Abijoe Realty Corp., In re

• Decision Date: 06 November 1990
• Docket Number: 90-1420,Nos. 90-1386,s. 90-1386
• Citation: 943 F.2d 121
• Parties: In re ABIJOE REALTY CORPORATION, Debtor, Appellant. In re ABIJOE REALTY CORPORATION, Debtor, Aleli Corporation, et al., Creditors, Appellants. . Heard
• Court: U.S. Court of Appeals — First Circuit

Page 121

943 F.2d 121

In re ABIJOE REALTY CORPORATION, Debtor, Appellant In re ABIJOE REALTY CORPORATION, Debtor Aleli Corporation, et al., Creditors, Appellants.

Nos. 90-1386, 90-1420.

United States Court of Appeals First Circuit.

Heard Nov. 6, 1990.

Decided Aug. 29, 1991.

Maximiliano Trujillo, Bayamon, P.R., with whom Rafael Gonzalez Velez, Santurce, P.R., Antonio Gonzalez Geigel and Abimael Hernandez Gonzalez, Hato Rey, P.R., were on brief, for appellants.

Luis R. Rodriguez-Nevarez with whom Cancio, Rodriguez-Nevarez, Sanabria & Lopez Pumarejo, Hato Rey, P.R., were on brief, for appellees.

Before CAMPBELL, TORRUELLA and CYR, Circuit Judges.

CYR, Circuit Judge.

Abijoe Realty Corporation ("Abijoe") and several of its creditors appeal from a district court order affirming the bankruptcy court's dismissal of Abijoe's chapter 11 reorganization proceedings. We affirm.

I BACKGROUND

Abijoe commenced these chapter 11 proceedings on September 11, 1985, scheduling Banco Central y Economias ("Banco Central") as the holder of a disputed $524,170.30 claim based on a judgment. Banco Central did not file a proof of claim and, on August 29, 1986, after some initial skirmishing with Abijoe, Banco Central sold its judgment to Corporacion Liquidadora de Bienes, Inc. ("Liquidadora"). Liquidadora filed a proof of claim in the amount of $524,170.30, based on the Banco Central judgment, and moved to dismiss the chapter 11 case. ¹

On January 30, 1987, Abijoe's own counsel mailed all appellants a notice of hearing, scheduled for March 11, 1987, on Liquidadora's motion to dismiss the chapter 11 petition. Abijoe's counsel did not appear at the March 11 hearing. The bankruptcy court proceeded with the hearing and ordered dismissal of the chapter 11 case. Abijoe seasonably filed a motion to alter or amend the order of dismissal, which the bankruptcy court denied.

Appellants filed timely notices of appeal to the United States District Court for the District of Puerto Rico. The district court affirmed the order of dismissal and denied Abijoe's motion for rehearing under Bankruptcy Rule 8015. Soon afterward, all appellants filed timely notices of appeal from the district court order. ² Appellants assign numerous errors, which we group around four basic contentions for convenience in discussion: (1) Liquidadora lacked standing to request dismissal of the chapter 11 case; (2) the alleged partiality of the bankruptcy judge requires vacation of the dismissal order; (3) appellants were denied due process by the bankruptcy court; and (4) the dismissal order constituted an abuse of discretion.

II DISCUSSION

A. Standing to Request § 1112(b) Dismissal

Abijoe argues that Liquidadora did not have standing to request dismissal, because (1) the Banco Central judgment was based on a discharged debt, (2) Liquidadora complied neither with Bankruptcy Rule 3001(e) nor with Puerto Rico's Mortgage Law of 1979, and (3) Liquidadora pledged the Banco Central judgment as security for a line of credit obtained during these reorganization proceedings. ³

The bankruptcy court may dismiss a chapter 11 case on request of a "party in interest," after notice and a hearing. 11 U.S.C. § 1112(b). ⁴ Bankruptcy Code *125s 1109 defines a "party in interest" as "including ... a creditor ...," 11 U.S.C. § 1109(b), and expressly authorizes a "party in interest" to "raise[,] ... appear and be heard on any issue in a case under this chapter." Id.; see also id. § 102(3) (" 'includes' and 'including' are not limiting"). A "creditor" thus has standing to request dismissal of a chapter 11 case under Bankruptcy Code § 1112(b). See, e.g., In re Sullivan Central Plaza I, Ltd., 935 F.2d 723, 726 (5th Cir.1991) ("creditor" has standing to move for conversion of chapter 11 case under § 1112(b)); In re First Lewis Road Apts., Inc., 11 B.R. 575, 576 (Bankr.E.D.Va.1981) (motion to dismiss); In re Iberis Int'l, Inc., 72 B.R. 624, 626 (Bankr.W.D.Wisc.1986) (motion to convert).

Bankruptcy Code § 101(9)(A) defines a "creditor" as including an "entity that has a claim against the debtor that arose at the time of or before the order for relief concerning the debtor." (Emphasis added). Section 101(4)(A) in turn adopts the "broadest possible definition" of "claim," H.R.Rep. No. 595, 95th Cong., 2d Sess. 309, reprinted in 1978 U.S.Code Cong. & Admin.News 5963, 6266; S.Rep. No. 989, 95th Cong., 2d Sess. 21-22, reprinted in 1978 U.S.Code Cong. & Admin.News 5787, 5807, 5808, as including a "right to payment, whether or not reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured." (Emphasis added). Liquidadora plainly qualified as a "creditor" under Bankruptcy Code § 101(9)(A), as the holder of a "right to payment" from Abijoe, albeit disputed, in the form of a final judgment entered April 24, 1984, in the amount of $524,170.30.

