ARECIBO COMM HEALTH CARE INC [RM]

IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF PUERTO RICO
IN RE: 	:
:
ARECIBO COMMUNITY HEALTH 	: 	CASE NO. 91-04594 (GAC)
CARE, INC. 	:
:
Debtor 	: 	CHAPTER 7
___________________________________:
DECISION AND ORDER
I. 	Procedural Background
Pending 	before 	the 	Court 	is 	a 	motion 	for 	summary 	judgment
filed by the debtor Arecibo Community Health Care, Inc. (“debtor”)
(Docket 	#568), 	an 	opposition 	filed 	by 	the 	Treasury 	Department 	of
the Commonwealth of Puerto Rico (“Treasury”) (Docket #579) and the
Trustee’s position regarding debtor’s motion for summary judgment
(Docket 	#580). 	On 	July 	12, 	1991, 	the 	debtor 	filed 	a 	voluntary
petition 	under 	Chapter 	11 	of 	the 	Bankruptcy 	Code 	(Docket 	#1). 	In
the Claims Register, Treasury appears filing five different proofs
of claim.
On October 28, 1991, Treasury filed Proof of Claim #38, with
an 	unsecured 	priority 	in 	the 	amount 	of 	$364.24, 	and 	an 	unsecured
nonpriority 	in 	the 	amount 	of 	$22.43, 	for 	the 	total 	amount 	of
$386.67, 	for 	taxes 	owed 	relating 	to 	year 	1989. 	On 	December 	30,
1992, 	Treasury 	filed 	a 	second 	Proof 	of 	Claim 	#257, 	with 	an
unsecured priority in the amount of $513,411.08, and an unsecured
nonpriority 	the 	amount 	of 	$209,340.16, 	for 	the 	total 	amount 	of
$722,751.24, for taxes owed relating to years 1985-1990. On April
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26, 	1993, 	Treasury 	filed 	a 	third 	Proof 	of 	Claim 	#260, 	with 	an
secured 	priority 	in 	the 	amount 	of 	$513,046.84 	and 	an 	unsecured
priority 	the 	amount 	of 	$219,470.13, 	for 	the 	total 	amount 	of
$732,516.97, for taxes owed relating to years 1985-1990. On May 12,
1994, 	Treasury 	filed 	a 	fourth 	Proof 	of 	Claim 	#282, 	with 	an
unsecured nonpriority in the amount of $880,596.08, for taxes owed
relating to years 1985-1990.
On 	March 	19, 	1996, 	the 	Court 	entered 	an 	order 	disallowing
Proof 	of 	Claim 	#268 	and 	holding 	that 	claims 	#38, 	#257, 	#260 	and
#282 	were 	the 	subject 	of 	an 	administrative 	proceeding 	pending
before the Puerto Rico Department of Treasury and that payment was
deferred 	pending 	resolution 	of 	the 	proceedings 	(Docket 	#302). 	On
February 25, 1997, a motion was filed by the trustee submitting a
settlement agreement under seal and requesting permission from the
Court 	to 	reimburse 	payment 	on 	behalf 	of 	the 	estate 	to 	the 	debtor
(Docket #348). On March 25, 1997, an Order was entered granting the
settlement agreement unless the U.S. Trustee or a party in interest
filed an objection within thirty days (Docket #348). No objections
were filed.
On 	December 	16, 	2004, 	seven 	years 	later, 	the 	debtor 	filed 	a
motion 	requesting 	turnover 	of 	assets 	asserting 	that 	all 	the
creditors 	had 	been 	paid 	(Docket 	#498 	and 	#511). 	On 	December 	6,
2005, the Court entered an order granting the reimbursement to the
debtor, unless an objection was filed by Treasury (Docket #528). On
December 	16, 	2005, 	the 	trustee 	filed 	a 	Notice 	to 	the 	Treasury
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asserting that it was close to making a final distribution to all
parties 	in 	interest 	and 	that 	there 	was 	$2,000,000.000 	to 	be
reimbursed to the debtor (Docket #527).
On March 3, 2006, the Treasury filed a motion to comply with
docket #527, informing that it evaluated the case and attaching a
Notice of Indebtness in the amount of $9,762,755.12 (Docket #547).
