Where a debtor filed a motion for fees and costs following the dismissal of an involuntary Chapter 11 petition, the fee motion was untimely, so an order denying that motion should be affirmed.
“These consolidated appeals stem from a Chapter 11 involuntary bankruptcy petition that appellee Banco Popular de Puerto Rico (‘Banco Popular’) filed in 2006 seeking to compel appellant Edgar Reyes-Colon into bankruptcy. The procedural posture of each appeal is slightly different, although both are appeals from district court decisions connected to the underlying bankruptcy case. First, Reyes-Colon appeals from the district court’s decision affirming the bankruptcy court’s determination that it did not have subject-matter jurisdiction over Reyes-Colon’s post-dismissal motion for fees and costs (Case No. 22-1706). Second, Reyes-Colon appeals from the district court’s decision denying his motion for withdrawal of reference filed in a separate adversary proceeding (Case No. 22-1715). With respect to the first case, we conclude that the bankruptcy court had jurisdiction over the fee motion but that the fee motion was untimely, and accordingly, we affirm. As to the second case, we conclude that the district court erred in denying the motion for withdrawal of reference as untimely and therefore vacate and remand to the district court for further consideration of Reyes-Colon’s motion for withdrawal of reference. …
“Reyes-Colon argues that the bankruptcy court had post-dismissal jurisdiction over the §303(i) motion while Banco Popular argues that the bankruptcy court could only have such jurisdiction if it provided a jurisdiction-retention statement in its dismissal order. Contrary to the parties’ assertions, there is no directly on-point case law to guide us in resolving this particular issue. The question of whether a bankruptcy court has jurisdiction over post-dismissal §303(i) motions without first providing a specific statement retaining jurisdiction over such motions is a matter of first impression in this Circuit. … We hold that a bankruptcy court has post-dismissal jurisdiction over §303(i) motions in these circumstances. In other words, although the bankruptcy court in this case did not provide an explicit jurisdiction-retention statement in its order dismissing the involuntary petition, it still had jurisdiction over Reyes-Colon’s attorney’s fees motion made pursuant to §303(i)(1).
“Banco Popular insists that dismissal or closure of an underlying bankruptcy petition necessarily results in the termination of the bankruptcy court’s jurisdiction over all future matters, including §303(i) motions. We adopt no blanket rule providing that all jurisdiction terminates at dismissal of the underlying bankruptcy petition. Rather, the question of post-dismissal (or post-closure) jurisdiction is a case- and fact-specific inquiry. Post-dismissal jurisdiction depends on the basis for jurisdiction over the proceeding and the specific circumstances and nature of the proceeding itself. …
“For these reasons, a bankruptcy court need not provide a jurisdiction-retention statement referring to §303(i) claims to later exercise subject-matter jurisdiction over the same post dismissal. Thus, the bankruptcy court erred in concluding that it did not have subject-matter jurisdiction over the post-dismissal §303(i) attorney’s fees motion. …
“Although the bankruptcy court did not address timeliness of the fee motion, because the district court included timeliness in its affirmance, we address timeliness to clarify the law and affirm on this basis. …
“… Because his motion was filed 365 days after mandate issued, it was undeniably untimely. Accordingly, we affirm the dismissal of Reyes-Colon’s attorney’s fees motion. …
“As an initial matter, we have jurisdiction over Reyes-Colon’s appeal from the district court’s decision to deny the motion for withdrawal. …
“Here, Reyes-Colon first initiated the claim on June 18, 2020, when he filed the bad-faith complaint in the involuntary-petition case. Eleven days later, he initiated the adversary proceeding, and one day after that he filed the motion for withdrawal. Thus, a mere twelve days after first raising his bad-faith claim, before any litigation over the complaint had begun, Reyes-Colon requested that the case be transferred to district court. On these facts, we are confident that the motion for withdrawal was timely.
“Accordingly, the district court’s denial of the motion for withdrawal on the basis of timeliness is vacated and the case is remanded for the court to assess whether there is cause to withdraw the reference. … Finally, we note that the district court also erred in dismissing the adversary proceeding with prejudice after denying the motion for withdrawal. As explained above, the motion for withdrawal of reference relates only to which court will adjudicate an issue, not the underlying merits of the case. … If a district court denies a motion for withdrawal of reference, the case remains in bankruptcy court. Thus, if, on remand, the district court determines that there is no cause for withdrawal and again denies the motion for withdrawal, the district court’s work ends and the adversary proceeding must return to the bankruptcy court. …
“For the foregoing reasons, we affirm the bankruptcy court’s denial of the motion for attorney’s fees, vacate the district court’s denial of the motion for withdrawal of reference, and remand to the district court for further consideration of the motion for withdrawal consistent with this opinion. The parties shall bear their own costs on appeal.”
Reyes-Colón v. Banco Popular de Puerto Rico, et al. (Lawyers Weekly No. 01-158-24) (27 pages) (Montecalvo, J.) Appealed from the U.S. District Court for the District of Puerto Rico (Docket Nos. 22-1706 and 22-1715) (Aug. 1, 2024).
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