In re: Stephen Whitman-Nieves; Josephine M. Barnes Adams v. Puerto Rico Federal Credit Union; Ace Insurance Co., Insurance John Doe, Jane Doe; and/or Nina Do; A, B and/or C Corp.; X,Y and/or Z Ins. Companies

• Court: United States Bankruptcy Court, D. Puerto Rico
• Decided: April 8, 2016
• Docket: 15-00141
• Status: Unknown

Opinion

1 IN THE UNITED STATES BANKRUPTCY COURT > FOR THE DISTRICT OF PUERTO RICO 3 || IN RE: CASE NO. 12-00519 (ESL) 4 || STEPHEN WHITMAN-NIEVES; CHAPTER 7 5 JOSEPHINE M. BARNES ADAMS 6 Debtors STEPHEN WHITMAN-NIEVES; ADV. PROC. NO. 15-00141 (ESL) 7 || JOSEPHINE M. BARNES ADAMS AND THE CONJUGAL 8 || PARTNERSHIP COMRISED BY BOTH 9 10 Plaintiffs 1] v. 12 || PUERTO RICO FEDERAL CREDIT 13 || UNION; ACE INSURANCE CO., INSURANCE JOHN DOE, JANE 14 || DOE; and/or NINA DO; A, B and/or C CORP.; X,Y and/or Z INS. 15 || COMPANIES 16 Defendants 17 18 || ROBERTO ROMAN VALENTIN 19 || Chapter 7 Trustee 20 Party in Interest 21 22 23 OPINION AND ORDER 24 This adversary proceeding is before the court once again since the first proceeding 25 || (Adversary Proceeding 12-00392) was dismissed without prejudice on April 24, 2015 because it 26 || was filed after the bankruptcy case was closed, and thus the court was devoid of jurisdiction to 27 |lentertain the same (Adversary Proceeding 12-00392, Docket Nos. 68 & 69). The instant

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1 || proceeding is before the court upon the Motion for Summary Judgment (Docket No. 18) filed by 2 || Plaintiffs Josephine Barnes Adams, Stephen Whitman Nieves and the community property 3 || composed by both (hereinafter referred to as the “Plaintiffs”) arguing that creditor Puerto Rico 4 || Federal Credit Union (hereinafter referred to as the “PRFCU”) has violated the discharge 5 || injunction pursuant to 11 U.S.C. §524(a)(2) when it sent a payment booklet on July of the year 6 || 2012 to the address of Mrs. Norma Adams Irizarry, the mother of joint debtor Josephine M. 7 ||Barnes Adams’ and guarantor of the personal loan in controversy. Moreover, the account 8 ||number and the replacement payment coupons (from July 2012 through July 2013) included in 9 booklet were addressed to debtor Josephine Barnes Adams and requested a payment of 10 || $1,259.58 and subsequent monthly payments in the amount of $248.88. Plaintiffs also argue that 11 || PRFCU’s “willful action to ask for Ms. Norma Adams’s signature of the pignoration agreement 12 ||during the automatic [stay] protection for Ms. Josephine Barnes constitute[s] an indirect 13 collection effort against debtors through a third party to ensure or assess debt payment and in 14 || consequence violates debtor’s protection to the automatic stay.” 15 On December 23, 2015, PRFCU filed its Answer to Plaintiffs/Debtors’ Motion for 16 || Summary Judgment and Defendant’s Request for Dismissal for Complaint contending that: (1) 17 || the allegations made by Plaintiffs/Debtors in the previously filed adversary proceeding are very 18 || similar to the allegations included in the first proceeding; namely, the alleged willful violation 19 of the automatic stay and the discharge injunction by PRFCU (ii) this court previously entered 20 an Opinion and Order in which it held that PRFCU did not incur in a violation of the automatic 21 || stay since this statutory protection did not extend to third parties; (ili) the perfection of the lien 22 a third party (Mrs. Norma Adams Irizarry) does not constitute an indirect violation of the 23 || automatic stay, since the same would have the effect of creating a lien over Mrs. Norma Adams 24 || Irizarry’s certificate of deposit, which is not property of the bankruptcy estate. The act of 25 || requesting a non-debtor (Mrs. Norma Adams Irizarry) to sign a pignoration agreement which 26 || she voluntarily signed on her visit to PRFCU does not constitute a violation of the automatic 27 || stay. This is a permissible act by a creditor to secure the protection originally received when the

