Court Opinion

ID: 32350
Source: CourtListenerOpinion
Date Created: 2010-04-25 18:52:45+00
Date Added: 2024-06-11T16:48:08.921541
License: Public Domain

United States Court of Appeals
                                                                                          Fifth Circuit
                                                                                        F I L E D
                      IN THE UNITED STATES COURT OF APPEALS
                                                                                         August 8, 2003
                                  FOR THE FIFTH CIRCUIT
                                                                                    Charles R. Fulbruge III
                                                                                            Clerk

                                           No. 02-51024
                                         Summary Calendar

In the Matter of: PEDRO MARTINEZ, JR.,
                                                                                              Debtor

                            --------------------------------------------------

EDWARD CASEY,

                                                                                           Appellant

                           Appeal from the United States District Court
                                for the Western District of Texas
                                        (SA-01-CV-1050)

Before JONES, STEWART, and DENNIS, Circuit Judges.

PER CURIAM:*

       Edward Casey (“Casey”) appeals from the issuance of an injunction by the bankruptcy court

pursuant to 11 U.S.C. § 110 which proscribes certain conduct of “bankruptcy petition preparers.”

The district court affirmed the bankruptcy court’s order. For the following reasons, we VACATE

the injunction and REMAND for further consideration.

                       FACTUAL AND PROCEDURAL BACKGROUND

       *
          Pursuant to 5TH CIR. R. 47.5, t he Court has determined that this opinion should not be
published and is not precedent except under the limited circumstances set forth in 5TH CIR. R. 47.5.4.
       Casey owns a business (Southern Residential Capital) that purchases distressed real property,

or mortgages that are in default or foreclosure, from banks at a discount. The property owner pays

Casey a $500 fee for this service. Casey finds his clients by sending out bulk mail explaining his

services to persons in jeopardy of losing their homes.

       Rubia Martinez, the wife of the debtor in this case, Pedro Martinez, Jr., received Casey’s

mailing and contacted him. On February 5, 2001, Casey met with Rubia Martinez, at which time she

told Casey that she had previously filed for bankruptcy a few years earlier. Casey provided Rubia

Martinez blank bankruptcy forms of the type that can be purchased at an office supply store, and a

sample with handwritten instructions on how to fill out the forms prepared by a former employee of

Casey’s. Casey received a $500 fee from Rubia Martinez. He claims that the fee was not for

assistance in filing for bankruptcy, but rather to provide assistance with her mortgage.

       On February 6, 2001, Pedro Martinez filed a pro se Chapter 13 bankruptcy. Casey contends

that he never spoke to Pedro Martinez, nor did he assist him in preparing the petition. Nevertheless,

Pedro Martinez listed Casey on a pro se questionnaire filed with the bankruptcy court as someone

he paid or promised to pay a $500 fee to assist him in preparing the bankruptcy petition or completing

forms. The Bankruptcy Court for the Western Dist rict of Texas has previously determined that a

reaso nable fee for services performed by a petition preparer should not exceed $50. See In re

Guttierez, 248 B.R. 287, 298 (Bank.W.D. Tex. 2000). Petition preparers are also required to sign

the debtor’s petition. See 11 U.S.C. § 110(b)(1). Because the $500 fee exceeded the allowable $50

fee and Casey did not sign Pedro Martinez’s petition, the bankruptcy court issued an Order to Appear

                                                  2
and Show Cause against Casey sua sponte.1 Casey filed a response and appeared pro se via telephone

at a show cause hearing held on March 13, 2001.2 The bankruptcy court questioned Casey directly

and determined that an injunction was warranted.

       On March 20, 2001, the bankruptcy court issued an order, under which Casey was required

to provide to the U.S. Trustee the names of any clients “to whom blank bankruptcy petition forms

have been provided for the purpose of filing pro se bankruptcy cases.” The order further permanently

enjoins Casey, his employees, and/or his agents from engaging in the following activities:

       A. Offering or providing any bankruptcy petition preparation service or activity,
       including the distribution of blank bankruptcy petition forms, on behalf of anyone at
       any time and in any fashion;

       B. Making any representation of any kind, express or implied, written or oral, to any
       individual whose home is scheduled to be foreclosed upon or to the public at large,
       as to the effect of filing bankruptcy as an alternative means to stop foreclosure; and

       C. Making any representation, express or implied, or providing any written material,
       in an attempt to provide guidance on how to file a bankruptcy petition, with or
       without the assistance of counsel, for the purpose of delaying or stopping foreclosure
       sales.

       Casey obtained counsel and filed a motion for rehearing which the bankruptcy court denied.

