
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  Carlos A. Surillo-               _____________________________             __________________          Pumarada and  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.                                         -2-                    Per  Curiam.  The bankrupt estate of Jos  M ndez-Rosado                    Per  Curiam.                    ___________          and his wife, Alejandra Becerra, had few assets.  One of the most          significant was  a malpractice  claim against  Dr. Karl Horn  and          Dr. Julio  Westerband.   On August  26,  1988, attorneys  Antonio          Concepci n   and  Jos   A.  Cuevas-Segarra  filed  a  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  abide by  Bankruptcy  Rule 2014,  which  required the          inclusion  of  a  verified  statement  that  the  attorneys  were          disinterested persons.1   Instead of amending the  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,  the   players  in  the   bankruptcy          proceedings took no notice of  the settlement.  In February 1994,          a new bankruptcy trustee, Mar a Luisa Contreras, was appointed to                                        ____________________          1  The relevant part of Bankruptcy Rule 2014 reads:                    The application [for employment of attorneys]                    shall be accompanied  by a verified statement                    of  the person  to be employed  setting forth                    the  person's  connections with  the  debtor,                    creditors,  or any  other party  in interest,                    their respective  attorneys and  accountants,                    the  United States  trustee,  or any  persons                    employed in  the office of  the United States                    trustee.          2  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.                                         -3-          the  case.   Ms. Contreras  soon  learned of  the settlement  and          immediately  filed a complaint with the bankruptcy court alleging          that  Cuevas  and  Concepci n were  improperly  in  possession of          property belonging to the debtors'  estate.  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  $27,456.00 in  fees  that  they  received from  the          settlement.  Cuevas and Concepci n  appealed this decision to the          federal  district  court  in   Puerto  Rico,  which  subsequently          affirmed the bankruptcy  court opinion.  They  again appealed the          decision, and we  now reaffirm the judgment for  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")    105(a), a  "catch-all"          section  which provides a  bankruptcy court with  broad powers to          enforce  the Code,  preserving the  integrity  of the  bankruptcy          system.3  Second, reliance is placed on Bankruptcy Code   362(c),          which provides for an automatic  stay of any act against property                                        ____________________          3  The section reads:                    The Court  may issue  any order, process,  or                    judgment that is necessary  or appropriate to                    carry out the  provisions of this title.   No                    provision  of this  title  providing for  the                    raising  of an issue  by a party  in interest                    shall be  construed  to  preclude  the  court                    from, sua sponte, taking any action or making                    any determination necessary or appropriate to                    enforce or  implement court orders  or rules,                    or to prevent an abuse of process.                                         -4-          of the  estate unless approved  by the court.4   Any non-approved          monetary  transaction affecting  estate  assets  is thus  voided.          Finally, the  opinions look  to Bankruptcy  Code   542(a),  which          requires an entity in control of property of a bankrupt estate to          return that property to the trustee.5                    We need  look no  further than    105(a) to  affirm the          courts' decisions.  The broad authority conferred by this section          of  the  Code provides  "teeth"  to  the  equitable powers  of  a          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  105(a)  empowers  the   bankruptcy  court  to          exercise  its   equitable   powers  --   where   'necessary'   or                                        ____________________          4  The section provides for:                    (1) the stay  of an act against  the property                    of the  estate under  subsection (a) of  this                    section continues  until such property  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.          5  The section reads:                    Except as provided in  subsection (c) or  (d)                    of this  section,  an entity,  other  than  a                    custodian,   in   possession,   custody,   or                    control,  during the  case, of  property that                    the  trustee may  use, sell,  or lease  under                    section 363 of this title . . . shall deliver                    to  the   trustee,  and  account   for,  such                    property  or  the  value  of  such  property,                    unless  such property  is of  inconsequential                    value or benefit to the estate.                                         -5-          'appropriate'  --  to  facilitate  the  implementation  of  other          Bankruptcy  Code provisions").  A proper  application of   105(a)          will  effectuate  the  Bankruptcy   Code  without  fashioning  or          altering  substantive  rights of  debtors or  creditors, ensuring          that  "technical  considerations  will  not  prevent  substantial          justice from being done."   Pepper v.  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  this case.  A  bankruptcy court has a  duty to          review  the  fees paid  to  professionals and     105(a) provides          authority  to effectuate judgments  such as the  denial of Cuevas          and Concepci n's Motion for  Designation of Special Counsel.   In          spite of the  fact that they had been refused court permission to          settle  the pending  malpractice action,  these attorneys  forged          ahead, settling the case and  failing to apprise the creditors or          the  court  of  the  payments  received by  the  debtors  and  by          themselves.   Such  behavior  undermines  the  integrity  of  the          bankruptcy system and public  confidence therein.  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  in this  case  has been          directed toward the dispute over whether   542(a) can be  used to          recover a post-petition transfer.  The appellants argue that only                                         -6-            549 provides  for such recoveries, and that  a two-year statute          of  limitations bars  the trustee's  action in  this case.   This          argument  is  moot.     Although  the  equitable  powers  of  the          bankruptcy court are  limited, see Noonan, 124 F.3d at 27, only a                                         ___ ______          hopelessly  strained interpretation  of the  Code  would tie  the          court's  hands  while  attorneys ignore  a  direct  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  original trustee in          this case and a predecessor  to Contreras.  Cuevas and Concepci n          allegedly  wrote numerous letters  to Urrutia requesting  that he          submit  to  the   bankruptcy  court  an  application   for  their          employment, which  would have paved  the way for them  to receive          court  approval for  their  representation.    According  to  the          authors, these letters received no response.  Nevertheless, it is          undisputed that Urrutia ultimately  advised Cuevas and Concepci n          to  check  with the  bankruptcy  court before  taking  any action          regarding the malpractice action.  They did not do so.                    For  the reasons  stated herein,  the  decision of  the          district court  is  affirmed.   Costs  and  attorney's  fees  are                              affirmed                              ________          awarded  to Ms. Contreras.   Furthermore,  the district  court is          directed  to review  the  conduct  of  attorneys  Concepci n  and          Cuevas-Segarra in this matter to determine whether they should be          subject to disciplinary procedures.                                                        -7-
