In re Juan Paulino Peña Alma Rosa Rivera Rivera
| Decision Date | 15 March 2016 |
| Docket Number | CASE NO. 14-09799 (ESL) |
| Parties | IN RE: JUAN PAULINO PEÑA ALMA ROSA RIVERA RIVERA Debtors |
| Court | U.S. Bankruptcy Court — District of Puerto Rico |
This case is before the court upon the Motion to Dismiss (Docket No. 136) filed by Bautista Cayman Asset Company ("Bautista Cayman") under Section 1112(b) of the Bankruptcy Code alleging: (i) substantial or continuing loss to or diminution of the Debtors' estate and lack of reasonable likelihood of rehabilitation; (ii) Debtors' failure to comply with their reporting obligations; (iii) Debtors' negative monthly balances on the monthly operating reports in the majority of the months since the bankruptcy filing dates; (iv) Debtors' apparent inability to fund post-petition operating expenses, especially when Debtors have not serviced their secured creditor, Bautista Cayman, the property taxes continue to accumulate, and Debtors' counsel has not submitted an application for his fees since April 2015; and (v) numerous indicia of a bad faith filing. The court held a hearing to consider the Motion to Dismiss on December 8, 2015 and March 8, 2016. See Docket Nos. 157 and 189. After considering the parties' arguments, the Motion to Dismiss is hereby granted.
On November 26, 2014, the Debtors filed the instant voluntary Chapter 11 bankruptcy petition. The Debtors listed in Schedule A the properties with mortgages in favor of Bautista Cayman (the "Properties"). See Docket No. 1, p. 22, and Docket No. 39-1, p. 1. The Debtors valued the Properties at $916,000 and $1,800,000, respectively, for a total of $2,716,000, disclosing a secured claim over both in the amount of $1,837,284. See Docket No. 1, p. 16.
On January 16, 2015, Doral Bank, predecessor of Bautista Cayman, filed Proof of Claim No. 5-1 in the secured amount of $1,881,033.96.Doral Bank attached the relevant collateral documents to establish a valid and perfected first-priority lien on the Properties and any accessories over them for their exploitation. Proof of Claim No. 5-1 stands unopposed and is therefore deemed allowed under 11 U.S.C. § 502(a).
On November 24, 2016, Bautista Cayman filed a Motion to Dismiss or, in the Alternative, for Relief From Stay (the "Motion to Dismiss", Docket No. 136) seeking dismissal for: (i) bad faith or lack of good faith for having filed a bankruptcy to obtain an upper hand or leverage against Bautista Cayman, considering that the Debtors had to refinance a balloon payment on or before September 20, 2016; and (ii) substantial or continuing loss to or diminution of the Debtors' estate and lack of reasonable likelihood of rehabilitation under 11 U.S.C. § 1112(b)(4). Bautista Cayman sustained that as of October 2015, the monthly operating reports filed by the Debtors revealed that they had been operating with yearly deficits, and diminishing cash flow, which foreshadowed further post-petition losses. Following that trend, Batista Cayman asserted that the Debtors would most likely be unable to generate sufficient funds to pay ordinary and necessary expenses, and more so upon the imminence of the mandatory refinancing due on or before September 20, 2016. To that extent, Bautista Cayman submitted a comparative table of the monthly operating reports (Docket No. 136-2), referring to Docket Nos. 30, 55, 69, 70, 71, 83, 88, 96, 98 and 117. In the alternative, Bautista Cayman asserted that if the Court did not dismiss this case, relief from the automatic stay was warranted in favor of Bautista Cayman under 11 U.S.C. § 362(d)(1) and (d)(2).
On December 3, 2015, the Court entered an Order and Notice (Docket No. 148) scheduling a hearing to consider the Disclosure Statement.
On December 8, 2015, the Court held a hearing to consider Bautista Cayman's Motion to Dismiss. See Docket Nos. 156 (Audio File) and 157 (Minute Entry). After considering the parties' arguments, the Court granted relief from the automatic stay in favor of Bautista Cayman and allowed the Debtors . Minute Entry, Docket No. 157. The Court also determined that:
. . . there is a continuous diminution of the estate because payments are not being made on the secured claim and there is no evidence that payments are being madeon the property taxes. So, there is diminution and based on Debtors' own admittance, there is no likelihood of reorganization... so the only alternative is to sell the property. So, considering that scenario, ... the alternative request made by Cayman as to the lifting of the estate even if there are uncontested facts to approve a dismissal under [Section] 1112(b)(4)(A)... I will lift the stay in favor of Bautista Cayman, I would allow a reasonable period of time to negotiate a sale, and if that is not negotiated, then I will dismiss the case. But there is one blank to fill, what is a reasonable time to negotiate a sale. ... I am assuming that even if you foreclose, the ultimate goal is to sell the property and payoff your amounts, so I think that if you get a good offer it will not make a good economic sense not to consider an offer.
