In re: Halina Wojcik

• Court: United States Bankruptcy Appellate Panel for the Ninth Circuit
• Decided: November 30, 2016
• Docket: CC-16-1172-KiFPa
• Status: Published

Opinion

FILED NOV 30 2016 SUSAN M. SPRAUL, CLERK 1 U.S. BKCY. APP. PANEL OF THE NINTH CIRCUIT

2 ORDERED PUBLISHED 3 UNITED STATES BANKRUPTCY APPELLATE PANEL 4 OF THE NINTH CIRCUIT 5 In re: ) BAP No. CC-16-1172-KiFPa ) 6 HALINA WOJCIK, ) Bk. No. 6:16-13228-SHY ) 7 Debtor. ) ) 8 ) ) 9 MAGDELENA STRICKLAND, ) ) 10 Appellant, ) ) O P I N I O N 11 v. ) ) 12 U.S. TRUSTEE, ) ) 13 Appellee. ) ______________________________) 14 15 Submitted Without Oral Argument on November 17, 2016 16 Filed - November 30, 2016 17 Appeal from the United States Bankruptcy Court 18 for the Central District of California 19 Honorable Scott H. Yun, Bankruptcy Judge, Presiding 20 21 Appearances: Appellant Magdelena Strickland, pro se, on brief; Russell Clementson on brief for appellee, the U.S. 22 Trustee. 23 24 Before: KIRSCHER, FARIS and PAPPAS,1 Bankruptcy Judges. 25 26 27 1 Hon. Jim D. Pappas, Bankruptcy Judge for the District of 28 Idaho, sitting by designation. 1 KIRSCHER, Bankruptcy Judge: 2 3 Appellant Magdelena Strickland, a bankruptcy petition 4 preparer2 (“BPP”), appeals an order granting the motion of the 5 U.S. Trustee (“UST”) under § 1103 to disgorge her petition 6 preparation fees and to impose fines and damages, totaling $2,650. 7 We AFFIRM. 8 I. FACTUAL BACKGROUND AND PROCEDURAL HISTORY 9 A. How Debtor and Strickland met 10 The facts are mostly undisputed. Strickland does not have a 11 law degree, she is not an attorney and she does not work under the 12 supervision of an attorney. She and her husband, who is also not 13 an attorney, own and operate “Low Cost Paralegal Services” 14 (“LCPS”), a sole proprietorship, in Las Vegas, Nevada. LCPS is 15 registered with the Nevada Secretary of State as a document 16 preparation service. Strickland holds an Associate of Arts degree 17 in Paralegal Studies and worked as a paralegal for law firms 18 before starting her business in 2009. Strickland confirmed that 19 despite her legal training, LCPS operates solely as a document 20 preparation service and thus is not required to work under the 21 supervision of a licensed attorney. 22 Chapter 7 debtor Halina Wojcik (“Debtor”) contacted LCPS for 23 preparation of her chapter 7 bankruptcy petition. Debtor lives in 24 25 2 Strickland does not dispute that she is a bankruptcy 26 petition preparer as defined in § 110(a). 27 3 Unless specified otherwise, all chapter, code and rule references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532, and 28 the Federal Rules of Bankruptcy Procedure, Rules 1001-9037.

