Las Colinas Development Corp., In re, 78-1148

• Decision Date: 21 September 1978
• Docket Number: No. 78-1148,78-1148
• Citation: 585 F.2d 7
• Parties: Bankr. L. Rep. P 67,002 In re LAS COLINAS DEVELOPMENT CORPORATION, Debtor. Vigdor SCHREIBMAN et al., Appellants, v. WALTER E. HELLER & COMPANY OF PUERTO RICO and Walter E. Heller & Company, Appellees.
• Court: U.S. Court of Appeals — First Circuit

Page 7

585 F.2d 7

Bankr. L. Rep. P 67,002

In re LAS COLINAS DEVELOPMENT CORPORATION, Debtor Vigdor SCHREIBMAN et al., Appellants,

v. WALTER E. HELLER & COMPANY OF PUERTO RICO and Walter E.

Heller & Company, Appellees.

No. 78-1148.

United States Court of Appeals First Circuit.

Submitted Sept. 7, 1978.

Decided Sept. 21, 1978.

Vigdor Schreibman, on brief, for appellants.

Edward I. Cutler, John K. Olson, and Carlton, Fields, Ward, Emmanuel, Smith & Cutler, P. A., Tampa, Fla., on brief, for Walter E. Heller & Co. of Puerto Rico and Walter E. Heller & Co., appellees.

Before COFFIN, Chief Judge, CAMPBELL and BOWNES, Circuit Judges.

BOWNES, Circuit Judge.

The central issue in this case can be stated simply: Does the nonlawyer president and majority stockholder (94%) of a corporation have a right to represent the corporation in all stages of a Chapter XI bankruptcy proceeding?

Appellants, Las Colinas Development Corporation (Development) and Vigdor Schreibman, appeal from a ruling of the bankruptcy court, affirmed by the district court, that Schreibman could not represent Development. While appellants have not directly appealed the decision on the merits, it must be noted that the bankruptcy court found in favor of the appellees, Walter E. Heller & Company of Puerto Rico and Walter E. Heller & Company (Heller), and against Development and Schreibman as a creditor of Development. The findings on the merits were also affirmed by the district court.

The facts giving rise to this case are a tangled skein enmeshed in loose threads and have their genesis in Schreibman's efforts to develop a large tract of land in Fajardo, Puerto Rico. The first official step in this lengthy and, at times, circuitous judicial odyssey began with a foreclosure suit in the Superior Court of Puerto Rico in July of 1964, brought by Banco Popular de Puerto Rico against Las Colinas, Inc., and its wholly owned subsidiary, Eastern Shore Development Corporation. Schreibman was president of both corporations and majority stockholder of Las Colinas, Inc. Three months after the filing of the foreclosure action, Las Colinas, Inc., and Eastern Shore Development filed a Chapter XI bankruptcy petition. The district court ordered the proceedings transferred to Chapter X. Schreibman appeared Pro se as an individual creditor and represented Las Colinas, Inc., in the bankruptcy and district courts and on appeal. We vacated the transfer order and remanded. Schreibman v. Mason, et al.; Las Colinas, Inc., et al. v. Mason, 377 F.2d 99 (1st Cir. 1967).

That same Chapter XI proceedings spawned another case. Las Colinas, Inc., Eastern Shore Development Corporation, and Schreibman, individually, appealed a decision of the bankruptcy court permitting the bank (Banco Popular de Puerto Rico) to sell certain of the mortgaged property at public auction to satisfy the indebtedness. Schreibman appeared Pro se and represented both corporations as "attorney-in-fact." We vacated the judgment of the district court and remanded. In Re Las Colinas, Inc., 426 F.2d 1005 (1st Cir. 1970).

In another offshoot of the same case, we affirmed the district court as to amount and type of bank line of credit and damages. In Re Las Colinas, Inc., 453 F.2d 911 (1st Cir. 1971). Schreibman appeared "pro se, for Las Colinas, Inc., and others."

There appears to have been no question raised as to Schreibman representing Las Colinas, Inc., in any of these three cases.

The case now before us started on December 6, 1972, when Las Colinas, Inc., sold to Development all of its real property (773.04 cuerdas) and improvements for $1,200,000 in cash and a purchase money mortgage note in the amount of $5,663,000. On the same day, Development purchased a one-fifth interest in a smaller tract (245.65 cuerdas) located in the southern portion of the main tract from Sucesion De Danilo de Celis Perez (de Celis) for $250,000 in cash and a purchase money mortgage of $309,400. At the same time, Development gave to Heller ¹ a sixty month note in the principal sum of $2,800,000 and a thirty-six month note in the principal sum of $1,200,000 secured by a mortgage on the property acquired from Las Colinas, Inc., and de Celis. The mortgage to Las Colinas, Inc., was fully subordinated to the Heller mortgage.

