In re Betteroads Asphalt, LLC

• Decision Date: 06 December 2019
• Docket Number: CASE NO. 17-04156 (ESL), CASE NO. 17-04157 (ESL)
• Citation: 610 B.R. 28
• Parties: IN RE: BETTEROADS ASPHALT, LLC In re: Betterecycling Corporation, Involuntary Debtors
• Court: U.S. Bankruptcy Court — District of Puerto Rico

610 B.R. 28

IN RE: BETTEROADS ASPHALT, LLC In re: Betterecycling Corporation, Involuntary Debtors

CASE NO. 17-04156 (ESL)

CASE NO. 17-04157 (ESL)

United States Bankruptcy Court, D. Puerto Rico.

Signed December 6, 2019

Alexis A. Betancourt Vincenty, Lugo Mender Group LLC, Wigberto Lugo Mender, Lugo Mender & Co., Guaynabo, PR, for Betteroads Asphalt LLC.

OPINION AND ORDER

Enrique S. Lamoutte, United States Bankruptcy Judge

This case is before the court upon Betteroads Asphalt, LLC and Betterecycling Corporation (hereinafter referred to as "Involuntary Debtors" or "Betteroads" and "Betterecycling") Motion for Stay Pending Appeal (Case No. 17-04156, Docket no. 569; Case No. 17-04157, Docket No. 392) filed on November 4, 2019. The Involuntary Debtors request that the Chapter 11 proceedings be stayed until the resolution of the pending appeals based upon the following arguments: (i) the notice of appeal deprives the bankruptcy court of jurisdiction to entertain matters of a Chapter 11 case; (ii) in the alternative, there is a "substantial possibility" of the Involuntary Debtors' success on the merits because, absent such relief, irreparable harm will occur; and (iii) the Involuntary Debtors have proffered a reasonable bond and sufficient for the requested relief in the event the Court fails to dispense the Involuntary Debtors from such condition for granting the stay remedy. Firstbank Puerto Rico ("Firstbank"), Banco Santander de Puerto Rico ("Banco Santander"), the Economic Development Bank for Puerto Rico ("EDB") and Banco Popular de Puerto Rico ("Banco Popular or the Administrative Agent," and collectively with First Bank, Banco Santander and EDB, the "Lenders"), Sargeant Marine, Inc. and Sargeant Trading LTD (collectively "Sargeant"), Facsimil Paper Connection, Inc. ("Facsimil"), Champion Petroleum, Inc. ("Champion"), Control Force, Corp., ("Control Force") and St. James Security, Inc. ("St. James") and together with the Lenders, the Petitioning Creditors filed a Joint Opposition to Debtors' Motion for Stay Pending Appeal on November 11, 2019 (Case No. 17-04156, Docket no. 586; Case No. 17-04157, Docket No. 406). The Petitioning Creditors argue the following: (i) the Involuntary Debtors are not requesting relief to preserve the issues on appeal. The Involuntary Debtors request that the bankruptcy court suspend all of the Chapter 11 proceedings and preclude the court from administering these cases and parties from enforcing any rights available under chapter 11; (ii) the divestiture doctrine applies to prevent a trial court from amending and modifying the issues on appeal while they are on appeal. It does not provide for a stay of proceedings; (ii) Fed. R. Civ. P. 62(b) expressly excludes appeals from injunctions or receiverships and courts have consistently interpreted order for relief as injunctions; (iii) under Fed. R. Civ. P. 62(b) stays are only available for money judgments and the appeals do not involve any money judgments; and (iv) the Involuntary Debtors fail to satisfy any of the factors required under Fed. R. Bankr. P. 8007. On November 15, 2019, the Involuntary Debtors filed their Reply to Petitioning Creditors' Joint Opposition to Motion for Stay Pending Appeal (Case No. 17-04156, Docket no. 600; Case No. 17-04157, Docket No. 420). For the reasons set forth the Involuntary Debtors' Motions for Stay Pending Appeal are hereby denied.

BACKGROUND

On June 9, 2017, the Petitioning Creditors filed involuntary bankruptcy petitions against Betteroads Asphalt, LLC and against Betterecycling Corporation. On June 30, 2017, the Involuntary Debtors and the Lenders filed a Joint Motion on Discovery Schedule pursuant to which the parties informed the court on the agreed discovery schedule relating to contested matters regarding the involuntary petitions (Case No. 17-04156, Docket No. 58; Case No. 17-04157. Docket No. 36). On August 3, 2017, the Lenders filed a Motion for Protective Order Limiting Scope of Discovery for the Contested Matters Relating to the Motion to Appoint a Trustee and the Involuntary Petitions to exclude broad and disproportionate discovery on allegations of bad faith by the Lenders and other petitioning creditors who commenced the involuntary proceedings and on certain counter claims filed against the Debtors in pending local court litigation (Case 17-04156, Docket No. 73; Case No. 17-04157, Docket No. 51). On August 30, 2017, the parties filed an Amended Joint Motion on Discovery Schedule (Case 17-04156, Docket No. 86; Case 17-04157, Docket No. 66). On November 7, 2017, the Lenders and the Involuntary Debtors filed the Second Amended Joint Motion on Discovery Schedule and Request for Status Conference Hearing (Case No. 17-04156, Docket No. 114; Case 17-04157, Docket No. 83)

Thereafter, on November 30, 2018, the court in its Opinion and Order held the following: (i) the Petitioning Creditors have satisfied the three prong requirement for filing an involuntary petition; (ii) bad faith is an independent cause for dismissal of an involuntary petition under 11 U.S.C. § 303(b) ; and (iii) the alleged Debtors have failed to show that dismissal pursuant to section 305(a)(1) abstention is in the best interest of both the creditors and the debtor. The court also determined that an evidentiary hearing would be scheduled to consider whether the involuntary petitions were filed in bad faith, that is, for an improper purpose that constitutes an abuse of the bankruptcy process (Case no. 17-04156, Docket No. 271; Case No. 17-04157, Docket No. 206).

