IN RE: EDGAR A. REYES-COLON, Involuntary Debtor.
EDGAR A. REYES-COLON, Appellant, Cross-Appellee. POPULAR AUTO, INC.; BANCO POPULAR DE PUERTO RICO, Appellees, Cross-Appellants,
APPEALS FROM THE UNITED STATES DISTRICT COURT FOR THE
DISTRICT OF PUERTO RICO, Hon. Gustavo A. Gelpí, Jr.,
U.S. District Judge
Michael J. Fencer, with whom Lynne F. Riley, David Koha, and
Casner & Edwards, LLP were on brief, for appellant and
Roberto Abesada-Agüet, with whom Sergio E. Criado,
Correa-Acevedo & Abesada Law Offices, PSC, Eldia
Díaz-Olmo, Díaz-Olmo Law Offices, Gerardo
Pavía Cabanillas, and Pavía & Lazaro, PSC
were on brief, for appellees and cross-appellants.
Howard, Chief Judge, Thompson and Kayatta, Circuit Judges.
KAYATTA, CIRCUIT JUDGE.
Reyes-Colon ("Reyes-Colon"), a licensed plastic
surgeon specializing in facial cosmetic surgery, allegedly
failed to repay certain debts. In November 2006, one of his
creditors, Banco Popular de Puerto Rico ("Banco
Popular"), filed an involuntary bankruptcy petition that
a second creditor, Popular Auto (collectively, "the
Banks"), joined. Under 11 U.S.C. § 303(b), fewer
than three petitioning creditors cannot force a debtor into
bankruptcy unless the debtor has fewer than twelve creditors
in total. So the parties embarked on what has now turned into
twelve years of litigation concerning the number of
Reyes-Colon's creditors and whether he might somehow be
placed in bankruptcy involuntarily for "equitable"
reasons. For the following reasons, we affirm the decision of
the bankruptcy court to dismiss the petition for want of a
obtained a loan from Popular Auto and guaranteed an
affiliate's loan from Banco Popular. On November 22,
2006, after Reyes-Colon allegedly failed to pay his debts,
Banco Popular filed an involuntary bankruptcy petition,
forcing Reyes-Colon into bankruptcy proceedings. Popular Auto
joined the petition shortly thereafter.
early 2007 the bankruptcy court dismissed the involuntary
petition, concluding that Reyes-Colon had more than twelve
eligible creditors at the time the involuntary petition was
filed and that, after a reasonable opportunity, Banco Popular
had failed to join a third creditor to maintain the petition
under section 303(b)(1). See In re Reyes-Colon, Nos.
PR 07-053, 06-04675-GAC, 2008 WL 8664760, at *1 (B.A.P. 1st
Cir. Nov. 21, 2008). A year and a half later, the bankruptcy
appellate panel ("BAP") set aside the dismissal and
remanded the case. Id. The panel determined that all
creditors should have been given notice and the opportunity
for a hearing before the bankruptcy court dismissed the case.
Id. at *8.
did not appeal that panel ruling. Instead, the parties
returned to the bankruptcy court for another three-plus years
of proceedings. On March 2, 2011, Reyes-Colon moved for
summary judgment, again seeking dismissal of the petition.
The bankruptcy court partially granted the motion on May 23,
2012, holding that Reyes-Colon had fifteen qualified
creditors at the time the involuntary petition was filed.
In re Reyes-Colon, 474 B.R. 330, 383, 391 (Bankr.
D.P.R. 2012). The court nevertheless allowed the parties to
conduct discovery and present evidence on whether
"special circumstances" existed to excuse
compliance with section 303(b)(1)'s three-creditor
requirement and whether Reyes-Colon had been paying his debts
as they became due. Id. at 391.
bankruptcy court eventually held evidentiary hearings in late
2015. On September 2, 2016, the bankruptcy court dismissed
the involuntary petition, citing Law v.
Siegel, 571 U.S. 415 (2014). In re
Reyes-Colon, 558 B.R. 563, 568 (Bankr. D.P.R. 2016),
rev'd, No. 16-2638 (GAG), 2017 WL 6365433
(D.P.R. Aug. 9, 2017). The court found that although
Reyes-Colon schemed to defraud his creditors by
misrepresenting his finances, id. at 565, the court
did not have the equitable power to override the provisions
of section 303(b)(1), id. at 568. The Banks appealed
to the district court.
district court reversed the dismissal order and remanded to
the bankruptcy court. In re Reyes-Colon, 2017 WL
6365433, at *1. It found that the involuntary petition did
not need three or more petitioning creditors because
Reyes-Colon had fewer than twelve eligible creditors when the
petition was filed. Id. The court also found that
Reyes-Colon was generally not paying his debts as they became
due, and required entry of an order of relief against
Reyes-Colon on remand pursuant to section 303(h)(1).
Id. This appeal and cross-appeal followed.
303(b) of the Bankruptcy Code requires that an involuntary
petition against a debtor have at least three petitioning
creditors if, at the time the petition was filed, the debtor
had twelve or more eligible creditors. 11 U.S.C. §
303(b)(1)-(2). Reyes-Colon argues that he had twelve or more
creditors at the time the petition was filed, and that the
involuntary petition is therefore insufficient because there
are only two petitioning creditors -- Banco Popular and
response, the Banks raise two types of arguments. First, they
claim that Reyes-Colon has procedurally waived his right to
put forward the arguments that might arguably support his
position. Second, they argue on the merits ...