U.S. Tr. v. Burton (In re Rosario)

• Decision Date: 29 May 2013
• Docket Number: Adversary No. 12–4037.,Bankruptcy Nos. 12–40277–HJB.,Bankruptcy Nos. 12–40334–HJB.,Bankruptcy Nos. 11–45202–HJB.,Bankruptcy Nos. 12–40335–HJB.,Bankruptcy Nos. 12–10024–HJB.,Bankruptcy Nos. 11–43200–HJB.,Bankruptcy Nos. 12–40006–HJB.
• Citation: 493 B.R. 292
• Parties: In re Felix ROSARIO and Elizabeth Rosario, Debtors. United States Trustee, Plaintiff, v. Robert Burton and Pinnacle Financial Consulting, LLC, Defendants. In re Eugenia Lopez, Debtor. In re William N. Lacroix and Nicole L. Lacroix, Debtors. In re Ramon A. Javier, Debtor. In re Vidal M. Moya, Debtor. In re Ruben Morillo, Debtor. In re Kimberley K. Morin, Debtor.
• Court: U.S. Bankruptcy Court — District of Massachusetts

493 B.R. 292

In re Felix ROSARIO and Elizabeth Rosario, Debtors.

United States Trustee, Plaintiff,

v.Robert Burton and Pinnacle Financial Consulting, LLC, Defendants.

In re Eugenia Lopez, Debtor.

In re William N. Lacroix and Nicole L. Lacroix, Debtors.

In re Ramon A. Javier, Debtor.

In re Vidal M. Moya, Debtor.

In re Ruben Morillo, Debtor.

In re Kimberley K. Morin, Debtor.

Bankruptcy Nos. 11–43200–HJB, 11–45202–HJB, 12–10024–HJB, 12–40006–HJB, 12–40277–HJB, 12–40334–HJB, 12–40335–HJB.

Adversary No. 12–4037.

United States Bankruptcy Court,

D. Massachusetts.

May 29, 2013.

Stephen E. Meunier, Department of Justice, U.S. Trustee's Office, Worcester, MA, for Plaintiff.

Darrell Mook, Donovan Hatem LLP, Boston, MA, for Defendants.

MEMORANDUM OF DECISION

HENRY J. BOROFF, Bankruptcy Judge.

In these administratively consolidated proceedings, the United States trustee (the “Trustee”) seeks fines, sanctions, and injunctive relief against non-attorney bankruptcy petition preparers, Robert Burton (“Burton”) and the corporation through which he conducts business, Pinnacle Financial Consulting, LLC (“Pinnacle”) (together, the “Defendants”). In various motions filed in the above-named debtors' cases and in the adversary complaint (the “Complaint,” the “Adversary Proceeding”) filed in the Rosario case, the Trustee alleges that the Defendants have continually violated several provisions of 11 U.S.C. § 110¹ and have engaged in the unauthorized practice of law. In addition to monetary penalties, the Trustee also seeks an order permanently enjoining the Defendants from preparing bankruptcy petitions in the District of Massachusetts. Pursuant to Bankruptcy Rule 7052, the following constitute the Court's findings of fact and conclusions of law.

I. FACTS AND TRAVEL OF THE CASE

While many of the facts, some material and some not, have been the subject of dispute, a fair number are uncontested. The following findings of fact are based on trial testimony (and the witnesses' varying degrees of credibility), the admitted evidence, and the Court's own records. See Currie v. Wells Fargo Bank, N.A. (In re Currie), Slip Copy, Bankr.No. 11–17349–JNF, Adv. No. 12–1009, 2013 WL 1305805, *1 n. 1 (Bankr.D.Mass. March 28, 2013) (“The Court may take judicial notice of the documents in the debtor's file and those in the Court's own records.”).

A. Burton and the “Pinnacle System”

Robert Burton is the sole owner of Pinnacle, a Massachusetts corporation located in Lawrence, Massachusetts. Pinnacle provides a variety of “financial” and document preparation services for small businesses and individuals, many of whom are lower income and non-English speaking. At the time of trial, Pinnacle had 9 full-time employees and 3 “independent contractors.” On its website, Pinnacle advertises various services, including “home loan modifications,” “corporate restructuring,” “venture capital,” “tax strategies and preparation,” “legal document preparation,” “personal debt management,” and “bankruptcy petition preparation and debt relief.”

Burton is a graduate of the Massachusetts School of Law at Andover, and has worked as a paralegal, but he has not passed any bar exam and is not licensed to practice law in Massachusetts or any other jurisdiction. Burton advertises his education and paralegal experience on the Pinnacle website, on his business card, and in Pinnacle's offices. On the Pinnacle website and on his business card, Burton is identified as “Robert Burton, J.D., CWM.” ² The website further describes Burton as a law school graduate who previously worked for a law firm. Burton's law school diploma is framed behind his desk in his office at Pinnacle. There is no indication on the Pinnacle website or on his business card that Burton is not licensed to practice law. Burton admits that many clients come to the Pinnacle offices believing he is a lawyer and that, without being told otherwise, most clients would not know the difference between a law school graduate and someone admitted to practice law.

