In re Farness
| Decision Date | 07 January 2000 |
| Docket Number | Bankruptcy No. 99-01931. |
| Parties | In re Herbert and Nita FARNESS, Debtors. |
| Court | United States Bankruptcy Courts. Ninth Circuit. U.S. Bankruptcy Court — District of Idaho |
COPYRIGHT MATERIAL OMITTED
Jake W. Peterson, Boise, ID, for Debtors.
L.D. Wees, Boise, ID, pro se.
Gary L. McClendon, Boise, ID, Office of the United States Trustee.
John H. Krommenhoek, Boise, ID, Chapter 13 Trustee.
Herbert and Nita Farness ("Debtors") contracted with L.D. Wees ("Wees") to prepare their chapter 13 petition, schedules, statement of financial affairs, and proposed chapter 13 plan which were filed on July 29, 1999. Wees is a "bankruptcy petition preparer" as defined by § 110(a)(1).1
On August 27, 1999, the first meeting of creditors was held in the Debtors' case. Subsequently, on September 2, the United States Trustee ("UST") filed a motion to review the fees paid to Wees alleging that he had violated several provisions of § 110. Specifically, the UST contends that Wees provided incorrect information in the Debtors' statement of affairs, advertised using the term "legal," and engaged in the unauthorized practice of law. The UST's motion requests that, based on these violations, the Court should review the fees Wees charged for reasonableness or sanction him by denying them entirely.
On September 3, 1999, attorney Jake W. Peterson entered an appearance on the Debtors' behalf, and with his assistance, the Debtors proposed an amended chapter 13 plan, which was ultimately confirmed on October 21, 1999.
In 1994, Congress enacted § 110 of the Bankruptcy Code which sets standards for bankruptcy petition preparers, and provides penalties for the failure to meet such standards. In re Mitchell, 97.1 I.B.C.R. 5, 6 (Bankr.D.Idaho 1997). The House Report explained the rationale for § 110:
H.R.Rep. 103-384, 103rd Cong., 2nd Sess. at 40-41 (1994). See also, United States Trustee v. Tank (In re Stacy), 193 B.R. 31, 35 (Bankr.D.Or.1996); Fessenden v. Ireland (In re Hobbs), 213 B.R. 207, 215 (Bankr.D.Me.1997). Thus, the statute's main purpose is to protect consumers from abuses by non-lawyer petition preparers. Consumer Seven Corp. v. United States Trustee (In re Fraga), 210 B.R. 812, 818-19 (9th Cir. BAP 1997).2 The key to § 110 is that a petition preparer may provide typing services, but may not in the guise thereof advise debtors of their rights and options or otherwise engage in the practice of law. This Court in Mitchell recognized the distinction:
Document preparers are not attorneys . . . The task to organize information and type it, is something that a trained legal secretary can do, no more and no less. A document preparer may not give legal advice . . . Consequently, a document preparer should be compensated in the same fashion, and in the same amount as a legal secretary.
97.1 I.B.C.R. at 6, quoting In re Kassa, 198 B.R. 790, 791 (Bankr.D.Ariz.1996).
By virtue of the express provisions of § 110, and case law construing and applying those provisions (including, in this District, Mitchell), petition preparers such as Wees are on notice of the limits of their authority, and the potential consequences should they transgress those limits.
The Debtors' response to question no. 9 on their statement of financial affairs indicated that Wees received $150.00 for his services. However, on the same day Wees filed his disclosure of compensation form which stated he had received $165.00 for his services. The UST alleges that the entry of this incorrect information on Debtors' statement of financial affairs amounts to a violation under § 110.
At hearing on September 27, 1999, Wees acknowledged the inconsistency, and explained that the $150.00 figure had been embedded into the form saved in his computer's memory3 and that he had neglected to change the amount to accurately reflect the fee actually charged.
The Court has not discerned nor has the UST explained what portion of § 110 is implicated by this acknowledged, though minor error. The UST has not alleged that any prejudice or damage befell the Debtors or the estate by virtue of this error. The disclosure of compensation signed by Wees was accurate. The inconsistency on the statement of affairs was adequately explained at hearing, and nothing indicates that this was anything other than an honest mistake. Accordingly, the Court does not find that a violation of § 110 has occurred.
