ANTONIO FERNANDEZ and MARTHA FERNANDEZ

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IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF PUERTO RICO

IN THE MATTER OF

ANTONIO A. FERNANDE4 CABALLERO: CASE NO. 04-10585 (SEK)
MARTHA BELTRAN FERNANDEZ,
DEBTORS ; CHAPTER 117

NOREEN WISCOVITCH RENTAS,
TRUSTEE FOR THE ESTATE OF
LASER REALTY, INC.,

PLAINTIFF : ADV. NO. 06-00189
Vv. : BAe tee Oe eat

DEBTORS AND CORUS HARDWARE : FILED & ENTERED

CORPORATION, :
DEFENDANTS ; NOV 3% 980g
2.83, CLERK
BRUNE Ler sone
OPINION AND ORDER a)

There are two related matters pending in the case and this
proceeding: (1) Laser Realty Inc.’s (“Laser”) opposed motion for
leave to file a complaint objecting to the dischargeability of a
debt, and (2) Debtors’ opposed motion to dismiss the complaint
and request for sanctions. Laser’s motion is granted and
Debtors’ is denied for reasons that follow.

Background
Antonio A. Fernandez Caballero and Martha Beltran Fernandez

(“Debtors”) filed for relief under Chapter 11 of the Bankruptcy

AUTHENTICATED / BR

U.S. GOVERNMENT
INFORMATION
GPO

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Code’ on October 14, 2004, and remain debtors in possession. The

deadline for filing complaints to determine the dischargeability

of their debts pursuant to Fed. R. Bankr. 4007(c) was set for

January 21, 2005.

Laser is currently under bankruptcy protection having
initially filed its petition under Chapter 11 on December 15,
2004, Mr. Fernandez, who is its sole shareholder and was its
President, appeared on Laser’s behalf at the first § 341 meeting
of creditors. He answered questions concerning some of Laser’s
financial transactions, which may demonstrate: (1)Laser paid for
Mr. Fernandez’ credit card charges involving his personal
expenses, (2) Laser incurred in $1.4 million debt, the proceeds
of which were apparently used to renovate his home in Dorado,
P.R., (3) at the time Mr. Fernandez was CEO of Laser and while he
was also the sole shareholder of Corus Hardware Corp., Laser
disposed of its inventory, machinery and equipment by
transferring it to Corus Hardware Corp. without consideration,
and (4) Laser assumed Mr. Fernandez’ obligation to pay $2,000,000
for his purchase of Laser’s shares held by his former business
partner, Mr. Venancio Marti.

Laser’s Trustee argued Mr. Fernandez, as Laser’s responsible

officer while under the protection of Chapter 11, did not file

* Unless otherwise indicated, all references to statutory
sections are to the Bankruptcy Reform Act of 1978 (“Bankruptcy
Code”or “Code”) as amended, 11 U.S.C. §§ 101 et seg.

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the complaint objecting to the discharge of debts created by the
questionable financial transactions due to his potential
liability for repayment of these obligations. Hence, Mr.
Fernandez elected not to pursue actions o/b/o of Laser against
himself and his personal financial interests. It was not until
Laser’s bankruptcy case was converted to Chapter 7 and the
Trustee was appointed on November 1, 2005, that the mentioned
transactions were investigated, culminating with the filing of
the captioned adversary proceeding. Hence, by the time the
Trustee came on board the deadline for filing the captioned
complaint had elapsed. Thus, the Trustee contends this Court
should exercise its equitable powers and allow this complaint to
go forward.

