RICHARD FIGUEROA MORALES

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IN THE UNITED STATES BANKRUPTCY COURT FOR
THE DISTRICT OF PUERTO RICO
IN RE:
RICHARD 	FIGUEROA MORALES 	CASE NO. 10-02531 BKT
Chapter 13
XXX-XX-4782
FILED & ENTERED ON 08/23/2011
Debtor(s)
OPINION AND ORDER
This contested matter is before the court upon Debtor’s objection to claim
#9 [Dkt. No. 45] filed by RICHARD FIGUEROA MORALES (“Debtor”), Creditor's Answer
to Objection to Claim 9 [Dkt. No. 51] filed by OPERATING PARTNERS CO., INC.
(“Creditor”) and debtor’s reply to Creditor's answer to debtor's objection to
claim [Dkt. No.57].
I. Procedural Background
On October 15, 2010, Creditor filed Proof of Claim Number 9 as a secured
claim 	in 	the 	amount 	of 	$8,925.00 	for 	attorney’s 	fees 	in 	connection 	with 	a
September 1, 2009 default judgment in the Commonwealth of Puerto Rico, Superior
Court in Arecibo. On January 25, 2011, Debtor filed the instant Objection to
Proof of Claim against Creditor alleging that the attorney’s fees stated are
excessive and unreasonable and therefore not owed.
Debtor 	alludes 	to 	the 	“equitable 	principles 	in 	the 	administration 	of
bankruptcy 	proceedings” 	to 	impugn 	the 	reasonableness 	of 	the 	attorney’s 	fees
awarded 	to 	Creditor 	in 	the 	state 	court 	judgment 	while 	arguing 	that 	it 	is
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impossible that the matter required such exorbitant attorney’s fees given that
the judgment was rendered on default and no litigation actually took place.
Debtor further alleges that the requirements of Bankruptcy Rule 3001(d) are not
met in that Creditor failed to detail the billable hours worked and thus prove
that their claim is a perfected security.
Creditor argues that the Arecibo Court’s determination with respect to the
prepetition 	attorney’s 	fees 	is 	binding 	on 	the 	Bankruptcy 	Court 	since 	the
foreclosure judgment delivered by the state court has a preclusive effect. For
the reasons set forth below, the Objection to the Proof of Claim filed by the
debtor is DENIED.
This 	Court 	has 	jurisdiction 	over 	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. Applicable Law & Discussion
A. Claim preclusion
The issue before this court relates to the preclusive effect, if any, of a
prepetition state court judgment rendered on default. All federal courts must
give preclusive effect to a state court judgment when the courts of the state
from which the judgment was rendered would do so. Judicial judgments shall be
given the same full faith and credit in every court within the United States and
its territories and possessions as they have by law or usage in the courts of
such state, territory or possession from which they are taken. 28 U.S.C.S. §
1738. For this reason, the preclusive effect of a state court judgment in a
federal proceeding depends on the state’s own law. Cruz v. Melecio, 204 F.3d 14,
18 (1st Cir. 2000).
Under Puerto Rico law, it has been established that the party asserting
claim preclusion or res judicata must establish: (1) the existence of a prior
judgment 	on 	the 	merits 	which 	is 	"final 	and 	unappealable,"; 	(2) 	the 	perfect
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identity of thing or cause, and (3) the perfect identity of parties and the
capacity in which they acted. Boateng v. Interamerican University, Inc., 210
F.3d 56 (1st Cir. 2000). 	Creditor argues that all these factors are present in
the case at bar, that res judicata therefore applies to the Commonwealth court’s
default 	judgment, 	and 	that 	consequently, 	the 	objection 	raised 	by 	Debtor
regarding the attorney’s fees must be denied. We agree.
To determine whether claim preclusion is appropriate, each element of the
claim preclusion doctrine must be analyzed with reference to the facts of every
particular case. The element of “party identity” does not merit much discussion
because it is clearly the same two parties. As to identity of the cause of
action, the court must consider whether the debtor's counterclaims herein should
have been raised as counterclaims in the foreclosure proceeding. In Neca Mtg.
