In re Quesos del Pais La Esperanza, Inc.

IN RE: QUESOS DEL PAIS LA ESPERANZA, INC. Debtor

CASE NO. 18-06529 (ESL)

UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF PUERTO RICO

April 23, 2020

CHAPTER 11

OPINION AND ORDER

The contested matter pending before this court is the objection filed by the debtor, Quesos del País La Esperanza, Inc, ("Debtor"), to the proof of claim filed by Francisco Román Medina ("Román"). The matter is before the court upon Debtor's motion for summary judgment and the opposition filed by Román. The underlying basis for the current litigation has past and recent history. The court will narrate the same to place the controversy in its proper perspective. The court notes that the litigation of contested matters in this case has been, and is, between these two parties, the Debtor and Román.

Background

The Debtor filed a small business chapter 11 petition on November 6, 2018. On the same date, Debtor's president, Mr. Guadalupe Acevedo Ortiz, filed a chapter 11 petition. The cases were administratively consolidated on January 17, 2019. The Debtor included Román in the Statement of Financial Affairs ("SOFA") in paragraph 5, disclosing that Román had foreclosed on monies deposited with Cooperativa Pepiniana, and in paragraph 7, disclosing a concluded legal action for breach of contract and damages in Francisco Román Medina v. Quesos del País La Esperanza, Inc. and Guadalupe Acevedo, case number A2CI2016-00393. The Debtor also included Román in Schedule D (Secured Creditors) as a disputed secured claim in the amount of $702,601.00, indicating that the value of the collateral was $0.00.

On June 10, 2019 the Debtor moved the court pursuant to 11 U.S.C. §543 ("Turnover of property by a custodian") for a "comfort order" requesting the court to order the custodian of the funds garnished by Román and held by the Puerto Rico court Marshal. Román opposed the request alleging to have a valid judicial lien over the garnished funds and that the request does not proceed pursuant 11 U.S.C. §544 ("Trustee as lien creditor and successor to certain creditors and purchasers"). On June 24, 2019 the court entered an order denying the Debtor's request finding that "the state court marshall [sic], as described under the Rules 51.2 and 56.1 of the Rules of Civil Procedure of Puerto Rico, 32 L.P.R.A. Ap. V, R. 51.2 and R. 56.1, is not a custodian as defined by 11 U.S.C. §101(11) and, therefore, 11 U.S.C. §543 is inapplicable." The court further discretionally abstained concluding that: "The issues addressed in the state court proceeding have been litigated until final judgment. Irrespectively of any joint jurisdiction that this court may have and in the interest of comity to the state court, the court abstains from said proceeding and grants deference to the state court in the related post judgment matters. The Debtors may pursue whatever remedies they deem appropriate before the court of the Commonwealth of Puerto Rico. However, any collection of judgment against the Debtor must be channeled through the bankruptcy case."

On July 16, 2019, Román filed a motion to lift the automatic stay. The Debtor opposed the motion on July 31, 2019. On August 1, 2019 the court entered an order denying the motion to lift stay for lack of proper service. The court noted in the order that proof of claim 5-1 filed by Román was filed as an unsecured claim and that such characterization may be inconsistent with the order entered on June 24, 2019 denying Debtor's motion for turnover of funds.

On August 1, 2019, the Debtor filed its small business disclosure statement and small business chapter 11 plan. On the same date the court conditionally approved the disclosure statement and scheduled the hearing on final approval of the disclosure statement and confirmation of the chapter 11 plan for October 1, 2019. On September 19, 2019 Román filed an objection to the final approval of the disclosure statement and to the confirmation of the small business chapter 11 plan. The Debtor responded. On October 1, 2019, the court entered a bench order continuing the hearing on final approval of the disclosure statement and confirmation without a date pending a decision on Debtor's objection to Román's proof of claim 5. The court also extended the time periods in §§1121(e) and 1129(e) to the date that the court reschedules the hearing on confirmation. The hearing has not yet been scheduled.

On January 25, 2019, Román filed a motion for the appointment of trustee or examiner. The motion was scheduled for a hearing on January 14, 2020. The Debtor filed an opposition to the motion for appointment of examiner. After requests for continuance by both the Debtor and Román, the hearing was held on January 28, 2020. At the hearing the court entered a bench order directing the appointment of an examiner. The minute order states the following:

The contested matter scheduled for a hearing before this court is the motion filed by Francisco Román Medina requesting the appointment of a trustee orexaminer (dkt. #122) and the Debtor's opposition to the request for the appointment of trustee or examiner (dkt. #139).

