1 IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF PUERTO RICO 2 3 IN RE: CASE NO. 09-07657 (ESL) 4 || JESUS SANTIAGO MALAVET CHAPTER 7 Debtor 5 || NOREEN WISCOVITCH RENTAS ADV. PROC. NO. 13-00021 (ESL) Plaintiff 6 7 VS. 8 |}|MARIA MILAGROS MALAVET RODRIGUEZ 9 Defendant 10 11 OPINION AND ORDER 12 This case is before the court upon the Motion for Judgment on the Pleadings (Docket 13 || No. 10) filed by Mrs. Maria Milagros Malavet Rodriguez’s (hereinafter referred to as 14 || “Defendant” or “Mrs. Malavet Rodriguez”) and the Motion for Summary Judgment (Docket No. 15 || 11) filed by the Chapter 7 Trustee (hereinafter referred to as “Trustee” or “Plaintiff”). The 16 || Plaintiff seeks to sell a real estate property free and clear of any interest, including Mrs. Malavet 17 || Rodriguez’s right to usufruct, pursuant to 11 U.S.C. §363(f) and (h). The Defendant filed her 18 || Opposition to Summary Judgment and Request for Summary Judgment in Favor of Defendant 19 || (Docket No. 13) arguing that Sections $363(f) and (h) are inapplicable in the instant case and, 209 || thus, the Trustee is unable to sell the real estate property free and clear of any interest, in 21 || particular Defendant’s right to usufruct over the real estate property. For the reasons stated 22 ||below, Defendant’s Motion for Judgment on the Pleadings is denied. Plaintiff's Motion for 23 || Summary Judgment is denied and Defendant’s Opposition to Summary Judgment and Request 24 || for Summary Judgment in Favor of Defendant is denied. 25 26 27
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1 Jurisdiction 2 The Court has jurisdiction pursuant to 28 U.S.C. $$ 1334(b) and 157(a). This is a core 3 || proceeding pursuant to 28 U.S.C. §$157(b)(2)(N). Venue of this proceeding is proper under 28 4 U.S.C. §§1408 and 1409. 5 Factual and Procedural Background 6 On September 12, 2009, Jesus Santiago Malavet (the “Debtor’) filed a voluntary 7 Chapter 11 Bankruptcy Petition (Lead Bankruptcy Case No. 09-07657'). The Debtor included 8 Schedule A-Real Property- the real estate property in controversy and described the same as 9 || follows: 10 “[p]roperty located at Urb. Roosevelt, 470 Ave. Hostos, San Juan, PR 00918. Consists of 2 story concrete residential building on a 313 sq mts. lot. Appraisal of $375,000 was 11 based on similar sales in community in previous years. Actual devaluation in real property is 15% or $56,250.00. Debtor owns the property but Maria Malavet, [his] mother, has [a] life [e]state (“usufructo”) over the property. The commercial space is 13 vacant.” 14 The Debtor listed the nature of its interest on the property as “JTWROS.” The Debtor 15 || listed the current value of the property in the amount of $318,750.00 and the secured claim is 16 || included in the amount of $141,536.11. 17 On March, 2, 2011, the case was converted to Chapter 7 (Lead Case, Docket No. 208), 18 || then the Order converting the case to Chapter 7 was set aside on May 10, 2011 because there 19 || was no opposition (Lead Case, Docket No. 229). On September 6, 2011, the court ordered the 20 || case to be reconverted to Chapter 7 for Debtor’s failure to adequately address the reasons for 21 |)not having filed a disclosure statement and plan (Lead Case, Docket No. 263). On October 4, 22 ||2011, the Debtor filed several amended schedules, including Amended Schedule A- Real 23 || Property- in which the Debtor included in the description of the real property in controversy that 24 ||it was the Debtor’s principle residence and that, “[t]he $318,750.00 is divided as follows: 25 26 27 ||" References to the lead case are to the entries and documents filed in the bankruptcy case, case number 09- 07657(ESL). 2-
1 $159,375.00 dollars life estate (“usufructo”) [and] $159,375.00 dollars Debtor’s ownership.” 2 || (Lead Case, Docket No. 270). 3 Subsequently, on August 7, 2012, the Debtor filed an Urgent Motion Requesting 4 || Determination by Trustee requesting the Trustee to express her intent to abandon the property or 5 || to attempt to invalidate the impending judicial sale (Lead Case, Docket No. 345). On August 8, 6 || 2012, the court granted the Debtor’s Urgent Motion Requesting Determination by Trustee, and 7 || ordered the Trustee to reply (Lead case, Docket No. 347). On August 12, 2012, the Trustee filed 8 || her Response to Order and Response to Debtor’s Motion for Determination (Lead Case, Docket 9 ||No. 349). On September 24, 2012, the Trustee filed the Notice of Private Sale of Estate’s 10 || Interest in Property Free and Clear of Liens informing that she will sell the real property in 11 || controversy at a private sale to JIMF Asset Management Corp. in the amount of $250,000.00. 