United States Court of Appeals For the First Circuit
No. 20-9003
CALEB NEIRA RIVERA,
Debtor. _____________________
Appellant,
v.
SCOTIABANK DE PUERTO RICO,
Appellee.
APPEAL FROM THE BANKRUPTCY APPELLATE PANEL FOR THE FIRST CIRCUIT
Before
Thompson, Dyk,* and Barron, Circuit Judges.
German A. Rieckehoff, for appellant. Yasmin R. Vázquez Vázquez, with whom Vázquez & Estrella Law Offices was on brief, for appellee.
September 17, 2021
* Of the Federal Circuit, sitting by designation. THOMPSON, Circuit Judge. Chapter 7 debtor Caleb Neira
Rivera ("Neira") seeks review of an order issued by the Bankruptcy
Appellate Panel for the First Circuit ("BAP") that found he had no
standing to appeal a bankruptcy court order overruling his
objection to a proof of claim filed by Scotiabank de Puerto Rico
("Scotiabank"). Because we agree with the BAP that Neira has no
standing to appeal the bankruptcy court order, we dismiss his
appeal for lack of jurisdiction.
I. Background
In July 2009, R-G Premier Bank of Puerto Rico ("R-G
Bank") initiated a judicial foreclosure action against Neira, his
wife Daisy Rodríguez Martínez, and their conjugal partnership in
the Puerto Rico Court of First Instance, San Juan Part. See R-G
Premier Bank of P.R. v. Neira Rivera, et al., KCD2009-2927 (508).
The object of the foreclosure action was the defendants' home,
located in the gated community of Paseo San Juan, in San Juan,
Puerto Rico ("the Property"), which secured a mortgage note held
by R-G Bank. In December 2009, the local court entered a default
judgment against the defendants (the "2009 Foreclosure Judgment")
in the amount of $821,794.97, plus interest, late fees, costs and
attorney's fees. The local court allowed foreclosure.
The following year, the Federal Deposit Insurance
Corporation ("FDIC") was appointed receiver of R-G Bank, and the
-2- FDIC sold R-G Bank's assets to Scotiabank. Scotiabank then sought
to execute on the 2009 Foreclosure Judgment and a judicial sale of
the Property was scheduled for October 29, 2012.
Two days before the scheduled judicial sale, on October
27, 2012, Neira filed a chapter 11 petition in the United States
Bankruptcy Court for the District of Puerto Rico (the "2012
Bankruptcy Case"), which stayed the judicial sale of the Property.
See Petition, In re Neira Rivera, No. 12-08577-ESL (Bankr. D.P.R.
Oct. 27, 2012), ECF No. 1. Scotiabank then filed a proof of claim,
asserting a claim in the amount of $1,195,033.62 secured by a lien
on the Property. Neira filed an objection to Scotiabank's proof
of claim, arguing that Scotiabank had not provided evidence of a
perfected security interest in the Property. He thus requested
that Scotiabank's proof of claim "be disallowed." In his prayer
for relief, Neira requested additional remedies, including that
"the underlying debt be canceled and forever discharged whether or
not the debtor(s) receive their Discharge Order in this case."
On May 15, 2013, the bankruptcy court entered an order
granting Neira's objection to Scotiabank's proof of claim (the
"2013 Order"). Specifically, the order stated: "Debtor's
objection to claim #10 filed by Scotiabank PR (docket entry #47),
having been duly notified to all parties in interest, and no timely
-3- replies or objections having been filed, it is now ORDERED that
said motion be and it is hereby granted."
In November 2014, Neira moved for voluntary dismissal of
the 2012 Bankruptcy Case. The bankruptcy court granted his
request and dismissed the case on December 16, 2014. No
reorganization plan was ever confirmed in the case and Neira did
not receive a discharge.
