SANTOS RIVERA et al v. COOP A/C ROOSEVELT ROADS

1
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF PUERTO RICO
IN RE: :
:
ALEJO SANTOS RIVERA : CASE NO. 03-06144 (GAC)
EVELISSE I. PINERO ROLDAN :
:
Debtors. : CHAPTER 13
___________________________________:
:
ALEJO SANTOS RIVERA :
EVELISSE I. PINERO ROLDAN :
:
Plaintiffs. :
:
v. : ADV. NO. 04-00077
:
COOPERATIVA DE AHORRO Y CREDITO :
ROOSEVELT ROADS, et al. :
:
Defendants. :
___________________________________:
DECISION AND ORDER
I. PROCEDURAL HISTORY AND FACTUAL BACKGROUND
Pending before the Court is Motion to Vacate a Default
Judgment pursuant to Fed. R. Bankr. P. 9024 and Fed. R. Civ. P.
60(b), filed by Cooperativa de Ahorro y Credito Roosevelt Roads
(“Cooperativa”) (Docket #10, Adv. No. 04-00077). On June 11,
2003, Alejo Santos Rivera and Evelisse I. Piñero Roldan
(“Debtors”), filed a voluntary petition under Chapter 13 (Legal
Case No. 03-06144). On September 3, 2003, Cooperativa filed a
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1The proof of claim provides that the undersigned, Carlos A. Quilichini Paz,
attorney for the appearing party, was authorized to make the proof of claim on
behalf of Cooperativa. The address provided for the appearing party’s attorney
was: P.O. Box 363805, San Juan, Puerto Rico 00936-3805. The proof of claim
listed Cooperativa’s address as P.O. Box 31, Fajardo, Puerto Rico 00738-0031.
Attached to the Proof of Claim is a copy of the loan contract entered into by and
between Debtors and Cooperativa (Claims Register, Legal Case No. 03-06144, Proof
of Claim #10).
2All subsequent references to specific docket entries refer to Adv. Case No. 04-
00077 (GAC), unless otherwise provided.
3The certified mail receipt was attached as evidence of service (see
Docket #3).
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proof of claim in the principal amount of $2,125.66 (Claims
Register, Proof of Claim #10).1
On May 26, 2004, Debtors filed a complaint against
Cooperativa for willful violation of the automatic stay (Adv. No.
04-00077).2 In its Complaint, Debtors argue that Cooperativa
violated the stay when it made an illegal withdrawal on Debtors’
savings account, due to the bankruptcy filing; and that as a
result, Debtors were left with no funds to pay for medical bills
and other expenses. Debtors request damages, including: $15,000
in actual damages; $30,000 in punitive damages; and costs and
attorney’s fees. Debtors filed a certificate of service
indicating that a copy of the summons and complaint was served on
Cooperativa via certified mail prepaid to “Cooperativa de Ahorro
y Credito Roosevelt Roads C/O Ms. Zulma Feliciano, P.O. Box 382,
Rio Grande, P.R. 00754-0382" (Docket #3).3
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On September 10, 2004, Debtor’s filed a motion requesting a
judgment by default (Docket #5); and on October 20, 2004, a
Judgment by Default was entered against Cooperativa, in
accordance with Bankruptcy Rule 7055 (Docket #8). Debtors were
awarded actual damages totaling $15,000 for suffering and mental
anguish; punitive damages totaling $30,000; and costs and
attorney’s fees pursuant to 11 U.S.C. § 362(h) (Docket #8).
On December 23, 2004, Cooperativa filed a Motion to Vacate
the Default Judgment (Docket #10); and an Answer to the Complaint
(Docket #11). Debtors filed a Motion in Opposition to
Cooperativa’s Motion to Vacate (Docket #12). Subsequently,
Cooperativa filed a Motion for Leave to Reply (Docket #13) and a
Reply to Debtors’ Motion in Opposition (Docket #14); and Debtors
filed a Sur-reply (Docket #15).
II. ARGUMENTS OF THE PARTIES
A. Cooperativa
Cooperativa avers that pursuant to Fed. R. Civ. P. 60, it
can obtain relief from judgment upon a showing of mistake,
inadvertence, surprise, or excusable neglect. Specifically, it
argues that the complaint seeking damages against Cooperativa for
an alleged violation of the automatic stay, was not properly
served on Cooperativa through the authorized agent provided in
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its Proof of Claim #10, pursuant to Rule 2002(g)(1)(A); the
Complaint was sent to a bank branch with no legal staff, and
mistakenly placed in the customer’s file; and as a result of this
mistake, it failed to timely answer the Debtors’ complaint.
