Bankruptcy – Fees – Reconsideration

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Where (1) a bank filed a complaint seeking a denial of the debtor’s discharge pursuant to 11 U.S.C. section727(a)(7), (2) the complaint was dismissed and the debtor awarded counsel fees and costs and (3) the bank thereafter moved for reconsideration of the fee award, the motion was correctly denied for failure to raise the basis for the motion at an earlier stage of the proceedings.

BAP’s rationale

“In the Reconsideration Order, the bankruptcy court explained that [Banco Bilbao Vizcaya Argentaria Puerto Rico (BBVA)] had moved to amend the Fee Order on the basis that it was an error of law to impose sanctions without having found clear evidence that the Complaint was without merit and was filed in bad faith, meaning with some improper purpose, such as harassment or delay. The bankruptcy court denied reconsideration because BBVA could have presented this argument in its opposition to the Fee Motion.

“On appeal, BBVA contends that it was error for the bankruptcy court to deny reconsideration because the bankruptcy court did not have the benefit of the surreply brief that BBVA had hoped to file in response to the Fee Motion. BBVA contends that it was only in the Debtor’s response to BBVA’s objection to the Fee Motion that BBVA was first presented with the grounds under which the Debtor was seeking sanctions, and then BBVA was denied an extension of time to file a surreply to the Debtor’s response. Therefore, BBVA argues, it was only in the Motion to Amend Judgment that it was first able to raise the factual and legal arguments that it advanced in support of that motion. In response to these arguments, the Debtor counters that BBVA failed to establish a manifest error of law that could have entitled it to reconsideration.

“Upon review of the record below, we conclude that the bankruptcy judge was correct in ruling that BBVA could have raised its arguments as to clear evidence of bad faith prior to entry of the Fee Order. The Debtor first requested fees in the Dismissal Motion, and BBVA declined the initial opportunity to respond when it failed to file an objection to that motion. Nonetheless, BBVA did take advantage of a second opportunity to interpose its arguments when it filed an opposition to the Fee Motion. In that opposition, it argued that the court could impose fees and costs only upon a showing of bad faith and that BBVA had not acted in bad faith. Although BBVA did not fine tune that argument by asserting that the court was required to find clear evidence of bad faith, or by defining the specific requirements of bad faith, it did raise the issue of bad faith. It thus appears that, notwithstanding the court’s denial of leave to file a surreply, BBVA had two previous opportunities to raise the arguments that it sought to make for the first time in the Motion to Amend Judgment. Moreover, BBVA took advantage of one of those opportunities by actually arguing that bad faith was required and lacking. The bankruptcy court’s denial of BBVA’s request to extend the deadline to file a surreply brief was not an impediment to BBVA’s raising the issues advanced for the first time on reconsideration. Therefore, in denying reconsideration, the bankruptcy court correctly applied the foregoing First Circuit precedent against a second bite at the apple: litigants may not use Fed. R. Civ. P. 59(e) to advance arguments they could have made earlier. The bankruptcy court did not abuse its discretion in denying to BBVA yet another opportunity to be heard.”

In Re: Santiago Vázquez, José Antonio (Lawyers Weekly No. 03-008-12) (15 pages) (Bailey, J.) (BAP) Appealed from the U.S. Bankruptcy Court for the District of Puerto Rico (Docket Nos. PR 11088 and 089) (May 25, 2012).

Click here for the full-text opinion.