REDONDO CONSTRUCTION CORPORATION v. MORP DEVELOPMENT CORPORATION et al

IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF PUERTO RICO
In re: :
:
REDONDO CONSTRUCTION CORP., : Case No. 02-02998 (GAC)
:
Debtor : Chapter 11
___________________________________:
:
REDONDO CONSTRUCTION CORP., :
:
Plaintiff :
:
v. : Adv. No. 04-00016
:
MORP DEVELOPMENT CORP., :
FRANCISCO RAMIREZ and DORAL BANK, :
:
Defendants :
___________________________________:
DECISION AND ORDER
The debtors filed this adversary proceeding on February 9,
2004, to determine whether Morp Development Corp. (“Morp),
Francisco Ramirez (“Ramirez”) and Doral Bank have unlawfully
withheld $2,125,511.00, which the debtor alleges is due under a
March 31, 2000 construction contract between the debtor and Morp.
The debtor contends that the act of withholding the funds violates
the automatic stay of 11 U.S.C. § 362(a)(3). The debtor also
contends that the act constitutes contempt, sanctionable under 11
U.S.C. § 105. The debtor seeks to hold Ramirez liable in his
personal capacity for his involvement in the project as the
President of Morp. Morp and Ramirez counterclaimed.
On November 29, 2005, Ramirez filed a motion to dismiss,
contending that he can not be held liable in his personal capacity
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(dkt. #120). In the admitted facts, the parties recognize that the
contract between them was signed on Morp’s behalf by Carmelo Ortiz
Cruz (“Ortiz”), as president of Morp. Ramirez contends that Ortiz
negotiated the contract, was involved with Redondo during the
construction and signed the payment certifications on Morp’s
behalf. Ramirez argues that his actions in trying to continue the
construction project after Redondo left the project, were only as
an officer and shareholder of Morp, not in his personal capacity.
He contends that the corporation is a legal entity, which is
separate and independent from its shareholders, and that he should
not be held liable for the contract of the corporation.
The debtor filed an opposition to the motion to dismiss
contending that the cause of action against Ramirez is not for
breach of contract but as a result of his unlawful withholding of
funds which the debtor argues are property of the debtor’s
bankruptcy estate (dkt. #122). The debtor states that the
complaint alleges several claims against Ramirez. The debtor
argues that it fulfilled its obligations under the contract with
Morp and that there is no valid reason for the withholding of
payments due under the contract. The debtor contends that Ramirez
willfully, maliciously and with dolus is improperly retaining the
funds. The debtor also states that the withholding is illegal and
without justification. The debtor contends that it states a cause
of action under 11 U.S.C. § 362(a)(3), which bars an act to obtain
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possession or control over property of the estate and that
Ramirez’s acts in withholding the payments are willful, because
they were done with knowledge of the bankruptcy petition.
Likewise, the debtor argues that Ramirez has committed contempt of
court and should be sanctioned under 11 U.S.C. § 105(a) for his
malicious intent or lack of good faith. The debtor also states
that Ramirez is obligated to turn the funds over under 11 U.S.C. §
542(a), because he is illegally and contumaciously holding them.
The debtor contends that Ramirez is liable under theories of
breach of contract and tort for his wrongdoing.
DISCUSSION
The debtor’s claim against Morp relates to Morp’s failure to
comply with payment obligations pursuant to its contract with the
debtor. Morp counters that it was relieved of the obligation to
make further payment to the debtor when the debtor failed to
complete work that it was obligated to perform. Morp likewise
claims to have suffered damages.
Different interests are protected by actions for breach of
contract and tort actions. Actions for breach of contract protect
interests in having promises performed and tort actions protect
interests in freedom from harms incident to intrusions upon legally
protected interests. W. Prosser, Torts 613, § 92. Repudiation of
a contract is not a tort. Redgrave v. Boston Symphony Orchestra,
Inc., 557 F.Supp. 230, 237 (D.Mass. 1983). As stated by the court
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in Redgrave:
a breach of contract is not, standing alone, a tort as
well. And it cannot be converted into a tort merely by
attaching to the contract, or to the breach, new labels
that sound in tort. Calling a “breach of contract” a
“tortious repudiation of contract” is no more helpful in
identifying a ground of tort liability than would be an
argument that every breach of contract–or perhaps every
willful breach-is a tort.
Id. at 238. “Absent some identifiable tort theory, no reason
appears for enlarging remedies for the breach of contract . . .
beyond those, supported by precedents, protecting the interest in
having promises performed.” Id.
This Court recognizes that an individual can be held liable
for torts that the individual committed while acting in their
official capacity as an officer of a corporation. See 3A Fletcher
Cyclopedia of Private Corp. § 1135. Notwithstanding, the First
Circuit has stated that “[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 11 U.S.C. § 362(h) is
met if there is knowledge of the stay and the defendant intended
the actions which constituted the violation.” Fleet Mortgage
Group, Inc. v. Kaneb, 196 F.3d 265, 269 (1st Cir. 1999). Likewise,
the First Circuit has held that a creditor’s violation of the
automatic stay is not a strict liability tort and that a debtor’s
recovery under a tort theory, requires proof that the creditor
violated the automatic stay under circumstances that satisfy the
elements of the tort theory in question. Vahlsing v. Commercial
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Union Insurance Co., Inc., 928 F.2d 486 (1st Cir. 1991).
In Spookyworld, the First Circuit Court of Appeals held that
corporations cannot sue under 11 U.S.C. § 362(h) to collect damages
for violations of the automatic stay. Spookyworld, Inc. v. Town of
Berlin, 346 F.3d 1, 8 (1st Cir. 2003). Nonetheless, corporations
may seek damages for automatic stay violations under 11 U.S.C. §
105(a). Id. The First Circuit recognized that damages awarded
pursuant to this section are contempt orders. Id. “[C]ivil
contempt is somewhat analogous to a tort judgment for damages.”
Morales Feliciano v. Rosello Gonzalez, 124 F.Supp.2d 774, 785
(D.P.R. 2000). But, the similarity does not equate a contempt
proceeding with being a tort action.
The debtor’s claim against Morp is for breach of contract and
the debtor seeks to have Morp held in contempt for violation of the
automatic stay and for failure to turnover funds that are property
of the estate. The debtor does not include any cause of action for
which Ramirez could be held individually liable. The debtor merely
characterizes Ramirez’s actions as unlawful, willful, with dolus,
illegal, without justification, malicious, lacking good faith,
contumacious and wrong. The Court concludes that the debtor has
failed to allege that Ramirez violated the automatic stay under
circumstances satisfying the elements of any tort theory.
Accordingly, the complaint will be dismissed as to Ramirez.
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ORDER
WHEREFORE IT IS ORDERED that the motion to dismiss, filed by
Francisco Ramirez (dkt. #120), shall be, and it hereby is, GRANTED.
SO ORDERED.
San Juan, Puerto Rico, this 28th day of February, 2006.
/s/ Gerardo A. Carlo
________________________________
GERARDO A. CARLO
Chief, U.S. Bankruptcy Judge
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