Counsel for moving creditor Francisco Román Medina and for the Debtor agreed to the following uncontested facts: [1] the Debtor filed a chapter 11 petition on November 6, 2018; [2] the Debtor holds a license of Mercado Familiar; [3] Mr. Guadalupe Acevedo is Debtor's president and holds 100% of Debtor's shares; [4] the Monthly Reports of Operation ("MOR") filed by the Debtor are presumed correct; [5] Ms. Zuleyka Acevedo is the daughter of Mr. Guadalupe Acevedo; [6] the proceeds of Mercado Familiar are deposited in an ACH account created by Debtor; [7] the Disclosure Statement was approved by the court; [8] other pending contested matters before the court are the confirmation of the chapter 11 plan and Debtor's objection to the proof of claim filed by the Debtor; and [9] the Debtor is contesting the validity of the state court judgment in favor of creditor Francisco Román Medina, which is the basis for the proof of claim.

The moving creditor presented the following witnesses: CPA Carlos Quintana Santiago, creditor Francisco Román Medina and Mr. Guadalupe Acevedo, Debtor's president. The Debtor presented Mr. Guadalupe Acevedo, Debtor's president, and Mr. Jorge Luis Pérez, Debtor's accountant.

After the presentation of evidence by the moving creditor, the Debtor moved for the dismissal of the motion to appoint trustee or examiner. Fed. R. Civ P 52(c) applies to contested matters pursuant to Fed. R. Bankr. P. 9014(c) and Fed. R. Bankr. P. 7052. The court denied the motion for nonsuit finding that the testimony of CPA Carlos Quintana Santiago and Debtor's accountant, Mr. Jorge Luis Pérez established a prima facie case of mismanagement on account of the unexplained transfer of funds, payment of expenses resulting from undeclared agreements made by Debtor's president, Mr. Guadalupe Acevedo, with his daughter, Ms. Zuleyka Acevedo.

After the parties presented their respective evidence, the court issued a bench ruling determining that the moving creditor had established mismanagement by the Debtor under section 1104(a)(1) based on the information in the MORs, the testimony of CPA Quintana, which was substantially corroborated by Debtor's accountant, Mr. Pérez, particularly as to income, expenses, the degree of control exercised by Debtor's president's daughter, Ms. Zuleyka Acevedo, and the lack of clarity of payments made to Ms. Zuleyka Acevedo. However, considering the size of the Debtor, a small family corporation, the extent of income reflected in the MORs, and the expertise of the sole shareholder, when balanced with the mismanagement, the court opts to order the appointment of an examiner pursuant to section 1104(c) to conduct an examination of the nature of the agreement by and between the Debtor and Zuleyka Acevedo.

The court reserves the right to enter a written memorandum opinion in support of its conclusion. A transcript of this court's oral ruling is requested.

On February 25, 2020 the U. S. Trustee moved the court for approval of the appointment of examiner and on February 26, 2020 the court entered an order approving the appointment of the examiner (José A. Díaz Crespo). As of this date the examiner has not filed a report.

Proof of Claim

On February 13, 2019, Román filed proof of claim 5-1 as a general unsecured claim in the amount of $702,601.00, stating that the basis of the claim was a judgment in case number A2CI2016-00393. Copy of the judgment was attached. On September 30, 2019 Román filed proof of claim 5-2, indicating that it amends the claim filed on February 13, 2019. The claim is in the same amount, that is, $702,601.00, the basis of the claim is the same, and copy of the judgment in case number A2CI2016-00393 was attached. The only difference is that Román now claims to be a secured creditor based on the referred judgment.

On November 6, 2019, the Debtor filed an objection to the amended proof of claim 5-2 filed by Román alleging that it is a late amendment. On November 18, 2019, Román answered the objection alleging that he holds a valid lien and that the amendment should be allowed under the circumstances. The contested matter was scheduled for a pretrial to be held on March 17, 2020.

On January 16, 2020 the Debtor filed a motion for summary judgment on the objection to proof of claim 5. On February 14, 2020 Román filed an opposition and also moved for summary judgment. The Debtor filed a response on March 12, 2020. On March 13, 2020 the court continued without a date the pretrial on the objection to proof of claim 5 pending a decision on the motions for summary judgment. The court notes that on said date the bankruptcy judges were considering the closing of the court commencing March 17, 2020, and, subsequently a General Administrative Order was entered to such effect.

Jurisdiction

This court has jurisdiction under 28 U.S.C.§157 (a) (b) (1) and §1334. This action is a core proceeding...