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Winter 2003-11 Bankruptcy judge reverses attachment rulings
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Winter 2003-11 Bankruptcy judge reverses attachment rulings

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Number 50
Winter 2003
from our archives-1991

Bankruptcy judge reverses attachment rulings

Reversing two previous decisions of his, Bankruptcy Judge Enrique Lamoutte has concluded that a pre-judgment attachment is valid security. As a result of the decision, at least two judges assigned to the Bankruptcy Court in Puerto Rico concur as to a point of law they used to disagree on.

 

Judges concur

 

In 1987 Judge Lamoutte rendered two opinions to the effect that an attachment made by a creditor did not become a security enforceable in Bankruptcy Court unless judgment had been entered ( In re: Seijo Custodio, 74 B. R. 11, In re: Resto Del Valle, 73 B.R. 216). The exact opposite conclusion was reached by Judge Sarah de Jesús two years later, in the case of In re: Moscoso Villaronga, 111, B.R. 13 (1989). The issue came up again before Judge Lamoutte in Quadrel Leasing de Puerto Rico, Inc. v. Carlos A. Rivera, Inc. (In re: Carlos A. Rivera, Inc., WL 163147 (August 21, 1991), but this time he concurred with Judge de Jesús and revoked his decisions in Seijo Custodio and Resto Del Valle.

 

Unsecured debt

 

Quadrel Leasing de Puerto Rico, Inc. had an unsecured credit against Carlos A. Rivera, Inc., resulting from the lease of several trailer trucks for the transportation of hazardous chemicals. To collect the same, in March, 1989, Quadrel filed a suit before the Superior Court of Puerto Rico and garnished property of the debtor. Before judgment could be entered against it, the defendant filed for protection under the Bankruptcy Code (in June, 1990) and effectively stayed the collection process. When Quadrel applied for the Bankruptcy Court’s permission to collect the garnished goods, the debtor raised as a defense that, as the debt was unsecured, the creditor was not entitled to the remedy.

Bankruptcy law stipulates that the stay of collection proceedings may be lifted only in the case of collateral security (and only if said collateral has no equity to benefit the unsecured creditors and, in a Chapter 11 reorganization case, is not necessary to reorganize the debtor effectively).

 

Garnishment as security

 

Faced with the fact that in 1987 he had ruled that pre-judgment attachments were not to be considered as security, Judge Lamoutte reexamined the Bankruptcy Code and the decisions rendered by other courts, and changed his views on the matter. The judge quoted from the case of Yumet & Co. v. Delgado, 243 F. 519 (1st Cir. 1917) as follows: “That what is in substance a lien upon the property attached is created when an attachment is made under the above provisions of the Puerto Rican Code cannot in our opinion be denied. The right or interest then acquired by the plaintiff in property so attached is referred to as a ‘lien’ in the decisions of the Supreme Court of Puerto Rico.”

The two previous inconsistent rulings were revoked, and the automatic stay was lifted as requested by Quadrel.

 

‡‡ Note:

 

The result could be different if the debtor files the bankruptcy petition within the 90 days following the attachment. The Bankruptcy Code provides that a lien obtained during said period may be set aside if it secures a previously unsecured debt and certain other conditions are met.

© 2003 Goldman Antonetti