Opinion
CASE NO. 19-2129 (GAG) Bankruptcy Case No. 02-2887 (ESL)
09-30-2020
IN RE: REDONDO CONSTRUCTION CORP., Debtor, Redondo Construction Corp, Appellant, v. Continental Lord Inc., Appellee.
Carmen Conde Torres, for Appellant. Ivette M. Berrios, Segundo Garcia-Caban, for Appellee.
Carmen Conde Torres, for Appellant.
Ivette M. Berrios, Segundo Garcia-Caban, for Appellee.
OPINION AND ORDER
GUSTAVO A. GELPI, UNITED STATES DISTRICT JUDGE
Redondo Construction Corp. appeals to this Court, pursuant to 28 U.S.C. § 158, two Opinion and Orders issued by the United States Bankruptcy Court for the District of Puerto Rico in Case No. 02-2887 (ESL). (See Transmittal of Record on Appeal at Docket No. 1). Debtor-Appellant challenges the Bankruptcy Court's April 8, 2019 Opinion and Order denying the Debtor's position as to overpayment and validating the fifteen percent provision in the Plan of Reorganization as supplemented, and the November 18, 2019 Opinion and Order denying Debtor's motion for reconsideration. (Docket No. 5).
I. JURISDICTION
The Bankruptcy Court had jurisdiction over this matter pursuant to 28 U.S.C. § 1334, which confers jurisdiction on this District Court as to all matters arising under 11 U.S.C. §§ 101 et seq., and pursuant to the District Court's resolution dated July 19, 1984, which, in turn, refers all Title 11 matters to the United States Bankruptcy Court for the District of Puerto Rico. This Court has appellate jurisdiction pursuant to 28 U.S.C. § 158(a)(1), which enables district courts of the United States to entertain appeals from final judgments, orders and decrees of the Bankruptcy Court.
II. STANDARD OF REVIEW
Title 28 U.S.C. § 158(a) - (b) provides for intermediate appeals either to the district court or to the Bankruptcy Appellate Panel. See also FED. R. BANKR. P. 8003 -05. A party who fails to prevail in that intermediate review may either accept the ruling and return to the bankruptcy court, with the BAP or district court ruling controlling, see, e.g., In re Hermosilla, 450 B.R. 276, 287-88 (Bankr. D. Mass. 2011), or may further appeal to the Court of Appeals. 28 U.S.C. § 158(d)(1) ; see also In re Reyes-Colon, 922 F.3d 13, 17 (1st Cir. 2019).
Appellate courts reviewing a bankruptcy appeal generally apply the "clearly erroneous" standard to findings of fact and de novo review to conclusions of law. TI Fed. Credit Union v. DelBonis, 72 F.3d 921, 928 (1st Cir. 1995) ; In re Savage Indus., Inc., 43 F.3d 714, 719-20 n.8 (1st Cir. 1994). Where the issue on appeal is essentially one of statutory interpretation, appellate courts review the issue de novo. In re San Miguel Sandoval, 327 B.R. 493, 506 (1st Cir. BAP 2005) (citing Jeffrey v. Desmond, 70 F.3d 183, 185 (1st Cir. 1995) ). In addition to the clearly erroneous and de novo standards of review, "[t]he appellate court in a bankruptcy appeal may apply an abuse of discretion standard of review of a decision or action by a Bankruptcy Court when such decision is within the discretion of the Bankruptcy Court." In re San Miguel Sandoval, 327 B.R. at 506 (quoting 9E Am.Jur.2d Bankruptcy § 3512 (2004) ). "Abuse occurs when a material factor deserving significant weight is ignored, when an improper factor is relied upon, or when all proper and no improper factors are assessed, but the court makes a serious mistake in weighing them." Perry v. Warner (In re Warner), 247 B.R. 24, 25 (1st Cir. BAP 2000) (quoting Indep. Oil & Chem. Workers of Quincy, Inc. v. Procter & Gamble Mfg., Co., 864 F.2d 927, 929 (1st Cir. 1988) ).
"A bankruptcy court's findings of fact are reviewed for clear error and its conclusions of law are reviewed de novo." In re Soto, 491 B.R. 307, 311 (B.A.P. 1st Cir. 2013) (citing Lessard v. Wilton–Lyndeborough Coop. Sch. Dist., 592 F.3d 267, 269 (1st Cir. 2010) ).
