did not close on time, and the home was sold at public auction to the Guallini's proposed buyer. The bank then procured a state court order for the confiscation and garnishment of an alleged deficiency of $114,774.72.
The Guallinis filed a Chapter 13 bankruptcy petition on December 27, 2017.
The Guallinis' schedules and statements indicated that the Guallinis had a claim against the bank and intended to use the proceeds from such litigation to fund their Chapter 13 plan. The bankruptcy court confirmed the Guallinis' plan on September 5, 2018. Five months later, on February 4, 2019, the Guallinis filed an adversary proceeding against the bank. The complaint sought actual and punitive damages and to avoid or subordinate the bank's deficiency claim.
The bank filed a motion to dismiss the adversary proceeding, which the bankruptcy court denied months later. The COVID-19 pandemic struck, thus delaying any action in the litigation. One of the Guallinis' parents passed away, and the Guallinis used the inheritance to pay all plan payments in full.
The Guallinis then (i) filed a similar complaint in the district court and (ii) filed a motion for the withdrawal of the reference with the district court. In their motion for withdrawal of the reference, the Guallinis argued that non-bankruptcy law issues were more significant than any issues under bankruptcy law and that the Guallinis had a right to a jury trial on their claims. The bank objected, arguing that the Guallinis were forum shopping. The bank also filed a motion for summary judgment in the bankruptcy court. Just five days after this filing, the bankruptcy court entered an order discharging the Guallinis.
Months later, the district court denied the Guallinis' motion to withdraw the reference as untimely but held that the denial was without prejudice. The district court then granted the bank's motion to dismiss the Guallinis' separate district court lawsuit, citing judicial economy and comity.
Thus, in early 2022, the litigation returned to the bankruptcy court to resolve the bank's motion for summary judgment. However, instead of ruling on the summary judgment motion, the bankruptcy court dismissed the adversary proceeding, sua sponte and without prejudice (which is an inexplicable conclusion given that the bankruptcy court found that it did not have subject matter jurisdiction due to the debtors' discharge).
The Guallinis moved the bankruptcy court for reconsideration. While the bankruptcy court considered their motion, the Guallinis filed a second motion to withdraw the reference. The bankruptcy court then denied the motion for reconsideration.
The district court then denied the Guallinis' second motion for the withdrawal of the reference, finding that it—like their first motion for the withdrawal of the reference—was untimely.
- Judge(s):
- Barron, Chief Judge, Thompson and Gelpí, Circuit Judges
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