McDermott v. Jonak (In re Shadley)
| Decision Date | 29 March 2013 |
| Docket Number | ADV 10-5031,BKY 10-50795 |
| Parties | In re: JAMIE L. SHADLEY, aka Jami Potter, aka Jami Matthews, Debtor. DANIEL McDERMOTT, UNITED STATES TRUSTEE, Plaintiff, v. EDWARD JONAK, 3RD MILLENNIUM SYSTEMS, INC., d/ba Affordable Law Center, Affordable Court Services, Action Plan RX, Christian Discount Attorney Services, American Lawworx, Defendants. |
| Court | United States Bankruptcy Courts. Eighth Circuit. U.S. Bankruptcy Court — District of Minnesota |
ORDER GRANTING PLAINTIFF'S
MOTION FOR SUMMARY JUDGMENT
At Duluth, Minnesota
March 29, 2013.
This adversary proceeding is an action for declaratory, injunctive, and monetary relief under provisions of the Bankruptcy Code that govern the role and function of bankruptcy petition preparers (11 U.S.C. § 110) and debt relief agencies (11 U.S.C. § 526). It came before the court on the Plaintiff's motion for summary judgment. The Plaintiff ("the U.S. Trustee") appeared by Sarah J. Wencil. Defendants Jonak and 3rd Millennium Systems, Inc. ("3rd Millennium") appeared by their attorney, Karla Kluzak. Jonak and 3rd Millennium opposed the U.S. Trustee's motion, but they did not make a cross-motion for such relief. The following memorializes the decision on the U.S. Trustee's motion.
NOTICE OF ELECTRONIC ENTRY AND
FILING ORDER OR JUDGMENT
Filed and Docket Entry made on 03/29/2013
Lori Vosejpka, Clerk, By JRB, Deputy Clerk
PARTIES
The U.S. Trustee is an official of the United States Department of Justice, and an appointee of the Attorney General of the United States. 28 U.S.C. § 581. He has various duties under law. 28 U.S.C. § 586(a). They include the supervision of cases and trustees under chapter 7, which is performed among other ways by "monitoring the progress of cases under [the Bankruptcy Code] and taking such actions as [he] deems to be appropriate to prevent undue delay in such progress . . . ." 28 U.S.C. § 586(a)(3)(G).
Under one of the statutes he invokes, the United States Trustee is expressly granted standing to seek relief to enforce the statute's prescriptions. 11 U.S.C. §§ 110(h)(4), 110(i)(1), 110(j)(1), 110(l)(3), and 110(l)(4)(A). More generally, "[t]he United States trustee may raise and may appear and be heard on any issue in any case or proceeding under . . . [the Bankruptcy Code]." 11 U.S.C. § 307. As a technical matter, this adversary proceeding is captioned in one bankruptcy case. However, the U.S. Trustee alleges that Jonak and 3rd Millennium violated the relevant statutes in eighteen (18) identified bankruptcy cases, and he seeks relief in favor of the debtors and the estates in all of them.
Jonak is a resident of Blaine, Minnesota. 3rd Millennium is a corporation; Jonak is its sole shareholder, its president, and its only operating principal. At various times, 3rd Millennium has used the trade names of "Affordable Law Center" (from some prior date until the U.S. Trustee commenced this adversary proceeding); "Affordable Court Services" (adopted after the U.S. Trustee commenced this adversary proceeding and before the U.S. Trustee amended his complaint); "Christian Discount Attorney Services" (prior to 2007); and, possibly, "Action Plan Rx."1
At the times relevant to this adversary proceeding, Jonak through 3rd Millennium used the name "Affordable Law Center" to hold himself out as a provider of "legal plans" to individual members of the consuming public who had problems that might require the application of bankruptcy law, family law, or other substantive areas, and who might need to commence proceedings in a court to protect or advance their interests.2
NATURE OF ADVERSARY PROCEEDING
As the named plaintiff, the U.S. Trustee seeks to enforce and vindicate various provisions of 11 U.S.C. §§ 110 and 526. He maintains that ALC functioned as a bankruptcy petition preparer, § 110(a)(1); a debt relief agency, §§ 101(12A) and 526(a); or both, in its contacts with all of the debtors in the underlying bankruptcy cases and in the activity on their behalf for which ALC charged and received a fee from them.
The U.S. Trustee accuses ALC of violating various requirements of the two statutes. He alleges several derelictions: failing to see that ALC's status, its involvement with those debtors, and the terms of their relationships were disclosed in the ensuing bankruptcy filings; engaging in fraudulent, unfair, or deceptive conduct in its advertising and in its dealings with those debtors; engaging in the unauthorized practice of law in ALC's service provision; and fostering untrue and misleading disclosures in the bankruptcy filings in which it was involved.
