PETER ZAREAS and VERONICA FAYE ZAREAS

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IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF PUERTO RICO

IN RE:

PETBR ZAREAS : Case No. 05-04759 (GAC)
VERONICA FAYE ZAREAS :

Debtors : CHAPTER 7

LUIS BARBED SAN MARTIN
ANA M. ESPINOSA

Movants

Vv. : MOTION FOR RELIEF
: FROM STAY

PETER AAREAS

VERONICA FAYE ZAREAS

Respondents

DECISION AND ORDER

rT. PROCEDURAL HISTORY AND FACTUAL BACKGROUND

Pending before the Court is a Motion for Relief from Stay
filed by Luis Bared San Martin and Ana M. Espinosa (“Movants”). On
May 24, 2005, Peter Zareas and Veronica Faye Zareas (“Debtors”)
filed a voluntary petition under Chapter 7. On June 10, 2005,
Movants filed a Motion for Relief from Stay (Docket #8). Debtors
filed an Urgent Motion to deny relief from stay (Docket #13). On
June 30, 2005, the Court entered an order denying the Movants
request for failure to comply with the Servicemembers Civil Relief

Act (“SCRA”) and failure to provide translated exhibits (Docket

#16).

AUTHENTICATED
U.S. GOVERNMENT
INFORMATION

GPO

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On July 6, 2005, Movants filed a motion for reconsideration
and reply to Debtors’ urgent motion to deny motion for relief from
stay (Docket #26); and a Memorandum of Law in support (Docket #28).
Debtors filed a motion requesting that the Court deny
reconsideration or order Movants to proceed by way of an adversary
with the scheduling of depositions (Docket #33).

Subsequently, Movants filed a second Motion for Relief from
Stay (Docket #36);* and a Memorandum of Law in support (Docket
#37). In its motion and memorandum, Movants request leave to
proceed with a judgment of eviction entered by the Court of
Original Pleas, Superior Part of San Juan, in the case of Luis

Bared San-Martin, et al., v. Angela Lynn 4Zareas, et al., Civil No.

KDP2003-1129(805) (“San Juan Superior Court”) .? Specifically,
Movants argue that Debtors are in possession of an apartment

belonging to the Movants without any contractual or proprietary

IMovants attach three exhibits to their Motion for Relief from Stay,
including: (1) Exhibit 1: Certified Translation of the Resolution entered by
the Court of Appeals, San Juan Judicial Region, Panel V, on April 25, 2005, in
Case No. KDP2003-1129; (2) Exhibit 2: Certified Translation of the Resolution
entered by the Court of Appeals, San Juan Judicial Region, Panel III, on March
31, 2005, in Civil No. KPE2002-1781; (3) Exhibit 3: Declaration Under Penalty
of Perjury of Luis Bared San Martin in compliance with Servicemembers Civil
Relief Act.

*The Court takes judicial notice of the fact that Debtors and their
daughter, Angela Lyn Zareas, were sued in San Juan Superior Court in an
eviction proceeding and judgment was entered against them in Civil No.
KDP2003-1129(805). The Debtor and Ms. Zareas appealed the decision and the
Puerto Rico Court of Appeals confirmed the determination as entered by the San
Juan Superior Court. Through Resolution, the Court of Appeais found that
Arigela Lyn Zareas and parents held the status of illegal detainers,
establishing grounds for entry of eviction through either summary or ordinary
proceedings (Docket #36, Exhibits 1, 2). Debtors and Ms. 4Zareas proceeded to
file a writ of certiorari before the Puerto Rico Supreme Court; and this Court
affirmed the decisions of the San Juan Superior Court and the Puerto Rico
Court of Appeals.

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rights to the property; that there was no contract between Debtors
and Movants at the time of the bankruptcy filing; that the
apartment is not an asset of the bankruptcy estate; and that the
San Juan Superior Court issued a judgment of eviction against
Debtors prior to the filing of the bankruptcy petition; and the
judgment of the San Juan Superior Court was affirmed by the Puerto
Rico Court of Appeals and the Puerto Rico Supreme Court, making the
issue res judicata.

