How to proceed once an individual files for bankruptcy under Chapter 13 and the discretionary role of the Court of Appeals on intervening with a Court of First Instance’s case management decision according to BPPR v. Gómez Alayón; Oriental Bank, 2023 TSPR 145

Feb 2024
José Martínez-Rivera

On December 19, 2023, the Supreme Court of Puerto Rico issued an Opinion in BPPR v. Gómez Alayón; Oriental Bank, a case in which Delgado & Fernández LLC represented Oriental Bank who appeared as petitioner. In a nutshell, the Court of First Instance issued a post-judgment writ of attachment in favor of Banco Popular. In the process of executing the writ of attachment the debtor and co-defendant filed for bankruptcy under Chapter 13. Contemporaneously, the debtor requested from Oriental Bank the distribution of funds in his bank account that was in the process of being seized through the writ of attachment. To comply with bankruptcy law, Oriental Bank –who was not a party to the case– distributed the funds to the debtor and Banco Popular moved the Court of First Instance to find Oriental Bank in contempt of the Court for not complying with the writ of attachment. In denying Banco Popular’s request the Court of First Instance concluded that once the bankruptcy petition was filed, the Court automatically lost its jurisdiction and, in addition, the writ of attachment became ineffective. In other words, Oriental Bank’s actions were sound and in accordance with bankruptcy law. The Court of Appeals reversed the decision. In doing so, the Court of Appeals concluded that Oriental Bank was obliged to consult with the trustee of the Bankruptcy Court on how to proceed; by evading this consultation Oriental Bank caused damage to Banco Popular’s proprietary interest. Oriental Bank filed a writ of certiorari to the Supreme Court and insisted that its actions were in accordance with bankruptcy law, specifically, the automatic stay principle and the presumption that when a debtor files a Chapter 13 petition that debtor remains in possession of all property of the estate. The Supreme Court, in a published opinion, reversed the Court of Appeal’s judgment and validated Oriental Bank’s decision and the Court of First Instance’s judgment. In doing so, the Supreme Court accentuated that the Court of Appeals erred in intervening with the Court of First Instance’s reasonable and discretionary judgment. The Supreme Court also emphasized that, with the mere filing, the bankruptcy petition caused an automatic stay on the execution of the writ of attachment which, at that time, lost validity. Therefore, if Oriental Bank continued with the consignment process, it would have incurred in a violation of the automatic stay.

It should be noted that Chief Justice Oronoz Rodríguez dissented. In the dissent the Chief Justice expressed that the automatic stay did not have the effect of undoing the process already on course. From her standpoint, Oriental Bank should have consulted first with the Bankruptcy Court on how to proceed. Nonetheless, by affirming the Court of First Instance’s order the Supreme Court validated the way Oriental Bank proceeded under the circumstances of this case.