USCA1 Opinion
UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT
____________________
No. 92-1651
FEDERAL DEPOSIT INSURANCE CORPORATION,
Cross-Plaintiff, Appellee,
v.
SHEARSON-AMERICAN EXPRESS, INC., ET AL.,
Cross-Defendants.
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BANCO COOPERATIVO DE PUERTO RICO,
Intervenor, Appellant.
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No. 92-1652
FEDERAL DEPOSIT INSURANCE CORPORATION,
Cross-Plaintiff, Appellee,
v.
SHEARSON-AMERICAN EXPRESS, INC., ET AL.,
Cross-Defendants.
__________
PRUDENTIAL BACHE SECURITIES, INC.,
Intervenor, Appellant.
____________________
APPEALS FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF PUERTO RICO
[Hon. Raymond L. Acosta, U.S. District Judge]
___________________
____________________
Before
Stahl, Circuit Judge,
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Campbell, Senior Circuit Judge,
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and Skinner,* Senior District Judge.
_____________________
____________________
Manuel Fernandez-Bared and Ramon Coto-Ojeda with whom Nestor M.
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Mendez-Gomez and McConnell Valdes Kelley Sifre Griggs & Ruiz-Suria
____________ ____________________________________________________
wereon brief forintervenor, appellant PrudentialBache Securities, Inc.
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*Of the District of Massachusetts, sitting by designation.
Plinio Perez Marrero for intervenor, appellant Banco Cooperativo
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De Puerto Rico.
Enrique Peral with whom Munoz Boneta Gonzalez Arbona Benitez &
_____________ _________________________________________
Peral, Ann S. Duross, General Counsel, Colleen B. Bombardier, Senior
_____ _____________ _____________________
Counsel, Jaclyn C. Taner, Counsel, and Richard Schwartz were on brief
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for cross-plaintiff, appellee.
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June 24, 1993
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CAMPBELL, Senior Circuit Judge. In these appeals,
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two creditors challenge appellee's rights to the assets of
the mastermind of a multimillion dollar fraud, each creditor
claiming that it has a superior claim to the money.
Miguel Serrano Arreche ("Serrano"), a former Puerto
Rico stockbroker, was indicted and convicted in 1985 of wire
fraud, mail fraud, and other violations of federal criminal
statutes. Serrano's misdeeds have been extensively
chronicled elsewhere. See, e.g., United States v. Serrano,
___ ____ ______________ _______
870 F.2d 1, 3-5 (1st Cir. 1989).1 The primary victim of
Serrano's fraud was Home Federal Savings and Loan Association
("Home Federal"), a Puerto Rico bank which collapsed partly
from losses caused by Serrano. United States v. Serrano, 870
_____________ _______
F.2d at 4. The Federal Savings and Loan Insurance
Corporation ("FSLIC") took control in 1985 and, thereafter,
the appellee Federal Deposit Insurance Corporation ("FDIC")
became Home Federal's successor in interest pursuant to the
Financial Institutions Recovery, Reform, and Enforcement Act
of 1989. See 12 U.S.C. 1821a et seq.
___ _______
____________________
1. See also United States v. Tormos-Vega, 959 F.2d 1103 (1st
________ _____________ ___________
Cir.), cert. denied, 113 S. Ct. 191 (1992); FDIC v. CNA
_____________ ____ ___
Casualty of Puerto Rico, 786 F. Supp. 1082 (D.P.R. 1991);
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United States v. Serrano, 680 F. Supp. 58 (D.P.R. 1988),
_____________ _______
modified, 870 F.2d 1 (1st Cir. 1989); FSLIC v. Shearson-
________ _____ _________
American Express, Inc., 658 F. Supp. 1331 (D.P.R. 1987);
_______________________
United States v. Tormos-Vega, 656 F. Supp. 1525 (D.P.R.
______________ ___________
1987), aff'd, United States v. Boscio, 843 F.2d 1384 (1st
_____ ______________ ______
Cir.), cert. denied, 488 U.S. 848 (1988); United States v.
_____________ ______________
Serrano, 637 F. Supp. 12 (D.P.R. 1985); United States v.
_______ ______________
Serrano, 622 F. Supp. 517 (D.P.R. 1985).
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The present action was brought in 1984 in the
United States District Court for the District of Puerto Rico
by the Municipality of Ponce, against defendants that
included Home Federal, Serrano, Shearson Lehman Brothers,
Inc., and Shearson Lehman Brothers, Inc. (Puerto Rico)
(collectively "Shearson"). Home Federal filed cross-claims
against Serrano, Shearson, and others. Both the Municipality
of Ponce and Shearson settled and left the case. On October
16, 1989, the district court entered a default judgment for
the FDIC (now representing Home Federal) on its cross-claims
against Serrano, finding Serrano liable to the FDIC for
$44,265,241. Thereafter, on May 17, 1990, the FDIC secured
from the district court an order attaching Serrano's assets
to enforce the foregoing judgment.
