DELGADO LABOY et al v. FIRSTBANK et al

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

IN RE: : CASE NO. 93-00753

ISMAEL DELGADO LABOY; :
LAURA RAMOS ROSARIO : CHAPTER 7

Debtors

ISMAEL DELGADO LABOY; :
LAURA RAMOS ROSARIO : ADVERSARY NO. 09-00047

Plaintiffs

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VS.

FIRSTBANK PUERTO RICO;

REDLINE RECOVERY SERVICES, LLC;
PR ACQUISITIONS, LLC; OPERATING
PARTNERS CO. INC.

Defendants

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OPINION AND ORDER

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This adversary proceeding is before the court upon the motion for summary judgment filed

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on June 19, 2009 by FirstBank Puerto Rico (hereinafter referred to as “FirstBank” or “Defendant”)

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(Docket No. 9) and a motion to dismiss filed by Operating Partners Co. Inc. (hereinafter referred to

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as “Operating Partners” or “Defendant”) on June 24, 2009. Ismael Delgado Laboy and Laura Ramos

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Rosario (hereinafter referred to as “Debtors” or “Plaintiffs”) initiated this adversary proceeding based

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upon alleged damages and violations of the discharge injunction pursuant to 11 U.S.C. §524(a)(2) of
the Bankruptcy Code; the Fair Debt Collection Practices Act (“FDCPA”), 15 U.S.C. §1692 et seq.,
and State Collection Agencies Laws and Regulations, 10 L.P.R.A. §980 et seq. FirstBank in its

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motion for summary judgment presents several arguments, namely: (i) lack of notice sufficient to

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exempt FirstBank from violation of the discharge injunction pursuant to 11 U.S.C. §524(a)(2) of the

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Bankruptcy Code; (ii) that the action brought by Debtors is barred by the doctrine of laches and

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equitable estoppel; (iii) that the sale of a discharged debt does not constitute a violation of the

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discharge injunction pursuant to 11 U.S.C. §524(a)(2) of the Bankruptcy Code; and (iv) Debtors had
a duty to mitigate damages by warning creditors of their violation to the discharge injunction.
Plaintiffs on September 10, 2009 filed an Opposition to Motion for Summary Judgment and Brief in
Support Thereof discussing the arguments presented by FirstBank (Docket No. 28). On October 5,
2009 FirstBank filed a Request of Entry of Order on Summary Judgment in Favor of FirstBank
(Docket No. 35) in essence rebutting Plaintiffs’ arguments presented in their opposition to the motion
for summary judgment (Docket No. 35). Operating Partners’ motion to dismiss is based on the
allegation that the summons was not served pursuant to Fed. R. Bankr. P. 7004 (e), thus Fed. R. Civ.
P. 12(b)(2) and (4) is applicable to this adversary proceeding pursuant to Fed. R. Bankr. P. 7012(b).
Plaintiffs on September 10, 2009 filed an opposition to Operating Partners’ motion to dismiss (Docket
No. 29). For the reasons set forth below FirstBank’s motion for summary judgment is denied and
Operating Partners’ motion to dismiss is denied.

Facts and Procedural Background

Plaintiffs filed a bankruptcy petition under Chapter 7 of the Bankruptcy Code on February 17,
1993. On March 22, 1993 the Chapter 7 Trustee filed the Report of No Distribution (Docket No. 5
in lead case No. 93-00753'). On May 27, 1993 the Debtors were granted a discharge from all
dischargeable debts under 11 U.S.C. §727(a) of the Bankruptcy Code and their bankruptcy estate was
closed (Docket Nos. 9&10 in lead case). On March 16, 2009 the bankruptcy case was reopened in
order to file the action now before the court.

On March 16, 2009, Plaintiffs filed the instant adversary proceeding alleging several causes
of action which include the following: (i) FirstBank sold Plaintiffs’ discharged debt to PR
Acquisitions, LLC, despite having knowledge that such debt had been discharged in a bankruptcy
proceeding; (ii) Redline Recovery Services, LLC sent Plaintiff Ismael Delgado Laboy a collection
letter on or about January 3, 2008; (111) Operating Partners Co. Inc. sent Plaintiff Ismael Delgado
Laboy a collection letter on or about June 9, 2008; (iv) Defendant FirstBank willfully violated the

"References to the lead case are to the entries and documents filed in the bankruptcy case,
case number 93-00753 (ESL).

