JOSE DE JESUS GONZALEZ and NITXA GARCIA REYES

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IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF PUERTO RICO
In re: :
:
JOSE DE JESUS GONZALEZ, : Case No. 02-05485 (GAC)
NITXA GARCIA REYES, :
:
Debtors : Chapter 7
___________________________________:
DECISION AND ORDER
The debtors filed a petition under Chapter 13 of the
Bankruptcy Code on May 22, 2002. The case was initially assigned
to Judge Enrique S. Lamoutte. United Surety & Indemnity (“United
Surety”) filed a notice of appearance on September 17, 2002. The
debtors’ original attorney, Victor Thomas, filed a motion to resign
representation on December 20, 2002, which was granted on January
3, 2003. The case was converted to Chapter 7 on January 31, 2003.
Upon the debtors’ request, on March 10, 2003, the Court granted the
debtors thirty days to seek legal representation. Attorney Thomas
Jimmy Rosario filed a notice of appearance on the debtors’ behalf
on March 18, 2003. The trustee filed various notices of
abandonment and the debtors received a discharge on May 30, 2003.
One of the real properties of the estate was not abandoned and the
trustee was prematurely discharged, since the property had not yet
been administered, and the estate was closed on June 9, 2003.
Motions to reopen the case were filed by the debtors, the
trustee and United Surety and the case was reopened on August 18,
2003. Attorney Rosario was allowed to withdraw as debtors’ counsel
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on August 18, 2003 and the trustee, Antonio Fiol Matta, resigned on
December 12, 2003. On December 18, 2003, Wilfredo Segarra Miranda
was appointed as interim trustee. The trustee filed a notice of
need to file proof of claim due to recovery of assets on March 12,
2004. On March 25, 2004, United Surety filed a motion seeking to
conduct an examination of the debtors pursuant to Fed. R. Bankr. P.
2004. The request was granted. Thereafter, the debtors again
sought permission to hire new counsel. On June 7, 2005, Judge
Lamoutte entered an order recusing himself from the case. The case
was reassigned to this Court on August 25, 2005. On October 7,
2005, the debtors were granted twenty days to file a translation of
a motion previously filed in Spanish and they were allowed twenty
days to appoint new counsel. The debtors were also directed to
appear at a deposition requested by United Surety. The debtors
filed the translated document (dkt. #131) and informed that they
were available for a deposition but that they had been unable to
retain an attorney (dkt. #132). The debtors requested additional
time to retain counsel.
United Surety filed a motion to dismiss on April 17, 2006,
based on the debtors failure to appear at the 2004 examination with
counsel (dkt. #144). United Surety’s motion did not provide notice
that the case would be dismissed unless an opposition was filed.
The trustee also filed a motion to dismiss on May 3, 2006, based on
the debtors’ failure to produce documents related to a lawsuit, in
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which the debtors are the plaintiffs (dkt. #148). The trustee’s
motion indicates that it was notified to the U.S. Trustee’s Office,
to all creditors and other parties in interest. The trustee’s
motion, likewise, did not provide notice that the case would be
dismissed unless an opposition was filed.
The Court entered an order of dismissal on June 19, 2006 (dkt.
#153). The order indicates that the dismissal is based on the
debtors’ failure to oppose United Surety’s motion to dismiss, but
then references the docket number of the trustee’s motion to
dismiss.
The debtors filed a motion for reconsideration that was
docketed with the bankruptcy court on July 13, 2006 (dkt. #162).
The face of the motion, however, shows a crossed out docketing
stamp with the date of June 23, 2006 with the Clerk’s Office of the
U.S. District Court. The motion is dated June 26, 2006. The
debtors include copies of the documents requested by the Chapter 7
trustee and a reply to United Surety’s motion to dismiss,
indicating that they appeared at the 2004 examination, but did not
appear with an attorney, because they do not have the financial
resources to hire legal counsel. The debtor, Jose de Jesus
Gonzalez, indicated that he was unemployed.
United Surety filed an opposition to the motion for
reconsideration (dkt. #164). United Surety argues that the debtors
are time barred from obtaining reconsideration of the dismissal and
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that the debtors have unreasonably delayed the proceedings by not
appearing with counsel at the 2004 examination.
