In re: Orlando Delgado Rivera; Carmen L. Delgado Andrades

• Court: United States Bankruptcy Court, D. Puerto Rico
• Decided: March 22, 2017
• Docket: 15-01926
• Status: Unknown

Opinion

IN THE UNITED STATES BANKRUPTCY COURT 1 FOR THE DISTRICT OF PUERTO RICO 2 IN RE: CASE NO. 15-01926 (ESL) 3 ORLANDO DELGADO RIVERA; CHAPTER 7 4 CARMEN L. DELGADO ANDRADES

5 Debtors 6

7 OPINION AND ORDER

8 This case is before the court upon the Motion to Alter Order at Docket No. 48 and 9 Incorporated Brief filed by the Chapter 7 Trustee (hereinafter referred to as the “Trustee”) on 10 September 1, 2016 (Docket No. 52). The Trustee requests that pursuant to Fed. R. Civ. P. 60(b) 11 the court vacate and set aside the Order entered on July 29, 2016 (Docket No. 48) granting the 12 Debtor’s unopposed reply to the Trustee’s objection to the claimed homestead exception (Docket 13 No. 41) and grant the objection to the homestead exception filed by the Trustee. For the reasons 14 stated below the Motion to Alter Order is hereby denied. 15 Jurisdiction 16 The court has jurisdiction pursuant to 28 U.S.C. §§ 1334(b) and 157(a). This is a core 17 proceeding pursuant to 28 U.S.C. §157(b)(1) and (b)(2)(A) and (B). Venue of this proceeding is 18 proper under 28 U.S.C. §§ 1408 and 1409. 19 Procedural Background 20 The Debtors filed a bankruptcy petition under Chapter 13 of the Bankruptcy Code on 21 March 17, 2015. The Debtor in her Schedule A -Real Property scheduled four (4) real properties. 22 The Debtor’s residence is the first real property that is listed with a current value of $200,300 and 23 a secured claim in the amount of $71,076.22. The Debtors in Schedule C- Property Claimed as 24 Exempt claimed the homestead exemption afforded under Puerto Rico’s Homestead Protection 25 Act No. 195 enacted on September 13, 2011 (the “Home Protection Act”), 31 L.P.R.A. §§ 1858 26 et seq., as amended, over the real property in the amount of $129,223.78. The Debtors in Schedule 27 1 D (Creditors Holding Secured Claims) listed Banco Popular de Puerto Rico as the mortgage lien 2 holder over their residential property (property in controversy) in the amount of $71,076.22. The 3 Debtors disclosed that the mortgage over this property was incurred on December 5, 2008. Also 4 in Schedule D, the Debtors initially scheduled the Puerto Rico Department of Treasury 5 (“Treasury”) with a disputed claim in the amount of $432,988.06 of which $311,900 was secured 6 with three (3) real properties whose scheduled values were: $126,500 for the property at Urb. 7 Jardines de la Esperanza #B-8; $128,100 for the property at Urb. Jardines de la Esperanza #B-1; 8 and $57,300 for a concrete structure. The remaining amount of $121,088.06 was listed as an 9 unsecured claim. The Debtors did not initially list any claims in Schedule E-Creditors Holding 10 Unsecured Priority Claims and Schedule F- Creditors Holding Unsecured Non Priority Claims. 11 On April 22, 2015, the 341 meeting of creditors was held and closed (Docket No. 10). On 12 September 3, 2015, Treasury filed proof of claim #2-1 in the amount of $411,674.50 for individual 13 income taxes for the years 2003, 2004 and 2005. Treasury disclosed that the entire amount of the 14 claim is unsecured. On September 4, 2005, Treasury filed proof of claim #3-1 which is identical 15 to proof of claim #2-1. 16 On December 31, 2015, the Debtors filed a Notice of Conversion to Chapter 7 (Docket 17 No. 18). On January 2, 2016, the Debtors filed amended Schedule D and Schedule E/F. (Docket 18 No. 20). Amended Schedule D: Creditors Who Have Claims Secured by Property only listed 19 Banco Popular de Puerto Rico’s mortgage in the amount of $71,076.22 over the Debtors’ 20 residence. Schedule E/F was amended to include Treasury’s nonpriority unsecured claim in the 21 amount of $411,674.50 for individual income taxes for the years 2003, 2004 and 2005. The 22 Debtors disclosed that a lien was recorded on April 2008 and the annotation had expired on May 23 2014 (Docket Nos. 20 & 22). 