Banco Popular De P.R. v. Santiago (In re Santiago), BAP NO. PR 19-048
| Decision Date | 23 December 2020 |
| Docket Number | BAP NO. PR 19-048,BAP NO. PR 19-049,Bankruptcy Case No. 16-00978,Bankruptcy Case No. 16-01148 |
| Parties | MANUEL M. BABILONIA SANTIAGO and MIRTA CORTES, a/k/a Mirta Babilonia, a/k/a Mirta Cortes-Ramos, Debtors. BANCO POPULAR DE PUERTO RICO, Appellant, v. MANUEL M. BABILONIA SANTIAGO and MIRTA CORTES, Appellees. B & D ENTERPRISES S.E., Debtor. BANCO POPULAR DE PUERTO RICO, Appellant, v. B & D ENTERPRISES S.E., Appellee. |
| Court | Bankruptcy Appellate Panels. U.S. Bankruptcy Appellate Panel, First Circuit |
NOT FOR PUBLICATION
Appeals from the United States Bankruptcy Court for the District of Puerto Rico
(Hon. Brian K. Tester, U.S. Bankruptcy Judge)
Before Harwood, Panos, and Katz, United States Bankruptcy Appellate Panel Judges.
Luis C. Marini-Biaggi, Esq., Carolina Velaz-Rivero, Esq., and Ignacio J. Labarca-Morales, Esq., on brief for Appellant, Banco Popular de Puerto Rico.
Isabel M. Fullana, Esq., and Eduardo J. Capdevila, Esq., on brief for Appellees, Manuel M. Babilonia Santiago, Mirta Cortes, and B & D Enterprises S.E.Panos, U.S. Bankruptcy Appellate Panel Judge.
In each of these appeals—one in the case of individual debtors and the other in the case of an affiliated entity—Banco Popular de Puerto Rico ("BPPR") challenges two bankruptcy court orders: (1) the order refusing to compel the debtors to transfer certain real estate to BPPR free and clear of liens pursuant to the applicable plan of reorganization; and (2) the order denying reconsideration.1 For the reasons discussed below, we VACATE the orders and REMAND for further proceedings consistent with this opinion.
B & D Enterprises S.E. ("B & D") is a special partnership created under the laws of Puerto Rico to develop and sell a parcel of land in Quebradillas, Puerto Rico.3 Mirta Cortes Ramos and Manuel M. Babilonia Santiago (together, "Babilonia")4 each own a 50% interest in B & D and, together, have other business interests, including the development of four parcels of land that are material to this appeal.
On February 11, 2016, B & D filed a petition for relief under chapter 11 (hereinafter the "B & D case"). A week later, Babilonia also commenced a voluntary case under chapter 11 (hereinafter the "Babilonia case").5
In the Babilonia case, BPPR filed proof of claim no. 10 (the "Babilonia claim"), asserting a claim for money loaned in the amount of $1,853,617.01, $1,260,000.00 of which was secured by a lien on certain real property. In the B & D case, BPPR filed proof of claim no. 1 (the "B & D claim"), stating a claim of $1,851,992.10, of which $145,000.00 was secured by a lien on other real property.6
Babilonia and B & D (collectively, the "Debtors") each entered into a stipulation (the "Babilonia Stipulation" and the "B & D Stipulation," respectively) with BPPR to "resolve the outstanding issues" concerning the Debtors' treatment of BPPR's claims in their respective plansof reorganization. The bankruptcy court entered orders approving the B & D Stipulation and the Babilonia Stipulation (together, the "Stipulation")7 on August 24, 2016 and September 27, 2016.
Each Stipulation provided that it was to "be incorporated into the Debtors' Plan," as it constituted "the agreement between the Parties for the payment of the BPPR Claims." Pursuant to each Stipulation, the Debtors "ratifie[d] the Loans and BPPR['s] Claims" and agreed that "any and all guarantees contained in the Loan Documents" were to remain in full force and effect "until satisfaction in full of Debtors' Plan."
The Babilonia Stipulation provided that BPPR was to "have a fixed allowed secured claim of $1,260,000.00" in that case and required Babilonia to make monthly payments of $2,000.00 during the approximate one-year period from September 1, 2016 to August 23, 2017. In the B & D Stipulation, the parties agreed that BPPR would "have a fixed allowed secured claim" of $232,500.00 and an unsecured, deficiency claim of approximately $1,619,000.00. B & D agreed to make $500.00 monthly payments for the one-year period ending August 18, 2017.