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discharge injunction pursuant to 11 U.S.C. §524(a)(2) of the Bankruptcy Code; (v) Defendant is liable
to Plaintiffs for actual and punitive damages and legal fees; (vi) Firstbank violated the FDCPA; and
(vii) Firstbank also violated the Commonwealth of Puerto Rico Collection Agencies Act, 10 L.P.R.A.
981(p)(10) and its corresponding Regulations. On April 13, 2009 FirstBank filed a motion requesting
an extension of seventy (70) days to answer the complaint since it had to obtain all applicable
documentation, perform the necessary investigations and analyze the allegations in the complaint
(Docket No. 6). The court on April 14, 2009 granted FirstBank’s motion for an extension of time
(Docket No. 7). On June 19, 2009 FirstBank answered the complaint and requested the dismissal
of the same based on the following: (i) FirstBank did not receive notice of the discharge order for
account number xx-xxxxx0341 because Plaintiffs included incorrect postal address (P.O. Box 1709,
Santurce, Puerto Rico) of FirstBank on their list of creditors despite the fact that “the claim in
controversy, clearly established the Name of the Creditor and the Name and the Addresses where
Notices Should be Sent: First Federal Savings Bank, Bankruptcy Division, P.O. Box 9146, Santurce,
Puerto Rico 00908-0146.” (Docket No. 9, paragraph 63); (ii) “[p]rior to the filing of an adversary
proceeding a Plaintiff should enforce the due diligence to ascertain who is the alleged liable party;
if any, and whereas a debt collection effort took place a sender address or phone number should have
been included” (Docket No. 9, paragraph 80); (iii) Plaintiffs should have communicated with the
entities that sent Plaintiff Ismael Delgado the collection letters, namely, Redline Recovery Services,
LLC (“Redline”) and Operating Partners to mitigate the alleged damages; and (iv) based on Finnie
v. First Union Nat’] Bank, 275 B.R. 743 (E.D. Va. 2002), FirstBank’s sale of Plaintiffs’ discharged

debt to a third party is not a violation of the discharge injunction under 11 U.S.C. §524(a)(2).

On June 24, 2009, Operating Partners filed a motion to dismiss pursuant to Fed. R. Civ. P.
12(b)(2) and 12(b)(4) based on the allegation that the summons was not served in conformity with
Fed. R. Bankr. P. 7004(e) (Docket No. 10). The court on July 2, 2009 ordered the Plaintiffs to show
cause within twenty (20) days why the motion to dismiss should not be granted (Docket No. 11). On
the same date the court also ordered the Plaintiffs to show cause within twenty (20) days why
summary judgment should not be entered in favor of FirstBank for the reasons stated in the motion

(Docket No. 9) as part of the answer to the complaint (Docket No. 12). On July 22, 2009, Plaintiffs

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filed a motion requesting twenty-five (25) days to answer the court’s orders (Docket Nos. 11 & 12).
The court on July 27, 2009 granted Plaintiffs’ request for an extension of time (Docket No. 16). On
July 31, 2009 the court ordered Plaintiffs to show cause why the complaint should not be dismissed
for failure to prosecute (Docket No. 19). Subsequently, Plaintiffs on August 25, 2009 filed a motion
requesting an additional extension of seven (7) days to file the answers to both court orders (Docket
No. 21). The court on August 31, 2009 granted Plaintiffs’ motion for an additional extension of time
to answer the orders to show cause (Docket No. 22).

On September 9, 2009, Defendant filed a motion requesting entry of order on summary
judgment (Docket No. 24). On this same date, the court ordered this adversary proceeding to be
dismissed due to Plaintiffs’ failure to prosecute the same (Docket No. 26). Plaintiffs on September
10, 2009 filed a motion requesting an extension of time of one (1) day to file their answers to this
court’s orders (Docket Nos. 11 & 12) to show cause as to why summary judgment should not be
entered in favor of Defendant and to show cause as to why the motion to dismiss filed by Operating
Partners should not be granted by this court (Docket No. 27). On September 10, 2009 Plaintiffs filed
an Opposition to Motion for Summary Judgment and Brief in Support Thereof (Docket No. 28) by
which they present the following arguments: (i) based on In re Nassoko, 405 B,R. 515 (Bankr.
S.D.N.Y. 2009), Plaintiffs argue that the sale of discharged debts to a third party violates the
discharge injunction pursuant to 11 U.S.C. §524(a)(2); (1) Plaintiffs’ action is not barred by the
doctrines of laches nor equitable estoppel because 11 U.S.C. §524(a) does not have a statute of
limitations for violations of the discharge injunction and given that Defendant sold a discharged debt
thirteen (13) years after the same had been discharged the doctrine of equitable estoppel may not be
applied because; (iii) Plaintiffs argue that Defendant’s were properly noticed or in the alternative had
constructive notice of the discharge injunction because it filed a proof of claim twenty-eight (28) days
(March 17, 1993) after Plaintiffs filed their bankruptcy petition with the following address: First
Federal Savings, Bankruptcy Division, P.O. Box 9146, Santurce, PR 00908-0146; (iv) Plaintiffs also
argue that Fed. R. Bankr. P. 2002(g) mandates to which address notices are to be sent and that Fed.
R. Bank. P. 2002(g) specifically stated: “(g)Addresses of Notices. All notices required to be mailed

under this rule to creditor, equity security holder, or indenture trustee shall be addressed as such entity

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an authorized agent may direct in a filed request; otherwise, to the address shown the list of creditors
or the schedule whichever is filed later. Ifa different address stated in a proof of claim duly filed, that
address shall be used unless a notice no dividend has been given.” (Docket No. 28, p. 15); and (v)
Plaintiffs argue that they had no duty to mitigate damages by warning creditors of their violations to
the automatic stay or the discharge injunction.

On September 10, 2009 Plaintiffs filed their Opposition to the Motion to Dismiss by which
they allege that they complied with Fed. R. Bankr. P. 7004(e) and that any delay that might have
occurred was because Operating Partners provides conflicting information regarding the address of
its resident agent which appears in the electronic registry of the Puerto Rico Department of State
Corporate Information system (Docket No. 29).