-2- 1 California. She found Strickland and her bankruptcy petition 2 preparation services through LCPS by searching on the internet 3 using the word “paralegal.” Strickland maintains a website, 4 www.lowcostparalegalsolutions.com, at which she promotes her 5 business. LCPS’s website’s home page reads: “Low Cost Paralegal 6 Services — The Lower Cost Alternative to Attorney Document 7 Preparation.” It also reads: “If a [sic] issue ever arises, 8 please feel free to contact our paralegal for immediate 9 resolution.” Finally, the website reads: 10 Knowing the difficulty of determining the procedure for various legal actions for those not immersed in the legal 11 system, we have enjoyed being able to assist others helping to locate and generate the paper work required 12 for various legal actions. 13 While the State of Nevada prohibits paralegals from providing legal advice, in many cases the only assistance 14 needed is with the preparation of the documents and filing; and for that purpose Low Cost Paralegal Services 15 is honored to be able to assist. We pride ourselves on the work that has been and is being completed, on a daily 16 basis. 17 Shortly after viewing the website, Debtor called LCPS and 18 spoke with Strickland. Strickland informed Debtor over the phone 19 that she was not an attorney but could help her prepare and file 20 her bankruptcy documents. Strickland sent Debtor a questionnaire 21 to complete and return. Debtor completed the questionnaire and 22 faxed a copy back to Strickland. A few days later, Debtor met 23 with Strickland at her office in Las Vegas to sign her bankruptcy 24 documents. Debtor also executed a Document Preparation Services 25 Agreement, which stated in several places that LCPS and Strickland 26 were not able to give legal advice and could not accept money for 27 legal advice, and that any information provided through LCPS could 28 not be used for legal advice. Debtor paid LCPS $125 for preparing

-3- 1 her bankruptcy documents and $25 for requesting a credit report. 2 B. The UST’s motion under § 110 3 In her chapter 7 bankruptcy petition and statement of 4 financial affairs, Debtor identified Strickland as the non- 5 attorney she paid to assist her in filling out her bankruptcy 6 forms. Strickland confirmed her role as Debtor’s BPP in the (1) 7 Disclosure of Compensation of BPP (Form 2800) and (2) the 8 Declaration and Signature of the BPP (Form 119). 9 The UST moved under § 110(f), (h), (i) and (l) to disgorge 10 Strickland’s fee of $125,4 impose damages of $2,000 and fine her 11 $500 on the basis that Strickland violated § 110(f) by using the 12 word “legal” in advertising her business. The UST points out that 13 Strickland used the word “paralegal”: (1) in connection with the 14 services she provided to Debtor; (2) in the name of her business; 15 (3) in the web address used by Strickland to promote her business; 16 and (4) in the web pages describing the services performed by her 17 business, including bankruptcy services. The UST contended that 18 this use violated the strict liability provisions of § 110(f). 19 The UST argued that Strickland’s use of the term “paralegal” left 20 the impression that a debtor using her services would be receiving 21 the equivalent of attorney or legal services but at a lower cost, 22 not only the typing services permitted for BPPs. The UST argued 23 that Strickland’s violation of § 110(f) subjected her to actual 24 damages to Debtor for the amount of her fee and the $2,000 25 26 4 The amount Debtor paid to Strickland was reported as $125 in the Disclosure of Compensation and as $150 in Question 16 of 27 Debtor’s Statement of Financial Affairs. The UST initially sought disgorgement of the $125 fee. However, in his reply brief he 28 requested that the entire $150 paid to Strickland be disgorged.

-4- 1 mandated under § 110(h)(3)(B) and (i)(1), and a fine of $500 2 payable to the UST under § 110(l)(1). A hearing was set for May 3 26, 2016. 4 Strickland opposed the UST’s motion. She admitted to using 5 the word “paralegal” in advertising her business, but argued that 6 no lay person would believe LCPS was anything more than a document 7 preparation service, especially when considering the disclosures 8 she makes in person and on the phone with clients, in her email 9 tags, in her client agreements, on signs posted in her office, and 10 on her website stating that she is not an attorney and that 11 neither she nor LCPS can offer any legal advice or legal services. 12 For example, two signs with 12" letters posted in the LCPS office 13 state: “I AM NOT AN ATTORNEY IN THE STATE OF NEVADA. I AM NOT 14 LICENSED TO GIVE LEGAL ADVICE. I MAY NOT ACCEPT FEES FOR GIVING 15 ADVICE.” Strickland further argued that her business name did not 16 use the word “legal” solely on its own, and thus would not give a 17 lay person the impression that the office is a legal service or 18 gives legal advice. Because Strickland was unable to travel to 19 California for the hearing, she requested to appear by telephone, 20 asking that the court contact her at the number provided. 21 In reply, the UST argued that Strickland’s disclaimers of not 22 offering legal services or legal advice did not excuse her 23 prohibited use of the word “legal” in her advertising. In fact, 24 argued the UST, by repeatedly using the word “paralegal” and 25 promoting her experience levels, Strickland had knowingly 26 embellished the illusion to her clients that they will receive the 27 28

