VAZQUEZ LABOY et al v. DORAL MORTGAGE CORPORATION, JOHN DOE AND RICHARD R

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IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF PUERTO RICO
In re: 	:
:
LUIS G. VAZQUEZ LABOY 	: 	Case No. 00-00852(GAC)
CARMEN D. GARCIA CALDERON 	:
:
Debtors 	: 	Chapter 7
___________________________________:
:
LUIS G. VAZQUEZ LABOY 	:
CARMEN D. GARCIA CALDERON 	:
:
:
Plaintiffs 	:
:
v. 	: 	Adv. No. 01-00077
:
DORAL MORTGAGE CORPORATION, 	:
JONH DOE AND RICHARD DOE 	:
:
Defendants 	:
___________________________________:
DECISION AND ORDER
In 	the 	present 	case, 	the 	debtors, 	Luis 	Vazquez 	Laboy 	and
Carmen 	Garcia 	Calderon, 	filed 	an 	adversary 	proceeding 	seeking: 	a
determination 	that 	Doral 	Mortgage 	Corporation 	(“Doral”) 	violated
the automatic stay; an order requiring Doral to withdraw a mortgage
deed 	registered 	postpetition; 	surrender 	of 	the 	mortgage 	for
cancellation 	and; 	$25,0000.00 	in 	actual 	damages, 	$75,000.00 	in
punitive 	damages, 	costs 	and 	attorney’s 	fees 	(Docket 	#1). 	The
debtors 	contend 	that 	Doral 	perfected 	a 	prepetition 	lien 	on 	the
debtors’ 	principal 	residence 	on 	December 	1, 	2000, 	after 	the
bankruptcy petition was filed.
In the present case, two Decisions and Orders were entered. In
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the 	first 	opinion, 	the 	adversary 	proceeding 	was 	dismissed, 	as
requested 	by 	Doral. 	The 	Court 	concluded 	that 	the 	postpetition
actions 	by 	Doral 	to 	perfect 	its 	lien 	were 	excepted 	from 	the
automatic 	stay 	pursuant 	to 	11 	U.S.C. 	§ 	362(b)(3) 	because 	the
debtors did not notify Doral that the deed was withdrawn because of
deficiencies (Docket 	#87). 	Then, 	a 	second 	Decision 	and 	Order 	was
entered, 	vacating 	the 	initial 	Decision 	and 	Order. 	The 	Court
concluded 	that 	the 	postpetition 	actions 	by 	Doral 	to 	perfect 	its
lien were prohibited by the automatic stay of 11 U.S.C. § 362(a)(4)
because 	Doral 	had 	notice 	before 	the 	petition 	was 	filed 	that 	its
lien 	had 	not 	been 	recorded 	because 	of 	the 	deficiencies 	(Docket
#133). After the Court entered the second Decision and Order, the
debtors filed a motion requesting a hearing on damages for Doral’s
violation of the automatic stay (Docket #139), to which Doral filed
an opposition (Docket #145).
I. Background
The pertinent background facts, outlined by the Court in the
initial 	Decision 	and 	Order, 	are 	that 	the 	debtors 	purchased 	a
property on December 17, 1996, and presented a conveyance deed to
the 	Registry 	of 	Property 	on 	December 	30, 	1996. 	Subsequently, 	on
February 15, 1997, less than sixty days after the presentation of
the conveyance deed, the debtors borrowed $25,000.00 from Doral and
subscribed 	a 	first 	mortgage 	in 	its 	favor, 	which 	was 	presented 	to
the Registry of Property. The debtors were notified of deficiencies
in the conveyance deed and on May 5, 1997, the conveyance deed was
withdrawn 	by 	them. 	The 	Court 	concluded 	that 	Doral’s 	perfection
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would have become effective against previously acquired rights in
the property, but for the debtors’ wrongful act in withdrawing the
conveyance deed without notifying Doral or Canales Law Offices, the
firm 	that 	notarized 	the 	mortgage 	deed. 	Likewise, 	the 	Court
concluded 	that 	the 	postpetition 	acts 	of 	Doral 	and 	Canales 	Law
Offices 	were 	excepted 	from 	the 	automatic 	stay 	by 	11 	U.S.C.
