In re Ginorio

1

IN REJUAN MANUEL BARRETO GINORIO, Debtor

No. 23-03681 (ESL)

United States Bankruptcy Court, D. Puerto Rico

February 22, 2024

CHAPTER 11

OPINION AND ORDER

Enrique S. Lamoutte United States Bankruptcy Judge

This case came before the court on January 30, 2024, for a hearing to consider the Motion to Dismiss (Case No. 23-0368 Docket No. 47) and Motion for Relief from Stay (Case No. 23-0368, Docket No. 51) filed by secured creditor Condado 5, LLC ("Condado"). See Order and Notice Setting Hearing, Case No. 23-03681, Docket No 50; Order and Notice, Case No. 23-03681, Docket No 77.

For the reasons discussed below, the Motion to Dismiss is GRANTED.

UNCONTESTED FACTS^[1]

A. The Debt Owed and Past Related Proceedings

1. On or around January 12, 2005, Banco Popular de Puerto Rico ("BPPR"), predecessor in interest of Condado, extended a credit facility to Las Martas, Inc. ("Las Martas"), in the original amount of $1,850,000.00 ("Loan I"). See Loan Agreement, Case No. 23-03681, Proof of Claim No. 1-2, Part 4, pp. 1-56. See also Condado's Proposed Finding of Facts, Pre-Trial Report, Case No. 23-03681, Docket No. 89, ¶ 1 (first).

2. The Loan I is a commercial loan which purpose was to consolidate corporate and personal debts for the purchase of land, 5,000 quarts of milk quota, 36 heifers, machinery, equipment and for improvements to Las Martas' facilities. See Loan Agreement, Proof of Claim No. 1-2, Part 4, p. 2. See also Condado's Proposed Finding of Facts, Pre-Trial Report, Case No. 23-03681, Docket No. 89, ¶ 2 (first).

3. The Debtor, his former spouse (Ms. Maria Elena Hernandez Ruiz), and JM Dairy, Inc. ("JM Dairy") all serve as guarantors to Loan I. See Loan Agreement, Case No. 23-03681, Proof of Claim No. 1-2, Part 4, p. 1; Amended Note, Case No. 23-03681, Proof of Claim No. 1-2, Part 5, p. 9. See also Condado's^[2] Proposed Finding of Facts, Pre-Trial Report, Case No. 23-03681, Docket No. 89, ¶ 1 (second).

4. Loan I secures a Master Promissory Note in favor of BPPR, and subsequently endorsed in favor of Condado, in the amount of $1,850,000.00 ("Note I", Case No. 23-03681, Proof of Claim No. 1-2, Part 5, p. 1). See Condado's Proposed Finding of Facts, Pre-Trial Report, Case No. 23-03681, Docket No. 89, ¶ 2 (second).

5. Loan I is also secured by, inter alia, 58,700 quarts of Las Martas' bi-weekly milk quota. See Security Agreement executed on January 12, 2005, authenticated through affidavit no. 28,485 before Notary Public Francisco J. Arraiza Donate (Case No. 23-03681, Proof of Claim No. 1-2, Part 7, pp. 1-36). See Condado's Proposed Finding of Facts, Pre-Trial Report, Case No. 23-03681, Docket No. 89, ¶ 3.

6. On or around October 8, 2007, BPPR extended to the Debtor a credit facility in the amount of $375,000.00 ("Loan II", and collectively with Loan I, the "Loans"). See Loan Agreement, Case No. 23-03681, Proof of Claim No. 1-2, Part 4, pp. 1-56; Resolution by the PR Court of First Instance in Case No. AR2021CV00693, Case No. 23-03681, Docket No. 47-1, p. 5, ¶ 15. See also Condado's Proposed Finding of Facts, Pre-Trial Report, Case No. 23-03681, Docket No. 89, ¶ 5.

7. Las Martas and JM Dairy serve as guarantors to Loan II. See Loan Agreement, Case No. 23-03681, Proof of Claim No. 1-2, Part 4, pp. 1-56; Resolution by the PR Court of First Instance in Case No. AR2021CV00693, Case No. 23-03681, Docket No. 47-1, p. 5, ¶ 15. See also Condado's Proposed Finding of Facts, Pre-Trial Report, Case No. 23-03681, Docket No. 89, ¶ 5.

8. Loan II secures a Note in favor of BPPR, and subsequently endorsed in favor of Condado, in the amount of $375,000.00 ("Note II", Resolution by the PR Court of First Instance in Case No. AR2021CV00693, Case No. 23-03681, Docket No. 47-1, p. 6, ¶ 16). See also Condado's Proposed Finding of Facts, Pre-Trial Report, Case No. 23-03681, Docket No. 89, ¶ 6. 9. Note I and Note II's maturity dates were extended and ultimately matured on January 12, 2015, and July 8, 2011, respectively. See Condado's Proposed Finding of Facts, Pre-Trial Report, Case No. 23-03681, Docket No. 89, ¶¶ 4, 7.

10. On June 21, 2011, the Debtor, Las Martas, and JM Dairy each filed their first Chapter 12 petition. See Case No. 11-05236, Docket No. 1; Case No. 11-05237, Docket No. 1; Case No. 11-05239, Docket No. 1. See Condado's Proposed Finding of Facts, Pre-Trial Report, Case No. 23-03681, Docket No. 89, ¶ 8, 9.

11. The above cases were substantively consolidated on June 7, 2011 (Case No. 11-05236, Docket No. 22), and dismissed for material default with the terms of the confirmed plan on January 16, 2018 (Case No. 11-05236, Docket No. 387). See Condado's Proposed Finding of Facts, Pre-Trial Report, Case No. 23-03681, Docket No. 89, ¶ 8, 9.

