Opinion

Court: United States Bankruptcy Court, D. Puerto Rico
Filed: Feb 13, 2018
Cited by: 0 cases
Authority: More cited than 41.3%

The opinion

1 IN THE UNITED STATES BANKRUPTCY COURT FOR

THE DISTRICT OF PUERTO RICO

IN RE: CASE NO. 14-09404 BKT

6 CESAR IVAN VARGAS QUINONES Chapter 11

Adversary No. 16-00108

9 Debtor(s)

CESAR IVAN VARGAS QUINONES

12 Plaintiff

13 vs.

15 UNITED STATES OF AMERICA,

INTERNAL REVENUE SERVICE;

16 COMMONWEALTH OF PUERTO RICO,

17 DEPARTMENT OF TREASURY OF

PUERTO RICO; STATE INSURANCE

18 FUND CORPORATION

Defendant(s) FILED & ENTERED ON 02/13/2018

22 OPINION & ORDER

BACKGROUND:

The United States Internal Revenue Service (hereinafter “IRS”) has requested this court to

reconsider its Opinion & Order entered on December 29, 2017 [Dkt. No. 82] (hereinafter

“Opinion”), under Rule 9023 of the Federal Rules of Bankruptcy Procedure. In their Motion for

1 Relief from Order [Dkt. No. 86], (hereinafter “Motion”) filed January 12, 2018, the IRS asked this

court to reconsider its ruling regarding two issues of law: (1) the manner in which the IRS must

record a lien on personal property, and (2) whether Section 506 of the Bankruptcy Code allows pre-

5 confirmation lien stripping in the context of a chapter 11 case.

As to the first issue of law, the IRS argues that their lien should be attached to personal

property, as well as real property, as such liens where filed properly with the District Court of Puerto

9 Rico. The IRS clarifies there is no state law designating a registry for tax liens to be filed, thus, as per

26 U.S.C. § 6323(f)(1), filing the tax lien with the clerk of the District Court should suffice for the

tax lien to attach not only to real property, but also to personal property. See also In re: Carlos

13 Escribano & Co., Inc., 433 B.R. 59, 61 (Bankr. D.P.R. 2010) and In re Perez, No. 15-04215 BKT,

2016 WL 1554969 (Bankr. D.P.R. Apr. 14, 2016).

As to the second issue of law submitted for this court’s reconsideration, the IRS

17 acknowledges the court’s authority to lien-strip, but questions its ability to do so before the

confirmation of the chapter 11 plan. In short, the IRS argues that allowing pre-confirmation lien

stripping creates the potential to deny a secured party “the value of its claim.” Southwest Boston

21 Hotel Venture, LLC, 748 F.3d 393, 407 (1st Cir. 2014)

To the IRS’s Motion, Debtor/Plaintiff presented on January 26, 2018, his Opposition to

Motion for Relief from Order [Dkt. No. 87] ( hereinafter “Opposition”], where Debtor argues against

25 the IRS’s liens filed at the Property Registry attaching to personal property. More specifically,

1 Debtor argues that this court’s previous rulings in Escribano and In rePerez were based on section

2004 of the local UCC which specifically excluded “a security interest subject to any statute of the

United States” from registry in the Puerto Rico Uniform Commercial Code (“PR-UCC”). See 19

5 L.P.R.A. § 2004; Escribano, 433 B.R. at 61. In 2012, this exclusion was removed from the PR-UCC.

Act No. 21-2012; [Dkt. No. 87, pg. 6]. Hence, Debtor assumes that absent that prohibition, Puerto

Rico state law now allows for the registry of federal tax liens at the PR-UCC registry at the

9 Department of State for 26 U.S.C. § 6323(f)(1) purposes.

Second, Debtor argues that:

[t]ax liens are statutory in nature and automatic once the taxpayer fails to pay its

taxes. Such tax lien needs to be public in order for such to be opposed onto third

13 parties, such as the Debtor in Possession. Regardless of where the tax [sic] line

should be recorded, in this case, pursuant to Claim No.4, the IRS only filed a notice

of tax lien for an amount $4,258.28. [See Claim No. 4, pg. 9]. [Dkt. No. 87, pgs.

15 7&8].

The IRS submitted its United States’ Reply on Motion for Relief from Order [Dkt. No. 88]

(hereinafter, the “Reply”) on February 2, 2018. The IRS argues against the validity of the registry

19 created under the PR-UCC, and again points to Escribano and In re Perez for support of its argument

in favor of declaring valid the lien filed with the District Court upon both, real and personal property.

The IRS also states that similar to In re Southwest Boston Hotel Venture, Debtor raised no

23 opposition to their argument against lien stripping prior to confirmation of plan.

GROUNDS FOR RECONSIDERATION:

Rule 9023 of the Federal Rules of Bankruptcy Procedure provides: “Except as provided in

1 this rule and Rule 3008, Rule 59 Fed .R .Civ .P. applies in cases under the Code. A motion for a new

trial or to alter or amend a judgment shall be filed, and a court may on its own order a new trial, no

later than 14 days after entry of judgment.”

5 In order to be considered, “the motion must demonstrate the ‘reason why the court should

reconsider its prior decision’ and ‘must set forth facts or law of a strongly convincing nature’ to

induce the court to reverse its earlier decision.” In re Pabon Rodriguez, 233 B.R. 212, 219 (Bankr.

