SEGARRA MIRANDA v. DE JESUS GONZALEZ et al

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF PUERTO RICO
DE JESUS-GONZALEZ, et al.,
Appellants,
v.
SEGARRA-MIRANDA, WILFREDO,
Appellee.
Civil No. 11-2080 (GAG)
Adversary No. 09-00150 (BKT)
OPINION AND ORDER
Presently before the court is the appeal by Sitka Enterprises, Inc., Berrios & Longo Law
Offices, P.S.C., and Fernando E. Longo-Quinones (“Appellants”) of an order issued by the United
States Bankruptcy Court for the District of Puerto Rico (Docket No. 15-2), transferring Adversary
Case No. 09-150 (BKT), to the U.S. District Court. The issue on appeal is whether the bankruptcy
court acted within its power when it transferred the case to the district court.
I. Factual and Procedural History
The present appeal is just one of a smorgasbord of motions, appeals and cases filed before
the district court questioning the bankruptcy court’s orders. Because of the multiple appeals and the
particularities involved with each, the court only summarizes the facts and background necessary
to decide the instant appeal. The trustee (“Appellee or Trustee”) brought this adversary proceeding
against Appellants in bankruptcy court alleging Jose de Jesus-Gonzalez and Nitxa Garcia-Reyes
(“Debtors”), their son and daughter, their children’s respective spouses, BDJ Limited Partnership,
S.E., Berrios and Longo Law Offices, P.S.E., Sitka Enterprises, Inc. and Fernanado Longo-Quinones
fraudulently transfered property from the Debtor’s estate. Appellants filed a motion to dismiss with
the bankruptcy court claiming the bankruptcy court did not have jurisdiction over the adversarial
proceeding due to the inclusion of the fraudulent conveyance claim. (See Adv. No. 09-150 (BKT);
Docket No. 68.) That motion was denied by the bankruptcy court. (See id. at 84.) Appellants
appealed that decision to the district court. (See Civil No. 10-1847 (CCC).) While that appeal was
Case 3:11-cv-02080-GAG Document 28 Filed 05/25/12 Page 1 of 6	Case:09-00150-BKT Doc#:176 Filed:05/29/12 Entered:05/31/12 14:25:25 Desc: Main
Document Page 1 of 6

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
Civil No. 11-2080 (GAG) 2
pending, Trustee filed a withdrawal of reference with the district court seeking to have the district
court take jurisdiction of the case. (See Civil No. 1848 (GAG).) The withdrawal of reference was
denied because the motion was deemed not ripe. (See Civil No. 10-1848 (GAG); Docket No. 7.)
In ruling that the withdrawal of reference was not ripe, the court noted there must be a right to a jury
trial prior to withdrawing the reference. (See id.) The right to a jury trial was one of the issues on
appeal in Civil No. 10-1847 (CCC). Therefore, until that appeal was resolved, the withdrawal of
reference motion would be not be ripe. In Civil No. 10-1847 (CCC), the district court reversed the
bankruptcy court, citing the recently decided Stern v. Marshall, 131 S.Ct. 2594 (2011), which held
the bankruptcy court, a non-Article III court, does not have the constitutional authority to adjudicate
state-law counterclaims. (See Civil No. 10-1847 (CCC); Docket No. 15.) The district court then
remanded the action to the bankruptcy court for further proceedings in conformity with that ruling.
(See id.) Acting upon the remand order, the bankruptcy court transferred the case to the district
court for adjudication. (See Adv. No. 09-150 (BKT); Docket No. 158.) Both Trustee and
Appellants appealed the bankruptcy court’s order to transfer the case. In Civil No. 11-2079 (JAF),
Appellee argues the bankruptcy court erred by transferring the entire case, rather than solely
transferring the fraudulent conveyance action. In the instant appeal, Appellants argue the bankruptcy
court erred by transferring the case to the district court because it did not have the power to do so
and that the granting of its appeal in Civil No. 10-1847 (CCC) required complete dismissal of all
claims. (See Docket No. 11 at 2.)
II. Standard of Review
Appellate courts reviewing a bankruptcy appeal review all conclusions of law de novo and
all factual determinations under the clearly erroneous standard. In re Vazquez Laboy, 647 F.3d 367,
373 (1st Cir. 2011). All conclusions of law shall be re-examined and factual determinations shall
not be upset unless “it rests on clearly erroneous findings of fact, incorrect legal standards, or a
meaningful error in judgment.” Perry v. Blum, 629 F.3d 1, 14 (1st Cir. 2010) (quoting Tamko
Roofing Prods., Inc. v. Ideal Roofing Co., 282 F.3d 23, 39 (1st Cir. 2002)).
III. Discussion
A. Judicial Estoppel
Case 3:11-cv-02080-GAG Document 28 Filed 05/25/12 Page 2 of 6	Case:09-00150-BKT Doc#:176 Filed:05/29/12 Entered:05/31/12 14:25:25 Desc: Main
Document Page 2 of 6

