Instituto Medico del Norte, Inc. v. Greengift Capital, LLC

1

INSTITUTO MEDICO DEL NORTE, INC., Appellant, v. GREENGIFT CAPITAL, LLC, Appellee.

Civil No. 23-1354 (ADC)

United States District Court, D. Puerto Rico

February 2, 2024

OPINION AND ORDER

AIDA M. DELGADO-COLÓN UNITED STATES DISTRICT JUDGE

Pending before the Court is appellant Instituto Medico del Norte Inc.'s (“appellant” or “IMN") appeal from the United States Bankruptcy Court's (“Bankruptcy Court”) Opinion and Order entered on June 27, 2023, whereby the Bankruptcy Court dismissed appellant's declaratory action complaint in Adversary Proceedings No. 22-00046. ECF Nos. 1, 4. For the following reasons, the appeal is DENIED.

I. Procedural background

Although the roots of this case have grown deep during three decades of on-and-off litigation, the Court will only recount events relevant to the issues before it.

On October 30, 2013, appellant filed a voluntary petition for bankruptcy relief pursuant to Chapter 11 of U.S. Code Title 11. In re: Instituto Medico del Norte, Inc., Lead Bankruptcy Case No. 13-08961. ECF No. 3-1 at 4, 4 at 4.

On May 1, 2014, then creditor Oriental Bank filed its amended Proof of Claim number 50-3 in the amount of $8,951,814.92 (the “claim”). ECF No. 3-1 at 4. On August 31, 2015, appellant and Oriental Bank filed a stipulation regarding the claim. ECF No. 4 at 4. The Bankruptcy Court approved the stipulation on September 28, 2015. On July 1, 2016, appellant filed a second amended Chapter 11 plan of reorganization, which included the stipulation covering the claim. Id. The Bankruptcy Court confirmed the second amended plan several weeks later and, on December 13, 2016, it entered the final decree in appellant's Chapter 11 case. Id.; ECF No. 5 at 6; see In re: Instituto Medico del Norte, Inc., Lead Bankruptcy Case No. 130896, ECF No. 662.

Appellant successfully moved the Bankruptcy Court to reopen the Chapter 11 case in April 2021. ECF No. 5 at 7, at 5. Appellant alleged that Oriental Bank had assigned its interests (including the credit that “gave rise to” the Proof of Claim number 50-3) under the confirmed Chapter 11 plan to Condado 7, LLC and that both creditors were not complying with the plan because, according to appellant, the “debt was higher than the one established in the plan.” ECF No. 4 at 5.

Appellant also logged Adversary Proceeding No. 21-00033^[1]whereby it “questioned] the $4,544,070.39 [debt] claimed by Condado [7, LLC], since the correct amount... was $3,854,589.00.” ECF No. 4 at 5. By doing so, appellant claims, it was “affirmatively putting in question [the debtor's] credit.” Id.

In December 2021, while Adversary Proceeding No. 21-00033 was still pending before the Bankruptcy Court, Condado 7, LLC assigned the “litigious credit” to appellee Greengift Capital, LLC. ECF No. 4 at 5. Appellant claims that, on December 21, 2021 after receiving notice of the assignment it “notified [appellee] that it was exercising its rights, to extinguish [appellee]'s acquired credit” through the 2020 Puerto Rico Civil Code's Article 1220 litigious credit redemption mechanism. P.R. Laws Ann. tit. 31, § 9581.^[2] ECF No. 3-1 at 280.

However, according to the Bankruptcy Court, appellant technically only informed its “intent” to redeem such credit. ECF No. 3-1 at 280; see Adversary Case No. 21-00033, ECF No. 98. Accordingly, the Bankruptcy Court addressed the credit redemption “matter. at the status conference held on January 21, 2022.” Id. The Minute of the status conference reflect that:

The court stated that the Debtor has not filed an actual request as to this legal issue, just an intent, and acknowledged that Greengift has already addressed that there are decisions by the Supreme Court of Puerto Rico that have been cited by Judge Caban and also by the district court in Xynergy Healthcare Capital II LLC v. Municipality of San Juan, 516 F.Supp.3d 137 (D.P.R. 2021).

Id. In a separate Order, the Bankruptcy Court further stated:

The motion to inform filed by Plaintiff/Instituto is granted. The information of intent to move the court re litigious credit redemption pursuant to Article 1220 of the Puerto Rico Civil Code is noted. The court further notes the position of Greengift and the decisions by the Supreme Court of Puerto Rico in DLJ Mortgage Capital, Inc. v. Santiago Martinez, 202 D.P.R. 950 (2019); the U.S. Bankruptcy Court for the District of Puerto Rico in In re Allied Fin., Inc., 616 B.R. 1 (Bankr. P.R. 2020) (Caban, BJ); and the U.S. District Court for the District of Puerto Rico in Xynergy Healthcare Capital II v. Municipio of San Juan, 516 F.Supp.3d 137 (D. Puerto Rico 2021) . . . Instituto bears the burden of establishing that the facts applicable to this case differ from the ones leading to the above decision, with which this court agrees.

