Puerto Rico Highway and Transportation Authority v. Redondo Construction Corporation
Filing
10
OPINION AND ORDER re 1 Bankruptcy Record on Appeal. The Court AFFIRMS the judgment of the Bankruptcy Court. Judgments shall be entered accordingly. Signed by Judge Francisco A. Besosa on 11/04/2014. (brc)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF PUERTO RICO
PUERTO RICO HIGHWAY AND
TRANSPORTATION AUTHORITY,
Appellant,
CIVIL NOS. 14-1365 (FAB)
14-1367
14-1368
v.
REDONDO CONSTRUCTION
CORPORATION,
Appellee.
OPINION AND ORDER
BESOSA, District Judge
Before
the
Court
is
appellant
Puerto
Rico
Highway
and
Transportation Authority’s (“PRHTA”) appeal from a judgment issued
by the United States Bankruptcy Court for the District of Puerto
Rico (“Bankruptcy Court”).
(Docket No. 1.)1
For the reasons
discussed below, the Court AFFIRMS the judgment of the Bankruptcy
Court.
BACKGROUND
I.
Procedural History
On March 19, 2002, appellee Redondo Construction Corporation
(“RCC”) filed a Chapter 11 petition for bankruptcy relief in the
Bankruptcy Court.
1
(Case No. 10-1371, Docket No. 15 at p. 7.)
In
Appellant appealed three adversary proceedings from the
Bankruptcy Court to the District Court, and the appeals were
docketed at case numbers 14-1365, 14-1367, and 14-1368.
The
appeals were consolidated and transferred to the docket of case
number 14-1365 on May 12, 2014. (Docket Nos. 4 & 5.)
Civil Nos. 14-1365; 14-1367; 14-1368 (FAB)
2
the course of the bankruptcy proceedings, RCC filed three adversary
complaints
against
the
PRHTA
seeking
unpaid
compensation
services performed under public works contracts.
at p. 3; 21 at p. 5.)
for
(Docket Nos. 20
The three claims were tried jointly on the
merits before the Bankruptcy Court in 2007.
Redondo Constr. Corp.
v. P.R. Highway & Transp. Auth. (In re Redondo Constr. Corp.)
(“Redondo I”), 411 B.R. 89 (Bankr. D.P.R. 2009).
Following the
filing of post-judgment motions by both parties, the Bankruptcy
Court issued judgment in all three cases in favor of RCC on
August 31, 2009.
Id.
In short, the Bankruptcy Court found the
PRHTA liable and ordered it to pay nearly $12,000,000 in principal,
plus prejudgment interest accrued at 6.5% annually and measured
from the date of substantial completion of each project.
Id.
at 113.
Following the PRHTA’s first-tier appeal — and this Court’s
affirmance — of the Bankruptcy Court’s judgments, the PRHTA sought
review before the First Circuit Court of Appeals.
Redondo Constr.
Corp. v. P.R. Highway & Transp. Auth. (In re Redondo Constr.
Corp.), 678 F.3d 115 (1st Cir. 2012).
On May 11, 2012, the First
Circuit affirmed the Bankruptcy Court’s judgments in part, and
remanded the case to this Court to resolve the calculation of
extended overhead damages and the award of prejudgment interest.
Id. at
126.
The Court,
in
turn,
remanded
the case
to
the
Bankruptcy Court to (1) recalculate the award for extended overhead
Civil Nos. 14-1365; 14-1367; 14-1368 (FAB)
3
damages, (2) determine whether an award of prejudgment interest is
appropriate, and (3) determine the basis, the applicable rate, and
periods of accrual for such an award.
(Case no. 10-1371, Docket
No. 67.)
On
remand,
the
Bankruptcy
Court
addressed
identified by the First Circuit Court of Appeals.
the
issues
In a January 13,
2014 order, the Bankruptcy Court recalculated the extended overhead
damages as directed by the court of appeals, and held that an award
of prejudgment interest was appropriate.
P.R. Highway & Transp. Auth.
Redondo Constr. Corp. v.
(In re Redondo Constr. Corp.)
(“Redondo II”), 505 B.R. 388 (Bankr. D.P.R. 2014).