On 	the 	same 	day, 	Treasury 	filed 	a 	fifth 	amended 	Proof 	of 	Claim
#686, 	with 	an 	unsecured 	nonpriority 	in 	the 	amount 	of 	$373,496.70
and 	an 	unsecured 	priority 	the 	amount 	of 	$9,389,259.42, 	for 	the
total 	amount 	of 	$9,762,755.12, 	for 	taxes 	owed 	relating 	to 	years
1985-1990. On April 18, 2006, the Trustee filed an objection to the
amended Proof of Claim #686 (Docket #554). On April 21, 2006, the
debtor filed an objection to Proof of Claim #686 (Docket #555). On
June 7, 2006, the Treasury filed a reply to both objections (Docket
#563).
On 	August 	14, 	2006, 	the 	debtor 	filed 	a 	motion 	for 	summary
judgment (Docket #568). On September 22, 2006, the Treasury filed
an 	opposition 	(Docket 	#579). 	Finally, 	the 	Trustee 	filed 	a 	motion
stating his position regarding debtor’s motion for summary judgment
(Docket #580).
II. 	Factual Background
Treasury filed five proofs of claim with different amounts. On
February 25, 1997, a settlement agreement under seal was filed with
the Court (Docket #348). The settlement was approved by the Court
and no objections were filed (Docket #348). Then, on March 3, 2006,
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nine years after the settlement agreement, when the Court granted
the 	debtor’s 	request 	for 	reimbursement 	of 	the 	estate 	funds,
Treasury 	filed 	a 	Notice 	of 	Indebtness 	and 	amended 	Proof 	of 	Claim
#686 in the amount of $9,762,755.12 (Docket #547).
III. Arguments of the Parties
A. 	Debtor
The 	debtor 	contends 	that 	it 	entered 	into 	a 	settlement
agreement with Treasury on December 18, 1996, with respect to the
same amounts now claimed in Proof of Claim #686, for tax years 1985
to 1990. It also asserts that the stipulation was approved by the
Court on March 25, 1997, and because the claim has been settled and
the 	matter 	has 	already 	been 	adjudicated 	by 	the 	court, 	it 	is 	res
judicata. Thus, Treasury fails to state a claim upon which relief
may be granted.
The 	debtor 	submits 	the 	settlement 	agreement 	as 	an 	exhibit,
asserting that it covers the same amounts now claimed in Proof of
Claim #686 (Docket #568, Exhibit A). The debtor maintains that it
tendered a check for $100,000.00 to the Treasury in full payment of
the 	taxes 	owed 	from 	1985 	to 	1990 	(Docket 	#568, 	Exhibit 	B). 	The
debtor asserts that after it paid the Treasury, it issued a receipt
in the amount of $100,000.00 (Docket #568, Exhibit C) and that on
January 	28, 	1997, 	the 	Treasury 	issued 	a 	statement 	of 	account
showing that there was no debt for the tax period of 1985 to 1990
(Docket #568, Exhibit D). The debtor also asserts that the Trustee
submitted the stipulation with Treasury for approval by the Court
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and 	the 	Court 	approved 	the 	stipulation 	on 	March 	25, 	1997 	(Docket
#348). Finally, the debtor maintains that after the filing of Proof
of Claim #686, on March 17, 2006, Treasury issued a certificate of
no 	debt 	with 	respect 	to 	the 	amounts 	now 	claimed 	(Docket 	#568,
Exhibit 	E). 	Thus, 	the 	debtor 	concludes 	that 	there 	is 	no 	genuine
issue 	of 	material 	fact 	and 	that 	the 	motion 	for 	summary 	judgment
should be granted.
B. 	Treasury
Treasury 	asserts 	that 	Proof 	of 	Claim 	#686 	filed 	on 	March 	3,
2006, amended Proof of Claim #257 filed on December 30, 1992, and
Proof 	of 	Claim 	#38 	filed 	on 	October 	28, 	1991. 	Thus, 	the 	amended
Proof 	of 	Claim 	#686 	supersedes 	all 	other 	claims 	filed 	and 	it 	is
considered timely filed.
Treasury 	contends 	that 	even 	though 	Treasury’s 	officers
subscribed an offer and compromise agreement reducing the amount of
Treasury’s pre-petition priority tax liability, the agreement was
an administrative error because it failed to comply with the legal
requirements under the Internal Revenue Code of Puerto Rico. Thus,
Treasury states that the agreement is an administrative error and
it is not impeded from correcting the mistake. It asserts that the
ample 	ability 	to 	perform 	this 	correction 	was 	reaffirmed 	by 	the
Supreme 	Court 	of 	Puerto 	Rico 	in 	Santiago 	Declet 	y 	Albanesi 	v.
Departamento 	de 	la 	Familia, 	2001 	J.T.S. 	8, 	2001. 	In 	citing 	the
Supreme 	Court 	of 	Puerto 	Rico, 	Treasury 	states 	that: 	“an
administrative error does not create a rule of law that obliges an
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agency and impedes the correction.”
