LUIS A SOTO RIOS and BRENDA TOSADO ARBELO

OCR transcription for search; preserved printed pages are authoritative

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IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF PUERTO RICO

ery

IN RE: : CASE NO. 08-01890

LUIS SOTO RIOS; BRENDA TOSADO

ARBELO D/B/A FERRETEROS SOTO;

FERRETEROS SOTO INC.; :

FERRETERIA SOTO INC. : CHAPTER 11

Debtors

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AMENDED OPINION AND ORDER

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Before the court is Luis Soto Rios and Brenda Tosado Arbelo’s (hereinafter referred to as

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“Debtor in Possession”) motion requesting Juan Amador (the “Creditor’”) to be held in contempt

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(Docket No. 138) for wilfully violating the automatic stay pursuant to 11 U.S.C. §362(a)(3) of the

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Bankruptcy Code and for failing to abide by this court’s orders regarding the turnover of certain estate

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property. Also, before the court is the related issue of whether Creditor violated the automatic stay

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pursuant to 11 U.S.C. § 362(a)(3) of the Bankruptcy Code by refusing to surrender certain estate

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property (Dockets No. 156, p. 128 and No. 87). For the reasons set forth below this court determines

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that the Creditor violated the automatic stay pursuant to 11 U.S.C. §362(a)(3) of the Bankruptcy Code

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and thus, Debtor in Possession is entitled to recover actual damages, including costs and attorneys’

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fees under 11 U.S.C. §362(k) of the Bankruptcy Code. This court also determines that Creditor is not

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in contempt of this court’s orders.

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Facts and Procedural Backsround

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Debtor in Possession filed a bankruptcy petition under Chapter 11 of the Bankruptcy Code

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on March 29, 2008. The 341 meeting of creditors was scheduled for May 5, 2008 (Docket No. 5) and

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was subsequently continued on May 16, 2008, (Docket No. 12) May 30, 2008 (Docket No. 16) and

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finalized on June 23, 2008 (Docket No. 24). Debtor in Possession, on May 30, 2008, included

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Creditor’s claim as an unsecured nonpriority claim in its amended Schedule F- Creditors Holding

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Unsecured Nonpriority claims (Docket No. 22). Debtor in Possession disclosed that the amount of

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claim was for $1,000.00 and the same was a contingent, unliquidated and disputed debt.

AUTHENTPEATED
U.S. GOVERINMENT
INFORMAFION

GPO

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Attorney Damaris Quifiones Vargas (“Attorney Quifiones”) on August 1, 2008 filed a notice
of appearance on behalf of Creditor in which she requested to be notified of all pending documents
and hearings related to this case and to be included in the master address list (Docket No. 50). The
Claims Register shows that Creditor on August 1, 2008 filed a proof of claim for an unsecured debt
in the amount of $50,000.00, claim number 37-1.

On November 3, 2008 Debtor in Possession filed a motion disclosing its intentions to
terminate its business operations and to retain Casas Subastas to expeditiously liquidate the inventory,
vehicles and any other movable equipment (Docket No. 65). The court on November 17, 2008 granted
the motion and permitted Debtor in Possession to terminate its business operations (Docket No. 75).
Subsequently, on November 26, 2008, Debtor In Possession filed a “Notice of Public Sale And
Certificate Of Mailing” by which it informed creditors and parties in interest that a public sale would
be held on December 6, 2008 at the hardware store located in Carr #2 Quebradillas, Puerto Rico
(Docket No. 79).

On November 26, 2008 Attorney QuifionesVargas filed a motion requesting to withdraw as
counsel of record for Creditor due to “unsurpassable differences” and requesting the court to grant
Creditor sixty (60) days to obtain new counsel (Docket No. 80). The court on December 1, 2008
granted Attorney Quifiones’ withdrawal as Creditor’s counselor and granted Creditor sixty (60) days
to employ new legal representation (Docket No. 81).