Specifically,
the court awarded RCC prejudgment interest at the rate of 6% per
year pursuant to article 1061 of the Civil Code of Puerto Rico, 31
P.R. Laws Ann. tit. § 3025 (“article 1061”), with an accrual period
beginning on the stipulated dates of substantial completion and
ending upon the PRHTA’s final payment of the principal for each
project.
II.
Id. at 401.
This appeal followed.
Factual Background
The combined three opinions written by the Bankruptcy Court
and the First Circuit Court of Appeals in this case contain a
comprehensive
description
of
the
factual
background
proceedings.
See In re Redondo Constr. Corp., 678 F.3d 115;
Redondo II, 505 B.R. 388; Redondo I, 411 B.R. 89.
of
these
The Court thus
declines to recount additional factual material here.
Civil Nos. 14-1365; 14-1367; 14-1368 (FAB)
4
DISCUSSION
I.
Bankruptcy Appeal Standard
The Court has jurisdiction over the PRHTA’s appeal pursuant to
28 U.S.C. § 158(a)(1). On appeal, the Court reviews the Bankruptcy
Court’s conclusions of law de novo and findings of fact for clear
error.
See, e.g., Donarumo v. Furlong (In re Furlong), 660 F.3d
81, 86 (1st Cir. 2011); Calderon v. CitiMortgage, 437 B.R. 25, 27
(D.P.R. 2010) (Dominguez, J.) (citing Prebor v. Collins (In re I
Don’t Trust), 143 F.3d 1, 3 (1st Cir. 1998) and Jeffrey v. Desmond,
70 F.3d 183, 185 (1st Cir. 1995)).
II.
Issues
Appellant PRHTA does not contest any of the Bankruptcy Court’s
factual findings, but rather claims three legal errors.
questions before the Court are:
to
prejudgment
interest
The
(1) whether RCC waived its right
pursuant
to
article
1061,
rendering
erroneous the Bankruptcy Court’s award of prejudgment interest;
(2) whether the Bankruptcy Court erred in awarding prejudgment
interest beginning on the date of substantial completion of the
projects, as opposed to the date when the principal became due; and
(3) whether the Bankruptcy Court erred in awarding prejudgment
interest until the date of payment of the principal, rather than
until the date judgment was entered.
(Docket No. 20 at pp. 2-3.)
The Court examines these claims of error de novo.
Civil Nos. 14-1365; 14-1367; 14-1368 (FAB)
A.
5
Waiver
Appellant PRHTA first argues that the Bankruptcy Court
erred in awarding RCC prejudgment interest at the rate of 6% per
year pursuant to article 1061 because RCC failed to raise that
basis to that court timely and accordingly waived it.
On August 31, 2009, the Bankruptcy Court awarded RCC
prejudgment interest at the rate of 6.5% per year, but did not
articulate any basis for the award.
Redondo I, 411 B.R. at 113.2
RCC first offered article 1061 as a basis for the Bankruptcy
Court’s award of prejudgment interest in its October 1, 2009 reply
to PRHTA’s motion to amend or alter judgment pursuant to Federal
Rule of Civil Procedure 59 (“Rule 59”).3
pp. 340-41.)
The
Bankruptcy Court
(Docket No. 1-11 at
affirmed
its
judgment
on
February 11, 2010, finding that PRHTA’s motion contained new
arguments regarding prejudgment interest that were not properly
considered
at
the
Rule
59
stage.
Id.
at
pp.
343-56.
On
January 13, 2014, the Bankruptcy Court, on remand, for the first
time addressed article 1061 as a basis for its award, relying on
RCC’s Rule 59 reply memorandum to conclude that RCC had not waived
2
A subsequent Bankruptcy Court opinion indicated that the
prejudgment interest award derived from the provision of federal
funds for the contracts. (Docket No. 1-11 at p. 350.)
3
The First Circuit Court of Appeals noted that RCC raised
article 1061 as a basis for prejudgment interest for the first time
at oral argument before that court.
In re Redondo, 678 F.3d
at 126. A review of the record, however, reveals that RCC raised
this basis in earlier pleadings submitted to the Bankruptcy Court.
Civil Nos. 14-1365; 14-1367; 14-1368 (FAB)
its right to prejudgment interest.
6
Redondo II, 505 B.R. at 393.
