RODRIGUEZ LAMPLE et al v. BANCO SANTANDER PR et al

OCR transcription for search; preserved printed pages are authoritative

Caseli07-00092-ESL Doc#:70 Filed:05/23/08 Entered:05/23/08 15:35:12 Desc: Main

A SF ww bh

Oo CO sD DN

10
ie
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

AUTHENTICATED /
U.S. GOVERNMENT.
INFORMATION
GPO

Document Page 1 of 8

UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF PUERTO RICO

In re:
MARITZA RODRIGUEZ LAMPLE
IGNACIO CUSTODIO MUNOZ
Case No. 98-02737-ESL
Debtors Chapter 13
In re
MIGUEL ANGEL CRUZADO MIRANDA Case No, 04-10785-SEK/JG
Chapter 7
Debtor
MARITZA RODRIGUEZ LAMPLE

IGNACIO CUSTODIO MUNOZ AND
THE LEGAL COMMUNITY BETWEEN
THEM

MIGUEL ANGEL CRUZADO MIRANDA

Plaintiffs
Adv. Proc. No.: 07-00092-ESL
Vv. (consolidated with Adv. Proc. No. 07-00093)

BANCO DE SANTANDER DE PUERTO
RICO, WORLDWIDE ASSET
PURCHASING, LLC, AND UNITED
COLLECTIONS BUREAU, INC.

Defendants

OPINION AND ORDER
Before the court is the motion and supporting memorandum to stay discovery, class
certification and all pre-trial deadlines pursuant to Fed.R.Civ.P. Rule 26(c), filed on April 16, 2008
by Worldwide Asset Purchasing, LLC (“Worldwide”), and United Collection Bureau (“United
Collection”) Gointly, the “Moving Defendants”). (Dkt. 60, 61) (the “Motion to stay”).' The third

named defendant, Banco de Santander de Puerto Rico (“Santander”), did not separately move or join

* Rule 26(c) is extensive to bankruptcy proceedings pursuant to Bankruptcy Rule 7026. Matters in the docket
shall be referred to as “Dkt.

Case:

ho

~~“ DB A Fe Ww

10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

D7-00092-ESL Doc#:70 Filed:05/23/08 Entered:05/23/08 15:35:12 Desc: Main
Document Page 2 of 8

the Motion to stay filed by the Moving Defendants. (together with Santander, the “Defendants’’) For
the reasons set forth below, the Motion to stay 1s denied.
Relevant Facts And Procedural History

This is a consolidated adversary proceeding stemming from the Chapter 13 case of Maritza
Rodriguez Lample and Ignacio Custodio Munoz, Case No. 98-02737-ESL, and the Chapter 7 case
of Miguel Angel Cruzado Miranda, Case No. 04-10785-SEK/JG. (The “Plaintiffs”). The Plaintiffs
filed the instant class action complaint alleging violations of the discharge injunction codified in 11
U.S.C. § 524(a)(2) of the Bankruptcy Code (the “Code”), various sections of the Fair Debt
Collection Practices Act, 15 U.S.C. § 1692 et. seq. (the “FDCPA”’), and for injunctive relief from
further violations of the Code. The complaint was filed on April 5, 2007. (Dkt. 1). According to the
complaint, Santander filed claims in the Plaintiffs’ bankruptcy cases which, as provided for in their
cases, were discharged in 2003 and 2005, respectively. (the “discharged debt’’) Santander had actual
or constructive notice of Plaintiffs’ discharge. The Plaintiffs allege that during or after their cases,
but certainly on or before April 6, 2006, Santander sold or otherwise transferred the discharged debt
to Worldwide, which in turn sold or otherwise transferred the discharged debt to United Collections.
On various dates in April, May and June 2006, the Plaintiffs received letters from United Collections
conceming the discharged debt. (the “Collection Letters’). Plaintiffs claim that the Defendants have
a regular “policy or practice” of collecting discharged debt from similarly situated debtors, and seek
damages and injunctive relief for themselves and on behalf of all similarly situated debtors. (Dkt.
1).

Plaintiffs filed their opposition to the Motion to stay on May 8, 2008. (Dkt. 64) (“Plaintiff's
Opposition”), and the Moving Defendants filed a Reply on May 20, 2008. (Dkt 68) (Moving
Defendants’ Reply”). On even date with the Motion to stay, the Moving Defendants filed a motion
and memorandum to dismiss the complaint pursuant to Rule 12(b) subsections (1) and (6) of the
Federal Rules of Civil Procedure. (Dkt. 58, 59) (the “motion to dismiss”). Plaintiffs’ opposition to
dismissal is due on May 28, 2008. The Moving Defendants claim that a stay is proper is this case
because there are “dispositive legal issues” concerning Plaintiffs’ claims. (Dkt. 60 at 2). Accordingly,

discovery is not necessary in order for Plaintiffs to respond to the “legal issues” raised in the Moving

_2-

Case:

& Ww Nh

Oo CO TI A Ww

10
1
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

)7-00092-ESL Doc#:70 Filed:05/23/08 Entered:05/23/08 15:35:12 Desc: Main
Document Page 3 of 8

Defendants’ motion to dismiss. ? (Id.). Therefore, “in the interests of judicial economy,” the stay
should be granted in order to save time and expense. (Id. at 6).

