United Sur. & Indem. Co. v. Lopez-Munoz
Filing
OPINION issued by Jeffrey R. Howard, Chief Appellate Judge; Juan R. Torruella, Appellate Judge and David J. Barron, Appellate Judge. Published. [16-9007]
Case: 16-9007
Document: 00117187329
Page: 1
Date Filed: 08/09/2017
Entry ID: 6111793
United States Court of Appeals
For the First Circuit
No. 16-9007
IN RE: PEDRO LÓPEZ-MUÑOZ
Debtor
UNITED SURETY & INDEMNITY COMPANY,
Appellant,
v.
PEDRO LÓPEZ-MUÑOZ,
Appellee.
APPEAL FROM THE BANKRUPTCY APPELLATE PANEL
FOR THE FIRST CIRCUIT
Before
Howard, Chief Judge,
Torruella and Barron, Circuit Judges.
Carlos Lugo Fiol, with whom Héctor Saldaña-Egozcue, José A.
Sánchez Girona, and Saldaña and Saldaña-Egozcue, PSC, were on
brief, for appellant.
Luisa S. Valle Castro, with whom Carmen D. Conde Torres and
C. Conde and Associates, were on brief, for appellee.
August 9, 2017
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BARRON, Circuit Judge.
Date Filed: 08/09/2017
Entry ID: 6111793
This case concerns an appeal
from a bankruptcy court's decision, under 11 U.S.C. § 1104(a), to
deny a creditor's motion to appoint a trustee for the bankruptcy
estate to replace the debtor in possession of that estate.
We
affirm.
I.
The appellee in this case is the debtor in possession of
the estate, Pedro López-Muñoz.
Prior to filing a petition for
bankruptcy under Chapter 11 of the Bankruptcy Code, López was an
owner, either in whole or in part, of two petroleum products
companies.
The two companies were Western Petroleum Enterprises,
Inc. ("WP"), of which López owned 50% of the shares, and Hi Speed
Gas Corp. ("HSGC"), of which López owned 100% of the shares.
re Muñoz, 544 B.R. 266, 269 (Bankr. D.P.R. 2016).
In
The appellant
in this case is United Surety and Indemnity Co. ("USIC"), which is
one of López's creditors.
USIC became a creditor of López by
obtaining an indemnity agreement that López guaranteed for certain
of WP's obligations.
Id.
Although a debtor who has filed a petition for bankruptcy
under Chapter 11 generally continues to manage the bankruptcy
estate as the debtor in possession, the bankruptcy court may,
pursuant to § 1104(a), appoint a trustee to manage the estate
instead of the debtor.
Specifically, § 1104(a) provides that "the
[bankruptcy] court shall order the appointment of a trustee -- (1)
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for cause, including fraud, dishonesty, incompetence, or gross
mismanagement . . . ; or (2) if such appointment is in the interests
of creditors . . . ."
This appeal concerns the motion that USIC
filed under § 1104(a) to have the Bankruptcy Court appoint a
trustee of the bankruptcy estate to replace López.
Given the large number of issues USIC asks us to resolve
in this appeal, we need to review in some detail the facts
underlying the dispute, the arguments that the parties made to the
Bankruptcy Court and the Bankruptcy Appellate Panel ("BAP"), and
the rulings that those courts made below.
This review will help
clarify the issues, if any, that USIC is now raising for the first
time in this appeal and thus that are not properly before us.
We begin by recounting certain undisputed facts that
concern the run-up to López's filing of his petition for bankruptcy
under Chapter 11.
We then review the travel of the case following
that filing, including the decisions below.
A.
In March 2013, López owned 100% of the shares of HSGC.
Muñoz, 544 at 269.
At that time, HSGC owned a gas station in
Hormigueros, Puerto Rico ("Hormigueros station").
Id.
Also, at
the same time, López personally owned a gas station in Mayagüez,
Puerto Rico ("Mayagüez station").
Id. at 270.
On April 8, 2013, López, acting on behalf of HSGC,
executed a 20-year lease of the Hormigueros station with Puma
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Energy Caribe LLC ("Puma").
Date Filed: 08/09/2017
Id. at 269-70.
Entry ID: 6111793
HSGC's lease to Puma
of the Hormigueros station called for an initial $32,000 monthly
rental payment from Puma to HSGC.
Id.
The HSGC lease to Puma of
that station also provided that Puma would make an advance payment
to HSGC of $125,000.
Id. at 270.
Under that lease, HSGC was to
repay the advance payment through a $500 per month reduction in
the monthly rental payment that Puma owed to HSGC under the lease
of that station.
Id.
On the same day, April 8, 2013, López, acting on his own
behalf, executed a 20-year lease to Puma of the Mayagüez station
that he personally owned.
Id.
That lease provided for an initial
$18,000 monthly rental payment from Puma to López. Id. That lease
also provided for an advance payment of $125,000 from Puma to
López, which would be repaid to Puma by López by means of a $500
per month reduction in the monthly rental payment that Puma owed
to López under the lease on the Mayagüez station.
Id.
Both leases
to Puma made Puma responsible for "all costs related to their
operation," such that "the rents received by [HSGC] and by the
debtor under these leases were free and clear of any operating
expenses."
Id. at 272.
On April 11, 2013, López transferred his interest in the
Mayagüez gas station, including the lease to Puma, to HSGC in
return for $5,000.
Id. at 270.
That same day, López transferred
his shares in HSGC by "donat[ing]" them to a trust.
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Id.
The
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trust, named the "La Familia Trust," had been created by López's
son on April 1, 2013.
That trust named López as the sole
beneficiary of the La Familia Trust and López's children as
substitute beneficiaries.
López's spouse.
The trustee of that trust was listed as
Id. at 271.
On May 17, 2013, after López had made the two transfers
(of the Mayagüez station to HSGC and of the HSGC shares to the La
Familia Trust), one of WP's creditors, Banco Santander Puerto Rico,
garnished $182,435.66 in funds from López's personal bank account.
Id. at 270.
Banco Santander Puerto Rico did so based on López's
personal guarantee of WP obligations to Banco Santander Puerto
Rico.
Id.
The amount garnished included the $125,000 that Puma
had paid to López as Puma's advance payment on the lease that Puma
had executed with López for the Mayagüez station.
Id.
B.
On
October
1,
2013,
López
filed
his
petition
for
bankruptcy under Chapter 11. In the initial statement of financial
affairs that he submitted with the filing, López disclosed the
pre-petition transfer of the Mayagüez gas station to HSGC and the
transfer of the HSGC shares to the La Familia Trust.
