1 IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF PUERTO RICO 2
3 IN RE: 4
5 ROBERTO SOTO CARRERAS CASE NO. 09-10782 BKT 6 Chapter 11 7
8 9
11 XXX-XX-5535 12
14 FILED & ENTERED ON 10/18/2011 15 Debtor(s) 16
17 OPINION AND ORDER 18
19 Carlos E. Rodriguez Quesada (hereinafter "Rodriguez Quesada") and Nelson Robles Diaz, of 20 Reorganization and Bankruptcy Legal Services, P.S.C. (hereinafter "RBLS"), have been the 21 authorized legal representatives of Debtor since November 30, 2010. The record of the case shows 22 23 that in the course of the bankruptcy, Debtor has been actively engaged in objecting to First Bank 24 Puerto Rico's (hereinafter, “FBPR”) claim number 10. Claim number 10 involves several 25 commercial loans made to debtor Roberto Soto Carreras secured by real estate belonging to the
debtor and/or to debtor's corporations. On September 19, 2011, FBPR filed a “Motion Requesting Order Regarding Conflict of Interest and Removal of Legal Representation” in reference to counsel 1 1 Rodríguez Quesada and RBLS [Dkt. No. 373]. In its motion, FBPR alleges that a conflict of interest 2 exists between FBPR and Rodriguez Quesada in the above referenced case due to his appearance in 3 the case of In Re: New York Mortgage Bankers, Inc., case number 09-02852 (BKT) on behalf of 4 5 FBPR. FBPR alleges that there is an irrefutable presumption that Rodríguez Quezada received 6 confidential information from FBPR, “and/or simultaneously represent[ed] conflicting interests.” 7 Furthermore, FBPR alleges that RBLS should also be disqualified. 8 9 The controversy stems from Rodríguez Quezada’s appearance and filing on July 22, 2011, a 10 written stipulation, wherein he also appeared as FBPR's legal representative, for the lifting of an 11 12 automatic stay in order to permit an appearance by New York Mortgage Bankers in the Court of First 13 Instance of the commonwealth of Puerto Rico, Aguadilla Part. The appearance was to establish the 14 fact that the Promissory Mortgage Note First Bank sought to be deemed canceled, had been lost 15 16 while in the possession of Debtor, New York Mortgage Bankers. FBPR bases its request for 17 disqualification solely on that one document, and claims that the mere “appearance of impropriety” is 18 sufficient to require the disqualification of Rodríguez Quezada and RBLS. FBPR states that such 19 20 conduct is contrary with Rule 21 of the Code of Professional Ethics of Puerto Rico. The matter was 21 briefly argued at the hearing held on September 21, 2011 [Dkt. No. 379], and Rodriguez Quesada 22 was allowed time to reply to FBPR's motion. On October 5, 2011, Rodriguez Quesada replied in 23 24 opposition to FBPR's motion [Dkt. No. 391]. 25 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 Professional Conduct adopted by the American Bar Association, as amended. See, Local Rules Dist. P.R. R. 83E. Rule 1.9 of the Model Rules of 2 1 Professional Conduct, dealing with conflict of interest, states that: 2
3 A lawyer who has formerly represented a client in a matter shall not thereafter 4 represent another person in the same or a substantially related matter in which that person's interests are materially adverse to the interests of the former client unless 5 the former client gives informed consent, confirmed in writing. 6 7 MODEL RULES OF PROF'L CONDUCT Rule 1.9(a).1 8 9 Thus, it is not “per se” improper for an attorney or law firm to represent a party who is now 10 adverse to a former client “without a showing by the former client that the matters in the pending suit 11 are ‘substantially related’ to the matters in which the attorney previously represented to the party.” 12 13 Estrada v. Cabrera, 632 F.Supp. 1174 (D.Puerto Rico,1986). Based on the standard set forth in Rule 14 1.9(a), a court must first determine whether an attorney-client relationship existed, and if so, then 15 explore whether there is a substantial relationship between the former and current representation. 16 17 Mere allegation that confidential information was exchanged in prior representation will not suffice 18 to create irrebuttable presumption of shared confidences, for purpose of determining whether 19 disqualification of the attorney is warranted. MODEL RULES OF PROF'L CONDUCT Rule 1.9, 20 21 1.10. Rule 1.10 provides for the imputed disqualification of an attorney, such that if one member of a 22 firm is disqualified from a case, his colleagues in the firm are likewise disqualified. 23 The First Circuit has reaffirmed the “substantially related” test as governing the inquiry into 24 25 whether disqualification is appropriate in attorney conflict of interest cases. Borges v. Our Lady of the Sea Corp., 935 F.2d 436 (1st Cir.1991). A motion to disqualify an attorney is an accepted and
