Gould v. Clippard

• Decision Date: 28 March 2006
• Docket Number: No. Civ. 3:04-0971.,Civ. 3:04-0971.
• Citation: 340 B.R. 861
• Parties: Vincent GOULD, d/b/a We the People Forms and Service Center of Nashville, d/b/a We the People Forms and Service Centers USA, Inc, and We the People Forms and Service Centers USA, Inc., Appellants, v. Richard F. CLIPPARD, et al., Appellees.
• Court: U.S. District Court — Middle District of Tennessee

Page 861

340 B.R. 861

Vincent GOULD, d/b/a We the People Forms and Service Center of Nashville, d/b/a We the People Forms and Service Centers USA, Inc, and We the People Forms and Service Centers USA, Inc., Appellants, v. Richard F. CLIPPARD, et al., Appellees.

No. Civ. 3:04-0971.

United States District Court, M.D. Tennessee, Nashville Division.

March 28, 2006.

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Charles F. Vihon, Western Springs, IL, Jeffrey R. Kohl, Michael James Passino, Nashville, TN, Jennifer Elizabeth Tauer, Joanne Underhill, Underhill & Underhill, Greenwood Village, CO, for Appellants.

We the People Forms and Service Centers USA, Inc., pro se.

Teresa C. Azan, Thomas Larry Edmondson, Nashville, TN, Robert Evans Lee, Lebanon, TN, for Appellees.

MEMORANDUM

TRAUGER, District Judge.

On this appeal from a decision of the United States Bankruptcy Court for the Middle District of Tennessee,¹ Appellants seek review of that court's Memorandum and Order sanctioning Appellant We the People USA for violations of 11 U.S.C. §§ 110(b)(1) and (c)(1); sanctioning Appellants Vincent Gould and We the People Nashville for violations of 11 U.S.C. §§ 110(f), (g); disallowing and ordering turnover of all but $30 of the fees paid to Appellants pursuant to 11 U.S.C. §§ 110(h)(2); certifying and recommending to the United States District Court that Appellants be sanctioned pursuant to § 110(i) for violations of § 110; and granting the request of the United States Trustee for an injunction against Appellants pursuant to § 110(j).

Appellee has responded to Appellants' arguments and Appellants have replied. For the reasons discussed herein, the Bankruptcy Court's Order will be affirmed in all respects relevant to this case. Des. Rec. 2.

I. Statement of Facts and Procedural History

Mr. Finch, Mr. Toalson, Ms. Smith and Ms. Inmon (hereinafter "Debtors") consulted Vincent and Shannon Gould and We the People Nashville (hereinafter "Goulds" and "WTP") to prepare chapter 7 bankruptcy petitions, after which each filed a petition pro se. The Goulds were self-described partners in operating a bankruptcy petition preparer ("BPP") business they called "We the People Nashville" which the Goulds stated was a franchise of the franchisor We the People USA, Inc. ("WTP USA"). In the cases of Mr. Finch, Mr. Toalson, Ms. Smith, the appointed chapter 7 trustee, Robert H. Waldschmidt, after finding inaccuracies and omissions in their Statements and Schedules, filed actions seeking to deny their discharge pursuant to 11 U.S.C. § 727 (hereinafter "Waldschmidt Cases"). Thereafter, each of the three above named debtors filed third-party complaints against Vincent and Shannon Gould and WTP (hereinafter "Third Party Actions") alleging that their negligence, breach of contract, and / or violations of 11 U.S.C. § 110 led to the omissions and inaccuracies in their bankruptcy filings. In the case of Ms. Inmon, the United States Trustee (hereinafter "UST") filed an adversary proceeding naming Vincent Gould, We The People Forms and Service Center of Nashville and We The People Forms and Service Center, USA, Inc. seeking damages and injunctive relief for alleged violations of 11 U.S.C. § 110, which governs the conduct of bankruptcy petition preparers.²

The bankruptcy court dismissed the chapter 7 trustee's § 727 actions against Mr. Finch, Mr. Toalson and Ms. Smith and those actions will receive no further consideration.

II. Standard of Review

This Court has jurisdiction to hear this appeal pursuant to 28 U.S.C. § 158(a). 28 U.S.C. § 158(a) (2005). In hearing an appeal from a bankruptcy court's order, the district court reviews the bankruptcy court's findings of fact for clear error and the court's conclusions of law de novo. Rembert v. AT & T Universal Card Servs. (In re Rembert), 141 F.3d 277, 280 (6th Cir.1998), cert. denied, 525 U.S. 978, 119 S.Ct. 438, 142 L.Ed.2d 357 (1998); see also In re Caldwell, 851 F.2d 852, 857 (6th Cir.1988). Mixed questions are to be separated into their component parts and reviewed under the appropriate standard. Mayor of Baltimore v. W. Va. (In re Eagle-Picher Indus., Inc.), 285 F.3d 522, 527 (6th Cir.), cert. denied, 537 U.S. 880, 123 S.Ct. 90, 154 L.Ed.2d 137 (2002).

ANALYSIS

Appellants raise two groups of argument. First, are arguments addressing the Bankruptcy Court's findings of fact and conclusions of law as contained in the Memorandum Opinion, which the court answers in Part III infra. Second, are arguments addressing due process and constitutional propositions not addressed in the Bankruptcy Court's Memorandum Opinion, which the court answers in Part IV infra.