López's
statement did not specifically disclose the revenue that was owed
by Puma under the two gas station leases that had been executed
with Puma.
Id. at 272-73.
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In the initial statement of financial affairs, López
wrote that the date for the transfer of the HSGC shares to the La
Familia Trust was March 2013.
actually April 11, 2013.
The date of the transfer was
Id. at 273. López also represented in
the initial statement of financial affairs that the shares of HSGC
that had been transferred to the La Familia Trust had "no value."
Id. The statement also disclosed that, after filing the bankruptcy
petition, López collected $5,000 a month from HSGC in salary for
his work as an officer of the company and $10,000 a month in rent
from HSGC for office space that he leased to HSGC.
Id. at 272.
On November 1, 2013, the first meeting of creditors in
connection with López's bankruptcy filing was held.
Id.
At that
first meeting of creditors, USIC inquired about the transfer of
the HSGC shares to the La Familia Trust that López had disclosed
on his initial statement of financial affairs.
Id.
López stated
at that meeting that the beneficiaries of the La Familia Trust
were his four children.
He did not state that he was in fact the
sole beneficiary of that trust and that his children were merely
substitute beneficiaries.
Id. at 272-73.
On April 15, 2014, López filed a disclosure statement
with the Bankruptcy Court in which he indicated that his purpose
in transferring the Mayagüez station to HSGC was to "preserve the
property because of difficulties in making mortgage payments."
Id. at 273-74. This disclosure statement, like his earlier initial
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statement of financial affairs, did not disclose either of the gas
station leases that Puma had executed.
And that statement did not
disclose the amount of money that Puma owed in connection with its
lease for either the Mayagüez station or the Hormigueros station.
Id. at 274.
On
July
17,
2014,
USIC
filed
an
objection
to
the
disclosure statement that López had filed with the Bankruptcy Court
and a request that the Bankruptcy Court appoint a trustee under
§ 1104(a).
Id. at 268.
In that motion, USIC contended, among
other things, that the transfer of the Mayagüez gas station to
HSGC and the transfer of the HSGC shares to the La Familia Trust
constituted transfers to "hinder, delay, or defraud" a creditor
under 11 U.S.C. § 548(a)(1)(A).
That provision of the Bankruptcy
Code authorizes the trustee of the bankruptcy estate to avoid
certain pre-petition transfers made with such an intent.
Id.
Accordingly, USIC argued that the bankruptcy estate had a cause of
action against HSGC to avoid the transfers under § 548 and recover
the assets for the benefit of the estate.
USIC further contended
that López, due to his ties to HSGC, had a conflict of interest
with respect to bringing that action.
USIC therefore requested
that the Bankruptcy Court appoint a trustee of the bankruptcy
estate under § 1104(a) "so that [the trustee] can pursue for the
benefit of the bankruptcy estate the avoidance and recovery" of
the challenged transfers.
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On August 29, 2014, López rescinded the transfer of the
Mayagüez gas station to HSGC and the transfer of the HSGC shares
to the La Familia Trust.
Id. at 274.
On that same day, López
filed with the Bankruptcy Court an amended "disclosure statement,
schedules, and statement of financial affairs to disclose the
reversal of the asset transfers."
Id.
The filings also disclosed
the lease that López had executed with Puma for the Mayagüez
station.
Id.
Notwithstanding López's rescission of the transfers of
the Mayagüez station to HSGC and of the HSGC shares to the La
Familia Trust, HSGC did not repay to the bankruptcy estate the
lease income that HSGC collected from Puma during the time that
HSGC owned the Mayagüez station in consequence of the prior
transfer by López of that station to HSGC. Id. at 274.
After
the
rescission
of
the
transfers,
López
began
receiving only $5,000 a month in rent from HSGC for the office
space that he had leased to HSGC.
Id. at 272.
Prior to the
rescission, López had been receiving $10,000 a month in rent from
HSGC for the office space that he had leased to HSGC.
Id.
The
reduction reflected the fact that, after the rescission, HSGC was
managing only one gas station.
Id.
C.
On July 14 and 15, 2015, the Bankruptcy Court held an
evidentiary hearing on USIC's motion to appoint a trustee of the
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bankruptcy estate pursuant to § 1104(a).
Entry ID: 6111793
At that hearing, López
testified as follows regarding the reason for the transfer of the
Mayagüez gas station to HSGC and the transfer of the HSGC shares
to the La Familia Trust: "I could not pay the mortgage.
We were
losing money, that's why we took the decision, and also to protect
the income."1
López then testified that, after he had transferred the
Mayagüez station to HSGC, he used the revenue that HSGC received
from Puma under its lease of the Mayagüez station to make the
payments for the mortgage on that station.
that,
after
the
transfer
to
HSGC
of
López also testified
that
station
had
been
rescinded, he continued to use that revenue to pay the mortgage on
the Mayagüez station.
In addition, López testified that the
incorrect date on the disclosure of the transfer of the HSGC shares
was an "honest mistake," and that the incorrect identification of
his children as the beneficiaries of the La Familia Trust was the
result of his thinking that "at first I'm the beneficiary.
The
thing is that the law of life is that I'm supposed to go first so
at the end they will be the beneficiary; that's why I answer like
that."
1
It appears that López's object was to prevent Banco
Santander Puerto Rico from garnishing the income from Puma's lease
for the Mayagüez station in order to ensure that López could use
that income to make the mortgage payments that he owed on the
mortgage for the Mayagüez station.
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López's
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certified
public
Date Filed: 08/09/2017
accountant
("CPA"),
Barroso, also testified at the evidentiary hearing.
performed a valuation of the shares of HSGC.
Entry ID: 6111793
Doris
Barroso had
Barroso explained
that she based her valuation on audited financial statements of
HSGC that were dated June 30, 2013.
Barroso testified that HSGC
had a negative book value, because HSGC's liabilities exceeded its
assets.
Barroso also testified that, during the time that HSGC
owned both the Mayagüez and Hormigueros stations, the operation of
each station created negative cash flow because HSGC's expenses
for each station exceeded the lease revenue that HSGC received
from Puma for each station.
Barroso explained in this regard that
all of the lease revenue that HSGC received from Puma was "used to
pa[y] the . . . mortgage, to pay the minimum . . . operating
expense[s] that they have, and their rent to Mr. Pedro López" for
the office space that HSGC leased from López.
