In re P.R. Hosp. Supply Inc., CASE NO.19-01022 (ESL)
| Decision Date | 02 October 2020 |
| Docket Number | CASE NO. 19-01023 (ESL),CASE NO.19-01022 (ESL) |
| Parties | IN RE: PUERTO RICO HOSPITAL SUPPLY INC. Debtor IN RE: CUSTOMED INC. Debtor |
| Court | U.S. Bankruptcy Court — District of Puerto Rico |
This case is before the court upon the United States Trustee's ("UST") Motions to Dismiss pursuant to 11 U.S.C. §1112(b) and Memorandum of Law (Case No. 19-01022, Docket No. 488; Case No. 19-01023, Docket No. 316); the Answer to the Trustee's Motion to Dismiss Pursuant to 11 U.S.C 1112(b) and Memorandum of Law filed by Puerto Rico Hospital Supply, Inc. ("PRHS") and Customed, Inc. (collectively referred to as the "Debtors") (Case No. 19-01022, Docket No. 502; Case No. 19-01023, Docket No. 328); the Supplement to Answer to United States Trustee's Motion To Dismiss Pursuant to 11 U.S.C. 1112(b) (Case No. 19-01022, Docket No. 504; Case No. 19-01023, Docket No. 330); and the UST's Sur-Reply to Debtor's Reply to Motion to Dismiss (Case No. 19-01022, Docket No. 528; Case No. 19-01023, Docket No. 350). Banco Santander de Puerto Rico ("BSPR") as administrative agent for Santander Financial Services, Inc. and First Bank Puerto Rico ("SFS" and "First Bank" collectively the "Lenders") also filed its Response to the U.S. Trustee's Motion to Dismiss1 (Case No. 19-01022, Docket No. 529; Case No. 19-01023,Case No. 351). For the reasons set forth below, the UST's motions to dismiss pursuant §1112(b) are denied.
The Court has jurisdiction pursuant to 28 U.S.C. §§1334(b) and 157(a). 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.
On February 26, 2019, PRHS and Customed filed bankruptcy petitions under chapter 11 of the Bankruptcy Code. On the same date, the Debtors requested the substantial consolidation of the cases, alleging that the corporations share common ownership, corporate officers, sales force, accounting department, and billing software (Case No. 19-01022, Docket No. 2; Case No. 19-01023, Docket No. 2). On March 6, 2019, the Debtors and Banco Santander de Puerto Rico filed their Urgent Stipulation for the Use of Cash Collateral, Adequate Protection and Reservation of Rights (Case No. 19-01022, Docket No.26; Case No. 19-01023, Docket No. 22).
On March 7, 2019, the Debtors filed their Motion Requesting Order Pursuant to 11 U.S.C. §§105 and 363 Authorizing Debtors' Continued Use of Existing Bank Accounts, requesting a waiver on the requirement that bank accounts be closed and that new post-petition accounts be opened arguing that such disruption could impair the Debtors' ability to reorganize (Case No. 19-01022, Docket No. 29; Case No. 19-01023, Docket No. 25). The Debtors requested to be allowed to keep the bank accounts but to reclassify them as debtor-in-possession accounts.
On March 14, 2019, the UST filed its Objection to Stipulation for Cash Collateral alleging that it imposed limitations to the statutory duties, powers and/or responsibilities pursuant to the Bankruptcy Code and/or applicable rules to third parties who are not part of the stipulation such as any "creditor committee, "other party", "party in interest" or "any person", including the United States Trustee, and a Chapter 7 or Chapter 11 Trustee (Case No. 19-01022, Docket No. 38; Case No. 19-01023, Docket No. 32). On March 15, 2019, B. Braun Medical Inc. filed its Objection to Approval of Stipulation of the Use of Cash Collateral, Adequate Protection and Reservation of Rights arguing that it holds a claim against the Debtors of not less than $1.5 million, portions ofwhich were entitled to administrative priority treatment or reclamation rights and that the stipulation is procedurally deficient (Case No. 19-01022, Docket No. 43). The creditor further filed its Objection of Creditor B. Braun Medical Inc. to Motion Requesting Substantive Consolidation (Case No. 19-01022, Docket No. 44). On March 21, 2019, Johnson and Johnson International filed its Motion for Joinder to B. Braun Medical Inc.'s Objection to Motion requesting substantive consolidation (Case No. 19-01022, Docket No. 54) and its Objection to Stipulation for the Use of Cash Collateral (Case No. 19-01022, Docket No. 55). On March 22, 2019, the Debtors and BSPR as agent and Lender filed an Amended Stipulation for the Use of Cash Collateral, Adequate Protection and Reservation of Rights (Case No. 19-01022, Docket No. 65; Case No. 19-01023, Docket No. 44). Furthermore, the parties filed a Joint Response to Objections to Cash Collateral Stipulation (Case No. 19-01022, Docket No. 66; Case No. 19-01023, Docket No. 45).
On March 25, 2019, Carestream Health Puerto Rico, LLC filed its Joinder to Objection of Creditor B. Braun Medical Inc. to Motion Requesting Substantive Consolidation (Docket No. 44) (Case No. 19-01022, Docket No. 70). On March 27, 2019, B, Braun Medical Inc., filed an Objection to Approval of Amended Stipulation for the Use of Cash Collateral, Adequate Protection and Reservation of Rights (Case No. 19-01022, Docket No. 75).
