# In re Colon

> United States Bankruptcy Court, D. Puerto Rico · September 30, 2016 · 558 B.R. 563

URL: https://www.frixlaw.com/law-library/cases/8499943

## Case

- **Full name:** IN RE: Edgar Abner Reyes COLON, Debtor
- **Court:** United States Bankruptcy Court, D. Puerto Rico
- **Decided:** September 30, 2016
- **Citations:** 558 B.R. 563; 2016 WL 5820026
- **Precedential status:** Published
- **Opinion:** Opinion of the court by Lamoutte
- **Judges:** Lamoutte
- **Cited by:** 4 later opinions in the Frix Law Library

## Citator (automated)

- No negative treatment found by the automated citator. That is not the same as a confirmation that the case is good law; read the citing cases.
- Full citator and citing cases: https://www.frixlaw.com/law-library/cases/8499943

## Opinion text

OPINION AND ORDER
Enrique S. Lamoutte, United States Bankruptcy Judge
The issue pending in this case is whether Banco Popular de Puerto Rico (hereinafter referred to as “Banco Popular” or “BPPR”) and its affiliate Popular Auto,' Inc. (hereinafter referred to as “Popular Auto”) failed to comply with the requirements of 11 U.S.C. § 303 (b) because at the time the involuntary petition was filed (November 22, 2006) against Dr. Edgar Abner Reyes Colón (hereinafter referred to as “Involuntary Debtor” or “Dr. Reyes”) Dr. Reyes had more than twelve (12) creditors. This court, in the opinion and order entered on May 23, 2012 (docket # 404) (‘the “Opinion and Order”), In re Colon, 474 B.R. 330 (Bankr. D.P.R. 2012), found that as of petition date the Involuntary Debtor had 15 creditors and that there are only two petitioning creditors. However, the court also concluded that the judicially created “special circumstances exception” to the numerosity requirement in § 303(b) may apply if the petitioning creditors establish fraud, artifice or scam “based upon the alleged fraudulent transfers made by the Involuntary Debtor to various corporations prior to the filing of the bankruptcy petition.” Thereafter, “if the petitioning creditors prove that special circumstances are indeed present in this case, then the court would have to determine whether the Involuntary Debtor was ‘generally not paying such debtor’s debts as such debts become due’ pursuant to 11 U.S.C. § 303 (h)(1) in order to grant the order of relief in this case.” See order entered on August 10, 2015 (dkt. # 488).
This case is also before the court upon the Involuntary Debtor’s renewed motion to dismiss the involuntary petition. The Involuntary Debtor reasserts its contention that the involuntary petition must be dismissed because the same fails to comply with the statutory provisions in 11 U. S. C. § 303 (b)(1) and (2), requiring that whenever there are more than 12 creditors, at least three undisputed creditors must join the petition. The Involuntary Debtor also reaffirms its legal conclusion that after the Supreme Court’s opinion in Law v. Siegel, — U.S.-, 134 S.Ct. 1188 , 188 L.Ed.2d 146 (2014), the “special circumstances exception” addressed in this court’s order of May 12, 2012 is not applicable, and that it has so been determined by recent decisions.
The travel and facts of this case are found in the opinion of May 12, 2012. In re *565 Reyes Colon, 474 B.R. 330 (Bkrtcy. D.P.R. 2012) (Lamoutte, BJ). See also the orders entered on August 10, 2015 (dkt. #488) and October 28, 2015 (dkt. #540). The issue pending after these decisions was whether there were facts warranting that the “special circumstances exception” to the creditor numerosity requirement, as determined in In re Moss, 249 B.R. 411 (Bankr. N.D. Tex. 2000), be applied in this case. After a thorough analysis of all the evidence presented to this court and the applicable law, the court concludes that there are special circumstances due to the Involuntary Debtor’s scheme to misrepresent his financial condition, but that such misconduct may not override the statutory requirement that three or more creditors join in the filing of an involuntary petition when there are 12 or more creditors. In reaching this conclusion, the court acknowledges that after Law v. Siegel, its equitable powers have been significantly diminished.
The court held evidentiary hearings in November and December 2015 to consider whether there are special circumstances warranting the exception to the three or more creditor requirement in section 303(b). The minutes of said hearings include a detail of both the documentary evidence and the testimony of the witnesses presented. See docket numbers 633, 704, 706, 709, 716 and 720. The court incorporates said minutes and attaches the same hereto as constituting its findings of fact. The inferences from the testimony of the witnesses presented by the petitioning creditors, that is, professionals who have worked with or for the Involuntary Debt- or, show that these professionals (accountants[Mr. Félix Román Dávila], certified public accountants [CPA Félix N. Negron Román], attorneys [Eric Y. Reyes Colón, Esq.], notary publics [Maria Torres Cart-agena, Esq.], friends and associates [Dr. Francisco J. Quintero Peña]) related to Dr. Reyes exhibited convenient or selective amnesia to blur the economic scenario of Dr. Edgar A. Reyes and to orchestrate a seheme to deceive creditors by misrepresenting transactions to transfer assets, as well as the financial condition of the Involuntary Debtor and related entities, which misrepresentations ultimately were aimed at benefiting the Involuntary Debtor. These individuals voluntarily agreed to misinform creditors. The uncontroverted testimony and the reports (Exhibit 41 and Exhibit 42) of the expert witness, CPA Eduardo Soria, CPA/ABV, CVA, CIA, CFE, Esq., pellucidly established the involuntary debtor’s fraudulent actions and scheme. The witnesses’ testimony, as incorporated and analyzed by CPA Eduardo Soria, evince a puppet scheme approach on the part of Dr. Edgar- A, Reyes to defraud Banco Popular. Therefore, the court finds that the scheme to defraud constitutes special circumstances.
However, only two creditors joined the petition, and the Involuntary Debtor had more than twelve creditors. Therefore, the court is compelled to balance the statutory requirements for filing an involuntary petition and the application of equity principles in the administration of bankruptcy proceedings.
The view that bankruptcy courts are courts of equity was summarized in The Official Committee of Unsecured Creditors of Cybergenics Corporation v. Chinery, 330 F.3d 548, 567 (3d Cir. 2003), as follows:
The Supreme Court has long recognized that bankruptcy courts are equitable tribunals that apply equitable principles in the administration of bankruptcy proceedings. See Local Loan Co. v. Hunt, 292 U.S. 234, 240 , 54 S.Ct. 695 , 78 L.Ed. 1230 (1934) (“[C]ourts of bankruptcy are essentially courts of equity, and their proceedings inherently pro *566 ceedings in equity.”). The enactment of the Code in 1978 increased the degree of regulation Congress imposed upon bankruptcy proceedings, but it did not alter bankruptcy courts’ fundamental nature. See H.R. Rep. No. 95-595, at 359 (1977), reprinted in U.S.C.C.A.N. 5963, 6315 (stating that, under the Bankruptcy Code, “[t]he bankruptcy court will remain a court of equity”) (citing Local Loan Co., 292 U.S. at 240 , 54 S.Ct. 695 ). Any lingering doubt on that point is dispelled by a string of post-enactment Supreme Court decisions — see Young v. United States, 535 U.S. 43, 50 , 122 S.Ct. 1036 , 152 L.Ed.2d 79 (2002) (“[B]ankruptcy courts [] are courts of equity and ‘apply the principles and rules of equity jurisprudence.’ ”) (quoting Pepper v. Litton, 308 U.S. 295, 304 , 60 S.Ct. 238 , 84 L.Ed. 281 (1939)); United States v. Energy Resources Co., 495 U.S. 545, 549 , 110 S.Ct. 2139 , 109 L.Ed.2d 580 (1990) (“[B]ankruptcy courts, as courts of equity, have broad authority to modify creditor-debtor relationships.”) — and by the Code itself. See 11 U.S.C. § 105 (a) (“The Court may issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of this title. No provision of this title providing for the raising of an issue by a party in interest shall be construed to preclude the court from, sua sponte, taking any action or making any determination necessary or appropriate to enforce or implement court orders or rules, or to prevent an abuse of process.”).
Equity in bankruptcy has been generally related to the “fresh start” principles, Grogan v. Garner, 498 U.S. 279 , 111 S.Ct. 654 , 112 L.Ed.2d 755 (1991). Section 105(a) of the Bankruptcy Code, which allows bankruptcy judges to issue orders that are necessary or appropriate to carry out the provisions of the Code, has been used as the basis to claim equitable powers in bankruptcy, Marrama v. Citizens Bank of Massachusetts, 549 U.S. 365 , 127 S.Ct. 1105 , 166 L.Ed.2d 956 (2007). This was the rule in the First Circuit after Marrama. See Malley v. Agin, 693 F.3d 28 (1st Cir. 2012). The rule has been admittedly limited to exercising equitable powers to facilitate other code provisions and not a roving commission to do equity. In re Ludlow Hospital Society, Inc., 124 F.3d 22 (1st Cir. 1997). See also In re Nosek, 544 F.3d 34 (1st Cir. 2008). However, the legal scenario changed in 2014. Change in bankruptcy is not a strange concept. As stated by the Supreme Court in Wright v. Union Central Life Ins. Co., 304 U.S. 502, 513 , 58 S.Ct. 1025 , 82 L.Ed. 1490 (1938): “[t]he subject of bankruptcies is incapable of final definition. The concept changes.”
After Law v. Siegel, the equitable powers of the bankruptcy courts, to the extent they existed, have been diminished or restricted whenever exercising such equitable powers contravenes specific statutory provisions. Law v. Siegel, making reference to the Supreme Court’s decision in Marrama, specifically did not endorse “the view that equitable considerations permit a bankruptcy court to contravene express provisions of the Code.” This change was acknowledged by the First Circuit in U. S. v. Ledee, 772 F.3d 21 , 29 n. 10 (1st Cir. 2014). The First Circuit noted that “the Supreme Court’s ruling does not restrict the bankruptcy court’s discretion concerning amendments unrelated to exemptions ...” This view was the one adopted by the court at the hearing held on November 12, 2015 when the following was stated:
The court advanced to the parties, that this, court’s appreciation of the facts in 2012 in order to determine whether the special circumstances apply may be different in 2015. In the year 2012, the prevalent decision by ,the Supreme Court was In re Marra- *567 ma, 449 [549] U.S. 365 [ 127 S.Ct. 1105 , 166 L.Ed.2d 956 ] (2007). The court stated that it is fully conscious that in the year 2014, the Supreme Court entered another decision, Law v. Siegel. Thus, in order to make a final determination based upon the facts as to whether special circumstances should be applied in this scenario (involuntary petition) which is different from the exemption scenario in Law v. Sie-gel and is different from the factual scenario in Marrama which was a motion to convert. The court stated that it has to make a decision based on the facts and it is conscious of the law and will apply the same as best as it can. However, the parties have the duty and responsibility to place the court in a position to be able to render a legal decision based upon the facts. The court cannot avoid making the decision because the parties are reticent to present the evidence to the court. This court will make a ruling based upon the evidence presented. The reasons for this hearing should have been clear since the court’s May 22, 2012 decision which has been postponed basically because of the discovery issues that have been brought before the court. The court further stated that it was aware of the mandamus that was filed not for an action, but for the First Circuit to make a decision on the legal issue that is ultimately before the court. That is the First Circuit Court’s province which I will not even attempt to delve into. The court stated that it may decline to grant the involuntary petition for relief, but that does not divest the court of jurisdiction to impose sanctions for violations of discovery orders and whether or not the ultimate sanction of granting the relief requested that is the entry of the order for relief is a legal determination that will be considered.
See minutes at docket # 633, page 8.
Supreme Court precedent lends support to this court’s perspective at such juncture. In Taylor v. Freeland & Kronz, 503 U.S. 638, 646 , 112 S.Ct. 1644 , 118 L.Ed.2d 280 (1992) the Supreme Court found that there were no “unusual circumstances” warranting addressing equity arguments under section 105(a). Thus, implicitly, misconduct may be a factor to consider.
The First Circuit Court of Appeals recently addressed the subject of claims of equitable relief in the bankruptcy courts in In re Oak Knoll Associates, L.P., 835 F.3d 24 (1st Cir. 2016), and held that:
Congress has given bankruptcy courts the authority to “issue any order, process, or judgment that is necessary or appropriate to carry out the provisions” of the Bankruptcy Code. 11 U.S.C. § 105 (a). We have cautioned, however, that this does not give bankruptcy courts “a roving writ, much less a free hand” to' provide equitable relief. In re Jamo, 283 F.3d 392, 403 (1st Cir. 2002). Rather, this statute “may be invoked only if, and to the extent that, the equitable remedy dispensed by the court is necessary to preserve an identifiable right conferred elsewhere in the Bankruptcy Code.” Id.
The filing of a voluntary petition in bankruptcy has few limitations. On the other hand, an involuntary petition initiated by creditors is more limited as it must meet the requirements in § 303. Involuntary relief is only available in cases under chapter 7 or chapter 11. The entry of an order for relief is not automatic in an involuntary case as the petitioning creditors must establish the statutory grounds supporting relief. Charles Jordan Tabb, Law of Bankruptcy. Third Edition (2013), pgs. 120-121.
