Gargula v. Deighan Law LLC (In re Collier)
| Decision Date | 24 March 2022 |
| Docket Number | Bankruptcy 20-30609,21-cv-526-JPG |
| Court | U.S. District Court — Southern District of Illinois |
| Parties | In re ROBERT COLLIER, Debtor. v. DEIGHAN LAW LLC f/k/a Law Solutions Chicago LLC, d/b/a Upright Law LLC, and RONALD ALLAN BUCH, Defendants. NANCY GARGULA, United States Trustee, Plaintiff, Adversary No. 21-03005 |
This matter comes before the Court on the motion of defendants Deighan Law LLC d/b/a Upright Law LLC (“Upright”) and Ronald Allan Buch to withdraw this Court's reference of this adversarial proceeding to the United States Bankruptcy Court for the Southern District of Illinois pursuant to 11 U.S.C. § 157(d) (Doc. 2). The plaintiff United States Trustee (“UST”) has responded to the motion (Doc. 2-1), and defendants have replied to that response (Doc. 3).
This adversarial proceeding began on May 5, 2021, when the UST filed a complaint against defendants based on Upright's method of doing business. The UST alleges that Upright is simply a legal referral agency that refers potential bankruptcy filers to local attorneys, like defendant Buch, in the debtor's area.[1] Upright promises prompt legal services, including a free initial consultation, but the UST claims that, in reality, it does not begin legal work immediately but only after the potential bankruptcy filer has paid the full fee Upright charges. The UST asserts that only then is any legal work begun, and even then that the work is subpar and overpriced. The UST claims that delays caused by not beginning legal work promptly cause harm to the bankruptcy filers.
With respect to debtor Robert Collier, Jr. in particular, the UST alleges that he contacted Upright on April 11, 2019, but the case was not handed off to Buch until July 29, 2019, after Collier had paid all the fees Upright charged. Then it took Buch until June 18, 2020, to file a Chapter 7 bankruptcy petition on Collier's behalf. In the meantime, one of Collier's creditors assigned almost $825 of his wages, an action that, in light of the automatic bankruptcy stay, would not have been possible had Collier's petition been filed promptly.
The UST claims defendants have violated Bankruptcy law in three ways. It points to three provisions of the Bankruptcy Code and one Bankruptcy Rule:
The UST seeks an injunction, a civil penalty, and disgorgement of amounts Collier paid defendants.
The UST's allegations stemmed from the Bankruptcy Judge's concern with Collier's “Disclosure of Attorney Compensation, ” one of the forms he was required to file in his Bankruptcy case. The form was completed and signed by Buch, as an attorney with Upright, and showed attorney's fees paid in the amount of $1, 675.00. Following a hearing, the Bankruptcy Court ordered Buch to submit to the UST an itemization of attorney's fees, which led the UST to conduct Rule 2004 examinations of Collier and Buch and to request documents from two of Collier's creditors. That further investigation led to the UST's current adversarial complaint.
This matter was originally referred to the Bankruptcy Court pursuant to 28 U.S.C. § 157(1) and Local Rule Br1001.1, but now defendants ask the Court to withdraw that reference pursuant to 28 U.S.C. § 157(d). They argue that withdrawal is mandatory because (1) resolution of this matter requires consideration of constitutional issues as well as the Bankruptcy Code and (2) defendants are entitled to a jury trial and have not consented to resolution by the Bankruptcy Court. They also argue the Court should exercise its discretion to withdraw the reference in light of the fact that this is a non-core proceeding and there is a need for uniformity and efficient resolution of the dozens of Bankruptcy cases in which the UST has sought relief against Upright and its network of local attorneys for similar reasons.
