Asociación de Empleados del Estado Libre Asociado De P.R. v. Nieves (In re Nieves)
| Decision Date | 02 February 2023 |
| Docket Number | BAP NOS. PR 21-029,PR 21-030, PR 21-031,Bankruptcy Case No. 18-01866-ESL |
| Citation | 647 B.R. 809 |
| Parties | Angel Ruben Mojica NIEVES and Karen Melissa Navarro Pastor, Debtors. Asociación de Empleados del Estado Libre Asociado De Puerto Rico, a/k/a Aeela, Appellant, v. Angel Ruben Mojica Nieves and Karen Melissa Navarro Pastor, Appellees. |
| Court | U.S. Bankruptcy Appellate Panel, First Circuit |
Javier Villariño, Esq., Carol J. Tirado López, Esq., and Rosario Vidal Arbona, Esq., Guaynabo, PR, on brief for Appellant.
Jesus E. Batista Sánchez, Esq., San Juan, PR, on brief for Appellees.
Before Finkle, Cary, and Panos, United States Bankruptcy Appellate Panel Judges.
Asociación de Empleados del Estado Libre Asociado de Puerto Rico ("AEELA") appeals from: (1) the July 2020 order denying its motion to dismiss the chapter 13 case of the debtors, Angel Ruben Mojica Nieves ("Mr. Mojica") and Karen Melissa Navarro Pastor ("Ms. Navarro" and collectively with Mr. Mojica, the "Debtors"); (2) the October 2021 order denying its second motion for relief from the automatic stay; and (3) the October 2021 order confirming the Debtors’ plan of reorganization.
At the center of this dispute is approximately $6,000 that Ms. Navarro maintained in an account with AEELA. Through protracted litigation, which included a motion to dismiss, repeated motions for relief from stay, multiple objections to confirmation, and serial motions for reconsideration, AEELA has sought to set off this amount, consisting of savings and dividends, to satisfy the balance of outstanding loans taken by Ms. Navarro and has asserted a statutory lien with respect to these savings and dividends. The bankruptcy court rejected AEELA's arguments at every turn, consistently reasoning that the Debtors were not in default as of the petition date and that their chapter 13 plan proposed to preserve AEELA's lien and satisfy the Debtors’ contractual obligations to AEELA in accordance with the terms of AEELA's loan.
For the reasons set forth below, we AFFIRM the order denying the motion to dismiss and the order confirming the Debtors’ chapter 13 plan of reorganization.
The appeal of the order denying the motion for relief from stay is DISMISSED as MOOT .
AEELA "is a ‘non-profit savings and loan association’ established by Puerto Rico Law No. 133 of June 28, 1966."2 In re Velez Fonseca, 542 B.R. at 630 (citations omitted). In English, AEELA is known as the "Commonwealth of Puerto Rico Government Employees Association," and one of its purposes is to make loans to Puerto Rico government employees. In re Velez Fonseca, 534 B.R. at 268 (citations omitted). All permanent government employees are required to be members of AEELA, and by statute, a 3% deduction is taken from their salary and placed into a savings and loan fund. In re Velez Fonseca, 542 B.R. at 630 (citation omitted); see also P.R. Laws Ann. tit 3, § 9010. AEELA's members can request loans against the balance of the savings and dividends under unique terms and conditions likely unavailable in the private credit markets. Id. The loans are secured by the member's "savings and contributions." In re Velez Fonseca, 534 B.R. at 268 (discussing the Puerto Rico Commonwealth Employees Association Act). "This lien arises solely by force of ... statute and would therefore qualify as a statutory lien as defined by § 101(53) of the Bankruptcy Code." Id.
Ms. Navarro is an employee of the Department of Education's Food and Nutrition Services Program in Puerto Rico and, hence, a member of AEELA. Mr. Mojica is her spouse.3
In November 2017, Ms. Navarro received two loans from AEELA: (1) a "regular" $5,500.00 loan with a 7% interest rate, requiring $88.88 monthly payments; and (2) a $1,020.61 "disaster" or "emergency loan" (collectively, the "Loans").4 According to AEELA, "the emergency loan is not amortized until the full payment of the regular loan." AEELA asserts, and the Debtors do not dispute, that when the loan proceeds were disbursed a statutory lien arose against Ms. Navarro's "savings and contributions" held by AEELA to secure repayment of the Loans.5 The Debtors made scheduled payments in January, February, and March 2018.
On April 6, 2018, the Debtors filed a joint petition for chapter 13 relief. AEELA filed an amended proof of claim asserting a $6,378.97 claim secured by the Debtors' "savings" and "dividends." As the "basis for perfection" of its lien, AEELA cited various provisions of the Employee Association Act. The amended proof of claim did not assert that there was any arrearage as of the petition date. It did, however, state the claim was subject to a right of setoff against the Debtors’ "[s]avings and dividends." The Debtors did not object to the claim of AEELA.