1 Rule 21 of the Code of Professional Ethics of Puerto Rico, which is cited by Movant FBPR, is not the applicable standard in this district. 3 1 adequate way for a litigant to bring a potential conflict of interest to the court's attention. The moving 2 party bears the burden of showing substantial relationship between the former and current 3 representation in a motion to disqualify. Estrada v. Cabrera, supra. Courts, however, should be 4 5 cautious in analyzing a disqualification motion because they are often used for strategic purposes. 6 See id. Professional conduct rules governing conflicts of interest and providing for imputed 7 disqualification of attorneys are primarily concerned with preventing confidential information 8 9 obtained in the former representation from being used in the subsequent litigation. Kevlik v. 10 Goldstein, 724 F.2d 844, 847–48 (1st Cir.1984). The moving party must allege the type and nature of 11 12 the confidences that were exchanged in the prior litigation that should subsequently disqualify the 13 attorney in the latter representation. However, the mere allegation that confidential information was 14 exchanged in a prior representation will not suffice to create the “irrebuttable presumption” of shared 15 16 confidences that is so frequently spoken of in this area of the law. Starlight Sugar Inc. v. Soto, 903 17 F.Supp. 261 (D.Puerto Rico, 1995). 18 The substantial relationship test had its genesis in federal courts in the case of T.C. Theatre 19 20 Corp. v. Warner Bros. Pictures, Inc., 113 F.Supp. 265 (S.D.N.Y.1953). The test is not a rule of 21 substantive law, as it is a measure of the quantum of evidence required for proof of the professional 22 obligation. In determining whether two matters are substantially related, “[t]he underlying question is 23 24 whether the lawyer was so involved in the matter that the subsequent representation can be justly 25 regarded as a changing of sides in the matter in question.” MODEL RULES OF PROF'L CONDUCT
Rule 1.9 cmt. 2. Some courts have applied the “substantially related” test very stringently, finding a substantial relationship only when the issues involved in the two cases are virtually identical. See, 4 1 Government of India v. Cook Indus., Inc., 569 F.2d 737 (2d Cir.1978). 2 The test consists of three steps of inquiry in disqualification matters and said three-level 3 inquiry is to be undertaken in order to ascertain whether a substantial relationship exists. Under this 4 5 three-prong test, the first step calls for a factual reconstruction of the scope of the prior 6 representation.
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1 IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF PUERTO RICO 2
3 IN RE: 4
5 ROBERTO SOTO CARRERAS CASE NO. 09-10782 BKT 6 Chapter 11 7
8 9
11 XXX-XX-5535 12
14 FILED & ENTERED ON 10/18/2011 15 Debtor(s) 16
17 OPINION AND ORDER 18
19 Carlos E. Rodriguez Quesada (hereinafter "Rodriguez Quesada") and Nelson Robles Diaz, of 20 Reorganization and Bankruptcy Legal Services, P.S.C. (hereinafter "RBLS"), have been the 21 authorized legal representatives of Debtor since November 30, 2010. The record of the case shows 22 23 that in the course of the bankruptcy, Debtor has been actively engaged in objecting to First Bank 24 Puerto Rico's (hereinafter, “FBPR”) claim number 10. Claim number 10 involves several 25 commercial loans made to debtor Roberto Soto Carreras secured by real estate belonging to the
debtor and/or to debtor's corporations. On September 19, 2011, FBPR filed a “Motion Requesting Order Regarding Conflict of Interest and Removal of Legal Representation” in reference to counsel 1 1 Rodríguez Quesada and RBLS [Dkt. No. 373]. In its motion, FBPR alleges that a conflict of interest 2 exists between FBPR and Rodriguez Quesada in the above referenced case due to his appearance in 3 the case of In Re: New York Mortgage Bankers, Inc., case number 09-02852 (BKT) on behalf of 4 5 FBPR. FBPR alleges that there is an irrefutable presumption that Rodríguez Quezada received 6 confidential information from FBPR, “and/or simultaneously represent[ed] conflicting interests.” 7 Furthermore, FBPR alleges that RBLS should also be disqualified. 8 9 The controversy stems from Rodríguez Quezada’s appearance and filing on July 22, 2011, a 10 written stipulation, wherein he also appeared as FBPR's legal representative, for the lifting of an 11 12 automatic stay in order to permit an appearance by New York Mortgage Bankers in the Court of First 13 Instance of the commonwealth of Puerto Rico, Aguadilla Part. The appearance was to establish the 14 fact that the Promissory Mortgage Note First Bank sought to be deemed canceled, had been lost 15 16 while in the possession of Debtor, New York Mortgage Bankers. FBPR bases its request for 17 disqualification solely on that one document, and claims that the mere “appearance of impropriety” is 18 sufficient to require the disqualification of Rodríguez Quezada and RBLS. FBPR states that such 19 20 conduct is contrary with Rule 21 of the Code of Professional Ethics of Puerto Rico. The matter was 21 briefly argued at the hearing held on September 21, 2011 [Dkt. No. 379], and Rodriguez Quesada 22 was allowed time to reply to FBPR's motion. On October 5, 2011, Rodriguez Quesada replied in 23 24 opposition to FBPR's motion [Dkt. No. 391]. 