In re Horned Dorset Primavera, Inc.

• Decision Date: 27 July 2018
• Docket Number: CASE NO. 15-03837 (ESL)
• Parties: IN RE: THE HORNED DORSET PRIMAVERA, INC. Debtor
• Court: U.S. Bankruptcy Court — District of Puerto Rico

IN RE: THE HORNED DORSET PRIMAVERA, INC. Debtor

CASE NO. 15-03837 (ESL)

UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF PUERTO RICO

July 27, 2018

CHAPTER 11

OPINION AND ORDER

This case is before the court upon the Debtor's Motion for Civil Contempt for Violation of the Automatic Stay Injunction against Inmobiliaria T&C, Inc. (hereinafter referred to as "ITC") alleging a willful violation of the automatic stay under 11 U.S.C. §362(a) based on ITC's post-petition written request to the Property Registrar of Aguadilla to alter the rank of the Debtor's recorded right of usufruct, in order for the Debtor's property interest (recorded right of usufruct) to be junior to two (2) mortgage liens that encumber the real property (Docket No. 308). PRCI Loan, LLC (hereinafter referred to as "PRCI") filed a Response to Motion for Civil Contempt for Violation of the Automatic Stay Injunction (Docket No. 308) even though the civil contempt is against ITC. PRCI alleges that it is compelled to respond because amongst the remedies sought by the Debtor one is to subordinate PRCI's mortgage liens that encumber the real property of which ITC is the title holder to the Debtor's usufruct lien (Docket No. 310). Several replies and sur-replies regarding this issue were filed by the Debtor and PRCI.

Subsequently, the Debtor (as usufructuary) and ITC (as title holder) filed a Stipulation in which ITC consented to the Debtor's request for a writ of execution to restore the status quo of the Debtor's right of usufruct as of the date of the filing of the petition, without prejudice of any interested party filing a motion for relief from the automatic stay to commence said procedure in state court. The Debtor in turn agreed to relinquish its claim against ITC for the alleged violation of the automatic stay and its request for sanctions, compensatory damages and attorney's fees (Docket No, 397). PRCI filed its Objection to Stipulation between Debtor and Inmobiliaria T & C, Inc. at Docket No. 397 (Docket No. 401) and the Debtor filed its Response to PRCI's Objection to Stipulation and Opposition to Retroactive Lifting of the Stay (Docket No. 412). Several replies and sur-replies regarding the objection to the Stipulation were filed by the Debtor and PRCI.

For the reasons stated below, the Debtor's Motion for Civil Contempt for Violation of the Automatic Stay Injunction against ITC for a willful violation of the automatic stay under 11 U.S.C. §362(a) is granted.

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)(2)(A), (K).

Procedural Background

The Debtor filed a bankruptcy petition under Chapter 11 of the Bankruptcy Code on May 22, 2015. The Debtor included in Schedule A- Real Property- the following interests in property: (i) the right to acquire the land remnant ("derecho de retracto") over property located in Rincón with a value of $5,000,000; (ii) the right of usufruct for thirty (30) years of the exclusive possession of the main buildings, the service structures and all surrounding common areas, and access roads with a value of $1,800,000; and (iii) the right of easement over neighboring property with a value of $1,000,000. The Debtor lists in Schedule B- Personal Property- a note receivable from the sale of property to ITC dated July 19, 2005 in the amount of $8,080,000. The Debtor listed in Schedule G- Executory Contracts and Unexpired Leases- the following contracts: (i) agreement regarding the development of land and rights to property with ITC; (ii) a deed of constitution of reciprocal easement for the use of facilities and right of way easement #15 dated October 2002 with HDP Villas SE; and (iii) the right of usufruct constituted per deed number 37 dated July 19, 2005 with ITC.