On December 10, 2008 Debtor in Possession filed a motion titled, “Motion Requesting
Turnover Of Property Pursuant To The Provision Of Section 542 Of Title 11 USCA And Request For
Order To Show Cause For Violation Of Automatic Stay Provisions” informing the court that Gilberto
Benitez had bought the red 45 feet long Fruehauf platform at the December 6, 2008 public sale and
that such platform was currently under Creditor’s possession and the same had not been turned over
to Debtor in Possession (Docket No. 87). Furthermore, Debtor in Possession in such motion alleged
the following: (i) the red 45 feet long Fruehauf platform is property of the estate; (ii) Creditor’s failure
to turn over property of the estate may constitute a violation of the automatic stay pursuant to 11
U.S.C. §362(a)(3) of the Bankruptcy Code; and (iii) Creditor’s violation of the automatic stay

constitutes sufficient grounds for the court to issue an order ordering the Creditor to show cause as

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to why he should not be held in contempt of the court and be liable for damages (Docket No. 87, pgs.
2-3). On January 14, 2009 the court granted the unopposed Debtor in Possession’s motion ordering
Creditor to turn over the red 45 feet long Fruehauf platform and ordering the Creditor to show cause
within thirty (30) days as to why he should not be found in contempt of court and sanctioned
accordingly (Docket No. 107). The court subsequently on January 16, 2009 issued another order
similar to the January 14, 2009 order but adding to the same that if a timely reply is filed the same
will be heard on February 24, 2009 (Docket No. 109).

On February 13, 2009, Creditor filed a motion in the Spanish language informing the court
that Mrs. Vargas handed him a notification on January 17, 2009 regarding the platform that was in
his possession and which the debtors wanted him to turn over to the estate. In this motion, Creditor
mentions that he did not receive notification of a prior motion (Docket No. 118). Also, in this same
motion Creditor alleges that during the month of June 2008 he notified the Bankruptcy Court during
the hearing that in his parcel of land he has a platform, a mack truck and a “tumba” due to a pre-
petition agreement he had reached with Mr. Soto in which such equipment constituted the source of
payment for the monies owed to him (“Desde el mes de junio de 2008 el tribunal de quiebra en la
vista que se celebro, le notifique que tengo la plataforma, que tenia un mack truck y una tumba que
estaban en mi solar debido a que el me debe dinero y yo tenia los equipos como fuente de pago a
razon de un acuerdo que habiamos llegado, esto antes de que el Sr. Soto se diera a Quiebra” (Docket
No. 118). Thereafter, Creditor filed several motions (Docket Nos. 119, 120 and 124) but the same will
not be discussed since they address tangential issues which are irrelevant to the issue at hand. On
February 20, 2009, Debtor in Possession replied to the motions filed by Creditor and reaffirmed its
position that the red 45 feet long platform is property of the estate and as such Creditor must turn over
the same to the estate (Docket No. 122). In said reply, Debtor in Possession referenced two (2) sworn
statements, but only attached one (1). However, on the same date Debtor in Possession filed the
second sworm statement (Docket No. 123). The first sworn statement is from Ratl Mercado
Rodriguez attesting the following: (i) that on February 23, 2002 he sold a “Fryhof” platform to Debtor
in Possession for the agreed-upon price of $5,000.00; (ii) Debtor in Possession paid this amount with

check number 1682 which corresponded to account number 084031514 held with Banco Popular de

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Puerto Rico; and (iii) the transfer of title was never effectuated because the platform would be used
internally in the hardware store of Debtor in Possession. The second sworn statement is from Gilberto
Benitez Reyes attesting the following: (i) that on January 16, 2009 he called Juan Amador to
telephone number 787-675-1070 to inform him that he had to turn over the 45 feet long platform (8
wheels) and that his response was that, “he will not do so;” and (ii) that Jaan Amador also informed
him that Luis Soto Rios owes him money and that he will not surrender the property unless he is paid.
Debtor in Possession alleges that, “[i]n the aforementioned motions Mr. Juan Amador admits that he
has the property and will not delivered it to its proper owner, because Mr Juan Amador alleges that
the debtor owes him monies. These motions can not be interpreted in any other way that as an
admission by Mr. Juan Amador that he is willfully violating the automatic stay” (Docket No. 122,
paragraphs 14-15). In this same reply, Debtor in Possession reaffirms its position that Creditor is
willfully violating the automatic stay pursuant to 11 U.S.C. §362(a)(3) and 362(a)(5) and as such,
Creditor should be subject to the imposition of costs, attorneys’ fees and punitive damages in
accordance with 11 U.S.C. §362(k)(1). Debtor in Possession also prays that Creditor be held in
contempt.

