LUGO MENDER v. RODRIGUEZ BORGES

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IN THE UNITED STATES BANKRUPTCY COURT FOR
THE DISTRICT OF PUERTO RICO
IN RE:
MANUEL ANTONIO DOMENECH RODRIGUEZ 	CASE NO. 10-05835 BKT
CHAPTER 7
Debtor(s) 	ADVERSARY NO. 11-168
WIGBERTO LUGO MENDER
Plaintiff
RUTH E. RODRIGUEZ BORGES FILED & ENTERED ON 01/12/2012
Defendant
OPINION AND ORDER
This proceeding is before the Court upon a Motion Requesting Immediate
Disqualification 	of 	Defendant’s 	Legal 	Representation 	(the 	“Disqualification
Motion”) filed by the Chapter 7 Trustee, and Plaintiff to the instant case (the
“Trustee”), 	on 	November 	8, 	2011 	(Dkt. 	No. 	20). 	Also 	before 	the 	Court 	is
defendant’s, Ruth E. Rodríguez Borges (the “Defendant”), Opposition to Trustee’s
Motion to Disqualify filed on December 12, 2011 (Dkt. No. 31), the Trustee’s
Reply to Opposition to Motion to Disqualify (the “Reply”) filed on December 13,
2011 (Dkt. No. 33) and Defendant’s opposition thereto, filed on December 15, 2011
(Dkt. 	No. 	34). 	For 	the 	reasons 	set 	forth 	below, 	the 	Trustee’s 	request 	for
immediate disqualification of Defendant’s legal representation is hereby GRANTED.
I. 	Procedural background
Debtor filed his voluntary petition on June 30, 2010, under the provisions
of Chapter 7 of the Bankruptcy Code (Dkt. No. 1, Case No. 10-05835). 	On August
10, 2011, the Trustee commenced the present Adversary Case by filing a complaint
against Defendant for collection and turnover of property of the estate (Dkt. No.
1, 	Adv. 	No.11-00168). 	The 	basis 	of 	this 	purported 	debt 	is 	a 	liquidation
settlement 	agreement 	executed 	by 	Debtor 	and 	Defendant 	on 	November 	25, 	2002,
recorded on Public Deed No. 303 (“Liquidación de Gananciales, Adjudicación y
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Modificación de Hipoteca”) before Notary Public Luis A. Arrufat Pimentel.
The record shows that Counsel Luis A. Meléndez Albizu (“Meléndez Albizu”)
is Defendant’s legal representative in the present Adversary Case (Dkts. No. 10 &
14, Adv. Case No. 11-00168). 	Meléndez Albizu also represents Defendant in a
separate Adversary Proceeding in which Defendant acts on behalf of her minor
daughter A.G.D.R. (the “Minor”) (Claim 1, Case No. 10-05835; Adv. Case No. 10-
00144). 	In the latter, Meléndez Albizu represents the Defendant who, in turn,
represents 	the 	Minor’s 	interests 	in 	the 	bankruptcy 	estate 	by 	attempting 	to
collect, enforce and obtain a declaration of non-discharge of a claimed domestic
support obligation of $80,700.00 against Debtor’s estate1.
The Trustee avers that these two legal representations are in conflict with
each other because if the Trustee prevails and obtains a successful outcome in
the collection and turnover of property, it would mean an adverse decision for
Defendant but would result in recovery of money that will allow for distribution
to the estate’s creditors, including the Minor. 	To the contrary, a favorable
outcome for Defendant in the collection action would limit the ability of the
Minor 	to 	collect 	her 	domestic 	support 	obligation 	claim 	from 	the 	bankruptcy
estate. 	Therefore, the Trustee seeks the immediate disqualification of Meléndez
Albizu as legal representative of both, Defendant and the Minor.
On 	December 	12, 	2011, 	Meléndez 	Albizu 	filed 	an 	opposition 	to 	the
Disqualification Motion (Dkt No. 31, Adv. Case No. 11-00168) with the following
defenses:
First, 	the 	Trustee 	lacks 	standing 	to 	seek 	Meléndez 	Albizu’s
disqualification, as the Trustee is neither a current nor a former client of
Meléndez Albizu. 	As a non-client the Trustee may not seek the disqualification
of an attorney.
