Scotiabank de Puerto Rico v. Perimetro Properties, Inc.

Filing 14

OPINION AND ORDER re 6 Motion to Withdraw Reference. The Court DENIES defendant Perimetro's motion for withdrawal of the reference. Accordingly, this matter will be REFERRED BACK to the Bankruptcy Court for further proceedings. Judgment shall be entered accordingly. Signed by Judge Francisco A. Besosa on 03/05/2013. (brc)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF PUERTO RICO
IN RE:
Bankruptcy Case #09-09980 (BKT)
THE PLAZA
INC.,

RESORT

AT

PALMAS,
Adversary No. 11-00249

Debtor.
SCOTIABANK DE PUERTO RICO,
Plaintiff,
v.

Civil No. 12-1457 (FAB)

PERIMETRO PROPERTIES, INC.,
Defendant.

OPINION AND ORDER1
BESOSA, District Judge.
Before the Court is defendant Perimetro Properties, Inc.’s
(“defendant Perimetro”) motion for withdrawal of the reference of
Adversary Proceeding 11-00249 from the United States Bankruptcy
Court

for

the

District

of

Puerto

Rico

(“Bankruptcy

Court”),

pursuant to 28 U.S.C. § 157(d) and Local Bankruptcy Rule 5011-1.
(Docket No. 6.)

Having considered defendant Perimetro’s motion to

withdraw the reference, (Docket No. 6), plaintiff Scotiabank de
Puerto Rico’s (“plaintiff Scotiabank”) opposition, (Docket No. 10),
and defendant Perimetro’s reply (Docket No. 13), the Court DENIES
defendant Perimetro’s motion for the reasons discussed below. This

1

Katherine Hedges, a second-year student at the University of
New Hampshire School of Law, assisted in the preparation of this
Opinion and Order.

Civil No. 12-1457 (FAB)
matter

is

REFERRED

2

BACK

to

the

Bankruptcy

Court

for

final

disposition.
I.

BACKGROUND
A.

Procedural History
On

November

18,

2011,

plaintiff

Scotiabank

filed

a

complaint in the bankruptcy court against defendant Perimetro.
Complaint, Scotiabank de Puerto Rico v. Perimetro Properties, Inc.
(In re The Plaza Resort at Palmas, Inc.), No. 11-149 (Bankr. D.P.R.
filed Nov. 18, 2011).2

Following a number of motions in the

bankruptcy court that are not relevant in the matter before this
Court, defendant Perimetro filed a request for withdrawal of the
reference on June 8, 2012.

(Bankr. Adv. Proc. 11-249 at Docket

No. 30.) The request for withdrawal of the reference was submitted
to this Court on June 12, 2012.

(Docket No. 1.)

On June 19, 2012,

defendant Perimetro submitted a motion in support of its request
for the withdrawal of the reference.

(Docket No. 6.)

On July 9,

2012, plaintiff Scotiabank opposed the withdrawal of reference
(Docket No. 10), and on July 16, 2012, defendant Perimetro replied.
(Docket No. 13.)
B.

Factual Background
On November 20, 2011, The Plaza Resort at Palmas, Inc.

(“Debtor”) filed a bankruptcy petition pursuant to Chapter 11 of
the Bankruptcy Code (“Chapter 11”).
2

(Bankr. Adv. Proc. 11-249 at

Hereinafter “Bankr. Adv. Proc. 11-249.”

Civil No. 12-1457 (FAB)
Docket No. 1 at p. 2.)

3

When it filed for bankruptcy, debtor listed

all of the timeshare owners as secured creditors in Schedule D.
Id.

R-G Premier Bank of Puerto Rico filed a proof of secured

claim, which was subsequently transferred to plaintiff Scotiabank.
Id. R-G Premier Bank of Puerto Rico filed an objection to debtor’s
Schedule D pursuant to Fed.R.Bankr.P. 3003, requesting that the
Court order debtor to remove the timeshare owners listed as secured
creditors from its Schedule D.

Id. at pp. 2-3.

R-G Premier Bank

of Puerto Rico contested the timeshare holders’ status as secured
creditors.

Id. at p. 2.

Debtor consented to submit the issue as

a contested matter in the Bankruptcy Court.

Id.

There are three groups of timeshare holders in this matter:
“(a) third

party

purchasers who

acquired

their

units

in

the

ordinary course of [debtors’] business and filed proofs of claim
asserting secured creditor status; (b) third party purchasers who
acquired

their

units

in

the

ordinary

course

of

[debtors’]

business,” and failed to file proof of secured status of their
claim; and (c) defendant “Perimetro, a corporation in common
ownership with debtor,” which failed to file a proof of claim of
secured status, but which debtor asserts is a secured creditor.
Id. at p. 4.
On November 3, 2010, plaintiff Scotiabank filed Adversary
Proceeding

No.

