Strickland v. U.S. Tr. (In re Wojcik)

• Decision Date: 30 November 2016
• Docket Number: BAP No. CC–16–1172–KiFPa,Bk. No. 6:16–13228–SHY
• Citation: 560 B.R. 763
• Parties: In re: Halina Wojcik, Debtor. Magdelena Strickland, Appellant, v. U.S. Trustee, Appellee.
• Court: U.S. Bankruptcy Appellate Panel, Ninth Circuit

560 B.R. 763

In re: Halina Wojcik, Debtor.Magdelena Strickland, Appellant,

v.U.S. Trustee, Appellee.

BAP No. CC–16–1172–KiFPa

Bk. No. 6:16–13228–SHY

United States Bankruptcy Appellate Panel of the Ninth Circuit.

Submitted Without Oral Argument on November 17, 2016

Filed November 30, 2016

Appellant Magdelena Strickland, pro se, on brief; Russell Clementson on brief for appellee, the U.S. Trustee.

Before: KIRSCHER, FARIS and PAPPAS,¹ Bankruptcy Judges.

OPINION

KIRSCHER, Bankruptcy Judge:

Appellant Magdelena Strickland, a bankruptcy petition preparer² ("BPP"), appeals an order granting the motion of the U.S. Trustee ("UST") under § 110³ to disgorge her petition preparation fees and to impose fines and damages, totaling $2,650. We AFFIRM.

I. FACTUAL BACKGROUND AND PROCEDURAL HISTORY

A. How Debtor and Strickland met

The facts are mostly undisputed. Strickland does not have a law degree, she is not an attorney and she does not work under the supervision of an attorney. She and her husband, who is also not an attorney, own and operate "Low Cost Paralegal Services" ("LCPS"), a sole proprietorship, in Las Vegas, Nevada. LCPS is registered with the Nevada Secretary of State as a document preparation service. Strickland holds an Associate of Arts degree in Paralegal Studies and worked as a paralegal for law firms before starting her business in 2009. Strickland confirmed that despite her legal training, LCPS operates solely as a document preparation service and thus is not required to work under the supervision of a licensed attorney.

Chapter 7 debtor Halina Wojcik ("Debtor") contacted LCPS for preparation of her chapter 7 bankruptcy petition. Debtor lives in California. She found Strickland and her bankruptcy petition preparation services through LCPS by searching on the internet using the word "paralegal." Strickland maintains a website, www.lowcostparalegalsolutions.com, at which she promotes her business. LCPS's website's home page reads: "Low Cost Paralegal Services—The Lower Cost Alternative to Attorney Document Preparation." It also reads: "If a [sic] issue ever arises, please feel free to contact our paralegal for immediate resolution." Finally, the website reads:

Knowing the difficulty of determining the procedure for various legal actions for those not immersed in the legal system, we have enjoyed being able to assist others helping to locate and generate the paper work required for various legal actions.

While the State of Nevada prohibits paralegals from providing legal advice, in many cases the only assistance needed is with the preparation of the documents and filing; and for that purpose Low Cost Paralegal Services is honored to be able to assist. We pride ourselves on the work that has been and is being completed, on a daily basis.

Shortly after viewing the website, Debtor called LCPS and spoke with Strickland. Strickland informed Debtor over the phone that she was not an attorney but could help her prepare and file her bankruptcy documents. Strickland sent Debtor a questionnaire to complete and return. Debtor completed the questionnaire and faxed a copy back to Strickland. A few days later, Debtor met with Strickland at her office in Las Vegas to sign her bankruptcy documents. Debtor also executed a Document Preparation Services Agreement, which stated in several places that LCPS and Strickland were not able to give legal advice and could not accept money for legal advice, and that any information provided through LCPS could not be used for legal advice. Debtor paid LCPS $125 for preparing her bankruptcy documents and $25 for requesting a credit report.

B. The UST's motion under § 110

In her chapter 7 bankruptcy petition and statement of financial affairs, Debtor identified Strickland as the non-attorney she paid to assist her in filling out her bankruptcy forms. Strickland confirmed her role as Debtor's BPP in the (1) Disclosure of Compensation of BPP (Form 2800) and (2) the Declaration and Signature of the BPP (Form 119).

The UST moved under § 110(f), (h), (i) and (l ) to disgorge Strickland's fee of $125,⁴ impose damages of $2,000 and fine her $500 on the basis that Strickland violated § 110(f) by using the word "legal" in advertising her business. The UST points out that Strickland used the word "paralegal": (1) in connection with the services she provided to Debtor; (2) in the name of her business; (3) in the web address used by Strickland to promote her business; and (4) in the web pages describing the services performed by her business, including bankruptcy services. The UST contended that this use violated the strict liability provisions of § 110(f). The UST argued that Strickland's use of the term "paralegal" left the impression that a debtor using her services would be receiving the equivalent of attorney or legal services but at a lower cost, not only the typing services permitted for BPPs. The UST argued that Strickland's violation of § 110(f) subjected her to actual damages to Debtor for the amount of her fee and the $2,000 mandated under § 110(h)(3)(B) and (i)(1), and a fine of $500 payable to the UST under § 110(l ) (1). A hearing was set for May 26, 2016.