To vindicate the rulings he seeks on those points, the U.S. Trustee requests relief against ALC in the form of disgorgement, forfeiture, and turnover of all compensation ALC received from the debtors in question; the assessment of damages payable to each debtor; injunctive relief against such conduct in the future; and the imposition of fines for each case.
For their part, Jonak and 3rd Millennium deny that they have the status of either bankruptcy petition preparer or debt relief agency. Hence, they maintain, the statutory regulationdoes not even apply to them. Most of the theory of their defense builds out from this basic denial, on which they would have the U.S. Trustee denied all relief.
JURISDICTION AND JUDICIAL AUTHORITY
In commencing suit in the bankruptcy court, the U.S. Trustee invokes the bankruptcy jurisdiction of the federal courts under 28 U.S.C. § 1334(b).3 Jonak and 3rd Millennium admit this jurisdictional allegation, in their answer. That concession was appropriate. All of the facts pleaded by the U.S. Trustee go to circumstances, events, or acts that have a close connection with the underlying bankruptcy cases. The subject matter arose or occurred just prior to the filing of the bankruptcy petitions by the debtors in question, or after the commencement of their cases. As his basis for relief, the U.S. Trustee cites two provisions of the Bankruptcy Code, title 11 of the United States Code. For governing rules of decision, he cites only those two statutes.4
So, this adversary proceeding is undeniably--and exclusively--a "proceeding arising under title 11," i.e., the Bankruptcy Code. In re Farmland Industs., Inc., 567 F.3d 1010, 1018 (8th Cir. 2009) (). Given its origin in activities of Jonak and ALC that were directly connected with the commencementand prosecution of bankruptcy cases, it would also qualify as a "proceeding . . . arising in . . . a case under title 11 . . ." Id. ().
In any proceeding for judicial relief commenced in the bankruptcy court, however, that is only the threshold point going to the matter of forum and adjudicative authority. There is a "division of labor" within the jurisdictional framework for bankruptcy, Stern v. Marshall, 564 U.S. _, _, 131 S.Ct. 2594, 2620 (2011). All parties must address that division at the initial stage of pleading. They must expressly state their position as to whether the proceeding in question is a "core proceeding" under 28 U.S.C. § 157(b), or a "non-core proceeding."5 Fed. R. Bankr. P. 7008(a) and 7012(b); In re Polaroid Corp., 451 B.R. 493, 497 (Bankr. D. Minn. 2011).
The U.S. Trustee's counsel did this, by citing 28 U.S.C. § 157(b)(2)(A) () for her classification.6
Defense counsel did not comply with her responsive duty to plead explicitly. Instead, she summarily denied "the rest and remainder" of the paragraph in which jurisdictional allegations were made, after admitting that "the court has jurisdiction over this proceeding."
28 U.S.C. § 157(b)(2)(A) is one of two "catchall" provisions for core proceeding status. 28 U.S.C. § 157(B)(2)(O) () is the other. The Eighth Circuit has long cautioned against an expansive reading of these provisions, to avoid crossing the constitutional boundaries laid down in Northern Pipeline Const. Co. v. Marathon Pipe Line Co., 495 U.S. 50 (1982). In re Cassidy Land and Cattle Co., Inc., 836 F.2d 1130, 1132 (1988).
However, classifying this adversary proceeding under either of the nominal catchall provisions does not trigger that risk at all. An adversary proceeding to enforce the prescriptions of § 110 is a matter "concerning the administration of the estate," and hence it is a core proceeding under 28 U.S.C. § 157(b)(2)(A). In re Garrison, 208 F.3d 217 (table), 2000 WL 276975 *2 (8th Cir. 2000) (unpublished). Given the breadth of 28 U.S.C. § 157(b)(2)(O) and its reference to the bigger functions of bankruptcy, that catchall provision is even better-matched to a proceeding brought under law that regulates two sorts of participants in the processes of bankruptcy.
This adversary proceeding is a core proceeding, under the proper sensibility of the statute under which the U.S. Trustee classifies it. It is therefore subject to entry of final judgment at a bankruptcy judge's order.7
MOTION AT BAR
After a discovery process, the U.S. Trustee has moved for summary judgment on all counts of his complaint.8
Under the governing rule, a movant for summary judgment that seeks a grant of affirmative relief in its favor must "point out," Celotex Corp. v. Catrett, 477 U.S. 317, 325 (1986), the extant evidence that demonstrates there is no genuine dispute as to any material fact, Fed. R. Civ. P. 56(a). Then it must establish that governing substantive law entitles it to judgment on thoseestablished facts. Fed. R. Civ. P. 56(a). If such a movant makes out a prima facie case in its favor on the...
To continue reading
Request your trial