In re Walker
| Citation | 257 BR 493 |
| Decision Date | 26 January 2001 |
| Docket Number | No. 00-13006.,00-13006. |
| Parties | In re Sherelle M. WALKER, Debtor. |
| Court | United States Bankruptcy Courts. Sixth Circuit. U.S. Bankruptcy Court — Northern District of Ohio |
Dean Wyman, Office of the U.S. Trustee, Cleveland, OH, for the United States Trustee.
Leon Boyd, who is not a lawyer, prepared a bankruptcy petition for the Debtor Sherelle Walker. In doing so, Mr. Boyd did not comply with the requirements of 11 U.S.C. § 110, which sets out both the rules a petition preparer must follow and some of the consequences for failing to do so. As a result, on motion of the United States Trustee (the "UST"), the Court ordered Mr. Boyd to refund fees to the debtor and to pay a $500 fine. (Docket 13, 17). The UST now asks that Mr. Boyd be held in civil contempt for his failure to pay the fine. (Docket 21, 23).1 The Court held a hearing on this issue on December 6, 2000. Because Mr. Boyd knew about the court order and violated it, and because he has not shown an inability to comply, he is in civil contempt of this Court and will be fined further, as discussed below.
The Court has jurisdiction to determine this matter under 28 U.S.C. § 1334 and General Order No. 84 entered on July 16, 1984 by the United States District Court for the Northern District of Ohio. This is a core proceeding under 28 U.S.C. § 157(b)(2).
Sherelle Walker filed a Chapter 7 petition which had been prepared by Leon Boyd. (Docket 1). The UST moved to cancel Ms. Walker's fee agreement with Mr. Boyd, to require him to refund fees to her, and to impose a fine on the ground that Mr. Boyd did not follow the requirements for bankruptcy petition preparers stated in Bankruptcy Code § 110 "Penalty for persons who negligently or fraudulently prepare bankruptcy petitions." (Docket 13). 11 U.S.C. § 110.
Congress added § 110 to the Code in 1994 to address the growing number of non-lawyers who were offering consumers unregulated bankruptcy services and engaging in the unauthorized practice of law. See In re Guttierez, 248 B.R. 287 (Bankr. W.D.Tex.2000); Moore v. Jencks (In re Moore), 232 B.R. 1 at n. 10 (Bankr.D.Me. 1999). The new Code section regulates the activities of individuals, other than lawyers and their employees, who are paid to prepare documents for filing by a debtor. 11 U.S.C. §§ 110(a)(1) and (2). One of the underlying purposes of this law is to protect consumers with financial problems from fraud and abuse by such preparers. S.Rep. No. 103-168, at 51 (1993). While Congress felt it was appropriate for petition preparers to assist debtors with a ministerial act such as typing, Congress rejected the notion that the preparers may go beyond that to give legal advice and services to debtors because:
these preparers often lack the necessary legal training and ethics regulation to provide such services in an adequate and appropriate manner. These services may take unfair advantage of persons who are ignorant of their rights both inside and outside the bankruptcy system.
H.R.Rep. No. 103-835 (1994), reprinted in 1994 U.S.C.C.A.N. 3340, 3365. See In re Mullikin, 231 B.R. 750 (Bankr.W.D.Mo. 1999). The legislation restricts the kinds of activities that a petition preparer can perform, as well as the manner in which a preparer may collect fees for the services undertaken.2
In this case, the UST alleged that Mr. Boyd did not comply with §§ 110(g)(1) and (h)(1), which provide:
The remedy for violating § 110(g)(1) is a fine of not more than $500 for each violation. 11 U.S.C. § 110(g)(2). The remedy for violating § 110(h)(1) is to disallow and order turnover of any fee exceeding the value of the services rendered. 11 U.S.C. § 110(h)(2).
After notice to Mr. Boyd and a hearing at which he did not appear, the Court found that Mr. Boyd (1) was a bankruptcy petition preparer, by his own admission on the petition; (2) who failed to file the fee disclosure required by § 110(h)(1); and (3) also violated § 110(g)(1) because he received court fees in connection with the case filing.3
The Court then entered an Order on September 21, 2000 which required Mr. Boyd to refund $400 in fees to Ms. Walker and to pay a $500 fine to the Clerk of Courts (the "Order"). (Docket 17). The Order stayed enforcement of the fine for thirty days to give Mr. Boyd the opportunity to show that he did not have the financial resources to pay it. Mr. Boyd did not file anything in response and has not paid the $500 fine. This motion to hold Mr. Boyd in contempt of court followed.
