Banco Cooperativo de P.R. v. Herrera (In re Herrera)Banco Cooperativo de P.R. v. Herrera (In re Herrera)
These companion appeals arise out of a creditor's efforts to deny, delay, or limit a chapter 7 debtor's discharge. A discharge,
BACKGROUND
In April 2015, Hipolito Ramos Herrera (the "Debtor") started a chapter 13 case. In the case, Banco Cooperativo de Puerto Rico ("BCPR") asserted a claim in the amount of $160,166.69 arising from a promissory note signed by the prior owner of the Debtor's principal residence (the "Property"). Having failed to record a mortgage on the Property, BCPR asserted a general unsecured claim in the chapter 13 case.
The Debtor's prior chapter 13 case had been dismissed in March 2015. As a result, § 362(c)(3) was implicated when he filed the current case in April 2015. Because no party in interest sought an extension of the automatic stay under § 362(c)(3)(B) in the present case, the stay terminated in May 2015.
After the automatic stay terminated under § 362(c)(3), BCPR made several requests to the bankruptcy court for a "comfort order" under § 362(j) confirming that the stay had terminated with respect to the Property.
With the entry of a discharge looming, BCPR commenced an adversary proceeding seeking to preserve its ability to obtain a lien on the Property. In Count I of its complaint, entitled "Objection To Discharge In Accordance With The Court's [Comfort] Orders," BCPR requested that any discharge order clarify that the Comfort Orders permitted BCPR to proceed in the Local Court to obtain a lien on the Property and subsequently have its claim "declared secured." It did not, however, expressly seek to deny the entry of the Debtor's discharge, nor did it cite § 727(a). In Count II, entitled "Objection to Discharge due to the [P]ending Objection to the [Debtor]'s [E]xemptions," BCPR alleged that, because the bankruptcy court had not ruled on its objection to the Debtor's claimed exemptions, there was "uncertainty as to the assets that belong to the bankruptcy estate and those that remain property of the Debtor pursuant to [§] 522 of the Bankruptcy Code."
The Debtor moved to dismiss the complaint for, among other reasons, failure to state a claim. The Debtor maintained that BCPR failed to assert any grounds to deny a discharge under § 727(a). He also asserted that BCPR's alternative argument that the court should delay the entry of a discharge until it had resolved BCPR's objection to the Debtor's claimed exemption "d[id] not belong [i]n an objection to discharge complaint." According to the Debtor, the adversary proceeding was a "veiled attempt to prolong the closure of this case
BCPR opposed the motion to dismiss, contending that it had established a plausible claim for relief because the bankruptcy court had expressly allowed BCPR to pursue its state law remedies, and there was a pending action seeking such remedies. BCPR stressed that it was not seeking relief solely under § 727; rather, it was requesting that the bankruptcy court, "through its equitable powers [under § 105(a) ], taking into consideration the provisions of [§§] 727(b) and 502(j), extend[ ] the deadline to enter a discharge and/or clarif[y] that BCPR may amend its [claim] if the State Court enters judgment in its favor." According to BCPR, the requested relief was "premised on the [Comfort Orders] ... and BCPR's right to seek remedies under state law ...." BCPR argued that without the requested relief, the "purpose" of the Comfort Orders would not be achieved.
After a hearing, the bankruptcy court granted the motion to dismiss under Rule 12(b)(6) for failure to state a claim. The bankruptcy court treated the complaint primarily as one objecting to discharge, and concluded that: (1) BCPR failed to state a colorable claim because it did not allege any of the exceptions to discharge enumerated in § 727(a); and (2) neither the Comfort Orders nor § 105(a) nor § 502(j) provided valid grounds for objecting to the Debtor's discharge. The bankruptcy court gave short shrift to BCPR's alternative request that any discharge order entered "clarify and/or recognize BCPR's right to [obtain a lien]." In a footnote, the bankruptcy court construed that request as one for "clarification or reconsideration of the [Comfort Orders]," and ruled that the request "should have been timely asserted in the legal case through Bankruptcy Rule 9023 or under the mantle of Bankruptcy Rule 9024." The bankruptcy court then entered a judgment dismissing the adversary proceeding and an order granting a discharge to the Debtor.
BCPR timely filed separate notices of appeal with respect to the judgment and the discharge order.
JURISDICTION
As a threshold matter, we must determine whether we have jurisdiction before addressing the merits of these appeals. "We may hear appeals from final judgments, orders, and decrees ...." Formatech, Inc. v. Sovereign Bank (In re Formatech),
The complaint is not a model of clarity, containing requests for relief that are at odds with its title and the headings of the respective counts. This ambiguity complicates our jurisdictional analysis to a certain extent. Mindful of our obligation to read the complaint liberally, see Murphy v. United States,
"A bankruptcy discharge order is a final judgment ...." Espinosa v. United Student Aid Funds, Inc.,
Here, BCPR acknowledges that its complaint is not a "typical" one objecting to discharge. Indeed, in both the proceedings below and in these appeals, BCPR has conceded that none of the statutory grounds set forth in § 727(a) for denying discharge were implicated and that it was not seeking to deny the Debtor's discharge in its entirety. For example, in its brief, BCPR stated: "BCPR has no objection to a discharge order being entered." In the bankruptcy court, BCPR acknowledged that it did not "seek to avoid the entry of the [Debtor's] discharge altogether." Rather, BCPR stated, it sought either to "extend the entry of the discharge or to qualify the discharge" so that it could pursue its asserted lien. In the prayer for relief in its complaint, BCPR requested, among other things, that the bankruptcy court "enter a discharge order," albeit one with certain clarifications relating to its alleged right to obtain a lien.