Wees admittedly advertises his services in the local telephone directory's "yellow pages" using the word "legal." That word appears in the phrases "self-help legal alternatives" and "legal form preparation."4
Section 110(f)(1) provides:
A bankruptcy petition preparer shall not use the word "legal" or any similar term in any advertisements, or advertise under any category that includes the word "legal" or any similar term.
In its discussion of this provision the court in Hobbs states:
Section 110 is a consumer protection measure. Although there is no legislative history specific to subsection (f), it is clear that in enacting § 110 Congress was concerned with debtors who may be "ignorant of their rights both inside and outside the bankruptcy system." 140 Cong. Rec. H10752, H10770 (1994). . . . Thus, § 110(f) is appropriately viewed as a measure meant to ensure that debtors understand exactly what they will and will not receive from bankruptcy petition preparers. Petition preparer advertising must keep well clear of any suggestion that the preparer will be offering legal services or insights.
213 B.R. at 215 (emphasis supplied).
Applying § 110(f)(1) to a petition preparer's advertisement, the Bankruptcy Court for the Southern District of California found:
The tenor of Filippone\'s advertisement in the North County Times is that the bankruptcy services offered by USPS are not limited to simple clerical functions. The advertisement gives the distinct impression that USPS is able to provide all services, including legal services, associated with a debtor\'s bankruptcy. Specifically, the advertisement states that USPS is the "only paralegal company in San Diego that is able to handle your bankruptcy." The advertisement also contains the phrase, "no lawyers involved save money." The use of the word "paralegal," coupled with the representation that USPS is "able to handle your bankruptcy" creates the impression that USPS personnel can provide legal advice, but at a lower cost than a lawyer.
In re Kaitangian, 218 B.R. 102, 107-08 (Bankr.S.D.Cal.1998). See also, Hobbs, 213 B.R. at 215 (); In re Calzadilla, 151 B.R. 622, 626 (Bankr.S.D.Fla.1993) ().
At hearing and in briefing, Wees argues that, in his advertisement, the word "legal" is sufficiently modified by the word "alternatives" so that § 110(f)(1) is not offended and that no reasonable person would be misled into thinking that Wees' business offered legal advice. The Court is not persuaded.
First, the clear and plain language of § 110(f)(1) prohibits any use of the word "legal" in any advertisement by a nonattorney petition preparer. The statute does not say that some uses of the word "legal" are acceptable through context, modifier, or otherwise. The prohibition is absolute and unambiguous. The advertisement here violates § 110(f)(1).
Second, the purpose of the statute, as well as its literal command, is here violated. As in the cases cited above, Wees' advertisement creates the misleading impression that his business offers more than mere typing services to its clients. The word "legal" is not defined away by the word "alternatives." Rather, the phrase "legal alternatives" implies that a debtor can hire Wees in lieu of an attorney to prepare a bankruptcy filing.
Wees' advertisement leaves the impression that he provides all "necessary" services, which by implication would include legal services, required for the filing of a bankruptcy petition. Another phrase in Wees' advertisement, that he can "provide all necessary forms", gives the impression that Wees has legal knowledge which can assist debtors because he knows which "legal forms" are required for the filing of a proper bankruptcy petition. This is exactly what § 110(f)(1) seeks to prohibit. See Hobbs, 213 B.R. at 215.
The Court appreciates that the advertisement here also states that Wees provides "professional typing services," which services are properly within the role of a petition preparer. Mitchell, 97.1 I.B.C.R. at 6. But this has the appearance of providing typing as an added, supplementary service to the primary service of advising a debtor how, and with what forms, to file.5
Wees attempts to make fine distinctions in reading this advertisement, but § 110(f)(1) requires the Court to focus on the practical impact of this type of advertising on the unsophisticated consumer. Fairly read in its entirety, the advertisement leads the consumer debtor to believe that his need for legal advice and services can be safely obtained through Wees' "alternative."
The Court therefore finds that Wees has violated the provisions of § 110(f)(1). Section 110(f)(...
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