Perez v. Cordero Badillo et al

Filing 23

OPINION AND ORDER re 7 Motion Requesting Order; and re 17 Motion to Dismiss for Lack of Jurisdiction. The Court DENIES defendants' motion to dismiss, (Docket No. 17), and DENIES plaintiff's motion to appoint an independent fiduciary without prejudice. (Docket No. 7.) Signed by Judge Francisco A. Besosa on 03/01/2016. (brc)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF PUERTO RICO
THOMAS E. PEREZ, Secretary of
Labor, United States Department
of Labor,
Plaintiff,
v.

Civil No. 15-1541 (FAB)

ATILANO CORDERO BADILLO, et al.,
Defendants.

OPINION AND ORDER
BESOSA, District Judge.
Plaintiff Thomas E. Perez, Secretary of Labor (“Secretary”),
filed

this

action

against

defendants

Atilano

Cordero-Badillo

(“Cordero”) and the Empresas A. Cordero Badillo Retirement Plan
(“the Plan”) alleging that Cordero breached his fiduciary duty as
trustee of the Plan, an employee benefit plan as defined by the
Employee Retirement Income Security Act (“ERISA”). (Docket No. 1.)
Plaintiff alleges that this breach caused the Plan to exist without
a named fiduciary or with assets not held in trust in violation of
ERISA sections 402-403, 29 U.S.C. §§ 1102-1103.

Id. at 3.

Before

the Court are defendants’ motion to dismiss, (Docket No. 17), which
plaintiff opposed, (Docket No. 18), and plaintiff’s motion to
appoint an independent fiduciary, (Docket No. 7.)
that follow, both motions are DENIED.

For the reasons

Civil No. 15-1541 (FAB)
I.
A.

2

DEFENDANTS’ MOTION TO DISMISS

FACTUAL ALLEGATIONS
Because plaintiff Secretary purports to bring his motion

pursuant to Rules 12(b)(6) and 12(b)(1), the Court takes as true
the

following

non-conclusory

factual

allegations

stated

in

plaintiff Secretary’s complaint1 and draws all inferences in his
favor.

See Carrero-Ojeda v. Autoridad de Energia Electrica, 755

F.3d 711, 712 (1st Cir. 2014) (Rule 12(b)(6)); Merlonghi v. United
States, 620 F.3d 50, 54 (1st Cir. 2010) (Rule 12(b)(1)).
The Plan, which was established by A. Cordero Badillo, Inc.
(“Cordero Badillo, Inc.”) on September 1, 2004, was established to
provide retirement and major medical expenses for its participants.
(Docket No. 7-13 at pp. 11-12.)

It was funded by employee salary

withholdings and employer matching contributions.
In

2010,

Cordero

Badillo,

(Docket No. 1 at p. 2.)
Plan’s trustee.

Id.

Inc.,

ceased

Id. at pp. 8-9.
doing

business.

On August 15, 2013, Cordero became the

As of May 2015, the Plan had 375 unpaid

participants and approximately $128,625.95 in assets.

Id. at

pp. 2-3.
On November 12, 2010, Cordero Badillo, Inc. filed for chapter
11 bankruptcy relief in the United States Bankruptcy Court for the

1

The Court also reviews the Plan Adoption Agreement, Docket No. 713, because its authenticity is not challenged and some of the
complaint’s factual allegations are dependent upon the document.
See Beddall v. State St. Bank & Tr. Co., 137 F.3d 12, 15, 17 (1st
Cir. 1998).

Civil No. 15-1541 (FAB)

3

District of Puerto Rico.

Voluntary Petition Under Chapter 11 With

Schedules, In re A. Cordero Badillo, Inc., Ch. 7 Case No. 10-bk10705-MCF,

Docket

No.

1

(Bankr.

D.P.R.

Nov.

12,

2010).

On

April 29, 2015, the underlying bankruptcy case, Case No. 10-bk10705-MCF, was converted from a chapter 11 bankruptcy proceeding to
a chapter 7 bankruptcy proceeding and a bankruptcy trustee, Noreen
Wiscovitch-Rentas

(“Wiscovitch”),

was

appointed.2

Notice

of

Chapter 7 Bankruptcy Case, In re A. Cordero Badillo, Inc., Ch. 7
Case No. 10-bk-10705-MCF, Docket No. 871 (Bankr. D.P.R. Apr. 29,
2015).
B.

