In re P.R. Hosp. Supply Inc.
| Decision Date | 04 December 2020 |
| Docket Number | CASE NO. 19-01022 |
| Parties | IN RE: PUERTO RICO HOSPITAL SUPPLY INC Debtor |
| Court | U.S. Bankruptcy Court — District of Puerto Rico |
This case is before the court upon the Special Claim Committee of the Financial Oversight Management Board's Motion to Vacate filed by the Special Claims Committee of the Financial Oversight Management Board (the "SCC") (Docket No. 544); the Opposition to Special Claims Committee of the Financial Oversight Management Board's Motion to Vacate filed by the Debtor, Puerto Rico Hospital Supply (the "Debtor" and/or "PRHS") (Docket No. 561) ; and the Reply in Support of Motion to Vacate filed by the SCC (Docket No. 565).
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)(2)(B). Venue of this proceeding is proper under 28 U.S.C. §§1408 and 1409.
The Commonwealth of Puerto Rico filed its Proof of Claim #72 for the amount of $5,613,160.00 and stated as a basis for the claim, the following: "avoidance of constructive fraudulent transfer under 11 U.S.C §§ 548 and 550; disallowance of claims under 11 U.S.C. [§] 502; avoidance of fraudulent transfer under 31 L.P.R.A. §§ 3491-3500; and 2 L.P.R.A. § 97".
The Debtor filed an Objection to Proof of Claim Number 72 arguing that the claim was filed without adequate supporting documentation and that the claimant had failed to request relief from the automatic stay to timely file the alleged avoidance actions and was, therefore, legally time barred to do so (Docket No. 394). Upon the claimant's failure to reply, the court granted the objection to the proof of claim on June 12, 2020 (Docket No. 443).
On August 27, 2020, the Special Claims Committee of the Financial and Oversight Management Board (the "SCC") as representative for the Commonwealth of Puerto Rico (the "Commonwealth"), filed its Special Claims Committee of the Board of the Financial Oversight Management Board's Motion to Vacate (Docket No. 544).
The SCC argues that it was first made aware of this Objection upon receipt on July 7, 2020 of an unrelated docket filing by mail service of process to Counsel for the SCC, which prompted a review of the Court's docket that revealed the existence of the Objection and the Order. The SCC alleges that the counsel's office had to abide to the health and safety orders from the Commonwealth of Massachusetts and had limited access to the offices. A "skeleton crew" for SCC counsel's office scanned and sent mail electronically. SCC counsel discloses that the mailing was inadvertently scanned and deleted and, as a result, was never viewed by SCC's counsel. "Therefore, the SCC had no actual knowledge of the Debtor's Objection and the Court's consequential denial of its Proof of Claim until it received an unrelated mailing on July 7, 2020 and conducted a subsequent review of the docket." The counsel alleges that, upon the discovery of the Objection, he contacted the Debtor's prior attorney and the current attorney. However, three weeks after contacting Attorney Cuprill, current attorney, he informed the SCC that the Debtor did not consent to the relief requested herein.
The SCC argues that the failure to respond was due to "mistake, inadvertence or excusable neglect" and requests reconsideration to the order pursuant to Fed. R. Civ. P. 60(b), incorporated to bankruptcy by Fed. R. Bankr. P. 9024. SCC argues that pursuant to Pioneer Inv. Servs. V. Brunswick Assocs. Ltd. P'ship, 507 U.S. 380, 395, 113 S. Ct. 1489, 1498, 123 L. Ed. 2d 74 (1993) the court must determine first whether the delay was caused by mistake or neglect, and then the Court must determine whether that neglect was excusable. To determine whether mistake or neglect is excusable, the Court must look at the totality of the circumstances. See Welch & Forbes, Inc. v. Cendant Corporation (In re Cendant Corporation Prides Litigation), 233 F. 3d 188, 196 (3d Cir. 2000). The court must weigh the mistake or neglect against other equitable factors such as "the danger of prejudice to the debtor, the length of the delay and its potential impact on judicial proceedings, the reason for the delay, including whether it was within the reasonable control of the movant, and whether the movant acted in good faith." citing Pioneer at 395.
