United States Bankruptcy Appellate Panel, First Circuit
MJS LAS CROABAS PROPERTIES, INC., a/k/a Ocean Club at Seven Seas, Debtor. CASTELLANOS GROUP LAW FIRM, L.L.C., Appellant,
FEDERAL DEPOSIT INSURANCE CORPORATION, as Receiver for Westernbank Puerto Rico, and WILFREDO SEGARRA MIRANDA, Chapter 7 Trustee, Appellees
[Copyrighted Material Omitted]
from the United States Bankruptcy Court for the District of
Puerto Rico. Bankruptcy Case No. 12-05710-ESL. (Hon. Enrique
S. Lamoutte, U.S. Bankruptcy Judge).
A. Castellanos Bayouth, Esq., on brief for Appellant.
A. Sandell, Esq., Manuel Fernández-Bared, Esq., and
Brian M. Dick-Biascoechea, Esq., on brief for Appellee,
Federal Deposit Insurance Corporation, as Receiver for
Westernbank Puerto Rico.
Feeney, Deasy, and Cary, United States Bankruptcy Appellate
U.S. Bankruptcy Appellate Panel Judge.
Group Law Firm, L.L.C. (the " Castellanos Firm" )
appeals from the following bankruptcy court orders: (1) the
March 13, 2015 order imposing sanctions against the firm (the
" March 2015 Order" );  and (2) the May 27, 2015
order quantifying the amount of the sanctions (the " May
2015 Order" ) (collectively, " the Orders" ).
For the reasons discussed below, we AFFIRM
Croabas Properties, Inc. (the
" Debtor" ) filed a voluntary chapter 11 petition
on July 19, 2012. Thereafter, Quiñones-Rodriguez filed
duplicate notices of appearance in the main case and an
adversary proceeding on behalf of a creditor, indicating she
was a lawyer " from the law firm of Castellanos &
Gierbolini."  On September 12, 2013, the bankruptcy
court converted the case to chapter 7; several days later,
the Trustee was appointed.
August 14, 2014, Quiñones-Rodriguez filed a motion for
relief from stay pursuant to § 362 (the " Relief
Motion" ) on behalf of a different creditor, the
Homeowners Association of the Development (the "
HOA" ), seeking authorization " to
present a complaint before the Department of Consumer Affairs
against the [D]ebtor for [ ] construction defects"
relating to the Development. Her signature on the Relief
Motion indicated that Quiñones-Rodriguez was a lawyer
with the Castellanos Firm. On August 15, 2014, the bankruptcy
court issued a summons, scheduling the Relief Motion for a
hearing at 9:00 A.M. on September 9, 2014 (the "
September 2014 Hearing" ).
on August 19, 20, and 21, 2014, Manuel Fernández-Bared
(" Fernández-Bared" ), a lawyer from the
firm of Toro, Colón, Mullet, Rivera & Sifre, P.S.C.
(" Toro Colón" ) serving as local counsel
for the FDIC, telephoned Quiñones-Rodriguez to resolve
the FDIC's concerns regarding the Relief Motion prior to
the September 2014 Hearing. In each instance, the
person who answered the phone informed Fernández-Bared
that Quiñones-Rodriguez was unavailable; each time,
Fernández-Bared left a message,
asking Quiñones-Rodriguez to return his call. His
phone calls went unreturned and unacknowledged. In addition,
the Trustee and Trigild telephoned Quiñones-Rodriguez
several times, without success.
to reach Quiñones-Rodriguez by email or telephone, the
FDIC filed a motion for extension of time on August 27, 2014,
seeking seven additional days to communicate with the HOA
and/or to respond to the Relief Motion. On August 28, 2014,
Trigild also filed a motion for extension of time, similarly
requesting a seven-day extension in order to make a final
effort to speak with the HOA's counsel or, if necessary,
to file a response to the Relief Motion. The following day,
the Trustee likewise filed a motion, seeking nine additional
days to file an opposition to the Relief Motion. In the
absence of any objection or response from the HOA, the
bankruptcy court granted the three motions, directing the
FDIC and Trigild to respond to the Relief Motion by September
4, 2014, and the Trustee to respond by September 8, 2014.