B. Debtors
In the Debtors’ answer, they argue that the Fed. R. Bankr.
P. 7004 is applicable to the case at bar, and not Rule
2002(g)(1)(A). Pursuant to Rule 7004, service of a summons by
first class mail is proper as long as the summons and complaint
are mailed to the attention of “an officer, a managing or general
agent, or to any other agent authorized by appointment or by law
to receive service of process....” In the instant case, Debtor
states that the summons was correctly mailed to Ms. Zulma
Feliciano, a bank manager at the branch in Rio Grande, where
Debtors have their account.
Debtors further avers that service of the summons and
complaint to one of the addresses included on the proof of claim,
would have been quashed, because the addresses provided are
incorrect. Specifically, the proof of claim includes the address
of an attorney, Carlos A. Quilichini Paz, and Cooperativa’s
Fajardo branch, which Debtors aver has no direct relation to the
Debtors’ account.
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Finally, Debtors argue that they should not be penalized for
Cooperativa’s careless mistakes, which do not amount to excusable
neglect. All motions filed and court orders entered after the
complaint in the instant case, including the Motion for Entry of
Default, the Default Judgment, and the cancellation of the pre-
trial, were notified to Ms. Feliciano, the same branch manager at
the Rio Grande Branch, without any problems.
III. DISCUSSION
A. Sufficiency of Service of Process
As an initial matter, the Court must address whether service
of process was sufficient under Rule 4 of the Federal Rules of
Civil Procedure, made applicable in bankruptcy cases by Rule 7004
of the Federal Rules of Bankruptcy Procedure. Proper service
under Rule 7004 is necessary to establish personal jurisdiction
over a defendant corporation or association. Precision Etchings
and Findings, Inc. v. LGP Gem Ltd., 953 F.2d 21, 23 (1st Cir.
1992). Failure to comply with Rule 7004 will render service of
process insufficient, and will deprive the bankruptcy court of
personal jurisdiction over the defendant corporation or
association. Thus, if the court does not have jurisdiction, any
order or judgment entered by the court is void for lack of
personal jurisdiction. In re Maloni, 282 B.R. 727, 731 (B.A.P.
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4Cooperativa’s argument that Rule 2002 is applicable to the case at bar, is
misplaced. Specifically, Rule 2002(g)(1)(A) only applies to specific notices
sent to creditors, none of which includes the service of a summons and complaint
in an adversary proceeding. The Court also finds that Cooperativa’s reliance on
Rule 7005, in its Reply to Debtor’s Opposition to the Motion to Vacate Default
Judgment (Docket #14), is misplaced. Rule 7005 is applicable to motions filed
after the service of the initial summons and complaint.
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1st Cir. 2002) (citing Hospital Mortgage Group, Inc. v. Parque
Industrial Rio Cañas, Inc., 653 F.2d 54 (1st Cir. 1981); In re
Harlow Properties, Inc., 56 B.R. 794, 796 (B.A.P. 9th Cir.
1985)).
Rule 7004 applies in adversary proceedings and governs
service of a summons and complaint upon corporations and
associations.4 Specifically, Rule 7004(h)(1) allows service of
process to be made upon corporations and associations in
accordance with the laws of the state in which the district court
is located in the manner prescribed for individuals under
subdivision (e)(1); or “by delivering a copy of the summons and
of the complaint to an officer, a managing or general agent, or
to any other agent authorized by appointment or by law to receive
service of process. . . .”
Since Fed. R. Bankr. P. 7004(e) permits service to be
effectuated as provided for under the relevant state law, the
Court also looks to the Puerto Rico Rules of Civil Procedure and
the Puerto Rico Law on Corporations for guidance. Luis R.
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Gonzalez v. Ritz Carlton Hotel Co. Of Puerto Rico, 241 F.Supp.2d
142, 147 (D.P.R. 2003). There are two rules that govern service
upon corporations – both provisions establish essentially the
same requisites for proper service of a summons and complaint, as
that established under Fed. R. Bankr. P. 7004. First, Rule
4.4(e) of the Puerto Rico Rules of Civil Procedure and the Puerto
Rico Law on Corporations states that “a corporation, company,
partnership, association or any another artificial person, [may
be served] by delivering a copy of the summons and of the
complaint to an officer, managing or general agent, or to any
other agent authorized by appointment or designated by law to
receive service of process.” Id.
Second, the Puerto Rico law on Corporations also addresses
the requirements for properly serving process upon any
corporation organized in Puerto Rico. It states that “[s]ervice
of legal process upon any corporation organized in the
Commonwealth shall be made by personally delivering a copy of the
process to any officer or director of the Corporation in the
Commonwealth, or by leaving it at the dwelling place or usual
place of abode of any officer, director or registered agent . . .
in the Commonwealth, or at the registered office or other place
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of business of the corporation in the Commonwealth.” 14 L.P.R.A.