§362(b)(3).
The 	Court 	in 	reconsidering 	its 	initial 	decision 	and 	order,
found that Doral was aware, prior to the filing of the petition for
bankruptcy, that its lien had not been perfected. Thus, the Court
ordered 	Doral 	to 	withdraw 	the 	mortgage 	deed 	and 	surrender 	it 	for
cancellation to the debtors.
An untimely Notice of Appeal was filed on November 13, 2006,
by 	the 	debtors 	(Docket 	#140). 	On 	November 	17, 	2007, 	the 	debtors
filed 	a 	motion 	requesting 	a 	hearing 	to 	determine 	damages 	and
punitive damages (Docket #141). On December 14, 2006, Doral filed
an 	opposition 	to 	the 	debtors’ 	motion 	requesting 	a 	hearing 	on
damages (Docket #145).
On 	January 	30, 	2007, 	the 	appeal 	was 	dismissed. 	On 	the 	same
day, 	Doral 	filed 	a 	motion 	in 	opposition 	to 	motion 	requesting
scheduling 	conference 	and/or 	motion 	to 	strike 	(docket 	#153). 	On
June 22, 2007, a hearing was held, where the parties argued for and
against debtors’ request to further amend the Court’s September 21,
2006 	Decision 	and 	Order, 	seeking 	to 	include 	an 	award 	of 	actual
damages 	and 	attorney’s 	fees 	(Docket 	#164). 	After 	the 	hearing 	was
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held, 	the 	Court 	ordered 	Doral 	to 	file 	a 	brief 	and 	the 	debtors 	to
reply within the twenty days after Doral filed the brief. On July
23, 	2007, 	Doral 	filed 	a 	memorandum 	of 	law 	with 	some 	exhibits
(Docket 	#167). 	On 	August 	20, 	2007, 	the 	debtors 	filed 	their
memorandum of law (Docket #168). On September 4, 2007, Doral filed
a reply to the debtors’ memorandum of law (Docket #173).
II. Arguments presented by the parties
A. Debtors
The 	debtors 	assert 	that 	the 	Decision 	and 	Order 	rendered 	in
this adversary proceeding is not a final judgment on the merits for
which any jurisdictional term applies: (1) 	because it could only
be 	construed 	as 	an 	order 	and 	not 	a 	judgment, 	(2) 	because 	the
Decision 	and 	Order 	was 	the 	result 	of 	a 	motion 	for 	the
reconsideration of an order dismissing the complaint, (3) 	because
the Clerk did not enter a judgment pursuant to Federal Bankruptcy
Rule 	9021, 	(4) 	because 	it 	failed 	to 	address 	and 	dismiss 	Doral’s
counterclaim, 	Canales 	Idrach’s 	counterclaim 	and 	the 	amended
counterclaim, (5) because it did not provide for all the remedies
requested by the debtors in their amended complaint, mainly actual
damages, punitive damages, a cease and desist order plus, costs and
attorney’s fees as provided by 11 U.S.C. § 362(h).
The 	debtors 	assert 	that 	the 	Court 	provided 	only 	one 	of 	the
remedies sought, which was an order directing Doral to withdraw the
presented 	deed 	and 	surrender 	the 	mortgage 	note 	for 	cancellation.
Thus, 	the 	debtors 	request 	that 	the 	Court 	grant 	their 	motion 	to
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schedule 	an 	evidentiary 	hearing 	to 	determine 	an 	award 	of 	damages
for Doral’s violation of the automatic stay.