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
Civil No. 11-2080 (GAG) 3
At the outset, Trustee asks the court to dismiss the instant appeal due to judicial estoppel.
Judicial estoppel prevents a party from pressing a legal claim that is inconsistent with the position
it successfully took in a prior legal proceeding or at an earlier stage of the litigation. See Guay v.
Burack, No. 10-2513, 2012 WL 1352251, at *4 (1st Cir. Apr. 19, 2012). A party who is successful
in arguing one legal position, may not take a contrary position in a subsequent proceeding just
because that party’s interests have changed. See id. The doctrine of judicial estoppel maintains the
integrity of the courts by not allowing parties to manipulate the system.
In the instant appeal, Appellants are merely arguing the differing legal issues presented by
the various appeals. This litigation is complex. Currently there are three pending actions all
working their separate ways through the district court. Appellants’ initial attempt at consolidating
the four original cases was unsuccessful because the motion to consolidate was filed after the lead
case, Civil No. 10-1847 (CCC) was closed. (See Civil No. 10-1847 (CCC); Docket No. 19.)
Neither party has attempted to consolidate the cases since. As such, the parties have every right to1
fully litigate the issues in each case, so long as they do not adopt incompatible stances on the issues.
In the case at bar, the sole issue is whether the bankruptcy court had the power to transfer the entire
case to the district court. In Civil No. 11-2079 (JAF), the parties are required to argue whether the
bankruptcy court should have, or could have, transferred any claims other than the fraudulent
conveyance to the district court. In Civil No. 11-1974 (SEC), a case that is currently stayed, the
parties must litigate the issues as if the court has jurisdiction to hear the issues presented. Just
because Appellants have not raised the issues presented in this appeal in Civil No. 11-1974 (SEC),
does not mean they have taken inapposite stances that would invoke judicial estoppel. Civil No. 11-
1974 (SEC) is stayed pending a ruling in this appeal, as well as the appeal in Civil No. 11-2079
(JAF). Judicial estoppel does not prevent Appellants’ argument in this case and will not lead to
Appellant’s successfully gaming the system. While these cases could have been consolidated at
some point prior to the present, they were not. Hence, the court must act; and with that, the court
Each judge presiding over these cases and appeals has questioned the parties why these1
cases should not be consolidated. The parties have fought consolidation.
Case 3:11-cv-02080-GAG Document 28 Filed 05/25/12 Page 3 of 6	Case:09-00150-BKT Doc#:176 Filed:05/29/12 Entered:05/31/12 14:25:25 Desc: Main
Document Page 3 of 6

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
Civil No. 11-2080 (GAG) 4
shall. The court DENIES Appellee’s motion to strike the appeal (Docket No. 15).
B. Powers of the Bankruptcy Court
The bankruptcy court is a non-Article III court established by Congress, allowing bankruptcy
actions to be adjudicated in said court. See 28 U.S.C. § 157 (2012). While the bankruptcy court is
set up to aid in the administration of bankruptcy proceedings, it is the district court that retains
original and exclusive jurisdiction over all bankruptcy cases. See 28 U.S.C. § 1334(a); Stern, 131
S.Ct. At 2603. As such, Congress has given the district court the statutory power to refer any and
all bankruptcy proceedings to the bankruptcy court for adjudication. See 28 U.S.C. § 157. In this
district, all cases under Title 11 have been referred to the bankruptcy court for the District of Puerto
Rico. See General Order of July 19, 1984. Due to this General Order, all cases are automatically
referred to the bankruptcy court. In order for a case to be transferred from the bankruptcy court to
the district court, a withdrawal of reference motion must be filed pursuant to Rule 5011 of the
Federal Rules of Bankruptcy Procedure. See FED.R.BANKR.P. 5011; Local rules 5011-1. A party
whose claims are entitled to a trial by jury can motion the district court to take jurisdiction over the
proceedings. See FED.R.BANKR.P. 5011; Local rules 5011-1. There is no other mechanism within
the Bankruptcy Rules that allow a bankruptcy court to transfer an action to the district court.
C. Compliance With the Court’s Order in Civil No. 10-1847 (CCC)
Appellants argue the bankruptcy court should have dismissed the case. The bankruptcy court
denied Appellants motion to dismiss. (See Adv. No. 09-150, Docket No. 84.) The appeal of that
order was granted and the case was remanded to the bankruptcy court. (See Civil No. 10-1847
(CCC); Docket No. 15.) Appellants argue the district court’s order in Civil No. 10-1847 (CCC)
required all claims to be dismissed for lack of jurisdiction. (See Docket No. 11 at 15-16.) Trustee
argues the district court merely held the bankruptcy court could not adjudicate the fraudulent
conveyance claim, but refrained from ruling on the jurisdiction as to the rest of the claims or whether
the bankruptcy court must dismiss the fraudulent conveyance claim. (See Docket No. 18 at 29.)
Nothing in its opinion indicates the district court required the bankruptcy court to dismiss
all claims in this case. (See Civil No. 10-1847 (CCC); Docket No. 15 (“the resolution of the
fraudulent conveyance action brought by the trustee in this case cannot be adjudicated by the
Case 3:11-cv-02080-GAG Document 28 Filed 05/25/12 Page 4 of 6	Case:09-00150-BKT Doc#:176 Filed:05/29/12 Entered:05/31/12 14:25:25 Desc: Main
Document Page 4 of 6

