Angelina Zumpano

UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF NORTH CAROLINA
RALEIGH DIVISION
IN RE:
ANGELINA ZUMPANO
WAYNE PATRICK LANIER
BRUCE LORENC
JAMIE WILLIAMS
THOMAS WILLIAMS
DELA WALDRON
MAGDELENA ISOM
SUSAN WEBB
DEBTORS
CASE NOS.
05-04252-5-ATS
05-05359-5-ATS
05-05309-5-ATS
05-05411-5-ATS
05-05146-5-ATS
05-05380-5-ATS
05-05171-5-ATS
ORDER REQUIRING BK DOCUMENT PROCESSING LIMITED
TO APPEAR AND SHOW CAUSE
The court previously has entered orders requiring BK Document
Processing Limited ("BK") to disgorge fees, or to appear and show cause
why it should not be required to disgorge its fee, in several chapter
7 cases. BK has yet to appear, to disgorge the fees as required, or to
otherwise respond to any of the orders entered in any of these cases.
For the reasons that follow, BK will be ordered to appear and show
cause why it should not be held in contempt for its failure to comply
with prior orders of this court, and why it should not be subject to
significant further sanctions and fines, as discussed below.
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Pro se chapter 7 debtors in the Eastern District of North Carolina
continue to disclose in meetings of creditors that they filed
petitions prepared through websites called usabankruptcyassociates.com
and debtoraid.com, both of which appear to be operated by BK. These
debtors report that they paid fees ranging from $125 to $200 for the
preparation of their petitions, sums which are far in excess of what
this court has determined to be a reasonable fee for the services
provided by a bankruptcy petition preparer. The petitions in the
cases listed above have similar and crucial deficiencies, the most
basic being that they all fail to give any indication that they were
prepared by a bankruptcy petition preparer. They do not disclose the
name and address of the petition preparer, or bear the preparer's
signature, as required by 11 U.S.C. § 110(b). They are not accompanied
by a written notice informing the debtor that the petition preparer is
not an attorney and cannot give legal advice, as required by
§ 110(b)(2). They do not bear an identifying social security number as
required by § 110(c) or offer any explanation for its absence, which
would be expected in the case of this United Kingdom-based petition
provider. They do not disclose the receipt of the fee from the debtor
as required by § 110(h)(2). The omissions and BK's failure to
correct them obviously are not accidental. A review of the
debtoraid.com and usabankruptcyassociates.com websites leaves the
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court with the distinct impression that the website operators
specifically intend to remain both unidentified and hard to find.
As best the court can determine, BK is a limited liability company
registered in the United Kingdom. The mailing address for BK, in
connection with both websites, was located by the chapter 7 trustee on
the usabankruptcyassociates.com website, as follows:
BK Document Processing Limited
72 New Bond Street
Mayfair, London
UK W1S 1RR
Tel. 1-877-570-5586
The address and phone number have since been deleted from both
websites. A different address for BK is provided through a United
Kingdom register of companies known as Companies House. That agency
lists BK Document Processing Limited as Company No. 05166367, with a
registered office at:
7 Petworth Road
Haslemere
Surrey GU27 1ER
As outlined in the previous orders, the prepared petitions were
provided to the debtors for fees far in excess of the amount that is
reasonable for the services provided. The websites typically offer
"special, limited time" pricing of $187-$279 for the preparation of a
chapter 7 petition, instead of the companies' "usual" $299-$339 fee.
This court previously has determined that $80 is the reasonable value
of the services that may be provided by a bankruptcy petition preparer.
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See In re Moore, 283 B.R. 852 (Bankr. E.D.N.C. 2002); In re Moore, 290
B.R. 287 (Bankr. E.D.N.C. 2003). Given that all a bankruptcy petition
preparer can do without stepping across the bounds into the
unauthorized practice of law is to type a petition, the fees charged by
BK for its services clearly are excessive.
On that topic, the court is concerned that it is likely that the
preparation of the petitions involved the unauthorized practice of law
by BK through its websites and website operators. In the
usabankruptcyassociates.com website the petition preparers provide
legal advice by, among other things, guaranteeing discharge and
promising to protect debtors' property from liquidation by the trustee.
They also promise to catch and correct debtors' mistakes. The
debtoraid.com site is even more extreme, going so far as to advise
would-be debtors that the operators' "untold years of experience"
enable them to advise debtors as to "when it is okay to spend far more
than you make and when it is not okay"; that "bankruptcy is better for
your credit and financial health than credit counseling [and debt
consolidation]," and that "Chapter 13 bankruptcy is generally not
suitable for most people since it does not give you a clean breakaway
from your debts and since may [sic] people who start with a chapter 13
end up filing chapter 7 anyway."
In light of these repeated violations of § 110 and BK's
unwillingness to remedy them, the court, pursuant to 11 U.S.C.
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§§ 105(a) and 110, requires BK to appear and show cause why it should
not be held in contempt for failure to disgorge fees as required.
Section 105 authorizes the court to "issue any order, process, or
judgment that is necessary or appropriate to carry out the provisions
of this title." Further, it provides that "[n]o provision of this
title providing for the raising of an issue by a party in interest
shall be construed to preclude the court from, sua sponte, taking any
action or making any determination necessary or appropriate to enforce
or implement court orders or rules, or to prevent an abuse of process."