§ 3126.
Under the applicable Bankruptcy Rules, the Puerto Rico Rules
of Civil Procedure, and the Puerto Rico Law on Corporations
(“Rules”), the Court finds that service of the summons and
complaint was sufficient. In the instant case, it is uncontested
that Cooperativa received service of the summons and complaint.
The only question that remains for the Court to determine is
whether it was served to the appropriate address for service of
process; and whether the proper person was served, as provided
for in the Rules. The address to which the summons and complaint
were served corresponds to one of the places of business of
Cooperativa, as provided for in the Rules; and it is uncontested
that the person to whom the summons and complaint was directed,
Ms. Zulma Feliciano, was an officer of the lending institution;
and this is also allowed for in the Rules. Thus, service was
sufficient.
B. Standard under Rule 60(b)
Since service of process was sufficient, the Court must now
determine whether Cooperativa’s failure to file an answer to the
complaint is excusable, entitling it to relief from judgment
under Fed. R. Bankr. P. 9024. The question of whether there has
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5The First Circuit has adopted Pioneer’s balancing test and has held that the
Supreme Court’s analysis is applicable to the term as used in Fed. R. Civ. P.
60(b). See Pratt v. Philbrook, 109 F.3d 18 (1st Cir. 1997).
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been a sufficient showing to satisfy the procedural rule
providing for relief from judgment, rests within the discretion
of the trial court. In re Shepherds Hill Development Co., 316
B.R. 406, 418 (B.A.P. 1st Cir. 2004). Fed. R. Civ. P. 60(b),
made applicable in bankruptcy cases by Fed. R. Bankr. P. 9024,
states in relevant part that “the court may relieve a party or a
party’s legal representative from a final judgment, order, or
proceeding for . . . mistake, inadvertence, surprise, or
excusable neglect.” Fed. R. Civ. P. 60(b)(1).
The Supreme Court established a balancing test and held in
Pioneer Inv. Serv. Co. v. Brunswick Assoc. Ltd. Partnership, that
“a determination of what sorts of neglect will be considered
‘excusable’ is an equitable one,” taking into consideration
certain relevant factors: (1) the length of the delay and its
impact on judicial proceedings; (2) the reason for the delay; (3)
whether the movant acted in good faith; and (4) whether granting
the relief will prejudice the debtor. Pioneer Inv. Serv. Co. v.
Brunswick Assoc. Ltd. Partnership, 507 U.S. 380, 113 S. Ct. 1489,
1491 (1993).5 In Pioneer, the Supreme Court relaxed the previous
standard construing excusable neglect and held that it is a more
flexible concept that is not limited solely to circumstances
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6Prior to the Court’s decision in Pioneer, the First Circuit held that Rule
60(b) is a vehicle for extraordinary relief, therefore motions invoking the
Rule should be granted only under exceptional circumstances. Lepore v.
Vidockler, 792 F.2d 272, 274 (1st Cir. 1986).
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beyond the control of the movant. Id. at 1491. Although the
other circuits have adopted a more liberal approach in light of
the Pioneer decision, the First Circuit has stated that “this
Circuit has taken a harsher tack.” Davila-Alvarez v. Escuela de
Medicina Universidad Central del Caribe, 257 F.3d 58, 63-64 (1st
Cir. 2001) (see Deo-Abgasi v. Parthenon Group, 229 F.R.D. 348,
351 (Bankr. D. Mass. 2005) (where the court held that “despite
its elasticity” . . . excusable neglect is a “demanding
standard”).6
In addition to the factors enumerated in Pioneer, some
courts consider whether movant has a meritorious defense to the
original action. American Alliance Insurance Co. v. Eagle
Insurance Co., 92 F.3d 57, 61 (2nd Cir. 1996). In order to make
a showing that a meritorious defense exists sufficient to open a
default judgment, the defendant must set forth facts to show the
existence of the essential elements of the defense. Id.
C. Application of Rule 60(b)
The Court finds, in balancing the equities of this case,
that Cooperativa’s failure to file an answer to the complaint,
does not amount to “excusable neglect” pursuant to Rule 9024 and
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The First Circuit in particular, has held that “[w]hile all relevant
circumstances should be considered, the factors are not equally weighted ‘the
reason-for-the-delay factor will always be critical to the inquiry . . . .’”
Graphic Communications Int’l Union, Local 12-N v. Quebecor Printing Providence,
Inc., 270 F.3d 1, 5 (1st Cir. 2001) (quoting Hospital del Maestro v. Nat’l Labor
Relations Bd., 263 F.3d 173, 175 (1st Cir. 2001).
