MALDONADO VELAZQUEZ v. Hanes PR, Inc. et al

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IN THE UNITED STATES BANKRUPTCY COURT FOR
THE DISTRICT OF PUERTO RICO
IN RE:
CARMELO MALDONADO VELAZQUEZ
IRIS M CRESPO
CASE NO. 10-00052 MCF
Debtor(s) 	Chapter 13
CARMELO MALDONADO VELAZQUEZ
IRIS M CRESPO
Adversary Case No. 10-00052 MCF
Plaintiff(s)
HANES PR, INC 	RE: INJUNCTIVE RELIEF-
REINSTATEMENT OF STAY
LUISA S VALLE CASTRO
Defendant(s) 	FILED & ENTERED ON 07/02/2010
OPINION AND ORDER
This proceeding is before the Court upon Defendants' motion to
dismiss (Docket. No. 6) and motion for sanctions against Plaintiffs
under 	Bankruptcy 	Rule 	9011 	(Docket 	No. 	8), 	and 	Plaintiffs
opposition thereto (Docket No. 9). For the reasons set forth below,
Defendants' motion to dismiss (Docket. No. 6) is GRANTED; however,
Defendants' request for sanctions is DENIED (Docket No. 8).
I. PROCEDURAL HISTORY
Plaintiffs, Carmelo Maldonado Velazquez ("Maldonado") and Iris
Crespo 	Gonzalez 	("Crespo")(collectively 	referenced 	to 	as
“Debtors”), filed a voluntary petition for relief under Chapter 11
of the Bankruptcy Code on April 17, 2009 (Case No. 09-03057, Docket
No. 1). The case was later converted to a proceeding under Chapter
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13 of the Bankruptcy Code on December 30, 2009 (Case No. 09-03057,
Docket No. 125).
On 	March 	30, 	2010, 	Debtors 	filed 	the 	instant 	Adversary
Proceeding against the creditor, Hanes Brands Inc. ("Hanes"), and
its 	attorney, 	Luisa 	S. 	Valle 	Castro, 	Esq. 	("Valle")(collectively
referenced 	to 	as 	“Defendants”), 	for 	willful 	violation 	of 	the
automatic 	stay, 	by 	having 	moved 	the 	local 	court 	to 	continue 	a
collection 	of 	money 	proceeding 	against 	Debtors 	entitled 	Hanes
Brands Inc. vs. Galaxy Prints, Carmelo Maldonado Jr. et als., Case
No.: ICI2008-00903 (307), filed before the Court of First Instance,
Superior Court of Mayagüez (the “Local Court Action”) (Docket No.
1).
On April 22, 2010, Defendants moved to dismiss, alleging that
there 	was 	no 	violation 	of 	the 	automatic 	stay 	against 	Debtors 	and
Debtors' assets (Docket No. 6). Defendants accompanied their motion
to 	dismiss 	with 	copies 	of 	the 	documents 	filed 	in 	the 	Local 	Court
Action. On May 17, 2010, Defendants also filed a motion requesting
sanctions 	against 	Debtors 	under 	Bankruptcy 	Rule 	9011 	(Docket 	No.
8).
A 	hearing 	on 	the 	motion 	to 	dismiss 	was 	held 	on 	May 	18, 	2010
(Docket No. 14). On the same date, Debtors filed their response to
Defendants' motion to dismiss and motion for sanctions (Docket No.
9) (“Opposition”).
II. SUMMARY JUDGMENT STANDARD:
When a motion to dismiss under Rule 12(b)(6) of Federal Rules
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of Civil Procedure (for failure to state a claim upon which relief
can be granted) is presented with documents or other matters which
fall 	outside 	of 	the 	pleadings, 	the 	Court 	must 	consider 	and 	treat
the 	same 	as 	a 	motion 	for 	summary 	judgment 	under 	Rule 	56 	of 	the
Federal Rules of Civil Procedure. Fed. R. Civ. P. 12(d). "[I]t is
within 	the 	court's 	discretion 	whether 	to 	accept 	extra-pleading
matter 	on 	a 	motion 	for 	judgment 	on 	the 	pleadings 	and 	treat 	it 	as
one 	for 	summary 	judgment." 	Whiting 	v. 	Maiolini, 	921 	F.2d 	5 	(1st.