12 || The real estate property taxes owed to CRIM amount to $6,580.88 as of September 20, 2012. 13 || The mortgage owed to FirstBank of Puerto Rico is approximately $141,536.11. The Trustee 14 || reserved the right to dispute the validity of the lien. Closing costs are estimated in the amount to 15 || be approximately $5,500 for notary stamps and cancellation of deeds and the realtor fee is in the 16 amount of $10,000. The Trustee will also pay the remaining value of the usufruct held by 17 || Debtor’s mother, Mrs. Maria Milagros Malavet Rodriguez (Lead Case, Docket No. 365). The 18 || value of the usufruct was not disclosed or estimated. On October 19, 2012, the Debtor filed an 19 || Objection to Private Sale of Hostos 470 premised upon the reasonability of the offer as well as 20 || the estate’s interest in the property (Lead Case, Docket No. 369). 21 On January 28, 2013, the Debtor filed a Supplementary Objection to Private Sale 22 ||of Hostos 470 upon Noncompliance with 363(h) and Puerto Rico’s Homestead Exemption 23 || Amendment (Lead Case, Docket No. 387). On January 31, 2013, the Debtor filed a Motion 24 || Requesting Entry of Order Denying Trustee’s Intent to Sell Property for Failure to Comply with 25 || Rule 7001(3) of the Federal Rules of Bankruptcy Procedure because Fed. R. Bankr. P. 7001(3) 26 || requires the Trustee to file an adversary proceeding to sell a property pursuant to Section 363(h) 27 || (Lead Case, Docket No. 390).
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1 On February 1, 2013, a hearing was held to consider the Trustee’s Notice of Private Sale 2 || of Estate’s Interest In Property Free and Clear of Liens and Debtor’s Objection to Private Sale 3 Hostos 470 in which the following material uncontested facts were established: (1) the 4 || property at Hostos #470 is part of the bankruptcy estate in this case and is subject to an usufruct 5 || on behalf of Marfa Milagros Malavet Rodriguez; and (ii) apart from the claimed exemption on 6 || Hostos #470, the Debtor has no other pecuniary interest in the real property (Lead Case, Docket 7 396). At the hearing, the court established that the parties must move the court on the 8 || applicable procedure to calculate the usufruct on the real property. The court after considering 9 || the testimony of witnesses, the pleadings filed and the exhibits admitted, found that $275,000 is 10 || a reasonable value for Hostos #470 under the circumstances (Lead Case, Docket No. 396). 11 On February 1, 2013, the Trustee filed the instant adversary proceeding to obtain court 12 || approval to sell the real estate property pursuant to 11 U.S.C. $363(f) and (h). The Trustee 13 || argues that Section 363(h) is applicable based upon the following: (1) “[p]artition in kind of the 14 || property between the Estate and the Defendant is impracticable; property in Puerto Rico 15 ||comprises the usufruct and the bare property;” (ii) “[s]ale of the estate’s undivided interest 16 || would realize significantly less for the Estate than a sale of the entire property free of the 17 || interests of such co-owner;” (ii) “[t]he benefits of the Estate of a sale of such property free of 18 ||the interest of Defendant outweighs the detriment, if any, to the Defendant; and (iv) “[t]he 19 || property involved is not used in the production, transmission, or distributions of electric energy 20 || or natural gas sold for heat, power, or light.” (Docket No. 1). On February 27, 2013, the Trustee 21 || filed a Motion for Entry of Default and Default Judgment (Docket No. 5). On March 15, 2013, 22 || the Defendant filed a Motion Requesting Extension of Time to Answer the Complaint (Docket 23 || No. 6). On March 20, 2013, the court granted Defendant’s request for a ten (10) day extension 24 || of time to answer the complaint (Docket No. 7). On March 27, 2013, the Defendant answered 25 || the complaint (Docket No. 9). 26 On April 10, 2013, the Defendant filed a Motion for Judgment on the Pleadings by 27 || which she argues that: (1) Section 363(f) is inapplicable in the instant case because Defendant’s
