In re Doser

• Decision Date: 03 July 2002
• Docket Number: No. 01-03630.,01-03630.
• Citation: 281 B.R. 292
• Parties: In re Kevin J. DOSER and Laura E. Doser, Debtors.
• Court: U.S. Bankruptcy Court — District of Idaho

281 B.R. 292

In re Kevin J. DOSER and Laura E. Doser, Debtors.

No. 01-03630.

United States Bankruptcy Court, D. Idaho.

Originally Filed July 3, 2002.

Amendment Filed July 24, 2002.

COPYRIGHT MATERIAL OMITTED

Richard Lubetzky, Los Angeles, California and John P. Connolly, Connolly & Smyser, Boise, Idaho, for Judith M. Scott, d/b/a We the People Forms & Service Center of Boise.

Jeffrey G. Howe, Boise, Idaho, Assistant U.S. Trustee.

Richard Crawforth, Boise, Idaho, Chapter 7 Trustee.

AMENDED MEMORANDUM OF DECISION

JIM D. PAPPAS, Chief Judge.

I. Background and Introduction

Judith M. Scott does business in Boise as "We the People," a sole proprietorship. Ms. Scott prepares legal documents for her customers, including bankruptcy petitions, schedules and statements, for a fee. Kevin and Laura Doser retained Ms. Scott to prepare the legal pleadings necessary to file for relief in this Court under Chapter 7 of the Bankruptcy Code. They paid Ms. Scott $199.00 for the bankruptcy papers and another $15.00 for photocopies. The Dosers filed their bankruptcy case with this Court on December 4, 2001.

While they are the debtors who initiated this bankruptcy case, this decision does not involve any examination of the Dosers' acts, assets or debts.¹ Instead, the Court's findings, conclusions and comments that follow focus upon the practices of, and fees charged by, Ms. Scott. In connection with a routine review of the Court's files, the Court discovered Ms. Scott's written disclosure of compensation filed in this case. Docket No. 2. Based upon the Court's familiarity with the fees charged in the dozens of cases filed annually with the help of non-lawyer bankruptcy petition preparers ("BPPs"), Ms. Scott's disclosure gave the Court pause. From the information contained in the disclosure, it appeared to the Court that Ms. Scott's total fee ($214.00) was as high, if not higher, than the Court had previously encountered in an Idaho bankruptcy case for BPP services. Because of this, the Court was concerned that the fee may be excessive in relation to the value of the typing services a BPP may legitimately perform. Alternatively, the Court was apprehensive that the BPP in this instance, in order to justify a high fee, may have provided services in excess of those permitted by the Bankruptcy Code and other applicable law. While no interested party had objected to the BPP fees at that time, the Court felt compelled to act on its own.

On December 27, 2001, the Court issued its Order to Petition Preparer to Show Cause ("OSC") directed to Ms. Scott. Docket No. 4. The OSC notified Ms. Scott that,

It ... appears from the record that the compensation paid by Debtors to said Judith M. Scott, $214.00, may be in excess of the reasonable value of the service she rendered, and in excess of that charged by several other bankruptcy petition preparers in this District. In addition, in light of the amount of the fee charged by Judith M. Scott, it appears to the Court there may be some question whether the services provided by said Judith M. Scott have been limited to those appropriate under applicable law.

OSC at 2, Docket No. 4. The OSC required Ms. Scott to appear before the Court at a hearing to show that she had not violated the relevant Bankruptcy Code restrictions "with respect to the nature of the services she has provided and/or the amount of the compensation she has been paid by and received from the ... Debtors in this case." Id. at 3. The OSC also invited Ms. Scott, if it were her desire, to appear at the hearing with counsel, and to make written submissions to the Court concerning this matter.

The hearing on the OSC took place on February 19, 2002. Ms. Scott personally appeared, along with her two attorneys.² The Assistant U.S. Trustee for Idaho, Jeff Howe, Esq., also appeared and participated at the hearing, as did the Chapter 7 trustee in the Doser case, Rich Crawforth. Ms. Scott testified in response to the questions posed by her lawyer, the other parties and the Court. Ms. Scott's lawyer also called another witness to testify, Chelsea Thompson, a representative of a local typing service. The Court admitted a number of written exhibits into evidence, both at the hearing and thereafter by stipulation of the parties. See Stipulation filed Mar. 15, 2002, Docket No. 15, and Order re Exhibits filed Mar. 20, 2002, Docket No. 16. In addition, after the hearing, counsel for Ms. Scott and the U.S. Trustee each submitted lengthy written legal arguments and briefing for consideration by the Court. The issues raised by the OSC were thereafter taken under advisement.

