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In re Rosado

United States Bankruptcy Appellate Panel of the First Circuit

January 4, 2017

ALEXIS RAMIREZ ROSADO, a/k/a Alexis Ramirez, and ELSIE E. BERRIOS SALGADO, a/k/a Elsie Enid Berrios Salgado, a/k/a Elsie E. Berrios, Debtors.

         Appeal from the United States Bankruptcy Court for the District of Puerto Rico (Hon. Brian K. Tester, U.S. Bankruptcy Judge)

          Anibal Medina Rios, Esq., on brief for Appellants.

          José F. Cardona Jiménez, Esq., on brief for Appellee.

          Before Feeney, Cary, and Fagone, United States Bankruptcy Appellate Panel Judges.


         Alexis Ramirez Rosado and Elsie E. Berrios Salgado (collectively, the "Debtors") appeal from the bankruptcy court's order denying their motion seeking the imposition of sanctions for contempt against Banco Popular de Puerto Rico ("Banco Popular") under § 105, on account of an alleged violation of the discharge injunction.[1] They also seek to appeal from the bankruptcy court's subsequent refusal to reconsider that order. We AFFIRM both orders.


         The Debtors filed for chapter 7 relief in March 2011. In their schedules, they indicated they owned two properties, their residence and a duplex, both located in Bayamón, Puerto Rico. They valued the residence at $138, 000.00 and the duplex at $125, 000.00. On Schedule D, they listed Banco Popular as the holder of a $91, 258.00 lien on the residence, and a $78, 055.00 lien on the duplex. In their Statement of Financial Affairs, the Debtors listed Banco Popular as the plaintiff in two foreclosure proceedings pending in the Puerto Rico Court of First Instance, Superior Court of Bayamón (the "local court") one involving the residence (in which judgment entered in March 2003), and the other concerning the duplex (in which judgment entered in March 2009). Although both judgments entered years before the filing of the Debtors' chapter 7 petition, neither foreclosure had progressed to a sale as of the petition date.

         Banco Popular filed a proof of claim, asserting a secured claim of approximately $84, 000.00. Subsequently, Banco Popular filed a motion for relief from stay (the "Stay Relief Motion"), alleging the Debtors had failed to make post-petition payments on a certain note and mortgage. About six months later, the bankruptcy court entered an order granting the Stay Relief Motion. Thereafter, in April 2015, the bankruptcy court issued an order granting the Debtors a discharge under § 727 (the "Discharge Order").

         On January 25, 2016, the Debtors filed a motion for an order of contempt (the "Contempt Motion") against Banco Popular pursuant to § 105, asserting that the bank continued efforts to foreclose using the "ordinary foreclosure" method, an in personam remedy. This, according to the Debtors, constituted a violation of the § 524(a)(2) discharge injunction. The Debtors elaborated that Puerto Rico's statutory scheme governing foreclosures provides three ways to foreclose a mortgage: "the summary foreclosure proceeding, the civil action for foreclosure, and the ordinary civil action for collection of money." According to the Debtors, only the summary foreclosure proceeding is an in rem remedy; the others necessarily involve an attempt to recover a debt as an in personam liability. Thus, the Debtors contended that after the entry of the Discharge Order, Banco Popular should have "filed a summary foreclosure procedure." In addition, the Debtors maintained that Banco Popular's foreclosure judgments were void because each contained a determination of the Debtors' personal liability.

         Despite everything it said about various methods of foreclosure under Puerto Rico law, the Contempt Motion did not identify any conduct, other than the continuance of the foreclosure proceeding, by Banco Popular.[2] No letter, telephone call, or communication emerged from the allegations of the Contempt Motion which might have given rise to a violation of the discharge injunction. Nonetheless, the Debtors alleged that Banco Popular's conduct caused them damages, "affected their quality of li[f]e, " and exacerbated their health problems.

         Banco Popular countered that after obtaining relief from the automatic stay, it "informed" the local court that it intended to proceed exclusively in rem, that it waived any right to proceed in personam, and that it would not seek to collect a deficiency from the Debtors. It also requested leave to file exhibits to its objection in Spanish. To that end, it attached two Spanish-language documents to the objection.

         On February 3, 2016, the bankruptcy court denied the Contempt Motion without conducting a hearing. The court's order (the "Order Denying Contempt") provides: "Upon Banco Popular['s] reply filed at docket 129, the motion filed by DEBTOR[S] requesting entry of order of contempt under 11 U.S.C. § 105 (docket #128) is hereby denied." The Order Denying Contempt did not address Banco Popular's request for leave to file Spanish-language documents or indicate to what extent, if any, the court considered those documents.

         Twelve days later, the Debtors filed a motion for reconsideration (the "Reconsideration Motion"), without identifying the legal authority upon which they relied for the requested relief. They acknowledged that Banco Popular informed the local court that it was proceeding exclusively in rem and waived any right to collect from the Debtors personally. The Debtors contended, nonetheless, that Banco Popular's representations in the local court did not operate to "convert" the foreclosure action to an in rem proceeding, and they reiterated that it continued to rely on the wrong foreclosure statute.

         On March 16, 2016, the bankruptcy court entered an order denying the Reconsideration Motion (the "Order Denying Reconsideration"), reasoning that such motions "must not be used as a vehicle to re-litigate matters already litigated and decided." The court added that "Rule 59(e) is not intended to give an unhappy litigant one additional chance to sway the judge."

         This appeal followed.[3] Although the Debtors identified only the Order Denying Contempt in their notice of appeal, when they filed the notice electronically they linked the docket entry to both the Order Denying Contempt and the Order Denying Reconsideration. Additionally, they referenced and included the Order ...

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