In re Pagan

IN RE: ROBERTO CENTENO PAGAN Debtor

CASE NO. 14-08824 (ESL)

UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF PUERTO RICO

January 30, 2017

CHAPTER 7

OPINION AND ORDER

This case is before the court upon the Debtor's Motion for Rule 9011 Sanctions (Docket No. 67). The Debtor seeks sanctions against unsecured creditor Amada Medina Ramos and her legal counsel for the filing of Medina Ramos' Supplemented §707(a) &/or §707(b)(3)(A) & §349 Motion to Dismiss (Docket No. 40). The Debtor alleges that the Motion to Dismiss was frivolous, malicious, and caused the Debtor to incur in unwarranted expenses and delay in the closing of his bankruptcy case. Consequently, Debtor prays for sanctions in the form of attorney's fees and costs. Also before the court is the Opposition to Debtor's Motion for Rule 9011 Sanctions filed by Medina Ramos' legal counsel (Docket No. 69), the Order to Show Cause (Docket No. 75) entered by this court on June 16, 2016, and attorney Morales Vidal's responses thereto (Docket Nos. 77, 81, 82 and 83). For the reasons stated herein, Debtor's Motion for Rule 9011 Sanctions (Docket No. 67) is denied. However, the court hereby sanctions attorney Morales Vidal under 28 U.S.C. §1927.

Procedural Background

The Debtor filed a bankruptcy petition under Chapter 7 of the Bankruptcy Code on October 28, 2014 (Docket No. 1). On October 29, 2014, the Notice of Chapter 7 Bankruptcy Case, Meeting of Creditors & Deadline (the "Notice") was docketed in the instant case (Docket No. 6). The Notice disclosed that the deadline to object to the Debtor's discharge or to challenge the dischargeability of certain debt was January 25, 2015. On January 11, 2015, Amada Medina Ramos (hereinafter referred to as "Medina Ramos") filed a motion requesting an extension of ninety (90) days to file a motion to dismiss for bad faith under Section 707 and/or a complaintto deny Debtor's discharge or to challenge the dischargeability of Debtor's debt to Medina Ramos pursuant to Section 523 (Docket No. 17), and the same was granted On January 15, 2015, (Docket No. 18). On January 15, 2015, the Debtor filed his Response to Amada Medina Ramos' Motion for Extension of Time in which he argued, among other things, that the request for extension of time was frivolous and that the ninety (90) day request was unreasonable (Docket No.19).

On February 11, 2015, Medina Ramos filed motion titled Amada Medina Ramos Verified Request to Initiate Discovery Before Motion to Dismiss Under §707(a) &/or §707(b) &/or §523/§727 Complaint is Filed (the "Motion to Initiate Discovery", Docket No. 21) requesting that the court enter an order authorizing discovery alleging that there was a need for discovery to ascertain the viability of her potential actions against the Debtor. On that same date, Medina Ramos filed a supplement to the motion requesting discovery, adding Medina Ramos' declaration that the information contained therein was correct (the "Supplement to Motion to Initiate Discovery", Docket No. 22). On February 12, 2015, the Debtor filed his Response to Motion to Initiate Discovery (Docket No. 23) in which he argued, among other things, that the request for discovery was unnecessary since based on Medina Ramos' allegations she must have possession or control of any documents or evidence that would substantiate her potential claims against the Debtor. In addition, the Debtor alleged that Medina Ramos has no evidence of bad faith or abuse and that she has access to the public documents related to the pre-petition probate and state court litigation related to Medina Ramos' claim against the Debtor. On February 13, 2015, the Debtor filed a Supplement in Opposition to Motion to Initiate Discovery (Docket No. 24) in which he informed the Court that on that same date his legal counsel forwarded to Medina Ramos' legal counsel all documents in Debtor's possession related to Medina Ramos' claim. In addition, the Debtor reiterated his opposition to discovery. On February 18, 2015, the court entered an Order denying Medina Ramos' Motion to Initiate Discovery (Docket No. 25). On that same date, the court also entered an order denying Medina Ramos' Supplement to Motion to Initiate Discovery (Docket No. 26).

