In re: Tanya Maria Baez Donis v. Department of Treasury of Puerto Rico

• Court: United States Bankruptcy Court, D. Puerto Rico
• Decided: October 27, 2023
• Docket: 22-00020
• Status: Unknown

Opinion

1 IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF PUERTO RICO 2 3 IN RE: CASE NO. 21-00876-EAG 4 TANYA MARIA BAEZ DONIS Chapter 13 DEBTOR/PLAINTIFF ADVERSARY CASE NO, 22-0020 5 VS FILED & ENTERED ON OCT/27/2023 6 DEPARTMENT OF TREASURY OF PUERTO RICO 7 DEFENDANT 8 OPINION AND ORDER 9 Pending before the court is the motion for partial summary judgment by 10 plaintiff Ms. Tanya Baez against defendant Department of Treasury of Puerto 11 Rico for violation of the automatic and the opposition to it by Treasury. 12 Treasury filed a separate motion for summary judgment to dismiss the complaint, and Ms. Baez opposed. For the reasons stated below, the court grants partial 13 summary judgment in favor of Ms. Baez and denies Treasury’s motion for summary 14 judgment. 15 I. Jurisdiction This court has jurisdiction over the subject matter and the parties 16 pursuant to 28 U.S.C. §§ 1334 and 157(a), Local Civil Rule 83K(a), and the 17 General Order of Referral of Title 11 Proceedings to the United States 18 Bankruptcy Court for the District of Puerto Rico dated July 19, 1984 (Torruella, C.J.).1 This is a core proceeding in accordance with 28 U.S.C. § 157(b). 19 II. Ms. Baez’s Argument 20 Ms. Baez filed a chapter 13 petition for relief on March 19, 2021. 21 Treasury filed its first proof of claim in the case on April 23, 2021, and was being paid through a chapter 13 plan which was confirmed on August 20, 2021. 22 On November 1, 2021, Treasury sent Ms. Baez a notice attempting to collect a 23 pre-petition claim. Consequently, Ms. Baez alleges Treasury willfully violated 24 the automatic stay. 25 26 1 Unless otherwise indicated, all references to “Bankruptcy Code” or to specific statutory sections are to the 27 Bankruptcy Reform Act of 1978, as amended, 11 U.S.C. §§ 101-1532. All references to “Bankruptcy Rule” are to the Federal Rules of Bankruptcy Procedure, and all references to “Rule” are to the Federal Rules of Civil Procedure. All 28 references to “Local Bankruptcy Rule” are to the Local Bankruptcy Rules of the United States Bankruptcy Court for the District of Puerto Rico. And all references to “Local Civil Rule” are to the Local Rules of Civil Practice of the 29 United States District Court for the District of Puerto Rico. 1 Through the notice, Treasury sought payment of a debt in the amount of $266.00 related to Ms. Baez’s tax return for year 2020. The tax return was filed 2 pre-petition, on March 17, 2021, and accrued pre-petition. Also, the collection 3 notice stated a specific amount to be paid and the consequences and penalties 4 for the failure to pay as requested. The complaint alleges that, because Treasury had actual and constructive knowledge of the petition, the court must 5 presume that Treasury’s violation of the automatic stay was deliberate. 6 The complaint further alleges that Treasury’s action caused Ms. Baez 7 economic, physiological, and emotional damages. Ms. Baez states: [A]s a direct and proximate cause of Hacienda’s violation of the 8 Automatic Stay, the Plaintiff has suffered economic damages which include reduction in income from having to take time off work to 9 address these matters; has incurred in additional expenses in having to travel back and forth the attorney[’]s office, and has incurred in 10 other costs as a result of related activities. Id. Similarly, the physical damages suffered by Plaintiff, as a direct and proximate 11 cause of Hacienda’s violation of the Automatic Stay, include confusion, anxiety, nervousness, and embarrassment. … Finally, the 12 emotional distress damages include severe tension, headaches, anxiety, severe emotional suffering, mental anguish, and other psychological 13 injuries all caused by Defendant’s deliberate disruption of Plaintiff’s financial rehabilitation efforts. 14