Debtors answered the motion for relief from stay and
requested that said motion be denied. Specifically, Movants state
that their daughter, Angela Lyn 4areas, was awarded apartment #603,
located at the Candina Reef Condominium, in addition to alimony,
attorneys fees, and medical coverage, as a provisional remedy in
the divorce proceedings with Movants’ son, Luis Bared Jr. Prior to
filing for divorce it is alleged that Luis Bared Jr. sold the
apartment to his parents for no money or consideration. Moreover,
days after the final hearing awarding their daughter alimony, Luis
Bared Jr. filed for bankruptcy (Case No. 04-09172(ESL})). Debtors
also allege that Angela Lyn 4areas filed cases in federal court
under the R.I.C.0O. statute and for fraudulent transfer. Pinally,
Debtors request that if the motion to reconsider is granted, that
the Court order: (1) The motion to reconsider be converted to an
adversary proceeding; (2) Waiver of any scheduling conferences; (3)

Setting dates for uninterrupted depositions of Movants and their

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son; (4) Order Movants to provide Debtors with any exhibits and
allow debtors the opportunity to examine the authenticity,
accuracy, and completeness of the exhibits; and (5) Set a hearing
date following the deposition.

The interim Chapter 7 Trustee filed a response to the motion
for relief from stay (Docket #41). In its motion, Trustee
indicates that it does not oppose the relief requested by Movants
and states that the documents in support of the motion for relief
from stay shows that there was no lease at the time of the filing
and/or executory contract to assume or reject. Trustee further
avers that the state courts have determined that Debtors have no
proprietary interest in the subject property.

The Counsel of Owners of the Candina Reef Condominium
(“Counsel”*) also filed a motion in the instant case (Docket #45).
In its motion, the Counsel averred that according to a title study,
the apartment was transferred to the Movants by Luis Bared Jr, and
the Movants are the rightful owners of the apartment. On
September 2, 2005, the Bankruptcy Court held a hearing on the
motion for relief from stay. The parties presented their arguments

and the Court took the matter under advisement (Docket #47).

3This motion was filed in compliance with the Court’s order entered on
July 219, 2005, to show cause as to why they willfully violated the stay
{Docket #27). The order to show cause was entered by the Court in response to
Debtors’ motion for an order to show cause for willful violation of the stay
against the Building Administrator and the Counsel of Owners of the Candina
Reef Condominium (Docket #15). Debtors’ motion alleged that the Counsel was
violating the stay by trying to collect fees owed and threatening to
disconnect services, even after they had knowledge of the bankruptcy filing.

4

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II. DISCUSSTON

The filing of a petition under 11 U.S.C. § 301 operates as a
stay of an act against property of the estate. The term “property
of the astate” is defined in Code Section 541(a}(1) as “all legal
er equitable interests of the debtor in property as of the
commencement of the case.” 11 U.S.C. § S41(a)(1). The stay also
prevents the continuation of judicial or other actions, including
eviction proceedings, that were commenced before the filing of the
case in bankruptcy. In the instant case, the automatic stay has
prevented Movants from proceeding further with the state court
judgment, and thus, they are requesting that this Court lift the
stay in order to continue with the execution of the judgment of
eviction. 11 U.S.C. § 362(d) establishes the grounds for granting
celief from the stay. Specifically, § 362(d)(2) (A) states in
relevant part that:

[o]n request of a party in interest and after notice and a

hearing, the court shall grant relief from stay provided under

subsection (a) of this section, such as by terminating,

annulling, modifying or conditioning such stay: (1) ... (2)

with respect to a stay of an act against property under

subsection{a) of this section, iff: (A) the debtor does not

have equity in the property; and (B) such property is not

necessary for reorganization

(emphasis added). 11 U.S.C. § 362(d) (2) (A).

