Court Opinion

ID: 3161378
Source: CourtListenerOpinion
Date Created: 2015-12-10 01:01:23.406489+00
Date Added: 2024-06-11T12:01:26.188953
License: Public Domain

FILED
                                                                DEC 09 2015
 1                          NOT FOR PUBLICATION
 2                                                          SUSAN M. SPRAUL, CLERK
                                                              U.S. BKCY. APP. PANEL
                                                              OF THE NINTH CIRCUIT
 3                  UNITED STATES BANKRUPTCY APPELLATE PANEL
 4                            OF THE NINTH CIRCUIT
 5   In re:                        )       BAP No.     CC-14-1531-TaKuKi
                                   )
 6   EDWARD P. GUIDRY,             )       Bk. No.     6:14-bk-12490-SY
                                   )
 7                   Debtor.       )
     ______________________________)
 8                                 )
     HUDENA JAMES, SR.,            )
 9                                 )
                     Appellant,    )
10                                 )
     v.                            )       MEMORANDUM*
11                                 )
     EDWARD P. GUIDRY; UNITED      )
12   STATES TRUSTEE,               )
                                   )
13                   Appellees.**  )
     ______________________________)
14
                       Submitted Without Oral Argument***
15                            on November 19, 2015
16                          Filed – December 9, 2015
17               Appeal from the United States Bankruptcy Court
                     for the Central District of California
18
               Honorable Scott H. Yun, Bankruptcy Judge, Presiding
19
20
          *
21           This disposition is not appropriate for publication.
     Although it may be cited for whatever persuasive value it may
22   have (see Fed. R. App. P. 32.1), it has no precedential value.
     See 9th Cir. BAP Rule 8024-1(c)(2).
23
          **
24           Although the Appellant named these parties as Appellees,
     neither filed a brief nor otherwise appeared in this appeal.
25
          ***
              After examination of the briefs and record, and after
26   notice, in an order entered September 16, 2015, the Panel
27   unanimously determined that oral argument was not needed for
     this appeal. See Fed. R. Bankr. P. 8019(b); 9th Cir. BAP Rule
28   8019-1.
 1
 2   Appearances:     Hudena James, Sr., pro se, on brief.
 3
     Before:     TAYLOR, KURTZ, and KIRSCHER, Bankruptcy Judges.
 4
 5                               INTRODUCTION
 6        Hudena James, Sr. appeals from an order finding that he
 7   violated § 110(b) and (c)1 and ordering fee forfeiture under
 8   § 110(h)(3)(B) and payment of sanctions under § 110(l)(1).        We
 9   REVERSE.
10                                  FACTS2
11        Mr. James assisted Edward P. Guidry with his chapter 7
12   petition.    In compliance with § 110, Mr. James identified
13   himself as a bankruptcy petition preparer on the petition and
14   signed it.    Mr. James received $200 in exchange for his
15   assistance; he properly disclosed this payment to the bankruptcy
16   court.
17        The debtor’s scheduled assets included real property
18   located in Moreno Valley, California (the “Property”).      The
19   debtor did not claim an exemption in the Property initially and
20   this became problematic for him; his estranged wife and her
21   mother resided at the Property, and the chapter 7 trustee
22   commenced an effort to sell it.
23
24
          1
             Unless otherwise indicated, all chapter and section
25   references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532.
26        2
             We exercise our discretion to take judicial notice of
27   documents electronically filed in the bankruptcy case. See
     Atwood v. Chase Manhattan Mortg. Co. (In re Atwood), 293 B.R.
28   227, 233 n.9 (9th Cir. BAP 2003).

                                       2
 1        The debtor’s initial response was an attempt to convert to
 2   chapter 13.    The chapter 7 trustee opposed this motion, and the
 3   debtor filed a reply, without a supporting declaration, stating
 4   his intent to withdraw the conversion motion.     He later filed
 5   amended schedules A and C with the result that he claimed all
 6   equity in the Property as exempt.
 7        The debtor’s reply also raised a problem involving
 8   Mr. James.    He stated that he had been “ill-advised by a
 9   bankruptcy petition preparer who suggested that I convert my
10   case to Chapter 13.”    Dkt. No. 32 at 1.   He apparently
11   reiterated this statement to the bankruptcy court at the hearing
12   on the conversion motion.3
13        Based on these assertions, the bankruptcy court issued an
14   order to show cause (“OSC”) as to why Mr. James should not be
15   ordered to disgorge fees received because he offered legal
16   advice to the debtor and, thus, violated § 110(e).     The OSC
17   provided for written response by Mr. James and allowed the
18   United States Trustee to request additional relief or sanctions
19   against Mr. James on his own motion pursuant to § 110(i), (j),
20   or (l).   The United States Trustee did not file either a
21   supportive response or its own motion.
22        Mr. James responded but without a supporting declaration.
23   He asserted generally that he had not offered any legal advice
24   to the debtor and specifically that he had not advised the
25   debtor to convert to chapter 13.     He acknowledged that the
26
27        3
             A transcript of the hearing on the conversion motion is
28   not in the record.