Cir. 	1990) 	(citing 	Wright 	and 	Miller, 	Federal 	Practice 	and
Procedure: Civil, § 1371 at 543 (1969 & Supp. 1989)).
Under Fed. R. Civ. P. 56(c), made applicable in bankruptcy by
Rule 	7056 	of 	the 	Federal 	Rules 	of 	Bankruptcy 	Procedure, 	summary
judgment 	is 	available 	“if 	the 	pleadings, 	depositions, 	answers 	to
interrogatories, 	and 	admissions 	on 	file, 	together 	with 	the
affidavits, if any, show that there is no genuine issue as to any
material fact and that the moving party is entitled to judgment as
a 	matter 	of 	law.” 	Fed. 	R. 	Civ. 	P. 	56(c); 	Celotex 	v. 	Catrett, 	477
U.S. 317 (1986) (citing Anderson v. Liberty Lobby, Inc., 477 U.S.
242, 250 (1986)).
A fact is deemed "material" if it potentially could affect the
outcome 	of 	the 	suit. 	Cortes-Irizarry 	v. 	Corporación 	Insular, 	111
F.3d 	184, 	187 	(1st 	Cir. 	1997). 	Moreover, 	there 	will 	only 	be 	a
"genuine" or "trial worthy" issue as to such a "material fact," "if
a 	reasonable 	fact-finder, 	examining 	the 	evidence 	and 	drawing 	all
reasonable 	inferences 	helpful 	to 	the 	party 	resisting 	summary
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judgment, could resolve the dispute in that party's favor." Id. The
Court 	must 	view 	the 	evidence 	in 	a 	light 	most 	favorable 	to 	the
nonmoving 	party. 	Ryan 	Rijos, 	263 	B.R. 	at 	388. 	Therefore, 	summary
judgment 	is 	“inappropriate 	if 	inferences 	are 	necessary 	for 	the
judgment and those inferences are not mandated by the record.” Id.
III. AUTOMATIC STAY AND REMEDIES
One 	of 	the 	cornerstones 	of 	the 	bankruptcy 	proceeding 	is 	the
protection of the automatic stay afforded to debtors who file under
any chapter of the Bankruptcy Code. The automatic stay is a form of
injunctive relief which:
provides 	for 	a 	broad 	stay 	of 	litigation, 	lien
enforcement 	and 	other 	actions, 	judicial 	or
otherwise, that are attempts to enforce or collect
prepetition 	claims. 	It 	also 	stays 	a 	wide 	range 	of
actions 	that 	would 	affect 	or 	interfere 	with
property 	of 	the 	estate, 	property 	of 	the 	debtor 	or
property in the custody of the estate.
3-362 Collier on Bankruptcy §362.01.
Section 362(a) of the Bankruptcy Code contains the automatic
stay provisions, which states at its pertinent parts:
(a) 	Except 	as 	provided 	in 	subsection 	(b) 	of 	this
section, 	a 	petition 	filed 	under 	section 	301, 	302,
or 	303 	of 	this 	title...operates 	as 	a 	stay,
applicable to all entities, of--
(1) the commencement or continuation, including
the 	issuance 	or 	employment 	of 	process, 	of 	a
judicial, 	administrative, 	or 	other 	action 	or
proceeding 	against 	the 	debtor 	that 	was 	or 	could
have been commenced before the commencement of the
case 	under 	this 	title, 	or 	to 	recover 	a 	claim
against 	the 	debtor 	that 	arose 	before 	the
commencement of the case under this title;
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11 U.S.C. § 362(a) (1).
