In re Leonard SUSTAITA, BAP No. AZ-09-1350-JuMkKi.
| Decision Date | 09 July 2010 |
| Docket Number | Bankruptcy No. 08-05817-RTB.,BAP No. AZ-09-1350-JuMkKi. |
| Citation | 438 B.R. 198 |
| Parties | In re Leonard SUSTAITA, Jr., Debtor. Richard S. Berry, Appellant, v. United States Trustee; Edward J. Maney, Chapter 13 Trustee; Russell A. Brown, Chapter 13 Trustee, Appellees. |
| Court | U.S. Bankruptcy Appellate Panel, Ninth Circuit |
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Leonard Sustaita, pro se.
Before: JURY, MARKELL, and KIRSCHER, Bankruptcy Judges.
After an evidentiary hearing, which appellant Richard S. Berry (“Berry”) did not attend, the bankruptcy court entered an Order Imposing Sanctions And Injunction Against Richard S. Berry in favor of appellees-Chapter 13 trustees Edward Maney (“Maney”) and Russell Brown (“Brown”) and the United States Trustee (the “U.S. Trustee”). 1
The order arose out of an enforcement proceeding against Berry under §§ 110, 526, 527 and 528. 2 The court found Berry was a “bankruptcy petition preparer” as defined in § 110(a)(1) and a “debt relief agency” as defined in § 101(12A). The court (1) imposed statutory fines against Berry for numerous violations of § 110; (2) ordered Berry to disgorge fees obtained from various debtors for violations of §§ 526, 527 and 528; (3) imposed a civil penalty against Berry under § 526(c)(5)(B) for $100,000; (4) issued a permanent injunction enjoining Berry from acting or advertising in any way as a bankruptcy petition preparer and (5) referred the matter to the United States Attorney's Office (the “U.S. Attorney”) for the filing of criminal contempt proceedings against Berry.
Berry filed a Motion For New Trial or, alternatively, Motion For Relief From Judgment, which the bankruptcy court denied.
Berry argues he was denied due process throughout the enforcement proceeding. After a thorough review of the record, we AFFIRM in part and REVERSE in part. We REVERSE the court's decision to impose the $100,000 civil penalty against Berry under § 526(c)(5)(B) because we conclude on this record that Berry did not have explicit notice that the court was acting on its own motion or that a civil penalty under this section was under consideration. We AFFIRM the court's decision in all other respects because we conclude no due process violations occurred.
Berry is no stranger to the bankruptcy court in the District of Arizona. Berry was a licensed attorney. After he lost his license, Berry started a business that provided legal-related services, including those pertaining to bankruptcy.
In January 1998, Judge Curley of the Arizona bankruptcy court issued an order permanently enjoining Berry from acting as a bankruptcy petition preparer in the District of Arizona. See In re Gabrielson, 217 B.R. 819 (Bankr.D.Ariz.1998). In March 1998, Judge Baum of the Arizona bankruptcy court issued an Order of Civil Contempt and Judgment Against Richard S. Berry, People's Services, Inc., and PLA People's Law. Judge Baum found Berry in contempt of court for willful and intentional violations of an order issued in May 1997 and fined Berry $1 million. See In re Repp, 218 B.R. 518 (Bankr.D.Ariz.1998). The U.S. Attorney indicted Berry for criminal contempt. He was tried, without a jury, convicted of a misdemeanor and served six months imprisonment in the Federal Bureau of Prisons.
Later, Berry began actively assisting debtors with their bankruptcy petitions, although Berry contends otherwise.
The debtor in this matter, Leonard Sustaita, Jr. (“Sustaita”) filed his Chapter 13 bankruptcy petition on May 20, 2008, stating that he filed pro se. Maney was appointed to serve as the Chapter 13 trustee. It came to light that Berry assisted Sustaita with his bankruptcy filing for a fee of $240. Sastaita's petition did not, however, contain any of the disclosures required by § 110(b)(1) and (c)(1) and Berry failed to provide notice in compliance with § 110(b)(2)(A).
On September 22, 2008, Maney filed an Application for Order to Show Cause for Fines and Disgorgement Against Bankruptcy Petition Preparer Richard S. Berry dba Why Pay A Lawyer (“WPAL”). Maney asserted that Berry was a bankruptcy petition preparer under § 110(a)(1) and alleged numerous violations under the statute.
As a result, Maney requested the court to fine Berry $24,000, to order disgorgement of the $240 fee and to order that Berry disclose all of the other bankruptcy cases in which he prepared documents for debtors. Maney mailed the application to Berry at WPAL's address: S. McClintock Dr., Ste. 112, Tempe, AZ 85282 (hereinafter, referred to as the WPAL address). 3
On September 22, 2008, the court issued an Order to Show Cause (“OSC”), scheduling a hearing for October 16, 2008. The Bankruptcy Noticing Center (“BNC”) did not serve Berry with the OSC since he was not a party listed on the Master Mailing List.
