Cotto-Rivera, et al v. Morales-Sanchez, et al
Filing
197
OPINION AND ORDER granting 183 Emergency motion, 186 Emergency MOTION to Intervene; VACATING AND SETTING ASIDE 175 Order, 179 Order on Motion for Execution of Judgment and 181 Writ Issued. Signed by Judge Juan M Perez-Gimenez on 8/15/2011.(PMA)
UNITED STATES DISTRICT COURT FOR THE
DISTRICT OF PUERTO RICO
CARMEN LUZ COTTO-RIVERA, ET. AL.,
Plaintiffs,
v.
CIV. NO. 89-0416 (PG)
RAMON MORALES-SANCHEZ, ET. AL.,
Defendants.
OPINION AND ORDER
Pending before the Court is intervenor First American Title Insurance
Company’s (“First American” or “Intervenor”) “Urgent Motion to Intervene as
a Matter of Right and to Vacate and Set Aside the Writ of Attachment, the
Order of Execution and the Notice of Sale” (Docket No. 186) and the
plaintiffs’ opposition thereto (Docket No. 190). For the reasons set forth
below, the Court GRANTS the Intervenor’s request.
I. BACKGROUND
Plaintiffs Carmen Luz Cotto-Rivera, Yaritza Hernandez and Yanitza
Hernandez (hereinafter collectively referred to as “Plaintiffs”) filed the
instant claim on March 29, 1989. See Docket No. 1. On August 23, 1991, by way
of a jury verdict, judgment was entered against defendant Dr. Ramon MoralesSanchez (hereinafter “Dr. Morales-Sanchez” or “the Defendant”) in the amount
of $2,028,000.00 to indemnify plaintiffs Yaritza and Yanitza Hernandez for
their personal injuries, mental pain and suffering, and the future costs of
Yaritza’s medical care and rehabilitative therapy. See Docket No. 106. On
December 9th, 2002, the Plaintiffs filed a motion (Docket No. 172) informing
the Court that Dr. Morales-Sanchez had passed away on August 26, 1992 without
having paid the sum adjudged to be paid in the above-captioned claim, except
for the amount of $100,000 that was paid by the Defendant’s insurance company.
See Docket No. 172. The Plaintiffs also informed the Court that on May 27,
1998, a state court ruled that Dr. Morales-Sanchez’s heirs, namely, his adult
children Pablo Arturo, Jesus Ramon, Maria Isabel, and Rosa Maria MoralesAgrelo, and his widow, Isabel Agrelo, had accepted the Defendant’s inheritance
in pure and simple fashion and must thus answer to the Plaintiffs with their
own personal property for the unpaid balance of the judgment. See id.
CIV. NO. 89-0416 (PG)
Page 2
Accordingly, the Plaintiffs requested therein that the Court order the
issuance of a writ of attachment directed to the Property Registrar for the
purposes of barring the transfer of a property located in Caguas, Puerto Rico
(“the Caguas Property”) that belonged to the decedent. See id. Subsequently,
the Plaintiffs filed a second motion requesting the Court issue a second order
for a writ of attachment to bar the transfer of ownership of a property
located in Urb. El Mirador, Cupey Alto, San Juan, Puerto Rico (“the Mirador
Property”) belonging to one of the heirs of the Defendant, specifically, Pablo
Arturo Morales-Aguilo (“PAM”). See Docket No. 173 at ¶ 8. Both motions were
granted, see Dockets No. 175-176, and the Clerk of Court issued writs of
attachment for both the Caguas and the Mirador Properties.
Thereafter, on May 10th, 2006, the Plaintiffs filed a motion for
execution of judgment. As part of the procedural background set forth in the
motion, the Plaintiffs explained as follows:
On April 2, 2003, Writs of Attachment were issued by
the Clerk of the Court, for registration in the Puerto
Rico Registry of the Property. These Writs of
Attachment ordered the Registrar to record and levy an
attachment and bar on the transfer of certain
properties owned by defendant’s heirs, Isabel Agreló
Roca and Pablo Arturo Morales Agreló, to cover in part
the principal sum of $1,928,000.00, plus interest, that
is still outstanding in the instant case.
Docket No. 178 at ¶ 7 (emphasis ours). In order to satisfy the outstanding
balance of the judgment, the Plaintiffs requested therein that the Court order
the public sale of the Caguas and the Mirador Properties, as well as any and
all properties belonging to the estate of the Defendant. See id. The Court
entered the requested proposed orders and the Clerk of Court issued writs of
execution for both properties. See Dockets No. 179-182.