*568 Creditors generally commence involuntary cases to protect themselves against dissipation or diminution of assets, particularly if the creditor is concerned that the debtor may be transferring assets outside their reach, David Wheeler, Involuntary Bankruptcy Petitions: Is § 303 Still a Viable Creditor Alternative? 29-9 ABIJ 86 (November 2010). The evidence before this court clearly shows that the reasons leading to the filing of the involuntary petition are the typical ones prompting creditors to take action. The Involuntary Debtor was transferring assets to related entities under his possession and control, and was engaged in a scheme to defraud his main creditor, Banco Popular de Puerto Rico.
An involuntary petition must be executed by the parties specified in § 303 (b). Hon. Joan N. Feeney, Hon. Michael G. Williamson, Michael J. Stepan, Esq., Bankruptcy Law Manual, Fifth Edition, Volume 2, § 14.8. The number of petitioning creditors depends on the number of creditors holding qualified claims. Hon. Joan N. Feeney, Hon. Michael G. Williamson, Michael J. Stepan, Esq., Bankruptcy Law Manual, Fifth Edition, Volume 2, § 14.9. This court has determined that there are more than twelve creditors. Therefore, at least three petitioning creditors must join the petition. 11 U. S. C. § 303 (b)(1).
The bankruptcy court in In re Mateer, 525 B.R. 559, 567 (Bkrtcy. D. Mass. 2015), was faced with a similar predicament, determining whether the statute or equity should prevail. 1 share in the frustration inferred from the statements by Chief Judge Hoffman in Mateer, concluding that misconduct cannot override a statutory provision in the Bankruptcy Code. In this case there is a specific statutory requirement for the filing of an involuntary petition against a debtor who has more than twelve creditors. The involuntary petition must be filed by three or more creditors. A fraudulent scheme, after Law v. Siegel, is not a basis for a bankruptcy court to obviate the statutory requirement that there be three or more creditors joining the involuntary petition when there are twelve or more creditors. As stated by Professor Klee: “After Law, bankruptcy courts may be less likely to test the limits of their equitable powers. If they do, appellate courts should be less likely to tolerate a use of the equity powers that conflicts with the Bankruptcy Code.” Professor Kenneth N. Klee on the Supreme Court’s holding in Law v. Siegel, 571 U.S. -, 134 S.Ct. 1188 , 188 L.Ed.2d 146 , 2014 U.S. Lexis 1784 (March 4, 2014), 2014 Emerging Issues 7162.
Thus, the Marrama holding that bankruptcy judges may take appropriate actions to avoid abuse of process under section 105(a) has been severely restricted by Law v. Siegel, as bankruptcy judges do not have equitable powers not found in the Bankruptcy Code, when the invocation of the equitable powers is based on bad faith or misconduct. Such is the law, and this court is obligated to follow the same. The notion that bankruptcy courts are courts of equity may now be more an illusory construct than a judicial precept. Perhaps rightly so, as “[t]he intended function of the federal courts is to apply the law as it comes to them from the hands of others.” Robert H. Bork, The Tempting of America, The Political Seduction of the Law, pg. 4 (1990).
In view of the foregoing, the involuntary petition is hereby dismissed.
SO ORDERED.
Attachment
Minute Entry
Hearing Information:
Involuntary Debtor: Edgar Abner Reyes Colon
*569 Case Number 06-04675
Date/Time/Room: 11/12/2015/ 09:30am/ osjcrt2
Bankruptcy Judge: Enrique S. Lamoutte
Courtroom Clerk: Darhma Zayas
Reporter/ECR: Jose Romo
Matter:
Evidentiary hearing to consider the following: (i) whether there are special circumstances compelling the court to obviate the three (3) creditor statutory requirement in 11 U.S.C. § 303 (b); (ii) whether the involuntary debtor was not paying his debts as they became due as required by 11 U.S.C. § 303 (h) (Docket Nos. 404 & 488).
Motion for Entry of Order for Relief as a Sanction for Involuntary Debtor’s Discovery Violations (Docket No. 501).
Opposition to Motion for Entry of Order for Relief and Request to Reconsider Denial of Order Limiting Scope of Discovery (Docket No. 518)
Appearances:
Eldia Díaz Olmo, Banco Popular de Puerto Rico (“BPPR”)
Roberto Abesada Aguet, BPPR
Gerardo Pavia Cabanillas, Popular Auto, Inc.
Fernando Van Derdys, Involuntary Debtor
José Nieto Mingo, Involuntary Debtor
Proceedings:
Issues Before the Court
The court held an evidentiary hearing as to the following pending issues: (i) whether there are special circumstances compelling the court to obviate the three (3) creditor statutory requirement in 11 U.S.C. § 303 (b); (ii) whether the Involuntary Debtor was not paying his debts as they became due as required by 11 U.S.C. § 303 (h). In this hearing the court will also consider BPPR’s motion requesting sanctions for involuntary debtor’s discovery violations and the opposition thereto.
Opening Argument by Petitioning Creditors
Attorney Abesada, on behalf of BPPR, stated that the first threshold issue that had to be addressed is not whether the Involuntary Debtor has to be sanctioned, but rather the type of sanctions that should be imposed, since it is uncontested that Dr. Reyes has exhibited bad faith and callous disregard to the orders of this Court as recent as this year in Docket Nos. 488, 506, 511, 512, & 531, orders in which the court denied the limited discovery protective orders sought by Dr. Reyes and granted BPPR’s request to perform the discovery that was required, which included not only events before the involuntary bankruptcy petition, but events after the petition was filed, to trace the monies and assets that had disappeared. As of today, Dr. Reyes has not complied with these court orders regarding the production of documents ordered by this court pursuant to Docket No. 506. When this court granted BPPR’s motion to comply (Docket No. 490) at Docket No. 506, the Order incorporated a specific relief sought by petitioning creditor, which was that if Dr. Reyes did not appear at the deposition and did not produce the documents requested prior to his deposition, sanctions would be imposed, which included the entry of an order of relief or preclusion to presenting evidence in his favor in this evidentiary hearing that has been scheduled since August 10, 2015. Dr. Reyes did not appear to his scheduled deposition, which he attempted to cure by sending counsel to BPPR two communications stating that he was willing to be deposed but *570 that the same had to be limited in scope pursuant to prior motions that were filed and were rejected by this court.
Attorney Abesada further stated that what is before the court reminds us of this court’s July 7, 2010 Order at Docket No. 241, in which this court denied Dr. Reyes’ motion to stay discovery and stated that, “.. .it is time for the involuntary debtor to meet the merits of the issues before the court. Discovery is critical to such a decision.” Discovery is indeed critical. Today, BPPR and Popular Auto are before the court ready for the evidential hearing, but with a fraction of the evidence they wanted to obtain through discovery. Petitioning Creditors have been unable to depose Dr. Francisco Quintero or Dr, Reyes. Moreover, Dr. Quintero and Dr. Reyes never produced the documents that they were ordered to produce within the time frame ordered. The depositions and document production were necessary to be ready for this hearing.
Attorney Abesada concluded by stating that, nonetheless, the court has sufficient violations of discovery rules and orders to impose severe sanctions of entering the order for relief which is justified given the orders that were violated during the year 2015. This court’s Opinion and Order (Docket No. 404) provides a history of the discovery disputes and violations that Dr. Reyes has transgressed. Dr. Reyes at Docket No. 80 agreed pursuant to a joint discovery plan to conduct discovery as to the “special circumstances” in this case. Subsequently, Dr. Reyes filed several motions not only to stay discovery but to obstruct the same. The order of relief is justified by First Circuit jurisprudence pursuant to Rule 37(b)(2)(A). Thus, there is sufficient information on this record for this court to enter the order for relief. Petitioning creditors submit that pursuant to Fed. R. Civ. P. 37(b)(2)(A)(i) and (ii) that the proposed findings be established as findings of facts.
Opening Argument by Involuntary Debtor
Attorney Nieto, on behalf of the Involuntary Debtor, stated that the source , of the problems that are being confronted today is due to the absence of clear rulings on specific threshold issues that have not been addressed by the court. In the Opinion and Order that this court issued on May 22, 2012 (Docket No. 404) established that the scope of the evidentiary hearing that was going to take place years ago. The scope was the following; . .evidence as to the special circumstances exception to the numerosity requirement of Section 303(b) to determine if the petitioning creditors can establish fraud, artifice or scqm based upon the alleged fraudulent transfers made by the Involuntary Debtor to Debtor’s corporations prior to the filing of the bankruptcy petition.”
To this date, there is no explanation as to why evidence or discovery of issues pertaining after the filing of the petition are relevant. There is no explanation or determination from the court as to why that position which was taken by the court, when this case was resurrected by a motion for reconsideration after it had been dismissed because the case was not filed pursuant to the specific requirements of the Bankruptcy Code. Subsequently, the petitioning creditors have been requesting discovery of issues, matters, and transactions as recent as this year. As a result, Dr. Reyes filed a memorandum of law on August 11, 2014 (Docket No. 467) that this court has not ruled on that docket and the same is still pending. The memorandum of law requested that the court rule on two (2) issues, namely: (i) the applicability of the special circumstances doctrine in this Circuit; and (ii) a protective order to limit *571 discovery to matters arising after the filing of the involuntary petition. The basis for requesting the protective order was this Court’s May 22, 2012 Opinion and Order which specifically stated that the inquiry regarding special circumstances and whether Dr. Reyes was paying his debts as they generally became due as the scope for discovery.
While Docket No. 467 was still pending, the petitioning creditors on March 15, 2015, filed a motion to inform the issuance of another subpoena regarding subsequent events to the filing of the involuntary petition (Docket No. 483). Dr. Reyes filed a motion to quash the subpoena on March 17, 2015 (Docket No. 484) and the court denied the motion to quash (Docket No. 486). The motion to quash was denied without an explanation or ruling from the court as to why it was relevant to allow events and transactions subsequent to the filing of the involuntary petition.
From the time the court denied the motion to quash on April 7, 2015 there was no activity in the case for almost four (4) months. Thus, since Docket No. 467 was still pending for almost an entire year, that in August 2015, Dr. Reyes filed a petition for mandamus before the United States Court of Appeals for the First Circuit requesting the Appellate Court to direct this court to rule on Docket No. 467. As a result of the filing of the mandamus petition, this hearing was scheduled. Prior to that, we had petition creditors pretending to embark on a completely unregulated, oppressive fishing expedition and Dr. Reyes trying to limit the discovery to the relevant period. There is still no ruling as to Docket No. 467.
After the evidentiary hearing was scheduled, petitioning creditors renewed their efforts to conduct discovery on post-petition matters and Dr. Reyes filed motions to quash which were denied. The court did not explain the reason the scope of the hearing was changed from what was determined on May 22, 2012 to now allow discovery regarding post-petition matters. On October 15, 2015, this court issued twelve (12) orders denying all of Dr. Reyes’ motions to quash and granting all the petitions for discovery and other requests filed by BPPR. The court also denied a motion for reconsideration as to the scope of discovery. As a result, on October 29, 2015, Dr. Reyes filed a notice of appeal and statement of election (Docket No. 542) and motion requesting leave to file an appeal (Docket No, 543). It is abundantly clear that Dr. Reyes has been questioning the legality of the involuntary petition filed by BPPR and the efforts to conduct discovery on irrelevant matters. As of this date, there is still no ruling as to Docket No. 467. Dr. Reyes filed motions to quash because there has not been a ruling on Docket No. 467. Thus, this court should not enter an order for relief as a sanction for this case since that issue is still pending. Attorney Nieto cited the case of In re Rubin, 769 F.2d 611 (9th Cir. 1985) in which the Circuit reversed the B.A.P. for affirming the bankruptcy court’s decision to enter an order for relief as a sanction for failure to comply with discovery.
Attorney Nieto reiterated that ten (10) years later we are still before the court because a threshold determination on a legal issue that should have been decided at the outset of this case remains to be decided. The issue is whether as a matter of law the involuntary petition filed by BPPR is legal or can be allowed in this Circuit. This court has not made that specific determination. The only thing that has been stated regarding the applicability of special circumstances in this Circuit is “that this court finds merit to this judicially created exception and that such require *572 ments are not jurisdictional in nature.” This conclusion was reaffirmed on the August 10, 2015 Order. The Court of Appeals denied the mandamus petition because “in light of the fact that this hearing had been scheduled were the issues raised in the petition of mandamus would be addressed.” Attorney Nieto stated that it was the Court of Appeals’ understanding that in this hearing this issue would be addressed, namely, whether in Puerto Rico a creditor without complying with the 3 creditor requirement may file an involuntary petition.