III. FACTUAL AND PROCEDURAL BACKGROUND
The travel of this case is extensive. For almost two decades this case has been carrouseling the Bankruptcy Court, District Court and Court of Appeals for the First Circuit. Various opinions written throughout the case contain comprehensive accounts of the factual background of these proceedings. See In re Redondo Constr. Corp., 678 F.3d 115 ; In re Redondo Const. Corp. (Redondo II), 505 B.R. 388 (Bankr. D.P.R. 2014) ; In re Redondo Const. Corp. (Redondo I), 411 B.R. 89 (Bankr. D.P.R. 2009) ; Puerto Rico Highway & Transp. Auth. v. Redondo Const. Corp., 523 B.R. 339, 341 (D.P.R. 2014), vacated and remanded sub nom. In re Redondo Const. Corp., 820 F.3d 460 (1st Cir. 2016) ; Redondo III, No. 02-02887 (ESL), 2019 WL 1549726 (Bankr. D.P.R. Apr. 8, 2019), reconsideration denied, No. 02-02887 ESL, 2019 WL 6130938 (Bankr. D.P.R. Nov. 18, 2019).
The Court directs the reader to Bankruptcy Court's Opinion and Order in Redondo III, 2019 WL 1549726 at *1-9, for a comprehensive and up-to-date case history, particularly as to the issue of Continental Lord Inc.'s ("Appellee" or "Lord"), pass-through claim and how the Debtor has acted upon the same throughout the bankruptcy proceeding. The Court need not spill ink retelling this story. Instead, the Court focuses on the parties' arguments and the Bankruptcy Court's rulings, subject to this appeal.
IV. DISCUSSION
After an extensive review of the briefs, as well as the two Opinion and Orders of the Bankruptcy Court, the extensive procedural history and the applicable law, the Court agrees that the Bankruptcy Court's rationale in its Opinion and Orders. For the reasons discussed below, the Court AFFIRMS the Bankruptcy Court's rulings subject of this appeal.
A. OVERPAYMENT BY TRUST ADMINISTRATOR TO LORD
Appellant argues that the Bankruptcy Court erred when it denied Debtor's claim of overpayment. This finding, Appellant argues, is clearly erroneous. To wit, Appellant contends the Bankruptcy Court erred in concluding that Lord had a right to be paid one hundred percent of its pass-through claim, notwithstanding the parties' agreement, incorporated to the Court-approved reorganization plan. (Docket No. 5). Further, Appellant contends the Bankruptcy Court erred in its conclusion of law that the Debtor was bound by its actions after the Trust Administrator paid Lord the totality of the pass-through claim, instead of fifteen percent of its participation, as provided under the reorganization plan. Id.
In contrast, Appellee posits that the Bankruptcy Court acted correctly when it denied Debtor's allegation of overpayment. Appellee contends that the Court's April 2019 ruling is consistent and in harmony with the Bankruptcy Court's August 31, 2009 ruling in which it awarded Appellee, as a pass-through claimant, the totality of its claim, $1,746,085. Thus, Appellee posits no overpayment took place. (Docket No. 12).
Lord argues that the fifteen percent provision is taken out of context by Appellant. Lord correctly points out that the Liquidating Agreement provides that if the amount is awarded to one party, such amount has to be paid to such party, thus, the fifteen percent allocation does not apply as Appellant suggests. Per the Liquidating Agreement, said provision applies when the court adjudicates Appellee and Appellant's claims in a lump sum, i.e., as a whole. Notwithstanding, Appellant insists the Bankruptcy Court erroneously concluded that the Debtor did not have a right to collect the overpayment made by the Litigation Trust Administrator to Lord on July 16, 2012, in the amount of $1,395,381. (Docket No. 5). Appellant notes, that "[t]he Plan of Reorganization provided a cap on the recovery of Lord's claim of [fifteen percent] of any award less expenses. There is no dispute as to the validity of the language included in Debtor's Plan of Reorganization, as Supplemented and confirmed by the Bankruptcy Court." Id.