Sometime in the summer of 1974 a controversy arose between Development and Heller as to the terms and conditions of the financing agreement. Suits by several creditors were filed against Development's property in the Superior Court of Puerto Rico. Schreibman filed a Chapter XI proceeding on behalf of Development on December 17, 1974. The first meeting of creditors was held in March, 1975. At this meeting, Heller filed a proof of claim, a motion challenging the Chapter XI petition, because it was not signed by an attorney, and sought relief from the automatic stay-of-lien enforcement pursuant to Bankruptcy Rule 11-44(a). ² Development, on March 14, 1975, filed a complaint attacking the validity of Heller's mortgage claim and seeking damages. It combined an answer to the Heller complaint with an objection to the Heller claim.

On April 3, 1975, Bankruptcy Judge Rafael A. Rivera-Cruz issued an order holding that the Chapter XI petition "is subject to being nullified" because it was not signed by a lawyer and giving Development fifteen days to obtain counsel. This order was appealed unsuccessfully to the district court and then to us. We dismissed the appeal. In Re Las Colinas Development Corporation, Misc. No. 75-8103 (December 4, 1975). Development then petitioned us for a writ of mandamus and prohibition so that Schreibman could represent it in the bankruptcy court, which we denied. In denying a motion for reconsideration one month later, we stated:

The motion for reconsideration is denied. The fact that this court has on occasion departed from its normal practice and allowed the petitioner to be represented by its president, who is not a lawyer, does not mean that any other court is required to make a similar exception on another occasion. Petitioner's constitutional claims may be raised in an appeal from a final judgment in the bankruptcy proceeding, and we express no views on them at this time.

In Re Las Colinas Development Corporation, No. 76-1538 Original (Jan. 20, 1977).

In December of 1976, de Celis also filed a complaint for relief from the Rule 11-44(a) stay. By pretrial order of Bankruptcy Judge Asa S. Herzog of March 10, 1977, all adversary proceedings involving Development, Heller and de Celis were consolidated for trial which was held on March 28 and 29, 1977. The issues at trial involved the scope and validity of the Heller mortgage and a valuation of the mortgaged property to determine whether or not there was any equity over and above the mortgage and other encumbrances that could be realized for the benefit of the estate. The bankruptcy judge found in favor of Heller and set aside the Rule 11-44(a) stay on June 22, 1977. No appeal by Development was taken from this order.

On July 28, 1977, Heller brought a complaint in the district court asking that a receiver be appointed, the exact amount of the debt be determined and, if the debt was not paid, that the mortgaged property be sold to satisfy the claim. Development did not answer and was defaulted on September 9, 1977. Schreibman had brought a motion to intervene on August 12, which was denied by the district court. We affirmed the district court in an unpublished opinion. Walter E. Heller & Company v. Las Colinas Development Corporation, et al. v. Vigdor Schreibman, 577 F.2d 723 (1st Cir. 1978).

The final round in the preliminary contest was our granting of Heller's motion to dismiss the appeal of Schreibman as an individual and denying its motion to dismiss the appeal of Development. Walter E. Heller & Company v. Las Colinas Development Corp., Misc. No. 78-8071 (July 27, 1978).

The background of this case is not complete without a recitation of what transpired immediately prior to and at the trial in the bankruptcy court. Development had been represented by retained counsel, Rigau and Figuerora, since June 30, 1976. Another attorney, Benito Gutierrez Diaz, also represented Development. It is not clear when his representation commenced, but it was prior to June of 1976. On February 28, 1977, Bankruptcy Judge Hernandez-Rodriguez allowed Gutierrez Diaz to withdraw as counsel for Development, but denied Rigau and Figuerora permission to withdraw. Judge Hernandez-Rodriguez noted in his order that, on January 17, 1977, he had set a pretrial conference for March 10, 1977, and ordered all counsel to be present. After Rigau and Figuerora were denied permission to withdraw, Schreibman filed an affidavit of disqualification as to Judge Hernandez-Rodriguez and brought a motion to declare all his orders invalid. This motion was denied by Bankruptcy Judge Herzog on March 10, 1977, who had been assigned the case for trial. ³

Development and Schreibman again moved that Rigau and Figuerora be allowed to withdraw and that Schreibman be permitted to represent Development. One of the grounds of the motion was that there were no lawyers in Puerto Rico capable of handling the case. It was also asserted that Development could not afford a lawyer. After an evidentiary hearing on the motion, Schreibman was denied permission to represent Development and Rigau and Figuerora were denied leave to withdraw and were ordered to continue to represent Development until "substituted" by new counsel approved by the Bankruptcy court. As far as we can determine from the records, Rigau and Figuerora have never been granted permission to withdraw as counsel for Development.

This brings us to the trial which commenced on March 28. Attorney Rigau, who was present (Figuerora had left for a trip to Europe), again asked for permission to withdraw, which was denied. In his written opinion of March 29 directed solely to this motion, Bankruptcy Judge Herzog pointed out...