In
addition,
Barroso
testified
that
she
found
no
evidence of fraud, diversion of funds, or hiding of assets in
López's bankruptcy filings.
regarding
the
two
She explained that López's filings
transfers
contained
"no
information" and "no omission of information."
falsification
of
Finally, Barroso
concluded that the transfers resulted in no "monetary loss" to the
bankruptcy estate.
USIC's CPA, Rafael Pérez Villarini, also testified at
the evidentiary hearing.
Pérez testified only as a rebuttal
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In that capacity, Pérez testified that Barroso had not
established the appropriate "procedures and analysis" to perform
a valuation of HSGC.
Pérez was asked whether he agreed with
Barroso's conclusion that there was no monetary loss to the
bankruptcy estate as a result of the transfers.
Pérez replied
that he "ha[d] no basis to . . . reach a conclusion in that."
D.
Following the evidentiary hearing, on August 19, 2015,
both parties submitted to the Bankruptcy Court proposed findings
of fact and conclusions of law.
USIC subsequently withdrew its
proposed findings of fact and conclusions of law and refiled an
amended version on August 21, 2015.
In
its
amended
filing,
USIC
contended
that
a
determination of fraud under § 1104(a)(1), such that a bankruptcy
court "shall" appoint a trustee, is made by reference to state or
territorial law.
USIC then contended that, under Puerto Rico law,
the transfer of the HSGC shares to the La Familia Trust was
presumed to be fraudulent because López had donated the shares.
Id. at 276; see P.R. Laws Ann. tit. 31, § 3498.
USIC also argued
that "the myriad of intentional omissions and misrepresentations
committed by [López] in this case clearly merits the appointment
of a trustee in this case."
In the course of describing those alleged omissions and
misrepresentations, USIC stated that López, in his April 15, 2014
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disclosure statement, had "represented to the court that he had
transferred the Mayagüez station to [HSGC] because he could not
pay the mortgage."
not be true.
But, USIC argued, that representation could
USIC explained that López knew that he was slated to
receive more revenue from Puma under the lease to Puma of the
Mayagüez station than López would need in order to be able to make
the payments for the Mayagüez station's mortgage.
USIC also argued that, because, during the time that
HSGC owned the Mayagüez station, HSGC had collected lease revenue
from the Mayagüez station in excess of the amount needed to make
the mortgage payments on that station, the "bankruptcy estate has
a cause of action for turnover of property in the amount of
$119,500 plus interest against [HSGC], which is solely owned by
the Debtor."
However, USIC contended that López faced a conflict
of interest because he was both the trustee of the bankruptcy
estate, which had a potential turnover action against HSGC, and
the sole owner of HSGC.
USIC then argued that "such conflict of
interest constitutes cause for appointment of a Chapter 11 trustee"
under § 1104(a).
USIC also argued that, even if the existence of
the turnover action did not give rise to a conflict of interest
that necessitated López's replacement as trustee of the bankruptcy
estate, López nevertheless "breached his duty to bring a turnover
action
against
[HSGC],
which
.
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.
.
constitute[s]
gross
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mismanagement of the affairs of the debtor and . . . grounds for
appointment of a trustee."2
USIC separately contended that the operating expenses of
the Mayagüez station that Barroso had taken into account in her
analysis of the valuation of the HSGC shares were "completely
fabricated in order to artificially create a deficit in the
otherwise profitable [lease]."
USIC thus contended that "the
misapplication of these so-called costs to [HSGC's] revenue to
artificially devalue its shares constitutes gross mismanagement by
the debtor-in-possession of the most important of all of the
estate's assets, which merits the appointment of a trustee in this
case."
For his part, López, in his proposed findings of fact
and conclusions of law, contended that he transferred the Mayagüez
station to HSGC and the HSGC shares to the La Familia Trust in
order to "protect the only income the Debtor had (the rent from
the leases) from the aggressive collections actions of just one
creditor in order to be able to pay his secured creditor and avoid
the foreclosure of the gas stations."
López further contended
that he "always acted with full honesty"; that "his actions
protected the income and the assets related to the leases"; and
2
USIC did not raise the argument that it had made in its
first motion to appoint a trustee, that the bankruptcy estate had
a cause of action against HSGC under 11 U.S.C. § 548.
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that "all income received from the transfers was traceable and was
used to pay the mortgages and maintain the operations."
E.
Having considered the parties' proposed findings of fact
and conclusions of law, the Bankruptcy Court on January 15, 2016
denied USIC's motion to appoint a trustee of the bankruptcy estate
under § 1104(a).
regarding,
among
disclosed,
the
appointing
a
After making a series of factual findings
other
things,
Bankruptcy
trustee
of
what
Court
the
§ 1104(a)(1) and 1104(a)(2).
López
had
and
had
not
out
the
standard
for
estate
under
both
laid
bankruptcy
Id. at 275.
The Bankruptcy Court
also noted that, under both subsections of § 1104(a), USIC bears
the burden of showing that a trustee should be appointed.
Id.
The Bankruptcy Court then summarized USIC's arguments in
favor of appointing a trustee to replace López.
The Bankruptcy
Court characterized USIC as arguing that:
(i) the debtor's donation of his [HSGC] shares
to La Familia trust is presumed to be
fraudulent under the Puerto Rico Civil Code;
(ii) following the rescission of the transfer,
the debtor's estate now has a cause of action
against [HSGC] for the turnover of estate
property in the amount of $119,500, plus
interest; (iii) the transfers of assets
disclosed by the debtor in his statement of
financial affairs were done in April 2013, and
not March 2013 as stated; (iv) the debtor
falsely stated in his first disclosure
statement that the reason that he transferred
the debtor's gas station to [HSGC] was because
he could not pay the mortgage with Banco
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Popular; (v) the debtor falsely stated at the
meeting of creditors that the beneficiaries of
the La Familia Trust were his children and not
him; (vi) the debtor falsely stated that his
[HSGC] shares were worthless at the meeting of
creditors and in the statement of financial
affairs; and (vii) the leases with Puma for
the gas stations were not disclosed in the
first disclosure statement.
Id. at 276.
The Bankruptcy Court characterized López as arguing
that he
always acted with honesty, neither hid any
information
nor
diverted
any
asset
in
detriment to the estate, showed that his
actions were to protect the rents from the
leases and the properties that produced that
rental income, . . . that all rental income
received from leases is traceable and was used
to pay the secured creditor whose collateral
generate that income and maintain the debtor's
business operations . . . [, and] that he
sought to protect his assets from the
aggressive collection actions of just one
unsecured creditor.
Id.
