Reyes-Colon v. Banco Popular de Puerto Rico et al

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF PUERTO RICO
EDGAR REYES-COLON,
Plaintiff,
v.
BANCO POPULAR DE PUERTO RICO, et al.,
Defendants.
CIVIL NO. 20-1355 (JAG)
OPINION AND ORDER
GARCIA-GREGORY, D.J.
Pending before the Court is Plaintiff Edgar A. Reyes-Colon’s (“Plaintiff” or “Reyes-Colon”)
Motion for Withdrawal of Bankruptcy Reference (the “Motion”). Bankr. No. 6-4675; Adv. P. 20-
0092,1 Docket No. 3. Plaintiff seeks to withdraw the reference of an adversary proceeding filed on
June 29, 2020, against Banco Popular de Puerto Rico and Popular Auto (collectively “Banco
Popular”). Docket No. 1; AP 20-0092, Docket No. 1. For the reasons stated below, the Court
GRANTS Plaintiff’s Motion.
BACKGROUND
The present case stems from a complex and prolonged litigation that initiated in 2005 in
Puerto Rico state court. See Bankr. No. 6-4675, Docket No. 844 at 4; AP 20-0092, Docket No. 1. On
November 22, 2006, Banco Popular filed an involuntary petition against Plaintiff. Bankr. No. 6-
4675, Docket No. 1. On September 2, 2016, the Bankruptcy Court dismissed the involuntary
1 Adversary Proceeding No. 20-0092 will be cited as “AP 20-0092.”
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petition for non-compliance with 11 U.S.C. § 303(b)(1) of the Bankruptcy Code. Bankr. No. 6-4675,
Docket No. 722. On August 11, 2017, the U.S. District Court reversed the Bankruptcy Court’s
dismissal order. Bankr. No. 6-4675, Docket No. 782; Civ. No. 16-2638(GAG), Docket No. 29. On
April 24, 2019, the U.S. Court of Appeals for the First Circuit reversed the District Court and
affirmed the Bankruptcy Court’s dismissal order, and issued the corresponding mandate on June
20, 2019. Popular Auto, Inc. v. Reyes-Colon (In re Reyes-Colon), 922 F.3d 13, 20 (1st Cir. 2019); Civ. No.
16-2638, Docket Nos. 45, 47. On August 7, 2019, the bankruptcy case was closed. Bankr. No. 6-
4675.
On June 18, 2020, following the First Circuit’s order affirming the Bankruptcy Court’s
dismissal of the involuntary petition, Reyes-Colon requested attorney’s fees, costs, damages, and
punitive damages under § 303(i) of the Bankruptcy Code. Bankr. No. 6-4675, Docket Nos. 843,
844. The § 303(i) claims were later refiled as AP 20-0092, in which Reyes-Colon requested the
withdrawal of reference.2 Id.; Docket No. 858; AP 20-0095, Docket Nos. 1, 3.
