In re Lopez

IN RE: MAGALY CALDERO LOPEZ Debtor(s)

CASE NO. 15-04334

UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF PUERTO RICO

June 6, 2019

CHAPTER 13

OPINION & ORDER

Before the court is creditor BT Recovery Corp.'s (hereinafter "BT") Objection to Confirmation and Request for Dismissal [Dkt. No. 110]; Debtor Magaly Caldero Lopez's (hereinafter "Debtor") Opposition to BT (Recovery) Corp.'s Objection to Confirmation and Request for Dismissal [Dkt. No. 179]; BT's Reply to Debtor's Opposition to Creditor's Objection to Confirmation and Request for Dismissal [Dkt. No. 195]; Debtor's Supplemental Memorandum Res Judicata under Puerto Rico Law [Dkt. No. 218]; BT's Response to Debtor's "Supplemental Memorandum Res Judicata Under Puerto Rico Law" [Dkt. No. 226]; Debtor's Reply to Response to Debtor's Supplemental Memorandum Filed by BT (Recovery) Corp. [Dkt. No. 233]; and BT's Sur Reply to "Reply to Response to Debtor's Supplemental Memorandum Res Judicata Under Puerto Rico Law" (Docket 233) [Dkt. No. 237]. The motions filed which brief the principle of res judicata (docket numbers 218, 226, 233 and 237) were in response to an Order given in open court at a hearing held on February 8, 2018 [Dkt. No. 216].¹

At the core of this controversy is BT's contention, set forth in their objection to confirmation and request for dismissal and several additional motions, that Debtor filed both the voluntary petition and the plan in bad faith.

FINDINGS OF FACT

After a careful review of all the documents provided by parties, the court finds the following to be the material facts relevant to the controversy before the court:

1. On February 15, 2000, Derick Perez-Lara (hereinafter "DPL") doing business as El Ocho Negro Auto Sales, sold to The Bank & Trust of Puerto Rico (hereinafter "Bank & Trust"), a 1999 BMW make motor vehicle, model 328i Sedan (hereinafter "BMW").

2. At the time of DPL's purchase of the BMW there was no theft encumbrance at the Department of Transportation and Public Works (hereinafter "DTOP").

3. At some point after Bank & Trust's financing of the BMW, a theft encumbrance was registered at DTOP.

4. On February 18, 2000, the Debtor signed a lease rental contract (hereinafter "Lease") for the BMW.

5. Debtor breached the terms of the Lease on or about February 2000.

6. On April 18, 2000, the BMW was stolen.

7. On October 25, 2000, Bank & Trust filed a complaint in state court against the Debtor and other parties. Bank & Trust v. Magaly Caldero, DCD-2000-2540.

8. On May 3, 2004, Bank & Trust executed a 'Bill of Sale and Assignment' whereby it transferred to BT-SPV, Inc. all of Bank & Trust's defaulted automobile leasing accounts, which included the loan owed by the Debtor.

9. On May 22, 2006, the Superior Court of Bayamon entered Judgment in the case of Bank & Trust v. Magaly Caldero, DCD-2000-2540 against the Debtor for the amount $41,501.49, plus interests at the annual rate of 10.45% and $12,637.00 for attorney's fees.

10. On December 15, 2006, BT-SPV, Inc. executed a 'Sale, Assignment and Conveyance' whereby it transferred to BT the accounts that BT-SPV, Inc. had acquired from Bank & Trust, which included the loan owed by the Debtor.

11. On April 25, 2008, the Puerto Rico Court of Appeals eventually affirmed the Judgment entered by the Superior Court of Bayamon the on May 22, 2006.

12. BT holds a judicial lien over the property which was presented at the Property Registry for Section I of the Bayamon Property Registry, at page (''folio'') number 72 of Judgments Volume number 4 (''Tomo 3 de Sentencias''), with the date of January 31, 2012, in the amount of $41,501.49.

13. That said judicial lien constitutes a lien upon the property.

14. On June 6, 2015, Debtor filed her bankruptcy petition [Dkt. No. 1].

BT'S ARGUMENTS IN SUPPORT OF ITS OBJECTION TO CONFIRMATION AND DISMISSAL OF THE CASE

A. Objection to Confirmation of the Amended Plan

BT starts with the premise that Debtor's voluntary bankruptcy filing "place[s] the rectitude of [her] prior dealings squarely at issue." Brown v. Felsen, 442 U.S. 127, at 128 (1979). To support its claim, BT's objection contains a "Statement of Uncontested Material Facts"² which lists forty (40) alleged facts that form the basis of BT's main argument. These alleged facts, BT maintains, are supported with evidentiary record citations. BT claims that the Debtor has failed to present any evidence to prove her good faith despite BT's recital of uncontested material facts. These facts stand unopposed and are therefore the accepted facts concerning Debtor's actions in 1999 and 2000. There is more than sufficient evidence that shows clearly and convincingly that the Debtor knowingly participated in an illegal scheme that involved a stolen vehicle.