Turning to the merits of the arguments presented, the
Bankruptcy Court first stated that, under the Puerto Rico Civil
Code, the transfer that López made of the HSGC shares to the La
Familia
Trust
was
presumptively
fraudulent.
Id.
But,
the
Bankruptcy Court found, López had rebutted the presumption that
López acted fraudulently in donating the shares.
The Bankruptcy
Court relied on what it deemed to be Barroso's "credible and
convincing" testimony that the two transfers -- the transfer of
the Mayagüez station to HSGC and the transfer of the HSGC shares
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to La Familia Trust -- had "no material effect" on the bankruptcy
estate.
Id.
In so concluding, the Bankruptcy Court noted the
testimony by USIC's CPA, Pérez, that he had "no basis" on which to
reach a conclusion about that assessment by Barroso.
Id. at 277.
The Bankruptcy Court also rejected USIC's argument that
the
estate
$119,500.
has
a
turnover
cause
of
action
against
HSGC
for
In rejecting that argument, the Bankruptcy Court relied
on its determination that "Barroso's testimony that the asset
transfers had no material effect upon the estate remains in the
court's view uncontested.
Thus, USIC did not meet its burden of
proof that such cause of action exists."
Id.
Finally, the Bankruptcy Court explained that it was "not
persuaded
by
the
several
other
grounds
raised
by
USIC"
for
appointment of a trustee under § 1104(a) because "they either were
not material to the [§ 1104(a)] analysis or do not rise to the
level of misconduct requiring the appointment of a chapter 11
trustee."
Id.
The Bankruptcy Court went on to conclude that "in
many instances, the debtor was able to provide an acceptable
explanation for his actions.
For example, the debtor was able to
show that he relied on an amended financial statement for the year
2010 when he indicated that the [HSGC] shares had no value."
Id.
F.
USIC appealed the Bankruptcy Court's decision to the
BAP, which affirmed the Bankruptcy Court's ruling.
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Muñoz, 553 B.R. 179 (1st Cir. BAP 2016).
Entry ID: 6111793
The BAP stated that it
reviewed the Bankruptcy Court's factual findings regarding the
appointment of a trustee for clear error, the Bankruptcy Court's
conclusions
of
law
de
novo,
and
the
Bankruptcy
Court's
determination of whether "the evidence is sufficient to establish
'cause' for the appointment of a trustee or such appointment is in
the interests and creditors and the estate under § 1104(a)" for
abuse of discretion.
Id. at 188-89.
After describing the standard for appointing a trustee
under § 1104(a), the BAP reviewed USIC's argument that, under
§ 1104(a)(1), the Bankruptcy Court was required to appoint a
trustee
of
the
bankruptcy
estate.
Id.
at
190.
The
BAP
characterized USIC as arguing that "the Debtor's pre-petition
transfers of assets . . . are presumed to be fraudulent, citing to
Article 1249 of the Puerto Rico Civil Code," see P.R. Laws Ann.
tit. 31, § 3498, and that the appointment of a trustee was also
required under § 1104(a)(1) because of the various omissions and
misrepresentations by the debtor.
553 B.R. at 191.
The BAP then
stated that courts look to the "totality of the circumstances" in
determining whether a debtor acted "to defraud creditors."
Id.
The BAP found "no reason to reverse" the Bankruptcy
Court's application of the Puerto Rico statutory presumption of
fraud -- which "did not prejudice USIC" -- but noted that the
Bankruptcy Court's exclusive reliance on that presumption "would
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be misplaced" because federal law, not Puerto Rico law, defines
the meaning of fraud under § 1104(a)(1).
Id. at 192.
Thus, the
BAP considered whether the Bankruptcy Court erred in ruling that
the transfers were not "undertaken to defraud" López's creditors
under the "broader" federal definition of fraud.
Id. at 191-92.
The BAP began by listing seven "objective indicia" of
fraudulent
context.
intent
from
a
slightly
different
bankruptcy-fraud
Id. at 193 (quoting In re Marrama, 445 F.3d 518, 522
(1st Cir. 2006)).3
The BAP then concluded that:
Although
the
bankruptcy
court
did
not
specifically discuss the badges of fraudulent
intent set forth in Marrama, we are satisfied
from our review of the record, including the
trial transcript, that the bankruptcy court
fully considered all the evidence adduced at
the two-day hearing and the totality of the
circumstances in reaching its factual findings
and its legal conclusions.
Its decision
contains more than fourteen pages of factual
findings . . . . We find no abuse of discretion
in the bankruptcy court's determination that
USIC failed to refute the Debtor's evidence
that he did not intend to defraud his
creditors and the estate suffered no loss as
a result of the pre-petition transfers.
Similarly, we find no reversible error in the
bankruptcy court's acceptance of the Debtor's
explanations as credible and reasonable,
finding that the Debtor did not conceal
information and any incorrect information
provided by the Debtor was unintentional and
3
Marrama
concerned
the
application
of
11
U.S.C.
§ 727(a)(2)(A), which limits the bankruptcy court's authority to
grant the debtor a discharge if the debtor transferred property
"with actual intent to hinder, delay, or defraud a creditor." 445
F.3d at 522.
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not done with the intent to deceive or mislead
his creditors."
Id. at 193-94 (footnote omitted).
The BAP also rejected USIC's argument that, because the
Bankruptcy Court relied on its determination that the transfers
had no material effect on the bankruptcy estate in concluding that
López had not engaged in fraud under § 1104(a)(1), the Bankruptcy
Court had erred.
The BAP stated that "the bankruptcy court's
discussion of the lack of monetary loss to the estate as a result
of such transfers was by no means the sole factor it considered.
Nor can its finding of lack of intent by the Debtor to conceal
such
transfers
overlooked."
or
to
defraud
or
deceive
his
creditors
be
Id. at 195.
Finally, the BAP reviewed USIC's argument that a trustee
for the bankruptcy estate should be appointed under § 1104(a)
because the estate had a cause of action for turnover against HSGC.
In so arguing, USIC reasoned that this cause of action created a
conflict of interest for López in his capacity as trustee of the
bankruptcy estate, because he was also the owner of HSGC.
196.
Id. at
The BAP rejected this argument on the ground that "there is
no clear error in the bankruptcy court's finding that there was no
such potential cause of action against [HSGC]," because USIC "did
not offer any evidence to contradict" Barroso's testimony that
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HSGC expended all of its monthly rental income to meet its monthly
business expenses.
Id.4
G.
After the BAP ruled against USIC, USIC filed a motion
for rehearing, which the BAP denied.
USIC then filed this appeal
to us.
