In re Betteroads Asphalt, LLC

IN RE: BETTEROADS ASPHALT, LLC

IN RE: BETTERECYCLING CORPORATION Alleged Debtors

CASE NO. 17-04156 (ESL)

CASE NO. 17-04157 (ESL)

UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF PUERTO RICO

July 12, 2019

CHAPTER 11

OPINION AND ORDER

This case is before the court upon Puerto Rico Asphalt, LLC's (hereinafter referred to as "PRA") Urgent Motion for Stay Pending Appeal (Case No. 17-04156, Docket no. 446; Case No. 17-04157, Docket No. 307) filed on July 9, 2019. PRA requests the stay of a bench ruling rendered at the June 27, 2019 evidentiary hearing in which the court determined that PRA has no standing to request the striking, suppressing and/or reopening of the discovery in this case and that Fed. R. Bankr. P. 1018 did not apply to the instant proceedings. On July 9, 2019, PRA filed a Notice of Appeal and Statement of Election to District Court (Case No. 17-04156, Docket No. 445; Case No. 17-04157, Docket No. 306). PRA requests a stay pending resolution of the appeal of the bench ruling "...because there is a "substantial possibility" of PRA's success on the merits and because, absent such relief, irreparable harm will occur." (Case No. 17-04156, Docket No. 446, pg. 3; Case No. 17-04157, Docket No. 307, pg. 3). For the reasons ser forth below the motion is hereby denied.

Background

On June 9, 2017, St. James Security Services, Inc., Sargeant Marine, Inc., Sargeant Trading, Ltd, Facsimil Paper Connection Corp. and Firstbank Puerto Rico ("Firstbank"), Banco Santander de Puerto Rico ("Banco Santander"), the Economic Development Bank for Puerto Rico ("EDB"), and Banco Popular de Puerto Rico ("Banco Popular" or the "Administrative Agent" and collectively with Firstbank, Banco Santander, EDB and Banco Popular, the "Lenders") filed involuntary bankruptcy petitions against Betteroads Asphalt, LLC and against Betterecycling Corporation.

On August 24, 2018, PRA filed a Notice of Appearance and Request for Notices and Papers pursuant to 11 U.S.C. §1109(b) and Fed. R. Bankr. P. 9010(b), without submitting to the jurisdiction of this court (Case No. 17-04156, Docket No. 240). The court notes that PRA did not file a notice of appearance and request for notices and papers in the case of In re Betterecycling Corporation.

On November 30, 2018, the court in its Opinion and Order held the following: (i) the Petitioning Creditors had satisfied the three prong requirement for filing an involuntary petition; (ii) bad faith is an independent cause for dismissal of an involuntary petition under 11 U.S.C. §303(b); and (iii) the alleged Debtors have failed to show that dismissal pursuant to section 305(a)(1) abstention is in the best interest of both the creditors and the debtor (Case no. 17-04156, Docket No. 271; Case No. 17-04157, Docket No. 206).

On June 25, 2019, the alleged Debtors filed a Motion to Exclude the Expert Report and Testimony of John P. Sordillo. In said motion, the alleged Debtors contend that the Petitioning Creditors did not produce the expert report before the deadline and it was not until the filing of the pre-trial report that alleged Debtors' counsel read the expert report and learned that it was intendedto be used in the June 27, 2019 evidentiary hearing. Also, on June 20, 2019, the Petitioning Creditors filed their pre-trial report and included for the first time their expert witness report (Docket No. 413). The alleged Debtors have not completed their own expert witness discovery due to pending resolution of several motions regarding the need of factual discovery (Case No. 17-04156, Docket No. 425; Case No. 17-04157, Docket No. 294). The alleged Debtors argue that the expert report and the testimony to be rendered by Mr. John Sordillo should be excluded from the evidence to be considered at trial because the Petitioning Creditors failed to comply with the mandatory disclosures pursuant to Fed. R. Civ. P. 26(a)(2) and thus, Fed. R. Civ. P. 37(c)(1) applies and the expert report and testimony should be precluded.

