In re Graves

• Decision Date: 30 May 2002
• Docket Number: BAP No. AZ-01-1207-KPB.,Bankruptcy No. 00-11579-PHX-EWH.
• Citation: 279 B.R. 266
• Parties: In re Carla Thomas GRAVES, Debtor. Paul Thomas Demos, II, Appellant, v. Russell Brown, Chapter 13 Trustee; United States Trustee; and Carla Thomas Graves, Appellees.
• Court: U.S. Bankruptcy Appellate Panel, Ninth Circuit

279 B.R. 266

In re Carla Thomas GRAVES, Debtor Paul Thomas Demos, II, Appellant, v. Russell Brown, Chapter 13 Trustee; United States Trustee; and Carla Thomas Graves, Appellees.

BAP No. AZ-01-1207-KPB.

Bankruptcy No. 00-11579-PHX-EWH.

United States Bankruptcy Appellate Panel of the Ninth Circuit.

Argued and Submitted February 22, 2002.

Filed May 30, 2002.

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Paul Thomas Demos, II, Phoenix, AZ, appellant pro se.

Russell Brown, Trustee, Phoenix, AZ, appellee pro se.

Before: KLEIN, PERRIS and BRANDT, Bankruptcy Judges.

OPINION

KLEIN, Bankruptcy Judge.

We are asked to harness the proper procedure for exercising the authority under 11 U.S.C. § 110(j) to enjoin a bankruptcy petition preparer from preparing petitions.

Although we AFFIRM the trial court's ruling that an injunction action under § 110(j) is a core proceeding in which there is no right to trial by jury, we REVERSE and REMAND the denial of the post-hearing motion for relief mainly because there was inadequate notice that an injunction would be considered.

Facts

Paul Demos, a lawyer admitted to practice in the District of Columbia¹ but not Arizona, is a bankruptcy petition preparer in Arizona, using the name "Doc's Plus" (collectively, "Demos").

Demos was enjoined in 1999 from violating 11 U.S.C. § 110, which proscribes various activities by bankruptcy petition preparers. Seitter v. Brown & Assocs., Adv. No. 96-0194 (Bankr.D.Ariz. Sept. 30, 1999), appeal dismissed sub nom. Demos v. Seitter, No. 00-0094-PHX-SMM (D.Ariz. July 3, 2000), aff'd mem., 19 Fed.Appx. 571 (9th Cir.2001) ("Seitter Injunction").

The Seitter Injunction, which was based on § 110(j)(2)(A), enjoined violation of § 110 and added that, if Demos disobeyed, "the parties may file an appropriate proceeding" in a later case seeking a § 110(j)(2)(B) injunction to put him out of the bankruptcy document preparation business.

While Demos's appeal to the Ninth Circuit from the district court's dismissal of his appeal of the Seitter Injunction was still pending, Demos prepared the chapter 13 petition for the debtor, Carla Graves, which was filed October 26, 2000.

The Graves case was involuntarily dismissed for lack of schedules, list of creditors, and a chapter 13 plan. Demos helped Graves file motions to have the case reinstated.

As part of the January 17, 2001, order reinstating the case, the bankruptcy court ordered that Demos, Graves, the case trustee, and the U.S. trustee appear for a status hearing on February 28, 2001, at which Demos was to "be prepared to address compliance with 11 U.S.C. § 110." The order added, "[i]f the Court determines that 11 U.S.C. § 110 has been violated fines may be imposed." There was no mention of a possible injunction.

Demos received notice of, but did not attend, the February 28 hearing, at which Graves testified that Demos: (1) charged her $676; (2) advised her to choose chapter 13; (3) decided where to file; (4) told her not to pay the chapter 13 trustee until March 2001; and (5) prepared the plan and reinstatement motions and sent copies of the plan to creditors.

The judge asked at the close of the hearing whether the Seitter Injunction had been stayed and, upon receiving a negative answer, ruled that Demos be permanently enjoined from preparing petitions in Arizona and disgorge $276 in excess fees.

Written findings, together with a formal § 110(j)(2)(B) injunction, were entered March 12, 2001.

Demos responded to the March 12 permanent injunction by filing, on March 20, 2001, a "Response To and Objection To `Judicial Officer's' Action: Motion for Summary Dismissal Request for Injunctive Relief Demand for Trial by Jury."

In this "Response," Demos admits receiving both notices of the February 28 hearing and contends he was denied due process by the absence of notice that a § 110(j)(2)(B) injunction would be considered and by denial of an opportunity for trial.

The court treated Demos's "Response" as a motion to alter or amend under Federal Rule of Civil Procedure 59(e). At the hearing, Demos argued that a § 110(j) injunction action is not a core proceeding, demanded a jury trial, claimed the Seitter Injunction was stayed pending appeal, and concluded: "you ambushed me."

The court denied the motion, explaining in a Memorandum Decision that the Seitter Injunction was not stayed, that Demos had notice of the February 28 hearing, that the matter was a core proceeding, and that there was no right to jury trial.

This appeal ensued.

Jurisdiction

Bankruptcy jurisdiction was based on 28 U.S.C. § 1334. We have jurisdiction under 28 U.S.C. §§ 158(a)(1) and (b).

