Laboy v. Doral Mortgage Corp. (In re Laboy), 2011 U.S. App. Lexis 10881 (1st Cir. 5/27/11).
In re: Laboy; Calderon
Debtors Laboy and Calderon claimed they were unconstitutionally deprived of a hearing on the damages due to them as a result of a willful violation of the automatic stay by Appellees Doral Mortgage Corporation and its attorney, Edgardo Canales Idrach and Angel Rolan Prado. The Appellees, on the other hand, challenge the court's jurisdiction and also argue that the violation was not willful.
Debtors purchased property in Puerto Rico in 1996. Before the deed was officially recorded, the Debtors entered borrowed $25,000 from the Appellees, secured by a mortgage in the property. The Registry in Puerto Rico did not record the deed, saying it was defective, and the Debtors withdrew the deed. Because the conveyance deed was not recorded, the Appellees' mortgage deed was defective. The Appellees did nothing for at least six months after receiving this information, at which time the Debtors filed Chapter 13 bankruptcy, triggering the automatic stay.
The Appellees, having only an unsecured interest in the property as a result of having failed to be recorded, attempted to record their mortgage deed a second time. The Debtors filed an adversary action against the Appellees in bankruptcy court, claiming that this presentation of the mortgage deed willfully violated the automatic stay, which forbids any action to perfect a lien against estate property. See 11 U.S.C § 362(a)(4). In their defense, the Appellees argued that their postpetition attempt to perfect fell under the § 362(b)(3) exception to the automatic stay. The court agreed, and dismissed the action.
The Debtors moved for reconsideration and the court reversed its ruling, recognizing that the Appellees had knowledge of the unperfected status of the mortgage long before the Debtors' petition was filed. The court ordered the mortgage deed to be turned over to the debtors and cancelled. When Debtors sought damages, however, they were denied. The court found that cancellation was remedy enough, refusing to hold a hearing after first acceding to the request for a conference. The Debtors appealed.
On the issue of jurisdiction, the Appellees argued the court lacked jurisdiction because (1) the court's order on the motion for reconsideration was a final judgment , so the request for damages and this appeal are untimely, and (2) even if it were not a final judgment, the Bankruptcy Appellate Panel ("BAP") held it was, and their determination was not challenged. The court disagreed, holding that it has jurisdiction of timely appeals from all final decisions of intermediate bankruptcy tribunals under 28 U.S.C. § 158(d)(1). The court held that the court's order on the motion for reconsideration was not a final judgment, because the issue of damages had not been resolved although it had been requested in the Debtors' complaint, and the court itself had never used the word "judgment". The court then held that the BAP's dismissal of the Appellees' appeal did not constitute an implicit holding that the order was a final judgment, because the BAP is capable of hearing an appeal from an interlocutory order as well as a final one.
On the issue of whether or not the violation was willful, the court held that it was. While the Appellees argued that, although they intentionally and knowingly presented the mortgage deed to the Registry postpetition, Doral claimed Canales filed the deed because of Doral's pre-petition urgings, and Canales argued it lacked knowledge of the bankruptcy action. The court held, however, that Doral should have informed Canales of the bankruptcy petition, and Canales had responsibility to do more than follow Doral's words. They are, therefore, jointly responsible for the willful violation.
On the issue of whether the court erred in denying the Debtors a hearing on damages, the court held that the court did indeed err. Because the statute mandates actual damages following a willful violation of the automatic stay, the court reasoned that the opportunity to present evidence on damages after winning partial summary judgment is necessary . Thus, by denying this opportunity, the court frustrated both the statute's language and its mandated result. Remanded for a hearing on damages.