The bankruptcy court's contempt powers flow from Bankruptcy Code § 105(a) and the inherent power of a court to enforce compliance with its lawful orders. 11 U.S.C. § 105(a);4 Caldwell v. Unified Capital Corp. (In re Rainbow Magazine, Inc.), 77 F.3d 278 (9th Cir. 1996); Koehler v. Grant, 213 B.R. 567 (8th Cir. BAP 1997). See also Pertuso v. Ford Motor Credit Co., 233 F.3d 417, 423 n. 1 (6th Cir.2000); Mapother & Mapother, P.S.C. v. Cooper (In re Downs), 103 F.3d 472, 477 (6th Cir.1996). Contempt sanctions "may be imposed in an ordinary civil proceeding upon notice and an opportunity to be heard." International Union, United Mine Workers of Am. v. Bagwell, 512 U.S. 821, 829, 114 S.Ct. 2552, 129 L.Ed.2d 642 (1994). The notice requirements are set out in Bankruptcy Rule 9020. Koehler. In addressing a contempt request, a court must consider three issues: (1) did the respondent receive appropriate notice of the alleged contempt; (2) did the acts or failures to act constitute contempt of court; and (3) if so, what is the appropriate consequence.
The preliminary question is whether Mr. Boyd received appropriate notice of the contempt hearing. On November 7, 2000, the Court issued an order setting a hearing for December 6, 2000 at 8:30 a.m. on the UST's request to find Mr. Boyd in contempt. The hearing order, which was served on Mr. Boyd by the Clerk's office, referenced Bankruptcy Rule 9020, provided the courtroom location, identified the alleged contempt as civil, and stated that the UST alleged that Mr. Boyd had not complied with the Order which required a refund to the Debtor and payment of a fine. (Docket 21, 23). In addition to this formal notice, UST representatives sent correspondence to Mr. Boyd and left him telephone messages at his last known residence to remind him of the contempt hearing. Nevertheless, Mr. Boyd did not attend that hearing.
Bankruptcy Rule 9020 provides that contempt committed outside of the presence of a bankruptcy judge shall be determined only after notice on hearing. FED. R.BANKR.P. 9020. The notice is required to:
Additionally, the person charged with the contempt must be given a reasonable amount of time in which to prepare a defense to the charge. Id.
The Court finds that Mr. Boyd was given written notice that complies with this Rule and that he was afforded a reasonable time to prepare his defense. The procedural requirements of Rule 9020 have, therefore, been met.
The next issue is whether Mr. Boyd's actions constitute civil contempt of court. "The primary purpose of a civil contempt order is to `compel obedience to a court order and compensate for injuries caused by non-compliance'." McMahan & Co. v. Po Folks, Inc., 206 F.3d 627, 634 (6th Cir.2000) (quoting TWM Manuf. Co. v. Dura Corp., 722 F.2d 1261, 1273 (6th Cir.1983)).5 "Compensatory contempt orders compensate the party harmed by the other party's contemptuous actions; coercive orders seek to cajole the party in contempt to act in the manner desired by the court." Consolidated Rail Corp. v. Yashinsky, 170 F.3d 591, 595 (6th Cir. 1999).
The party alleging contempt has the "burden of establishing by clear and convincing evidence that the respondent `violated a definite and specific order of the court requiring him or her to perform or refrain from performing a particular act or acts with knowledge of the court's order'." Rolex Watch U.S.A., Inc. v. Crowley, 74 F.3d 716, 720 (6th Cir.1996) (quoting N.L.R.B. v. Cincinnati Bronze, Inc., 829 F.2d 585, 591 (6th Cir.1987)). Willfulness is not an element of civil contempt and intent to disobey the order is irrelevant. Id.
The respondent may defend by showing an inability to comply with the order. Glover v. Johnson, 138 F.3d 229 (6th Cir.1998). This must be established "categorically and in detail." Rolex Watch U.S.A., Inc., 74 F.3d at 720 (quoting Donovan v. Mazzola, 716 F.2d 1226, 1240 (9th Cir.1983)).
In this case, the UST proved that Mr. Boyd had knowledge of the Order based on the Court's service of the Order on Mr. Boyd at the time it was entered and the Court's service on Mr. Boyd of the hearing order, together with the correspondence and telephone calls initiated by the UST. The terms of the Order are definite and specific and require the payment of a $500 fine to the Clerk, among other things. The time to pay the fine has come and gone and Mr. Boyd has not paid it, which establishes that the Order was violated. Mr. Boyd did not present any evidence that he was unable to comply with the Order, having been given a chance to do so both...
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