Monge v. Rojas (In re Monge)

• Decision Date: 05 September 2014
• Docket Number: CASE NO. 09-30881-hcm,ADVERSARY NO. 10-03019-hcm
• Parties: In Re: JOE JESSE MONGE and ROSANA ELENA MONGE, Debtors. JOE JESSE MONGE and ROSANA ELENA MONGE, Plaintiffs, v. ALICIA ROJAS; FRANCISCO JAVIER JAYME; MONROJ INVESTMENTS INC.; NORTHEAST PATRIOT PLAZA INC. Defendants.
• Court: United States Bankruptcy Courts. Fifth Circuit. U.S. Bankruptcy Court — Western District of Texas

In Re: JOE JESSE MONGE and ROSANA ELENA MONGE, Debtors.

JOE JESSE MONGE and ROSANA ELENA MONGE, Plaintiffs,
v.
ALICIA ROJAS; FRANCISCO JAVIER JAYME; MONROJ INVESTMENTS INC.; NORTHEAST PATRIOT PLAZA INC. Defendants.

CASE NO. 09-30881-hcm
ADVERSARY NO. 10-03019-hcm

UNITED STATES BANKRUPTCY COURT FOR THE WESTERN DISTRICT OF TEXAS EL PASO DIVISION

September 5, 2014

(Chapter 11)

PROPOSED FINDINGS OF FACT AND CONCLUSIONS OF LAW WITH RESPECT TO TRIAL IN ADVERSARY PROCEEDING NO. 10-03019

TO THE HONORABLE U.S. DISTRICT COURT JUDGE:

In accordance with 28 U.S.C. § 157(c)(1) and Rule 9033 of the Federal Rules of Bankruptcy Procedure ("Bankruptcy Rules"), the U.S. Bankruptcy Court for the Western District of Texas, El Paso Division (Bankruptcy Judge H. Christopher Mott), submits the following Proposed Findings of Fact and Conclusions of Law ("Proposed Findings and

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Conclusions") to the U.S. District Court for the Western District of Texas, El Paso Division ("District Court") for consideration and review.

On July 17 and 18, 2014, and August 4, 5, 7, and 8, 2014, this Court conducted a bench trial on the merits in this adversary proceeding no. 10-03019 ("Adversary Proceeding"). This Adversary Proceeding relates to and arises out of Chapter 11 bankruptcy case no. 09-30881 filed by Joe Jesse Monge and Rosana Elena Monge ("Monges") in this Court.

Appearing at the commencement of trial in the Adversary Proceeding were Joe Jesse Monge and Rosana Elena Monge, Plaintiffs and Counter-Defendants herein ("Monges"); Alicia Rojas and Francisco Javier Jayme, Defendants and Counter-Plaintiffs herein ("Rojas/Jayme"), Hugo Maynez Maldonado, a Defendant ("Maynez"), and Joe and Alison Villa, Defendants ("Villas"). During the course of trial, the Monges dismissed their claims against Defendant Maynez and Defendants Villas with prejudice, and Orders of Dismissal have been entered with respect to such parties. Thus, Defendant Maynez and Defendants Villas are no longer parties in this Adversary Proceeding.

Monroj Investments Inc. ("Monroj") and Northeast Patriot Plaza Inc. ("Northeast Patriot"), also named as Defendants herein, are defunct entities that did not appear at trial and an order for entry of default was previously entered against Monroj and Northeast Patriot.

Accordingly, the only remaining parties participating by the conclusion of the trial in the Adversary Proceeding were the Monges and Rojas/Jayme.

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I. INTRODUCTION

Jurisdiction and Constitutional Authority

1. This Court (a bankruptcy court) has statutory jurisdiction over the Adversary Proceeding under 28 U.S.C. § 1334(b) and 28 U.S.C. § 157(b)(1), as well as the Standing Order of Reference of Bankruptcy Cases and Proceedings entered in this District on October 4, 2013—which refers bankruptcy cases and proceedings from the District Court to this Court. However, as briefly explained below, it is very questionable at the present time whether this Court (a bankruptcy court) has the constitutional authority to enter a Final Judgment in this particular Adversary Proceeding—even though it has statutory authority. Accordingly, this Court is submitting these Proposed Findings of Fact and Conclusions of Law to the District Court for review and entry of a Final Judgment in this Adversary Proceeding under 28 U.S.C. § 157(c)(1) and Bankruptcy Rule 9033 .

2. This Adversary Proceeding involves some matters that are "core proceedings" as statutorily defined in 28 U.S.C. § 157(b)(2) and which arise directly under the provisions of the Bankruptcy Code (Title 11) in the bankruptcy case of the Monges—such as alleged violations of the automatic stay of 11 U.S.C. § 362, turnover of property of the bankruptcy estate under 11 U.S.C. § 542, and alleged rights under 11 U.S.C. § 365(i). This Adversary Proceeding also involves other matters that are only "related to" the bankruptcy case of the Monges under 28 U.S.C. § 157(c) that are not "core proceedings"—such as the various state law claims and defenses asserted by the Monges and other parties.