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1 || usufruct is not an undivided interest as a tenant in common, joint tenant, or tenant by the 2 || entirety; (ii) Section 363(f(1) is inapplicable because the sale of Defendant’s usufruct right is 3 ||not permitted pursuant to Articles 396 through 441 of the Civil Code of Puerto Rico; (iii) 4 || Section 363(f)(2) does not apply because Defendant has not consented to the sale other interest 5 property; (iv) Section 363(f)(3) is inapplicable because Defendant’s usufruct is not a lien on 6 ||the property but an ownership right; (v) Section 363(f)(4) is also inapplicable because 7 || Defendant’s interest is not in dispute; and (vi) Section 363(f)(5) is also inapplicable because 8 || Defendant may not be compelled, in a legal or equity proceeding, to accept a money satisfaction 9 || of her interest (Docket No. 10). 10 On May 2, 2013, the Plaintiff filed a Motion for Summary Judgment arguing that: (i) 11 || Trustee has a superior right than the Defendant pursuant to Section 544(a)(1); (i) Trustee may 12 || sell the property free and clear of any interest pursuant to 11 U.S.C. §363(f) and (h); and (iii) the 13 || Defendant’s interest over the real property will not be impaired because the Trustee will warrant 14 || that her right of usufruct be estimated and paid accordingly (Docket No. 11). On May 9, 2013, 15 the Defendant filed her Opposition to Summary Judgment and Request for Summary Judgment 16 Favor of Defendant presenting the following arguments: (1) Section 363(h) is not applicable 17 || because the Civil Code of Puerto Rico has not incorporated the forms of ownership which are 18 found in common law jurisdictions such as tenant in common, joint tenant and tenant by the 19 |/entirety. Defendant’s usufruct is not an undivided interest; and (ii) Section 363(f) is not 20 applicable for the same reasons as stated in the Motion for Judgment on the Pleadings 21 (Docket No. 13). 22 Material Uncontested Facts 23 1. The property at Hostos #470 is part of the bankruptcy estate in this case and is subject to 24 an usufruct on behalf of Maria Milagros Malavet Rodriguez. 25 2. The usufruct was established on June 23, 1993 pursuant to a Deed of Donation in which 26 Mrs. Malavet Rodriguez donated the real property at Hostos #470 to the Debtor. 27
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1 3. The donation of the real property was conditioned upon Mrs. Malavet Rodriguez having 2 an usufruct for life over the real property meaning that she would be able to use the 3 property as her residence for the remainder of her natural life (Evidentiary Hearing in 4 Lead Case, Exhibit B). 5 4. Pursuant to a title study dated August 15, 2011, the Deed of Donation was presented to 6 the Property Registry of San Juan, Section II on September 28, 2001. On August 19, 7 2008, the Property Registry notified that the Deed of Donation had an error since the 8 same was missing a document (certificate of release of estate tax lien) from the Puerto 9 Rico Treasury Department (“Relevo de Hacienda’). This error was not corrected and 10 thus, on October 20, 2008, this registry entry (record) pertaining to the Deed of Donation 11 lapsed. (Evidentiary Hearing in Lead Case, Exhibit E). 12 5. Pursuant to the same title study, a Mortgage Deed in favor of FirstBank Puerto Rico 13 which was executed on August 31, 2004 and recorded in the principal amount of 14 $147,000.00. Both the real property and the usufruct were mortgaged in the mortgage 15 deed (Evidentiary Hearing in Lead Case, Exhibit E). 16 6. The only pecuniary interest the Debtor has in the real property is the homestead 17 exemption. 18 7. The parties have not provided to the court the applicable procedure (mathematical 19 formula, model) necessary to calculate the usufruct on the real property. 20 8. The court, at the February 1, 2013 hearing found that $275,000 is a reasonable value 21 under the circumstances for the property at Hostos #470. 22 Applicable Law & Analysis 23 || Motions for Judgment on the Pleadings under Fed. R. Civ. P. 12(c) 24 In the instant case, the Defendant presents a Motion for Judgment on the Pleadings 25 || stating that the same is treated much like a Rule 12(b)(6) motion. “A motion for judgment on 26 || the pleadings is treated much like a Rule 12(b)(6) motion to dismiss. Curran v. Cousins, 509 F. 27 3d 36, 43-44 (1 Cir. 2007). ‘Because [a Rule 12(c)] motion calls for an assessment of the
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1 ||merits of the case at an embryonic stage, the court must view the facts contained in the 2 || pleadings in the light most favorable to the nonmovant and draw all reasonable inferences 3 || therefrom...” R.G. Fin. Corp. v. Vergara-Nunez, 446 F. 3d 178, 182 (1* Cir. 2006).” Perez- 4 || Acevedo v. Rivero-Cubano, 520 F. 3d 26, 29 (1* Cir. 2008). 5 Fed. R. Civ. P. 12(b)(6) is applicable in bankruptcy proceedings through Fed. R. Bankr. 6 || P. 7012, the requested remedy is precisely the one provided in that rule (“failure to state a claim 7 upon which relief can be granted”). 