ENRIQUE S. LAMOUTTE, Bankruptcy Judge.
This adversary proceeding is before this Court upon the Motion [for] Summary Judgment (Docket No. 148) filed by the Chapter 7 Trustee ("Plaintiff" or "Chapter 7 Trustee") of the estate of Eliseo Morales Garcia and Maribel Mena Melendez ("Debtors") and the Reply to Plaintiff's Motion for Summary Judgment [and Cross Motion for Summary Judgment]
Debtors Eliseo Morales García and Maribel Mena Meléndez filed a Voluntary Chapter 11 Bankruptcy Petition on December 9, 2004, Case No. 04-12461 (the "Lead Case"). On May 28, 2009, the case was converted to a Chapter 7 upon Debtors' request and on May 29, 2009, Noreen Wiscovitch-Rentas was appointed as Chapter 7 Trustee (the "Chapter 7 Trustee" or "Plaintiff"). See Lead Case Docket Nos. 205, 207 and 208.
During the course of the Lead Case, two previous adversary proceedings were filed. The first one (Adv. Proc. No. 05-00102) was filed by Debtors against Hon. Luisa Colom García (Judge of the Puerto Rico Court of First Instance, Superior Court of Bayamon) and the members of the estate of Maria Josefa, Maria de las Mercedes and Jose Antonio Gonzalez Rodríguez (the "Gonzalez Estate") to annul and void a public auction of real properties belonging to it and to recover damages for alleged violations to the automatic stay provisions in 11 U.S.C. § 362. An Opinion and Order (Adv. Proc. 05-00102 Docket No. 145) was entered in that proceeding on December 18, 2007 dismissing the case under Fed.R.Civ.P. 12(b)(1) for failure to state a claim upon which relief could be granted. The Debtors appealed that Opinion and Order
The second adversary proceeding (Adv. Proc. No. 06-00135) was filed by the Debtors against Arsan, Inc. and its owners seeking damages for an alleged breach of contract and violations to the automatic stay and for the turnover of property of the bankruptcy estate (Adv. Proc. 06-00135 Docket No. 1). That proceeding was subsequently settled and judgment was entered approving the stipulation
The third and instant adversary proceeding was filed by the Chapter 7 Trustee on October 29, 2010, whereby the Plaintiff seeks a determination that the bankruptcy estate owns 78.54% of the proceeds of the sale of certain real properties belonging to the González Estate that were sold in a public auction. Thus, she requests an order to the Clerk of the Puerto Rico Court of First Instance, Superior Court of Bayamon (the "PR Court of First Instance"), to turn over 78.54% of the proceeds of the public auction, representing approximately $2,878491.00, plus accrued interests. Said proceeds are currently consigned at the PR Court of First Instance. See Docket No. 1.
The Torres Defendants initially questioned this Court's subject-matter jurisdiction under Stern v. Marshall, ___ U.S. ___, 131 S.Ct. 2594, 180 L.Ed.2d 475 (2011). See Docket No. 83. On March 26, 2012, this Court issued an Opinion and Order (Docket No. 128), which is incorporated herein, wielding subject-matter jurisdiction over the instant proceeding
On May 3, 2012, the Plaintiff filed the Motion [for] Summary Judgment (Docket No. 148). She argues that the Debtors duly acquired the participation rights of the inheritance rights of several members of the Gonzalez Estate by virtue of various public deeds authorized by Notary Public Olga M. Shepard de Mari from 1996 through 1999, and that the sum of those participation rights amount to 78.54% of the total inheritance of the Gonzalez Estate. The Plaintiff also avers that the real properties of the Gonzalez Estate in controversy were sold at a public auction for $3,665,000.00 and that said amount was consigned at the for PR Court of First Instance. Thus, the Plaintiff seeks an order to have 78.54% of the proceeds of that auction be turned over to the bankruptcy estate.
