IN RE: QUENTINE T. STONE CASE NO. 96-50056

UNITED STATES BANKRUPTCY COURT 

EASTERN DISTRICT OF KENTUCKY

LEXINGTON

IN RE:

QUENTINE T. STONE CASE NO. 96-50056

FRANCES R. STONE

a/k/a Frances P. Daugherty

DEBTORS

MEMORANDUM OPINION

 

 

This case was heard by the court on March 18, 1996 on the motion of the chapter 7 trustee, as amended, for an order holding Martin P. McCubbins in contempt of court and sanctioning him for failure to comply with an order of the court entered herein on January 25, 1996. The trustee's motion is grounded on title 11 U.S.C. 110(h)(4) and 362(a).

McCubbins identifies himself as a bankruptcy petition preparer associated with The People's (sic) Bankruptcy Service, 3113 Fern Valley Rd., Suite 205, Louisville, Kentucky 40213.

FINDINGS OF FACT:

The debtors presented their chapter 7 petition for filing with the clerk of this court on January 12, 1996 accompanied by an application to pay the filing fee in installments. They paid $43.75 at the time the petition was filed and prayed that they be permitted to pay the balance of the filing fee in the amount of $131.25 in three installments of $43.75 each beginning February 9, 1996.

A declaration of Martin P. McCubbins accompanying the petition indicated he had prepared the petition for the debtors and had been paid $145.00 for his services. Such a declaration is mandated by title 11 U.S.C. 110(h)(1).

By its order of January 25, 1996 the court found that the payment by the debtors to McCubbins of $145.00 prior to the payment in full of the fee for filing their case was in violation of Rule 1006(b)(3) of the Federal Rules of Bankruptcy Procedure. The court directed McCubbins to immediately refund the $145.00 to the debtors and directed the debtors to use the refunded monies to pay the clerk of the bankruptcy court the balance due on the filing fee.

The original motion of the trustee filed herein on February 28, 1996, as amended on March 6, 1996, alleges that as of February 27, 1996 McCubbins had not refunded the $145.00 to the debtors as required by the order of January 25, 1996 and had demanded that the debtors execute to him a promissory note for the amount of the fee as a condition of returning the fee. The motion alleges that McCubbins' attempt to coerce the debtors into signing the note is a violation of title 11 U.S.C. 363(a) (sic). At the hearing on the motion it became clear the trustee meant to allege that McCubbins' conduct was a violation of the automatic stay provided for by title 11 U.S.C. 362(a).

The trustee's motion was heard by the court on March 18, 1996. Present were the trustee, James D. Lyon, the debtor, Quentine T. Stone, and Elizabeth Hardy Brittain, representing the office of the U.S. Trustee.

There was no appearance by or on behalf of Martin P. McCubbins. He did file on March 8, 1996, an objection to the trustee's motion and a "Motion to Dismiss and Deny Motion for Sanctions" accompanied by his unsworn affidavit.

The "affidavit" contains inadmissible hearsay evidence concerning conversations between himself and the debtor [which debtor is not specified] and the debtor and a deputy clerk of the bankruptcy court at the time the case was filed. McCubbins asserts the debtor told him the filing fee would be paid in full. However, the schedules to the petition indicate that the $145.00 was paid to The People's (sic) Bankruptcy Service on 12-22-95 and that the debtors had on hand only $80.00 in cash at the time the petition was executed on January 10, 1996, two days before the petition was filed on January 12, 1996. See Statement of Financial Affairs Item 9; Schedule B-1.

McCubbins asserts he should not be held in contempt because the order of January 25, 1996 did not specify the date by which the $145.00 had to be refunded to the debtors and he was unable to obtain the funds with which to make the refund before "this date" [March 6, 1996]. The "affidavit" states he has submitted a $145.00 refund to the debtors. The "affidavit" is accompanied by a photocopy of an American Express money order dated March 6, 1996 in the amount of $145.00 payable to the debtors. Obviously, in order for him to make a photocopy, the money order was still in McCubbins' possession on March 6, 1996. There is no information to substantiate McCubbins' unsworn statement that he did not have the money to make the refund to the debtors sooner.

At the hearing on March 18, 1996 the debtor Quentine T. Stone was duly sworn and examined by the chapter 7 trustee, the representative of the U.S. Trustee's office, and the court. The debtor acknowledged that he had received and had in his possession the money order for $145.00 but did not know exactly when he had received it.

The debtor testified his parents live in Lebanon Junction, Kentucky. While visiting his parents he saw a sign in Lebanon Junction and also in Sheppardsville, Kentucky advertising McCubbins' bankruptcy service and he and his wife contacted and later visited McCubbins' office for the purpose of filing bankruptcy.

The debtors paid McCubbins $145.00 and he gave them forms to complete. McCubbins provided the debtors with other petitions as examples to follow in completing the forms. The debtors completed the forms at the office on that occasion, probably December 22, 1995, the date of the payment, and two or three weeks later they set up an appointment to pick up the forms.

According to Mr. Stone he and his wife made some mistakes in completing the forms. The mistakes were brought to their attention by Martin B. McCubbins. McCubbins also explained to them their exemption rights and the kinds of bankruptcy relief available to them. Such assistance by McCubbins clearly constitutes the unauthorized practice of law.

Quentine T. Stone produced a letter dated February 14, 1996 which he and his wife had received from McCubbins. The letter states:

Please sign, date and return to me the enclosed promissary (sic) contract. Upon receipt, I will refund my fee of $145.00 to be applied in full to the balance due on your filing fee.