Attorney Nieto stated that the following preliminary matters had to be determined by the court in order to move forward; namely, (i) that the court make a ruling as to Docket No. 467 and explain the court’s position regarding the reasons as to why relying on a case relying in a bankruptcy court in Texas, it may disregard' the clear language of section 303(b). Also, the court should recognize the decision in the case of In re Rothery, 211 B.R. 929 (9th Cir. BAP 1997) in which the BAP specifically addressed the reasons In re Moss and other decisions relied upon this court are not sound and why it would be important in this Circuit in Puerto Rico to have a determination as to the reasons a creditor that does not comply with the statutory requirements that would require congressional action to be modified.
In addition, it is important to have a specific ruling regarding the scope of discovery, given that BPPR wants to conduct discovery as to post-petition matters. The court has stated that it has to determine whether there were special circumstances prior to the bankruptcy petition. The scope has to be limited to the relevant inquiry which was alleged fraudulent transfers made by the involuntary debtor to various corporations. When BPPR filed the involuntary petition, there was no reference to special circumstances and it knew of everything it is complaining about now, months before the filing of the petition, BPPR has utilized the involuntary bankruptcy proceedings to try to collect the debt. Attorney Nieto further stated that the filing took place when the parties were very close in reaching an agreement. Petitioning creditor is aware that Dr. Reyes offered $2 million to settle the debt and BPPR refused to accept the same and informed Dr. Reyes through their counsel that if he had a better offer, the same must be presented because if not they had been instructed to file the involuntary bankruptcy petition. There was no indication that BPPR was concerned about fraudulent transactions or that Dr. Reyes was depleting his assets. The negotiations took months. BPPR knew of the transactions, namely the transfers of real estate, that Dr. Reyes was undertaking, and BPPR had no problem with the same but it simply wanted more money.
Attorney Nieto argued that the Court of Appeals has to decide the issue as to whether the doctrine of special circumstances pursuant to a bankruptcy case decided in Texas is permitted in the First Circuit. BPPR’s alternative proposal is that they want to conduct additional discovery regarding post-petition transactions. BPPR was also pursuing collection actions in the state court. BPPR has been trying to force Dr. Reyes to file a voluntary petition by cancelling the only line of credit that he had available and cancelling his credit cards. BPPR’s is pushing hard for this case because if this case gets dismissed after ten (10) years, its exposure to liability is even greater.
Reply by Petitioning Creditors
Attorney Abesada replied that he was not going to comment against the accusatory *573 rhetoric made against his client in oral argument. The proposed findings show the relevancy of the post-petition discovery and they also show that one of the reasons this case was never settled was because Dr. Reyes never explained to BPPR why his net assets decreased by $8 million. Attorney Abesada stated that he will put the court in a position so that the court may render a ruling. Dr. Reyes states through his counsel that the motion for protective order to limit discovery at Docket No. 467 was never ruled upon. However, my reading of the docket is very different. The court denied Docket No. 467 at Docket No. 488 after considering BPPR’s opposition to memorandum of law at Docket No. 471. That opposition has as an Exhibit, a sworn statement of our expert witness, Eduardo Soria putting the court in a position to understand why discovery after 2006 was relevant. That sworn statement was never opposed by Dr. Reyes or any witness or expert witness. It is important to explain to the court that not only was that motion denied at Docket No. 488, but when Dr. Reyes filed at Docket No. 492, his second motion for protective order the court had already denied the first one at Docket No. 488. Dr. Reyes’ second protective order was denied after considering BPPR and Popular Auto’s opposition at Docket No. 496. At Docket No. 512, the court granted BPPR’s motion at Docket No. 496. The court has consistently held that discovery is critical to present the facts of the special circumstances and that this court’s Order at Docket No. 488 was an implied denial of the motion for protective order at Docket No. 467.
Thus, it is very clear in this record that different judges, including the presiding Judge, have clearly stated that they would apply the special, circumstances doctrine based upon the facts presented at the evi-dentiary hearing. The court cannot render advisory opinions as to whether the special circumstances doctrine applies in this Circuit. The special circumstances doctrine is a standard that has been accepted in bankruptcy courts. The Collier treatise states that 2 exceptions exist to the 3 creditor rule; namely, (i) when the creditor would otherwise be without an adequate remedy under nonbankruptcy law or when the petitioning creditors make a showing of special circumstances amounting to trick, fraud, artifice, or scam. Without the facts, the court cannot determine whether the special circumstances doctrine applies. The court has stated this same position when counselor Celina Romany represented Dr. Reyes. The most important thing is that Judge Carlo at Docket No. 77 allowed BPPR to perform discovery of the special circumstances issue which was agreed to by the parties at Docket No. 80. Judge Tester allowed discovery of the special circumstances issue at Docket No. 156. This is the 4th or 5th motion for reconsideration of this court’s denial of the limited scope of discovery which was recently denied at Docket No. 531.
Attorney Abesada further .stated that the oral arguments made by brother counsel is evidence that they do not respect the orders of this court and that they are trying to confuse what is evident from the record. This court at Docket Nos. 404 and 488 has already ruled as to the special circumstances doctrine.
Attorney Abesada stated that the cancellation of Dr. Reyes’ line of credit with BPPR was subject to a lawsuit in the United States District Court before Judge Cerezo was dismissed on summary judgment with the imposition of attorney’s fees and costs because Judge Cerezo found that the complaint was frivolous.
*574 Reply by Involuntary Debtor
Attorney Van Derdys stated that they have checked the record and Docket No. 467 has not been ruled upon. As shown in the motion to leave to appeal, since the inception of this case, BPPR expressly manifested that it wanted to conduct discovery as of the filing date. The bank’s position was subsequently adopted by this court. Thus, any subsequent discovery to the petition date is irrelevant. The expert witness’ report as amended shows that it is based on the pre-petition transactions. The real purpose for conducting post-petition discovery is not directed towards whether special circumstances existed as of the date of the filing of the petition is direct towards other purposes.
Court
The court stated that there are 2 interrelated but separate issues for this court to determine; namely, (i) issues concerning whether the involuntary petition should be granted or not, which were the subject of this court’s decision of May 22, 2012; and (ii) the second issue is whether there have been violations of the discovery orders by this court, and if so, what is the appropriate sanction. The petitioning creditors have argued that the court may impose as a sanction the granting of the involuntary petition. The court has heard the argument by counsel. The court stresses this because in spite of the years that have lapsed, the evidence is still not ultimately before the court, albeit part of it was submitted as part of the motions for summary judgment which were the object of this court’s 2012 Order, where the court tried to be as comprehensive as possible. The zealous argumentation by Dr. Reyes’ counsel misplaces the focus of the discovery requests by centering on the fact that post-petition discovery should have not been made or authorized by this court. This argument is a very limited perspective in the overall spectrum of all the motions filed and orders entered.
It is this court’s position that the May 22, 2012, Order, was clear in stating that discovery was necessary because the special circumstances doctrine, assuming that it will be applied or may be applied, depends on the facts. A post-petition event may relate back to a pre-petition event, but that is discovery. This court will consider events occurring prior to the filing of the involuntary petition to determine if there are special circumstances. The court does not know why counsel for the Involuntary Debtor are still focusing so much on the issue of not providing discovery of post-petition events, when the relevant issues are pre-petition. Although post-petition events may relate back to pre-petition events. The Involuntary Debtor’s failure to up-front provide has prevented the Petitioning Creditors to present the evidence and place this court in a position to make a determination. This court will not make a legal determination in a vacuum. The decision has tó be based on the facts that are presented to the court, and which have yet to be presented. In fact, this has been the first time that the presiding Judge hears the parties directly and not by motion. The court further stated that the issue of special circumstances limits what this court found in its decision. The court stated that it purposely detailed all the travel of the case for the benefit of whomever ultimately reviews this court’s decision. The court stated that on page 351 of the decision, the court stated: “[o]n May 24, 2010, a status hearing was held in which the Court ordered the following: (1) ‘[p]arties are granted sixty (60) days to conclude discovery only as to whether or not sufficient creditors have joined the petition and to whether the ‘special circumstances’ doc *575 trine applies to the fact in this case; (2) This court finds that the bankruptcy court has not decided whether the special circumstances doctrine applies in this case, and consequently, no such order is on appeal; (3) Court furthers finds that a decision on whether or not the doctrine applies is fact intensive, and declines, at this juncture, to make such a determination’ ” In re Reyes Colon, 474 B.R. 330, 351 . For the same reasons that I have stated, I will make a determination after considering the facts.
The court stated that the next reference is at page 361 in which the following is stated: “[t]he determination of whether the special circumstances doctrine applies in the instant case hinges upon the number of creditors Dr. Reyes had at the time of the bankruptcy petition. If the court determines that Dr. Reyes at the time of the bankruptcy petition had twelve (12) or more creditors, Banco Popular’s involuntary petition would be defective and thus, special circumstances would have to be present for the latter to have standing to file an involuntary bankruptcy petition against Dr. Reyes. If the petitioning creditors prove that special circumstances are indeed present in this case, then the court would have to determine whether the Involuntary Debtor was ‘generally not paying such debtor’s debts as such debts become due’ pursuant to 11 U.S.C. § 303 (h)(1) in order to grant the order of relief in this case.”
The next reference is at page 385 in which the court stated: “[t]he ‘special circumstances exception’ to the creditor numerosity requirement under Section 303(b) was initially created for single creditor cases, but has been applied in cases in which the involuntary debtor had more than eleven (11) eligible creditors and only two (2) petitioning creditors. See In re Moss, 249 B.R. 411 (Bankr. N.D. Tex. 2000),” The court further stated that whether the decision of In re Moss was made in Texas, Hawaii, California or Puerto Rico has no bearing on the merits of that decion. The Judge that made that decision, Barbara Houser, is a well respected Judge. It’s the merits of the opinion that count not the place or the Judge that made that decision.
In the instant case, the petitioning creditors have the burden of proving that special circumstances exist in this case based .upon alleged fraudulent transfers made by the Involuntary Debtor to various corporations prior to the filing of the bankruptcy petition. The court does not know why there is so much turmoil and doubt as to what-is the relevant evidence that has to be presented before the court because, if the decision is read in detail, one would know what the court meant, and what it was going to judge and determine.
Lastly, at page 390, the court stated: “since there are more than 12 creditors as of the date of the filing of the petition, this court must first determine whether the special circumstances exception existed at the time Banco Popular filed this involuntary petition. The three creditor statutory requirement in Section 303(b) may be subject to the special circumstances exception. This court finds merit to such judicially created exception to the statutory requirements when the petitioning creditor(s) establishes) fraud, artifice or scam as Section 303(b) is not jurisdictional in nature. However, the court will only consider the special circumstances exception to consider the number of petitioning creditors under Section 303(b). The court declines to extend the special circumstances exception to the requirements in Section 303(h) as the court implicitly did in In re Moss, 249 B.R. at 424 .” The court further stated that it is very important for this court to make a determination based upon the facts as they *576 are presented to the court. Those facts have not been presented to the court because of the reticence of one party to submit the discovery requests to petitioning creditors. We have to meet the facts to make a decision. If we do not meet the facts, it would be just an opinion, but not a decision. It’s an opinion of what should be. The facts need to be considered to make a decision.
The court advanced to the parties, that this court’s appreciation of the facts made in 2012 in order to determine whether the special circumstances apply may be different in 2015. In the year 2012, the prevalent decision by the Supreme Court was In re Marrama, 549 U.S. 365 , 127 S.Ct. 1105 , 166 L.Ed.2d 956 (2007). The court stated that it is fully conscious that in the year 2014, the Supreme Court entered another decision, Law v. Siegel, — U.S. -, 134 S.Ct. 1188 , 188 L.Ed.2d 146 (2014). Thus, in order to make a final determination based upon the facts as to whether special circumstances should be applied in this scenario (involuntary petition) which is different from the exemption scenario in Law v. Siegel, and is different from the factual scenario in Marrama which was a motion to convert. The court stated that it has to make a decision based on the facts and it is conscious of the law and will apply the same as best as it can. However, the parties have the duty and responsibility to place the court in a position to be able to render a legal decision based upon the facts. The court cannot avoid making the decision because the parties are reticent to present the evidence to the court. This court will make.a ruling based upon the evidence presented. The reasons for this hearing should have been clear since the court’s May 22, 2012 decision, which has been postponed basically because of the discovery issues that have been brought before the court. The court further stated that it was aware of the mandamus that was filed not for an action, but for the First Circuit to make a decision on the legal issue that is ultimately before the court. That is the First Circuit Court’s province which I will not even attempt to delve into. The court stated that it may decline to grant the involuntary petition for relief, but that does not divest the court of jurisdiction to impose sanctions for violations of discovery orders and whether or not the ultimate sanction of granting the relief requested that is the entry of the order for relief is a legal determination that will be considered.
Whether or not Docket No. 467 is pending, the court did not even consider because its decision was clear and if there was any doubt the court’s decision at Docket No. 488 reaffirmed the same. The court needs to hear the facts to determine whether the doctrine applies. The court is adding at this time that it will have to go through a higher threshold in light of the decision of Law 'v. Siegel. That is the court’s position.
