In re Gonzalez, Case No. 8:12-bk-19213-RCT
| Decision Date | 05 March 2019 |
| Docket Number | Case No. 8:12-bk-19213-RCT |
| Parties | In re OILEDKIN GONZALEZ, Debtor. |
| Court | U.S. Bankruptcy Court — Middle District of Florida |
Lash Wilcox & Grace PL (formerly known as Lash & Wilcox PL) ("LW&G") is a law firm with a niche practice specializing in the prosecution of consumer protection cases on behalf of chapter 7 trustees. Christine Herendeen ("Ms. Herendeen") is one of six chapter 7 trustees in the Tampa Division of the Middle District of Florida who retain LW&G to handle consumer protection lawsuits in her chapter 7 cases.
CadleRock Joint Venture, LP ("CadleRock") was a creditor of Oiledkin Gonzalez.1 Mr. Gonzalez filed a chapter 7 bankruptcy in late 2012.2 He testified at his first meeting of creditors on February 8, 2013 (the "341 Meeting") that CadleRock called his cell phone several timesdemanding repayment after he told them to stop calling because he could not repay the debt.3 Ms. Herendeen referred the matter to LW&G.
LW&G, in turn, filed a lawsuit against CadleRock.4 Count I of the complaint alleged multiple violations of the Florida Consumer Collection Practices Act ("FCCPA"), Fla. Stat. § 559.55 et seq. Count II alleged multiple violations of the Telephone Consumer Protection Act ("TCPA"), 47 U.S.C. § 227 et seq.5
On December 10, 2013, CadleRock sent LW&G a letter stating that the complaint was meritless,6 and enclosed a proposed Motion for Sanctions pursuant to Fed. R. Bankr. P. 9011(c).7 On December 17, 2013, LW&G dismissed the complaint against CadleRock, with prejudice, within the Fed. R. Bankr. P. 9011(c)(1)(A) 21-day safe harbor.8 The adversary proceeding was closed on December 27, 2013.
CadleRock then began what has become a five-year quest to punish LW&G and Ms. Herendeen for filing that lawsuit. Because LW&G complied with Fed. R. Bankr. P. 9011 ("Rule 9011")9 by dismissing the action within the safe harbor period, CadleRock could not pursue sanctions under Rule 9011. So, CadleRock got creative. First, CadleRock tried to sue LW&Gand Ms. Herendeen for racketeering.10 When that failed,11 CadleRock settled on a Motion for Sanctions based on this court's inherent authority and 28 U.S.C. § 1927 (the "Motion for Sanctions").12
CadleRock filed its Motion for Sanctions in August 2015.13 In June 2016, LW&G and Ms. Herendeen filed an Amended Motion for Summary Judgment.14 The Honorable K. Rodney May, then the presiding judge,15 granted summary judgment in favor of LW&G and Ms. Herendeen and denied CadleRock's Motion for Sanctions.16
CadleRock appealed to the District Court.17 During the appeal process, the District Court requested statistics regarding the number of Consumer Protection Cases18 filed and dismissed by LW&G during the period January 1, 2011 through December 31, 2014 (the "Designated Period").19 The parties complied and filed summaries and unsworn statistical information in the District Court.20 Based on these statistics, the District Court reversed and remanded the Motion for Sanctions for further consideration by this court in light of the statistical information.21
Judge May retired in December 2017.
To prepare the record for reconsideration of the Motion for Sanctions, this court entered two case management orders. The first directed the parties to package the statistics in proper form for consideration on summary judgment.22 The second addressed discovery and related matters and set a schedule for oral argument.23
LW&G filed a declaration verifying the unsworn information previously provided to the District Court.24 CadleRock filed its own affidavits in response.25
As instructed, this court acknowledges the previous findings made by Judge May, considers the statistics, takes judicial notice of the court's own records and experience with cases of this type, and makes the following supplemental findings:
1. Number of Cases. Many Consumer Protection Cases have been filed in individual chapter 7 bankruptcy cases in the Tampa Division of this court. LW&G is not the only firm bringing these cases but is the most active. The actual number of cases LW&G filed during the Designated Period is unclear. LW&G calculates 2,865 complaints, although this number includes unfiled complaints resolved pre-suit.26 CadleRock, on the other hand, calculates 3,324 adversary proceedings filed during the Designated Period.27
Suffice it to say, the actual number of cases brought by LW&G on behalf of trustees during the Designated Period lies somewhere between 2,865 and 3,324. Of these, based on thecourt's own PACER research, only 135 adversary proceedings filed during the Designated Period are attributable to Ms. Herendeen.