Second, 	there 	is 	no 	conflict 	of 	interest, 	since 	Meléndez 	Albizu 	only
1 On March 29, 2011, an Opinion and Order was entered dismissing the Adversary Case Ruth E. Rodriguez Borges v. Manuel Domenech Rodríguez,
et al., Adv. No. 10-00144. On even date, an Order was entered in the main bankruptcy case granting the Debtor’s objection to Claim No. 1, and
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represents one client (Defendant) with two distinct claims: one hers and the
other one acting on behalf of her daughter, the Minor. 	Given that the Minor is
under the legal age, and has no capacity to sue or be sued, the custodial parent
(Defendant) is the holder of the domestic support obligation claim, thus, the
only client with regards to that claim.
Third, even if there were two clients (Defendant and the Minor) there would
be no conflict between them, as there is no inherent conflict in representing
more than one creditor and, in this case, Meléndez Albizu has consulted and
obtained written consent from Defendant to continue with the dual representation.
Also, 	on 	December 	13, 	2011, 	Meléndez 	Albizu 	filed 	a 	motion 	requesting
sanctions, attorney fees and costs related to the Disqualification Motion (Dkt.
No. 32, Adv. Case No. 11-00168) for its lack of legal and factual merit. 	In its
request for sanctions Meléndez Albizu affirms that he represents both Defendant
and the Minor, however, posits that there is no conflict between their interests
since:
First, the Minor is under the custody of Defendant. 	Defendant has the
right to make and take decisions for her minor daughter.
Second, in the Adversary Case No. No. 11-00168 the Trustee seeks to execute
a property, residence for Defendant and the Minor, which the state court has
determined to be the Minor’s homestead (“hogar seguro”). 	Thus, by trying to
avoid eviction Meléndez Albizu acts in furtherance of the Minor’s best interests.
Third, 	if 	Defendant 	prevails 	in 	her 	defense 	of 	the 	instant 	Adversary
Proceeding, 	the 	Minor’s 	interest 	in 	collecting 	her 	DSO 	claim 	will 	not 	be
prejudiced, as she can still collect from other funds and property in Debtor’s
estate.
Fourth, there is no danger of disclosure of confidential information, since
the Minor has no confidences and is under the sole custody of her mother, the
Defendant.
disallowing Defendant’s claim for domestic support obligation, for the reasons stated in the Opinion and Order entered in the adversary proceeding,
Adv. No. 10-00144. The dismissal order was appealed by Defendant (Plaintiff in Adv. No. 10-00144), procedure which is still pending.
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In his Reply the Trustee essentially points out that when Meléndez Albizu
represents Defendant, and in turn she acts on behalf of the Minor in collecting
the $80,700.00 domestic support obligation claim from Debtor’s estate, he in fact
is representing the interests of the Minor. 	On the other hand, Meléndez Albizu
also 	represents 	Defendant 	while 	attempting 	to 	avoid 	paying 	the 	$205,000.00
allegedly owed to Debtor’s estate. 	It’s the Trustee’s contention that Meléndez
Albizu is representing the conflicting interests of both, a creditor and a debtor
to the bankruptcy estate.
Finally, 	in 	its 	opposition 	to 	the 	Trustee’s 	Reply, 	Meléndez 	Albizu
reasserts 	his 	previous 	arguments 	but 	emphasizes 	that 	he 	only 	represents 	one
client, Defendant.
II. 	Discussion
A. 	The Trustee’s standing to pursue disqualification
Under the Bankruptcy Code the trustee is the representative of the estate,
in charge of administering the case, with capacity to sue and be sued. 	11
U.S.C.A. §§ 323, 704. 	A trustee has the duty to act in the best interest of the
bankrupt’s 	estate, 	to 	conserve 	the 	assets 	of 	the 	estate 	and 	to 	maximize
distribution to creditors. 	In re Rigden, 795 F.2d 727 (9th Cir. 1986). 	“[H]e
owes a fiduciary duty to debtor and creditors alike to act fairly and protect
their interests.” 	In re WHET, Inc., 750 F.2d 149 (1st Cir. 1984).
A trustee must draw his authority to assert a particular cause of action
from some provision within Title 11 of the United States Code. 	All claims and
causes of action of the debtor are considered property of the debtor’s bankruptcy
estate under Section 541. 	11 U.S.C. § 541; In re Chappel, 189 B.R. 489, 493
(B.A.P. 9 th Cir. 1995) (“property of the estate” is broad enough to cover all
kinds of property, including tangible or intangible causes of action). 	As such,
a trustee has standing to pursue all causes of action on behalf of a debtor’s
estate, as successor to the debtor’s interests included as property of the estate
under Section 541. 	11 U.S.C. § 541. 	Pursuant to Section 541(a)(1), a trustee in
bankruptcy takes the debtor’s rights subject to all defenses and other burdens to
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which such rights were subject immediately prior to the commencement of the
bankruptcy case. 	Sender v. Simon, 84 F.3d 1299, 1305 (10th Cir. 1996) (“When
asserting claims under the authority of 11 U.S.C. § 541 . . . the trustee stands
in the shoes of the debtor and can take no greater rights than the debtor himself
had.”).