On September 10, 2009 Plaintiffs filed their answers to the court order to show cause as to
why summary judgment should not be entered in favor of Defendant and to the order to show cause
as to why the motion to dismiss filed by Operating Partners should not be granted by this court
(Docket Nos. 30 & 31). The court on September 11, 2009 granted Plaintiffs’ motion requesting a
final extension of time (Docket No. 27) to file answers to the motion for summary judgment and the
motion to dismiss and the court set aside the dismissal order dated September 9, 2009 (Docket No.
32). Lastly, on October 5, 2009, Defendant filed a Request of Entry of Order on Summary Judgment
in Favor of FirstBank Puerto Rico (Docket No. 35).

Standard for Summary Judgment

Rule 56 of the Federal Rules of Civil Procedure, is applicable to this proceeding by Rule 7056
of the Federal Rules of Bankruptcy Procedure, provides that summary judgment should be entered
“if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the
affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party
is entitled to a judgment as a matter of law.” Fed. R. Bankr. P. 7056; see also, In re Colarusso, 382
F.3d 51 (1* Cir. 2004), citing Celotex Corp. v. Catrett, 477 U.S. 317, 322-23, 106 S.Ct. 2548, 91
L.Ed.2d 265 (1986).

“The summary-judgment procedure authorized by Rule 56 is amethod for promptly disposing

of actions in which there is no genuine issue as to any material fact or in which only a question of law

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is involved.” 10A Wright, Miller & Kane, Federal Practice and Procedure 3d§ 2712 at 198. “Rule

56 provides the means by which a party may pierce the allegations in the pleadings and obtain relief
by introducing outside evidence showing that there are no fact issues that need to be tried.” Id at 202-
203. Summary judgment is not a substitute for a trial of disputed facts; the court may only determine
whether there are issues to be tried, and it is improper if the existence of a material fact is uncertain.
Id at 205-206.

Summary judgment is warranted where, after adequate time for discovery and upon motion,
a party fails to make a showing sufficient to establish the existence of an element essential to its case

and upon which it carries the burden of proof at trial. Celotex Corp. v. Catrett, 477 U.S. 317, 322

(1986). The moving party must "show that there is no genuine issue as to any material fact and that
the moving party is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(c).

For there to be a "genuine" issue, facts which are supported by substantial evidence must be
in dispute thereby requiring deference to the finder of fact. Furthermore, the disputed facts must be
"material" or determinative of the outcome of the litigation. Hahn v. Sargent, 523 F.2d 461, 464 (1st
Cir. 1975), cert. denied, 425 U.S. 904 (1976). When considering a petition for summary judgment,

the court must view the evidence in the light most favorable to the nonmoving party. Poller v.

Columbia Broadcasting Systems, Inc., 368 U.S. 464, 473 (1962); Daury v. Smith, 842 F.2d 9, 11 (1st

Cir. 1988).

The moving party invariably bears both the initial as well as the ultimate burden in

demonstrating its legal entitlement to summary judgment. Adickes v. Kress & Co., 398 U.S. 144, 157
(1970). See also Lopez v. Corporacién Azucarera de Puerto Rico, 938 F.2d 1510, 1516 (ist Cir.

1991). It is essential that the moving party explain its reasons for concluding that the record does not
contain any genuine issue of material fact in addition to making a showing of support for those claims
for which it bears the burden of trial. Bias v. Advantage International. Inc., 905 F.2d 1558, 1560-61
(D.C. Cir. 1990), cert. denied, 498 U.S. 958 (1990).

The moving party cannot prevail if any essential element of its claim or defense requires trial.
Lopez, 938 F.2d at 1516. In addition, the moving party is required to demonstrate that there is an

absence of evidence supporting the nonmoving party's case. Celotex, 477 U.S. at 325. See also,

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Prokey v. Watkins, 942 F.2d 67, 72 (1st Cir. 1991); Daury, 842 F.2d at 11. In its opposition, the
nonmoving party must show genuine issues of material facts precluding summary judgment; the

existence of some factual dispute does not defeat summary judgment. Kennedy v. Josepthal & Co.,

Inc., 814 F.2d 798, 804 (1st Cir. 1987). See also Kauffman v. Puerto Rico Telephone Co., 841 F.2d

1169, 1172 (ist Cir. 1988); Hahn, 523 F.2d at 464. A party may not rely upon bare allegations to
create a factual dispute but is required to point to specific facts contained in affidavits, depositions

and other supporting documents which, if established at trial, could lead to a finding for the

nonmoving party. Over the Road Drivers, Inc. v. Transport Insurance Co., 637 F.2d 816, 818 (ist Cir.
1980).

The moving party has the burden to establish that it is entitled to summary judgment; no
defense is required where an insufficient showing is made. Lopez, 938 F.2d at 1517. The nonmoving
party need only oppose a summary judgment motion once the moving party has met its burden.
Adickes, 398 U.S. at 159.

Uncontested Material Facts

1. Plaintiffs filed a bankruptcy petition for relief under Chapter 7 of the Bankruptcy Code on
February 17, 1993 (Docket No. 1 in lead case).

2. Defendant FirstBank filed two (2) unsecured claims in the lead case: (i) a personal loan
under account no. xx-xxxxx0341 in the amount of $7,552.00; and (2) one for a credit card under
account no. XXXXK-XXxx-xxxx-7303 for $5,634.39.

