In re: Edwin Josue Alicea Maisonet v. Wigberto Lugo Mender, Chapter 7 Trustee v. Scotiabank PR

• Court: United States Bankruptcy Court, D. Puerto Rico
• Decided: April 10, 2015
• Docket: 14-00139
• Status: Unknown

Opinion

1 IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF PUERTO RICO 2

4 IN RE: CASE NO. 12-04320 5 Chapter 7 EDWIN JOSUE ALICEA MAISONET 6 Adversary No. 14-00139 7

8 Debtor(s) WIGBERTO LUGO MENDER 9 CHAPTER 7 TRUSTEE 10

11 Plaintiff 12 vs.

13 SCOTIABANK PR 14 15 Defendant(s) FILED & ENTERED ON 04/10/2015 16

17 OPINION & ORDER 18 Before the court is the Motion for Summary Judgment (Dkt. No. 11) filed by 19 20 Plaintiff/Chapter 7 Trustee, Wigberto Lugo Mender, (the "Plaintiff"), Defendant Scotiabank Puerto 21 Rico's Reply to Motion for Summary Judgment (the "Defendant") (Dkt. No. 14) and Defendant's 22 Statement of Uncontested Facts and Memorandum of Law in Support of Reply to Motion for 23 24 Summary Judgment and Counter Motion for Summary Judgment (Dkt. No. 15), and Plaintiff's 25 Opposition to Defendant's Reply to Motion Requesting Entry of Summary Judgment (Dkt. No. 16).

For the reasons stated herein, the Plaintiff's Motion for Summary Judgment is GRANTED and the Defendant's Counter Motion for Summary Judgment is DENIED. 1 Factual Background 2 On May 31, 2012, Edwin Alicea Maisonet, ("the Debtor"), filed a chapter 13 bankruptcy 3 petition. Subsequently, on December 23, 2013, the Debtor's bankruptcy case was converted to 4 5 chapter 7. Wigberto Lugo Mender was appointed as the trustee. On June 21, 2007, a mortgage deed 6 securing a mortgage note was executed by the Debtor in favor of RG Premier Bank of Puerto Rico, 7 the Defendant's predecessor in interest, for the amount of $220,000.00. On April 9, 2012, 52 days 8 9 before the bankruptcy petition was filed, the deed was presented for recordation at the Puerto Rico 10 Real Property Registry, Section IV of San Juan, where it was subsequently recorded. 11 12 On May 30, 2014, the Plaintiff filed an adversary proceeding against the Defendant to avoid 13 the aforementioned lien as a pre-petition preferential transfer. On July 2, 2014, the Defendant filed 14 15 an answer to the complaint claiming that if the mortgage were to be avoided and preserved for the 16 benefit of the estate, the Plaintiff would not be able to sell the property pursuant to 11 U.S.C. § 363. 17 The Defendant alleged that the Plaintiff could only: (1) sell the avoided mortgage; or (2) step into the 18 19 shoes of the mortgagee and await a voluntary sale by the debtor or a default that would allow a 20 foreclosure.1 The Defendant bases its argument on a ruling of the U.S. Court of Appeals for the First 21 Circuit in the case of In re Traverse, 753 F.3d 19, 31 (1st Cir. 2014). The Defendant also claims that 22 23 the Plaintiff's complaint fails to join a title insurance company as a necessary party. The parties 24 motions for summary judgment and cross motion followed. 25 Standard of Review The role of summary judgment is to look behind the facade of the pleadings and assess the