Thereafter, on April 22, 2015, Medina Ramos filed Medina Ramos' §707(a) &/or §707(b)(3)(A) & §349 Motion to Dismiss (Docket No. 35), which was denied without prejudice for failure to comply with LBR 9013-1(3) and LBR 9013-1(c) (Docket No. 36). Subsequently, on May 1, 2015, Medina Ramos filed Movant Request for Reconsideration of Order Denying Motion to Dismiss re docs #35 & #36 & Request Leave To Supplement & Notice Creditors Not Otherwise Noticed (Docket No. 38) in which she sought leave to supplement Docket No. 35 in order to comply with the notice requirements of LBR 9013-1(c)¹. On that same date, Medina Ramos proceeded to file Medina Ramos' Supplemented §707(a) &/or §707(b)(3)(A) & §349 Motion to Dismiss² (the "Motion to Dismiss", Docket No. 40) in which she argued that the Debtor's bankruptcy case should be dismissed because it was filed in bad faith and with the intent to avoid payment of Debtor's $25,000.00 debt with Medina Ramos "through conduct akin to fraud, misconduct, or gross negligence" (Docket No. 40, p.7). Medina Ramos alleged that the Debtor: (i) "had no reason or cause to file for "protection" from his creditors, other than to thwart and gain undue advantage and avoid payment to Movant" (Docket No. p. 5); (ii) "continually manipulated Movant to obtain the conveyance of her property rights in the Barceloneta property and later free himself from this single debt by repeatedly promising payment in exchange for conveyance"; and (iii) "has no real need to shield himself from collection or pressure from his other creditors since debtor's only source of income in that of Social Security benefits is protected under 42 U.S.C. §407 from collection or garnishment. His only asset, titled to him by misleading and manipulating Movant to sign a donation, is now exempted from the reach of creditors under the Puerto Rico Homestead Law 195" (Docket No. 40, p.6). Accordingly, Medina Ramos contends the "debtor's utilization of the protections of Bankruptcy Code and law, as well as his utilization of the Puerto Rico exemption law has beenin conscious detriment of the Movant and establishes "cause" to dismiss with case with prejudice for bad faith and abuse of process" (Docket No. 40, p. 10). In addition, Medina Ramos argued that a majority of courts have held that dismissal under Section 707(a) for bad faith is appropriate even though there is no controlling precedent from the First Circuit Court of Appeals. Moreover, she alleged that seven of the twelve factors considered by the court in In re Lombardo, 370 B.R. 506, 512 (Bankr. E.D.N.Y. 2007) to determine there was cause to dismiss pursuant to Section 707(a) are present in this case. Medina Ramos also sustained that the case could be dismissed under Sections 707(b)(1) and 707(b)(3)(A).

On May 8, 2015, the Debtor filed a Notice of Intent to Pursue Rule 9011 Sanctions (Docket No. 42) informing the court that on that same date a copy of a motion requesting sanctions was sent to Medina Ramos and her legal counsel in compliance with Fed. R. Bank. P. 9011(c). On May 26, 2015, Medina Ramos filed Movant [sic] Response to Debtor's Motion of Intent to Pursue Rule 9011 Sanction (Docket No. 45) in which she declared that "[t]he motion to dismiss which debtor purports violates Rule 9011 was drafted and filed after carefully reviewing the facts [without the opportunity of discovery prior to its filing as requested at doc #22 and opposed by debtor and denied by the court] and researching the law" (Docket No. 45, pp.1-2, ¶5). In addition, Medina Ramos, through her legal counsel, reaffirmed her request that the Debtor's bankruptcy case be dismissed for bad faith and declared that "[a]lthough Movant's health is very delicate at this time and has turned for the worse very recently, it is in the opinion and evaluation by the undersigned, that there is no reason to withdraw the motion to dismiss at this time" (Docket No. 45, p.3, ¶12).

Subsequently, on June 1, 2015, the Debtor filed a Motion for Order (Docket No. 46) in which he requested that the court enter an order setting a hearing to consider the Motion to Dismiss or ordering the Debtor to file a response within thirty (30) days from the entry of the order. On June 12, 2015, the Court entered an Order and Notice scheduling a preliminary pretrial and scheduling conference under Fed. R. Bank. P. 7016(b) on October 16, 2015 (Docket No. 49).

On October 5, 2015, the Debtor and Medina Ramos filed a Joint Motion to Convert Pre-Trial Hearing to Status Conference (Docket No. 51). In addition, the parties informed the court that they were engaged in communications regarding the exchange of documents and papers necessary to litigate the contested matter as well as a possible settlement. On October 14, 2015, the court entered an Order granting the Joint Motion to Convert Pre-Trial Hearing to Status Conference (Docket No. 52).

On October 16, 2015, the court held a Status Conference in which Medina Ramos's legal counsel, Lyssette Morales Vidal, for the first time informed the court and Debtor's counsel that Medina Ramos had passed away a month before the hearing. See Docket Nos. 54 (Audio File) and 55 (Minute Entry). In addition, attorney Morales Vidal informed the court that she would be filing a motion to substitute pursuant to Fed. R. Civ. P. 25³. Debtor's counsel declared that this was the first time he was being notified of the Movant's death despite several attempts to communicate with attorney Morales Vidal with regards to the Status Conference and a possible settlement prior to the hearing. The court noted in the Minute Entry that "[m]ovant has passed one month ago. Movant's counsel had failed to inform debtor's counsel⁴" (Docket No. 55). In addition, the court granted the Debtor sixty...