II.
We review appeals from the BAP "under the same standards
of review as the BAP reviews appeals from the bankruptcy court."
In re Handy, 624 F.3d 19, 21 (1st Cir. 2010).
"We review the
bankruptcy court's legal conclusions de novo, its findings of fact
for clear error, and its discretionary rulings for abuse of
discretion."
In re Hoover, 838 F.3d 5, 8 (1st Cir. 2016).
Whether
to appoint a trustee under § 1104(a) is a discretionary ruling, so
we will review that decision for an abuse of discretion.
See
Tradex Corp. v. Morse, 339 B.R. 823, 832 (D. Mass. 2006); accord
In re Marvel Entm't Grp., Inc., 140 F.3d 463, 470 (3d Cir. 1998).
4
The BAP did not separately address USIC's argument, which
it had also made to the Bankruptcy Court, that the the debtor's
failure to pursue the turnover action against HSGC constituted
"gross mismanagement" that justified appointment of a trustee,
independently of any conflict of interest. Presumably, the BAP
did not separately address that argument because the BAP affirmed
the Bankruptcy Court's finding that no such turnover cause of
action existed. The BAP also did not address USIC's argument to
the Bankruptcy Court that López artificially devalued the shares
of HSGC by including fabricated costs on its financial statements,
and thereby committed gross mismanagement, because USIC did not
raise this argument to the BAP.
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In doing so, we are mindful that the burden is on the movant to
prove that a trustee should be appointed under § 1104(a), see In
re G-I Holdings, Inc., 385 F.3d 313, 317-18 (3d Cir. 2004), as
"[t]he appointment of a chapter 11 trustee is considered to be an
'extraordinary' act since, in the usual case, the debtor remains
a debtor-in-possession throughout the reorganization."
Petit v.
New Eng. Mortg. Servs. Inc., 182 B.R. 64, 68 (D. Me. 1995) (quoting
In re Ionosphere Clubs, Inc., 113 B.R. 164, 167 (Bankr. S.D.N.Y.
1990)).5
A.
We begin with USIC's arguments as to why the Bankruptcy
Court erred in determining that appointment of a trustee was not
justified under § 1104(a)(1).
In support of that argument, USIC
first contends that the Bankruptcy Court erred as a matter of law
in concluding that, because the transfers of the Mayagüez station
to HSGC and of the HSGC shares to the La Familia Trust had no
materially adverse effect on the bankruptcy estate, López did not
act fraudulently in making those transfers.
5
In pressing this
The parties dispute whether the movant must meet this
burden by clear and convincing evidence, or by a preponderance of
the evidence. Courts are divided on this issue, and we have not
taken a position on this question before. Tradex Corp. v. Morse,
339 B.R. 823, 826-27 (D. Mass. 2006). But, here, the Bankruptcy
Court found that USIC did not carry its burden under either
standard, In re Muñoz, 544 B.R. at 275, and, even assuming the
more favorable standard for USIC applies, we still affirm. Thus,
we need not address the issue of which standard is the right one.
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contention,
USIC
argues
Page: 22
that
Date Filed: 08/09/2017
courts
have
made
clear
Entry ID: 6111793
that
a
fraudulent conveyance does not cease to be fraudulent merely
because the conveyance does not adversely impact the value of the
bankruptcy estate.
And thus, USIC argues, the Bankruptcy Court
erred as a matter of law by premising its ruling that no "fraud"
within the meaning of § 1104(a)(1) occurred on the absence of
evidence that the transfers in question had a material effect on
the value of the bankruptcy estate.
The Bankruptcy Court did not find, however, that, even
though López made the transfers fraudulently, the fraud resulted
in no harm to the bankruptcy estate and thus was not "fraud" under
§ 1104(a)(1).
Rather, as the BAP explained, the Bankruptcy Court
took account of the transfers' lack of materially adverse impact
on the bankruptcy estate in making a judgment, under the totality
of the circumstances, that, in making the transfers, López did not
"engage[] in fraud upon creditors" for purposes of § 1104(a)(1).
In re Muñoz, 544 B.R. 275-77; In re López-Muñoz, 553 B.R. at 195
("Here the bankruptcy court's discussion of the lack of a monetary
loss to the estate as a result of [the] transfers was by no means
the sole factor it considered.").
We have made clear, outside the context of § 1104(a)(1),
that a finding of fraudulent intent (or lack thereof) is one that
"normally is determined from the totality of the circumstances."
Williamson v. Busconi, 87 F.3d 602, 603 (1st Cir. 1996).
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does not identify any authority to suggest that, in evaluating the
totality of the circumstances, the effect of the transfer on the
estate's
value
§ 1104(a)(1).
is
an
impermissible
consideration
under
In consequence, given that we have previously
concluded, albeit outside the context of § 1104(a), that "[e]ven
when the totality of the circumstances might plausibly support an
inference of skullduggery, the bankruptcy court's contrary finding
must be credited unless the evidence is so one-sided as to compel
the inference of fraud," we see no basis for reversal of this
aspect of the Bankruptcy Court's ruling.
In re Carp, 340 F.3d 15,
25 (1st Cir. 2003).
USIC also argues that the Bankruptcy Court erred in
finding an absence of fraud for purposes of § 1104(a)(1) for
another reason.
USIC contends that, under the Supreme Court's
decision in Husky International Electronics, Inc. v. Ritz, 136
S. Ct. 1581 (2016), which was decided after the Bankruptcy Court
ruling in this case, USIC needed only to prove that López had
engaged in a "transfer to a close relative, a secret transfer, a
transfer of title without transfer of possession, or grossly
inadequate
involved
consideration,
a
false
regardless
representation."
of
And,
whether
USIC
the
scheme
contends,
it
"succeeded" in proving at least that much.
Husky, however, concerned what must be proved to satisfy
11 U.S.C. § 523(a)(2)(A), which is a provision of the Bankruptcy
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Code that limits a debtor's ability to discharge certain debts.
As a result, Husky does not purport to address what constitutes
"fraud" under § 1104(a)(1).
stated
that
136 S. Ct. at 1586.
"[f]raudulent
conveyances
Moreover, Husky
typically
involve
'a
transfer to a close relative, a secret transfer, a transfer of
title
without
transfer
consideration.'"
of
possession,
or
grossly
inadequate
Id. at 1587 (emphasis added) (quoting BFP v.
Resolution Tr. Corp., 511 U.S. 531, 540-41 (1994)).
And, as we
have just explained, our precedent outside of the context of
§ 1104(a)(1) emphasizes that a finding of fraud must rest on the
"totality of the circumstances."