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1 || third party provided the guarantee of the loan; (iv) the Plaintiffs/ Debtors lack standing to assert 2 || any claim based on the rights of a third party. The Plaintiffs/Debtors are requesting this court to 3 decide a claim that may only be asserted by Mrs. Norma Adams Irizarry since it is her 4 || certificate of deposit that is being affected by the perfection of the lien; and (v) PRFCU did not 5 || violate the discharge injunction when it sent a payment booklet to Mrs. Josephine Barnes 6 || Adams to the address of her mother, Mrs. Norma Adams Irizarry because if PRFCU intended to 7 collect from Mrs. Josephine Barnes Adams it would have sent the payment booklet to her 8 || physical address instead of sending the same to the address of non-debtor Mrs. Norma Adams 9 || Irizarry (Docket No. 23). 10 Applicable Law and Analysis 11 || Standard for Motion for Summary Judgment 12 3 Rule 56 of the Federal Rules of Civil Procedure, is applicable to this proceeding by Rul

14 || 7056 of the Federal Rules of Bankruptcy Procedure. Summary judgment should be entered “i 15 the pleadings, depositions, answers to interrogatories, and admissions on file, together with th 16 || affidavits, if any, show that there is no genuine issue as to any material fact and that the movin 7 party is entitled to a judgment as a matter of law.” Fed. R. Bankr. P. 7056; see also, In r 18 Colarusso, 382 F.3d 51 Cir. 2004), citing Celotex Corp. v. Catrett, 477 U.S. 317, 322-32 (1986). 20 4 “The summary-judgment procedure authorized by Rule 56 is a method for promptl 2 || disposing of actions in which there is no genuine issue as to any material fact or in which only 23 || question of law is involved.” Wright, Miller & Kane, Federal Practice and Procedure, 3d, Vo 24 |110A, § 2712 at 198. “Rule 56 provides the means by which a party may pierce the allegations 1 25 the pleadings and obtain relief by introducing outside evidence showing that there are no fac issues that need to be tried.” Id. at 202-203. Summary judgment is not a substitute for a trial o 7

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disputed facts; the court may only determine whether there are issues to be tried, and it is

2 improper if the existence of a material fact is uncertain. Id. at 205-206. 3 Summary judgment is warranted where, after adequate time for discovery and upo 4 || motion, a party fails to make a showing sufficient to establish the existence of an elemen 5 essential to its case and upon which it carries the burden of proof at trial. Celotex Corp. □□ 6 Catrett, 477 U.S. 317, 322 (1986). The moving party must “show that there is no genuine issu as to any material fact and that the moving party is entitled to judgment as a matter of law.” □□□□

9 R. Civ. P. 56(c). 10 For there to be a “genuine” issue, facts which are supported by substantial evidence mus 11 be in dispute, thereby requiring deference to the finder of fact. Furthermore, the disputed fact 12 || must be “material” or determinative of the outcome of the litigation. Hahn v. Sargent, 523 F.2 13 461, 464 (1" Cir. 1975), cert. denied, 425 U.S. 904 (1976). When considering a petition fo summary judgment, the court must view the evidence in the light most favorable to th nonmoving party. Poller v. Columbia Broadcasting Systems, Inc., 368 U.S. 464, 473 (1962); 7 Daury v. Smith, 842 F.2d 9, 11 Cir. 1988). 18 The moving party invariably bears both the initial as well as the ultimate burden in 19 || demonstrating its legal entitlement to summary judgment. Adickes v. Kress & Co., 398 US. 20 144, 157 (1970). See also Lépez v. Corporaci6n Azucarera de Puerto Rico, 938 F.2d 1510, 71 1516 (1* Cir. 1991). It is essential that the moving party explain its reasons for concluding that the record does not contain any genuine issue of material fact in addition to making a showing