On May 24, 2012, co-defendants Molina-Gonzalez and Gonzalez-Alvarado filed a New Motion in Opposition of Summary Judgment ... and Asking for Complaint Dismissal (Docket No. 163) arguing that the PR Court of Appeals "annulled all th[ose] sales and deeds"
On June 6, 2012, the Plaintiff filed an Answer to the Opposition filed by co-defendants Molina-Gonzalez and Gonzalez-Alvarado (Docket No. 164) asserting the
On June 13, 2012, co-defendants Molina-Gonzalez and Gonzalez-Alvarado filed a Reply to Answer (Docket No. 176) restating that the PR Court of Appeals declared null and void all the deeds in which the Debtors purchased their 78.54% participation in the Gonzalez Estate's properties, which to this date is res judicata.
On June 27, 2012, the Plaintiff filed an Answer to Motion to Reply (Docket No. 179) insisting that what the Debtors purchased was the "hereditary participation of several heirs" of the Gonzalez Estate, not the properties in controversy.
On July 6, 2012, the Torres Defendants filed their Reply to Plaintiff's Motion for Summary Judgment [and Cross Motion for Summary Judgment] (Docket No. 184). They contend that the Plaintiff's proposed facts "are undisputed" but claim other additional facts warrant summary judgment in their favor. In essence, they seek to nullify in this adversary proceeding all the options contracts and subsequent purchase agreements that the Debtors executed with them for lack of licit cause arguing that those documents contravene Article 95 of the Puerto Rico Mortgage Law, 30 L.P.R.A. § 2316. In the alternative, they allege that they are entitled to equitable remedies such as a constructive trust and/or payment of their claims under the unjust enrichment tort doctrine
On August 14, 2012, the Plaintiff filed a Reply to Co-Defendants Hector and Rene Torres['] Reply to Motion for Summary Judgment (Docket No. 194) contending that in regards to the "equitable remedies", the "purpose of the Bankruptcy Code is that all creditors are in the same position" and that "all the creditors are owed money by the Debtors and are not being paid preferably". Therefore, she sustains that "all unsecured creditors in this case are in the same position".
A hearing was held on September 4, 2012, to consider the Plaintiff's Motion [for] Summary Judgment and oppositions and replies thereto (Docket Nos. 205 and 206). After considering the parties' arguments, the Court determined that the issue of whether or not the Debtors' purchase of the hereditary rights is valid has not been decided by the Puerto Rico Courts or this Court. The Plaintiff was granted 45 days to supplement her Motion [for] Summary Judgment and Defendants were granted 30 days thereafter to reply.
On October 29, 2012, the Plaintiff filed a Supplemental ... Motion for Summary Judgment and Reply to Defendants['] Counter Summary Judgment (Docket No. 194). She contends that in their Reply to Plaintiff's Motion for Summary Judgment [and Cross Motion for Summary Judgment] (Docket No. 184), the Torres Defendants allege "irrelevant facts" to "confuse this ... Court" and that the only relevant facts are the ones she exposed in her Motion [for] Summary Judgment. She argues that 21 heirs of the Gonzalez Estate consented to sell their participation
No further replies were subsequently filed.
From the totality of the record, the following material facts are uncontested:
1. The Gonzalez Estate consists of the following real estate properties: (a) Parcel A located in Vega Baja, Rio Abajo Ward (plot no. 781 registered at page no. 206 of book 17 of the Bayamon Property Registry, 4th Section), from which several other lots were subsequently segregated; (b) Parcel B located in Vega Baja, Rio Abajo Ward (plot no. 896 registered at page no. 160 of book no. 20 of the Bayamon Property Registry, 4th Section) from which several other lots were subsequently segregated; and (c) Parcel C located in Vega Baja, Rio Abajo Ward (plot no. 275 registered at page no. 78 of book no. 8 of the Bayamon Property Registry, 4th Section) (hereinafter the "Real Estate Properties" or "Real Properties").
