LATALLADI MAURAS et al v. PUNTO APARTE CIMA PUBLICIDAD INC

1
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF PUERTO RICO
In re: :
:
PUNTO APARTE/CIMA PUBLICIDAD, INC.,: Case No. 08-01350 (GAC)
:
DIERESIS PUBLIC RELATIONS, INC., : Case No. 08-01352 (GAC)
:
GRUPO CIMA, INC., : Case No. 08-01523 (GAC)
:
Debtors : Chapter 11
___________________________________:
:
JESUS LATALLADI MAURAS, his spouse :
ANGELES ROSARIO ORTIZ and the :
Conjugal Partnership constituted :
by them; INMOBILIARIA CIMA, S.E., :
:
Plaintiffs :
:
v. : Adv. No. 08-00136
:
GRUPO CIMA, INC., ET ALS. :
:
Defendants :
__________________________________ :
DECISION AND ORDER
BACKGROUND
On September 5, 2008, the debtor/defendants filed a Notice
of Removal of a civil action, which had been commenced in local
court on August 10, 2007, Civil Case No. KPE07-3611 (506). The
local court proceeding against the debtors primarily sought
compensation for breach of contract. The plaintiffs sold their
business and leased premises to the debtors. Plaintiffs seek the
money owed pursuant to a promissory note and back rent. The
debtors filed a counterclaim alleging fraud. Until the filing of
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their bankruptcy petitions on March 5 and March 13 of 2008, the
debtors were actively engaged in the local court proceedings.
The debtors’ participation included appearing and arguing at an
embargo hearing, at which the local court issued an order
granting an embargo in the amount of $880,215, representing the
amount due under the promissory note, which was subsequently
affirmed by the Puerto Rico Court of Appeals.
On October 6, 2008, the plaintiffs filed a motion to remand
the action to local court and/or requesting abstention (dkt. #7).
The debtors opposed the request on November 5, 2008, arguing that
the action is core because of their counterclaim against the
plaintiffs (dkt. #14). The plaintiffs thereafter filed two
motions in reply (dkts. # 18 and #21). The matter was heard on
January 27, 2009.
DISCUSSION
The Judicial Code differentiates between core proceedings
and non-core proceedings and includes a non-exhaustive list of
core proceedings. See 28 U.S.C. § 157(b)(2). In the present
case, the debtors argue that this action is a core proceeding
because of their counterclaim against the plaintiffs. Among
others, the debtors cite to 28 U.S.C. § 157(b)(2)(C), which
provides that core proceedings include “counterclaims by the
estate against persons filing claims against the estate” and to
In re CBI Holding Co., Inc., 529 F.3d 432 (2nd Cir. 2008).
However, this matter did not begin in the bankruptcy court with a
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proof of claim filed by the plaintiffs and an objection to claim
by the debtors. This matter was commenced prepetition in local
court.
A case arises under Title 11, and is a core proceeding, if
it involves a “cause of action created or determined by a
statutory provision of the Bankruptcy Code.” In re Santa Clara
County Child Care Consortium, 223 B.R. 40, 43 (B.A.P. 1st Cir.
1998). See also In re Middlesex Power Equipment & Marine, Inc.,
292 F.3d 61, 68 (1st Cir. 2002). Non-core proceedings are
“claims ‘concerned only with State law issues that did not arise
in the core bankruptcy function of adjusting debtor-creditor
rights.’” Arnold Print Works, Inc. v. Apkin (In re Arnold Print
Works, Inc.), 815 F.2d 165, 167 (1st Cir. 1987)(quoting 130
Cong.Rec. H1848 (daily ed. March 21, 1984)(statement of
Representative Kindness)). Stated another way, matters which do
not involve rights created by federal bankruptcy law are non-core
matters. Mec Steel Bldgs., Inc. v. San Lorenzo Construction (In
re Mec Steel Bldgs., Inc.), 136 B.R. 606, 609 (Bankr. D.P.R.
1992). “If an action would survive outside of bankruptcy, and in
the absence of bankruptcy would have been initiated in a state or
district court, then it clearly involves a non-core matter.” Id.
(citations omitted).