DISCUSSION
In their motion to dismiss, defendants argue (1) that this

Court is not the proper forum because administration of the Plan by
the chapter

7

bankruptcy

trustee

should be

monitored

by

the

bankruptcy court, and (2) that Cordero is not the proper defendant
because, at the time the complaint was filed, the chapter 7
bankruptcy trustee was the administrator for the Plan.
No. 17 at pp. 2, 18-20.)

(Docket

Additionally, defendants seek litigation

costs and legal fees, accusing plaintiff Secretary of malicious
prosecution and abuse of process for litigating this action despite

2

The Court considers the orders of the bankruptcy court as public
records. In re Colonial Mort. Bankers Corp., 324 F.3d 12, 20 (1st
Cir. 2003) (including a bankruptcy case order as a “matter[] of
public record [that is] fair game in adjudicating Rule 12(b)(6)
motions”).

Civil No. 15-1541 (FAB)

4

his knowledge of the underlying bankruptcy proceedings.

Id. at

pp. 19-20.
1.

Proper Forum
Defendants argue that administration of the Plan by the

bankruptcy trustee should be monitored by the bankruptcy court, not
this Court.
“original

and

(Docket No. 17 at p. 2.)
exclusive

bankruptcy cases.

jurisdiction”

District courts have
over

See 28 U.S.C. § 1334(a).

all

chapter

11

In this Court,

chapter 11 bankruptcy cases and “all proceedings arising under
. . . or arising in or related to” a chapter 11 bankruptcy case are
referred automatically to the bankruptcy court pursuant to the
Court’s General Order of July 19, 1984 (“July 1984 Order”).

Juan

Torruella, Resolution (July 19, 1984), http://www.prd.uscourts.gov/
sites/default/files/documents/88/BankruptcyCases.pdf. Proceedings
addressing the interplay between ERISA and the Bankruptcy Code
created by 11 U.S.C. § 701(a)(11)3 sometimes fall within the
bankruptcy court’s “arising under,” “arising in,” or “related to”

3

The bankruptcy trustee shall “continue to perform the obligations
required of the administrator” when “at the time of the
commencement of the case, the debtor (or any entity designated by
the debtor) served as the administrator . . . of an [ERISA]
employee benefit plan.” 11 U.S.C. § 704(a)(11).

Civil No. 15-1541 (FAB)
jurisdiction.4

5

U.S. Dept. of Labor v. Kirschenbaum, 508 B.R. 257,

264-70 (Bankr. E.D.N.Y. 2014), aff’d sub nom., In re Robert Plan
Corp., 777 F.3d 594 (2d Cir. 2015) (analyzing whether a bankruptcy
court

had

“arising

under,”

“arising

in,”

or

“related

to”

jurisdiction over an ERISA employee benefit plan).
Determining the proper forum for a claim involving 11
U.S.C. § 701(a)(11) is an issue of first impression for this Court.
Because case law from the half-dozen bankruptcy court cases5 to
address this issue is “scant and inharmonious,” In re Franchi
Equipment Co., 452 B.R. 352, 356 (Bankr. D. Mass. 2011), the Court
looks to the single case addressing this matter at the district and
circuit court levels.
In In re Robert Plan Corp., the Department of Labor
challenged the bankruptcy court’s jurisdiction to approve the

4

A proceeding that “invoke[s] substantive rights created by
bankruptcy law” “arises under” bankruptcy law. U.S. Dept. of Labor
v. Kirschenbaum, 508 B.R. 257, 264 (E.D.N.Y. 2014) aff’d sub nom.
In re Robert Plan Corp., 777 F.3d 594 (2d Cir. 2015). A proceeding
that “covers claims that are not based on any right expressly
created by [bankruptcy law], but nevertheless, would have no
existence outside of the bankruptcy” “arises in” bankruptcy law.
Id. A proceeding in which “the outcome might have any conceivable
effect on or any significant connection with the bankruptcy estate”
is “related to” bankruptcy law. Id. (internal quotations omitted).
5

