Court: United States Bankruptcy Court, N.D. Georgia; July 14, 1995; Us Bankruptcy; United States Bankruptcy Court
Plaintiffs filed a Motion for Sanctions against the Defendant for contempt of court due to noncompliance with a Preliminary Injunction issued on September 1, 1994, and a Permanent Injunction dated October 18, 1994. The U.S. Trustee served the Contempt Motion and Notice of Hearing on the Defendant and his attorney in December 1994 and January 1995, respectively. A hearing occurred on February 23, 1995, attended by both the Defendant and his attorney, with post-hearing briefs allowed; the U.S. Trustee submitted a brief, but the Defendant did not.
The U.S. Trustee's complaint claimed that the Defendant filed a Chapter 13 petition under the fictitious name of Charles Shirley to delay a foreclosure on property owned by Linda Jeanette Shirley. Ms. Shirley testified that she consulted the Defendant while having her own Chapter 13 case, from which she was aware of a modified automatic stay allowing foreclosure. She paid the Defendant $1,500 based on his representation of being able to file an appeal to stop the foreclosure, unaware of the fraudulent petition filed in a non-existent name until receiving related notices.
Further testimony from Ms. Shirley and five others, along with Defendant’s secretary, revealed a pattern of fraudulent activity by the Defendant, who operated under the name The Mortgage Place. He solicited clients through telemarketing and mailings, falsely promising to halt foreclosures. Evidence indicated that he regularly filed skeletal bankruptcy petitions in fictitious names to stall foreclosure proceedings and advised clients to omit any mention of his assistance on required affidavits. The findings illustrated that the Defendant exploited the vulnerabilities of clients facing foreclosure, charging excessive fees while providing vague promises of help, including potential state court actions or refinancing discussions.
Defendant charged customers a fee of $1,500.00 for preparing a minimal "skeletal" bankruptcy petition, which is significantly higher than the average attorney fee of $1,000.00 in the district for comprehensive Chapter 13 services. The local maximum retainer for Chapter 13 cases without court approval is $400.00, with many attorneys charging less and structuring fees to be paid through the debtor's plan. The Defendant’s high fee is deemed an abuse of the bankruptcy system, particularly as a non-lawyer, and it poses a risk of fraud against debtors and the public. A preliminary injunction was issued on September 1, 1994, prohibiting Defendant from engaging in unauthorized legal practices and requiring cessation of such activities by him and his employees. Additionally, he was barred from fee-sharing with legal professionals regarding bankruptcy matters. Following an appeal by the Defendant, a Permanent Injunction was established on October 18, 1994, resulting in a monetary sanction of $1,000.00 and restitution of $2,350.00 to three individuals. The dismissal of the appeal was approved by the U.S. District Court on November 17, 1994. A Contempt Motion was filed by the U.S. Trustee on December 15, 1994, with a hearing held on February 23, 1995.
At the Contempt Motion hearing, the U.S. Trustee presented testimony from three witnesses indicating that the Defendant had continued to prepare bankruptcy petitions in violation of a Preliminary Injunction. Mr. Hoyle Bridges reported paying the Defendant $1,500 over six months, with $450 paid after the injunction, and claimed that his signature on the petition was forged. Deysi Steer testified that she paid the Defendant for a skeletal bankruptcy petition just after the court had instructed him to cease unauthorized legal practices. Joyce Davis recounted entering a consulting agreement with the Defendant and making payments until a petition was filed in her name, including one filed under a fictitious identity. Charlotte M. George described receiving a flyer from the Defendant and making a payment, only to cancel the contract the following day.
Despite the injunctions, evidence showed the Defendant continued operating as before. In response to the U.S. Trustee's motion, the Defendant challenged the court's authority to impose sanctions for unauthorized legal practice in individual bankruptcy cases, questioned the U.S. Trustee's standing, and claimed entitlement to a jury trial. However, the court concluded that under 11 U.S.C. § 105(a), it possesses the authority to issue orders necessary to enforce compliance and prevent abuse of process. The court also cited 11 U.S.C. § 329, which allows examination of transactions between debtors and attorneys, supporting its jurisdiction over unauthorized legal practices within bankruptcy proceedings. The U.S. Supreme Court has recognized the broad authority of bankruptcy courts to address these issues.
