Recent Decisions Regarding Bankruptcy & Foreclosure in the First Circuit: June 2012, Part Four of Four.

Debtor’s objection to secured creditors of amended POC overruled:

In re: PERRON, 2012 Bankr. LEXIS 2952 (Bankr. D. Maine 6/29/12)(James B. Haines, Jr., Bankruptcy Judge).

PROCEDURAL POSTURE: The Chapter 13 debtors objected to a second amended proof of claim filed by a creditor. The twice amended proof of claim was secured by a mortgage on the debtors’ residence. The debtors alleged that the creditor lacked standing to enforce the claim and that the amount it claimed was inflated.
OVERVIEW: In response to the debtors’ objection to its proof of claim, the creditor filed an amended proof of claim, reducing the amount due. On the morning of the hearing on the debtors’ objection, the creditor filed a second amended proof, further reducing its claim. The court rejected the debtors’ objection to the creditor’s standing, as their plan explicitly provided that mortgage payments be made to the creditor. The debtors also contended that because the creditor filed its proof in an original, amended, and second amended version, it had "admitted" inaccuracies and that such admissions constituted substantial evidence supporting their objection. Thus, the debtors argued that the second amended proof of claim provided no evidentiary support for the creditor’s claim. The court rejected this argument, noting that the debtors did not invoke the rules to object to the creditor’s amendments or required that it seek and obtain leave to amend. The changes were neither unfair nor unexplained. The court also considered and rejected the debtors’ legal argument that escrow arrearages existing prior to a certain date were forgiven by their loan modification of that date.
OUTCOME: The debtors' objections to the creditor's claim were overruled. The claim was allowed as a secured claim in the amount stated in the second-amended proof.

Substantive consolidation doctrine reviewed, then application of it is denied:

(IN RE: RUIZ); RUIZ P V. MAZA & GREEN ATTORNEYS, 2012 Bankr. LEXIS 2540 (Bankr. D.P. R. 6/4/12)(Brian K. Tester, Bankruptcy Judge).

ORDER:  Defendants' Motion requesting substantive consolidation is hereby DENIED. The adversary complaints which Defendants seek to consolidate do not involve the same or even related debtors, as set forth in Fed. R. Bankr. P. 1015. Moreover, under Fed. R. Civ. P. 42(a), made applicable to these proceedings by Fed. R. Bankr. P. 7042, the Court may consolidate, for joint hearing or trial, actions involving common question of law or fact. Defendants, as the party moving for consolidation, bear the burden of persuading the Court that consolidation is desirable by showing the commonality of factual and legal issues in the different actions. See MacAlister v. Guterma, 263 F.2d 65, 70 (2d Cir. 1958). The complaints and claims for relief are grounded on alleged collection efforts by Defendants which purportedly violated the Fair Debt Collection Practices Act and the automatic stay orders in each of the cases. However, while the cases may involve some similar questions of law or facts, Defendants have made no showing that these cases are sufficiently related to warrant consolidation. Furthermore, no appreciable saving of time or expense will result from the consolidation vis a vis the possible delay or prejudice involved in consolidation.

Stay lifted on debtor for District Court to determine admiralty jurisdiction:

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ELIEZER CRUZ-APONTE, et al., Plaintiffs, v. CARIBBEAN PETROLEUM CORPORATION, et al.,

2012 U.S. Dist. LEXIS 86511 (D.P.R. 6/21/12)(Francisco A. Besosa, District Judge)

MEMORANDUM AND ORDER
Before the Court are the parties' briefs regarding whether the Court has subject matter jurisdiction to hear and adjudicate the complaint filed by the Cape Bruny parties (collectively, "Cape Bruny") for exoneration from or limitation of liability in the current proceedings.
This class action litigation arises out of an explosion that occurred on October 23, 2009 at the Gulf Oil Facility in Bayamon, Puerto Rico. The complaint identifies thirty-four defendants. Id. On August 13, 2010, defendants Caribbean Petroleum Corporation  ("CPC") and Caribbean Petroleum Refining LP ("CPR") (jointly referred to as the "CAPECO defendants") notified this Court of their filing of a voluntary bankruptcy petition in the United States Bankruptcy Court for the District of Delaware. The Court granted a motion to stay the proceedings against all parties to the litigation in light of the bankruptcy filing by the CAPECO defendants. On May 31, 2011, Cape Bruny moved this Court for a partial lifting of the stay in order to allow the limitation of liability proceedings to go forward. Cape Bruny alleged that according to a stipulation in which the Cape Bruny and the debtors entered, which was approved by the bankruptcy court, this Court "would be free to take any action it considered appropriate to resolve the subject matter jurisdiction" question broached by a number of parties in this action. On June 3, 2011, the Court granted the motion, and modified the stay in order to allow this Court "to determine whether it has subject matter jurisdiction to hear and adjudicate the complaint filed by the Cape Bruny parties for exoneration from or limitation of liability" and "to consider and rule on the motion to dismiss filed by the Total Petroleum Corporation." The Court ordered all parties to file briefs on the issues to be considered.

In light of the elucidated case law on the subject, the Court addresses whether the facts of this case meet the Supreme Court test to invoke admiralty jurisdiction.  None of the parties appears to contest seriously the fact that the locality test is met. "[a] court applying the location test must determine whether the tort occurred on navigable water or whether injury suffered on land was caused by a vessel on navigable water. Here, the alleged tortious act is the negligent discharge of cargo (fuel) from a vessel (M/T Cape Bruny) to a storage facility. The M/T Cape Bruny, a chemical/oil products tanker vessel (Docket No. 81 at 12), was docked in San Juan harbor, which is indisputably a navigable body of water. If the M/T Cape Bruny caused the explosion, it must have done so by negligently discharging fuel into the pipelines that connected the marine dock to the storage tanks. Thus, if the M/T Cape Bruny tanker vessel committed a tort, it would have done so while on navigable waters, satisfying the locality test.

