Docket: BAP NO. PR 16-016; Bankruptcy Case No. 11-02825-BKT
Court: Bankruptcy Appellate Panel of the First Circuit; January 4, 2017; Us Bankruptcy; United States Bankruptcy Court
The U.S. Bankruptcy Appellate Panel, led by Judge Fagone, affirmed the bankruptcy court's denial of sanctions for contempt against Banco Popular de Puerto Rico, as sought by debtors Alexis Ramirez Rosado and Elsie E. Berrios Salgado. The debtors had filed for Chapter 7 bankruptcy in March 2011, listing two properties and Banco Popular as a creditor with significant liens. They referenced ongoing foreclosure proceedings initiated by Banco Popular prior to their bankruptcy filing. After obtaining a discharge in April 2015, the debtors claimed that Banco Popular's continued foreclosure efforts violated the discharge injunction under 11 U.S.C. § 524(a)(2). They argued that, under Puerto Rico law, only a summary foreclosure proceeding would be appropriate post-discharge and contended that the previous foreclosure judgments were void due to personal liability determinations.
Despite their claims, the debtors did not provide evidence of any communications from Banco Popular that would constitute a violation of the discharge injunction. Banco Popular countered that it had indicated its intention to proceed solely in rem and waived any in personam claims. The bankruptcy court denied the contempt motion without a hearing, stating that Banco Popular's response warranted denial of the motion.
The Order Denying Contempt did not address Banco Popular’s request to file Spanish-language documents or clarify the court’s consideration of those documents. Following this, the Debtors filed a Reconsideration Motion without citing legal authority for their request. They acknowledged Banco Popular's notification to the local court of its exclusive in rem approach, waiving personal collection rights, but argued that this did not change the nature of the foreclosure action or the applicable foreclosure statute. On March 16, 2016, the bankruptcy court denied the Reconsideration Motion, stating that such motions should not be used to re-litigate settled matters and that Rule 59(e) does not allow unhappy litigants another chance to persuade the judge. The Debtors subsequently appealed, linking their notice of appeal to both the Order Denying Contempt and the Order Denying Reconsideration. They maintained that they had established a prima facie case for contempt against Banco Popular and asserted that Banco Popular should have followed Puerto Rico's in rem statute post-discharge. Additionally, the Debtors claimed errors in accepting Spanish-language documents, mischaracterizing the Reconsideration Motion, and denying them a hearing on both motions. Banco Popular countered by reasserting its previous arguments and claimed that under Puerto Rico law, there are three valid methods for a mortgagee to proceed in rem. It further argued that the acceptance of Spanish-language documents was appropriate and contested the appeal's jurisdiction over the Order Denying Reconsideration due to its omission in the notice of appeal. The appeal's jurisdiction hinges on whether both orders are properly before the Panel, as the Debtors did not explicitly identify the Order Denying Reconsideration in their notice.
The Panel determined that the notice of appeal encompassed both the Order Denying Contempt and the Order Denying Reconsideration, largely due to the parties’ agreement during oral argument. Unlike the previous case, there was no consensus here. The First Circuit promotes a liberal construction of notices of appeal, emphasizing their role in facilitating correct decisions on the merits. Courts can look beyond the notice itself when assessing intent, as evidenced in prior cases where poorly drafted notices were salvaged. The Debtors’ notice linked both orders in the court's electronic system, referenced them in their statement of issues and designation of record filed within the required timeframe, and subsequently briefed both orders, revealing a clear intent to appeal despite the omission of the Order Denying Reconsideration. Banco Popular did not challenge the Debtors’ submissions promptly, thus, appellate review of both orders would not unduly prejudice them.
Both orders were deemed appealable, with the Order Denying Contempt classified as a final order. The finality of the Order Denying Reconsideration was affirmed since it was contingent on the finality of the underlying order. The standard of review for the denial of a motion for contempt and the Order Denying Reconsideration is for abuse of discretion, defined as overlooking significant factors, misallocating weight to factors, or making a significant error in judgment in the decision-making process.
