In re Farris, Case Number: 15-11522

• Decision Date: 26 February 2019
• Docket Number: Case Number: 15-11522
• Citation: 598 B.R. 411
• Parties: IN RE: Diane Stokes FARRIS, Debtor
• Court: U.S. Bankruptcy Court — Western District of Louisiana

598 B.R. 411

IN RE: Diane Stokes FARRIS, Debtor

Case Number: 15-11522

United States Bankruptcy Court, W.D. Louisiana, Shreveport Division.

Signed February 26, 2019

Paul M. Cooke, Keith M. Welch, Simon, Fitzgerald, Cooke, et al, Shreveport, LA, for Debtor.

Memorandum of Decision

JOHN S. HODGE, UNITED STATES BANKRUPTCY JUDGE

Before the Court is a motion filed by the United States Trustee (the "UST Motion ") seeking to disgorge fees from, and impose fines on, bankruptcy petition preparer ("BPP ") Cheynita Sneed¹ for violations of 11 U.S.C. § 110. (Doc. 63). The Court held an evidentiary hearing on the UST Motion on January 9, 2019. Testimony was given by Ms. Sneed and the debtor, Diane Stokes Farris ("Debtor "). The United States Trustee ("UST ") was represented by counsel, Richard Drew. Ms. Sneed appeared pro se . Subsequent to the hearing, Ms. Sneed and Mr. Drew submitted proposed findings of fact and conclusions of law. (Doc. 72, 73).

After due consideration of the parties' arguments, testimony and briefing, for the reasons set forth more fully hereinafter, the Court GRANTS the UST Motion, and ORDERS Ms. Sneed to forfeit the $ 200.00 paid to her by Debtor, and FURTHER ORDERS that Ms. Sneed be fined $ 250.00 for each of her three violations of § 110, for an aggregate fine of $ 750.00, payable to the United States Trustee. The Court FURTHER ORDERS that Ms. Sneed is liable unto Debtor for statutory damages in the amount of $ 2,000.00.

I. Jurisdiction, Venue, Core Status and Authority to Enter Final Order

This Court has jurisdiction over the motions pursuant to 28 U.S.C. § 1334 and by virtue of the reference by the district court pursuant to 28 U.S.C. § 157(a) and LR 83.4.1. Venue is proper pursuant to 28 U.S.C. § 1409. All claims presented to this Court are "core" pursuant to 28 U.S.C. § 157 (b)(2)(A). Gould v. Clippard , 340 B.R. 861, 869 (M.D. Tenn. 2006) (holding that "all Section 110 matters are core proceedings because such matters arise in Title 11."). As one court has held, "there can be no more fundamental exercise of core subject matter jurisdiction by the bankruptcy court than its policing of professionals, such as bankruptcy petition preparers (BPP), whom debtors pay to render services in connection with their cases." In re Douglas , 304 B.R. 223, 232 (Bankr. D. Md. 2003).²

This Court has an independent duty to evaluate whether it has the constitutional authority to enter a final order. The Supreme Court's ruling in Stern v. Marshall, 564 U.S. 462, 131 S.Ct. 2594, 180 L.Ed.2d 475 (2011), sets forth certain limitations on the constitutional authority of bankruptcy courts to enter final orders. BP RE, L.P. v. RML Waxahachie Dodge, L.L.C., 735 F.3d 279, 286 (5th Cir.2013) (" ‘the question is whether the action at issue stems from the bankruptcy itself or would necessarily be resolved in the claims allowance process.’ ") (quoting Stern, 564 U.S. at 499, 131 S.Ct. 2594 ). Thus, under Stern , in addition to determining whether each claim is core or non-core, this Court must also determine whether the underlying issue "stems from the bankruptcy itself or it would necessarily be resolved in the claims allowance process." BP RE, 735 F.3d at 286. Absent both statutory and constitutional authority, this Court may not enter a final order, and instead must issue proposed findings of fact and conclusions of law to be considered by the district court.

The matter at bar requires this Court to issue rulings on a motion to disgorge fees and for statutory fines pursuant to the bankruptcy petition preparer statute, which solely concerns federal bankruptcy law. See 11 U.S.C. § 110. Therefore, there are no Stern issues in this case. This Court holds that it has the constitutional and statutory authority to enter a final order or judgment with respect to the matters at bar. In re Wilson-Seafresh, Inc ., 263 B.R. 624, 630 (Bankr. N.D. Fla. 2001) ("While the Bankruptcy Code itself makes no mention of disgorgement of fees, case law clearly recognizes the authority of the bankruptcy court to order the disgorgement of fees under various situations."). Indeed, as the court held in In re Douglas , "when a complaint of misconduct is brought in the bankruptcy court against a professional such as a BPP by the Office of the United States Trustee, which is statutorily charged with monitoring the bankruptcy system for the public good, it is obvious that the court has the subject matter jurisdiction to hear and determine it ... any assertion to the contrary is nonsense." 304 B.R. 223, 232 (Bankr. D. Md. 2003) ; see also In re Gross , 2009 WL 2882828 (Bankr. E.D. Va. 2009) (holding that the imposition of sanctions on a BPP is a core proceeding).

