First Bank Puerto Rico Inc. v. Foti (In re Int'l Home Prods. Inc.)
| Decision Date | 30 April 2013 |
| Docket Number | Bankruptcy No. 12–02997.,Adversary No. 12–00279. |
| Citation | 491 B.R. 607 |
| Parties | In re INTERNATIONAL HOME PRODUCTS INC., Debtor. First Bank Puerto Rico Inc., Plaintiff v. Andrew Bert Foti et als., Defendants. |
| Court | U.S. Bankruptcy Court — District of Puerto Rico |
OPINION TEXT STARTS HERE
Luis Francisco Colon Conde, San Juan, PR, for Plaintiff/Defendants.
Brian M. Dick–Biascoechea, Angel Sosa Baez, Toro, Colon, Mullet, Rivera & Sifre, PSC, San Juan, PR, Linette Figueroa Torres, for Plaintiff.
Edgardo Munoz, Edgardo Munoz, PSC, San Juan, PR, for Defendants.
On May 24, 2012 International Home Products Inc. (hereinafter referred to as the “Debtor”) and Andrew Bert Foti and his wife Eva Judith Pagan Burgos (hereinafter referred to as the “Defendants” or “Mr. Foti” and “Mrs. Pagan”) removed two (2) state court civil actions currently pending before the Commonwealth of Puerto Rico Court of First Instance, San Juan Section pursuant to Fed. R. Bankr.P. 9027 and 28 U.S.C. §§ 1452(a), 1334 and 157(a). Defendants filed their Answer to Complaints and Counterclaim on June 8, 2012 replying to the two (2) state court complaints and including a counterclaim requesting to extend the protections of the automatic stay to Debtor's president and treasurer and to enjoin the proceedings currently pending against him. First Bank Puerto Rico Inc. (hereinafter referred to as “First Bank”) filed separate motions to remand the two (2) state court cases on June 25, 2012. The Defendants filed their Opposition to Remand on October 12, 2012. First Bank also filed a motion to dismiss Defendants' Counterclaim on July 6, 2012. The Defendants filed their opposition to First Bank's motion to dismiss their counterclaim on August 27, 2012. For the reasons stated herein, First Bank's motion to dismiss the counterclaim for injunctive relief under 11 U.S.C. § 105(a) to extend the automatic stay to non-debtors is granted and First Bank's motion to remand the state court case is granted.
International Home Products Inc. (hereinafter referred to as “IHP”) filed a bankruptcy petition under Chapter 11 of the Bankruptcy Code on April 19, 2012 (Case No. 12–02997). IHP included First Bank as a secured creditor in Schedule D (Creditors Holding Secured Claims). IHP included First Bank in its Schedule H (Codebtors) as a creditor which has the following codebtors for certain debts; (i) Marian Foti; (ii) A. Bert Foti; (iii) Eva Pagan; (iv) Health Distillers; and (v) Milagros Burgos (Case No. 12–02997, Docket No. 1).
On May 3, 2012, a cash collateral hearing was held in the IHP case, in which the court held that; (Case No. 12–02997, Docket No. 53). On May 15, 2012 the Court entered a written Order further explaining its May 3, 2012 bench ruling whereby it held that First Bank properly perfected its security interests with the 2011 Financing Statements in conformity with 19 L.P.R.A. § 2152(2)(c), and that IHP's attempt to terminate First Bank's security interest by filing the Termination Statements on February 16, 2012 had no effect because the termination statements failed to comply with 19 L.P.R.A. § 2154, and IHP was not authorized by First Bank to file the same. The court found that First Bank, as a secured creditor, may exercise its rights and proceed according to the documents and the applicable law. The court further held that the Order had prospective effect starting on May 3, 2012 (Case No. 12–02997, Docket No. 80). On May 25, 2012, IHP filed the Notice of Appeal of the court's May 15, 2012 Order whereby it held that First Bank had properly perfected its security interest with the 2011 Financing statements (Case No. 12–02997, Docket No. 110).
Health Distillers International Inc. (hereinafter referred to as “HDI”) filed a bankruptcy petition under Chapter 11 of the Bankruptcy Code on May 7, 2012 (Case No. 12–03574). HDI included First Bank in its Schedule D (Creditors Holding Secured Claims) for a line of credit incurred in the years 2005–2011 secured by accounts receivables and inventory in the amount of $2,921,349 which HDI listed as contingent (Case No. 12–03574). HDI included First Bank in its Schedule H (Codebtors) as the creditor which has the following codebtors for certain debts; (i) Marian Foti; (ii) A. Bert Foti; (iii) Eva Pagan; and (iv) International Home Products (Case No. 12–03574, Docket No. 1).