Petitioning Creditors
Attorney Abesada stated that he understands the court will reserve the determination as to the type of sanctions it will impose on this case so in that event BPPR and Popular Auto are ready to proceed with the evidentiary hearing.
Félix Román Dávila, Félix Román Negrón, Attorney Charles Cuprill, Criselid Rivera Muñoz, William Cameroon, Attorney Ma-ría Torres Cartagena, Dr. Francisco Quintero, and the interpreter.
Attorney Eric Reyes was also subpoenaed for today. However, his attorney, Mr. An-dreu Fuentes informed that Mr. Eric Reyes was not going to be available today because he is serving testimony before a grand jury before the United States District Court for the District of Puerto Rico, *577 Mr. Reyes requests to be excused and will be here as soon as he finishes the proceedings before the United States District Court.
The first witness BPPR and Popular called to testify was Mr. Félix Román Dávila.
Mr. Román Dávila is an accountant. He testified that he obtained a bachelor’s degree in accounting from the University of Puerto Rico in 1964. Mr. Román Dávila testified that he started his own private practice in 1970 which primarily focused on bookkeeping and tax cases. For the tax cases he would represent clients (and some which were not clients) before the Puerto Rico Treasury Department. He testified that when he started his practice in the 1970’s, the majority of his clients were from Bayamón and Corozal. He also testified that as part of his practice he prepares personal financial statements, but not audited financial statements because he is not a CPA. Mr. Román Dávila stated that he does not prepare compilations.
Mr. Román Dávila remembers that he was deposed by Attorney Abesada on October 22, 2015. He stated during the deposition that he prepared approximately 5-6 personal financial statements a year. Mr. Ro-mán Dávila stated that he rectifies his prior statement and that he prepares approximately 15 personal financial statements a year. He further stated that in the ordinary course in the preparation of personal financial statements he would use information from loan balances, the market value of properties, and any information requested by the bank. He also stated that in the preparation of the balance sheet, he would take into 'consideration the price a client had paid for an asset and would update the same to obtain the market value of assets. This practice was performed in the ordinary course of business. He further stated that sometimes client would bring the deed of purchase and sale in order to assess the market value of real property for the balance sheet.
Mr. Román Dávila testified that he has a son that works as a CPA. His name is Félix Norman Román Negrón. He understands that his son has a professional corporation as part of his practice, RTC Ro-mán and Company. He is an employee of his son’s professional corporation since the year 2005. He testified that before the year 2005 he had his own independent practice in the same office where his son has his practice at Bayamón Medical Plaza. The owners of the office are his wife and himself. .
Mr. Román Dávila stated that he knows Dr. Edgar Reyes Colón because he used to visit the office. Dr. Reyes Colón was not his client. He testified that he represented Dr. Reyes Colón in a tax case in the district of Bayamón, but resigned from the case due to health reasons. He stated that he has never charged or invoiced Dr. Reyes Colón for any accounting service. Mr. Román Dávila knows Dr. Reyes Colon’s parents, Porfirio and lisa. He has served as an accountant for purposes of filing the estate tax return for Dr. Reyes Colon’s mother, Attorney lisa Colón in 2 probate cases.
Mr. Román Dávila further testified as to Dr. Reyes Colón financial statements. Mr. Román Dávila testified that he recognized the November 30, 2001 financial statement of Dr. Reyes Colón which had his letter head and signature. Exhibit I. The November 30, 2001 financial statements were prepared upon Dr. Reyes’ request. He understands that his son was traveling outside Puerto Rico. He does not recall who specifically requested him to prepare the balance sheet. He stated that it is probable that Dr. Reyes needed it for the bank. Mr. Román Dávila testified that he prepared the November 30, 2001 financial statement *578 with the information provided by Dr. Reyes. He was not able to corroborate the verbal information provided by Dr, Reyes for the financial statements. Mr. Román Dávila testified that he took as correct the verbal information provided by Dr. Reyes to prepare the financial statements. He further stated that financial statement preparation based upon verbal information is done in the ordinary course of business as part of his regular practice. However, in his deposition Mr. Román Dávila stated that this type of practice was very irregular.
Mr. Román Dávila stated that in the November 30, 2001 financial statements, the total amount of assets is $9,925,950 and the liabilities are: $3,500, $400, $27,000 and $135, 000.
Mr. Román Dávila testified that he recognized the June 30,2002 financial statement of Dr. Reyes Colón which had his letter head and signature. Exhibit 2. He stated that he prepared this financial statement based on the verbal information provided by Dr. Reyes. Dr. Reyes’ total assets as of June 30, 2002 were in the amount of $9,530,550 and the total liabilities were in the amount of $130,700. Dr. Reyes’ net worth as of June 30, $002 was in the amount of $9,399,850,
Mr. Román Dávila testified that he recognized the October 31, 2002 financial statement of Dr. Reyes Colón which had his letter head. However, that is not his signature. He testified that it is his son’s signature. Exhibit 3. He stated that as of October 31, 2002, Dr. Reyes was his son’s client. He does not know whether his son charged Dr. Reyes for the preparation of financial statements. However, he does not recall whether he prepared this financial statement and thus, cannot testify as to the content of this financial statement. He does not know for a fact whether his son prepared this financial statement. Mr. Román Dávila testified that as of October 31, 2002, Dr, Reyes’ total assets amount to $10,005,590 and Dr. Reyes’ net worth amounts to $9,835,850.
Mr. Román Dávila testified that he recognized the July 31, 2005 financial statement of Dr. Reyes Colón which had his letter head. However, that is not his signature. He stated that he does not recognize the signature, Mr. Román Dávila testified that in the deposition he had testified that this wás his son’s signature, but now that he is concentrated on this financial statement, this is not his son’s signature. He stated that if we compare this signature with that of Exhibit 3, they are very different. He stated that he does not know who signed this on his behalf without his knowledge. He also stated that he cannot pinpoint whether this document was prepared in his office. Exhibit 4. He stated that the financial statements disclose that Dr. Reyes’ net worth as of July 31, 2005 was in the amount of $1,581,550. Mr. Román Dávila stated that he did not have any knowledge regarding the reasons Dr. Reyes’ assets decreased from 2001 to 2005. He stated that it is irregular for his son to prepare a balance sheet using his letter head.
Mr. Román Dávila stated that he has never prepared financial statements for Dr. Francisco Quintero. He stated that he recognized Dr. Francisco Quintero Peña’s financial statement as of June 30, 2000 which has his letter head and his name printed at the bottom. He testified that he did not prepare the same. He testified that he cannot state under oath whether his son prepared this document using his letter head. Exhibit 5. He further testified that his letter head is not saved in the computer system where his son works. This is done on the typewriter.
No cross-examination was conducted. *579 The second witness presented by the Petitioning Creditors was Félix Norman Román Negrón.
Félix Norman Román Negron is a CPA since 1996. He testified that he went to the Seton Hall University in New Jersey and graduated in May 1992 with a bachelor’s in science with a major in accounting. After graduating from college in 1992 he started working at his father’s office. Around 1996-1997, he formed a partnership with CPA Joaquin Torres Hernandez which later became a corporation that lasted until late 2005. He stated that he began the professional corporation with CPA Torres around 2000-2001. Mr. Román Negron stated that corporation of RTC Roman Torres is located at an office owned by his father.
Mr. Román Dávila stated that he knows Dr. Reyes since 1994 through a friend of his father’s that informed him that Dr. Reyes had moved to Puerto Rico and was looking for an accountant. Mr. Román offered accounting services provided by his office to Dr. Reyes. Dr. Reyes was initially a client of the office Félix Román Dávila d/b/a Accounting and Computer Center. He stated that he was mostly the person who worked on Dr. Reyes accounting because bookkeeping could be worked by one of the employees of the office as well as some other matters. He stated that he cannot answer whether his father did work for Dr. Reyes because different tasks were assigned in the office.
Mr. Román stated that he knows Dr. Francisco Quintero because he was referred by Dr. Reyes around 1995-1996. He stated that his father might have done some work for Dr. Quintero such as revising the bookkeeping and done some entries. The work that an accounting office would do. He stated that he was still the CPA of Dr. Reyes. He stated that his office has done accounting work for Dr. Reyes and for the entities controlled by him such as bookkeeping, tax returns, deficiencies with the IRS, CRIM and financial statements. He stated that he worked on a 2005 financial statement in which he used the letter head of his father’s office. Exhibit 4. He also stated that he worked on the October 31, 2002 financial statement. Exhibit 3.
Mr. Román Negron stated that he signed the October 31,2002 on behalf of his father because at the time when it was prepared his father might not be at the office. This was something that we used to do. He stated that Dr. Reyes was not a client of the professional corporation that he had with his partner. He also stated that Dr. Reyes’ income tax returns for the year 2002 were prepared by him either by the professional corporation or under the tax preparer’s name. Mr. Román Negrón stated that his father has indirectly prepared income tax returns for Dr. Reyes but he is not sure whether his father signed the income tax returns. He would have to see the documents.
Mr. Román stated that he used his father’s letterhead instead of the professional corporation letterhead because the office clients before Mr. Torres joined the firm would be revenue of the d/b/a arid the new clients would form part of the revenue of the professional corporation. He stated that he was an employee of his father and a partner in the professional corporation so he could do work for his father’s clients and for the professional corporation. He further stated that his father’s statement that Dr. Reyes had never been a client of his is an incorrect statement.
He stated that the October 31, 2002 balance sheet was prepared upon the client’s request. Mr. Román Negrón stated that there is no way of knowing that he prepared the October 31, 2002 balance sheet. *580 Exhibit 3. Mr. Román Negrón stated that he prepared the July 31, 2005 balance sheet (Exhibit 4). However, he stated that he believed that was his signature but that he is not 100% sure. Mr. Román Negron testified that the balance sheets which correspond to Exhibits 3 and 4 were prepared using verbal information provided by Dr. Reyes which he did not corroborate. He stated that he does not have any factual information for the diminution of Dr. Reyes’ net worth from the year 2002 to 2005. Dr. Reyes has never explained to him the diminution of assets he suffered from the year 2002 to the year 2005.
Mr. Román Negrón identified the financial statements of Grupo Toraya de Puerto Rico for the years 12/31/2003 and 12/31/2002 that had the letter head of RTC Román Torres and Company PSC. He testified that he was a partner and shareholder of RTC Román Torres and Company PSC. He was the president of RTC Román Torres and Company PSC. He stated that Grupo Toraya is one of the corporations that Dr. Reyes had participation in the same. The independent auditor’s report is dated April 7, 2004 and it is signed by the firm, RTC Román Torres and Company PSC. Exhibit 6. The third paragraph of the independent auditor’s report reads as follows: “[i]n our opinion the financial statements referred to above presents fairly in all material respects the financial position of Grupo Toraya Puerto Rico Inc. as of December 31, 2003 and December 31, 2002 and the results of its operations and cash flows for the years then ended in conformity with Generally Accepted Accounting Principles in the United States of America.” The last paragraph reads, “[t]he accompanying financial statements have been prepared assuming that the company will continue as a going concern. As discussed in note 9 to the financial Statements, the company’s significant operating losses bring substantial doubt about its ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.”
Mr. Román explained that “a company will continue as a going concern” if it does not make any operational adjustments, either lower expenses, increase revenue or a capital injection, then the ability to meet ends might not be possible in the near future. The financial condition of . Grupo Toraya as of April 7, 2004 was that it had a cumulative deficit of $866,422 and stockholder’s equity of $660,902 in deficit. The financial statements were prepared for income tax compliance purposes (which was due on April 15) and for the bank. Note 9 of the financial statements states: “[a]s shown in the company’s financial statements, the company incurred a net loss of ($608,438) during the year December 31, 2003 and as of that date, the company’s liabilities exceed the assets by $784,557 and its total liabilities exceeded its total assets by $660,902. Those factors as well as the uncertain conditions that the company faces regarding this loan agreement created an uncertainty as to the company’s ability to continue as a going concern. Management of the company is developing a plan to reduce this liability through sale of assets, reducing administrative overhead, improving internal control over assets, and issuance of additional stock to shareholders. The ability of the company to continue as a going concern is dependent on the plan’s success. The financial statements do not include any adjustment that might be necessary if the company is available to continue as a going concern.”
Mr. Román Negrón reviewed Dr. Reyes’ income tax returns from the years 2000 through 2006 and stated that he had prepared them. Exhibit 7. He stated that Dr. *581 Reyes’ income tax return for the year 2000 was prepared by Félix Norman Román, CPA and it was signed by Roman Accounting and Tax Consulting which is his father’s d/b/a. The income tax return was signed by Dr. Reyes. For the year 2000, the net income subject to income tax was $183,138 (blurry). Mr. Román testified that he signed the income tax return for the year 2001 using his personal registry number. The same is signed by Dr. Reyes and the accounting firm is Román Torres and Company PSC. The net income subject to income tax was $122,025 (blurry). CPA Román stated that he did not have an explanation as to how Dr. Reyes with that net income had almost $9 million in assets in the year 2001.
