CENTRO DE CUIDADO TITI NORMA INC v. ESTADO LIBRE ASOCIADO DE PUERTO RICO et al

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IN THE UNITED STATES BANKRUPTCY COURT FOR
THE DISTRICT OF PUERTO RICO
IN RE:
CENTRO DE CUIDADO TITI NORMA,
INC.
Debtor
CASE NO. 09-05827-BKT
Chapter 11
CENTRO DE CUIDADO TITI NORMA,
INC.
Plaintiff
VS.
ESTADO LIBRE ASOCIADO DE PR
DEPARTAMENTO DE LA FAMILIA
ACUDEN
Defendant
ADVERSARY NO. 09-00214
FILED & ENTERED ON 12/01/2009
DECISION AND ORDER
This proceeding is before the Court upon defendant’s motion for summary
judgment and plaintiff’s opposition. 	For the reasons set forth below, the motion
for summary judgment is granted and the captioned adversary proceeding is hereby
dismissed 	without 	prejudice 	to 	the 	Plaintiff/Debtor 	pursuing 	an 	appropriate
remedy in the State Court of the Commonwealth of Puerto Rico.
I. PROCEDURAL BACKGROUND
The “Centro de Cuidado Titi Norma, Inc” (“Debtor” or “Plaintiff”) provides
child care in a facility that operates from funds delegated by the Administration
for 	Comprehensive 	Child 	Care 	and 	Development 	(hereinafter 	“ACUDEN” 	for 	its
Spanish acronym or “Defendants”). On October 1, 2009, Debtor filed the captioned
adversary 	proceeding 	against 	the 	Commonwealth 	of 	Puerto 	Rico, 	the 	PR 	Family
Department, ACUDEN and their representatives for alleged violations of sections
362 and 525 of the Bankruptcy Code. On even date, Debtor filed a request for a
temporary restraining order and expedited hearing. [Dkt. No. 3]. The Court held
the hearing on October 15, 2009, and scheduled an evidentiary hearing for October
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29, 2009. Ultimately the hearing was rescheduled for November 12, 2009, but could
not go forward because Debtor’s representative could not attend. Debtor’s counsel
agreed that the case should continue the normal course of regular adversary
proceedings for violation of sections 362 and 525 of the Bankruptcy Code, thereby
withdrawing its request for a Temporary Restraining Order. On November 20, 2009,
Defendants filed a Motion for Summary Judgment [Dkt. No. 25]. Debtor filed an
opposition on November 28, 2009. [Dkt. No. 31]. The matter is submitted.
This Court has jurisdiction of the subject matter and the parties pursuant
to 28 U.S.C. §§1334 and 157(a) and the General Order of referral of Title 11
Proceedings to the United States Bankruptcy Court for the District of Puerto Rico
dated July 19, 1984 (Torruella, C.J.). This is a core proceeding in accordance
with 28 U.S.C. §157(b).
II. SUMMARY JUDGMENT STANDARD:
Under Federal Rule of Civil Procedure 56(c), made applicable in bankruptcy
by Federal Rule of Bankruptcy Procedure 7056, 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 Corporation v. Catrett, 477 U.S. 317
(1986) (citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250 (1986)). 	As to
issues on which the movant, at trial, would be compelled to carry the burden of
proof, 	it 	must 	identify 	those 	portions 	of 	the 	pleadings 	which 	it 	believes
demonstrates that there is no genuine issue of material fact. 	In re Edgardo Ryan
Rijos & Julia E. Cruz Nieves v. Banco Bilbao Vizcaya & Citibank (In re Rijos),
263 B.R. 382, 388 (B.A.P. 1st Cir. 2001). 	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 	judgment, 	could 	resolve 	the 	dispute 	in 	that
party's favor." Id. The Court must view the evidence in a light most favorable to
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the nonmoving party. 	In re Rijos, 263 B.R. 382, 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. LEGAL ANALYSIS AND DISCUSSION:
Section 	525(a) 	of 	the 	Bankruptcy 	code 	provides 	protection 	for 	Debtors
against discriminatory treatment from governmental units; in its pertinent part:
(a)…. a governmental unit may not deny, revoke, suspend, or refuse
to renew a license, permit, charter, franchise, or other similar
grant to, condition such a grant to, discriminate with respect to
such a grant against, deny employment to, terminate the employment
of, or discriminate with respect to employment against, a person
that is or has been a debtor under this title or a bankrupt or a
debtor under the Bankruptcy Act, or another person with whom such
bankrupt or debtor has been associated, solely because such bankrupt
or debtor is or has been a debtor under this title or a bankrupt or
debtor under the Bankruptcy Act…[emphasis ours]
Note that the standard of proof required of a plaintiff under Section 525
appears to be higher than the standard for most other discrimination statutes.