On February 24, 2009 a hearing was held based ona court order (Docket No. 109) for Creditor
to show cause as to why he should not be held in contempt nor sanctioned by this court for failure to
turn over estate property that was sold to Gilberto Benitez Reyes at a public sale. During the pendency
of this hearing the court on due process grounds granted Creditor twenty (20) days to retain counsel
and file a written reply to the motions and orders regarding the return of property to the estate (Docket
No. 125). The due process grounds, namely consisted of the following; (i) the court orders directing
the turnover of property (Dockets No. 107 and 109) were entered during the time (sixty day period)
that Creditor was given to retain new counsel (Docket No. 81) and the same were not notified to his
address.

After the allowed twenty (20) day period had elapsed for Creditor to respond to the orders and
motions with respect to the turnover of property of the estate, Debtor in Possession on March 17,
2009 filed a motion moving the court to submit the following rulings: (i) enter a contempt order

against the Creditor since the same failed to obtain counsel and reply to the orders and motions

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regarding the turnover of property to the estate; (11) enter a writ of execution to enforce the turnover
of property previously requested; and (iii) award Debtor in Possession costs, attorneys’ fees in an
amount not less than $5,000.00 (Docket No. 138).

On March 27, 2009 Creditor filed a motion requesting an extension of thirty (30) days to
answer Debtor in Possession’s motions for turnover of property and forty-five days (45) to appear
before court (Docket No. 144). Debtor in Possession on March 27, 2009 filed a motion objecting to
Creditor’s request on the grounds that Creditor’s failure to reply to the motions and court orders
regarding the turnover of property fails to satisfy the standard of excusable neglect under Fed. R.
Bankr. P. 9006(b)(1) (Docket No. 145). Creditor’s motion for an extension of time was denied by the
court at the March 31, 2009 evidentiary hearing (Docket No. 147).

An evidentiary hearing was held on March 31, 2009 to determine the following issues: (1) the
rightful ownership and/or title of the 45 feet long red Fruehauf platform (8 wheels); (ii) whether
Creditor violated the automatic stay by exercising control over property of the estate; and (iii)
whether Creditor should be held in contempt for violating this court’s order (Docket Nos. 107 and
109). The court after considering the testimony of four (4) witnesses (including Debtor in Possession
Luis Soto Rios and Creditor) and perusing through six (6) exhibits found by a preponderance of the
evidence that the 45 feet long red Fruehauf platform, which at the time of this evidentiary hearing was
held by the Creditor, is property of the estate and the same must be turned over within 24 hours to
Gilberto Benitez (who purchased said platform at a public sale held on December 6, 2008). The court
further ordered that failure to comply with this order would result in sanctions of $100.00 per day
(Docket No. 156, pg. 128). Creditor filed a motion informing the court that on April 1, 2009 he
turned over the 45 feet long red Fruehauf platform to Gilberto Benitez Reyes (Docket No. 148). The
court notes that Creditor has filed a motion stating that he does not object confirmation of the Chapter
11 plan (Docket No. 190).

The court welcomed the Creditor and Debtor in Possession to file post hearing findings,
proposed findings and conclusions of law within 30 days regarding the issues of violation of the
automatic stay and whether Creditor should be held in contempt for violating this court’s order.

Debtor in Possession was the only party that submitted proposed findings of facts and conclusions

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of law on May 13, 2009 (Docket No. 157).

Applicable Law and Analysis

Violation of the Automatic Stay & Statutory Remedies
The automatic stay in 11 U.S.C. §362(a) is one of the basic protections under the Bankruptcy
Code and becomes operative by the filing of the bankruptcy petition. Soares v. Brockton Credit Union

(In re Soares), 107 F. 3d 969, 971 (1* Cir. 1997). The automatic stay is extremely broad in scope and
“applies to almost any type of formal or informal action taken against the debtor or the property of

the estate.” Alan N. Resnick & Henry J. Sommer, 3 Collier on Bankruptcy 9362.03 (15 ed. 2009).

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Furthermore, the automatic stay also protects creditors since it prevents the “dismemberment of a
debtor’s assets by individual creditors levying on the property.” Id. The automatic stay provides
debtors with one of the cornerstone protections under bankruptcy law, giving debtors a “breathing
room” from the pressures of their creditors. See In re Soares, 107 F. 3d at 975. Given its utmost
importance in the bankruptcy system, courts “must display a certain rigor in reacting to violations of
the automatic stay.” In re Soares, 107 F. 3d. at 975-976.