II. Findings of Fact

This Court makes the following findings of fact pursuant to Rule 7052 of the Federal Rules of Bankruptcy Procedure, which incorporates Rule 52 of the Federal Rules of Civil Procedure. To the extent that any finding of fact constitutes a conclusion of law, it is adopted as such.

The facts, in pertinent part, are as follows:

1. On August 19, 2015, Debtor filed a Chapter 13 petition for relief. (Doc. 1). While Debtor was represented by counsel at the time of her chapter 13 filing, she later filed a pro se Motion to Convert Case from Chapter 13 to Chapter 7 (Doc. 47) with the assistance of Ms. Sneed.

2. Ms. Sneed testified that she owns and operates³ the Business "Low Cost Documents Services" ("LCDS "), and that since March of 2018⁴ , it has been located at 9051 Mansfield Road, Building E, Suite 2, Shreveport, Louisiana. (Tr. at 47:2-9).

3. The LCDS Facebook page has advertised that "Low Cost Specialize [sic .] in Bankruptcy filing," including chapter 13 and chapter 7 cases. (UST Ex. 1 at 2). Another advertisement on the LCDS Facebook page states that "we can convert your 13 to a 7." (UST Ex. 1 at 2). The LCDS Facebook page has also advertised the service of explaining the difference between chapter 7 and chapter 13 proceedings. (UST Ex. 1 at 10). The LCDS Facebook page has included a photograph of the words "Legal Services" in its marketing materials. (UST Ex. 1 at 11).

4. Ms. Sneed is not a lawyer licensed in the state of Louisiana or any other state, and LCDS has not worked with or had any association with a Louisiana attorney⁵ in providing bankruptcy assistance. (Tr. at 49:23-50:9).

5. Debtor contacted Ms. Sneed for bankruptcy assistance in converting her case to a chapter 7. (Tr. at 39:8-13). She paid Ms. Sneed $ 200. (Tr. at 39:25-40:1).

6. Ms. Sneed prepared for Debtor a motion to convert the case from chapter 13 to chapter 7, an amended petition, a chapter 7 statement of intent, and a declaration regarding electronic filing. (Doc. 47, 48, 50, 51). Ms. Sneed also prepared an Official Form 119 "Bankruptcy Petition Preparer's Notice, Declaration and Signature ("BPP Notice "), reporting that she had prepared these documents. (Doc. 49). All of these documents were filed on August 3, 2018. Ms. Sneed brought the documents to the Clerk of Court's office on behalf of Debtor for filing. (Tr. at 41:3-5).

7. Neither Debtor nor Ms. Sneed filed Official Bankruptcy Form B 2800, which is a declaration under penalty of perjury disclosing compensation as bankruptcy petition preparer. Ms. Sneed did not present credible testimony establishing that she ever prepared any such declaration.

8. Apart from her work as a BPP in this case, Ms. Sneed has been a BPP in three (3) other Louisiana bankruptcy cases. (Tr. at 64:1-8). Additionally, Ms. Sneed testified that she provides bankruptcy services through her company's online website, and that these services include preparing bankruptcy schedules and other documents for filing in other states. (Tr. at 52:23-25).

9. Debtor's testimony was credible. Ms. Sneed's testimony was not credible.

III. Conclusions of Law and Analysis

This Court makes the following conclusions of law pursuant to Rule 7052 of the Federal Rules of Bankruptcy Procedure, which incorporates Rule 52 of the Federal Rules of Civil Procedure. To the extent that any conclusion of law constitutes a finding of fact, it is adopted as such.⁶

A. The Bankruptcy Petition Preparer Statute

The bankruptcy petition preparer statute, Section 110 of Title 11, was enacted as part of the Bankruptcy Reform Act of 1994, and provides penalties for a person, other than an attorney or employee of an attorney, who negligently or fraudulently prepares bankruptcy petitions. In re Farner , 17 Mont. B.R. 48, 50 (Bankr. D. Mont. 1998); In re Stacy , 193 B.R. 31, 35 (Bankr. D. Or. 1996). The House Report explains the rationale behind § 110 as follows:

Bankruptcy petition preparers not employed or supervised by any attorney have proliferated across the country. 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 advise 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.

H.R. Rep. 103–384, 103rd Cong., 2nd Sess. at 40–41 (Oct. 4, 1994); In re Rankin , 320 B.R. 171, 179–80 (Bankr. D. Mont. 2005).

B. Ms. Sneed is a Bankruptcy Petition Preparer

Under § 110(a)(1) of the Code, a "bankruptcy petition preparer" is someone, other than an attorney for the debtor or an employee of such attorney under the direct supervision of such attorney, who prepares, for compensation, for a debtor "documents for filing," as that term is defined in 11 U.S.C. § 110(a)(2). Ms. Sneed stated, under penalty of perjury, in Official Form 119 (Doc. 49) that she is a bankruptcy petition preparer and Debtor's testimony supports that conclusion. The Court concludes that Ms. Sneed is a "bankruptcy petition preparer" as that term is defined in § 110 of the Bankruptcy Code.

Because Ms. Sneed is a bankruptcy petition preparer,...