It’s 	well 	settled 	that 	a 	party 	must 	have 	standing 	to 	bring 	a 	suit 	in
representation of the estate. Kagan v. El San Juan Hotel Corp et. al. (In re El
San Juan Hotel Corp.), 149 B.R. 263, 271 (D.Puerto Rico 1992). 	“Article III of
the 	Constitution 	limits 	the 	‘judicial 	power’ 	of 	the 	United 	States 	to 	the
resolution of ‘cases’ and ‘controversies’”. 	Valley Forge Christian College v.
Americans United for Separation of Church & State, 454 U.S. 464, 471, 102 S.Ct.
752, 70 L.Ed.2d 700 (1982). 	The term “standing” incorporates constitutional
requirements and prudential considerations. 	Id. 	Essentially, the question of
standing is whether the litigant is entitled to have the court decide the merits
of the dispute. 	Warth v. Seldin, 422 U.S. 490, 498, 95 S.Ct. 2197, 45 L.Ed.2d
343 (1975).
At a minimum, Article III requires the party who invokes the court’s power
to show that (1) he personally has suffered some actual or threatened injury as a
result of the putatively illegal conduct of the defendant, (2) that the injury
fairly can be traced to the challenged action and 3) it is likely to be redressed
by a favorable decision. 	Valley Forge, 454 U.S. at 472 (internal citations
omitted). 	Generally, 	the 	plaintiff 	must 	assert 	his 	own 	legal 	rights 	and
interests, and cannot rest his claim to relief on the legal rights or interests
of third parties. 	Warth v. Seldin, 422 U.S., at 499. 	The standing question in
such cases is whether the constitutional or statutory provision on which the
claim rests properly can be understood as granting persons in the plaintiff’s
position a right to judicial relief. 	Warth v. Seldin, 422 U.S., at 500.
A party has standing to prosecute a suit in the federal courts only if he
is the ‘real party in interest’, as defined under Fed.R.Civ.P. 17(a). 	U.S. v.
936.71 Acres of Land, 418 F.2d 551, 556 (5th Cir. 1969). 	In turn, a real party
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in interest is the person holding the substantive right sought to be enforced,
and not necessarily the person who will ultimately benefit from the recovery.
Farrell Cosntr. Co. v. Jefferson Parish, La., 896 F.2d 136, 140 (5th Cir. 1990).
Furthermore, 	bankruptcy 	standing 	is 	much 	narrower 	than 	constitutional
standing. 	In re Cult Awareness Network, Inc. 151 F.3d 605, 607 (7th Cir. 1998).
To have bankruptcy standing, a person must have a pecuniary interest in the
outcome of the bankruptcy proceedings and only those persons affected pecuniarily
by a bankruptcy order have standing. 	Id. 	In this case, the Trustee represents
the pecuniary interests of the estate.
With regards to the Disqualification Motion, it’s well settled that this
type of motion is an accepted and adequate resource for a party to bring a
potential conflict of interest to the court's attention. 	Reyes Cañada v. Rey–
Hernandez, 193 F.Supp.2d 409, 411 (D.P.R.2002); Somascan Plaza, Inc. v. Siemens
Med. 	Sys., 	Inc., 	187 	F.R.D. 	34, 	37 	(D.P.R.1999) 	(“motion 	to 	disqualify 	an
attorney is an accepted and adequate way for a litigant to bring a potential
conflict of interest to the court's attention.”).
The Trustee has standing to assert the disqualification of Meléndez Albizu
in representation of the estate. 	After all, said action belongs to the estate as
it falls within the “interests of the debtor in property” for purposes of Section
541 	and 	directly 	and 	adversely 	affects 	the 	Chapter 	7 	Debtor’s 	pecuniary
interests. 	Moreover, a favorable decision on this case will have a direct impact
on 	Debtor’s 	estate. 	As 	the 	successor 	to 	the 	debtor 	in 	possession 	and
representative of the estate, the Trustee is entitled to pursue whatever legal
claims belonged to the estate. 	As stated above, if the trustee is pursuing
claims of the debtor under to Section 541, the trustee stands in the shoes of the
debtor.
