In re Doser

• Decision Date: 31 March 2003
• Docket Number: Bankruptcy No. 01-3630.,No. CV-02-327-S-BLW.,CV-02-327-S-BLW.
• Citation: 292 B.R. 652
• Parties: In re Kevin J. DOSER and Laura E. Doser, Debtors. Judith M. Scott Appellant, v. United States Trustee, Defendant.
• Court: U.S. District Court — District of Idaho

292 B.R. 652

In re Kevin J. DOSER and Laura E. Doser, Debtors Judith M. Scott Appellant, v. United States Trustee, Defendant.

No. CV-02-327-S-BLW.

Bankruptcy No. 01-3630.

United States District Court, D. Idaho.

March 31, 2003.

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MEMORANDUM DECISION

B. LYNN WINMILL, Chief Judge.

The Court has before it Judith M. Scott's appeal of the Bankruptcy Court's July 3, 2002, Memorandum of Decision and Order. After carefully reviewing the briefing, The Court will deny Ms. Scott's appeal. The Court's rationale is explained below.

BACKGROUND

Judith M. Scott is a bankruptcy petition preparer for We the People Forms and Service Center of Boise. Kevin J. Doser and Laura E. Doser ("Debtors") filed a bankruptcy petition under Chapter 7 of the Bankruptcy Code (Title 11 U.S.C.) on December 4, 2001. Ms. Scott assisted the Debtors in preparing the petition and signed the petition as a bankruptcy petition preparer. Debtors paid Ms. Scott $214 for preparing the petition, including $199 for typing and $15 for copy costs.

On December 27, 2001, Chief U.S. Bankruptcy Judge Jim D. Pappas, acting sua sponte, issued a Show Cause Order directing Ms. Scott to appear and show cause why the Bankruptcy Court should not find that Ms. Scott violated 11 U.S.C. § 110 through the nature of the services she provided or the amount of compensation she received. After the hearing, the Bankruptcy Court issued an order on July 3, 2002, holding that Ms. Scott had collected and received a payment from the Debtors for court fees in connection with filing their bankruptcy petition in violation of 11 U.S.C. § 110(g)(1). She was fined $10 for the violation under 11 U.S.C. § 110(g)(2). The Bankruptcy Court further held that Ms. Scott's fee of $214 was excessive given the services she provided. The Bankruptcy Court found that a reasonable fee for the services provided would not be more than $100. The Bankruptcy Court ordered Ms. Scott to refund $114 to the Chapter 7 Trustee pursuant to 11 U.S.C. § 110(h)(2) and admonished Ms. Scott that she would be subject to additional sanctions should she not comply with the Bankruptcy Court's orders or otherwise violate 11 U.S.C. § 110.

On July 11, 2002, Ms. Scott filed a notice of appeal from the Memorandum of Decision and Order. She objected to the jurisdiction of the Bankruptcy Appellate Panel for the Ninth Circuit, and the appeal is now before this Court.

GOVERNING LEGAL STANDARD

A bankruptcy court's finding of a violation of 11 U.S.C. § 110 is reviewed under an abuse of discretion standard. Hastings v. U.S. Trustee (In re Agyekum), 225 B.R. 695, 698 (9th Cir. BAP 1998). As such, the Court "must have a definite and firm conviction that the court below committed a clear error of judgment in the conclusion it reached, before reversal is proper." In re Crowe, 243 B.R. 43, 47 (9th Cir. BAP), aff'd, 246 F.3d 673 (9th Cir.2000). The Bankruptcy Court's conclusions of law are reviewed de novo. Hastings, 225 B.R. at 698.

ANALYSIS

Constitutionality of 11 U.S.C. § 110

Ms. Scott presents three arguments that 11 U.S.C. § 110 is unconstitutional. She claims that the statute extends beyond the scope of Congress's powers to regulate under the Bankruptcy Clause, that § 110 restricts free speech rights, and that the statute is vague and overbroad. The Court disagrees with each of these arguments.

The Court rejects Ms. Scott's first argument that § 110 exceeds Congress's authority to regulate bankruptcy under the Bankruptcy Clause. Congress enacted § 110 as a consumer protection statute to protect individuals from fraudulent and deceptive conduct by Bankruptcy Petition Preparers ("BPPs"). In re Farness, 244 B.R. 464, 468 (Bankr.D.Idaho 2000); In re Guttierez, 248 B.R. 287, 297 n. 27 (Bankr.W.D.Tex.2000); U.S. Trustee v. P.L.A. People's Law-Arizona, Inc. (In re Green), 197 B.R. 878, 879 (Bankr.D.Ariz.1996). Congress's power to regulate BPPs arises from both the Commerce Clause and the Bankruptcy Clause.

In enacting § 110, Congress specifically attempted to address what it identified as a widespread, national problem of fraudulent and deceptive practices by BPPs directed against unsophisticated consumers. The legislative history expresses Congress's concerns:

Bankruptcy petition preparers not employed or supervised by any attorney have proliferated across the county. While it is permissible for a petition preparer to provide services solely limited to typing, far too many of them also attempt to provide legal advice and legal services to debtors. These preparers often lack the necessary legal training and ethics regulation to provide such services in an adequate and appropriate manner. These services may take unfair advantage of persons who are ignorant of their rights both inside and outside the bankruptcy system.

