Bernier v. Treasury Dep't of P.R. (In re Bernier)

• Decision Date: 21 November 2022
• Docket Number: 17-03544 (ESL),ADV. PROC. 20-00134
• Parties: IN RE: JAIME LEOPOLDO VAZQUEZ BERNIER and CARMEN MERCEDES PAGAN ORTIZ Debtors v. TREASURY DEPARTMENT OF PUERTO RICO ET. ALS. Defendant JAIME LEOPOLDO VAZQUEZ BERNIER; CARMEN MERCEDES PAGAN ORTIZ Plaintiffs
• Court: U.S. Bankruptcy Court — District of Puerto Rico

IN RE: JAIME LEOPOLDO VAZQUEZ BERNIER and CARMEN MERCEDES PAGAN ORTIZ Debtors

JAIME LEOPOLDO VAZQUEZ BERNIER; CARMEN MERCEDES PAGAN ORTIZ Plaintiffs
v.
TREASURY DEPARTMENT OF PUERTO RICO ET. ALS. Defendant

No. 17-03544 (ESL)

ADV. PROC. 20-00134

United States Bankruptcy Court, D. Puerto Rico

November 21, 2022

CHAPTER 13

OPINION AND ORDER

Enrique S. Lamoutte, United States Bankruptcy Judge

The instant adversary proceeding is before the court upon the Motion Requesting Entry of Summary Judgment, filed by the defendant Treasury Department of the Commonwealth of Puerto Rico (hereinafter referred to as "Treasury") (Docket No. 33), the Opposition to Motion for Summary Judgment filed by Jaime Vazquez Bernier and Carmen Pagan Ortiz (hereinafter referred to as "Debtors" or "Plaintiffs") (Docket No. 65), Plaintiffs' cross Motion for Summary Judgment (Docket No. 57), and Defendant's Response in Opposition to Plaintiffs' Motion Requesting Entry for Summary Judgment (Docket No. 78).

For the reasons stated below, the Court grants in part and denies in part the Motion for Judgment filed by Treasury an denies the Plaintiffs' cross Motion for Summary Judgment.

Jurisdiction

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This court has jurisdiction pursuant to 28 U.S.C. §§ 1334(b) and 157(a). This is a core proceeding pursuant to 28 U.S.C. § 157(b)(1) and (b)(2)(A) & (O). Venue of this proceeding is proper under 28 U.S.C. §§ 1408 and 1409.

Procedural Background

The Debtor filed a bankruptcy petition under Chapter 13 of the Bankruptcy Code on May 22, 2017 (Lead case, No. 17-03544, Docket No. 1). On August 25, 2017, Treasury filed proof of claim #5-1 in the amount of $96,732.47 of which $71,873.41 was listed as unsecured and the remainder $24,859.06 was listed as a priority unsecured claim pursuant to 11 U.S.C. §507(a)(8). On December 11, 2018, the Debtors and the Treasury filed a Stipulation and the same was approved on January 9, 2019 (Lead case, No. 17-03544, Docket Nos. 80 & 86). On April 25, 2019, the Chapter 13 reorganization plan dated January 23, 2019, was confirmed. (Lead case, No. 17-03544, Docket No. 113). Thereafter, on September 16, 2019, a discharge was granted to the Debtors pursuant to 11 U.S.C. §1328(a). (Lead case, No. 17-03544, Docket No. 116). Subsequently on October 30, 2020, the Debtors filed a Motion to Reopen Case under 11 U.S.C. §350(b) to file a complaint against Treasury for violation of the discharge order and the same was granted on November 24, 2020. (Lead case, No. 17-03544, Docket Nos. 126 & 129).

On November 25, 2020, the Debtors/Plaintiffs filed the instant adversary proceeding premised upon Treasury's alleged violation of the discharge injunction. (Docket No. 1). On February 25, 2021, Treasury filed its Answer to Complaint (Docket No. 9). On May 11, 2022, Treasury filed its Statement of Uncontested Facts in Support of Motion for Summary Judgment (Docket No. 32). Also, on said date, Treasury filed a Motion Requesting Entry of Summary Judgment. (Docket No. 33). On June 16, 2022, the Plaintiffs filed a cross Motion for Summary Judgment and the Statement of Facts in Support of Motion for Summary Judgment (Docket Nos. 57 & 58). On June 29, 2022, the Plaintiffs filed their Opposition to Motion for Summary Judgment and the Opposition to Treasury Department's Statement of Uncontested Facts in Support of Motion for Summary Judgment. (Docket Nos. 65 & 66). On June 30, 2022, Treasury filed a Motion Submitting Exhibits Translated to the English Language. (Docket No. 67). Thereafter, on August 22, 2022, Treasury filed its Opposition to Plaintiffs' Statement of Uncontested Facts in Support of Motion

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for Summary Judgment (Docket Entry No. 58) (Docket No. 77). On August 22, 2022, the Defendant filed its Response in Opposition to Plaintiffs' Motion Requesting Entry for Summary Judgment (Docket No. 78).

