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In re Industrias Vassallo, Inc.

United States Bankruptcy Appellate Panel of the First Circuit

August 5, 2016

INDUSTRIAS VASSALLO, INC., Debtor.
v.
PUERTO RICO ELECTRIC POWER AUTHORITY, Defendant-Appellee / Cross-Appellant. UNITED SURETY & INDEMNITY COMPANY, Plaintiff-Appellant / Cross-Appellee, INDUSTRIAS VASSALLO, INC., Debtor. UNITED SURETY & INDEMNITY COMPANY, Plaintiff-Appellant,
v.
PUERTO RICO ELECTRIC POWER AUTHORITY, Defendant-Appellee. INDUSTRIAS VASSALLO, INC., Debtor. UNITED SURETY & INDEMNITY COMPANY, Plaintiff-Appellant,
v.
PUERTO RICO ELECTRIC POWER AUTHORITY, Defendant-Appellee. Bankruptcy Case Nos. 08-07752-BKT, 08-07752-BKT, 08-07752-BKT Adversary Proceeding Nos. 09-00258-BKT, 09-00258-BKT, 09-00258-BKT

         Appeals from the United States Bankruptcy Court for the District of Puerto Rico (Hon. Brian K. Tester, U.S. Bankruptcy Judge)

          Héctor Saldaña Egozcue, Esq., Carlos Lugo Fiol, Esq., and Jose A. Sánchez Girona, Esq., on brief for Plaintiff-Appellant/Cross-Appellee.

          Eduardo J. Corretjer Reyes, Esq., on brief for Defendant-Appellee/Cross-Appellant.

          Before Bailey, Finkle, and Fagone, United States Bankruptcy Appellate Panel Judges.

          Fagone, U.S. Bankruptcy Appellate Panel Judge

         United Surety & Indemnity Company ("USIC") appeals from a bankruptcy court judgment dismissing an adversary proceeding (the "Judgment of Dismissal") brought by Industrias Vassallo, Inc. (the "Debtor") against one of its suppliers, Puerto Rico Electric Power Authority ("PREPA"). USIC also appeals from nine other orders (collectively, the "Interlocutory Orders"), including an order "denying" USIC's amended complaint in intervention and an order denying a request for reconsideration.[1] PREPA cross-appeals from the Judgment of Dismissal.

         We AFFIRM the Judgment of Dismissal and decline to consider USIC's appeals from the Interlocutory Orders. We lack jurisdiction to hear PREPA's cross-appeal and so that cross-appeal is DISMISSED.

         BACKGROUND

         The procedural history is lengthy and somewhat complex. A methodical description of that history informs our decision.[2]

         I. Prepetition Events

         PREPA supplied electricity to the Debtor. In 1996, USIC issued a bond (the "Bond") guarantying the Debtor's payments to PREPA for electricity and equipment. The Bond was originally for $250, 000, but was later increased to $450, 000. USIC cancelled the Bond effective August 17, 2008, and, about three months later, the Debtor filed a petition under chapter 11.

         II. Postpetition Events

         Two weeks after the chapter 11 filing, PREPA notified USIC that the Debtor owed $2.4 million for prepetition electrical services, and made a demand under the Bond.[3] The next day, PREPA filed a proof of claim for that amount.

         Months passed without a response from USIC. PREPA again demanded payment under the Bond. USIC finally acknowledged receipt of PREPA's demand in September 2009, and asked the Debtor to furnish information regarding its defenses to the claim. The Debtor replied that it had a setoff defense based on a $3.4 million breach of contract claim against PREPA.

         III. The Pleadings in the Adversary Proceeding

         In December 2009, the Debtor commenced an adversary proceeding against PREPA with a single-count complaint, asserting that PREPA owed $3.4 million for damages resulting from interruptions and/or fluctuations in the delivery of electrical service to the Debtor's manufacturing plant. Accordingly, the Debtor asked the bankruptcy court to disallow PREPA's claim and to enter a judgment against PREPA in the amount of $1.0 million.