24 On January 4, 2016, the case was converted to Chapter 7 and on January 11, 2016, the 25 Trustee was appointed to this case. On March 22, 2016, the Trustee filed an Objection to Claimed 26 Homestead Exemption (Docket No. 34). On April 11, 2016, the Debtors filed a Motion Requesting 27 1 Extension of Time to Reply to Trustee’s Objection to Claimed Homestead Exception (Docket No. 2 35) and the same was granted on April 13, 2016 (Docket No. 36). On May 10, 2016, the Debtors 3 filed a Second Motion Requesting Extension of Time to Reply to Trustee’s Objection to Claimed 4 Homestead Exception (Docket No. 38) and the same was granted on May 19, 2016 (Docket No. 5 39). 6 On May 25, 2016, the Debtors filed their Reply to the Trustee’s Objection to Claimed 7 Exemption arguing that: (i) the Debtors submitted copy of the Homestead Deed and evidence of 8 the same being recorded in the Property Registrar. The Homestead Act deed was recorded prior 9 to the filing of the case; (ii) the Trustee’s objection is based in that the homestead exception is 10 presumed to be waived in a case of state tax collections. Treasury accepted the release from 11 attachments (embargo) to the primary residential property in exchange for a $90,000 payment 12 made on December 16, 2008. The Debtors mortgaged their residential property to obtain the 13 proceeds to make the payment to Treasury; and (iii) the title study discloses that the primary 14 residential property is not subject to Treasury’s attachment. Thus, the Debtors claimed the 15 homestead right over their primary residence because the property was released from Treasury’s 16 attachment in the year 2008 (Docket No. 41). On June 21, 2016, the court ordered the Trustee to 17 state his position within 21 days as to Debtors’ Reply to the Trustee’s Objection to Claimed 18 Exemption (Docket No. 42). 19 On June 24, 2016, the Trustee filed an Application for Leave to Employ Attorney for the 20 Trustee and Notary Public (Docket No. 44). On June 24, 2016, the Trustee filed a Motion for 21 Enlargement of Time to Comply with Court Order of thirty (30) days (Docket No. 45) and the 22 same was granted on June 27, 2016 (Docket No. 46). Subsequently, on July 29, 2016, the court 23 granted the Reply to Trustee’s Objection to Claimed Exemption (Docket No. 48). Also, on said 24 date, the court granted the Trustee’s application to employ attorney (Docket No. 49). 25 Thereafter, on September 1, 2016, the Trustee filed a Motion to Alter Order at Docket 26 No. 48 and Incorporated Brief (Docket No. 52). On September 12, 2016, the Debtors filed their 27 1 Opposition to Trustee’s Motion to Alter Order at Docket No. 48 and Incorporated Brief (Docket 2 No. 53). 3 Position of the Parties 4 The Trustee’s request to vacate and set aside the Order granting the Debtors’ reply 5 pursuant to Fed. R. Civ. P. 60(b)(1) and (6) is premised upon the following; “…in this case, the 6 legal errors that led to the entry of the order granting Debtors’ reply constitute exceptional 7 circumstances, especially since the Court entered the order even before granting Trustee’s 8 application to employ counsel, which application has been filed precisely to file the memorandum 9 of law in response to Debtors’ reply” (Docket No. 52, pg. 6). If the Order is vacated and set aside, 10 the Trustee’s arguments are as follows: (i) the Home Protection Act does not require a valid 11 registered lien by the