He stated that he prepared Dr. Reyes income tax return for the year 2002 using his own personal registry number and the accounting firm is Román Torres and Company PSC. The net income subject to income tax for the year 2002 was $101,870. Mr. Román testified that he does not have an explanation of how Dr. Reyes with a net income of $101,870 has assets of almost $10 million in October 2002. He also prepared Dr. Reyes income tax return for the year 2003 using his own personal registry number and the accounting firm is Román Torres and Company PSC. The net income subject to income tax for the year 2003 was $90,435. He also stated that he prepared Dr. Reyes income tax return for the year 2004 using his own personal registry number and the accounting firm is Román Torres and Company PSC. The net income subject to income tax for the year 2004 was $306,015. He testified that Dr. Reyes’ income increased by approximately $200,000 in the year 2004 because he had income from a professional services corporation which is Cosmetic Hair and Surgery Center PSC. Mr. Román stated that he also prepares the income tax returns for Cosmetic Hair and Surgery Center PSC. Mr. Román stated that Cosmetic Hair and Surgery Center PSC is a pass through entity through subchapter N in Puerto Rico.
Mr. Román testified that he prepared Dr. Reyes income tax return for the year 2005 using his own personal registry number and the accounting firm is RTC Román and Company PSC. The 2005 income tax return is under the accounting firm of RTC Román and Company PSC because late in the year 2005 Joaquin Torres left and the corporate name was changed in early 2006. All clients that belonged to Román Accounting and Tax Consulting were merged into the professional services corporation and my father became an employee of the professional services corporation during late December 2005. The net income subject to income tax for the year 2005 was $498,376. Mr. Román testified that he does not have an explanation as to why even though Dr. Reyes’ net income increased significantly during the years 2003 and 2004, his net worth in the year 2005 is only $1.5 million.
He also testified that he prepared Dr. Reyes’ income tax return for the year 2006 under the accounting firm of RTC Román and Company PSC. The net income subject to income tax for the year 2006 was $141,752. He stated that Dr. Reyes’ net income decreased during the year 2006 because he had more mortgage interest. The mortgage interest is disclosed in the forms the bank prepares and sends to the clients to prepare the tax returns. The two (2) mortgages for which he is deducting the interest are for a principal residence and a second residence which are both with R & G Mortgage Corporation. Mr. Román stated that Dr. Reyes deducted mortgage interest for the first mortgage in the amount of $57,635 and for the second *582 mortgage, the mortgage interest is $59,357. He stated that for the years 2004 and 2005, Dr. Reyes also deducted the mortgage interests pertaining to these two mortgages. However, in the year 2003, these mortgage interests were not deducted. He stated that Dr. Reyes began deducting these mortgage interests in the year 2004. It is also in the year 2004 in which there was a going concern with Gru-po Toraya.
Mr. Román identified a comparison and review of balance sheet 2002 and 2005 of Edgar A. Reyes, M.D. revised by CPA Félix Román, He stated that the document’s pages were numbered 1-5 and 27-69, but that pages 6-26 were missing. He stated that he did not prepare this document, but that he might have seen pages 1,2, 3 and 4. However, he stated that he did not prepare the document and that he does not know why that document has his name on it, Mr. Román stated that the explanation that is in the comparison of balance sheets on pages 1 through 5 is complete. Mr. Román stated that he did not revise this document or render an opinion on the document. He stated that he did not authorize for his name to be included in this document. He further stated that he does not use CPA Félix Román, instead he always uses CPA Félix Román Negrón. Mr. Román stated that this particular document has different sections; such as position of cash, the account receivables, the prepaid expenses and is showing moving balances of assets and liabilities. Exhibit 8 with limited purpose. Mr. Román stated that he recognizes the group of documents of Inmobiliaria Cana-rias Corp. CXA because they were prepared by his office and signed by him. This corporation was created on December 22, 2003 with an effective date of January 1, 2004. He stated that he was the incorpo-rator and Eric Y. Reyes Colón, Dr. Reyes’ brother, was the resident agent. Mr. Román stated that this corporation was created as part of Dr. Reyes’ estate planning. He stated that Dr. Reyes and himself visited attorney Tcherine Andujar because he wanted to create a trust for estate planning purposes because Dr. Reyes had marketable securities in the United States and those would be taxable if he were to die plus he was in the process of getting a divorce and he has a child. Dr. Reyes also had an investment advisor (Ram Colluti) in the United States who wanted to create certain entities in the United States so that certain assets could be placed in those entities.
Mr. Román also stated that he attended a meeting with Dr. Reyes, attorney Manuel Villalón and Ram Colluti to discuss the tax effects. The separate entities were created at the same time for estate planning purposes. The 5 inmobiliarias and the professional services corporation were all created the same day, December 22, 2003. The names of the 5 inmobiliarias are the following: (i) Inmobiliaria Canarias; (ii) Inmobili-aria Asturias; (iii) Inmobiliaria Baleares; (iv) Inmobiliaria Galicia; and (v) Inmobili-ria Madrid. He testified that he' does not know the reason Dr. Reyes does not appear in the certificates of incorporation of the 5 inmobiliarias. Mr. Román stated that Dr. Reyes gave him instructions to include his brother as resident agent of the inmo-biliarias. Exhibit 9 (corporate documents from the State Department).
He further testified that he believes that the address that appears in the 2004 Inmo-biliaria Canarias corporate annual report of condominio Adaligia on Ashford Avenue is the office of Eric Reyes. In the 2004 annual report of Inmobiliaria Canarias the President and Treasurer was Eric Reyes Colón. Inmobiliaria Canarias in the year 2004 did not have any assets and liabilities. *583 The sworn statement for this annual report was signed by Eric Reyes. Mr. Ro-mán testified that he prepared the annual report. In the 2005 annual report for In-mobiliaria Canarias, the resident agent is Eric Reyes and the President, Secretary and Treasurer is Francisco Quintero Peña. He stated that Francisco Quintero Peña is a client of his office and a friend of Dr. Reyes. Mr. Román testified that Dr. Francisco Quintero appeared as President of Inmobiliaria Canarias in the year 2005 instead of Eric Reyes pursuant to Dr. Reyes’ instructions. He is not aware of any consideration given to Dr. Quintero for appearing as President of Inmobiliaria Cana-rias in 2005. The 2005 balance sheet of Inmobiliaria Canarias discloses assets in the amount of $1,950,000 in depreciable assets which consist of real estate. He stated that he does not have an explanation as to the income Inmobiliaria Canarias had to purchase this depreciable asset. He does not know whether Inmobiliaria Cana-rias was in a financial condition in the year 2005 to assume liabilities of $1.2 million. He stated that Dr. Reyes provided the information for the preparation of the 2005 annual report. The information provided was mostly verbal and he took the same as face value. However, he stated that he might have seen other information, but does not recall. The 2005 annual report of Inmobiliaria Canarias was signed by Dr. Francisco Quintero Peña. Mr. Román clarified that even though the sworn statement includes the name of Francisco Quiñones that is an error from the notary, because it was Dr. Francisco Quintero Peña who signed the sworn statement. He does not recall whether Dr. Francisco Quintero Peña was married in the year 2005.
Mr. Román testified that for the 2006 annual report for Inmobiliaria Canarias, Eric Reyes appeared as the resident agent, and Dr. Francisco Quintero Peña and Criselid J. Rivera Muñoz appear as officers of the corporation, Criselid Rivera Muñoz is his wife and an employee of RTC Román and Company. He explained that Criselid Rivera Muñoz appears as the vice president of this corporation because sometimes in order to fulfill the Department of State’s requirement his father or his wife would sign as temporary officials in order to submit the annual reports. The annual report was submitted on July 17, 2007 and Criselid Rivera’s appointment was until July 31, 2007. The assets that appear on the balance sheet total $1,863,233 of which $1,850,000 consist of depreciable assets and the remaining $13,233 is cash in bank. The information was provided from Dr. Reyes’ bank statements and he prepared a worksheet with some of the bank transactions. Mr. Román stated that Inmobiliaria Canarias was a client of RTC Román and Company. He testified that he did not receive payment from Inmobiliaria Canari-as for his accounting services. However, he stated that he received payment from Dr. Reyes for the overall accounting services that was provided to Dr. Reyes and his corporations. Mr. Román testified that RTC Román and Company prepared all the income tax returns for all the five (5) inmobiliarias. All the accounting information of the corporate annual reports and the income tax returns for the inmobiliari-as was provided by Dr. Reyes. There were also some bank statements that had Francisco Quintero’s address that were provided to his office for book keeping purposes.
Mr. Román testified that he believes that in the year 2005, the depreciable assets consisted of a pent house and another real éstate asset. He stated that the deprecia-ble assets that were included in the 2005 and 2006 annual reports were assets of Dr. Reyes in which he had been thé seller. He further stated that he had no knowledge as *584 to why these assets had been transferred to Inmobiliaria Canarias. He stated that Dr. Reyes had shown him an Order from the state court, Bayamón part, in which the assets were sold to increase capital to pay Banco Popular. Mr. Román stated that Dr. Reyes did not show him a closing statement or title study of the real estate sales. He stated that Dr. Reyes did not inform him that those real estate sales authorized by the Bayamón court were subject to showing Banco Popular the title studies and closing statements. Mr. Román testified that since he prepared the tax returns, he included those sales in his personal tax return. However, he does not know what happened to the monies that were paid for these properties. He stated that he prepared the income tax return of Inmobiliaria Canarias when it purchased the real estate. He also stated that he cannot assure whether Inmobiliaria Cana-rias was paying the mortgage loan Dr. Reyes had on that property.
The court stated that it would reconvene tomorrow at 9:30am tomorrow.
/s/
Enrique S. Lamoutte United States Bankruptcy Judge
Minute Entry
Hearing Information:
Involuntary Debtor: Edgar Abner Reyes Colon
Case Number 06-04675
Date/Time/Room: 11/13/2015/ 09:30am/ osjcrt2
Bankruptcy Judge: Enrique S. Lamoutte
Courtroom Clerk: Darhma Zayas
Reporter/ECR: Jose Romo
Matter:
Evidentiary hearing to consider the following: (i) whether there are special circumstances compelling the court to obviate the three (3) creditor statutory requirement in 11 U.S.C. § 303 (b); (ii) whether the involuntary debtor was not paying his debts as they became due as required by 11 U.S.C. § 303 (h) (Docket Nos. 404 & 488).
Motion for Entry of Order for Relief as a Sanction for Involuntary Debtor’s Discovery Violations (Docket No. 501).
Opposition to Motion for Entry of Order for Relief and Request to Reconsider Denial of Order Limiting Scope of Discovery (Docket No. 518)
Appearances:
Eldia Díaz Olmo, Banco Popular de Puerto Rico (“BPPR”)
Roberto Abesada Aguet, BPPR
Gerardo Pavia Cabanillas, Popular Auto, Inc.
Fernando Van Derdys, Involuntary Debtor
José Nieto Mingo, Involuntary Debtor
Manuel Segarra, Dr. Francisco Quintero
Proceedings:
Continuation of CPA Félix Norman Ro-mán Negron’s testimony (second witness)
Mr. Félix Román Negrón testified that Inmobiliaria Canarias (Exhibit 9) was one (1) of six (6) corporations that were created on the same day on December 22, 2013 per the instructions- of Dr. Edgar Reyes. He stated that Dr. Reyes controls and owns these six (6) corporations. When these corporations were created, no stock certificates were prepared. He stated that he had never seen certificates of stock or certificate of shares for these six (6) corporations.
*585 Dr. Edgar Reyes Colon July 31, 2005— Balance Sheet (Exhibit 4)
Mr. Román testified that he prepared this balance sheet per the instructions and information provided by Dr. Reyes, He stated that he did not corroborate the balance sheet information. Mr. Román stated that he did not know that this Balance Sheet would be provided to Banco Popular. He does not recall Dr. Reyes telling him the purpose for the preparation of the July 31, 2005 Balance Sheet. The July 31, 2005 balance sheet under the Assets does not disclose that Dr. Reyes is the owner of closely held corporations; namely: (i) In-mobiliaria Canarias; (ii) Inmobiliaria Asturias; (iii) Inmobiliaria Baleares; (iv) Inmo-biliarias Galicia; (v) Inmobiliarias Madrid; and (vi) Cosmetic Hair and Surgery Center, PSC. Mr. Román stated that in all six (6) corporations, Dr. Reyes has an interest and assets in the same. However, Dr. Reyes' interest in these six (6) corporations is not disclosed in the July 31, 2005 balance sheet.
Exhibit 10 — Inmobiliaria Asturias Corp. CXC
Mr. Román identified Identification # 10 as Inmobiliarias Asturias Corp. CXC certification of incorporation and several annual reports filed in the State Department for the years 2003-2012. He stated that he recognized and prepared these documents. Identification 10 was marked as Exhibit 10 with the same limitation as ordered by the court yesterday; namely that the rest of the corporate documents dated after 2006 are conditioned on deferred evidence that will be presented as to whether the same is relevant.