During the respective one-year periods, the Stipulation imposed upon the Debtors an obligation to "endeavor to sell any and all of the real estate . . . that form[ed] part of BPPR's [C]ollateral" to "generate sufficient proceeds" to satisfy its secured claim in the respective cases. Should no sale occur during the applicable one-year period, the Stipulation provided: "[The Debtors] shall deliver and tender any and all of the remaining Collateral to BPPR free and clearof all liens, claims or encumbrances, in full satisfaction and payment of the outstanding balance" of its secured claim. The Stipulation also contained provisions relating to enforcement of the respective Debtors' obligations to transfer the Collateral to BPPR if the Collateral was not sold within the applicable one-year period (the "Writ Clause"):
[A]s a means to ensure and facilitate the transfer of title of such properties under the auspices of the Bankruptcy Court, [the Debtors] consent[ ] to, warrant[ ] and agree[ ] that they shall not seek the entry of [a] final decree until after August 31, 2017 in order to afford BPPR with sufficient time to obtain the entry of the corresponding Order and Writ for transfer therein.
In the event of a default by the Debtors, the Stipulation provided for the reversion of the Collateral to its "pre-petition state" and the revival of remedies (the "Reversion Clause"):
[A]ll of the Loans, Collateral, BPPR Claims and Debtors' obligations with BPPR shall revert to their original, pre-petition state, and their indebtedness shall become immediately due and payable without further notice by BPPR, and BPPR shall have the right to enforce any and all remedies under this Stipulation, Loan Documents, at law or in equity.
(emphasis added). The occurrence of any of the following events constituted a default under the terms of the Stipulation: the Debtors' violation of any terms of the Stipulation; the Debtors' failure to make monthly installment payments; the entry of an order modifying, reversing, revoking, staying, rescinding, vacating or otherwise amending the Stipulation; the filing and/or confirmation of any plan inconsistent with the terms of the Stipulation; and the entry of an order dismissing or converting Debtors' bankruptcy cases.
Additionally, with respect to BPPR's liens, the Stipulation included a ratification provision (the "Lien Ratification Clause"):
It is hereby understood and agreed by each of the Parties hereto that this agreement is not intended to constitute an extinctive novation . . . of the obligations and undertakings of the Parties under any of the Loans, the Guarantees, or the Loan Documents regarding such Loans to date. Debtors hereby ratify, reaffirm, confirm, consent to and acknowledge all of the terms,priority and conditions of security interests, mortgages or liens over the Collateral provided for in the Loans, the Collateral, and the BPPR Claims, as well as Debtors' obligations under such Loan Documents, until the confirmation of the Chapter 11 Plan.[8]
Babilonia filed an Amended Disclosure Statement and Amended Plan of Reorganization (the "Babilonia Plan") on May 26, 2017, approximately nine months after the court approved the Babilonia Stipulation.
Article IV of the Babilonia Plan classified BPPR's claim as a secured claim and further provided that "BPPR shall receive the treatment and distribution afforded at the 'Joint Stipulation[']" as may be approved by the bankruptcy court. Article 12.10 of that plan provides that any "Plan Documents are incorporated into and made part of the Plan, as if fully set forth herein." The Babilonia Plan defines "Plan Documents" to include "such agreements . . . required to effectuate the terms of" the Plan. The parties do not dispute that the Babilonia Plan incorporated the Babilonia Stipulation.
With respect to the extinguishment of liens and encumbrances, the Babilonia Plan included a provision (the "Vesting and Lien Cancellation Clause") which stated:
Cancellation of Existing Indebtedness and Liens. Except as may otherwise be provided for in the Plan, on the Confirmation Date, pursuant to Sections 363(k), 1123(a)(5), 1129(b)(2)(A)(ii), and 1141(c) of the Bankruptcy Code, all Property transferred, treated, or dealt with in the Plan or the Confirmation Order is free and clear of all liens, Claims, interests, and encumbrances. Except as may otherwise be provided for in the Plan, on the Effective Date, all credit agreements, promissory notes, mortgages, security agreements, invoices, contracts, agreements and any other documents or instruments evidencing Claims against the Debtor, together with any and all Liens securing the same, shall be cancelled, dischargedand released without further act or action by any Person under any applicable agreement, law, regulation, order or rule, and Debtor and its guarantors' obligations thereunder shall be deemed cancelled, discharged and released. To the extent deemed necessary or advisable by Debtor, any holder of a Claim shall promptly provide Debtor with an appropriate instrument of cancellation, discharge or release, as the case may be, in suitable form for recording wherever necessary to evidence such cancellation, discharge or release, including the cancellation, discharge or release of any Lien securing the Claim.
B & D filed its plan (the "B & D Plan") and disclosure statement on May 10, 2016, prior to the date when it filed the B & D Stipulation. The B & D Plan classified BPPR as a Class 1 Secured Claimant and provided that "[i]f no sale [wa]s completed within one year[ ], [B & D] may tender in payment of the allowed claim one of the segregated lots in full satisfaction of the amount claimed." In several respects, the terms of the B & D Plan resembled those set forth in the Babilonia Plan. For example, the B & D Plan included a nearly...
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