Casey appealed to the District Court for the Western District of Texas. The district court affirmed

and Casey appeals. Casey contends that: (1) the bankruptcy court lacked subject matter jurisdiction,

       1
           Although an adversary proceeding initiated by a debtor, creditor, trustee, or a U.S. trustee
is ordinarily required, it has been held that a court may raise the § 110 injunction issue on its own
motion. See 11 U.S.C. §§ 110(j) & 105(a); see also In re Graves, 279 B.R. 266, 273-74 (B.A.P. 9th
Cir. 2002) (“The fact that Congress gave statutory standing to debtors, creditors, trustees, and U.S.
trustees does not, however, preclude the bankruptcy court from raising the § 110(j) injunction issue
by way of an order to show cause.”). No issue is raised here as to the bankruptcy court’s authority
to initiate the show cause hearing.
       2
          The Chapter 13 Trustee and the U.S. Trustee also appeared at the hearing. Casey appeared
via telephone at his request due to a death in his family.

                                                  3
(2) the show cause hearing and the bankruptcy court’s order violate his due process rights, (3) the

injunction exceeds the scope of 11 U.S.C. § 110(j)(2), (4) the district court erred in affirming the

order because he was not a “petition preparer,” (5) the injunction is too broad, and (6) the injunction

violates his free speech rights under the First Amendment. Because we find that the record does not

reflect the requisite factual basis for the injunction under 11 U.S.C. § 110, we VACATE the

injunction and REMAND for further proceedings.

                                      STANDARD OF REVIEW

        This Court, acting as a second review court, reviews the bankruptcy court’s findings of fact

under a clearly erroneous standard. U.S. Brass Corp. v. Travelers Ins. Group, Inc. (In re U.S. Brass

Corp.), 301 F.3d 296, 306 (5th Cir. 2002). “When the district court has affirmed the bankruptcy

court’s findings, this standard is strictly applied, and reversal is appropriate only when there is a firm

conviction that error has been committed.” Coie v. Sadkin (In re Sadkin), 36 F.3d 473, 475 (5th Cir.

1994). We review the bankruptcy court’s conclusions of law de novo. 301 F.3d at 306. “The issue

of subject matter jurisdiction is subject to plenary review by this [C]ourt.” Julian v. City of Houston,

314 F.3d 721, 725 (5th Cir. 2002).

                                             DISCUSSION

        Pursuant to 28 U.S.C. § 1334(b), “the district courts shall have original but not exclusive

jurisdiction of all civil proceedings arising under title 11, or arising in or related to cases under title

11.” District courts may, in turn, refer these cases to the bankruptcy judges for the district. See 28

U.S.C. § 157(a). Violations of 11 U.S.C. § 110 arise directly under title 11. See In re Wood, 825

F.2d 90, 96 (5th Cir. 1987) (“Congress used the phrase ‘arising under title 11’ to describe those

                                                    4
proceedings that involve a cause of action created or determined by a statutory provision of title

11.”).

           Section 110 proscribes certain conduct by non-attorneys who assist debtors in preparing

bankruptcy documents. Section 110 only applies to “bankruptcy petition preparers.” 11 U.S.C. §

110; see also In re Guttierez, 248 B.R. at 292. A “bankruptcy petition preparer” is defined as “a

person, other than an attorney or an emplo yee of an attorney, who prepares for compensation a

document for filing.”3 § 110(a)(1). The Bankruptcy Court for the Western District of Texas has

previously explained that:

           Section 110 itself proscribes virtually all conduct falling into the category of guidance
           or advice, effectively restricting “petition preparers” to rendering only
           “scrivening/typing” services. Anything else - be it suggesting bankruptcy as an
           available remedy for a debtor’s financial problems, merely explaining how to fill out
           the schedules, or answering questions about exemptions or whether a claim is or is
           not secured will invariably contravene either state laws proscribing the unauthorized
           practice of law or other more specific provisions of § 110. The only service that a
           bankruptcy petition preparer can safely offer and complete on behalf of a pro se
           debtor after the enactment of § 110 is the “transcription” of dictated or handwritten
           notes prepared by the debtor prior to the debtor having sought out the petition
           preparer’s service. Any other service provided on behalf of the debtor by a non-
           attorney (even telling the debtor where the information goes on the form) is not
           permitted under state unauthorized practice of law statutes, and so is also not
           authorized by § 110.

Id. at 297-98 (footnotes omitted) (emphasis in original).

           Before issuing an injunction, the court must make specific factual determinations that serve

as the substantive predicate for the injunction. Specifically:

       [I]fthecourtfindsthat-(i)abankruptcypetitionpreparerhas-(I)engagedinconductinviolationofthissectionorofanyprovisionofthistitleaviolationofwhich
subjects a person to criminal penalty; (II) misrepresented the preparer’s experience or education as

           3
         A “document for filing” is defined as “a petition or any other document prepared for filing
by a debtor in a United States bankruptcy court of a United States district court in connection with
a case” under Title 11. 11 U.S.C. § 110(a)(2).

                                                                         5
a bankruptcy petition preparer; or (III) engaged in any other fraudulent, unfair, or deceptive conduct;
and (ii) injunctive relief is appropriate to prevent the recurrence of such conduct, the court may enjoin
the bankruptcy petition preparer from engaging in such conduct.

