In re Evans, 09-10080-SSM.

Citation413 B.R. 315
Decision Date23 August 2009
Docket NumberNo. 09-10080-SSM.,09-10080-SSM.
CourtUnited States Bankruptcy Courts. Fourth Circuit. U.S. Bankruptcy Court — Eastern District of Virginia
PartiesIn re Michael C. EVANS, Mary Ann D. Evans, Debtors.

Michael C. Evans, Mary Ann D. Evans, Purcellville, VA, pro se.

Daniel L. Grubb, Dunlap, Grubb & Weaver, P.C., Leesburg, VA, for respondent.

Gordon P. Peyton, Redmon, Peyton & Braswell, Alexandria, VA, Chapter 7 Trustee.

Frank J. Bove, Alexandria, VA, Office of the U.S. Trustee.

MEMORANDUM OPINION ON MOTION AGAINST QUINTON E. YANCEY FOR DISGORGEMENT OF FEES AND SANCTIONS

STEPHEN S. MITCHELL, Bankruptcy Judge.

A hearing was held on June 16, 2009, on the motion of W. Clarkson McDow, Jr., United States Trustee, Region Four ("U.S. Trustee") to require Quinton E. Yancey ("the respondent") to disgorge $700.00 in fees received for preparation of the debtor's petition, schedules, statement of financial affairs, means test form, statement of intention, and other papers filed in this case, and to impose fines and statutory damages on Mr. Yancey for violations of 11 U.S.C. § 110(b)(2)(A), (h)(2), and (k). The respondent, although filing a pro se response to the motion, did not appear at the hearing, but following the hearing retained an attorney who filed a supplemental response challenging the constitutionality of the statute. Upon consideration of the pleadings, testimony, exhibits and the argument of the parties, the court finds that the respondent violated Section 110 of the Bankruptcy Code.

Background

Michael C. Evans and Mary Ann D. Evans ("the debtors") filed a pro se voluntary petition in this court on January 9, 2009, and received a discharge on July 15, 2009. On their schedules, they reported assets of $459,469; liabilities of $857,889; monthly take-home income of $2,106; and monthly expenses of $7,179. On their schedule of property claimed exempt (Schedule C), the debtors listed $25,104 in real and personal property as exempt under various sections of the Annotated Code of Virginia. On page 3 of the petition, Mr. Yancey filled out and signed the section labeled "Signature of Non-Attorney Bankruptcy Petition Preparer" indicating that he "prepared this document for compensation and ... provided the debtor with a copy of this document and the notices and information required under 11 U.S.C. §§ 110(b), 110(h) and 342(b)." Also filed with the debtors' petition was the Declaration of Compensation of Bankruptcy Petition Preparer, which indicates that the respondent was paid $200 by the debtors for the preparation of the "official bankruptcy forms and related schedules." However, the debtors' Statement of Financial Affairs does not report any payments made to the respondent or anyone else for bankruptcy assistance and advice.

The U.S. Trustee filed the present motion to disgorge fees and impose fines on May 22, 2009, alleging that the respondent violated § 110 of the Bankruptcy Code for failing to disclose truthfully the total fees charged; for failing to provide the debtors, before preparing the petition documents, the written notice on Official Form 19 required by Rule 9009 of the Federal Rules of Bankruptcy Procedure; and for engaging in the unauthorized practice of law by selecting the laws providing legal authority for the debtors' claimed exemptions. In a pro se response filed June 5, 2009, the respondent asserted that the $200 listed on the disclosure statement represented the cost for the actual preparation of the bankruptcy forms; that the $700 charged to the debtors is reasonable compensation for a certified public accountant; that he was not aware of the need to give the debtors Official Form 19; that a software program selected the exemptions listed on the debtors' petition; and that he did not advise the debtors of any exemptions.

At the hearing, Mr. Evans testified that he and his wife were referred to the respondent because they were unable to afford an attorney and that they paid $700 to the respondent for his services in preparing the bankruptcy petition and related schedules. The debtors had two meetings with the respondent, who explained the differences between chapter 7 and chapter 13. After those meetings, the debtors decided that filing a chapter 7 petition was best. The debtors did not fill out any of the schedules or the statements, nor did they make the decision as to which property to claim as exempt and which statutes to use for those claimed exemptions on Schedule C. Finally, Mr. Evans testified that he and his wife had been residents of the Commonwealth of Virginia for almost 11 years and that the respondent did not ask them at any point in their meetings how long they had lived in the state.

On June 22, 2009—six days following the hearing—an attorney filed a notice of appearance on the respondent's behalf, and, on June 29, 2009, a written objection in which the respondent admitted to "some technical violations of Section 110" but argued that those violations are insignificant or moot because the statute is unconstitutional as it does not give the respondent fair warning as required by the Due Process Clause of the Fifth Amendment.