Corp. v. A & W Developers S.E., 137 D.P.R. 860, 867, 1995 Juris P.R. No. 10,
1995 WL 905586 (1995), the Puerto Rico Supreme Court held that if a defendant
fails to file a compulsory counterclaim, said cause of action is waived and the
facts and claims that constitute said cause of action are deemed adjudicated by
the ensuing judgment, barring the defendant from later initiating a claim based
on the same events. In those circumstances, the court held that the doctrine
of res judicata would apply in connection with the issues that could have been
raised in the counterclaim but were not. Id. Rule 11.1 of Puerto Rico's Rules of
Civil Procedure defines compulsory counterclaims as those that arise out of the
same act, omission or event that motivated the complaint filed by the adverse
party. 31 P.R. Stat. Ann., Ap. III
The last element necessary to establish claim preclusion, the existence of
a "prior final judgment on the merits," may raise certain doubts with regards to
judgments rendered on default. Creditor relies on a case from the Bankruptcy
Court for the District of Massachusetts which considered this issue and held:
“While this element requires slightly more attention, it is no
more of an obstacle than the other elements of claim preclusion.
The Supreme Judicial Court of Massachusetts has unequivocally held
that 	even 	a 	default 	judgment 	is 	entitled 	to 	finality. 	See
MacEachern v. S.S. White Dental Mfg. Co., 304 Mass. 419, 23 N.E.2d
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1020 (1939) (stating that when a defendant to an action has a full
and 	fair 	opportunity 	to 	defend 	its 	position 	in 	a 	court 	having
jurisdiction, 	and 	sufficient 	notice 	has 	been 	provided, 	the
defendant 	should 	not 	be 	permitted 	to 	raise 	defenses 	in 	a
subsequent proceeding that could have, or should have, been raised
in the first instance); see also Riehle v. Margolies, 279 U.S.
218, 225, 49 S. Ct. 310, 313, 73 L. Ed. 669 (1929) ("[a] judgment
of a court having jurisdiction of the parties and of the subject-
matter 	operates 	as 	res 	judicata, 	in 	the 	absence 	of 	fraud 	or
collusion, even if obtained upon a default."); SMA Life Assurance
Co. 	v. 	Sanchez-Pica, 	960 	F.2d 	274, 	275 	(1st 	Cir. 	1994), 	cert.
denied, 506 U.S. 872, 113 S. Ct. 207, 121 L. Ed. 2d 147 (1992);
Carteret Sav. & Loan Assn. v. Jackson, 812 F.2d 36, 38 (1st Cir.
1987); Koziol v. H. P. Hood, Inc. (In re Koziol), 18 B.R. 1014,
1017 	n. 	2 	(1982)(stating 	that 	"[a] 	default 	judgment 	is
nevertheless a final judgment, since the defaulted party has lost
the right to appear or defend." (citations omitted)). Adopting a
view that a default judgment is anything other than final 	would
undermine 	the 	utility 	of 	such 	a 	judgment 	and 	reward 	those 	who
chose to ignore judicial proceedings. See, Carteret Sav. & Loan
812 	F.2d 	at 	38 	(stating 	that 	if 	a 	default 	judgment 	were 	not
considered final it "would be of uncertain value, and represent
simply 	one 	step 	toward 	resolving 	the 	dispute 	between 	the
parties…the judgment creditor would remain faced with a prospect
of [future] litigation").” In re Brennan, 275 B.R. 172 (Bankr. D.
Mass. 2002) emphasis ours.
In Brennan, the court concluded its opinion by pointing out that “The
Debtor, with full knowledge of the state court proceeding, allowed a default to
enter against him despite his participation as a witness in the case. The Debtor
has not attempted to challenge the personal or subject matter jurisdiction of
the Massachusetts Superior Court, nor has he alleged fraud in the procurement of
the default judgment. Rather, in an effort to collaterally attack that judgment,
the 	Debtor 	has 	raised 	defenses 	that 	would 	have 	been, 	and 	should 	have 	been,
properly submitted in the state court action.” Id.