This appeal stems from efforts by two other
creditors, appellants Prudential-Bache Securities, Inc.
("Prudential") and Banco Cooperativo ("Banco"), to intervene
in the same district court action after certain of Serrano's
assets were transferred to the district court pursuant to the
FDIC's attachment. Prudential and Banco asked the district
court to withdraw its order authorizing disbursement of
Serrano's funds to the FDIC, and are appealing from its
refusal to do so.
To understand the present dispute, it is necessary
to realize that in September 1987, Serrano had petitioned for
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bankruptcy in the United States Bankruptcy Court for the
District of Puerto Rico, triggering the automatic stay of 11
U.S.C. 362. The FSLIC sought and received partial relief
from the stay on January 13, 1989, permitting the instant
action to continue in the district court until entry of
judgment. Serrano's only significant assets were 32,400
shares of Bayam n Federal Savings Bank stock, which at one
time had been held in a trading account at Prudential.2 By
order of the bankruptcy court, the stock was sold for
approximately $700,000 in April 1989 and the proceeds were
deposited with the bankruptcy court as property of the
estate. On November 17, 1988, Prudential filed its own claim
in the bankruptcy proceeding. On October 16, 1989, as we
have said, the district court entered a judgment for the FDIC
in its cross-claims against Serrano.
On May 16, 1990, the bankruptcy court issued an
order dismissing Serrano's bankruptcy case, but expressly
retaining jurisdiction to decide how to dispose of all funds
held for Serrano. The bankruptcy court gave all creditors,
which included Prudential, eleven days to express their
positions as to the disposal of these funds, indicating that
unless otherwise ordered, they would be returned to Serrano.
See 11 U.S.C. 349(b)(3). That same day, after entry of the
___
____________________
2. Earlier in 1987 Prudential had delivered the stock to the
United States District Court pursuant to a court order in
United States v. Serrano, Crim. No. 84-381(JP).
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bankruptcy petition dismissal, the FDIC moved in the district
court for a writ of attachment and execution, to be served
upon the bankruptcy court and any custodian of Serrano's
funds in that court, attaching Serrano's funds after payment
of administrative expenses and directing their transfer to
the district court for application to the FDIC's judgment.
The district court allowed the motion on May 17, 1990,
ordering the bankruptcy court within twenty days to deliver
to the district court clerk the remaining funds belonging to
Serrano subsequent to the payment of the administrative
expenses, and directing that Serrano refrain from collecting
the funds. A copy of this attachment was shown to
Prudential's counsel on May 18, 1990, at a meeting of
creditors called by Prudential at its offices to discuss
disposition of the bankruptcy funds. Prudential made no
effort in the bankruptcy court to challenge the validity of
the attachment nor to argue that its own claim should be paid
from the bankruptcy funds in preference to the FDIC's claim.
On June 27, 1990, the bankruptcy court issued its
order disposing of all the assets in Serrano's case. The
bankruptcy court clerk, after paying various fees, expenses
and a child support claim, was directed by the bankruptcy
court to deliver the remainder to the district court clerk in
compliance with the attachment, said funds to remain subject
to any liens as per the bankruptcy court's previous order of
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sale of the stock. Pursuant to this order, the bankruptcy
clerk paid over more than $560,000 to the clerk of the
district court. On August 10, 1990, the district court
ordered the funds disbursed to the FDIC.
Five days after the district court had entered its
disbursement order, Prudential made its first appearance in
this action. On August 15, 1990, Prudential moved the
district court to allow it to intervene in the instant action
and stay the scheduled disbursement to the FDIC, alleging
that it had a lien on the attached funds that had priority
over the FDIC's attachment. See Fed. R. Civ. P. 24.3 The
___
____________________
3. Federal Rule of Civil Procedure 24 provides, in relevant
part:
(a) Intervention of Right. Upon timely
_______________________
application anyone shall be permitted to
intervene in an action: . . . (2) when
the applicant claims an interest relating
to the property or transaction which is
the subject of the action and the
applicant is so situated that the
disposition of the action may as a
practical matter impair or impede the
applicant's ability to protect that
interest, unless the applicant's interest
is adequately represented by existing
parties.
(b) Permissive Intervention. Upon timely
________________________
application anyone may be permitted to
intervene in an action: . . . (2) when an
applicant's claim or defense and the main
action have a question of law or fact in
common. . . . In exercising its
discretion the court shall consider
whether the intervention will unduly
delay or prejudice the adjudication of
the rights of the original parties.
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district court stayed the disbursement pending ruling on
Prudential's motion to intervene. On August 20, 1990, Banco
Cooperativo, which also had never before been a party to this
action, moved to intervene, asserting that it had a priority
claim to the attached funds.4
On March 11, 1992, the district court, after
considering the parties' motions and exhibits submitted in
support of their claims (and without specifically indicating
whether it was ruling on the motions to intervene or on the
merits), denied Prudential's and Banco's claims and lifted
the stay of the disbursement of the funds to the FDIC.