Section 362(a)(3) specifically prohibits any action by any entity “to obtain possession of
property of the estate or of property from the estate or to exercise control over property of the estate.”
11 U.S.C. §362(a)(3). Once the petition has been filed, the trustee or debtor in possession takes

control of all property to maintain any going concern value and assure an equitable distribution

amongst creditors of the estate. Alan N. Resnick & Henry J. Sommer, 3 Collier on Bankruptcy
1362.03[5] (15" ed. 2009). “This requires that no entity seek to interfere with these tasks by taking
possession of or exercising control over property of the estate. It also requires that no entity grab non-
estate property from the estate without court supervision that comes from a stay relief proceeding.”
Id. Property of the estate is broadly defined as encompassing any property to which the estate has
some right. See 11 U.S.C. §541; United States v. Whiting Pools, Inc., 462 U.S. 198, 204, 76 L. Ed.

2d 515, 103 s. Ct. 2309 (1983)(‘Congress intended a broad range of property to be included in the
estate”).
Section 362(k)(1) allows an individual to recover actual damages, costs and attorneys’ fees,

and in appropriate circumstances punitive damages when he or she is injured by a willful violation

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of the automatic stay. See 11 U.S.C. §362(k)(1). “A willful violation does not require a specific
intent to violate the automatic stay. The standard for a willful violation of the automatic stay under
§362(h) is met if there is knowledge of the stay and if the Defendant intended the actions which
constituted the violation.”’ Fleet Mortg. Group, Inc. v. Kaneb, 196 F. 3d 265, 269 (1* Cir. 1994).

“The words ‘shall recover’ indicate that Congress intended that the award of actual damages, costs
and attorneys’ fees be mandatory upon a finding of a willful violation of the stay.” Heghmann v.
Indorf (In re Heghmann), 316 B.R. 395, 405 footnote 9 (B.A.P. 1* Cir. 2004) (quoting Ramirez v.
Fustelier (In re Ramirez), 183 B.R. 583, 589 (B.A.P. 9" Cir. 1995)); See In re Atamian, 344 B.R. 200,
205 (Bankr. D. Mass. 2006); Parker v. Boston Univ. (In re Parker), 334 B.R. 529, 536-537 (Bankr.

D. Mass. 2005). Moreover, a good faith belief in a right to certain property is irrelevant in determining

the willfulness in an automatic stay violation. Fleet Mortg. Group, Inc. v. Kaneb, 196 F. 3d at 268-

269. The burden is on the debtor to prove by a preponderance of the evidence that he suffered
damages as a consequence of the violation of the automatic stay. See In re Heghmann, 316 B.R. at
404-405. Under Section 362(k)(1) of the Bankruptcy Code actual damages should only be awarded
if there is concrete evidence which supports with reasonable certainty the amount of the award. Id.
at 405.

The court on the March 31, 2009 evidentiary hearing held by a preponderance of the evidence
that the 45 feet long red Freuhauf platform at the time of the filing of the petition was property of the
estate. At this evidentiary hearing, Jorge Pérez LaFuente, Debtor in Possession’s accountant, testified
that he performed a physical inventory approximately at the beginning of April 2008 of Debtor in
Possession’s property (Docket No. 156, pgs. 27-28, 37-38). The property listed in the physical
inventory included the inventory of the machinery, equipment and inventory located in the hardware
store in Quebradillas (specifically in the yard of the hardware store) (Docket No. 156, pgs. 28-29).
Jorge Pérez LaFuente further testified that at the time he took the physical inventory the only platform
he saw on the Debtor in Possession’s premises was the 45 feet long red Freuhauf platform (8 wheels),

but that he mistakenly wrote in the physical inventory equipment report that the platform was 95 feet

‘Section 362(k)(1) was previously codified as subsection 362(h) of the Bankruptcy Code.

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instead of 45 feet long (Docket No. 156, pgs. 31-32, 116-117). At this juncture, it is unbeknownst to
the court exactly when (at least since June of 2008 according to Docket No. 118) and how the
Creditor came to have possession of the 45 feet long red Freuhauf platform. Creditor has admitted
on multiple occasions that he is in possession of the 45 feet long red platform (Docket Nos. 137, pgs.
6-7; Docket No. 156, pgs. 92, 104; Docket No. 118) in consideration for (in exchange) monies that
Debtor in Possession allegedly owed him.

