Gargula v. Deighan Law LLC (In re Burns)
| Decision Date | 24 March 2022 |
| Docket Number | 21-cv-417-JPG,Bankruptcy 19-60349 |
| Court | U.S. District Court — Southern District of Illinois |
| Parties | In re BOYCE ALLEN BURNS and AMANDA LANE BURNS, Debtors. v. DEIGHAN LAW LLC f/k/a Law Solutions Chicago LLC, d/b/a Upright Law LLC, and JAMES E. FORD, Defendants. NANCY GARGULA, United States Trustee, Plaintiff, Adversary No. 20-0618 |
J PHIL GILBERT U.S. DISTRICT JUDGE
This matter comes before the Court on the motion of defendants Deighan Law LLC d/b/a Upright Law LLC (“Upright”) and James E. Ford (“Ford”) 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 the defendants have replied to that response (Doc. 3).
This adversarial proceeding began on December 31, 2020, when the UST filed a complaint against the 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 James Ford, 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 debtors Boyce Burns and Amanda Burns (“Debtors”) in particular (aged 69 and 64 years-old, respectively), the UST alleges that they contacted Upright on June 14, 2018, where they spoke to a non-attorney, but the case was not handed off to Ford until July 25, 2018, after the Debtors had paid all fees Upright charged. In fact, during this initial call in June 2018, this non-attorney convinced debtors to file a petition of bankruptcy under Chapter 7 and not Chapter 13. This non-attorney failed to put any information concerning trust income from Amanda Burns. On July 25, 2018, the Debtors received a phone call from Ford. After this call, Ford “approved the case” but did not make any notations regarding Amanda Burns' trust interests. On November 29, 2018, an Upright employee contacted the Debtors via email stating that Upright needed to gather the Debtors' social security numbers, despite having the file open for more than five months and the Debtors making their last attorney fee payments. From June 2018 to November 2018, the Debtors paid the quoted $1, 675 in attorney's fees, court filing fee of $355, and pre-filing credit counseling and post-filing management course.
Ford did not speak with the Debtors until the Debtors called Ford on January 14, 2019, to tell him they were served by First Financial Bank in Circuit Court of Clark County, Illinois regarding money due. This lawsuit required Burns to appear in court on February 13, 2019. Ford told the Debtors to complete a questionnaire, which they completed four days later. The questionnaire revealed the Debtors had an interest in a trust. On February 13, 2019, a judgment of $10, 547.79 was entered against the Debtors in Clark County Court. Following entry of judgment, First Financial Bank filed a Citation to Discovery Assets, which required the Burns to appear on April 24, 2019. The Debtors appeared in Clark County Court, even in light of fears that their bankruptcy case had not been filed yet. The Debtors requested the judge in Clark County Court to continue the citation to allow for their bankruptcy filing, which was denied. The order as a result of the citation required the Debtors to make monthly payments of $100 on the fourth Thursday of every month, $800 from Amanda Debtors' trust disbursement, and half of disbursement thereafter, and pay all of annual income tax refunds commencing with their 2019 refund.
The Debtors spoke to Ford on April 19, 2019, where the Debtors agreed to change protection from a Chapter 7 to a Chapter 13. Ford made the recommendation under the belief that Amanda Burns' trust interest was not exempt and would be subject to turnover in a Chapter 7. Upright prepared and sent the Debtors three different agreements for legal services from June 2018 to September 2019. The Debtors had their first and pre-filing face-to-face meeting with Ford on September 21, 2019, which was the date of the Debtors' bankruptcy filing. From June 14, 2018, to September 21, 2019, the UST alleges Upright failed to provide immediate legal help and failed to act with appropriate diligence.
The UST claims the 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 Debtors paid the defendants.
The UST's allegations stemmed from the Bankruptcy Judge's concern with Ford'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 Ford, 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 Ford to submit to the UST an itemization of attorney's fees, which led the UST to conduct Rule 2004 examinations of debtors and Ford and to request documents from two of Burns' 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 the 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) the 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 Ford-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 the defendants' arguments in turn.
The defendants argue that withdrawal is...
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