Here, the plaintiff must show that the institution discriminated against him
“solely because” of bankruptcy. See Laracuente v. Chase Manhattan Bank, 891 F.2d
17 (1st Cir. 1989). We assume that the words Congress chose, if not specially
defined, carry their plain and ordinary meaning. Boivin v. Black, 	225 F.3d 36,
40 (1st Cir.2000). In re Hill, 562 F.3d 29, Bankr. L. Rep. P 81,454 (1st Cir.,
Apr 01, 2009)
With these precepts in mind, we conclude that in order for this Court to
determine that ACUDEN violated 11 U.S.C. § 525(a), their rationale behind the
decision to deny the renewal of Debtor’s contract was solely because of the
bankruptcy filing.
According 	to 	the 	uncontested 	evidence 	presented 	in 	the 	record, 	the
undisputed facts are as follows:
1. The 	main 	reason 	why 	Debtors 	filed 	for 	bankruptcy 	is 	because 	of 	an
outstanding debt with the IRS. [Dkt. No. 24 and 25]
2. Plaintiff 	and 	defendants 	subscribed 	a 	contract 	to 	provide 	child 	care
services from October 1, 2008 to September 30, 2009. [Dkt. No. 24-6]
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3. On page 13 of the contract, Debtors are obligated to provide evidence of
the quarterly tax returns and evidence of payment. [Dkt. No. 24-6]
4. On August 19, 2009, Plaintiffs submitted a proposal to renew the contract
for fiscal year 2009-2010. [Dkt. No. 24 and 25]
5. On September 5, 2009, ACUDEN reviewed the proposal and decided to deny it
“because of IRS debt.” [Dkt. No. 24-1]
6. On September 8, 2009, ACUDEN informed Debtors that the proposal would not
be approved “because the agency cannot responsibly delegate funds to an
entity that is in bankruptcy and financially unstable.” [Dkt. No. 30]
7. On September 24, 2009, Debtors filed a reconsideration of the denial of
the contract’s renewal. [Dkt. No. 24-3]
8. On September 29, 2009, ACUDEN reaffirmed the decision to deny the renewal
of the contract. [Dkt. No. 30-1]
Again, it remains uncontested that prior to the letter denying the renewal
of 	the 	contract 	sent 	to 	Debtors 	on 	September 	8, 	2009, 	ACUDEN 	had 	already
determined that the IRS debt was the reason to deny the proposal on September 5,
2009. [Dkt. No. 24-1]. Therefore, under the plain language of Section 525(a) we
hold that Plaintiff’s claim is defeated by the clear showing that the bankruptcy
filing was not the sole reason for the denial of the renewal of the contract.
Debtors also allege that ACUDEN’s decision to deny the renewal of the
contract was in violation of section 362 of the Bankruptcy Code, in its pertinent
part:
(a)…a petition filed under…this title…operates as a stay, applicable to
all entities, of--
(1) the commencement or continuation…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;
Section 541 of the Bankruptcy Code specifies the types of property which
comprise the debtor's estate. Pursuant to section 541, property of the estate
includes “all legal or equitable interests of the debtor in property as of the
commencement of the case.” 11 U.S.C. § 541(a)(1). Debtor’s bankruptcy was filed
on 	July 	15, 	2009. 	[Dkt. 	No. 	1, 	09-02857] 	At 	the 	commencement 	of 	the 	case,
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Debtor’s contract with ACUDEN was valid until September 30, 2009. [Dkt. No. 24-6]
By operation of the subscribed contract, Debtor’s proprietary interests in the
funds were terminated on September 30, 2009. Id.
Furthermore, the FY 2008-2009 contract did not create an expectation of
renewal, as evinced in paragraph three of page five: 	“This contract does not
guarantee prospective funds or fixed assets for subsequent years, nor does it
presuppose or contemplate the continuity of the activities and services in the
contract beyond the contract period.” [Dkt. No. 24-6] In accordance with this
language, subsequent contracts are renewed independently each year. Hence, at the
end of any contract term, the decision to renew has no relation to the previous
year’s decision. In other words, the analysis made each year is independent and
therefore not controlling to the subsequent year.
Having determined that any future contract is not property of the estate
and therefore Plaintiff has no proprietary interest in any future funds, this
court concludes that plaintiff has failed to establish a violation of section
362(a)(1) of the Bankruptcy Code. Accordingly, the Court grants summary judgment
in favor of ACUDEN.
WHEREFORE, IT IS ORDERED that ACUDEN’s motion for summary judgment shall
be, and it hereby is, GRANTED and this adversary proceeding is DISMISSED.
Judgment will be entered accordingly.
SO ORDERED.
San Juan, Puerto Rico, this 1 st day of December, 2009.
Brian K. Tester
U.S. Bankruptcy Judge
C: 	DEBTOR
COMMONWEALTH OF PUERTO RICO, ACUDEN
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