Prudential and Banco appealed separately from the district
court'sfinalorder. Weconsolidatedtheirappeals,and nowaffirm.5
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4. Appellee FDIC does not contest the existence of the
appellants' purported claims against Serrano. Banco
Cooperativo claims that it sued Prudential in a Puerto Rico
court in 1984, seeking damages for embezzlement by Serrano
during his tenure, in 1980, as an officer of Prudential's
Institutional Department. In 1985, Prudential filed a third-
party complaint against Serrano in that case, asking that
Serrano be held liable for the amount of any judgment which
may be entered against Prudential in the action brought by
Banco Cooperativo.
Banco claims that it eventually received a judgment
against Serrano in the amount of $295,000 plus interest.
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(Banco does not explain how it obtained a judgment against
Serrano when it had sought damages only from Prudential.) At
the time Prudential filed its motion to intervene, its claim
against Serrano was still contingent, as final judgment had
not yet been rendered in its third-party action.
5. The district court had jurisdiction over this action
pursuant to 28 U.S.C. 1331, because the original plaintiff,
Municipality of Ponce, brought federal claims against the
defendants. This court has jurisdiction over the appeals
-8-
I.
I.
No. 92-1652 - Prudential
No. 92-1652 - Prudential
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Appellant Prudential raises three issues on appeal.
The first, discussed in Section A below, concerns the
validity of the FDIC's attachment, an issue implicitly
decided by the bankruptcy court's order to release Serrano's
funds in compliance with the attachment. We hold, infra,
_____
that res judicata bars Prudential from raising the issue
___ ________
anew.
The other two issues raised by Prudential,
discussed in Sections B and C below, concern the priority of
its alleged lien relative to the FDIC's attachment. The
questions of priority among liens on Serrano's property and
of the validity of Prudential's lien unlike the validity
of the FDIC's attachment formed no part of the bankruptcy
court's decision and so are not barred from being raised now.
The bankruptcy court, when it ordered the funds to be turned
over in compliance with the FDIC's attachment, made clear
that "said funds remain subject to any liens as per our order
of sale." The bankruptcy court's order of sale, dated April
27, 1989, approved the liquidation of the stock shares
"provided the proceeds from the surrender of the shares are
to be deposited with the Clerk of the United States
Bankruptcy Court for the District of Puerto Rico, in an
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pursuant to 28 U.S.C. 1291.
-9-
interest bearing account with liens, if any, attaching to
__________________________________
said proceeds . . . ." (emphasis added). The court dismissed
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the bankruptcy petition before ever adjudging the validity of
Prudential's alleged secured claim on the proceeds and
without deciding whether the FDIC's attachment took priority
over other liens on the proceeds. Res judicata, therefore,
___ ________
does not bar Prudential from now raising those questions, and
we address them on their merits.
A. Validity of FDIC's Attachment
A. Validity of FDIC's Attachment
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Prudential's first argument is that the district
court should have declared the FDIC's attachment null and
void because it was obtained in violation of the automatic
stay allegedly still in effect in Serrano's bankruptcy case.
See 11 U.S.C. 362. It is Prudential's theory that Fed. R.
___
Civ. P. 62(a), applying by force of Bankruptcy Rules 7062 and
9014, extended the automatic stay of 11 U.S.C. 362 for ten
days after the bankruptcy court had dismissed Serrano's
bankruptcy petition. This argument has met with little
success in other cases involving similar circumstances. See
___
In re de Jesus Daez, 721 F.2d 848, 851-52 (1st Cir. 1983); In
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re Weston, 101 B.R. 202, 203-06 (Bankr. E.D. Cal. 1989),
__________
aff'd, 967 F.2d 596 (9th Cir. 1992), cert. denied, 113 S. Ct.
_____ ____________
973 (1993). Prudential's standing to challenge an alleged
violation of the automatic stay is also problematic. See In
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re Pecan Groves of Arizona, 951 F.2d 242, 245 (9th Cir. 1991)
__________________________
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("Language from many cases indicates that, if the trustee
does not seek to enforce the protections of the automatic
stay, no other party may challenge acts purportedly in
violation of the automatic stay."). We do not pass on these
issues, however, as we are satisfied, infra, that Prudential
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is barred by res judicata from raising the automatic stay as
___ ________
a bar.6 We add that it would be difficult to pass on the
merits of the automatic stay issue from the record now before
us, which does not include a full report of the bankruptcy
proceedings and, in particular, omits much information
relevant to the stay and to orders issued lifting the stay in
respect to the district court proceeding in question.
