LM Waste Serv. Corp. v. De Isabela (In re LM Waste Serv. Corp.)
| Decision Date | 19 March 2018 |
| Docket Number | CASE NO. 14-08851 (EAG),ADV. PROCEEDING NO. 15-00125 |
| Parties | IN RE: LM WASTE SERVICE CORP., DEBTOR. LM WASTE SERVICE CORP., PLAINTIFF, v. MUNICIPIO DE ISABELA, DEFENDANT. |
| Court | U.S. Bankruptcy Court — District of Puerto Rico |
Plaintiff LM Waste Service Corp. commenced three separate adversary proceedings against: the Municipality of San German [Adv. Proc. 15-00124]; the Municipality of Isabela [Adv. Proc. 15-00125]; and the Municipality of Juana Diaz and Andres Reyes Burgos, Inc. [Adv. Proc. 15-00126]. These three proceedings are all similar. All of them were filed for the turnover of property under section 542 of the Bankruptcy Code, collection of monies, and breach of contract.1 And, all of them also mirror law suits commenced by LM Waste in statecourt prior to its filing of the voluntary petition for relief under chapter 11 of the Bankruptcy Code.
After entering an opinion and order permissibly abstaining under section 1334(c)(1) of title 28 of the United States Code in adversary proceeding 15-00126, this court ordered in the adversary proceeding of caption the Municipality of Isabela to supplement its pending motion to dismiss with a statement of proposed uncontested facts. Given the similarities between the three cases and for comity reasons, the court forewarned the parties that it would consider permissively abstaining from also hearing this case.
For the reasons stated below, the court permissibly abstains from the case and dismisses the same.
LM Waste filed a voluntary petition under chapter 11 of the Bankruptcy Code, which was docketed as case 14-08851 on October 29, 2014. [Bankr. Dkt. No. 1.] On May 4, 2015 it commenced this adversary proceeding. [Adv. Dkt. No. 1.] On December 1, 2015, Isabela answered the complaint and counterclaimed against LM Waste. [Adv. Dkt. No. 22.] On December 22, 2016, LM Waste answered the counterclaim. [Adv. Dkt. No. 24.]
On May 12, 2016, Isabela moved to dismiss the case. [Adv. Dkt. No. 30.] On May 23, 2016, LM Waste opposed the dismissal. [Adv. Dkt. No. 31.]
A hearing was held on December 21, 2016, where Isabela was ordered to supplement its motion to dismiss with a statement of proposed material uncontested facts and certified English translations of documents submitted as supporting exhibits. [Adv. Dkt. No. 35.] LM Waste was also ordered at that hearing to respond to Isabela's proposed statement admittingor denying the facts submitted by Isabela. [Id.]
On January 2, 2017, Isabela filed its statement of uncontested material facts. [Adv. Dkt. No. 37.] On the same date, Isabela filed a motion for leave to file Spanish language documents pending translation. [Adv. Dkt. No. 38.]
On January 17, 2017, LM Waste requested an extension to respond to Isabela's statement of proposed material uncontested facts until Isabela filed the certified English translations of the documents submitted as supporting exhibits. [Adv. Dkt. No. 39.] The court granted the extension request made by Isabela to submit the certified English translations until February 1, 2017 and also granted LM Waste's request to reply to the statement once the translations were filed. [Adv. Dkt. Nos. 40 & 42.]
A hearing was held on February 17, 2017 where Isabela was granted thirty days to reach an agreement with LM Waste on stipulated facts as to minimize the cost of the certified English translations. [Adv. Dkt. No. 44.]
No further documents were filed and the court scheduled a status conference for June 9, 2017. [Adv. Dkt. No. 46.] Isabela did not appear at the status conference. [Adv. Dkt. No. 49.] As such, the court denied the pending motion to dismiss. [Id.] The court then scheduled an initial scheduling conference for August 18, 2017. [Adv. Dkt. No. 50.]
On June 20, 2017, Isabela filed a motion for reconsideration of the order denying its motion to dismiss, with a second proposed statement of uncontested facts and certified English translations as supporting exhibits. [Adv. Dkt. No. 53.] LM Waste did not respond to the motion for reconsideration.
On August 9, 2017, LM Waste filed a motion to continue the initial scheduling conference, which was granted by the court to September 22, 2017. [Adv. Dkt. No. 54.] But, the initial scheduling conference was continued to October 27, 2017 and later to December 8, 2017 due to the emergency situation in Puerto Rico caused by the passage of Hurricane María. [Adv. Dkt. Nos. 57 & 62.] On November 6, 2017, LM Waste moved again for the continuance of the initial scheduling conference and the court continued it to January 12, 2018. [Adv. Dkt. Nos. 61 & 62.] At the initial scheduling conference held on January 12, 2018, the court informed the parties it would be entering a separate opinion and order permissively abstaining for this adversary proceedings. [Adv. Dkt. No. 65.]
