In re Garcia
| Decision Date | 22 December 2016 |
| Docket Number | CASE NO: 16-10231 |
| Parties | IN RE: JUAN GARCIA Debtor |
| Court | U.S. Bankruptcy Court — Southern District of Texas |
MEMORANDUM OPINION GRANTING IN PART AND DENYING IN PART DEBTOR'S APPLICATION TO EMPLOY THE LAW OFFICES OF RICK GUERRA
"The leading rule for the lawyer, as for the man of every calling, is diligence."1 With that thought in mind, this Court must now assess whether a debtor's choice of special litigation counsel can practice with diligence, thereby satisfying the statutory requirements of the bankruptcy code, despite vehement objections from opposing parties. Pending before this Court is a single pleading filed by Dr. Juan M. Garcia ("Debtor"), self-styled as "Debtor's Amended Application to Employ Law Offices of Rick Guerra." See generally [ECF No. 42] (the "Application"). The Application seeks to employ special litigation counsel, Mr. Ricardo Guerra ("Guerra"), to prosecute and defend the related adversary proceedings pending. Id. Yet, the Application is vehemently opposed by Dr. Rolando Posada ("Posada"), Debtor's former business partner, who suggests that Guerra lacks the necessary diligence to serve as special counsel in this case. See generally [ECF No. 48]. This Court now considers the parameters ofthe Bankruptcy Code,2 11 U.S.C. § 327(e), relevant case law, and the arguments lodged by both Debtor and Posada to determine whether Guerra possesses the requisite diligence to be employed as Debtor's special counsel.
This Court makes the following Findings of Fact and Conclusions of Law pursuant to Federal Rules of Bankruptcy Procedure 7052, which incorporates Fed. R. Civ. P. 52, and 9014. To the extent that any Finding of Fact constitutes a Conclusion of Law, it is adopted as such. To the extent that any Conclusion of Law constitutes a Finding of Fact, it is adopted as such.
On July 25, 2016, Debtor filed a voluntary petition for chapter 11 bankruptcy. [ECF No. 1]. Debtor's petition was filed with the assistance of Guerra as Debtor's counsel. Id. Prior to Debtor's bankruptcy, Guerra represented Debtor as the plaintiff in state court litigation against Posada before the 445th Judicial District Court of Cameron County, Texas. [Case No. 2011-DCL-05265] (the "State Court Litigation"). Debtor, by and through Guerra, filed the State Court Litigation in August 2011 against Posada, Claudia Jensen, and Israel Vega. See [ECF No. 48 at ¶ 18]. On June 24, 2016, Posada filed a Motion for Summary Judgment in the State Court Litigation, which was set for hearing on July 25, 2016. Posada Ex. G. Prior to beginning the hearing on the Motion for Summary Judgment, Debtor filed his bankruptcy petition, thus halting the State Court Litigation. [ECF No. 1]; see also 11 U.S.C. § 362.
On August 5, 2016, Debtor filed a single motion, self-styled as "Motion of Debtor for Order Pursuant to Bankruptcy Rule 1007(c) Extending Time for Debtor to File His Schedules and Statement of Affairs," which was granted. [ECF No. 8]; [ECF No. 10]. On August 18, 2016, Debtor filed his Application to Employ Smeberg Law Firm, PLLC, which sought toemploy Mr. Ronald J. Smeberg as Debtor's Counsel. [ECF No. 15]. On September 7, 2016, this Court held a hearing and granted Debtor's Application to Employ as of August 17, 2016. [ECF No. 38].
On August 29, 2016, Debtor filed the Application to Employ the Law Offices of Rick Guerra, [ECF No. 27], subsequently amended on September 9, 2016. [ECF No. 42]. The Application seeks the authority to employ Guerra at the regular hourly rate for the services provided by Guerra from the initial filing of Debtor's bankruptcy through August 17, 2016. Id. at 1. Further, the Application seeks to employ Guerra as special counsel, specifically for prosecuting and analyzing the State Court Litigation, now removed to this Court, and any other related adversary proceedings. Id. at 2; [Case No. 16-1005]; see also [Case No. 16-1006]. Debtor seeks to employ Guerra since he has been prosecuting the State Court Litigation since inception and therefore would be most effective at prosecuting those issues. [ECF No. 42 at 3]. Debtor negotiated an hourly fee agreement with Guerra where Guerra would receive $275.00 per hour, other attorneys in Guerra's office would receive $225.00 per hour, and legal assistants and/or paralegals would receive $100.00 per hour. Id. at 4-5. Further, Debtor has been advised that Guerra will separately bill for expenses. Id. at 5. Although Guerra represented Debtor prior to the instant bankruptcy case, the Application asserts Guerra has no other conflicts of interest in this case. Id. at 5-6.