Thus, in light of USIC's failure
to identify any precedent to the contrary under § 1104(a)(1), Husky
hardly suffices to establish that, under § 1104(a)(1), any transfer
to a close relative, secret transfer, transfer of title without
transfer
of
possession,
consideration
is
or
transfer
necessarily
fraud
for
grossly
within
the
inadequate
meaning
§ 1104(a)(1), regardless of the other circumstances.
of
See Carp,
340 F.3d at 25.
USIC next contends that the Bankruptcy Court erred in
assessing whether fraud within the meaning of § 1104(a)(1) occurred
because the Bankruptcy Court failed to appropriately consider
circumstantial
evidence.
USIC
first
contends
that,
under
§ 1104(a)(1), an intent to defraud a creditor through a prepetition
transfer of property may be proved by circumstantial evidence.
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And, USIC further contends, the facts found by the Bankruptcy Court
met
most
of
the
factors
that
we
identified
in
Marrama
as
circumstantial indicia of fraudulent intent in making a transfer.
In Marrama, in applying 11 U.S.C. § 727(a)(2)(A), which
concerns limitations on a debtor's ability to obtain a discharge
of debts, we identified the following factors as indicia of fraud:
(1) insider relationships between the parties;
(2) the retention of possession, benefit or
use of the property in question; (3) the lack
or inadequacy of consideration for the
transfer; (4) the financial condition of the
[debtor] both before and after the transaction
at issue; (5) the existence or cumulative
effect
of
the
pattern
or
series
of
transactions or course of conduct after the
incurring of the debt, onset of financial
difficulties, or pendency or threat of suits
by creditors; (6) the general chronology of
the events and transactions under inquiry; and
(7) an attempt by the debtor to keep the
transfer a secret.
445 F.3d at 522 (citation omitted).
USIC contends that the
Bankruptcy Court erred in concluding that López did not act
fraudulently
under
§
1104(a)(1)
because
the
Bankruptcy
Court
failed to consider those Marrama factors at all, notwithstanding
that the factors -- when applied to the facts that the Bankruptcy
Court did find -- indicated that López acted fraudulently.
This argument fails, however, because USIC misapprehends
the Bankruptcy Court's ruling.
The Bankruptcy Court made findings
as to the relationships between the debtor, HSGC, and the La
Familia Trust, In re Muñoz, 544 B.R. at 271; the retention of the
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benefit of the Mayagüez station, id. at 272; the value of the
assets transferred, id. at 271; the financial state of the debtor
before and after the transfers, id. at 272; the chronology of the
transfers at issue, id. at 270; and the debtor's statements
disclosing
the
transfers,
id.
at
272-74.
Thus,
as
the
BAP
explained, "[a]lthough the bankruptcy court did not specifically
discuss the badges of fraudulent intent set forth in Marrama," the
record revealed that "the bankruptcy court fully considered all
the evidence adduced at the two-day hearing and the totality of
the circumstances in reaching its factual findings and its legal
conclusions . . . that [López] did not intend to defraud his
creditors and the estate suffered no loss as a result of the prepetition
transfers."
In
re
López-Muñoz,
553
B.R.
at
193.
Accordingly, USIC is wrong in contending that the Bankruptcy Court
failed to consider circumstantial evidence or the Marrama factors.
USIC next contends that the Bankruptcy Court erred for
another reason. USIC points to López's statement to the Bankruptcy
Court -- made in his proposed findings of fact and conclusions of
law following the evidentiary hearing -- that López transferred
the Mayagüez station to HSGC and the HGSC shares into the La
Familia Trust in order to "protect his assets from the aggressive
collection actions of just one unsecured creditor."
544 B.R. at 276.
In re Muñoz,
USIC contends that López's admitted intent to
"protect" these "assets" from a creditor is precisely the intent
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required to show that López engaged in fraud for purposes of 11
U.S.C. § 1104(a)(1).
And thus, USIC contends, appointment of a
trustee of the bankruptcy estate was required under § 1104(a)(1)
in consequence of that admission by López regarding his intent.
But, USIC did not make this argument to the Bankruptcy
Court.
USIC argued to the Bankruptcy Court only that López did
not in fact have the motivation to make the transfers that he
claimed
to
have
had
conclusions of law.
in
his
proposed
findings
Thus, this argument is waived.
of
fact
and
See Hoover,
828 F.3d at 11; In re Woodman, 379 F.3d 1, 3 n.1 (1st Cir. 2004).6
We note that, in addition to the fact that neither the
Bankruptcy Court nor the BAP considered this issue, USIC identifies
no clear authority, from this court or from any other court, that
supports the proposition that López's claimed motivation with
respect to actions taken in response to the collection efforts of
6
In pressing this contention, USIC relies on Husky, which
does not address § 1104(a)(1) and what constitutes fraud under it.
Husky held that "fraud" within the meaning of § 523(a)(2)(A),
which, as we noted, limits the debtor's ability to discharge
certain debts, need not involve a false statement.
136 S. Ct.
1585. While Husky was not decided until 2016, and was therefore
unavailable for USIC to rely on in its briefing to the Bankruptcy
Court, our circuit had already reached the same conclusion in In
re Lawson, 791 F.3d 214, 220 (1st Cir., July 1, 2015), which was
published prior to USIC's briefing to the Bankruptcy Court. Thus,
USIC could have raised an argument based on Lawson to the
Bankruptcy Court.
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one creditor for the benefit of other creditors automatically makes
his transfers fraudulent for purposes of § 1104(a)(1).7
USIC's last argument with respect to its challenge to
the Bankruptcy's Court's ruling denying the motion to appoint a
creditor pursuant to § 1104(a)(1) is as follows.
USIC contends
that the Bankruptcy Court reversibly erred by not determining that
López
committed
fraud
through
a
"pattern
of
omissions
and
misrepresentations" that were "aimed at concealing" not only the
7
In arguing that the law is clearly in its favor, USIC relies
primarily on Husky. There, however, the Court held only that the
phrase "actual fraud" under 11 U.S.C. § 523(a)(2) did not impose
the requirement that a false statement have been made in order for
a fraudulent conveyance to qualify as actual fraud. 136 S. Ct. at
1588. Thus, Husky does not resolve the question we confront here
concerning whether López's statements concerning his reasons for
making the transfer at issue reveal that the transfer was an act
of fraud under § 1104(a)(1). Nor is the lower court authority on
which USIC relies -- none of which involves a motion to appoint a
trustee under § 1104(a)(1) -- clear as to whether an intent to
make a transfer to protect the interests of many creditors from
the aggressive collection efforts of one creditor is automatically
a fraudulent intent for purposes of § 1104(a)(1).