8 The purpose of a motion to dismiss under Fed. R. Civ. P. 12(b)(6) is to assess the legal 9 || feasibility of a complaint, not to weigh the evidence which the plaintiff offers or intends to 10 offer. See Ryder Energy Distribution Corp. v. Merrill Lynch Commodities, Inc., 748 F.2d 774, 11 (2™ Cir.1984); Citibank, N.A. v. K-H Corp., 745 F. Supp. 899, 902 (S.D.N.Y. 1990). 12 Fed. R. Civ. P. 8(a)(2), applicable to adversary proceedings through Fed. R. Bankr. P. 13 || 7008, mandates that complaints contain a “short and plain statement of the claim showing that 14 || the pleader is entitled to relief.” “Although detailed factual allegations are not required, the Rule 15 does call for sufficient factual matter’. Surita Acosta v. Reparto Saman Inc. (In re Surita 16 || Acosta), 464 B.R. 86, 90 (Bankr. D.P.R. 2012). Therefore, to survive a Fed. R. Civ. P. 12(b)(6) 17 |} motion to dismiss, a complaint must contain sufficient factual matter that, accepted as true, 18 || “state[s] a claim to relief that is plausible on its face.” Bell Atlantic Corp. v. Twombly, 550 19 U.S. 544, 570 (2007). A claim has facial plausibility when the pleaded factual content allows 20 the court to draw the reasonable inference that the defendant is liable for the misconduct 21 |jalleged. Id. at 556. The Twombly standard was further developed in Ashcroft v. Iqbal, 556 22 || U.S. 622 (2009), advising lower courts that “determining whether a complaint states a plausible 23 claim for relief will ... be a context-specific task that requires the reviewing court to draw on its 24 || judicial experience and common sense.” 556 U.S. at 679. “In keeping with these principles, a 25 || court considering a motion to dismiss can choose to begin by identifying pleadings that, because 26 ||they are no more than conclusions, are not entitled to the assumption of truth. While legal 27 ||conclusions can provide the framework of a complaint, they must be supported by factual
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1 || allegations. When there are well-pleaded factual allegations, a court should assume their 2 || veracity and then determine whether they plausibly give rise to an entitlement to relief.” Id. at 3 ||679. In sum, allegations in a complaint cannot be speculative and must cross “the line between 4 the conclusory and the factual’. Pefialbert-Rosa v. Fortufio-Burset, 631 F.3d 592, 595 □□□ Cir. 5 2011). “[A]n adequate complaint must provide fair notice to the defendants and state a facially 6 || plausible legal claim.” Ocasio—-Hernandez v. Fortufio-Burset, 640 F.3d 1, 11 Cir. 2011). 7 In Schatz v. Republican State Leadership Committee, 669 F.3d 50, 55 (1“ Cir. 2012), the 8 ||U.S. Court of Appeals for the First Circuit established a two-step standard for motions to 9 || dismiss under Fed. R. Civ. P. 12(b)(6). Step one: isolate legal conclusions. Step two: take the 10 ||complaint’s well-pleaded (non-conclusory) allegations as true, drawing all reasonable 11 ||inferences in favor of the plaintiff and determine if they plausibly narrate a claim for relief. 12 || Also see Pérez v. Rivera Un re Pérez), 2013 WL 1405747 at *3, 2013 Bankr. LEXIS 1561 at 13 || **9-10 (Bankr. D.P.R. 2013); Zavatsky v. O’Brien, 902 F. Supp. 2d 135, 140 (D. Mass. 2012). 14 The court finds that Plaintiff's complaint is factually well-pleaded. Furthermore, after 15 || drawing all the reasonable inferences from the Plaintiff’s allegations in his favor, the court finds 16 || that the Trustee has plausible claims for relief pursuant to 11 U.S.C. §363(f) and (h). Thus, the 17 || motion for judgment on the pleadings is hereby denied. 18 || Standard for Motion for Summary Judgment 19 Rule 56 of the Federal Rules of Civil Procedure, is applicable to this proceeding by Rule 20 7056 of the Federal Rules of Bankruptcy Procedure. Summary judgment should be entered if 21 || the pleadings, depositions, answers to interrogatories, and admissions on file, together with the 22 || affidavits, if any, show that there is no genuine issue as to any material fact and that the moving 23 || party is entitled to a judgment as a matter of law. See In re Colarusso, 382 F.3d 51 (1™ Cir. 24 || 2004), citing Celotex Corp. v. Catrett, 477 U.S. 317, 322-323 (1986). 25 “The summary-judgment procedure authorized by Rule 56 is a method for promptly 26 || disposing of actions in which there is no genuine issue as to any material fact or in which only a 27 || question of law is involved.” Wright, Miller & Kane, Federal Practice and Procedure, Civil 3d,
