In re Negron

616 B.R. 583

IN RE: Janice Rodriguez NEGRON, Debtor

In re: Aida Martinez Medina, Debtor

Case No. 15-09749 (ESL)

Case No. 16-00699 (ESL)

United States Bankruptcy Court, D. Puerto Rico.

Signed April 28, 2020

Andrew Jimenez Cancel, Pedro Rafael Medina Hernandez, Alejandro Oliveras Chapter 13 Trustee, San Juan, PR, for Trustee.

Juan Manuel Suarez Cobo, Legal Partners PSC, San Juan, PR, for Debtor.

OPINION AND ORDER

Enrique S. Lamoutte, United States Bankruptcy Judge These cases are before the court upon the Chapter 13 Trustee's (hereinafter referred to as "Trustee") challenge to the "Validity of Contract for Bankruptcy Assistance" pursuant to 11 U.S.C. §§ 526 - 528. The Trustee argues that the contract for bankruptcy assistance executed between the Debtors and their attorney are 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 three principal arguments: (1) the contract does not clearly and conspicuously explain the services that the attorney will provide to the Debtors; (2) the contract does not clearly and conspicuously explain the fees or charges for the services to be provided by the attorney; and (3) the contract is open-ended and does not provide a cap on the cost of the services. Additionally, and exclusively as to case no. 16-00699, the Trustee specifically argues that Legal Partners delegates faculties of the attorneys to paralegal staff in violation of this court's determinations on In Re Pereira Santiago, 457 B.R. 172 (Bankr. D.P.R. 2011).

Debtors are represented by the debt relief agency ("DRA") Legal Partners P.S.C. ("Legal Partners") and through attorney Juan M. Súarez Cobo filed a reply arguing that the Trustee has no right of action to pursue remedies for alleged violations of 11 U.S.C. §§ 526, 527 and 528. The DRA further alleges that the Trustee is using a "shotgun pleading", that the Trustee's arguments are focused to on Attorney Suarez Cobo personally, however, the Debtor contracted with Legal Partners, which is, actually, the debt relief agency in these cases. The DRA argues that there is no justiciable controversy as there is no claimant, no injury and no controversy as to the contract and that 11 U.S.C. § 526(c)(1) grants unchallenged power to the assisted person to validate and enforce the contract even when it has been declared void. As to the specificity of the contract the DRA argues that it is not possible to suggest specific legal bankruptcy counseling and delineate specific services that will be provided, prior to performing a meaningful investigation and due diligence process under the circumstances of the case. Legal Partners further states that the references made to LBR 2016-1(f)(1) in the contract are "an explanation of the rule", however, the contract is clearly based in hourly billing and not ambiguous. The DRA additionally states that the "...United States Trustee's Guidelines for Reviewing Application for Compensation and Reimbursement of Expenses filed under 11 U.S.C. § 330 (Appendix A to 28 C.F.R. § 58) permits that change in hourly fees during the pendency of a case".

Legal Partners further argues against the Trustee's proposal of a "fee cap" and alleges that only a submissive approach in legal representation will allow the Debtor's attorney to maintain the legal representation under the cap, in the detriment of the Debtors.

As to the "use of paralegal" allegations, Legal Partners states that the arguments are hypothetical and not supported by any facts and therefore, will not engage in any explanation as to suppositions as to how the paralegals work or perform their duties.

The court will address these cases together considering that only the paralegal argument is exclusive to case no. 16-00699. As to the rest of the Trustee's argument and the DRA's reply the motions address similar positions, and therefore, will be addressed by the court jointly.

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.