Posada, Debtor's former business partner and defendant in the now-removed State Court Litigation and a plaintiff in the second adversary proceeding against Debtor, filed three separate proofs of claim against Debtor's estate relating to the second related adversary on November 22, 2016. [Case No. 2011-DCL-05265]; [Case No. 16-1005, ECF No. 1];[Case No. 16-1006, ECF No. 1]; [Claim Nos. 7-1, 8-1, 9-1]. The first claim in the amount of $505,011.56 for Debtor'salleged violation of § 523(a)(2), (4), and (6). [Claim No. 7-1]. The second claim, totaling $806,854.00, is from a note Posada purchased from Bank of America/Merrill Lynch that secures the Garpo II property, which Debtor is allegedly responsible for. [Claim No. 8-1]. The third claim, based on Debtor's alleged breach of contract and abuse of process, is in the amount of $453,111.95. [Claim No. 9-1].
On September 13, 2016, Posada filed a response, self-styled as "Rolando Posada's Response to Debtor's Amended Application to Employ Law Offices of Rick Guerra (Doc. #42)." [ECF No. 48] (the "Response"). The Response asserts that Debtor should not employ Guerra as special counsel since Debtor's request conflicts with Debtor's Counsel's duties, specifically because the "duties set out for [Guerra] are not limited to litigation." Id. at 2. Further, Posada alleges that Guerra may not be a "disinterested person" due to the prior representation of Debtor in the State Court Litigation. Id. at 3. Posada objects because Guerra, allegedly, "has a provable, objective history of delaying, and wasteful litigation tactics that are not appropriate for acting as Debtor's counsel in a bankruptcy case." Id. at 4. To wit, Posada decries that Guerra was unprepared for trial in the State Court Litigation because he had failed to abide by court orders, "produced no admissible damages model to support his pleadings, he had designated no expert on damages, and all of Debtor's individual claims had been dismissed on a no-evidence Summary Judgment and chose to file chapter 11 bankruptcy as a solution." Id.at 4-5. Additionally, Posada further argues that Guerra has a history of using bankruptcy proceedings as a tactic to delay litigation and cause "needless expense to all parties." Id. at 6-8. To support that contention, the Response references a bankruptcy case filed by Guerra in the Houston, Texas in which Guerra allegedly filed for bankruptcy for his client a few days before trial of the state court action. Id. at 6-7, see [Case No. 16-31331].
Additionally, Posada asserts that allowing Debtor to employ Guerra is an attempt to re-litigate Debtor's prior state court claims that were previously dismissed and is "a duplicative and wasteful use of judicial resources and a drain on the Chapter 11 estate." Id. at 4-5. Posada further contends that Guerra will inaccurately advise Debtor that the value of the litigation is higher than what is the actual value to the estate, which impacts the duties owed by a Debtor in Possession to the estate. Id. at 8. Additionally, Posada focuses on Guerra's actions, specifically "not meeting deadlines and not adequately representing the estate," during the instant bankruptcy proceeding prior to Debtor's Counsel's employment. Id. at 8-9. The Response alleges that Guerra failed to comply with 11 USC § 1116, failed to comply with small business case provisions, failed to hire appropriate bankruptcy counsel for 24 days, and represented the estate without this Court's approval prior to Debtor's Counsel's employment. Id. at 9. Based on these reasons, Posada asks this Court to deny the Application. [ECF No. 48 at 10].
On October 3, 2016, Guerra, on behalf of Debtor, filed "Debtor's Reply to Rolando Posada's Amended Response to Debtor's Amended Application to Employ Law Offices of Rick Guerra (Doc. #48)." [ECF No. 69] (the "Debtor's Reply"). Debtor's Reply addresses the two overarching objections presented by Posada's Response; namely, "1) that Guerra has an objective history of delay tactics and failing to abide by court orders, and 2) that Guerra's employment would cause duplicative and unnecessary costs." Id. at 1. Debtor suggests that Posada does not provide this Court with any evidence to substantiate the objections. Id. In discussing Guerra's alleged history of delay and failure to abide by court orders, Debtor addresses the case referred to in the Response, [Case No. 16-31331], and asserts that Guerra achieved the desired outcome in the case for his chapter 7 client. Id. at 2. Although Debtor's Reply cites the contentions as "misleading and baseless," Debtor argues that failing to develop adamages model or designate an expert in the State Court Litigation does not constitute a failure to abide by court orders. Id. at 2-3. Conversely, Debtor asserts that Posada has caused "objective delays" in the State Court Litigation. Id. at 3. Despite the fact that the State Court Litigation has been excessively long; Debtor argues that "Posada has done everything in his power over the course of five years to avoid or delay the dissolution" of the partnership. Id. Further, Debtor argues that although some of the claims in the State Court litigation were dismissed on summary judgment, the orders are neither final nor binding. Id. Debtor further...
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