11 U.S.C. § 105(a); see also In re Bankruptcy Petition Preparers Who
Are Not Certified Pursuant to Requirements of the Arizona Supreme
Court, 307 B.R. 134, 143 (B.A.P. 9th Cir. 2004) (discussing bankruptcy
courts' ability to, sua sponte, enjoin unauthorized practice of law and
regulate practice under Federal Rule of Bankruptcy Procedure 9029(b)).
The court will, in that show cause hearing, assess whether
additional proceedings are warranted to determine whether BK engaged in
the unauthorized practice of law in violation of 11 U.S.C. § 110(i)(l).
BK's activities may also constitute unfair and deceptive trade
practices under the laws of the State of North Carolina. Both of these
issues recently were considered by the Bankruptcy Court for the Middle
District of North Carolina in In re Medley, 2005 WL 3093392 (Bankr.
M.D.N.C. 2005). The Medley court's opinion includes a thorough
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1 The court proceeds for the moment on the assumption that BK is
properly incorporated. Because BK has thus far been wholly
nonresponsive, the court has not yet confirmed its status, and so will
proceed with the best information available at present.
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discussion of the parameters of appropriate petition preparation and
the consequences, under both federal and state law, of exceeding them.
See also Moore, 283 B.R. at 857.
Because of BK's status as a company incorporated under the laws
of England,1 the basis for the court's jurisdiction over BK deserves
discussion. The court has jurisdiction over the subject matter of this
proceeding pursuant to 28 U.S.C. §§ 151, 157 and 1334, and the General
Order of Reference entered by the United States District Court
for the Eastern District of North Carolina on August 3, 1984.
Where there is "no applicable federal statute governing personal
jurisdiction, the law of the state in which the trial court sits
applies." E.g., In re National Audit Defense Network, 332 B.R. 896,
903 (Bankr. D. Nev. 2005). The long-arm statute of the state of North
Carolina must confer jurisdiction, and the exercise of jurisdiction
must be consistent with the constitutional principles of due process.
Due process requires "certain minimum contacts with [the forum] such
that the maintenance of the suit does not offend 'traditional notions
of fair play and substantial justice.'" International Shoe Co. v.
State of Washington, 326 U.S. 310, 316, 66 S. Ct. 154, 158 (1945)
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(internal quotations omitted). To satisfy due process, the court must
have either general or specific jurisdiction over the party. National
Audit, 332 B.R. at 903. In this matter, the existence of specific
jurisdiction is readily established.
BK's websites are designed to provide "full" chapter 7 petition
preparation services in all fifty states, including North Carolina.
Their services are advertised through "sponsored links" on the popular
search engine Google, and pop up in response to a query including the
words "bankruptcy" and "help." The websites assert that their
"professionals" will prepare debtors' chapter 7 bankruptcy petitions
and will even "provide . . . the location of the court in your area as
well as their contact numbers and other instructions." There is no
question that BK purposefully solicited business from every state in
the country, including North Carolina. BK completed its transactions
with and was paid by residents of North Carolina with the express
purpose of having its product filed in the bankruptcy courts located in
this state. See Burger King Corp. v. Rudzewicz, 471 U.S. 462, 105 S.
Ct. 2174 (1985); see also In re Thomas, 315 B.R. 697, 702 (Bankr. N.D.
Ohio 2004) (finding personal jurisdiction over Utah-based internet
petition provider because of petition preparer's contacts "with the
United States," rather than because of its contacts with bankruptcy
court's forum state of Ohio, though those would have sufficed). BK
even asserts, through its usabankruptcyassociates.com website, that its
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operators expect potential debtors to do their part by "be[ing] serious
about going through with it" and actually filing the documents with the
court. In light of these continuous and systematic activities directed
toward and engaged in with residents of the State of North Carolina,
and in particular the Eastern District of North Carolina, the court has
personal jurisdiction over BK and its agents and operatives.
The new amendments to the Bankruptcy Code have prompted increased
apprehension among individuals who are considering bankruptcy. BK's
websites and others like them do their best to first magnify those
concerns manyfold and then to "resolve" them by providing much more
than a typing service. This practice is exactly what Congress sought
to "force into the light by defining persons who provide such
assistance and regulating their conduct in 11 U.S.C. § 110." Thomas,
315 B.R. at 703. BK's websites are operating in that shadowy area and
causing real harm. Their activities in excess of appropriate petition
preparation will not be allowed. BK therefore is ORDERED TO APPEAR at
the show cause hearing prepared to address the foregoing issues
pertaining to its failure to comply with both the prior orders of this
court and its ongoing obligations under 11 U.S.C. § 110.
BK is advised that at the hearing, the court will consider whether
to require the credit card companies processing BK's fees to refund,
directly to debtors, the amounts in excess of the allowed fee, freeing
those companies to thereafter seek restitution as necessary from BK in
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any appropriate forum. BK's failure to appear will render it subject
to the imposition of additional fines and penalties, including the
possibility of injunctive relief preventing it from providing further
services (including advertising its services) in this district and
other districts throughout the United States. See In re Reynoso, 315
B.R. 544, 551 (B.A.P. 9th Cir. 2004) (affirming order that permanently
enjoined internet-based bankruptcy petition preparer).
The date of the hearing shall be Thursday, April 13, 2006, at
11:00 a.m. at the U.S. Bankruptcy Court, U.S. Courthouse and Post
Office Building, 300 Fayetteville Street Mall, Room 208, Raleigh, North
Carolina.
SO ORDERED.
DATED: February 14, 2006
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