Opinion
NOT FOR PUBLICATION
Submitted Without Oral Argument at Phoenix, Arizona September 22, 2005
Appeal from the United States Bankruptcy Court for the District of Arizona. Bk. No. 04-01400. Honorable Randolph J. Haines, Bankruptcy Judge, Presiding.
Before: KLEIN, MONTALI, SMITH, Bankruptcy Judges.
MEMORANDUM
A bankruptcy petition preparer (" BPP") in Arizona appeals from an injunction enjoining him from acting as a document preparer until he obtains certification in accordance with the Rules of the Supreme Court of the State of Arizona. The bankruptcy court issued the injunction pursuant to Arizona Bankruptcy Court General Order No. 89 (" Arizona Bankruptcy General Order 89"), which provides that a BPP is required to be a certified legal document preparer, pursuant to the requirements of the Rules of the Supreme Court of the State of Arizona. Specifically, Arizona Bankruptcy General Order 89 adopts Rule 31 of the Rules of the Supreme Court of Arizona (" Arizona Supreme Court Rule 31") and amendments thereto, governing the unauthorized practice of law, and provides for sanctions pursuant to 11 U.S.C. § 110 (" § 110").
We AFFIRM.
FACTS
On October 15, 2004, the bankruptcy court issued an Order To Show Cause (" OSC") because appellant Kenneth Allen (" Allen") filed a document in the bankruptcy case of William Timmer without a certification as required by Arizona Bankruptcy General Order 89. The OSC ordered Allen to appear and show cause why he should not be held in civil contempt or otherwise sanctioned as provided in § 110 for failure to comply with Arizona Bankruptcy General Order 89 and for engaging in the unauthorized practice of law. The OSC further provided that " sanctions to be imposed may include ... entry of an injunction permanently enjoining the bankruptcy petition preparer from further acting as a bankruptcy petition preparer."
On October 28, 2005, Allen filed a " motion to dismiss" the OSC for lack of subject-matter jurisdiction. Allen argued that Rule 31 of the Arizona Supreme Court conflicts with § 110(a) and violates the Supremacy Clause of the United States Constitution. Allen also contended that Arizona Bankruptcy General Order 89 interferes with his " right to contract" under Article 1, Section 10 of the United States Constitution, his rights under the First and Fourteenth Amendments of the United States Constitution, as well as his rights under the Judiciary Act of 1789 § § 34 and 35.
Additionally, the " motion to dismiss" referenced and attached Allen's declaration, as well the declaration of Robert Launders, both of which were filed in another bankruptcy case titled In re Michael Mulcahy, No. 04-01218, on September 17, 2004. These declarations had been filed in response to an OSC, also issued for Allen's violation of Arizona Bankruptcy General Order 89. In Allen's declaration, he conceded that he prepared the petition for the debtor and failed to include a certification number. His response also included a recitation of the OSC which stated that he had failed to include a certification number and that he could be sanctioned for the unauthorized practice of law. He further explained that he did not violate Arizona Bankruptcy General Order 89 because he prepared the documents under Rule 31(a)(4) of the Arizona Supreme Court as a " legal assistant/paralegal, authorized to do so by the Law Office of Robert J. Launders, P.C., 3100 N. Navajo Drive, Suite #B-3, Prescott, Valley, AZ 86314."
Allen contends the court never addressed this declaration in connection with the OSC in the case of Michael Mulcahy, in which it was originally filed. In re Michael Mulcahy, Case No. 04-01218.
In connection with the OSC issued in the case of William Timmer, in which this appeal arises, the bankruptcy court entered an order on November 23, 2004, enjoining Allen from acting as a document preparer in the United States Bankruptcy Court for the District of Arizona:
unless and until he becomes a certified legal document preparer in accordance with the Rules of the Supreme Court of the State of Arizona, or is otherwise acting as a legal assistant/paralegal employed and properly supervised by an active member of the State Bar of Arizona who is the lawyer for the debtor/client and who appears in the bankruptcy case in that capacity.