After considering all the evidence presented at the March 31, 2009 hearing, this court
concludes that Creditor wilfully violated the automatic stay pursuant to 11 U.S.C. §362(a)(3) since
he obtained possession and exercised control post-petition of the 45 feet long red Freuhauf platform,
which was property of the estate. The record clearly shows that Creditor had knowledge that Debtor
in Possession had filed for bankruptcy, given that the June 2, 2008 notice for continuance of the 341
creditor’s meeting for June 23, 2008, listed Creditor in the mailing matrix with the following address:
Carr 2, 6429 PMB 151, Quebradillas, PR 00678 (Docket No. 24). Furthermore, the June 23, 2008
minutes of meeting of creditors evidences that Creditor or a party representing Creditor (name of the
same is not very legible) was present at the June 23, 2008 creditors’ meeting (Docket No. 35, p. 3).
The record also shows that Creditor was represented by Attorney Quifiones for the period of August
1, 2008 through December 1, 2008 (Docket Nos. 50, 80 & 81).

This court, after finding that the Creditor wilfully violated the automatic stay, concludes that
the Debtor in Possession is entitled to recover actual damages, including costs and attorneys’ fees
pursuant to Section 362(k)(1) of the Bankruptcy Code. Debtor in Possession has prayed the court for,
“... the award of attorney fees in the amount of $5,000.00, plus costs and expenses and for any other
relief as is just and proper” (Docket No. 138, p. 2) Debtor in Possession shall provide the court with
documentary evidence which supports the costs and attorneys’ fees associated with the efforts
expended in obtaining Creditor to turn over estate property (45 feet long red Freuhauf platform).
Debtor in Possession has not submitted to the court any concrete evidence supporting the award of
a definite amount of actual damages other than costs and attorneys’ fees for violation of the automatic
Stay.

Civil Contempt Standard

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Bankruptcy courts are vested with contempt power. See Fernos- Lopez v. U.S. Dist. Ct., 599

F. 2d 1087, 1090 (1* Cir. 1979); Eck v. Dodge Chem. Co. (In re Power Recovery Systems), 950 F.

2d 798, 802 (1* Cir. 1991). “Since 1989 this court has opined that it has civil contempt power over
matters under its jurisdiction and has broad powers under section 105(a) to sanction and punish

contempt for violations of the automatic stay provisions of 11 U.S.C. §362(a).” Inre El Comandante

Mgmt. Co., LLC, 358 B.R. 1, 11(Bankr. D. P.R. 2006) referencing In re Cordova Gonzalez, 99 B.R.
188, 191 (Bankr. D. P.R. 1989). The bankruptcy court through Section 105(a) of the Bankruptcy

Code is afforded in necessary or appropriate circumstances broad authority to exercise its equitable

powers to ensure compliance with its own orders. Fatsis v. Braunstein, 405 B.R. 1, 7 (B.A.P. 1° Cir.

2009); See Ameriquest Mortg. Co. v. Nosek (In re Nosek), 544 F. 3d 34, 43 (1* Cir. 2008). However,

it is important to note that the court should use its civil contempt power “only to control cases and

proceedings in the most egregious of circumstances.” In re Cordova Gonzalez, 99 B.R. at 191.

Furthermore, Civil contempt must be proved by clear and convincing evidence by the claimant. In

re Parker, 334 B.R. at 538 citing Ellis v. Dunn (In re Dunn), 324 B.R. 175, 179 (D. Mass. 2005); See

Fatsis v. Braunstein, 405 B.R. at 7. “Federal courts are empowered to issue civil contempt sanctions

to ‘protect[] the due and orderly administration of justice and... maintain[] the authority and dignity
of the court’”_Goya Foods, Inc. v. Wallack Mgmt. Co., 290 F. 3d 63, 76 (1* Cir. 2002) citing
Roadway Express, Inc. v. Piper, 447 U.S. 752, 764, 65 L. Ed. 2d 488, 100 S. Ct. 2455 (1980). A

claimant alleging civil contempt of a court order must prove that the terms of the court order satisfy
the “clear and unambiguous” standard, which applies to the language of the relevant court order, not
to its effectiveness.” Goya Foods, Inc. v. Wallack Mgmt. Co., 290 F. 3d at 76 referencing Star Fin.
Servs. v. Aastar Mortg Corp., 89 F. 3d 5, 13 (1* Cir. 1996); See Fatsis v. Braunstein, 405 B.R. at 7.