On September 28, 2008, Brown joined in Maney's application. Brown alleged that he had reason to believe Berry was involved in at least eleven additional Chapter 13 cases assigned to Brown. Brown further alleged that Berry had violated § 110 in numerous respects and that Berry was a debt relief agency and had violated §§ 526, 527 and 528. Finally, Brown maintained that Berry was in violation of previous injunctions issued in 1997 warranting a $2 million fine against him. In his prayer for relief, Brown requested the court to require “Berry to pay punitive sanctions pursuant to 11 U.S.C. § 526(c)(5)(B)” and to permanently enjoin “Berry from any and all bankruptcy activities”. Brown mailed the application to Berry at the WPAL address.
On September 28, 2008, the court issued an OSC in response to Brown's request and consolidated Maney's and Brown's OSCs for a hearing on October 16, 2008. The BNC sent out a notice regarding the OSC which did not include Berry.
On October 16, 2008, the U.S. Trustee filed a Notice of Appearance and Request for Notice in the matter. The U.S. Trustee mailed its notice to Berry at the WPAL address and also to his residence at E. Wesleyan Dr., Tempe, AZ 85282 (hereinafter, the Wesleyan address), 4 and at Alva Drive, Pine, AZ 85544.
Berry did not attend the October 16, 2008, hearing. The bankruptcy court set an evidentiary hearing for January 13, 2009. The Minute Order reflects that counsel was to provide notice to Berry regarding the hearing.
On November 5, 2008, Maney mailed notice of the evidentiary hearing to Berry at the WPAL address. On December 23, 2008, Maney mailed notice of the evidentiary hearing, which was rescheduled to February 12, 2009, to Berry at the WPAL address and the Wesleyan address.
On January 12, 2009, the U.S. Trustee issued subpoenas to Berry and his wife, Jean D. Berry, under the Sustaita bankruptcy case caption, requiring their appearance for a deposition on February 2, 2009. The subpoenas were mailed to the Berrys at the Wesleyan address, with a copy mailed to the landlord of WPAL using the WPAL address.
On February 5, 2009, Maney filed a Motion to File Unilateral Pre-Trial Statement based on Berry's failure to file any pleadings in the matter and his lack of response to a subpoena to appear to give testimony. The motion was mailed to Berry at the Wesleyan address.
Maney filed his Unilateral Pre-Trial Statement, and on February 6, 2009, the court granted his motion, but directed the parties to file an amended pre-trial statement if Berry responded with additions.
On February 10, 2009, Berry filed a Motion for Continuance, requesting a sixty to ninety-day continuance. In his motion, Berry acknowledged that he learned of the proceeding against him in late November. Attached to Berry's request was a letter that he faxed to the U.S. Trustee in which he stated that he did not get mail at the WPAL address, but received it at a Post Office Box (the “P.O. Box”). Berry contended that it was unnecessary to subpoena anyone and to merely mail “whatever it is to the Box”.
On the same day, Berry filed a Notice and Suggestion of Recusal. Berry's request for recusal was based on Judge Baum's former ruling against him.
On February 12, 2009, the evidentiary hearing took place. Berry did not appear. 5 The court denied Berry's request for a continuance and also denied his request for recusal. After that, numerous debtors testified that they met Berry at the WPAL address and that Berry assisted them in filing their respective cases. At the conclusion of the hearing, the court asked the trustees to lodge orders with requested relief and took the matter under advisement.
Maney mailed the proposed Order Imposing Sanctions and Injunction Against Richard S. Berry to Berry on March 6, 2009, and mailed a revised order to him on June 8, 2009. Both were mailed to Berry at the WPAL address, the Wesleyan address, and his self-designated P.O. Box address. Berry did not file an objection to either of the lodged orders.
The court subsequently made findings of fact and conclusions of law, which were embodied in its order entered on June 11, 2009. On June 23, 2009, the court entered a judgment in favor of Brown.
On June 22, 2009, Berry moved for a new trial under Fed.R.Civ.P. 59, or, alternatively, moved for relief from the judgment under Fed.R.Civ.P. 60. 6 In his motion, Berry alleged that neither he nor WPAL had been served with the OSCs and that he learned of the matter in late November through a telephone call with a staff attorney, Richard Cuellar (“Cuellar”), at the U.S. Trustee's office. Berry maintained that Cuellar indicated that he would send Berry all the pleadings, but Cuellar never did. Berry also asserted that he told Cuellar that he did not receive mail at the WPAL office address and gave him the P.O. Box number where he received his mail. Berry stated that Cuellar never passed on the correct address to the Chapter 13 trustees.
In addition, Berry reminded the bankruptcy judge that he had requested a continuance and also...
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