Almost five years later, on June 9th, 2011, PAM, his wife Ana Maria
Muñoz-Vazquez (“AMM”) and their Conjugal Partnership (“CP”) filed an urgent
motion requesting that this Court vacate and set aside the issued writ of
execution as to the Mirador Property and its public sale. See Docket No. 183.
Therein, PAM, AMM and their CP (hereinafter collectively referred to as “the
Debtors”) explained that they had filed a bankruptcy petition under Chapter
7 on March 1st, 2011, which automatically stays collections and any and all
actions against them. Additionally, the Debtors argued that the bankruptcy
court had discharged the debt arising from the judgment in question. Moreover,
they argued that because AMM and the CP were not summoned and included in this
case, the judgment lien was not properly entered in the Property Registrar,
CIV. NO. 89-0416 (PG)
Page 3
and thus, the public sale should be cancelled. See Docket No. 183. The
Plaintiffs, however, opposed said motion arguing that the Civil Code of Puerto
Rico “does not establish that debts incurred by inheritance by one of the
spouses cannot be attributed or executed on the assets of the conjugal
partnership … ,” see Docket No. 185 at ¶ 4, and thus, the public sale should
not be cancelled. Id.
Subsequently, on June 15th, 2011, First American filed a motion titled
“Urgent Motion to Intervene as a Matter of Right and to Vacate and Set Aside
the Writ of Attachment, the Order of Execution and the Notice of Sale” wherein
it set forth several requests for the Court. See Docket No. 186. Firstly, it
requested to intervene in this case as a matter of right pursuant to
FED.R.CIV.R. 24(a)(2) inasmuch as the Mirador Property is subject to a mortgage
as security for the payment of a loan granted by Doral Mortgage Corporation
(“Doral”) in December of 2003, and said mortgage is in turn the subject of a
title insurance policy issued by First American. First American thus requested
that the public sale of the Mirador Property be cancelled and this Court
schedule a hearing to determine whether the due process requirements of
Article 1308 of the Puerto Rico Civil Code, P.R. LAWS ANN. tit. 31 § 3661,1 and
related caselaw, were complied with by the Plaintiffs when they sought to
execute the judgment in this case in light of the fact that the Mirador
Property is community property. See Docket No. 186. On the other hand, in
their opposition to First American’s motion, the Plaintiffs sustain that First
American has not properly documented its interest in the litigation; that, at
any rate, the proper party to intervene should be Doral; that to the extent
AMM and the CP listed Plaintiffs’ judgment as an obligation in their
bankruptcy case, they effectively assumed the debt and are now estopped from
claiming otherwise. See Docket No. 190.
1
Article 1308 of the Civil Code of Puerto Rico, P.R. Laws Ann. tit. 31 § 3661, states
as follows:
Chargeable to the community property shall be:
(1) All debts and obligations contracted during the marriage by either of the
spouses.
(2) The arrears or credits deriving during the marriage from obligations
encumbering the private property of the spouses as well as the community
property.
(3) Minor repairs or mere maintenance repairs made during the marriage on the
private property of either of the spouses. Major repairs shall not be
chargeable to the community property.
(4) Major or minor repairs of the community property.
(5) The support of the family and the education of the children begotten in
common and of those of either of the spouses.
(6) Personal loans incurred by either of the spouses.
CIV. NO. 89-0416 (PG)
Page 4
After careful review of the motions, the Court vacated and set aside the
order granting the motion for execution of judgment; granted the Debtors’
request to cancel the public sale of the Mirador Property; and scheduled a
hearing to discuss the arguments set forth in the pending motions. See Dockets
No. 188-189. A hearing was thus held on June 28th, 2011 wherein all interested
parties were represented by counsel. Upon the making of a proper showing of
its right to intervene pursuant to FED.R.CIV.P. 24(a)(2), the Court granted
First American’s request to intervene as a matter of right. Therefore, pending
before the Court was the Debtors’ argument the debt arising from the judgment
was discharged during the bankruptcy proceedings and the Debtors and First
American’s claim that Plaintiffs failed to comply with certain due process
requirements required by local law in the execution of the judgment of the
instant case.