         USIC promptly moved to intervene. In its accompanying complaint in intervention (the "Complaint in Intervention"), USIC alleged that it was not liable under the Bond because PREPA's liability to the Debtor exceeded the Debtor's liability to PREPA. In its prayer for relief, USIC sought only a declaratory judgment that it had no liability to PREPA under the Bond. The bankruptcy court granted USIC's motion to intervene.

         PREPA answered the Complaint in Intervention, and asserted a counterclaim against USIC. PREPA's counterclaim sought $450, 000, plus interest, costs, and attorneys' fees.

         PREPA alleged, inter alia, that USIC had "acted obstinately or frivolously in denying PREPA's claim and in failing to respond to PREPA's claim within the shortest period possible . . . ."

         In September 2012-almost three years after commencing the adversary proceeding-the Debtor obtained leave to amend its complaint by reducing the amount of its claim against PREPA from $3.4 million to $1.1 million. Accordingly, in its prayer for relief of the amended complaint (the "Amended Complaint"), the Debtor asked the bankruptcy court to reduce PREPA's proof of claim to $1.3 million. PREPA answered the Amended Complaint, alleging that the Debtor owed it at least $2.4 million in prepetition charges and requesting the dismissal of the Amended Complaint, plus costs and attorneys' fees.

         IV. The Motions for Summary Judgment

         PREPA then filed two summary judgment motions. In October 2012, PREPA filed its first motion for partial summary judgment on its counterclaim against USIC, on the theory that the Debtor had admitted in the Amended Complaint that it owed PREPA over $1.0 million more than the amount PREPA allegedly owed to the Debtor. Two months later, PREPA filed a second motion for partial summary judgment, this time asking the bankruptcy court to enter summary judgment in its favor on the Complaint in Intervention and to dismiss that complaint. PREPA argued that USIC's claim was premised on the Debtor's "admittedly non-existent" setoff right. USIC opposed both summary judgment requests, contending that the Debtor had miscalculated its own damages, which, according to USIC, exceeded $2.4 million. In other words, according to USIC, the Debtor had a complete offset and thus owed nothing to PREPA.

         Thereafter, the bankruptcy court entered the December 2013 Partial Summary Judgment Order, granting PREPA's motions for partial summary judgment against USIC, dismissing the Complaint in Intervention, awarding PREPA the amount of the Bond, and denying, without prejudice, PREPA's request for interest and attorneys' fees. The court reasoned, in relevant part:

There is no dispute that the USIC bond is valued at $450, 000.00. Such amount will need to be paid since according to the [Debtor's] Amended Complaint the damages they sustained total $1, 053, 036.87. Thus, [the Debtor] would still owe PREPA at least $1, 382, 216.61 and USIC would be liable to PREPA for the full $450, 000 under the Bond. . . .
This Court recognizes that PREPA also requests damages in the form of interest and attorneys['] fees. Although there are some contentions between the parties to this point, this Court cannot address this instant issue because of the lack of evidence demonstrating PREPA is entitled to such an award. The parties are therefore ordered to simultaneously brief the court on this issue thirty (30) days from the date of this Opinion and Order.

         USIC requested reconsideration of the December 2013 Partial Summary Judgment Order. In response, the bankruptcy court entered the First Denial of Reconsideration concluding that USIC had failed to establish a manifest error of law. PREPA and USIC then briefed their positions regarding PREPA's request for interest and attorneys' fees and, in its brief, USIC again requested reconsideration of the December 2013 Partial Summary Judgment Order.

         In October 2014, the bankruptcy court entered the Second Denial of Reconsideration, in which it denied: (1) PREPA's request for prejudgment and postjudgment interest as well as its request for attorneys' fees; and (2) USIC's renewed request for reconsideration of the December 2013 Partial Summary Judgment Order. The bankruptcy court concurrently entered the October 2014 Judgment, in which it memorialized the rulings of the Second Denial of Reconsideration as follows:

[I]t is now ADJUDGED and DECREED that PREPA's Motion for Summary Judgment against Intervenor USIC is DENIED as to the awarding of pre-judgment interest, attorney's fees and post[-]judgment interest. Furthermore, USIC's request to reconsider the ...

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