Opinion
Case No. 09-76649
07-24-2014
In re: Joseph Thomas, Debtor. Daniel M. McDermott, United States Trustee, Plaintiff, v. Roscoe Copeland, Defendant.
Chapter 7
Hon. Phillip J. Shefferly
Adversary Proceeding
No. 10-05347-PJS
(Jointly Administered)
BANKRUPTCY COURT'S RECOMMENDATION TO THE
UNITED STATES DISTRICT COURT TO WITHDRAW THE
REFERENCE OF THIS ADVERSARY PROCEEDING FOR THE
PURPOSE OF ENTERING PROPOSED CONSENT ORDER AGREED
TO BY THE UNITED STATES TRUSTEE AND ROSCOE COPELAND
Recommendation
Chief Bankruptcy Judge Phillip J. Shefferly hereby recommends that the United States District Court exercise its discretion under 28 U.S.C. § 157(d), and withdraw the reference of this adversary proceeding to the Bankruptcy Court that was made by Local District Court Rule 83.50(a)(1) and 28 U.S.C. § 157(a). The Bankruptcy Court makes this recommendation for the purpose of having the District Court enter a proposed consent order agreed to by the United States Trustee ("UST") and Roscoe Copeland ("Copeland"), the parties to this adversary proceeding.
Background
On April 28, 2010, the UST filed this adversary proceeding against Copeland seeking various forms of relief under 11 U.S.C. § 110 of the Bankruptcy Code. Specifically, the UST alleged that Copeland is a "bankruptcy petition preparer," as that term is defined in 11 U.S.C. § 110(a)(1). Further, the UST alleged that Copeland violated numerous provisions of § 110 as well as other provisions of the Bankruptcy Code. The UST requested that the Bankruptcy Court award actual damages, impose statutory fines, and permanently enjoin Copeland from further activities as a bankruptcy petition preparer. On July 13, 2010, the Bankruptcy Court entered a default judgment ("Judgment") against Copeland, granting the UST the relief requested in its complaint.
On August 13, 2013, the UST filed a motion requesting the Bankruptcy Court to reopen the adversary proceeding because Copeland had failed to comply with the Judgment. On August 15, 2013, the Bankruptcy Court entered an order granting the UST's motion. After the adversary proceeding was reopened, the Bankruptcy Court entered an order consolidating multiple other adversary proceedings into this adversary proceeding. The reason for the consolidation was because the UST had also filed adversary proceedings in other bankruptcy cases in this district alleging that Copeland had violated § 110 and other provisions of the Bankruptcy Code in those cases too.
On December 24, 2013, after the consolidation, the UST filed a motion seeking a finding of contempt and other relief against Copeland because of his multiple violations of the Judgment, as well as his multiple violations of orders entered against him in the other adversary proceedings that were consolidated with this adversary proceeding. On January 22, 2014, Copeland filed a response to the motion. On February 11, 2014, the Court entered an order scheduling an evidentiary hearing on the motion.
Prior to the evidentiary hearing taking place, the UST and Copeland entered into a Settlement Agreement of all of their disputes. On May 1, 2014, the UST and Copeland filed a stipulation (ECF No. 40) providing for the entry of a proposed order to resolve all of their disputes. A copy of the Settlement Agreement is attached to the stipulation. The Settlement Agreement provides for the Bankruptcy Court to make certain proposed findings of fact and conclusions of law, and to enter an order approving the Settlement Agreement. The Settlement Agreement further provides for Copeland to pay damages to each of ten separate individual debtors for whom Copeland had provided bankruptcy petition preparer services in violation of § 110. The Settlement Agreement provides for other relief as well, including continued monitoring of Copeland by the UST. Finally, the Settlement Agreement provides for the Bankruptcy Court to recommend that the District Court withdraw the reference of this adversary proceeding for the purpose of having the District Court enter its own order regarding the Settlement Agreement between the UST and Copeland.
On May 12, 2014, as requested by the UST and Copeland, the Bankruptcy Court entered an order (ECF No. 41) resolving the UST's motion for contempt, approving the Settlement Agreement, and providing for other relief. In that order, the Bankruptcy Court agreed to recommend that the District Court withdraw the reference of this adversary proceeding for the purpose of entering a proposed order in the form agreed to by the UST and Copeland. The Bankruptcy Court now makes this recommendation.
Attachments to Recommendation
To assist the District Court in determining whether to approve this recommendation, the following exhibits from the adversary proceeding file in the Bankruptcy Court are attached:
Exhibit 1 The Judgment entered by the Bankruptcy Court against Copeland on July 13, 2010 (ECF No. 7).
Exhibit 2 The motion for contempt and other relief filed by the UST on December 24, 2013 (ECF No. 19).
Exhibit 3 The stipulation filed by the UST and Copeland on May 1, 2014 (ECF No. 40). (Attached to this stipulation is a copy of the Settlement Agreement, together with the proposed findings of fact and conclusions of law agreed to by the UST and Copeland for entry by the Bankruptcy Court.)
Exhibit 4 The order entered by the Bankruptcy Court on May 12, 2014 on the stipulation of the UST and Copeland resolving the UST's motion for contempt and for other relief (ECF No. 41).
Exhibit 5 The proposed order that the UST and Copeland intend to request the District Court to enter if the Bankruptcy Court's recommendation for withdrawal of the reference is approved by the District Court.