Procedural History and Relevant Facts

Case No. 15-09749

The Debtor filed a chapter 13 bankruptcy petition on December 9, 2015 (Docket No. 1). The Disclosure of Compensation was filed by the Debtor's attorney on December 11, 2015 (Docket No. 9). The Debtor filed a chapter 13 plan on December 28, 2015 (Docket No. 19). On the Report on Meeting of Creditors the Trustee made the following remark: "Plan provides that fee are $3,000.00; however, 2016 statement establishes that fee will be paid by hourly rate. Debtor to clarify this discrepancy and also why the $87.00 should not be considered part of the no look fee, in case the attorney opts that option." (Docket No. 22) The Debtor filed an Amended Disclosure of Compensation and Amended Plan dated 2/3/2016 On February 3, 2016 (Docket Nos. 24 and 25). On February 8, 2016, the Trustee filed his Trustee's Report on Confirmation and stated "[f]rom the amended Rule 2016 Disclosure of Compensation, it appears that debtors' counsel has agreed to be paid by application for compensation, not by the $3,000.00 flat fee. Considering the above, plan should include language that fees to be paid will be through an Application. Moreover, the application needs to be filed prior to the confirmation, as per the Opinion and Order of Honorable Judge Enrique S. Lamoutte in the case of In Re Medina Espinosa, Case 13-04255-ESL" (Docket No. 25). On June 7, 2016, the attorney for the Debtor filed an Application for Compensation for the period of 11/27/2015 to 6/6/2016 and the amount of $3,500.00 of which $750.00 were paid pre-petition. (Docket No. 27). On June 13, 2016, the Trustee filed his Trustee's Objection to Motion Requesting Interim Compensation, Doc. #27 (Docket No. 30). The Trustee alleged that: (1) the applicant did not provide any legal ground to sustain the request that the Trustee initiate disbursements before the confirmation of the plan; (2) the request that the chapter 13 estate remains open and preserved if the case is dismissed before plan confirmation to pay attorney's fees is not applicable and overly broad; (3) the present case is a simple chapter 13 case that should've been charged pursuant to the flat fee established in P.R. LBR 2016-1(f) and not an application for compensation. The Trustee further objected specific entries of the application for being vague or lacking specificity; for being clerical in nature or referring to the preparation of the application, amongst other, in the total amount of $673.75. On June 15, 2016, the Debtor's plan was confirmed, and the issue of allowance of fees was continued (Docket Nos. 31 and 32). During the hearing, the court expressed its concerns as to the practice of using the flat fee as a minimum fee and then choosing if the case was to be charged as a flat fee case or under the lodestar method (See hearing transcript at Docket No. 38). After several procedural matters, the parties' arguments were compiled in the Trustee's Memorandum of Law on Nullity of Contract for Bankruptcy Assistance under 11 U.S.C. §§ 526 - 28 (Docket No. 95) and the Debtor's Response to Trustee's Memorandum (Docket No. 126).

Case No. 16-00699

The Debtor Aida Martinez Medina filed a chapter 13 bankruptcy petition on January 30, 2016 (Docket No. 1). On March 3, 3016, on its Report on Meeting of Creditors the Trustee stated the following as to the fee provisions on the plan:

"The 2016 Disclosure Statement is inconsistent with the plan provision regarding attorney's fee. While the 2016 Disclosure Statement states counsel for debtor has agreed to accept an hourly rate of $225.00, the plan provides that the fees to be paid to counsel are $3,000.00 of which $453.00 where paid pre-petition, leaving an outstanding balance of $2,547.00 to be paid through the plan. Moreover, the 2016 disclosure statement and the plan provision regarding attorney's fees do not comply with the regulatory regime of P.R. LBR 2016-1(f), which allow for a flat fee not to exceed $3,000.00. Counsel for debtor asserts in the 2016 disclosure statement an agreement with the debtor to charge attorney's fees on an hourly rate basis. Accordingly, counsel cannot claim a basic fee of $3,000.00 for legal fees akin to the flat fee. A flat fee does not vary with changes in conditions or in particular cases. If changes in conditions, such as amount of time spent on a case to obtain the confirmation of the plan, affect the amount of compensation, then by definition is not a flat fee. Local Bankruptcy Rule 2016-1(f) does not allow a combination between the flat fee and hourly rate. When services are provided on an hourly basis, the minimum charge counsel could make is determined on the number of hours spent in the representation of the debtor. If the hours spent in the representation do not reach $3,000.00 worth of services computed on an hourly basis, then counsel is not entitled to receive a basic fee of $3,000.00 only the actual fee earned. When the issues are not complex and the process is straight forward, an attorney is expected to exercise ‘billing judgement’, and is encouraged to reduce its customary fees in appropriate circumstances to reflect a less substantial expenditure of attorney time". In Re Lugo Parrilla, 530 B.R. 1 (Bankr. D PR 2015) citing In Re Thorn, 192 B.R. 52, 56 (Bankr. N. D. NY 1984).

On March 17, 2016, the Debtor filed an Amended Chapter 13 Plan and Amended Disclosure of Compensation 2016(b) (Docket Nos. 18 and 19). On March 21, 2016, the Trustee filed an Unfavorable Report, in which he objected paragraph 1(b)(iii) of the plan which stated: "[a] detailed application for fees and expenses will be filed within twenty one (21) days after the confirmation order is entered or as otherwise provided by the Court. The Debtors' attorney reserves the right to request leave to obtain compensation pursuant to Local...