25 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 Professional Conduct adopted by the American Bar Association, as amended. See, Local Rules Dist. P.R. R. 83E. Rule 1.9 of the Model Rules of 2 1 Professional Conduct, dealing with conflict of interest, states that: 2
3 A lawyer who has formerly represented a client in a matter shall not thereafter 4 represent another person in the same or a substantially related matter in which that person's interests are materially adverse to the interests of the former client unless 5 the former client gives informed consent, confirmed in writing. 6 7 MODEL RULES OF PROF'L CONDUCT Rule 1.9(a).1 8 9 Thus, it is not “per se” improper for an attorney or law firm to represent a party who is now 10 adverse to a former client “without a showing by the former client that the matters in the pending suit 11 are ‘substantially related’ to the matters in which the attorney previously represented to the party.” 12 13 Estrada v. Cabrera, 632 F.Supp. 1174 (D.Puerto Rico,1986). Based on the standard set forth in Rule 14 1.9(a), a court must first determine whether an attorney-client relationship existed, and if so, then 15 explore whether there is a substantial relationship between the former and current representation. 16 17 Mere allegation that confidential information was exchanged in prior representation will not suffice 18 to create irrebuttable presumption of shared confidences, for purpose of determining whether 19 disqualification of the attorney is warranted. MODEL RULES OF PROF'L CONDUCT Rule 1.9, 20 21 1.10. Rule 1.10 provides for the imputed disqualification of an attorney, such that if one member of a 22 firm is disqualified from a case, his colleagues in the firm are likewise disqualified. 23 The First Circuit has reaffirmed the “substantially related” test as governing the inquiry into 24 25 whether disqualification is appropriate in attorney conflict of interest cases. Borges v. Our Lady of the Sea Corp., 935 F.2d 436 (1st Cir.1991). A motion to disqualify an attorney is an accepted and
1 Rule 21 of the Code of Professional Ethics of Puerto Rico, which is cited by Movant FBPR, is not the applicable standard in this district. 3 1 adequate way for a litigant to bring a potential conflict of interest to the court's attention. The moving 2 party bears the burden of showing substantial relationship between the former and current 3 representation in a motion to disqualify. Estrada v. Cabrera, supra. Courts, however, should be 4 5 cautious in analyzing a disqualification motion because they are often used for strategic purposes. 6 See id. Professional conduct rules governing conflicts of interest and providing for imputed 7 disqualification of attorneys are primarily concerned with preventing confidential information 8 9 obtained in the former representation from being used in the subsequent litigation. Kevlik v. 10 Goldstein, 724 F.2d 844, 847–48 (1st Cir.1984). The moving party must allege the type and nature of 11 12 the confidences that were exchanged in the prior litigation that should subsequently disqualify the 13 attorney in the latter representation. However, the mere allegation that confidential information was 14 exchanged in a prior representation will not suffice to create the “irrebuttable presumption” of shared 15 16 confidences that is so frequently spoken of in this area of the law. Starlight Sugar Inc. v. Soto, 903 17 F.Supp. 261 (D.Puerto Rico, 1995). 18 The substantial relationship test had its genesis in federal courts in the case of T.C. Theatre 19 20 Corp. v. Warner Bros. Pictures, Inc., 113 F.Supp. 265 (S.D.N.Y.1953). The test is not a rule of 21 substantive law, as it is a measure of the quantum of evidence required for proof of the professional 22 obligation. In determining whether two matters are substantially related, “[t]he underlying question is 23 24 whether the lawyer was so involved in the matter that the subsequent representation can be justly 25 regarded as a changing of sides in the matter in question.” MODEL RULES OF PROF'L CONDUCT