B. Doral
Doral 	contends 	that: 	(1) 	the 	Decision 	and 	Order 	is 	a 	final
decision, which triggered all post-judgment jurisdictional terms;
(2) that the debtors did not file a timely motion to amend judgment
under Federal Rule of Civil Procedure 59(e), nor a timely appeal of
said 	final 	decision; 	(3) 	and 	that 	the 	debtors’ 	motion 	for
reconsideration of the Decision and Order did not comply with the
extraordinary 	requirements 	of 	Federal 	Rule 	of 	Civil 	Procedure
60(b).
Doral 	also 	contends 	that 	the 	Decision 	and 	Order 	issued 	is 	a
final judgment as to all matters decided therein, irrespective of
any 	remaining 	causes 	of 	action 	in 	this 	case, 	because 	it 	resolved
the 	debtors’ 	motion 	for 	summary 	judgment, 	granting 	the 	correct
legal remedy in light of the Court’s findings, even if it did not
grant debtors all of their sought remedies. Further, Doral contends
that 	the 	requirements 	of 	Federal 	Bankruptcy 	Rule 	9021, 	regarding
dispositive 	mandates, 	does 	not 	require 	a 	separate 	document, 	as
already 	resolved 	in 	this 	case 	by 	the 	First 	Circuit 	Bankruptcy
Appellate 	Panel. 	Finally, 	that 	there 	were 	unresolved 	claims
involving other parties does not preclude the Decision and Order’s
finality as to the stay violation and remedy allowed.
Doral 	asserts 	that 	there 	is 	no 	evidence 	in 	the 	record 	that
could support the finding of a willful violation of the automatic
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stay. Doral further contends that the debtors’ claim for damages is
unsubstantiated 	because: 	(1) 	the 	Notary 	Public’s 	presentation 	of
the mortgage deed for recordation could not be considered a willful
violation of the automatic stay by Doral, since there is no agency
or 	privity 	relationship 	between 	the 	Notary 	Public 	and 	Doral; 	and
because 	(2) 	the 	presentation 	of 	a 	mortgage 	deed 	for 	recordation
after a bankruptcy filing cannot generally be considered a willful
damaging act by a creditor, regardless of the mortgage’s nullity.
III. Discussion
There 	are 	two 	matters 	pending 	before 	the 	Court, 	the 	first
matter is if the last Decision and Order (docket #133) is final as
to 	prevent 	the 	Court 	from 	scheduling 	an 	evidentiary 	hearing 	and
determining 	damages 	for 	Doral’s 	violation 	of 	the 	automatic 	stay,
and 	secondly, 	if 	the 	debtors 	are 	entitled 	to 	seek 	an 	award 	of
damages for the violation of the automatic stay by Doral.
A. Finality of Decision and Order
In the case of 	Riley v. Kennedy, 128 S.Ct. 1970 (2008), the
United 	Sates 	Supreme 	Court 	again 	defined 	a 	final 	Judgment. 	The
Supreme 	Court 	held 	that 	a 	final 	judgment 	is 	“‘one 	which 	ends 	the
litigation on the merits and leaves nothing for the court to do but
execute 	the 	judgment.’” 	Riley 	v. 	Kennedy, 	128 	S.Ct. 	1970, 	1981
(2008) (quoting Catlin v. United States, 324 U.S. 229, 233 (1945)).
The 	Supreme 	Court 	further 	stated: 	“[w]e 	have 	long 	held 	that 	an
order resolving liability without addressing a plaintiff's requests
for 	relief 	is 	not 	final.” 	Riley 	v. 	Kennedy, 	128 	S.Ct. 	1970, 	1981
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(2008)(citing 	Liberty 	Mutual 	Ins. 	Co. 	v. 	Wetzel, 	424 	U.S. 	737
(1976)).