On March 28, 2019, BSPR filed its Urgent Motion for Entry of Order Approving Amended Stipulation, for the Interim Use of Cash Collateral (Case No. 19-01023; Docket No. 50). On March 29, 2019, BSPR filed an Urgent Motion for Entry of Order and Reply to Objection of Unsecured Creditor B. Braun Medical Inc. to Approval of Amended Stipulation for the Interim Use of Cash Collateral (Case No. 19-01022, Docket No. 79). On March 29, 2019, the court granted the Amended Stipulation for the Interim Use of Cash Collateral (Case No. 19-01022, Docket No. 82; Case No. 19-01023, Docket No. 53).
On April 12, 2019, the UST filed its Position as to Debtors' Motion Requesting Order for the Continued use of Existing Bank Accounts, stating no opposition as to the conversion of the accounts, but opposing to the commingling of Customed and PRHS's funds (Case No. 19-01022, Docket No. 94; Case No. 19-01023, Case No. 59). On May 13, 2019, the Debtors filed their Motion in Compliance with Order and Reply to US Trustee's Position as to Debtors' Request for Continued Use of Existing Bank Accounts (Case No. 19-01022, Docket No. 122; Case No. 19-01023, Case No. 69).
On June 3, 2019, the court held a hearing to address the following contested matters: the substantive consolidation of the cases and the objections and the Amended Stipulation for the Use of the Cash Collateral, Adequate Protection and Reservation of Rights (Case No. 19-01022, Docket No. 141; Case No. 19-01023, Case No. 81). The request for substantial consolidation was held in abeyance, application for special counsel was approved by the court (Docket No. 113) and the parties informed that a joint motion for the use of cash collateral would be submitted.
On August 23, 2019, the Debtors filed a Joint Disclosure Statement (Case No. 19-01022, Docket No. 200; Case No. 19-01023, Case No. 111) and a Joint Chapter 11 Plan of Reorganization dated August 23, 2019 (Case No. 19-01022, Docket No. 201; Case No. 19-01023, Case No. 112). On October 22, 2019, Becton, Dickinson and Company filed an Objection to Disclosure Statement and Plan of Reorganization (Case No. 19-01022, Docket No. 233). Avanos Medical Inc. filed its Limited Objection to Approval of the Adequacy of the Joint Disclosure Statement of Puerto Rico Hospital Supply Inc and Customed Inc. (Case No. 19-01022, Docket No. 235) and Johnson & Johnson International, Inc. filed its Objection to Approval of Joint Disclosure Statement (Case No. 19-01022, Docket No. 236; Case No. 19-01023, Case No. 134). BSPR filed its Objection to Disclosure Statement on October 24, 2019 (Case No. 19-01022, Docket No. 238; Case No. 19-01023, Case No. 136).
On October 31, 2019, the unsecured creditor Yolanda Benitez, Cotto & Asocciates PSC filed its Position as to Improper Classification of Claim and Treatment Under the Plan (Case No. 19-01022, Docket No. 241).
On November 4, 2019, BSPR in its capacity as Lender and Agent filed an adversary proceeding against the Debtors requesting the court to determine the extent of Banco Santander's lien over the property of the Debtors, pursuant to Fed. R. Bank. P. 7001(2) (Adv. Proc. No. 19-00448).
During a hearing held on November 5, 2019, the court granted the Debtors 28 days to file a self-contained amended disclosure statement and an amended chapter 11 plan (Case No. 19-01022, Docket No. 245; Case No. 19-01023, Case No. 142).
On November 27, 2019, PRHS filed an Application for Appointment of Realtor to Procure the Sale of Debtor's Warehouse and Office Building in Carolina, P.R. (Case No. 19-01022, Docket No. 262) and on December 3, 2019, PRHS filed a Motion Submitting Copy of Letter of Intent to Purchase Property (Case No. 19-01022, Docket No. 264). On January 29, 2020, PRHS filed a Motion for Entry of Sale Order: (A) Approving the Purchase and Sale Agreement of Oneof Debtor's Realty, pursuant to section 363 of the Bankruptcy Code, Free and Clear of all Liens, Claims, Interests and Encumbrances; and (B) Approving the Form of the Sale Order (Case No. 19-01022, Docket No. 326). On March 4, 2020, the court entered an Order Approving Purchase and Sale Agreement and Sale of One of the Debtor's Realty, Pursuant to Section 363 of the Bankruptcy Code, Free and Clear of all Liens, Claims, Interests and Encumbrances (Case No. 19-01022, Docket No. 356).
On April 3, 2020, the court entered and Opinion and Order dismissing the adversary proceeding filed by BSPR as agent of the Lenders, concluding that the Lenders' pre-petition and post-petition lien over the Debtors' contract rights and general intangibles does not extend to the proceeds of the award and ongoing litigation against Johnson & Johnson regarding a commercial tort claim (Adv. Proc. No. 19-00448, Docket No. 36) and Judgment was entered accordingly on April 5, 2020 (Adv. Proc. No. 19-00448, Docket No. 38). On April 17, 2020, the BSPR as agent for the Lenders filed a ...
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