3. On March 17, 1993, FirstBank filed a proof of claim for a personal loan under account no.
26-18-00000341 in the amount of $7,552.00. The name and address where notices should be sent on
the proof of claim included the following address: Bankruptcy Division, P.O. Box 9146, Santurce,
Puerto Rico 00908-0146 (Docket No. 9, Exhibit A).

4, On May 27, 1993 an Order was entered granting Debtors a discharge from all their
dischargeable debts under 11 U.S.C. §727(a) of the Bankruptcy Code and their bankruptcy estate was
closed. (Docket Nos. 9&10 in lead case). Both of FirstBank’s unsecured claims were included
amongst the dichargeable debts.

5. On June 2, 1993, the Clerk of the Court certified that a copy of the discharge order was

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mailed to all parties of interest as required by the Bankruptcy Code and the Rules of Bankruptcy
Procedure. (Docket No. 28, Exhibit 2).

6. On September 29, 2006, a Purchase and Sale Agreement was entered by and between
FirstBank Puerto Rico and First Federal Finance Corp. d/b/a “Money Express”, as Seller and PR
Acquisitions, LLC, as Buyer, (hereinafter referred to as the “Agreement”) by which FirstBank sold
to PR Acquisitions, LLC certain accounts, including account no. xx-xxxxx0341 belonging to Plaintiff
Ismael Delgado-Laboy in the amount of $7,128.03 (Docket No. 9, Exhibit D).

7. Plaintiffs did not communicate with Defendant prior to the filing of this adversary
proceeding.

8. Redline on behalf of its client, PR Acquisitions, LLC sent a collection letter to Plaintiff
Ismael Delgado Laboy on or about January 3, 2008 which stated that the balance on account no.
00261890000341 was $18,389.95. The letter states that the original creditor is FirstBank De Puerto
Rico. (Docket No. 1, p. 13).

9. Operating Partners on behalf of its client, PR Acquisitions, LLC sent a collection letter to
Plaintiff Ismael Delgado Laboy on or about June 9, 2008 which stated that the balance on account no.
00261890000341 was $18,778.29. The letter states that the creditor is FirstBank De Puerto Rico.
(Docket No. 1, p. 14).

Applicable Law and Analysis

Discharge Injunction under 11 U.S.C. §524(a)(2)

The effect of a bankruptcy discharge is that it “operates as an injunction against the
commencement or continuation of an action, the employment of process, or an act to collect, recover
or offset any such debt as a personal liability of the debtor, whether or not discharge of such debt is
waived.” 11 U.S.C. §524(a)(2). The discharge injunction is the mechanism which allows the debtor
to commence debt-free his or her fresh start. See In re Latanowich, 207 B.R. 326, 334 (Bankr. D.

Mass. 1997) (“The purpose of the permanent injunction set forth at §524(a)(2) and reiterated in the
discharge order is to effectuate one of the primary purposes of the Bankruptcy Code: to afford the
debtor a financial fresh start.”); Green_v. Welsh 956 F. 2d. 30,33 (2d Cir. 19992); Baker v.
Sommerville Mun. Fed. Credit Union (In re Baker), 2006 Bankr. Lexis 3183 (Bankr. D. Mass. 2006).

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The discharge injunction is like a permanent extension of the automatic stay under 11 U.S.C. §362(a)
of the Bankruptcy Code and thus, includes all types of collection activity such as; letters, phone calls,
threats of criminal proceedings or other adverse actions brought about with the purpose of debt
repayment. See Alan N. Resnick & Henry J. Sommer, 4 Collier on Bankruptcy 9524.02[2] (15" ed.
2009); Ung v. Boni (Inre Boni), 240 B.R. 381, 384 n.5 (B.A.P. 9" Cir. 1999). Moreover, “[c]reditors

are obligated to maintain procedures to ensure that they do not violate section 524, and may be held
liable for damages and attorney’s fees if they do not.” Alan N. Resnick & Henry J. Sommer, 4 Collier
on Bankruptey 9524.02[b] (15" ed. 2009); See In re Roush, 88 B.R. 163, 165 (Bankr. S.D. Ohio
1988); Faust v. Texaco (In re Faust), 270 B.R. 310, 317 (Bankr. M.D. Ga. 1998); In re Nassoko, 405

B.R. 515, 521 (Bankr. S.D.N.Y. 2009). “Although, §524(a) which establishes the discharge
injunction, does not include a specific provision setting out available remedies for violations of the
discharge injunction, bankruptcy courts invoke §105(a), which grants bankruptcy courts broad
equitable powers, to enforce the discharge injunction, using the mechanism of civil contempt action.”

Parker v. Boston Univ. (In re Parker), 334 B.R. 529, 537-538 (Bankr. D. Mass. 2005); See U.S. v.

Rivera Torres (In re Rivera Torres), 309 B.R. 643,647 (B.A.P. 1° Cir. 2004); In re Pratt, 324 B.R. at

5; Bessette v. Avco Fin. Servs., Inc., 230 F. 3d 439, 445 (1* Cir. 2000), cert. denied, 532 U.S. 1048,
121 S. Ct. 2016, 149 L. Ed. 2d 1018 (2001).

