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Keywords

injunctionappealtrustbankruptcy
attorneytrustbankruptcy

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In re Reynoso, 477 F.3d 1117, Bankr. L. Rep. P 80,864, 07 Cal. Daily Op. Serv. 2071, 32 A.L.R.6th 851

Facts

Frankfort Digital Services, operated by Henry Ihejirika, sold access to software that prepared bankruptcy petitions. The software was marketed as an expert system that could assist users in navigating bankruptcy law. Jayson Reynoso, a customer, used the software to file his bankruptcy petition, but the forms generated by the software failed to include required information about the preparer. Following an investigation by the United States Trustee, an adversary proceeding was initiated against Frankfort for violations of the Bankruptcy Code.

Frankfort sold access to websites where customers could access browser-based software for preparing bankruptcy petitions and schedules, as well as informational guides promising advice on various aspects of relevant bankruptcy law.

Issue

Did Frankfort Digital Services qualify as a bankruptcy petition preparer under the Bankruptcy Code, and did it engage in the unauthorized practice of law?

Did Frankfort Digital Services qualify as a bankruptcy petition preparer under the Bankruptcy Code, and did it engage in the unauthorized practice of law?

Rule

Under 11 U.S.C. § 110, a bankruptcy petition preparer is defined as a person who prepares documents for filing in exchange for compensation, and such preparers are prohibited from providing legal advice.

Pursuant to 11 U.S.C. § 110(a)(1), a bankruptcy petition preparer is “a person, other than an attorney or an employee of an attorney, who prepares for compensation a document for filing.”

Analysis

The court determined that Frankfort's software not only facilitated the preparation of bankruptcy forms but also provided legal advice by selecting exemptions and determining where to place information on the forms. This conduct was deemed to exceed mere clerical assistance and constituted the unauthorized practice of law. The court also found that the software's failure to include required preparer information and its misleading claims about legal expertise supported the imposition of fines and an injunction.

The software did, indeed, go far beyond providing clerical services. It determined where (particularly, in which schedule) to place information provided by the debtor, selected exemptions for the debtor and supplied relevant legal citations.

Conclusion

The Court of Appeals affirmed the Bankruptcy Appellate Panel's decision, concluding that Frankfort was a bankruptcy petition preparer and had engaged in deceptive practices, justifying the sanctions imposed by the bankruptcy court.

The judgment of the Bankruptcy Appellate Panel of the Ninth Circuit is AFFIRMED.

Who won?

The United States Trustee prevailed in the case, as the court upheld the findings that Frankfort violated the Bankruptcy Code and engaged in deceptive practices.

The United States Trustee prevailed in the case, as the court upheld the findings that Frankfort violated the Bankruptcy Code and engaged in deceptive practices.

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