After a careful review of the record, the evidence and testimony, and after due consideration of the arguments of the parties, the Court intends this Memorandum to constitute its findings of fact and conclusions of law. Fed. R. Bankr.P. 7052; 9014.

II. Facts

As noted above, Debtors Kevin and Laura Doser hired Ms. Scott to act as their BPP in connection with filing for bankruptcy relief, and they paid her a total of $214.00 for her services. Based upon the evidence and testimony adduced at the hearing on the OSC, it appears their case was processed by Ms. Scott in the same fashion as she handles all her bankruptcy customers. Therefore, the description of Ms. Scott's mode of operation below applies not only to Dosers, but generally in the other cases where she has provided debtors with bankruptcy services.

Ms. Scott holds a contractual franchise to operate her "We the People" legal forms business in the Boise area. Her franchisor is, apparently, "We the People Forms and Service Centers, Inc.," (hereinafter "the Franchisor") a corporation, whose primary offices are located in California. Ms. Scott opened her business in August 2001. The bankruptcy "products" she sells, or in other words, the forms that she and the Franchisor charge their customers to complete, are provided by the Franchisor. In addition to the cost of purchasing her franchise, Ms. Scott pays a portion of her gross revenue to the Franchisor. In turn, she and the Franchisor agree on the price Ms. Scott charges her customers for completed bankruptcy forms. While Ms. Scott suggests otherwise in her briefing, in effect, she and the Franchisor split the fees she receives from her bankruptcy customers.³

In determining what to charge for her bankruptcy services, Ms. Scott testified she consulted the staff at the office of the Clerk of the Court, she researched what bankruptcy petition preparer services operating on the Internet charge, and she looked at fee disclosures filed by other BPPs in Idaho cases. As a result of her research, Ms. Scott became aware that another Boise BPP was charging $150.00 for his services.⁴ Ms. Scott and the Franchisor jointly decided to charge $199.00 for preparation of the bankruptcy documents, and $15.00 for each additional copy of the paperwork requested by the customer. While the Court is admittedly speculating on this point, apparently because Ms. Scott and the Franchisor concluded their services offered additional benefits to customers compared to others providing BPP services in the District, she and the Franchisor deemed the rate selected as an appropriate one.⁵

As the Court understands the evidence, Ms. Scott's method of providing BPP services to customers, and to Dosers, follows this model. When a potential customer comes into her shop in Boise, Ms. Scott reminds the customer that she is not an attorney and that she cannot give the customer legal advice. This disclaimer is also prominently portrayed on signs in her office and on the "purchase order" the customer must sign to engage her services. Moreover, Ms. Scott testified she never personally counsels a customer on whether they need bankruptcy relief, or on the availability or comparative advantages of relief under the different chapters of the Bankruptcy Code, such as Chapter 13. The Court believes Ms. Scott in this regard, since her business sells Chapter 7 paperwork exclusively, so she is not interested in helping any customers for whom Chapter 13 may be the best choice.⁶

When the customer has decided to file for Chapter 7 relief, and assuming the customer wants to hire Ms. Scott to prepare the petition, schedules, statement of affairs and the like, she has the customer sign a contract which she calls a "purchase order." See Stipulation, Ex. A, Docket No. 15. This document has some interesting terms. The contract recites that the customer is purchasing "the services of `We the People' in order to complete a bankruptcy form with information supplied by the Customer ...." Id. It also states that "[a]ny fees pursuant to this purchase order are for forms, computer time, [and] typing ...." Id. In other words, Ms. Scott's own contract contemplates that she is not being retained to provide additional services for the customer.

The contract also requires the customer to assume sole responsibility associated with preparation of the documents and to hold We the People and its agents harmless from any and all liability in connection with the transaction. Nothing in the evidence and testimony really helps the Court in understanding the breadth or significance of this attempt by the contract to shift all risk of loss to the customer for any damages, including, apparently, those occasioned by Ms. Scott or the Franchisor. The contract then specifies that if any dispute arises between the BPP and the customer, "venue" for that dispute shall "lie in Santa Barbara County, California." Id. Again, the reason for this provision was not explained at the hearing.⁷

In addition to signing a purchase order, the customer must pay Ms. Scott in full before any bankruptcy forms will be generated. The Dosers did so. When paid, Ms. Scott gives the customer two separate documents. One is a questionnaire she refers to as the "Workbook," which contains questions about the customer's assets, debts and financial affairs. Stipulation, Ex. C,...