Treasury asserts that: “[o]rdinarily, unlawful or ultra vires
promises 	are 	nonbinding 	when 	made 	by 	public 	officials 	… 	when
functioning in their governmental capacity." Freeman v. Poling, 175
W.Va. 814 (W.Va. 1985). Thus, the estoppel doctrine cannot apply to
a 	governmental 	agency 	because 	there 	is 	a 	highly 	significant
rationale, public interest and a barricade that defends the rights
of 	the 	collectivity. 	It 	also 	contends 	that 	Puerto 	Rican
jurisprudence 	has 	adopted 	the 	collateral 	estoppel 	doctrine 	as 	a
version of the res judicata doctrine.
Treasury concludes that the equitable doctrines of collateral
estoppel 	and 	res 	judicata, 	are 	inapplicable 	to 	the 	case 	at 	bar
because these doctrines ordinarily are not applicable against the
state or governmental entities, particularly, where the controversy
is vested with an utmost public interest: the collection of taxes.
Finally, 	Treasury 	asserts 	that 	the 	offer 	and 	compromise
agreement 	signed 	on 	December 	18, 	1996, 	is 	undergoing 	an
administrative 	investigation 	which 	may 	lead 	to 	its 	invalidation.
Thus, Treasury requests that the Court allow the amended Proof of
Claim #686. Treasury contends there are material facts in dispute
and 	thus, 	the 	debtor’s 	motion 	for 	summary 	judgment 	should 	be
denied.
C. 	Trustee
The trustee objects to the amended Proof of Claim #686 because
he 	asserts 	that 	the 	original 	claim 	was 	paid 	through 	a 	settlement
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agreement executed between debtor’s president and the Treasury in
December of 1996.
The 	trustee 	has 	two 	main 	concerns. 	The 	first 	relates 	to 	the
availability of funds to pay the amended claim and the second deals
with 	the 	issues 	as 	to 	whether 	the 	claim 	may 	be 	filed 	or 	amended
after partial distributions have been made. The trustee states that
if 	the 	claim 	is 	allowed, 	a 	potential 	administrative 	crisis 	may
result because the claim amount exceeds the available funds, as it
would 	be 	paid 	under 	11 	U.S.C. 	§726(a) 	as 	a 	priority. 	The 	trustee
asserts that the problem arises with the distributions made before
the 	claim 	was 	amended. 	These 	distributions 	include 	unsecured
general claims and dividends to stockholders. The trustee maintains
that, 	in 	theory, 	he 	would 	have 	to 	recover 	the 	funds 	already
distributed, which may be impossible to accomplish.
The trustee also asserts that timely filed proofs of claim are
prima 	facie 	evidence 	of 	the 	validity 	and 	amount 	of 	the 	claim 	and
that amendments to claims are retroactive to the original date of
filing. 	Nonetheless, 	the 	court 	always 	has 	the 	ability 	to 	rule 	on
claims allowability, timeliness and the extent of the bar dates. He
asserts 	that 	a 	problem 	exists 	regarding 	the 	timeliness 	of 	the
claim, 	regardless 	of 	the 	appropriateness 	of 	the 	amendment. 	The
trustee 	argues 	that 	the 	reconsideration 	of 	both 	allowed 	and
disallowed 	claims 	may 	occur 	at 	any 	time 	before 	a 	case 	is 	closed
but, 	in 	such 	reconsideration 	the 	court 	must 	weigh 	the 	extent 	and
reasonableness of any delay, or prejudice to any party in interest,
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the effect on efficient court administration and the moving party’s
good faith.
Finally, 	the 	trustee 	asserts 	that 	the 	filing 	of 	an 	amended
claim 	after 	so 	much 	time 	has 	elapsed 	from 	the 	filing 	of 	the
original 	claim, 	after 	the 	settlement 	agreement 	and 	after 	three
distributions have been made, may well constitute waiver under the
doctrine of latches. The trustee asserts that Treasury has alleged
certain irregularities in the execution of the settlement but, it
has not disclosed the detail of such irregularities, which Treasury
has 	to 	show 	before 	such 	extraordinary 	measures 	are 	taken. 	The
trustee 	requests 	that 	the 	Court 	consider 	its 	position 	in
determining the objection to the amended claim.