Mr. Román stated that Inmobiliaria Asturias is a corporate entity which.he created pursuant to Dr. Reyes’ instructions. Eric Reyes Colón, Dr. Reyes’ brother was the resident agent, President and Treasurer for this corporation per the instructions of Dr. Reyes. In the annual report for the year 2004 there were no assets or liabilities for Inmobiliaria Asturias. Mr. Román stated that in the annual report for the year 2005, Eric Reyes still appears as the resident agent for Inmobiliaria Asturias. However, the President and Secretary of this corporation is now Francisco Quintero Peña per Dr. Reyes’ instructions. In the 2005 annual report, the only disclosure is $1,000 in preferred/common stock. CPA Román testified that he had never seen a check issued for $1,000 nor the source of the $1,000.
In the 2006 annual report for Inmobiliaria Asturias, Eric Reyes appears again as the resident agent and Francisco Quintero Peña appears as President, Treasurer and Secretary and Criselid Rivera Muñoz appears as Vice-President and assistant Treasurer. Mr. Román stated that Criselid Rivera is his wife and an employee of RTC Román. Mrs. Criselid Rivera’s appointment as Vice-President and assistant Treasurer is limited. Mrs. Criselid Rivera appears in this annual report because Francisco Quintero Peña could not sign the documents for the annual report. Mr. Román stated that in the year 2006 balance sheet there is $1.9 million in real estate, but he does not know how many properties comprise the $1.9 million. The liabilities are listed in the amount of $1,899,000. CPA Román stated that he did not know the source of the income used by Inmobiliaria Asturias to purchase the real estate assets. He stated that he did not know the source of income Inmobiliarias Asturias had to assume the $1,899,000 in liabilities. He testified that he did not know whether Inmobiliaria Asturias was operating as a corporation generating income in order to assume those liabilities. He testified that the only thing he knew is *586 that Inmobiliaria Asturias is owned and controlled by Dr. Reyes. Mr. Román testified that Dr. Reyes July 31, 2005 balance sheet does not reflect Inmobiliaria Asturias or the $1.9 million in real estate assets.
Mr. Román stated that RTC Román & Company does the accounting for all the six (6) corporations that were created by Dr. Reyes. However, RTC Román & Company only does the bookkeeping for Cosmetic and Hair Surgery. They do not do the bookkeeping of the other corporations (the Inmobiliarias) due to lack of information. Mr. Román explained that in the ordinary course of business, the bank records of the Inmobiliarias were hard to get because the office would request the same from Dr. Quintero and maybe Dr. Reyes and they did not have them available.
Exhibit # 11 — Inmobiliaria Asturias’ Bank Statements (11/2006) & Exhibit #12 — Inmobiliaria Asturias CxA Corp, 2006 Corporation Income Tax Return
Mr. Román testified that Identification # 11 is an R-G Premier Bank Statement for the period of 11/01/2006 through 11/30/2006 and it reflects deposits and disbursements. The account is under the name of Francisco Quintero DBA Inmobi-liaria Asturia CXA. He stated that he had seen Identification 11 before in part to prepare the income tax returns for Inmo-biliaria Asturias and be able to calculate the amount of mortgage interest that In-mobiliaria Asturias will disclose in its income tax return, Mr. Román explained that the bookkeeping of the worksheet to get the data of the income and expenses is done by an employee which he supervises. Mr. Román stated that he recognizes Identification # 12 which is the 2006 corporate income tax return of Inmobiliaria Asturias because he prepared it and signed it. Mr. Román stated that in Exhibit 11, there is a November 16, 2006 miscellaneous transaction which is a $10,936,04 debit that is described as RG Mortgage Corp/ at Transfer payment for mortgage loan 1304078 Edgar A. Reyes Col. This is a mortgage payment that is debited from the account of Francisco Quintero for the payment of a mortgage loan # 1304078. Mr. Román stated that this is the first time that he has seen that today, even though he has seen the entire bank statement. He stated that it might be for Dr. Reyes’ mortgage loan.
Mr. Román stated that Dr. Reyes’ year 2006 income tax return (Exhibit 2) discloses a deduction for mortgage interest for loan # 1304078 in the amount of $59, 357 which is the same number as the bank statement. He further stated that in line item # 29 of the 2006 corporate income tax return of Inmobiliarias Asturias there is a mortgage interest deduction in the amount of $56,950.00. Mr. Román testified that Dr. Edgar Reyes was deducting in his individual tax return the mortgage interest for the same mortgage loan and the same real estate as Inmobilirias Asturias. Mr. Ro-mán explained that when he prepared th tax return, Dr. Reyes made representations that he did not have the bank informative, thus he provided me with the amount of the loan and the interest type and prepared an amortization table to obtain the interest. He further stated that eight, nine years ago he did not realize that he was taking the same mortgage interest deduction twice for the same loan. Mr. Román stated that Dr. Reyes did not inform him that he was taking that mortgage interest deduction twice.
CPA Román testified that he does not have an explanation as to why Francisco Quintero appears in the bank statement of Inmobiliarias Asturias (Exhibt 11). He stated that it is not until today that he *587 realized that it was a DBA. Mr. Román testified that if you open a corporate bank account you need a corporate EIN number. If you open a DBA account, you will use your personal social security number and it will not be related to the corporation. He explained that if you have a corporation, you should not open a DBA account because the assets and liabilities will not go to the corporation, they will go to the individual, not the corporate balance sheet.
Exhibit # 13 — Inmobiliaria Baleares CXA Corp, — Corporate Documents
Mr. Román stated that he has examined Identification # 13, Inmobiliaria Baleares was created on December 22, 2003 per the instructions of Dr. Reyes. Eric Reyes Co-lón appears as the resident agent per the instructions of Dr. Reyes. He testified that Eric Reyes Colón in the year 2004 appears as the President and Treasurer of Inmobi-liaria Baleares per the instructions of Dr. Reyes. The 2004 balance sheet of Inmobili-aria Baleares discloses $146,425 in investments. Mr. Román testified that he did not know the source or origin of those investments, but he believed that these were Dr. Reyes Colon’s investments.
In the year 2005 annual report, Eric Reyes still appears as resident agent, President and Treasurer of Inmobiliaria Baleares. Mr. Román testified that in the year 2005, the investments increased to $1,045,715. These are Dr. Reyes Colon’s investments. He testified that he has seen a UBS account statement, but that he does not recall seeing Charles Schwab account statements. Mr. Román testified that the annual report information is pursuant to the verbal information provided by Dr. Reyes.
In the year 2006 annual report, Eric Reyes Colón appears as resident agent, President and Treasurer of Inmobiliaria Baleares. Dr. Francisco Quintero was not the president and treasurer of Inmobiliaria Ba-leares because those were not the instructions of Dr. Reyes. He stated that his wife and employee of RTC Román & Company, Criselid Rivera Muñoz, appears as the vice president and assistant treasurer with a limited appointment until July 31, 2007. CPA Román stated that in this annual report, Criselid Rivera Muñoz appeared because nobody was available to sign the annual report. Mr. Román stated that his wife,- Criselid Rivera Muñoz would appear in annual reports because nobody was available and this happened as well with 24 other clients in the office in the year 2006. In the 2006 annual report, there is a decrease in investments to $870,690 and there is a note receivable in the amount of $176,576. Mr. Román stated that he did not have an explanation or personal knowledge of the decrease in investments or of the note receivable. He stated that the those are Dr. Reyes’ investments and he assumes that the note receivable is also of Dr. Reyes. The capital surplus in the amount of $1,000,000 is part of the capital that Dr. Reyes invested in the corporation.
Mr. Román Negrón testified that in Dr. Reyes’ July 31, 2005 balance sheet (Exhibit 4), in the assets section, the Inmobiliari-as Baleares’ investments do not appear. He stated that these investments were supposed to be in the balance sheet, but they were not included because the information that appears in the July 31, 2005 is information that was taken at face value from Dr. Reyes.
Exhibit # 14 — Inmobiliaria Galicia CXA Corp, — Corporate Documents
Inmobiliaria Galicia was also created on December 22, 2003. Mr. Román stated that he was the incorporator of all these corporations. He stated that in the year 2004, Eric Reyes Colón appears as the resident *588 agent, President and Treasurer of Inmobi-liaria Galicia. In the year 2004, Inmobilia-ria Galicia did not have any assets or liabilities. In the year 2005, Eric Reyes Colón appears as the resident agent, President and Treasurer of Inmobiliaria Galicia. The 2005 balance sheet of Inmobiliaria Ga-licia discloses $1,045,715 in investments. Mr. Román testified that he just realized that it was a mistake which was done when the returns were being compiled, given that the investment information for Inmo-biliaria Baleares for the year 2005 is the same. He stated that for this particular corporation for this year, it might have been in blank, meaning with no assets and no liabilities. The information was provided by Dr. Reyes for Baleares not for Galicia. He testified that this was a mistake of his office. Mr. Román stated that he does not know why Inmobiliaria Galicia never had assets or liabilities.
Exhibit # 15 — Inmobiliaria Madrid CXA Corp. — Corporate Documents
Inmobiliaria Madrid was also created on December 22, 2003 pursuant to Dr. Reyes’ instructions. Mr. Román stated that he was the incorporator of this corporation. He stated that in the year 2004, Eric Reyes Colón appears as the resident agent, President and Treasurer of Inmobiliaria Madrid. In the year 2004, the balance sheet of Inmobiliaria Madrid discloses $1,342,288 in investments. Mr. Román testified that he believes that these monies belong to Dr. Reyes. He stated that he would have to assume that these monies are from Dr. Reyes’ accounts because he has not seen any document regarding the transfer because he took as correct the information that Dr. Reyes requested to include in the balance sheet. The capital surplus of $1,300,000 that appears in the balance sheet is the capital investment in the company by Dr. Reyes.
Mr. Román Negrón testified that the investments in Inmobiliaria Madrid in which Dr. Reyes invested were supposed to be in Dr. Reyes’ July 31, 2005 balance sheet, but they were not included (Exhibit 4). In the 2005 annual report, the investments in In-mobiliaria Madrid were in the amount of $1,401,906 and the capital surplus was maintained the same, namely $1.3 million. Mr. Román stated that this information was provided by Dr. Reyes so that he could prepare the balance sheet.
In the 2006 annual report, Francisco Quintero appears as the president, treasurer and secretary of Inmobiliaria Madrid and Criselid Rivera Muñoz appears again as the vice president and assistant treasurer. In the 2006 annual report, the investments increased to $1,492,810 and the capital surplus remained the same at $1.3 million. The liabilities increased to $190,571. Mr. Román stated that he did not have personal knowledge regarding the increase of the liabilities and that these were Dr. Reyes’ liabilities.
Exhibit 16 — Cosmetic Hair and Surgery Center, PSC — Corporate Documents
Mr. Román testified that Cosmetic Hair and Surgery is one of the corporations that he created pursuant to Dr. Reyes’ instructions. He stated that he prepared the annual reports that appear in the Exhibits. Mr. Román stated that the financial statements of Cosmetic Hair and Surgery Center that are attached in this Exhibit were prepared because the company had more than one million dollars in gross income and up to the years 2009 or 2010, the law required that any corporation that had more than a million dollars in gross sales had to include an audited financial statement. '
*589 Mr. Román stated that on page 3 of the December 31, 2005 financial statements there is a description of depreciation regarding property and equipment. There is a building which is subject to thirty (30) years depreciation which he does not know which building it is. Mr. Román explained that these notes are accounting policies that are not necessarily inside the financial statement. Mr. Román testified that this note does not constitute a representation that Cosmetic Hair and Surgery had real estate. Mr. Román clarified that if there were buildings in the asset portion of the balance sheet, it might have been depreciated in thirty (30) years or a leasehold improvement in 10 years. The only assets Cosmetic Hair and Surgery had in the year 2005 were accounts receivables. Mr. Román stated that in the 2006 financial statements, the same note in the 2006 financial statements only referred to equipment and not the building depreciation for 30 years. Mr. Román stated that in the year 2006, the note was corrected from a previous error in the year 2005 notes.
Exhibit 17 — Fax dated 06/03/05 sent by Dr. Francisco Quintero Peña to Mr. Pér-ez & Exhibit 18 — Francisco J. Quintero Peña Statement of Financial Condition May 31, 2005
Mr. Román stated that 620-8445 is one of the faxes of the office. He stated that Dr. Quintero made some handwritten notes and in the ordinary course of business a client prepares these notes to prepare financial statements. CPA Román stated that his office uses the handwritten information by Dr. Quintero to prepare the financial statements. He further stated that the balance sheet of Dr. Quintero discloses two items; namely (i) investment in closely held corporations in the amount of $1,325,000; and (ii) marketable securities at market value in the amount of $2,653,000 which were not included in Dr. Quintero’s handwritten notes.