The SCC further argues that its failure to respond is excusable under the equities of the case. The Debtor has suffered no prejudice from the delay, there is a reasonable explanation for the delay, the SCC has acted in good faith and the SCC promptly acted to remediate the delayimmediately upon its discovery. The SCC alleges that the Covid-19 global pandemic and associated disruption and disablement of law offices from normal procedures should be considered by this Court to be a "unique or extraordinary circumstance" worthy of relief under Rule 60(b). Office disruptions of this nature render neglect or excusable mistake. The mistake at issue is not a mere mistake in everyday office procedure. The SCC argues that the debtor has not suffered any prejudice due to the delay because the fact that the Debtor would have to litigate the claim if the order were vacated cannot be considered "prejudice". The SCC has not demonstrated bad faith in its inadvertent delay in responding to the Debtor's Objection to its Proof of Claim. Further, the SCC promptly filed this Motion to Vacate after discovering its delay and attempting to obtain the Debtor's consent to the relief, which favors granting the motion.
The Debtor, Puerto Rico Hospital Supply, filed its Opposition to Special Claims Committee of the Financial Oversight Management Board's Motion to Vacate (Docket No. 561). The Debtor argues that the Commonwealth of Massachusetts situation due to the Covid-19 pandemic is not unique, and that under similar circumstances, this Bankruptcy Court has been conducting hearings in the regular course of business through Skype. The Debtor argues that the allowance of the Motion to Vacate will cause prejudice to the Debtor, which already filed a disclosure statement and plan of reorganization. The Debtor cites the factors that the court should consider as parameters to allow the excusable neglect argument: "our evaluation of what constitutes excusable neglect is an equitable determination, taking into account the entire facts and circumstances surrounding the party's omission, such as the danger of prejudice to the non-movant, the length of the delay, the reason for the delay, and whether the movant acted in good faith." Citing Davila Alvarez v. Escuela de Medicina Universidad Central del Caribe, 257 F.3 58, 64 (1st Cir. 2001). Of these factors, the reason for delay is the most important one. In re Sheedy, 875 F.3d 740, 743 (1st Cir. 2017). The Debtor argues that the Motion to Vacate does not comply with the First Circuit's parameters of excusable neglect.
On September 18, 2020, the SCC filed its Reply of Motion to Vacate (Docket No. 565). The SCC states that its position is not factually misleading as alleged by the Debtor. It reinstates that an error occurred in the process, and the attorney team did not receive the filing and, as a result, did not respond. The SCC alleges that the Debtor acknowledged that the uniqueness and exceptional nature of the circumstances is a critical factor in determining whether "mistake, inadvertence, or excusable neglect" is sufficient cause to vacate an order under Rule 60. The Debtor did not argue that Covid-19 is not unique or exceptional. The Debtor argues that thelogistical complications caused by the pandemic is not unique to the state of Massachusetts, where SCC counsel practices. The SCC alleges that the Debtor itself alleged the unusualness of the pandemic shutdowns in its averments before this court in its replies to Trustee's Motion to Dismiss. Furthermore, the SCC appeals to the sentiment of the court, arguing that it has, itself, granted deference to other parties in different proceedings where the non-responsiveness of a party could be explained due to pandemic-related communications issues. "It is disappointing then, that the Debtors would request extraordinary relief from this Court premised upon their own extenuating circumstances during the pandemic, while arguing that the SCC is underserving of analogous relief as a matter of law."
In its pertinent part, § 502(j) states that Additionally, Fed. R. Bankr. P. 3008 states that
The motion to vacate order filed by the SCC is pursuant to Fed. R. Civ. P. 60. Rule 60(b)(1) , which provides that a party may move for relief from a final judgment because of "mistake, inadvertence, surprise, or excusable neglect." Fed. R. Civ. P. 60(b)(1). In In re Temsco NC Inc., 537 B.R. 108, 126 (Bankr. D.P.R. 2015) this bankruptcy court referenced the Bankruptcy Court's summary in In re O'Shaugnessy to the Supreme Court's analysis in Pioneer Inv. Servs. v. Brunswick Assocs. Ltd. P'ship, 507 U.S. 380, 113 S. Ct. 1489, 123 L. Ed. 2d 74 (1993), for determining "excusable neglect" pursuant to Fed. R. Bankr. P. 9006(b)(1), as follows:
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