The court ruled that Arizona Bankruptcy General Order 89 was applicable and unequivocal. The court explained that the Bankruptcy Court for the District of Arizona adopted Arizona Bankruptcy General Order 89, which states that Rule 31 sets forth the general rule that only an active member of the State Bar may practice law in the State of Arizona. The amendments to Rule 31 create a limited exception for certified legal document preparers, provided the services are performed in compliance with the Arizona Code of Judicial Administration, Part 7, Chapter 2, Section 7-208, which includes the preparation of legal documents. The court concluded that Arizona Bankruptcy General Order 89 commands that only certified BPPs are permitted to prepare documents.
Additionally, the court concluded from Allen's response, the affidavits attached thereto, and both Allen's and Mr. Launders' responses at the OSC hearing, that Allen prepared documents filed in the case and that he was not acting as an employee of an attorney when he prepared those specific documents. Specifically, the court's finding that Allen was not acting as an employee of an attorney was based on the following facts:
The court also found, based on testimony at the OSC hearing, that Allen paid Mr. Launders $75.00, which was approximately one-half of the total fee collected by him.
1) Mr. Launders explained the employer-employee relationship with Mr. Allen as that of an independent contractor; 2) the Debtor was not a client of Mr. Launders' law firm; 3) Mr. Launders did not meet with Debtor; 4) the Debtor contacted Mr. Allen directly based on an advertisement placed by Mr. Allen in a Nevada newspaper; and 5) Mr. Launders did not review the documents prepared by Mr. Allen and apparently had no direct supervision.
Because Allen was not an employee of Mr. Launders and the exception stated in § 110(a)(1) did not apply, the court considered Allen a BPP as defined under § 110.
The court did not make any determinations as to whether Allen's actions constituted the unauthorized practice of law under Arizona Supreme Court Rule 31 and instead referred that matter to the State Bar of Arizona, in addition to enjoining Allen from preparing documents. This appeal ensued.
JURISDICTION
The bankruptcy court had jurisdiction via 28 U.S.C. § § 1334 and 157(b)(1). We have jurisdiction under 28 U.S.C. § 158(a)(1).
ISSUES
1. Whether the bankruptcy court had jurisdiction.
2. Whether the bankruptcy court had the authority to adopt Arizona Bankruptcy General Order 89.
3. Whether Arizona Supreme Court Rule 31, and by implication Arizona Bankruptcy General Order 89, conflict with § 110?
4. Whether Arizona Bankruptcy General Order 89 violates rights guaranteed under the First, Ninth, Tenth, and Fourteenth Amendments and Article 1, § 10 of the United States Constitution?
STANDARD OF REVIEW
We review the bankruptcy court's jurisdiction de novo. See Ferm v. United States Tr. (In re Crowe), 243 B.R. 43, 47 (9th Cir. BAP 2000). Interpretations of the Bankruptcy Code and other statutes and rules are issues of statutory interpretation, which we review de novo. In re Bankruptcy Petition Preparers Who Are Not Certified Pursuant to Requirements of the Arizona Supreme Court (" In re BPP"), 307 B.R. 134, 139-40 (9th Cir. BAP 2004) (citing Steinberg v. Crossland Mortgage Corp. (In re Park at Dash Point, L.P.), 985 F.2d 1008, 1010 (9th Cir. 1993)); Indus. Comm'n of Arizona v. Solot (In re Sierra Pac. Broadcasters), 185 B.R. 575, 577 (9th Cir. BAP 1995). A bankruptcy court's determination regarding discretionary abstention is a matter fundamentally within the discretion of the court to be reviewed for abuse of discretion. In re BPP, 307 B.R. at 140.
DISCUSSION
I.
Appellant challenges the bankruptcy court's subject-matter jurisdiction, but does not articulate a specific jurisdictional defect. We are persuaded the bankruptcy court had subject-matter jurisdiction.
Specifically, 28 U.S.C. § 1334(b) confers original but not exclusive jurisdiction over all civil proceedings arising under title 11, or arising in or related to cases under title 11. All questions of the application of § 110, by definition, " arise under" Title 11.
In connection with the OSC hearing, Allen argued that he prepared the documents as a legal assistant pursuant to Rule 31. The bankruptcy court determined Allen to be a BPP, as defined under § 110. Because the bankruptcy court's determination was not specifically questioned on appeal, we deem the issue waived.
