In re Betteroads Asphalt, LLC

• Decision Date: 30 November 2018
• Docket Number: CASE NO. 17-04156 (ESL), CASE NO. 17-04157 (ESL)
• Citation: 594 B.R. 516
• Parties: IN RE BETTEROADS ASPHALT, LLC In re Betterecycling Corporation, Alleged Debtors
• Court: U.S. Bankruptcy Court — District of Puerto Rico

594 B.R. 516

IN RE BETTEROADS ASPHALT, LLC

In re Betterecycling Corporation, Alleged Debtors

CASE NO. 17-04156 (ESL)

CASE NO. 17-04157 (ESL)

United States Bankruptcy Court, D. Puerto Rico.

Signed November 30, 2018

Alexis A. Betancourt Vincenty, Wigberto Lugo Mender, Lugo Mender Group LLC, Guaynabo, PR, for Alleged Debtors.

OPINION AND ORDER

Enrique S. Lamoutte, United States Bankruptcy Judge

The above alleged debtors are before the court upon several motions aimed at disposing of the involuntary petitions. Alleged debtors pray for the dismissal of both involuntary petitions and the petitioning creditors pray for the entry of an order of relief under chapter 11.

The pending motions are: (1) Motion of the Alleged Debtor Betteroads Asphalt LLC to Dismiss the Involuntary Bankruptcy Petition (Lead Case No. 17-04156, Docket No. 46) and the Motion of the Alleged Debtor Betterecycling Corporation to Dismiss the Involuntary Bankruptcy Petition (Lead Case No. 17-04157, Docket No. 27) alleging that these petitions should be dismissed due to the following: (i) most of the Petitioning Creditors' claims are not eligible because their claims are subject to a bona fide dispute and are not in conformity with 11 U.S.C. § 303(b)(1) ; (ii) the Petitioning Creditors filed these petitions as a bad faith litigation tactic and thus the same warrant dismissal; (iii) the court should dismiss these cases based on the doctrine of abstention pursuant to 11 U.S.C. § 305(a)(1) ; and (iv) the alleged Debtors should be awarded the fees, costs and damages pursuant to 11 U.S.C. § 303(i). (2) the Opposition to the Motion to Dismiss filed in both cases by 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 Firstbank, Banco Santander, EDB and Banco Popular, the "Lenders") (Lead Case No. 17-04156, Docket No. 74, Lead Case No. 17-04157, Docket No. 52). Lenders argue the following: (i) the involuntary petitions satisfy 11 U.S.C. § 303(b) because each involuntary petition was commenced by at least three (3) qualified petitioning creditors whose claims are not subject to a bona fide dispute and whose unsecured and uncontingent claims aggregate at least $15,775. Eight (8) petitioning creditors filed the involuntary petition for Betteroads Asphalt, LLC ("Betteroads") and seven (7) petitioning creditors filed the involuntary petition against Betterecycling Corporation ("Betterecycling"); (ii) the Lenders deny all of the bad faith allegations. The Lenders also argue that bad faith is not a cognizable defense to contest an involuntary petition. A number of courts following the plain meaning of 11 U.S.C. § 303 have decided that bad faith is not an independent basis to contest a properly filed involuntary petition; (iii) the Debtors are not paying their debts as they become due; (iv) the Debtors' request for abstention should be denied because the abstention doctrine should not be used as a remedy in substitution of a motion to dismiss under other applicable sections of the Bankruptcy Code; (v) the Debtors fail to establish or argue that the interests of the creditors would be better served by abstention rather than by allowing these properly-filed involuntary bankruptcy cases to continue; (vi) the Debtors have been transferring their assets (as described in the Motion to Appoint a Trustee) and creditor remedies to avoid these transfers are available only in bankruptcy; (vii) the state court litigation would not resolve or avoid the substantial avoidable transfers that the Debtors have undertaken prior to the bankruptcy filing nor provide an orderly process for all creditors to assert their claims; and (viii) the Debtors have not met their burden of establishing that abstention under 11 U.S.C. § 305(a) is in the best interest of both the Debtors and all the creditors. (3) The Debtors' Reply to Motion to Dismiss and Request for Immediate Dismissal Against Certain Petitioners (Lead Case No. 17-04156, Docket No. 88, Lead Case No. 17-04157, Docket No. 68). (4) Lenders' Sur-Reply to Debtors' Reply to the Lenders' Opposition to Motion to Dismiss ensued thereafter (Lead Case No. 17-04156, Docket No. 100, Lead Case No. 17-04157, Docket No.79). (5) Sargeant Marine, Inc. ("Sargeant Marine") and Sargeant Trading LTD's ("Sargeant Trading") Amended Motion for Summary Judgment on Involuntary Petition and Memorandum of Law in Support Thereof (Lead Case No. 17-04156, Docket No. 108). (6) Initial Opposition to Premature Amended Motion for Summary Judgement by Sargreant (Lead Case 17-04156, Docket No. 131). (7) Sargent Marine and Sargeant Trading's Reply to Initial Opposition to Premature Amended Motion for Summary Judgment by Sargent (Lead Case No. 17-04156, Docket No. 153). (8) Lenders' Motion for Summary Judgment and Memorandum of Law in Support Thereof (Lead Case No. 17-04156, Docket No. 120, Lead Case No. 17-04157, Docket No. 87). (9) Debtors' Initial Opposition to Premature Amended Motion for Summary Judgment by Lenders (Lead Case No. 17-04156, Docket No. 167; Lead Case No. 17-04157, Docket No. 123). (10) Alleged Debtors' Motion in Compliance with Order: Alleged Debtor's Supplemental Brief on Pending Legal Issues (Lead Case No. 17-04156, Docket No. 169, Lead Case No. 17-04157, Docket No. 125). (11) Lenders' Memorandum and Brief in Compliance with Order (Lead Case No. 17-04156, Docket No. 170, Lead Case No. 17-04157, Docket No. 126). (12) The Debtors' Reply to Lenders' Memorandum at (Docket No. 170 on Case No. 17-04156) (Docket No. 126 on Case No. 1[7]-04157) (Lead Case No. 17-04156, Docket No. 181, Lead Case No. 17-04157, Docket No. 136). (13) Lenders' Reply to "Motion in Compliance with Order" (Docket No. 169 and Docket No. 125) followed (Lead Case No. 17-04156, Docket No. 182, Lead Case 17-04157, Docket No. 137).