2 The Court notes the First Circuit’s footnotes 4 and 6. Reyes-Colon v. Banco Popular de P.R., 110 F.4th 54, 61-
62 n.4, n.6 (1st Cir. 2024). As the First Circuit explained, the claim before the Court was originally filed in
the involuntary petition case, Bankr. No. 6-4675. The bankruptcy court then entered the following order
“NOTICE OF CORRECTIVE ENTRY: Incorrect Event was used. Party must re-file correctly under
Adversary/Complaint.” Bankr. No. 6-4675, Docket No. 850. Thus, the claim was refiled as an adversary
proceeding. Id. In footnote 4 of Reyes-Colon, the First Circuit notes two cases that “held that § 303 (i)
requests must be made within the involuntary-petition case itself.” 110 F.4th at 61 n.4. The first case was
Glannon v. Garrett & Assocs., Inc., 261 B.R. 259, 267 (D. Kan. 2001), in which Plaintiff filed a second § 303(i)
action in the District Court while there was a pending parallel case regarding plaintiff’s section § 303(i)
claim. The Glannon court noted that it “could find no case where section 303(i) sanctions were requested
as a separate cause of action in a proceeding separate and apart from the underlying bankruptcy
proceeding.” Id. (cleaned up). Glannon is thus inapplicable to the present controversy because Reyes-Colon
initiated his § 303(i) claims in the underlying bankruptcy proceeding and no independent cause of action
has been filed in the District Court. See Docket Nos. 1, 2, 3; Bankr. No. 6-4675, Docket Nos. 843, 850; AP
20-0095, Docket Nos. 1, 3. The second case cited by the First Circuit is Graber v. Fuqua, 279 S.W.3d 608, 610
(Tex. 2009), which involved a claim filed in state court by the debtor of a voluntary Chapter 7 petition for
an adversary claim that a creditor had filed against him as voluntary debtor. Id. at 615. As such, Graber is also
inapplicable because here Plaintiff is an involuntary debtor as required by § 303 and initiated his claim in
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On July 6, 2020, the Bankruptcy Court denied Plaintiff’s § 303(i) claims, concluding it did
not retain jurisdiction to resolve the matters raised, and transmitted AP 20-0092 to this Court for
a decision on the request for withdrawal of reference. Bankr. No. 6-4675, Docket No. 863; AP 20-
0092, Docket No. 5. On August 30, 2021, this Court affirmed the Bankruptcy Court’s denial of
Plaintiff’s motion for attorney fees and costs under § 303(i)(1). Docket No. 54. On August 10, 2022,
this Court denied Plaintiff’s motion for withdrawal of reference. Docket No. 67. On August 2,
2024, the First Circuit affirmed the Bankruptcy Court’s denial of the motion for attorney’s fees,
vacated the District Court’s denial of the motion to withdraw reference, and remanded the case
to this Court for further proceedings related to the motion to withdraw reference and the §
303(i)(2) claims. Docket No. 94.
ANALYSIS
“The district court may withdraw, in whole or in part, any case or proceeding referred
under this section, on its own motion or on timely motion of any party, for cause shown.” 28 U.S.C.
§ 157(d). “Under this statute, withdrawal of reference may be mandatory or discretionary.” Ponce
bankruptcy court. Moreover, Banco Popular did not raise any arguments as to the bankruptcy court’s
corrective order and, therefore, any argument related to the corrective order was waived long ago.
Additionally, other courts have allowed § 303(i) claims to be filed as adversary proceedings because they
relate to a contested matter that does not affect the property of the estate. See McMillan v. Schmidt (In re
McMillan), 614 Fed. App’x. 206, 210 (5th Cir. 2015) (holding a § 303(i) claim was properly brought as an
adversary proceeding under Rule 7001); Mont. Dep’t of Revenue v. Blixseth (In re Blixseth), 112 F.4th 837, 847 (9th
Cir. 2024) (“Blixseth subsequently brought an adversary proceeding against the State under § 303(i)
seeking attorneys’ fees and costs, proximate and punitive damages, and sanctions against counsel.”); DVI
Receivables XIV, LLC v. Rosenberg (In re Rosenberg), 779 F.3d 1254, 1260 (11th Cir. 2015) (related to an adversary
proceeding under § 303(i)); Nat’l Med. Imaging, LLC v. U.S. Bank, N.A. (In re Nat’l Med. Imaging, LLC), 818 Fed.
App’x. 129, 132 (3rd Cir. 2020) (“Both NMI and Rosenberg brought separate adversary actions against the
creditors, relying on 11 U.S.C. § 303(i)(2).”); In re Dean, 359 B.R. 218, 222 (Bankr. C.D. Ill. 2006) (“Several
courts have held that if a party seeks recovery of damages . . . this falls within Rule 7001(1) and the matter
should be brought as an adversary proceeding.”).