On June 1, 2012, the Court granted the request for the administrative consolidation of the International Home Products, Inc. case (Case No. 12–02997) and of the Health Distillers International, Inc. case (Case No. 12–03574) (Case No. 12–02997, Docket No. 123); (Case No. 12–03574, Docket No. 26); and on July 2, 2012, the court granted the request for substantive consolidation of the International Home Products, Inc. case and the Health Distillers International, Inc. case (Case No. 12–02997, Docket No. 185) (Case No. 12–03574, Docket No. 58).
On May 24, 2012, IHP and Defendants Andrew Bert Foti and Eva Judith Pagan Burgos filed a Notice of Removal regarding two (2) state court civil actions pending before the Commonwealth of Puerto Rico Court of First Instance, San Juan Section, pursuant to Fed. R. Bankr.P. 9027 and 28 U.S.C. §§ 1452(a), 1334 and 157(a). IHP and Defendants Mr. Foti and Mrs. Pagan allege the following: (i) that each of the civil actions was initiated after the commencement of the Chapter 11 case; (ii) each of the civil actions is a debt collection action regarding debts incurred by Debtor, or on its behalf, for which Debtor is liable and for which Debtor intends to provide treatment and payment under its Chapter 11 plan; (iii) most claims and causes of actions have a clear and direct impact on property of the estate under 11 U.S.C. § 541; and (iv) removal of each claim and cause of action of the civil actions is authorized under Fed. R. Bankr.P. 9027 and under 28 U.S.C. §§ 1452, 1334 and 157 and by the General Order of the District Court of Puerto Rico.
On June 8, 2012, Defendants Mr. Foti and Mrs. Pagan and their conjugal partnership answered the two (2) complaints originally filed in state court, in the case of First Bank–Puerto Rico v. Andrew Bert Foti, Eva Judith Pagan, and the conjugal partnership, case No. KAC2012–0444 and First Bank–Puerto Rico v. [Health] Distillers International, Inc.; Andrew Bert Foti; Eva Judith Pagan Burgos; and the conjugal partnership; the Estate of Andrew Anthony Foti composed of Linda Foti; Melody Foti; Andrew Bert Foti; Drew Straus Foti; Lisa Straus Foti; Petrina Marie Foti; Mark Andrew Foti; Peter Evan Foti; Brett Corwin; Bruce Corwin; Lexona Corwin aka Lexi Broadbent; Linne Corwin, Eva Marie Foti; Andrea Foti, Andrew Bert Foti, Jr., Melissa Corwin; Bertram Foti James; and Marian Labue Foti aka Marian Ellen Foti, case No. KAC2012–0446. In addition, as part to the answer to each of the complaints, the Defendant Mr. Foti plead a counterclaim to request that the provisions of the automatic stay be made extensive to Debtor's President and Treasurer, and to enjoin the proceedings currently pending against him based on the following allegations; (i) a court may extend the automatic stay provisions against non-bankrupt parties when there are “unusual circumstances” which have been defined by case law (citing A.H. Robins Co. v. Piccinin, 788 F.2d 994 (4th Cir.1986) such as; (a) “when there is such identity between the debtor and the third party defendant that the debtor may be said to be the real party defendant;” and (b) “where the third party non-debtor ‘is so essential to the debtor's efforts at reorganization’ that the stay must apply to protect debtor's efforts to reorganize; (ii) “[i]n the instant case, his identity with the Debtor and his responsibility for formulating and perhaps even partially funding a plan of reorganization results in Mr. Foti qualifying for the protection of the automatic stay under either category of exception;” (iii) Mr. Foti is Debtor's president, treasurer, majority stockholder, chief executive and the sole post-petition lender to Debtor; (iv) Mr. Foti manages the day-to-day operations of Debtor and is primarily responsible for devising and implementing Debtor's plan of reorganization due to his knowledge of the local marketplace, rental agreements, consumer buying patterns and other information which is unique; (v) Defendant Mr. Foti and his wife, Mrs. Pagan are the only source of post-petition financing of the Debtor and as of this date they have already advanced $200,000 in post-petition financing. Moreover they anticipate providing further post-petition financing to Debtor either through an extension of credit, providing collateral for post-petition financing, or through a capital contribution; (vi) as part of the extension of the credit facilities, First Bank requested personal guarantees from Defendants; (vii) First Bank has pursued two (2) collection actions against Mr. Foti and his wife demanding that they pay Debtor's (IHP) pre-petition debt. First Bank has also has moved for prejudgment attachment of Defendants' assets, and foreclosure on several mortgages; (viii) “[l]itigation against Defendants on claims for which the Debtor is primarily liable, will create waste in the form of litigation costs and disincentive to fund the plan if they are forced to transfer their funds to First Bank who has the guaranty, rather than to the estate for the benefit of all creditors, including First Bank;” (ix) “... any funds expended against the collection, would be deadweight loss, should the debtor's plan pay the creditor in full, or if the guaranty is subject to defenses, such as the invalidity of the...
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