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1 || Vol LOA, § 2712 (2013). “Rule 56 provides the means by which a party may pierce the 2 || allegations in the pleadings and obtain relief by introducing outside evidence showing that there 3 || are no fact issues that need to be tried.” Id. at 202-203. Summary judgment is not a substitute 4 || for a trial of disputed facts; the court may only determine whether there are issues to be tried, 5 || and it is improper if the existence of a material fact is uncertain. Id. at 205-206. 6 Summary judgment is warranted where, after adequate time for discovery and upon 7 || motion, a party fails to make a showing sufficient to establish the existence of an element 8 essential to its case and upon which it carries the burden of proof at trial. Celotex Corp. v. 9 || Catrett, 477 U.S. 317, 322 (1986). The moving party must “show that there is no genuine issue 10 to any material fact and that the moving party is entitled to judgment as a matter of law.” 11 || Fed. R. Civ. P. 56(c). 12 For there to be a “genuine” issue, facts which are supported by substantial evidence must 13 be in dispute, thereby requiring deference to the finder of fact. Furthermore, the disputed facts 14 || must be “material” or determinative of the outcome of the litigation. Hahn v. Sargent, 523 F.2d 15 ||461, 464 C1“ Cir. 1975), cert. denied, 425 U.S. 904 (1976). When considering a petition for 16 ||summary judgment, the court must view the evidence in the light most favorable to the 17 |}nonmoving party. Poller v. Columbia Broadcasting Systems, Inc., 368 U.S. 464, 473 (1962); 18 || Daury v. Smith, 842 F.2d 9, 11 (1* Cir. 1988). 19 The moving party invariably bears both the initial as well as the ultimate burden in 20 || demonstrating its legal entitlement to summary judgment. Adickes v. Kress & Co., 398 US. 21 || 144, 157 (1970). See also Lépez v. Corporaci6n Azucarera de Puerto Rico, 938 F.2d 1510, 22 || 1516 (1“ Cir. 1991). It is essential that the moving party explain its reasons for concluding that 23 || the record does not contain any genuine issue of material fact in addition to making a showing 24 |/of support for those claims for which it bears the burden of trial. Bias v. Advantage 25 || International, Inc., 905 F.2d 1558, 1560-61 (D.C. Cir. 1990), cert. denied, 498 U.S. 958 (1990). 26 The moving party cannot prevail if any essential element of its claim or defense requires 27 trial. Lépez, 938 F.2d at 1516. In addition, the moving party is required to demonstrate that
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1 there is an absence of evidence supporting the nonmoving party’s case. Celotex, 477 U.S. at 2 ||325. Also see Prokey v. Watkins, 942 F.2d 67, 72 (1* Cir. 1991); Daury, 842 F.2d at 11. In its 3 || opposition, the nonmoving party must show genuine issues of material facts precluding 4 ||}summary judgment; the existence of some factual dispute does not defeat summary judgment. 5 || Kennedy v. Josepthal & Co., Inc., 814 F.2d 798, 804 (1" Cir. 1987). Also see Kauffman v. 6 || Puerto Rico Telephone Co., 841 F.2d 1169, 1172 C1“ Cir. 1988); Hahn, 523 F.2d at 464. A 7 || party may not rely upon bare allegations to create a factual dispute but is required to point to 8 || specific facts contained in affidavits, depositions and other supporting documents which, if 9 || established at trial, could lead to a finding for the nonmoving party. Over the Road Drivers, Inc. 10 || v. Transport Insurance Co., 637 F.2d 816, 818 (1* Cir. 1980). 11 The moving party has the burden to establish that it is entitled to summary judgment; no 12 defense is required where an insufficient showing is made. Lé6pez, 938 F.2d at 1517. The 13 ||nonmoving party need only oppose a summary judgment motion once the moving party has met 14 |]its burden. Adickes, 398 U.S. at 159. 15 For the reasons that follow, the parties’ cross motions for summary judgment are denied 16 neither of the parties have provided sufficient material uncontested facts that warrant 17 || judgment as a matter of law. 18 Discussion 19 In the instant case, both parties agree that Mrs. Malavet Rodriguez has an usufruct over 20 || the real property, located at Hostos #470. The Trustee argues that the usufruct is a type of lien 21 || and the Defendant argues that it is an ownership right. The usufruct is a juridical figure that is 22 || governed by the Civil Code of Puerto Rico (hereinafter referred to as the “Civil Code’). 23 Under the Civil Code, this type of life usufruct is in the nature of a lien over a real 24 || property that belongs to another person. Article 467 of the Civil Code provides in pertinent part: 25 “TaJll servitudes which affect lands may be divided into two classes, personal and 26 Personal servitudes are those which are inseparably attached to the person in whose benefit they have been established, and which terminate with his life.