Following the dismissal of the 2012 Bankruptcy Case, the
local court rescheduled the judicial sale of the Property for late
July 2015. Shortly before the judicial sale was to take place,
on July 22, 2015, Neira filed a new chapter 11 petition in the
United States Bankruptcy Court for the District of Puerto Rico
(the "2015 Bankruptcy Case"), which again stayed the judicial sale
of the Property. See Petition, In re Neira Rivera, No. 15-05590-
ESL (Bankr. D.P.R. July 22, 2015), ECF No. 1. In his petition,
Neira listed Scotiabank as a creditor with an unsecured claim of
$821,794.00. Less than a month later, Neira requested that the
2015 Bankruptcy Case be dismissed. The bankruptcy court granted
his request and dismissed the case on September 21, 2015. Like
in the 2012 Bankruptcy Case, no reorganization plan was confirmed
and Neira did not receive a discharge.
On October 2, 2015, Neira, his wife, and their conjugal
partnership filed a complaint in the Puerto Rico Court of First
-4- Instance, San Juan Part, seeking to obtain relief from the 2009
Foreclosure Judgment. See Neira Rivera, et al. v. Scotiabank de
P.R., KAC2015-0892 (905). They alleged that Scotiabank was not
the mortgage note holder and that the mortgage on the Property had
not been properly recorded in the Property Registry. In
compliance with a court order, Scotiabank produced the original
mortgage note for inspection and a Registry Certification
reflecting that the mortgage had been recorded in the Property
Registry. Thereafter, the couple failed to prosecute their case
and the local court dismissed the complaint for lack of
prosecution.
The judicial sale finally took place in October 2016,
and Scotiabank acquired the Property. Two years later, in October
2018, Scotiabank sold the Property to third-party purchasers,
Inversiones B-Tres, Inc. and Nice Realty Group, LLC (the
"Purchasers"). Despite the foreclosure sale and subsequent sale
of the Property to the Purchasers, Neira and his wife refused to
move out of the Property. Instead, between 2017 and 2018 they
filed four different cases (three in local courts and one in the
United States District Court for the District of Puerto Rico),
seeking to obtain relief from the 2009 Foreclosure Judgment. See
Neira Rivera, et al. v. Scotiabank de P.R., SJ2017CV00133 (804);
Neira Rivera, et al. v. Scotiabank de P.R., SJ2017CV001196 (904);
-5- Neira Rivera, et al. v. Scotiabank de P.R., SJ2018CV08924 (907);
Neira Rivera, et al. v. Scotiabank de P.R., No. 18-1323-CCC (D.P.R.
May 25, 2018). In each case, they contended that the 2013 Order
in the 2012 Bankruptcy Case had canceled their debt to Scotiabank
and that said order had preclusive effect such that Scotiabank
could not execute on the 2009 Foreclosure Judgment or proceed with
the judicial sale of the Property. The couple did not prevail in
any of those cases.
Facing impending eviction proceedings in local court, on
December 11, 2018, Neira filed a chapter 13 petition in the United
States Bankruptcy Court for the District of Puerto Rico. See
Petition, In re Neira Rivera, No. 18-07219-ESL (Bankr. D.P.R. Dec.
11, 2018), ECF No. 1. Neira listed Scotiabank as an unsecured
creditor on his bankruptcy schedules but listed the value of
Scotiabank's claim as $0.00 and stated that he was listing it "for
due process only[,] debt discharge." On February 19, 2019,
Scotiabank filed a proof of claim asserting an unsecured claim in
the amount of $893,620.55 based on a "mortgage deficiency" ("Claim
14"). On March 14, 2019, Neira objected to Scotiabank's Claim 14,
arguing that his debt to Scotiabank had been "cancelled and/or
discharge[d] on May 15, 2013" by virtue of the 2013 Order, which
had "preclusive effect," thus "barr[ing] [Scotiabank] from
-6- submitting [Claim 14]" and foreclosing on the Property despite the
dismissal of the 2012 Bankruptcy Case.