Rule 1.9 cmt. 2. Some courts have applied the “substantially related” test very stringently, finding a substantial relationship only when the issues involved in the two cases are virtually identical. See, 4 1 Government of India v. Cook Indus., Inc., 569 F.2d 737 (2d Cir.1978). 2 The test consists of three steps of inquiry in disqualification matters and said three-level 3 inquiry is to be undertaken in order to ascertain whether a substantial relationship exists. Under this 4 5 three-prong test, the first step calls for a factual reconstruction of the scope of the prior 6 representation. The second step calls for a determination as to whether it is reasonable to infer that 7 the confidential information allegedly given would have been to a lawyer involved in the 8 9 representation of those matters. Finally, under the third step, it must be determined whether that 10 information is relevant to the issues raised in the litigation pending against the former client. La Salle 11 12 National Bank v. County of Lake, 703 F.2d 252, 255 (7th Cir. 1983); Southwire Co. v. Ramallo 13 Bros. Printing, Inc., 2009 WL 4937726 (D. Puerto Rico, 2009). Thus, the moving party must allege 14 the type and nature of the confidences that were exchanged in the prior litigation that should 15 16 subsequently disqualify the attorney in the latter representation. Having established the scope of 17 Rodriguez Quesada's prior representation above, the court now applies the second and third steps of 18 the conflict of interest inquiry to the case at bar. The Court must examine the contours of the prior 19 20 representation to determine whether any confidential information was received, and whether any 21 aspect is so similar to the current litigation that it would be useful in advancing Debtor's position. 22 The focus is on the precise nature of the relationship between the present and former 23 24 representation. Jackson v. J.C. Penney Co., Inc., 521 F.Supp. 1032 (N.D.Ga.1981). The basic 25 question which the court faces in considering a motion praying for disqualification is “whether it
could reasonably be said that during the former representation the attorney might have acquired information related to the subject matter of the subsequent representation.” La Salle Nat. Bank v. 5 1 County of Lake, supra. The issue of whether there is a substantial relationship between the present 2 representation and matters in which Rodriguez Quesada previously appeared on behalf of FBPR is 3 of course essentially a factual one. The question is one which involves a determination as to whether 4 5 there is a sufficient relationship between matters presented by the pending litigation, and matters 6 which the attorney/firm worked on in behalf of the party now seeking disqualification. Furthermore, 7 it has been clearly established that “only when the moving party delineates with specificity the 8 9 subject matters, issues and causes of action presented in the former representation can the district 10 court determine if the substantial relationship test has been met.” Somascan Plaza,Inc. v. Siemens 11 12 Medical Systems, Inc., 187 F.R.D. 34 (D.Puerto Rico, 1999). It is unrefuted that there is no 13 contract for professional services executed between Carlos Rodriguez Quesada and/or RBLS and 14 FRBP to represent the legal interests of said entity in any case. Furthermore, Rodriguez Quesada and 15 16 RBLS state that neither of them have ever been paid fees for any legal services by FBPR. FBPR has 17 failed to establish that in the appearance on behalf of New York Mortgage in case 09-02852 (BKT), 18 there are any facts to support a finding that in the course of that "representation," Rodriguez Quesada 19 20 became privy to confidences or secrets of FBPR. Most importantly, FBPR has not established that 21 the matter in which the appearing counsel represented FBPR is substantially related to the 22 controversy in the case at bar. FBPR's vague and conclusory allegations stating, at most, that 23 24 Rodriguez Quesada represented the Movant in one document in a non-related case, do not clear this 25 hurdle. In essence, FBPR did not allege “the type and nature of the confidences that were exchanged”
with enough specificity so as to put the Court in a position to rule in its favor. Mere allegation that confidential information was exchanged in prior representation will not suffice to create an 6 1 || irrebuttable presumption of shared confidences, for purpose of determining whether disqualificatio 2 of the attorney is warranted. Starlight Sugar, 903 F.Supp. at 266. As such, the Court finds that ther 3 4 no conflict of interest in the representation of the captioned debtor by Rodriguez Quesada and/o ° || RBLS in this case against FBPR. 6 IT IS SO ORDERED. 7 8 San Juan, Puerto Rico this 18 day of October, 2011. 9 Aa 10 CHE 11 Brian K. Tester 12 U.S. Bankruptcy Judge 13 14 15 16 17 18 19 20 21 22 23 24 25