The Court finds that Movants have met their burden of proof
under 11 U.S.C. § 362, and have established that apartment #603

Located at the Candina Reef Condominium, San Juan, Puerto Rico is

not property of the estate and that Debtors have no legal interest

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in the property at issue.’ See In re Gromyko, Inc., 142 B.R. 20,

21 (Bankr. D. R.I. 1992). The relevant facts of the instant case
are undisputed, namely: (1) At the time of the filing of the
bankruptcy petition, title to the apartment was held by Movants,
who had acquired the property from their son, Luis Bared Jr. for
the total amount $575,000, as evidenced in Deed No. 12 (see Docket
#45, Exhibits 3, 4); (2) there was no lease agreement between
Debtors and Movants on the filing of the bankruptcy petition; and
(3) a judgment of eviction was entered by the San Juan Superior
Court, and subsequently upheld by the Puerto Rico Court of Appeals
and the Puerto Rico Supreme Court (see Docket #36, Exhibits 1, 2).

An analysis of the case law, shows that although Debtors’
possession of the premises “may” create an equitable interest in
the property, such interest is “nebulous” at best. (emphasis added}

In Re Gromyko, 142 B.R. at 21. In the case of In re Youngs, it was

shown that where a Plaintiff and Defendant never had a landlord-
tenant relationship, the debtor’s “de facto possessory interest
which he sfought] to protect under the automatic stay [wlas really

no interest at all.” In re Youngs, 7 B.R. 69, 71 (Bankr. D. Mass.

1980}.° Furthermore, the fact that the automatic stay gives

Limited and temporary protection to Debtors, “based solely on naked

‘the Court takes note of the Appellate Court Resolution finding that
“Mrs. Zareas has no active legitimacy to claim the right to a secure home on
the private property of her ex-husband and even less if said property was no
longer, his patrimony.” (Civil No. KPE2002-1781 (603).

Tn that case, the Plaintiff was the owner of a parcel of property being
used by Debtor for income production. In re Youngs, 7 B.R. 69. Similar to
the case at bar, there was no lease agreement between the Owner and the
debtor.

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possession, does not mean that there is a viable executory contract

which ‘debtor may assume. . . .“ Id. (citing In re Maxwell, 40 B.R.

231, 237 (D.C. Tll. 1984) (quoting Matter of R.R.S. Inc., 7 B.R.
870, 872 (Bankr. M.D. Fla. 1980).°

Moreover, Debtors were afforded due process and had an
opportunity to present their arguments in the San Juan Superior
Court, and ultimately through their appeals brought before the
Puerto Rico Court of Appeals and the Puerto Rico Supreme Court.
Although they may not agree with the Local court’s decisions, this
Court finds that state court judgment of eviction entered prior to
the filing of the bankruptcy petition, is res judicata and Debtors
may not retry those issues before this Court. Kelleran v.

Andrijevic, 825 F.2d 692 (2nd Cir. 1987), cert denied, 484 U.S.

1007, 98 L. Bd. 2d 652, 108 S.Ct. 7OL (1988).
TILT. CONCLUSTON

Based on the arguments of the parties, evidence presented, and
the position of the Interim Trustee, the Court finds that the
Movants have met their burden of proof under 11 U.S.C. 362 and have
established that the Debtors have no interest in the subject

property. Therefore, the property at issue is not property of the

Sat the hearing held on September 2, 2005, Debtors averred that their
daughter filed an adversary proceeding in Luis Bared Jr.'s bankruptcy case
(Case No. 04-09172) for fraudulent transfer and unpaid alimony; a suit under
the R.I.C.0. statute; and a separate suit for fraudulent transfer of the
apartment at the Candina Reef Condominium (Docket #50, Transcript). The Court
is unaware of the status of these proceedings. In Debtors’ motions, they also
aver that the parties have been in litigation for the past 3 years. . The Court
finds the lawsuits pending in local and federal court dispose of many of the
issues raised by Debtors, including the alleged fraudulent transfer of the
subject property and are properly before those courts.

7

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estate and Movants may proceed with the execution of the judgment
of eviction in state court.
ORDER
WHEREFORE, the Motion for Relief from Stay (Dkt. #36) filed by
Luis Bared San Martin and Ana M. Espinosa, shall be, and hereby is

GRANTED.

The Clerk to provide notice of this order.

SO ORDERED.

San Juan, Puerto Rico, this 8th day of September, 2005.

Liga

ue ne A. CARLO
Bankruptcy Judge