Montalvo v. Autoridad De Acueducto Y Alcantarillados (In re Montalvo)

• Decision Date: 24 September 2015
• Docket Number: CASE NO. 14–05847 ESL,ADV. PROC. NO. 14–00246 ESL
• Parties: In re: Richard Olmeda Montalvo, Debtor Richard Olmeda Montalvo, Plaintiff v. Autoridad de Acueducto y Alcantarillados (“PRASA”), Defendant
• Court: United States Bankruptcy Courts. Tenth Circuit. U.S. Bankruptcy Court — District of Puerto Rico

537 B.R. 128

In re: Richard Olmeda Montalvo, Debtor

Richard Olmeda Montalvo, Plaintiff

v.Autoridad de Acueducto y Alcantarillados (“PRASA”), Defendant

CASE NO. 14–05847 ESL

ADV. PROC. NO. 14–00246 ESL

United States Bankruptcy Court, D. Puerto Rico.

Signed September 24, 2015

Edgardo Veguilla Gonzalez, Caguas, PR, for Plaintiff.

Wallesca Diaz Lopez, PRASA Legal Division, San Juan, PR, for Defendant.

OPINION AND ORDER

Hon. Judge Enrique S. Lamoutte, USBJ

This case is before the court upon the Motion to Dismiss (Docket No. 15) filed by defendant PRASA (hereinafter referred to as “PRASA” which in the Spanish language the acronym is AAA which stands for Autoridad de Acueductos y Alcantarillados) and the Opposition thereto filed by the Plaintiff and/or Debtor (Docket No. 21). PRASA sustains that the court lacks subject matter jurisdiction because the case is not a core proceeding since it is a matter of state law and the Debtor is precluded by the exhaustion of administrative remedies doctrine to seek relief because he commenced an administrative appeal procedure with PRASA. PRASA also argues that the complaint fails to state a claim pursuant to Fed. R. Civ. P. 12(b)(6) for which relief can be granted on an alleged violation of the automatic stay. For the reasons stated below, the Motion to Dismiss is hereby denied.

Jurisdiction

The 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). 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 July 16, 2014 (Lead Case No. 14–05847¹ , Docket No. 1). The 341 meeting was held and closed on August 13, 2014 (Lead Case, Docket Nos. 5 & 10). On August 26, 2014, the Debtor filed a Motion Submitting Amended Schedule F and Certifying Mailing of Notice of 341 Meeting, (Lead Case, Docket No. 11) to include PRASA and PRANF (acronym in the Spanish language for “Programa Reducción Agua No Facturada”) in his Schedule F—Creditors Holding Unsecured Nonpriority Claims for a disputed claim in the amount of $1,982.89. On September 4, 2014, PRASA filed proof of claim # 2–1 for water and sewer service in the amount of $370.39.

Subsequently, on October 16, 2014, the Debtor filed an adversary proceeding premised upon PRASA's continuing collection efforts which allegedly constitute a willful violation of the automatic stay under 11 U.S.C. § 362(a)(1, 6), as the amounts requested by PRASA originate from an alleged pre-petition cause of action; namely when the Debtor began using the water service in his new residence (Docket No. 1). Plaintiff's factual allegations as to PRASA's alleged willful violation of the automatic stay are as follows: (i) on May 1, 2014, Plaintiff requested PRASA to transfer his water service contract from his previous residence at Berwin Estates, Calle 2C11, Rio Piedras, PR, to his new residence at 602 Blvd Media Luna Apt 4502, Terrazas Parque Escorial, Carolina PR; (ii) that on that day he paid the outstanding balance of $413.38 owed on the account, in order transfer his water service account to the new residence; (iii) on May 19, 2014, Plaintiff contacted PRASA by phone, and it alleged having no knowledge of the request to transfer account, thus, Debtor reiterated the same; and (iv) on August 19, 2014, the Debtor contacted PRASA again by phone, to report an interruption in the water service of his home. He was informed that the service was interrupted due to a water line being repaired. PRASA alleged that it did not have knowledge of any request for transfer of his account, thus Debtor insisted again on his transfer request. The water service returned that same night as informed by PRASA personnel (Docket No. 1, pg. 6, ¶¶ 19 & 20, and Exhibit 1–Affidavit). Plaintiff's complaint for injunctive relief also includes the following causes of action: (i) PRASA discriminated against Debtor pursuant to 11 U.S.C. § 525 by refusing to reconnect the water service on account of a dischargeable debt; and (ii) PRASA's refusal of the Debtor's surety bond and the continued demand for a cash deposit of $500 constitutes a violation of 11 U.S.C. § 366.