On January 3, 2019, an Order and Notice was docketed scheduling the evidentiary hearing regarding the motions to dismiss of the Involuntary Debtors and the oppositions thereto for May 23, 2019. The court ordered the parties to file proposed findings and conclusions of law seven (7) days prior to the hearing. Moreover, the court advised that it would not hold an evidentiary hearing without timely filed proposed findings of fact and conclusions of law (Case No. 17-04156, Docket No. 273; Case No. 17-04157, Docket No. 208). On March 7, 2019, the Lenders and the Alleged Debtors filed a Joint Motion on Discovery Schedule in Connection with May 23, 2019 Hearing (Case No. 17-04156, Docket No. 291; Case No. 17-04157, Docket No. 227). On March 26, 2019. the Lenders and the Alleged Debtors filed a Joint Motion on Amended Discovery Schedule and to Reschedule Evidentiary Hearing to June 27 and 28, 2019 (Case 17-04156, Docket No. 302; Case 17-04157, Docket No. 233). On April 1, 2019, the court granted the joint motion requesting continuance of the evidentiary hearing and rescheduled the same for June 27, 2019 (Case 17-04156, Docket No. 312; Case 17-04157, Docket No. 243). On April 9, 2019, the Lenders and the Alleged Debtors filed a Joint Motion on Second Amended Discovery Schedule (Case 17-04156, Docket No. 325; Case 17-04157, Docket No. 248).

Subsequently, on May 13, 2019, the Alleged Debtors filed a Motion to Extend Discovery Schedule and Convert Evidentiary Hearing into Status Hearing or Hearing to Address Remaining Discovery Disputes with Reduced Objection Language of Seven (7) Days and the opposition thereto filed by Sargeant and the Lenders (Case No. 17-04156, Docket Nos. 375, 390, 393; Case No. 17-04157, Docket No. 259, 267). On June 18, 2019, the Lenders and Sargeant filed an Urgent Motion Requesting Expedited Determination Regarding June 27, 2019 Evidentiary Hearing (Case 17-04156, Docket No. 412; Case 17-04157, Docket No. 282).

On June 20, 2019, the Petitioning Creditors filed their Joint Pretrial Report of the Petitioning Creditors in Connection with the June 27, 2019 Hearing (Case 17-04156, Docket No. 413; Case 17-04157, Docket No. 283). On June 21, 2019, the Alleged Debtors filed their Preliminary Pretrial Report (Case 17-04156, Docket No. 414; Case 17-04157, Docket No, 284).

On June 25, 2019, the court ordered as follows:

"[a]fter a thorough review of the alleged Debtors' Motion to Extend Discovery Schedule and Convert Evidentiary Hearing into Status Hearing or Hearing to Address Remaining Discovery Disputes with Reduced Objection Language of Seven (7) Days (Docket No. 375), the court finds that the record is clear as to the extent of the discovery in the instant case. The parties submitted jointly, six Discovery Schedules (See Dockets Nos. 58, 86, 114, 291, 302 and 325) and had ample time to comply.

Therefore, the evidentiary hearing to address the Motion of the Alleged Debtor Betteroads Asphalt LLC to Dismiss Involuntary Petition (Case No. 17-04156, Docket No. 46) and the Motion of the Alleged Debtor Betterecycling Corporation to Dismiss the Involuntary Petition (Case No. 17-04157, Docket No. 27) and the Opposition thereto, will proceed as scheduled on June 27, 2019 at 9:30am (sic ). The evidentiary hearing will continue on July 15, 2019; July 17, 2019; July 18, 2019; July 19, 2019 and July 24, 2019. The court allows additional discovery to the extent it is directed to an individual that has knowledge to the events leading to the filing of the involuntary petition for each of the petitioning creditors, without altering the evidentiary hearing's schedule. Furthermore, the petitioning creditors must comply with Fed. R. Civ. P. 26(b)(5), applicable to bankruptcy through Fed. R. Bankr. P. 7026, as to any information withheld during discovery under the claim of privilege and/or trial-preparation material." (Case 17-04156, Docket No. 426; Case 17-04157. Docket No. 295).

On June 26, 2019, the court entered an Amended Order in which it addressed several of the motions regarding the discovery disputes between Betteroads and Sargeant (Case 17-04156, Docket No. 432). In its Order, the court concluded that:

"[a]t this juncture, the court finds that the improper purpose has not been clearly defined and as such is unable to extend the scope of the alleged Debtor's discovery requests to other affiliates and/or related entities.

The court hereby grants Sargeant's Omnibus Reply to

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