In re Doser
| Decision Date | 17 June 2005 |
| Docket Number | No. 03-35411.,03-35411. |
| Citation | 412 F.3d 1056 |
| Parties | In re Kevin J. DOSER; In re Laura E. Doser, Judith M. Scott, Appellant, v. United States Trustee, Appellee. |
| Court | U.S. Court of Appeals — Ninth Circuit |
Charles F. Vihon, Western Springs, IL, for respondent-appellant Judith M. Scott.
R. Craig Green (briefed), Daniel Meron (argued), Department of Justice, Office of the General Counsel, Executive Office for U.S. Trustees, Washington, DC, for movant-appellee United States Trustee.
Appeal from the United States District Court for the District of Idaho; B. Lynn Winmill, District Judge, Presiding. D.C. No. CV-02-00327-BLW.
Before: ALARCON, W. FLETCHER, and RAWLINSON, Circuit Judges.
We hold today that when enacting 11 U.S.C. § 110,1 Congress acted within its power under Article I, section 8, clause 4 of the United States Constitution. We further hold that § 110 is not unconstitutionally vague or overbroad and that it does not violate the First Amendment. Finally, we affirm the bankruptcy court's findings that Judith Scott violated § 110 by engaging in deceptive or unfair conduct and by charging excessive fees.2 However, we express no opinion on whether Scott engaged in the unauthorized practice of law, whether the unauthorized practice of law itself is a violation of § 110, or whether the unauthorized practice of law constitutes fraudulent, deceptive or unfair conduct under § 110.
Appellant Judith Scott is a franchisee of We The People Forms and Service Centers USA, Inc. (We the People or Franchisor).3 Scott is not an attorney, but is a bankruptcy petition preparer (BPP) within the meaning of 11 U.S.C. § 110.4 Kevin and Laura Doser's bankruptcy petition under Chapter 7 of the Bankruptcy Code was prepared by Scott. When a customer decides to use Scott's services, the customer signs a "purchase order," which the Dosers did. The customer must pay the "purchase fee" up front. Scott charges a flat fee, set by the Franchisor.
Once the customer has signed the purchase order and paid the fee, Scott provides the customer with certain materials, including a "Workbook," which contains questions for the customer to answer regarding the customer's assets, liabilities and financial affairs. According to Scott, it is her understanding that this Workbook seeks the same information as does the official bankruptcy petition forms, but is "simpler to answer." Once the customer has answered the questions, Scott checks the information for "completeness and legibility." Scott then faxes the document to a processing center in California operated by the Franchisor. The information is transferred to the required bankruptcy forms and e-mailed back to Scott, who prints a hard copy for the customer to sign. Scott then files the paperwork with the court and mails a copy to the customer.
In addition to the Workbook, Scott provides customers with a publication entitled "Bankruptcy Overview—Chapter 7 Idaho" (the Overview). The Overview, which is prepared by the Franchisor, contains a general discussion of Chapter 7 law and procedure, and offers helpful tips on representing oneself in bankruptcy proceedings. The Overview contains a question and answer section, including answers to some fairly specific technical questions. Finally, the Overview lists exemptions under Idaho law and the possible amount of the listed exemptions.
The Overview was reviewed and approved by John Connolly, an Idaho attorney employed by We the People, who acts as the supervising attorney for Scott's business. The Overview informs customers that they "enjoy the right, as a We the People customer, to chat with our Supervising Attorney, at no additional cost to you." Scott maintains that she informs her customers that the supervising attorney can only answer "general," not "specific" legal questions. Scott pays a monthly fee of $200 to We the People for Mr. Connolly's services.
After the Dosers' bankruptcy petition was filed, the United States Bankruptcy Court for the District of Idaho issued a sua sponte Order to Show Cause (OTC) why Scott should not be found in violation of 11 U.S.C. § 110 with respect to the nature of the services she provided and the amount of compensation she received. The court held: (1) the OTC procedure satisfied due process; (2) Scott engaged in unfair and deceptive acts; (3) Scott engaged in the unauthorized practice of law; (4) Scott collected a fee for filing the petition in violation of law; and (5) the fee charged by Scott was excessive. In re Doser, 281 B.R. 292, 301, 303, 306, 310, 312, 314 (Bankr.D.Idaho 2002). The bankruptcy court fined Scott $10 for money received for filing the petition, and reduced Scott's fee by $114. Id. at 319.
Scott appealed the bankruptcy court's decision to the United States District Court for the District of Idaho. In addition to contesting the findings of the bankruptcy court, Scott also challenged the constitutionality of 11 U.S.C. § 110 as beyond the scope of Congress's power to regulate under the Bankruptcy Clause. Scott also attacked § 110 as being vague, overbroad and violative of Scott's due process and First Amendment rights. The district court denied Scott's appeal. In re Doser, 292 B.R. 652 (D.Idaho 2003).