To the extent that BCPR now challenges either the bankruptcy court's order dismissing its complaint as one objecting to the Debtor's discharge or the discharge order, BCPR has waived its right to appeal. We, therefore, lack jurisdiction to consider those aspects of these appeals. See Industrias Vassallo, Inc.,
STANDARD OF REVIEW
We review the order dismissing BCPR's complaint using a de novo standard of review. See González v. Vélez,
DISCUSSION
I. The Standards
A. The 12(b)(6) Standard
The Debtor sought dismissal of the complaint under Rule 12(b)(6). Rule 12(b)(6) "provides a vehicle for [parties] to request the dismissal of a case or claims for failure to state a claim upon which relief may be granted." Febus-Cruz v. Sauri-Santiago,
B. Extensions of the Objection Deadline
Section 727(c)(1) authorizes "[t]he trustee, a creditor or the United States trustee" to "object to the granting of a discharge under subsection (a) ...."
Bankruptcy Rule 4004(b)(1) authorizes the court to extend the objection deadline "for cause" if a party in interest files a motion requesting an extension before the time to object has expired. Fed. R. Bankr. P. 4004(b)(1). Neither the Bankruptcy Code nor the Bankruptcy Rules define "cause," and the determination is committed to the bankruptcy court's discretion. In re Ballas,
Bankruptcy Rule 4004(c)(1) provides that, upon expiration of the deadline for objecting to discharge in a chapter 7 case, the bankruptcy court "shall forthwith grant the discharge," unless one of the enumerated exceptions in the rule applies. Fed. R. Bankr. P. 4004(c)(1) (emphasis added). Bankruptcy Rule 4004(c)(2) allows the court, "on motion of the debtor," to defer the entry of a discharge for up to 30 days or, upon a subsequent motion, for a longer (but not unlimited) period. Fed. R. Bankr. P. 4004(c)(2). However, only the debtor is authorized to request a deferral under this Rule. In re Graham,
There is slim authority in Bankruptcy Rule 4004(c)(1) to support a request by a creditor to postpone the entry of a discharge. Two parts of Rule 4004(c)(1) suggest that, under certain circumstances not present in this case, a creditor's actions may result in a delay in the entry of a discharge in a chapter 7 case. See Fed. R. Bankr. P. 4004(c)(1)(L) (providing that the bankruptcy court will not enter a discharge after expiration of the objection deadline if "a motion is pending to delay discharge, because the debtor has not filed with the court all the tax documents required to be filed under § 521(f)"); Fed. R. Bankr. P. 4004(c)(1)(I) (providing that the bankruptcy court will not enter a discharge after expiration of the objection deadline if "a motion to delay or postpone discharge under § 727(a)(12) is pending"). But, again, nothing in Bankruptcy Rule 4004(c)(1) would have entitled BCPR to seek a delay in the entry of the Debtor's discharge and BCPR's complaint does not allege otherwise.
There is also a dearth of case law discussing a creditor's ability to postpone the entry of a debtor's discharge outside of a request to extend the deadline for objecting to discharge under Bankruptcy Rule 4004(b) or one of the enumerated subsections in Bankruptcy Rule 4004(c)(1). In fact, courts generally rule that the bankruptcy court has no authority to delay the entry of a discharge in the absence of one of the enumerated exceptions set forth in Bankruptcy Rule 4004(c). See, e.g., Fernández Rosado v. Corredera Pablos (In re Fernández Rosado), BAP No. PR 10-080,
As noted above, the Panel must determine whether the bankruptcy court erred in concluding that BCPR failed to state a "colorable claim" for relief-i.e. one that is "plausible on its face"-with respect to its request to postpone or qualify the Debtor's discharge. See Twombly,
A. Request to Postpone Entry of a Discharge
1. Whether BCPR Stated a Plausible Claim for Postponing Entry of a Discharge Based on Bankruptcy Rule 4004(c)
As an alternative request for relief, BCPR sought to postpone the entry of the Debtor's discharge while BCPR attempted to obtain a lien in the Local Court. The bankruptcy court, however, had no authority to delay the entry of a discharge in the absence of one of the enumerated exceptions set forth in Bankruptcy Rule 4004(c). See In re Fernández Rosado,
2. Whether BCPR Stated a Plausible Claim for Postponing Entry of a Discharge Based on § 105(a) and § 362(c)(3)(A)
BCPR's reliance on §§ 105(a) and 362(c)(3)(A) is unavailing. Although § 105(a) authorizes bankruptcy courts to "issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of [the Bankruptcy Code],"
BCPR argued that because the bankruptcy court entered the Comfort Orders confirming the automatic stay had terminated pursuant to § 362(c)(3)(A) with respect to the Property, the court should have exercised its equitable authority under § 105(a) to postpone the entry of the Debtor's discharge indefinitely while it enforced the "remedies" granted by § 362(c)(3)(A) and the Comfort Orders until BCPR obtained a lien in the Local Court. According to BCPR, such a remedy would preserve its rights under § 362(c)(3)(A) and, therefore, would be "within the confines of the Bankruptcy Code."