The arguments marshalled by Abijoe against Liquidadora's standing to request dismissal under Bankruptcy Code § 1112(b) present a challenge to the allowability of Liquidadora's claim under Bankruptcy Code § 502. ⁵ The matter of claim "allowability" is altogether distinct, however, from whether the holder of a claim enjoys creditor status, since Bankruptcy Code § 101(4)(A) plainly defines "claim" as a "right to payment, whether or not such right is ... disputed," 11 U.S.C. § 101(4)(A). Thus, a "creditor" may move for dismissal under Bankruptcy Code § 1112(b), whether or not its claim has as yet been allowed. ⁶ See, e.g., In re Stamford Color Photo, Inc., 105 B.R. 204, 206-07 (Bankr.D.Conn.1989) (holder of unsecured claim, scheduled as disputed and contingent, who failed to file timely proof of claim, not entitled to share in distribution but nonetheless enjoyed § 1112(b) standing as "creditor," with "right to payment"); In re Welwood Corp., 60 B.R. 319, 321 (Bankr.M.D.Fla.1986) (holder of disputed claim was "creditor," as defined in § 101(9)(A), entitled to request § 1112(b) dismissal); cf. In re Broshear, 122 B.R. 705, 707 (Bankr.S.D.Ohio 1991) (alleged holder of disputed claim was "creditor" within meaning of § 101(9)(A), with standing to oppose dismissal).

Although the showing required to enable an entity to assert "creditor" standing under Bankruptcy Code § 1112(b) is minimal, a facially meritless proof of claim which plainly evidences no "right to payment," disputed or otherwise, cannot confer "creditor" standing upon the holder. For example, in In re J.M. Check Cashing Corp., 49 B.R. 273, 277 (Bankr.E.D.N.Y.1985), it was held that a would-be creditor who had loaned money to individual corporate officers did not hold a "claim" against the corporation, and hence could not file an involuntary petition against the corporation. See 11 U.S.C. § 303(b); cf. In re Wells Properties, Inc., 102 B.R. 685, 693 (Bankr.N.D.Ill.1989) (assertions of right to payment made by prepetition "tax purchasers" of debtor's property were not "claims" against the debtor, since "tax purchasers" possess no right to payment from owners of affected properties).

The proof of claim submitted by Liquidadora, on the other hand, was based on a final judgment of the Puerto Rico Superior Court. ⁷ Even though Abijoe has challenged the allowability of the claim, there can be no doubt that a judgment, in all respects regular on its face, cannot be considered meritless on its face. Indeed, formidable obstacles confront any challenge to the "full faith and credit" of a state court judgment. See 28 U.S.C. § 1738 (authenticated state judicial proceedings enjoy same full faith and credit in federal courts as is conferred by law or usage in the state); e.g., Parsons Steel, Inc. v. First Alabama Bank, 474 U.S. 518, 519, 106 S.Ct. 768, 769, 88 L.Ed.2d 877 (1986). We conclude, therefore, that Liquidadora, as the holder of a disputed right to payment, enjoyed "creditor" standing which enabled it to request dismissal of the chapter 11 case.

B. Recusal of Judge

While its rule 8015 motion for rehearing remained under advisement by the district court, Abijoe submitted to the district court a rule 60(b) motion to vacate the bankruptcy court order of dismissal, on the ground that the bankruptcy judge was not impartial and should have recused herself. Abijoe alleged that the bankruptcy judge, while a practicing attorney, had represented creditors in the bankruptcy proceedings of two other debtor corporations headed by Abimael Hernandez Gonzalez, Abijoe's president. ⁸ Abijoe withheld its allegations against the bankruptcy judge until after adverse rulings had been entered against it both by the bankruptcy judge and by the district court, sitting as an intermediate appellate court. Moreover, although Hernandez is a party to these proceedings, and Abijoe's claim of partiality (or its appearance) necessarily depends on a showing that the bankruptcy judge lacked impartiality toward Hernandez, Hernandez made no claim below against the bankruptcy judge.

"In general, '[o]ne must raise the disqualification of the ... [judge] at the earliest moment after [acquiring] knowledge of the [relevant] facts.' " United States v. Owens, 902 F.2d 1154, 1156 (4th Cir.1990) (emphasis added) (citation omitted). Accord Phillips v. Amoco Oil Co., 799 F.2d 1464, 1472 (11th Cir.1986), cert. denied, 481 U.S. 1016, 107 S.Ct. 1893, 95 L.Ed.2d 500 (1987); Oglala Sioux Tribe v. Homestake Mining Co., 722 F.2d 1407, 1414 (8th Cir.1983). In the words of Judge Aldrich, "a party, knowing of a ground for requesting disqualification, can not be permitted to wait and decide whether he likes subsequent treatment that he receives." In re United Shoe Machinery Corp., 276 F.2d 77, 79 (1st Cir.1960) (applying 28 U.S.C. § 144).

The district court denied Abijoe's rule 60(b) motion, in part because Abijoe had refrained from raising the impartiality claim throughout the entire course of the two-year long proceedings before the bankruptcy judge. The district court...