Treasury Department for the homestead right to be deemed waived pursuant 12 to 31 L.P.R.A. §1858a(b); (ii) “[t]he Homestead Act clearly provides that such right is deemed 13 waived as to state tax collection. Nowhere does it require that an attachment be filed by the 14 Treasury. The right is simply deemed waived in all tax collection cases (‘casos de cobro de 15 contribuciones’);” and (iii) “…the filing of the proof of claim by the Treasury Department in this 16 case is a tax collection as to which Debtors’ homestead right is deemed waived” (Docket No. 52, 17 pg. 7-9). 18 The Debtors oppose the Trustee’s request to vacate and set aside the aforementioned 19 Order mainly because the Trustee’s arguments do not justify the relief requested pursuant to Fed. 20 R. Civ. P. 60(b)(1) and (6). The Debtors further argue that Treasury is stayed from enforcing any 21 lien against the Debtors’ primary residence due to the filing of the bankruptcy petition because of 22 the following: (i) Treasury does not have an attachment or tax lien on the residential property. “A 23 ‘lien’ under the Bankruptcy Code includes judicial liens, statutory liens (e.g., federal tax liens), 24 and security interests created by agreement (e.g. real property mortgages);” (ii) Treasury filed an 25 unsecured non-priority proof of claim; and (iii) the automatic stay prohibits, “…any act to create, 26 27 1 perfect or enforce any lien against property of the estate” or against property of the debtor when 2 those liens secure prepetition claims. 11 U.S.C. §362(a)(4) and (5). (Docket No. 53). 3 Applicable Law and Analysis 4 “Motions to reconsider are not recognized by the Federal Rules of Civil Procedure or the 5 Federal Rules of Bankruptcy Procedure in haec verba.” In re Lozada Rivera, 470 B.R. 109, 112 6 (Bankr. D.P.R. 2012), citing Jimenez v. Rodriguez (In re Rodriguez), 233 B.R. 212, 218-219 7 (Bankr. D.P.R. 1999), conf’d 17 Fed. Appx. 5 (1st Cir. 2001); Van Skiver v. United States, 952 8 F.2d 1241, 1243 (10th Cir. 1991); Lavespere v. Niagara Mach. & Tool Works Inc., 910 F.2d 167, 9 173 (5th Cir. 1990), cert. denied 510 U.S. 859, abrogated on other grounds by Little v. Liquid Air 10 Corp., 37 F.3d 1069, 1075-1076 (5th Cir. 1994). Rather, federal courts have considered motions 11 so denominated as either a motion to “alter or amend” under Fed. R. Civ. P. 59(e) or a motion for 12 relief from judgment under Fed. R. Civ. P. 60(b). See Fisher v. Kadant, Inc., 589 F.3d 505, 512 13 (1st Cir. 2009) (noting a motion for reconsideration implicated either Fed. R. Civ. P. 59(e) or 14 60(b)); Equity Security Holders’ Committee v. Wedgestone Financial (In re Wedgestone 15 Financial), 152 B.R. 786, 788 (D. Mass. 1993). “These two rules are distinct; they serve different 16 purposes and produce different consequences. Which rule applies depends essentially on the time 17 a motion is served. If a motion is served within [fourteen1] days of the rendition of judgment, the 18 motion ordinarily will fall under Rule 59(e). If the motion is served after that time, it falls under 19 Rule 60(b).” In re Lozada Rivera, 470 B.R. at 113, quoting Van Skiver, 952 F.2d at 1243. Also 20 see Universal Ins. Co. v. DOJ, 866 F. Supp. 2d 49, 73 (D.P.R. 2012) (“A motion is characterized 21 pursuant to [Fed. R. Civ. P.] 59(e) or [Fed. R. Civ. P.] 60(b) based upon its filing date.”) “The 22 substance of the motion, not the nomenclature used or labels placed on motions, is controlling.” 23 In re Lozada Rivera, 470 B.R. at 113. Under either rule, “the granting of a motion for 24 reconsideration is ‘an extraordinary remedy which should be used sparingly.’” Palmer v. 25 Champion Mortg., 465 F.3d 24, 30 (1st Cir. 2006) (citations omitted). 26