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1 Such servitudes are of three kinds: usufruct, use and habitation.” 31 L.P.R.A. $1633. 2 3 Spanish Commentator Manresa opines that an usufruct is essentially a lien on another’s 4 property. “We must not wonder, therefore, that our code, breaking with our domestic 5 precedents, has fully discarded the great error of considering usufruct as a personal servitude. 6 Usufruct is a servitude only in one sense: As a lien on another’s property, neither more nor less 4 than an annuity (censo) or a mortgage.” See Guzman Rodriguez v. Central San José, 60 P.R.R. g 377, 383, 60 D.P.R. 386, 392 (1942) citing José Marfa Manresa Y Navarro, 4 Comentarios al 9 Cédigo Civil, 351. 10 Article 396 of the Civil Code defines the juridical figure of an usufruct in the following iy |} manner: “TuJsufruct is the right to enjoy a thing owned by another person and to receive all the products, utilities and advantages produced thereby, under the obligation 13 of preserving its form and substance, unless the deed constituting such usufruct of the law otherwise decree.” 31 L.P.R.A. 81501. 14 5 Article 397 of the Civil Code provides: “Tuljsufruct is constituted by law, by the wish of the parties expressed in 16 instruments inter vivos, or by last will, and by prescription.” 31 L.P.R.A. $1502. M Article 398 of the Civil Code states: 18 “Tu|sufruct may be constituted on the whole or on part of the fruits of a thing, in 19 favor of one or several persons, simultaneously or successively, and in any case from or to a certain day, with or without conditions. It may also be constituted on 20 a right, provided the same is not absolutely personal or transferable.” 31 L.P.R.A. $1503. Article 399 of the Civil Code provides: 3 “t]he rights and obligations of the usufructuary shall be those stated in the deed establishing the usufruct; in default of such deed, or because of its 24 incompleteness, the provisions contained in the two following chapters shall be observed.” 31 L.P.R.A. §1504. 25 26 The court concludes based on the above cited provisions of the Civil Code that an
usufruct is a lien and not an ownership right.
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1 Article 441 of the Civil Code establishes the different forms by which an usufruct may 2 || be extinguished. 31 L.P.R.A. 81571. Article 158° of the Puerto Rico Mortgage Law addresses 3 || the issue if the usufruct is mortgaged. At this juncture, the court notes that pursuant to the title 4 study, and as raised by the Defendant despite the fact that the mortgage deed appears to be 5 registered, there is no successive tract or chain of titleholders because there is a missing link, 6 || which is that the Deed of Donation, that was not recorded because it was notified that the same 7 || had an error. Thus, pursuant to the Property Registry the titleholder of this real property is Mrs. 8 || Malavet Rodriguez, and pursuant to the mortgage deed, the titleholder of such property is the 9 Debtor. See Pérez Mujica v. FirstBank, P.R. (in re Pérez Mujica), 457 B.R. 177, 188-189 10 |} (Bankr. D. P.R. 2011). The court in In re Pérez Mujica addressed this issue by stating: 11 “Tt]he Puerto Rico Mortgage Law mandates that our real estate registry system be ‘predicated on the certainty and correction of its entries. Registry entries must be 12 complete and clear as possible. This prevents confusion and errors.’ Rosado Collazo v. B Registrador, 118 D.P.R. 577, 584 (1987), P.R. Offic. Trans. 670, 676 (1987). The concept of prior registration pursuant to Puerto Rico Mortgage Law requires that the 14 right of the person executing the conveyance or lien be previously recorded. See Chase Manhattan Bank, N.A. v. Registrador, 136 D.P.R. 650, 660-661, 1994 Juris P.R. 105 15 (1994); Aponte v. Registrador, 115 D.P.R. 699 (1984), 15 P.R. Offic. Trans. 920, 922 (1984). ‘Prior recordation must refer to the right of the person who is the record owner 16 according to the recordable title. This circumstance demands a perfect objective identity between that which results from the title and the recordation, in the same manner that, in the subjective aspect, successive performance requires a perfect identity between the 18 recorded titleholder and the person who must be so according to the title. The objective identity refers to the recorded right and to the farm—or right—on which it falls. With 19 regard to that right, it must be the same one involved in the recordable title and its essential circumstances must be the same, especially those which may affect its extent, 20 duration—in its case — and very specially, the titleholder’s dispositive powers. Aponte v. 1 Registrador, 15 P.R. Offic. Trans. 920, 922, 115 D.P.R. 699. (1984).’” In re Pérez Mujica, 457 B.R. at 188-189. 22 23 However, both parties agree that the Deed of Donation of the real property in 24 || controversy is legally valid and that the Debtor is the titleholder of the real property. The Deed 25 * Article 158 of the Puerto Rico Mortgage Law provides in pertinent part: “[tJhe following may also be mortgaged: 26 1“. The right of usufruct, but the mortgage shall be extinguished when this right ends due to an act beyond the control of the usufructuary. If he chooses to end it, the mortgage shall remain until the secured obligation is met, or 27 until the expiration of the term during which the usufruct would have naturally ended had the act ending it not taken place.” 30 L.P.R.A. $2554. -|2-