                                      3
 1   threatened sale of the Property upset the debtor and that the
 2   debtor blamed him for the problem.   Mr. James stated that he
 3   only helped prepare chapter 7 petitions and that if an
 4   individual wanted to file under another chapter, he referred
 5   those individuals to attorneys for assistance or legal advice
 6   “or to the Court Clinic.”   Dkt. No. 40 at 5.
 7         But Mr. James also stated that he had “helped [the] Debtor
 8   prepare the motion to convert his Chapter Debtor’s [sic]
 9   Chapter 7 to one under Chapter 13 pursuant to 11 U.S.C. § 706”
10   and referred to the docket number for the conversion motion.
11   Id.   He did not detail the type of help provided, and he did not
12   state that he charged the debtor for these services.   He
13   concluded his response by reiterating that he had “not provided
14   any legal advice to Debtor, ha[d] not made a choice, or advised
15   him to convert to Chapter 13” and by stating that he thereby
16   complied with § 110(e)(2)(B)(i)(II) and that he had “been a
17   bankruptcy petition preparer for many years and [was] well aware
18   of the conduct and practice of a petition preparer.”   Id. at 6.
19         At the hearing on the OSC, the bankruptcy court focused on
20   Mr. James’ statement in his response, that he helped the debtor
21   prepare the conversion motion.   Mr. James responded that the
22   statement was incorrect; his wife had typed up the response, and
23   it should have stated that Mr. James had prepared the chapter 7
24   petition - not the conversion motion.   Mr. James also asserted
25   that he had advised the debtor to see an attorney: “That’s what
26   I tell anyone that if I prepare a Chapter 7 and if you want a
27   Chapter 13 done, I tell them to go see an attorney, and I told
28   him to go see an attorney, which he did.   He went and saw an

                                      4
 1   attorney downstairs.”   Hr’g Tr. (Oct. 23, 2014) at 3:16-21.   He
 2   reiterated in conclusion that his wife had “obviously
 3   misunderstood” what she typed up in the OSC response, and that
 4   he had only prepared chapter 7 petitions for 34 years, not
 5   chapter 13 petitions; he knew his limitations.
 6        The bankruptcy court stated that it found the debtor’s
 7   statements in the reply to the chapter 7 trustee’s opposition
 8   and at the hearing on the conversion motion “more credible than
 9   [Mr. James’] self-serving statements.”   Id. at 4:9-12.   Further,
10   the bankruptcy court made clear that it did not find Mr. James’
11   claim of mistake in his OSC response credible.   It then stated
12   that its main concern was compliance with § 110(b):
13        [I]f you assisted in any way with the Debtor’s motion
          to convert from 7 to 13, which the Debtor, one, stated
14        in his pleadings filed with this Court and at the
          hearing on the motion to convert, he testified that
15        that’s what occurred, and in your initial pleading
          filed with the Court in response to the order to show
16        cause, you acknowledge that that’s what happened,
          which you are trying to retract now at this
17        hearing. . . . If you assisted in the Debtor preparing
          the motion to convert the case from 7 to 13, that
18        motion did not -- was not signed by you, did not have
          your address, did not have your Social Security Number
19        as required by Bankruptcy Code Section 110(b), (c).
20   Id. at 4:18-25; 5:1, 3-7.   Based on the debtor’s prior
21   statements and the OSC response, the bankruptcy court found that
22   Mr. James helped prepare the conversion motion and,
23   consequently, that he violated § 110(b) and (c) by failing to
24   list his name, address, and social security number on the
25   motion.
26        The bankruptcy court ordered Mr. James to disgorge the $200
27   fee he previously received in connection with the petition
28   preparation.   And, pursuant to § 110(l), it fined Mr. James