Strickland opposed the UST's motion. She admitted to using the word "paralegal" in advertising her business, but argued that no lay person would believe LCPS was anything more than a document preparation service, especially when considering the disclosures she makes in person and on the phone with clients, in her email tags, in her client agreements, on signs posted in her office, and on her website stating that she is not an attorney and that neither she nor LCPS can offer any legal advice or legal services. For example, two signs with 12? letters posted in the LCPS office state: "I AM NOT AN ATTORNEY IN THE STATE OF NEVADA. I AM NOT LICENSED TO GIVE LEGAL ADVICE. I MAY NOT ACCEPT FEES FOR GIVING ADVICE." Strickland further argued that her business name did not use the word "legal" solely on its own, and thus would not give a lay person the impression that the office is a legal service or gives legal advice. Because Strickland was unable to travel to California for the hearing, she requested to appear by telephone, asking that the court contact her at the number provided.

In reply, the UST argued that Strickland's disclaimers of not offering legal services or legal advice did not excuse her prohibited use of the word "legal" in her advertising. In fact, argued the UST, by repeatedly using the word "paralegal" and promoting her experience levels, Strickland had knowingly embellished the illusion to her clients that they will receive the essential legal assistance necessary to obtain bankruptcy relief.⁵

The hearing went forward on May 26, 2016. When entering appearances, the bankruptcy court inquired if anyone for Strickland was on the phone; no one was there. Acknowledging that Strickland had asked to appear by telephone, the court noted that although it has a liberal policy on telephonic appearances, which is posted on the court's website, Strickland needed to contact Court Call in order to appear by phone; the court was not going to go outside its own procedure to call Strickland for the hearing.

In reviewing the merits of Strickland's opposition, the court opined that it was not convincing. Strickland admitted to the UST's central allegation, that she is "advertising legal or paralegal services." In ruling in favor of the UST, the court stated:

So my tentative ruling is to grant the motion. Disgorge the fee of $150. Statutory damages of [$]2,000 and fine of [$]500.

....

So, I am granting the motion as set forth in the motion. And the only variance is the, I'm not granting the additional $500 in fine that the U.S. Trustee requested [in his reply for the unauthorized practice of law].

Hr'g Tr. (May 26, 2016) 3:8–10, 4:14–16.

The bankruptcy court entered an order in accordance with its oral ruling on June 17, 2016. This timely appeal followed.

II. JURISDICTION

The bankruptcy court had jurisdiction under 28 U.S.C. §§ 1334 and 157(b)(2)(A). We have jurisdiction under 28 U.S.C. § 158.

III. ISSUES

A. Did the bankruptcy court violate Strickland's procedural due process rights by not telephoning her for the hearing?

B. Did the bankruptcy court err in finding that Strickland violated § 110(f) or abuse its discretion by ordering disgorgement and imposing statutory damages and fines?

IV. STANDARDS OF REVIEW

Whether procedures used by the bankruptcy court violated an individual's due process rights is a mixed question of law and fact that we review de novo. Wilborn v. Gallagher (In re Wilborn), 205 B.R. 202, 206 (9th Cir. BAP 1996) (citing Rose v. United States, 905 F.2d 1257, 1259 (9th Cir. 1990) ).

The bankruptcy court's interpretation of the Code is a matter of law, subject to de novo review. Id.

We review the bankruptcy court's imposition of fines under § 110 for an abuse of discretion. Frankfort Dig. Servs., Ltd. v. U.S. Trustee (In re Reynoso), 315 B.R. 544, 550 (9th Cir. BAP 2004), aff'd, 477 F.3d 1117 (9th Cir. 2007) (citing Consumer Seven Corp. v. U.S. Tr. (In re Fraga), 210 B.R. 812, 816 (9th Cir. BAP 1997) ). A bankruptcy court abuses its discretion if it applies an incorrect legal standard or misapplies the correct legal standard, or if its factual findings are illogical, implausible or unsupported by evidence in the record. Trafficschool.com, Inc. v. Edriver Inc., 653 F.3d 820, 832 (9th Cir. 2011).

We may affirm the bankruptcy court's order on any basis supported by the record. SeeASARCO, LLC v. Union Pac. R. Co., 765 F.3d 999, 1004 (9th Cir. 2014).

V. DISCUSSION

A. The bankruptcy court did not violate Strickland's procedural due process rights.

Due process is a relatively minimal standard that only requires "notice reasonably calculated, under all the circumstances, to apprise interested parties of the pendency of the action and afford them an opportunity to present their objections." Mullane v. Cent. Hanover Bank & Tr. Co., 339 U.S. 306, 314, 70...