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Sheffield v. Homeside Lending, Inc. (In Re Sheffield)
Citations: 280 B.R. 900; 2001 Bankr. LEXIS 1975; 2001 WL 1913336Docket: 19-10330
Court: United States Bankruptcy Court, S.D. Alabama; September 21, 2001; Us Bankruptcy; United States Bankruptcy Court
In the case of In re Rocky Dwayne Sheffield, the United States Bankruptcy Court for the Southern District of Alabama addressed an objection from HomeSide Lending, Inc. regarding the trial of subclass 2 claims in a Chapter 13 debtor class action initiated in June 1999. The court certified subclass 2 to include bankruptcy debtors who filed a Chapter 13 petition after January 1, 1994, had claims filed by HomeSide, and had fees collected by HomeSide post-filing, particularly those referred by LOGS Financial Services, Inc. HomeSide's objection was based on three main arguments: (1) insufficient time to prepare for trial due to new issues raised in plaintiffs' September 6, 2001, interrogatory answers; (2) claims exceeding the previously certified subclass; and (3) grounds for dismissing the claims altogether. The court found that the delay in trial to November 28, 2001, resolved the timing issue. Regarding the substantive claims, the court determined that the interrogatory answers did not introduce new issues but rather clarified existing claims about the reasonableness and legality of attorneys' fees charged by HomeSide. It concluded that if the fees were deemed illegal or uncollectible under state laws, this would support the assertion of their unreasonableness and the necessity for full disclosure. However, the court also noted that it could not declare violations of state unauthorized practice of law statutes, as such determinations would exceed its jurisdiction and not be suitable for nationwide class certification. The objection was denied, and the trial was scheduled to proceed. Each state has a vested interest in regulating the legal profession for its citizens, making it improper for this Court to make determinations solely based on state laws regarding nonlawyers' conduct. However, the Court may deem a fee unreasonable or improperly disclosed if it aligns with state definitions of inappropriate behavior by nonlawyers. Nonlawyers performing tasks typically reserved for lawyers could lead to unreasonably high fees if billed at attorney rates. Labeling a fee as an attorney's fee in a claim when it is paid to a nonattorney may constitute inappropriate disclosure. The Court can evaluate evidence regarding these issues without concluding whether any actions violated state laws governing legal practice. HomeSide argues against imposing damages for a third party's unauthorized practice of law, and the Court concurs. Any damages awarded against HomeSide will be assessed based on the propriety of the fees charged to debtors, including their disclosure and reasonableness. HomeSide is accountable for the charges it claims to be owed, as they are included in its proofs of claim. However, HomeSide will not be liable for damages or costs associated with any third party's unauthorized practice of law. The objection by HomeSide Lending, Inc. to proceed to trial on subclass 2 claims is denied.