The standard for a willful violation of the discharge injunction under §524(a)(2) is met if the
defendant had knowledge of the discharge injunction and the same intended the actions which
constituted the violation. See Fleet Mortg. Group, Inc. v. Kaneb, 196 F. 3d 265, 268 (1* Cir. 1999);
In re Pratt, 462 F. 3d at 21 (1* Cir. 2006); Alan N. Resnick & Henry J. Sommer, 4 Collier on

Bankruptcy 524.02[2][c] (15™ ed. 2009). The defendant must have actual or constructive knowledge

of the discharged debt for the knowledge requirement to be satisfied. See Torres v. Chase Bank
U.S.A., N.A. (In re Torres), 367 B.R. 478, 490 (Bankr. S.D.N.Y. 2007). Civil contempt must be

proven by clear and convincing evidence. Ellis v. Dunn (In re Dunn), 324 B.R. 175, 179 (D. Mass.
2005).

In this adversary proceeding, one of the legal issues is whether the sale of a discharged debt

to a third party constitutes a violation of the discharge injunction under 11 U.S.C. §524(a)(2).

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Defendant citing the case of Finnie v. First Union Nat’] Bank, 275 B.R. 743 (E.D. Va. 2002) argues
that, “‘... [it] would have the court expand §524(a)(2) beyond the plain language contained within the
statute. The Court of Appeal, in Finnie, continued to rule that the statute’s prohibitions apply only to
actions taken by a creditor to collect from the debtor. While a creditor is prohibited from utilizing a
collection agency to recover a discharged debt on its behalf...there is no prohibition on the creditor
selling the discharged debt, at a greatly discounted rate, to a third party.” (Docket No. 35, paragraph
70). Plaintiffs citing the case of Inre Nassoko, 405 B.R. 515 (Bankr. S.D.N.Y. 2009) argue that, “[t]o
avoid violation of the discharge injunction, a creditor could simply collect on a discharged debt
indirectly by selling it to a third party, aware that the third party intended to pursue collection of the
debt. The third party could then plead ignorance of the discharge, thereby purporting to insulate all
parties from liability” In re Nassoko, 415 B.R. at 522. (Docket No. 28, p. 7).

This court finds the reasoning employed in In re Nassoko more aligned with the purpose of
the discharge injunction which is simply to prevent a debtor from being pursued for the payment of
his or her discharged debts, thus affording the debtor a financial fresh-start. If a creditor were
permitted to sell its discharged debts to a third party it would be tantamount to indirectly
circumventing the discharge injunction pursuant to 11 U.S.C. §524(a). Moreover, the bankruptcy
court in In re Lafferty held that the selling of accounts (discharged debts) to a third party collector is
a deliberate act to collect on a discharged debt, and thus constituted a willful violation of the
discharge injunction. In re Lafferty, 229 B.R. 707, 714 (Bankr. N.D. Ohio 1998) citing Walker v.
M&M Dodge (In re Walker), 180 B.R. 834, 844 (Bankr. W.D. La. 1995). ?

In the instant the case, it is contested whether Defendant FirstBank had actual or constructive
knowledge of Plaintiffs’ discharged debt. Defendant FirstBank argues that it did not have knowledge

that Plaintiffs’ debt, a personal loan under account no. xx-xxxxx0341 in the amount of $7,552.00, was

? The court would like to distinguish this particular case from that of In re Rojas, 2009 WL
3055430 (Bkrtcy. D. Puerto Rico, 2009) in which Money Express assigned or conveyed the
discharged debt to Advance Collection Services, Inc., but specifically informed the same that all
actions or proceedings to enforce any discharged debt or to levy plaintiff's property subsequent to
the entry of the discharge order were prohibited by law.

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discharged because it did not receive proper notice of Plaintiffs’ discharge. Defendant was not duly
noticed of Plaintiffs’ discharge because Debtors failed to include the correct mailing address of
Defendant in the list of creditors. However, Defendant subsequent to the filing of Debtors’
bankruptcy petition (March 17, 1993) filed a proof of claim which included the name and address
where notices should be sent. The address Defendant included in its proof of claim for this particular
debt is the following: Bankruptcy Division, P.O. Box 9146, Santurce, Puerto Rico 00908-0146.
Plaintiffs arguments are the following: (1) Defendant had knowledge of the filing of the bankruptcy
petition, given that it filed a proof of claim at a later date (28 days after the filing of the bankruptcy
petition); and (11) Defendant received notice of the discharge notice, if the Deputy Clerk acted in
conformity with Fed. R. Bankr. P. 2000(g).

Fed. R. Bankr. P. 4004(g) establishes that clerk will mail a copy of the discharge order to those
entities (including creditors) in conformity with Fed. R. Bankr. P. 4004(a). Fed. Bankr. P. 4004(g).
The addresses to be used for the notices are dictated by Fed. R. Bankr. P. 2002(g) and (j). FirstBank
in the lead case did not file a request with the court directing the same to the send notices to a
particular address. In the absence of such request, the address to be used is that in debtor’s list of
creditors, unless the creditor has given a different address in the proof of claim and a notice of no
dividend has not been filed. See Alan N. Resnick & Henry J. Sommer, 9 Collier on Bankruptcy
4004.08 (15 ed. 2009). In the lead case, FirstBank’s proof of claim for this particular debt had a
different address from the alleged list of creditors. However, the Chapter 7 trustee on March 22, 1993
filed a report of no distribution. (Docket No. 5). This court concludes that Plaintiffs’ analysis of Fed.
R. Bankr. P. 2002(g) is erroneous, given that there was a report of no distribution which was filed in
the lead case, thus it does not necessarily follow that the clerk of the court had to use the addresses
on the proof of claim filed by FirstBank since it was a no asset case. It is important to note that in
chapter 7 no asset cases, unless a party in interest files a complaint objecting to the discharge or a
motion to extend the time to object, the court will issue a discharge order early in the case (in the lead
case the discharge order was entered on May 27, 1993) generally sixty (60) days after the date first
set for the meeting of creditors. Fed. R. Bankr. P. 4004(a) and (c).