This court recently explained:
The doctrine of res judicata bars all
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parties and their privies from
relitigating issues which were raised or
could have been raised in a previous
_________________________
action, once a court has entered a final
judgment on the merits in the previous
action. United States v. Alky
_______________ ____
Enterprises, Inc., 969 F.2d 1309, 1314
__________________
(1st Cir. 1992). The essential elements
of res judicata, or claim preclusion, are
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(1) a final judgment on the merits in an
earlier action; (2) an identity of
parties or privies in the two suits; and
(3) an identity of the cause of action in
both the earlier and later suits. Kale
____
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6. Although the district court did not rely upon the grounds
of res judicata, and the parties ignored this theory on
___ ________
appeal, we may do so as we need not limit ourselves to the
exact grounds for decision utilized below. Watterson v.
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Page, 987 F.2d 1, 7 n.3 (1st Cir. 1993); Aunyx Corp v. Canon
____ __________ _____
U.S.A., Inc., 978 F.2d 3, 6 (1st Cir. 1992), cert. denied,
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113 S. Ct. 1416 (1993).
-11-
v. Combined Insurance Co. of America, 924
_________________________________
F.2d 1161, 1165 (1st Cir.), cert. denied,
____________
___ U.S. ___, 112 S. Ct. 69, 116 L. Ed.
2d 44 (1991).
Aunyx Corp. v. Canon U.S.A., Inc., 978 F.2d 3, 6 (1st Cir.
____________ ___________________
1992), cert. denied, 113 S. Ct. 1416 (1993) (emphasis in
_____________
original). "The normal rules of res judicata and collateral
___ ________
estoppel apply to the decisions of the bankruptcy courts."
Katchen v. Landy, 382 U.S. 323, 334 (1966); Chicot County
_______ _____ _____________
Drainage Dist. v. Baxter State Bank, 308 U.S. 371, 375-78
_______________ _________________
(1940); Turshen v. Chapman, 823 F.2d 836, 839 (4th Cir.
_______ _______
1987); see generally 1B James Wm. Moore et al., Moore's
___ _________ ______ _______
Federal Practice 0.419[3] (2d ed. 1993). Orders, judgments
________________
and decrees of the bankruptcy court from which an appeal is
not timely taken are final, 1 Collier on Bankruptcy
_______________________
3.03[4], at 3-179 (Lawrence P. King ed., 15th ed. 1993), even
if erroneous. Union Joint Stock Land Bank v. Byerly, 310
____________________________ ______
U.S. 1, 7-8 (1940); Van Huffel v. Harkelrode, 284 U.S. 225,
__________ __________
227 (1931). While actions taken in violation of the
automatic stay are often characterized as void and without
effect, orders of the bankruptcy court modifying the stay or
finding no violation, even if erroneous, are entitled to
respect and are not subject to collateral attack. See Union
___ _____
Joint Stock Land Bank, 310 U.S. at 7-8 ("The District Court
_____________________
did not lose jurisdiction by erroneously construing or
applying provisions of the statute under which it
administered the bankrupt estate. Its order was voidable,
-12-
but not void, and was not to be disregarded or attacked
collaterally . . . ."); 1B Moore's Federal Practice
__________________________
4.19[3-.2], at 635.
All the elements of res judicata are met here.
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First, by its final order on June 27, 1990, transferring
Serrano's funds in compliance with the attachment, the
bankruptcy court rendered a final judgment that the
attachment was valid. After dismissing Serrano's bankruptcy
case, the bankruptcy court had retained jurisdiction to
determine whether to return the debtor's funds to him or to
another, and gave all the creditors, of whom Prudential was
one, eleven days to "express their positions as to the
disposal of these funds." Prudential's counsel appeared at
the hearing in the bankruptcy court directly before issuance
of the order dismissing the bankruptcy case, at which time
the court indicated that that order was contemplated and said
that it intended to grant the creditors ten or eleven days to
"let me know what I should do with these funds." In fact, on
May 17, 1990, Prudential's counsel invited the attorneys for
other creditors, including the FDIC's counsel, to a meeting
at Prudential's offices to discuss the disposition of the
funds. This meeting took place on May 18, 1990, at which
time the FDIC's counsel showed to Prudential a copy of the
attachment order it had just obtained in the district court.
Notwithstanding the foregoing, Prudential never advised the
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bankruptcy court of its present contention that the FDIC's
attachment was invalid, being in supposed violation of the
automatic stay, nor did it urge the bankruptcy court to
refuse to honor the attachment. Prudential's inaction is in
notable contrast to that of another creditor, Shearson
Lehman, which, on June 5, 1990, moved the bankruptcy court to
declare the attachment null and void in violation of the
automatic stay the very same contention Prudential
belatedly raises now. Shearson Lehman's contention was
expressly denied by the bankruptcy court on June 27, 1990, in
its final order. In that same order, the bankruptcy court
disposed of the balance of the funds in express compliance
with the attachment, after first ordering the payment of
certain fees, expenses and other items. The bankruptcy
court's June 27 order constituted an appealable final
judgment. In re Parque Forestal, Inc., 949 F.2d 504, 508-09
___________________________
(1st Cir. 1991). However, Prudential took no appeal.