9 D.P.R. 1999) (citing Dale & Selby Superette & Deli v. U.S. Department of Agriculture, 838 F.Supp.

1346, 1347 (D.Minn.1993)). “Motions under Rule 59(e) must either clearly establish a manifest error

of law or must present newly discovered evidence.” F.D.I.C. v. World Univ. Inc., 978 F.2d 10, 16

13 (1st Cir. 1992). Moreover, "[a] party cannot use a Rule 59(e) motion to rehash arguments previously

rejected or to raise ones that 'could, and should, have been made before judgment issued." Soto-

Padró v. Public Buildings Authority, 675 F.3d 1, 9 (1st Cir. 2012).

17 Lien over personal property

The IRS filed its amended Claim 4-2 on October 7, 2015. The IRS claimed an amount equal

to $155,184.81, consisting of taxes, interest and penalties, of which the IRS claimed $109,017.55 as

21 secured. Attached to the IRS’ amended Claim 4-2 is a copy of the liens filed at the Property Registry

and in the U.S. District Court for the district of Puerto Rico (hereinafter “District Court”). The IRS

provided evidence of having filed the following liens at the Property Registry: $31,961.45 on April

25 27, 2007; $4,258.28 on April 8, 2009; $2,448.36 on July 22, 2010; and $46,046.36 on May 1, 2012.

1 The IRS provided evidence of having filed the following lien at the District Court: $4,258.28 on

April 8, 2009.

In Plaintiff’s Motion for Summary Judgment [Dkt. No. 55], Debtor only requested the

5 stripping of the liens presented at the Property Registry; the $4,258.28 blanket lien was not

contested. This court based its Opinion, in part, on the evidence provided in amended Claim 4-2,

where the IRS only presented evidence of having filed with the District Court a lien for the amount

9 of $4,258.28. All other liens where only filed at the Property Registry, as per amended Claim 4-2.

That said, this court affirms the finding in its Opinion which states that the liens “were either

filed at the Property Registry or at the United States District Court for the District of Puerto Rico.”

13 See Dkt. No. 82, p. 16. Thus, in accordance with this court’s previous opinions, Escribano and In re

Pérez, the lien filed with the District Court for the amount of $4,258.28, which was not in dispute

and hence not expressly discussed in the Opinion, attaches to both, real and personal property, as it

17 complies with 26 U.S.C. § 6323(f). However, the other liens were only filed at the Property Registry.

Therefore, the liens which are in controversy and subject to the court’s ruling in this adversary

proceeding only attach to real property, as they do not meet the criteria established in 26 U.S.C. §

21 6323(f) for acquiring unitary or blanket lien status.

Stripping off liens prior to plan confirmation

The IRS argues in its Motion that, under certain circumstances, there might be a potential

25 windfall for Debtor and that in order to avoid such event from occurring, the liens subject to the

1 present adversary proceeding cannot be stripped prior to confirmation of the plan. While this court

has no objection to that claim, as per supported by In re Southwest Boston Hotel Venture, LLC , the

facts of the captioned adversary proceeding are distinguishable from the ones of In re Southwest

5 Boston Hotel Venture, LLC.

First, the IRS did not refute nor question the property valuations prior to filing its Motion. In

fact, the IRS agreed to the property valuations. As a result, the IRS is cannot argue a potential

9 windfall to Debtor at this point in the proceeding. The IRS is precluded from rehashing arguments

previously rejected or to raise new ones that could, and should, have been made before an opinion is

issued. See Soto-Padro, 675 F.3d at 9.

13 Second, there is no bright line when it comes to the time of valuation of property. The choice

depends on the purpose of the valuation, e.g, the treatment of a claim in a chapter 11 plan, whether a

creditor is entitled to port-petition interest under 11 U.S.C. § 506(b) or whether a secured claim may

17 be modified in a chapter 11 plan. See In re Cahill, 503 B.R. 535, 540 (Bankr. D.N.H. 2013).

Valuation can take place at the plan confirmation date, plan effective date, date of valuation hearing,

petition date or through a “flexible approach,” which allows the court some discretion as to when the

21 valuation should take place in order to determine the secured status of a creditor. See id.

Third, this court reiterates its Opinion in pertinent part where it states:

that the operative section allowing Debtor to request liens to be stripped from the

estate’s property is Section 506 of the Code, for which the IRS’ sovereign immunity

25 is abrogated. See 11 U.S.C. § 106. This court acknowledges that it is Debtor’s option

1 to “cram down” its creditors through the plan, as argued by the IRS. See 11 USC §

2 1123(b)(5). However, this court does not find any statutory authority or case law

making this latter option mandatory. Thus, there is no impediment to request liens to

3 be stripped through Section 506 via the present adversary proceeding.

Dkt. No. 82, p. 13.

6 For the above-stated reasons, this court reaffirms its Opinion and deems the stripping of lien

7 || via the present adversary proceeding correct and proper.

CONCLUSION:

10 The IRS’s motion for reconsideration fails to provide convincing reasons why this cou

11 |! should revisit its Opinion. Similarly, the IRS offers no compelling facts or legal grounds in suppor

of repealing the court’s prior decision. The IRS fails to present newly discovered evidence or an

14 intervening change in law. Rather, in disagreeing with this court’s Opinion, the IRS attempts t

15 | either confuse the court as to the liens over which the Opinion ruled upon, or to raise new argument

1 regarding their view on pre-confirmation lien stripping. For these reasons, the IRS’s arguments d

1g ||not warrant reconsideration by this court.

19 WHEREFORE, IT IS ORDERED that the IRS’s Motion for Relief from Order [Dkt. No. 86]

be, and hereby is, DENIED.

22 SO ORDERED

23 San Juan, Puerto Rico, this 13th day of February, 2018.

Brian K. Tester

U.S. Bankruptcy Judge

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.