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Marine Farm v. Browner (In re Ponce Marine Farm), 172 B.R. 722, 723 (Bankr. D.P.R. 1994). “The purpose
of mandatory withdrawal of reference is to assure that only Article III Judges determine issues
requiring more than a routine application of federal statutes outside the Bankruptcy code.” Id. at
724. “Accordingly, mandatory withdrawal of reference is proper only where resolution of the
adversary proceeding involves substantial and material consideration of non-bankruptcy federal
[statutes].” Id. “[T]he test for ascertaining whether permissive withdrawal is proper requires a
court to resolve whether ‘cause’ exists.” Id. In this context, “a district court should consider the
efficient use of judicial resources, delay and costs to the parties, uniformity of bankruptcy
administration, the prevention of forum shopping, and other related factors when the motion is
for cause.” Reyes-Colon v. Banco Popular de P.R., 110 F.4th 54, 68 (1st Cir. 2024) (citations omitted).
Plaintiff’s main argument to withdraw reference is that he has the right to a jury trial under
the Seventh Amendment of the U.S. Constitution. Docket No. 1; see also AP 20-0092, Docket No. 1.
Courts tasked with determining if the Seventh Amendment applies to controversies arising under
or related to Title 11 of the Bankruptcy Code have followed the four-prong test established by the
Supreme Court in Granfinanciera v. Nordberg, 492 U.S. 33, 42, 51-52 (1989). See also Glannon v. Carpenter
(In re Glannon), 245 B.R. 882, 889 (D. Kan. 2000); Moyer v. Koloseik (In re Sutton), 470 B.R. 462, 472
(Bankr. W.D. Mich. 2012); Nat’l Med. Imaging, LLC v. DVI Receivables XIV, LLC, 2016 U.S. Dist. LEXIS
117973, *20 (E.D. Pa. 2016). Under this test, courts must examine the matter as follows:
First, the proceeding must be one which would have been
considered an action at law in the courts of England prior to the
merger of the courts of law and equity. Actions to enforce statutory
rights that are analogous to common law actions ordinarily decided
in English law courts are sufficient to meet this prong. Second, the
remedy sought must be legal in nature. Third, the proceeding must
involve private rights, rather than public rights developed by
Congress to be determined solely by a non-Article III adjudicative
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CIVIL NO. 20-1355 (JAG) 5
body. Fourth, the petitioner must not have filed a claim against the
estate.
In re Glannon, 245 B.R. at 889 (cleaned up).
I. Motion for Withdrawal of Reference
Here, the Granfinanciera four prong test is met. The first prong is met because a claim for §
303(i)(2) damages is analogous to the common law claim for malicious prosecution. The second
prong is also met because Plaintiff’s action solely seeks money damages and actions solely seeking
to recover money damages are actions at law. See Granfinanciera, 492 U.S. at 48-49. Third, Plaintiff’s
suit involves private rights since it seeks compensation for alleged damages done to him as an
involuntary debtor, the involuntary petition has been dismissed, and thus any determination in
this case will not affect the bankruptcy estate. See Germain v. Conn. Nat’l Bank, 988 F.2d 1323, 1331
(2nd Cir. 1993) (“The suit seeks compensation for damage done. It has nothing to do with the
essence of the bankruptcy regulatory scheme of allowing or reordering claims.”). Lastly, Plaintiff
never voluntarily submitted himself to the jurisdiction of the Bankruptcy Court; he was brought
involuntarily by Banco Popular. See Bankr. Case No. 6-4675, Docket Nos. 1, 6, 11. Accordingly,
Plaintiff’s Seventh Amendment right constitutes cause to withdraw the reference for his §
303(i)(2) claims.
II. Banco Popular’s Arguments
Banco Popular does not address the Granfinanciera test. Instead, it argues that (1) Plaintiff
lacks a Seventh Amendment right to trial by jury since he is domiciled in and a resident of Puerto
Rico; (2) even if Plaintiff has a Seventh Amendment right to trial by jury, he waived such right;
and (3) since “Reyes-Colon’s grounds for withdrawal of the reference are completely anchored on
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his alleged right to a jury trial under 28 U.S.C. § 157(e) . . . [he] has waived argument on the section
157(d) factors to determine cause for withdrawal of the reference because he failed to address it
in his initial motion.” Docket No. 99 at 3-4, 7. The Court shall address each argument in turn.