12. On April 18, 2019, JM Dairy filed its second Chapter 12 petition (Case No. 19-02168, Docket No. 1), which was voluntarily dismissed on June 28, 2021 (Case No. 19-02168, Docket Nos. 92, 97). See Condado's Proposed Finding of Facts, Pre-Trial Report, Case No. 23-03681, Docket No. 89, ¶ 10.

13. On December 14, 2018, the Debtor filed his second Chapter 12 petition (Case No. 18-07310, Docket No. 1), which was dismissed on July 25, 2019. See Minute Entry, Bankr. Case No 18-07310, Docket No. 62. See Condado's Proposed Finding of Facts, Pre-Trial Report, Case No. 23-03681, Docket No. 89, ¶ 11.

14. Also on December 14, 2018, Las Martas filed its second Chapter 12 petition (Case No. 18-07304, Docket No. 1), which was dismissed for unreasonable delay prejudicial to creditors and failure to timely file a confirmable plan on April 22, 2021. See In re Vaqueria Las Martas, Inc., Case No. 18-07304 [Docket No. 251], 2021 Bankr. LEXIS 1075, 2021 WL 8200008 (Bankr. D.P.R. 2021), aff'd, Vaqueria Las Martas, Inc. v. Condado 5, LLC (In re Vaqueria Las Martas, Inc.), 638 B.R. 482 (B.A.P. 1st Cir. 2022). See also Condado's Proposed Finding of Facts, Pre-Trial Report, Case No. 23-03681, Docket No. 89, ¶ 12.

15. On May 28, 2021, Condado filed a Foreclosure Complaint with the PR Court of First Instance, Superior Court of Arecibo (the "PR Court of First Instance"), Case No. AR2021CV00693 (the "Foreclosure Case") against the Debtor, his former spouse, Las Martas and JM Dairy.^[3] See Case No. 23-03681, Proof of Claim No. 1-2, Part 3, pp. 1-20. See also Condado's Proposed Finding of Facts, Pre-Trial Report, Case No. 23-03681, Docket No. 89, ¶ 13.

16. On August 16, 2022, Las Martas filed its third Chapter 12 bankruptcy petition (Case No. 22-02380, Docket No. 1). See also Condado's Proposed Finding of Facts, Pre-Trial Report, Case No. 23-03681, Docket No. 89, ¶ 25.

17. On June 15, 2023, this court held a hearing to consider Condado's motion to dismiss Las Martas' third petition (Minute Entry, Case No. 22-02380, Docket No. 143). See also Condado's Proposed Finding of Facts, Pre-Trial Report, Case No. 23-03681, Docket No. 89, ¶ 31.

18. At the hearing, the instant Debtor testified, as president and shareholder of Las Martas, that he planned on filing for bankruptcy to stall the Foreclosure Case, as follows:

Q. Now, Mr. Barreto, if Condado succeeds in its foreclosure case and it gets an order allowing them to foreclose on the farm property, what will you do?

A. I haven't analyzed it yet. But I've spent my entire life working in this business since I was a child.

Q. So will you file any proceedings to stop the foreclosure? ...

A. Yes.

Q. Do you know what kind of proceeding?

A. I haven't analyzed it, it would be analyzed in the moment.

Q. But would that possibly be a bankruptcy filing?

MR. CHICO-BARRIS: I was going to object to the question, Your Honor, because it's leading.

THE COURT: I'm going to overrule the objection. But do note that the answer may not be [in] the best interest of the debtor.

Q. Would that possibl[y] include a bankruptcy filing?

A. Total?

Q. No. Like, a Chapter 13, Chapter 12, Chapter 11?

A. Yes.

June 15, 2023, Hearing Transcript, Case No. 23-03681, Docket No. 47-22, p. 29, lines 16-25; p. 30, lines 1-13. See also Condado's Proposed Finding of Facts, Pre-Trial Report, Case No. 23-03681, Docket No. 89, ¶ 31.

19. The Debtor also testified the following during cross-examination:

Q. Your counsel asked you earlier that if Condado succeeds in the foreclosure case filed with the Puerto Rico Court of First Instance, foreclosing that same property, that you would basically file for bankruptcy to stop that foreclosure, correct?

A. Yes.

Q. And the purpose of that would be to stop the execution of a foreclosure judgment, right?

A. Yes.

Q. Do you know how long this loan has been past due?

A. No.

June 15, 2023, Hearing Transcript, Case No. 23-03681, Docket No. 47-22, p. 39, lines 22-25; p. 40, lines 1-7. See also Condado's Proposed Finding of Facts, Pre-Trial Report, Case No. 23-03681, Docket No. 89, ¶ 31.

20. On September 29, 2023, this court dismissed Las Martas' third bankruptcy case for continuing loss to or diminution of the Debtor's estate and the absence of reasonable likelihood of rehabilitation pursuant to 11 U.S.C. §1208(c)(9). See In re Las Martas, Inc., Case No. 22-02380 [Docket No. 148], 2023 Bankr. LEXIS 2413, 2023 WL 6413170 (Bankr. D.P.R. 2023). In pertinent part, the Opinion and Order reads as follows:

This is the Debtor's third bankruptcy petition, which was filed less than three weeks after the second bankruptcy case was closed, meaning that the Debtor has been almost continuously in bankruptcy for the past four (4) years and nine (9) months. The Debtor was unable to propose a timely confirmable plan pursuant to 11 U.S.C. § 1208(c)(3) in its second bankruptcy proceeding and the case was dismissed. During these past four years and nine months that the Debtor has been in bankruptcy, its farming operations, despite recent optimistic projections, have barely

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