Alejandro v. Betancourt (In re Betancourt)

IN RE: VANESSA NAVARRO BETANCOURT DEBTOR

JOSE A. LUGO ALEJANDRO ELSA PEREZ RAMIREZ PLAINTIFFS v. VANESSA NAVARRO BETANCOURT DEFENDANT

CASE NO. 17-07289 ESL

ADV. PROC. 20-00089

UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF PUERTO RICO

February 8, 2021

CHAPTER 11

OPINION AND ORDER

This case is before the court upon the Motion to Dismiss Adversary Proceeding filed by the Defendant Vanessa Navarro Betancourt (Docket No. 13); and the Opposition to Motion to Dismiss filed by the Plaintiffs, Jose A. Lugo Alejandro and Elsa Perez Ramirez (Docket No. 18).

Jurisdiction

The Court has jurisdiction pursuant to 28 U.S.C. §§ 1334(b) and 157(a). This is a core proceeding pursuant to 28 U.S.C. §§157(b)(2)(I). Venue of this proceeding is proper under 28 U.S.C. §§1408 and 1409.

Relevant Procedural History

The Debtor filed a Chapter 7 voluntary petition on December 14, 2017 (Docket No. 1, Lead Case No. 17-07289). The Debtor included in Schedule E/F, as unsecured debt, three (3) claims relating to the Plaintiff Mr. Jose A. Lugo Alejandro, as follows: (1) Item 4.7 for the amount of $33,147.50 described as "state court judgment"; (2) Item 4.8 for the amount of $5,000.00 described as "Judgement: Attorney[']s Fees, Cost Expenses and Interest"; and (3) Item 4.9 for the amount of $2,500.00 described as "Judgement- ATT fees. Cost, Expenses and Interest". Additionally, the judicial proceedings were included in the Amended Statement of Financial Affairs, Part 4, Item 9 (Docket No. 9, Lead Case No. 17-07289). On March 16, 2018 the court entered an Order of Discharge under 11 U.S.C. § 727 (Docket No. 17, Lead Case No. 17-07289). On May 28, 2018 the Chapter 7 Trustee filed a Report of No Distribution (Docket No. 21, Lead Case No. 17-07289).

On February 10, 2020, Plaintiffs, Jose A. Lugo Alejandro and Elsa Perez Ramirez ("Movants and/or "Plaintiffs") filed their Motion to Reopen Chapter 7 Case (Docket No. 28) which was granted on March 3, 2020 (Docket No. 31, Lead No. 17-07289).

On February 10, 2010, the Movants filed adversary proceeding no. 20-00021, where they requested the court the modification of the discharge injunction entered on March 16, 2018, in favor of Debtor, to obtain compliance with state court judgment directing the Debtor to perform certain mitigation work. However, on April 9, 2020, the Debtor/Defendant replied with a Motion to Dismiss Pursuant to 11 U.S.C §727(e)(1) and/or (e)(2) alleging that the court lacked jurisdiction to entertain the complaint for it being time barred. On May 18, 2020, the Plaintiffs filed an Opposition to Defendant's Motion to Dismiss arguing that what Plaintiffs seek was the modification of the discharge injunction granted to Defendant pursuant to 11 U.S.C. § 727(b), invoking the Court's power in equity to enter orders to prevent an abuse of process pursuant to 11 U.S.C. §105(a) (Docket No. 29, Adv. Proc. 20-00021). They argued that they seek the enforcement of the state court judgment to prevent the loss of their residence, and not an order to pursue the collection of a debt as banned by 11 U.S.C. §727(b). On May 22, 2020, the court granted the Defendant's Motion to Dismiss and, in its Opinion and Order, stated the following:

"Even though plaintiffs have stated that the complaint does not seek to collect on a prepetition debt or the revocation of the discharge, but the modification of the discharge based on equitable principles, the court will address the time limitations to file an action for the revocation of the discharge order. The "only action that a party may take once a discharge has been entered is revocation of discharge" under 11 U.S.C. §727(d). In re Castle, 289 B.R. 882, 887 (Bankr. E.D. Tenn. 2003). The equity provisions under section 105(a) to issue orders necessary or appropriate to carry the provisions of the Bankruptcy Code may not be used to "override explicit mandates of other sections of the Bankruptcy Code." Law v. Siegel, 571 U.S. 415 at 421, 134 S. Ct. 1188, 188 L.Ed. 146 (2014); In re Reyes-Colon, 922 F. 3d 13, 22 (1^st Cir. 2019). Therefore, the statutory time limitations for the revocation of a discharge order are dispositive and the bankruptcy court may not alter the same on equity principles under section 105(a)." (Docket No. 31, Adv. Proc. 20-00021).