Federal Rule of Civil Procedure 	54(b), titled “Judgement Upon
Multiple Claims or Involving Multiple Parties” provides that:
When more than one claim for relief is presented in
an action, whether as a claim, counterclaim, cross-claim,
or 	third-party 	claim, 	or 	when 	multiple 	parties 	are
involved, 	the 	court 	may 	direct 	the 	entry 	of 	a 	final
judgment as to one or more but fewer than all the claims
or parties only upon a express determination that there
is no just reason for delay and upon an express direction
for 	the 	entry 	of 	judgment. 	In 	the 	absence 	of 	such
determination and direction, any order or other form of
decision, 	however 	designated, 	which 	adjudicates 	fewer
than 	all 	the 	claims 	or 	the 	rights 	and 	liabilities 	of
fewer than all the parties shall not terminate the action
as 	to 	any 	of 	the 	claims 	or 	parties, 	and 	the 	order 	or
other form of decision is subject to revision at any time
before the entry of judgment adjudicating all the claims
and 	the 	rights 	and 	liabilities 	of 	all 	the 	parties.
(emphasis added)
Federal Rules of Civil Procedure 54(b).
In 	the 	present 	case, 	the 	debtors 	requested 	that 	the 	Court
award $25,000.00 in actual damages, $75,000.00 in punitive damages
plus, cost and attorney’s fees (Docket #1). They also requested an
order 	from 	the 	Court 	directing 	Doral 	to 	cease 	and 	desist 	from
violating the automatic stay, and for an order directing Doral to
withdraw 	its 	mortgage 	deed 	and 	surrender 	it 	for 	cancellation.
(Docket #1)
In the first Decision and Order, the adversary proceeding was
dismissed. 	Then, 	after 	the 	debtors 	sought 	reconsideration, 	the
Court vacated its first Decision and Order and held that Doral in
fact violated the automatic stay. The Court then ordered Doral to
withdraw its mortgage deed and surrender it for cancellation. After
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the Decision and Order was entered, no further action was taken by
the Court, a judgment was not entered, and the adversary proceeding
was not closed.
The Court finds that it did not adjudicate all the claims, or
rights 	and 	liabilities 	that 	the 	debtors 	requested 	in 	their
complaint. 	Thus, 	the 	Court 	concludes 	that 	the 	Decision 	and 	Order
entered is final but, only as to the matters therein decided. This
being, 	that 	the 	registrar 	of 	the 	mortgage 	violated 	the 	automatic
stay, 	and 	that 	Doral 	had 	to 	withdraw 	its 	mortgage 	deed 	and
surrender it for cancellation. 	The Court concludes that because it
did 	not 	resolve 	all 	the 	remedies 	or 	claims 	requested 	in 	the
complaint this being: the request for $25,000.00 in actual damages,
$75,000.00 in punitive damages, costs and attorney’s fees, it can
now 	decide 	if 	the 	debtors 	are 	entitled 	to 	damages 	because 	of
Doral’s violation of the automatic stay.
B. The Automatic Stay and Entitlement to Damages
The automatic stay provision is one of the fundamental debtor
protections 	in 	the 	Bankruptcy 	Code. 	It 	gives 	the 	debtor 	a
“breathing 	spell” 	from 	creditors 	and 	it 	stops 	all 	collection
efforts, all harassment, and all foreclosure actions. H.R.Rep. No.
95-595, 	95th 	Cong. 	1st 	Sess. 	340-342 	(1977); 	S. 	Rep. 	No.989, 	95 th
Cong., 2d Sess. 54-55 (1978), reprinted in 1978 U.S.C.C.A.N. 5787,
5840, 	6296-97. 	“It 	allows 	the 	debtor 	to 	attempt 	a 	repayment 	or
reorganization 	plan 	or 	simply 	to 	be 	relieved 	of 	the 	financial
pressures that drove him into bankruptcy.” Id.
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The automatic stay provision specifically outlines those acts
which 	are 	prohibited, 	including 	“any 	act 	to 	create, 	perfect, 	or
enforce 	any 	lien 	against 	property 	of 	the 	estate.” 	11 	U.S.C. 	§
362(a)(4). 	The 	automatic 	stay 	also 	prohibits 	“any 	act 	to 	create,
perfect, or enforce against property of the debtor any lien to the
extent 	that 	such 	lien 	secures 	a 	claim 	that 	arose 	before 	the
commencement of the case . . .” 11 U.S.C. § 362(a)(5).