1 || of Donation is legally valid because it is not constitutive in nature (unlike the mortgage deed). 2 || The court notes that donation of real property must be made in a public instrument pursuant to 3 || Article 575° of the Civil Code. 4 At this juncture, the Trustee has not waived" its right (duty) to avoid the mortgage lien 5 || pursuant to the Trustee’s strong arm powers under Section 544. However, the Trustee has not 6 filed an adversary proceeding to invalidate the mortgage. Therefore, the secured claim 7 || originally filed by FirstBank Puerto Rico is deemed allowed. TRM LLC is the successor 8 || secured creditor. Whether or not there is a valid lien over the property that the Trustee intends to 9 sell has a direct effect on its equity, and, consequently on determining if unsecured creditors 10 || will receive a dividend. 11 || Section 363(f) 12 Section 363(b)(1) of the Bankruptcy Code authorizes a trustee to sell property of the 13 estate, other than in the ordinary course of business, after notice and a hearing. 11 U.S.C. 14 || $363(b)(1). Section 363(f) allows the Trustee to sell property of the estate, “‘...free and clear of 15 || any interest in such property of an entity other than the estate, only if— 16 (1) applicable nonbankruptcy law permits sale of such property free and clear of such interest; 17 (2) such entity consents; (3) such interest is a lien and the price at which such property is to be 18 . . sold is greater than the aggregate value of all liens on such property; 19 (4) such interest is in bona fide dispute; or (5) such entity could be compelled, in a legal or equitable proceeding, to 20 accept a money satisfaction of such interest.” 11 U.S.C. §363(f). 21 22
Article 575 of the Civil Code provides: “[i]n order that a gift of real property may be valid it shall be made in a 24 public instrument, stating therein in detail the property bestowed as a gift and the amount of the charges, which the donee must satisfy. The acceptance may be made in the same instrument bestowing the gift or in a different one; but 25 it shall produce no effect if not made during the life of the donor. If made in a different instrument the acceptance shall be communicated to the donor in an authentic manner, and this proceeding shall be recorded in both > instruments.” 31 L.P.R.A. §2010. 6 In the Notice of Private Sale of Estate’s Interest in Property Free and Clear of Liens, the Trustee informs that: “Tt]here is a lien held by FirstBank of Puerto Rico and recorded against the realty. A copy of the Title Search is 27 attached as Exhibit “A.” This lien will attach to proceeds. However, the Trustee reserves the right to dispute the validity of the lien” (Lead Case, Docket No. 365). -13-
1 Section 363(f) is a resourceful tool because it permits the Trustee to sell estate property 2 that is “free and clear of any interest” in order to “maximize the value of the asset, and thus 3 || enhance the payout made to creditors.” In re USA United Fleet, Inc., 496 B.R. 79, 83 (Bankr. 4 E.D.N.Y. 2013) citing In re Mundy Ranch Inc., 484 B.R. 416, 422 (Bankr. D.N.M. 2012). In 5 || order for Section 363(f) to be applicable, one of the five conditions must be satisfied. The term 6 || ‘interest in property’ in 11 U.S.C.S. $363() is sufficiently elastic and should be construed 7 || broadly. See Mass. Dep’t of Unemployment Assistance v. OPK Biotech, LLC (In re PBBPC, 8 || Inc.), 484 B.R. 860, 869 (B.A.P. 1* Cir. 2013). 9 The court concludes that 11 U.S.C. §363f(2) and (4) are inapplicable because the 10 || Defendant, as the usufructuary, has not consented to the sale of the real property and there is no 11 || bona fide dispute as to the validity of the interest or usufruct. 12 In the Motion for Summary Judgment, the Trustee argues that the bankruptcy court can 13 cancel the usufruct of the Defendant based upon the case of In re Bobonis Lang, 191 B.R. 268 14 ||(Bankr. D.P.R.1995). However, In re Bobonis Lang is inapposite to this case because the 15 || controversy in said case was whether community property became property of the estate under 16 11 U.S.C. §541(a)(2)(A) when only one spouse filed for bankruptcy. The court held that Puerto 17 || Rico recognizes community property, thus, Section 541(a)(A)(2) applies to the determination of 18 || property of the estate in the instance in which one spouse files for bankruptcy. 