The Bankruptcy Court consequently held that prejudgment interest at
the rate of 6% was appropriate pursuant to article 1061.
at 401.
Id.
The PRHTA contests this holding as erroneous.
“A
party
waives
a
right
[]
if
he
intentionally
relinquishes or abandons it; he forfeits a right by failing to
assert it in a timely manner.”
Davila v. Corporacion de P.R. para
la Difusion Publica, 498 F.3d 9, 14 n.2 (1st Cir. 2007) (internal
citations omitted).
See also United Elec., Radio & Mach. Workers
of Am. v. 163 Pleasant St. Corp., 960 F.2d 1080, 1096 (1st Cir.
1992) (“[L]egal theories not squarely presented in the nisi prius
court are deemed waived on appeal.”)
Reviewing this legal conclusion de novo, the Court agrees
with the Bankruptcy Court.
On appeal in this case, the First
Circuit Court of Appeals noted that “[w]hile arguments presented
for the first time in a Rule 59(e) motion ordinarily are deemed
forfeited, . . . the grant or denial of prejudgment interest is an
exception to this general rule.”
In re Redondo, 678 F.3d at 122
(citing CMM Cable Rep, Inc. v. Ocean Coast Props., Inc., 97 F.3d
1504, 1526 (1st Cir. 1996)).
On multiple occasions, the First
Circuit Court of Appeals has recognized that Rule 59(e) motions are
an appropriate method for resolving prejudgment interest disputes.
Id. (citing Bos. Gas Co. v. Century Indem. Co., 529 F.3d 8, 21 (1st
Cir. 2008) and Crowe v. Bolduc, 365 F.3d 86, 92-93 (1st Cir.
Civil Nos. 14-1365; 14-1367; 14-1368 (FAB)
2004)).
7
“This practice makes sense,” the court of appeals noted,
because otherwise “parties would be required to put the cart before
the
horse
and
argue
about
prejudgment
interest
before
the
underlying issues of liability and damages have been resolved.” In
re Redondo, 678 F.3d at 122.4
The underlying rationale of the Rule
59(e) exception, viewed in light of the First Circuit Court of
Appeals’ waiver and forfeiture doctrines, favors a finding that RCC
preserved its right to prejudgment interest pursuant to article
1061 by (1) claiming its right to prejudgment interest5 — albeit
premised
on
a
different
legal
ground
—
during
the
original
Bankruptcy Court proceedings, and (2) raising the specific legal
ground — article 1061 — before that court in its post-judgment Rule
59(e) filings.
Accordingly, the Court AFFIRMS the Bankruptcy
4
The circumstances giving rise to this exception do not match
those presented here, where the Bankruptcy Court had awarded
interest prior to the parties’ filing of Rule 59(e) motions. See
Bos. Gas Co., 529 F.3d at 21 (“In federal practice, usually the
jury is required to pass on all elements of damages; yet
prejudgment interest is routinely added by the judge on motion to
alter or amend the judgment under [Rule 59(e)].” (internal
citations omitted)); Crowe, 365 F.3d at 93 n.5 (Rule 59(e)
appropriate for challenging only “initial” award); Pogor v. Makita
U.S.A., 135 F.3d 384, 388 (6th Cir. 1998) (Rule 60(a), and not Rule
59(e), applies “where the language of the judgment awards interest
as required by law but leaves the actual calculations for later.”)
Because the parties did not previously litigate the specific legal
grounds at issue here, however, the Court finds the exception to be
applicable.
5
The justifications for the Rule 59(e) exception to waiver
apply with similar force to a reply to a Rule 59(e) motion. The
Court therefore applies the exception to RCC’s Rule 59(e) reply
memorandum.
Civil Nos. 14-1365; 14-1367; 14-1368 (FAB)
Court’s
determination
that
RCC
did
8
not
waive
its
right
to
prejudgment interest pursuant to article 1061.6
B.
Beginning Date of Prejudgment Interest
PRHTA next argues that the Bankruptcy Court incorrectly
assessed prejudgment interest beginning from the date of the
projects’ substantial completion, as opposed to assessment from the
date the principal became due and payable pursuant to state law.
(Docket No. 20 at p. 16.)
When state law claims are tried by a federal court, state
law governs the determination of prejudgment interest.
Package
Machin.