10-175

in

the

Bankruptcy

Court,

seeking

a

declaratory judgment that the category (a) timeshare holders -– the

Civil No. 12-1457 (FAB)

4

specific timeshare owners who had filed secured proofs of claim -did not possess valid liens.

Id. at pp. 3-4.

Plaintiff Scotiabank

also requested that those shareholders’ claims be permitted only as
general unsecured claims.

Id. at p. 3.

The Bankruptcy Court found

that a subordination clause in Mortgage Deed No. 9 conferred
secured status to the timeshare owners.

Id.

It entered judgment

in favor of the category (a) timeshare owners, ruling that they
possess liens superior to plaintiff Scotiabank.

Id.

Plaintiff

Scotiabank appealed this decision; the matter is pending before the
First Circuit Court of Appeals.

Id. at pp. 3-4.

Plaintiff Scotiabank holds the first mortgage on debtor’s
property.

Id. at p. 6.

The timeshare contracts between debtor and

the shareholders are not public deeds and were not recorded in the
Registry of Property in Puerto Rico.

Id.

The “subordination

clause” in Mortgage Deed No. 9 indicated that plaintiff Scotiabank
would be required to honor the timeshare holders’ personal and
contractual rights to enjoy the facilities, “provided that they
acquired

their

business.
Perimetro.

Id.
Id.

timeshare

rights

in

the

ordinary

course”

of

Debtor’s principals3 own defendant corporation
Plaintiff Scotiabank alleges that if defendant

Perimetro is treated as a secured creditor, debtor’s principals
will be repaying themselves through the bankruptcy plan. Id. at 7.

3

These principals are the owners of both The Plaza Resort at
Palmas, Inc. and Perimetro. (See Bankr. Case No. 11-249 at Docket
No. 1 at p. 4.)

Civil No. 12-1457 (FAB)
Therefore,

plaintiff

5
Scotiabank

contends

that

category

(c)

timeshare holders, which consist solely of defendant Perimetro,
cannot benefit from the bankruptcy court’s previous decision, even
if the category (b) timeshare holders benefit from it.

Id. at

p. 5.
Plaintiff Scotiabank supports its contention by arguing that
defendant Perimetro did not obtain its “timeshare rights in the
ordinary course of [D]ebtor’s business and may not benefit from the
‘subordination clause.’”
adversary

proceeding

Id.

Plaintiff Scotiabank filed this

requesting

a

declaratory

judgment

that

defendant Perimetro “is not a secured creditor and may not benefit
from the ‘subordination clause’ in [Mortgage] Deed No. 9.”

Id.

Plaintiff Scotiabank filed its claim pursuant to 11 U.S.C. §§
101(37), 101(51), 506, 544; Puerto Rico Timeshare and Vacation Club
Act, P.R. Laws Ann. tit. 31, §§ 1251, 1251a, 1254(1)(a)(I), 1262,
1262a, 1264a, 1265, 1266; Puerto Rico Mortgage Act, P.R. Laws Ann.
tit. 30, §§ 2607, 2256; and Article 1232 of the Civil Code, P.R.
Laws Ann. tit. 31, § 3453.

Id. at 7.

III. DISCUSSION
With few exceptions, the United States district courts have
“original and exclusive jurisdiction of all cases under title 11,”
the Bankruptcy Code, 11 U.S.C. §§ 101-1532. Stern v. Marshall, 131
S.Ct. 2594, 2603 (2011) (quoting 28 U.S.C. § 1334(a)). Pursuant to
28 U.S.C. § 157(b)(1), “[b]ankuruptcy judges may hear and determine

Civil No. 12-1457 (FAB)

6

all cases under title 11 and all core proceedings arising under
title 11, or arising in a case under title 11, referred under
subsection (a) of this section and may enter appropriate orders and
judgments, subject to review under section 158 of this title.”
Matters that are properly before the bankruptcy court may be
withdrawn by the district court.

28 U.S.C. § 157(d).

“The

district court may withdraw, in whole or in part, any case or
proceeding referred under this section, on its own motion or on a
timely motion of any party, for cause shown.”

Id.

Permissive withdrawal of the reference is governed by 28
U.S.C. § 157(d), and may occur only “for cause shown.”