Mec Steel Bldgs. involved a claim by the debtor for the
collection of accounts receivable. The debtor argued that this
involved administration of the estate and the turning over of
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property of the estate, both core proceedings under 28 U.S.C. §
157(b)(2). The court in Mec Steel Bldgs. concluded that “actions
initiated in the bankruptcy court to collect prepetition account
receivables are clearly non-core matters and should not be
considered as matters affecting the administration of the estate
or actions for the turnover of property of the estate in order to
categorize them as core.” Mec Steel Bldgs. 136 B.R. at 609
(citations omitted). Likewise, actions based on a prepetition
breach of contract are also non-core. See Matter of Candelero
Sand & Gravel, Inc., 66 B.R. 903, 906 (D.P.R. 1986); Ralls v.
Docktor Pet Ctrs., Inc., 177 B.R. 420, 427 (D.Mass. 1995)(holding
more expansively that action involving pre-petition contracts,
allegedly breached both before and after the filing of the
petition, is entirely a non-core matter related to a case arising
under Title 11).
This court concludes that all of the matters included within
the removed action are non-core, although clearly related to the
bankruptcy proceedings since they “potentially have some effect
on the bankruptcy estate, such as altering debtor’s rights,
liabilities, options, or freedom of action, or otherwise have an
impact upon the handling and administration of the bankruptcy
estate.” In re Middlesex Power Equipment & Marine, Inc., 292
F.3d at 68.
The plaintiffs have requested that the Court either abstain
from considering this adversary proceeding or that the Court
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remand the case to the superior court of Puerto Rico. The
mandatory abstention provisions codified in 28 U.S.C. §
1334(c)(2) apply to cases brought before the bankruptcy court
pursuant to the removal statute, 28 U.S.C. § 1452. See C&A, S.E.
v. Puerto Rico Solid Waste Management Authority, 369 B.R. 87, 92
(D.P.R. 2007)(collecting cases). It is unnecessary to consider
whether equitable grounds for remand exist when the case fits
within the parameters of mandatory abstention. Id.
Mandatory abstention is required when: a timely motion to
abstain is filed; the claim is based upon a state law claim that
is only related to the bankruptcy case; the claim could not have
been brought in federal court absent the court’s bankruptcy
jurisdiction; and the court finds that the claim can be timely
adjudicated in state court. 11 U.S.C. § 1334(c)(2). “Pursuant
to section 1334(c)(2), the ‘district court must abstain from
hearing a purely state law claim where there is no other basis
for federal jurisdiction other than its relatedness to a
bankruptcy proceeding (including one where the debtor is a party)
and where the claim can be timely adjudicated in state court.’”
In re Interamericas Turnkey Development Co., Inc., 94 B.R. 9, 13
(D.P.R. 1988), citing Matter of Candelero Sand & Gravel, Inc., 66
B.R. 903, 908 (D.P.R. 1986)(quoting State Bank of Lombard v.
Chart House, 46 B.R. 468, 472 (N.D.Ill. 1985)); see also Goya
Foods v. Unanue-Casal (In re Unanue-Casal), 164 B.R. 216, 222-23
(D.P.R. 1993)(discussing requirements for mandatory abstention),
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aff’d., 32 F.3rd. 561 (1st Cir. 1994).
In the present case, the debtor/defendants filed a Notice of
Removal of the local court proceeding on September 5, 2008. The
plaintiffs filed a motion to remand on October 6, 2008. A motion
for abstention filed a little over a month after the removal is
timely. C&A, S.E. v. Puerto Rico Solid Waste Management
Authority, 369 B.R. at 93. This is clearly a state law cause of
action based on a prepetition breach of contract and the debtors
counterclaims sound in fraud. As the Court has already
concluded, the action is a non core proceeding removed under the
related-to-jurisdiction of 28 U.S.C. § 1334(b). Absent the
debtors’ bankruptcy filings, jurisdiction over this action would
be lacking since the parties are not of diverse citizenship and
the actions are based on state law. The local court proceeding
was commenced August 10, 2007, more than seven months prior to
the bankruptcy filings and there is nothing to suggest that the
action cannot be timely adjudicated in local court. Therefore,
this Court concludes that the requirements for mandatory
abstention are met and the action removed must be remanded to the
superior court of Puerto Rico.
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ORDER
WHEREFORE IT IS ORDERED that the plaintiffs’ motion for
mandatory abstention pursuant to 28 U.S.C. § 1334(c)(2)(dkt. #21)
is GRANTED. This action is hereby remanded to the Superior Court
of Puerto Rico.
The Clerk shall enter judgment accordingly.
SO ORDERED.
San Juan, Puerto Rico this 30th day of January, 2009.
/s/ Gerardo A. Carlo
__________________________
Gerardo A. Carlo
U.S. Bankruptcy Judge
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