The U.S. Trustee is recognized as a proper party in interest in the action, asserting that the Defendant’s challenge to its standing has either been waived or is moot. The U.S. Trustee claims the Defendant waived this challenge by consenting to the entry of a Permanent Injunction and argues that the issue is moot since the court has already reviewed all evidence and can issue relevant orders. The U.S. Trustee's role is to act as a bankruptcy watchdog, as intended by Congress, to prevent fraud and misconduct in bankruptcy proceedings, supported by Section 307 of the Bankruptcy Code which allows the U.S. Trustee to engage in any case or proceeding under Title 11.
On the matter of jurisdiction regarding contempt motions, the excerpt cites that bankruptcy courts possess inherent power to enforce compliance with their orders, as established in previous case law. While the case of Tele-Wire Supply Corp. raised questions about the constitutionality of delegating contempt powers to bankruptcy courts, it was decided before the 1987 amendment of Bankruptcy Rule 9020, which governs contempt proceedings. The amended rule allows bankruptcy judges to summarily determine contempt committed in their presence and outlines procedures for other contempt issues, including requirements for written notice and hearings, thereby reinforcing the court's authority to enforce its orders effectively.
Bankruptcy Rule 9020, as amended, replaces the precedent set in Tele-Wire, allowing bankruptcy courts to exercise contempt powers under Section 105(a). This enables judges to enforce orders on their own initiative or upon a motion by an interested party. The Clark court affirmed that civil contempt orders under Rule 9020 do not violate the separation of powers doctrine. Debtors can appeal contempt orders to district courts for de novo review. The Defendant’s challenge to the court’s authority to adjudicate contempt is unfounded. The U.S. Trustee, having reduced the sanction request from $30,000 to $5,000, categorized the offense as a petty one, negating the Defendant's right to a jury trial. The Defendant has shown a pattern of non-compliance with court orders, agreeing to cease certain actions while continuing those very actions. Potential sanctions for contempt could include compensatory awards or fines, but the court deems monetary sanctions ineffective since the Defendant has not complied with previous fines. Incarceration is not a viable sanction as the U.S. Trustee seeks to restrain rather than compel action. The court emphasizes the need to protect the integrity of the bankruptcy process and public policy interests. Therefore, the U.S. Trustee's motion for sanctions is denied, with the court considering referral to appropriate authorities for further action.
Attorneys representing Chapter 13 debtors in routine cases are permitted to charge up to $1,000 in fees, with specific conditions. Prior to filing, they can collect a maximum of $400 and actual filing costs. The remaining balance is payable through the debtor's plan at $75 per month, starting from the petition filing date. If the case is converted or dismissed after confirmation, unpaid fees may be drawn from trustee-held funds. If no plan is confirmed and the case is dismissed or converted, attorneys may receive up to $600, minus any previously collected fees. The Chapter 13 trustee can pay attorney fees from debtor payments without further court approval, not exceeding $1,000. Additional compensation requires prior court approval. Attorneys collecting fees beyond the authorized amounts risk sanctions and must return excess payments to the trustee or debtor. Failure to attend scheduled meetings results in a $150 reduction in fees per occurrence. Attorneys may seek higher fees through appropriate applications, and any party may contest the fees. Compliance with Bankruptcy Rules 1007 and 3015 regarding filing necessary schedules and plans is required. The order was issued by Chief Judge A.D. Kahn on May 15, 1991, in Atlanta, Georgia.
The excerpt outlines the bankruptcy court's powers regarding contempt, distinguishing between civil and criminal contempt. Civil contempt is focused on enforcing compliance with court orders and compensating affected parties, as supported by *Commercial Banking Co. v. Jones*. In contrast, criminal contempt serves to punish and uphold the court's authority, as noted in *Yaquinto v. Greer*. The document references *Matter of Lemco Gypsum* for cases affirming and denying the bankruptcy court's contempt power. Rule 9033(b) allows parties to object to proposed findings within 10 days, with a similar timeframe for responses. It asserts Congress's authority to grant Article I courts the power to enforce orders through civil contempt, based on *Burd v. Walters*. While incarceration is a possible punishment for criminal contempt, the U.S. Trustee does not seek this for the Defendant. The potential for incarceration or significant fines raises procedural complexities related to jury trials and de novo reviews, particularly under 11 U.S.C. § 110, introduced in the 1994 Bankruptcy Reform Act for petitions filed after October 22, 1994.