Mr. Román testified that the statement that appears on page 5 of Dr. Quintero’s Statement of Position disclosing that “Mr. Francisco Quintero owns 100% of the stocks of Inmobiliaria Canarias CxA Corp. and Inmobiliaria Galicia CxA Corp.” is not correct because Dr. Reyes is the owner of these stocks. Mr. Román stated that there is a false representation in these statements. CPA Román testified that Exhibit 3 which is Dr. Edgar Reyes — October 31, 2002 Balance Sheet shows a net worth in the amount of $9,835,850 and the only liabilities Dr. Reyes had back in October 2002 were accounts payable, payroll taxes payable, a credit line, and a mortgage with Doral Mortgage Corp. in the amount of $104,000. However, when we compare the October 2002 balance sheet with the July 31, 2005 balance sheet (Exhibit 4), there is a line item for mortgages payable to RG Mortgage Corporation in the amount of $2,959,000. Mr. Román testified that it was in the year 2004, that Dr. Edgar Reyes became responsible for the mortgages that appear in this statement. Mr. Román testified that Dr. Reyes’ liabilities increased from having almost no liabilities in the year 2002 to almost $3 million in mortgages payable to RG Mortgage in the year 2005 based upon Dr. Reyes’ representations that he was raising funds to pay off the Banco Popular case. CPA Román testified that one could assume that the monies obtained through these mortgages were transferred to Inmobiliaria Baleares and Inmobiliaria Madrid which combined had more than $2.5 million in investments. Mr. Román stated that he had not seen any documentation or checks tracing these transactions. He stated that in his opinion, it is probable that these transfers took place, given that he has been Dr. Reyes’ *590 personal accountant and the accountant of all his corporations since 1994-1995.
No cross examination.
Attorney Charles Alfred Cuprill Hernandez’s Testimony (third witness) Testifying under the same oath he took yesterday.
Exhibit 19 — letter from 12/08/2005 and letter from 12/13/2005
Mr. Charles Cuprill stated that he has been an attorney at law since December of 1968. Mr. Cuprill stated that he knew Dr. Edgar Abner Reyes Colón because he was a former client of his probably 7 to 8 years ago. Attorney Cuprill stated that if he recalled correctly he originally met Dr. Reyes Colón with a gentleman whose last name was Cusnier and they were involved in some sort of ice cream business. Thereafter, he became my client as a result of the endeavors of Banco Popular de Puerto Rico which eventually resulted in the filing of an involuntary petition by the bank against him. He testified that he does remember representing Dr. Reyes Colón regarding negotiations with Banco Popular de Puerto Rico, The attorney for Banco Popular de Puerto Rico as to the negotiations was Sergio Ramírez de Arellano.
Attorney Cuprill stated that he recognizes his signature on the December 13, 2005 letter which is the response to the December 8, 2005 letter. He stated that the December 8, 2005 letter from Attorney Sergio Ramírez de Arellano reads for itself as a request for an explanation as to the numerical diminution of capital reported to the bank by Dr. Reyes. As to the December 13 letter, Mr. Cuprill testified that there are paragraphs that are numbered one (1) to seven (7). He stated that the letter speaks for itself. This is a document of more than ten years, thus what the letter says is what it says. Mr. Cuprill testified that he does not recall whether he had an extensive meeting with Dr. Reyes as the letter states. He stated that the letter says that since the 2002 statement, Dr. Reyes divorced and that cost him $4 million dollars. Mr. Cuprill stated that at this time, he does not recall the particular information that appears on item 3, but whatever Dr. Reyes told me is within the scope of the client attorney relationship, thus I will not go into that. He further stated that he does not have any recollection as to the specific date of Dr. Reyes’ divorce. He stated that he does not recall whether Dr. Reyes had a prenuptial agreement.
Exhibit 20 — Docket No. 372-3 (Divorce Petition)
Mr. Cuprill stated that he sees that it is Docket No. 372-3 which I imagine is appended to some other document if I had the other documents, I could refresh my recollection. However, I do not have an independent recollection as to this document. Mr. Cuprill stated that paragraph 3 of the document (Docket No. 372-3) states that Dr. Edgar Reyes and Mrs. Tañon Correa had a prenuptial agreement.
Mr. Cuprill testified that he does not recall whether at the time he wrote the statement in item number 3, that states that Dr. Reyes divorced had cost him $4 million dollars in 2002, he was aware that Dr. Reyes did not have any liquidation of assets in his divorce.
He testified that whether Dr. Reyes provided him with the information or a document regarding item # 4 of the December 13, 2005 letter regarding the decrease in technology stock that cost Dr. Reyes $1.2 million is within the scope of the attorney client relationship. Mr. Cuprill testified that whether items # 4 through 7 are facts that Dr. Reyes provided him with are *591 within the scope of the client attorney relationship. Mr. Cuprill testified that the December 13, 2005 letter was sent to Sergio Ramírez de Arellano as counselor for Banco Popular,
Attorney Cuprill stated that he vaguely remembers that the Bayamón Superior Court had conditionally authorized Dr. Reyes to sell some property. He stated that if his memory doesn’t fail, the attorney John Garcia was representing Dr. Reyes at the time.
Exhibit 21 — Debtor’s Request for Authorization to Sell Property presented in the Bayamón Superior Court/ BPPR’s Response and state Court’s Order
Mr. Cuprill stated that the first document dated December 14, 2005 is a motion for authorization to sell real estate properties which was filed by attorney John Garcia. The first paragraph of that documents reads in the Spanish language as follows: “El 5 de agosto de 2005 se celebró vista en el caso dereferencia. En dicha vista, la parte compareciente se allanó a que se emitiera una orden en la cual se prohibe la venta de sus propiedades inmuebles.” He further stated that the next document is BPPR’s position regarding the request for that authorization. Paragraph three (3) of the said document states that BPPR has no opposition to the sale of real estate properties, subject to two (2) conditions which are: (i) to submit a title study and a closing statement prior to the sale; and (ii) if there are any proceeds from the sale they have to be paid to BPPR. The state court on January 25, 2006 rendered an Order authorizing the sale of the properties subject to BPPR’s conditions. Mr. Cuprill testified that he remembers seeing the motion authored by attorney John Garcia and it is possible that I have seen the others before today. He testified that he did not have personal knowledge of providing during that time to BPPR’s attorney a title study regarding the sale of a property. He stated that he did not have personal knowledge of providing BPPR’s counsel a closing statement regarding the sale of any real property.
No cross examination.
Attorney Maria Torres Cartagena’s Testimony (fourth witness) Testifying under the same oath he took yesterday
Mrs. María T. Torres Cartagena stated that she is currently single and was previously married to Mr. César Sierra. She stated that she believes to have graduated from law school in the year 1991 or 1992. She testified that she has known the Reyes-Colón family for approximately thirty (30) years. She stated that she is not related by blood to the Reyes-Colón family. Attorney Maria Torres stated that she met the Reyes-Colón family because one of her brothers studied with the parents of Dr. Edgar Reyes; Mr.. Porfirio Reyes and Mrs. Nilsa Colón. She statéd that Mr. Porfirio Reyes and Mrs. Nilsa Colón are both lawyers and her brother went to law school with them. She stated that as a result of the thirty (30) year friendship with the Reyes-Colón family, she occasionally participated in family gatherings and celebrations. Attorney Maria Torres stated that she has been working at the law firm of Mr. Porfirio Reyes and Mrs. Nilsa Co-lón, the Reyes & Reyes Law Firm, for more or less seven (7) years. She stated that before working at the Reyes & Reyes Law Firm, she had her own office located at Nogal Avenue in Bayamón. Attorney Torres stated that she closed her private office and went to work at Reyes & Reyes Law Firm. She stated that at the Reyes & Reyes Law Firm she may have her own cases and may also work together on cases with attorney Nilsa Colón. She stated that she does not receive a salary (income) *592 from Reyes & Reyes. She only has an agreement to share space at the Reyes & Reyes office. She stated that she is not a partner of the Reyes & Reyes Law Firm. She testified that there are no other partners besides Porfirio Reyes and Nilsa Co-lón. She testified that she has known Dr. Edgar Reyes for thirty (30) years. She stated that she knew that there was a Gelato’s business but she does not know anything about it. Attorney Torres testified that she never executed a deed regarding the Gelato’s business. She stated that she was never aware that Dr, Edgar Reyes was having financial difficulty with the Gelato’s business. Attorney Torres stated that Dr. Edgar Reyes’ financial difficulty with the Gelato’s business was not discussed at the office. She testified that she was aware that Dr. Reyes had incorporated Inmobiliaria Asturias and Inmobilia-ria Canarias. She stated that she was not aware that he had also incorporated Inmo-biliaria Baleares, Inmobiliaria Galicia and Inmobiliaria Madrid.
Attorney Torres stated that she recalls being subpoenaed to produce various deeds. She stated that she has already reviewed Exhibit 22 which consists of true and exact copies of the deeds that are in her protocol, except for the fact that certain information pertaining to social security numbers of the people appearing before you has been redacted.
Exhibit 22
Attorney Maria Torres stated that Deed number 1 is a Purchase Assuming Mortgage dated February 25,1995 in which Mr. Luis Enrique Kolb Ortiz and Mrs. Carmen Teresa Guzman Moran appear as the sellers and Dr. Edgar Reyes Colón appears as the buyer. The property that is being purchased by Dr. Reyes is the one that is located in block C-10 in Santa Cruz, Bay-amón. Attorney Maria Torres testified that the deed reflects that the purchase price was $70,000 and it had a mortgage of $50,246.83 and the difference of $19,753.18 was previously received. The deed states on page 4 that: “...manifiesta la parte vendedora haberlos recibido de manos de la parte compradora en esta misma fecha en Moneda del Curso Legal y Corriente de los Estados Unidos de América.” The deed stated that the seller states -having received from the buyer on this same date in currency of legal tender. Mrs. Torres testified that the monies were not necessarily received on the same act of execution of the deed. She stated that she asked the sellers if they had received the monies and they answered that they had received the same told her that the monies were received. Attorney Torres clarified that the monies were received by the sellers prior to the act of execution of the deed. She testified that she did not see an exchange of money during the act of execution..
Attorney Torres stated that Dr. Reyes’ parents own a property in Santa Cruz, Bayamón. The property is where the office is located. The address of the office is # C-22.
Mrs. Torres stated that deed # 2 is a deed of Judicial Sale executed in Ponce on February 20, 2002 by which Dr. Reyes purchased an apartment in Condominio Torre de Oro in Ponce, Puerto Rico. Attorney Torres stated that deed # 4 is a purchase assuming mortgage dated September 9, 2004. She testified that the transaction that took place with the execution of this deed was that Dr. Edgar Abner Reyes Colón sold areal property to Mr. Jaime Soler Perez and Ivette Perez Vega. Attorney Torres clarified that Mrs. Nydia Fernandez Cruz which is the wife of Mr. Jaime Soler Perez appeared in the deed to acknowledge that the monies used by her husband to acquire 50% of the property *593 interest of this purchase was of a private nature of her husband which was acquired by inheritance. Mrs. Torres testified that the purchase and sale clause starts at page 4 of the deed and reads, “Efectúase esta compraventa por el convenio y estipulado precio de $755,000 de los cuales la parte compradora ha expedido un cheque por la cantidad de $78,403.34 para el total de la hipoteca que actualmente grava la propie-dad, quedando la misma libre de cargas, los restantes $676,596.66 serán satisfechos de la siguiente forma; la cantidad de $22,500 que fueron entregado a la parte vendedora de manos de la parte comprado-ra al momento del otorgamiento del Con-trato de Opción y Compra y los restantes $654,096.66 manifiesta el compareciente de la Primera Parte haberlos recibido de ma-nos de la parte compradora en esta misma fecha en Moneda del Curso Legal y Cor-riente de los Estados Unidos de América por lo que ha hecho entrega de las más formal y eficaz carta de pago.” This purchase and sale was made for the agreed and stipulated price of $755,000 of which the buyer has issued a check for the amount of $78,403.34 for the total payment of the mortgage that currently encumbers the property leaving it free from the encumbrances. The remaining $676,596.66 will be paid in the following way: the amount of $22,500 that were delivered to the seller by the buyer at the moment of execution of the Purchase Option Agreement and the remaining $654,096,66 the first appearing party states having received from the buyer on this same date in currency of legal tender of the United States of America for which he has delivered the most formal and efficient letter of payment.
Attorney Torres testified that she does not recall whether the amount of $654,096.66 was paid by the buyer to the purchaser in her presence. She stated that the deed reads that it was paid on the same date. Attorney Torres stated that she understood the difference between a buyer paying the purchase price before the execution of a deed versus when the buyer pays the purchase price in your presence while executing a deed. She stated that it is possible that the purchase price was paid in her presence, but she does not recall. She further testified that the deed reads that the purchase price was paid before the execution of the deed. That is what the parties said.