Reasons for this Recommendation
Recently, the District Court for the Eastern District of Michigan explained the purpose of § 110 of the Bankruptcy Code as follows:
In enacting § 110, Congress sought to put an end to the increasing number of bankruptcy petition preparers giving legal advice and preying on unsophisticated debtors unfamiliar with the bankruptcy process. In re Briones-Coroy, 481 B.R. 685, 692-93 (D. Col. 2012) (citing H.R. Rep. 103-834, 103rd Cong., 2d Sess 40-41 (October 4, 1994), 1994 U.S.C.C.A.N. 3336; 140 Cong. Rec. H10770 (Oct. 4, 1994)). Indeed, "Congress intended to regulate the conduct of bankruptcy petition preparers, and penalize the misconduct of petition preparers who prey on others in financial distress and in need of bankruptcy protection, but do not understand the bankruptcy system. . . ." Id. at 693 (citation omitted).In re Hutchinson, case no. 13-cv-11585, slip op. at 8 (E.D. Mich. July 10, 2014).
Since the enactment of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, the number of pro se individuals filing bankruptcy in the Eastern District of Michigan has skyrocketed. Because many of these individuals are unable to afford a lawyer, they frequently seek assistance from individuals to help them prepare their bankruptcy papers. Unfortunately, there are many unscrupulous individuals who offer services as bankruptcy petition preparers, yet do not comply with the requirements of § 110 of the Bankruptcy Code. The proliferation of bankruptcy petition preparers who do not comply with § 110 has resulted in numerous individual debtors in this district having their bankruptcy cases dismissed, having their discharges denied, and having sanctions imposed against them.
The UST has brought extensive litigation in the Eastern District of Michigan in the last several years to enjoin individuals from acting as bankruptcy petition preparers where they do not comply with the requirements of § 110. Several recent decisions issued by the Bankruptcy Court have cataloged the violations undertaken by these bankruptcy petition preparers and have documented the damage they have caused to individuals filing bankruptcy cases. See In re Hutchinson, 494 B.R. 236 (Bankr. E.D. Mich. 2013); In re Wicker, no. 10-49759, Order Granting UST's Motion, ECF no. 43 (Bankr. E.D. Mich. May 11, 2011), aff'd, case no. 11-cv-12373 (E.D. Mich. Feb. 22, 2012); and In re Terrell, case no. 09-63848, opinion regarding Derrick Hills, ECF no. 59 (Bankr. E.D. Mich. Oct. 13,2010). In a number of instances involving serial violators of § 110, the UST has also sought and obtained not only monetary relief authorized by § 110, but also permanent injunctive relief authorized by § 110 to prohibit certain individuals from continuing to serve as bankruptcy petition preparers.
In many cases, orders from the Bankruptcy Court permanently enjoining bankruptcy petition preparers who have violated § 110 have been sufficient. However, there are some cases where even permanent injunctions entered by the Bankruptcy Court have proven to be ineffective. To put more teeth in the injunctive remedies authorized under § 110, and to ensure future compliance with § 110, the UST has, in exceptional cases, requested the Bankruptcy Court to recommend that the District Court withdraw the reference of the UST's action against the bankruptcy petition preparer. The UST explains that it has made such requests because the Bankruptcy Court does not have criminal contempt powers, but only civil contempt powers and, as a result, is limited in the enforcement actions it can take with respect to the order that it enters. Therefore, in certain egregious situations, the UST has requested that an order be entered by the District Court, which can be enforced not only by civil contempt powers, but also by criminal contempt powers.
Based upon Copeland's numerous violations of § 110 and other provisions of the Bankruptcy Code, both in this case and in other bankruptcy cases filed in this district, coupled with Copeland's non-compliance with the Judgment entered by the Bankruptcy Court on July 13, 2010, the UST bargained for and obtained in the Settlement Agreement, Copeland's consent to certain enforcement mechanisms. In the Settlement Agreement, the UST and Copeland agreed to ask the Bankruptcy Court to request the District Court to withdraw the reference of this adversary proceeding for the specific purpose of entering a consent order to be submitted by the UST and Copeland to the District Court. If such order is entered, the UST will have a stronger, more effective remedy than the Bankruptcy Court can provide in the event of any further violations by Copeland. Further, the entry of such order by the District Court will serve as a strong deterrent to Copeland from committing any further violations.
In at least one other instance, the District Court has approved a similar recommendation by the Bankruptcy Court. On May 2, 2013, in Daniell Guthrie, case no. 07-58703, Judge Thomas J. Tucker recommended that the District Court withdraw the reference of that case based upon a settlement reached in that case between the UST and an individual who violated § 110 of the Bankruptcy Code in that case. Judge Tucker's recommendation to the District Court to withdraw the reference was approved by order of the District Court entered on June 5, 2013 in District Court case no. 13-cv-11964.
In the Bankruptcy Court's view, it is extraordinary for parties to request the Bankruptcy Court to recommend to the District Court to withdraw the reference of a matter that has been referred to the Bankruptcy Court, where the sole purpose of such request is to permit such parties to obtain from the District Court an order approving a settlement between them that has already been approved by the Bankruptcy Court. Ordinarily, the Bankruptcy Court would not make such recommendation to the District Court based solely upon the consent of the parties. However, the pervasive problems caused by serial violators of § 110 in this district, together with the particular facts and circumstances in this adversary proceeding, warrant extraordinary action.
Based upon the Bankruptcy Court's review of this entire adversary proceeding, and the numerous cases in which Copeland has been found to have violated § 110, the Bankruptcy Court finds that it is appropriate for the UST and Copeland to agree to ask the Bankruptcy Court to recommend that the District Court withdraw the reference. Further, the Bankruptcy Court finds that the facts of this case support the Bankruptcy Court making such recommendation.
Conclusion
For the reasons stated above, the Bankruptcy Court hereby recommends that the United States District Court for the Eastern District of Michigan withdraw the reference of this adversary proceeding to the Bankruptcy Court and enter the proposed consent order in the form attached to this recommendation, which is the form of the order agreed upon by the UST and Copeland in the Settlement Agreement.
__________
Phillip J. Shefferly
United States Bankruptcy Judge