Section 	362(k) 	indicates 	the 	remedies 	available 	to 	debtors
when the automatic stay provisions are violated by a third party,
to wit:
(k) 	(1) 	Except 	as 	provided 	in 	paragraph 	(2), 	an
individual 	injured 	by 	any 	willful 	violation 	of 	a
stay provided by this section shall recover actual
damages, including costs and attorneys' fees, and,
in appropriate circumstances, may recover punitive
damages.
11 U.S.C. § 362(k) (1).
To establish a successful claim for violation of the automatic
stay 	under 	section 	362(k), 	the 	debtor 	must 	demonstrate 	that 	a
creditor, or some other party, has willfully commenced or continued
an action or proceeding of those listed at section 362(a) against
the debtor, property of the estate or debtor’s property. 11 U.S.C.
§ 362(a) (1).
IV. DISCUSSION
Debtors 	contend 	that, 	prior 	to 	the 	commencement 	of 	the
bankruptcy 	case, 	they 	were 	"doing 	business 	as" 	("d/b/a") 	Galaxy
Prints, and that Galaxy Prints is Debtors’ trademark. 	Defendants
filed the Local Court Action against them. 	Debtors then filed for
bankruptcy. Although the Local Court Action was stayed as a result
of 	Debtors' 	bankruptcy 	filing 1 , 	Defendants, 	as 	local 	court
1 	On June 12, 2009, fifty six (56) days after having filed for protection under
the Bankruptcy Code, defendants in the local court action filed an informative
motion notifying of the existence of Debtors' bankruptcy petition (Exhibit 7 of
Docket No. 6). The local court entered a Judgment closing the case on June 23,
2009 (Exhibit 8 of Docket No. 6).
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plaintiffs, proceeded to file a motion requesting that the case be
continued as to Galaxy Prints, thereby violating the stay.
Defendants, 	on 	the 	other 	hand, 	argue 	that 	the 	prepetition
Local 	Court 	Action 	was 	initiated 	against 	separate 	entities.
Specifically, Defendants indicate that the Local Court Action was
filed against (1) Maldonado and his spouse, Crespo, (2) the legal
conjugal partnership composed between them, and (3) Galaxy Prints
(Exhibit 1 of Docket No. 6). To this extent, the Clerk of the Local
Court 	Action 	issued 	individual 	summons 	against 	Maldonado, 	the
legal conjugal partnership composed between Maldonado and Crespo,
and Galaxy Prints (Exhibit 2 of Docket No.6).
After the filing of the bankruptcy case, Hanes filed a motion
requesting that the Local Court Action be continued against Galaxy
Prints, 	Inc. 	(Exhibit 	9 	of 	Docket 	No. 	6). 	The 	local 	court
reinstated the proceedings exclusively against Galaxy Prints, Inc.
(Exhibit 13 of Docket No. 6).2
Defendants’ motion to dismiss is now treated as a motion for
summary 	judgment 	because 	it 	contains 	documents 	outside 	of 	the
pleadings 	to 	substantiate 	undisputed 	facts 	needed 	to 	resolve 	the
issue.
From a review of the local court documents that were attached
to 	the 	motion 	to 	dismiss, 	it 	is 	clear 	that 	Defendants' 	post-
2 Hanes filed a motion before the local court on June 29, 2009, requesting that
the 	collection 	of 	money 	proceeding 	be 	continued 	against 	Galaxy 	Prints, 	Inc.
(Exhibit 9 of Docket No. 6). On October 7, 2009, the local court reinstated the
proceedings exclusively against Galaxy Prints, Inc. (Exhibit 13 of Docket No. 6).
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petition actions were limited to requesting the continuation of the
Local Court Action exclusively as to Galaxy Prints, Inc. The body
of the motion to continue the Local Court Action expressly states
that their actions are directed at Galaxy Prints, Inc., except for
the caption of the proceedings, which merely state Galaxy Prints,
without the “Inc.”
Debtors 	have 	admitted 	to 	this 	Court 	on 	several 	occasions 	of
the existence of a Galaxy Prints corporation (Docket No. 13 at p.