Plaintiffs oppose the Motion to stay on several grounds. First, Plaintiffs question the
timeliness of the Motion to stay because it contravenes the terms of the Joint Case Management
Schedule (Dkt. 51) filed by the parties and approved by the court. (the “Schedule”’) (Dkt. 64 at 3).
Pursuant to the Schedule, discovery closes on July 15, 2008; depositions by June 8, 2008, and
dispositive motions are due by September 8, 2008. (Id.). Plaintiffs also assert that the Defendants
filed answers to the complaint, and “substantial” activity has occurred in the year since the action
was filed. (Id. at 2, 7). Relyingon Defendants’ answers, Plaintiffs served interrogatories and requests
for production in February 2008. Plaintiffs granted the Moving Defendants a 30-day extension of
time to respond, making their responses due on April 16, 2008. On that date, the Moving Defendants
filed the motions to stay and to dismiss. Santander did not request an extension and is in default of

discovery. (Id. at 3, f/n. 1). Plaintiffs argue that the motion to dismiss is “meritless” and will not

dispose of Plaintiffs’ case. (Id. at 2). Thus, the gist of Plaintiffs’ Opposition is that the Motion to
stay is a subterfuge intended to delay discovery, is untimely, contravenes the terms of the Schedule
and will cause prejudicial and costly delay in the resolution of this case because the motion to
dismiss lacks merit and will be denied.
Standard for granting a Rule 26(c) protective order

Federal Rule 26(c) “empowers the court to make a wide variety of orders for the protection
of parties and witnesses in the discovery process.” Wright & Miller, 8 Fed. Prac. & Proc. Civ.2d s.
2035, at 1 (2008 Thompson/West). “The rule requires that good case be shown for a protective
order.” /d. at 2. The burden is on the party seeking the protective order to establish good cause
through “a particular and specific demonstration of fact, as distinguished from stereotyped and

conclusory statements”... fd. The existence of good cause is “determined from the nature and

* The motion to dismiss seeks dismissal for failure to state a claim under § 524, citing the Plaintiffs’ failure to
allege that the Moving Defendants had actual notice about any aspect of the Plaintiffs’ bankruptcy cases. (Dkt. 58 at 5-7),
The Moving Defendants also claim that the court lacks subject matter jurisdiction over Plaintiffs’ FDCPA claims because
this 1s a post-discharge action and, therefore, those claims do not create “core” or “related to” jurisdiction under 28
U.S.C, 157, (Id. at 7-11).

_3-

Case:

wn lo

Oo co “ST DH

10
11
12
13
14
15
16
17

18
19
20
21
22
23
24
25
26
27
28

D7-00092-ESL Doc#:70 Filed:05/23/08 Entered:05/23/08 15:35:12 Desc: Main
Document Page 4 of 8

character of the information sought by [the propounded discovery] weighed in the balance of the
factual issues involved in each action.” /d. (citation omitted). Generic averments of financial burden
or expense caused by discovery are insufficient to meet the good cause requirement for a protective
order; specific objections to particular requests for discovery are usually necessary in order to show
good cause. /d. at 21. (citation omitted).

In this proceeding the Moving Defendants are not seeking a protective order against any
particular request for production or other discovery requested or noticed by Plaintiffs. Instead, the
Moving Defendants ask for an order staying all discovery until this court rules on their
contemporaneously filed motion to dismiss the complaint. “When it is apparent that the plaintiff has
failed to state a claim upon which relief can be granted, the defendant, in addition to moving to
dismiss [under Rule 12(b)], can move for a protective order suspending discovery until the court
decides the [motion to dismiss].” 10A Fed. Proc., L. Ed. § 26:296 (2008 Thompson Reuters/West).
In this regard, the Motion to stay must relate the facts or legal theories in the motion to dismiss
suggestive of the latter motion’s potential to end the case or an important aspect of it. In order to
obtain the stay order, the Moving Defendants must do more than merely “argue in conclusory
fashion” that their motion will succeed. 8 Fed. Prac. & Proc. § 2035 at 20, citing Gray v. First
Winthrop Corp., 133 F.R.D. 39, 40 (D.C.Cal. 1990) (class action). Otherwise, granting the stay based
on such “idle speculation... would undercut the Federal Rules’ liberal discovery provisions.” Jd.
Discussion