 

The so-called promissory contract accompanying the letter is as follows:

I/we agree to pay $145.00 to Martin P. McCubbins no later than 4/1/96 for services rendered and documents prepared in connection with my/our bankruptcy case #96-50056.

 

Signed _________________ Date:__________________

Quentine P. Stone

 

Signed _________________ Date:__________________

Frances R. Stone

 

On the advice of the chapter 7 trustee the debtors did not execute the promissory note.

McCubbins' letter of February 14, 1996, and the accompanying promissory note which he forwarded to the debtors for their signature indicate a willful intention on his part to circumvent (defeat by ingenuity or stratagem) the order of the court directing him to immediately refund to the debtors the $145.00 fee they had paid to him. The letter and note are also inconsistent with the representation of McCubbins in his "affidavit" that the delay in refunding this money to the debtors was due to lack of funds.

 

CONCLUSIONS OF LAW:

The court does not believe that title 11 U.S.C. 110(h)(4) is applicable to the facts of this case. The court ordered the $145.00 refunded to the debtor because it was paid to and accepted by the bankruptcy petition preparer in violation of Rule 1006(b)(3) of the Federal Rules of Bankruptcy Procedure and not because the fee was found to be excessive. The question of whether the fee is excessive is not raised by the trustee's motion. Also, because he has refunded the entire amount received, McCubbins has not received any fee for his services.

The Bankruptcy Code authorizes payment to an attorney for services rendered prepetition or to be rendered postpetition in connection with a bankruptcy case. 11 U.S.C. 329(a). Provision is made for recouping excessive compensation received by an attorney. 11 U.S.C. 329(b); Rule 2017, Federal Rules of Bankruptcy Procedure. The amount of any fee recovered by the trustee as excessive is property of the bankruptcy estate. 11 U.S.C. 541(a)(3).

There is no statutory authority for a bankruptcy petition preparer to be paid prepetition for services to be rendered postpetition. Title 11 U.S.C. 110(h) provides for review of payments made to a bankruptcy petition preparer. Legislative history suggests the service which a bankruptcy petition preparer may provide is limited to typing. H.R. 103-834, 103rd Cong., 2d Sess. (Oct. 4, 1994). See Testerman Bankruptcy Paralegal Regulation and the Bankruptcy Reform Act of 1994: Legitimate Legal Assistance Options for the Pro Se Bankruptcy Debtor, 23 Cal. Bankr. J. No. 1 (1996).

Clearly, aside from the question of whether McCubbins is engaged in the unauthorized practice of law, the services he rendered in this instance were performed prepetition. The debt owed to him by the debtors for these services is dischargeable as a personal liability of the debtors. 11 U.S.C. 524(a). Obviously, McCubbins is aware of the debtors' bankruptcy case. 11 U.S.C. 523(a)(3).

McCubbins' letter of February 14, 1996 and the accompanying "promissary (sic) contract" which he drafted and forwarded to the debtors for their signature was an attempt on his part to collect or recover a claim against the debtors that arose before the commencement of the case. McCubbins' action constitutes a violation of title 11 U.S.C. 362(a)(6). There can be little doubt that the violation was willful because it was motivated by McCubbins' desire to circumvent the court's order of January 25, 1996.

The debtors and the chapter 7 trustee are "individuals" injured by McCubbins' willful violation of the automatic stay. 11 U.S.C. 362(h).  Matter of Garofalo's Finer Foods, Inc., 186 B.R. 414, 435-439 (D.C. N.D. Ill. 1995).

The court shall conduct a further hearing for the purposes of assessing the actual damages sustained by the debtors and the chapter 7 trustee as a consequence of the conduct of McCubbins and determining whether punitive damages are appropriate in the circumstances of this case.

The motion of the trustee, insofar as it seeks sanctions against McCubbins for violating the automatic stay, is sustained.

Dated:

By the court -

 

____________________________

JOE LEE, CHIEF JUDGE

 

Copies to:

 

James D. Lyon, Esq.

Elizabeth Hardy Brittain

Martin P. McCubbins

Debtors

 

 

 

 

 

 

f:\opinions\1996\stone

UNITED STATES BANKRUPTCY COURT

EASTERN DISTRICT OF KENTUCKY

LEXINGTON

 

 

IN RE:

 

QUENTINE T. STONE CASE NO. 96-50056

FRANCES R. STONE

a/k/a Frances P. Daugherty

 

DEBTORS

 

ORDER

 

 

In conformity with the memorandum opinion of the court this day entered, IT IS ORDERED that the motion of the chapter 7 trustee, as amended, for an order holding Martin P. McCubbins in contempt of court and sanctioning him for failure to comply with an order of the court entered herein on January 25, 1996, is sustained insofar as it seeks sanctions against McCubbins for violating the automatic stay. It is further ordered that this case is set for hearing at 1:30 p.m., Monday, April 29, 1996, U.S. Bankruptcy Courtroom, 2nd Floor, Merrill Lynch Building, 100 East Vine Street, Lexington, Kentucky, for the purpose of assessing the actual damages sustained by the debtors and the chapter 7 trustee as a consequence of the conduct of McCubbins and to determine whether punitive damages are appropriate in the circumstances of this case. Dated:

By the court -

 

_______________________________

JOE LEE, CHIEF JUDGE

 

 

Copies to:

 

James D. Lyon, Esq.

Elizabeth Hardy Brittain

Martin P. McCubbins

Debtors