A § 110 injunction action is a core proceeding to be heard and determined by a bankruptcy judge. 28 U.S.C. § 157(b)(1); Demos v. Russell Brown (In re Graves), 279 B.R. 266, 271 (9th Cir. BAP 2002). Under 11 U.S.C. § 105(a), a bankruptcy judge may launch a § 110(j) injunction proceeding sua sponte. Id. at 273. Accordingly, the bankruptcy court had subject-matter jurisdiction.
II.
Allen challenges the Arizona bankruptcy court's authority to adopt Arizona Bankruptcy General Order 89, as well as the court's method of adoption. He argues that in this instance only Congress had the authority to adopt Arizona Bankruptcy General Order 89. The bankruptcy court concluded that its general order was applicable and unequivocal.
Arizona Bankruptcy General Order 89, effective July 1, 2003, provides, in pertinent part:
11 U.S.C. Section 110(k) does not permit a bankruptcy petition preparer to engage in activities " that are otherwise prohibited by law, including the rules and laws that prohibit the unauthorized practice of law." The Supreme Court of the State of Arizona has enacted amendments to its Rule 31 governing the unauthorized practice of law which are effective commencing July 1, 2003. Rule 31 sets forth the general rule that only an active member of the State Bar of Arizona may practice law in the State of Arizona. The amendments create a limited exception to that general rule for certified legal document preparers provided that the services performed are in compliance with the Arizona Code of Judicial Administration, Part 7, Chapter 2, Section 7-208, which include the preparation of legal documents documents. .... only bankruptcy petition preparers, as defined by 11 U.S.C. Section 110, who are certified legal document preparers pursuant to the Rules of the Supreme Court of Arizona are permitted to prepare documents for filing in the United States Bankruptcy Court for the District of Arizona.
Arizona Bankruptcy General Order 89 also requires BPPs to provide their certification number and a business phone number on any document which is filed with the court, and further provides that a BPP who is not certified may be subject to sanctions provided in § 110 and/or as provided by the law.
General orders are permissible to regulate practice when there is no controlling law embodied in federal law, the Federal Rules of Bankruptcy Procedure, Official Forms, and local rules of the district. Fed.R.Bankr.P. 9029(b). The violator of a general order must have had actual notice of the requirements of the general order before sanctions may be imposed. Id.
We previously addressed, in In re BPP, the validity of Arizona Bankruptcy General Order 89. In re BPP, 307 B.R. at 142. We limited our review to the Rule 9029(b) standard of whether the general order was consistent with federal law, the Federal Rules of Bankruptcy Procedure, Official Forms, and local rules of the district.
As to the precise terms of the general order, our review was deferential: " We do not review independently a district court's determination of the scope and application of local rules and general orders because we give district courts broad discretion in interpreting, applying and determining the requirements of their own local rules and general orders." In re BPP, 307 B.R. at 142 (quoting United States v. Gray, 876 F.2d 1411, 1414 (9th Cir. 1989)).
Moreover, federal courts, including bankruptcy courts, have inherent power to regulate practice in cases before them. In re BPP, 307 B.R. at 142 (citing Gallo v. United States Dist. Ct. for the Dist. Of Arizona, 349 F.3d 1169, 1180-81 (9th Cir. 2003)). The bankruptcy court has the authority to deal with abuses in practice under its inherent power. Chambers v. NASCO, Inc., 501 U.S. 32, 47, 111 S.Ct. 2123, 115 L.Ed.2d 27 (1991). In this instance, the court had the authority to promulgate a general order designed to police the unauthorized practice of law in cases before it and to protect consumers from abuses by non-lawyers. In re BPP, 307 B.R. at 143.
As to the adoption of Arizona Bankruptcy General Order 89, there is no specific required procedure to be followed. Instead, Rule 9029(b) restricts sanctions to those who have actual knowledge of the requirement. Fed.R.Bankr.P. 9029(b).
In this instance, Allen's response filed on September 14, 2004, in connection with the bankruptcy case of Michael Mulcahy, establishes that he had actual notice of Arizona Bankruptcy General Order 89 and the requirements therein. Allen plainly had notice of the requirements again in the OSC issued in the instant case on October 15, 2004. The OSC listed a number of sanctions that could be imposed, including the potential entry of an injunction permanently enjoining him from further acting as a BPP and/or referral to the disciplinary process of the State Bar of Arizona and the rules of the Supreme Court of the State of Arizona. Because Allen had actual notice of the requirement and of the potential consequence, the bankruptcy court had the authority to enjoin Allen unless and until he became a certified document preparer.