-5- 1 essential legal assistance necessary to obtain bankruptcy relief.5 2 The hearing went forward on May 26, 2016. When entering 3 appearances, the bankruptcy court inquired if anyone for 4 Strickland was on the phone; no one was there. Acknowledging that 5 Strickland had asked to appear by telephone, the court noted that 6 although it has a liberal policy on telephonic appearances, which 7 is posted on the court’s website, Strickland needed to contact 8 Court Call in order to appear by phone; the court was not going to 9 go outside its own procedure to call Strickland for the hearing. 10 In reviewing the merits of Strickland’s opposition, the court 11 opined that it was not convincing. Strickland admitted to the 12 UST’s central allegation, that she is “advertising legal or 13 paralegal services.” In ruling in favor of the UST, the court 14 stated: 15 So my tentative ruling is to grant the motion. Disgorge the fee of $150. Statutory damages of [$]2,000 and fine 16 of [$]500. 17 . . . . 18 So, I am granting the motion as set forth in the motion. And the only variance is the, I’m not granting the 19 additional $500 in fine that the U.S. Trustee requested [in his reply for the unauthorized practice of law]. 20 21 Hr’g Tr. (May 26, 2016) 3:8-10, 4:14-16. 22 The bankruptcy court entered an order in accordance with its 23 oral ruling on June 17, 2016. This timely appeal followed. 24 5 In his reply, the UST added a claim against Strickland 25 under § 110(e)(2) for the unauthorized practice of law based on Strickland’s alleged “choosing” of Debtor’s exemptions as under 26 § 322 instead of § 522. Strickland argues on appeal that this was a typographical error. In any event, the bankruptcy court 27 declined to consider the UST’s added claim for lack of notice to Strickland and did not award any damages on that basis. 28 Therefore, we do not address Strickland’s arguments on this issue.

-6- 1 II. JURISDICTION 2 The bankruptcy court had jurisdiction under 28 U.S.C. §§ 1334 3 and 157(b)(2)(A). We have jurisdiction under 28 U.S.C. § 158. 4 III. ISSUES 5 A. Did the bankruptcy court violate Strickland’s procedural 6 due process rights by not telephoning her for the hearing? 7 B. Did the bankruptcy court err in finding that Strickland 8 violated § 110(f) or abuse its discretion by ordering disgorgement 9 and imposing statutory damages and fines? 10 IV. STANDARDS OF REVIEW 11 Whether procedures used by the bankruptcy court violated an 12 individual’s due process rights is a mixed question of law and 13 fact that we review de novo. Wilborn v. Gallagher (In re 14 Wilborn), 205 B.R. 202, 206 (9th Cir. BAP 1996) (citing Rose v. 15 United States, 905 F.2d 1257, 1259 (9th Cir. 1990)). 16 The bankruptcy court’s interpretation of the Code is a matter 17 of law, subject to de novo review. Id. 18 We review the bankruptcy court’s imposition of fines under 19 § 110 for an abuse of discretion. Frankfort Dig. Servs., Ltd. v. 20 U.S. Trustee (In re Reynoso), 315 B.R. 544, 550 (9th Cir. BAP 21 2004), aff’d, 477 F.3d 1117 (9th Cir. 2007) (citing Consumer Seven 22 Corp. v. U.S. Tr. (In re Fraga), 210 B.R. 812, 816 (9th Cir. BAP 23 1997)). A bankruptcy court abuses its discretion if it applies an 24 incorrect legal standard or misapplies the correct legal standard, 25 or if its factual findings are illogical, implausible or 26 unsupported by evidence in the record. Trafficschool.com, Inc. v. 27 Edriver Inc., 653 F.3d 820, 832 (9th Cir. 2011). 28 We may affirm the bankruptcy court’s order on any basis