11 U.S.C. § 110(j)(2)(A). Further specific determinations must be made before enjoining someone

from acting as a petition preparer. Under § 110(j)(2)(B):

        If the court finds that a bankruptcy petition preparer has continually engaged in
        conduct described in subclause (I), (II), or (III) of clause (i) and that an injunction
        prohibiting such conduct would not be sufficient to prevent such person’s interference
        with the proper administration of this title, or has not paid a penalty imposed under
        this section, the court may enjoin the person from acting as a bankruptcy petition
        preparer.

(emphasis added).

        Casey offers two arguments that the bankruptcy court lacked subject matter jurisdiction: (1)

he alleges that he assisted the debtor’s spouse, not the debtor himself, and (2) the bankruptcy judge

never found that he was a “petition preparer” within the meaning of § 110. In affirming the

bankruptcy court’s decision, the district court reasoned that Rubia Martinez was not a disinterested

third-party because Texas is a community property state. As such, the bankruptcy estate includes

certain interests of the debtor and the debtor’s spouse. See In re Wright, 99 B.R. 339, 342 (Bankr.

N.D. Tex. 1989). Therefore, the district court concluded that providing assistance to the debtor’s

wife was tantamount to providing assistance to the debtor for purposes of § 110. We agree. To hold

otherwise would provide an end-run around the strictures of § 110 in contravention to its purpose.

        Casey’s argument that the bankruptcy court failed to find that he was a “petition preparer”

is meritless. As we explained earlier, § 110 applies only to a “bankruptcy petition preparer,” defined

as “a person, other than an attorney or an employee of an attorney, who prepares for compensation

a document for filing.” § 110(a)(1). In this case, the bankruptcy court did not issue written findings

                                                   6
of fact. Although not expressly stated, we find that the bankruptcy court implicitly found that Casey

was a “bankruptcy petition preparer.”4 In addition to the transcript of the show cause hearing and

the issuance of the injunction, the bankruptcy court noted in its denial of Casey’s motion for rehearing

that it had concluded “that Casey had in fact violated the ruling in Guttierez.” In In re Guttierez, the

same bankruptcy court construed § 110 in analyzing the conduct of Rosario Divins, an individual

who offered assistance in the preparation and filing of a bankruptcy petition for a substantial fee. 248

B.R. at 292-99. The bankruptcy court concluded that an injunction was necessary because Divins

had violated the express provisions of § 110 by, among other things, charging an excessive fee, and

that she had engaged in fraudulent and decept ive conduct by offering and providing legal services

without a law license. Id. at 294; see also § 110(j)(2)(A) (authorizing the issuance of an injunction

against a bankruptcy petition preparer who “engaged in conduct in violation of this section or . . .

engaged in any other fraudulent, unfair, or deceptive conduct”). The bankruptcy court found that

Divins gave legal advice, in part, because she held herself out as a person who could “stop”

foreclosure and she “provided the debtor bankruptcy information accompanied by her own

interpretation of that information and advice on what to do with it.” Id. at 296.

        Although we conclude t hat the bankruptcy court implicitly found that Casey was a

“bankruptcy petition preparer,” we nevertheless vacate the injunction because the record does not

reflect the requisite basis for this finding. Specifically, the record is unclear with regard to whether

        4
           We reject Casey’s additional assertion that the bankruptcy court “specifically determined
that [he] was not a petition preparer, but nevertheless enjoined him from future preparation
activities.” (emphasis in original). Casey has taken the bankruptcy judge’s comments out of context.

                                                   7
Casey “prepare[d] for compensation a document for filing.”5 § 110(a)(1) (emphasis added). Under

§ 110(a)(1), such a finding is necessary to bring Casey within the scope of the Act. The record

reflects that Casey stated to the bankruptcy court that none of the $500 fee he was paid by Rubia

Martinez was compensation for preparing a document for filing. On the other hand, in its Order to

Appear and Show Cause, the bankruptcy court referred to a pro se questionnaire filed by Pedro

Martinez, that is not in the record, in which Pedro Martinez indicated that he paid or promised to pay

Casey a $500 fee for assisting him in filing the bankruptcy petition or completing forms. The

resolution of this factual dispute is unclear and t he record before this Court is devoid of sufficient

evidence to sustain the bankruptcy court’s implicit finding that Casey was a “bankruptcy petition

preparer.” Because we find that remand is necessary, we do not reach the remainder of Casey’s

arguments. For the foregoing reasons, we VACATE the injunction and REMAND for further

consideration consistent with this opinion.

VACATE and REMAND.

       5
           During the show cause hearing, the bankruptcy court stated the following:

       Well, I tell you what, Mr. Casey, what your suggestion to the Court here today is that
       what you have is a service that is not directly related to bankruptcy, that the fee that
       you charge is the fee associated with finding other people to buy up this mortgage.
       I don’t have any way to dispute that, and I am not inclined to second-guess what
       you’ve said.

       If I thought the $500 fee was the fee that was being charged in exchange for assisting
       people to file bankruptcy, we have a real problem.

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