2. The Debtors acquired from the following heirs in the Gonzalez Estate their respective hereditary shares on each of the Real Estate Properties by virtue of the following deeds executed before Notary Public Olga M. Shepard de Mari in the following methods of payment
Percent Heirs in the in the Gonzalez Gonzalez Date of Value of Method of Estate Estate Deed No. Deed transaction Payment 1. Orlando Gonzalez 1.1702% 3 11/26/1996 $ 23,406.75 Paid in full Claudio 2. Mercedes 1.1702% 6 5/24/1999 $ 23,406.75 $1,000 received Gonzalez Claudio prior to execution of the deed; PN $22,406.75 3. Carmen M.V. 12.0081% 23 11/4/1999 $240,162.03 $24,162.03 at Gonzalez Santiago closing; PM $216,146.37 4. Estefania Rolon 5.5393% 24 11/4/1999 $110,786.18 $11,078.61 at Claudio closing; PM $99,707.57 5. Lizette M. 3.0795% 25 11/4/1999 $ 61,590.77 $6,159.08 at Marchand closing; PM Gonzalez $55,431.69 6. Magali M. 3.0795% 26 11/4/1999 $ 61,590.77 $6,159.08 at Marchand closing; PM Gonzalez $55,431.69 7. Jesus V. Simon 0.5901% 27 11/4/1999 $ 11,802.90 $1,180.20 at Gonzalez closing; PM $10,622.70 8. Maria C. Simon 0.5901% 28 11/4/1999 $ 11,802.90 $1,180.20 at Gonzalez closing; PM $10,622.70 9. Rosa M.R. 9.2386% 30 11/10/1999 $184,772.32 $18,477.23 at Gonzalez Santiago closing; PM $166,317.09 10. Juan R. Gonzalez 1.9969% 31 11/19/1999 $ 39,938.24 $3,993.83 at Rivera closing; PM $35,944.42 11. Octavio M. 1.9969% 32 11/19/1999 $ 39,938.24 $3,993.83 at Gonzalez Rivera closing; PM $35,944.42 12. Aida R. Gonzalez 1.9969% 33 11/19/1999 $ 39,938.24 $3,993.83 at Rivera closing; PM $35,944.42 13. Carlos I. Gonzalez 1.9969% 34 11/19/1999 $ 39,938.24 $3,993.83 at Nogueras closing; PM $35,944.42 14. Nelson J. 3.0795% 35 11/19/1999 $ 61,590.77 $6,159.08 at Marchand closing; PM Gonzalez $55,431.69 15. Rene E. Torres 2.7706% 36 11/19/1999 $ 55,412.53 $5,541.25 at Davila closing; PM $49,871.28 16. Hector A. Torres 2.7706% 37 11/19/1999 $ 55,412.53 $5,541.25 at Davila closing; PM $49,871.28 17. Sandra E. Molina 2.3400% 38 11/19/1999 $ 46,800.58 $4,680.05 at Gonzalez closing; PM $42,120.53
18. Josefa M. 8.5032% 39 11/19/1999 $170,064.51 $17,006.41 at Gonzalez Vega closing; PM $153,058.10 19. Maria M. Molina 2.3400% 40 11/19/1999 $ 46,800.58 $4,680.05 at Gonzalez closing; PM $42,120.53 20. Olga E. Ortiz 7.9872% 42 11/19/1999 $159,744.61 $15,974.46 at Gonzalez closing; PM $143,770.15 21. Manuel M. 4.2954% 43 11/19/1999 $ 85,908.45 $8,590.95 at Gonzalez Alvarado closing; PM $77,317.90 TOTAL 78.54%
See Docket Nos. 1 and 148-1, pp. 1-31.
3. On December 2, 2004, the Court of First Instance issued an Order to sell the Real Estate Properties at public auction. Docket No. 184, p. 65; Adv. Proc. 05-00105 Docket No. 123-1, p. 5. Pursuant to that Order, on December 20, 2004, the Real Estate Properties were sold at a public auction ordered by the PR Court of First Instance in the amount of $3,665,000.00. See Docket No. 68, p. 68; Adv. Proc. 05-00105 Docket No. 123-1, p. 8.
4. The proceeds from the public auction are currently consigned at the PR Court of First Instance in Case No. DAC1999-1252 (Docket No. 184, p. 76; Adv. Proc. 05-00102 Docket No. 123-2, p. 8).
