In re Fraga

• Decision Date: 20 July 1997
• Docket Number: BAP No. NC-95-2335-RMeRy and NC-96-1120-RMeRy,Bankruptcy No. 95-44122 NS.
• Parties: In re Robert T. FRAGA, Debtor. CONSUMER SEVEN CORPORATION; James H. Coffer, Appellants, v. UNITED STATES TRUSTEE, Appellee.
• Court: Bankruptcy Appellate Panels. U.S. Bankruptcy Appellate Panel, Ninth Circuit

210 B.R. 812 (1997)

In re Robert T. FRAGA, Debtor.

CONSUMER SEVEN CORPORATION; James H. Coffer, Appellants, v. UNITED STATES TRUSTEE, Appellee.

BAP Nos. NC-95-2335-RMeRy and NC-96-1120-RMeRy, Bankruptcy No. 95-44122 NS.

United States Bankruptcy Appellate Panel of the Ninth Circuit.

Argued and Submitted May 23, 1997.

Decided July 20, 1997.

COPYRIGHT MATERIAL OMITTED

James H. Coffer, Concord, CA, for Consumer Seven Corp.

Mark L. Pope, Office of U.S. Trustee, Oakland, CA, for U.S. Trustee.

Before: RUSSELL, MEYERS and RYAN, Bankruptcy Judges.

OPINION

RUSSELL, Bankruptcy Judge.

The bankruptcy court entered a series of orders which determined that both an attorney and his wholly owned corporation were bankruptcy petition preparers within the meaning of § 110(a),¹ ordered disgorgement of fees pursuant to § 329(a), and imposed a fine against the corporation and the attorney, jointly and severally, for violations of §§ 110(b)(1) and (c)(1). The corporation and the attorney appeal. We AFFIRM in part and REVERSE in part.

I. FACTS

A chapter 7 petition, schedules, statement of affairs, and statement of intentions were filed on behalf of the debtor on June 21, 1995. The petition was filed in propria persona with no designation of attorney or law firm. Statement no. 9 of the debtor's statement of affairs, entitled "Payments Related to Debt Counseling of Bankruptcy," listed appellant Consumer Seven Corporation ("Corporation") as the recipient of payments totalling $440 for debt counseling services. That amount included a $175 filing fee. No Rule 2016(b) statement was filed.

At all times, the Corporation was and is a closed corporation incorporated under the laws of the State of California. The Corporation was and is wholly owned, directed and operated by James H. Coffer, an attorney licensed by the State Bar of California and authorized to practice in the United States District Court for the Northern District of California. Coffer is the sole officer and director of the Corporation. All work related to the petition, schedules, and statement of affairs was done by or under Coffer's direct supervision.

The bankruptcy court issued an order to show cause which directed the Corporation to appear on November 22, 1995 regarding its alleged violations of § 110. No appearance was made by or on behalf of the Corporation at that hearing. The bankruptcy court issued an order on December 4, 1995 (the "December 4 order")² which allowed the Corporation until December 13, 1995 to disgorge $440 in fees to the debtor and present evidence of having done so.

The December 4 order fined the Corporation $1,000 for failing to sign its name on the debtor's bankruptcy petition as required by § 110(b)(1) and failing to disclose the social security number of the petition preparer working under its direction as required by § 110(c)(1). The December 4 order required the Corporation to appear on December 13, 1995 and show cause why it should not be held in contempt for its failure to appear at the November 22 hearing. The Corporation filed a motion on December 13, 1995 for reconsideration of the December 4 order on the ground of lack of notice. This motion was denied by an order entered by the bankruptcy court on December 22, 1995.

Coffer appeared at the show cause hearing on December 13, 1995 on behalf of the Corporation. At the conclusion of the hearing, the bankruptcy court stated on the record that Coffer was a bankruptcy petition preparer even though he did not fall strictly within the statutory definition because, by his own admission on the record, he acted for all intents and purposes as a bankruptcy petition preparer through the corporation as its only officer, director, and employee. The bankruptcy court directed Coffer to disgorge the $440 in fees because he did not file a Rule 2016(b) statement and fined him and the Corporation, jointly and severally, $1,000 for failing to comply with §§ 110(b)(1) and (c)(1). Later that day, the bankruptcy court issued an order (the "December 13 order") which specified the amount of the fine and the grounds upon which it was based, and allowed Coffer until December 20, 1995 to disgorge the fees and pay the fine.

On December 20, 1995, Coffer and the Corporation (hereinafter, collectively "Coffer") filed a premature notice of appeal with the Bankruptcy Appellate Panel ("BAP") from the December 4 and December 13 orders prior to resolution of the pending motion for reconsideration. Under Rule 8002(b)(4), the notice of appeal became effective with entry on December 22, 1995 of the bankruptcy court order which resolved the motion for reconsideration. Coffer also filed a motion with the bankruptcy court for a stay pending appeal.