A. Seventh Amendment Right to Trial by Jury
Even though Plaintiff squarely meets the Granfinanciera four prong test, Banco Popular
argues that Plaintiff lacks a Seventh Amendment right to trial by jury because he is domiciled in
and a resident of Puerto Rico. Docket No. 99 at 3-4. Per Banco Popular, Plaintiff does not have a
right to trial by jury in this matter under Balzac v. Porto Rico, 258 U.S. 298 (1922). Specifically, Banco
Popular argues that “Puerto Ricans are not protected by the Seventh Amendment in federal civil
proceedings” and “Puerto Ricans do not have a constitutional right to a jury trial in federal civil
cases.” Docket No. 99 at 3. The Court disagrees.3
The Court finds Balzac to be distinguishable and inapposite to the present case. Balzac’s
holding related to a criminal defendant’s Sixth Amendment Right to a jury trial in a misdemeanor
case brought by the Puerto Rico government in Puerto Rico’s local court. By contrast, the present
controversy centers on a federal civil litigant’s claim to a jury trial in a case initiated in federal
court and arising out of federal law. See Reid v. Covert, 354 U.S. 1, 14 (1957) (“[I]t is our judgment
that neither the [Insular Cases] nor their reasoning should be given any further expansion.”);4
3 The Court is aware of the First Circuit’s footnote 18 stating “we note with chagrin that Puerto Rican
residents are not protected by the right to a trial by jury” and citing in support Judge Torruella’s
concurrence in United States v. Cotto-Flores, 970 F.3d 17, 50 (1st Cir. 2020). Reyes-Colon, 110 F.4th at 68 n.18.
Nevertheless, for the reasons explained in this Opinion and Order, the Court finds such statement to be
inapplicable to the present controversy.
4 In Reid, the Supreme Court explained
The “Insular Cases” can be distinguished from the present cases in that
they involved the power of Congress to provide rules and regulations to
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United States v. Verdugo-Urquidez, 494 U.S. 259, 291 (1990) (Brennan, J., dissenting) (“The Insular
Cases are likewise inapposite. The Insular Cases all concerned whether accused persons enjoyed the
protections of certain rights in criminal prosecutions brought by territorial authorities in
territorial courts. These cases were limited to their facts long ago and they are of no analytical
value when a criminal defendant seeks to invoke the Fourth Amendment in a prosecution by the
Federal Government in a federal court.”) (cleaned up); Jacob v. New York City, 315 U.S. 752, 752-53
(1942) (“The right of jury trial in civil cases at common law is a basic and fundamental feature of
our system of federal jurisprudence which is protected by the Seventh Amendment. A right so
fundamental and sacred to the citizen, whether guaranteed by the Constitution or provided by
statute, should be jealously guarded by the courts.”); Mitsui & Co. v. P.R. Water Res. Auth., 558 F. Supp.
116, 117 (D.P.R. 1983) (“Mitsui alleges that there seems to still exist a lingering doubt about
whether the Seventh Amendment even applies with its full constitutional force to trials
conducted in the Federal District Court in Puerto Rico. That doubt stopped lingering in 1976
when the First Circuit Court of Appeals in La Forest v. Las Fuentes Fluviales de P.R., 536 F.2d 443, 446
govern temporarily territories with wholly dissimilar traditions and
institutions whereas here the basis for governmental power is American
citizenship . . . Moreover, it is our judgment that neither the cases nor their
reasoning should be given any further expansion. The concept that the Bill
of Rights and other constitutional protections against arbitrary
government are inoperative when they become inconvenient or when
expediency dictates otherwise is a very dangerous doctrine and if allowed
to flourish would destroy the benefit of a written Constitution and
undermine the basis of our Government. If our foreign commitments
become of such nature that the Government can no longer satisfactorily
operate within the bounds laid down by the Constitution, that
instrument can be amended by the method which it prescribes. But we
have no authority, or inclination, to read exceptions into it which are not
there.
