Santos v. Mender (In Re Santos)

349 B.R. 762, 2006 Bankr. LEXIS 2304, 2006 WL 2720628
CourtBankruptcy Appellate Panel of the First Circuit
DecidedSeptember 25, 2006
DocketBAP No. 05-036, Bankruptcy No. 97-05120-ESL
StatusPublished
Cited by22 cases

This text of 349 B.R. 762 (Santos v. Mender (In Re Santos)) is published on Counsel Stack Legal Research, covering Bankruptcy Appellate Panel of the First Circuit primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Santos v. Mender (In Re Santos), 349 B.R. 762, 2006 Bankr. LEXIS 2304, 2006 WL 2720628 (bap1 2006).

Opinions

INTRODUCTION

KORNREICH, Bankruptcy Judge.

Miguel A. Orsini Santos (the “Debtor”) appeals from an order of the United States Bankruptcy Court for the District of Puerto Rico (the “bankruptcy court”) denying [764]*764his second motion for reconsideration of an order allowing the unsecured claim of Reinoldo Espino Colon (“Espino”).

Espino was not listed as a creditor in the Debtor’s chapter 13 case. After the bar date for filing claims, Espino filed an unsecured claim in the amount of $36,667.87. Later, he filed a second claim, arising from the same facts and circumstances, alleging security by setoff. The Debtor objected to both claims — the unsecured claim because it had been filed after the claims bar date and the secured claim because it lacked an adequate showing of security. Espino did not file a timely response and both claims were disallowed.

Long after his claims were disallowed, Espino filed a response stating that he had not been aware of the bankruptcy case before the passage of the bar date. His belated response was deemed to be a request for reconsideration. Both parties were ordered to show cause why Espino’s unsecured claim should not be allowed for the amount filed and why lack of notice of the bar date would not excuse the late filing of his claims. Each party filed a response and the matter was taken under advisement. Although given the opportunity, neither party requested an evidentiary hearing. There was no further activity on the claims until several months later when the bankruptcy court sought and heard argument on them at a pre-trial conference in a related adversary proceeding. By then, Espino had withdrawn his secured claim.

At that pre-trial conference, the bankruptcy judge determined that Espino had not been listed on the schedules as a creditor and, on that basis, he concluded that Espino’s tardiness was excusable. He also concluded that the Debtor’s only timely objection to the unsecured claim was that it had been filed late. For that reason, the judge declined to entertain the Debtor’s objections on the merits and allowed Espino’s unsecured claim in full, as filed. No written order was entered on those rulings. However, some time later, the essence of those rulings was restated in the written order sustaining the conversion of the case to chapter 7.

The first discrete, written order allowing Espino’s unsecured claim appears to be the order overruling the chapter 7 trustee’s objection to that claim. The Debtor’s motion to reconsider that order was denied. He then sought reconsideration a second time. This appeal is from the denial of his second request. We affirm.

BACKGROUND

Espino operated a gas station in Cupey, Puerto Rico. The Debtor worked for Espino between 1988 and 1994 and may have operated his own business on Espino’s premises during the same period. At some point the Debtor brought a labor proceeding against Espino in state court for improper termination of employment. The record is less than clear on the path of that labor proceeding, but it began with a claim of approximately $27,000 before the Debtor commenced his bankruptcy case. It ended during the chapter 13 with a final judgment against Espino in an amount exceeding $39,000, including interest.

The Debtor’s chapter 13 ease was commenced on May 20, 1997. Espino was not listed as a creditor and did not receive notice of the case, the 341 meeting, the claims bar date, or the Debtor’s plan. The plan, which was later amended, was initially confirmed on November 21, 1997. In early 1998, while unaware of the bankruptcy case, Espino commenced his own state court action against the Debtor. He became aware of the bankruptcy when the Debtor asserted the automatic stay as a bar to that action.

[765]*765Espino filed his first proof of claim (“claim 7”) on February 3, 1999, in the amount of $36,667.86, including principal of $27,576.80 and interest through the date of bankruptcy at 12% per year. He did not use the official proof of claim form. Claim 7 gives no basis for the debt and asserts no judgment or security interest. At the time Espino filed claim 7, he also sought to dismiss the Debtor’s case on grounds that he never received notice of bankruptcy. That motion was not granted. Fifteen months later, on May 8, 2000, Espino filed a second claim (“claim 8”) in amount of $45,128.35. Claim 8 is on the official proof of claim form. It shows “rent, deficit on sales, automobile” as the basis of the debt, and security by right of setoff.

In September, 2000, Espino filed a motion seeking to allow the setoff of his claims against the Debtor’s state court judgment and a motion seeking to enjoin the Debtor from collecting that judgment pending determination of his claims. Both motions were denied without prejudice.

On October 2, 2000, the Debtor filed objections to claims 7 and 8. The objection to claim 7 stated, “[cjlaim number 7 was filed untimely. The bar date was October 7, 1997 and the same was filed on February 3, 1999.” The grounds for objection to claim 8 were that no notice of it was given to the Debtor and no evidence was “attached to support its security.” No response was filed by Espino and both claims were disallowed by order dated November 8, 2000.

On July 6, 2001, Espino filed a belated response to the Debtor’s objections to his claims and asked that his state court action against the Debtor be deemed an informal proof of claim. In the alternative, he asked that the chapter 13 be dismissed or that his claim be treated as a secured claim. In a written order entered on August 24, 2001 (the “show cause order”), the bankruptcy court determined, among other things, that: (1) Espino’s late response to the Debtor’s claims objection should be taken as a motion to reconsider the disallowance of Espino’s claim under Fed. R. Bank P. 3008; (2) Espino appeared to have a claim in the amount of $36,667.86 arising from a state court judgment for unpaid rent and interest accrued; (3) Espino’s claims were filed after the bar date; (4) Espino had not been listed as a creditor and had no notice of the filing of the bankruptcy case, the 341 meeting, or the hearing on confirmation; (5) Espino had not provided evidence of a perfected security interest; and (6) Espino had failed to establish a right of setoff under 11 U.S.C. § 553. That order also required the Debt- or and Espino “to show cause, if any, there be, within 20 days from notice of this order, why the claim should not be allowed as an unsecured claim for the amount filed, and to find that there was excusable neglect in its late filing because Mr. Espino did not receive adequate notice of the bar date to file claims.”

The Debtor’s response to the show cause order stated that Espino was not listed on the bankruptcy schedules as a creditor because Espino had no claim against the Debtor on the petition date; Espino’s state court action was commenced nine months after the bankruptcy case; Espino’s action was retaliatory; Espino’s claim was an effort to set off his claim against the state court judgment in the labor case “which amounts to $28,927.00 plus interest;” and that there was no state court judgment supporting Espino’s claim.

Shortly after filing his response to the show cause order, the Debtor filed a motion to amend his schedule C to exempt the “possible proceeds of a labor tort action estimated in $27,000 in a future.... At this moment that amount is estimated in $1.00.”

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349 B.R. 762, 2006 Bankr. LEXIS 2304, 2006 WL 2720628, Counsel Stack Legal Research, https://law.counselstack.com/opinion/santos-v-mender-in-re-santos-bap1-2006.