Jimenez-

Vidal v. RG Mort. Corp., No. 09-1795, 2010 WL 936143, at *4 (D.P.R.
2010) (quoting In re Corporacion de Servicios Medico Hospitalarios
de Fajardo, 227 B.R. 763, 765 (D.P.R. 1998)).

The burden of

showing cause for permissive withdrawal of the reference is on the
moving party.

Alfonseca-Baez v. Doral Fin. Corp., 376 B.R. 70, 74

(D.P.R. 2007); In re Ponce Marine Farm, Inc., 172 B.R. 722, 724
(D.P.R. 1994); see also Martinez v. Scotiabank De Puerto Rico, 484
B.R. 536, 538 (D.P.R. 2012) (citing other district court cases
within the

first

circuit finding

that “with

respect

to

core

bankruptcy issues there is a presumption that bankruptcy courts
should hear the cases that the moving party must overcome”).

In

the District of Puerto Rico permissive withdrawal of reference is
used “as a narrow exception to the general rule that bankruptcy

Civil No. 12-1457 (FAB)

7

proceedings should be adjudicated in the bankruptcy [c]ourt.”
Ponce Marine Farm, Inc., 172 B.R. at 724.
The District of Puerto Rico has adopted the Fourth Circuit
Court

of

Appeals

approach

withdrawal is appropriate.

to

evaluating

whether

permissive

Jimenez-Vidal, 2010 WL 936143, at *4;

Alfonseca-Baez, 376 B.R. at 74; Fajardo, 227 B.R. at 765.

First,

the Court must determine if the issue is a “core” or “non-core”
bankruptcy issue.

Fajardo, 227 B.R. at 766.

28 U.S.C. § 157

provides a non-exhaustive list of “core” bankruptcy issues, and
“core” issues are generally considered to be those that “by its
nature, could arise only in the context of a bankruptcy case.”

Id.

After determining whether an issue is “core” or “non-core,” courts
weigh a variety of factors when determining whether to withdraw a
case

or

not,

which

include:

“uniformity

in

bankruptcy

administration, reducing forum shopping and confusion, fostering
the economical use of the debtor’s and creditor’s resources, and
expediting bankruptcy process.”

Alfonseca-Baez, 376 B.R. at 74

(citing Fajardo, 227 B.R. at 765); see also In re Latin American
Roller Co., 412 B.R. 15, 23 (Bankr. D.P.R. 2009) (noting that
courts have considered these factors in addition to others, such as
“whether a jury trial has been requested,” when deciding a request
for withdrawal of reference).
Withdrawing the reference of “core” bankruptcy issues is
disfavored because it is an inefficient use of judicial resources;

Civil No. 12-1457 (FAB)

8

the bankruptcy court is generally more familiar with the issues and
facts in those types of cases.

Jimenez-Vidal, 2010 WL 936143, at

*5; Alfonseca-Baez, 376 B.R. at 75; Fajardo, 227 B.R. at 765.

The

non-exhaustive list of “core” proceedings include “determinations
of

the

validity,

extent,

or

priority

of

liens”

and

“other

proceedings affecting the liquidation of the assets of the estate
or the adjustment of the debtor-creditor or the equity security
holder relationship, except personal injury tort or wrongful death
claims.”

28 U.S.C. §§ 157(k), 157(o).

Defendant Perimetro offers three arguments for why the Court
should grant its request for a withdrawal of the reference. First,
it argues that plaintiff Scotiabank’s claims are not closely
related to bankruptcy and are completely based on Puerto Rico law.
(Docket No. 6 at p. 1.)

Second, it contends that it is entitled to

a trial by jury in this Court, which would not be available to it
in the bankruptcy court.

(Docket No. 13 at pp. 5-8.)

Third,

defendant Perimetro argues that precedent from a recent Supreme
Court decision, Stern v. Marshall, requires this Court to withdraw
the reference from the bankruptcy court.

(Docket No. 6 at p. 2.)

The Court will address each of these arguments in turn.
A.

Defendant Perimetro’s Arguments Regarding the Impact of
Commonwealth Law
Defendant

Perimetro

argues

that

this

Court

should

withdraw the reference because “this is a priority-of-liens contest
between

two

nondebtors

based

entirely

on

Commonwealth

law.”

Civil No. 12-1457 (FAB)

9

(Docket No. 6 at p. 1.)

Plaintiff Scotiabank contends that “this

adversary proceeding pertains to a controversy of the sort commonly
entertained by the federal courts, and more specifically the
bankruptcy courts.”

(Docket No. 10 at p. 3.)