IV. 	Discussion
A. 	Summary Judgment Standard
Under Federal Rule of Civil Procedure 56(c), made applicable
in bankruptcy by Federal Rule of Bankruptcy Procedure 7056, summary
judgment 	is 	available 	“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 judgment as
a 	matter 	of 	law.” 	Fed. 	R. 	Civ. 	P. 	56(c); 	Celotex 	Corporation 	v.
Catrett, 	477 	U.S. 	317 	(1986) 	(citing 	Anderson 	v. 	Liberty 	Lobby,
Inc., 477 U.S. 242, 250 (1986)). 	As to issues on which the movant,
at trial, would be compelled to carry the burden of proof, it must
identify 	those 	portions 	of 	the 	pleadings 	which 	it 	believes
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demonstrates that there is no genuine issue of material fact. 	In
re 	Edgardo 	Ryan 	Rijos 	& 	Julia 	E. 	Cruz 	Nieves 	v. 	Banco 	Bilbao
Vizcaya 	& 	Citibank 	(In 	re 	Rijos), 	263 	B.R. 	382, 	388 	(B.A.P. 	1st
Cir. 2001).
B. 	Closing Agreements with the Treasury Department
The Internal Revenue Code of 1994, authorizes the Secretary of
Treasury to enter into written payment agreements with tax payers.
P.R. Law Ann. Tit. 13 § 8127. The law provides, in pertinent part:
(a) The Secretary is authorized to enter into
written payment agreements by which he agrees
to 	set 	aside 	any 	assessed 	tax 	and 	additions,
including 	civil 	or 	criminal 	penalties, 	that
are applicable to a case in respect to any tax
imposed under former §§ 3001 et seq., §§ 5001
et 	seq., 	and 	§§ 	7001 	et 	seq. 	of 	this 	title,
before 	it 	is 	referred 	to 	the 	Justice
Department for formulation of charges.
P.R. Law Ann. Tit. 13 § 8127. The general requirements of the
Closing Agreements, as set forth in § 8127, are:
(1) 	General 	requirements.-- 	Any 	payment
commitment made pursuant to the provisions of
this 	subsection 	shall 	be 	authorized 	by 	the
Secretary 	of 	the 	Treasury 	or 	his 	authorized
representative 	who 	shall 	justify 	the 	reasons
for the granting of the payment agreement and
provide 	for 	the 	case 	file 	the 	following
information:
(A) Amount of assessed tax.
(B) 	Amount 	of 	interest 	and 	additions 	to 	the
tax imposed by law.
(C) Actual amount to pay pursuant to the terms
of the payment commitment.
(D) Analysis of the financial condition of the
taxpayer 	showing 	payment 	capacity 	of 	the
amount established in the payment commitment.
(E) Any other document or evidence required by
the 	Secretary 	under 	rules 	and 	regulations 	to
be prescribed by the Secretary.
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P.R. Law Ann. Tit. 13 § 8127.
The 	closing 	agreement 	between 	the 	Treasury 	and 	the 	debtor
complies with all the requites as set forth in § 8127, supra: the
agreement was made by two officials representing the Secretary of
Treasury, Manuel Diaz Saldaña; it states the amount of the assessed
tax, 	$6,341,145.02, 	including 	the 	interest; 	the 	actual 	amount 	to
pay, $100,000.00; and mentions the debtor’s special circumstances,
tax 	payer 	had 	filed 	a 	Chapter 	7 	petition 	for 	bankruptcy 	(Docket
#568, Exhibit A). The agreement was executed pursuant to its terms
therein described: the debtor paid to the order of the Secretary of
Treasury 	the 	amount 	of 	$100,00.00 	in 	full 	payment 	of 	the 	tax
assessed 	for 	years 	1985 	to 	1990 	in 	the 	amount 	of 	$6,341,145.02
(Docket #568, Exhibit A).
Once all the requirements are fulfilled, § 8126(b) states that
the 	agreement 	shall 	be 	final. 	The 	law 	provides 	in 	pertinent 	part
that:
(b) 	Finality.-- 	Such 	agreement 	once 	executed
shall be final and conclusive, and except upon
a 	showing 	of 	fraud 	or 	malfeasance, 	or
misrepresentation of a material fact:
(1) The case shall not be reopened as to the
matters agreed upon nor the agreement modified
by 	any 	officer, 	employee, 	or 	agent 	of 	the
Commonwealth of Puerto Rico, and
(2) 	in 	any 	suit, 	action, 	proceeding, 	such
agreement, 	or 	any 	determination, 	assessment,
collection, 	payment, 	abatement, 	refund, 	or
credit made in accordance therewith shall not
be 	annulled, 	modified, 	set 	aside, 	or
disregarded.