The Appellees argue that numerous courts have addressed the issues herein and rejected Appellants arguments each time.³

III.

A. The Bankruptcy Court does have authority pursuant to 11 U.S.C. § 110 to enter an order when the allegations of breach of contract and negligence are proven.

1. Appellants apparently contend that the Court should look to "11 U.S.C. § 1481" for either the source of or limitations on the Bankruptcy Court's contempt powers in this situation. Appellants Brief, p. 16. The Court presumes that Appellants are referring to 28 U.S.C. § 1481 as it related to bankruptcy courts and district courts. That provision never reached its effective date as set forth in § 402(b) of Public Law 95-598 because it was repealed. Pub.L. 98-353, Title I, §§ 113, 98 Stat. 343, 346, eff. July 10, 1984; see Celotex Corp. v. Edwards, 514 U.S. 300, 329, 115 S.Ct. 1493, 1509, 131 L.Ed.2d 403 (Stevens, J. dissenting) (history and repeal of 28 U.S.C. § 1481). While it may be true that a BPP may be subject to a contempt order of a bankruptcy court for failure to comply with that court's order pursuant to its finding of violations of § 110, see In re Walker, 257 B.R. 493, 496 (Bankr.N.D.Ohio 2001) (11 U.S.C. § 105 provides bankruptcy court with inherent power to enforce BPP's compliance with its lawful orders), Appellants offer no authority for their proposition that a violation of § 110, for which Congress provided specific penalties within each subsection, must be dealt with solely as an act of contempt.

2. Appellants contend that 11 U.S.C. § 110 grants the Bankruptcy Court no authority to "adjudicate or regulate matters concerning violations of § 110." Appellants Brief, p. 17. If Appellants' argument is that all findings under 110 must be certified to the district court, then the court agrees with the Bankruptcy Court's rejection of this contention. Memorandum Opinion, n. 13.

The Bankruptcy Court stated that the § 110 issues presented in the Third Party Actions involved §§ 110(f), (g), (h) and (i). Memorandum Opinion, pp. 15-18. The Bankruptcy Court approved of the reasoning of other courts in finding that the certification requirement is limited to § 110(i) and that the Bankruptcy Court had the authority to impose the fines and injunctions provided in §§ 110(f), (g), (h) and (j). Memorandum Opinion, n. 13, (citing cases: In re Graves, 279 B.R. 266, 271 (9th Cir. BAP 2002) (plain text of statute shows nothing in §§ 110(b)-(h) & (j) and § 110(i) to suggest that the bankruptcy court is not authorized to impose the remedies prescribed therein, citing concurring views in other circuits) (internal citations omitted); In re Graham, 2004 WL 1052963 (Bankr.M.D.N.C.2004), In re Rose, 314 B.R. 663, 683 (Bankr.E.D.Tenn.2004)). The Bankruptcy Court, in joining what it viewed to be the majority view, recognized that a minority of bankruptcy courts had referred all findings under § 110 to the district court. Memorandum Opinion, n. 13 (citing In re Gomez, 259 B.R. 379, 387 (Bankr.D.Colo.2001)).

This court agrees with the Bankruptcy Court that a plain reading of the statute indicates that § 110(i) does not require that a bankruptcy court refer all findings under § 110 to the district court and, therefore, there are no limitations on the Bankruptcy Court's authority to implement the §§ 110(f), (g), (h) and (j) provisions within the Third Party Actions.

3. Appellants contend that because Debtors, and not the UST, brought the claims for common law negligence and breach of contract, the Bankruptcy Court could not rely on Martini v. We the People Forms & Service Centers USA, Inc. (In re Barcelo), 313 B.R. 135 (Bankr.E.D.N.Y. 2004) "(hereinafter In re Barcelo") to determine that the Third Party Actions were core proceedings. Appellants Brief, p. 17.

The Bankruptcy Court applied and adopted the reasoning of In re Barcelo in finding that all § 110 matters are core proceedings because it agreed with the In re Barcelo court that all § 110 matters "arise in" Title 11 and that the Third Party Actions were "core" matters potentially affecting the administration of Debtors' estates.⁴ Memorandum Opinion, p. 27.

The court can find nothing in the reasoning of In re Barcelo or the Memorandum Opinion in its application of In re Barcelo or the language of the statute that indicates why the presence of the UST as plaintiff as compared to Debtors negatively alters either the jurisdictional or substantive analysis of the Bankruptcy Court.

The Bankruptcy Court went on to reason that Debtors' breach of contract and negligence causes of action were "[a]t [] heart [] about violations of § 110(i)" and that a determination under § 110(i) would be directed at determining if Appellants' conduct is encompassed in the fraud and unfair or deceptive acts addressed by the statute. Memorandum Opinion, n. 6 (citing In re Lucas, 312 B.R. 559 (Bankr. D.Md.2004) (treating as 110(i) debtor's allegations of negligence and unauthorized practice) and In re Gomez, 259 B.R. 379) (similar allegations and treatment).

Appellants argue that the above reasoning was error because the common law negligence and breach of contract claims are severable from the bankruptcy adversary proceeding because such causes of action of do not arise within the context of bankruptcy and do not affect the substantive...