                                     5
 1   $500.
 2        The bankruptcy court subsequently entered an order
 3   discharging the OSC.     It stated that Mr. James’ “representation
 4   that he did not assist the Debtor with the motion [was] further
 5   refuted by the fact that Mr. James himself signed the proof of
 6   service on the motion to convert.”         Dkt. No. 42 at 2.
 7        Mr. James timely appealed.
 8                                  JURISDICTION
 9        The bankruptcy court had jurisdiction pursuant to 28 U.S.C.
10   §§ 1334 and 157(b)(2)(A).      We have jurisdiction under 28 U.S.C.
11   § 158.
12                                     ISSUES
13        Whether the bankruptcy court erred in finding that
14   Mr. James violated § 110(b) and (c), or abused its discretion in
15   ordering disgorgement of the fee paid to Mr. James and imposing
16   a fine under § 110(l).
17                            STANDARDS OF REVIEW
18        We review an order imposing penalties for violation of
19   § 110 for an abuse of discretion.       Frankfort Digital Servs.,
20   Ltd. v. U.S. Trustee (In re Reynoso), 315 B.R. 544, 550 (9th
21   Cir. BAP 2004), aff’d, 477 F.3d 1117 (9th Cir. 2007).          A
22   bankruptcy court abuses its discretion if it applies the wrong
23   legal standard, misapplies the correct legal standard, or if its
24   factual findings are clearly erroneous.         See TrafficSchool.com,
25   Inc. v. Edriver Inc., 653 F.3d 820, 832 (9th Cir. 2011).           A
26   factual finding is clearly erroneous if illogical, implausible,
27   or without support in inferences that may be drawn from the
28   facts in the record.     Id.

                                         6
 1                                 DISCUSSION
 2        Section 110 sets forth guidelines for “bankruptcy petition
 3   preparers”; a term of art, a bankruptcy petition preparer is a
 4   non-attorney (and not an employee of an attorney) “who prepares
 5   for compensation a document for filing.”       11 U.S.C. § 110(a)
 6   (emphasis added).
 7        The Code requires that bankruptcy petition preparers take
 8   steps sufficient to identify their involvement in a case.         They
 9   must sign documents, print their name and address on the
10   document, and include after their signature “an identifying
11   number that identifies individuals who prepared the document.”
12   Id. § 110(b)(1), (c)(1).    The identifying number is the
13   bankruptcy petition preparer’s social security number.         Id.
14   § 110(c)(2)(A).    A bankruptcy petition preparer is expressly
15   prohibited from offering a debtor legal advice.       Id. § 110(e).
16   And the bankruptcy petition preparer must disclose all
17   compensation received from a debtor.       Id. § 110 (h)(2).    Failure
18   to comply with the provisions of § 110 may justify sanctions
19   including forfeiture of fees and the imposition of fines.         See
20   id. § 110(h)(3), (I), & (l).
21        Given his pro se status, we liberally construe Mr. James’
22   brief on appeal.    See Cruz v. Stein Strauss Trust # 1361
23   (In re Cruz), 516 B.R. 594, 604 (9th Cir. BAP 2014).       Distilled,
24   Mr. James argues that the bankruptcy court erred by:
25   •    Denying his request to verbally amend the OSC response;
26   •    Violating his due process rights under the 5th Amendment,
27        based on the lack of opportunity to cross-examine and
28        “confront” the debtor;

                                       7
 1   •    Violating Federal Rule of Civil Procedure 43(a), based on
 2        its failure to require the debtor’s testimony in “open
 3        court”;
 4   •    Admitting the debtor’s hearsay statements into evidence;
 5   •    Violating his rights to equal protection under the
 6        14th Amendment, based on alleged preferential treatment of
 7        another debtor of a different race at the same hearing;4
 8        and
 9   •    Imposing the fine when the United States Trustee did not
10        file a response.
11        Certain of these arguments are raised for the first time on
12   appeal or are not directly on point in a bankruptcy case.
13   Nonetheless, based on the review appropriate given Mr. James’
14   pro se status and the seriousness of the issues implicated, we
15   conclude that the bankruptcy court did not afford Mr. James with
16   procedural due process.   Moreover, in finding that Mr. James
17   violated § 110(b) and (c), the bankruptcy court erred by relying
18   on inadmissible and incomplete evidence.
19        Due Process.   The bankruptcy court based the OSC on an
20   alleged violation of § 110(e), that Mr. James offered the debtor
21   legal advice in connection with the conversion motion.    The
22   order discharging the OSC, however, was based on Mr. James’
23   alleged violation of § 110(b) and (c) and the bankruptcy court’s
24   conclusion that he failed to list his name, address, and social
25   security number on the conversion motion and failed to sign it.
26
         4
27           Mr. James also includes text relating to judicial
     recusal. It does not appear, however, that he requests the
28   bankruptcy judge’s recusal.

