In re Perez

• Decision Date: 31 July 2018
• Docket Number: CASE NO. 15-06593 (ESL)
• Parties: IN RE: MARIA SOCORRO RODRIGUEZ PEREZ Debtor
• Court: U.S. Bankruptcy Court — District of Puerto Rico

IN RE: MARIA SOCORRO RODRIGUEZ PEREZ Debtor

CASE NO. 15-06593 (ESL)

UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF PUERTO RICO

July 31, 2018

CHAPTER 13

OPINION AND ORDER

This case is before the court upon the Chapter 13 Trustee's (hereinafter referred to as "Trustee") challenge to the "Validity of Contract for Bankruptcy Assistance and Amended Contract" pursuant to 11 U.S.C. §§526-528. The Trustee argues that the contract for bankruptcy assistance executed between the Debtor and her attorney is void for failure to comply with the material requirements of 11 U.S.C. §§526-528. The Trustee challenges the validity of the contract due to the following: (i) the contract does not clearly and conspicuously explain the services that the attorney will provide to the debtor; (ii) the contract does not clearly and conspicuously explain the fees or charges for the services to be provided by the attorney; (iii) the contract is open-ended and does not provide a cap on the cost of the services. The Trustee also challenges the validity of the amended contract for bankruptcy assistance executed five (5) months after the date of the filing of the bankruptcy petition due to the following: (i) the amended contract does not comply with the temporal requirements of 11 U.S.C. §528(a), and 527(b); (ii) Model Rule of Professional Conduct 1.5(b) requires the scope of the representation of the client and the basis or rate of the fee to be charged to the client be communicated in writing before commencing the representation; (iii) the amendment to the contract is invalid under Puerto Rico contract law because the original contract is void "ab initio."

Debtor's legal representation, attorneys Enrique M. Almeida Bernal and Zelma Dávila Carrasquillo of the law firm Almeida & Dávila, P.S.C. (hereinafter collectively referred to as "Almeida") filed a reply arguing that the party alleging the invalidity of the contract has the burden to establish: (i) the alleged violation to sections 526, 527, and 528; (ii) that the Debt Relief Agency intentionally or negligently failed to comply with such provisions; (iii) actual damages; and (iv) that the assisted person does not wish to enforce the contract. Almeida also alleges that the Trustee lacks standing to question the validity of the services contract; that Almeida complied with the notices required under 11 U.S.C. §527 as they are included in the "Notice of Consumer Debtor(s) Under §342(b) of the Bankruptcy Code" filed with the bankruptcy petition, that the services contract includes a list of Debtor's responsibilities summarizing "some" of the disclosures included in §527; and that the professional services contract explains clearly and conspicuously the services to be provided by Debtor's counsel, the fees or charges for such services, and the terms of payment. Moreover, Almeida contends that the professional services contract was amended for the benefit of the Debtor and the estate, with Debtor's consent, and solely to speed the confirmation of the plan; that the Debtor wishes to enforce the contract signed with her attorney including the terms of payments; and that the remedies requested by the Trustee are unwarranted and arbitrary.

The Trustee filed a sur-reply arguing as follows: (i) the Chapter 13 Trustee has standing to bring forth a violation to 11 U.S.C. §§526-528; (ii) the original contract is void because it was executed four (4) weeks after the attorney provided the initial consultation to the Debtor; (iii) the cost of the services is not explained in the original contract; (iv) stating in the contract that services will be charged by the hour at a rate of $200.00 is not the same as informing the cost of the services; (v) the original contract does not explain the cost of the services; (vi) Almeida failed to comply with the notices required under 11 U.S.C. §527; (vii) the legal consequences of Debtor's wish to enforce the contract is that the attorney will have to provide the services even ifthe attorney is not entitled to receive compensation for failure to comply with his responsibilities as a Debt Relief Agency.

For the reasons set forth below, the court finds and concludes that the original contract and amended contract executed with the Debtor are void for failure to comply with the material requirements of 11 U.S.C. §§526-528.

Jurisdiction

The Court has jurisdiction pursuant to 28 U.S.C. §1334(b) and 157(a). This is a core proceeding pursuant to 28 U.S.C. §157(b)(1) and (b)(2)(A). Venue is proper under 28 U.S.C. §§1408 and 1409.

Findings of Facts

1. On July 15, 2015, Almeida provided the initial attorney consultation to the Debtor.

2. On August 12, 2015, Almeida executed a written contract for bankruptcy assistance with the Debtor (hereinafter referred to as "original contract").