We are not persuaded by BCPR's arguments. Neither § 362(c)(3)(A) nor the Comfort Orders issued pursuant to § 362(j) afford BCPR any right to obtain a lien in the Local Court. Section 362(j) authorizes parties in interest to request an order from the bankruptcy court confirming that the automatic stay has terminated under § 362(c). See
Therefore, neither § 362(c)(3)(A) nor the Comfort Orders conferred any substantive rights or remedies on BCPR. The bankruptcy court simply confirmed that the automatic stay had terminated under § 362(c)(3)(A), and, as a result, BCPR was free to pursue any available local law remedies. The bankruptcy court did not determine whether BCPR had any such local law remedies, or whether it could or should prevail in a local court proceeding relating to a claimed lien. Nor did the bankruptcy court grant BCPR unfettered leave to secure better rights than it had in the bankruptcy case.
B. Request to Limit the Scope of the Discharge Injunction
As stated above, a discharge under § 727(a)"discharges the debtor from all debts that arose before the date of the order for relief," other than those excepted from discharge pursuant to § 523. See
In its complaint, BCPR requested that the bankruptcy court use its equitable
CONCLUSION
We conclude that, to the extent BCPR sought the denial of the Debtor's discharge, it has waived its right to appeal the bankruptcy court's ruling, and we DISMISS the appeals as to that claim for lack of jurisdiction. To the extent BCPR sought to delay the entry of a discharge or to limit the scope of the discharge injunction, we conclude that BCPR failed to set forth plausible claims for relief, and we AFFIRM.
Notes
All references to "Bankruptcy Code," "Code," or to specific statutory sections are to the Bankruptcy Reform Act of 1978, as amended,
According to BCPR, the prior owner of the Property executed a mortgage deed in favor of BCPR, and the Debtor assumed the mortgage when he purchased the Property. BCPR asserted that its claim was unsecured, however, because the mortgage deed had not been recorded. The parties and the bankruptcy court assumed that, under Puerto Rico law, BCPR did not have a lien on the Property and that entry of the discharge would preclude BCPR's efforts thereafter to obtain a lien. For purposes of this appeal, we assume, but do not decide, that BCPR was the holder of an unsecured claim (as opposed to the holder of a claim secured by a lien that might be avoidable under § 544). The outcome would be the same in either case.
There was no dispute regarding the stay termination, although there was some dispute about the scope of the termination. We need not decide that dispute here.
An order issued pursuant to § 362(j) is often called a "comfort order," as it is typically requested by a creditor seeking to satisfy a state court that it may proceed with a pending action, such as a foreclosure, despite the pendency of a bankruptcy case. Thomas v. Fed. Nat'l Mortg. Ass'n (In re Thomas),
BCPR appears to have commenced an action (the "Local Court Case") against the Debtor in the Court of First Instance, Superior Court of San Juan, Puerto Rico (the "Local Court"). See Banco Cooperativo de Puerto Rico v. Ramos Herrera, Case No. K AC 2017-0253. On April 19, 2018, BCPR requested dismissal of the Local Court Case without prejudice. The Debtor requested dismissal with prejudice, alleging that BCPR had filed two previous actions against the Debtor, both of which had been dismissed. Thereafter, on June 8, 2018, the Local Court entered a judgment dismissing the Local Court Case with prejudice. In light of this development, the Debtor has moved to dismiss this appeal, arguing that "the remedy requested by [BCPR], that it be permitted to continue its State Court case to perfect its lien over the property, is forever banned in State Court by its own actions. [BCPR] has no feasible way to obtain a lien on Debtor's property, consequently, the present appeal is moot." The Debtor, however, has not provided the Panel with translated copies of the complaint or other pleadings in the Local Court Case, and, therefore, we are unable to discern whether dismissal of that complaint with prejudice renders this appeal moot.
At one point, there was a dispute between the parties as to the Debtor's claimed homestead exemption with respect to the Property. That dispute was resolved, however, when the Debtor amended the amount of his claimed homestead exemption. BCPR also objected to the Debtor's claimed exemptions in certain personal property, and that objection was the only one pending at the time BCPR filed its complaint. In all but the most unusual circumstances, an unresolved objection to a debtor's claimed exemptions would not affect a chapter 7 debtor's entitlement to a discharge. No unusual circumstances exist here.
BCPR makes much of the bankruptcy court's delay in entering the Comfort Orders, notwithstanding BCPR's repeated requests. According to BCPR, if the bankruptcy court had acted "promptly," BCPR would have had time to perfect its lien in the Local Court before the entry of the Debtor's discharge. While the bankruptcy court's delay was considerable and we do not condone it, § 362(j) does not contain an explicit "promptness" requirement. See