354 U.S. at 14.
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(1st Cir. 1976) held that ‘civil plaintiffs in the Federal District Court of Puerto Rico are entitled
under the Seventh Amendment to a trial by jury.’”); see also United States v. Santiago, 23 F. Supp. 3d
68, 68-69 (D.P.R. 2014) (explaining that in 1966 federal law “transformed the territorial Article IV
federal district court in Puerto Rico to a constitutional Article III one” and “[t]he Supreme Court
subsequently recognized the Article III status of this court. The reason given for this [law] was
that the Federal District Court in Puerto Rico is in its jurisdiction, powers, and responsibilities
the same as the U.S. district courts in the (several) states.”) (cleaned up).
Banco Popular’s argument also fails to explain how or why the holdings in the Insular
Cases,5 related to the administration of new territories, extends to a controversy in federal court
arising out of the Bankruptcy Code. See id.; see also Docket No. 99 at 3-4. Furthermore, Banco
Popular ignores the fact that
[t]hough Puerto Rico does not use juries for civil questions, it is well
established that the Seventh Amendment most decidedly affords
litigants in federal court in Puerto Rico the right to trial by jury.
Even in diversity cases applying Commonwealth law, then, it is
federal law that must control the division of responsibility between
judge and jury.
Pérez-Pérez v. Hosp. Episcopal San Lucas, Inc., 113 F.4th 1, 8 (1st Cir. 2024) (cleaned up); see also Byrd v.
Blue Ridge Rural Elec. Coop., 356 U.S. 525, 538 (1958) (“It cannot be gainsaid that there is a strong
federal policy against allowing state rules to disrupt the judge-jury relationship in the federal
5 “The ‘Insular Cases,’ which arose at the turn of the century, involved territories which had only recently
been conquered or acquired by the United States. These territories, governed and regulated by Congress
under Art. IV, § 3, had entirely different cultures and customs from those of this country. This Court,
although closely divided, ruled that certain constitutional safeguards were not applicable to these
territories since they had not been ‘expressly or impliedly incorporated’ into the Union by Congress. While
conceding that ‘fundamental’ constitutional rights applied everywhere, the majority found that it would
disrupt long-established practices and would be inexpedient to require a jury trial after an indictment by
a grand jury in the insular possessions.” Id. at 13.
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courts.”); Wright v. Paramount-Richards Theatres, Inc., 198 F.2d 303, 305 (5th Cir. 1952) (“[I]n federal
courts the principle just adverted to must give way to the overriding consideration that the federal
court is bound by the Seventh Amendment to the Constitution of the United States.”). As such,
considering the Seventh Amendment is afforded to Puerto Rican litigants in federal court—even
to those asserting diversity jurisdiction— a fortiori it must also be afforded here.
B. Waiver of Seventh Amendment Right to Trial by Jury
Banco Popular’s second argument is also unavailing. Banco Popular argues that even if
Plaintiff has a Seventh Amendment right in this case, he waived such right because he did not
request a jury trial
before the filing of his bad faith complaint and motion for
withdrawal of the reference. In fact, even when the involuntary
bankruptcy action commenced in 2006, Reyes-Colon waited
almost four years after the case was dismissed to demand a jury trial
for the first time on his bad faith complaint for damages under 11
U.S.C. § 303(i).
Docket No. 99 at 5. Banco Popular supports its claim by contending that Plaintiff is
conceptually confused as waiver and timeliness are distinct issues.
One thing is whether the motion for withdrawal of the reference
was timely filed, and another is whether Reyes-Colón waived the
right to trial by jury by failing to request it in his initial pleadings in
the underlying bankruptcy court case under Puerto Rico Local
Bankruptcy Rule 9015-1 and Fed. R. Civ. P. 38. Reyes-Colón
overlooks that any remedies under § 303(i) are part and parcel of the
underlying involuntary bankruptcy proceeding and are not
considered an independent claim for relief.