Second, Prudential does not deny that, as one of
Serrano's creditors, it was a party to the bankruptcy
proceedings, nor that it was fully cognizant on May 16-18,
1990, of the bankruptcy court's dismissal of Serrano's case,
of its retention of jurisdiction, and of the FDIC's
attachment. Nor can Prudential deny that it knew of the
bankruptcy court's invitation to all creditors to express
their positions as to the future disposition of the funds.
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Despite this, Prudential complains that since it
received no formal notice from the district court of the
FDIC's attachment, it was not a party to the dispute over the
attachment. We cannot see, for purposes of any action
Prudential might have taken in the bankruptcy court, that the
absence of notice from the district court was material.
Prudential was fully cognizant that the bankruptcy court
intended to take action in June on the question of disposal
of Serrano's assets, including the effect of the attachment.
Yet Prudential took no steps to pursue the matter before the
bankruptcy judge, including in particular to raise the
bankruptcy-related issue of the effect of the automatic stay
on the validity of the attachment. We are satisfied that
Prudential was a party to the proceedings in the bankruptcy
court over the ultimate disposition of Serrano's assets
proceedings that ended with the bankruptcy court's
recognition of the FDIC's district court attachment and its
direction to turn over the assets in compliance therewith.
Finally, Prudential's current challenge to the
attachment based on the automatic stay implicates the very
same underlying issue resolved by the bankruptcy court when
it gave effect to the attachment. The bankruptcy court's
final order of June 27, 1990 necessarily required it to have
determined whether or not the FDIC's attachment was valid so
as to be entitled to effect. The bankruptcy court clearly
-15-
had jurisdiction to make that determination and, in
particular, had jurisdiction to adjudicate any claim of
invalidity based on purported violation of the automatic
stay. See 11 U.S.C. 105(a) (authorizing bankruptcy court
___
to "issue any order, process, or judgment that is necessary
or appropriate to carry out the provisions of this title.");
11 U.S.C. 362(d), (f) (authorizing court to grant relief
from stay); 1 Collier on Bankruptcy 362.01[1], at 362-9
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("[T]he bankruptcy court, as a court of equity exercising in
__
rem jurisdiction over assets in its custody and control, can
___
protect its jurisdiction by injunction, whether or not such
power is expressly set forth . . . ."); see generally In re
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Continental Air Lines, 61 B.R. 758 (S.D. Tex. 1986)
________________________
(discussing jurisdiction of bankruptcy court over enforcement
of automatic stay).
As already noted, another creditor, Shearson
Lehman, moved in the bankruptcy court to have the attachment
declared null and void for precisely the same reasons
Prudential now advances, viz., that the FDIC had allegedly
___
violated the automatic stay when it sought and received an
order from the district court attaching bankruptcy assets
within one day after the bankruptcy court had dismissed
Serrano's petition.7 The bankruptcy court included in its
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7. The text of Prudential's current brief on this issue
matches verbatim whole portions of Shearson's motion on this
________
issue before the bankruptcy court.
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June 27, 1990 order a specific denial of Shearson Lehman's
motion, indicating by that ruling its absence of doubt
concerning the existence of jurisdiction to adjudicate the
claimed bar of the automatic stay.
Prudential never made a similar motion nor in any
way challenged the attachment in the bankruptcy court, nor
did it appeal from the bankruptcy court's order recognizing
the FDIC's attachment. Instead, after the bankruptcy court
had acted and the attachment had been fully executed,
Prudential petitioned to intervene in the attaching district
court for the purpose of arguing, post hoc, that the
bankruptcy automatic stay had invalidated the attachment.8
By the time of its petition, a final judgment giving effect
to the attachment was in effect in the bankruptcy court. As
res judicata now bars a collateral attack on the bankruptcy
___ ________
court's judgment, we treat the FDIC's attachment as valid.
B. Pledge Agreement
B. Pledge Agreement
________________
Prudential says that, even assuming the FDIC had a
valid attachment on the stock proceeds, Prudential holds a
superior lien on the proceeds by virtue of a form signed by
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8. While Prudential was not formally noticed as to the
attachment, it learned about it from the FDIC's counsel on
May 18, 1990, and, as an additional course, could have
promptly sought to intervene in the district court in hopes
of quashing the attachment before it was executed in the
bankruptcy court. Instead, Prudential waited for nearly
three months, until well after execution of the attachment,
before doing anything.
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Serrano to open a brokerage account at Prudential (the
"Customer Agreement").9 Prudential contends that the
Customer Agreement operated, under Puerto Rico law, as a
"pledge" of any securities held in the brokerage account. By
virtue of this pledge, Prudential reasons, it acquired a lien
over the Bayam n Federal stock shares and their proceeds
prior to the FDIC's attachment because the stock was, up
until 1987, held in Serrano's account at Prudential.