Section 524(a)(2) of the Bankruptcy Code establishes the discharge injunction, which prohibits the collection of discharged debts as personal liabilities of the debtor. Bankruptcy courts can enforce this injunction through their powers under Section 105, allowing for monetary relief, including actual damages, attorney fees, and punitive damages against creditors who violate this injunction. Violations are treated as civil contempt, with the burden of proof resting on the debtor to show by clear and convincing evidence that the creditor violated the injunction.
To succeed in a claim under Section 524(a)(2), the debtor must demonstrate that (1) the creditor was aware of the discharge, (2) the creditor intended the actions that constituted the violation, and (3) the creditor's actions were coercive or harassing. The assessment of coercion is based on an objective standard, meaning the creditor's conduct must be seen as creating a threatening situation for the debtor. The discharge injunction encompasses various collection activities, including communications aimed at collecting discharged debts. However, it does not prevent all creditor communications, only those aimed at personal liability for discharged debts. Secured creditors may still enforce valid liens post-discharge, provided they do not seek personal relief from the debtor.
In applying this standard, debtors must clearly and convincingly demonstrate that the creditor had notice of the discharge, intended to act in violation of the injunction, and engaged in actions that were coercive or harassing. The standard of "clear and convincing" evidence requires a high probability of truth in the factual assertions made.
The first two elements of a violation under 524(a)(2) are agreed upon, but the third element presents issues. The Debtors failed to allege that Banco Popular's actions involved coercion or harassment, which is essential for a 524(a)(2) violation in this circuit. There are no allegations or evidence suggesting Banco Popular engaged in coercive or harassing behavior to recover a discharged debt. The Debtors did not identify any post-discharge communications or actions by Banco Popular that would violate the discharge injunction. In fact, Banco Popular disavowed any intent to pursue the Debtors personally, and its collateral had sufficient value to cover its claim. Thus, Banco Popular's post-discharge actions were legitimate efforts to recover collateral rather than attempts to extract personal payment from the Debtors. The record lacks the "very damning evidence" needed to prove coercion or harassment. Even if Banco Popular used an incorrect foreclosure statute, non-coercive bad acts do not constitute a discharge violation. The court did not need to address the Debtors' claims regarding the bankruptcy court's handling of Spanish-language documents, as the Contempt Motion was already deficient. The Debtors' argument that the court erred by denying the Contempt Motion without a hearing is unsupported and was raised for the first time on appeal, thus waived. Both parties had opportunities to submit their positions, and no factual disputes necessitated a hearing, so the denial without a hearing did not violate due process.
In *Commodity Futures Trading Comm’n v. Premex, Inc.*, the court ruled that due process does not necessitate an evidentiary hearing when documentary evidence sufficiently establishes contempt, especially when the defendants do not request such a hearing or raise material factual issues. The bankruptcy court's denial of the Contempt Motion was thus upheld.
The Debtors' Reconsideration Motion was not tied to a specific rule but was appropriately treated as a motion to alter or amend a judgment under Bankruptcy Rule 9023 since it was filed within 14 days of the contempt ruling. Courts view motions for reconsideration as extraordinary remedies that should be utilized sparingly to preserve judicial resources and finality. To succeed under Rule 59(e), a party must demonstrate a manifest error of law or present newly discovered evidence, neither of which the Debtors accomplished. Their claim for a hearing on reconsideration was waived as they did not request one during the initial proceedings.
The bankruptcy court's guidance on reconsideration and Rule 59(e) was affirmed, emphasizing that such motions should not be reflexively filed and that adverse orders do not always indicate errors of law. The court upheld its decision to summarily deny reconsideration.
The final conclusion affirmed both the Order Denying Contempt and the Order Denying Reconsideration, reiterating that references to the "Bankruptcy Code" pertain to the Bankruptcy Reform Act of 1978 and that the Debtors failed to substantiate their legal arguments regarding foreclosure actions. The notice of appeal was timely, but the Debtors did not adequately articulate their legal basis for claims against Banco Popular.