Also, on said date, the Plaintiff filed an Urgent Motion to Order Autoridad de Acueductos y Alcantarillados (PRASA) to Reinstall the Water Service and Request for an Emergency Hearing (Docket No. 2). On October 23, 2014, PRASA filed its Opposition to Plaintiff's Urgent Motion requesting PRASA to Reinstate Water Service (Docket No. 10). On October 23, 2014, a hearing was held in which the court ordered as follows: “Parties informed that they have reached an agreement re[garding] the urgent motion scheduled for today on an expedited basis. The agreement is as follows: Debtor will pay a deposit in the amount of $125 on or before October 30, 2014. Debtor will pay the amount of $55 due for post-petition services on or before December 1, 2014. The Debtor will visit today the PRASA offices to request an account number in order to have water service reconnected today.” (Docket No. 11).

On November 17, 2014, PRASA filed a Motion to Dismiss (Docket No. 15) arguing as follows: (i) Plaintiff's pleadings disclose that PRASA did not willfully violate the automatic stay because the alleged violation occurred on August 25, 2014 which was before PRASA was included in the bankruptcy case as a creditor. The Debtor amended Schedule F on August 26, 2014 to include PRASA; (ii) “... even if we assume that the Plaintiff included PRASA from the beginning of the bankruptcy petition, it would still not be a violation of the automatic stay, as the water service was not suspended for collection purposes. PRASA suspended the water service to the Debtor's residence as it was an unlawful connection to PRASA's system, in violation of state law regulations. The water was disconnected because the residence did not have a registered account with PRASA;” (iii) “The fact that the Plaintiff filed [for] bankruptcy does not mean that PRASA is prohibited from exercising its police and regulatory powers to protect its aqueduct infrastructure. In this case, the Plaintiff's registered water service in the Berwin Estates residence was not interrupted, the water interruption, occurred in a residence where there was no registered service; (iv) the interrupted water service and the imposition of a fine and administrative fees is a state law matter that arises from PRASA's Regulation No. 5129 and not from the Bankruptcy Code. The Plaintiff is interrupting the administrative process which he initiated and is hampering PRASA from making a determination as to the imposition of a fine which is not barred by the automatic stay. The administrative procedure must conclude, before any judicial relief is granted; (v) “If this forum assumes jurisdiction, PRASA's rights will be entrenched, as it will not be given the opportunity to develop a factual record. Moreover, the purpose of the exhaustion of administrative remedies doctrine would be hindered as the Plaintiff is weakening PRASA's police and regulatory powers;” and (vi) “If it weren't for the stay violation claim, this matter would not be a core proceeding. But as stated beforehand, from the facts pleaded in the complaint no stay violation occurred, the only claims directly related to bankruptcy was the installment of the water utility for the Debtor's residence and the amount of deposit that PRASA would accept. This controversy has been already resolved.” On December 1, 2014, Plaintiff filed a Motion Requesting Extension of Time to Oppose Motion to Dismiss by PRASA and Trustee (Docket No. 16) and the same was granted on December 3, 2014 (Docket No. 17).

On December 11, 2014, the Plaintiff filed his Opposition to Defendant PRASA's Motion to Dismiss (Docket No. 21) arguing that: (i) the complaint alleges additional actions taken by PRASA after acquiring knowledge of the bankruptcy, which constitute willful violations of the automatic stay pursuant to 11 U.S.C. § 362(a)(1, 6). These allegations are properly alleged in the complaint and sustained by Plaintiff's sworn statement; (ii) from August 26, 2014 to October 23, 2014, PRASA deprived Plaintiff of water service, despite having knowledge of the automatic stay, and continued threatening Plaintiff with fines and penalties as well as criminal proceedings; (iii) The application of section 362(b)(4) is to be narrowly construed and the same is not automatic. Even if PRASA is entitled to this exemption pursuant to section 362(b)(4), the same forbids the enforcement of money judgment against debtor. “PRASA would still be in violation of the [a]utomatic [s]tay by enforcing the parts of its regulatory scheme that require debtor to pay a larger security deposit ($500.00) for the sole reason of allegedly violating PRASA's regulations, as well as to compensate PRASA for administrative expenses. Coercing Plaintiff to pay a penalty deposit and administrative expenses in exchange for having his water service reconnected would still be a violation of the [a]utomatic [s]tay, even when the imposition of said penalties might be allowed under 11 U.S.C. § 362(b)(4) ;” (iv) “PRASA's own negligence in processing the repeated requests of Plaintiff, are the cause of the alleged lack of a registered use on the residence of Plaintiff;” (v) PRASA's request for abstention was not served pursuant to Fed. R. Bankr. P. 5011(b), 9014 and 7004; (vi) an action to seek damages for an automatic stay violation is a core proceeding that “arises under” Title 11 and thus, under the province of the bankruptcy courts; (vii) the exhaustion of administrative remedies doctrine is misplaced because in this case there is no system of administrative review in place to address the automatic stay violation raised by Plaintiff in the adversary proceeding; and (viii) section 106(a)(1) and (2) provides that sovereign immunity is waived as to a governmental unit...