The following facts are undisputed as found in the record of this case and the statement of proposed uncontested facts filed by Isabela at docket number 37 as supplemented at docket number 53:
On June 6, 2011, LM Waste and Isabela executed an agreement for the collection and transportation of non-hazardous solid wastes in the municipality's communities to be disposed of in the municipal landfill. Under the contract, LM Waste would administer and operate the municipality's landfill.
On October 11, 2013, LM Waste filed a complaint for breach of contract against Isabela in the Puerto Rico Court of First Instance, Superior Part of Aguadilla. [Isabela's SUF at ¶ 2, Adv. Dkt. Nos. 37 & 53; Exhibit 1, Adv. Dkt. No. 53-1.] On October 31, 2013, Isabela answered thecomplaint. [Isabela's SUF at ¶ 3, Adv. Dkt. Nos. 37 & 53; Exhibit 2, Adv. Dkt. No. 53-2.]
On February 3, 2014, Isabela filed in the state court an informative motion stating that it had sent to LM Waste a first set of interrogatories, request for production of documents, and request for admissions. [Isabela's SUF at ¶ 6, Adv. Dkt. Nos. 37 & 53; Exhibit 3, Adv. Dkt. No. 53-3.] On September 14, 2014, Isabela filed a motion requesting that the request for admissions be deemed admitted since LM Waste had not answered the same. [Isabela's SUF at ¶ 7, Adv. Dkt. Nos. 37 & 53; Exhibit 4, Adv. Dkt. No. 53-4.] On the same date, Isabela also moved to dismiss the case because LM Waste had not answered any of the discovery requests. [Isabela's SUF at ¶ 7, Adv. Dkt. Nos. 37 & 53; Exhibit 5, Adv. Dkt. No. 53-5.]
On November 26, 2014, LM Waste filed a petition under chapter 11 of the Bankruptcy Code. [Bankr. Dkt. No. 1; Isabela's SUF at ¶ 9, Adv. Dkt. Nos. 37 & 53.] The state court then issued a judgment staying the proceedings and administratively closing, without prejudice, the case. [Isabela's SUF at ¶ 910, Adv. Dkt. Nos. 37 & 53; Exhibit 6, Adv. Dkt. No. 53-6.] The state court also reserved jurisdiction to reopen the case upon the request of a party if the order staying the proceedings were to be set aside. [Id.]
On May 4, 2015, LM Waste filed a complaint initiating this adversary proceeding. [Adv. Dkt. No. 1; Isabela's SUF at ¶ 11, Adv. Dkt. Nos. 37 & 53.]
LM Waste avers in the complaint that Isabela has an outstanding debt to the estate of $1,231,223.40 for services rendered, plus damages in an amount not less than $20,000,000 due to breach of contract. [Adv. Dkt. No. 1.]
Isabela moves the court for dismissal arguing that the claim against it does notconstitute a core proceeding as defined in section 157 of title 28, and that LM Waste did not properly transfer the case from the state court to the bankruptcy court under Bankruptcy Rule 9027. [Adv. Dkt. No. 30.]
LM Waste opposes dismissal arguing that this is a core proceeding because the alleged breach of contract is precisely what led to the filing of the chapter 11 petition, the uncollected funds owed to the estate are recoverable under section 365, and the already executed portions of the contract are considered a matured debt recoverable under section 542. [Adv. Dkt. No. 31.]
District courts have jurisdiction over all civil proceedings "arising under title 11, or arising in or related to cases under title 11." 28 U.S.C. § 1334(b). They may refer to bankruptcy courts "all cases under title 11 and any or all proceedings arising under title 11 or arising in or related to a case under title 11." 28 U.S.C. § 157(a). The United States District Court for the District of Puerto Rico, by Resolution of July 19, 1984 and Local Civil Rule 83K(a), has referred to this court, pursuant to section 157(a) of title 28, all cases under title 11 and all proceedings arising under title 11, or arising in or related to a case under title 11.
Section 157 of title 28 defines and distinguishes what are core and non-core proceedings. 28 U.S.C. § 157(b) & (c). See, Roman-Perez v. Operating Partners Co. LLC (In re Roman-Perez), 527 B.R. 844, 851 (Bankr. D.P.R. 2015.) "A core proceeding, for bankruptcy jurisdictional purposes, is an action that has as its foundation the creation, recognition, or adjudication of rights that would not exist independent of a bankruptcy environment." In re Med. Educ. & Health Servs., Inc., 459 B.R. 527, 545 (Bankr. D.P.R. 2011). "If an action would survive outside of bankruptcy, and in the absence of bankruptcy would have been initiated ina state or a district court, then it clearly involves a non-core matter." Scotland Guard Servs. v. Autoridad de Energia Electrica (In re Scotland Guard Servs.), 179 B.R. 764, 767 (Bankr. D.P.R. 1993).
A bankruptcy judge may hear a non-core proceeding that is otherwise related to a case under title 11. 28 U.S.C. § 157(c)(1). But, a bankruptcy judge cannot enter judgment in non-core proceedings and is limited to...
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