The test for the “clear and unambiguous standard” is whether the contemnor is, “able to ascertain
from the four corners of the order precisely what acts are forbidden.” Goya Foods, Inc. v. Wallack

Mgmt. Co., 290 F. 3d at 76 citing Gilday v. Dubois, 124 F. 3d 277, 282 (1* Cir. 1997).

In civil contempt proceedings remedial sanctions are utilized as a mechanism to compel the
contemnor to abide by the court’s order or, where appropriate, to compensate the harmed party for

losses sustained. In re Power Recovery Systems, 950 F. 2d at 802. Moreover, in a civil contempt

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proceeding the “make-whole relief is a commonplace sanction for civil contempt” as well as
attorneys’ fees and costs. Goya Foods, Inc. v. Wallack Mgmt. Co., 290 F. 3d at 78 referencing G&C
Merriam Co. v. Webster Dictionary Co., 639 F. 2d 29, 41 (1* Cir. 1980). Most importantly, a

reasonable relationship based on competent evidence must exist between the amount of the monetary
“make-whole relief” remedial sanction and the actual losses sustained by the injured claimant. Goya
Foods, Inc. v. Wallack Mgmt. Co., 290 F. 3d at 78 referencing United States v. United Mine Workers,
330 U.S.258, 304, 91 L. Ed. 884, 67 S. Ct. 677 (1947)(‘The amount of an award of make-whole

relief, like the amount of any monetary sanction that is remedial in nature, cannot be plucked out of
thin air. The amount of such a sanction must be established by competent evidence, and must bear
a reasonable relationship to the actual losses sustained by the injured party.”)

In the instant case, Debtor in Possession requested Creditor be held in contempt for wilfully
violating the automatic stay and failing to abide by this court’s orders. This court held by a
preponderance of the evidence that Debtor in Possession was the rightful owner of the 45 feet long
red Freuhauf platform. Only after this finding was the court able to conclude herein, that the Creditor
wilfully violated the automatic stay by obtaining possession and exercising control of estate property.
Thus, the court’s finding that Debtor in Possession had wilfully violated is based on the
preponderance of the evidence, namely the testimonies that were presented at the evidentiary hearing,
and not by clear and convincing evidence which is necessary for establishing civil contempt. Creditor
failed to abide by the February 24, 2009 order by which the court granted the same twenty (20) days
to retain counsel and file a written reply to the motions and orders regarding the return of property
of the estate (Docket No. 125). In fact, it was not until March 27, 2009 that Creditor’s new attorney
filed a notice of appearance with the court (Docket No. 143) and on the same date requested an
extension of time (Docket No. 144) to answer Debtor in Possessions’ motions regarding the turn over
of estate property. The court finds that Creditor, a lay person with no knowledge of the bankruptcy
court system did in fact failed to abide by a court order. However, this court does not find that
Creditor acted in an egregious manner, and as such does not find him in civil contempt of a court
order.

Moreover, this court finds that Debtor in Possession’s request, “...that sanctions in the amount

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of $5,000.00 be imposed on Mr. Juan Amador for taking this Court’s time and our client’s time in
pursuing something such as unfounded as of now as it stands.” (Docket No. 156, pgs. 6-7) is
unsubstantiated since Debtor in Possession failed to present competent evidence to this court
establishing the actual losses it allegedly sustained.
Conclusion

The court holds that Creditor willfully violated the automatic stay pursuant to Section
362(a)(3) of the Bankruptcy Code. Thus, Debtor in Possession is entitled to recover costs and
attorneys’ fees in accordance with Section 362(k)(1). Debtor in Possession shall provide the court
within ten (10) days documentary evidence regarding the costs and attorneys’ fees associated with the
efforts expended in obtaining Creditor to turn over estate property. Furthermore, the court holds that
Creditor is not in contempt of this court’s orders.

SO ORDERED.

In San Juan, Puerto Rico, this 2phey of September 2009

.S. Bankrugtey Judge

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