(Adv. Dkt. No. 33, p. 12 ¶ 2). 15

III. Treasury’s Position 16 Treasury assets that it did not violate the automatic stay because it 17 acted in accordance with the Bankruptcy Code and the Puerto Rico Internal 18 Revenue Code. According to the Internal Revenue Unified System (SURI), the internal accounting software used by Treasury, no collection notice was sent to 19 Ms. Baez. The document dated November 1, 2021, was sent to Ms. Baez by the Tax 20 Return Processing Department, not the Collection Department of Treasury. It is 21 just a notice to inform Ms. Baez that the extension of time for deferred payment she requested when filing her tax return for year 2020 would expire on November 22 17, 2021. Also, Treasury argues that the notice was assessing tax liability, 23 which is allowed under section 362(b)(9)(D). Additionally, according to 24 Treasury, Ms. Baez’s property or bank accounts were not affected by a lien and no collection effort or notification was sent to her. Thus, Treasury says it 25 did not make a willful or intentional collection effort. 26 Treasury further argues that the complaint fails to allege concrete harm 27 to Ms. Baez and, thus, she does not have Article III standing to sue Treasury. “The Supreme Court of the United States has rejected the proposition that ‘a 28 plaintiff automatically satisfies the injury-in-fact requirement whenever a 29 1 statute grants a person a statutory right and purports to authorize that person to sue to vindicate that right,’” says Treasury, quoting Spokeo, Inc. v. Robins, 2 578 U.S. 330, 341 (2021). Article III standing requires a concrete injury even 3 in the context of a statutory violation. According to Treasury, Ms. Baez failed 4 to demonstrate she suffered a concrete harm. Treasury also argues that punitive damages cannot be imposed against the 5 Commonwealth of Puerto Rico and its agencies. Treasury requests the dismissal 6 of the complaint for failure to state a claim. 7

8 IV. Uncontested Facts 9 The following facts are uncontested pursuant to Rule 56 and Local Civil 10 Rule 56, made applicable to these proceedings by Bankruptcy Rules 9014(c) and 7056 and Local Bankruptcy Rules 1001-1(b) and (d): 11 12 1. On March 17, 2021, Ms. Baez filed her income tax return for the year 2020. 13 (Adv. Dkt. No. 20-3). 2. On March 19, 2021, Ms. Baez filed a chapter 13 bankruptcy petition, Case 14 No. 21-00876. 15 3. Treasury filed its first proof of claim number 6 on April 23, 2021, which 16 includes an original tax amount of $266.00, plus interest and surcharges, for a total of $315.05. 17 4. The “Notice of Chapter 13 Bankruptcy Case” (Official Form 309I) was sent 18 electronically to Treasury by the Bankruptcy Noticing Center on March 22, 19 2021, at 10:33 p.m. (Bankr. Dkt. No. 10). 20 5. The “Notice of Chapter 13 Bankruptcy Case” included the following language: 21

22 The filing of the case imposed an automatic stay against most collection activities. This means that creditors generally may not take action to 23 collect debts from the debtors, the debtors’ property, and certain codebtors. For example, while the stay is in effect, creditors cannot 24 sue, garnish wages, assert a deficiency, repossess property, or otherwise try to collect from the debtors. Creditors cannot demand repayment from 25 debtors by mail, phone, or otherwise. Creditors who violate the stay can be required to pay actual and punitive damages and attorney's fees. 26 (Bankr. Dkt. No. 10). 27 6. On August 20, 2021, the court confirmed Ms. Baez’s chapter 13 plan, which 28 provided treatment to Treasury’s claim. (Bankr. Dkt. Nos. 69 and 74). 29 1 7. Treasury sent to Ms. Baez a “Payment Notice of Second Installment of 2 Individual Income Tax Return” dated November 1, 2021, which reads as follows:

3 Dear Taxpayer:

4 The payment of the second installment of your Individual Income Tax Return for the amount of $266.00 is due on November 17, 2021. 5 How and where can you make this payment? 6 You can make your payment electronically through the SURI page (suri.hacienda.pr.gov). You will find the steps to follow to make 7 the payment below: If you have a SURI username and password: 8 1. Access SURI and enter your username and password. 2. Select the account Individual – Income Tax Return. 9 3. Select the period 31-Dec-2020. 4. Select the payment method you will use and complete the 10 information required. (Note: If you are going to pay with a credit card, you must select the option Pay with credit card). 11 If you do not have a SURI username and password: 12 1. Access SURI. 2. In the Other Services section, select Payment Options and then 13 select the option Other Payments. 3. Select the method you will use to make the payment. 14 4. Complete the information required according to the payment method option you selected. 15 To ensure that your payment is applied correctly, it is important 16 to do the following: • If you are going to pay with a credit card, you must select the 17 option Pay with credit card. • In the line where you are asked to select the Account Type, select 18 Individual – Income Tax Return. • In the Filing Frequency line, select Natural Year. 19 • In the Filing Period line, select Dec-31-2020.