Discussion
I. SECTION 110

The conduct of non-attorney bankruptcy petition preparers is regulated by § 110 of the Bankruptcy Code, which was initially enacted as part of the Bankruptcy Reform Act of 1994 and expanded upon by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. The purpose of the statute was to address the proliferation of bankruptcy petition preparers not employed or supervised by attorneys and to enact limitations on and standards for the types of activities in which bankruptcy petition preparers could be engaged, particularly with respect to providing legal advice and engaging in the unauthorized practice of law. In re Springs, 358 B.R. 236, 241 (Bankr. M.D.N.C.2006). See also In re Crawford, 194 F.3d 954, 960 (9th Cir.1999), cert. denied, 528 U.S. 1189, 120 S.Ct. 1244, 146 L.Ed.2d 102 (2000); In re Moffett, 263 B.R. 805, 812-13 (Bankr.W.D.Ky.2001); In re Farness, 244 B.R. 464, 467 (Bankr.D.Idaho 2000).

Among other things, the statute requires the petition preparer to provide written notice informing the debtor that he is not an attorney and may not give legal advice or practice law. § 110(b)(2), Bankruptcy Code. The petition preparer is also required to disclose all fees received from the debtor within the 12 months before the petition was filed and any remaining unpaid fee charged to the debtor. § 110(h)(2), Bankruptcy Code. The statute prohibits the petition preparer from: executing any documents on behalf of the debtor or providing legal advice, § 110(e), Bankruptcy Code; using the word "legal" or any similar term in advertisements, § 110(f), Bankruptcy Code; and collecting any court filing fees from the debtor, § 110(g), Bankruptcy Code. The statute provides a variety of sanctions for any violations, including disgorgement of some or all fees charged, § 110(h)(3), Bankruptcy Code; fines, § 110(l)(1), Bankruptcy Code; compensatory and statutory damages, § 110(i)(1), Bankruptcy Code; and injunctive relief, § 110(j), Bankruptcy Code.

Because the respondent raised a threshold constitutional argument in his after-the-fact response to the U.S. Trustee's motion, the court must first address whether § 110 of the Bankruptcy Code violates the Due Process Clause of the Fifth Amendment. If so, the respondent cannot be fairly sanctioned for activities he could not reasonably understand to be prohibited. If not, the court must then address whether the respondent's actions were prohibited by § 110 of the Bankruptcy Code.

II. WHETHER SECTION 110 IS UNCONSTITUTIONALLY VAGUE
A.

It is well settled that a statute violates due process and "is void for vagueness if its prohibitions are not clearly defined." Grayned v. City of Rockford, 408 U.S. 104, 108, 92 S.Ct. 2294, 2298, 33 L.Ed.2d 222 (1972). The requirement of definiteness is violated when a statute "fails to give a person of ordinary intelligence fair notice that his contemplated conduct is forbidden by the statute." United States v. Harriss, 347 U.S. 612, 617, 74 S.Ct. 808, 812, 98 L.Ed. 989 (1954). In United States v. Lanier, the Supreme Court further explained that "the touchstone [of the fair warning requirement] is whether the statute, either standing alone or as construed, made it reasonably clear at the relevant time that the defendant's conduct was criminal." 520 U.S. 259, 267, 117 S.Ct. 1219, 1225, 137 L.Ed.2d 432 (1997). In the Fourth Circuit, "it is well settled law that one whose conduct clearly falls within the terms of statutory regulations or prohibitions does not have standing to challenge such statutory provisions as being facially overbroad or vague." Fisher v. Coleman, 486 F.Supp. 311, 314 (W.D.Va.1979). See also Parker v. Levy, 417 U.S. 733, 756, 94 S.Ct. 2547, 2562, 41 L.Ed.2d 439 (1974) ("One to whose conduct a statute clearly applies may not successfully challenge it for vagueness.").

However, the standard of certainty required for civil sanctions is less than required for criminal sanctions. Winters v. New York, 333 U.S. 507, 515, 68 S.Ct. 665, 670, 92 L.Ed. 840 (1948). See also Kolender v. Lawson, 461 U.S. 352, 358 n. 8, 103 S.Ct. 1855, 1859, 75 L.Ed.2d 903 (1983) ("... where a statute imposes criminal penalties, the standard of certainty is higher."); Village of Hoffman Estates v. Flipside, Hoffman Estates, Inc., 455 U.S. 489, 498-99, 102 S.Ct. 1186, 1193, 71 L.Ed.2d 362 (1982) ("The Court has also expressed greater tolerance of enactments with civil rather than criminal penalties ..."); Papachristou v. City of Jacksonville, 405 U.S. 156, 162, 92 S.Ct. 839, 843, 31 L.Ed.2d 110 (1972) ("greater leeway is allowed" in regards to the fair notice required for regulatory statutes governing business activities); LaRouche v. Sheehan, 591 F.Supp. 917, 920 (D.Md.1984). According to the court in Hoffman Estates, the lower...

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  • In re Peterson
    • United States
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