Debtors argue its creditors received notice of the deadline
for filing complaints objecting to discharge or dischargeability
of a debt, including Laser. None of Laser’s creditors pursued
the transactions for the benefit of Laser’s estate before the
January 21, 2005 deadline. The U.S. Trustee who “supervised” the
case was aware of the situation and did not initiate proceedings
against the Debtors. The unequivocal language of Rule 4007(c)
establishing the deadline requires that extensions of time to
file these types of proceedings be filed before the expiration of
the initial deadline. The fact that Mr. Fernandez was in charge

of Laser’s affairs until its conversion to Chapter 7, does not

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excuse Laser’s creditors and the U.S. Trustee from filing a

timely proceeding. Hence, there are no reasons for this Court to
exercise its equitable powers and allow the Trustee to proceed
with this complaint.
Facts Derived From the Record of Laser’s Case

Attached Exhibits A & B show Mr.& Mrs. Fernandez did not
schedule Laser as a creditor in their case. The certificate
filed by the Clerk shows Laser was not notified of the last day
to file objections to discharge or the dischargeability of a debt
in the Ferndndez’ case. haser’s first meeting of creditors,
scheduled before the bar for filing the objections in Debtor's
case had elapsed, could not be held as Laser had not filed its
schedules. Minutes of the second meeting held on January 28,
2005, show Laser’s disclosures contained in its schedules were
incomplete, requiring further amendment related to causes of
actions contained in the captioned proceeding. Laser only
amended its schedules after we entered an order to show cause,

and the first amendments were filed on February 23, 2005, after

the deadline for filing objections to discharge and
dischargeability in the Fernandez case had expired. Further,
amendments to Laser’s statement of financial affairs were filed
on March 15, 2005. Laser’s Creditor’s Committee was not

appointed until April 13, 2005, and its Counsel was appointed

about a month later. This Counsel.’s intents at discovery were

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repeatedly rebuffed by Mr. Fernandez, acting as Laser’s
responsible officer while under Chapter 11. Instead of answering
discovery requests, Mr. Fernandez authorized the filing of a
motion to convert Laser’s petition to Chapter 7 without honoring
the subpoena duces tecum requiring him to appear at a 2004
examination to be conducted by Counsel for the Creditor’s
Committee. Eleven days after Laser’ s Trustee was appointed, she
requested the appointment of an accountant, followed by her
request for the appointment of counsel. Three months later,
Laser’s Trustee filed the motion at hand, followed later on by
the £iling of the instant complaint.
Discussion

Fed. R. Bankr. Procedure 4004(a) and 4007{(c) establish the
time constraints for objecting to a debtor’s discharge or to the
dischargeability of a particular debt. The time for commencing
a proceeding to challenge entry of discharge or dischargeability
of a specific debt is the same in both situations: these are to
be filed 60 days after the first date set for the meeting of
creditors under § 341(a). Furthermore, Fed. Rule Bankr. P.
9006(b) (3) states, “The Court may enlarge the time for taking

action under Rules ... 4004(a), 4007{c) ... only to the extent

* The U.S. Supreme Court notes the time constraints in both
rules are identical so that “courts have considered decisions
construing Rule 4007(c) in determining whether the time limits
delineated in Rule 4004 (a) and (b) may be forfeited.” [citations
omitted] Kontrick v. Ryan, 540 U.S. 443, 448 n.3 (2004).

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and under the conditions stated in those rules.” Under 4007(c},

an enlargement of time must be filed before the initial deadline

has expired.
The Supreme Court notes that,

Bankruptcy Rules 4004(a} and (b) over which the
bankruptcy courts have subject-matter jurisdiction,
serve three primary purposes. First, they inform the
pleader, i.e. the objecting creditor, of the time he
has to file a complaint. Second, they instruct the
court of the limits of its discretion to grant motions
for the complaint-filing-time enlargements. Third,
they afford the debtor an affirmative defense to a
complaint filed outside the Rules 4004(a) and

(ob) limits.

Kontrick v. Ryan, 450 U.S. 443, 456, 124 S. Ct. 906, 157 L.Ed.2d
B67 (2004) .?

Here, we are concerned with the first purpose and second purpose

of Rule 4007 (c).
The first purpose involves constitutional due process.

Due process requires notice reasonably calculated,
under all circumstances, to apprise interested parties
of the pendency of the action and afford them an
opportunity to present objections. [citations omitted]
Notice need not be perfect but reasonably based on the
circumstances of the case, [citations omitted}
Creditors in bankruptcy cases are entitled to the due
process rights granted under the Fifth Amendment.
[citations omitted].

In re Eaton, 327 B.R. 79, 82-82 (Bankr. NH 2005).

