In re O'Dell, Bankruptcy No. 99-43337-13. Civ.A. No. 00-G-2935-E.

• Decision Date: 04 October 2001
• Docket Number: Bankruptcy No. 99-43337-13. Civ.A. No. 00-G-2935-E.
• Citation: 268 BR 607
• Court: U.S. District Court — Northern District of Alabama
• Parties: In re Michael J. O'DELL and Linda A. O'Dell, Debtors. James H. Greer, Max Flow Corporation, Alane A. Becket, D. Alexander Barnes, and Becket & Lee LLP, Appellants, v. Michael J. O'Dell and Linda A. O'Dell, Appellees.

268 B.R. 607 (2001)

In re Michael J. O'DELL and Linda A. O'Dell, Debtors James H. Greer, Max Flow Corporation, Alane A. Becket, D. Alexander Barnes, and Becket & Lee LLP, Appellants, v. Michael J. O'Dell and Linda A. O'Dell, Appellees.

Bankruptcy No. 99-43337-13. Civ.A. No. 00-G-2935-E.

United States District Court, N.D. Alabama, Eastern Division.

October 4, 2001.

Harry P. Long, Anniston, AL, for James H. Greer.

Jayna Partain Lamar, Robert W. Tapscott, Jr., Maynard Cooper & Gale, Birmingham, AL, Kenneth Pasquale, Stroock & Stroock & Lavan LLP, New York City, for Max Flow Corp.

Michael L. Hall, William S. Hereford, Burr & Forman LLP, Birmingham, AL, for Alane A. Becket, D. Alexander Barnes, and Becket & Lee.

Earl P. Underwood, Jr., Underwood & Associates, Anniston, AL, for Michael J. and Linda A. O'Dell.

Michael Brady O'Connor, Crosslin Slaten & O'Connor PC, Montgomery, AL, Michael Eugene Bybee, Birmingham, AL, for Mortgage Bankers Association of AL, Michael E. Bybee.

MEMORANDUM OPINION

GUIN, District Judge.

The case at bar is an appeal¹ from Bankruptcy Judge Sledge's decision reported in In re O'Dell, 251 B.R. 602 (Bankr.N.D.Ala.2000) in which Judge Sledge made the following challenged rulings:

1) Ruling that the proof of claim form filed by Max Flow Corp. hereinafter Max Flow was a misleading adaption of the official proof of claim form because it identified the creditor as "Max Flow on Behalf of MBNA America Bank, N.A. hereinafter MBNA and its Assigns," rather than "MBNA by Max Flow," or "MBNA through Max Flow," or "MBNA by means of Max Flow," or "MBNA via Max Flow," O\'Dell, 251 B.R. at 610-16;

2) Ruling that Max Flow was not a creditor of the Debtors² and that Max Flow had filed false and misleading information with its proof of claim which indicated that Max Flow was the creditor, Id. at 616-18;

3) Ruling that Max Flow\'s authority to act on behalf of MBNA was limited to filing proofs of claim, Id. at 620-21;

4) Ruling that even if MBNA had granted Max Flow authority to defend the Debtors\' objection to the proof of claim, such authority cannot be exercised because an agent cannot handle the legal affairs of a principal, Id. at 620-21;

5) Ruling that Max Flow engaged in the unauthorized practice of law when it responded to the Debtors\' objection to claim notwithstanding that Max Flow\'s response was through licensed counsel, Id. at 624-26;

6) Ruling that Max Flow\'s former counsel facilitated its engaging in the unauthorized practice of law, Id., at 625-26; and

7) Ruling that the actions of Max Flow and its counsel were sanctionable, Id. at 626.

These rulings bring before the court in the case at bar the following issues:

1) Whether an agent who is authorized by its principal to pursue and protect the interests of the principal\'s claim (which authority includes defending the claim in a bankruptcy proceeding and the hiring of attorneys) can lawfully defend an objection to said claim on behalf of the principal?

2) Whether the Bankruptcy Court³ erred in its August 3, 2000, order in holding that Max Flow lacked either standing or the legal authority to defend a proof of claim it filed on behalf of MBNA and its assigns?

3) Whether Max Flow\'s conduct in defending the subject proof of claim constitutes unauthorized practice of law when all of Max Flow\'s activities before the Bankruptcy Court were conducted by an attorney?

4) Whether the Bankruptcy Court erred in its August 3, 2000, order holding that Max Flow\'s counsel facilitated Max Flow\'s engagement in the unauthorized practice of law?

5) Whether the conduct of Max Flow and its counsel in defending the proof of claim is sanctionable even if a court concludes that Max Flow did not have standing to defend the subject proof of claim on its own behalf or the legal authority to defend the claim on behalf on MBNA?

Prior to the institution of this bankruptcy suit Debtors filed Chapter 13 bankruptcy on September 29, 1997, hereinafter 1997 Bankruptcy Case in the same bankruptcy court. Thereafter, on December 8, 1997, Max Flow, on behalf of MBNA, filed a general unsecured claim in the amount of $4,489.15 for unpaid prepetition charges incurred on credit card account number XXXX-XXXXXXX-XXXXX issued by MBNA. In re O'Dell, 251 B.R. 602, 614 (Bankr. N.D.Ala.2000). This is the claim to which debtors in the present bankruptcy case objected. The Bankruptcy Court confirmed Debtors' plan in the 1997 Bankruptcy Case on May 28, 1998, allowing the unsecured $4,489.15 claim. O'Dell, 251 B.R. at 611. The 1997 Bankruptcy Case was dismissed October 26, 1999.