20 What happens if I do not make the payment? If a payment is not received by November 17, 2021, said amount will 21 begin accumulating interest at 10% calculated on the annual base and, also, it may be subject to a maximum surcharge of 10% if the 22 delay exceeds 60 days. Therefore, we urge you to make the payment before the due date to prevent the accumulation of interest and 23 surcharges and, for your case to be referred to any of our Collection Districts for due diligence. 24 If you have already made the payment for this concept, please 25 disregard this notice.

26 We are here to serve you at the Treasury Department.

27 Income Tax Return Processing Bureau.

28 Period of Conservation: Six (6) years or an intervention of the Comptroller, whichever happens first. 29 1 (Translated notice at Adv. Dkt. No. 48-1).

2 V. Legal Analysis and Discussion 3 a. Summary Judgment Standard 4 The standard for summary judgment is well-known. Pursuant to Rule 56 made 5 applicable to these proceedings by Bankruptcy Rules 7056 and 9014(c), summary 6 judgment is available “if the pleadings, depositions, answers to 7 interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving 8 party is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(c); Borges 9 ex rel. S.M.B.W. v. Serrano-Isern, 605 F.3d 1, 4 (1st Cir. 2010). The moving 10 party bears the burden of showing that “no genuine issue exists as to any material fact” and that he is “entitled to judgment as a matter of law.” Vega- 11 Rodríguez v. P.R. Tel. Co., 110 F.3d 174, 178 (1st Cir. 1997). 12 Once a properly supported motion has been presented before the court, the 13 opposing party “can shut down the machinery only by showing that a trial-worthy issue exists” that would warrant the court’s denial of the motion for summary 14 judgment. McCarthy v. Northwest Airlines, 56 F.3d 313, 315 (1st Cir. 1995). For 15 issues where the opposing party bears the ultimate burden of proof, that party 16 cannot merely “rely on the absence of competent evidence, but must affirmatively point to specific facts that demonstrate the existence of an authentic dispute.” 17 Id. However, not every factual dispute is sufficient to frustrate summary 18 judgment; the contested fact must be material and the dispute over it must be 19 genuine. Id. An issue is “genuine” if it could be resolved in favor of either party. A fact is “material” if it is potentially outcome-determinative. See 20 Calero-Cerezo v. United States DOJ, 355 F.3d 6, 19 (1st Cir. 2004). 21 In assessing a motion for summary judgment, the court “must view the 22 entire record in the light most hospitable to the party opposing summary judgment, indulging in all reasonable inferences in that party's favor.” Griggs- 23 Ryan v. Smith, 904 F.2d 112, 115 (1st Cir. 1990) (citations omitted). The court 24 may safely ignore “conclusory allegations, improbable inferences, and 25 unsupported speculation.” Medina-Munoz v. R.J. Reynolds Tobacco Co., 896 F.2d 5, 8 (1st Cir. 1990) (citations omitted). However, there is “no room for 26 credibility determinations, no room for the measured weighing of conflicting 27 evidence such as the trial process entails, [and] no room for the judge to 28 superimpose his own ideas of probability and likelihood (no matter how reasonable those ideas may be) . . . .” Greenburg v. P.R. Mar. Shipping Auth., 29 1 835 F.2d 932, 936 (1st Cir. 1987); see also Mulero-Rodriguez v. Ponte, Inc., 98 F.3d 670, 677 (1st Cir. 1996) (reversing summary judgment and emphasizing that 2 “determinations of motive and intent . . . are questions better suited for the 3 jury.”) (quoting Petitti v. New England Tel. & Tel. Co., 909 F.2d 28,34 (1st 4 Cir. 1990)). “Cross-motions for summary judgment do not alter the basic Rule 56 5 standard, but rather simply require [the court] to determine whether either of 6 the parties deserves judgment as a matter of law on facts that are not disputed.” 7 Adria Int'l Grp., Inc. v. Ferre Dev., Inc., 241 F.3d 103, 107 (1st Cir. 2001). Thus, “a court must rule on each motion independently, deciding in each instance 8 whether the moving party has met its burden under Rule 56.” United States v. 9 100,000 in United States Currency, 305 F. Supp. 3d 238, 245 (D. Mass. 2018) 10 (quoting Dan Barclay, Inc. v. Stewart & Stevenson Servs., Inc., 761 F. Supp. 194, 197-98 (D. Mass. 1991). 11 “The [trial] court is freed from the usual constraints that attend the 12 adjudication of summary judgment motions” when “‘the basic dispute between the 13 parties concerns the factual inferences. . . that one might draw from the more basic facts to which the parties have drawn the court's attention,’ where ‘there 14 are no significant disagreements about those basic facts,’ and where neither 15 party has ‘sought to introduce additional factual evidence or asked to present 16 witnesses.’” Equal Employment Opportunity Comm'n v. Steamship Clerks Union 1066, 48 F.3d 594, 603 (1st Cir. 1995) (quoting Federacion de Empleados del Tribunal 17 Gen. de Justicia v. Torres, 747 F.2d 35, 36 (1st Cir. 1984)). In those 18 circumstances, “[t]he court may then engage in a certain amount of differential 19 fact finding, including the sifting of inferences.” Id. For the reasons set forth below, the court finds that that there is no 20 genuine issue as to any material fact and that