27 1 See Fed. R. Bankr. P. 9023. 1 In this case, the Trustee’s Motion to Alter Order at Docket No. 48 and Incorporated Brief 2 was filed thirty-four (34) days after the Order was rendered. Thus, the court will consider the 3 same under Fed. R. Civ. P. 60(b), applicable to bankruptcy proceedings through Fed. R. Bankr. 4 P. 9024. “It is the invariable rule, and thus, the rule in the [First Circuit], that a litigant, as a 5 precondition to relief under Rule 60(b), must give the trial court reason to believe that vacating 6 the judgment will not be an empty exercise.” RBSF, LLC v. Franklin (In re Franklin), 445 B.R. 7 34, 45 (Bankr. D. Mass. 2011)(quoting Teamsters, Chauffers, Warehousemen & Helpers Union, 8 Local No. 59 v. Superline Transp. Co., 953 F. 2d 17, 20 (1st Cir. 1992)). Fed. R. Civ. P. 60(b) 9 provides in pertinent part: “[o]n motion and just terms, the court may relieve a party or its legal 10 representative from a final judgment, order, or proceeding for the following reasons: 11

12 (1) mistake, inadvertence, surprise, or excusable neglect; (2) newly discovered evidence that, with reasonable diligence, could not 13 have been discovered in time to move for a new trial under Rule 59(a); (3) fraud (whether previously called intrinsic or extrinsic), 14 misrepresentation, or misconduct by an opposing party; 15 (4) the judgment is void; (5) the judgment has been satisfied, released or discharged; it is based on 16 an earlier judgment that has been reversed or vacated; or applying it prospectively is no longer equitable; or 17 (6) any other reason that justifies relief.” Fed. R. Civ. P. 60(b).