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. Lopez, 938 F.2d at 1516. In addition, the moving party is required to demonstrate that

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there is an absence of evidence supporting the nonmoving party’s case. Celotex, 477 U.S. at

2 325. See also, 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). See also, Kauffman v. 6 Puerto Rico Telephone Co., 841 F.2d 1169, 1172 C1“ Cir. 1988); Hahn, 523 F.2d at 464. A party may not rely upon bare allegations to create a factual dispute but is required to point to

9 specific facts contained in affidavits, depositions and other supporting documents which, if 10 || established at trial, could lead to a finding for the nonmoving party. Over the Road Drivers, Inc. 11 || v. Transport Insurance Co., 637 F.2d 816, 818 (1* Cir. 1980). 12 The moving party has the burden to establish that it is entitled to summary judgment; no 13 defense is required where an insufficient showing is made. Lépez, 938 F.2d at 1517. The nonmoving party need only oppose a summary judgment motion once the moving party has met its burden. Adickes, 398 U.S. at 159.

7 For the reasons explained below, this court partially grants and partially denies 18 || Plaintiffs’ motion for summary judgment. In the previous adversary proceeding the court rendered an Opinion and Order *0 (Adversary Proceeding No. 12-00392, Docket No. 54) in which it adjudicated the controversies that are before the court in the instant adversary proceeding which are based on the same material uncontested facts included in the prior Opinion and Order (Adversary Proceeding No. °3 12-00392, Docket No. 54, pgs. 2- 4)'. As to the violation of the discharge injunction by * PRECU, the court, based on the same legal reasoning, reiterates its holding of its prior Opinion * and Order and thus concludes as follows: 26 97 The court scheduled a pretrial to consider the damages resulting from PRFCU’s violation of the discharg injunction. At the pretrial hearing, the court realized that the lead case had been closed on May 10, 2012 and ther was no request to reopen the same. Adversary proceeding No. 12-00392 was dismissed on April 24, 2015.

1 “From the stipulated facts, however, it is clear that PRFCU made a collection effort 2 against co-debtor Barnes-Adams through her mother, the Guarantor. See Docket No. 45, 3 p. 2, 98. Such action is prohibited by 11 U.S.C. §524(a). See In re Collins, 474 B.R. at 320, citing Senate Report No. 95-989 (“[11 U.S.C. $524(a)] has been expanded... to 4 cover any act to collect, such as dunning by telephone or letter, or indirectly through friends, relatives, or employers, harassment, threats of repossession, and the like. The 5 change is ... intended to insure that once a debt is discharged, the debtor will not be 6 pressured in any way to repay it.”). Therefore, the court finds that when PRFCU sent the payment booklet to co-debtor Barnes Adams at her mother’s address, to wit, the 7 Guarantor, it violated the discharge injunction.” (Adversary Proceeding No. 12-00392, Docket No. 54, pg. 16); See also; Whitman-Nieves v. P.R. Fed. Credit Union (In re 8 Whiman- Nieves), 519 B.R. 1, 12 (Bankr. D.P.R. 2014). 9 10 || Violation of the Automatic Stay pursuant to Section 362(a)(6) 11 As to the Plaintiffs’ second argument, regarding PRFCU’s alleged violation of Debtors’ 12 |} automatic stay pursuant to 11 U.S.C. $362(a)(6) which consisted in an indirect collection effort 13 || against the Debtors through Mrs. Norma Adams when a representative of PRFCU requested 14 ||non-debtor Mrs. Norma Adams’ to sign the pignoration agreement to ensure the debt repayment 15 by providing the protection guaranteed (Mrs. Norma Adams’ certificate of deposit) when 16 || PRFCU granted the personal loan to debtor Josephine Barnes Adams. Plaintiffs contend that, 17 || “under the circumstances of the present case, the PRFCU affirmative actions to modify the real 18 |jand legal nature of debtor’s debt, particularly, creating a lien on an unsecured debt after 19 || bankruptcy filing constitute an automatic stay violation against debtors under 11 U.S.C. 20 || $362[a](6)” (Docket No. 30, pg. 5). 71 Section 362(a)(6) stays, “any act to collect, assess, or recover a claim against the debtor 22 that arose before the commencement of the case under this title.” 11 U.S.C. $362(a)(6). “The 23 || wording of this provision is somewhat similar to that of section 362(a)(1) but the provision 24 || applies to any ‘act’ whether or not that act is related to an ‘action’ or a ‘proceeding.’ Thus, any 25 |} act taken to collect, assess or recover a prepetition claim against the debtor, whether the act is 26 || taken against the estate or against the debtor is stayed.” Crespo Torres v. Santander Fin. Servs. 97 || Un_re Torres), 532 B.R. 195, 2001 (Bankr. D.P.R. 2015) citing Alan N. Resnick & Henry J.