                                     8
 1   The bankruptcy court based its determination on findings that
 2   the debtor was credible and Mr. James was not, a partial
 3   admission by Mr. James, and the fact that Mr. James signed the
 4   proof of service for the conversion motion.
 5        We see problems; in particular, Mr. James was not afforded
 6   procedural due process in two areas.    First, the OSC only
 7   identified § 110(e) as the basis for potential violation and
 8   sanction.   There was no reservation as to alternate grounds,
 9   theories, or sanctions.   Thus, Mr. James, a pro se litigant, was
10   confronted at the OSC hearing with a total change in the basis
11   for his alleged misconduct.   Due process required more.
12        Second, Mr. James was not provided with the opportunity to
13   cross-examine the debtor.   Thus, even if the bankruptcy court’s
14   determinations under § 110(b), (c), and (l) were harmless error,
15   a determination we do not make, the inability to cross-examine
16   the debtor on a disputed and material issue of fact was not.
17   This is particularly problematic given that Mr. James was not
18   even present at the conversion motion hearing where the debtor
19   apparently reiterated the statement on which the bankruptcy
20   court relied.
21        Evidence.    The due process violations in turn lead to other
22   issues on this record.
23        First, the bankruptcy court lacked essential evidence on a
24   critical point.   There is no question that Mr. James is a
25   petition preparer by profession.     And there is no question that
26   Mr. James acted as a petition preparer, within the meaning of
27   § 110(a)(1), in connection with the debtor’s case initiation
28   filings.    Mr. James properly disclosed this involvement and that

                                      9
 1   he received $200 for this assistance.     But there is no evidence
 2   in the record that Mr. James took any fee beyond the $200 or
 3   that his agreement with the debtor in relation to receipt of the
 4   $200 required services beyond those related to the petition and
 5   related case initiation documents.
 6        The bankruptcy court noted that if Mr. James gave advice or
 7   assistance in connection with the conversion motion he was
 8   engaged in the unauthorized practice of law.     That may be true.
 9   If Mr. James did not charge a fee for these services, however,
10   he was not a petition preparer in connection with the conversion
11   motion within the meaning of § 110, and he was not subject to
12   sanction under that Code section.
13        Second, the bankruptcy court relied on statements that were
14   not evidence to determine facts and to assess credibility.     Key
15   to the OSC and the bankruptcy court’s finding that Mr. James
16   violated § 110 was the debtor’s statement that Mr. James
17   suggested that he convert to chapter 13.     The debtor’s
18   statement, however, was not in a declaration under penalty of
19   perjury.    See 28 U.S.C. § 1746.    And, we assume that the debtor
20   was not sworn under oath to testify at the conversion motion
21   hearing.    Thus, the debtor’s statement was just that - a
22   statement, not testimonial evidence.
23        We also question the bankruptcy court’s credibility
24   findings.    We acknowledge that Mr. James, similarly, did not
25   attach a declaration to the OSC response; nor was he sworn in to
26   testify at the OSC hearing.    Thus, there was no evidence on the
27   issue of what Mr. James said in connection with the conversion
28   motion.    Nonetheless, the bankruptcy court relied on the

                                         10
 1   debtor’s non-evidentiary statement in assessing Mr. James’
 2   credibility.    This, again, was error and coupled with the due
 3   process violations and other evidentiary issues already
 4   discussed, it was not harmless.
 5        Other issues.     Facts often shift during an order to show
 6   cause proceeding.    In such a case, the bankruptcy court is not
 7   required to issue a new order to show cause, but must make sure
 8   that it affords due process to the contemnor prior to sanction.
 9   The bankruptcy court here should have provided Mr. James with a
10   meaningful opportunity to address the issues it ultimately
11   decided - which were not the issue noticed in the OSC.
12        Further, where material evidentiary disputes arise, the
13   bankruptcy court must provide an appropriate opportunity for an
14   evidentiary hearing.    Such a hearing should allow the alleged
15   contemnor to cross examine the party alleging misconduct, if
16   applicable.    The need for an evidentiary hearing here is
17   underscored by the bankruptcy court’s additional finding in the
18   order discharging OSC, that Mr. James signed the proof of
19   service for the conversion motion.     Mr. James asserted in his
20   OSC response that he was President of James and Associates, a
21   paralegal services firm.    It is not beyond the realm of
22   possibility that Mr. James served the conversion motion but was
23   not involved in preparing the motion itself.     Paralegal services
24   include serving motions and other legal documents and, thus,
25   filling out and signing a proof of service.     Section 110 does
26   not appear to extend to a proof of service; the document is
27   proof in and of itself.
28        Given our determination, except for two brief points, we

                                       11
 1   need not and do not address Mr. James’ remaining arguments.
 2   First, a bankruptcy proceeding is never criminal in nature;
 3   contrary to Mr. James’ argument, it is not even quasi-criminal.
 4   Thus, the confrontation clause of the 6th Amendment is
 5   inapplicable.   Second, a bankruptcy court may impose a fine
 6   under § 110(l) that is payable to the United States Trustee,
 7   even if the trustee does not move for an order imposing the
 8   fine.
 9                               CONCLUSION
10        Based on the foregoing, we REVERSE.
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