USIC relies
chiefly on In re Villani, 478 B.R. 51 (1st Cir. BAP 2012) and In
re Barry, 451 B.R. 654 (1st Cir. BAP 2011), two cases applying 11
U.S.C. § 727(a)(2)(A), which limits the bankruptcy court's
authority to grant the debtor a discharge if the debtor transferred
property with "intent to hinder, delay, or defraud a creditor."
In Barry, however, the bankruptcy court evaluated the totality of
the circumstances before finding that the debtor acted with the
requisite intent under § 727(a)(2)(A), rather than finding that
the debtor's stated intent to pay one creditor automatically
constituted an intent to hinder, delay, or defraud a creditor.
451 B.R. at 659-62. And, in Villani, the panel held that a debtor's
purported justification of paying some creditors does not bar a
finding that the debtor also acted with the intent to hinder,
delay, or defraud other creditors; we did not hold that an intent
to pay some creditors is necessarily an intent to commit fraud.
See 478 B.R. at 61.
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transfer of the Mayagüez station to HSGC and the transfer of the
HSGC shares to the La Familia Trust but also the existence of the
leases to Puma.
Our review of this claim is for clear error, as
USIC challenges both the Bankruptcy Court's factual finding that
López had presented acceptable explanations for his omissions and
factual misstatements, and the Bankruptcy Court's factual finding
that these omissions and misstatements were not made with the
intent to conceal the transfer of the Mayagüez station to HSGC
(and the attendant revenue from the lease of that station to Puma)
or the transfer of the HSGC shares to the La Familia Trust.
However, as the BAP explained:
The [bankruptcy] court declined to make the
inferences USIC argued should be made because
of what [USIC] maintained was deliberate
concealment of material information and
misleading information by the Debtor from the
outset of the case.
The testimony of the
Debtor and CPA Barroso adequately support the
bankruptcy court's contrary findings and
conclusions that USIC failed to prove its
contentions. Again the court found reasonable
the Debtor's explanation for the incorrect
listing of the dates of the transfers in the
statement
of
financial
affairs
as
an
unintentional mistake which he corrected in
the disclosure statement. It also accepted as
credible the Debtor's testimony that in
completing his schedules and statement of
financial affairs and discussing the value of
[HSGC] at the Creditor's Meeting he had relied
on an amended 2010 financial statement showing
a negative value for [HSGC]. And the Debtor
emphasized that immediately after he rescinded
the transfers, he amended his schedules and
the disclosure statement to include the
[Mayagüez] Station, the Puma lease, the [HSGC]
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shares, the rental income from the [Mayagüez]
Station, and the operating expenses associated
with the administration of the Puma and [HSGC]
leases, and attached copies of the rescission
deed and the Puma leases as exhibits to the
latter.
USIC did not submit evidence that
would cause us to conclude that the court's
credibility assessments and factual findings
were clearly erroneous.
In re López-Muñoz, 553 B.R. at 194.
Thus, USIC's argument on this
front also fails, given the deference we owe the Bankruptcy Court
on credibility findings regarding intent.
See Carp, 340 F.3d at
25.8
8
In pressing this challenge, USIC does point to the
Bankruptcy Court's statement that "the debtor's counsel informed
[the Bankruptcy Court] that the debtor 'receives rental income
from two real estate properties that are being leased'" at a status
conference. In re Muñoz, 544 B.R. at 273. USIC argues that the
Bankruptcy Court erroneously interpreted that statement by
debtor's counsel to be a disclosure of the rental income from Puma,
whereas the statement was actually a reference to rental income
that the debtor received from other properties. But, nothing in
the Bankruptcy Court's opinion indicates that the Bankruptcy Court
was under that mistaken impression. And, even assuming that USIC
is correct regarding which lease income was being referenced by
López's attorney at that status conference, USIC points to no
support in the record for the proposition that López's failure to
disclose the Puma lease income was not an honest mistake -- and
certainly none that can overcome the weight of the Bankruptcy
Court's decision to credit López's explanation of why he failed to
appropriately disclose all of the facts surrounding the two
transfers at issue.
See Carp, 340 F.3d at 25 ("Because the
determination of intent depends largely on an assessment of the
debtor's credibility, respect for the bankruptcy court's factual
findings is particularly appropriate in this context.").
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B.
USIC also argues that the Bankruptcy Court erred in
finding that the appointment of a trustee would not be in the
"interests of creditors," which is the standard for appointment of
a trustee under § 1104(a)(2).
USIC argues in this regard that,
contrary to the Bankruptcy Court's finding, the bankruptcy estate
has a turnover cause of action against HSGC for the lease income
that HSGC received from Puma pursuant to Puma's lease of the
Mayagüez station from HSGC during the period of time between López's
transfer of the Mayagüez station to HSGC and López's execution of
a rescission of that transfer.
And, USIC contends, it is the
consensus among federal courts that the appointment of a trustee
is in the best interests of the creditors when the principals of
the debtor are also the principals of other transferee companies
against whom the estate has a "potential cause of action."
The turnover cause of action exists because, USIC argues,
"[u]nder Puerto Rico law, rescission obliges the return of the
things which were the objects of the contract, with their fruits
and the price with interest."
And, USIC contends, the rescission
that López executed was incomplete, because HSGC, in the rescission
of the transfer of the Mayagüez station to HSGC, did not return the
lease revenue that HSGC received from Puma pursuant to Puma's lease
of the Mayagüez station during the period of time that HSGC owned
the
Mayagüez
station.
Thus,
USIC
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argues,
in
virtue
of
the
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incomplete rescission, the bankruptcy estate has a turnover cause
of action against HSGC to recover that revenue.
USIC
did
argue
to
the
Bankruptcy
Court
that
the
bankruptcy estate had a cause of action for the turnover of $119,500
plus interest -- which was the difference between the mortgage cost
of the Mayagüez station and the revenue that HSGC received from
Puma under the lease of the Mayagüez station to Puma, during the
time that HSGC owned the Mayagüez station.
But, the Bankruptcy
Court did not dispute that, if HSGC did retain a surplus from the
Mayagüez station pursuant to the lease of that station to Puma
during the period that HSGC owned the Mayagüez station, then the
estate would have a turnover cause of action against HSGC to recover
that surplus.