5. The Debtors defaulted payments on the unsecured promissory notes that they gave defendants.
Fed. R. Bankr.P. 7056 makes Fed. R.Civ.P. 56 applicable to adversary proceedings. Fed.R.Civ.P. 56 provides that summary judgment should be entered "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 a judgment as a matter of law." Fed. R. Bankr.P. 7056. See also In re Colarusso, 382 F.3d 51, 58 (1st Cir.2004), citing Celotex Corp. v. Catrett, 477 U.S. 317, 322-323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986).
"The summary judgment procedure authorized by Rule 56 is a method for promptly disposing of actions in which there is no genuine issue as to any material fact or in which only a question of law is involved." 10A Wright, Miller & Kane, Federal Practice and Procedure: 3d § 2712 at 198. "Rule 56 provides the means by which a party may pierce the allegations in the pleadings and obtain relief by introducing outside evidence showing that there are no fact issues that need to be tried." Id. at 202-203. Summary judgment is not a substitute for a trial of disputed facts; the court may only determine whether there are issues to be tried, and it is improper if the existence of a material fact is uncertain. Id. at 205-206.
Summary judgment is warranted where a party fails to make a showing sufficient to establish the existence of an element essential to its case and upon which it carries the burden of proof at trial. Celotex Corp. v. Catrett, 477 U.S. at 322, 106 S.Ct. 2548. The moving party must "show that there is no genuine issue as to any
For there to be a "genuine" issue, facts which are supported by substantial evidence must be in dispute thereby requiring deference to the finder of fact. Furthermore, the disputed facts must be "material" or determinative of the outcome of the litigation. Hahn v. Sargent, 523 F.2d 461, 464 (1st Cir.1975) cert. denied 425 U.S. 904, 96 S.Ct. 1495, 47 L.Ed.2d 754 (1976). When considering a petition for summary judgment, the court must view the evidence in the light most favorable to the nonmoving party. Poller v. Columbia Broadcasting System, Inc., 368 U.S. 464, 473, 82 S.Ct. 486, 7 L.Ed.2d 458 (1962); Daury v. Smith, 842 F.2d 9, 11 (1st Cir.1988).
The moving party invariably bears both the initial as well as the ultimate burden in demonstrating its legal entitlement to summary judgment. Adickes v. S. H. Kress & Co., 398 U.S. 144, 157, 90 S.Ct. 1598, 26 L.Ed.2d 142 (1970). Also see López v. Corporación Azucarera de Puerto Rico, 938 F.2d 1510, 1516 (1st Cir.1991). It is essential that the moving party explain its reasons for concluding that the record does not contain any genuine issue of material fact in addition to making a showing of support for those claims for which it bears the burden of trial. Bias v. Advantage International, Inc., 905 F.2d 1558, 1560-61 (D.C.Cir.1990) cert. denied 498 U.S. 958, 111 S.Ct. 387, 112 L.Ed.2d 397 (1990).
The moving party cannot prevail if any essential element of its claim or defense requires trial. López, 938 F.2d at 1516. In addition, the moving party is required to demonstrate that there is an absence of evidence supporting the nonmoving party's case. Celotex, 477 U.S. at 325, 106 S.Ct. 2548. See also Prokey v. Watkins, 942 F.2d 67, 72 (1st Cir.1991); Daury, 842 F.2d at 11. In its opposition, the nonmoving party must show genuine issues of material facts precluding summary judgment; the existence of some factual dispute does not defeat summary judgment. Kennedy v. Josephthal & Co., Inc., 814 F.2d 798, 804 (1st Cir.1987). See also Kauffman v. Puerto Rico Telephone Co., 841 F.2d 1169, 1172 (1st Cir.1988); Hahn, 523 F.2d at 464. A party may not rely upon bare allegations to create a factual dispute but is required to point to specific facts contained in affidavits, depositions and other supporting documents which, if established at trial, could lead to a finding for the nonmoving party. Over the Road Drivers, Inc. v. Transport Insurance Co., 637 F.2d 816, 818 (1st Cir.1980).
The moving party has the burden to establish that it is entitled to summary judgment; no defense is required where an insufficient showing is made. López, 938 F.2d at 1517. The nonmoving party need only oppose a summary judgment motion once the moving party has met its burden. Adickes, 398 U.S. at 159, 90 S.Ct. 1598.
