Castellanos Group Law Firm, L.L.C v. Federal Deposit Insurance Corp.

2015-0036 (1st Cir. BAP February 17,2016) (MJS Las Croabas Properties, Inc a/k/a Ocean Club at Seven Seas)BAP NO. 15-036 Bankr. Case No12-05710ESL
On a decision for publication, the BAP affirmed the imposition of sanctions against the law firm under 28 U.S.C. §1927.
Procedural context:
The Bankruptcy Court ruled that attorney Quiñones- Rodriguez and the Castellanos Firm were liable jointly and severally under Fed. R. Bankr. P. 9011, 28 U.S.C. 1927, and the Court’s inherent power, to pay excess costs, expenses and fees in favor of the FDIC and the Trustee upon their failure to respond the opposing counsels several approaches to solve the controversy before the scheduled hearing and, withdrawing the motion that creates the issue on the eve of the hearing without a courtesy call to them. The Castellanos Firm appealed.
Attorney Quiñones Rodriguez filed a motion for relief from the automatic stay on behalf of Creditors Homeowners Association (HOA), seeking authorization to present a complaint before the Department of Consumer Affairs against Debtor for construction defects of the development. Several Counsels for the FDIC, counsel for Trigildand counsel for the Chapter 7 Trustee tried to contact Attorney Quiñones on several occasions to discuss the facts, that appeared on the docket of the case, that the FDIC has a lien over all of the Debtor’s assets, covering the entire value;what deems her request pointless. Attorney Quiñones never answer their messages nor their emails. At the eleventh hour the night before the hearing, counsel Quiñones withdraw the motion for relief for the automatic stay, but the court held the hearing. Counsels for the FDIC requested sanctions and the Trustee joint the request. FDIC’s filed a response to the motion to withdraw, before the hearing where requested an order directing HOA and the Castellanos Law Firm to pay FDIC’s expenses and cost incurred in connection with the filling of the opposition to the relief from stay and traveling from Texas to the hearing; argued that over three weeks tried to contact counsel Quiñones in a genuine, honest and good faith effort to resolve the issue but HOA’s counsel refused to respond. After several motions the court determined that Quiñones Rodriguez and the Castellanos firm were liable jointly and severally under Fed. R. Bankr. P. 9011, 28 U.S.C. 1927, and the Court’s inherent power and ordered to pay excess costs, expenses and fees in favor of the FDIC and the Trustee. The Bankruptcy Court noted that attorneys are required to take all efforts to expedite litigation, and not responding emails fromthe opposing counsel, that expressly requested the opportunity to resolve the controversy, and then without a courtesy call, deliberately withdrawing the motion only hours away from the hearing, “is an unacceptable disregard for the orderly process of justice”. The Castellanos Firm appealed arguing abuse of discretion. The issues summarized on the argument that no finding of bad faith in the prosecution of the motion for relief from stay was entered, the court cannot imposed sanctions over the law firm for the actions of an independent contractor and, that §1927 does not authorize the imposition of sanctions against law firms. In assessing whether an attorney acted unreasonably and vexatious, the First Circuit instructs courts to apply an objective standard. “Common sense suggest that the trial judge must be accorded wide latitude in drawing inferences as to when multiplication of the proceedings crosses the line between what is acceptable if tedious and what is unreasonable and vexatious. The BAP concluded that even though the statute does not expressly provides for vicarious liability, there is a split among the circuits on that issue and the First Circuit has implicitly determined that §1927 applies to law firms. Pointed out that Quiñones Rodriguez intransigence was equaled only by the Castellanos Firm’s indifference; that the challenged conduct unreasonably and vexatiously multiplied the proceedings and hold that the bankruptcy court acted well within its discretion when imposed sanctions on the Castellanos Firm pursuant to §1927.
Feeney, Deasy, and Cary

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