On November 12, 1999, Debtors filed the Chapter 13 bankruptcy case underlying this appeal, along with a "Schedule F-Creditors Holding Unsecured Non-Priority Claims hereinafter Schedule F," in which Max Flow was listed as a creditor.⁴ The related claim was $4,515.95. Debtors declared the schedules were true and correct to the best of their knowledge.

On February 22, 2000, Max Flow filed a proof of claim (Claim No. 15) for the debt associated with the O'Dell account: $4,489.15, identified as "Max Flow Corp. On Behalf of MBNA America Bank, N.A. And Its Assigns." On five different occasions the Debtors amended their Schedule F. Each time they acknowledged the O'Dell account debt. Each time they acknowledged that Max Flow had an interest in the claim. Claims set forth on Schedule F follow:

                    FILING DATE           CREDITOR                           AMOUNT
                    February 14, 2000   MBNA America (Max Flor) sic       $4,515.95
                          May 4, 2000   MBNA America (Max Flow)             $4,515.95
                         May 15, 2000   MBNA America (Max Flow)             $4,295.08
                         June 1, 2000   MBNA America (Max Flow)             $4,489.15
                         June 7, 2000   MBNA America (Max Flow)             $4,489.15
                

Max Flow is in the business of purchasing from credit card issuers accounts of consumer credit card holders who file Chapter 13 bankruptcy. Max Flow prospectively agrees with the issuer to purchase certain of the issuer's qualifying Chapter 13 accounts as they arise, with the purchase price being calculated on a percentage of the account balance as of the petition date. Actual transfer of an account from a seller to Max Flow may not occur immediately following the bankruptcy filing, but a short time later.⁵ Where the account does not transfer immediately, upon notice of the Chapter 13 filing, Max Flow is engaged to handle the account until the account is actually transferred to insure that no bankruptcy filing dates are missed.

When the deadline to file a bankruptcy claim precedes the transfer of the account Max Flow files the claim identifying the creditor as "Max Flow on behalf of issuer and its assigns." Nothing in the record indicates that Max Flow has intended to mislead, or has misled any debtor or Chapter 13 trustee. Indeed, the information furnished by Max Flow identifies itself, the ultimate assignee of the claims, the issuer, and the initial holder of the debt. The evidence clearly shows that the Debtors, themselves, were not misled. The five sworn separate representations in their bankruptcy pleadings acknowledge Max Flow's interest in the claim to which they objected. Supra at 4.

The dealings between MBNA and Max Flow with respect to the purchases are governed by two agreements which have been extended by agreement of the parties: 1) a June 11, 1997, "Purchase Agreement for Forward Flow Accounts hereinafter Purchase Agreement; and, 2) a June 11, 1997, "Interim Servicing Agreement hereinafter Interim Agreement."

By terms of the Purchase Agreement Max Flow contracted with MBNA to purchase "each unsecured consumer credit card and line of credit account serviced and charged-off by the Seller MBNA on or after the date hereof during the Transfer Period . . . with respect to which one of the Debtors has filed a Chapter 13 Procedure during the Transfer Period." By terms of the Interim Agreement MBNA delegated to Max Flow the responsibility for administering MBNA accounts purchased by Max Flow prior to transfer of those accounts to Max Flow. The Interim Agreement specified that Max Flow would use Becket & Lee to provide legal services for MBNA until such time as the account was transferred to Max Flow.

Although the Debtors' five sworn schedules represent that Max Flow has an interest in the claim, Debtors filed an objection to "Claim No. 15" on April 12, 2000, claiming that National Credit Service⁶ was not a party in interest. At no time, however, in raising or pursuing the objection have Debtors denied owing the debt claimed by "Claim No. 15."

The objection was followed on May 5, 2000, by a "Response of Max Flow Corp. On Behalf of MBNA America, N.A., and its Assigns" by which Max Flow asserted it had authority to file claims on behalf of MBNA. The reply included the affidavit of Kevin Matyniak, manager of the bankruptcy processing department for MBNA, in which he testified that MBNA had authorized Max Flow to file a claim on its behalf, MBNA O'Dell account number XXXX-XXXXXXX-XXXXX.⁷

Debtors filed a motion to strike Max Flow's reply on May 15, 2000, on the basis that Max Flow was not a real party in interest, citing the decision of In re Morgan, 225 B.R. 290 (Bankr.E.D.N.Y.1998),⁸vacated by, In re Nunez, 2000 WL 655983 (E.D.N.Y. Mar. 17, 2000) ("Because the bankruptcies were terminated; the underlying motions granted or withdrawn; and the bankruptcy court without power to enforce New York State's Judiciary Law; the decision below opinion sic served no proper "means" within the framework created by Article III." 2000 WL 655983, *8).⁹

At the hearing to consider the Debtors' objection to Max Flow's claim on June 13, 2000, Max Flow appeared through counsel. The Bankruptcy Court admitted as Exhibit 1 to the hearing Debtors' Conformation Order from the Debtors' 1997 Bankruptcy Case which allowed the claim identifying the creditor in the same manner identified in the 1999 Bankruptcy Case.

The Bankruptcy...