The court is required to view the pleadings in their entirety when passing a request for summary judgment. 10A Wright, Miller & Kane, Federal Practice and Procedure: Civil 3d § 2722 at 368. To do so, it may consider affidavits, depositions, admissions, answers to interrogatories and similar material to determine whether or not any of the post-pleading material suggests the existence of any other triable genuine issues of material fact. Id., § 2721 at 365-366.
Fed.R.Civ.P. 56 was extensively rewritten in 2010. See 10B Wright, Miller & Krane Federal Practice & Procedure: Civil 3d § 2737. The summary judgment standard now appears in subsection (a) of Fed.R.Civ.P. 56, rather than at subsection
In this case, the uncontested facts are supported by the evidence in the record and they are not disputed by the parties. Thus, summary judgment is warranted.
Subject to the debtor's right to reclaim certain property as exempt under 11 U.S.C. § 522, when a debtor files a bankruptcy petition, "all [of his/her/its] legal and equitable interests ... in property as of the commencement of the case" become part of the bankruptcy estate. 11 U.S.C. § 541(a). The bankruptcy estate is created automatically by operation of law immediately after the bankruptcy petition is filed. See 11 U.S.C. § 541(b); Nancy C. Dreher and Joan N. Feeny, Bankruptcy Law Manual, Volume 1 §§ 5:1-5:2 (2011-12) pp. 872-874. "It is from this central core of estate property that the debtor's creditors will be paid". Alan N. Resnick & Henry J. Sommer, 5 Collier on Bankruptcy ¶ 541.01 (16th ed. 2012). Section 726 of the Bankruptcy Code sets forth the distribution scheme of property of the estate in Chapter 7 cases.
The Court must determine if the Debtors duly acquired 78.54% of the Real Estate Properties in controversy under Puerto Rico law, for "[p]roperty interests are created and defined by state law". Stern v. Marshall, 131 S.Ct. at 2616, citing Travelers Casualty & Surety Co. of America v. Pacific Gas & Elec. Co., 549 U.S. 443, 451, 127 S.Ct. 1199, 167 L.Ed.2d 178 (2007), all quoting Butner v. United States, 440 U.S. 48, 55, 99 S.Ct. 914, 59 L.Ed.2d 136 (1979).
There is no dispute that the Debtors and 21 heirs in the Gonzalez Estate executed public deeds before Notary Public Olga M. Shepard de Mari to sell to Debtors their hereditary shares in the Real Estate Properties and that the addition of those hereditary shares amount to 78.54%.
Co-defendants Molina-Gonzalez and Gonzalez-Alvarado contend that the PR Court of Appeals "annulled all [those] sales and deeds" in its opinion issued on February 9, 2005 in case no. KLCE200401584 (Docket No. 163). This Court is not moved by that argument. A careful analysis of the PR Court of Appeals' opinion (Docket No. 184, pp. 61-81; Adv. Proc. 05-00102 Docket No. 123-1, pp. 1-8) reveals that the intermediate state court only considered the option agreements entered between the Debtors and certain heirs in the Gonzalez estate as follows:
The Torres Defendants, on the other hand, take a different approach. They aver that the contractual consideration of the purchase agreements was "the interest of the debtors in the participation of the heirs in the [Real Estate Properties] which were object of the agreements" not "to acquire hereditary rights in abstracto, but rather specific properties with detailed descriptions" (Docket No. 184, pp. 12-13, ¶¶ 31 and 33). Thus, the Torres Defendants contend that the "true cause or consideration of the agreement was to obtain title and ownership of the properties of the [Gonzalez Estate] not a mere abstract quota" (Docket No. 184, p. 13, ¶ 34), which is prohibited by Article 95 of the Puerto Rico Mortgage Law, 30 L.P.R.A. § 2316, and Article 102.1 of the Puerto Rico Mortgage Law Regulations, 30 L.P.R.A. § 870.379.