The district court correctly rejected Prudential's
argument. Puerto Rico law provides, "A pledge shall not be
effective against a third person, when evidence of its date
is not shown by authentic documents." 31 L.P.R.A. 5023.
The Supreme Court of Puerto Rico has stated: "An authentic
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9. The Customer Agreement provided, in part:
I [Serrano] agree, as follows, with
respect to all the accounts in which I
have an interest alone or with others,
which I have opened or open with you
[Prudential] for the purchase and sale of
securities and commodities:
. . .
Any and all credit balances,
securities, or contracts relating thereto
and all other property of whatever kind
belonging to me or in which I have an
interest held by you or carried for my
accounts shall be subject to a general
lien for the discharge of my obligations
to you (including unmatured and
contingent obligations) however arising .
. . .
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document is a legalized document, which is publicly attested,
which is legally valid by itself." Ramos Mimoso v. Tribunal
____________ ________
Superior, 93 P.R.R. 538, 540 (1966). A private agreement or
________
writing is not an authentic document; a document verified
before a notary public is an authentic document. In re
_____
Santos & Nieves, Inc., 814 F.2d 57, 60 (1st Cir. 1987); Ramos
_____________________ _____
Mimoso, 93 P.R.R. at 541. The record here supports the
______
district court's finding that no notarized or other properly
authenticated document evidenced the date of Serrano's
alleged pledge of the stock shares. The only document
alleging to show the date of the supposed pledge is the
Customer Agreement, which is merely signed by the parties and
not notarized.
Prudential concedes that no notarized or otherwise
"authentic" document exists to evidence the date of the
pledge, but argues that it is sufficient that the purpose of
_______
the authentic document requirement was fulfilled. Prudential
filed a copy of the Customer Agreement in 1987 with the clerk
of a court in which criminal proceedings against Serrano were
being conducted, and now argues that this filing satisfies
the policy behind 31 L.P.R.A. 5023. However, the authentic
document rule is "a formal and absolute rule" that is
strictly construed. In re Supermercados San Juan, Inc., 575
___________________________________
F.2d 8, 12 (1st Cir. 1978); Trueba v. Zalduondo, 34 P.R.R.
______ _________
713, 716 (1925). Neither section 5023 nor any cases
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interpreting it support Prudential's theory that the
authentic document requirement can be fulfilled simply by
filing a copy of an unnotarized document in court.
Prudential attempts to analogize this case to
Trueba v. Zalduondo, 34 P.R.R. 713 (1925), in which the
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Supreme Court of Puerto Rico held that a transfer of
corporate stocks as collateral for a loan that was recorded
in the corporations' official records was valid against
later-attaching third parties, even though the transfer did
not comply with the authentic document rule codified in the
predecessor statute to 31 L.P.R.A. 5023. However, Trueba
______
expressly held that section 13 of the Private Corporations
Act, (now codified as 14 L.P.R.A. 1509), and not the
predecessor to 31 L.P.R.A. 5023, governed under those
circumstances. The Trueba decision "was based on the fact
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that stock so transferred would be authenticated by the
public and formal records of the corporation as a transfer of
a security interest." In re Supermercados San Juan, Inc.,
____________________________________
575 F.2d at 12. The Trueba court did not create an exception
______
to section 5023 and, in fact, reiterated that the authentic
document rule "is a rigid rule." Trueba, 34 P.R.R. at 716.
______
Because Prudential does not contend that the Private
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Corporations Act, as opposed to 31 L.P.R.A. 5023, governs
this case, Trueba is inapposite.10
______
The district court correctly held that Prudential's
purported pledge agreement did not comply with the authentic
document requirement of 31 L.P.R.A. 5023 and thus was not
valid against the FDIC as a pledge.
C. Puerto Rico Agency Law
C. Puerto Rico Agency Law
______________________
Prudential argues that it acted as Serrano's agent
for the purchase and sale of securities and, as such,
acquired a statutory lien on all securities held on behalf of
Serrano, including the Bayam n Federal stock. Prudential
points to a Puerto Rican statute providing that, "The agent
may retain the things which are the objects of the agency in
pledge until the principal pays the indemnity and
reimbursement referred to in the two preceding sections [
4462, 4463]." 31 L.P.R.A. 4464. Prudential misinterprets
the statute, however. Even if Prudential were Serrano's
agent, section 4464 does not give it a lien on the stock
proceeds superior to the FDIC's attachment because Prudential
____________________
10. Prudential's citation of In re Las Colinas, Inc., 294 F.
_______________________
Supp. 582 (1968), vacated and remanded, 426 F.2d 1005 (1st
____________________
Cir. 1970), is similarly unhelpful. Even if parts of it
remain good law, the relevant issue in that case was whether
certain collateral, transferred after a pledge agreement was
notarized and signed, constituted a valid pledge of that
collateral. Id. at 602-03; see also Omega Int'l Corp. v.