August 29, 2014, the FDIC, through another of its local
attorneys, Brian M. Dick-Biascoechea ("
Dick-Biascoechea" ), attempted to communicate with
Quiñones-Rodriguez via telephone, in yet another
effort to discuss the Relief Motion prior to the September
2014 Hearing. Quiñones-Rodriguez was "
unavailable" to take the call. Dick-Biascoechea
immediately followed up the call with an email to
My name is Brian Dick[-]Biascoechea, I represent the FDIC as
receiver for Westernbank in the bankruptcy case of MJS Las
Croabas, developer of [the Development]. I would like to
speak with you as soon as possible concerning your
client's request for relief from stay. I called your
office today but was not able to reach you. Brother counsel
Manuel Fernández[-]Bared has also tried contacting you
on several occasions since you filed the motion for stay
relief, to no avail.
Undeniably, all parties, as well as the Court, will benefit
from a discussion of your client's objectives and your
understanding of the law in this matter. It is in all our
interests to dissipate any disagreements regarding your
request before the FDIC, Trigild and the Trustee contest your
motion next week. Per our motion for extension of time filed
on August 27, 2014, the Court is already aware that we are
trying to contact you for these purposes.
Let us know what time you can speak, or, simply give me a
call using the contact information below.
did not receive any form of response to his email.
on September 3, 2014, Trigild's attorney emailed
We are writing on behalf of Trigild, Inc. We have tried to
reach you at your office several times, however we have not
received any response. Trigild has some concerns with the
HOA's Motion for Relief from Automatic Stay that we would
like to discuss without having to object to the HOA's
motion. Trigild has until tomorrow to file its opposition to
HOA's motion, therefore we hope to receive a response
from you before then.
email produced no response.
to resolve its concerns regarding the Relief Motion by
telephone, the FDIC filed a twelve-page opposition to the
Relief Motion (the " FDIC's Opposition" ) by
the September 4, 2014 deadline, five days before the
September 2014 Hearing. It argued:
Over the past three weeks, the FDIC-R has repeatedly called
and e-mailed the HOA's counsel in a genuine, honest, and
good faith effort to resolve various defects inflicting [sic]
the HOA's Motion for Relief. The HOA's counsel,
however, has refused to respond to a single message or
otherwise speak with undersigned counsel. Accordingly, in
order to protect its interests, which arise, in part, from
its timely-filed proofs of claim totaling more than $54
million, the FDIC-R has no choice but to file this objection
and point out that the Motion for Relief is improper, fatally
flawed for numerous independent reasons, and must be denied.
(footnote omitted). Trigild immediately joined the FDIC's
Opposition, stating, in relevant part:
Trigild has tried to contact HOA's counsel several times,
has left several messages, additionally we sent an email to
HOA's counsel informing her that we wanted to discuss
some of Trigild's concerns. However we haven't
received any response.
days passed, and the HOA's counsel continued to ignore
the communications from the FDIC, the Trustee, and Trigild.
However, on September 8, 2014, at 4:51 P.M., while Sandell
was traveling by plane from Dallas, Texas to San Juan, Puerto
Rico to attend the September 2014 Hearing,
Quiñones-Rodriguez unexpectedly filed a terse motion
to withdraw the Relief Motion and " vacate" [sic]
the hearing (the " Withdrawal Motion" ), offering
no explanation for this change of course.