-7- 1 supported by the record. See ASARCO, LLC v. Union Pac. R. Co., 2 765 F.3d 999, 1004 (9th Cir. 2014). 3 V. DISCUSSION 4 A. The bankruptcy court did not violate Strickland’s procedural due process rights. 5 6 Due process is a relatively minimal standard that only 7 requires “notice reasonably calculated, under all the 8 circumstances, to apprise interested parties of the pendency of 9 the action and afford them an opportunity to present their 10 objections.” Mullane v. Cent. Hanover Bank & Tr. Co., 339 U.S. 11 306, 314 (1950); Tennant v. Rojas (In re Tennant), 318 B.R. 860, 12 870 (9th Cir. BAP 2004) (procedural due process requires notice 13 and an opportunity to be heard). The UST’s moving papers clearly 14 stated what Code sections he believed Strickland violated and what 15 relief he was seeking. He provided proper notice to Strickland of 16 the hearing date and time and notice under Local Rule 9013-1(f) 17 that any objection had to be served within 14 days prior to the 18 hearing. Strickland timely filed an opposition to the motion, 19 defending her position. 20 Strickland contends the bankruptcy court erred by refusing to 21 call her for the hearing, which appears to be a procedural due 22 process argument. She argues that no “Court Call” directions were 23 ever given to her and that no such “Court Call rule” exists on the 24 website for the Bankruptcy Court for the Central District of 25 California. Strickland contends therefore that she had no way of 26 knowing a prepayment to Court Call was required prior to being 27 allowed to be heard at oral argument. 28 Local Rule 9074-1, which is available on the bankruptcy

-8- 1 court’s website, discusses telephonic appearance for court 2 hearings and provides that “[a] party who wishes to appear 3 telephonically at a court hearing must consult the court’s web 4 site to determine whether a telephonic appearance on a particular 5 matter is permissible and to obtain the judge’s procedure for 6 requesting and making a telephonic appearance.” Telephonic 7 appearance instructions are available for each bankruptcy judge on 8 the court’s website. They provide detailed, step-by-step 9 instructions on how to appear by telephone, including contact 10 information for Court Call. If Strickland was unsure where to 11 look on the court’s website, running a search for “telephonic 12 appearance” in the website’s search engine leads one to the 13 judge’s procedures. 14 As a litigant, it was Strickland’s responsibility to 15 determine whether and how she could appear by phone. Her 16 unfamiliarity with the rules for a telephonic appearance is no 17 excuse; the court not calling her for the hearing certainly does 18 not constitute a violation of her due process rights. Pro se 19 litigants are not excused from complying with procedural rules. 20 King v. Atiyeh, 814 F.2d 565, 567 (9th Cir. 1987), overruled on 21 other grounds, Lacey v. Maricopa Cty., 693 F.3d 896 (9th Cir. 22 2012) (“Pro se litigants must follow the same rules of procedure 23 that govern other litigants.”). Strickland’s acknowledgment of 24 her extensive paralegal training is an even more compelling reason 25 to expect her to comply with the local rules for participating in 26 telephonic hearings. The bankruptcy court therefore acted within 27 its discretion to enforce the court’s local rules and procedures 28 and to decline to call Strickland as she requested. See Simmons

-9- 1 v. Navajo Cty., Ariz., 609 F.3d 1011, 1017 (9th Cir. 2010) (trial 2 court has broad discretion in interpreting and applying local 3 rules). 4 Moreover, Strickland has not shown how she was prejudiced 5 from what she considers were procedural deficiencies. See Rosson 6 v. Fitzgerald (In re Rosson), 545 F.3d 764, 777 (9th Cir. 2008) 7 (“Because there is no reason to think that, given appropriate 8 notice and a hearing, Rosson would have said anything that could 9 have made a difference, Rosson was not prejudiced by any 10 procedural deficiency.”). Strickland has not articulated what she 11 could have said or done at the hearing that would have changed the 12 outcome. As we explain below, § 110(f) is a strict liability 13 provision and Strickland admitted to violating it in her 14 opposition. She advanced only the legal argument that use of the 15 word “paralegal” did not violate § 110(f). The court found that 16 it did, as do we. Thus, nothing she would have said or done at 17 the hearing had the court called her as she requested would have 18 changed the outcome. 19 B. The bankruptcy court did not err in determining that use of the word “paralegal” violates § 110(f) or abuse its 20 discretion in fining Strickland. 21 Perceiving a need to curtail widespread fraud, abuse and the 22 unauthorized practice of law, Congress enacted legislation in 1994 23 seeking to restrict the activities of non-attorney BPPs. See Ferm 24 v. U.S. Tr. (In re Crawford), 194 F.3d 954, 957 (9th Cir. 1999). 25 The centerpiece of that legislation was § 110. Id. Section 110 26 was designed to prevent BPPs from taking “unfair advantage of 27 persons who are ignorant of their rights both inside and outside 28 the bankruptcy system.” Hastings v. U.S. Tr. (In re Agyekum), 225

