Puerto Rico Asphalt, LLC v. Banco Popular De P.R. (In re Betteroads Asphalt, LLC)
| Decision Date | 30 November 2020 |
| Docket Number | Civil No. 19-2020 (DRD),Bankruptcy Case No. 17-04156 (ESL),Bankruptcy Case No. 17-04157 (ESL),Civil No. 19-2023 (DRD) |
| Parties | IN RE: BETTEROADS ASPHALT, LLC, Debtor, IN RE: BETTER RECYCLING CORPORATION, Debtor, PUERTO RICO ASPHALT, LLC, Appellant, v. BANCO POPULAR DE PUERTO RICO, ET AL., Appellees. |
| Court | U.S. District Court — District of Puerto Rico |
Consolidated Cases
Pending before the Court is appellees' First Bank Puerto Rico (hereinafter, "Firstbank"), Banco Santander de Puerto Rico (hereinafter, "Banco Santander"), the Economic Development Bank for Puerto Rico (hereinafter, "EDB"), and Banco Popular de Puerto Rico (hereinafter, "Banco Popular" or the "Administrative Agent, and collectively with Firstbank, Banco Santander, and EDB, the "Appellees" or "Lenders") Motion to Dismiss for lack of subject matter jurisdiction, as to Puerto Rico Asphalt, LLC's appeal from several orders issued related to Bankruptcy Petitions (Cases Nos. #17-04156 and 17-04157) before U.S. Bankruptcy Judge Enrique S. Lamoutte. See Docket No. 12. Puerto Rico Asphalt, LLC filed its respective Opposition thereto. See Docket No. 25. A Reply from the Lenders was filed shortly thereafter. See Docket No. 36.
For the reasons articulated below, the Court GRANTS the Lenders' Motion to Dismiss. See Docket No. 12.
On June 9, 2017, the petitioner creditors including the appearing Lenders, commenced two (2) involuntary bankruptcy petitions pursuant to title 11 of the United States Code, also known as the "Bankruptcy Code", against Betteroads Asphalt, LLC, Case No. 17-04156-ESL (hereinafter, the "Betteroads Case") and Betterecycling Corporation, Case No. 17-04157-ESL (hereinafter, the "Betterecycling Case")(collectively, the "Debtors"). See Docket No. 1 in related bankruptcy cases 17-04156 (ESL) and 17-04157 (ESL). An Emergency Motion Requesting the Entry of an Order Appointing an Interim Chapter 11 Trustee or, in the Alternative, Appointing an Examiner, and for Related Relief was subsequently filed. See Docket No. 14 in the Betteroads Case and Docket No. 8 in the Betterecycling Case. Therein, the Lenders asserted as one of the main bases for the appointment of a trustee, "that the Debtors had engaged in a fraudulent scheme to transfer a substantial amount of their assets to Puerto Rico Asphalt, LLC (hereinafter, "PRA"), prior to the Petition Date." Id.
The Debtors timely contested the Involuntary Petitions, as provided by Rule 1011(a) of Bankruptcy Procedure. See A's App. Part 1, Docket No. 3-2 at 152-174. By August 24, 2018, PRA made an appearance in the Betteroads Case to request notices of the proceedings. Although there were no adversary proceedings against PRA, the entity appeared as a "party in interest i.e.,defendant to a related adversary." See A's App. Part 4, Docket No. 3-10 at 138-139. According to PRA, the Lenders failed to "serve PRA with either the involuntary petition on [the] date [of filing] and afterwards have not done so to this date" while also failing to "serve PRA with the Motion to Appoint Trustee on [the] date [of filing] and afterwards have not done so to this date." Docket No. 25 at ¶¶ 7, 9. However, the Court notes that PRA is not a debtor of the bankruptcy proceedings, thus, service was not warranted. In spite of that, once PRA was allowed to appear as a "party in interest" in the bankruptcy proceedings, it was given access to the Bankruptcy Case Docket Report, wherein all documents that had been filed to that day and thereafter, were available for PRA's review.