Notwithstanding, FirstBank would still be left to explain why it sold a prepetition debt to a

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third party after it had knowledge of the bankruptcy filing and thus, the automatic stay pursuant to 11
U.S.C. §362(a) would still be in effect, absent notice that such case had been dismissed or that
discharge had been denied (from the records of the lead case, FirstBank did not obtain relief from the
automatic stay). See Alan N. Resnick & Henry J. Sommer, 9 Collier on Bankruptcy $4004.08 (15"
ed. 2009). “Thus the failure to receive notice of the discharge order would not necessarily excuse the
creditor’s actions if they would have been wrongful even in the absence of a discharge order.” Alan

N. Resnick & Henry J. Sommer, 9 Collier on Bankruptcy $4004.08 (15 ed. 2009). FirstBank had

knowledge of the following: (i) Debtors filed a bankruptcy petition under Chapter 7 on February 17,
1993; (ii) the particular debt, a personal loan under account no. xx-xxxxx0341 in the amount of
$7,552.00, was listed in Debtors’ schedules as an unsecured claim; and (iii) FirstBank filed a proof
of claim on March 17, 1993 for this particular debt. This court finds that FirstBank had actual notice
of the bankruptcy petition and, thus knew that the automatic stay under 11 U.S.C. §362(a) was
applicable and ifa discharge was entered subsequently its unsecured claims were dischargeable debts,
thus it had knowledge of sufficient facts “to cause a reasonably prudent person to make additional
inquiry” to determine whether the discharge had been filed or if the case had been dismissed. See In
re Stucka, 77 B.R. 777, 783 (Bankr. C.D. Cal. 1987) citing In re Bragg, 56 Bankr. 46, 49 (Bankr.
M.D. Ala. 1985) (“A willful violation of the automatic stay provision is also committed when a party
acts in violation of the stay with knowledge or notice of sufficient facts to cause a reasonably prudent
person to make additional inquiry to determine whether a bankruptcy petition has been filed.”) See
also Inre Lafferty, 229 B.R. 707, 713 citing In re Roush, 88 B.R. 163,164; Inre Summers, 213 B.R.
825, 828 (Bankr. N.D. Ohio 1996). This court concludes that Defendant had actual knowledge of the
automatic stay pursuant to 11 U.S.C. §362(a) and that it had constructive knowledge of the discharge
injunction and that it intended the actions which constituted the discharge injunction violation.
Laches and Equitable Estoppel

A party asserting laches as an affirmative defense has the burden of demonstrating that “a
party’s delay in bringing suit was (1) unreasonable, and (2) resulted in prejudice to the opposing

party.” Iglesias v. Mut. Life Ins. Co. N.Y., 156 F. 3d 237, 243 (1* Cir. 1998) (quoting K-Mart Corp.

v. Oriental Plaza, Inc., 875 F. 2d. 907, 911 (1* Cir. 1989). A party asserting the defense of equitable

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estoppel has the burden of proving that (1) a material misrepresentation by a party who had reason
to know of its falsity; (2) reasonable reliance upon the alleged misrepresentation by the opposing
party; and (3) a traceable disadvantage resulting from the material misrepresentation. See Heckler v.

Community Health Servs. Inc., 467 U.S. 51, 59 (1984); Falcone v. Pierce, 864 F. 2d 226, 228 (1* Cir.

1988). Defendant’s allegations with respect to these equitable doctrines are limited to the following:
(i) Plaintiffs filed this adversary proceeding sixteen (16) years after the discharge order; and (ii) the
same filed the complaint one (1) year and two (2) months after the issuance of the first collection
letter and nine (9) months after the issuance of the second collection letter. However, it is an
uncontested fact that Defendant on September 29, 2006, entered an Agreement by which it sold to
PR Acquisitions, LLC certain accounts, including account no. xx-xxxxx0341, belonging to Plaintiff
Ismael Delgado Laboy in the amount of $7,128.03. Moreover, it also undisputed that on or about
January 3, 2008, Redline on behalf of its client, PR Acquisitions, LLC sent a collection letter to
Plaintiff Ismael Delgado Laboy which stated that the balance on account no. 00261890000341 was
$18,389.95. It is also undisputed that on or about June 9, 2008, Operating Partners on behalf of its
client, PR Acquisitions, LLC sent a collection letter to Plaintiff Ismael Delgado Laboy, which stated
that the balance on account no. 00261890000341 was $18,778.29. At this point, this court simply
finds that Defendant has failed to demonstrate the elements required under both equitable doctrines,
namely laches and equitable estoppel, thus Plaintiffs’ complaint is not barred by laches or equitable
estoppel.
Motion to Dismiss pursuant to Fed. R. Civ. P. 12(b)(2) and 12(b)(4) & Fed. R. Bankr. P. 7004
Fed. R. Civ. P. 4 made applicable in bankruptcy cases by Fed. Bankr. R. 7004 establishes the
procedures for the proper issuance and service of a summons. Proper service pursuant to Fed. Bankr.