The bankruptcy court correctly concluded that Arizona Bankruptcy General Order 89 was applicable.
III.
Allen next contends that Arizona Supreme Court Rule 31, and by implication Arizona Bankruptcy General Order 89, conflicts with § 110. To the extent Allen's argument to the bankruptcy court challenged the validity of Arizona Supreme Court Rule 31, we construe the bankruptcy court's silence on the matter as discretionary abstention under 28 U.S.C. § 1334(c)(1). In re BPP, 307 B.R. at 141. As Arizona courts unquestionably have jurisdiction to determine the validity of Arizona rules, the bankruptcy court properly abstained. Id.
In In re BPP, we determined that Arizona Supreme Court Rule 31, and by implication, Arizona Bankruptcy General Order 89, does not conflict with § 110. In re BPP, 307 B.R. at 142-43. The salient question was " whether the bankruptcy court may validly order that BPPs, all of whom are subject to § 110, also comply with state certification requirements established to regulate the unauthorized practice of law." Id. We answered the question in the affirmative, and held that there was no conflict between the Arizona Rule adopted by Arizona Bankruptcy General Order 89 and the Code. Id. at 143.
Specifically, § 110 defines a BPP, establishes certain duties and requirements and creates BPP liability for misconduct. But § 110 does not, nor does any other portion of the Bankruptcy Code, impose minimum qualifications, or adopt certification standards for BPPs or a mechanism for establishing such standards. Id. Because Arizona Supreme Court Rule 31 adopts certification requirements that are not addressed by the Bankruptcy Code, there is no conflict.
Moreover, the Bankruptcy Code leaves room for state-law regulation of BPPs. Thus, § 110(k) provides: " Nothing in this section shall be construed to permit activities that are otherwise prohibited by law, including rules and law that prohibit the unauthorized practice of law." In re BPP, 307 B.R. at 137. State law governs the unauthorized practice of law. Id. We agree with the bankruptcy court for the District of Arizona:
As a result of [§ 110(k)], a document preparer may not use § 110 as a " safe harbor" if a rule or certain rules prohibit the unauthorized practice of law or the document preparer's activities are otherwise prohibited by law. In Arizona, Supreme Court Rule 31(a)(3) limits who may practice law.
In re Gabrielson, 217 B.R. 819, 826 (Bankr. D. Ariz. 1998).
Because the Bankruptcy Code contains no certification provision and leaves to state law the governance of unauthorized practice of law, there is no conflict between Arizona Supreme Court Rule 31 adopted by Arizona Bankruptcy General Order 89 and the Bankruptcy Code. In re BPP, 307 B.R. at 142-43.
Likewise, Allen's contention that Arizona Supreme Court Rule 31 violates the Supremacy Clause fails because state law is preempted only to the extent that it actually conflicts with federal law. English v. Gen. Elec. Co., 496 U.S. 72, 78-79, 110 S.Ct. 2270, 110 L.Ed.2d 65. Here, there is no actual conflict. It is possible for one to comply with both state and federal requirements. Id. Moreover, because there is no preemption, even if Arizona Bankruptcy General Order 89 had not been adopted, BPPs would still have to comply with the Bankruptcy Code and with Arizona law.
IV
A. First Amendment
Allen contends that the court has violated his First Amendment rights by enforcing Arizona Supreme Court Rule 31 vis-à-vis Arizona Bankruptcy General Order 89.
Section 110, as well as Arizona Bankruptcy General Order 89, is aimed at conduct. Scott v. United States Tr. (In re Doser), 412 F.3d 1056, 1063 (9th Cir. 2004). A bankruptcy court's order enjoining a BPP from preparing bankruptcy petitions does not violate the First Amendment. Ferm v. United States Tr. (In re Crowe), 243 B.R. 43, 50 (9th Cir. BAP 1999), aff'd 246 F.3d 673 (9th Cir. 2000); see United States v. O'Brien, 391 U.S. 367, 376-77, 88 S.Ct. 1673, 20 L.Ed.2d 672 (1968). Even assuming § 110 and Arizona Bankruptcy General Order 89 regulate speech, they do not infringe First Amendment rights. In re Doser, 412 F.3d at 1063.