Docket No. 107 at 5 (cleaned up). Put simply, Banco Popular argues that Plaintiff waived his right
to a jury because he did not request a jury trial for his § 303(i) claims in his motions to dismiss the
involuntary bankruptcy. Docket No. 99 at 5-7; see also Bankr. No. 6-4675, Docket Nos. 6, 11.
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However, this argument fails because, as the First Circuit explained, the “purpose [of §
303(i)] does not become ripe unless and until dismissal has occurred.” Reyes-Colon, 110 F.4th at 65-
66 (explaining that a § 303(i) claim necessarily requires post-dismissal jurisdiction.).6 Therefore,
Reyes-Colon could not have a valid § 303(i)(2) claim until after the involuntary bankruptcy was
dismissed. It would be absurd to require a litigant to make a jury demand before he has a valid
claim to plead. Regardless, Banco Popular insists that Plaintiff’s motions to dismiss “triggered
Reyes-Colon’s 14-day term to file and serve a jury trial demand” because the “two pleadings–
served as motions to dismiss–were not only intended to be dispositive of the lawsuit but were
‘directed to the issue’ of costs, attorney’s fees, and damages under section § 303(i).” Docket No. 99
at 5; see also Bankr. No. 6-4675, Docket Nos. 6, 11.7
Following the First Circuit’s holding in this case, if a § 303(i) claim is not ripe before
dismissal, then the appropriate time to raise such claim must be after dismissal. As such, Reyes-
6 In Reyes-Colon, the First Circuit found:
The purpose of § 303(i) is not negated by dismissal of the underlying
bankruptcy case; indeed, its purpose does not become ripe unless and
until dismissal has occurred. Further, nothing in the Bankruptcy Code
mandates dismissal of a § 303(i) motion simply because the bankruptcy
petition has been dismissed. Instead, the opposite is true. No part of §
[303(i)] suggests that a claim exists only while the bankruptcy case
remains pending. And when Congress listed the effects of dismissing a
bankruptcy case, it included nothing about automatically terminating the
court’s jurisdiction over post-dismissal § 303(i) requests. It makes sense
that a bankruptcy court would retain jurisdiction over a § 303(i) claim
because that section necessarily requires post-dismissal jurisdiction.
110 F.4th at 65-66 (cleaned up).
7 “11 U.S.C. § 303(i) provides that if the court dismisses a petition under Section 303 other than on consent
of all petitioners [in this case BPPR] and the debtor and if the debtor does not waive the right to judgment,
the Court may grant judgment against the petitioners and in favor of the debtor for costs; or a reasonable
attorney’s fees; or against any petitioner that filed the petition in bad faith for any damages proximately
caused by such filing, or punitive damages.” Bankr. No. 6-4675, Docket No. 6 (emphasis added).
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Colon cannot waive his right to a jury trial for a § 303(i)(2) claim before the pleading can legally
be made. See Reddy v. Foster, 845 F.3d 493, 500 (1st Cir. 2017) (“The Supreme Court has reinforced
that ripeness doctrine seeks to prevent the adjudication of claims relating to contingent future
events that may not occur as anticipated, or indeed may not occur at all.”); see also Herbert v.
Dickhaut, 695 F.3d 105, 109 (1st Cir. 2012) (“There can be no waiver where a party lacked an
opportunity to raise an argument.”); Reyes-Colon, 110 F.4th at 66 n.14 (explaining that a party
cannot waive an objection to an issue that has not been raised). Consequently, if this specific
pleading cannot be made before dismissal, a motion to dismiss cannot be considered “the last
pleading directed to the issue is served.” Docket No. 99 at 5; see also Fed. R. Civ. P. 38(a) (“The
right of trial by jury as declared by the Seventh Amendment to the Constitution—or as provided
by a federal statute—is preserved to the parties inviolate.”); Fed. R. Civ. P. 38(b) (“On any issue
triable of right by a jury, a party may demand a jury trial by: (1) serving the other parties with a
written demand—which may be included in a pleading—no later than 14 days after the last
pleading directed to the issue is served; and (2) filing the demand in accordance with Rule 5(d).).