Finally, BT states that § 1325(a)(7) was added to the Bankruptcy Code by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, Pub. L. 109-8. In discussing § 1325(a)(7) in Branigan v. Bateman, 5 F.3d 272, 283 (4th Cir. 2008), the court indicated that the "proper good faith inquiry is 'whether or not under the circumstances of the case there has been an abuse of the provisions, purpose, or spirit of [the Chapter] in the proposal or plan.'" (citing Deans v. O'Donnell, 692 F.2d 968, 972 (4th Cir. 1982) (analyzing whether a plan was filed in good faith under § 1325(a)(3) of the Bankruptcy Code).

B. Dismissal of the Case

BT cites the following sections of the Bankruptcy Code, 11 U.S.C. §§ 105(a), 1307(c) and case law, as authority for the court to dismiss this chapter 13 case. The federal courts are virtually unanimous that prepetition bad-faith conduct may cause a forfeiture of any right to proceed with a chapter 13 case. Marrama v. Citizens Bank, 549 U.S. 365, 367 (2007). First, 11 U.S.C. § 105(a) grants the bankruptcy court the inherent equitable authority to dismiss a bankruptcy petition for lack of good faith. Id. Second, § 1307(c) allows for the dismissal of a chapter 13 bankruptcy for "cause," which includes the lack of good faith. Kestell v. Kestell, 99 F.3d 146, 148 (4th Cir. 1996). Third, § 1325(a)(7) explicitly requires that a chapter 13 plan be filed in good faith as a prerequisite to confirmation.

C. Allegations in Support

BT states that the debt undertaken by the Debtor to obtain a luxury vehicle in the year 2000, which she intends this court to discharge, was as a result of a "web of lies"³. Debtor lied about the source of her income, her profession, and her income. Debtor does not have clean hands and these actions constitute of bad faith.

Moreover, Debtor's actions just prior to filing her petition, and throughout the bankruptcy process, continue to demonstrate her deceptive practices. Instead of showing good faith and pursuing a settlement agreement following the 2006 issuance in the State Court Case, Bank & Trust v. Magaly Caldero, DCD-2000-2540 of the Judgment (hereinafter "Judgment") with the creditor⁴, the Debtor depleted her liquid funds from a securities account and diverted them towards the purchase of a real property. The property is essentially paid off, and the Debtor now claims exempt all the equity in that property resulting in no payment to her creditors. The Debtor was current in all of her debts when she first met with her bankruptcy attorney, aside from the claim of BT and her bankruptcy would result in the discharge of only $854.00 in unsecured claims, aside from the claim of BT.

Finally, Debtor has continued to deceive BT by cancelling a deposition scheduled for August 3, 2016, on the premise that a settlement was about to be signed. BT cancelled said deposition relying on Debtor's representation that she had accepted the agreement. However, soon after, Debtor's attorney informed BT that the Debtor was not willing to sign a stipulation. In sum, the Debtor does not meet the good faith element required by the Code. Debtor's conduct, both at the time the loan was obtained and after she was sued by the creditor in state court, reflects that she never had the intention of paying the loan. The Debtor filed for bankruptcy with the sole purpose of discharging BT's claim, and in the process continued to make false and deceptive statements in order to gain unwarranted litigation advantage in the case.

The Debtor is attempting to use bankruptcy law - and this court - in furtherance of her deceptive actions. This is not the case of an honest but unfortunate debtor. More importantly BT states, these events are directly related to Debtor's bankruptcy and she has not provided a single authority that holds that the passage of time cures bad faith actions. Debtor comes to the bankruptcy court for the exclusive purpose of avoiding a debt that was the product of fraud. The Debtor has admitted that she filed for bankruptcy to stay the State Court's Order scheduling a public auction. As such, Debtor's bankruptcy filing is directly related to, and is a consequence of the loan that the Debtor took in the year 2000.

DEBTOR'S OPPOSITION

It is Debtor's position that BT is requesting that this court ignore the Judgment and review alleged facts that occurred more than fifteen (15) years ago. This, argues Debtor, goes against the basic principles of res judicata, issue preclusion, claims preclusion and the Rooker Feldman doctrine. BT's motion is predicated on purported facts that are too remote in time. BT argues that Debtor's plan should not be confirmed and her case dismissed because allegedly the Debtor, more than 15 years before the filing of the bankruptcy petition, misrepresented her ability to pay for the vehicle. Debtor states "[w]e are not aware of any case law that would support a "totality of the circumstances" analysis considering facts that allegedly occurred more than 15 years ago."⁵

Moreover, BT's attempt to relitigate a state court case which began in the year 2000, and where judgment was entered in 2006, by bringing forth allegations of fraudulent misrepresentation and fraud are precluded by the Rooker Feldman doctrine and res...