Court Opinion

ID: 194798
Source: CourtListenerOpinion
Date Created: 2011-02-07 02:25:21+00
Date Added: 2024-06-11T13:05:00.434934
License: Public Domain

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.

                                    
              BANCO COOPERATIVO DE PUERTO RICO,

                    Intervenor, Appellant.
                                         

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,
                                         

               Campbell, Senior Circuit Judge,
                                             
             and Skinner,* Senior District Judge.
                                                

                                         

Manuel Fernandez-Bared  and Ramon Coto-Ojeda  with whom Nestor  M.
                                                                  
Mendez-Gomez  and McConnell  Valdes Kelley  Sifre Griggs  & Ruiz-Suria
                                                                  
wereon brief forintervenor, appellant PrudentialBache Securities, Inc.

                

*Of the District of Massachusetts, sitting by designation.

Plinio Perez Marrero for  intervenor, appellant Banco  Cooperativo
                    
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
                                                    
for cross-plaintiff, appellee.

                                         

                        June 24, 1993
                                         

          CAMPBELL, Senior Circuit Judge.   In these appeals,
                                        

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);
                        
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).
       

                             -3-

          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

                             -4-

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).  
                        

                             -5-

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

                             -6-

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.

                             -7-

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

                    

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.
                
(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.

No. 92-1652 - Prudential
                        

          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

                    

pursuant to 28 U.S.C.   1291.

                             -9-

interest  bearing account  with liens,  if any,  attaching to
                                                             

said proceeds . . . ." (emphasis added).  The court dismissed
             

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
                                      

          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
                                                             

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
                                                             

re Pecan Groves of Arizona, 951 F.2d 242, 245 (9th Cir. 1991)
                          

                             -10-

("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
                                            

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
                                        
          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
                         
          (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
                                                   

                    

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.
                                                         
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,
                                                            
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.
                                             

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

                             -13-

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.

                             -14-

          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
                                     

("[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
                                                             

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

                    

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.

                             -16-

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
                         

          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

                    

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. 

                             -17-

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

                    

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 .
          . . .

                             -18-

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

                             -19-

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
                    

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
                           

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

                             -20-

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
                               

          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.

                             -21-

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.

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

                             -23-

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
                                                         

                             -25-

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.  

                             -26-

          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.

          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.

                             -28-