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1 Sommer, 3 Collier on Bankruptcy §] 362.03[8] (16th ed. 2015). Amongst the acts covered by 2 || section 362(a)(6) are actions taken by a creditor to induce debt payment, such as withholding a 3 || student’s transcript. Id. at 362.03[8][a]. Some courts have applied a “coercive effects” test 4 || which is basically whether a creditor “acts or fails to act, in a coercive manner, with the sole 5 || purpose of collecting that debt. This ‘test’ can’t be found in the Code, and situations which it 6 || applies will be rare, because most act or failures to act have multiple purposes, such as 7 || minimizing risk based on creditworthiness.” In re Kuehn, 563 F. 3d 289, 292 qt Cir. 2009); 8 || Eagle v. Big Muddy River Correctional Center/Illinois Dept. of Corrections (In re Eagle), 2011 9 || Bankr. Lexis 2352, *6 (Bankr. S.D. Il. 2011) (“A creditor acts to collect a debt if it acts or fails 10 || to act, in a coercive manner, with the sole purpose of collecting that debt’). 11 “Section 362(a)(6) is intended to prevent creditor harassment of the debtor in attempting 12 || to collect prepetition debts. The conduct prohibited ranges from that of an informal nature, such 13 ||as by telephone contact or by dunning letters, to more formal judicial and administrative 14 || proceedings that are also stayed under subsection (a)(1).” Id. The purpose of section 362(a)(6) 15 “to benefit a debtor by preventing harassment and frustration of rehabilitation efforts through 16 || pursuit by creditors in individual actions.” In re Duke, 79 F. 3d 43, 45 (7" Cir. 1996) citing 17 || Matthews v. Rosene, 739 F. 2d 249, 251 qt Cir. 1984). 18 Moreover, “[s]ection 362(a)(6) stays collection from the debtor. It does not stay actions 19 || against sureties to recover property in which the debtor has no interest. Thus, a creditor may 20 || pursue a guarantor free of the automatic stay even though the guarantor may have a right to 21 |/reimbursement from the debtor and may be subrogated to the rights of the creditor. The action 22 may proceed even if the guarantor’s reimbursement right is secured by property of the debtor or 23 || property of the estate.” Alan N. Resnick & Henry J. Sommer, 3 Collier on Bankruptcy { 24 || 362.03[8][b] (16th ed. 2015). 25 The court finds that Plaintiffs’ arguments as to the debtors’ violation of the automatic 26 || stay which consist of collection actions against the mother of debtor Josephine Barnes Adams 27 ||(Mrs. Norma Adams Irizarry) are misplaced. The provisions of the automatic stay are for the