In their third amended plan filed on October 1, 2018 (the "Plan"), the Debtors proposed to "maintain the current contractual installment payments on" AEELA's secured claim in the amount of $88.88 per month and identified AEELA's collateral as "Savings and Dividends." The length of the Plan was 60 months. The Plan reflected no existing arrearage owed to AEELA and did not propose to avoid any liens or to surrender any collateral.
AEELA filed its first objection to confirmation of the Plan on October 2, 2018. Citing In re Velez Fonseca and the Employee Association Act, AEELA again asserted that it was "a creditor with a statutory lien" on, among other things, "the savings and dividends that the Debtor[s] ha[d] deposited in AEELA." As the specific basis for its claimed statutory lien, AEELA cited "Section 5" of the Employee Association Act,6 which provides:
In the event an employee has an outstanding debt with the Association and any retirement system, the savings and contributions that such employee may have in each body shall be used, firstly, to meet any unpaid obligations incurred with the respective body.
See P.R. Laws Ann. tit. 3, § 9004(a). As grounds for its objection to confirmation, AEELA asserted: (1) the Plan did "not provide for the surrender of AEELA's collateral"; (2) the Debtors were attempting to avoid AEELA's statutory lien by proposing the continuation of payments under the Plan; and (3) the proposed payments would not pay AEELA's claim in full.
At the confirmation hearing held on October 3, 2018, the bankruptcy court overruled AEELA's objection to confirmation, after concluding its "claim [w]as not adversely affected by the" Plan (the "October 2018 Order Overruling Objection"); however, the court did not confirm the Plan at the conclusion of that hearing. Instead, the bankruptcy court continued the matter without a date, to consider the pending objection to confirmation of the chapter 13 trustee (the "Trustee").
AEELA moved for reconsideration of the October 2018 Order Overruling Objection, alleging it had not received any payments from Ms. Navarro since the petition date and reiterating that the Debtors’ proposal to "keep paying AEELA's debt directly outside of bankruptcy" amounted to a modification of its "substantive rights." The Debtors opposed reconsideration. The bankruptcy court held another hearing on confirmation on February 27, 2019, again declined to confirm the Plan, and continued the matter without a date. The minutes of the hearing reflect that the bankruptcy court ordered the Debtors "to clarify, in writing, the treatment of AEELA's claim and lien within 21 days," and afforded the Trustee and AEELA 21 days to reply.
In their response, the Debtors repeated that the Plan did not "modify ... AEELA's lien rights" and argued that AEELA's proposed treatment under the Plan complied with § 1325(a)(5)(B), insofar as the Plan provided: (1) for "lien retention"; (2) "for AEELA to receive the present value of its claim"; and (3) for "periodic payments." The Debtors characterized AEELA's motion for reconsideration as a "sixth bite at the proverbial apple," and asked the bankruptcy court to deny the motion.
On October 7, 2019, the bankruptcy court entered an order denying reconsideration of its October 2018 Order Overruling Objection (the "October 2019 Denial of Reconsideration"), reasoning:
[I]n the present case, the court examined the Debtors’ plan and its treatment [of] AEELA. The court determined that the proposed treatment did not affect any of AEELA's rights and the treatment was compliant [with] [§] 1325(a)(5). Accordingly, the court denied AEELA's objection to confirmation. The court's ruling did not contravene its previous ruling in [ Ortiz Vega v. Asociación Empleados del Estado Libre Asociado de Puerto Rico (In re Ortiz Vega), 75 B.R. 858 (Bankr. D.P.R. 1987) ], as argued by AEELA. The court ruled therein that AEELA's lien could not extend to future wages. However, the Debtors’ intent to provide [for] AEELA's secured claim through periodic payments is a choice within the alternatives provided by the Bankruptcy Code.
Additionally, the court acknowledged that AEELA was asserting a right to offset the Debtors’ obligation "with the accumulated shares and dividends," and noted that the proper procedure for asserting that right was to file a motion for relief from stay. After the bankruptcy court denied reconsideration, the Debtors requested another hearing on confirmation.
On October 21, 2019, AEELA filed a second motion for reconsideration (the "Second Motion for Reconsideration"), this time seeking reconsideration of the October 2019 Denial of Reconsideration, which the Debtors again opposed. Citing In re Miranda Soto, 667 F.2d 235 (1st Cir. 1981),7 AEELA asserted it was prohibited from continuing payroll deductions once a member files for bankruptcy. Therefore, it contended it was unable to deduct loan payments from Ms. Navarro's payroll.
On March 9, 2020, ...
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