In re Reitter Corp.. D/B/A Hosp. San Gerardo

• Decision Date: 13 May 2011
• Docket Number: No. 10–07152 (ESL).,10–07152 (ESL).
• Citation: 54 Bankr.Ct.Dec. 212,449 B.R. 641
• Parties: In re REITTER CORPORATION d/b/a Hospital San Gerardo, Debtor.
• Court: U.S. Bankruptcy Court — District of Puerto Rico

449 B.R. 641

107 A.F.T.R.2d 2011-2259

2011-1 USTC P 50,398

54 Bankr.Ct.Dec. 212

In re REITTER CORPORATION d/b/a Hospital San Gerardo, Debtor.

No. 10–07152 (ESL).

United States Bankruptcy Court, D. Puerto Rico.

May 13, 2011.

Alexis Fuentes Hernandez, Fuentes Law Offices, San Juan, PR, for Debtor.

OPINION AND ORDER

ENRIQUE S. LAMOUTTE, Bankruptcy Judge.

The issue before the court is whether Banco Popular de Puerto Rico (hereinafter referred to as “BPPR”) or the United States Internal Revenue Service (hereinafter referred to as the “IRS”) is the senior lien holder over Debtor's cash collateral, in particular, the Debtor's accounts receivables generated on or after March 1, 2010, in accordance with 26 U.S.C. §§ 6321, 6322 and 6323 (Docket Nos. 97 & 135). The IRS and BPPR have filed legal memoranda (Docket Nos. 117 & 124) regarding this particular issue and their respective replies to the same (Docket Nos. 124 & 125). Debtor has joined BPPR's legal position (Docket No. 188). For the reasons stated herein, this court finds that the IRS is the senior lien holder over Debtor's accounts receivables which were generated on or after March 1, 2010.

Facts and Procedural Background

Reitter Corporation filed a bankruptcy petition under Chapter 11 of the Bankruptcy Code on August 6, 2010. The Debtor included the IRS in its “List of Creditors Holding 20 Largest Unsecured Claims” in the amount of $1,887,946.42. (Docket No. 23). Debtor also listed in its Schedule E, Creditors Holding Unsecured Priority Claims, the IRS' claim for taxes, interest and penalties in the amount of $1,887,946. The only secured creditor Debtor included in its Schedule D, Creditors Holding Secured Claims, was BPPR's claim for general hospital specializing, accounts receivable, equipment & fixtures and escrow account in the amount of $10,182,258.63. Debtor's Schedule A, Real Property, includes its fee simple interest in the property described as, “general hospital specializing in acute and skill nursing services located at km 0.5, State Road 844, Cupey Ward, San Juan, PR” which has a current value of $13,130,000.00 (without deducting any secured claim or exemption) subject to a secured claim in the amount of $7,679,999.47 (Docket No. 23). Debtor in its Schedule B, Personal Property, included accounts receivables in the amount of $2,502,259.16 (Docket No. 23).

On September 8, 2010, the IRS filed proof of claim # 4–1 in the amount of $2,941,703.11, of which it claims $1,380,978.52 to be secured, $459,713.61 to be unsecured, and the remainder $1,101,010.98 as an unsecured priority tax claim under 11 U.S.C. § 507(a)(8). On December 10, 2010, BPPR filed a secured proof of claim # 33–1 in the amount of $11,674,291.63, which is broken down in the following manner: (i) $10,155,841.48 of principal as of August 6, 2010; (ii) $84,765.37 of interest accrued up to August 6, 2010; (iii) $233,684.78 of interest accrued between August 7, 2010 and December 10, 2010; and (iv) $1,200,000.00 of liquidated damages.

On September 1, 2010, Debtor and BPPR filed an Urgent Joint Motion and Stipulation for Interim Use of Cash Collateral, Adequate Protection and for Other Relief by which BPPR allowed Debtor the interim use of certain of its cash collateral to satisfy certain necessary operating expenses until November 4, 2010. The additional adequate protection the Debtor granted BPPR for the limited use of the Cash Collateral ¹ as defined in the Stipulation, amongst other things, was to grant BPPR a valid perfected post-petition super priority claim in an amount equal to any diminution of value of BPPR's interest in the Cash Collateral, resulting from Debtor's limited use of the Cash Collateral in the amounts provided in the Budget (Docket No. 28, IV. Stipulation, paragraphs 18–21). The court granted the same on September 8, 2010 (Docket No. 33). Subsequently, on October 26, 2010, BPPR and Debtor filed a Joint Motion Amending Stipulation for Interim Use of Cash Collateral, Adequate Protection and for Other Relief by which the parties requested the Court to enter an Order approving the Amendment to Stipulation retroactively (Docket No. 44). On November 8, 2010, the Court granted the request retroactively as of the date of the filing of the stipulation (Docket No. 56). On November 4, 2010 BPPR and Debtor filed an Urgent Motion for Entry of Order Extending Stipulation, as Amended, for the interim use of Banco Popular's Cash Collateral Until December 6, 2010, by which BPPR and Debtor have agreed, on an emergency basis, to amend the Stipulation to extend all of the terms and conditions contained in the same until December 6, 2010 (Docket No. 55). On November 15, 2010 the court granted BPPR and Debtor's unopposed request for the interim use of Banco Popular's Cash Collateral until December 6, 2010 (Docket No. 58).

