Moya v. Administracion Sistemas De Retiro De L. Empleados Del Gobierno Y La Judicatura (In re Vargas Moya)

601 B.R. 845

IN RE: David VARGAS MOYA, Sandra Ramirez Perez, Debtors

David Vargas Moya, Sandra Ramirez Perez, Plaintiffs

v.Administracion Sistemas de Retiro de los Empleados del Gobierno y la Judicatura, et al., Defendants

CASE NO. 12-02105 (ESL)

ADV. PROC. 16-00087

United States Bankruptcy Court, D. Puerto Rico.

Signed May 16, 2019

Felix M. Zeno Gloro, Arecibo, PR, for Plaintiffs.

Jesica Nieves Melendez, Puerto Rico Employees Retirement System, Isaias Ojeda Gonzalez, Puerto Rico Retirement Systems Administration of Government and Judiciary, Monique Guillemard Noble, San Juan, PR, for Defendants.

Miriam D. Salwen Acosta, Alejandro Oliveras-Chapter 13 Trustree, for Trustee.

OPINION AND ORDER

Enrique S. Lamoutte, United States Bankruptcy Judge

This case is before the court upon the Motion for Summary Judgment (Docket No. 41) filed by the Plaintiffs, David N. Vargas Moya and Sandra Ramirez Pérez ("Plaintiffs" or "Debtors"); the Response to Plaintiffs Motion for Summary Judgment and Memorandum of Law in Support Thereof filed by the Administración Sistemas de Retiro de los Empleados de Gobierno y la Judicatura ("Retiro") (Docket No. 42); and the Reply to Support of Summary Judgment filed by the Plaintiffs (Docket No. 57).

Procedural History

The Debtors, David Noel Vargas Moya and Sandra Ramirez Pérez, filed a chapter 13 bankruptcy petition on March 22, 2012. (Lead Case 12-02105, Docket No. 1). Debtors' plan dated March 12, 2012 (Lead Case, Docket No. 2) was confirmed on May 30, 2012. (Lead case, Docket No. 22). A post-confirmation modification of the plan was filed by the Debtors on July 7, 2013 (Docket No. 56) and granted by the court on March 8, 2016 (Lead Case, Docket No. 76).

On April 25, 2016, the Debtors, David Noel Vargas Moya and Sandra Ramirez Pérez filed the present Adversary Proceeding against the Administración Sistemas de Retiro de los Empleados de Gobierno y la Judicatura ET AL (Docket No. 1). The Plaintiffs alleged that Retiro, with actual notice and knowledge of the bankruptcy case, willfully collected an unsecured claim scheduled in Debtor's bankruptcy case which was subject to the automatic stay. The Plaintiffs alleged that Retiro had attempted to obtain secured status of its lien by presenting an unregistered mortgage note in the Property Registrar after the filing of the petition. Moreover, the Plaintiffs alleged that the Defendant resumed monthly garnishments post-petition from the Debtor's paycheck, and that they have been "seriously distressed and damaged" by Retiro's wage garnishment. On the same date, the Plaintiffs filed an Urgent Motion for Temporary Restraining Order and/or Preliminary Injunction (Docket No. 2) and Memorandum of Law in Support for Temporary Restraining Order and/or Preliminary Injunction (Docket No. 3). The Plaintiffs alleged that the Defendant was causing irreparable damage to the Debtors, the bankruptcy estate and the interest of other creditors, as Retiro's actions jeopardized the Debtors' ability to continue their Chapter 13 payments and obtain the Discharge Injunction Order upon completion of the payment plan. On their Memorandum of Law , the Plaintiffs argued that the prongs for temporary restraining order and/or preliminary injunction were met, that is: (a) that the Defendant had clearly violated the automatic stay while attempting to collect the debt post-petition and, therefore, there was likelihood of success on the merits, (b) that the Defendants were causing irreparable harm to the Debtors, as the Defendants actions forced them to default on the confirmed payment plan, (c) that in the balance of equities, a TRO or injunction will not harm the Defendant as they had failed to collect for a "now unrecoverable credit for forty seven months", and (d) that the effect of the public interest favored injunctive relief "since it would send a message to third parties that they must respect the Orders of this Honorable Court, specifically the Automatic Stay Order..."

Retiro filed its Answer for Motion for Temporary Restraining Order and/or Preliminary Injunction (Docket No. 13), stating that at the moment the request for temporary restraining order or preliminary injunction was filed, Retiro had already requested the agency to stop the deductions of Debtor's wage and that Retiro had informed the Debtors that it could take a "few payrolls" in order for it to stop. Additionally, the Defendant stated that the Plaintiff failed to meet the requirements for injunctive remedy, as they had no probability to prevail on the merits. The Defendants alleged that the Debtors had no legal basis to assert that Retiro's claim was unsecured, considering that the debt is secured "as per 3 L.P.R.A. § 779a, and cannot be discharged under section 523(a)(18) of the Title 11 of US Code". As stated by the Defendant "if the moving party cannot demonstrate that he is likely to succeed in his quest, the remaining factors become matters of idle curiosity".