-10- 1 B.R. 695, 701 n.7 (9th Cir. BAP 1998) (quoting H.R. Rep. 103-834, 2 at 40-41(1994)). Section 110 imposes a number of requirements and 3 restrictions on BPPs and also imposes fines for noncompliance. 4 See In re Branch, 504 B.R. 634, 639-40 (Bankr. E.D. Cal. 2014) 5 (explaining requirements, restrictions and fines). The U.S. 6 Trustee has standing to file a motion to request turnover of fees, 7 statutory damages and fines. § 110(h)(4), (i)(1) and (l)(3). 8 Section 110(f) provides that a BPP “shall not use the word 9 ‘legal’ or any similar term in any advertisements, or advertise 10 under any category that includes the word ‘legal’ or any similar 11 term.” (Emphasis added.) Strickland raises the same arguments 12 here that she did before the bankruptcy court, that using the name 13 “Low Cost Paralegal Services” would not mislead the public into 14 thinking she offered legal services as the UST alleged, especially 15 when considering her disclaimers, and that her business name does 16 not contain the word “legal” solely on its own. Thus, argues 17 Strickland, she did not violate § 110(f). We disagree. 18 Several courts, including the Panel, have held that a BPP’s 19 use of the word “paralegal” violates § 110(f), not only because it 20 actually contains the prohibited word “legal”, but also because it 21 promotes the BPP’s specialized legal expertise or knowledge and 22 misleads lay persons into believing legal services are being 23 provided. U.S. Tr. v. Burton (In re Rosario), 493 B.R. 292, 349 24 (Bankr. D. Mass. 2013); U.S. Tr. v. Summerrain (In re Avery), 280 25 B.R. 523, 530 (Bankr. D. Colo. 2002) (BPP who does business under 26 trade name incorporating the word “paralegal” and advertises trade 27 name violates § 110(f)); In re Bush, 275 B.R. 69, 82 (Bankr. D. 28 Idaho 2002) (holding that BPP’s use of the word “legal” within the

-11- 1 term “paralegal” on a sign in his office violated § 110(f)); In re 2 Moffett, 263 B.R. 805, 813 (Bankr. W.D. Ky. 2001) (holding that a 3 trained paralegal working as a BPP violated § 110(f) by using the 4 word “paralegal” on her business cards); In re Gomez, 259 B.R. 5 379, 385 (Bankr. D. Colo. 2001) (holding that use of “paralegal” 6 trade name in advertisements violates the letter and spirit of 7 § 110(f)); Fessenden v. Ireland (In re Hobbs), 213 B.R. 207, 215 8 (Bankr. D. Maine 1997) (use of the term “paralegal,” a “similar 9 term” to “legal” under § 110(f), fosters consumer confusion of the 10 character Congress intended to eliminate); In re Burdick, 191 B.R. 11 529, 535 (Bankr. N.D.N.Y. 1996) (BPP’s use of the word “paralegal” 12 in her Pennysaver ads violated § 110(f) because paralegal is a 13 “similar term” that falls within the statute). See also Abonal v. 14 U.S. Tr. (In re Jackson), 2014 WL 5575293, at *10 (9th Cir. Nov. 15 3, 2014) (BPP with business name “Abonal Paralegal Services” who 16 failed to prove he was a paralegal acting under the direct 17 supervision of an attorney violated § 110(f) by using the term 18 “paralegal” in his business name and business cards). 19 Contrary to Strickland’s argument, the plain language of 20 § 110(f) prohibits any use of the word “legal” in an advertisement 21 by a non-attorney BPP, including the word “paralegal.” “The 22 statute does not say that some uses of the word ‘legal’ are 23 acceptable through context, modifier, or otherwise. The 24 prohibition is absolute and unambiguous.” In re Farness, 244 B.R. 25 464, 468 (Bankr. D. Idaho 2000). Therefore, whether Debtor was 26 actually misled into thinking Strickland offered legal advice or 27 legal services is not the test for whether Strickland violated 28 § 110(f). Section 110(f) is a “strict liability” provision.