Scotiabank replied in April 2019, alleging that its
claim had been secured since its inception by a valid, recorded
lien on the Property and that it was entitled to assert a
deficiency claim for the amount still owed after the judicial sale
of the Property. It further argued that the 2013 Order did not
annul the 2009 Foreclosure Judgment and that it had no preclusive
effect because the 2012 Bankruptcy Case was dismissed "before a
payment plan was confirmed or the debt discharged." Scotiabank
posited that Neira was once again improperly "disguising an
objection to a Proof of Claim, in order to reverse [the 2009
Foreclosure Judgment]," since his four earlier attempts to reverse
that judgment had proven unsuccessful both in federal and local
courts. The bankruptcy court agreed with Scotiabank and, by order
entered on May 20, 2019, overruled Neira's objection to Claim 14
(the "May 20 Order").
While the parties were disputing Scotiabank's Claim 14,
in late March 2019, upon Neira's request, the bankruptcy court
converted the proceedings to chapter 7 and appointed a chapter 7
trustee. The bankruptcy court also granted the Purchasers relief
from the automatic stay to proceed with local eviction proceedings
against Neira and his wife.
-7- On May 21, 2019, the chapter 7 trustee filed a Notice of
Abandonment of Property, stating that "[t]his [was] . . . a no
Asset case" and that he was abandoning all of the estate's
interests in non-exempt assets, including Neira's purported
interest in the Property. On that same date, the chapter 7 trustee
also filed a Report of No Distribution in which he stated that
"there [was] no property available for distribution" to creditors.
He also noted that the "[c]laims scheduled to be discharged without
payment" amounted to $1,410,779.14. Shortly thereafter, Neira
moved for a discharge order under 11 U.S.C. § 727, which the
bankruptcy court granted.
Neira appealed to the BAP the bankruptcy court's May 20
Order overruling his objection to Scotiabank's Claim 14. The BAP
entered an Order to Show Cause directing Neira to address why his
appeal should not be dismissed for lack of appellate jurisdiction.
Neira filed his response, contending that he had been "aggrieved"
by the bankruptcy court's May 20 Order, and thus had appellate
standing, because he had possession of the Property and a
"colorable claim" against Scotiabank. In his view, he had been
"aggrieved by the [May 20] Order" because it "implicitly
recognize[d] the existence of a debt that was discharged many years
ago" in the 2012 Bankruptcy Case, "validate[d] Scotiabank's re-
litigation of the very same issue contested on the merits" in the
-8- 2012 Bankruptcy Case, and "empower[ed] Scotiabank to complete
foreclosure proceedings and evict [Neira] from his home to execute
on a debt that simply does not exist."
The BAP concluded that Neira did not have appellate
standing to challenge the May 20 Order because he had failed to
demonstrate that the challenged order had directly or adversely
affected his pecuniary interests. Neira Rivera v. Scotiabank de
P.R., No. 19-026 (B.A.P. 1st Cir. Oct. 29, 2019). Specifically,
the BAP concluded that Neira had not demonstrated "a reasonable
possibility" that reversal on appeal of the May 20 Order "w[ould]
cause the value of the estate's assets to exceed its liabilities"
or "impact the terms of his discharge or the dischargeability of
the debt owed to Scotiabank." Id. at 13. The BAP also noted that
"it appear[ed] from the record that [Neira's] primary objective in
objecting to Scotiabank's claim, and in [his] appeal [to the BAP],
[was] to avoid his eviction from property which was foreclosed by
Scotiabank in 2016 and sold to third-party purchasers in 2018."
Id. at 1. Accordingly, the BAP entered judgment dismissing the
appeal. Neira sought reconsideration of the BAP's judgment, which
the BAP denied. Neira now appeals from the BAP's decision.
II. Discussion
It is well-settled that only a "person aggrieved" has
standing to appeal from a final bankruptcy court order.
-9- Spenlinhauer v. O'Donnell, 261 F.3d 113, 117 (1st Cir. 2001). A
litigant qualifies as a "person aggrieved" only if the challenged
order "directly and adversely" affects his or her pecuniary
interests. Id. at 117-18. This standing requirement is more
stringent than the one under Article III because it aims to ensure
that bankruptcy proceedings, "with its myriad of parties, directly
and indirectly involved or affected by each order and decision of
the bankruptcy court," "are not unreasonably delayed by protracted
litigation that does not serve the interests of either the
bankrupt's estate or its creditors." In re El San Juan Hotel, 809
F.2d 151, 154 (1st Cir. 1987); see also Spenlinhauer, 261 F.3d at
117-18.