The Court finds that

the issue in controversy here is a “core” issue.

“[T]he fact that

a claim in a bankruptcy matter raises issues of state, rather than
federal, law does not by itself determine that it is non-core,
rather than core.”

In re Arnold Print Works, Inc., 815 F.2d 165,

169 ) (1st Cir. 1987). Plaintiff Scotiabank cites federal statutes
that define lien and security interest, as well as federal statutes
that govern determination of secured status and a trustee’s ability
to void obligations of the debtor.
101(57),

506,

544.

The

See 11 U.S.C. §§ 101(37),

Commonwealth

law

at

issue

in

the

adversarial proceeding relate to determining the requirements for
lienholder status in a vacation club or timeshare in Puerto Rico.
See Puerto Rico Timeshare and Vacation Club Act, P.R. Laws Ann.
tit. 31, §§ 1251, 1251a, 1254(1)(a)(I), 1262, 1262a, 1264a, 1265,
1266; Puerto Rico Mortgage Act, P.R. Laws Ann. tit. 30, §§ 2607,
2256; and Article 1232 of the Civil Code, P.R. Laws Ann. tit. 31,
§ 3453.

Defendant Perimetro itself acknowledges that this is a

“priority-of-liens contest,” which is clearly one of the “core”
issues that Congress intends to be heard by the bankruptcy court.
See Docket No. 6 at p. 1; see also 28 U.S.C. § 157(k).

Civil No. 12-1457 (FAB)
Contrary
issues

are

to

solely

10
defendant

dependent

Perimetro’s

on

Puerto

argument

Rico

law,

that the
plaintiff

Scotiabank’s main argument is that defendant Perimetro does not
have

a

secured

lien

pursuant

to

federal

bankruptcy

law.

Determination “of the validity, extent, or priority of liens” is
specifically one of the issues Congress listed a “core” bankruptcy
issue.

28 U.S.C. § 157(k).

Even if this case were not based on a

lien dispute, determining whether defendant Perimetro is entitled
to subordination of plaintiff Scotiabank’s claims as a secured
creditor

would

certainly

fall

within

the

realm

of

“other

proceedings affecting the liquidation of the assets of the estate
or the adjustment of the debtor-creditor or the equity security
holder relationship.”

28 U.S.C. § 157(o).

Therefore, the Court

finds that defendant Perimetro’s arguments regarding Commonwealth
Law unavailing.
B.

Defendant Perimetro’s Demand for Trial by Jury in U.S.
District Court
Defendant Perimetro further supports its argument for

withdrawal of the reference with its demand for a trial by jury in
the district court.

(Docket No. 13 at pp. 5-8.)

Defendant

Perimetro has not consented to a jury trial in bankruptcy court,
and bankruptcy judges cannot conduct jury trials without the
express consent of all parties.

28 U.S.C. § 157(e).

The Court

must withdraw the reference from the bankruptcy court when the
defendant is entitled to a trial by jury and one or more of the

Civil No. 12-1457 (FAB)

11

parties have not consented to a jury trial in bankruptcy court.
See Local Bankruptcy Rule 9015-1(c); see also de Jesus-Gonzalez v.
Segarra-Miranda, 476 B.R. 376, 378 (D.P.R. 2012) (explaining that
the right to trial by jury must exist before withdrawing the
reference).
No statute provides a right to a jury trial in a district
court for lienholder disputes in bankruptcy.

See 28 U.S.C. §

157(e) (giving a permissive right to a jury trial in bankruptcy
court with both parties’ permission).
provides

a

three-part

test

to

Supreme Court precedent

determine

whether

the

Seventh

Amendment4 requires a right to trial by jury in this type of
bankruptcy case.

Braunstein v.

McCabe, 571 F.3d 108, 117-18 (1st

Cir. 2009). “First the court must ‘compare the statutory action to
18th-century actions brought in the courts of England prior to the
merger of the courts of law and equity.’” Id. at 118 (quoting
Granfinanciera, S.A. v. Nordberg, 492 U.S. 33, 42 (1989)). Second,
and more importantly, the court must determine if the remedy to the
action is legal or equitable in nature.

Id.

“Third, if the first

two factors indicate a party has a jury trial right, the court
‘must

4

decide

whether

Congress

may

assign

and

has

assigned

The Seventh Amendment to the United States Constitution
provides, in pertinent part, that “[i]n Suits at common law, where
the value in controversy shall exceed twenty dollars, the right of
trial by jury shall be preserved.” U.S. Const. amend. VII.