On June 19, 2020, Mr. Jose A. Lugo Alejandro and Ms. Elsa Perez Ramirez filed Adversary Proceeding No. 20-00089 seeking declaratory judgment (Docket No. 1, Adv. Proc. 20-00089). The Plaintiffs allege that while the Defendant created an access road to her recently constructed residence, she affected the hill that supports the Plaintiffs' residence and its stability. Consequently, the Plaintiffs' property started to show cracks and separation to the foundation of their residence. After several judicial procedures, on February 26, 2016, judgment was entered against the Debtor and Bonifacio Navarro, awarding Plaintiffs the sum of $27,000.00 plus interest rate of 4.25% from the filing of the complaint until its full payment, in addition to the amount of $5,000.00 awarded as attorney's fees. The judgment entered in the state court also directed Debtor and Mr. Navarro to perform mitigation work on the impacted hillside to avoid further soil deterioration on Plaintiffs' lot of land. The Plaintiffs argue that the Debtor's obligation to perform mitigation work and repair the hillside and slope damaged due to her actions, as required in State Court judgment entered on February 26, 2016, is not a debt which has been discharged pursuant to 11 U.S.C. §§523, 524, or 727(b). The Plaintiffs argue that the obligation to perform mitigation work is not a "debt" and that the Debtor has abused the bankruptcy process by obtaining a discharge injunction and using the discharge order as a justification for her failure to complete the works ordered in the State Court judgment; placing Plaintiffs' real property at a risk of loss due to: landslides, detachment of structures, cracks to the structure, detachments and the collapse of ground and vegetation. Such conditions continue to exist and continue to take place. "The continued threat of loss and damage to Plaintiffs' real property due to Debtor's failure to comply with mitigation work ordered by the State Court have placed Plaintiffs in a state of constant anxiety, stress and uncertainty as Plaintiffs have been rendered helpless by the stay of proceedings in State Court to compel the enforcement of a judgment to complete mitigation work necessary to stabilize the ground and hillside illegally cut by Debtor and Bonifacio Navarro". "The obligation to mitigate and perform work to correct the hillside are not subject to the discharge injunction as it does not constitute an act to demand payment on a claim as prohibited by sections 523, 524 and 727 of the Bankruptcy Code. "Plaintiffs hereby request that this Court enter declaratory judgment declaring that the mitigation work required from Debtor in state court judgment of February 26, 2016 is not subject to the discharge injunction entered by this Court on March 16, 2018." Furthermore, the Plaintiffs request the court to determine that the Debtor's discharge injunction does not prohibit the continuation of state court proceedings to obtain Debtor's compliance with judgment directing Debtor to perform mitigation work on the affected hillside.

On August 18, 2020, the Defendant filed her Request for Dismissal of Motion for Declaratory Judg[]ment (Docket No. 13, Adv. Proc.20-00089). The Debtor/Defendant argues that the she is protected by the discharge injunction order for any prepetition claim. The Defendant argues that, taking as correct the facts alleged by the Plaintiffs, the claim was discharged pursuant to 11 U.S.C. §727(b). According to the First Circuit, a request and/or order for specific performance falls within this definition, referencing In re Fin. Oversight & Mgmt. Bd., 939 F. 3d 356 (1^st Cir. 2019). "The discharge injunction that arises upon entry of discharge order is perhaps the most important feature of the bankruptcy relief and helps to ensure that debtor's fresh start is realized by prohibiting creditors from attempting to collect discharged debts. 11 U.S.C.A. §524(a)(2)." "Exceptions to discharge must be strictly construed in favor of the debtor to comply with the fresh start policy underlying the Bankruptcy Code". The Debtor requests the dismissal of Plaintiffs' petition to the court for the issuance of a declaratory judgment to allow the continuation of state court proceedings.

The Motion to Dismiss was opposed by the Plaintiffs on September 19, 2020. The Plaintiffs argue that Debtor's motion filed pursuant to Fed. R. Civ. Proc. 12(b)(6), incorrectly alleges that even presuming as true all of Plaintiffs' allegations in the complaint, there is no remedy that this Court may grant because the remedy requested is not within the exceptions to discharge listed in 11 U.S.C. §523(a). Said Motion to Dismiss is premised on the erroneous argument that the State Court Judgment ordering a permanent injunction and the remediation of a hillside in Debtor's property is a "debt", a "claim" and/or a "right of payment" under the Bankruptcy Code, specifically 11 U.S.C. § 101(5), subject to the discharge injunction. "...[I]t is the Debtor that has abused the bankruptcy process by obtaining a discharge injunction and using said order as a justification for her failure to complete the works ordered by the State Court Judgment. As such, the Defendant has placed Plaintiffs' home at risk of loss due to conditions that continue to exist, and continue to place said home at a risk of loss, including posing a "latent risk of physical harm or loss of human life" as determined in the State Court Judgment." The Plaintiffs submit that the State Court Judgment ordering a permanent injunction and the remediation of a hillside in Defendant's property is not a "debt", a "claim" and/or a "right of payment" under the Bankruptcy Code 11 U.S.C. § 101(5). The Plaintiffs argue...