Reyes-Colón v. Banco Popular De Puerto Rico

110 F.4th 54

Edgar A. REYES-COLÓN, Plaintiff, Appellant, v. BANCO POPULAR DE PUERTO RICO and Popular Auto, Inc., Defendants, Appellees.

Nos. 22-1706

22-1715

United States Court of Appeals, First Circuit

August 1, 2024

APPEALS FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF PUERTO RICO [Hon. Jay A. García-Gregory, U.S. District Judge]

W. Barry Blum, with whom Venable LLP, Jose A. Pagan-Nieves, and Pagan Law Offices were on brief, for appellant.

Roberto Abesada-Agüet, with whom Sergio Criado, Correa Acevedo Law Offices, P.S.C., Eldia Díaz-Olmo, and Díaz-Olmo Law Offices were on brief, for appellee Banco Popular de Puerto Rico.

Before Barron, Chief Judge, Kayatta and Montecalvo, Circuit Judges.

MONTECALVO, Circuit Judge.

These consolidated appeals stem from a Chapter 11 involuntary bankruptcy petition that appellee Banco Popular de Puerto Rico ("Banco Popular") filed in 2006 seeking to compel appellant Edgar Reyes-Colón into bankruptcy. The procedural posture of each appeal is slightly different, although both are appeals from district court decisions connected to the underlying bankruptcy case. First, Reyes-Colón appeals from the district court's decision affirming the bankruptcy court's determination that it did not have subject-matter jurisdiction over Reyes-Colón's post-dismissal motion for fees and costs (Case No. 22-1706). Second, Reyes-Colón appeals from the district court's decision denying his motion for withdrawal of reference¹ filed in a separate adversary proceeding² (Case No. 22-1715). With respect to the first case, we conclude that the bankruptcy court had jurisdiction over the fee motion but that the fee motion was untimely, and accordingly, we affirm. As to the second case, we conclude that the district court erred in denying the motion for withdrawal of reference as untimely and therefore vacate and remand to the district court for further consideration of Reyes-Colón's motion for withdrawal of reference.

I. A Brief Background

Of particular relevance here, 11 U.S.C. § 303 governs involuntary bankruptcy petitions and, among other things, gives involuntary debtors an avenue to seek attorney's fees, costs, and other damages related to dismissed petitions. Specifically, it provides, in relevant part:

(i) If the court dismisses a petition under this section other than on consent of all petitioners and the debtor, and if the debtor does not waive the right to judgment under this subsection, the court may grant judgment —

(1) against the petitioners and in favor of the debtor for —

(A) costs; or

(B) a reasonable attorney's fee; or

(2) against any petitioner that filed the petition in bad faith, for —

(A) any damages proximately caused by such filing; or

(B) punitive damages.

11 U.S.C. § 303(i).³ Both Reyes-Colón's motion for fees and costs and his adversary proceeding were brought pursuant to § 303(i). Now, we are called on to determine a bankruptcy court's jurisdiction over post-dismissal § 303(i) motions and the timeliness of motions for withdrawal of reference in adversary proceedings.⁴

The relationship between the parties began when Reyes-Colón obtained a loan from appellee Popular Auto, Inc., ("Popular Auto") and guaranteed an affiliate's loan from Banco Popular.⁵ When Reyes-Colón allegedly failed to pay his debts, Banco Popular initiated an involuntary bankruptcy petition, which Popular Auto later joined. Not long after, however, the bankruptcy court dismissed the petition after concluding that Banco Popular had failed to join the requisite number of creditors despite having had a reasonable opportunity to do so. On appeal, the bankruptcy appellate panel determined that all of Reyes-Colón's creditors needed to be given notice and the opportunity for a hearing before the bankruptcy court could dismiss the petition. After lengthy proceedings, in 2016, the bankruptcy court again dismissed the petition for lacking the requisite number of creditors — "[§] 303(b) of the Bankruptcy Code requires that an involuntary petition against a debtor have at least three petitioning creditors if, at the time the petition was filed, the debtor had twelve or more eligible creditors." In re Reyes-Colón, 922 F.3d 13, 16 (1st Cir. 2019) (citing 11 U.S.C. § 303(b)(1)-(2)). On appeal, this court affirmed the bankruptcy court's dismissal of the petition given that Reyes-Colón had fifteen eligible creditors and only two had joined the involuntary petition. Id. at 19-23. Judgment entered on April 24, 2019, and mandate issued on June 19, 2019.

Three-hundred sixty-five days later, on June 18, 2020, Reyes-Colón filed a motion for $902,489.85 in attorney's fees and costs pursuant to § 303(i)(1) of the Bankruptcy Code ("attorney's fees motion"). In response, Banco Popular contended that the bankruptcy court lacked subject-matter jurisdiction "to entertain any further proceedings." The bankruptcy court agreed and denied the attorney's fees motion. Reyes-Colón appealed that decision to the District Court for the District of Puerto Rico, which affirmed. Reyes-Colón now appeals to this court.