140 Cong. Rec. H10752, H10770 (Oct. 4, 1994); see also In re Guttierez, 248 B.R. at 292; In re Farness, 244 B.R. at 466-67; Fessenden v. Ireland (In re Hobbs), 213 B.R. 207, 210-11 (Bankr.D.Me.1997). The legislative intent to protect consumers is similar to the intent to protect consumers found in other consumer protection laws that have been upheld under the Commerce Clause. For example, in Perez v. U.S., after reviewing the legislative history, the Supreme Court upheld 18 U.S.C. § 891, a consumer protection statute prohibiting loan sharking, as within Congress's power to regulate under Commerce Clause. Perez v. U.S., 402 U.S. 146, 150-57, 91 S.Ct. 1357, 1360-63, 28 L.Ed.2d 686 (1971).

By analogy, § 110 is within Congress's authority to regulate pursuant to the Bankruptcy Clause. The preparation of the petition is essential to the administration of the bankruptcy estate, and the discharge of the debtor is within Congress's power to regulate under the Bankruptcy Clause. In re Moore, 283 B.R. 852, 857 (Bankr.E.D.N.C.2002). A similar consumer protection law affecting bankruptcy was upheld by the First Circuit. 18 U.S.C. § 891, the consumer protection statute prohibiting loan sharking, withstood a later challenge that asserted Congress had exceeded its authority under the Bankruptcy Clause. United States v. Fiore, 434 F.2d 966 (1st Cir.1970). Again the court looked to the legislative history and found that Congress enacted the legislation to protect the right to discharge debts in bankruptcy. Id. at 970; see also United States v. Biancofiori, 422 F.2d 584, 586 (7th Cir.1970) (upholding loan sharking prohibition under the Commerce Clause and Bankruptcy Clause). The Court therefore concludes that Congress's authority to regulate BPPs under § 110 can be found in both the Commerce Clause and the Bankruptcy Clause.

The Court likewise rejects Ms. Scott's second challenge that § 110 unconstitutionally restricts her First Amendment speech rights. The Ninth Circuit Bankruptcy Appellate Panel considered whether § 110 infringed upon free speech in In re Crowe, 243 B.R. at 50. At issue was a book authored by a BPP that guaranteed, "[i]f you buy my book and can't complete the forms yourself, I will do it for free." Id. In considering the decision, the panel found that the BPP was selling his services, not his books. Id. In a similar manner, Ms. Scott is not simply distributing or selling information like a bookstore. Instead, Ms. Scott is selling her services as a BPP, and in that capacity she distributes a select few pamphlets of information that advise debtors on how to complete a bankruptcy petition. Thus, this case appears to fall within the analysis of In re Crowe. See also In re Kaitangian, 218 B.R. 102, 107-108 (Bankr.S.D.Cal.1998) (finding BPP's advertisement was unprotected speech that was inherently misleading or deceptive); In re Farness, 244 B.R. at 469 (striking word "legal" from BPP's advertisement).

The Court is also not persuaded by Ms. Scott's third argument that § 110 is unconstitutionally vague and overbroad. "[L]aws regulating economic activity not involving constitutionally protected conduct are subject to a quite lenient test for constitutional sufficiency." Zolg v. Kelly (In re Kelly), 841 F.2d 908, 915 (9th Cir.1988); Village of Hoffman Estates v. Flipside, Hoffman Estates, Inc., 455 U.S. 489, 494, 102 S.Ct. 1186, 1191, 71 L.Ed.2d 362 (1982). Applying this standard, the Court finds that § 110 is not vague. BPPs are defined as "a person, other than an attorney or an employee of an attorney, who prepares for compensation a document for filing" by a debtor in the United States bankruptcy court. § 110(a)(1). BPPs are prohibited from collecting payments for court fees in connection with filing the petition and prohibited from collecting fees "in excess of the value of services rendered for the documents prepared." §§ 110(g)(1),(h)(2). Given the definitions in the statute, a person of ordinary intelligence would have fair notice of what conduct was forbidden under § 110.

In the case of a statute where "despite some possibly impermissible application, the remainder of the statute covers a whole range of easily identifiable and constitutionally proscribable conduct[,]" the Court will not strike the statute for being overbroad. Secretary of State of Maryland v. J.H. Munson Co., 467 U.S. 947, 964-65, 104 S.Ct. 2839, 2851, 81 L.Ed.2d 786 (1984) (quotations omitted). Such is the case here. Section 110 is limited to proscribing unfair and deceptive conduct by BPPs. The Court may easily construe § 110 to avoid constitutional problems. New York v. Ferber, 458 U.S. 747, 769-70, 102 S.Ct. 3348, 3361-62, 73 L.Ed.2d 1113 (1982). Section 110 is limited to a narrow range of conduct, and the Court concludes that § 110 is not overbroad.

Bankruptcy Court Procedures

Ms. Scott argues that the notice she received by the Bankruptcy Judge was insufficient and denied her due process. She also argues that the Bankruptcy Judge had no authority to raise § 110 sua sponte.

Despite Ms. Scott's claims, the Bankruptcy Judge gave Ms. Scott sufficient notice of the Court's concerns...