1See Adversary Proceeding Case Docket No. 7, pg. 2. 1 parties' proof in order to determine whether a trial is required. Mulvihill v. Top-Flite Golf Co., 335 2 F.3d 15, 19 (1st Cir. 2003). Pursuant to Fed. R. Civ. P. Rule 56(c), made applicable in bankruptcy by 3 Fed. R. Bankr. P. 7056, a summary judgment is available if the pleadings, depositions, answers to 4 5 interrogatories, and admissions on file, together with the affidavits, if any, show that there is no 6 genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of 7 law. Fed. R. Civ. P. 56(c); Borges ex rel. S.M.B.W. v. Serrano-Isern, 605 F.3d 1, 4 (1st Cir. 2010). 8 9 As to issues on which the Movant, at trial, would be compelled to carry the burden of proof, it must 10 identify those portions of the pleadings that it believes demonstrate there is no genuine issue of 11 material fact. In re Edgardo Ryan Rijos & Julia E. Cruz Nieves v. Banco Bilbao Vizcaya & Citibank, 12 13 263 B.R. 382, 388 (B.A.P. 1st Cir. 2001). A fact is deemed "material" if it could potentially affect 14 the outcome of the suit. Borges, 605 F.3d at 5. Moreover, there will only be a "genuine" or "trial 15 worthy" issue as to such a "material fact," "if a reasonable fact-finder, examining the evidence and 16 17 drawing all reasonable inferences helpful to the party resisting summary judgment, could resolve the 18 dispute in that party's favor." Id. at 4. The court must view the evidence in the light most favorable to 19 the nonmoving party. Alt. Sys. Concepts, Inc. v. Synopsys, Inc., 374 F.3d 23, 26 (1st Cir. 2004). 20 21 Therefore, summary judgment is “inappropriate if inferences are necessary for the judgment 22 and those inferences are not mandated by the record.” Rijos, 263 B.R. at 388. Although this 23 perspective is favorable to the nonmoving party, she still must demonstrate, “through submissions of 24 25 evidentiary quality, that a trial worthy issue persists.” Iverson v. City of Boston, 452 F.3d 94, 98

(1stCir. 2006). Moreover, “[o]n issues where the non Movant bears the ultimate burden of proof, [she] must present definite, competent evidence to rebut the motion.” Mesnick v. Gen. Elec. Co., 950 F.2d 816, 822 (1st Cir.1991). These showings may not rest upon “conclusory allegations, improbable 1 inferences, and unsupported speculation.” Medina-Muñoz v. R.J. Reynolds Tobacco Co., 896 F.2d 5, 2 8 (1st Cir.1990). The evidence offered by the nonmoving party “cannot be merely colorable, but 3 must be sufficiently probative to show differing versions of fact which justify a trial.” Id.; See also 4 5 Horta v. Sullivan, 4 F.3d 2, 7-8 (1st Cir. 1993) (holding that the materials attached to the motion for 6 summary judgment must be admissible and usable at trial). “The mere existence of a scintilla of 7 evidence” in the nonmoving party's favor is insufficient to defeat summary judgment. Anderson v. 8 9 Liberty Lobby, Inc., 477 U.S. 242, 252, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986); González-Pina v. 10 Rodríguez, 407 F.3d 425, 431 (1st Cir. 2005). 11 Legal Analysis 12 13 The main issues before the court are: (1) whether the Plaintiff may avoid the Defendant's 14 mortgage as a preferential transfer; (2) whether the ruling in In re Traverse may be applied to the case 15 at bar; and (3) whether a title insurance company is an indispensable party that must be brought to 16 17 this complaint. 18 As to the avoidance of preferential transfers, in order for a mortgage lien to be avoided, all of 19 the requirements under 11 U.S.C. § 547(b) must be satisfied. Therefore, the Plaintiff bears the 20 21 burden of proving the transfers were (1) to or for the benefit of a creditor; (2) for or on account of an 22 antecedent debt owed by the debtor before such transfers were made; (3) made while the debtor was 23 insolvent; (4) on or within ninety (90) days before the date of filing of the petition; and (5) enabled 24 25 the benefited creditor to receive more than such creditor would have received had the case been a

chapter 7 liquidation and the creditor had not received the transfer. Plaintiff's Motion for Summary Judgment, specifically Exhibit A2, includes a "Certificación