Issues

1. Whether an injunction action under 11 U.S.C. § 110(j) is a "core proceeding."

2. Whether there is a right to trial by jury in an injunction action under 11 U.S.C. § 110(j).

3. Whether a § 110(j) injunction proceeding may be initiated by a court acting under 11 U.S.C. § 105(a).

4. Whether relief from the injunction should have been granted on due process grounds.

Standard of Review

Status as a "core proceeding," right to trial by jury, and the requisite procedure for issuing injunctions are questions of law that we review de novo. Whether adequate due process notice was given in any particular instance is a mixed question of law and fact that we likewise review de novo. Murray v. Bammer (In re Bammer), 131 F.3d 788, 792 (9th Cir.1997); GMAC Mortgage Corp. v. Salisbury (In re Loloee), 241 B.R. 655, 659 (9th Cir. BAP 1999).

Discussion

I

The initial focus is on the portion of § 110(j) that states there may be "a civil action to enjoin a bankruptcy petition preparer from engaging in any conduct in violation of this section or from further acting as a bankruptcy petition preparer." 11 U.S.C. § 110(j)(1).

Demos contends, without citing authority, that a civil action for a § 110(j) injunction is not a "core proceeding" that a bankruptcy judge may "hear and determine" and that, instead, the court was required to prepare a report and recommendation for the district court. 28 U.S.C. § 157.

The statute is silent about whether the "civil action" mandated by § 110(j) is to be a core proceeding. The term "civil action" is ambiguous because it encompasses both "adversary proceeding" and "contested matter." Fed.R.Bankr.P. 9002(1).²

The rest of § 110, however, illuminates the core/non-core issue. In § 110(i), Congress precluded the bankruptcy court from imposing the remedies prescribed in that section and, instead, required that pertinent facts be certified to the district court, which court then must hold a hearing and address the § 110(i) remedies. 11 U.S.C. § 110(i). Congress did not prescribe such a procedure for the six subsections of § 110 that authorize fines and, likewise, said nothing about involving the district court in § 110(j) injunctions. 11 U.S.C. §§ 110(b)-(h) & (j).

The specificity of the § 110(i) requirement for the district court to impose that subsection's remedies suggests that the bankruptcy court is authorized to impose all other remedies under § 110, including § 110(b)-(h) fines and § 110(j) injunctions. The decisional law is consistent with this inference.

We have previously rejected a challenge to the jurisdiction of the bankruptcy court to issue a § 110(j) injunction. Ferm v. United States Trustee (In re Crowe), 243 B.R. 43, 48-49 (9th Cir. BAP 2000), aff'd mem., 246 F.3d 673 (9th Cir.2000) ("Crowe"); cf., Ferm v. United States Trustee (In re Crawford), 194 F.3d 954 (9th Cir.1999), aff'g 213 B.R. 364 (D.Nev.1997), and 197 B.R. 109 (Bankr.D.Nev.1996). While we did not actually say in Crowe that a § 110(j) injunction action is a core proceeding, that is what we meant.

Two district courts in the Ninth Circuit have also deemed § 110(j) injunctions to be core proceedings. Interpreting 11 U.S.C. § 110, 198 B.R. 604, 609 (C.D.Cal.1996) (deciding procedural issues in 34 cases) (nothing about § 110(j) "would logically warrant depriving Bankruptcy Courts of the authority to issue that type of an injunction"); Crowe, 243 B.R. at 48 (Nev.Dist.Ct.Spec. Order No. 100).

Bankruptcy courts similarly agree that § 110 injunction actions are core proceedings. E.g., In re Kaitangian, 218 B.R. 102, 105 (Bankr.S.D.Cal.1998); In re Gabrielson, 217 B.R. 819, 822 (Bankr.D.Ariz.1998).

Thus, we adhere to our position in Crowe and hold that a § 110(j) injunction action is a core proceeding to be heard and determined by a bankruptcy judge under 28 U.S.C. § 157(b)(1).

II

Demos contends that he is entitled to trial by jury in an injunction action under 11 U.S.C. § 110(j). We hold otherwise.

There is a Seventh Amendment right to trial by jury in suits at common law where the amount in controversy exceeds $20.00. U.S. CONST. amend. VII.

The phrase "suits at common law" refers to suits in which "legal" rights are ascertained and determined, in contrast to those where "equitable" remedies are administered. It encompasses statutory causes of action that are analogous to common law actions that were ordinarily decided in English law courts in the late 1700's, as opposed to those customarily heard by courts of equity or admiralty. Statutory causes of action that are either "equitable" or "legal" but involve "public rights" are not entitled to jury trial. E.g., Granfinanciera, S.A. v. Nordberg, 492 U.S. 33, 40-64, 109 S.Ct. 2782, 106 L.Ed.2d 26 (1989).

The Seventh Amendment analysis of § 110(j), which is a statutory cause of action solely for an injunction, is straightforward. It is long-settled that an action solely for an injunction is "equitable" in nature, hence not subject to the Seventh Amendment right to trial by jury. See United States v. Louisiana, 339 U.S. 699, 706, 70 S.Ct. 914, 94 L.Ed. 1216 (1950); 8 JAS. WM. MOORE ET AL., MOORE'S FEDERAL PRACTICE § 38.31[5][a] (3d ed.2001) ("MOORE'S FEDERAL PRACTICE"); 9 CHARLES ALAN WRIGHT & ARTHUR R. MILLER, FEDERAL PRACTICE & PROCEDURE: CIVIL 2D § 2308 (2d ed.1995) ("WRIGHT & MILLER")....