The Bankruptcy Court instead simply determined,
based on the testimony by CPA Barroso, who concluded that all the
lease revenue was "used to pa[y] the . . . mortgage, to pay the
minimum . . . operating expenses that they have, and their rent to
Mr. Pedro López," that there was no surplus for HSGC to turn over.
In re Muñoz, 544 B.R. at 274-75, 277.
The Bankruptcy Court also
relied, in making that finding, on the fact that the expert witness
provided by USIC, CPA Pérez, stated that he had "no basis to . . .
reach a conclusion" regarding Barroso's testimony that the transfer
of the Mayagüez station did not have a material impact on the
estate.
Id. at 275.
As the Bankruptcy Court explained, "there was
no surplus owed by [HSGC] to the estate for the period [HSGC]
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operated the debtor's gas station since [HSGC] paid the debtor's
mortgage . . ., assumed the operating expenses of the lease, and
paid the salary and rent to the debtor."
Id. at 274.
It is unclear whether, on appeal to us, USIC means to
challenge the Bankruptcy Court's factual finding that no surplus
exists.
fails.
But, to the extent that USIC does so, that challenge
Our review of that finding is only for clear error, and
the Bankruptcy Court supportably found, based on the testimony of
Barroso, that there was no surplus.
anything
in
the
record
that
Nor does USIC point to
sufficiently
undermines
that
conclusion.
USIC
does
contend
to
us,
however,
that
various
provisions of the Bankruptcy Code precluded the Bankruptcy Court,
as a matter of law, from concluding that there was no surplus.
As
USIC puts it, "[i]n essence, [the Bankruptcy Court] found that the
estate and [HSGC] owed mutual debts to each other," the mutual
debts being that HSGC owed the bankruptcy estate the lease revenue
(after deducting the value of the monthly mortgage payments for
the Mayagüez station) and that the bankruptcy estate owed HSGC the
operating expenses of the "administering the lease."
And, USIC
goes on, the Bankruptcy Court found that "the amounts allegedly
owed
by
the
estate
to
[HSGC]
due
to
so-called
'expenses
of
administering the lease' were greater than those owed by [HSGC] to
the estate due to return of rents.
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Therefore, it concluded that
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HSGC was entitled to offset them and keep the difference."
But,
USIC
Code
contends,
various
provisions
of
the
Bankruptcy
prohibited the Bankruptcy Court from so ruling.
Specifically, USIC relies on 11 U.S.C. § 362(a)(7), the
provision of the Bankruptcy Code that extends the automatic stay
in bankruptcy to setoff actions against the debtor.
USIC argues,
in this regard, that the setoff of the lease expenses against the
"so-called 'expenses of administering the lease' was forbidden by
the automatic stay" because HSGC "never sought, let alone, was
granted relief from the automatic stay by the bankruptcy court to
take a setoff."
USIC also contends that this "offset" of expenses
was prohibited by 11 U.S.C. § 503(a) and (b), the provisions of
the Bankruptcy Code that control the payment of administrative
expenses. USIC argues in this regard that "only parties who timely
file a request for administrative expenses to the bankruptcy court
can be allowed to recover them against the estate after notice and
a hearing," but HSGC "never filed before the bankruptcy court, let
alone
was
Finally,
granted,
USIC
any
argues
request
that
for
the
administrative
operating
expenses
expenses."
for
the
administration of the leases could not have been approved as
administrative expenses under § 503(b)(1)(A), as that provision
only allows the payment of "actual, necessary costs and expenses
of preserving the estate," 11 U.S.C. § 503(b)(1)(A), and the
operating expenses were not "necessary" costs.
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Case: 16-9007
Document: 00117187329
Page: 35
Date Filed: 08/09/2017
Entry ID: 6111793
Whatever the force of these arguments, USIC never made
any
of
them
to
the
Bankruptcy
Court.
In
arguing
that
the
bankruptcy estate had a turnover action against HSGC, USIC did
challenge CPA Barroso's treatment of these expenses. But, in doing
so, USIC never identified the various provisions of the Bankruptcy
Code that it now invokes as a legal bar to the consideration of
the operating expenses in determining whether there existed a
surplus, and therefore whether there existed a turnover cause of
action against HSGC. Thus, we reject USIC's newly raised arguments
regarding these provisions of the Bankruptcy Code as waived.9
See
Hoover, 828 F.3d at 5.
Finally,
USIC
contends
that
the
Bankruptcy
Court's
statement that HSGC's lease revenue from Puma was "free and clear
of any operating expenses" constitutes a finding that HSGC had no
9
USIC does now also contend that the Bankruptcy Court erred
in deducting the operating expenses because those expenses were
"completely unrelated to the sales deed" -- presumably, the sales
deed transferring ownership of the Mayagüez station -- and
therefore did not have to be returned pursuant to the rescission.
But, as with its other contentions, USIC did not actually argue
below that the operating expenses were unrelated to the deed, and
therefore that the Bankruptcy Court could not take them into
account in analyzing what HSGC was obligated to return under the
deed of rescission, so we reject it as waived as well.
Additionally, USIC points to no support -- either in the record or
in Puerto Rico law -- that the operating expenses taken into
account by the Bankruptcy Court were sufficiently "unrelated" to
the deed such that the Bankruptcy Court was not permitted to
incorporate those operating expenses into the determination of
what HSGC was required to turn over to the estate pursuant to the
deed of rescission.
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Case: 16-9007
Document: 00117187329
Page: 36
Date Filed: 08/09/2017
Entry ID: 6111793
operating expenses other than the mortgage payments that were owed
for the mortgage on the Mayagüez station.
fails.
This contention also
The Bankruptcy Court concluded that the lease was free and
clear of operating expenses in that the lease did not oblige HSGC
to pay any of Puma's expenses in operating the gas station.
López-Muñoz, 544 B.R. at 272.
In re
The Bankruptcy Court did not find
that HSGC had no operating expenses associated with administering
the lease.
Thus, there is no internal contradiction in the
relevant findings by the Bankruptcy Court.10
III.
For the foregoing reasons, the order of the Bankruptcy
Court is affirmed.
10
USIC also contends that the estate may have an action to
recover the profits from the Hormigueros station, which belonged
to HSGC during the entire relevant period, due to the fact that
the HSGC shares were in the trust for several months. But, as
USIC appears to acknowledge, the fact that the HSGC shares were in
the trust for a period of time would only injure the estate if
profits from HSGC were disbursed to the trust during that period.
And, USIC points to no support in the record for its claim that
HSGC profits were disbursed to the trust.
- 36 -
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