Audio File, Docket No. 156. In replying to the Court's inquiry, the Debtors' counsel asserted that sixty (60) to ninety (90) days would be reasonable, and Bautista Cayman countered that the maximum should be sixty (60) days. After evaluating the status of the foreclosure proceedings, that court granted the Debtors ninety (90) days to attempt to reach an agreement and sell the Properties to pay the secured claims. The Court also held that failure to do so would result in the dismissal of the case. Id. The 90 days would expire on March 7, 2016.
On February 26, 2016, the Debtors filed a Motion Requesting Continuance of Hearing and Extension of Time to File an Amended Disclosure Statement and Liquidation Plan (Docket No. 168)requesting sixty (60) days to file a Disclosure Statement and the liquidation plan as ordered by the Court at the December 8, 2015 hearing. See Docket Nos. 156 and 157. Also on February 25, 2016, the Debtors filed an Application for Employment of Appraiser (Docket No. 165) to have the Properties appraised. In support of their motions, the Debtors allege they have a potential buyer, but the transaction had not concluded because an appraisal report is needed to sustain the value requested. The Debtors alleged that they were in the process of closing negotiations with the potential buyer, to then file a motion to conduct a sale and prepare a liquidation plan. Debtors further allege that (Docket No. 168, p. 2, ¶ 15). The Debtors did not provide any information on the proposed offer, and instead attached copy of a letter from the proposed appraiser dated February 25, 2016. See Docket No. 168-1.
On February 29, 2016, the Court entered an Order (Docket No. 171) granting the extension of time to file the Amended Disclosure Statement and Liquidation Plan. The Court also ruled that it would "hold the scheduled date [i.e., March 8, 2016] as a Status Conference on pending matters, including the motion to dismiss filed by Bautista Cayman" (id., lines 16-18).
On March 1, 2016, Bautista Cayman filed a Motion for Reconsideration (Docket No. 173) sustaining that: (i)the Debtors had not filed their monthly operating reports since the last one filed for October of 2015 (Docket No. 132-2), which was further cause for dismissal; (ii) dismissal was warranted on previous grounds;(iii) nothing had changed since the last hearing held on December 8, 2015; (iv)the Debtors had not established a need for the extension of time; and (v) that the extension would bypass the previous orders by the Court regarding the forewarned dismissal.
On March 3, 2016, the Debtors filed monthly operating reports for the months of November 2015, December 2015 and January 2016. See Docket Nos. 179, 180 and 181. The monthly operating reports filed show that although they generated additional income, they have failed to pay ordinary and necessary expenses, including Bautista Cayman's secured debt, and property taxes.
On March 3, 2016, the Court entered an Order granting Bautista Cayman's request for reconsideration and stating that the Debtors' motions for continuance and extension of time to file amended disclosure statement would be considered at the March 8, 2016 hearing. See Docket No. 178.
On March 7, 2016, the Debtors filed a Motion for Entry of Order Authorizing the Filing of Letter of Intent of Prospective Purchaser under Seal Pursuant to Bankruptcy Rule 9018 (Docket No. 185) so that only the U.S. Trustee and the Court could have access to the terms of the proposed negotiations between the proposed potential buyer and the Debtors.
Also on March 7, 2016, Debtors filed an amended Disclosure Statement (Docket No. 187) and Chapter 11 plan providing for the liquidation of the properties secured by Bautista Cayman (Docket No. 188). The Debtors did not attach purchase commitments, term sheets, or any suggestion of the terms of the negotiation with Bautista Cayman for a carve-out that would allowthem to pay its secured creditors, priorities, and leave a benefit to unsecured creditors, factors that would make the plan viable.
On March 8, 2016, the Court held the hearing to consider the pending motions, including Bautista Cayman's Motion to Dismiss. See Docket Nos. 189 (Minute Entry) and 190 (Audio File). After considering the arguments by the parties, the "Court conclude[d] that the Debtor is essentially in the same...
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