2. Dismissals. Most Consumer Protection Cases are dismissed with prejudice, either by settlement or by stipulation of the parties. Both LW&G and CadleRock include a column in their respective spreadsheets that purports to show the ultimate disposition of the cases cited. LW&G labels its column "Reason Closed" whereas CadleRock labels its column "Status of Case." There the similarities end. Each uses various terms, none of which are defined, to explain the "Reason Closed" or "Status of Case."
According to LW&G, of the 2,865 complaints it counted during the Designated Period: (a) 2,016 were settled with a distribution to the estate; (b) 810 were dismissed (i.e. "agreed to drop") with no distribution to the estate; (c) 22 resulted in court abstention; (d) 9 resulted in a court decision, some of which resulted in distributions to the estate; (e) 7 resulted in a default; and (f) 1 was sent to arbitration.28
For its part, CadleRock states that for each adversary proceeding, it reviewed the docket to determine the case status and any recovery. CadleRock uses the following terms to describe the disposition of a case: dismissed with prejudice, dismissed without prejudice, dismissed, abstained, terminated, and left blank (indicating no adversary).29 But, CadleRock does not summarize the data in its "Status of Case" column in any meaningful way.
Accordingly, it is difficult for the court to objectively draw conclusions from either party's case disposition statistics. However, according to the court's own tally of the 135 cases filed by Ms. Herendeen within the Designated Period, nearly two-thirds were settled with a distribution to the estate.
3. Trials. Consumer Protection Cases generally do not go to trial. Some result in the entry of a default judgment, dismissal, or are sent to arbitration. Most cases have at least one pretrial conference, go through initial discovery, and settle after the exchange of information.30 Many are set for trial.31 One of Ms. Herendeen's cases apparently went to trial.32 But, for the most part, these cases settle or are dismissed by agreement of the parties.
4. Settlements. Consumer Protection Cases generally settle for statutory damages, plus costs and attorneys' fees.33 Typically, the total settlement amount is under $5,000. Although there are exceptions, the net recovery to the estate is typically between $1,300 and $2,000 per case, after attorneys' fees are paid to LW&G. This is true for most of the cases settled by Ms. Herendeen, though in one case she netted $23,100 for the estate.34 Every settlement is noticed to creditors and approved by the bankruptcy court overseeing the case.35
5. Investigations. For every Consumer Protection Case arising from a bankruptcy, the debtor has testified, under oath, at a creditor's meeting as required by 11 U.S.C. § 341. The debtor's testimony is digitally recorded, and a transcript of the recording can be requested for a fee.36 LW&G relies upon this sworn testimony to file its Consumer Protection Cases.37
6. Chapter 7 Trustees. At least seven members of the chapter 7 trustee panel in the Tampa Division of this court (Ms. Herendeen, V. John Brook, Larry Hyman, Dawn Carapella, Stephen Meininger, Angela Welch, and Beth Ann Scharrer) referred Consumer Protection Cases to LW&G during the Designated Period. Ms. Herendeen (the target here) was a relatively newtrustee and, as indicated above, had far fewer cases with LW&G than any of the other chapter 7 trustees during the Designated Period.
7. Oversight and Guidance for Trustees. The Office of the United States Trustee selects and supervises the chapter 7 panel trustees. Section 704 of the Bankruptcy Code sets forth the duties of a chapter 7 trustee which include the duty to "investigate the financial affairs of the debtor" and to "collect and reduce to money the property of the estate."38 The chapter 7 trustees also use a handbook for guidance.39 For an asset case, the handbook provides that there should be a "meaningful distribution" to creditors.40 The handbook does not define the phrase "meaningful distribution." However, for purposes of guidance, the minimum recovery of an avoidable preference in a consumer case under the Bankruptcy Code is $600.41 Statutory damages under the Fair Debt Collection Practices Act are limited to $1,000 per action.42 Statutory damages under the TCPA are $500 per violation.43
8. Chapter 7 Distributions. The claims, recoveries, and distributions in consumer chapter 7 cases are generally small. Indeed, most chapter 7 cases result in no recovery for creditors. Sometimes, if the assets or the lawsuits do not pan out as expected, professionals are left holding the bag. On occasion, there is a partial distribution to administrative (e.g., trustee and professionals) and priority claimants (e.g., domestic relations debts and tax claims), leaving little or nothing to general unsecured creditors.
9. Judicial Oversight of Attorneys' Fees and Costs. The bankruptcy court approvesthe applications of LW&G to represent a chapter 7 trustee as special counsel in every case in which LW&G is paid.44 Every subsequent application for attorneys' fees filed by LW&G—and the other law firms that handle Consumer Protection Cases—are noticed to creditors in the chapter 7 ca...
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