R. 7004 is necessary to establish personal jurisdiction over a defendant. See Jardines Bacata, Ltd. v.

Diaz-Marquez, 878 F. 2d 1555, 1559 (1* Cir. 1989); Precision Etchings and Findings. Inc. v. LGP

Gem Ltd., 953 F. 2d 21, 23 (1* Cir. 1992). Thus, if plaintiff fails to comply with Fed. Bankr. R. 7004,

it will deprive the bankruptcy court of personal jurisdiction due to insufficiency in the service of
process. A summons must be hand delivered or deposited into a mailbox within ten (10) days after

the summons is issued by the court. Fed. R. Bankr. P. 7004(e). Fed. R. Civ. P. 4(h)(1) made

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applicable in bankruptcy by Fed. R. Bankr. P. 7004(a) allows service of process to be made upon
corporations, “(A) in the manner prescribed by Rule 4(e)(1) for serving an individual; or (B) 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 and— if the
agent is one authorized by statute and the statute so requires—by also mailing a copy of each to the
defendant.” Fed. R. Civ. P. 4(h)(1)(A) & (B). Fed. R. Civ. P. 4(h)(1) allows for corporations to be
served pursuant to the law of the district in which the court is located, namely Rule 4(e) of the Puerto

Rico Rules of Civil Procedure and the General Corporation Law of Puerto Rico. See Boateng v. Inter

Am. Univ., 188 F.R.D. 26, 27 (D.P.R. 1999). Rule 4(e) of the Puerto Rico Rules of Civil Procedure
provides that service shall be made as follows: “[u]pon a corporation, company, partnership,
association or any other artificial person, 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.” 32 L.P.R.A. App. III 4.4 (e). Article 12.01 of the
General Corporation Law of Puerto Rico establishes 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, director or the registered agent of the corporation in the Commonwealth, or
by leaving it at the dwelling or usual place of abode of any officer, director or registered agent (if the
registered agent is an individual) in the Commonwealth, or at the registered office or other place of
business of the corporation in the Commonwealth.” 14 L.P.RA. §3126. However, Fed. R. Bankr. P.
7004(b)(3) provides in part that “in addition to the methods authorized by Rule 4(e)-(j) F.R. Civ. P.,
service may be made within the United States by first class mail postage prepaid upon a domestic or
foreign corporation... by mailing a copy of the summons and complaint 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, and if the agent is one authorized by statute to receive service and the statute so
requires, by mailing a copy to the defendant.” Fed. R. Bankr. P. 7004(b)(3). Moreover, Fed. R.
Bankr. P. 7004 “does not require proof of actual receipt, it requires only that the summons and

complaint be mailed.” See Moglia v. Lowitz & Sons (In re Outboard Marine Corp.), 359 B.R. 893,

898 (Bankr. N.D. Ill. 2007) citing In re Vineze, 230 F. 3d 297, 299 (7" Cir. 2000); United States Tr.

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v. Clark (In re Clark), 2007 Bankr. Lexis 525 (Bankr. S. D. lowa 2007) (“In Bankruptcy Court, Rule

7004 governing service of process in adversary proceedings significantly abbreviates the procedures
permitting service of a summons and complaint by first class mail. Unlike the Federal Rules of Civil
Procedure, no acknowledgment of receipt of service is required under the Federal Rules of

Bankruptcy Procedure”); ( Alan N. Resnick & Henry J. Sommer, 10 Collier on Bankruptcy 7004.03

(15" ed. 2009).

Fed. R. Civ. P. 4(m) incorporated by Bankruptcy Rule 7004(a) provides a time limit for
service. Fed. R. Civ. P. 4(m) establishes that, “[i]f'a defendant is not served within 120 days after the
complaint is filed, the court—-on motion or on its own after notice to the plaintiff—-must dismiss the
action without prejudice against that defendant or order that service be made within a specified time.
But if the plaintiff shows good cause for the failure, the court must extend the time for service for an
appropriate period.” Fed. R. Civ. P. 4(m). “What is ‘good cause’ for the failure to serve within 120
days will vary in each case, but diligence upon the part of the plaintiff in attempting to locate and
serve the defendant and lack of prejudice to the defendant by reason of the delay are factors.” Alan

IN. Resnick & Henry J. Sommer, 10 Collier on Bankruptcy 47004.02[13] (15 ed. 2009). “Application

of Rule 4(m) requires a two-step analysis. First, upon a showing of good cause for the defective
service, the court must extend the time period. Second, if there is no good cause, the court has the
discretion to dismiss without prejudice or extend the time period.” Id.

Fed. R. Civ. P. 12(b)(2) and 12(b)(4) made applicable by Fed. R. Bankr. P. 7012(b)(2) and
7012(b)(4) provide that the defenses of lack of personal jurisdiction and insufficiency of process must
be presented in the first responsive pleading. Fed. R. Civ. P. 12(b)(2) and 12(b)(4). A Fed. R. Civ.
P. 12(b)(2) motion is used to challenge the existence of jurisdiction over the person. A Fed. R. Civ.