Accordingly, Reyes-Colon did not waive his right to a jury trial because he did not have a triable
claim prior to dismissal.
Banco Popular realleges that Plaintiff “waited almost four years after the case was
dismissed” to request his remedies under § 303(i). Docket No. 99 at 5. The First Circuit rejected
this argument, explaining that the applicable rules do not specify how appeals affect deadlines
and used the date of the First Circuit’s mandate affirming dismissal as the dismissal date. See Reyes-
Colon, 110 F.4th at 67. Therefore, the involuntary petition’s dismissal date is June 19, 2019, when
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the First Circuit issued the mandate affirming the Bankruptcy Court’s dismissal, not the
Bankruptcy’s original dismissal dated September 2, 2016. Id.
The First Circuit determined the § 303(i)(1) claim for attorney fees was untimely and the
motion to withdraw the reference was timely. Reyes-Colon, 110 F.4th at 67, 70. Nevertheless, even
though the First Circuit found the motion to withdraw was timely, it did not address the
timeliness of the § 303(i)(2) claims. Id. at 69 n.20. Because Banco Popular did not put forth any
arguments on this issue, any objections as to the timeliness of the § 303(i)(2) claims have been
waived. As the First Circuit noted, the rules do not specify a deadline for the filing of § 303(i)(2)
claims. Id. at 67-68; see also Nat’l Med. Imaging, LLC v. U.S. Bank, N.A. (In re Nat’l Med. Imaging, LLC), 570
B.R. 147, 157 (Bankr. E.D. Pa. 2017) (“[S]ection 303(i) claims are not subject to a statute of
limitations (whether contained in the Bankruptcy Code or borrowed from state law), but must
be brought within a reasonable amount of time that does not prejudice Defendants.”); Rosenberg v.
DVI Receivables XIV, LLC, 818 F.3d 1283, 1285 (11th Cir. 2016) (noting that the appealed bankruptcy
case was dismissed in August 2009, the adversary complaint was filed in December 2010, and the
jury demand and request for withdrawal of reference was made in March 2012); Hilrock Corp. v.
Imani Fe, LP (In re Imani Fe, LP), 2012 Bankr. LEXIS 5232, *16 (BAP 9th Cir. 2012) (“Furthermore, in
making its decision, the BAP recognized that it would be incongruous and inefficient to demand
that a motion for attorneys’ fees under § 303(i)(1) be filed within a strict timeframe, while a motion
for damages under § 303(i)(2) is not subject to a specific deadline.”). As the First Circuit
explained, “[t]imeliness . . . is dependent on how parties interact; a short delay in some
circumstances may be far more prejudicial than a longer one in others.” Reyes-Colon, 110 F.4th at
69. Considering the issues presented in this case originated from an involuntary petition filed in
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2006, which in turn stemmed from another state court case that initiated in 2005, and the
involuntary petition was ultimately dismissed in 2019, the Court finds Plaintiff’s § 303(i)(2) claim
are timely because (1) the statute does not specify a deadline for the filing of § 303(i)(2) claims,
(2) Banco Popular did not raise any arguments as to the timeliness of these claims, (3) the §
303(i)(2) claim was filed one year after the First Circuit’s mandate affirming dismissal, (4) Puerto
Rico’s general tort statute has a prescriptive period of one year,8 and (5) the Parties have been in
litigation for approximately twenty years.
C. Appropriate Forum
Banco Popular’s last argument is that since “Reyes-Colon’s grounds for withdrawal of the
reference are completely anchored on his alleged right to a jury trial under 28 U.S.C. § 157(e) . . .
[he] has waived argument[s] on the [28 U.S.C. §] 157(d) factors to determine cause for withdrawal
of the reference because he failed to address it in his initial motion.” Docket No. 99 at 7.