See generally In re AB & C Group, Inc., 411 B.R. 284 (Bankr.
N.D.W. Va. 2009); In re Trans-Indus., Inc., 419 B.R. 21 (Bankr.
E.D. Mich. 2009); In re Mid-States Express, Inc., 433 B.R. 688
(Bankr. N.D. Ill. 2010); In re Franchi Equip Co., 452 B.R. 352
(Bankr. D. Mass. 2011); In re NSCO, Inc., 427 B.R. 165 (Bankr. D.
Mass. 2010); In re Negus-Sons, Inc., No. BK09-82518-TJM, 2013 WL
4674917 (Bankr. D. Neb. Aug. 30, 2013).

Civil No. 15-1541 (FAB)

6

bankruptcy trustee’s request to pay administration fees from the
employee benefit plan assets.

777 F.3d 594, 596 (2d Cir. 2015).

The court held that the bankruptcy court lacked “arising under” and
“arising in” jurisdiction because administration of ERISA plans “is
typically an issue that arises outside [of] bankruptcy,” and the
substantive duties and rights that the bankruptcy trustee is
assigned through 11 U.S.C. § 704(a)(11) originate in ERISA, not the
bankruptcy code.

Id. at 597.

The court also held that the

bankruptcy court lacked “related to” jurisdiction because payment
from the employee benefit plan, a non-estate asset, could not
possibly have any effect on the bankruptcy estate.

Id.

Here, plaintiff Secretary is seeking to remove Cordero as
a trustee for breach of fiduciary duties.
3.)

(Docket No. 1 at pp. 2-

Removal for breach of a fiduciary duty is a remedy that is

created by ERISA law, 29 U.S.C. § 1109(a), and typically arises
outside of bankruptcy proceedings.

Accord Ortega-Candelaria v.

Orthobiologics LLC, 661 F.3d 675 (1st Cir. 2011) (reviewing an
ERISA breach of fiduciary claim decided in the district court);
Bunch v. W.R. Grace & Co., 555 F.3d 1 (1st Cir. 2009) (same); Evans
v. Akers, 534 F.3d 65 (1st Cir. 2008) (same).

Thus, the Court

finds that the bankruptcy court lacks “arising in” and “arising
under” jurisdiction.
Additionally, the only monetary relief that plaintiff
Secretary seeks is payment of expenses incurred in appointing a new

Civil No. 15-1541 (FAB)

7

fiduciary for the plan and payment of losses to the plan from
Cordero’s alleged fiduciary breach.

(Docket No. 1 at p. 3.)

Plaintiff Secretary requests payment of these expenses to be made
by Cordero.

Id.

Because the plan is not an estate asset, 11

U.S.C. § 541(b)(7), and Cordero is not the party in bankruptcy, any
monetary award in this case will not impact the bankruptcy estate.
See In re Robert Plan Corp., 777 F.3d at 596.
Court

finds

that

the

bankruptcy

court

Accordingly, the

lacks

“related

to”

jurisdiction.
Because the bankruptcy court has no jurisdiction over
this matter, jurisdiction is not automatically referred to the
bankruptcy court pursuant to the July 1984 Order, but instead
remains with this Court.

This Court has jurisdiction and is the

proper forum for adjudicating the parties’ claims.
2.

Proper Defendant
Defendants also claim that plaintiff Secretary brought

suit against defendant Cordero improperly because the suit should
instead have been brought against the chapter 7 bankruptcy trustee.
(Docket No. 17 at pp. 11-15.)
the

chapter

7

bankruptcy

Pursuant to 11 U.S.C. § 704(a)(11),
trustee

becomes

the

successor

administrator of the ERISA employee benefit plan assuming all
rights and obligations of the previous debtor-administrator. In re
Trans-Indus., Inc., 538 B.R. 323, 347 (Bankr. E.D. Mich. 2015)

Civil No. 15-1541 (FAB)
(clarifying

that

the

8
bankruptcy

trustee

becomes

a

successor

trustee, not just a stand-in for the current plan administrator).
Here, Cordero has been a trustee of the plan since
August 15, 2013.