2See Adversary Proceeding Case Docket No. 11-1, pg. 7. 1 Literal" in which the Property Registrar provided official copies of all entries recorded and related to 2 the Debtor's real property. This court takes notice of the fact that such exhibit has been submitted in 3 Spanish. In its Motion for Summary Judgment, Plaintiff prays for this court to accept the exhibit in 4 5 Spanish until funds can be procured to pay for its official translation into English. The court hereby 6 grants the petition, but stresses the urgency in which these translations must be obtained, particularly 7 if any of the parties herein where to resort to an appellate court. That being said, these documents 8 9 confirm that Defendant's lien was perfected within the 90-day preferential period. This court is 10 satisfied with the evidence provided by the Plaintiff that the Defendant's lien is a preference as 11 defined by the Code. Furthermore, considering that the Defendant has failed to present any contested 12 13 facts or any defense under 11 U.S.C. § 547(c) that would allow him to preserve the lien, there is 14 nothing in the case at bar that impedes the court to sanction the Plaintiff's intention to exercise his 15 "strong-arm" powers and avoid Defendant's mortgage, as this transfer was indeed a preference. 16 17 As to whether or not the ruling of the Court of Appeals for the First Circuit Court in the In re 18 Traverse case can be applied to the case at bar, this court finds that such case is not relevant. The 19 factual background in In re Traverse is different than the one present in the instant case. 20 21 In In re Traverse, although a first mortgage lien encumbering the debtor's residence had not 22 been recorded, the debtor was current in all the mortgage payments and had claimed a homestead 23 exemption under Massachusetts’s law. The exemption claimed covered the entire value of the 24 25 debtor's residence. The trustee, however, sought to use his strong-arm powers, pursuant to 11 U.S.C.

§§§ 541, 544 & 551, to avoid the unperfected lien. The trustee intended to acquire an interest in the debtor's residence that would enable him to sell the property for the benefit of the estate. The Court concluded that preserving a lien entitles an estate to the full value of such lien. Nevertheless, if the 1 lien is a mortgage that has not defaulted and encumbers a property that is exempted, the trustee can, 2 for the benefit of the estate, either: (1) enjoy the liquid market value of that mortgage; (2) claim the 3 first proceeds from a voluntary sale; or (3) wait to exercise the rights of a mortgagee in the event of a 4 5 default. However, "the trustee may not repurpose the mortgage to transform otherwise exempted 6 assets, to which neither the estate nor the original mortgagee boasted any ownership rights, into the 7 property of the bankruptcy estate." Traverse, 753 F.3d at 31.Consequently, the Court determined that 8 9 since the debtor's residence had no equity available for the estate beyond the claim of other secured 10 creditors and the debtor 's own exempt interest, the trustee was barred from fulfilling his intention of 11 selling the residence for the benefit of the estate. 12 13 The facts in the instant case are different. First, the Debtor has defaulted on his mortgage 14 payments. Second, the court takes judicial notice that the $20,975.00 homestead exemption claimed 15 by the debtor, does not exceed the property's $160,000.00 value, as stated on the amended schedules 16 17 submitted on February 3, 2014.3 Therefore, there is equity available in the Debtor's residence for the 18 benefit of the estate. The Plaintiff is entitled to acquire an interest in the debtor's residence that 19 would enable him to sell the property, if he so chooses. 20 21 As to whether or not a title insurance is company is an indispensable party that must be 22 brought to this proceeding, the court agrees with Plaintiff's posture; such entity is not needed for this 23 court to afford the relief requested by the Plaintiff. The Defendant could have opted to bring the title 24 25 insurer as a third party to this adversary proceeding. The Defendant has not done so.

3See Legal Case Docket No. 101, Schedules A and C. 1 Conclusion 2 Summarily, the Plaintiff has successfully carried out the burden of proof required under 11 3 4 || U.S.C. § 547(b), thus, allowing the court to declare Defendant's mortgage lien a preferential transfe > || that can be avoided by Plaintiff for the benefit of the estate. Moreover, the Defendant has failed t 6 present evidence to demonstrate that there is a genuine issue of fact in dispute for a trial. 7 8 WHEREFORE, IT IS ORDERED that Plaintiff's Motion for Summary Judgment shall be 9 || and it hereby is, GRANTED. Defendant's Counter Motion for Summary Judgment is DENIED. Cler 10 to enter judgment. 11 12 SO ORDERED 13 14 San Juan, Puerto Rico, this 10th day of April, 2015. 15 16

18 1 Brian K. Tester 9 U.S. Bankruptcy Judge 20 21 22 23 24 25