Co.,
865
F.2d
1331,
1345
(1st
Freeman v.
Cir.
1988).
Prejudgment interest in Puerto Rico derives from procedural or
substantive
grounds.
Procedural
prejudgment
interest
may
be
imposed pursuant to Rule 44.3(b) of the Puerto Rico Rules of Civil
Procedure (“Rule 44.3”) in response to a party’s obstinate conduct
during litigation.
1994).
Dopp v. Pritzker, 38 F.3d 1239, 1252 (1st Cir.
Article 1061 governs substantive prejudgment interest,
which serves as an indemnity for damages.
D.P.R. 47 (1954).
Rivera v. Crescioni, 77
RCC waived any claim to procedural prejudgment
interest pursuant to Rule 44.3; it only claims prejudgment interest
6
The Court further rejects appellant PRHTA’s judicial
estoppel argument because the position advanced by RCC — that
prejudgment interest is appropriate pursuant to article 1061 — is
not “directly inconsistent” with any previously articulated bases
for prejudgment interest.
See Alt. Sys. Concepts, Inc. v.
Synopsys, 374 F.3d 23, 33 (1st Cir. 2004).
Civil Nos. 14-1365; 14-1367; 14-1368 (FAB)
9
on substantive grounds pursuant to article 1061. (Docket No. 21 at
p. 18.)
In Puerto Rico, contracting parties are free to adopt a
particular rate of prejudgment interest.
§ 3372.
P.R. Laws Ann. tit. 31
In the absence of such an agreement, “the only interest
that the principal of a loan accrues, after maturity of the
obligation, is the legal interest at the rate of 6% per annum
counted
from
the
date
on
which
the
debtor
is
in
default.”
Piovanetti v. Vivaldi, 80 D.P.R. 108 (1957) (translation ours).7
“[Article 1061] provides that when the obligation consists in the
payment of a sum of money, and the person incurs in default, the
creditor is entitled to be indemnified for damages and losses
suffered, which will consist in the payment of interest.”
Matter
of Bonilla Montalvo, 126 B.R. 8, 10 (Bankr. D.P.R. 1991).
The Puerto Rico Supreme Court has held that — pursuant to
Puerto
Rico’s
civil
law
doctrine
—
contractor
parties
to
construction contracts are entitled to payment of the balance owed,
minus any sums retained to correct deficiencies in the work, upon
substantial completion of the work contracted for. Master Concrete
v. Comp. de Fomento Recreativo, 152 D.P.R. 616 (2000).
7
The legal
“[L]os únicos intereses que devenga el capital del préstamo,
después de la fecha de vencimiento de la obligación, son los
intereses legales al tipo de 6% anual que se cuentan desde la fecha
en que el deudor incurrió en mora.”
Civil Nos. 14-1365; 14-1367; 14-1368 (FAB)
10
effects of substantial completion are automatic, and not contingent
upon the project owner’s acceptance of the work.
Id.
Because the record contains no evidence that the parties
contracted
to
a
particular
rate
or
provision
of
prejudgment
interest, see In re Redondo, 678 F.3d at 125, Puerto Rico’s
article
1061
governs,
Bonilla
Montalvo,
126
B.R.
at
10.
Accordingly, prejudgment interest at the rate of 6% per year is
appropriately assessed on the principal amounts owed by the PRHTA
to RCC.
Article 1061 provides:
Should the obligation consist in the payment
of a sum of money, and the debtor should be in
default, the indemnity for losses and damages,
should there not be a stipulation to the
contrary, shall consist in the payment of the
interest agreed upon, and should there be no
agreement, in that of the legal interest.
Until another rate is fixed by the Government,
interest at the rate of six percent (6%) per
annum shall be considered as legal.
P.R. Laws Ann. tit 31 § 3025.
Article 1053 of the Puerto Rico
Civil Code states, “Persons obliged to deliver or to do something
are in default from the moment when the creditor demands the
fulfilment of their obligation, judicially or extra-judicially.”
P.R.
Laws
Ann.
tit.
31
§
3017.
The
creditor’s
demand
is
unnecessary to trigger default, however, “if the obligation or law
declares
it
expressly”
or
“if
by
reason
of
its
nature
and
circumstances it may appear that the fixing of the period within
which the thing was to be delivered or the service rendered was a
determinate cause to constitute the obligation.” Id.