Appellant erroneously contends that payments to Lord should have been limited to fifteen percent of the recovered amount less proportionate expenses based on a portion of the footnote and not considering the incorporation by reference of the entire content of the Liquidating Agreement. (Docket No. 12 at 18). In opposition, Appellee counters that the payment at issue was ratified by Appellant when Debtor, its shareholders and Debtor's counsel of record when they consented and approved said payment awarded to Lord in the Bankruptcy Court's Opinion and Order of August 31, 2009. The Court agrees with Appellee. "As stated by the Court during the June 14, 2017 hearing, the footnote in Exhibit B of the-Supplement to the Plan's Schedule incorporates by reference in the Plan the entire Liquidating Agreement of August 15, 1994, as amended in 2001 and is binding on Appellant." (Docket No. 12 at 19).
Appellant next posits that the Bankruptcy Court "erroneously relied on ‘extrinsic evidence’ in order to unilaterally modify the agreement between the parties. While at the same time it disregarded evidence provided by the Debtor to sustain that there had been an error in payment to Lord." (Docket No. 5). To wit, Appellant argues that, notwithstanding the above, "the Bankruptcy Court relied on matters outside of the agreement and the confirmed Plan of Reorganization, in order to make its adjudication, concluding that Lord was not overpaid, when it received 100% of its claim when the first payment by the Trust Administrator was made." (Docket No. 5 at 15). Appellant's argument fails. The Bankruptcy Court correctly relied on the amended Liquidating Agreement, the Bankruptcy Court's 2009 orders and judgment. The Bankruptcy Court also found that Appellant failed to meet all the criteria needed to prove its allegations, thus, concluding that the fifteen percent provision argument was not supported by the facts and the applicable law. As such, the Bankruptcy Court correctly concluded there was no overpayment to Appellee.
B. DOCTRINE OF COLLECTION BY MISTAKE ("COBRO DE LO INDEBIDO ")
Appellant contends the Bankruptcy Court erred when it based its conclusion on the doctrine of judicial estoppel and did not consider Debtor's argument of payment in error by the Litigation Trust Administrator, the Debtor and Counsel for Debtor. (Docket No. 5). In opposition, Appellee argues the Bankruptcy Court correctly determined that the Debtor did not satisfy its burden of proof in proving that an error was made in the payment of the principal amount of Lord's subcontractor claim, pursuant to applicable Puerto Rico substantive law. The Bankruptcy Court stated:
The test set forth in Sepulveda, v. Departamento de Salud, 145 D.P.R. 560, 568 (1998) and reaffirmed in E.L.A. v. Crespo Torres, 180 D.P.R. 776, 793-794 (2011) is as follows: (1) a payment is made with the intention of extinguishing an obligation; (2) the payment made does not have a just cause, that is, there is no legal obligation between the payer and the one who collects, or if the obligation exists, it is for a lesser amount than the amount paid, and (3) the payment was made by mistake and not by mere liberality or by any other concept.
Redondo III, 2019 WL 1549726, at *32. The Bankruptcy Court further stated: "[I]n this case, [Debtor] cites the three requirements that must be satisfied, but fails to apply all of them to the facts of this case. [Debtor] falls short in establishing whether a factual error or an error of law was made." Id.
The Bankruptcy Court concluded that "if the error is one of law, the Debtor has not shown to this court how the excess payment was made under the belief that it was required by law, or by a misunderstanding of the applicable law." Redondo III, 2019 WL 1549726, at *32. It further concluded that Debtor's alleged error argument "is based on contract interpretation and an alleged amendment to the 2001 amendment to the Liquidating Agreement which is a different juridical concept." Id.
The Debtor's argument regarding Lord's overpayment in the amount of $ 592,358.82 is allegedly due to a payment in error by the Debtor's Litigation Trust Administrator, who allegedly did not follow the 2005 amendment to the Liquidating Agreement and the clear language of the footnote for Debtor's computation. The alleged 2005 amendment to the 2001 Liquidating Agreement is disputed by Lord, and also the footnote's interpretation in the Exhibit regarding the Estate's causes of action is in controversy. Said footnote referenced the August 15, 1994 agreement, as amended.
Redondo III, 2019 WL 1549726, at *32.
As such, the Bankruptcy Court did not abuse its discretion when it held that Appellant did not show how the excess payment was made under the belief that it was required by law, or by a misunderstanding of the applicable law.
V. CONCLUSION
For the reasons discussed above, the Court AFFIRMS the Bankruptcy Court's April 8, 2019 Opinion and Order and the November 18, 2019 Opinion and Order.