The issue pending before the Court is whether Treasury violated the Plaintiffs' discharge injunction pursuant to 11 U.S.C. §524(a)(2). The Plaintiffs allege that Treasury engaged in four (4) independent acts which constitute collection activities in violation of the discharge injunction. The Plaintiffs contend that the alleged collection activities were the following: (i) Treasury charged Plaintiffs $800.00 as a penalty and/or sanction for the alleged pre-petition obligation; (ii) Defendant sent Plaintiffs post-discharge collection letters; (iii) post discharge Defendant continued to report and publish false and inaccurate Certificate of Debts which alleged that Plaintiffs continue to owe the pre-petition debt to Treasury. Each successive Certification of Debt that was issued by Treasury continued to accrue interest and increase the amounts allegedly owed; and (4) post- discharge for over one year, Treasury continue to report the discharged debt in the internal revenue unified system ("SURI"). (Docket No. 57, pg. 2).

Uncontested Material Facts

After reviewing Treasury's Statement of Uncontested Facts in Support of Motion for Summary Judgment (Docket No. 32); Plaintiffs' Opposition to Treasury Department's Statement of Uncontested Facts in Support of Motion for Summary Judgment (Docket No. 66); Plaintiffs' Statement of Facts in Support of Motion for Summary Judgment (Docket No. 58) and Defendant's Opposition to Plaintiffs' Statement of Uncontested Facts in Support of Motion for Summary Judgment (Docket No. 77), the Court finds that the following material facts are uncontested:

1.Treasury was notified of Plaintiffs' bankruptcy petition since it was included in Schedule E/F of the voluntary petition as an unsecured claimant. (Lead case Docket No. 13). On May 31, 2017, the Clerk filed a Certificate of Notice which evinces that Treasury was duly notified of the filing of the voluntary petition. (Lead case Docket No. 10); See also Defendant's Answer to Complaint (Docket No. 9, pg. 3, paragraph 14).

2.Treasury filed proof of claim #5-1 on August 25, 2017, which includes an unsecured priority debt of $24,859.06 and a general unsecured debt of $71,873.41 for a total tax liability of $96,732.47. Refer

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to claims registry in lead case, proof of claim #5-1 (Docket No. 32, Exhibit I).

3. The parties reached an agreement in which the Debtors/Plaintiffs would satisfy Treasury's priority claim #5-1 in a single lump sum payment in the amount of $24,859. The Stipulation was approved on January 9, 2019. The terms of the Stipulation were included in the January 23, 2019, Chapter 13 plan of reorganization which was confirmed on March 7, 2019. (Lead Case, Docket Nos. 80, 86, 92 & 109).

4.On September 16, 2019, a discharge was granted to the Debtors pursuant to 11 U.S.C. §1328(a). Notification of the Discharge Order was duly sent to all creditors, and received by all creditors, and notice was mailed to Defendant's postal address. (Lead case, Docket Nos. 116 & 117) & Defendant's Answer to Complaint (Docket No. 9, pg. 4, paragraph 27).

5.The Treasury Department installed a new electronic platform named Internal Revenue Unified System (SURI for its acronym in the Spanish language) (Docket No. 32, Exhibit III- Internal Revenue Circular Letter No. 16-12-IR dated October 3, 2016).

6.SURI was installed in three phases, beginning in October 2016, the second phase in December 2018 and the third phase December 2019 which concluded on February 24, 2020 (Docket No. 32, Exhibit IV; Docket No. 67-1).

7.The taxpayers are supposed to create an account in SURI to manage their tax matters. (Docket No. 32, Exhibit V- Internal Revenue Circular Letter No. 18-16-IR dated December 6, 2018).

8. All the records, transactions, payments, letters, tax returns, certifications of the taxpayer are included in the taxpayer's SURI account. (Docket No. 32, Exhibits III, IV and V; Docket No. 67-1).

9.Plaintiffs/Debtors have a SURI account. (Docket No. 32, Exhibit VI).

10. There is a Notification and Request for Payment dated March 10, 2020, that appears in Plaintiff's Jaime L. Vazquez Bernier's SURI account. It has a watermark on all three pages that states "DRAFT" ("BORRADOR" in the Spanish language). (Docket No. 32, Exhibit VII; Docket No. 67-2).

11. The last page of the correspondence dated March 10, 2020, includes an "IMPORTANT NOTICE" which reads: "[t]he Department of Treasury has made a great effort to improve its electronic systems. Recently, the Treasury Department transferred the income tax account data from the previous

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digital platform to the new integrated SURI system. As part of this transfer, we have identified outstanding debts that may not have been previously notified. To comply with our responsibility to keep you informed, this notice is issued to inform you of the debt that was transferred to SURI. It is in our best to keep our tax system accurate and up to date, so we encourage you to review the information provided in this notice and take the appropriate action as indicated on page 1 of this notice." (Docket No. 32, Exhibit VII, Docket No. 67-2).

12.Plaintiff Jaime Vazquez Bernier requested a renewal of the Merchant Registry Certification and Treasury issued said certification on March 30, 2020 (Docket No. 32, Exhibit IX).

13.Treasury did not record any lien on Plaintiffs/Debtors' real property or on their bank accounts.

Position of the parties

Treasury's position

Treasury's position is that it did not send any collection letter to Plaintiffs via SURI demanding the payment of the discharged debt. Treasury contends that according to SURI there are no records of collection letters including the debt claimed in the Debtors' bankruptcy case. As detailed in the report of notifications sent by SURI, none of the documents sent by the system via email were collection letters. Treasury argues that the only document that refers to the totality of the debt that the system reflected is a Notification and Payment...