___ ________ __________________
Interstate Steel de Puerto Rico, Inc., 590 F. Supp. 844, 850
______________________________________
(D.P.R. 1984) (explaining In re Las Colinas). Here,
_____________________
Prudential concedes that there was no notarized pledge
agreement.
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did not "retain the things," viz., the Bayam n Federal stock
___
certificates. The stock was transferred to a court in 1987
pursuant to a court order, and was subsequently liquidated.
We find no authority for the proposition that section 4464
creates statutory liens on things, let alone their proceeds,
which are not retained by the agent. For this reason alone,
the district court's ruling that Prudential does not have a
lien over the stock pursuant to Puerto Rico agency law was
plainly correct.11
The district court did not err in finding that
Prudential had no lien with priority over the FDIC's
attachment and in dismissing Prudential's claims over the
funds attached by the FDIC.12
II.
II.
No. 92-1652 - Banco Cooperativo
No. 92-1652 - Banco Cooperativo
_______________________________
Appellant Banco Cooperativo says that it obtained a
judgment and award of damages against Serrano on September
15, 1987 from a Puerto Rico court in a civil action. Banco
____________________
11. The district court also found that section 4464 was
inapplicable because Serrano's alleged liability to
Prudential is unrelated to the stock shares previously held
in his account and because the liability was merely
contingent, not due and payable. See I-II Jose Puig Brutau,
___
Fundamentos de Derecho Civil 545-46 (2d ed. 1976).
____________________________
12. Prudential also makes various arguments based on New
York law. We do not consider any of them as Prudential makes
no argument on appeal that the district court erred in
determining that Puerto Rico law, not New York law, governs
this case. See Fed. R. App. P. 28(a)(3), (5).
___
-22-
never executed the judgment, attached the funds that are the
subject of this appeal, or otherwise obtained a lien on any
of Serrano's property. Banco also concedes that the FDIC
obtained a valid judgment against Serrano on October 16,
1989, and properly executed the judgment by attaching the
funds at issue on May 17, 1990. Banco contends, nonetheless,
that Puerto Rico law gives its claim on Serrano's assets
priority over the FDIC's.
We agree with the district court that the statute
on which Banco relies, 31 L.P.R.A. 5194, does not apply
here. The first provision of Title 31, Chapter 399 provides:
"Credits shall be classified for their graduation and payment
in the order and manner specified in this chapter." 31
L.P.R.A. 5191. 31 L.P.R.A. 5194 provides in part:
With regard to all other personal and
real property of the debtor, preference
shall be given to: . . .
(4) Indebtedness which without a
special privilege appear:
(a) In a public instrument.
(b) In a final judgment, should
they have been the object of
litigation.
These credits shall have preference
among themselves according to the
priority of dates of the instruments and
of the judgments.
Banco interprets section 5194(4) to mean that its claim to
the funds has "preference" over the FDIC's claim because
Banco obtained its judgment two years before the FDIC was
awarded its judgment. Under Banco's interpretation, section
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5194(4) makes irrelevant the fact that the FDIC attached the
property in dispute and Banco did not.
The Supreme Court of Puerto Rico has consistently
held otherwise, finding that 31 L.P.R.A. 5194 does not
supplant the standard rule that, as between two judgment
creditors without other liens, the first creditor to attach
has priority. In Oronoz & Co. v. Alvarez, 23 P.R.R. 497
____________ _______
(1916), the Court rejected the argument that a creditor
always has priority if it has a judgment antedating the
judgment of other creditors. Id. at 500. The Court
___
explained:
We have recently decided that mere
priority in judgment gives the prior
creditor no lien. Auffant v. Succession
_______ __________
of Manuel de J. Ramos et al., [23 P.R.R.
_____________________________
385 (1916)]. An attachment or other
similar step is necessary to give the
judgment a priority and as between
judgment creditors the first to attach
has the priority. It is a race of
diligence. The priority of payments to
which sections 1822 et seq. of the Civil
_______
Code [31 L.P.R.A. 5191 et seq.] relate
_______
has no application to attachments.
Id. The Court reaffirmed the first-to-attach rule in Puerto
___ ______
Rico Bedding Mfg. Corp. v. Herger, 91 P.R.R. 503 (1964),
_________________________ ______
writing that, "There is no question that among common
creditors the first one who attaches has preference over the
others . . . ." Id. at 507. The Court clarified that the
___
preference created by attachment "does not go beyond the
right which the debtor may have over the property attached,"
-24-
meaning that valid liens already on the property when
attached cannot be defeated by an attachment. Id. In
___
Empresas Capote, Inc. v. Superior Court, 3 P.R. Sup. Ct.
______________________ _______________
Off'l Translations 1067 (1975), the Supreme Court of Puerto
Rico reiterated, "It should be remembered that, grounded on
the axiom prior tempore portior jure, even among common
____________________________
creditors, '. . . the first one who attaches has preferences
over the others, but such preference does not go beyond the
right which the debtor may have over the property attached.'"