Nevertheless, such factors are inconsequential when Plaintiff has a Seventh Amendment right to
a trial by jury. See supra § I and § II.A.
Finally, Banco Popular believes Reyes-Colon cannot claim bad faith because “there is a
final and unappealable finding from the bankruptcy court that there were legitimate and well-
grounded reasons to file the involuntary bankruptcy petition.” Docket No. 99 at 8. The applicable
caselaw suggests otherwise. See In re Forever Green Ath. Fields, Inc., 804 F.3d 328, 330 (3rd Cir. 2015)
8See Article 1868 of the 1930 Puerto Rico Civil Code, P.R. LAWS ANN. tit. 31, § 5298 (explaining that
obligations arising from the fault or negligence mentioned in § 5141 of this title prescribe in one year), now
Article 1204(a) of the 2020 Puerto Rico Civil Code, P.R. LAWS ANN. tit. 31, § 9496; see also Article 1802 of
the 1930 Puerto Rico Civil Code, P.R. LAWS ANN. tit. 31, § 5141 (general tort statute), now Article 1536 of
the 2020 Puerto Rico Civil Code, P.R. LAWS ANN. tit. 31, § 10801.
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(finding that creditors filed the involuntary petition in bad faith even though they complied with
statutory requirements); In re Nordbrock, 772 F.2d 397, 400 (8th Cir. 1985) (“A creditor does not
have a special need for bankruptcy relief if it can go to state court to collect a debt.”); In re Tichy,
332 B.R. 364, 374 (Bankr. N.D. Iowa 2005) (“Bad faith has been found to exist when a creditor's
actions amount to an improper use of the Bankruptcy Code as a substitute for customary
collection procedures.”); In re Val W. Poterek & Sons, 169 B.R. 896, 905 (Bankr. N.D. Ill. 1994) (“The
filing of a petition may be sanctionable for bad faith under § 303(i)(2) when a petitioner disregards
facts which have an impact on the validity of their petition. Similarly, a creditor acts in bad faith
under § 303(i)(2) when it files an involuntary petition knowing it does not have the requisite
number of creditors.”); In re Silverman, 230 B.R. 46, 53 (Bankr. N.J. 1998) (“Filing an involuntary
petition with the intent to gain a strategic advantage . . . constitutes an improper purpose.”); In re
Dami, 172 B.R. 6, 10 (Bankr. E.D. Pa. 1994) (“Where the purpose of the bankruptcy filing is to defeat
state court litigation without a [bankruptcy] purpose, bad faith exists.”). Here, it is undisputed
that Banco Popular filed the involuntary petition while having available remedies in state court.
Moreover, Reyes-Colon alleges the involuntary petition was filed as a debt collection and
litigation tactic while the parties were in settlement negotiations of an ongoing case in Puerto
Rico’s local court. See Bankr. No. 6-4675, Docket No. 844 at 4; AP 20-0092, Docket No. 1. It is also
undisputed that Banco Popular filed the involuntary petition knowing it did not have the requisite
number of creditors. See Bankr. No. 6-4675, Docket No. 722; see also Popular Auto, Inc. v. Reyes-Colon
(In re Reyes-Colon), 922 F.3d at 20; Civ. No. 16-2638(GAG), Docket No. 45.
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CONCLUSION
For the aforementioned reasons, Plaintiff’s Motion to Withdraw Reference is GRANTED.
The reference of this case to the bankruptcy court is withdrawn. Answer to Complaint due by
March 10, 2026. The case will then be randomly assigned to a U.S. Magistrate Judge for pretrial
matters.
IT IS SO ORDERED.
In San Juan, Puerto Rico, this Tuesday, February 24, 2026.
s/ Jay A. Garcia-Gregory
JAY A. GARCIA-GREGORY
United States District Judge
Case 3:20-cv-01355-JAG Document 108 Filed 02/24/26 Page 15 of 15