The evidence submitted by the Torres Defendants includes Deed No. 32 of Purchase of Hereditary Rights executed on November 19, 1999 before Notary Public Olga M. Shepard de Mari (Docket No. 184, pp. 48-57), whereby co-defendant Rene E. Torres Davila expressly sold to the Debtors the totality of his participation in the Real Estate Properties of the Gonzalez Estate
Puerto Rico's Supreme Court has ruled that the alienation of specific partial allotments of a property prior to adjudication does not have access to the Property Registry. See Gierbolini v. Registrador, 151 D.P.R. 315, 321 (2000). The purpose of that provision is to protect future acquirers against non-express conditions, since those alienations are subject to future partitions among the heirs. The totality or part of the hereditary rights, in abstract, is transferable. Id. at 322, citing from 33 Diario de Sesiones de la Asamblea Legislativa de Puerto Rico 1122, 1122-1123 (1979). Therefore, the only consequence of applying Article 95 is the Property Registrar's denial to record any deed whereby an heir in an estate transfers his/her hereditary rights. That does not necessarily mean that the deeds in the instant case are null per se. As a general rule, Puerto Rico's Property Registry is only declarative in nature, meaning that citizens are not mandated to record their transactions to constitute their validity
In view of the foregoing, this Court finds that the Debtors duly purchased 78.54% of the Real Estate Properties of the Gonzalez Estate and because the Debtors acquired said shares pre-petition, they are now part of the bankruptcy estate pursuant to Section 541 of the Bankruptcy Code. And since the Real Estate Properties were sold at public auction and the proceeds are consigned at the PR Court of First Instance, the bankruptcy estate is entitled to retrieve the equivalent of 78.54% of those proceeds.
The Torres Defendants invoke this Court's equitable powers to "move the Court to order payment to defendants of the monies owed to them under the promissory notes signed in November 19, 1999" (Docket No. 184, p. 16, ¶ 53). They allege that the Debtors "never paid" for the 78.54% participation in the Real Estate Properties of the Gonzalez Estate (Docket No. 184, p. 17, ¶ 60). They contend that "it is only fair ... that from the proceeds of [the] public auction, defendants are paid what they are owed" and "any balance that remains, would have belonged to the Debtor[], and thus becomes property of the estate" (Docket No. 184, p. 16, ¶ 54). They made their intention in seeking equitable remedies clear:
To that extent, they purport two equitable remedies: a constructive trust and the tort doctrine of unjust enrichment. As further discussed, in reality, they constitute one remedy.
The Torres Defendants' arguments are flawed for two reasons. First, the contention that the Debtors "never paid" for the hereditary shares in the Gonzalez Estate's Real Properties is misplaced. Article 1334 of Puerto Rico's Civil Code expressly allows a purchaser "to pay a certain price ... in money or
Second, it is well settled that "equitable powers ... in the bankruptcy courts must and can only be exercised
With that initial framework, the Court will proceed to analyze the constructive trust remedy sought by the Torres Defendants.
A constructive trust is a court-imposed trust relationship, created ex post facto, to return property to its rightful owner. Generally, a constructive trust may be imposed when one party has acquired legal title to property under circumstances that such party could not, in good conscience, retain the beneficial interest thereto. See Zimmermann v. Epstein Becker & Green, P.C., 657 F.3d 80, 83 (1st Cir.2011), citing Great-West Life & Annuity Ins. Co. v. Knudson, 534 U.S. 204, 213, 122 S.Ct. 708, 151 L.Ed.2d 635 (2002); 76 Am.Jur.2d Trusts § 168. A constructive trust presupposes a wrongful acquisition of property such as misappropriation, fraud, mistake, breach of duty, abuse of confidential relations and duress or undue influence. See Emily L. Sherwin, Constructive Trusts in Bankruptcy, 1989 U. Ill. L.Rev. 297, 329 (Jan. 1989); Restatement of Restitution § 166; CRS Steam, Inc. v. Engineering Resources, Inc. (In re CRS Steam, Inc.), 225 B.R. 833, 836 (Bankr.D.Mass.1998). The standard to establish a constructive trust requires clear and convincing evidence. See Halart, L.L.C. v. Indep. Auto Warehouse, Inc. (In re Twin B Auto Parts, Inc.), 271 B.R. 71, 84 (Bankr.E.D.Va.2001); Gembitsky v. DeSteph (In re DeSteph), 2010 Bankr.LEXIS 1593 at *30, 2010 WL 2206983 at * 10 (Bankr.D.N.H.2010). Its central objective is to prevent unjust enrichment. Zimmermann v. Epstein Becker & Green, P.C., 657 F.3d at 83.