Ms. Baez is entitled to judgment 21 as a matter of law. 22 b. Standing under Article III of the United States Constitution 23 24 Article III standing to bring an action consists, at a bare constitutional minimum, of the following three elements: 25 26 First, the plaintiff must have suffered an injury in fact—an invasion of a legally protected interest which is (a) concrete and 27 particularized; and (b) actual or imminent, not conjectural or hypothetical. Second, there must be a causal connection between the 28 injury and the conduct complained of—the injury has to be fairly traceable to the challenged action of the defendant, and not the 29 1 result of the independent action of some third party not before the court. Third, it must be likely, as opposed to merely speculative, 2 that the injury will be redressed by a favorable decision. 3 Lujan v. Defenders of Wildlife, 504 U.S. 555, 560-61 (1992) (cleaned up). 4 Ms. Baez alleges that, because of Treasury’s violation of the automatic stay, she has suffered a reduction of income from having to take time off from 5 work to address these matters; has incurred in travel expenses to and from her 6 attorney’s office; and has incurred in additional attorney expenses. Also, Ms. 7 Baez alleges that, as a proximate cause of Treasury’s violation of the automatic stay, she has suffered confusion, anxiety, nervousness, and embarrassment. She 8 further alleges having experienced severe emotional suffering, mental anguish, 9 and other psychological injuries. She claims physiological damages such as 10 severe headache, chest pain, upset stomach and shortness of breath. Treasury has presented no evidence whatsoever to disprove any of Ms. Baez’s 11 alleged injuries and failed to explain why these alleged injuries are not 12 sufficiently concrete or particularized, why there is not a causal connection, 13 and why it is not likely that these injuries would be redressed by a decision favorable to Ms. Baez. Thus, the court concludes that Ms. Baez has met the three 14 basic elements of Article III standing. 15 c. Violation of the Automatic Stay 16 17 The automatic stay under section 362(a) is one of the basic protections 18 afforded to a debtor under the Bankruptcy Code. Velazquez v. Quiñones (In re Quiñones), 2021 Bankr. LEXIS 768, *25 (Bankr. D. P.R. 2021). When a debtor files 19 a bankruptcy petition, his or her property is immediately protected by an 20 automatic stay that prohibits, among other things, “any act to obtain possession 21 of property of the estate or of property from the estate or to exercise control over property of the estate[.]” 11 U.S.C. § 362(a)(3). And, property of the 22 estate is broadly defined as encompassing any property to which the estate has 23 some right. See 11 U.S.C. § 541. The automatic stay is extremely broad in scope 24 and “applies to almost any type of formal or informal action taken against the debtor or the property of the estate.” Collier on Bankruptcy ¶ 362.03 (Richard 25 Levin & Henry J. Sommer., 6th ed.). “[T]he automatic stay imposes on non-debtor 26 parties an affirmative duty of compliance.” Sternberg v. Johnston, 595 F.3d 27 937, 943 (9th Cir. 2010). And, “courts must display a certain rigor in reacting to violations of the automatic stay.” Soares v. Brockton Credit Union (In re 28 Soares), 107 F.3d 969, 975-76 (1st Cir. 1997). 29 1 Section 362(k) provides individuals with a means to redress violations of the stay, stating that “an individual injured by any willful violation of a 2 stay provided by this section shall recover actual damages, including costs and 3 attorneys' fees, and, in appropriate circumstances, may recover punitive 4 damages.” 11 U.S.C. § 362(k)(1). A willful violation does not require a specific intent to violate the automatic stay; rather, the debtor must show that the 5 defendant intended the actions that constituted the violation and had knowledge 6 of the stay. See Fleet Mortg. Group v. Kaneb, 196 F.3d 265, 269 (1st Cir. 1999). 7 A debtor alleging a violation of the automatic stay must demonstrate, by a preponderance of the evidence, “(1) that a violation of the automatic stay 8 occurred; (2) that the violation was willfully committed; and (3) that the 9 debtor suffered damage as a result of the violation.” Slabicki v. Gleason (In 10 re Slabicki), 466 B.R. 572, 577-78 (B.A.P. 1st Cir. 2012). Here, the court finds that the notice sent to Ms. Baez is a collection 11 notice. Treasury alleges that, because the department that originated the notice 12 is not the collection department, the notice was not an attempt to collect a 13 debt. However, the notice instructed Ms. Baez how and when to make payment. The notice also advised Ms. Baez of the consequences of not paying on time. Treasury 14 had knowledge of the bankruptcy petition and the imposition of the automatic 15 stay. Still, it failed to establish the necessary mechanisms to avoid collection 16 efforts to Ms. Baez. Therefore, the court concludes that the notice sent by Treasury constitutes a demand for payment of a pre-petition debt and that 17 Treasury deliberately violated the automatic stay. 18 19 d. Exceptions to the Automatic Stay under 11 U.S.C. § 362(b)(9)(D) 20 Section 362 states, in relevant part, that the filing of a petition does not 21 operate as a stay under section 362(a) of