The parties dispute whether or not the facts of the case satisfy the "connection test" articulated in Grubart. The Grubart Court interpreted the Sisson connection test to require that (1) "the incident has 'a potentially disruptive impact on maritime commerce,'" and (2) that "'the general character' of the 'activity giving rise to the incident' shows a 'substantial relationship to traditional maritime activity.'"  The appropriate inquiry is not whether the incident did, in fact, cause disruption to maritime commerce, but instead, whether the "general features" of the incident were "likely to disrupt commercial activity."
The Court finds that the "general features" of the incident - damage caused to an in-land facility during the discharge of fuel from a vessel to land - does indeed "satisfy the requirement of potential disruption to commercial maritime activity."  Having satisfied the first prong of the "connection test", the Court now analyzes "whether the general character of the activity giving rise to the incident shows a substantial relationship to traditional maritime activity."  The activity at issue here, the discharge of cargo (fuel) from a vessel to land, is certainly "substantially related" to a traditional maritime activity. As Cape Bruny alleges, tanker vessels like the M/T Cape Bruny are regularly used to transport cargo like chemical/oil products in international commerce, and the safe and efficient off-loading of the cargo is a primary objective of the vessel's undertaking.  For the reasons stated, the Court finds that the second prong of the "connection test" has been satisfied. Thus, this Court finds admiralty jurisdiction to exist.

Debtor’s transfer back to her mother of an interest Mom had previously transferred to debtor for no consideration was avoided, even though debtor never had any real interest in the land:

(In re: HILL), FERRARA, TRUSTEE, v. SOSCIA, 2012 Bankr. LEXIS 2481 (Bankr. D.R.I. 6/1/12)(Arthur N. Votolato, Bankruptcy Judge).

PROCEDURAL POSTURE: Plaintiff Chapter 7 trustee filed a complaint against defendant transferee pursuant to the Rhode Island Uniform Fraudulent Transfer Act, R.I. Gen. Laws § 6-16-1 et seq., and 11 U.S.C.S. §§ 548 and 550 seeking to avoid a transfer of property by a debtor to the transferee, her mother. The trustee moved for summary judgment.
OVERVIEW: The debtor’s mother was the sole owner of property. In 1992, without the debtor’s knowledge, she executed a deed conveying the property to the debtor and herself as joint tenants. The debtor did not become aware that her name was on the title to the property until the late 1990s. The debtor never resided there or paid any of the expenses associated with ownership of the property. In early 2010, the debtor’s mother became aware that the debtor was having financial problems and directed her to take her name off the deed. The debtor executed a deed conveying her interest in the property back to her mother for no consideration. The debtor was insolvent at the time of the transfer. The court held that all elements of 11 U.S.C.S. § 548(a)(1) were satisfied. Her transfer of at least a survivorship interest to her mother, an insider, within two years of filing her petition, for no consideration, and because of her fear that her creditors could reach the property, was fraudulent as to creditors. The court rejected the contention that the debtor held only bare legal title to the property. The record showed that her mother intended to create at least a survivorship interest in the property.
OUTCOME: The court granted the trustee's motion for summary judgment. The transfer of the debtor's survivorship interest in the property to her mother was avoided under 11 U.S.C.S. § 548, and the trustee was authorized to take any steps necessary, pursuant to 11 U.S.C.S. § 550, to recover said interest, or the value thereof, for the benefit of the debtor's estate

SJ affirmed on issues of promissory and judicial estoppel:

ROBERT ROCKWOOD and ROXANA MARCHOSKY v. SKF USA INC., 2012 U.S. App. LEXIS 13288 (1^st Cir. 6/28/12).  (Before Judges Torruella, Selya, and Lynch, Opinion by Torruella, Circuit Judges).

APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW HAMPSHIRE. Hon. Joseph N. Laplante, U.S. District Judge.
Rockwood v. SKF USA Inc., 758 F. Supp. 2d 44, 2010 U.S. Dist. LEXIS 134423 (D.N.H., 2010)

PROCEDURAL POSTURE: Appellant guarantors sued appellee reseller, alleging promissory estoppel regarding a failed negotiation to purchase the guarantors' manufacturing company. The United States District Court for the District of New Hampshire granted summary judgment to the reseller. The guarantors appealed.
OVERVIEW: The guarantors were the sole shareholders of a pump manufacturer. The parties entered into an option agreement that gave the reseller an irrevocable option to purchase the outstanding shares of stock in the manufacturer. The parties also executed a buy-sell agreement that made the reseller the exclusive marketer and reseller of the pumps. The reseller never bought the manufacturer. The guarantors alleged that they agreed to personally guarantee certain loans in reliance on promises by the reseller to invest in a joint business venture and to purchase the manufacturer. The appellate court determined that the guarantors' promissory estoppel claim failed because (1) the guarantors waived their claim that the reseller promised to invest $10 million since they failed to object in any way to the district court's conditioning of its order granting leave to amend on the abandonment of the claim, (2) the guarantors were judicially estopped from characterizing the statements of the reseller's vice president as expressing a promise to buy the manufacturer on terms other than those of the option agreement, and (3) the remaining evidence did not create an issue for trial.
OUTCOME: The appellate court affirmed the judgment of the district court.