The Defendants say that Burton and Pinnacle first began preparing bankruptcy petitions in late 2007 or early 2008. Burton testified that, prior to preparing petitions, he reviewed § 110 of the Bankruptcy Code,³ researched issues related to bankruptcy petition preparation, and spoke with his law school bankruptcy professor. According to Burton, by the spring of 2011, the Defendants had prepared approximately 150 bankruptcy petitions, filed almost exclusively in Massachusetts.⁴ In their initial responses to motions filed by the Trustee, the Defendants claimed that 97% of their bankruptcy clients have received a discharge. In the Defendants' post-trial brief, they claimed to have assisted “over 100 debtors” filing Chapter 7 petitions, with an approximate Chapter 7 discharge rate of 98%. Def. Post-trial Brief 3 § 4. All of these claims are exaggerated.

According to the Court's records, the first case in which either Burton or Pinnacle is identified as the petition preparer was filed in March 2009. From that time until the first day of trial (June 25, 2012), one or both Defendants were identified as the bankruptcy petition preparer in 106 cases, but only 81 were Chapter 7 cases; the remaining 25 were Chapter 13 cases. ⁵ None of the Chapter 13 debtors received a discharge; in fact, with the exception of the Rosario and Morin cases, every Chapter 13 case had been dismissed at the time of trial, primarily for failure to file the Chapter 13 plan or other documents. The discharge rate for Chapter 7 cases filed by the Defendants is 90.8%. When the Chapter 13 cases are included, the overall discharge rate for debtors who have filed with the Defendants' assistance is 71.8%.

The Defendants tout with pride the “Pinnacle System” for handling bankruptcy petition preparation. They describe the “typical” case as follows. When a potential client comes to Pinnacle's offices, the client is given two forms. The first—the “Intake Form”—asks for the client's basic contact information and the type(s) of services being sought. Clients are also asked to read and sign a “Disclosure Form,” which states, in both English and Spanish, that Pinnacle is not a law firm and that its employees are not attorneys and cannot give legal advice. According to Tiesha Rosario (“Tiesha”), Burton's former executive assistant,⁶ she explains the Disclosure Form to the client and also asks the client to read and sign it. After completing the Intake Form and signing the Disclosure Form, the prospective client meets with Burton. Burton testified that he again reviews the Disclosure Form with the client.

When hired to prepare a bankruptcy petition, the Defendants request various financial documents from the client and obtain copies of the client's credit reports from the three leading credit reporting agencies. Clients are also provided various written materials pertaining to bankruptcy laws, processes, forms, and procedures. Included among those materials is a manual describing various aspects of bankruptcy law and procedure (the “Bankruptcy Manual”). ⁷ The Bankruptcy Manual contains information and explanations regarding many bankruptcy matters, including: an identification of non-dischargeable debts; a summary of Chapter 7 and other types of bankruptcy relief; an explanation of the changes made by the Bankruptcy Abuse and Consumer Protection Act of 2005 ⁸; a description of the Chapter 7 bankruptcy process and when the filing of a bankruptcy case would not be appropriate; the requirement to attend credit counseling and financial management courses; the bankruptcy case forms; the determination of which property can be claimed as exempt; the calculation of “eligibility” for Chapter 7 using the so-called “means test”; the meeting with the Chapter 7 trustee pursuant to § 341 of the Code (the “341 Meeting”); the client's property which may or may not have to be surrendered; and the receipt of a bankruptcy discharge. In addition, the Bankruptcy Manual provides step-by-step directionsand information related to each document required to be filed. The manual concludes with a section defining bankruptcy terms. Several checklists related to Chapter 7 filings, schedules, statements, and fees are appended. See Ex. 5 1309–1367.

Bankruptcy clients are also provided with a chart detailing various exemptions that may be claimed on Schedule C (the “Exemption Chart”). See Ex. 5A. The chart, however, is incomplete (for example, it does not list an exemption for cash on hand). In addition, while it contains references to § 522(d) subsections (which debtors may employ to claim exemptions if they so elect pursuant to § 522(b)(2)), the references to non-bankruptcy law (under which debtors may claim exemptions if they so elect pursuant to § 522(b)(3)) ⁹ are references to Minnesota statutes. According to Patria Santos (“Santos”), a self-described “consultant” assisting with bankruptcy petition preparation at Pinnacle,¹⁰ bankruptcy clients are also given other written materials (some of which are available in Spanish), but no such materials were introduced into evidence. For those materials not available in Spanish, Santos testified that Pinnacle employees would translate for the client, if necessary.

In addition to being provided with written materials, bankruptcy clients are directed to certain websites, such as www. Nolo. com or www. Zillow. com, in order to research property values and obtain answers to bankruptcy questions, information related to bankruptcy terms, and advice on how to complete the forms. Clients are given internet access in Pinnacle's offices, enabling them to research information on the specified websites as the documents are being completed.

The Defendants say that once the client is provided with these materials, the petition ¹¹ is prepared in Burton's office with the client (as well as a translator, if necessary) and Burton each looking at separate computer screens containing identical images of the document...