In re Bonilla

• Decision Date: 20 July 2017
• Docket Number: CASE NO. 15–05131(ESL)
• Citation: 573 B.R. 368
• Parties: IN RE: Hector Torres BONILLA, Debtor
• Court: U.S. Bankruptcy Court — District of Puerto Rico

573 B.R. 368

IN RE: Hector Torres BONILLA, Debtor

CASE NO. 15–05131(ESL)

United States Bankruptcy Court, D. Puerto Rico.

Signed July 20, 2017

Filed July 25, 2017

Ada M. Conde, San Juan, PR, for Debtor.

Wigberto Lugo Mender, Lugo Mender & Co., Guaynabo, PR, for Trustee.

OPINION AND ORDER

Enrique S. Lamoutte, United States Bankruptcy Judge

This case is before the court upon the United States Trustee's Motion for Sanctions (Docket No. 14). The United States Trustee seeks sanctions against attorney Ada Conde for: (1) filing an unnecessary Application to Pay Filing Fees in Installments, (2) failing to disclose the true amount of her compensation on the 2016(b) Disclosure of Compensation and Statement of Financial Affairs, and (3) collecting dischargeable post-petition fees. Accordingly, the United States Trustee (the "U.S. Trustee") requests that sanctions be imposed against attorney Conde pursuant to Section 105, Section 707(b)(4), Federal Rule of Bankruptcy Procedure 9011 and/or 28 U.S.C. § 1927. Attorney Conde filed her Reply to the United States Trustee's Motion for Sanctions (Docket No. 19). Also before the court is the United States Trustee's Report in Compliance with Order at Docket No. 44 (Docket No. 56).

Procedural Background

On July 3, 2015, the Debtor filed a voluntary petition in the bankruptcy court for the District of Puerto Rico under the provisions of chapter 7 of the Bankruptcy Code. (Docket No. 1). The Debtor indicated on the petition that the filing fee would be paid in installments (Docket No. 1, p. 1). The Disclosure of Compensation of Attorney for Debtor(s) indicates that attorney Conde agreed to accept $1,000 for legal services and that prior to the filing of the statement she received $0.00 (Docket No. 1, p. 35). On July 3, 2015, the Debtor also filed an Application for Individuals to Pay the Filing Fees in Installments (Docket No. 2) indicating that he paid $95.00 with the filing of the petition and proposing to pay the fees in four installments¹ . On that same date, the Debtor also filed the schedules, summary of the schedules, statement of financial affairs and other documents (Docket No. 1). The SOFA indicates that the Debtor paid attorney Conde $95.00 prior to the filing of the petition (Docket No. 1, pp. 27–28, item no. 9). On July 4, 2015, the court entered the Notice of Chapter 7 Bankruptcy Case, Meeting of Creditors & Deadlines (Docket No. 6) scheduling the 341(a) meeting for August 12, 2015. On July 15, 2015, the court entered an Order granting the Application to Pay Filing Fees in Installments (Docket No. 8).

The 341(a) meeting held on August 12, 2015, was continued to October 7, 2015 (Docket No. 13)² . On August 13, 2015, the U.S. Trustee filed its motion requesting sanctions against attorney Conde (Docket No. 14). The U.S. Trustee stated that during the meeting of the creditors held on August 12, 2015, the "Debtor testified he made partial payments to the attorney, from $200 to $1,000, until he completed the total amount of $1,600 requested by his attorney, "around a month ago." (Docket No. 14, p. 1, ¶ 6). The U.S. Trustee argues that: (i) Fed. R. Bankr. P. 1006(b)(3) prohibits an attorney from receiving payment from the debtor (or through a plan) while there is an outstanding filing fee balance; (ii) Fed. R. Bankr. P. 9011(b) states that an attorney who files a petition or other bankruptcy documents certifies that the document is not being presented for an improper or frivolous purpose and that the allegations and other factual contentions contained therein have evidentiary support or are likely to have support after further investigation; (iii) 28 U.S.C. § 1927 allows courts to impose sanctions on attorneys who unreasonably and vexatiously multiply the proceedings in a case; (iv) Fed. R. Bankr. P. 2016(b) and Section 329 require that attorney's disclose their compensation and attorney Conde "failed to inform fees already received in her Rule 2016(b) Statement of Compensation, and in fact, informed $1,000 remained to be paid, when these are dischargeable in Chapter 7" (Docket No. 14, p. 5, ¶ 17); and (v) "Debtor's attorney received fees post-petition, when courts have held that unpaid prepetition obligations, including unpaid attorney's fees, are dischargeable" (Id. at p. 6,¶ 19). Accordingly, the U.S. Trustee requests sanctions be imposed against attorney Conde pursuant to Section 105, Section 707(b)(4), Fed. R. Bankr. P. 9011, and/or 28 U.S.C. § 1927.