B. 	Conflict of interest
The 	standards 	for 	the 	professional 	conduct 	of 	attorneys 	in 	the 	U.S.
District 	Court 	for 	the 	District 	of 	Puerto 	Rico 	are 	the 	Model 	Rules 	of
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Professional Conduct adopted by the American Bar Association, as amended. 	See,
Local Rules Dist. P.R. R. 83E. 	Rule 1.7 of the Model Rules of Professional
Conduct, dealing with conflict of interest among current clients, states that:
(a) 	Except 	as 	provided 	in 	paragraph 	(b), 	a 	lawyer 	shall 	not
represent 	a 	client 	if 	the 	representation 	involves 	a 	concurrent
conflict of interest. 	A concurrent conflict of interest exists if:
(1) the representation of one client will be directly adverse to
another client; or
(2) there is a significant risk that the representation of one or
more 	clients 	will 	be 	materially 	limited 	by 	the 	lawyer’s
responsibilities 	to 	another 	client, 	a 	former 	client 	or 	a 	third
person or by a personal interest of the lawyer.
MODEL RULES OF PROF'L CONDUCT Rule 1.7(a).
According to Model Rule 1.7(b), disqualification of counsel on grounds of
potential conflicting interests in multiple client representation in the same
action is not automatic but may depend on whether the clients agree to being so
represented 	after 	having 	been 	informed 	of 	all 	the 	risks 	and 	disadvantages
involved. 	Figueroa-Olmo v. Westinghouse Elec. Corp., 616 F. Supp. 1445, 1451
(D.P.R. 1985)2. 	“However, the right to be represented by a particular attorney
is 	not 	an 	unfettered 	one... 	[e]ven 	informed 	consent 	may 	be 	insufficient 	to
prevent disqualification, if it is not obvious to the court that the attorney
will be able to represent all clients adequately… or if the court believes no
waiver may cure the damage to the integrity of the judicial process that such
joint representation will cause.” 	Id (internal citations omitted). 	The court
may also examine the circumstances surrounding the consent in order to determine
if it was truly, voluntary and informed. Figueroa-Olmo, supra citing Dunton v.
County of Suffolk, 729 F.2d 903, 908 (2d Cir.1984).
Both actual or potential conflicts in concurrent representations may be
disabling. 	Figueroa–Olmo, 	616 	F.Supp. 	at 	1451–2. 	If 	the 	simultaneously
represented 	clients’ 	interests 	are 	opposed 	or 	directly 	adverse, 	then
2 “(a) A lawyer shall not enter into a business transaction with a client or knowingly acquire an ownership, possessory, security or other
pecuniary interest adverse to a client unless… the client gives informed consent, in a writing signed by the client, to the essential terms of the
transaction and the lawyer's role in the transaction, including whether the lawyer is representing the client in the transaction.” MODEL RULES
OF PROF'L CONDUCT Rule 1.8(a)(3).
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disqualification 	should 	be 	ordered 	considering 	it 	is 	more 	important 	that
unethical conduct be prevented than that defendant have an unfettered right to
counsel of its choice. 	Id.
In the situation before us, the conflict arises within the context of an
ongoing proceeding in which the parties’ rights appear to be in direct conflict.
It is quite evident that in representing Defendant in both Adversary Cases,
Meléndez 	Albizu 	actually 	represents 	the 	contradictory 	interests 	of 	both:
Defendant 	(in 	attempting 	to 	avoid 	paying 	the 	$205,000.00 	allegedly 	owed 	to
Debtor’s estate) and the Minor (in attempting to collect from Debtor’s estate the
amount of $80,700.00 in alleged domestic support obligation). 	We agree with the
Trustee’s position that Meléndez Albizu is representing the conflicting interests
of both, a creditor and a debtor to the bankruptcy estate.
Meléndez Albizu claims to have cured any potential conflict by obtaining
informed 	consent 	from 	the 	Defendant. 	Notwithstanding 	Defendant’s 	alleged
consent, the Minor’s representation and interest might be materially limited by
the conflicting representation of none other than Defendant’s own interests.
Since the Minor has no capacity to give an informed consent, Meléndez Albizu’s
attempt at resolution of a conflict of interest is thwarted.
As 	such, 	the 	Court 	finds 	that 	a 	conflict 	of 	interest 	exists 	in 	the
representation of Defendant and the Minor by Meléndez Albizu.
SO ORDERED.
San Juan, Puerto Rico, this 12 day of January, 2012.
Brian K. Tester
U.S. Bankruptcy Judge
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