In re Cruz

• Decision Date: 27 August 2020
• Docket Number: CASE NO: 18-10208
• Parties: IN RE: BIANCA CRUZ Debtor
• Court: U.S. Bankruptcy Court — Southern District of Texas

IN RE: BIANCA CRUZ Debtor

CASE NO: 18-10208

UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF TEXAS BROWNSVILLE DIVISION

August 27, 2020

CHAPTER 7

MEMORANDUM OPINION

When lawyers compromise ethics for expediency, the results are predictable. The Court pens this Memorandum Opinion to underscore the importance of lawyers knowing the difference between what they can and what they should do when representing a client in any proceeding before this Court. Ethics should be a lawyer's highest calling after all.

In the case sub judice, the United States Trustee for Region 7 filed a Motion to (1) Examine Debtor's Transactions with Attorneys; (2) Cancel Debtor's Agreement with Attorneys; (3) Disallow and Order Disgorgement of Excessive Fees; and (4) Impose Sanctions Against Attorneys. Additionally, this Court, sua sponte, issued its own show cause order as against Marina R. Dominguez and David M. Menditto as to why each of them should not be held in contempt of this Court's prior order requiring the turnover to the Court of Exhibit No. 11 containing Debtor's purported original wet signature and date on the petition.

As discussed more fully below, the Court finds that (i) the Court's Show Cause Order was ultimately satisfied and neither Marina R. Dominguez nor David M. Menditto are held in contempt of court; (ii) fees paid to UpRight Law in the amount of $2,825 are disgorged, UpRight Law and Marina R. Dominguez must refund the sum of $1,891.50 (representing the fees Cruz paid UpRight Law, less amounts already refunded and filing fee) in good and sufficient funds, to Bianca Cruz within thirty (30) days of the entry of this Order, and proof satisfactory to Debtor and her current counsel that the $1,891.50 has already been refunded to Cruz will demonstrate compliance with this portion of the order; (iii) a compensatory sanction in the amount of $8,475 will be imposed jointly and severally on Deighan Law, LLC and Marina R. Dominguez which must be paid to Bianca Cruz, by and through her counsel Marcos D. Oliva of Oliva Law, 223 W. Nolana Blvd. McAllen Texas, 78504 within thirty (30) days from the entry of this Court's Order; (iv) post-judgment interest shall accrue at the rate of 0.13% from the payment dates set forth above until paid; (v) the Court will set a hearing for Deighan Law, LLC, f/k/a Law Solutions Chicago LLC d/b/a UpRight Law LLC, Allen Chern Law LLC and Marina R. Dominguez to appear and show cause as to why each should be permitted to continue to practice before the undersigned judge; (vi) as for Marina R. Dominguez, the Court will refer this matter to the Chief United States District Judge for the Southern District of Texas for further disciplinary proceedings in accordance with the Rules of Discipline of the United States District Court for the Southern District of Texas; and (vii) lastly, a copy of this opinion and associated judgment will be delivered to the Office of Chief Disciplinary Counsel for the State Bar of Texas and the Hon. David Jones, Chief Judge, United States Bankruptcy Court, Southern District of Texas.

I. FINDINGS OF FACT

This Court makes the following findings of fact and conclusions of law pursuant to Federal Rule of Civil Procedure 52, which is made applicable to contested matters pursuant to Federal Rules of Bankruptcy Procedure 7052 and 9014. To the extent that any finding of fact constitutes a conclusion of law, it is adopted as such. To the extent that any conclusion of law constitutes a finding of fact, it is adopted as such. The Court made certain oral findings and conclusions on the record. This Memorandum Opinion supplements those findings and conclusions. If there is an inconsistency, this Memorandum Opinion controls.

A. Background History

On July 18, 2018, Bianca Cruz ("Cruz" or "Debtor") filed a Chapter 7 bankruptcy petition ("Petition")¹ The Petition consisted of the Official Form 101 and a creditor matrix for a total of nine pages.² The attorneys in this case are Marina R. Dominguez ("Dominguez"), who was Debtor's former counsel, and Deighan Law, LLC f/n/a Law Solutions Chicago, LLC, d/b/a UpRight Law LLC, d/b/a Chern Law LLC ("UpRight Law").³ The next pleading filed was a Motion to Substitute Attorney in which Debtor sought to terminate the attorney-client relationship between her and her attorneys.⁴ Debtor's request was granted and soon thereafter, Schedules and Statement of Financial Affairs were filed.⁵

On September 14, 2018, the United States Trustee ("U.S. Trustee") for Region 7 filed the instant Motion of the United States Trustee for the Court to (1) Examine Debtor's Transactions With Attorneys; (2) Cancel Debtor's Agreement With Attorneys; (3) Disallow and Order Disgorgement of Excessive Fees; and (4) Impose Sanctions Against Attorneys (the "Motion")⁶ On November 2, 2018, and December 6, 2018, the Court held hearings on the Motion. At the December 6, 2018 hearing the Court ordered David M. Menditto ("Menditto") of UpRight Lawand Dominguez to turn over to the Court, UpRight Law's Exhibit No. 11 which consisted of the originally signed and dated Petition.⁷ The Court was seeking turnover of Exhibit 11 in order to more closely examine Debtor's original wet signature and date on the Petition which came into question during trial.⁸ On December 27, 2018, the Court issued, sua sponte, its Order to Show Cause Why Menditto and Dominguez Should Not be Held in Contempt ("Show Cause Order") after no such documents were forthcoming.⁹