19 The court finds that the Trustee has failed to meet its burden of showing that Section 20 || 363(f) is applicable in the instant case, particularly as to the applicability of any of the 21 |/enumerated conditions in Section 363(f) to the facts of this particular case. At this juncture, the 22 || court has no information regarding the value of the Defendant’s usufruct (or how the usufruct is 23 calculated) and whether the Trustee plans on filing an adversary proceeding to invalidate the 24 || mortgage lien. 25 The Trustee also argues that the, “Defendant’s right will not be impaired by the selling 26 the property free and clear of her interest, as this Trustee will warrant that her right of 27 || usufruct be estimated and paid accordingly of this court determines that the usufruct is superior
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1 than the Trustee’s right under section 544(a)” (Docket No. 11, pg. 5). Section 544(a) forms part 2 || of the Trustee’s avoiding powers which are used to avoid certain pre-bankruptcy transfers that 3 || could have been avoided by a bona fide purchaser or by certain types of creditor. See Alan N. 4 || Resnick & Henry J. Sommer, 5 Collier on Bankruptcy 9544.01 (16" ed. 2013). “The strong arm 5 ||rights and powers are conferred on the trustee by federal law. However, the extent of the 6 || trustee’s right as a judicial lien creditor, a creditor with execution unsatisfied or a bona fide 7 || purchaser of real property is measured by the substantive nonbankruptcy law of the jurisdiction 8 || governing the property in question.” See Alan N. Resnick & Henry J. Sommer, 5 Collier on 9 || Bankruptcy 544.02[1] d6" ed. 2013). Lien avoidance under Section 544(a) and selling a 10 || property “free and clear of any interest’ under Section 363(f) are different tools that generate 11 different results. Their applicability are not clearly detailed by either party, and the court 12 || declines, at this juncture to do so. 13 || Section 363(h) 14 Section 363(h) provides: 15 “{njotwithstanding subsection (f) of this section, the trustee may sell the both the estate’s interest, under subsection (b) or (c) of this section, and the interest of any 16 co-owner in property in which the debtor had, at the time of the commencement of the case, an undivided interest as a tenant in common, joint tenant, or tenant by the entirety, only if- 18 (1) partition in kind of such property among the estate and such co-owners is impracticable; 19 (2) sale of the estate’s undivided interest in such property would realize significantly less for the estate than sale of such 20 property free of the interests of such co-owners; 1 (3) the benefit to the estate of a sale of such property free of the interests of co-owners outweighs the detriment, if any, to such 22 co-owners; and (4) such property is not used in the production, transmission, or 23 distribution, for sale, of electric energy or of natural or synthetic gas for heat, light, or power.” 11 U.S.C. §363(h). 25 The Trustee, as Plaintiff, has the burden of satisfying all four (4) requirements under 26 Section 363(h). See Braunstein v. Hajjar (In re Hajjar), 385 B.R. 482, 488 (Bankr. D. Mass. 27
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1 2008). Three (3) forms of co-ownership are specifically identified in Section 363(h) namely, 2 || tenant in common, joint tenant and tenant by the entirety. An usufruct is a type of lien and is not 3 form of co-ownership in real property, thus section 363(h) is inapplicable. An usufructuary of 4 certain real property is not a co-owner having an undivided interest. “This plain language 5 forces the conclusion that the three cotenancies are the only three in which the co-owner’s 6 interest may be sold without his consent.” Geddes v. Livinston (In re Livingston), 804 F. 2d 7 1219, 12123 (11™ Cir. 1986); See also; In re Burns, 73 B.R. 13, 15 (Bankr. W.D. Mo. 1986). 8 || The court finds that the uncontested facts submitted by the parties do not show that summary 9 || judgment is warranted as a matter of law to either. 10 11 Conclusion 12 In view of the foregoing, the court denies the Defendant’s Motion for Judgment on the 13 || Pleadings. The court also denies Plaintiff’s Motion for Summary Judgment and Defendant’s 14 || Cross Motion for Summary Judgment. 15 SO ORDERED. 16 In San Juan, Puerto Rico, this 14% day of November, 2013. 17 18 g 19 efnryerlle unitdd States Bankruptcy Judge 20 21 22 23 24 25 26 27
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