On May 18, 2016, the Defendant filed its Motion for Extension of Time to File Dispositive Motion or Otherwise Plead (Docket No. 15). On May 20, 2016, the court held the TRO and/or temporary injunctive relief hearing, and the request was held in abeyance (Docket No. 18). Additionally, the Defendant was granted until June 20, 2016, to answer the complaint. On June 20, 2016, Retiro filed a Motion to Dismiss Adversary Proceeding stating that the Plaintiffs had failed to state a claim against the Defendant upon which relied could be granted (Docket No. 20) and an Answer to Complaint (Docket No. 21). Retiro asserted that the Debtors had applied for a mortgage loan which was approved on September 28^th, 2010, and received the amount of $ 100,00.00. Pursuant to the Promissory Note and Pension Loan Repayment Schedule, the Debtors were to make monthly payments continuously until February 2041. The Debtor signed an authorization consenting to Retiro's withdrawal of the payment from his monthly wages and consenting to a lien on his retirement funds, present and future, as well as all the savings that he might have in the Puerto Rico Commonwealth Employees Association ("AEELA"), including any other benefit or payment, which the debtor might earn from the government of the Commonwealth of Puerto Rico. Additionally, the Retiro statute grants a statutory lien that deems all its claims as secured with the Debtors' retirement funds. Furthermore, the Defendant alleged that section 362(b)(19) allowed Retiro to continue the withholding from Debtors' wages. The Defendant stated that the collection of a retirement loan is excepted from the automatic stay. Additionally, section 1322(f) states that a plan may not materially alter the terms of a loan described in section 362(b)(19) and any amounts required to repay such loan shall not constitute "disposable income" under section 1325. Furthermore, the Defendant alleged that the Debtors' personal obligation to the Retiro loan is not discharged, pursuant to § 523(a)(18). The Defendant alleged that it meets the exception of section 362(b)(19) which requires: (1) that the plan must be a pension, profit-sharing, stock bonus, or other plan established under one of 401, 403, 408, 408A, 414, 457, or 501(c) of the Internal Revenue Code Sections that is sponsored by the debtor's employer or an affiliate, successor or predecessor of such employer; and (2) the loan must be a loan from a plan under section 408(b)(1) of the Employee Retirement Income Security Act of 1974 or subject to section 72(p) of the Internal Revenue Code or a loan from a thrifts saving plan permitted under subchapter III of Chapter 84 of Title 5 of the United States Code that satisfies the requirements of 5 U.S.C.A. § 8433(g). The Defendant additionally alleged that punitive damages cannot be imposed to the Commonwealth or its agencies pursuant to 42 U.S.C. § 1981a(b)(1).

The Debtors filed their Response to Motion to Dismiss alleging that: (1) the provisions of the Bankruptcy Code in which the Defendant relies when discussing sections 362(b)(19) and 523(a)(8) "only regulate the effect of the automatic stay and the discharge upon personal loan benefits to thrift savings plan participants and must not be confused with mortgage loan benefits offered under those plans at issue in this proceeding"; (2) the garnishments against Debtor's salary were meant to enforce the mortgage loan and not the statutory lien; (3) section 362(a)(4) and/or (5) forbids enforcement of "any lien"; (4) under Puerto Rico Law, recording is essential for the validity of a mortgage and that "one that is not recorded is a nullity" (Docket No. 23). As alleged by the Plaintiffs "...any other accessory documents or alleged guarantees signed by Debtor and Retiro for purposes of supporting the mortgage loan are a nullity and unenforceable in the bankruptcy court". For the stated reasons, the Plaintiffs objected the Motion to Dismiss , affirming that the complaint pleaded correctly that Retiro violated the automatic stay, and that the complaint stated plausible claims for relief for willful stay violations.

The Defendant filed its Reply to Plaintiff's Response to Defendant's Motion to Dismiss on July 13, 2016 (Docket No. 24). Retiro stated that regardless of the mortgage being void, the Retiro loan continued to be a secured claim, because 33 L.P.R.A. § 779a(c) grants a statutory lien on debtor's retirement funds and benefits. The Defendant alleged that, at the moment a participant voluntarily decided to obtain a loan from Retiro, a statutory lien attaches to all the contributions accrued and to be accrued on behalf of the borrower in the System, as well as all the savings he might have with AEELA, including any other benefit or payment, which the participant might earn from the government of the Commonwealth of Puerto Rico, as provided by statute. Retiro alleged that the lien is effective by operation of law and that the Debtors had not presented any legal authority requiring any further act for its statutory...