-12- 1 Bolen v. King (In re Howard), 351 B.R. 371, 380 (Bankr. W.D. La. 2 2005); In re Gomez, 259 B.R. at 385. Further, her claimed 3 adherence to Nevada law also lacks merit; § 110(f) is a federal 4 bankruptcy statute, not a state statute. 5 Strickland’s use of the business name “Low Cost Paralegal 6 Services” violates § 110(f). So too does her use of the terms 7 “paralegal” and “legal” throughout her website in connection with 8 advertising her bankruptcy preparation services. In re Reynoso, 9 477 F.3d at 1124 (BPP’s use of the words “law” and “legal” on 10 BPP’s website violated § 110(f)). The bankruptcy court did not 11 err in determining that Strickland violated § 110(f). 12 A BPP who violates § 110, including subsection (f), “or 13 commits any act that the court finds to be fraudulent, unfair, or 14 deceptive” shall be ordered by the court to pay to the debtor, 15 (A) the debtor’s actual damages; 16 (B) the greater of— 17 (i) $2,000; or (ii) twice the amount paid by the debtor to the 18 bankruptcy petition preparer for the preparer’s services; and 19 (C) reasonable attorney’s fees and costs in moving for 20 damages under [11 U.S.C. § 110(i)]. 21 § 110(i)(1). In addition, under § 110(h)(3)(B), the fees charged 22 by a BPP who fails to comply with subsection (f) “may” be 23 forfeited. Finally, § 110(l)(1) provides that a BPP who fails to 24 comply with subsection (f) “may” be fined not more than $500 for 25 each such failure. 26 The bankruptcy court did not find that Strickland’s conduct 27 was fraudulent, unfair or deceptive. But she did nonetheless 28 violate § 110(f), which is enough to mandate damages under

-13- 1 § 110(i)(1). The use of the word “shall” in § 110(i)(1) indicates 2 that the bankruptcy court has no discretion in deciding whether to 3 impose statutory damages of $2,000 once it found a violation of 4 § 110(f). Even if no actual damages are requested, the court must 5 award statutory damages which are computed to be the greater of 6 either (1) $2,000 or (2) twice the amount paid by the debtor to 7 the BPP for his or her services ($300 here). In re Branch, 504 8 B.R. at 648. As such, the court did not err in awarding the 9 $2,000 in damages to Debtor. 10 The disgorgement of the $150 fee Debtor paid to Strickland 11 and the $500 fine are, however, discretionary, with Congress’s use 12 of the term “may” in both § 110(h)(3)(B) and (l)(1). See id. 13 (court is permitted, but not required, to order the forfeiture of 14 fees or impose statutory fines when violation of § 110(f) has 15 occurred). The bankruptcy court ordered Strickland to disgorge 16 her fee of $150 and fined her $500. The record supports these 17 discretionary awards. Given Strickland’s clear violation of 18 § 110(f) with her use of the word “paralegal” in advertising since 19 at least 2009, the bankruptcy court was within its discretion to 20 order the disgorgement of her $150 fee under § 110(i)(1) and to 21 fine her the maximum of $500 under § 110(l)(1). 22 VI. CONCLUSION 23 For the foregoing reasons, we AFFIRM. 24 25 26 27 28

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