22 the making of an assessment for any tax and issuance of a notice and demand for payment of such an assessment (but any tax lien that would 23 otherwise attach to property of the estate by reason of such an assessment shall not take effect unless such tax is a debt of the 24 debtor that will not be discharged in the case and such property or its proceeds are transferred out of the estate to, or otherwise 25 revested in, the debtor).

26 11 U.S.C. § 362(b)(9)(D).

27 Treasury argues that the notice sent to Ms. Baez was excepted from the 28 automatic stay under section 362(b)(9)(D), which would permit Treasury to assess any tax, issue a notice, and demand payment of such an assessment. Again, this 29 mere attorney argument, unsupported by any evidence in the record. In fact, > Treasury’s argument is contradicted by the case record. Both proof of claim 6- 1 filed on April 23, 2021, and amended proof of claim 6-2 filed on May 10, 2022, 3 □ ta □ state that the tax liability was still “pending to assessment”. Therefore, the 4|jonly evidence in the record shows that when the notice was sent on November 1, 5 2021, Ms. Baez’s 2020 tax liability was still pending assessment and, consequently, the notice is not excepted by section 362 (b) (9) (D). 6 VI. Conclusion 4 For the reasons stated above, the court finds that Treasury’s collection 8 ||notice was a post-petition attempt to collect a pre-petition debt in violation 9 of the automatic stay under section 362(a). Also, Treasury’s notice was no excepted from the automatic stay under section 362 (b) (9) (D). 10 □ . Therefore, the court grant’s partial summary judgment in favor Ms. Baez 11]/finding that Treasury’s “Payment Notice of Second Installment of Individual 12 Income Tax Return” dated November 1, 2021, and sent to Ms. Baez violated section 362(a). (Adv. Dkt. No. 33). Consequently, the court denies Treasury’s motion 1 . □ □ □ 3 for summary judgment requesting dismissal of the complaint. (Adv. Dkt. No. 21). 14 An evidentiary hearing will be scheduled to ascertain and quantify Ms. 15 Baez’s damages resulting from the violation of the automatic stay by Treasury. 16 IT IS SO ORDERED. 17 In San Juan, Puerto Rico, this 27% day of October, 2023. 18 19 20 21 hhloonrik C. Edward A. 22 United States Bankruptcy 23 24 25 26 27 28 29