In re Tabor

• Decision Date: 11 April 2018
• Docket Number: Case No. 15bk26544
• Citation: 583 B.R. 155
• Parties: IN RE: Elton TABOR, Debtor.
• Court: U.S. Bankruptcy Court — Northern District of Illinois

583 B.R. 155

IN RE: Elton TABOR, Debtor.

Case No. 15bk26544

United States Bankruptcy Court, N.D. Illinois, Eastern Division.

Signed April 11, 2018

Attorneys for the United States Trustee: Jeffrey S. Snell, M. Gretchen Silver and Elizabeth Brusa, Office of the United States Trustee, Chicago, IL

Attorneys for Robert V. Schaller : Keevan D. Morgan and Alanna G. Morgan, Morgan & Bley, Ltd., Chicago, IL, Thomas Anthony Durkin, Durkin & Roberts, Chicago, IL

MEMORANDUM DECISION

TIMOTHY A. BARNES, Judge.

Before the court is the United States Trustee's Motion for Sanctions and Other Relief [Dkt. No. 26] (the "Motion") brought in the above-captioned case (the "Case") by the United States Trustee for the Northern District of Illinois, Patrick S. Layng (the "U.S. Trustee").¹ The Motion seeks sanctions against Robert V. Schaller ("Schaller"), counsel to Elton Tabor, the debtor in the Case (the "Debtor").²

For the reasons noted herein, the court finds that the U.S. Trustee has proven beyond a preponderance of the evidence that Schaller has failed to comply with the duties imposed upon him as an attorney practicing in bankruptcy matters before this court. The Motion will therefore be granted in the manner set forth herein.

JURISDICTION

The federal district courts have "original and exclusive jurisdiction" of all cases under title 11 of the United States Code, 11 U.S.C. § 101, et seq. (the "Bankruptcy Code"). 28 U.S.C. § 1334(a). The federal district courts also have "original but not exclusive jurisdiction" of all civil proceedings arising under the Bankruptcy Code, or arising in or related to cases under the Bankruptcy Code. 28 U.S.C. § 1334(b). District courts may, however, refer these cases to the bankruptcy judges for their districts. 28 U.S.C. § 157(a). In accordance with section 157(a), the District Court for the Northern District of Illinois has referred all of its bankruptcy cases to the Bankruptcy Court for the Northern District of Illinois. N.D. Ill. Internal Operating Procedure 15(a).

A bankruptcy judge to whom a case has been referred may enter final judgment on any core proceeding arising under the Bankruptcy Code or arising in a case under the Bankruptcy Code. 28 U.S.C. § 157(b)(1). Bankruptcy judges must therefore determine, on motion or sua sponte , whether a proceeding is a core proceeding or is otherwise related to a case under the Bankruptcy Code. 28 U.S.C. § 157(b)(3). As to the former, the court may hear and determine such matters. 28 U.S.C. § 157(b)(1). As to the latter, the bankruptcy court may hear the matters, but may not decide them without the consent of the parties. 28 U.S.C. §§ 157(b)(1), (c). Instead, the bankruptcy court must "submit proposed findings of fact and conclusions of law to the district court, and any final order or judgment shall be entered by the district judge after considering the bankruptcy judge's proposed findings and conclusions and after reviewing de novo those matters to which any party has timely and specifically objected." 28 U.S.C. § 157(c)(1).

This matter was initiated pursuant to section 105 of the Bankruptcy Code. A bankruptcy court has statutory authority under section 105(a) as well as its inherent powers to impose sanctions for misconduct. In re Rimsat, Ltd., 212 F.3d 1039, 1049 (7th Cir. 2000) ; In re Volpert, 110 F.3d 494, 500 (7th Cir. 1997) ; In re Husain , 533 B.R. 658, 662 (Bankr. N.D. Ill. 2015) (Cox, J.), aff'd , 866 F.3d 832 (7th Cir. 2017). In such matters, the court has constitutional authority to enter final orders, as "[t]he court may issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of this title." 11 U.S.C. § 105(a) ; see also Zerand–Bernal Grp., Inc. v. Cox , 23 F.3d 159, 162 (7th Cir. 1994). Further, no party has questioned the jurisdiction of the court and the relief requested. Wellness Int'l Network, Ltd. v. Sharif , ––– U.S. ––––, 135 S.Ct. 1932, 1939, 191 L.Ed.2d 911 (2015) ; Richer v. Morehead , 798 F.3d 487, 490 (7th Cir. 2015) (noting that "implied consent is good enough").

The court therefore has both jurisdiction and constitutional authority to hear and determine this matter.

BACKGROUND

The facts of this matter are essentially undisputed. It is the propriety of those facts that is at issue in this matter.

Schaller is the founder, president and sole owner of the Schaller Law Firm (the "Schaller Firm"). The Schaller Firm primarily represents consumers in bankruptcy matters. In that role, it marketed its services to clients who were facing sheriff sales of their homes. The U.S. Trustee takes issue with the Schaller Firm's practice in handling these cases.