The bankruptcy court denied Coffer's motion for a stay pending appeal on January 23, 1996. On the same day, it issued an order (the "January 23 order") which directed Coffer to appear on March 13, 1996 to show cause why he should not be held in civil contempt for failure to comply with the bankruptcy court's December 13 and December 21 orders.

The January 23 order notified Coffer that the court would also consider at the March 13 show cause hearing whether: (1) he should be enjoined, both as an attorney and as a bankruptcy petition preparer doing business as the Corporation, from preparing bankruptcy documents or providing assistance of any kind in bankruptcy matters; (2) the court should recommend to the United States District Court that he be disbarred from practicing in the Northern District of California; and (3) the chapter 13 trustees in the Northern District of California should be directed to forward to the bankruptcy court all fees due him in all pending chapter 13 cases until sufficient funds were collected to refund the debtor's fees and pay the $1,000 fine in this case.

Coffer filed a notice of appeal with the BAP from the January 23 order. (The BAP designated this second appeal as BAP No. NC-96-1120. It subsequently granted Coffer's motion to consolidate the cases for purposes of appeal, including briefing and oral argument, and ordered all pleadings to be filed under the lower-numbered appeal, BAP No. NC-95-2335.) Coffer also filed an emergency motion for a stay pending appeal, which the BAP denied.

Following the March 13 show cause hearing, the bankruptcy court entered an order (the "March 28 order") which found that Coffer had failed to pay the previously ordered fines, directed the standing chapter 13 trustee to withhold fees for his work in chapter 13 cases until the $1,440 in fees and sanctions in this case was collected, and prohibited him, either as an attorney or as the Corporation, from filing any more bankruptcy petitions in the Northern District of California. The bankruptcy court subsequently entered three additional orders in an effort to enforce its December 4 and December 13 orders.

Of the numerous orders issued by the bankruptcy court in this matter, Coffer and the Corporation appeal the following: the December 4, 1995 and December 13, 1995 orders which imposed sanctions against them for alleged violations of § 110(b)(1) and (c)(1), and the January 23, 1996 order to show cause regarding Coffer's failure to comply with two of the previous orders.³

II. ISSUES

A. Whether the bankruptcy court erred in finding Consumer Seven Corporation a "bankruptcy petition preparer" within the meaning of § 110(a), imposing sanctions against it for violations of §§ 110(b)(1) and (c)(1), and ordering disgorgement of fees.

B. Whether the bankruptcy court erred in finding attorney James H. Coffer a "bankruptcy petition preparer" within the meaning of § 110(a), imposing sanctions against him for violations of §§ 110(b)(1) and (c)(1), and ordering disgorgement of fees for a violation of Rule 2016(b).

III. STANDARD OF REVIEW

The standard of review for violations of § 110 is abuse of discretion as to fact finding and de novo as to conclusions of law. Interpreting 11 U.S.C. § 110 Which Governs Conduct of Non-Lawyer Bankruptcy Petition Preparers and Delineating the Relationship, Powers and Functions of the Bankruptcy Court and the District Court Under the Statute, 198 B.R. 604, 610 (C.D.Cal.1996). In general, a bankruptcy court's findings of fact are reviewed for clear error and its conclusions of law are reviewed de novo. In re Park-Helena Corp., 63 F.3d 877, 880 (9th Cir.1995), cert. denied sub nom. ___ U.S. ___, 116 S.Ct. 712, 133 L.Ed.2d 667 (1996). A bankruptcy court's orders regarding fees are reviewed for an abuse of discretion. In re Crayton, 192 B.R. 970, 975 (9th Cir.BAP 1996). Similarly, a bankruptcy court's orders imposing sanctions are reviewed under an abuse of discretion standard. In re California Fidelity, Inc., 198 B.R. 567, 571 (9th Cir.BAP 1996); In re White, 186 B.R. 700, 703 (9th Cir.BAP 1995).

IV. DISCUSSION

A. Whether The Bankruptcy Court Erred In Finding Consumer Seven Corporation A Bankruptcy Petition Preparer Within The Meaning Of § 110(a). Imposing Sanctions Against It For Violations Of §§ 110(b)(1) And (c)(1). And Ordering Disgorgement Of Fees

1. The Corporation's characterization as a "bankruptcy petition preparer"

The October 1994 amendments to the Code⁴ added § 110 in order to regulate abuses by non-lawyer bankruptcy document preparers. Interpreting 11 U.S.C. § 110, 198 B.R. at 606-07; In re Murray, 194 B.R. 651, 657 (Bankr.D.Ariz.1996). A "bankruptcy petition preparer" is defined as "a person, other than an attorney or an employee of an attorney, who prepares for compensation a document for filing;. . . ." § 110(a)(1). The Code defines "person" to include individuals, partnerships, and corporations. § 101(41). A "document for filing" is defined as "a petition or any other document prepared for filing by a debtor in a United States bankruptcy court or a United States district court in connection with a case under this title." § 110(a)(2).

Coffer has conceded that the debtor's petition, schedules, statement of affairs, and...