(c) Penalties.-- The penalties for violations
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of closing agreements are contained in § 8058
of this title.
P.R. Law Ann. Tit. 13 § 8126.
The statute that regulates the closing agreements is specific.
It 	states 	that 	once 	the 	agreement 	is 	executed 	it 	“shall 	be 	final
and conclusive, and except upon a showing of fraud or malfeasance,
or misrepresentation of a material fact,” the agreement may not be
modified. 	P.R. 	Law 	Ann. 	Tit. 	13 	§ 	8126. 	In 	the 	present 	case,
Treasury has not alleged fraud, malfeasance or a misrepresentation
by the debtor. Treasury’s allegation is an administrative error. It
alleges 	that 	the 	agreement 	fails 	to 	comply 	with 	the 	legal
requirements under the Internal Revenue Code but, fails to mention
or 	explain 	how. 	Furthermore, 	Treasury 	asserts 	that 	there 	is 	an
ongoing 	investigation 	which 	may 	lead 	to 	the 	invalidation 	of 	the
closing agreement but, fails to provide an update.
The Court examined all the documentary evidence presented by
the 	parties. 	The 	settlement 	agreement 	covers 	the 	tax 	years 	1985,
1986, 1987, 1988, 1989, 1990 in the amount of $6,341,145.02 (Docket
#568, 	Exhibit 	A). 	It 	is 	the 	same 	tax 	years 	represented 	in
Treasury’s amended Proof of Claim #686. No objections were filed to
the stipulation and it was approved by the Court. The debtor paid
Treasury $100,000.00 in full payment of Proof of Claim #282 (Docket
#568, Exhibit B). The certificate of no debt expedited by Treasury
appears to be authentic (Docket #568, Exhibit E). Thus, the Court
concludes 	that 	Treasury’s 	mere 	allegations, 	without 	supporting
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evidence, 	are 	insufficient 	to 	revoke 	the 	settlement 	agreement
entered into between the parties nine years ago and approved by the
Court.
In the case of Municipio de San Juan v. Professional Research
& Community Services, (2007 TSPR 95), the Puerto Rico Supreme Court
held that once a stipulation has been approved by the Court, then
the 	stipulation 	is 	subject 	to 	the 	res 	judicata 	doctrine. 	In 	the
present 	case, 	the 	settlement 	stipulation 	entered 	between 	the
parties leaves no room for interpretation. The parties entered into
an 	agreement, 	which 	was 	in 	accordance 	with 	law 	and 	the 	Court
approved the agreement and thus, it is subject to res judicata.
V. Conclusion
A party seeking summary judgment bears the initial burden and
must 	identify 	those 	portions 	of 	the 	pleadings 	which 	it 	believes
demonstrates that there is no genuine issue of material fact. Once
the 	movant 	meets 	its 	burden, 	the 	burden 	of 	proof 	shifts 	to 	the
party 	opposing 	the 	motion 	for 	summary 	judgment 	to 	establish 	that
there are questions of material fact. 10 Collier on Bankruptcy, §
7056.05, p. 7056-7 (15th ed. revised, Lawrence P. King ed., 2006).
In the present case, the debtor filed a motion for summary judgment
and 	Treasury 	opposed 	the 	request. 	The 	settlement 	agreement, 	the
certificate of no debt, the check made payable to Treasury, in the
amount of $100,000.00, and the legal documents introduced by both
parties in their respective motions do not raise substantial issues
of 	fact 	regarding 	whether 	the 	settlement 	agreement 	covered 	the
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years 	1985-1990, 	now 	claimed 	again 	by 	Treasury 	in 	Proof 	of 	Claim
#686. 	This 	Court 	concludes 	that 	the 	debtor 	has 	met 	its 	burden 	of
showing 	that 	there 	are 	no 	genuine 	issue 	of 	material 	facts.
Likewise, the Court concludes that Treasury has not met its burden
of 	proving 	that 	there 	are 	genuine 	issues 	of 	material 	facts 	in
dispute 	or 	that 	the 	settlement 	agreement 	is 	invalid 	or 	that 	it
should be revoked.
ORDER
WHEREFORE IT IS ORDERED that the Motion for Summary Judgment
(Docket 	#568) 	filed 	by 	Arecibo 	Community 	Health 	Care, 	Inc. 	shall
be, and it hereby is GRANTED.
SO ORDERED.
In San Juan, Puerto Rico, this 14th day of September, 2007.
/s Gerardo A. Carlo-Altieri
____________________________
GERARDO A. CARLO-ALTIERI
Chief, U.S. Bankruptcy Judge
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