(Docket No. 1 at p. 2.)

Additionally, Cordero

Badillo, Inc. and the Committee are named as plan administrators
and fiduciaries in the Plan agreement dated 2010. (Docket No. 7-13
at pp. 13-14.)
Only Cordero Badillo, Inc. is named in the bankruptcy
proceedings and thus it is the debtor in those proceedings.

See

generally In re A. Cordero Badillo, Inc., Ch. 7 Case No. 10-bk10705-MCF, (Bankr. D.P.R. 2010).

When Wiscovitch was appointed as

bankruptcy trustee on April 29, 2015, she assumed all duties and
obligations of the debtor as administrator of the Plan.
Trans-Indus.,

Inc.,

538

B.R.

at

347;

see

also

See In re
11

U.S.C.

§ 704(a)(11); Notice of Chapter 7 Bankruptcy Case, In re A. Cordero
Badillo, Inc., Ch. 7 Case No. 10-bk-10705-MCF, Docket No. 871
(Bankr. D.P.R. Apr. 29, 2015).

Because Cordero is not named as a

debtor in bankruptcy Case No. 10-bk-10705, Wiscovitch’s appointment
did not affect his duties as trustee of the Plan.

The Court,

therefore, finds that plaintiff’s claims against Cordero are proper
because he remained a trustee of the Plan after Wiscovitch’s
appointment as trustee.

Thus, because Cordero is a proper party

and this Court is a proper forum, defendants’ motion to dismiss is
DENIED.

Civil No. 15-1541 (FAB)
3.

9

Wrongful Prosecution and Abuse of Process
Finally, defendants assert that plaintiff Secretary’s

continued

prosecution

of

this

suit

despite

the

bankruptcy

proceedings against Cordero Badillo, Inc. constituted malicious
prosecution and abuse of process pursuant to Puerto Rico law.
(Docket No. 17 at pp. 16-19.)

The Court finds no merit in this

argument because there was no bankruptcy stay in place prohibiting
further

proceedings

in

this

Court,

(Docket

No.

15

(denying

defendants’ motion to stay)), and this Court is the proper forum,
see supra Part I(B)(1).

Thus, defendants’ claims of malicious

prosecution and abuse of process are DENIED.
II.

PLAINTIFF’S MOTION TO APPOINT A NEW TRUSTEE

In his motion to appoint a new fiduciary, plaintiff Secretary
seeks to have Cordero removed as trustee and a new fiduciary
appointed to administer the Plan and distribute the Plan’s assets
to its beneficiaries.

(Dockets No. 7 at pp. 5, 12.)

same relief that plaintiff seeks in his complaint.

This is the
(Docket 1 at

p. 3.)
Summary

judgment,

pursuant

to

Federal

Rule

of

Civil

Procedure 56 (“Rule 56”), is the proper way to dispose of actions
on the merits before a case is tried.

See generally 10A Charles

Alan Wright & Arthur R. Miller, Federal Practice and Procedure,
§§ 2712-2713.1 (3d ed. 2015) (describing the scope of Rule 56 and
comparing

it

to

other

dispositive

motions);

see

also

Civil No. 15-1541 (FAB)
Fed.R.Civ.P. 56.

10

Because plaintiff Secretary did not move for

summary judgment here, or submit a supporting statement of material
facts as required by Local Rule 56, the Court will not address the
merits of plaintiff Secretary’s claim to remove Cordero as a Plan
fiduciary and to appoint an independent fiduciary.
therefore,

DENIES

plaintiff

Secretary’s

independent fiduciary without prejudice.

motion

III.

to

The Court,
appoint

an

(Docket No. 7.)

CONCLUSION

For the reasons discussed above, the Court DENIES defendants’
motion to dismiss, (Docket No. 17), and DENIES plaintiff’s motion
to appoint an independent fiduciary without prejudice.

(Docket

No. 7.)
IT IS SO ORDERED.
San Juan, Puerto Rico, March 1, 2016.
s/ Francisco A. Besosa
FRANCISCO A. BESOSA
UNITED STATES DISTRICT JUDGE