562 B.R. 845
Bankr. D.P.R.2016Background
- LM Waste sued Municipality (breach of contract/collection of monies) and ARB (tortious interference) in Puerto Rico state court in 2013; the case progressed to pretrial and discovery.
- On October 29, 2014 LM Waste filed Chapter 11 and the state court administratively stayed and closed the case, reserving right to reopen if stay lifted.
- On May 4, 2015 LM Waste commenced this adversary proceeding in bankruptcy court seeking turnover, collection and tort damages (claims pre‑petition).
- Municipality and ARB moved to dismiss/for permissive abstention under 28 U.S.C. § 1334(c)(1); ARB also argued forum shopping and the first‑to‑file rule. LM Waste opposed.
- The court found the claims non‑core (existed pre‑petition, survivable outside bankruptcy), parties did not consent to final adjudication by the bankruptcy court, and that permissive abstention was appropriate.
- The court dismissed the adversary proceeding on grounds of permissive abstention; it did not resolve removal/timing or first‑to‑file issues.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether claims are core vs non‑core | LM Waste: breach led to Chapter 11; claims implicate turnover/§542 and §365 so core | Defendants: claims arose pre‑petition and are state law contract/tort matters (non‑core) | Court: non‑core (claims pre‑existed; not created by bankruptcy); no consent to final bankruptcy judgment |
| Whether bankruptcy court can enter final judgment | LM Waste: court can resolve turnover/matured debt issues here | Defendants: bankruptcy court limited for non‑core matters without consent | Court: cannot enter final judgment on non‑core claims absent consent; limited to proposed findings |
| Whether to abstain under 28 U.S.C. § 1334(c)(1) | LM Waste: federal forum necessary because Puerto Rico Act 66 impairs collectibility; Supremacy Clause may avoid Act 66 effects | Defendants: state law predominates; related state proceeding exists; forum shopping; non‑debtors involved | Court: granted permissive abstention — factors (efficiency, state law predominance, related state proceeding, forum shopping, non‑debtors) favor abstention |
| Effect of Puerto Rico Act 66 on forum choice/enforcement | LM Waste: Act 66 prevents collection in state court; federal court needed to avoid Act 66's limitations | Defendants: Act 66 governs enforcement/procedure under Rule 69; federal forum does not circumvent Act 66 | Court: disagreed with LM Waste; Act 66 applies to enforcement regardless of forum; Wal‑Mart case distinguishable; Act 66 not a reason to retain this case |
Key Cases Cited
- Roman‑Perez v. Operating Partners Co. LLC, 527 B.R. 844 (Bankr. D.P.R.) (distinguishing core vs non‑core bankruptcy matters)
- In re Med. Educ. & Health Servs., 459 B.R. 527 (Bankr. D.P.R.) (definition of core proceedings)
- Scotland Guard Servs. v. Autoridad de Energia Electrica (In re Scotland Guard Servs.), 179 B.R. 764 (Bankr. D.P.R.) (non‑core when action survives outside bankruptcy)
- In re Latin Am. Roller Co., 412 B.R. 15 (Bankr. D.P.R.) (bona fide state‑law disputes not core turnover actions)
- New England Power & Marine, Inc. v. Town of Tyngsborough (In re Middlesex Power Equip. & Marine, Inc.), 292 F.3d 61 (1st Cir.) (factors for permissive abstention and forum‑shopping concerns)
- Christensen v. Tucson Estates, Inc. (In re Tucson Estates, Inc.), 912 F.2d 1162 (9th Cir.) (abstention factors framework)
- Flores Rivera v. Telemundo Group, 133 B.R. 674 (D.P.R.) (additional Telemundo factors applied in Puerto Rico)
- In re Caribbean Petroleum Corp., 443 B.R. 560 (Bankr. D.P.R.) (equitable considerations and abstention analysis)
- Whitfield v. Municipality of Fajardo, 564 F.3d 40 (1st Cir.) (state law governs execution/enforcement procedure under Rule 69)
- Wal‑Mart Puerto Rico v. Zaragoza‑Gomez, 174 F. Supp. 3d 585 (D.P.R.) (distinguishable precedent on limits of state remedies and federal jurisdiction)