The U.S. Trustee's Motion along with this Court's Show Cause Order were tried before this Court over a period of four days, commencing November 2, 2018 and concluding on April 26, 2019. On December 6, 2018, post-trial briefing was ordered by the Court but then the entire proceeding was abated on January 4, 2019, on motion by the U.S. Trustee due a temporary lapse in appropriations.¹⁰ On February 8, 2019, the Court held a status conference and reopened evidence nonetheless the order abating briefing remained in place. On March 6, 2018, hearings resumed on the two matters and concluded on April 26, 2019.

On July 29, 2019, the Court held a status conference regarding the previously abated briefing deadlines and issued a new briefing scheduling order. After granting several extensions regarding the Court's briefing scheduling order, briefing has now closed and the parties have submitted their post-trial briefs. In consideration of the arguments presented in the hearings on this matter, all other evidence in the record, credibility of the witnesses, and relevant case law, the matter is now ripe for determination and the Court issues the instant Memorandum Opinion.

B. Joint List of Stipulated and Disputed Facts

On December 19, 2019, the parties filed a Joint List of Stipulated and Disputed Facts.¹¹

1. The Court has jurisdiction to consider this matter under 28 U.S.C. § 1334. This is a core proceeding under 28 U.S.C. § 157(b)(2). Venue is proper in this district under 28 U.S.C. § 1408. ECF No. 65, ¶ 1.

2. The Court has constitutional authority to enter a final order in this matter. If it is determined that the bankruptcy judge does not have the constitutional authority to enter a final order or judgment in this matter, the Parties consent to the entry of a final order or judgment by this Court in this matter. ECF No. 65, ¶ 2.

United States Trustee

3. Henry G. Hobbs is the duly appointed Acting United States Trustee for Region 7 ("United States Trustee"), which includes the Southern District of Texas. 28 U.S.C. § 581(a)(7). ECF No, 65, ¶ 3.

4. Pursuant to 11 U.S.C. § 307, the United States Trustee has standing to raise, appear and be heard on any issue in a case or proceeding under the Bankruptcy Code. ECF No. 65, ¶ 4.

5. Pursuant to 28 U.S.C. § 586(a)(3), the United States Trustee is statutorily obligated to monitor the administration of cases commenced under the Bankruptcy Code, 11 U.S.C. § 101 et seq. Specifically, the United States Trustee is charged with a number of supervisory responsibilities in liquidation bankruptcy cases under chapter 7 of the Bankruptcy Code, including monitoring the progress of such cases and taking such actions as the United States Trustee deems to be appropriate to prevent undue delay in such progress. 28 U.S.C. § 586(a)(3)(G). ECF No. 65, ¶ 5.

UpRight Law

6. At all times relevant to the Motion, the law firm that is the subject of the Motion was known as Law Solutions Chicago LLC ("LSC"). The law firm is now named Deighan Law LLC.

7. LSC is an Illinois limited liability company that, at all times relevant to the Motion, was authorized to do business in the State of Texas as Chern Law LLC. Dec. 6 Hrg., Chern, 157:20 - 158:6. The law firm is commonly known as UpRight Law, which is the name by which the firm does business in the majority of States. Dec. 6, 2018, Hrg., Chern, 157:20 - 158:6. The law firm currently does business in the State of Texas as Deighan Law LLC. For purposes of this Joint Stipulation of Disputed and Undisputed Facts (the "Joint Stipulation"), the law firm will be referred to as UpRight Law.

8. At the time of the hearings on the Motion, Kevin Chern owned 99 percent and David Leibowitz owned 1 percent of UpRight Law. Dec. 6, 2018, Hrg., Chern, 158:24 -159:3.9. UpRight Law is a "debt relief agency" as defined in 11 U.S.C. § 101(12A). Dec. 6, 2018, Hrg., Chern, 158:7-20; ECF No. 65, ¶ 10. UpRight Law provides bankruptcy assistance and debt relief services. Dec. 6, 2018, Hrg., Chern, 158:7-10.

10. UpRight Law advertises its services over the internet by using the website www.uprightlaw.com. Dec. 6 Hrg, Chern, 158:12-14.

11. At the time of the hearings on the Motion, Upright Law had approximately 350 partners nationwide. Dec. 6 Hrg, Chern, 158:15-16.

12. In 2016, UpRight Law's gross sales and receipts were $18,831,376.¹²

13. In 2016, UpRight Law's net income (loss) was ($123,367).

14. In 2017, UpRight Law's gross sales and receipts were $23,393,439.

15. In 2017, UpRight Law's net income was $219,970.

16. In 2018, UpRight Law's

...