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
Civil No. 11-2080 (GAG) 5
Bankruptcy Court since it lacks constitutional authority to do so . . .”).) The opinion clearly lays out
the legal reasons why the bankruptcy court cannot adjudicate the fraudulent conveyance claim, but
does not mandate the bankruptcy court to dismiss that claim or any other claims. While the
bankruptcy court could not adjudicate the fraudulent conveyance claim, other options remained open
to the court and the parties. Accordingly, this court does not find the bankruptcy court acted in direct
violation of the district court’s order by not dismissing all claims.
D. Power to Transfer the Case to the District Court
As a court of limited jurisdiction, the bankruptcy court must operate within its powers. See
Stern, 131 S.Ct. at 2603. The federal statutes, the Federal Rules of Bankruptcy Procedure, as well
as the General Orders by the local district court, establish the parameters within which the
bankruptcy court may act. In the District of Puerto Rico, it has been established that all bankruptcy
cases shall be referred to the bankruptcy court. See General Order of July 19, 1984. Statutorily,
such a referral may be withdrawn pursuant to Federal Rule of Bankruptcy Procedure 5011. Upon
such a withdrawal of reference motion, the district court may grant or deny the withdrawal of
reference. It is the district court that has original and exclusive jurisdiction over these cases. See
28 U.S.C. § 157.
The court cannot find any mechanism that would allow the bankruptcy court to transfer a
case from its docket to the district court. The bankruptcy court does not have the power to transfer
cases. A withdrawal of reference allows the district court to ensure only those cases requiring
adjudication in the district court are transferred. Allowing the bankruptcy court to transfer cases to
the district court sua sponte would run contrary to the statutory powers given to the bankruptcy court
by Congress. There are no inherent powers of the bankruptcy court that would allow such transfers
in the absence of a statutory grant.
This court finds the proper mechanism for transferring a case is by motion to withdraw the
reference. See FED.R.BANKR.P. 5011. In this case, Appellants filed a motion to withdraw the
reference, but it was ruled not ripe for adjudication. The court noted the then pending action, Civil
No. 10-1847 (CCC), would clarify whether the bankruptcy court had the power to adjudicate the
Case 3:11-cv-02080-GAG Document 28 Filed 05/25/12 Page 5 of 6	Case:09-00150-BKT Doc#:176 Filed:05/29/12 Entered:05/31/12 14:25:25 Desc: Main
Document Page 5 of 6

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
Civil No. 11-2080 (GAG) 6
fraudulent conveyance claim. After Civil No. 10-1847 (CCC) was remanded, no party sought
withdrawal of the reference to the bankruptcy court, most likely because the bankruptcy court
transferred the case sua sponte before any such motion could be filed. But such a motion was
necessary to allow a transfer. Now that Civil No. 10-1847 (CCC) has been resolved, a motion for
withdrawal of reference may be ripe and appropriate at this time.
A motion for withdrawal of reference is useful because it allows both the parties and the
court to analyze the issues presented and rule on which issues should be transferred to the district
court and which issues can and should be resolved by the bankruptcy court. It also provides the
parties an opportunity to consent to trial before the bankruptcy court. Allowing all interested parties
the opportunity to raise potential issues to the court prior to transfer will facilitate the court in
making the proper ruling. That is the case here. A motion for withdrawal of reference is a right of
the parties and will allow the moving party to select which issue(s) the reference should be
withdrawn. Once motioned by the moving party, any party opposing such a motion may make the
appropriate arguments to the district court, which will then rule on the motion. The court finds this
procedural route to not only be the statutorily proper mechanism for transferring a case from the
bankruptcy court to the district court, but it also is the route that allows for the issues to be fully
developed and argued before the court. As such, the court GRANTS Appellants’ appeal as to the
inability of the bankruptcy court to transfer the case to the district court and DENIES Appellants’
arguments that the only course of action for the bankruptcy court is full dismissal of all claims. The
case is hereby REMANDED for further adjudication in compliance with this ruling.
SO ORDERED.
In San Juan, Puerto Rico this 25th day of May, 2012.
S/Gustavo A. Gelpí
GUSTAVO A. GELPI
United States District Judge
Case 3:11-cv-02080-GAG Document 28 Filed 05/25/12 Page 6 of 6	Case:09-00150-BKT Doc#:176 Filed:05/29/12 Entered:05/31/12 14:25:25 Desc: Main
Document Page 6 of 6