18 Fed. R. Civ. P. 60(b)(1)-(6) offers six (6) independent reasons for relief. The motion to 19 alter order cites Fed. R. Civ. P. 60(b)(1) and (6). The Trustee in the Discussion section of the 20 motion cites Rule 60(b) in its entirety and then includes a paragraph as to Rule 60(b)(1) and four 21 (4) paragraphs regarding Rule 60(b)(6). The court finds that even though the Trustee cites Rule 22 60(b)(1), he does not plead with particularity how the existence of mistake, inadvertence or 23 excusable neglect applies in the instant case. The Trustee does not offer newly discovered 24 evidence nor argues that there is a manifest error of law or point to fraud. The Trustee’s request 25 to alter order is based upon Rule 60(b)(6). 26 27 1 Fed. R. Civ. P. 60(b)(6) is a catch-all provision that requires the movant to demonstrate 2 “any other reason which justifies relief,” “which authorizes relief for ‘any other reason’—that is, 3 any reason not encompassed within the previous five clauses—that might justify relief.” Rivera 4 Velazquez v. Hartford Steam Boiler Inspection & Ins. Co., 750 F. 3d 1, 4 (1st Cir. 2014). Relief 5 under Rule 60(b)(6) is reserved for “extraordinary circumstances” that justify “extraordinary” 6 relief. See E. Sav. Bank fsb v. Lafata (In re Lafata), 344 B.R. 715, 722 (B.A.P. 1st Cir. 2006) 7 citing Valley Citizens for a Safe Environment v. Aldridge, 969 F. 2d 1315, 1317 (1st Cir. 1992). 8 “This provision, which provides for relief from a judgment based on ‘any other reason,’ is a ‘grand 9 reservoir of equitable power to do justice in a particular case.’ The provision ‘vests power in 10 courts adequate to enable them to vacate judgments whenever such action is appropriate to 11 accomplish justice.’” 12-60 Moore’s Federal Practice- Civil §60.48[1]. “Courts generally find 12 extraordinary circumstances warranting relief under Rule 60(b)(6) only where the movant was 13 not at fault in his predicament, and was unable to take steps to prevent the judgment from which 14 relief is sought” Aja v. Fitzgerald (In re Aja), 441 B.R. 173, 178 (B.A.P. 1st Cir. 2011); See also; 15 Roman v. Carrion (In re Rodriguez Gonzalez), 396 B.R. 790 (B.A.P. 1st Cir. 2008). 16 The Trustee alleges that: “…. in this case, the legal errors that led to the entry of the order 17 granting Debtors’ reply constitute exceptional circumstances, especially since the Court entered 18 the order before granting Trustee’s application to employ counsel, which application had been 19 filed precisely to file the memorandum of law in response to Debtors’ reply” (Docket No. 52, pg. 20 6). The Trustee does not explain which were “the legal errors that led to the entry of the order 21 granting Debtor’s reply” and how these “legal errors” constitute exceptional circumstances. The 22 Trustee’s Motion for Enlargement of Time to Comply with Court Order of thirty (30) days was 23 filed on June 24, 2016 and the same lapsed on July 26, 2016 (July 25, 2016 was a court holiday 24 – Puerto Rico Constitution Day). If the Trustee needed additional time to file his reply because 25 the court had not approved the application of employment for counsel, then he could have filed a 26 second motion for extension of time in order to protect the legal interests (rights) of the parties in 27 1 interest. On July 29, 2016, the court granted the application of employment of attorney and said 2 attorney filed a notice on appearance on August 31, 2016. The court finds that in the instant case, 3 the Trustee’s reasons do not constitute “extraordinary circumstances” warranting the highly 4 extraordinary relief provided under Rule 60(b)(6). 5 At this juncture, the court does not have to adjudicate the underlying legal issue because 6 it is denying the Trustee’s motion to alter or set aside order pursuant to Rule 60(b)(6). However, 7 the Court is concerned about the Trustee’s allegations as to whether filing of a proof of claim in 8 a bankruptcy case constitutes a state tax collection action (or an effort to collect taxes) within the 9 purviews of the Internal Revenue Code for a New Puerto Rico (“Tax Code”), 13 L.P.R.A. 10 §§33261-33280 that provide in detail the procedures for filing with the Property Registry a tax 11 lien certification attachment of real and personal property. 12 A claim is a right to payment. 11 U.S.C. §101(5)(A). In order to participate in bankruptcy 13 a claim must be allowed. An initial step to have a claim allowed is the filing of a proof of claim. 14 11 U.S.C. §501 and Fed. R. Bankr. P. 3001 & 3002. If filing a proof of claim under 11 U.S.C. 15 §501 constituted a collection activity (and an act to create a lien for a prepetition tax debt against 16 a real property) then it would be in contravention with the automatic stay provisions under 11 17 U.S.C. §362(a) that bar the creation and perfection of state and federal tax liens. The only 18 exception from the stay is for the creation or perfection of a statutory lien for ad valorem property 19 taxes, or for special taxes or assessments on real property imposed by a governmental unit that 20 become due after the commencement of the case may attach to real property pursuant 11 U.S.C. 21 §362(b)(18)2 or 11 U.S.C. §362(b)(9)(D). See also; United Stated v. Gold (In re Avis), 178 F. 3d 22 718, 723 (4th Cir. 1999). Circumstances that are not present in this case. 23 24 2 “It should be noted that this exception is limited to the creation or perfection of liens for ad valorem property taxes 25 and special taxes or assessments on real property. It does not permit enforcement of such liens free of the automatic stay. The taxing authority may not take action to enforce the lien, which would deprive the estate of use and possession 26 of the property. Also, the exception does not apply to other tax liens, such as liens for income taxes, which would be stayed under section 362(a).” Alan N. Resnick & Henry J. Sommer, 3 Collier on Bankruptcy ¶ 362.05[17](16th ed. 27 2016). 1 Conclusion 2 For the reasons set forth above, the Motion to Alter Order (Docket No. 52) is hereby 3 || denied. The court finds that the Trustee’s reasons do not constitute “extraordinary circumstances” 4 || warranting the highly extraordinary relief provided under Rule 60(b)(6). 5 SO ORDERED. 6 In San Juan, Puerto Rico, this 22! day of March, 2017. 7 8 ehrcrrvezle 9 oniedd States Bankruptey Jodge 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27

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