USCA1 Opinion

UNITED STATES COURT OF APPEALS

FOR THE FIRST CIRCUIT
____________________

No. 97-1234

JOSE A. CUEVAS-SEGARRA, & AMNERIS MARTINEZ,

Appellants,

v.

MARIA LUISA CONTRERAS,

Appellee.

____________________

ANTONIO R. CONCEPCION-VELAZQUEZ, AGNA I. MORALES,

Appellees.

____________________

No. 97-1265

JOSE A. CUEVAS-SEGARRA, & AMNERIS MARTINEZ,

Appellees,

v.

MARIA LUISA CONTRERAS,

Appellee.

____________________

ANTONIO R. CONCEPCION-VELAZQUEZ, AGNA I. MORALES,

Appellants.

____________________

APPEALS FROM THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF PUERTO RICO

[Hon. Salvador E. Casellas, U.S. District Judge]

___________________

____________________

Before

Torruella, Chief Judge,

___________

Lynch, Circuit Judge,

_____________

and DiClerico, Jr.,* District Judge.

______________

_____________________

Charles A. Cuprill-Hern ndez, with whom

_____________________________
Pumarada and
________

Carlos A. Surillo__________________

Charles A. Cuprill-Hern ndez Law Offices were

__________________________________________

on

brief for appellants.

Mar a Luisa Contreras,
_____________________

with whom Mar a Luisa Contreras Law

__________________________

Offices was on brief for appellees.

_______

____________________

January 23, 1998

____________________

____________________

Of the District of New Hampshire, sitting by designation.

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Per Curiam.
Per Curiam.
___________

The bankrupt estate of Jos

and his wife, Alejandra Becerra, had few assets.

significant was

Dr. Julio

Concepci n

a malpractice

Westerband.

and

Jos

claim against

On August

A.

26,

M ndez-Rosado

One of the most

Dr. Karl Horn

1988, attorneys

Cuevas-Segarra

filed

and

Antonio

Motion

for

Designation of Special Counsel, hoping to obtain bankruptcy court

approval to settle the malpractice suit on behalf of the debtors.

The Motion was denied without prejudice because the attorneys had

failed

to

inclusion

abide by

of

Bankruptcy

verified

disinterested persons.1

Rule 2014,

statement

that

which

the

required the

attorneys

Instead of amending the

were

application to

include the verified statement, the attorneys settled the case in

February 1989,

without bankruptcy

court approval

or notice

to

creditors, dividing $70,000 between themselves and the debtors.2

For

five

years,

proceedings took no notice of

the

players

in

the settlement.

the

bankruptcy

In February 1994,

a new bankruptcy trustee, Mar a Luisa Contreras, was appointed to

____________________

The relevant part of Bankruptcy Rule 2014 reads:

The application [for employment of attorneys]

shall be accompanied
of

the person

by a verified statement

to be employed

setting forth

the

person's

creditors,

connections with

or any

their respective
the

United States

employed in

the

debtor,

other party

in interest,

attorneys and

accountants,

trustee,

the office of

or any

persons

the United States

trustee.

Cuevas

and Concepci n claim that they

thought the bankruptcy

case was closed, and that bankruptcy court approval was no longer
necessary for

the representation.

Nothing to that

effect ever

issued from the bankruptcy court.

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the

case.

Ms. Contreras

soon

learned of

the settlement

and

immediately

that

filed a complaint with the bankruptcy court alleging

Cuevas

and

Concepci n were

property belonging to the debtors'

improperly

estate.

in

possession of

On November 3, 1995,

the bankruptcy

court entered a decision and order that, pursuant

to 11 U.S.C.

105(a), 362(c), and 542(a), Cuevas and Concepci n

must

return

settlement.

federal

$27,456.00 in

fees

Cuevas and Concepci n

district

court

affirmed the bankruptcy

decision, and we

in

that

they

received from

the

appealed this decision to the

Puerto

court opinion.

Rico,

which

They

now reaffirm the judgment for

subsequently

again appealed the

the trustee, Ms.

Contreras.

The decisions of the bankruptcy and district courts are

premised

upon three alternative

grounds.

First,

the decisions

rely upon Bankruptcy

Code (the "Code")

section

which provides a

enforce

the Code,

system.3

105(a), a

bankruptcy court with

preserving the

integrity

"catch-all"

broad powers to

of the

bankruptcy

Second, reliance is placed on Bankruptcy Code

which provides for an automatic

stay of any act against property

____________________

The section reads:

The Court

may issue

any order, process,

judgment that is necessary

carry out the
provision
raising

of an issue

shall be

construed

title

providing for

by a party
to

or

or appropriate to

provisions of this title.

of this

preclude

No
the

in interest
the

court

from, sua sponte, taking any action or making

any determination necessary or appropriate to
enforce or

362(c),

implement court orders

or to prevent an abuse of process.