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applicable case law. First, Cooperativa’s motion to vacate the
default judgment was filed almost two months after the default
judgment was entered; which the Court finds to be a significant
delay.
Second, the Court finds Cooperativa’s argument that the
mistake of its officer amounts to excusable neglect, is not
supported by case law.7 Courts have often held that excuses
based on mistakes in office procedures does not amount to
excusable neglect. See Insurance Co. Of N. America v. Morrison,
D.C. Fla. 1994) (where the Court held that the Banks failure to
file a timely answer to third-party complaint against it, was not
due to excusable neglect, where complaint was misrouted to the
commercial loan department and the loan department did not sent
complaint to the legal department); See also Heaton v. Bonacker,
173 F.R.D. 533. 535 (M.D. Alabama 1997) (where the court held
that a party’s failure to establish minimum procedural safeguards
for handling legal pleadings which results in the complaint being
misplaced does not constitute cause under Rule 60, a more lenient
standard than excusable neglect); In re Software Corporation, 97
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B.R. 71 (D. Mass. 1988) (Court found no excusable neglect where
failure to file a proof of claim by the claims bar date resulted
from an internal mistakes in the Department of Revenue). The
Court finds that it is Cooperativa’s responsibility as a creditor
to establish procedures to be used by its staff whenever
important mail is received at any of its bank branches, and that
it is appropriately handled and forwarded to the appropriate
office and legal counsel, if necessary.
Moreover, the Court finds that Debtor would be prejudiced by
vacating the default judgment. Specifically, Debtor would have
to incur costs and attorneys fees associated with litigation.
The Court recognizes, that although there is a strong interest in
resolving disputes on the merits, there is also an equally
compelling interest in finality of litigation for the parties.
Finally, the Court finds that Cooperativa has not
established a meritorious defense to the original action. In the
present case, Cooperativa admits that it transferred money from
Debtors’ savings account and christmas club, to Debtors’ shares
account; however, it argues that since the funds stayed within
the Debtors accounts and no offset procedures took place, its
actions did not constitute a violation of stay under 11 U.S.C. §
362. Pursuant to 11 U.S.C. § 362, all that is required to find
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that there has been a willful violation of stay is that the
defendant had knowledge of the automatic stay; and intended the
actions which constitute the violation. Fleet Mortgage Group,
Inc. v. Kaneb, 196 F.3d 265, 268 (1st Cir. 1999). A willful
violation does not require a specific intent to violate the
automatic stay. Id. In the instant case, it is undisputed that
Cooperativa had knowledge of the automatic stay; and admits that
they intended to transfer the money in one of Debtor’s accounts
to another, thus the Court must presume that the violation was
deliberate.
D. Damages
The Court concludes that issue of damages must be fully
briefed and an evidentiary hearing held, in order to determine
the appropriate amount of damages to be awarded. See Fleet
Mortg. Group, Inc. v. Kaneb, 196 F.3d 265 (1st Cir. 1999). In
the instant case, there is no uncertainty as the amount of actual
and punitive damages being requested, since the complaint
requests specific dollar figures. However, the Court finds that
the reasonableness of the damages, under the facts and
circumstances of the case at bar, is not ascertainable from the
pleadings. Moreover, Debtor’s request for attorneys fees and
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costs was not supported by evidence regarding a description of
the services rendered and an itemization of the amount sought.
IV. CONCLUSION
Although there was no evidence to support a finding of bad
faith by Cooperativa, it’s failure to timely answer the complaint
due to the mistake of its branch manager did not amount to
excusable neglect under applicable case law. Moreover,
Cooperativa did not demonstrate the existence of a meritorious
defense; and Debtor would be prejudiced if the Court set aside
the default judgment. Therefore, the Court finds in favor of
Debtor and denies Cooperativa’s Motion to Vacate the Default
Judgment, in part. The Court further finds that an evidentiary
hearing is necessary to determine the reasonable amount of
damages to be awarded to Debtor.
ORDER
WHEREFORE, IT IS ORDERED that the Motion to Vacate the
Default Judgment (Docket #10) filed by Cooperativa is DENIED IN
PART.
IT IS FURTHER ORDERED that an evidentiary hearing will be
held on March 10, 2006, at 10:00 a.m., to consider the arguments
of the parties regarding damages.
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SO ORDERED.
San Juan, Puerto Rico, this 19th day of January, 2006.
/s/ Gerardo A. Carlo Altieri
Gerardo A. Carlo Altieri
Chief, U.S. Bankruptcy Judge
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