Scott's present appeal raises three issues. Scott first challenges the district court's holding that § 110 is within Congress's power under the Bankruptcy Clause. Scott's second challenge is to the district court's holding that § 110 is not vague, overbroad or violative of Scott's First Amendment rights. Finally, Scott challenges the district court's holding that Scott engaged in the unauthorized practice of law.5
"We independently review the bankruptcy court's determinations and do not give deference to the district court." Taub v. Weber, 366 F.3d 966, 968 (9th Cir.2004) (citation omitted). The bankruptcy court's conclusions of law are reviewed de novo, and its findings of fact are reviewed for clear error. United States v. Fowler (In re Fowler), 394 F.3d 1208, 1212 (9th Cir.2005). "A challenge to the constitutionality of a statute also is reviewed de novo." In re Adams, 214 B.R. 212, 214 (9th Cir.BAP1997) (citation omitted).
Article I, Section 8, Clause 4 of the United States Constitution grants Congress the authority "to establish . . . uniform laws on the subject of Bankruptcies." U.S. Const., art. I, § 8, cl. 4. Congress is also bestowed the power to "make all Laws which shall be necessary and proper for carrying into Execution" its granted authority. U.S. Const., Art. I, § 8, cl. 18.
Section 110 was added to the Bankruptcy Code to create a set of standards and accompanying penalties to regulate bankruptcy petition preparers, who are not employed or supervised by attorneys and who had proliferated across the country, often taking advantage of poor and non-English speaking debtors. 140 Cong. Rec. H10,770 (October 4, 1994).
Scott contends that § 110 exceeds the scope of Congress's enumerated power under the Bankruptcy Clause. Scott relies on language from the Supreme Court's decision in Northern Pipeline Construction Co. v. Marathon Pipe Line Co., 458 U.S. 50, 71, 102 S.Ct. 2858, 73 L.Ed.2d 598 (1982), which states that "the restructuring of debtor-creditor relations . . . is at the core of the federal bankruptcy power. . . ." However, Scott's reliance on Northern Pipeline is misplaced. That case dealt with the constitutionality of granting bankruptcy judges the power to hear cases generally within the ambit of Article III courts, and not with Congress's power under the Bankruptcy Clause to enact bankruptcy laws. See Northern Pipeline, 458 U.S. at 52, 102 S.Ct. 2858.
The quoted statement was made in the context of resolving whether the Bankruptcy Reform Act of 1978's broad grant of jurisdiction to bankruptcy courts "unconstitutionally conferred Article III judicial power" upon non-Article III judges. Id. at 56-57, 102 S.Ct. 2858. In holding the Bankruptcy Reform Act unconstitutional, the Supreme Court characterized the Act as containing "unwarranted encroachments upon the judicial power of the United States, which our Constitution reserves for Article III courts." Id. at 84, 102 S.Ct. 2858. The encroachment conclusion flowed from the jurisdictional grant of authority to bankruptcy courts to decide "suits to recover accounts, controversies involving exempt property, actions to avoid transfers and payments as preferences or fraudulent conveyances, and causes of action owned by the debtor at the time of the petition for bankruptcy . . . [including] claims based on state law as well as those based on federal law." Id. at 54, 102 S.Ct. 2858 (citation omitted). Critical to the Court's conclusion was that the bankruptcy court's jurisdiction was co-extensive with that of a district court. Id. at 54, n. 3, 102 S.Ct. 2858.
Nowhere in Northern Pipeline did the Court limit Congress's substantive power under the Bankruptcy Clause to the restructuring of debtor-creditor relations. In fact, the scope of Congress's power under the Bankruptcy Clause has been recognized as broad. See Blanchette v. Conn. Gen. Insur. Corps., 419 U.S. 102, 154, 95 S.Ct. 335, 42 L.Ed.2d 320 (1974). "From the beginning, the tendency of legislation and of judicial interpretation has been uniformly in the direction of progressive liberalization in respect of the operation of the bankruptcy power." Continental Ill. Nat'l Bank & Trust Co. of Chicago v. Chicago, R.I. & P. Ry. Co., 294 U.S. 648, 668, 55 S.Ct. 595, 79 L.Ed. 1110 (1935).
Use of the expansive power is targeted toward affording debtors a fresh start. See Sliney v. Battley (In re Schmitz), 270 F.3d 1254, 1258 (9th Cir.2001). Before a debtor can seek that fresh start, however, the debtor must first file...
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