Generally, District Courts have original jurisdiction over all proceedings arising out the Bankruptcy Code, Title 11 of the United States Code. 28 U.S.C. § 1334. However, a District Court may refer such matters to the Bankruptcy Court for the district. 28 U.S.C. § 157(a). In the Southern District of Illinois, “[a]ll cases under Title 11 of the United States Code, and any or all proceedings arising under Title 11 or arising in or related to a case under Title 11, are referred to the Bankruptcy Judge.” Local Rule Br1001.1. The rule further provides that this referral shall be given the broadest possible interpretation to allow the Bankruptcy Court the maximum authority to administer cases within its jurisdiction. Id.
Nevertheless, on occasion, a party may ask the District Court to withdraw that reference, which the District Court may do “for cause shown, ” and must do “if the court determines that resolution of the proceeding requires consideration of both title 11 [the Bankruptcy Code] and other laws of the United States regulating organizations or activities affecting interstate commerce.” 28 U.S.C. § 157(d). The term “cause” is not defined, but courts often look to such factors including, but not limited to, whether the proceeding is core or non-core, the efficient use of judicial resources, any delay or costs to the parties, the uniformity of bankruptcy administration, the prevention of forum shopping, and other factors. In re Orion Pictures Corp., 4 F.3d 1095, 1101 (2d Cir.1993); Homa v. Gargula, No. 19-cv-1139-NJR, 2019 WL 6701684, at *1 (S.D. Ill.Dec. 9, 2019). The provision allowing withdrawal of a reference should be narrowly construed so it does not just provide an “escape hatch” out of Bankruptcy Court. In re CIS Corp., 188 B.R. 873, 877, 1995 WL 653366 (S.D.N.Y. 1995). And the parties seeking withdrawal of the reference-here, Upright and Buch-bear the burden of showing a withdrawal of the reference is justified. See In re Vicars Ins. Agency, Inc., 96 F.3d 949, 955 (7th Cir. 1996). The Court addresses each of defendants' arguments in turn.
The defendants argue that withdrawal is mandatory because they are entitled to a jury trial under the Seventh Amendment on the UST's claims against them for civil penalties for a clear and consistent pattern or practice of violating 11 U.S.C. § 526(a)(1) and (3). See 11 U.S.C. § 526(c)(5)(B). Generally, Bankruptcy Courts are not authorized to conduct jury trials by right under the Seventh Amendment absent special designation by the District Court and the consent of the parties. Matter of Grabill Corp., 967 F.2d 1152, 1156 (7th Cir. 1992); 28 U.S.C. § 157(e).
The Seventh Amendment guarantees the right to a jury trial for “suits at common law, where the value in controversy shall exceed twenty dollars.” U.S. Const. amend. VII. Whether the Seventh Amendment guarantees the right to a trial by jury depends on whether the specific claims are legal, rather than equitable, regardless of the nature of the suit as a whole. Ross v. Bernhard, 396 U.S. 531, 538 (1970) (); see Granfinanciera, S.A. v. Nordberg, 492 U.S. 33, 41 (1989) ().
To decide whether a claim is legal or equitable, the Court considers the following:
First, we compare the statutory action to 18th-century actions brought in the courts of England prior to the merger of the courts of law and equity. Second, we examine the remedy sought and determine whether it is legal or equitable in nature. The second stage of this analysis is more important than the first. If, on balance, these two factors indicate that a party is entitled to a jury trial under the Seventh Amendment, we must decide whether Congress may assign and has assigned resolution of the relevant claim to a non-Article III adjudicative body that does not use a jury as factfinder.
Id. at 42 (internal citations and quotations omitted). However, the Seventh Amendment does not guarantee the right to a jury trial for all legal claims. Legal claims asserting public rights, as opposed to purely private ones, do not require a jury trial if Congress has assigned the adjudication of such claims to an administrative agency or a specialized court of equity sitting without a jury. Id. at 42 n.4, 51.
The defendants argue that actions for civil penalties are analogous to actions in debt, historically legal claims. Further, they most closely resemble causes of action for dishonesty, fraud, misrepresentation, or professional...
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