The facts here show Mr. and Mrs. Fernandez, acting as

3. The opinion of Kontrick v. Ryan, 540 U.S. 443, 124 S. Ct.
906, 157 L. Ed.2d 867 (2004) settled the debate on whether the
deadlines set by Fed. Rules Bankr. P. 4004(a) and 4007(c}) affect
subject matter jurisdiction of the court. It did not address
whether these rujles of prescription could be subject to
equitable tolling. See n.11 at p. 458.

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debtors in possession in the captioned case, did not schedule
Laser as their creditor. Hence, Laser, its creditors and the
U.S. Trustee, never received notice of the Rule 4007(c) deadline.
Furthermore, the record of the Laser’s case shows Mr. Fernandez
engaged in evasive tactics to prevent and delay any investigation
of his financial transactions with Laser. These actions caused
further delay in the filing of the captioned adversary
proceeding. Under these circumstances, the estate of Laser
represented by the Trustee can not be bound by Rule 4007{(c)’s
prescribed time limit. Given this ruling, we do not need address
the Trustee’s second point: should we permit equity to trump the
filing deadline set by Fed. R. Bankr. P. 4007{c).

WHEREFORE, we grant the Trustee’s motion for leave to file a
complaint to determine the dischargeability of certain debts
under § 523(c) and deny Defendant’s motion to dismiss the
complaint filed under adversary proceeding number 06-189.

SO ORDERED, in San Juan, to Rico, on November 3, 2006.

Je. 7

ARA DE sus
U.SA Bankruptcy Judge

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Exhibit A-1

Summary of Events Taken From The Record of Bankruptcy
Case Nbr.04-10585 SEK) filed by Mr. & Mrs. Fernandez

1. 10/14/04 - Debtors filed voluntary Chapter 11 petition,
without schedules and did not list Laser Realty, Inc. as a
creditor for purposes of noticing.

2. 10/20/04 - Clerk scheduled first meeting of creditors, and
notified last day to object to discharge as 1/21/05. This

notice was not sent to Laser Reality, Inc.

3. 11/22/04 - Debtors did not attend the 341 meeting.

4, 11/24/04 - U.S. Trustee filed a motion to dismiss for failure
to file schedules and appear at the § 341 meeting of
creditors and produce other information.

5. 12/29/04 - Court ordered debtors to disclose interest in
corporations and file operating reports for October and
November ‘04.

6. 2/14/05 - Court entered order to show cause why case should
not be converted to 7 for a series on non compliance with
court orders and requests by U.S. Trustee re production of
documents.

7. 3/7/05 - U.S. Trustee’s request for disqualification of
Charles Cuprill’s law firm due to an adverse interest.

8. 5/19/05 - Debtors filed a disclosure statement and plan.

9. 8/17/05 —- Debtors filed an amended disclosure statement and

amended plan.

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Exhibit A-2

10. 10/4/05 - Laser’s Creditors Committee filed a motion for

leave to intervene in the case containing allegations similar to

those raised in complaint filed as adversary proceeding 06-198.

11. 10/7/05 - Laser’s Creditors Committee also objected to
approval of the disclosure statement.

12. 11/30/05 - Debtors filed a second amended disclosure
statement and plan.

13. 12/28/05 - Order entered approving second amended disclosure
statement, and scheduling hearing on confirmation for
3/9/06,

14. 2/10/06 - Debtors filed a second amendment to the proposed
plan.

15. 2/27/06 - Laser’s Trustee filed a ballot rejecting the plan
and a motion objecting to its confirmation.

16. 3/08/06 - Laser’s Trustee filed motion for leave to file
complaint objecting to dischargeability of certain debts
under § 523(c).

17. 3/16/06 - Debtors opposed Trustee’s request.

18. 4/6/06 - Debtors filed a motion to confirm the plan via
cramdown under § 1129(b).

19. 4/07/06 - Debtors filed objections to Laser’s proofs of

claims #5 12 & 16.

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Exhibit A -3

20. 4/27/06 - Debtors filed a second amendment to the proposed
plan.