In turn, upon considering the motion for summary judgment filed by the Debtors essentially requesting an order for relief, the Bankruptcy Court entered an Opinion and Order (A's App. Part 4, Docket No. 3-10 at 140-206) making the following findings:
Docket No. 1, Exhibit 2 at 66-67. PRA did not seek reconsideration related to the Opinion and Order. Accordingly, on January 3, 2019 an Order and Notice was entered wherein an Evidentiary Hearing was rescheduled in order to address the following motions: (1) Betteroads' Motion to Dismiss the Involuntary Bankruptcy Petition (A's App. Part 1-1, Docket No. 3-2 at 152-174); (2)Betterecycling's Motion to Dismiss the Involuntary Petition (Docket No. 27 in Betterecycling Case); and (3) Opposition to the Motion to Dismiss filed by the Lenders (A's App. Part 1-1, Docket No. 3-2 at 256-275). See Docket No. 1, Exhibit 3. The evidentiary hearing was essentially scheduled to "consider whether or not the involuntary petitions were filed in bad faith, that is, for an improper purpose that constitutes an abuse of the bankruptcy process." See Docket No. 12 at 4.
As part of the discovery related to the Evidentiary Hearing, the parties agreed on a joint discovery schedule as amended in several occasions. All schedules were filed before the Bankruptcy Court and PRA was put on notice. Yet, PRA did not oppose to any of the joint discovery schedules.
A's App. Part 4, Docket No. 3-10 at 213-227.
Prior to the Evidentiary Hearing, the Lenders filed a Pretrial Report. See A's App. Part 7, Docket No. 3-15 at 1-109. Likewise, Debtors filed their Pretrial Report. See A's App. Part 8, Docket No. 3-24 at 1-74. Both Pretrial Reports were based on evidence that was obtained during discovery. As PRA alleges to be entitled to all discovery while also alleging to not have been notified of said process, on June 25, 2019, PRA filed an Urgent Motion to Suppress Discovery or for Alternative Relief wherein the following remedies were requested: "that certain discovery in the instant case be quashed, suppressed, and not allowed to be presented in the evidentiary hearing" and that the discovery between Debtors and Creditors be reopened so that PRA can "examine and cross-examine witnesses, conduct its own discovery and defend itself from the accusations included in the Pre Trial Reports, prior to facing its consequences." See A's App. Part 8, Docket No. 3-24 at 214, 220 and 234.
Thereinafter, during the Evidentiary Hearing, which lasted several days, the Bankruptcy Court questioned PRA's standing and timing in requesting intervention in the involuntary petitions, and upon listening to the parties' arguments, ruled that PRA lacks standing1 to strike or suppress evidence and as to other remedies in the discovery motion.2 Moreover, oral arguments were heard against the applicability of Bankruptcy Rule of Procedure 1018 to the bankruptcy proceedings.
The Hearing continued and at the conclusion of the Debtors' case in chief, the Lenders submitted a request for judgment on partial findings pursuant to Bankruptcy Rule of Procedure7052(c)3 "since the Debtors had been fully heard and had failed to meet their burden on the sole issue regarding the Bad Faith Contested Matter." Transcript of Evidentiary Hearing, July 18, 2019, Docket No. 629 in Betteroads Case and Docket No. 356 in Betterecycling Case.4
The Court begins by noting that prior to filing the instant appeals, PRA filed premature notices of appeal from the Bankruptcy Court's interlocutory Discovery Order before the United States District Court for the District of Puerto Rico, in the cases titled Puerto Rico Asphalt, LLC v. Betteroads Asphalt, LLC, Civil No. 19-01661 (ADC) (hereinafter, "Betteroads First Appeal) and in the case titled Puerto Rico Asphalt, LLC v. Betterecycling Corporation, Civil No. 19-01662 (ADC) (hereinafter, "Betterecycling First Appeal"). See Docket No. 1 in Betteroads and Betterecycling First Appeals.
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