Puerto Rico Farm Credit, Aca v. Eco-Parque Del Tanamá Corp.

United States Court of Appeals
For the First Circuit
No. 19-1367
PUERTO RICO FARM CREDIT, ACA,
Plaintiff, Appellee,
v.
ECO-PARQUE DEL TANAMÁ CORP.; IVÁN ORTIZ-RUIZ; ANA MARÍA SERRANO-
BÁEZ; CONJUGAL PARTNERSHIP ORTIZ-SERRANO,
Defendants, Appellants.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF PUERTO RICO
[Hon. Carmen Consuelo Cerezo, U.S. District Judge]
Before
Lynch and Kayatta, Circuit Judges,
and Laplante,* District Judge.
Bámily López Ortiz, with whom Lopez Toro was on brief, for
appellants.
Mauricio O. Muñiz-Luciano, with whom Ignacio J. Labarca-
Morales and Marini Pietrantoni Muñiz LLC were on brief, for
appellee.
March 28, 2022
* Of the District of New Hampshire, sitting by designation.

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KAYATTA, Circuit Judge. When a borrower is in default
for failure to satisfy its payment obligations under a loan, the
borrower may prefer that the lender agree to restructure the loan
rather than foreclose on the collateral securing the loan. If the
loan is subject to the Farm Credit Act (FCA), the lender is
sometimes required to restructure the loan rather than foreclose.
A lender's decision to foreclose rather than restructure forms the
basis of this appeal.
The borrowers-defendants in this case -- Eco-Parque del
Tanamá Corp., its principal officer Iván Ortiz-Ruiz, his wife Ana
María Serrano-Báez, and their conjugal partnership -- defaulted on
a loan extended by lender-plaintiff Puerto Rico Farm Credit, ACA.
The loan is subject to the FCA, 12 U.S.C. § 2001 et seq. The
borrowers applied to restructure the distressed loan. The lender
rejected their application. The borrowers requested review before
the lender's Credit Review Committee, which also denied their
restructuring request. The lender eventually filed this lawsuit,
seeking repayment and foreclosure. The district court ultimately
granted summary judgment for the lender and denied the borrowers'
motion for reconsideration. The borrowers appealed. We review
the district court's summary judgment grant de novo and its denial
of the borrowers' motion for reconsideration for abuse of
discretion. Harley-Davidson Credit Corp. v. Galvin, 807 F.3d 407,
411 (1st Cir. 2015).

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The borrowers' reliance on the FCA's restructuring
requirement as a defense to foreclosure runs head-on into the
following unchallenged findings made by the lender:
• the lender could not verify the source of some of the
borrowers' listed income;
• the borrowers' income did not justify their credit
request;
• the borrowers had excessive obligations relative to
their income;
• the borrowers lacked the financial capacity to make
the payments they proposed; and
• the borrowers' financial condition did not support
their requested loan.
These unchallenged findings call into question whether
the borrowers even submitted an "application for restructuring."
12 U.S.C. § 2202a(a)(1). The FCA defines such an application as
including (among other things) "sufficient financial information
and repayment projections, where appropriate, as required by the
qualified lender to support a sound credit decision." Id.
More importantly, even assuming that the borrowers'
submission constituted an application for restructuring, the FCA
expressly calls on the lender to consider whether the requested
restructuring is viable. Section (d)(1) provides:
When a qualified lender receives an
application for restructuring from a borrower,
the qualified lender shall determine whether
or not to restructure the loan, taking into
consideration --

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(A) whether the cost to the lender of
restructuring the loan is equal to or
less than the cost of foreclosure;
(B) whether the borrower is applying all
income over and above necessary and
reasonable living and operating expenses
to the payment of primary obligations;
(C) whether the borrower has the
financial capacity and the management
skills to protect the collateral from
diversion, dissipation, or
deterioration;
(D) whether the borrower is capable of
working out existing financial
difficulties, reestablishing a viable
operation, and repaying the loan on a
rescheduled basis; and
(E) in the case of a distressed loan that
is not delinquent, whether restructuring
consistent with sound lending practices
may be taken to reasonably ensure that
the loan will not become a loan that it
is necessary to place in nonaccrual
status.
Id. § 2202a(d)(1). Subsections (B), (C), and (D) all direct the
lender to consider a borrower's financial condition, which bears
on the borrower's ability to "repay[] the loan on a rescheduled
basis" and, by extension, the viability of the application for
restructuring. See also 12 C.F.R. § 617.7415(a)(2)–(4).
Further, in calculating the cost of restructuring, the
lender "shall consider":
(C) whether the borrower has presented a
preliminary restructuring plan and cash-flow
analysis taking into account income from all
sources to be applied to the debt and all
assets to be pledged, showing a reasonable
probability that orderly debt retirement will
occur as a result of the proposed
restructuring; and

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(D) whether the borrower has furnished or is
willing to furnish complete and current
financial statements in a form acceptable to
the institution.
12 U.S.C. § 2202a(e)(2); see also 12 C.F.R. § 617.7415(a)(1)(iii)–
(iv). In other words, a lender must consider a restructuring
plan's credibility and viability.
All of this is simply to state the obvious: A lender
need not accept a plan of restructuring that the borrower cannot
perform. After all, the FCA only requires restructuring when it
would cost the lender no more than foreclosure. 12 U.S.C.
§ 2202a(e)(1); 12 C.F.R. § 617.7415(d). And, absent unusual
circumstances not present here, a failed attempt at restructuring
followed by foreclosure would likely cost the lender more than
would foreclosure alone.
The borrowers further contend that the lender was
required to propose its own restructuring plan after it denied the
borrowers' restructuring application. It is true that the FCA
does "not prevent a qualified lender from proposing a restructuring
plan for an individual borrower in the absence of an application
for restructuring from the borrower." 12 U.S.C. § 2202a(d)(2).
But that grant of permission does not require a lender to propose
a restructuring plan of its own, much less to do so when the
borrower's financial circumstances reveal no basis for concluding
that a reasonable restructuring is possible.

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There being no other preserved challenge to the finding
that the lender properly considered and rejected the requested
restructuring, we agree that the lender was entitled to summary
judgment on the record before the district court.
The borrowers' subsequent motion for reconsideration
focused on their assertion that the lender should have estimated
a higher cost of foreclosure. But given the fact that the
borrowers demonstrated no ability to perform their obligations
under the proposed restructuring, any challenge to the lender's
estimate of the transactional costs of foreclosure cannot change
the outcome.
We affirm the challenged judgment and order of the
district court.

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