ECF No. 3-1 at 280-81. On March 1, 2022, the Bankruptcy Court dismissed appellant's complaint in Adversary proceeding No. 21-00033. Id., at 279. It determined that:

Instituto failed to present to the court evidence or reasonable support for its allegation that the stipulation between the debtor (Instituto) and Oriental Bank (“Oriental”), as well as the confirmed plan, provide that the portion of the credit in the amount of $3,585,388.53 does not generate interest. Moreover, even if the $3,585,388.53 did not generate interest at some point in time, Instituto has failed to provide evidence that it has complied with the payments as provided for in the confirmed plan and the stipulation. Conclusory allegations do not suffice. On the other hand, assuming the truth of all well-plead facts in the amended complaint and giving the benefit of all reasonable inferences therefrom, the court concludes that the complaint does not plead a plausible claim as it is based on conclusions not supported by the facts. Plaintiff Instituto has had a reasonable opportunity to fill the factual gap and has been unable to do so.

ECF No. 3-1 at 279; Adversary Case No. 21-00033, ECF No. 148. Appellant appealed from that order and judgment to the District Court. See Instituto Medico del Norte, Inc. v. Greengift Cap., LLC, Civil No. 22-1122 (PAD). The District Court affirmed. See Instituto Medico del Norte, Inc. v. Greengift Cap., LLC, 2023 WL 2732420, at *3 (D.P.R. Feb. 24, 2023). Appellant filed a notice of appeal in the U.S. Court of Appeals for the First Circuit, docketed as Ap. Case No. 23-1314. That appeal is still pending.

“Due to the dismissal of Adversary Case No. 21-00033... appellant was precluded from concluding litigating” his purported rights to redeem the credit. ECF No. 4 at 6. Under that notion, on July 1, 2022, appellant filed Adversary Case No. 22-00046 for declaratory judgment. ECF No. 3-1 at 7 et seq. Specifically, appellant sought judgment declaring that it has the right to redeem the credit assigned to appellee under Article 1220 of the 2020 Civil Code of Puerto Rico. Id., at 12.

Appellee moved to dismiss the complaint under Fed.R.Civ.P. 12(b)(6); applicable to Bankruptcy proceedings via Fed. R. Bank. P. 7012(b). ECF No. 3-1 at 119-122. Appellee argued the complaint failed to state a claim because appellant did not have a redemption right as a matter of law. Id. The parties focused most of their efforts and arguments on the question of whether the credit was “litigious” for Puerto Rico law purposes.

On June 27, 2023, the Bankruptcy Court entered an Opinion and Order dismissing Adversary Proceedings No. 22-00046. The Bankruptcy Court held that “Article 1220 of the Puerto Rico Civil Code does not apply to the facts of this case as the debt has been established by both a judgment in a related adversary proceeding before this court and a final order confirming the Chapter 11 plan proposed by Institute, which is binding on all parties.” ECF No. 3-1 at 292. Appellant appeals from that Opinion and Order.

II. Legal standard

District Courts have jurisdiction to hear appeals from final judgments, orders, and decrees of bankruptcy judges. See 28 U.S.C. § 158(a)(1). On appeal, the Bankruptcy Court's conclusions of law are reviewed de novo and its findings of fact for clear error. See Instituto Medico del Norte, Inc. v. Greengift Capital, LLC, 2023 WL 2732420, at *1 (D.P.R. 2023); In re Schatz, 602 B.R. 411, 421 (B.A.P. 1st Cir. 2019); In re A&J Auto Sales, Inc., 223 B.R. 839 (D.N.H. 1998); Robb v. Schindler, 142 B.R. 589, 590 (D. Mass. 1992)(in a bankruptcy appeal, the reviewing court applies a de novo standard of review to conclusions of law by the Bankruptcy Court).

III. Discussion

Under Puerto Rico law, a debtor may redeem credit assigned during the pendency of a case if certain requirements are met. This civil law doctrine, unknow in the United States (except for Louisiana), is codified at Article 1220 of the 2020 Civil Code. Even though it has been available to debtors in Puerto Rico for many decades, case law is scarce. However, one thing is clear, the credit must be a “litigious” one. “For a credit to be considered litigious it is essential that the litigation pending at the time of sale or assignment of credit concern the existence of the credit itself and not merely the consequences of its existence once final judgment is rendered.” Consejo de Titulares v. C.R.U.V., 132 DPR 707, 1993 P.R.-Eng. 840 (1993), 1993 WL 840040.

A careful review of the briefs in this case reveals that the parties are mostly concerned with the question of whether the credit is litigious or not. Logically, appellee highlights the fact that the only challenge to the “existence” of the credit was limited to the accrual of interests^[3] and, even then, it was adjudicated in a prior case, Adversary Proceeding No. 21-00033. Because a sister District Court affirmed the Bankruptcy Court's determination in Adversary Proceeding No. 21-00033 holding that that the existence...