In In re Garcia, 340 B.R. 680 (Bnkr. D.P.R. 2006), the Bankruptcy Court
for 	the 	district 	of 	Puerto 	Rico 	decided 	a 	very 	similar 	issue 	to 	the 	one
presented to this court and concluded that a foreclosure judgment rendered on
default 	by 	the 	Superior 	Court 	of 	the 	Commonwealth 	of 	Puerto 	Rico 	is res
judicata to any TILA claims that the debtor may raise in a succeeding bankruptcy
case. 	The 	court 	used 	the 	decision 	set 	forth 	in 	Albano 	v. 	Norwest 	Financial
Hawaii, Inc., 244 F.3d 1061, 1063 (9th Cir. 2001) as part of their analysis and
pointed out the following:
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“In that case, the borrowers defaulted on a refinanced mortgage
loan, and the lender brought a foreclosure action against them in
state 	court. 	The 	borrowers 	did 	not 	appear 	and 	the 	state 	court
entered a default judgment against them, which the borrowers did
not appeal. Subsequently, the borrowers sought to rescind the loan
transactions, 	alleging 	TILA 	violations, 	ultimately 	bringing 	an
action 	against 	the 	bank 	in 	federal 	court. 	The 	district 	court
entered summary judgment in favor of the lender, finding that the
TILA 	claims 	should 	have 	been 	raised 	in 	the 	state
court foreclosure proceeding. 	The 	court 	of 	appeals 	affirmed,
concluding 	that 	the 	elements 	of res 	judicata were 	met; 	namely,
there was a final state court judgment, which was not appealed,
and in which the borrowers had an opportunity to participate; the
borrowers 	and 	the 	lender 	were 	both 	parties 	to 	the 	state
court foreclosure proceeding; 	and 	there 	was 	identity 	of 	issues
because the TILA claims arose out of the same loan transaction as
appellee's suit and as such was a recoupment defense to diminish
plaintiff's 	recovery." 	R-G 	Fin. 	Corp. 	v. 	Garcia 	(In 	re
Garcia), 340 B.R. 680, 688 (Bnkr. D.P.R. 2006)
The court explained that a default judgment was entered against the debtor
in a foreclosure action which he did not appeal. Debtor then looked to rescind a
mortgage 	loan 	agreement 	for 	noncompliance 	with 	statutory 	loan 	disclosure
requirements in his bankruptcy case. 	The court concluded that res judicata
precluded the debtor's relitigation of the validity of the loan debt since the
debtor's nondisclosure claims were compulsory counterclaims which the debtor
waived by not raising the claims in the foreclosure action. Id. at 688
The controversy at hand contains all three elements needed for the claim
preclusion doctrine to apply. The parties in both actions are the same; the
claim 	for 	attorney’s 	fees 	brought 	to 	this 	court 	is 	based 	on 	a 	prior 	state
foreclosure proceeding; and that judgment became final after the debtor decided
not to defend his position in the state court and/or the appellate court. The
debtor had a full and fair opportunity to defend his position. By not doing so,
he is now barred by the principles of claim preclusion from requesting to this
court 	a 	revision 	of 	the 	attorney 	fees 	adjudicated 	in 	the 	state 	foreclosure
proceedings.
B. Rooker Feldman Doctrine
The Rooker-Feldman doctrine 	bars 	"cases 	brought 	by 	state-court 	losers
complaining 	of 	injuries 	caused 	by 	state-court 	judgments 	rendered 	before 	the
district 	court 	proceedings 	commenced 	and 	inviting 	district 	court 	review 	and
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rejection of those judgments." Exxon Mobil Corp. v. Saudi Basic Indus. Corp.,
544 U.S. 280, 284, 125 S. Ct. 1517, 161 L. Ed. 2d 454 (2005).
The doctrine applies where plaintiff explicitly seeks review of a state
court judgment and also where review is implicitly sought. See Federacion de
Maestros v. Junta de Relaciones del Trabajo 410 F. 3d 17, 24 (1st Cir. 2005).
The 	debtor 	lost 	in 	the 	state 	foreclosure 	proceeding 	and 	never 	appealed 	any
aspect 	of 	the 	state 	court 	determination; 	he 	now 	comes 	to 	the 	federal 	court
alleging injuries as a result of the “unjustified” attorney fees adjudicated
against him in the ruling. Judgment was entered on September 2009, long before
this case was filed. To the extent debtor requests the federal court to review
an 	aspect 	of 	the 	state 	court’s 	ruling, 	his 	claim 	is 	barred 	by 	the 	Rooker-
Feldman doctrine.
III. Conclusion
In view of the foregoing, the court finds that the issue concerning the
attorney 	fees 	in 	the 	state 	foreclosure 	case 	was 	adjudicated 	and 	may 	not 	be
reviewed by this court. For all the foregoing reasons, the Debtor's objection to
Creditor’s Proof of Claim Number 9 is hereby DENIED.
IT IS SO ORDERED.
San Juan, Puerto Rico this 23 day of August, 2011.
Brian K. Tester
U.S. Bankruptcy Judge
CC: 	DEBTOR(S)
EDGARDO 	MANGUAL GONZALEZ
ALEJANDRO 	OLIVERAS RIVERA
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