Mrs. Torres' testified that Dr. Edgar Reyes appeared before her on June 30, 2005 to execute deeds number 17, 18 and 19. She stated that Dr. Reyes appears in deed number 17 which is a cancellation of mortgage note and he must have been the one who provided her with the information to prepare the deed. Mrs. Torres testified that deed numbers 18 and 19, are both Purchase of Sale deeds in which Dr. Reyes provided her. with the information to prepare the same.
Attorney Torres testified that she has known Francisco Quintero for approximately twenty (20) years. She stated that she met Francisco Quintero because he is the brother of a woman that used to be my neighbor and he is the one who represented the corporations in the deeds. She stated that Dr. Quintero is a family friend of the Reyes-Colón family. Mrs. Torres testified that she believes that Dr. Francisco Quintero studied medicine with Dr. Edgar Reyes. She stated that Dr. Quintero and Dr. Reyes were good friends.
Attorney Torres stated that she does not recall whether the execution of these three (3) deeds were done at the same time and in the same place. She testified that in Deed # 17, Dr. Edgar Reyes appeared before her to cancel a mortgage that was encumbering the office #507 at Arturo *594 Cadilla Building. She stated that she does not recall whether the purchase deeds number 18 and 19 were executed at the same time by the seller and buyer. She testified that does not remember going to any other place to obtain the signature of the appearing parties of the deeds.
Attorney Torres stated that at the time the deeds were executed, she was at her private office in Nogal Avenue. She testified that her office was not near the Reyes & Reyes law firm, Mrs. Torres testified that in deeds number 18 & 19, attorney Nilsa Colón de Reyes is the one executing the corporate resolutions authorizing Dr. Quintero to appear on behalf of Inmobi-liara Canarias. Attorney Torres testified that the corporate resolution was signed before her as Notary Public on that same date.
Mrs. Torres stated that she does not remember if Dr. Reyes at that time was the owner of Inmobiliaria Canarias. The one who appears in the deed as President of Inmobiliaria Canarias is Dr. Quintero. Attorney Torres testified that she has no knowledge as to whether Dr, Edgar Reyes incorporated Inmobiliaria Canarias and In-mobiliaria Asturias. She stated that in the deeds in which Inmobiliria Canarias or Inmobiliaria Asturias appeared, the one who always appeared was Dr. Quintero as an officer of the corporation. She testified that at this time, she did not know that the owner of Inmobiliaria Canarias was Dr. Edgar Reyes.
Attorney Torres testified that pursuant to Deed # 18, Dr. Edgar Reyes sold office #307 at the Arturo Cadillo Building to Inmobiliaria Canarias. On page 4 of Deed # 18, it states that the purchase price was paid on the same date but prior to the execution of the deed. Mrs. Torres stated that she specifically mentioned in this deed that the purchase price was paid prior to the execution of the deed because those were the representations of the appearing parties. The deeds reflect what the parties had told her. The purchase price for Arturo Cadilla was $575,000.
Mrs. Torres testified that pursuant to deed # 19, Dr. Edgar Reyes sold a property at Candelero Abajo, Humacao better known as Palmas del Mar to Inmobiliaria Canarias. She stated that deed # 19 on the third page specified that the purchase price was paid on the same date, June 30, 2005, but prior to the execution of the deed. Attorney Torres stated that she did not find anything strange that these two buddies were executing two (2) deeds of sale of over $1 million dollars and the purchase price was not paid in a check before you, but that they stop somewhere else and then went to your office. She testified that she had no reason to doubt from either of the two. She stated that on page 4 of the deed, it states that you provided the parties with the proper admonishments required by law. Attorney Torres testified that the admonishments that she remembers giving to the parties were that they had to have title studies, to present the deeds to the Property Registry, to notify the CRIM of the change in property owner. She stated that she usually requests a title study before executing deeds. Attorney Torres testified that she did not caution the parties that in deeds in which the notary public cannot give faith of the payment of the purchase price in her presence those deeds are presumed to be fraudulent because for her the deeds were not fraudulent. She further testified that it is her understanding that the language included in the deeds does not imply that there is a fraudulent conveyance presumption. Attorney Torres stated that she does not know of any jurisprudence from the Supreme Court that holds that a presumption of fraud arises when the notary cannot attest *595 that the exchange or the payment of the purchase price was done in her presence.
Mrs. Torres testified that she always asked the parties whether in fact the payment was done before the execution of the deed. She stated that she does not remember since this is a 2005 deed, but she must have asked Dr. Reyes and Dr. Quintero on this occasion whether a payment was made and the answer must have been yes, but she does not know recall. Attorney Torres stated that she does not remember who paid her for these deeds. She testified that she does not remember receiving a check from Inmobiliaria Canarias. She further stated that she would never present the deeds to the Property Registry for recor-dation, unless one of the parties requested that the deed be presented at the Property of the Registry. She stated that she does not remember whether in this occasion one of the parties requested that this deed be presented to the Property Registry for recordation. Mrs. Torres stated that Dr. Reyes’ office is located at #507 Arturo Cadillo. She testified that she does not ask her clients the reasons for the transactions. Attorney Torres stated that if she has a doubt as to the validity of a transaction, then she would investigate the facts and details regarding the transaction. Mrs. Torres stated that in this case, she did not have a doubt as to the validity of the transaction; namely Dr. Reyes selling his office to Inmobiliaria Canarias that was being represented by his friend, Dr. Quintero and that the certificate of corporate resolution was executed by Dr. Reyes’ mother and the exchange of over a million dollars for the acquisition of those properties were not paid before you.
Attorney Torres testified that the transaction of deed # 20 which was executed on July 28, 2005 consisted in Dr. Reyes constituting a mortgage in guarantee of a mortgage note on a property at the Dora-do Beach East urbanization in the amount of $675,000. This deed was executed in less than thirty (30) days from the prior deeds dated June 30, 2005 in which Dr. Reyes sold his office and the Palmas del Mar property. The Dorado Beach property had a first mortgage with R & G in the original amount of $1,212,570. She stated that this deed was executed to constitute a second mortgage in the amount of $675,000 over the Dorado Beach property. She testified that the mortgage note was payable to the bearer. Mrs. Torres testified that the note becomes effective upon the presentation of the note. She stated that she does not know whether Dr. Reyes had to negotiate the note for the mortgage to become effective.
Mrs. Torres stated that on page 6 of deed # 20, on the third paragraph the property valuation is included as required by the Mortgage Law. She testified that the value was added by a typewriter because the day the deed was executed the value is included on the deed. She testified that the value of the mortgage property was provided by the client but she corroborates the same with the amounts of the mortgage notes. Mrs Torres testified that Dr. Reyes told her that the value of the Dorado property was $2 million. She stated that she does not remember, but Dr. Reyes possibly had to show her some document in which the property was valued. Attorney Torres testified that she was not aware that three (3) days after the execution of the deed (as of July 31, 2005), Dr. Reyes told his accountant that the Dorado Beach property was valued at $1.3 million. She testified that she could not ascertain whether the reason that Dr. .Reyes told her that the property was valued at $2 million was to be able to register another lien that would exceed the true value of the property. *596 She stated that on page 4 of deed # 20, it reads that the mortgage note was returned to the appearing parties so that they would keep it or negotiate it, however they believe it is more convenient to their interests, Mrs. Torres testified that she did not discuss with Dr. Reyes what he was going to do with the mortgage note and what was more convenient to his interests. He is the one that decides what is more convenient to his interest. She stated that she returned to Dr. Reyes the mortgage note. Mrs Torres stated that the transaction of deed # 21 which was executed on July 28, 2005 was a constitution of a second mortgage in guarantee of a mortgage note which Dr. Reyes realized over apartment penthouse 2-N in ST. Mary’s condominium. This property has a first mortgage in favor of R & G in the original amount of $1,248,800. The second mortgage that was constituted pursuant to deed # 21 was for $750,000. She stated that on page 6 of deed #21, the penthouse at St. Mary’s condominium was valued at $2.5 million. Mrs. Torres testified that Dr. Reyes provided the information regarding the value of the penthouse to be included in the deed. She stated that she believed Dr. Reyes regarding the value of the penthouse. Attorney Torres testified that she must have seen some document that provided a value for the penthouse which was valued $500,000 more than the Dorado Beach East house. Mrs. Torres stated that in her opinion since the penthouse was in Condado, the value was greater than a house in Dorado Beach East. She stated that she trusted Dr. Reyes in providing the information regarding the value of the property. Mrs. Torres testified that she trusted Dr. Reyes because he is a serious and righteous person. Attorney Torres testified that she did not know that Dr. Reyes in July 2005 told his accountant that the Condado penthouse’s value was $1.2 million, less than half of the value disclosed in deed #21. Mrs. Torres stated that if she had known the true value of the Dorado Beach East and the Condado penthouse as he told his accountant, she would have disclosed the correct amount. She further testified that the she did not find anything abnormal regarding the execution of the two (2) deeds constituting second mortgages at the Dorado Beach house and the Condado penthouse, in less than thirty (30) days after selling his office and the Palmas del Mar property and even assuming that the value provided in the deeds, exceed the value of the properties.
Attorney Torres stated that she had no reason to mistrust. She had no negative criteria to think otherwise. She stated that she complied with all of her notarial duties under the law.
Mrs. Torres testified that in deed #25 which was executed on December 30, 2005 the transaction that occurred was that Dr. Reyes sold to Inmobiliaria Asturias the penthouse apartment 2-N in St. Mary’s building in Condado for $1,933,359.85. She testified that the buyer was Inmobiliaria Asturias. She stated that she did not know if Dr. Reyes was the owner of Inmobiliaria Asturias because all of the transactions were done by the President of the corporation, Dr. Quintero. She stated that in deed # 25, Inmobiliaria Asturias was represented by Dr. Quintero. Dr. Quintero’s appearance was authorized by a corporate resolution signed by attorney Nilsa Colón Perfecto, Dr. Reyes’ mother and she notarized the corporate resolution. Attorney Torres testified that she was unaware that on August 25, 2005, the Superior Court of Puerto Rico had issued an Order prohibiting Dr. Reyes from selling any real properties. She stated that she would have never executed this deed if she knew this act was in violation of a court Order. She *597 further testified that Nilsa Colón or Dr. Reyes did not mention anything to her regarding the prohibition to sell.
Mrs. Torres stated that in deed #25 on page 4, she disclosed that this property was encumbered by mortgages which were in the total amount of $1.9 million. According to the deed, the buyer had to pay the seller the remaining balance of $25,000. She stated that the seller, Dr. Reyes had told her that he had received the remaining balance of $25,000 on that same date, but prior to the execution of the deed, Mrs. Torres stated that she does not recall seeing a check for $25,000. Attorney Torres testified that she did not caution the parties regarding the presumption of fraud that arises when in this case the balance of the purchase price was not paid in her presence because she had no reason to caution the parties because she had no reason to think that it was fraud.
Attorney Torres stated that she does not recall where Dr. Reyes resided during the year 2005. She testified that Dr. Reyes used to live at the penthouse # 2 but she does not know the dates when he lived there. She testified that she has not visited Dr. Reyes at the penthouse. Attorney Torres stated that she must have ordered a title search for all of the deeds. She said that she does not remember preparing a closing statement for these transactions. She further stated that she does not recall whether Dr. Reyes requested a title study and/or a closing statement.
Attorney Torres stated that she did not see any red flags as to the fact that Dr. Reyes within the period from June to December 2005 sold his office, sold his residence at penthouse # 2, registered a second mortgage over the property at Dorado Beach and conducted all these transactions with corporations that he created that were being represented by Dr. Reyes’ best friend in which she never saw a penny being delivered to the seller. Attorney Torres stated that these were normal corporate transactions.
■Mrs. Torres stated that Deed #25 reads on page 8, that the original amount of the R & G mortgage was in the amount of $1,248,800 and that it is now reduced at this time to the amount of $1,158,358.85. She stated that deed # 25 reads that the second mortgage is in the amount of $750,000 pursuant to deed # 21 that was executed on July 28, 2005. Mrs. Torres testified that she possibly requested the balance of the second mortgage note but she does not recall since the deed was executed in the year 2005. She stated that she does not remember the reason she included the same amount of $750,000 for the balance of the second mortgage. Mrs. Torres testified that she was unaware that the second mortgage note had not been negotiated.
Mrs. Torres testified that in deed # 6 was executed on September 28, 2006. The transaction that occurred was a purchase and sale transaction. The sellers were Mario Cesar Miranda Torres and Laura Peterson Sanchez and the buyer was In-mobiliara Asturias which was represented by Dr. Quintero with a corporate resolution that was executed before Attorney Torres. She stated that she does not recall if the corporate resolution was executed by attorney Nilsa Colón. Mrs. Torres testified that the property that was sold was office # 606 in the Torre San Pablo Condominium. Mrs. Torres testified that it is possible if her mind does not fail her t

[Text truncated at 120,000 characters. The full text is on the page linked above.]

---

Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/8499943. Public record. Not legal advice.