On December 6, 2010, the IRS filed a motion to prohibit the use of cash collateral requesting; (i) the court to enter an Order prohibiting Debtor's use of cash collateral pursuant to 11 U.S.C. § 363(c)(2) and (e) and Fed. R. Bankr.P. 4001(a) due to the IRS secured creditor status pursuant to 26 U.S.C. §§ 6321, 6322 and 6323; (ii) the court to vacate the prior Orders (Docket Nos. 33, 56 & 58) by which it granted Debtor and BPPR's request for the use of cash collateral due to insufficient service of process of the three (3) joint motions pursuant to Fed. R. Bankr.P. 9014(b), 4001(b), 7004(b)(5), and P.R. LBR 4001–2 and; (iii) the court to order BPPR to disgorge any payments of cash collateral it has received from Debtor (Docket No. 74). On the same date, Debtor and BPPR filed an Urgent Motion for Entry of Order Extending Stipulation For the Interim Use of Banco Popular's Cash Collateral until January 4, 2011. On December 7, 2010, the court denied BPPR and Debtor's Urgent Motion for Entry of Order Extending Stipulation For the Interim Use of Banco Popular's Cash Collateral (Docket No. 75) and ordered the Debtor to reply within seven (7) days to the IRS' Motion to Prohibit the Use of Cash Collateral ² (Docket No. 76).

On December 14, 2010, BPPR filed its Opposition to the IRS' Motion to Prohibit Use of Cash Collateral arguing the following: (i) the joint motions requesting use of cash collateral were correctly notified to the IRS in conformity with Fed. R. Bankr.P. 9014(b), 4001(d) and P.R. LBR 4001–2; (ii) the IRS is estopped, barred and impeded by the law of the case, its own acts and estoppel doctrines from objecting to the BPPR stipulations since the IRS had both actual and constructive notice of BPPR's stipulations; (iii) the IRS failed to evidence its alleged liens and security interests over Debtor's cash collateral, thus Debtor is unable to determine the date upon which the same became enforceable; (iv) BPPR's liens and security interests have priority over the IRS' alleged liens and security interest as they are first in time; (v) the IRS' liens and security interests are subordinated to BPPR's liens and security interests, thus until BPPR's claim has been fully satisfied, all of Debtor's real property and certain personal property, including cash and cash collateral may not be used to satisfy the IRS' claim or provide adequate protection; and (vi) “[a]ll of Debtor's real property and certain personal property, including cash and cash collateral, constitute proceeds from contract rights and fruits from the mortgaged property, which, respectively, constitute commercial financing security, 26 U.S.C. § 6323(c)(2)(C)(i) and § 6323(c)(2)(C)(iii), which were acquired by the taxpayer before the alleged filing of the NFTLs, 26 U.S.C. § 6323(c)(2)(B), and which secure a commercial financing security agreement. 26 U.S.C. § 6323(c)(2)(A). See also, Plymouth Savings Bank v. United States Internal Revenue Service, 187 F.3d 203, 206–207 (1999).” (Docket No. 84). On December 24, 2010, the Debtor filed its Opposition to the IRS' Motion to Prohibit the Use of Cash Collateral by which it joined BPPR's position (Docket No. 95).

On December 28, 2010, a hearing was held regarding the IRS' motion to prohibit the use of cash collateral and the opposition by BPPR and Debtor (Docket No. 97). At the hearing the court made the following rulings: (1) IRS is a secured creditor over Debtor's cash collateral pursuant to 26 U.S.C. § 6321, irrespective of which party is the senior lien holder of Debtor's accounts receivables. The IRS' proof of claim and Exhibit A (Certifications of the filing of the tax liens) are sufficient evidence and support to establish that the documents were indeed registered with the District Court; and (2) the IRS was not given due notice of the Stipulation between BPPR and Debtor in conformity with Fed. R. Bankr.P. 9014, 4001(b) and 7004(b)(5). Thus, the IRS is not bound by the Agreement (Stipulation). The court further emphasized that irrespective of whether or not the IRS is junior to BPPR or not, the IRS holds a lien over Debtor's cash collateral. Consequently, any motion or agreement entered into by BPPR and the Debtor may not affect the rights of the IRS over the cash collateral. The court found that the only pending issue remaining to be adjudicated is whether BPPR or the IRS is the senior lien holder over Debtor's cash collateral (accounts receivables), as of March 1, 2010. The court ordered Debtor, BPPR and the IRS to file simultaneous briefs on or before January 14, 2011 (Docket Nos. 97 & 135). On December 29, 2010, BPPR filed its Notice of Appeal from the two rulings included in the Order entered on December 28, 2010 and its election to have said appeal heard by the District Court (Docket Nos. 98, 99 & 100).

Parties' Legal Arguments Priority of Liens

On January 14, 2011, the IRS filed its legal memorandum presenting the following arguments: (i) the IRS perfected its earliest tax lien on the Debtor's personal property (cash collateral) in conformity with 26 U.S.C. § 6323(f) on January 14, 2010, by properly filing notices of such federal tax liens ...