On June 25, 2019¹, PRA filed an Urgent Motion to Suppress Discovery or For Alternative Relief in which PRA contends that it is a necessary party to the contested matter. PRA argues that: "...[t]he Court must determine if PRA is a necessary, yet absent party, to this litigation, subject to the relief requested by Lenders and Alleged Debtors, determination which might impair PRA's rights and interests. Under Rule 19(a) of the Federal Rules of Civil Procedure, made applicable by Bankruptcy Rule 7019, a court must first determine whether a party not joined is "necessary" for a just determination of a case. This determination is a two-step process, first requiring the court to see whether the party is 'required' to be joined. MMM Healthcare, Inc. v. Santiago (In re Santiago), 563 B.R. 457, 476 (Bankr. D.P.R. 2017). A party is 'required' under the rule if:

(1) in the person's absence complete relief cannot be accorded among those already parties; or

(2) the person claims an interest relating to the subject of the action and is so situated that the disposition of the action in the person's absence may (i) as a practical matter impair or impede the person's ability to protect that interest or (ii) leave an existing party subject to a substantial risk of incurring double,multiple, or otherwise inconsistent obligations because of the interest. Id; Fed. R. Civ. P. 19(a)(1)" (Case No. 17-04156, Docket No. 428, pg. 4; Case No. 17-04157, Docket No. 298, pgs. 4).

The Court summarizes the parties' allegations based on the audio transcript available to all for review.

In the instant case, on June 27, 2019, the alleged Debtors' counsel requested the court to rule on the motion in limine regarding the production of the expert report as it will have an effect on the scheduled hearing calendar. The Lenders' counsel argued that the motion in limine regarding the expert report relies on allegations of failure to comply with Rule 26(a)(2). However, rule 26(a)(2) does not apply in this contested matter under Rule 1017 which incorporates Rule 9014(c). Moreover, in the case of In re Reyes Colón, from the First Circuit B.A.P. in which the court states that Rule 1017 applies in the context of a motion to dismiss and in an involuntary petition. Rule 1017 states that Rule 9014(c) and the same excludes from application to this contested matter Rule 26(a)(2). The court stated in open court that to the extent that the motion to exclude expert testimony may be pending, based upon the need of expediency in Rule 1013, and the applicability of Rule 26(a)(2) as to contested matters found in Fed. R. Bankr. P. 9014(c), the motion in limine was denied without prejudice because the presentation of the report by the Petitioning Creditors has not yet come before the court. The alleged Debtor's counsel inquired whether the Petitioning Creditors plan to present the expert witness. The Lenders' counsel replied that they filed it, but they are in a difficult position to announce rebuttal witnesses when the alleged Debtors have not announced who they intend to call as their witnesses. Counsel for Petitioning Creditors stated that they intend to call the expert as a witness, assuming the alleged Debtors present evidence before the court regarding bad faith (Case No. 17-04156, Docket No. 437, audio file: minute 38 min: 27s - 43 min: 15s; Case No. 17-04157, Docket No. 302).

During the June 27, 2019, evidentiary hearing, PRA's counselor brought to the attention of the court that PRA has filed a motion to suppress evidence, in particular as to the expert report (Docket No. 428). The court stated that it has already made a preliminary ruling as to the expert report based on Rule 26(a)(2). Notwithstanding, PRA alleges that the Lenders' expert report must also comply with Rule 26(b)(4) because the report at docket no. 413-18 is marked as a draft, and the same is not a finished expert report and is not signed, therefore it is faulty. PRA alleges that the report was also submitted late and provided for the first time on June 20, 2019. PRA prays that the expert report be suppressed because it was a draft which was submitted late and the same cannot be used for the purposes provided because it was not signed. In addition, Fed. R. Civ. P. 26(b)(4)(a) allows any party to the case to depose an expert witness and the right to depose the expert witness is not triggered until after the report has been provided. In this case the report was provided for the first time on June 20, 2019. Therefore, PRA's plea is that the expert report be suppressed because it fails to comply with the minimum requirements of the signature of the expert witness, but also because the parties have a right to depose, interrogate or cross the expert witness prior to the evidentiary hearing being held pursuant to Fed. R. Civ. P. 26(b)(4)(a).

The court inquired as to PRA's standing in this contested matter, which is the motion to dismiss filed by the involuntary debtors as to the Petitioning Creditors. The court stated that the Petitioning Creditors did not file an involuntary petition against PRA; but based upon the allegations in the pre-trial report and motions before the court, PRA has been the subject of discovery on the pending issue of bad faith and it has been advanced that there have been alleged transfers by the involuntary debtors to PRA, and that this is one of the reasons that led the Petitioning Creditors to file the petition. Whether to join PRA as an involuntary debtor is a decision that has to be made by the Petitioning Creditors. The court further stated that assuming that thePetitioning Creditors prevail and the involuntary petitions are not dismissed, and an order for relief is entered, then it appears that PRA may be a defendant or a respondent in a future action that is not presently before the court. The court disclosed that at this juncture, it was concerned as to PRA's standing, irrespective as to the allegations regarding the applicability of Rule 26(a)(4). The court...