at 6:52 A.M. on the morning of the September 2014 Hearing,
the FDIC filed a response to the Withdrawal Motion (the
" FDIC's Response to the Withdrawal Motion" ),
wherein it: (1) requested the entry of an order pursuant to
the bankruptcy court's inherent authority, directing both
the HOA and the [Castellanos Firm] to pay the FDIC's
expenses and costs incurred in connection with the filing of
the FDIC's Opposition and travelling to the hearing (the
" FDIC's Sanctions Request" ); (2) urged the
court to proceed with the hearing; and (3) requested five
additional days to prepare a bill of costs, itemizing the
expenses and costs it incurred as a result of " the
misconduct of [the] HOA and [the Castellanos Firm]." The
FDIC maintained that Sandell " had no choice but to
prepare and file [an] extensive response . . . and fly from
Dallas, Texas to San Juan, Puerto Rico" to attend the
September 2014 Hearing because the [Castellanos Firm] "
categorically refused to respond to any communications
concerning the [Relief Motion]."
hearing which ensued shortly thereafter, the HOA, the
Trustee, and the FDIC appeared by counsel. At the outset
of the hearing, the court acknowledged the withdrawal of the
Relief Motion, observed that there would have been grounds to
deny the motion, and ruled that the FDIC's request to
proceed with the hearing was moot. Then, in support of the
FDIC's Sanctions Request, Sandell argued that the HOA
refused to respond to " dozens of voice messages"
and " several e-mails" from Trigild and the FDIC.
On behalf of the HOA, Quiñones-Rodriguez
countered: " [W]e are in the process of moving our
offices, so our communications are interrupted right now. All
the files are packed, . . . we have an answering service, but
we don't have an office per se, so that might account for
our lack of communication."
court explicitly granted both the Castellanos Firm and
Quiñones-Rodriguez additional time to respond to the
FDIC's Sanctions Request and indicated it was inclined to
view the allegations of the FDIC and Trigild favorably:
So when you answer the motion by the FDIC and if there are
any allegations to be made by counsel or by the persons
involved in this matter, that they be under sworn statements
under penalty of perjury, in opposition to the motion.
Depending on what the response is, I may or may not schedule
a hearing and I will determine if the matter should be
decided on the pleadings. But definitely, prima facie, after
I read the -- I can advance to you that after I read the
oppositions both by the FDIC and Trigild, as a matter of law,
I thought that they proceeded.
Second, if that -- if failure to answer calls prompted the
respondents to incur expenses, they should be compensated.
I am advancing that that's how I see it, but I will not
make any final determination until I hear your written
response, because as a matter of due process, I think you
should be given time to respond to the allegations which, in
my opinion, are serious allegations.
September 19, 2014, the Trustee filed a motion, "
joining" the FDIC's Response to the Withdrawal
Motion (the " Trustee's Sanctions Request" )
and representing that he had attempted to contact
Quiñones-Rodriguez on at least three occasions, to no
avail. The Trustee further asserted that the conduct of both
the HOA and its counsel demonstrated " bad faith"
and " unnecessarily increased administrative expenses of
the estate." Maintaining that Rule 11, §
1927, and the court's inherent power
permitted the court " to correct and to discipline
conduct by counsel and parties," the Trustee sought: (1)
the imposition of sanctions against the HOA and its counsel,
jointly and severally; (2) a determination that the
withdrawal of the Relief Motion was " with
prejudice" ; and (3) a five-day period (from the entry
of the order) to submit evidence in support of his fee
October 2, 2014, absent objection, the bankruptcy court
entered two orders--one granting the FDIC's Sanctions
Request, and the other granting the Trustee's Sanctions
Request (collectively, the " October 2014 Sanctions
Orders" ). The same day, the HOA immediately filed an
emergency motion to vacate the October 2014 Sanctions Orders,
on the grounds that they were entered
prematurely. Later on October 2, 2014, the HOA
filed an amended motion to vacate (the " Amended Motion
to Vacate" ), reiterating the allegations of
the original motion, and adding several attachments,
including its Motion in Opposition to Request for Sanctions
(the " HOA's Opposition to Sanctions" ) and
unsworn statements of Quiñones-Rodriguez, Alfredo
Castellanos Bayouth (" Castellanos" ), and Elga
Albino Acosta (" Albino Acosta" ). The Amended
Motion to Vacate was filed on behalf of the HOA by
Quiñones-Rodriguez, whose signature line indicated
that she was a lawyer with the " Castellanos &
Gierbolini Law Firm."