Shortly after he filed the attorney's fees motion, on June 29, 2020, Reyes-Colón initiated an adversary proceeding in bankruptcy court; the complaint alleged that Banco Popular filed the involuntary petition in bad faith, demanded a jury trial as to all issues so triable, and sought "compensatory, consequential, special, and punitive damages" (inclusive of the $902,489.85 already requested in the attorney's fees motion) pursuant to both the fees-and-costs and bad-faith provisions of 11 U.S.C. § 303(i) ("bad-faith complaint").⁶ The adversary proceeding was referred to the same bankruptcy judge who presided over the involuntary-petition case. On June 30, 2020, Reyes-Colón filed a motion for withdrawal of bankruptcy reference ("motion for withdrawal"), seeking to have the district court take over the adversary proceeding and conduct a jury trial. In the same order denying Reyes-Colón's attorney's fees motion, the bankruptcy court referred the motion for withdrawal to the district court. The district court, after affirming the denial of the attorney's fees motion, issued an order denying the motion for withdrawal and dismissing the adversary proceeding, finding that the motion for withdrawal was untimely. Reyes-Colón then appealed.

II. Section 303(i)(1) Motion for Attorney's Fees (Case No. 22-1706)

A. Detailed Background

As previously noted, the bankruptcy court dismissed the involuntary petition in 2015 for failure to join at least three creditors. On appeal to this court, we affirmed the bankruptcy court's dismissal. Mandate issued on June 19, 2019, and the bankruptcy court closed the case on August 7, 2019. On June 18, 2020, a new attorney for Reyes-Colón filed a pro hac vice motion and the motion for attorney's fees pursuant to § 303(i)(1). Banco Popular opposed the pro hac vice motion, arguing that, because the case was closed, the bankruptcy court was "without jurisdiction to entertain any proceedings." (Quoting In re Advanced Comput. Tech.Act, Inc., No. 12-04454, 2013 WL 5661203, at *1 (Bankr. D.P.R. Oct. 15, 2013)).

The bankruptcy court agreed that it no longer had jurisdiction over the case but noted that it had explicitly retained jurisdiction over the issue of possible sanctions stemming from prior discovery violations. Specifically, it held that because the attorney's fees motion "ha[d] been filed after the order dismissing the involuntary petition became a final order and after the case was closed" the court no longer had subject-matter jurisdiction over any proceedings (save the sanctions issue). Reyes-Colón filed a motion to reconsider, which the bankruptcy court denied in a short order that adopted Banco Popular's argument opposing Reyes-Colón's motion to reconsider. Reyes-Colón appealed to the district court.

The district court affirmed and concluded that "[a]s the bankruptcy court did not retain jurisdiction to consider a motion for relief under § 303(i)(1) at the time it dismissed the involuntary petition, ... [Reyes-Colón's] delay in filing the [attorney's f]ee [m]otion resulted in the bankruptcy court being deprived of jurisdiction over the issue." The court noted that "dismissal of an involuntary petition is a prerequisite for relief under § 303(i)(1)" but went on to explain that "bankruptcy courts lose post-dismissal jurisdiction over issues 'aris[ing] from' the Bankruptcy Code unless they explicitly retain[] jurisdiction [i]n their dismissal order." The district court also raised, sua sponte, the question of the timeliness of the motion and integrated that into its jurisdiction analysis, concluding that the District of Puerto Rico's local rules applied, such that the request for fees needed to be made within fourteen days after mandate entered. Reyes-Colón timely appealed.

B. Discussion

Bankruptcy appeals consist of a two-tiered structure. In re Montreal, Me. & Atl. Ry., Ltd., 956 F.3d 1, 5 (1st Cir. 2020). Specifically, "[t]he losing party in the bankruptcy court may take a first-tier appeal either to the district court or to the bankruptcy appellate panel. Whichever route is taken, a second tier of appellate review is available in the court of appeals." Id. at 5-6 (internal citations omitted). When, as here, an appeal is taken to the court of appeals, "we accord no particular deference to determinations made by the first-tier appellate tribunal but, rather, focus exclusively on the bankruptcy court's determinations. In the course of that endeavor, we review the bankruptcy court's findings of fact for clear error and its legal conclusions de novo." Id. at 6 (internal citations omitted). A court's determination regarding its jurisdiction is a question of law and therefore is reviewed de novo.⁷ Grapentine v. Pawtucket Credit Union, 755 F.3d 29, 31 (1st Cir. 2014).

Although Reyes-Colón agrees with Banco Popular that in some cases a bankruptcy court must specifically state that it will retain jurisdiction over...