P. 12(b)(4) or (b)(5) motions is used to challenge the manner in which process or service of process

was performed. See Boateng v. Inter Am. Univ., 188 F.R.D. at 27. “Objections to sufficiency of
process or the service of process ‘must be specific and must point out in what manner the plaintiff
has failed to satisfy the service provision utilized.’” 2-12 Moore’s Federal Practice- Civil §12.33[1]
quoting O’Brien v. R.J. O’Brien Assocs., 998 F. 2d 1394, 1400 (7" Cir. 1993). The movant has the

burden of proof in challenging the sufficiency of process pursuant to Fed. R. Civ. P. 12(b)(4). Id. The

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plaintiff bears the burden of demonstrating that personal jurisdiction exists. See Negron-Torres v.

Verizon Communs.., Inc., 478 F. 3d 19, 12 (1* Cir. 2007).

In the instant case Operating Partners’ motion to dismiss is based on the allegation that
Plaintiffs failed to abide by Fed. R. Bankr. P. 7004(e) since no certificate of service appears on the
record and the time limit for service has lapsed. Plaintiffs in their opposition to the motion to dismiss
argue that the summons was served on Operating Partners, through its resident agent, Lorimar
Sanchez Rios, by certified mail return receipt requested on April 22, 2009 (Docket No. 29, Exhibit
A). However, the aforementioned summons was returned to sender due to an expired P.O. Box
(Docket No. 29, Exhibit A). The service address for the resident agent was obtained from the Puerto
Rico Department of State electronic information system which included the following information
for the resident agent of Operating Partners Co. Inc.: Lorimar Sanchez Rios, P.O. Box 71433, San
Juan, PR 00936-8533. (Docket No. 29, Exhibit B). The returned summons was resent on May 19,
2009 to the resident agent (Lorimar Sanchez Rios) of Operating Partners at the following address:
P.O. Box 194499, San Juan, P.R. 00919, label number 7003 3110 0001 0419 1287 (Docket No. 29,
Exhibit C). Plaintiffs’ counsel never received the return receipt slip from the U.S. Postal Service. The
on-line track and confirm feature of the U.S. Postal Service informed Plaintiffs that a notice for the
parcel corresponding to label number 7003 3110 0001 0419 1287 was left on May 21, 2009 at
10:42am and that no further information is available (Docket No. 29, Exhibit D).

The court finds that Plaintiffs mailed the summons and complaint within one-hundred twenty
(120) days of the filing the complaint since the same was sent via certified mail return receipt
requested on April 22, 2009 to the last address of the resident agent that appeared on the on-line
system for the Puerto Rico Department of State as of April 21, 2009. It must be noted that Operating
Partners may be in violation of Article 3.04 of the General Corporation Law of Puerto Rico, 14
L.P.R.A. § 2684, since it is its responsibility to report a change of address by filing a duly
authenticated certificate with the Department of a State. However, Plaintiffs mailed the summons
more than ten days after it had been issued, and failed to request to the court to reissue the summons.
Plaintiffs did not include in their motion the reason for failing to request the issuance of a new

summons from the court. Thus, service was ineffective under both Fed. R. Bankr. P. 7004(e) and Fed.

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R. Civ. P. 4(m).? The court notes that Operating Partners first appearance in the court docket was
on June 24, 2009 (Docket No. 10) the date it filed its motion to dismiss which was after the one-
hundred and twenty days had elapsed from the date of the filing of the complaint pursuant to Fed. R.
Civ. P. 4(m). Operating Partners may argue that it had no duty to plead insufficiency of service of
process within the one-hundred twenty days subsequent to the filing of the complaint, but at the same
time this court concludes that through its inaction they should be permitted for this motion to dimiss

to be granted. See Union Trust Co. v. Anderson (In re Anderson), 179 B.R. 401, 406-407 (Bankr. D.

Conn. 1995).

Conclusion

For the reasons stated above, this court finds that Defendant had actual knowledge of the
automatic stay pursuant to 11 U.S.C. §362(a) and that it had constructive knowledge of the discharge
injunction and that it intended the actions which constituted the discharge injunction violation. The
court concludes that Plaintiffs’ complaint is not barred by laches or equitable estoppel. Lastly, the
court finds that Plaintiffs failed to effectively service Operating Partners pursuant to Fed. R. Bankr.
P. 7004(e) and Fed. R. Civ. P. 4(m) and will allow the reissuance of the summons so that Defendant
Operating Partners may be properly served by Plaintiffs in conformity with Fed. R. Bankr. P. 7004(e)
and Fed. R. Civ. P. 4(m). Plaintiffs shall move the court for the reissuance of summons within fourteen

(14) days.

3See Premier Capital. Inc. v. DeCarolis, 2002 DNH 8 ( D.N.H. 2002) (“... the better rule is
that service within 120 days under Fed. R. Civ. P. 4(m), in a bankruptcy adversary proceeding,
means proper service under Fed. R. Bankr. P. 7004(e) within 120 days of filing the complaint. That
is, a defendant must be served within ten days of the issuance of the summons, and within 120 days
of filing the complaint.”)

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In view of the foregoing, Defendant's motion for summary judgment is hereby DENIED and Operating Partners' motion to dismiss is hereby DENIED.
A pre-trial is scheduled for April 12,2010 at 10:00 am Judgment shall be entered accordingly. In San Juan, Puerto Rico, this 242 February
day of January 2010.
Campus ENRIQUE'S. LAMOUTTE U.S. Bankruptcy Judge
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