Civil No. 12-1457 (FAB)

12

resolution of the relevant claim to a non-Article III adjudicative
body that does not use a jury as factfinder.’”
In

the

18th-century,

“bankruptcy

Id.
was

essentially

a

creditor’s remedy involving the equitable distribution of the
bankrupt’s estate.” Id. at 118-19. The trustee’s gathering of the
property of the estate is equitable in nature.

Id. at 119.

Determining priority of the lien is still equitable even though it
is influenced by state law.

See In re Felice, 480 B.R. 401, 420

(D. Mass. 2012) (finding that a trustee’s request for declaratory
judgment that turned on Massachusetts state law was a matter in
equity properly before the Bankruptcy Court).

Because the first

two prongs of the test weigh in favor of no right to a jury trial,
the Court declines to address the third.
119.

Braunstein, 571 F.3d at

Thus, the Court is not required to withdraw the reference in

order to provide a jury trial for defendant Perimetro.
C.

Defendant
Marshall

Perimetro’s

Arguments

Regarding

Stern

v.

Defendant Perimetro further argues that a recent Supreme
Court decision, Stern v. Marshall, requires this Court to withdraw
the reference

from

the

bankruptcy

unanswered question of state law.
No. 13 at pp. 4-5.)

court

because

there

is

an

(Docket No. 6 at p. 2; Docket

In Stern, the Court held that a bankruptcy

court did not have jurisdiction to hear a counterclaim of tortious
interference with an inter vivos gift that was brought after the
debtor was sued for defamation in the bankruptcy court.

131 S.Ct.

Civil No. 12-1457 (FAB)
at 2608.

13

In that case, the State of Texas had not yet determined

whether or not it would recognize this type of cause of action.
Id. at 2610.

The issues in this case do not require deciding

whether a new cause of action exists.
interpreting

the

impact

of

Rather, the issues require

Commonwealth

statutes

on

existing

bankruptcy regulations dealing with liens.
The Stern Court also stated that its ruling was very
narrow. It held that bankruptcy courts do not have “constitutional
authority to enter a final judgment on a state law counterclaim
that is not resolved in the process of ruling on a creditor’s proof
of claim.”

Id. at 2620.

The Court was concerned that allowing

bankruptcy courts to decide that the counterclaim existed would
result in Congress taking authority from the Judicial Branch (via
the Bankruptcy Act of 1984).

Id.

Unlike in Stern, where the cause

of action for tortious interference could, and did, survive on its
own

outside

of

the

bankruptcy

process,

the

determination

of

priority of liens in this case is integral to the bankruptcy
process.
deciding

See Stern, 131 S.Ct. at 2617.
this

case

will

not

result

in

Also unlike Stern,
the

bankruptcy

court

determining issues that are related to, but not essential to
resolving the bankruptcy. Thus, the Stern decision does not impact
the Court’s decision on this withdrawal of reference.

Civil No. 12-1457 (FAB)
D.

14

Other Factors
Finally, after determining that this “core” bankruptcy

issue does not carry a right to trial by jury, the Court will weigh
whether, based on other factors, it is appropriate to withdraw the
reference from the bankruptcy court.

Uniformity in bankruptcy

administration weighs in favor of denying the withdrawal of the
reference because the bankruptcy court is much more familiar with
the process of determining lienholder priority.
Baez, 376 B.R. at 75.
confusion

also

weigh

See Alfonseca-

Reducing forum shopping and reducing
in

favor

of

denying

the

withdrawal

of

reference because withdrawing a case that is so intertwined with
the bankruptcy would make it easier for parties to attempt to
obtain a different outcome by appearing before a court with less
familiarity
economical

with
use

bankruptcy

of

the

issues.

debtor’s

and

See

id.

creditor’s

Fostering the
resources

and

expediting the bankruptcy process also weigh in favor of denying
the

withdrawal

of

the

reference

because

this

case

will

be

adjudicated more expediently as a whole before the bankruptcy
court.

See id.

Accordingly, the Court DENIES the withdrawal of

reference from the Bankruptcy Court.
IV.

CONCLUSION
For the reasons expressed above, the Court DENIES defendant

Perimetro’s motion for withdrawal of the reference.

Accordingly,

Civil No. 12-1457 (FAB)

15

this matter will be REFERRED BACK to the Bankruptcy Court for
further proceedings.
Judgment shall be entered accordingly.
IT IS SO ORDERED.
San Juan, Puerto Rico, March 5, 2013.
s/ Francisco A. Besosa
FRANCISCO A. BESOSA
UNITED STATES DISTRICT JUDGE