Likewise, Allen's contention that the court abused its discretion for overbreadth by not adhering and/or adopting other state laws with the same subject lacks merit.
B. Ninth and Tenth Amendments
Allen raises for the first time on appeal the argument that Arizona Bankruptcy General Order 89 abridges the Ninth and Tenth Amendments of the Constitution. Because this argument was not raised at the bankruptcy court, we decline to address the argument on appeal. Leibowitz v. County of Orange (In re Leibowitz), 230 B.R. 392, 399 (9th Cir. BAP 1999), Concrete Equip. Co. v. Fox (In re Vigil Bros. Constr., Inc.), 193 B.R. 513, 520 (9th Cir. BAP 1996); McCoy v. Bank of Am. (In re McCoy), 111 B.R. 276, 281-82 (9th Cir. BAP 1990).
C. Equal Protection
Although Allen frames his issue statement to refer to the trustee, clerks of the court, real estate brokers, and secretaries, his equal protection argument centers around only one of the exemptions to Arizona Supreme Court Rule 31 as violative of equal protection under the Fourteenth Amendment.
Arizona Supreme Court Rule 31(b) provides that except as provided in subsection (d): " no person shall practice law in this state or represent in any way that he or she may practice law in this state unless the person is an active member of the state bar." Accordingly, subsection (d) lays out the exceptions to this general rule.
Allen focuses on exemption number 22, which states: " Nothing in these rules shall prohibit an officer or employee of a governmental entity from performing the duties of his or her office or carrying out the regular course of business of the governmental entity."
Allen contends that this exemption allows a trustee, clerk, secretary, etc., to be exempted from the general rule. The crux of Allen's argument is that Arizona Supreme Court Rule 31 and its exemptions therein impermissibly discriminate between him and those persons who are exempted from the general rule.
To the extent that Allen's challenge requires us to consider the validity of Arizona Supreme Court Rule 31 as a matter of Arizona law, we decline. In re BPP, 307 B.R. at 141. We also construe Allen's argument to be an equal protection challenge to Arizona Bankruptcy General Order 89.
The Due Process Clause of the Fifth Amendment, which applies to the federal government, incorporates the Fourteenth Amendment's guarantee of equal protection. Ferm v. United States Tr. (In re Crawford) 194 F.3d 954, 960-61 (9th Cir. 1999), (citing Bolling v. Sharpe, 347 U.S. 497, 74 S.Ct. 693, 98 L.Ed. 884). A general order not affecting fundamental rights will pass scrutiny if it bears " a rational relationship to a legitimate state interest." Gallo v. U.S. Dist. Court, 349 F.3d 1169, 1179 (9th Cir. 2003). Requiring the certification of BPPs is rationally related to the legitimate governmental interest in protecting consumers from abuses by non-lawyers. In re BPP, 307 B.R. at 143.
D. " Right to Contract"
Allen contends that the court's injunction enjoining him from preparing bankruptcy petitions interferes with his " right to contract" under Article 1, § 10 of the United States Constitution. However, the contract clause does not apply to the federal government. Pension Benefit Guar. Corp. v. Oregon-Washington Carpenters-Employers Pension Trust Fund, 467 U.S. 717, 733, n. 9, 104 S.Ct. 2709, 81 L.Ed.2d 601 (1984). Moreover, " [I]t has been settled by a long line of decisions, that the provision of section 10, article 1, of the federal constitution, protecting the obligation of contracts against state action, is directed only against impairment by legislation and not by judgment of courts." Tidal Oil Co. v. Flanagan, 263 U.S. 444, 451, 44 S.Ct. 197, 68 L.Ed. 382 (1924).
CONCLUSION
For the foregoing reasons, the bankruptcy court had subject-matter jurisdiction. Arizona Bankruptcy General Order 89 is a valid exercise of the court's authority to regulate practice in any manner consistent with federal law, the Federal Rules of Bankruptcy Procedure, Official Forms, and local rules of the district. It follows that the bankruptcy court's issuance of the injunction was not in error. We AFFIRM.