Id. at 1078-79 (quoting Puerto Rico Bedding Mfg. Corp. v.
___ ________________________________
Herger, 91 P.R.R. 503, 507 (1964)).
______
Some provisions of Chapter 399 other than 31
L.P.R.A. 5194 create statutory preferences, a concept
equivalent to statutory liens, on certain types of property.
These statutory preferences take priority over attachments
even if the preference holder does not formally attach the
property. For example, 31 L.P.R.A. 5192(1) creates, in
essence, a seller's lien "for the amount of the sale of [the]
personal property which may be in possession of the debtor to
the extent of the value of the same." 31 L.P.R.A. 5192(1);
see In re Jack's Club & Hotel, 138 F. Supp. 620, 622 (D.P.R.
___ __________________________
1956). Thus, the credit of a manufacturer who was not paid
for mattresses and bed frames it sold to a retail store had
priority over the credit of another creditor who attached the
items in the store. Puerto Rico Bedding Mfg. Corp., 91
_________________________________
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P.R.R. at 507-09. While the attachment created a preference,
or lien, in favor of the attaching creditor, "such preference
does not go beyond the right which the debtor may have over
the property attached." Id. at 507-08. That is, 31 L.P.R.A.
___
5192, without the need for execution or attachment, gives
the seller an interest in the property sold that diminishes
the debtor's interest in the property and that cannot be
defeated by attaching creditors. See also Heirs of Garriga
________ _________________
v. O'Meara, 28 P.R.R. 332, 334-35 (1920) (discussing priority
_______
of the statutory preferences created by 31 L.P.R.A. 5192
over attachments).
In contrast, 31 L.P.R.A. 5194(4) does not create
a seller's lien or any other type of statutory lien on
property of the debtor. It does not refer to specific
property of the debtor or specific transactions between the
creditor and debtor. Compare 31 L.P.R.A. 5192(3) (creating
_______
lien for the costs of transportation on goods transported by
creditor) and 31 L.P.R.A. 5192(6) (creating lien on fruit
___
crops in favor of creditor who provided seeds) with 31
____
L.P.R.A. 5194(4) (referring to no specific property). The
silence of 5194(4) implies that a general judgment creditor
must execute its judgment by attaching property, such as the
debtor's cash or stock certificates, before it can claim any
sort of "lien" on that property.
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Here, the FDIC and Banco were both judgment
creditors, but the FDIC, by attaching the stock proceeds,
obtained a lien on those proceeds which has priority over
Banco's unexecuted judgment against the debtor. Banco had no
lien or other legally-recognized property interest in
Serrano's assets at the time of the attachment. All it had
was an unsecured credit in its favor as the result of a court
judgment. Thus, the FDIC's attachment reached all of the
___
funds released by the bankruptcy court and is not subject to
a claim by Banco.
For these reasons, the district court did not err
in determining that 31 L.P.R.A. 5194(4) does not give
Banco, which did not execute its judgment, priority over the
FDIC, which obtained a valid attachment of the funds.13
____________________
13. We have considered and found no merit in Banco's myriad
other arguments. For example, we do not have the authority
to declare Oronoz & Co. to be wrongly decided by the Puerto
____________
Rico Supreme Court or mistranslated by the official court
translator, as Banco urges us to do. The case of Rodr guez
_________
v. Solivellas & Co., 49 P.R.R. 618 (1936), which discussed 31
________________
L.P.R.A. 5194, held that a prior mortgage on certain
property had priority over a cautionary notice of attachment
on the property. It did not hold, as appellant maintains,
that attachments have no effect on the rights of judgment
creditors with prior claims, but relied instead upon the same
principle discussed above, that "[an] attachment is valid
only as regards any balance left after cancelling the former
security." Id. at 623.
___
-27-
Therefore, the district court properly dismissed Banco
Cooperativo's claim.14
III.
III.
In conclusion, we find no error and so affirm the
district court's order in Appeal No. 92-1652, dismissing the
_______
claims of Prudential, and in Appeal No. 92-1651, dismissing
_______
the claim of Banco Cooperativo to the funds held by the
court.
Affirmed. Costs to appellee.
________ _________________
____________________
14. Banco complains that the district court should have
"reprobated" or sanctioned the FDIC for acting in bad faith
when it obtained its attachment. Banco did not raise this
issue in a timely fashion, waiting until it moved for
reconsideration of the district court's Opinion and Order to
bring the issue to the court's attention. Consequently, we
will not consider it on appeal. See Brown v. Trustees of
___ _____ ___________
Boston Univ., 891 F.2d 337, 352 (1st Cir. 1989), cert.
_____________ _____
denied, 496 U.S. 937 (1990). Moreover, we find no evidence
______
in the record to support Banco's allegations of bad faith on
the FDIC's part.
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