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In re Herrera

United States Bankruptcy Appellate Panel of the First Circuit

October 3, 2018

HIPOLITO RAMOS HERRERA, Debtor.
v.
HIPOLITO RAMOS HERRERA, Appellee. BANCO COOPERATIVO DE PUERTO RICO, Appellant, HIPOLITO RAMOS HERRERA, Debtor. BANCO COOPERATIVO DE PUERTO RICO, Plaintiff-Appellant,
v.
HIPOLITO RAMOS HERRERA, Defendant-Appellee. Adversary Proceeding No. 16-00280-MCF

          Appeals from the United States Bankruptcy Court for the District of Puerto Rico (Hon. Mildred Cabán, U.S. Bankruptcy Judge)

          Sonia E. Colón, Esq., Gustavo A. Chico-Barris, Esq., and Camille N. Somoza, Esq., on brief for Appellant.

          Josue N. Torres Crespo, Esq., on brief for Appellee.

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

          FAGONE, U.S. BANKRUPTCY APPELLATE PANEL JUDGE.

         These companion appeals arise out of a creditor's efforts to deny, delay, or limit a chapter 7 debtor's discharge. A discharge, the creditor feared, would preclude continuation of its efforts to elevate an unsecured claim to a secured claim by obtaining a lien on the debtor's principal residence. The bankruptcy court issued an order dismissing the creditor's complaint in its entirety and a separate order granting the debtor a discharge, and the creditor appealed both orders. To the extent the creditor sought to deny the debtor a discharge, the creditor has waived its right to appeal the bankruptcy court's rulings. Accordingly, we DISMISS the appeals in part for lack of jurisdiction. To the extent the creditor sought to delay the entry of a discharge or to limit the scope of the discharge injunction, the creditor failed to set forth plausible claims for relief, and we AFFIRM.

         BACKGROUND[1]

         In April 2015, Hipolito Ramos Herrera (the "Debtor") started a chapter 13 case. In the case, Banco Cooperativo de Puerto Rico ("BCPR") asserted a claim in the amount of $160, 166.69 arising from a promissory note signed by the prior owner of the Debtor's principal residence (the "Property"). Having failed to record a mortgage on the Property, BCPR asserted a general unsecured claim in the chapter 13 case.[2]

         The Debtor's prior chapter 13 case had been dismissed in March 2015. As a result, § 362(c)(3) was implicated when he filed the current case in April 2015. Because no party in interest sought an extension of the automatic stay under § 362(c)(3)(B) in the present case, the stay terminated in May 2015.[3] The chapter 13 case converted to a chapter 7 case in July 2016.

         After the automatic stay terminated under § 362(c)(3), BCPR made several requests to the bankruptcy court for a "comfort order" under § 362(j) confirming that the stay had terminated with respect to the Property.[4] Almost a year after BCPR's first request for a comfort order, the bankruptcy court issued an order confirming that the stay had terminated by operation of law and that BCPR was "free to pursue remedies available under state law." In response to the chapter 7 trustee's notice of intent to abandon the Property, BCPR asked the court to "clarify that BCPR [wa]s allowed to continue securing a property interest in State Court."[5] The bankruptcy court then entered another order in which it stated that BCPR was "allowed to continue with its state law remedies." These orders are referred to collectively as "the Comfort Orders."

         With the entry of a discharge looming, BCPR commenced an adversary proceeding seeking to preserve its ability to obtain a lien on the Property. In Count I of its complaint, entitled "Objection To Discharge In Accordance With The Court's [Comfort] Orders," BCPR requested that any discharge order clarify that the Comfort Orders permitted BCPR to proceed in the Local Court to obtain a lien on the Property and subsequently have its claim "declared secured." It did not, however, expressly seek to deny the entry of the Debtor's discharge, nor did it cite § 727(a). In Count II, entitled "Objection to Discharge due to the [P]ending Objection to the [Debtor]'s [E]xemptions," BCPR alleged that, because the bankruptcy court had not ruled on its objection to the Debtor's claimed exemptions, there was "uncertainty as to the assets that belong to the bankruptcy estate and those that remain property of the Debtor pursuant to [§] 522 of the Bankruptcy Code."[6] BCPR contended, without citing any legal authority, that the bankruptcy court should rule on the objection to the Debtor's claimed exemption prior to the entry of a discharge. As with Count I, BCPR did not actually object to the entry of the Debtor's discharge.

         The Debtor moved to dismiss the complaint for, among other reasons, failure to state a claim. The Debtor maintained that BCPR failed to assert any grounds to deny a discharge under § 727(a). He also asserted that BCPR's alternative argument that the court should delay the entry of a discharge until it had resolved BCPR's objection to the Debtor's claimed exemption "d[id] not belong [i]n an objection to discharge complaint." According to the Debtor, the adversary proceeding was a "veiled attempt to prolong the closure of this case . . . long enough for [BCPR] to secure a lien on the [P]roperty." As a result, the Debtor asserted, BCPR did not set forth a plausible claim upon which relief could be granted, and the court should dismiss the complaint pursuant to Rule 12(b)(6).

         BCPR opposed the motion to dismiss, contending that it had established a plausible claim for relief because the bankruptcy court had expressly allowed BCPR to pursue its state law remedies, and there was a pending action seeking such remedies. BCPR stressed that it was not seeking relief solely under § 727; rather, it was requesting that the bankruptcy court, "through its equitable powers [under § 105(a)], taking into consideration the provisions of [§§] 727(b) and 502(j), extend[ ] the deadline to enter a discharge and/or clarif[y] that BCPR may amend its [claim] if the State Court enters judgment in its favor." According to BCPR, the requested relief was "premised on the [Comfort Orders] . . . and BCPR's right to seek remedies under state law . . . ." BCPR argued that without the requested relief, the "purpose" of the Comfort Orders would not be achieved.

         After a hearing, the bankruptcy court granted the motion to dismiss under Rule 12(b)(6) for failure to state a claim. The bankruptcy court treated the complaint primarily as one objecting to discharge, and concluded that: (1) BCPR failed to state a colorable claim because it did not allege any of the exceptions to discharge enumerated in § 727(a); and (2) neither the Comfort Orders nor § 105(a) nor § 502(j) provided valid grounds for objecting to the Debtor's discharge. The bankruptcy court gave short shrift to BCPR's alternative request that any discharge order entered "clarify and/or recognize BCPR's right to [obtain a lien]." In a footnote, the bankruptcy court construed that request as one for "clarification or reconsideration of the [Comfort Orders]," and ruled that the request "should have been timely asserted in the legal case through Bankruptcy Rule 9023 or under the mantle of Bankruptcy Rule 9024." The bankruptcy court then entered a judgment dismissing the adversary proceeding and an order granting a discharge to the Debtor.

         BCPR timely filed separate notices of appeal with respect to the judgment and the discharge order.

         JURISDICTION

         As a threshold matter, we must determine whether we have jurisdiction before addressing the merits of these appeals. "We may hear appeals from final judgments, orders, and decrees . . . ." Formatech, Inc. v. Sovereign Bank (In re Formatech), 483 B.R. 363, 367 ...


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