On August 14, 2015, the receipt for the Debtor payment of the remaining filing fees was entered (Docket No. 15). On August 24, 2015, the Debtor filed a Notice of Conversion to Chapter 13 (Docket No. 16). On August 25, 2015, attorney Conde amended the Disclosure of Compensation of Attorney for Debtor(s) indicating that she agreed to accept $1,300 for her legal services and that she received $1,000 prior to the filing of the statement (Docket No. 17, p.6). On August 31, 2015, attorney Conde filed her Reply to the U.S. Trustee's Motion for Sanctions (Docket No. 19) declaring that: (i) she personally advised the Debtor on or around the month of June 2015; (ii) "Debtor informed that he did not have the money to pay the amounts required neither for Chapter 13 and Chapter 7 not even the filing fees"; (iii) the Debtor went to her office on July 3, 2015³ , and "explained he did not have the money to pay the full amount of filing fees and was interested in filing a Chapter 7"; (iv) attorney Conde explained to the Debtor that she would be out of the office for some weeks because her daughter was having surgery; (v) attorney Madelaine Llovet agreed to assist the Debtor at the 341(a) meeting scheduled for August 12, 2015; and (vi) she found out that the Debtor had paid additional money for the first time on the evening of August 12, 2015 when she spoke to attorney Llovet. Attorney Conde sustains that she proceeded to investigate the matter and discovered that her secretary, Ms. Maelen Cubano, against her instructions, "received the money because the Debtor he wanted the conversion to Chapter 13." (Docket No. 19, p. 4, ¶¶ n-o). Moreover, she states that she proceeded to pay the full amount of filing fees owed and met with the Debtor to prepare the conversion to Chapter 13 as the Debtor indicated that he had changed his mind⁴ .

On September 16, 2015, the court entered an Order and Notice scheduling a hearing for February 23, 2016, to consider the U.S. Trustee's request for sanctions and attorney Conde's reply (Docket No. 21). On September 23, 2015, the court entered an Order granting the conversion to Chapter 13 and the 341(a) meeting was scheduled for October 28, 2015 (Docket No. 26).

On October 27, 2015, the Debtor filed a Notice of Conversion to Case from Chapter 13 to Chapter 7 (Docket No. 33). On October 28, 2015, the 341(a) meeting was not held (Docket No. 35, Minutes of 341 Meeting). The Notice of Conversion to Case from Chapter 13 to Chapter 7 was granted on November 6,2015 (Docket No. 36). The 341(a) meeting was scheduled for December 16,2015 (Docket No. 39) and later reset/continued to February 3, 2016 (Docket No.42). The 341 meeting was closed on February 8, 2016 (Docket No. 45).

On February 23, 2016, a hearing was held were the U.S. Trustee and attorney Conde argued their respective positions (Docket No. 49 Audio File , Docket No. 50, Minute Entry and Docket No. 54 Transcript ). The court ordered the U.S. Trustee to submit proposed findings and facts and conclusions of law within thirty days and granted attorney Conde thirty days thereafter to submit hers. On March 24, 2016, the U.S. Trustee filed its Report in Compliance with Order at Docket No. 54 (the "Report ", Docket No. 56). In its Report the U.S. Trustee argues that attorney Conde: (i) "violated Federal Rule of Bankruptcy Procedure 1006(b)(3), by filing an application to pay the filing fees in instalments on behalf of Debtor, "when Debtor made payments to her totaling $1,600, beginning on July 3, 2015, until on or about July 12, 2015"; (ii) violated ABA Model Rule of Professional Conduct 1.4(a)(1),(2) and (3) "by failing to inform Debtor that she filed an application to pay filing fees in instalments on his behalf"; (iii) violated Fed. R. Bankr. P. 1008 ; (iv) "violated Fed. R. Bankr. P. 9011(b) by filing an application to pay filing fees in installments when the Debtor had the means to pay the full filing fee as well as all of her legal fees"; (v) "failed to perform a factual investigation regarding the amount of fees she received before filing the Statement of Financial Affairs, as required by the above-cited provisions [Section 707(b)(4)(B), (C) and (D) and Fed. R. Bankr. P. 9011(b) ) ]"; (vi) unreasonably and vexatiously multiplied the proceedings pursuant to 28 U.S.C. § 1927 with the filing of the unnecessary application to pay filing fees in installments; (vii) violated Section 329 and Fed. R. Bankr. P. 2016(b)"by filing two Statements of Compensation that did not accurately disclose the legal fees she received; and (viii) "also acted inappropriately by receiving payment for legal services from Debtor after the filing of the petition, when courts have held that unpaid pre-petition obligations, including unpaid attorney's fees, are dischargeable." Accordingly, the U.S. Trustee reiterates its request that sanctions be imposed against attorney Conde pursuant to Section 105, Section 707(b)(4), Fed. R. Bankr. P. 9011 and/or 28 U.S.C. § 1927.

On April 28, 2016, attorney Conde filed a request for an extension of forty-five (45) days to file her reply to the Trustee's Report (Docket No. 59) which was granted on April 29, 2016 (Docket No. 60). On June 8, 2015⁵ , filed another request for an extension of time to file her reply (Docket No. 63) which was granted on June 13, 2016 (Docket No. 65). On July 18, 2016, attorney Conde request another extension of thirty (30) days to file her reply (Docket No. 67) which was granted on July 28, 2016 (Docket No. 68). On August 15, 2016, attorney...