Pursuant to
Civil Nos. 14-1365; 14-1367; 14-1368 (FAB)
the
Puerto
Rico
Supreme
Court’s
ruling
11
in
Master
Concrete,
152 D.P.R. 616, substantial completion of a construction contract
qualifies as an exception to article 1053’s requirement of a demand
for payment triggering default.
The
parties
stipulated
to
the
completion for each of the three projects.
at 399.
dates
of
substantial
Redondo II, 505 B.R.
The Court agrees with the Bankruptcy Court that RCC is
entitled to prejudgment interest at the rate of 6% accruing from
the stipulated dates of substantial completion of each project.
Accordingly, the Bankruptcy Court’s judgment is AFFIRMED in this
respect.
C.
End Date of Prejudgment Interest
Last, appellant PRHTA contends that the Bankruptcy Court
erred in awarding RCC prejudgment interest until the date the
principal is paid, rather than the date the judgment was entered.
(Docket No. 20 at p. 25.)
The PRHTA argues that while state law
governs prejudgment interest, post-judgment interest is a federal
statutory matter under the dominion of 28 U.S.C. § 1961 (“Section
1961”).
Id. (citing Loft v. Lapidus, 936 F.2d 633, 639 (1st Cir.
1991)).
Because federal postjudgment interest accrues from the
date
judgment
is
entered,
the
PRHTA
argues
that
prejudgment
interest should end on or before that date to avoid double charging
of interest.
Id.
Civil Nos. 14-1365; 14-1367; 14-1368 (FAB)
12
Section 1961(a) provides, “Interest shall be allowed on
any money judgment in a civil action recovered in a district court.
. . . Such interest shall be calculated from the date of the entry
of the judgment.”
28 U.S.C. § 1961(a).
Because a bankruptcy court
is a “unit” of the district court, section 1961(a) applies to
bankruptcy court judgments. Keefe v. Keefe (In re Keefe), 401 B.R.
520, 526 (B.A.P. 1st Cir. 2009). “Because postjudgment interest is
mandated by federal statute, a prevailing party in a bankruptcy
court action is automatically entitled to postjudgment interest
regardless of whether postjudgment interest is referenced in the
pleadings, a court’s order or monetary judgment.”
action
otherwise
governed
by
state
law,
Id.
federal
postjudgment interest on a federal court judgment.
Even in an
law
governs
Cummings v.
Standard Register Co., 265 F.3d 56, 68 (1st Cir. 2001).
In
its
opinion
and
order
imposing
judgment,
the
Bankruptcy Court did not specifically assess postjudgment interest
or explain its basis for assessing prejudgment interest for a
period extending beyond the judgment and until the payment of the
principal.
The PRHTA raised this argument before the Bankruptcy
Court in its Rule 59 motion on March 7, 2014.
Corp. v. P.R. Highway & Transp. Auth.
Redondo Constr.
(In re Redondo Constr.
Corp.) (“Redondo III”), 515 B.R. 410, 413-14 (Bankr. D.P.R. 2014).
The
court
rejected
the
argument,
reasoning
that
prejudgment
interest pursuant to article 1061 is “an independent indemnity for
Civil Nos. 14-1365; 14-1367; 14-1368 (FAB)
13
damages, by way of penalty, for default in payment.”
(quoting
Rivera
v.
Crescioni,
77
D.P.R.
47,
Id. at 414
55-56
(1954)).
Article 1061, the court noted, “applies until the obligation is no
longer in default” and provides “an independent remedy from the
post-judgment interests afforded in [section 1961].”
515 B.R. at 414.
Redondo III,
The Court agrees with the Bankruptcy Court’s
reasoning, and accordingly AFFIRMS the Bankruptcy Court’s award of
prejudgment interest accruing until the date of payment.
CONCLUSION
For the foregoing reasons, the Court AFFIRMS the judgment of
the Bankruptcy Court in the underlying adversary cases.
Judgments shall be entered accordingly.
IT IS SO ORDERED.
San Juan, Puerto Rico, November 4, 2014.
s/ Francisco A. Besosa
FRANCISCO A. BESOSA
UNITED STATES DISTRICT JUDGE
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