A hearing was scheduled for December 15, 2006 and subsequently
rescheduled for February 1, 2007. Attorney Lizette Morales Vidal
filed a notice of appearance on the debtors’ behalf on December 20,
2006 and filed a motion requesting that the dismissal be set aside
for lack of adequate notice to the debtors (dkt. #170). United
Surety responded with a request for revocation of the debtors’
discharge (dkt. #171), to which the debtors responded (dkt. #172).
The day prior to the hearing, the debtors filed a third request to
set aside the dismissal (dkt. #173). At the hearing, the matter
was taken under advisement.
DISCUSSION
At the outset, the Court notes that it is unfortunate that
this case has been derailed from the normal course of proceedings.
The debtors have had three attorneys and numerous pro se
appearances. There have also been three trustees, as well as two
judges, who have handled the case. The path that the case has
taken has not benefitted the debtors, nor their creditors.
The debtors’ initial motion for reconsideration could probably
be considered as timely pursuant to Fed. R. Bankr. P. 9023, which
makes Fed. R. Civ. P. 59 applicable. This Rule states that “[a]ny
motion to alter or amend a judgment must be filed no later than 10
days after entry of the judgment.” Fed. R. Civ. P. 59(e).
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Apparently, and in error, the debtors initially filed their motion
with the district court on June 23, 2006, four days after the
dismissal.
As a motion under Fed. R. Civ. P. 60, made applicable by Fed.
R. Bankr. P. 9024, the debtors must have filed their motion within
a “reasonable time” and for and “reason justifying relief from the
operation of the judgment.” Fed. R. Civ. P. 60(b)(6).
The Court will not dwell on the significance of the debtors’
initial filing with the district court, since irrespective of
whether the request for reconsideration was made pursuant to Fed.
R. Civ. P. 59 or pursuant to Fed. R. Civ. P. 60, the Court
concludes that the request must be granted on due process grounds.
It is unclear which motion was granted in the order of
dismissal. The order indicates that United Surety’s motion was
granted, but the docket of reference is the trustee’s motion to
dismiss. While United Surety’s motion appears to have been
notified to the debtors, the trustee’s motion does not so indicate.
Neither motion indicated that the case would be dismissed unless an
opposition was filed.
The Bankruptcy Code provides that a Chapter 7 case may be
dismissed “only after notice and a hearing and only for cause.” 11
U.S.C. § 707(a). The procedure for dismissal indicates that a
motion to dismiss is governed by Fed. R. Bankr. P. 9014. See Fed.
R. Bankr. P. 1017(f)(1). In turn, the Federal Rules of Bankruptcy
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Procedure governing contested matters, provide that “relief shall
be requested by motion, and reasonable notice and opportunity for
hearing shall be afforded the party against whom relief is sought.
No response is required under this rule unless the court orders an
answer to a motion.” Fed. R. Bankr. P. 9014(a).
Because neither United Surety’s motion to dismiss, nor the
trustee’s motion, placed the debtors on notice that their petition
would be dismissed if they failed to file a response, the statutory
and procedural requirements for notice were not satisfied.
Fundamental concepts of procedural due process require notice to
the debtor and an opportunity to be heard prior to dismissal. In
re Muessel, 292 B.R. 712, 717-18 (B.A.P. 1st Cir. 2003). Because
the debtors were denied due process, their motion for
reconsideration of the order of dismissal will be granted.
United Surety has requested revocation of the debtors’
discharge. A request to revoke a discharge requires an adversary
proceeding pursuant to Fed. R. Bankr. P. 7001(4). Because United
Surety failed to comply with the requirement of filing an adversary
proceeding, the request will be denied without prejudice.
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ORDER
WHEREFORE IT IS ORDERED that the order of dismissal (dkt.
#153) is vacated.
IT IS FURTHER ORDERED that the trustee is granted twenty (20)
days to inform the status of the case.
IT IS FURTHER ORDERED that United Surety & Indemnity’s request
for revocation of discharge is DENIED WITHOUT PREJUDICE.
SO ORDERED.
San Juan, Puerto Rico, this 31st day of August, 2007.
S/ Gerardo A. Carlo
_________________________
GERARDO A. CARLO
Chief, U.S. Bankruptcy Judge
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