HOA's Opposition to Sanctions, it argued: (1) law firms
are not responsible for the signatures of their attorneys;
(2) the imposition of sanctions under § 1927 requires a
finding of bad faith and vexatious conduct; (3) counsel for
the FDIC could have appeared telephonically to avoid travel
costs; (4) neither the FDIC nor the Trustee "
exhausted" their remedies by sending a letter to
opposing counsel, " explaining what they consider[ed]
frivolous" ; and (5) " defending or prosecuting a
lawsuit" was a " valid exercise of its First
Amendment rights." Accordingly, the HOA asked the court
to vacate the October 2014 Sanctions Orders.
unsworn statement, Quiñones-Rodriguez indicated, inter
alia, that: (1) she was an " independent
contractor" and counsel for the HOA; (2) she had
rendered professional legal services on behalf of "
Alfred Castellanos, [d/b/a] Castellanos & Castellanos Law
Firm, Castellanos & Gierbolini Law Firm and . . . now
Castellanos Group Law Firm, L.L.C.," for nearly four
years; (3) the Relief Motion was filed " after careful
consideration . . . and after multiple communications with
the HOA" ; (4) beyond the request for a certain
expert's report, she knew of only one other communication
from the moving parties relating to the Relief Motion; (5)
she was unaware that the FDIC's attorney was traveling
from Dallas for the September 2014 Hearing when she filed the
Withdrawal Motion; (6) the HOA instructed her to file the
Withdrawal Motion; and (7) she was surprised to learn that
the September 2014 Hearing was going forward.
unsworn statement, Castellanos represented: (1) he was the
" owner and founding member" of the Castellanos
Firm; (2) he was not the attorney of record for the HOA; (3)
he " never received any communication from any of the
attorneys that represent the FDIC or the Trustee regarding
this case" ; (4) it was not his " practice to be
unavailable to communicate with opposing counsel" ; (5)
sanctions, if any, should be imposed upon the FDIC and the
Trustee for making " heinous accusations" ; (6) the
court should warn the FDIC against submitting " future
filings . . . intended to deprive parties and litigants of
their First Amendment rights" ; and (7) the court should
strike the FDIC's Response to the Withdrawal Motion from
Acosta asserted in her unsworn statement that: (1) she had
been the administrative assistant for " Alfredo
Castellanos, [d/b/a] Castellanos & Castellanos Law Firm,
Castellanos & Gierbolini Law Firm and . . . now Castellanos
Group Law Firm, L.L.C." for nearly four years; (2) she
was responsible for answering " most if not all" of
the firm's incoming phone calls and " channeling . .
. all written notifications" ; (3) as of October 2,
2014, she had not received any phone call, email, letter, or
fax from any of the attorneys for the FDIC or from the office
of the Trustee; and (4) the allegations contained in the
FDIC's Response to the Withdrawal Motion and the
Trustee's Sanctions Request were untrue.
HOA simultaneously filed a Motion Requesting Leave to File
Documents, explaining that it filed the HOA's Opposition
to Sanctions as an exhibit to the Amended Motion to Vacate
because the " CM/ECF system did not allow [it] to file
the opposition separately." Accordingly, the HOA
requested leave to " file the Opposition to Motion for
Sanctions separately with the accompanying exhibits."
October 7, 2014, the court granted the HOA's request to
file an opposition to the pending sanctions requests, but
instructed it to comply with P.R. LBR
9013-1(c). Accordingly, on October 8, 2014,
Quiñones-Rodriguez re-filed the HOA's Opposition
to Sanctions as a separate document, this time indicating
that she was from the " Castellanos Group Law
October 10, 2014, Quiñones-Rodriguez filed on behalf
of the HOA a motion for clarification relating to the October
7, 2014 order, again indicating her affiliation with the
" Castellanos Group Law Firm." She argued:
It is the HOA's understanding by what is stated in the
Generic Order issued on October 7, 2014 that our Amended
Motion to Vacate Order was implicitly granted by allowing the