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1 || benefit of the debtor, they are not extensive to third parties, thus collection efforts against a third 2 || party or a guarantor that is not a debtor in bankruptcy are not protected by the provisions of the 3 || automatic stay. This court in its prior Opinion and Order, as part of its analysis stated that: 4 “The U.S. Court of Appeals for the First Circuit (the “First Circuit”) has ruled 5 that the automatic stay provisions of Section 362 ‘apply only to the bankrupt 6 debtor’ and ‘[c]ourts that have come to a different conclusion do not appear to have done so on the basis that $362 requires such a result, but rather that 7 additional considerations warrant a stay as to all defendants.’ Austin v. Unarco Industries, Inc., 705 F. 2d 1, 5 (1* Cir. 1983). Courts that have allowed a narrow 8 exception to the general rule that the automatic stay is not available to third 9 parties take into consideration the following reasoning: 10 In order for relief for such non-bankrupt defendants to be available under (a)(1), there must be unusual circumstances” ... This ‘unusual situation’, 11 it would seem, arises when there is such identity between the debtor and the third party defendant that the debtor may be said to be the real party 12 defendant and that a judgment against the third party defendant will be a B judgment or finding against the debtor. A.H. Robins Co. v. Piccinin, 788 F. 2d 994, 999 (4" Cir. 1985), cert. denied, 479 U.S. 876 (1986)” 14 (Adversary proceeding 12-00392, Docket No. 54, pgs. 11-12); See also; In re Whiman- Nieves, 519 B.R. at 9. 15 The court finds that in the instant case the request made by the PRFCU to Debtor’s 16 mother to sign the pignoration agreement to guarantee the loan with Mrs. Norma Adams’ 17 certificate of deposit is not a collection action against the debtor(s) and thus, does not constitute a violation of the automatic stay provisions. 19 On January 27, 2016, ACE Insurance filed an Opposition to Plaintiffs’ Motion for 20 Summary Judgment (Docket No. 28) in the instant adversary proceeding by which it joined and 21 incorporated PRFCU’s legal arguments. ACE Insurance contends that summary judgment at 22 this stage is procedurally premature because liability against PRFCU has to be established first 23 to determine if the terms and conditions of the insurance policy cover the same. However, 24 PRFCU’s insurance policy does not provide coverage for wrongful acts pursuant to its wrongful 25 acts exclusion clause and it has s $25,000 self-insured retention meaning that there has to be a 26 determination that the $25,000 retention was exhausted. On January 27, 2016, the Plaintiffs 27 filed a Motion Pursuant to Order Dated January 13, 2016 (Docket No. 32) in which they agree _Q_

1 || with ACE Insurance that its responsibility is limited to the terms and conditions of the insurance 2 || policy and that it depends on whether the court determines that PRFCU is liable. However, 3 || Plaintiffs state that ACE Insurance was included in the interest of judicial economy in which all 4 || claims and controversies are included for summary disposition. 5 This court finds that at this juncture, determining whether PRFCU is covered by the 6 || policy it has with ACE Insurance is premature, given that there has not been a determination as 7 || to the damages for the violation of the discharge injunction. Moreover, the court concludes that 8 ||a determination of coverage for damages under the insurance policy, if applicable, has to be 9 made by ACE Insurance after PRFCU submits its claim to ACE Insurance. 10 11 Conclusion 12 In view of the foregoing, Plaintiffs’ Motion for Summary Judgment (Docket No. 18) is 13 ||hereby partially granted as to the violation of the discharge injunction by PRFCU and it is 14 || partially denied regarding the alleged violation of the automatic stay provisions. 15 A pretrial hearing on the alleged damages resulting from PRFCU’s violation of the 16 || discharge injunction is hereby scheduled for September 13, 2016 at 2:00 p.m. 17 SO ORDERED. 18 Partial judgment will be entered accordingly. 19 In San Juan, Puerto Rico, this gn day of April, 2016. 20

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