For the reasons stated below, the Debtors' Motions to Dismiss are denied in part. Sargeant Marine and Sargeant Trading, LTD's motion for summary judgment is granted in part and denied in part. The Lenders' motions for summary judgment are granted in part and denied in part.

Jurisdiction

The court has jurisdiction pursuant to 28 U.S.C. §§ 157(a) and 1334(b). This is a core proceeding pursuant to 28 U.S.C. § 157(b)(1) and (b)(2)(A). Venue of this proceeding is proper under 28 U.S.C. §§ 1408 and 1409.

Procedural Background

On June 9, 2017, St. James Security Services, Inc., Sargeant Marine, Inc., Sargeant Trading, Ltd, Facsimil Paper Connection Corp. and the Lenders filed an involuntary bankruptcy petition against Betteroads Asphalt, LLC. The petitioning creditors and the Lenders in line item 11 of the petition allege that, "[t]he debtor is generally not paying its debts as they become due, unless they are the subject of a bona fide dispute as to liability or amount." Line item 13 of the petition discloses that the total of petitioners' claims is in the amount of $98,271,671.29. St. James Security Services, Inc.'s unsecured claim is based on a Judgment dated December 8, 2016 in St. James Security Services, Inc. v. Betteroads Asphalt LLC & Betterecycling Corporation- civil case no.KCD 2016-0453 (604). The claim is in the amount of $184,242.84. Sargeant Marine's unsecured claim is based on a final Judgment dated September 3, 2015 in Sargeant Trading Ltd. & Sargeant Marine, Inc. vs. Betteroads Asphalt Corp., --1:15 cv 04879-Civil 4879 (JPO) in which Sargeant Marine's unsecured claim is in the amount of $165,074.84. Sargeant Trading's unsecured claim is based on the same Judgment in the amount of $104,335.38. Facsimil Paper Connection Corp.'s unsecured claim is based upon a Judgment dated January 11, 2017, Facsimil Paper Connection Corp. vs. Betteroads Asphalt Corp./Betteroads Asphalt LLC, civil case no. KCM 2016-3675 (905). The claim is in the amount of $9,874.80. Banco Popular has the following claims, all of which list as undetermined the amount of the claim above the value of any lien: (i) Loan Agreement (line of credit, Note 4001) in the amount of $11,840,690.92; (ii) Loan Agreement (Term Loan I, Note 9008) in the amount of $6,790,317.53; and (iii) Loan Agreement (Term Loan II, Note 9009) in the amount of $16,647,238.05. Banco Santander has the following claims all of which it lists as undetermined the amount of claim above the value of any lien: (i) Loan Agreement (Term Loan I, Note 9008) in the amount of $2,068,170.71; (ii) Loan Agreement (Term Loan II, Note 9009) in the amount of $4,841,943.64; (iii) Loan Agreement (Term Loan III, Note 9010) in the amount of $9,259,182.29; and (iv) Loan Agreement (Line of Credit, Note 4001) in the amount of $3,606,395.44. FirstBank has the following claims all of which it lists as undetermined the amount of claim above the value of any lien: (i) Loan Agreement (Line of Credit, Note 4001) in the amount of $6,458,768.31; (ii) Loan Agreement (Term Loan I, Note 9008) in the amount of $3,703,929.78; and (iii) Loan Agreement (Term Loan II, Note 9009) in the amount of $9,078,644.32. EDB has the following claims all of which it lists as undetermined the amount of claim above the value of any lien: (i) Loan Agreement (line of credit, Note 4001) in the amount of $1,152,939.72; (ii) Loan Agreement (Term Loan I, Note 9008) in the amount of $661,179.90; and (iv) Loan Agreement (Term Loan IV, Note 9011) in the amount of $4,137,250.82. Other loans between Banco Popular and Betteroads are the following: (i) Loan Agreement (Loan No. xxx-xxxx-xxxxxxx-2001) in the amount of $8,271,387.12; (ii) Loan Agreement (Loan No. xxx-xxxx-xxxxxxx-9004) in the amount of $4,256,358.95; and (iii) Loan Agreement (Loan No. xxx-xxxx-xxxxxxx-9005) in the amount of $3,753,088.80. Other loans between FirstBank and Betteroads are the following: (i) Loan Agreement (Loan No. xxxxxx-00005) in the amount of $1,280,239.46; and (ii) Loan Agreement (Loan No. xxxxxx-90003) in the amount...