"The advent of the chapter 7 estate and the appointment
of the chapter 7 trustee divest the chapter 7 debtor of all right,
title and interest in nonexempt property of the estate at the
commencement of the case." Spenlinhauer, 261 F.3d at 118. It is
"[t]he chapter 7 trustee, not the chapter 7 debtor, [who becomes]
responsible for collecting all property of the estate and reducing
it to money." In re Mark Bell Furniture Warehouse, Inc., 992 F.2d
7, 10 (1st Cir. 1993). Because the chapter 7 debtor no longer
holds title to the property of the estate, he "typically lacks any
pecuniary interest in the chapter 7 trustee's disposition of that
property." Spenlinhauer, 261 F.3d at 118. Hence, "normally it
-10- is the trustee alone, as distinguished from the chapter 7 debtor,
who possesses standing to appeal from bankruptcy orders" affecting
the property of the estate. Id.; see also In re Mark Bell
Furniture Warehouse, Inc., 992 F.2d at 10 (explaining that "[a]
chapter 7 debtor is not considered a 'person aggrieved,' as [he]
lacks a pecuniary interest in the 'property of the estate'" (second
alteration in original) (quoting In re Thompson, 965 F.2d 1136,
1144 (1st Cir. 1992))).
This general rule has two exceptions, which will confer
standing to a chapter 7 debtor "notwithstanding the fact that he
no longer has title to the property." Spenlinhauer, 261 F.3d at
119. First, a chapter 7 debtor may establish standing by adducing
sufficient evidence to demonstrate that a successful appeal by the
debtor "would generate assets in excess of liabilities, entitling
the debtor to a distribution of surplus" once the bankruptcy case
is closed. In re Mark Bell Furniture Warehouse, Inc., 992 F.2d
at 10 (quoting In re Thompson, 965 F.2d at 1144); see also
Spenlinhauer, 261 F.3d at 119; In re El San Juan Hotel, 809 F.2d
at 155 n.6. Second, a chapter 7 debtor may demonstrate standing
by establishing that the challenged order "would adversely affect
the terms and conditions of his chapter 7 discharge."
Spenlinhauer, 261 F.3d at 119 n.7 (citations omitted); In re Mark
-11- Bell Furniture Warehouse, Inc., 992 F.2d at 10; see also In re El
San Juan Hotel, 809 F.2d at 155 n.6.
The party asserting appellate jurisdiction -- here,
Neira -- bears the burden of proving standing to appeal.
Spenlinhauer, 261 F.3d at 118. We review "factual determinations
by a lower court of whether a party has standing for clear error."
In re Furlong, 660 F.3d 81, 86 n.3 (1st Cir. 2011); see also
Spenlinhauer, 261 F.3d at 118 (noting that the "'person aggrieved'
determination . . . entails a factual inquiry which we review only
for clear error"); In re El San Juan Hotel, 809 F.2d at 154 n.3
(same).
Neira's arguments on appeal are geared toward
challenging the merits of the May 20 Order allowing Scotiabank's
Claim 14. He devotes a substantial part of his briefs to disputing
the validity of the debt that Scotiabank asserted in Claim 14 in
light of the 2013 Order entered in the 2012 Bankruptcy Case, and
discussing why the doctrine of claim preclusion should have led to
the disallowance of Claim 14.1 The problem with Neira's approach
1 Specifically, Neira argues that regardless of the reasons that Scotiabank might have had for not opposing his objection to Scotiabank's proof of claim in the 2012 Bankruptcy Case, because Scotiabank did not appeal or seek relief from the 2013 Order, "it is forever bound" by it. In Neira's view, the "unequivocal discharge" of his debt to Scotiabank by way of the 2013 Order "bound all other courts . . . and . . . precluded Scotiabank from pursuing any further claims related to that debt," notwithstanding the subsequent dismissal of the 2012 Bankruptcy Case.