4; 	and 	Docket 	No. 	14). 	Furthermore, 	Debtors 	and 	Galaxy 	Print's
counsel 	in 	the 	Local 	Court 	Action, 	Carlos 	Garcia 	Sotelo, 	Esq.'s,
has stated, post-petition, that Galaxy Prints is an entity separate
and distinct from the bankruptcy Debtors, and that said entity has
been made part of the local court proceedings (Exhibit 1 of Docket
No. 7, Minute of the April 21, 2010 status hearing held before the
local court).
As a matter of law, Galaxy Prints, Inc. is an entity separate
and distinct from the instant Debtors. Galaxy Prints, Inc. has not
filed 	a 	voluntary 	petition 	in 	bankruptcy; 	therefore 	it 	is 	not
afforded any automatic stay protection. This protection is limited
only to the Debtors who, indeed, have filed for bankruptcy.
According to the uncontested evidence on file, Defendants, as
local court plaintiffs, did not, at anytime, move the local court
3 See paragraph 2 of the Adversary Complaint which states that "Galaxy Prints,
Inc., 	is 	a 	legal 	Puerto 	Rico 	corporation 	in 	which 	[Debtors] 	are 	the 	sole
stockholders, and the debtor, Mr. Carmelo Maldonado, is the President." (Docket
No. 1)
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for 	the 	continuation 	or 	reinstatement 	of 	the 	local 	court
proceedings against the Debtors, Debtors' property, or property of
the 	estate. 	In 	light 	of 	the 	undisputed 	fact 	that 	the 	local 	court
action has been continued exclusively against Galaxy Prints, Inc.,
a 	non-debtor 	third 	party, 	the 	Court 	does 	not 	see 	any 	connection
between the continuation of the Local Court Action against Galaxy
Prints, Inc., and Debtors' automatic stay protection.
Notwithstanding 	this, 	Debtors 	claim 	that 	the 	Defendants 	did
not sue the Galaxy Prints Corporation prior to the filing of their
bankruptcy 	case, 	but 	instead 	originally 	sued 	Debtors' 	"d/b/a"
and/or 	their 	trademark. 	Debtors' 	contention 	is 	premised 	on 	the
omission of the word "Inc." from the caption and the summons of the
Local Court Action.
This 	Court 	does 	not 	have 	to 	delve 	into 	Defendants’ 	original
intent 	prior 	to 	Debtors' 	filing 	for 	bankruptcy 	protection. 	The
focus of the instant Adversary Proceeding is to determine whether
Defendants 	incurred 	in 	a 	willful 	post-petition 	conduct 	that
violated the stay against Debtors, Debtors' property or property of
the estate.
Pursuant to the undisputed facts of the case, it is clear that
Defendants’ 	post 	petition 	action 	was 	directed 	as 	to 	the 	Galaxy
Prints corporation, and not against the Galaxy Prints "d/b/a", and
that 	the 	Local 	Court 	action 	allowed 	the 	proceedings 	to 	continue
exclusively 	against 	Galaxy 	Prints, 	Inc., 	an 	entity 	separate 	and
distinct from the Debtors. Therefore, by having continued the Local
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Court Action solely as to the Galaxy Prints corporation, the Court
determines 	that 	there 	has 	been 	no 	violation 	towards 	Debtors'
automatic stay, much less a "willful violation" as required under
section 362(k)(1) of the Bankruptcy Code.
ORDER
WHEREFORE, 	IT 	IS 	ORDERED 	that 	Defendants' 	motion 	to 	dismiss
(Docket. 	No. 	6) 	shall 	be, 	and 	hereby 	is, 	GRANTED. 	Defendants'
motion 	for 	sanctions 	under 	Rule 	9011 	(Docket 	No. 	8) 	and 	Debtors'
Opposition (Docket No. 9) are hereby DENIED.
SO ORDERED.
Ponce, Puerto Rico, this 02 day of July, 2010.
MILDRED 	CABAN FLORES
U.S. Bankruptcy Judge
C: 	DEBTOR
MODESTO BIGAS MENDEZ
HANES BRANDS INC
LUISA S. VALLE CASTRO
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