In Puerto Rico, "a constructive trust may be imposed on realty in Puerto Rico under the appropriate circumstances." United States v. Garcia, 532 F.Supp. 325, 331-332 (D.P.R.1981), citing 31 L.P.R.A. § 7; Rossy v. Superior Court, 80 P.R.R. 705 (1958); Luperena v. Transportation Authority, 79 P.R.R. 438 (1956); Fernandez v. Laloma, 56 P.R.R. 348, 357 (1940); In re Las Colinas, Inc., 294 F.Supp. 582, 606 (D.P.R., 1968). Also see Corporacion Insular de Seguros v. Reyes-Munoz, 849 F.Supp. 126, 135 (D.P.R.1994) ("Puerto Rico also recognizes the creation of constructive trusts"). "A constructive trust may be imposed [in Puerto Rico] upon real property in the possession of third persons that has been acquired with funds
Bankruptcy courts have also imposed constructive trusts. For instance, in Claybrook v. Consolidated Foods Inc. (In re Bake-Line Group LLC), 359 B.R. 566 (Bankr.D.Del.2007), a chapter 7 trustee filed a preference action against the transferee of funds the debtor paid it after the debtor realized it erroneously received and deposited funds, which were intended for the transferee. In denying the relief requested by the trustee, the court held, that the debtor held the funds for the transferee/defendant in a constructive trust. Accordingly, the debtor never had an interest in the funds, and those funds did not become part of the bankruptcy estate. Id. at 575.
"Many [bankruptcy] courts nonetheless recognize the tension that exists between
The Torres Defendants have failed to show any fraudulent wrongdoing or duress by the Debtors by clear and convincing evidence in the acquisition of their shares in the Gonzalez Estate's Real Properties. They only allege that lack of payment on the promissory notes is unfair. Pursuant to Puerto Rico jurisprudence, a constructive trust doctrine is only applicable to
For the reasons previously stated, the Torres Defendants' claim for a constructive trust for unjust enrichment is denied.
When a debtor files for bankruptcy, some of his/her/its property may be in possession of third parties. Section 542 of the Bankruptcy Code provides the mechanism to turnover property of the estate to the trustee wherever located. It requires a third party in possession of "property that the trustee may use, sell, or lease" to deliver that property to the trustee. 11 U.S.C. § 542. See Alan N. Resnick & Henry J. Sommer, 5 Collier on Bankruptcy ¶ 542.01 (16th ed. 2012); William D. Warren, Daniel J. Bussel, David A. Skeel, Jr. Bankruptcy, Foundation Press, 9th ed. 2012, pp. 36-37.
Section 542 was added to the Bankruptcy Code as part of the Bankruptcy Reform Act of 1978 to expand the trustee's power to "bring into the estate property in which the debtor did not have a possessory interest at the time the bankruptcy proceedings commenced," thereby ensuring that a broad range of property is included in the bankruptcy estate. Braunstein v. McCabe, 571 F.3d 108, 116 (1st Cir.2009), citing United States v. Whiting Pools, Inc., 462 U.S. 198, 205, 207-08, 103 S.Ct. 2309, 76 L.Ed.2d 515 (1983).
In view of the foregoing, the Court grants Plaintiff's Motion [for] Summary Judgment and therefore orders the Clerk of the PR Court of First Instance to issue a check payable to Plaintiff Noreen Wiscovitch Rentas, Chapter 7 Trustee, in the amount of 78.54% of the amount consigned proceeds of the public auction of the Real Estate Properties in Case No. 1999-1252, plus accrued interests, if any.
Judgment will be entered accordingly.
SO ORDERED.