The Moving Defendants are not asking for the typical “protective order” to protect them from
annoyance, embarrassment, oppression, or undue burden or expense caused by Plaintiffs’ requests
for discovery. Instead, the Moving Defendants ask the court to stay discovery completely, until
resolution of their motion to dismiss, Courts may stay discovery when faced with a dispositive
motion. Feldman v. Flood, 176 F.R.D, 651, 652 (M.D.Fla. 1997) (citation and quotation omitted)
(denying motion to stay discovery pending resolution of motion to dismiss).“The moving party bears
the burden of showing good cause and reasonableness.” fd. However, staying discovery is not
favored by courts, as it may cause needless waste of judicial and the litigants’ resources and case

management problems. /d. “As a result, a request to stay all discovery pending resolution of a

_4-

Case:

“aI DH Ww FB WD bb

10
11
12
i3
i4
15
16
17
18
19
20
21
22
23
24
25
26
27
28

)7-00092-ESL Doc#:70 Filed:05/23/08 Entered:05/23/08 15:35:12 Desc: Main
Document Page 5 of 8

[dispositive] motion is rarely appropriate where resolution of the motion will not dispose of the
entire case.” /d., citing Lugo v. Alvarado, 819 F.2d 5 (1* Cir. 1987). Ordinarily, the court should not
stay discovery aimed at gathering the facts necessary to defend against the dispositive motion.
Feldman, 176 F.R.D. at 652. (citation omitted), The court must weigh the costs and burdens of
proceeding with discovery and “balance the harm produced by a delay in discovery against the
possibility that the [dispositive] motion will be granted and entirely eliminate the need for such
discovery.” McCabe v. Foley, 233 F.R.D. 683, 685 (M.D.Fla. 2006). Therefore, in order to decide
the instant Motion to stay, the court must take a “preliminary peek” at the merits of the motion to
dismiss filed by the Moving Defendants. fd.; Feldman, 176 F.R.D. at 652. The stay should be denied
if the motion to dismiss does not appear to be “clearly meritorious and truly case dispositive.” Id.
at 653.

Inthe motion to dismiss, the Moving Defendants correctly argue that “only willful violations
of the [discharge] injunction imposed by § 524(a)(2) will warrant a finding of civil contempt.” (Dkt.
58 at 5, citing cases), The elements of a § 524 violation are knowledge of the discharge order and
that the creditor intended to commit the acts that violated the order. See, in re Singleton, 269 B.R.
270, 275 (Bkrtcy. D.R.I. 2001). Inthe First Circuit, bankruptcy courts have the power to utilize § 105
in enforcing § 524, and have the authority to hear class action lawsuits such as this one and to
provide the same relief provided by the district courts. /d. at 277, citing Bessette v. Avco Financial
Services, Inc., 230 F.3d 439 (1* Cir. 2000).

A “preliminary peek” at the Moving Defendants’ motion to dismiss reveals that it may

partially dispose of this proceeding, but not entirely. In the motion to dismiss, the Moving
Defendants raise the issue of lack of “notice” of any aspect of Plaintiffs’ bankruptcy cases as a
defense to Plaintiffs’ section 524 claims. Specifically, the Moving Defendants argue that Plaintiffs’
failed to plead notice, and that even if Santander had notice of the bankruptcies, such notice cannot
be imputed to the movants. (Dkt. 58 at 6-7). However, the Moving Defendants have not alleged that
they did not have notice of Plaintiffs’ cases when they sent the Collection Letters, only that Plaintiffs
did not so plead. Furthermore, Santander, who may clarify the notice issues concerning all

Defendants, is in default of its duty to respond to Plaintiffs’ discovery requests and is not a party to

_5-

Case:

1 of oh

oO CO SDH

10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

)7-00092-ESL Doc#:70 Filed:05/23/08 Entered:05/23/08 15:35:12 Desc: Main
Document Page 6 of 8

the present Motion and to the motion to dismiss. For their part, the Moving Defendants have not
produced anything in response to Plaintiffs discovery requests, other than these motions.’ Finally,
the Plaintiffs’ assert that the Moving Defendants’ knowledge can be “inescapably inferred” from the |

complaint and, at any rate, we agree that the issue is something that can be cured by amending the

complaint. (Dit. 64 at 5). See, Singleton, 269 B.R. at 274 (granting leave to amend if the plaintiff
could, “in good faith”, plead the “allegations and buzz words” necessary to state a claim for willful
violation of § 362).

3 <6.

in summary, we find the Moving Defendants’ “notice” defense is not clearly dispositive of
this action. Critical, then, to the survival of the section 524 claims in the complaint is a determination
of whether the Moving Defendants had notice of the fact that they were attempting to collect
discharged debt. The existence of such evidence is something peculiarly within the Defendants’
custody, possession and control, and Plaintiffs should be allowed to carry out their inquiry in that
regard. Also, Plaintiffs’ allegation that “The Defendants maintain a policy or practice whereby they
attempt to collect discharged debts” (Dkt. 1, {| 43) may infer knowledge that the debts purchased
were discharged.