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3. Under statute (28 U.S.C. § 157(c)(2)), this Court has the statutory authority to enter a Final Judgment with the consent of the parties to the Adversary Proceeding. Here, the remaining parties in the Adversary Proceeding (the Monges and Rojas/Jayme), prior to trial, have expressly consented to entry of a final judgment by this Court. See Statements Regarding Consent (dkt# 159, p. 3; dkt# 176, p. 2). However, due to recent U.S. Supreme Court and Fifth Circuit precedent briefly explained below, this Court may lack the constitutional authority (as an Article I court) to enter a Final Judgment, even though the parties have previously expressly consented to entry of a Final Judgment by this Court.

4. In Stern v. Marshall, 131 S.Ct. 2594, 2615-20 (2011), the Supreme Court held that while a bankruptcy court had the statutory authority under 28 U.S.C. § 157(b)(2) to enter a final judgment on a debtor's counterclaim against a creditor as a "core proceeding"—the bankruptcy court lacked the constitutional authority to enter a final judgment. In short, the high court in Stern determined that since the debtor's counterclaim was based on state law and was independent of federal bankruptcy law, only an Article III court (a district court) and not an Article I court (a bankruptcy court) had constitutional authority to enter a final judgment under those particular circumstances. Although the Supreme Court stated in Stern that its holding and the issue presented was "narrow" (131 S. Ct. at 2620), other courts (including the Fifth Circuit) have recently adopted a broad reading of the Stern decision.

5. In the wake of Stern, the Fifth Circuit recently issued a decision in the case of BP RE L.P. v. RML Waxahachie Dodge L.L.C. (In re BP RE L.P.), 735 F.3d 279 (5th Cir. 2013). In BP RE, a chapter 11 debtor-plaintiff filed an adversary proceeding

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against multiple defendants based on various state law tort and breach of contract claims—which were not "core proceedings" but were "related to" the bankruptcy case. The debtor-plaintiff's claims were based on state law (not bankruptcy law) and did not stem from the bankruptcy itself. Before trial, the parties consented to entry of a final judgment by the bankruptcy court. After trial, the bankruptcy court entered a final judgment that the debtor-plaintiff take nothing on its claims. On appeal for the first time, the debtor-plaintiff argued that, based on Stern, the bankruptcy court lacked constitutional authority to enter a final judgment on its state-law based claims. In short, the Fifth Circuit agreed and held that even though the bankruptcy court had statutory authority under 28 U.S.C. § 157(c)(2) to enter a final judgment with the parties' consent—the bankruptcy court lacked constitutional authority as a non-Article III court to enter a final judgment on state law claims that did not stem from the bankruptcy itself. BP RE, 735 F.3d at 285-88. The Fifth Circuit stated that instead, the bankruptcy court could have issued proposed findings of fact and conclusions of law on the state law claims to the district court for review and entry of final judgment under 28 U.S.C. § 157(c)(1). See BP RE, 735 F.3d at 291.

6. The 2013 decision by the Fifth Circuit in BP RE—that express consent by the parties to a bankruptcy court's entry of a final judgment on state law claims related to the bankruptcy case was not effective and that the Supreme Court decision in Stern should be read more broadly—surprised many, including this Court. Then very recently, the Supreme Court had the opportunity to address the issue of the effectiveness of party consent to bankruptcy court final adjudication, but declined. See Exec. Benefits Ins. Agency v. Arkinson (In re Bellingham Ins. Agency), 134 S.Ct. 2165, 2170 n.4 (2014)

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("We reserve that question for another day").¹ In Executive Benefits, the Supreme Court stated that if a "Stern claim" is involved (i.e., a claim listed as a statutory core proceeding but where the bankruptcy court lacks constitutional authority to enter a final judgment)—a bankruptcy court should issue proposed findings of fact and conclusions of law to the district court for de novo review and entry of final judgment under 28 U.S.C. §157(c)(1). See Executive Benefits, 134 S.Ct. at 2174.

7. In sum, at the present time, it appears very questionable whether this Court (an Article I bankruptcy court) has the constitutional authority to render a Final Judgment in this Adversary Proceeding even though the parties have previously expressly consented—since this proceeding involves several state law claims that do not stem from the Monges' bankruptcy itself.

8. For these reasons, this Court is submitting these Proposed Findings of Fact and Conclusions of Law with respect to trial in this Adversary Proceeding to the District Court for de novo review to the extent required and entry of a Final Judgment by the District Court in accordance with 28 U.S.C. § 157(c)(1).²

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Procedural Background

9. On April 27, 2009, Joe Jesse Monge and Rosana Elena Monge ("Monges"), as debtors, filed a voluntary Chapter 11 bankruptcy petition in this Court, case no. 09-30881.

10. On June 14, 2010, the Monges, as Plaintiffs, initiated this Adversary Proceeding by filing their original Complaint against Alicia Rojas and husband Francisco Javier Jayme ("Rojas/Jayme"), as Defendants (dkt# 1).³ Very shortly thereafter, on June 24, 2010, the Monges filed an Amended Complaint against Rojas/Jayme (dkt# 6).

11. In the beginning, this Adversary Proceeding was relatively simple—the Monges were seeking turnover of real property located in New Mexico (known as the Thoroughbred Property) from Rojas/Jayme, and damages for rent allegedly owed by Rojas/Jayme. See Amended Complaint (dkt# 6). Rojas/Jayme answered the Amended Complaint and filed a counterclaim based on the Texas Property Code (dkt# 10).

12. The Adversary Proceeding then became considerably more...