-12- is that he focuses on the merits of the May 20 Order but fails to
first clear the standing hurdle. He fails to address why he has
standing in the first place to challenge the substance of the May
20 Order.
When Neira's case was converted to chapter 7 and a
chapter 7 trustee was appointed, he lost "all right, title and
interest in nonexempt property of the estate." Spenlinhauer, 261
F.3d at 118. Accordingly, unless Neira can establish that he
meets either of the two exceptions for appellate standing in
chapter 7 cases, it is only the chapter 7 trustee who has standing
to appeal from bankruptcy orders affecting the property of the
estate. Id. at 118-19. As the BAP correctly found, Neira failed
to establish that either exception applies.
Neira makes no argument, much less establishes, that the
reversal of the May 20 Order "would generate assets in excess of
liabilities, entitling [him] to a distribution of surplus" once
the bankruptcy case is closed. In re Mark Bell Furniture
Warehouse, Inc., 992 F.2d at 10. The record is also completely
devoid of any evidence showing that the reversal of the challenged
order would cause "a total nonexempt-asset valuation exceeding all
Accordingly, the bankruptcy court should have disallowed Scotiabank's Claim 14, which was related to the same debt to Scotiabank allegedly discharged in 2013.
-13- allowed claims against the chapter 7 estate" and that Neira would
be entitled to the resulting surplus. Spenlinhauer, 261 F.3d at
119. Rather, what the record shows is that the challenged order
concerned a claim of $893,620.55, whereas the claims discharged
without payment amounted to $1,410,779.14. Thus, even if the
challenged order were to be reversed and Scotiabank's Claim 14
disallowed, there is no possibility that it would generate assets
in excess of liabilities and create a surplus to which Neira would
be entitled.
Nor does Neira argue, let alone establish, that the May
20 Order "adversely affect[ed] the terms and conditions of his
chapter 7 discharge." Id. at 119 n.7. The record reveals that
Neira received a discharge order in 2019, which included the
discharge of his debt to Scotiabank for the mortgage deficiency.
The record is devoid of any evidence that the discharge order would
be affected by a successful appeal of the May 20 Order. See In
re Mark Bell Furniture Warehouse, Inc., 992 F.2d at 10; In re El
San Juan Hotel, 809 F.2d at 155.
Despite failing to establish either of the two
exceptions -- that is, that the reversal of the May 20 Order would
generate a surplus or affect the discharge -- Neira claims to have
suffered two grievances that, in his view, arise directly from the
May 20 Order.
-14- First, he argues that the May 20 Order undermines his
long-standing position in local courts that his debt to Scotiabank
is inexistent, thus making it more difficult for him to succeed in
local courts. During the past several years, Neira and his wife
have sought to obtain relief -- in three local courts and one
district court -- from the 2009 Foreclosure Judgment based on their
contention that the 2013 Order had canceled their debt to
Scotiabank and that it had preclusive effect, thereby preventing
Scotiabank from executing on the 2009 Foreclosure Judgment and
going on with the judicial sale of the Property. According to
Neira, he and his wife were unsuccessful in all four cases because
both the state and federal courts failed to understand the couple's
arguments and legal contentions. As Neira explained to us, the
May 20 Order allowing Scotiabank's claim for mortgage deficiency
hinders his chances of success in local courts because it
"implicitly recognizes the existence of a debt that was discharged
many years ago", allows Scotiabank to relitigate the same issue,
and "empowers Scotiabank to complete foreclosure proceedings and
evict [him] from his home to execute a debt that . . . does not
exist." In his view, reversal of the May 20 Order would help him
because it could influence the local courts to accept his argument
-15- that his debt to Scotiabank is inexistent.2 But this falls short
of meeting the requirement for appellate standing.
It is evident from Neira's argument that the challenged
order has no "direct and immediate impact on [Neira's] pecuniary
interests." In re El San Juan Hotel, 809 F.2d at 155 (quoting In
re Fondiller, 707 F.2d 441, 443 (9th Cir. 1983)). His contention
is that a successful appeal may benefit him to the extent that it
may help him persuade the local courts to rule in his favor in
separate proceedings in other courts. Yet, "a debtor, contesting
a bankruptcy court order, whose only interest or burden is as a
future party [litigant], does not qualify as an 'aggrieved
person.'" Id. (citing In re Fondiller, 707 F.2d at 443).