3. The original contract provides in clause no. 2 that the base¹ fee for the filing of the bankruptcy case under chapter 13 is $3,000.00, "as it has been pre-approved by the Bankruptcy Court," of which the Debtor shall pay $200.00 before the filing of the bankruptcy, and the outstanding balance shall be paid through the plan. Clause no. 2 further provides as follows:

"COUNSEL shall maintain records on the time devoted to the services rendered to CLIENT and shall request the Court the approval of additional attorneys' fees, when the time devoted and/or accrued expenses would exceed the base fee, in accordance to the regular hourly rates, as stated in clause 2 of this contract.

CLIENT ACKNOWLEDGES THAT COUNSEL'S WORK AND THAT OF ITS PARALEGALS, ACCOUNTANTS OR ASSOCIATES BEFORE THE CONFIRMATION OF HIS/HER CASE MAY RESULT IN FEES IN ADDITION TO THE $3,000 PRE-APPROVED BY THE COURT, AND THAT THE WORK AFTER THE CONFIRMATION OF THE CASE WILL ALWAYS RESULT IN A REQUEST BY COUNSEL FOR ADDITIONAL FEES."

4. The original contract does not explain with particularity the services that Almeida will provide to the Debtor.

5. On August 28, 2015, the Debtor filed a voluntary petition in the Bankruptcy Court for the District of Puerto Rico under the provisions of chapter 13 of the Bankruptcy Code.

6. The Debtor is an assisted person as defined in 11 U.S.C.§101(3). The assets of the debtor, including exempt property are valued at $172,493.66.

7. The Debtor is represented in this case by Enrique M. Almeida Bernal, and Zelma Davila Carrasquillo, of the law firm Almeida & Davila, PSC.

8. Almeida is a "debt relief agency as defined by 11 U.S.C. §101(12A). Almeida provides bankruptcy assistance to the Debtor in return for the payment of money.

9. The Disclosure of Compensation of Attorney for Debtor filed on the petition date pursuant to 11 U. S.C. § 329(a) and Bankruptcy Rule 2016(b), in relevant parts, provides as follows:

"1. Pursuant to 11 U.S.C. §329(a) and Bankruptcy Rule 2016(b), I certify that I am the attorney for the above-named debtor and that compensation paid to me within one year before the filing of the petition in bankruptcy, or agreed to be paid by me, for services rendered or to be rendered on behalf of the debtor(s) in contemplation of or in connection with the bankruptcy case is as follows:

For legal services, I have agreed to accept........................$3,000.00

Prior to the filing of this statement I have received.............$200.00

Balance Due $2,800.00

…

…6. In return for the above-disclosed fee, I have agreed to render legal services for all aspects of the bankruptcy case, including:

a. Analysis of the debtor's financial situation, and rendering advice to the debtor in determining whether to file a petition in bankruptcy;

b. Preparation and filing of any petition, schedules, statement of affairs and plan which may be required;

c. Representation of the debtor at the meeting of creditors and confirmation hearing, and any adjourned hearing thereof;

d. [Other provisions as needed]

**The above stated agreed fee is subject to hourly billing if fees exceed $3,000.00. **

Pursuant to the professional services agreement the client agrees to compensate Almeida & Davila, PSC, in such amount as is approved by the Bankruptcy Court in accordance with the terms and conditions of the Chapter 13 Plan. The estimated fee for services in connection with a confirmed chapter 13 Plan shall be $3,000.00, based upon the hourly rate of services performed by the Firm, and as allowed by LBR 2016-1(f)(1).

The actual fee shall be that which is approved by the court. If the time devoted to such tasks exceeds $3,000.00, then, the fees, costs and expenses shall be such amount stated in detailed application(s) for compensation filed with the court. The application(s) for compensation shall be based upon the hourly charges for the services performed, and the actual cost of expenses, subject to the approval by the Court.

The fee agreement between Almeida & Davila, PSC and the debtor(s) provides the amount of $3,000.00 will be accepted for services rendered up to the confirmation of the plan or until the $3,000.00 is accumulated in services provided at the regular hourly rates of $200.00 for services performed by Enrique M. Almeida and Zelma Dávila Carrasquillo. Matters attended by paralegal staff will be charged at the rate of $85.00 per hour, and services of in-house accountants will be charged at the rate of $100.00 per hour. Services of associate attorneys will be charged at the rate of $175.00 per hour. Expenses will be charged at the price/cost. Any work in excess of the $3,000 will be billed through an application for compensation to be filed with the Court for its approval. This disclosure should be construed in harmony with 11 USC sec. 330(a)(4)(B), rules, and all applicable orders.

..."

10. The Debtor filed a chapter 13 plan dated August 27, 2015 and two (2) subsequent amended plans dated November 3, 2015, and December 10, 2015, all of which include the same provision regarding the payment of attorney's fees. The plans provide, in section II(A)(2), as follows:

"Debtor's attorney fees- Upon confirmation of the plan, the trustee will pay the

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