Most notably, the U.S. Trustee condemns what it refers to as Schaller's surrender method (the "Surrender Method").³ The Surrender Method is where Schaller targets individuals struggling to keep their homes, in many cases known to Schaller because of pending, public foreclosure actions. If an individual responds to Schaller's marketing efforts and hires Schaller, Schaller commences a chapter 13 bankruptcy case on the client's behalf. In such a case, the client, now a debtor in bankruptcy, is obligated to propose a plan of repayment that treats all of the debtor's assets and liabilities, yet Schaller customarily proposes a plan that does not address the mortgage obligation or provide for the surrender of the debtor's home. Only when forced to do so does Schaller modify the deficient plan to address the home, in most cases surrendering the home to the mortgage holder. In taking on these representations, Schaller causes each the debtor to sign an agreement that the debtor will attempt a pro se modification of the mortgage without Schaller's assistance and further acknowledges that, if the debtor is unable to get the modification, the Schaller Firm will acquiesce to a motion seeking to lift the automatic stay on the debtor's home when brought by the mortgage holder.

The U.S. Trustee maintains that the goal of the Surrender Method is to achieve, by application of the automatic stay, enough delay so that a debtor can make enough plan payments for Schaller to collect a fee, but not to legitimately reorganize the debtor's obligations.

In the Case at bar, in 2015, the Debtor was facing an upcoming sheriff sale of his home located at 3419 N. Kedzie Avenue, Chicago, IL 60618 (the "Kedzie Property"). The Debtor also owned another property located at 5944 W. 64th Street, Chicago IL 60638 (the "64th Street Property"). The Kedzie Property was scheduled to be sold via foreclosure sale on February 20, 2015 and, as a result, Schaller sent to the Debtor what appears to be one of his standard solicitation mailings. In response, the Debtor requested that the Schaller Firm file for chapter 13 bankruptcy relief on his behalf and, in so doing, became one of Schaller's Surrender Method clients.

The Schaller Firm filed the Debtor's first voluntary petition for relief under chapter 13 of the Bankruptcy Code on February 13, 2015 ("Tabor I").⁴ Attorney Michael Oreluk ("Oreluk"), an associate with the Schaller Firm, signed the Tabor I petition and submitted the case using his Case Management/Electronic Case File ("CM/ECF") account. In Tabor I, however, neither Schaller nor Oreluk nor any other attorney from the Schaller Firm filed the required chapter 13 plan on the Debtor's behalf. As a result, the chapter 13 trustee moved for and received dismissal of the Tabor I case for failure to file a plan on June 03, 2015.⁵ It does not appear that anyone from the Schaller Firm contested the dismissal.

In Tabor I, a court-approved retention agreement ("CARA"), see Local Form 23c, and application for compensation were filed with Oreluk's signature,⁶ indicating that the Debtor paid $1,000.00 plus filing expenses in advance of the Schaller Firm filing the case. In the application, Oreluk sought compensation to be paid to the Schaller Firm, not to himself. See Attorney's Application for Compensation Representing Chapter 13 Debtor(s) [Tabor I, Dkt. No. 13] and proposed order thereto [Tabor I, Dkt. No. 13–3]. The Schaller Firm's overall request for compensation was in the amount of $4,000.00. Upon the dismissal of Tabor I, Judge Schmetterer entered an order granting the Schaller Firm's application for compensation insofar as funds held by the chapter 13 trustee. As a result, the chapter 13 trustee disbursed another $2,432.70 of funds paid by the Debtor. The Schaller Firm therefore received $3,432.70 in total compensation for Tabor I.

Two months after the dismissal of Tabor I, the Schaller Firm again contacted the Debtor, sending him correspondence advising him that filing a bankruptcy case would stop any potential sheriff sale. While the Debtor was hesitant to file a second case, after the Debtor spoke to Schaller, he consented. On August 3, 2015, the Schaller Firm filed a second petition for relief under chapter 13 on behalf of the Debtor, commencing this Case ("Tabor II"). Oreluk signed the Tabor II petition and all documents associated with the Case on the Debtor's behalf and filed the Case using his CM/ECF account.

The schedules in Tabor II [Dkt. No. 11] (the "Schedules") were filed on August 17, 2015, reflecting $1,268,380.27 in secured claims and $80,218.39 in general unsecured claims. On that same date, the Debtor's chapter 13 plan [Dkt. No. 9] (the "Plan") was filed. The Plan provided that the Debtor would pay $600.00 per month for 60 months towards his debts. Out of that payment, the Schaller Firm's fees, one priority unsecured claim and the chapter 13 trustee's fees would be paid first, with the remainder going to the Debtor's general unsecured creditors. The Plan included no payments on account of the Kedzie Property or the 64th Street Property. Instead, the Plan included an express provision in the special terms section requesting that the chapter 13 trustee make no payments to JPMorgan Chase, the mortgage holder on the Kedzie Property. Plan, at ¶ G(2). It was silent as to the treatment of ...