Scotiabank de Puerto Rico v. Burgos
741 F.3d 269
1st Cir.2014Background
- Developer created a 25-unit timeshare regime by public Deed (recorded) in Humacao, PR, in 2001 and obtained mortgages; Scotiabank is successor to the first mortgagee, which included a subordination clause subordinating the mortgage to timeshare owners’ personal ownership interests while owners remain in good standing.
- Developer issued a Public Offering Statement disclosing encumbrances and subordination of mortgages to owners’ rights.
- In 2002 Developer sold Brito and Del Valle a perpetual seven‑day "period of ownership" (Unit FI) for $18,200 via a Sale Contract that required owners to pay operating expenses; the Sale Contract was not executed as a public deed nor recorded.
- Developer later filed Chapter 11 (2009). Brito and Del Valle filed a proof of claim asserting a security interest; Scotiabank filed an adversary complaint seeking a declaration that they hold no real property lien.
- Scotiabank argued the Timeshare Act requires execution and recordation of a public deed to create real property timeshare rights; bankruptcy court and BAP held the buyers possess real property interests and that Scotiabank’s mortgage is subordinated; First Circuit affirmed.
Issues
| Issue | Plaintiff's Argument (Scotiabank) | Defendant's Argument (Brito/Del Valle) | Held |
|---|---|---|---|
| Whether the buyers’ timeshare interest is a real property interest under the Puerto Rico Timeshare Act | Timeshare Act requires special formalities (execution and recordation of a public deed) to create real property rights; because Sale Contract was not a public deed nor recorded, buyers only have contractual/use rights | Deed, Offering Statement, Sale Contract show parties intended and effected a transfer of real property timeshare interests; mortgage subordination expressly protects owners’ ownership interests | Held: Buyers possess real property interests; recordation is permissive under §§1262a/1265a, not mandatory; lower-court factual findings on intent unreversed |
| Whether Scotiabank’s mortgage lien is subordinated to buyers’ interest | Subordination protects only contractual rights or otherwise insufficient because buyers did not perfect a real property interest | Mortgage contains explicit subordination clause subordinating lender’s lien to owners’ ownership interests, enforceable against successors | Held: Subordination clause operates to subordinate Scotiabank’s lien to the buyers’ interest |
| Whether the Timeshare Act’s "may be recorded" language permits creation of real property rights absent recording | Recording language in Act indicates recordation is mandatory for real property transfers | "May be recorded" in §§1262a and 1265a is permissive; other sections expressly require "shall" where mandatory, so absence of mandatory text means no recordation requirement | Held: "May be recorded" is permissive; statutory text does not require publication/recordation as condition precedent to creation of individual real property timeshare rights |
| Whether appellant waived or inadequately preserved a challenge that the Deed/transaction created only contractual rights | Argument repeatedly raised but not argued with specificity; thus inadequately developed | Appellant sufficiently preserved and developed the contractual-rights argument in multiple filings | Held: Majority views argument as inadequately developed on appeal and defers to unchallenged bankruptcy findings; dissent disagrees and would consider the argument and remand |
Key Cases Cited
- Estate of Hevia v. Portrio Corp., 602 F.3d 34 (1st Cir. 2010) (summary judgment standard and de novo review principles)
- John G. Danielson, Inc. v. Winchester‑Conant Props. Inc., 322 F.3d 26 (1st Cir. 2003) (affirmance of summary judgment may rest on any record basis)
- González‑Figueroa v. J.C. Penney P.R., Inc., 568 F.3d 313 (1st Cir. 2009) (approach to predicting state law where highest court guidance is lacking)
- López v. Davis, 531 U.S. 230 (2001) (interpretation that use of "may" generally denotes discretion)
- Rastelli v. Warden, Metro. Corr. Ctr., 782 F.2d 17 (2d Cir. 1986) (use of permissive verb suggests discretionary, not mandatory, action)
- Russello v. United States, 464 U.S. 16 (1983) (expressio unius canon: inclusion in one statutory provision and omission in another implies deliberation)
- Zannino v. United States, 895 F.2d 1 (1st Cir. 1990) (perfunctory arguments are deemed waived)
- Kamen v. Kemper Fin. Servs., Inc., 500 U.S. 90 (1991) (court may apply governing law beyond parties’ specific theories)
- United States v. One Urban Lot Located at 1 St. A‑1, 885 F.2d 994 (1st Cir. 1989) (courts may go beyond parties' briefs to decide a properly presented issue)