The Moving Defendants also argue that the post-discharge FDCPA claims are beyond the

“core” or “related to” jurisdiction of this court is not entirely without merit. However, reported

Circuit Court decisions appear to be divided on this issue. Some hold that discharged debtors must

find their remedies for the collection of discharged debt, if at all, under the law applying the
provisions of Code § 524. See, Walls v. Wells Fargo Bank, N.A., 276 F.3d 502 (9 ® Cir. 2002).

However, and as the Plaintiffs point out, other decisions can be interpreted as holding that

> We take due notice for future reference of the Plaintiffs’ objections to the timeliness of the Motion to stay and
its alleged use as a dilatory tactic. (Dkt. 64 at 2,7). Rule 26(c) does not impose a deadline for filing and we find that the
Motion to stay was timely filed. See, 10A Fed. Proc., L.Ed. §26:296 at 1 (“Motions for a protective order must be made
before or on the date the discovery is due.”). But as the Plaintiffs’ Opposition points out, the Moving Defendants were
a party to the “Joint” G.e., mutually agreed-upon) Schedule filed in this proceeding; they engaged in Rule 26 disclosures,
answered the complait, and requested an extension to produce discovery, which Plaintiffs’ graciously granted them, thus
avoiding costs and expenses in needless discovery disputes. Nevertheless, we stop short of holding that the Moving
Defendants are estopped from filing these motions at the present tume. Lugo, 819 F.2d at 7. Also, it appears that the
Plaintiffs, too, have not responded to the Defendants’ discovery requests. (Dkt. 68, Reply at 2). The parties are urged
to allow the free-flow of properly requested discovery.

Case:

i)

Oo © JT DB A & Ww

10
li
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

)7-00092-ESL Doc#:70 Filed:05/23/08 Entered:05/23/08 15:35:12 Desc: Main

Document Page 7 of 8

bankruptcy courts have concurrent jurisdiction to adjudicate claims under the Code and the FDCPA.
(Dkt. 64 at 6). See, Randolph v. IMBS, Inc., 368 F.3d 726 (7" Cir. 2004). Although we find that the
apparent split of authority among the Circuits on this issue can be harmonized, at this time we
express no view on the subject.

In this proceeding, Plaintiffs are in the process of gathering discovery pursuant to the
approved terms of the Schedule. Plaintiffs also have not briefed their opposition to the motion to
dismiss, which is due in a few days. Finally, though the parties do not discuss it, we must assume
that Plaintiffs’ requests are aimed at gathering evidence to support the merits of the legal claims as
well as the claims for injunctive relief stated in the complaint. Therefore, granting “an unqualified
stay of all discovery in this case would seriously curtail [the Plaintiffs’] opportunity to present an
adequate opposition to the motion [to dismiss] itself [while the Moving Defendants] enjoy the
advantage of a greater access and control over the evidence.” Lugo, 819 F.2d at 6, 7 (dismissing
interlocutory appeal of order conditionally denying motion to stay discovery pending resolution of
dispositive motion in a case involving claims for legal and equitable relief “because in most cases,
the scope of discovery as to the injunctive claim is practically the same as that involved in proving
damages.”). -

The Plaintiffs’ have not had “an adequate opportunity to conduct discovery” since none of
the Defendants have responded to discovery and Santander is in default. Aponte-Torres v. University
of Puerto Rico, 445 F.3d 50, 59 (1* Cir. 2006) (upholding a district court order granting stay of
discovery pending resolution of Rule 12(b)(6) motion to dismiss). In Aponte-Torres, the U.S.
District Court for the District of Puerto Rico granted the stay of discovery after underscoring the fact
that “ithe defendants’ dispositive motion had been fully briefed by all parties” therefore making
further discovery irrelevant to the issues raised by the motion to dismiss. /d. Discovery orders issued
under the procedural circumstances of Aponte-Torres are eminently fair and reasonable. Jd. (citing
cases); McCabe, 233 F.R.D. at 687 (granting stay of discovery after dispositive motion was fully
briefed). Clearly that is not the procedural situation in the case at hand, and Plaintiffs’ should be

allowed discovery.

Case07-00092-ESL Doc#:70 Filed:05/23/08 Entered:05/23/08 15:35:12 Desc: Main
Document Page 8 of 8

1 || Conclusion

he

For the foregoing reasons, the Motion to stay is hereby denied.

SO ORDERED.

Dated this 23 ‘Of May, 2008, in San Juan, Puerto Rico.

/ ENRIQUE 8. LAMOUTTE
U.S. Bankruptcy Judge

oO fo§ Ss DH Ww Be OW

10
ll
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28