II. DISCUSSION
A. Bankruptcy Court Discharge
The main argument set forth in the Debtors’ motion is that the debt PAM’s
inherited arising from this case’s judgment was discharged during the Chapter
7 bankruptcy proceedings. To that effect, they attached an order signed and
entered on June 6th, 2011 by the presiding judge, Enrique S. Lamoutte-Inclan,
which states as follows:
It appearing that the debtor is entitled to a
discharge, IT IS ORDERED: The debtor is granted a
discharge under section 727 of title 11, United States
Code, (the Bankruptcy Code).
See Docket No. 183-1. In response, the Plaintiffs stated that to the extent
the they were listed as secured creditors of the debtors, their secured
judgment lien was not discharged by the bankruptcy court and they can still
enforce it in execution proceedings upon the Mirador Property. See Docket
No. 185. In support of their contention, the Plaintiffs make reference to the
bankruptcy court’s order, which in an explanatory section states as follows:
However, a creditor may have the right to enforce a
valid lien, such as a mortgage or security interest,
against the debtor’s property after the bankruptcy, if
that lien was not avoided or eliminated in the
bankruptcy case.
See Docket No. 183-1 (emphasis ours). However, the Plaintiffs fail to explain
or document if the lien in question was in fact not avoided or eliminated in
the bankruptcy case for the exception cited to apply.
“Chapter 7 is usually a brief proceeding to distribute non-exempt assets
to creditors.” In re Young, 233 F.3d 56, 57 (1st Cir.2000). “11 U.S.C.
CIV. NO. 89-0416 (PG)
Page 5
§ 727(b) provides that a Chapter 7 discharge relieves a debtor of all debts
incurred prior to the filing of the petition, excluding nineteen categories
of debts specifically listed in 11 U.S.C. § 523(a).” In re Dennis, No.
07–12164, 2008 WL 4671006, at *1 (Bkrtcy. D.R.I., October 16, 2008). Section
727(b) of title 11 of the United States Code states, in relevant part,:
(b) Except as provided in section 523 of this title, a
discharge under subsection (a) of this section
discharges the debtor from all debts that arose before
the date of the order for relief under this chapter, ….
11 U.S.C.A. § 727(b).
The exceptions the statute makes reference to are inapplicable to their
case, according to the Debtors’ assertions during their turn at oral argument
in the hearing, and after careful review of the applicable law, the Court
agrees. Moreover, the Plaintiffs do not make reference to any circumstance
that would lead this Court to conclude that the conditions exist for them to
have the right to enforce their judgment lien. Therefore, the Court concludes
that the bankruptcy court discharged the debt in question, as asserted by the
Debtors, and the Plaintiffs are thus prohibited from attempting to collect
from them in accordance with the bankruptcy court’s order.
B. Execution of Judgment Proceedings
The Debtors and First American also argue that inasmuch as AMM and the
CP are not heirs of the Defendant, the debts inherited by the estate cannot
be attributed or executed on the assets of the Conjugal Legal Partnership of
an heir of the estate unless certain due process requirements are met. See
Dockets No. 183, 186. The appearing parties set forth documentation evincing
that the Mirador Property was in fact community property belonging to both PAM
and AMM. See Docket No. 191-1. They now thus claim that the Plaintiffs should
have summoned AMM and the CP when they requested a writ of attachment on the
Mirador Property, and thereby allow AMM and CP to properly defend their
interests in the community property to be attached. Inasmuch as they failed
to meet these due process requirements, the appearing parties now argue that
the writ of attachment issued by this Court was improper and should be
invalidated. See id. On the other hand, in their opposition (Docket No. 190)
and during the hearing, attorney for Plaintiffs argued that AMM and the CP
could not assert that they were not given proper notice because they even
listed the Plaintiffs’ judgment in their favor as an obligation during the
bankruptcy proceedings, thus assuming the judgment debt.
CIV. NO. 89-0416 (PG)
Page 6
Federal Rule of Civil Procedure 69(a)(1) states that “[t]he procedure on
execution - and in proceedings supplementary to and in aid of judgment or
execution - must accord with the procedure of the state where the court is
located … .” FED.R.CIV.P. 69(a)(1). “Under Puerto Rico law, in claims involving
personal debts of one spouse, the judgment creditor may attach and execute
community property only when the defendant spouse does not possess property
or assets or if these are insufficient to fulfill the debt or judgment.”
Hershey Foods Corp. v. Padilla, 168 F.R.D. 7, 10 (D.P.R. 1996); see also P.R.
LAWS ANN. tit. 31 §§ 3661, 3663. The matter at hand involves the personal debt
of PAM inasmuch as, pursuant to local law, the property that a spouse inherits
during a marriage is his/her separate property.2 See P.R. LAWS ANN. tit. 31
§ 3631.
