R-G Premier Bank of Puerto Rico in receivership by the Federal Deposit Insurance Corporation (FDIC-R) v. Empresas Cerromonte Corp. et al

Filing 149

Upon careful review of the Report and Recommendation 141 and the objections thereto, the Report and Recommendation is hereby approved. Signed by Judge Juan M Perez-Gimenez on 9/23/2013. (VCC)

UNITED STATES DISTRICT COURT FOR THE
DISTRICT OF PUERTO RICO
FEDERAL DEPOSIT INSURANCE, CORP.,
Plaintiff,
v.

CIVIL NO. 10-1623 (PG)

EMPRESAS CERROMONTE CORP. et. al.,
Defendant.

O R D E R
Before the Court is the Magistrate Judge’s Report and Recommendation
regarding the Federal Deposit Insurance Corporation’s (“FDIC”)1 motion for
partial

summary

judgment

along

with

Empresas

Cerromonte

Corp.’s

(“Cerromonte”)response in opposition, plaintiff’s reply and defendants’
surreply (Docket Nos. 88, 102, 104 and 116).
After a careful review of the Magistrate’s Report and Recommendation,
Docket No. 141, as well as Cerromonte’s objections thereto, Docket No. 145,
the applicable law, and the record of the case, for the reasons set forth
below, the Report and Recommendation is APPROVED AND ADOPTED.
Following the issuance of a Report and Recommendation, the Court
reviews de novo the matters delimited by timely and appropriately specific
objections.

See 28 U.S.C. § 636(b) (2004), Fed. R. Civ. P. 72(b) (2004),

and Local Rule 72(d) (2004); see also Borden v. Secretary of Health & Human
Servs., 836 F.2d 4, 6 (1st Cir. 1987) (“Appellant was entitled to a de novo
review by the district court of the [Magistrate’s] recommendations to which
he objected, however he was not entitled to a de novo review of an argument
never raised.”) (citation omitted); Phinney v. Wentworth Douglas Hosp., 199

1

The FDIC was appointed receiver of R-G Premier Bank.

CIV. NO. 10-1623(PG)

F.3d 1, 3-4 (1st Cir. 1999).

Page 2

An objection is timely if filed within ten

days of receipt of the Magistrate Judge’s Report and Recommendation.

See

28 U.S.C. § 636(b), Fed. R. Civ. P. 72(b), and Local Rule 72(d). The Court
thereafter “may accept, reject, or modify, in whole or in part, the
findings or recommendations made by the magistrate.” Id. The Court
accordingly reviews defendants’ objections de novo.
Cerromonte timely submitted several objections, most of which relate
to the Report and Recommendation’s conclusion that the doctrine of exceptio
non adimpleti contractus is not applicable in this case. Cerromonte seeks
to discharge its obligation under a Loan and Security Agreement (“Loan
Agreement”) entered into with R-G Premier Bank by raising the doctrine as
an affirmative defense.
Cerromonte rejects the Report’s “strict interpretation” of the
language in the Loan Agreement because it “weighs the evidence selecting
specific meanings contained in the clause that are less favorable to
Cerromonte and forecloses the meanings showing a clear intent of the R-G
Bank to fund the construction of the project.” See, Docket No. 145 at page
3. Cerromonte also objects the Report’s determination that R-G Bank did not
exercise its right of First Refusal and the legal base upon which the
Magistrate Judge based his determinations. See, Docket No. 145 at page 4.
Likewise, Cerromonte objects the way in which the Report interprets a
letter dated August 8, 2008 which Cerromonte alleges should favor
Cerromonte. See, Docket No. 45, at page 5.
This Court is not convinced by Cerromonte’s objections, as described
above. The Report and Recommendation throughly analyzes the contractual
obligations between Cerromonte and R-G and its conclusions soundly apply
the law to the facts of this case. Defendant’s objections do not raise any

CIV. NO. 10-1623(PG)

Page 3

significant issue that was not already addressed in the Report and
Recommendation.
Furthermore, Cerromonte objects that the Report declines to moderate
the penal clause included in the Loan Agreement. See, Docket No. 145 at
page 2. Cerromonte argues that enforcing the sum of $792,700.00 as
liquidated damages to be paid to the creditor in addition to the amounts
owed under the Loan granted pursuant to the Loan Agrement obviates the
requirement that Courts have under Puerto Rico law to moderate penal
clauses. See, Docket No. 145 at page 2.
Cerromonte asserts that, given the procedural history of the case
there is no possibility that the costs and attorneys’ fees that plaintiffs
incurred in collecting the debt reach $792,700.00 Furthermore, Cerromonte
claims that the Report’s conclusions are “extremely harsh” and “result in
a windfall of attorneys’ fees for the plaintiff.” See, Docket No. 145 at
page 2.
As the Report indicates, penal clauses relieve a debtor from having
to prove damages. See, Report and Recommendation, Docket No. 141 at page
18, citing Consol. Mort & Fin. Corp. v. Cooley, 3 P.R. Offic. Trans. 9, 14
(1974). The

Civil Code

of

Puerto

Rico

provides for the

equitable

modification of penal clauses “if the principal obligation should have been
partly or irregularly fulfilled by the debtor.” P.R. Laws Ann. Tit. 31
§3133. The Report cites a line of cases establishing that courts are only
inclined to grant the remedy of modification where the debtor makes a
sufficient showing of a lack of proportion between the breach and the
penalty. The Report concludes that Cerromonte did not make a showing of
hardship and onerousness that justifies a moderation of the penal clause.
In its Objections, Cerromonte mistakenly asserts that Puerto Rico law
“imposes a duty on the Court to moderate in equity such penal clause.” See,

CIV. NO. 10-1623(PG)

Page 4

Docket No. 145 at page 2. The law is unequivocal, the equitable moderation
of penal clauses rests in the sound discretion of the Court. Jack’s Beach
Resort, Inc. v. Cia. Turismo, 12 P.R. Offic. Trans. 430, 436 (1982).
The question is not, as defendants contend, whether the legal costs
to collect on the foreclosed property are in excess of the $792,700.00 that
the penal clause provides. What the law requires is that courts consider
factors such as “the proportionality of harms” and strive to “strike a
balance between the punitive and remunerative functions of penal clauses.”
In re Alvarez, 473 B.R. 853, 863 (1st Cir. 2012).
Defendant Cerromonte has failed to put this Court in a position to
attenuate the penalty because there is no basis on the record on which to
ground such a determination. Cerromonte has not presented evidence of the
foreseeable damages caused by the nonfulfillment, nor has it shown lack of
proportion in the penalty. Hence, the Court concurs with the Magistrate
Judge’s recommendation that there be no reduction of the amount set in the
penal clause.
WHEREFORE, in light of the foregoing, the Magistrate Judge’s Report
and Recommendation is APPROVED AND ADOPTED, and Cerromonte’s objections
OVERRULED. An Order shall be entered granting the FDIC’s Motion for Partial
Summary Judgment(Docket No. 88-1) and entering partial judgment for the
FDIC.
IT IS SO ORDERED.
In San Juan, Puerto Rico, September 23, 2013.
S/ JUAN M. PÉREZ-GIMÉNEZ
JUAN M. PÉREZ-GIMÉNEZ
UNITED STATES DISTRICT JUDGE