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or rules,

of the

monetary

estate unless approved

transaction affecting

Finally, the

opinions look

by the court.4

estate

assets

to Bankruptcy

Code

Any non-approved

is thus

542(a),

voided.

which

requires an entity in control of property of a bankrupt estate to

return that property to the trustee.5

We need

courts' decisions.

of

the

look no

further than

105(a) to

affirm the

The broad authority conferred by this section

Code provides

"teeth"

to

the

equitable powers

of

bankruptcy

court.

See Noonan
___ ______

v. Secretary of Health & Human

_____________________________

Servs. (In re Ludlow Hosp. Soc., Inc.), 124 F.3d 22, 27 (1st Cir.
______________________________________

1997)

("[s]ection

exercise

its

105(a)

empowers

equitable

powers

the

--

bankruptcy

where

'necessary'

____________________

The section provides for:

(1) the stay

of the

of an act against

estate under

section continues

the property

subsection (a) of

until such property

this
is no

longer property of the estate; and

(2)

the

stay

of

any

other

act

under

subsection (a) of the section continues until

the earliest of (A) the time the case is closed;
(B) the time the case is dismissed; or
(C) if the case is

a case under chapter 7 of

this title concerning an individual . . . the

time a discharge is granted or denied.

court

to

or

The section reads:

Except as provided in
of this

section,

custodian,
control,
the

in

an entity,

other

possession,

during the

trustee may

subsection (c) or

use, sell,

than

custody,

case, of

(d)
a
or

property that
or lease

under

section 363 of this title . . . shall deliver

to

the

property
unless

trustee,
or

the

and

account

value

such property

of

is of

such

such

property,

inconsequential

value or benefit to the estate.

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for,

'appropriate'

Bankruptcy

will

to

facilitate

Code provisions").

effectuate

altering

that

--

the

substantive

"technical

implementation

A proper

Bankruptcy

rights of

considerations

justice from being done."

the

application of

Code

without

debtors or

will

Pepper v.
______

of

not

other

105(a)

fashioning

or

creditors, ensuring

prevent

substantial

Litton, 308 U.S. 295,

______

305

(1939); see also Noonan, 124 F.3d at 27; Gens v. Resolution Trust
________ ______
____
________________

Corp., 112 F.3d 569, 576 (1st Cir. 1997).

_____

In light of these standards, we conclude that the broad

authority of

105(a) was properly brought to bear against Cuevas

and Concepci n in

review

the

authority

this case.

fees paid

to

bankruptcy court has a

professionals and

to effectuate judgments

such as the

duty to

105(a) provides

denial of Cuevas

and Concepci n's Motion for

spite of the

settle

Designation of Special Counsel.

fact that they had been refused court permission to

the pending

malpractice action,

ahead, settling the case and

the

court

In

of

themselves.

the

Such

bankruptcy system and public

forged

failing to apprise the creditors or

payments

behavior

these attorneys

received by

undermines

the

the

debtors

integrity

confidence therein.

and

by

of

the

See In re E Z
___ __________

Feed Cube Co., 123 B.R. 69, 74 (Bankr. D. Or. 1991) (holding that
_____________

professionals' fees

must

be returned

to

the trustee

under

105(a) in a similar situation).

Most

of

the energy

expended

directed toward the dispute over whether

recover a post-petition transfer.

in this

case

542(a) can be

has been

used to

The appellants argue that only

-6-

549 provides

of

for such recoveries, and that

limitations bars

argument

is

moot.

bankruptcy court are

hopelessly

court's

the trustee's

Although

while

action in

the

this case.

equitable

powers

This

of

the

limited, see Noonan, 124 F.3d at 27, only a

___ ______

strained interpretation

hands

a two-year statute

of the

attorneys ignore

Code

direct

would tie

the

court ruling,

hoping

that

the statute

of

limitations

will

run before

the

creditors, trustees or judge catch on.

Cuevas and Concepci n protest that much of the blame in

this case belongs

to H ctor L. Urrutia, the

this case and a predecessor

allegedly

submit

to

wrote numerous letters

the

bankruptcy

employment, which

court

to Contreras.

approval for

Cuevas and Concepci n

to Urrutia requesting

court

would have paved

their

original trustee in

an

application

the way for them

representation.

authors, these letters received no response.

undisputed that Urrutia ultimately

to

check

with the

bankruptcy

regarding the malpractice action.

that he

for

their

to receive

According

to

the

Nevertheless, it is

advised Cuevas and Concepci n

court before

taking

They did not do so.

any action

For

district court

awarded

directed

the reasons

is

affirmed.
affirmed
________

to Ms. Contreras.

to review

stated herein,

the

Costs

and

Furthermore,

conduct

of

the

decision of

attorney's

the district

attorneys

fees

the

are

court is

Concepci n

and

Cuevas-Segarra in this matter to determine whether they should be

subject to disciplinary procedures.

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