.
Under such circumstances as the present, “the innocent spouse acquires
an interest in the case, upon execution of judgment, that entitles [him/her]
to be heard. Hence, both the conjugal partnership and the innocent spouse must
be cited or summoned in order to properly defend their interests in the
community property to be attached.” Hershey Foods, 168 F.R.D. at 10.
Therefore, in order to protect the innocent spouse’s
right to be heard, [she] should have been either
included in the motion for execution, or summoned or
subpoenaed, before a determination was made as to the
propriety of seizing the assets of the conjugal
partnership. In the instant case, not only should the
innocent [spouse] have been summoned in order to
protect [her] right and that of the conjugal
partnership, but also, before ordering the attachment
of the partnership’s assets, the court below should
have determined that the conditions and requirements of
Civil Code sec. 1308 had been met.
Cruz Viera v. Registrador, 18 P.R. Offic. Trans. 1046, 1053 (May 11, 1987)
(finding
Registrar
of
Property
acted
correctly
in
refusing
to
record
attachment on property belonging to conjugal partnership where innocent spouse
2
Article 1299 of the Civil Code of Puerto Rico, P.R. LAWS. ANN. tit. 31, § 3631,
states:
The following is the separate property of the spouses:
(1) That brought to the marriage as his or her own.
(2) That acquired by either of them during the marriage by
lucrative title, that is to say, by gift, legacy or descent.
(3) That acquired by right of redemption or by exchange for other
property belonging to one of the spouses only.
(4) That bought with money belonging exclusively to the wife or
to the husband.
CIV. NO. 89-0416 (PG)
Page 7
was not summoned before execution of judgment nor was it established that
conjugal partnership had enough assets to pay for debt).
Therefore, if this Court would have been timely informed that the
property to be attached was community property, this court should have made
a prior determination of the following:
(a) whether the obligations listed in Article 1308 of
the Puerto Rico Civil Code, [P.R. LAWS ANN. tit. 31 §
3661], pertaining to the conjugal partnership, have
been met; (b) whether it’s financial solvency will not
be put at risk; and (c) whether all necessary measures
are taken to provide that the innocent spouse shall be
credited accordingly, in the event of dissolution of
the partnership.
Hershey Foods, 168 F.R.D. at 10. “Otherwise, the trial court may not properly
order the execution of judgment over community property.” Id. (citing Cruz
Viera, 118 P.R. Dec. 911 (1987)).
Moreover, Article 116.4 of the Mortgage Law Regulations, Department of
Justice Regulation No. 2674 of July 9, 1980, “expressly provides that, in
order to record an attachment against properties belonging to a conjugal
partnership, the action must have been brought against both spouses.” Cruz
Viera, 18 P.R. Offic. Trans. at 1054. This regulation complements the
provisions of Article 1310 of the Civil Code “and guarantees that the
proceedings will be conducted pursuant to the constitutional guarantee of due
process of law.” Id. Therefore, “[t]he need to have the action brought against
both spouses in order to enter the cautionary notice for attachment of the
property is a requisite that must be met.” Id.
Here, the Plaintiffs misinformed the Court in their motions requesting
that the Court order the issuance of a writ of attachment and a writ of
execution against the Mirador Property by stating that said property belonged
to PAM only. See Dockets No. 173, 178. The Plaintiffs did not summon AMM and
the CP in order to include them in the proceedings, and as a result, the Court
did not hold a hearing to establish that the CP had enough assets to pay for
the debt as required by Articles 1308 and 1310 of the Civil Code and allow AMM
to be heard. Consequently, the Court has no other choice but to vacate and set
aside the writ of attachment and order and writ of execution issued against
the Mirador Property inasmuch as the omissions detailed before render these
defective.
III. CONCLUSION
For the reasons stated above, this Court thus GRANTS the Debtors and
First American’s motions (Dockets No. 183 & 186) and hereby VACATES AND SETS
CIV. NO. 89-0416 (PG)
Page 8
ASIDE the order and writ of attachment (Docket No. 175) and the order and writ
of execution (Dockets No. 179, 181) issued as to the Mirador Property.
IT IS SO ORDERED.
In San Juan, Puerto Rico, August 15, 2011.
S/ JUAN M. PEREZ-GIMENEZ
JUAN M. PEREZ-GIMENEZ
SENIOR U.S. DISTRICT JUDGE
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