21. 5/3/06 - Laser’s Trustee objects to the cramdown.

22. 5/4/06 - Debtors file a third amendment to the proposed
plan.

23. 5/18/06 - Order referring U.S. Trustee's request to
disqualify Charles Cuprili law firm to Judge Deasy.

24. 6/16/06 - Stipulation settling the disqualification of
Cuprill was filed and approved by Judge Deasy on 6/20/06.

25. 7/13/06 - Debtors application to employ special counsel to
deal with dischargeability and other counts of adv. proc,
06-189.

26. 7/27/06 - Order approving appointment of special counsel

entered.

27, 9/15/06 - Debtors filed revised liquidation analysis.

28. 9/25/06- Laser’s Trustee filed adversary proceeding 06-189,
challenging the dischargeability of Laser’s debts and using
her strong arm powers to avoid transfers.

29. 10/10/06 - Trustee filed a motion requesting the
consolidation of the objections to claims 12 & 16 with the
adversary proceeding 06-198.

30. 10/11/06 - Debtors filed a motion to dismiss adv. nbr. 06-

189,

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Exhibit B-1

Summary of Events Taken From the Record of
Bankruptcy Case Nbr. 04-12634 (SEK)

1. Antonio Ferndndez and spouse Martha Ferndndez are the sole
shareholder of Laser Realty Corp, a/k/a/ Insular Wire
Products, Inc. Mr. Fernandez is its President and CEO.

2. 12/15/04 ~ Laser Realty, Inc. filed voluntary Chapter 11
petition without schedules and remained a debtor in
possession.

3. 1/20/05 ~ Date scheduled first meeting of creditors which was
not held.

4, 1/26/05 - Debtor filed schedules.

9. 1/28/05 ~ Meeting of creditors held. Minutes show Debtor
would amend schedules to include causes of action against
(1) Interworld; (2) disclose accounts receivables against
Antonio Fernandez for payments made to Mr. Venancio Marti on
his behalf ($360,000).

6. 2/14/05 = Entry of Order to Show cause why case should not
converted to 7.

7. 2/23/05 - Debtors amended schedules B, F, G.

8. 3/15/05 - Debtor filed an amended statement of financial
affairs.

9. 4/13/05 - U.S. Trustee appointed a Creditors Committee.

10. 5/24/05 ~ Creditors Committee filed an application for
appointment of counsel which Court approved on 6/21/05.

li. 8/4/05 - Creditors Committee sought leave to conduct a 2004

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Exhibit B -2

examination of Mr. Fernandez, that was opposed by Fernandez
on 8/16/05. We denied the opposition on 8/23/05.

12. 10/7/05 - Debtor filed a motion to convert the case to
Chapter 7.

13. 10/12/05 - Creditors’ Committee filed a motion to compel
Fernandez attendance at 2004 exam and produce documents.

14. 11/1/05 ~- Wiscovitch appointed as trustee substituting Mr.
Zerbe.

15. 11/11/05 - Trustee requests appointment of Lugo Mender as
accountant for the estate. Court granted the request on
11/15/05.

16. 11/17/05 - Trustee filed an application to employ law firm

of O'Neill and Gilmore as special counsel for the estate, to

advise Trustee on matters concerning objection to claims,
dischargeability and transfers. Order approving appointment
entered on 11/ 18/05.

17. 2/01/06 - Trustee filed adv. 06-33, a declaratory judgment
to evict Corus (a corporation where Mr. Fernandez owns 50%
of the outstanding stock) and collect rent. We dismissed
the complaint because building was sold by Trustee and new
owner did not pursue the eviction. We sent the request for
rent and expenses to arbitration pursuant to contractual

clause.

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Exhibit B-3

18. 3/14/06 - Special counsel seeks to expand scope of

engagement. Court granted the request on 4/10/06.

20. 5/10/06 - U. S. Trustee’s filed request for disqualification
of Charles Cuprill’s law firm due to an adverse interest re
Marti payment. Order referring it to Judge Deasy entered on
5/18/06. Settled by stipulation filed on 6/16/06 and

approved on 6/20/06.