On June 27, 2016, the Debtor filed a Motion as to Assumption of Executory Contracts pursuant to 11 U.S.C. §365(a) to assume five (5) property management agreements and for the court to take notice of Debtor's rights under the deed of usufruct, "...as to the ten (10) residences, and pursuant to the terms of said deed of usufruct, the Debtor in Possession, The Horned DorsetPrimavera as the usufructuary (Horned Dorset Primavera) may continue to operate the hotel and restaurant business at the real property and by the deed granted the usufruct for the exclusive use of the hotel and restaurant business which is at the level of the standards of quality and image which have to date been develop[ed] by the usufructuary, over the main Administration building wherein the reception and the restaurants are located, the structure which houses the reception for the villas and the administrative offices, the laundry, the gymnasium, the access path, the swimming pools and the gardens, as well as the easements which the parcel object of the public deed granting such rights. During the duration of the usufruct originally for thirty (30) years and while the usufructuary is in possession of the usufruct properties, the usufructuary shall have the sole and exclusive control of the operation of the restaurants and the hotel and those residences which have not been sold to third parties, the management, administration and development of said business without interference from the sole legal title owner" (Docket No. 202, pgs. 3-4). On July 15, 2016, PRCI filed its Limited Objection to Motion as to Assumption of Executory Contracts in which it limitedly objected to the assumption of the usufruct agreement without the pertinent reference that they are subject and subordinated to PRCI's mortgages (Docket No. 216). On July 19, 2016, the Debtor filed a Motion to Quash PRCI Loans LLC's Intervention for Lack of Standing because PRCI is neither a creditor or a party in interest and, thus, has no standing to object to the Debtor's assumptions of contracts to which PRCI is not a party. The Debtor also argued that, "[t]he fact that the Debtor assumes executory contracts to which PRCI is not a party of does not affect in any way any right which PRCI may hold. Additionally, the Debtor's right of usufruct, which is not an executory contract, is a lien duly recorded in the Registry of Property and as such it does not diminish, burdens or impairs whatever rights PRCI may claim as the assignee of Banco Popular de Puerto Rico." (Docket No. 218).

On July 22, 2016, the Debtor filed an adversary proceeding (Adversary proceeding No. 16-00156) against Inmobiliaria T& C Inc. for breach of contract and collection of monies. The Debtor/Plaintiff alleges that ITC has defaulted on two (2) promissory notes. The first promissory note became originally due and payable on July 19, 2006 and it was extended thereafter to July19, 2010. ITC allegedly owes Plaintiff the principal sum of $4,060,000 plus default interest of 7% per annum, which as of May 31, 2016 amounts to $1,648,360.00, and whose default interest continues to accumulate at the rate of $778.63 per diem. The second promissory note became originally due and payable on July 19, 2009 and it was extended thereafter to July 19, 2010. ITC under the second promissory note allegedly owes Plaintiff/Debtor the principal amount of $4,000,000 plus $1,624,000 for default interests which continue to accrue at the rate of $767.12 per diem. The Debtor/Plaintiff requests in the alternative, that the Defendant render the amounts owed under the first promissory note and that title of all remaining real estate revert to the Debtor (Docket No. 221).

On September 7, 2016, the Debtor filed a Motion for Entry of Order Granting Unopposed Motion to Quash Intervention and thus deny PRCI the right to intervene in Debtor's request for assumption of executory contracts because PRCI failed to plead and address the Debtor's jurisdictional challenge as to its intervention (Docket No. 252). On September 26, 2016, PRCI filed its Opposition to Motion for Entry of Order (Docket No. 252) arguing that Debtor's motion for entry of order granting the unopposed motion to quash intervention is contrary to the basic notions of procedural economy given that this particular matter had been already scheduled for a hearing and the Debtor also filed an adversary proceeding against ITC that addresses the same issue raised by PRCI's limited objection to allegations that Debtor's usufruct rights have precedence over PRCI's mortgages (Docket No. 263). On November 17, 2016, the Debtor filed its Reply to PRCI Loans LLC's Opposition to Motion for Entry of Order [Docket No. 263] arguing that "PRCI's position is based on nothing more than a willful violation of the automatic stay, and PRCI only seeks to reap the benefits of unlawful endeavors" (Docket No. 277).

On December 1, 2016, PRCI filed an Omnibus Sur-Reply to PRCI Loans LLC's Opposition to Motion for Entry of Order [Docket No. 277] and Reply to Opposition to Motion to Vacate (Adv. Docket No. 46) requesting that the court deny any violation of the automatic stay and sanction Debtor for raising a frivolous and temerarious argument. PRCI argued the following: (i) neither the Defendant's petition nor PRCI's attempt to clarify that the usufruct agreement issubordinated to PRCI's mortgage lien constitutes a violation of the automatic stay pursuant to 11 U.S.C. §362(a) and is therefore not void; (ii) the usufruct was subordinated to the mortgages in 2005; (iii) PRCI's property interest dates back to 2005, when Debtor consented to subordinating their usufruct to PRCI's predecessors mortgage liens in Deed No. 37, executed in Mayaguez, Puerto Rico, on July 19, 2005 (Docket No. 296). Therefore, actions taken before the filing of the petition may not be considered to have violated the automatic stay which is triggered by the filing of the petition.

On December 2, 2016, a hearing was held regarding the motion to assume executory contracts. After the clarification in open court, the court approved the motion for assumption of executory contracts (dkt# 202) (Docket No. 299).

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