When 	a 	creditor 	willfully 	acts 	after 	the 	filing 	of 	a
bankruptcy petition, and without authorization from the Court, to
enforce 	any 	lien 	against 	the 	debtor 	and 	the 	action 	causes 	the
debtor 	injury, 	the 	debtor 	may 	recover 	actual 	damages, 	including
costs 	and 	attorney's 	fees, 	and, 	in 	appropriate 	circumstances,
punitive damages. 	11 U.S.C. § 362(h). 	The burden is on the debtor
to 	prove 	by 	a 	preponderance 	of 	the 	evidence 	that 	they 	suffered
damages as a result of the stay violation. In re Heghmann, 316 B.R.
at 403-404 (1st Cir. B.A.P. 2004).
The 	present 	case 	is 	more 	like 	an 	avoidance 	action, 	in 	which
Doral tried to perfect a lien postpetition, than a common violation
of the automatic stay. The Bankruptcy Appellate Panel for the 6th
Circuit 	explained that “the fact that avoidance and recovery are
distinct suggests that avoidance need not always trigger recovery.”
In re Burns, 322 F.3d 421, 427 (6th Cir. 2003). Although in Burns,
the trustee filed an adversary proceeding to avoid a mortgage lien,
invoking §§ 547 and 550, the circumstances are similar because the
trustee in Burns also requested that the court award damages. The
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Bankruptcy 	Appellate 	Panel 	for 	the 	6th 	Circuit 	held 	that 	“the
remedy of recovery is only necessary when the remedy of avoidance
is inadequate.” In re Burns, 322 F.3d 421, 427 (6th Cir. 2003). The
Appellate Panel concluded “that avoidance of a defective mortgage
is an adequate remedy in and of itself.” Id.
Likewise, 	in 	the 	case 	of 	In 	re 	Sickels, 	the 	parties 	were 	in
agreement that a violation of the automatic stay had occurred, and
that the lien was void because it was perfected postpetition. In re
Sickels, 	___ 	B.R. 	___, 	2008 	WL 	2745567 	at 	p.4 	(Bankr.N.D.Iowa
2008). 	The 	parties, 	however, 	disputed 	whether 	the 	trustee 	was
entitled 	to 	a 	money 	judgment 	under 	§ 	550(a). 	Id. 	The 	Court
concluded 	that 	the 	trustee 	was 	not 	entitled 	to 	further 	recovery
under § 550(a) in the form of a money judgment. Id.
In the present case, the debtors are requesting $25,000.00 in
actual 	damages, 	$75,000.00 	in 	punitive 	damages, 	costs 	and
attorney’s 	fees. 	The 	debtors 	through 	the 	present 	adversary
proceeding had the opportunity to litigate the validity of Doral’s
lien 	and 	won. 	The 	Court 	concludes 	that 	by 	avoiding 	what 	would
otherwise have been a secured lien in favor of Doral in the amount
of $25,000.00, the debtors have obtained an adequate remedy in and
of 	itself. 	The 	Court 	also 	concludes 	that 	neither 	of 	the 	parties
were 	frivolous 	in 	asserting 	their 	respective 	claims 	and 	thus, 	no
costs nor attorney’s fees will be awarded.
ORDER
WHEREFORE, 	IT 	IS 	ORDERED 	that 	the 	Motion 	for 	an 	evidentiary
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hearing (Docket #139), shall be, and it is hereby, Denied.
SO ORDERED.
San Juan, Puerto Rico, this 8th day of October 2008.
s/ Gerardo A. Carlo-Altieri
__________________________
GERARDO A. CARLO-ALTIERI
Chief, U.S. Bankruptcy Judge
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