Second, Neira claims to have been aggrieved by the May
20 Order because of the impending eviction proceedings he is facing
in local court. But the May 20 Order does not "directly and
adversely" affect the eviction proceedings. In fact, the eviction
proceedings going on in local court are not tied in any way to the
May 20 Order. Scotiabank's Claim 14 is related to a mortgage
deficiency that arose in October 2016, after the judicial sale of
the Property, and not to the validity of Scotiabank's security
interest in the Property. The eviction proceedings, however, were
2 In his words, "the present appeal is a head-on attempt to correct/rectify said judgments."
-16- initiated because third-party purchasers acquired the Property in
October 2018 and have been unable to take possession of it due to
Neira and his wife's refusal to leave the Property. Even if Claim
2014 is disallowed, it would not have a "direct" effect in the
eviction proceedings, as required by our case law. And, to the
extent that Neira's argument is that reversal of the May 20 Order
may put him in a better position to defend himself in the eviction
proceedings, that too is insufficient to make him an "aggrieved
person." See id. (determining that a debtor whose "only
demonstrable interest in the order [was] as a potential party
defendant in an adversary proceeding" did not qualify as a "person
aggrieved" (quoting In re Fondiller, 707 F.2d at 443)).
Finally, Scotiabank asks for sanctions under First
Circuit Local Rule 38.0, saying that Neira's conduct has been
"vexatious." It submits that Neira "has used the judicial system
to intentionally delay the eviction of his property for which
Judgment was issued in 2009 and which was foreclosed in 2016."
Scotiabank notes that Neira has filed eight cases and reopened the
2009 foreclosure case with a request for relief from the 2009
Foreclosure Judgment and, although he has not prevailed in any on
them, he has "forc[ed] Scotiabank to engage in litigation in nine
separate cases."
-17- First Circuit Local Rule 38.0 authorizes sanctions for
"vexatious litigation," where a party or attorney "files a motion,
brief, or other document that is frivolous or interposed for an
improper purpose, such as to harass or to cause unnecessary delay,
or unreasonably or vexatiously increases litigation costs."
Vexatious behavior is "conduct displaying a 'serious and studied
disregard for the orderly process of justice.'" Jasty v. Wright
Med. Tech., Inc., 528 F.3d 28, 34 (1st Cir. 2008) (quoting Cruz v.
Savage, 896 F.2d 626, 631-32 (1st Cir. 1990)).
The conduct complained of by Scotiabank did not occur in
the context of the present appeal. The only allegation related
to this appeal is Scotiabank's suggestion that Neira appealed to
delay the eviction proceedings, but the record reflects that the
Purchasers obtained a relief from the stay to proceed with the
local eviction proceedings in 2019. Thus, the appeal could not
have delayed those proceedings. And, although Local Rule 38.0
authorizes sanctions not only for vexatious litigation conduct but
also for frivolous appeals, see In re Efron, 746 F.3d 30, 37-38
(1st Cir. 2014), Scotiabank's request for sanctions is not premised
on any claim that the appeal was frivolous. Absent an argument
from Scotiabank to that effect, we refuse to conclude that Neira's
weak appeal was frivolous. See id. (noting that "'weak' is not
synonymous with 'frivolous'" and an "appeal can be weak, indeed
-18- almost hopeless, without being frivolous" (quoting Lallemand v.
Univ. of R.I., 9 F.3d 214, 217-18 (1st Cir. 1993))); see also In
re Lorenzo, 637 F. App'x 623, 623-24 (1st Cir. 2016) (explaining
that "[a]n appeal is frivolous if the arguments in support of it
are wholly insubstantial and the outcome is obvious from the start"
(quoting In re Efron, 746 F.3d at 37)). We clarify, however, that
our denial of sanctions should not be construed as an endorsement
of Neira's decision to appeal.
III. Conclusion
For the foregoing reasons, we dismiss the appeal for
want of jurisdiction. Costs shall be taxed against the appellant.
-19-