Harrington v. McKenna (In re Sanchez)
Harrington v. McKenna (In re Sanchez)
Opinion of the Court
Defendant Keven A. McKenna moves to dismiss this adversary proceeding in which the Plaintiff, in his capacity as the United States Trustee for Region One (“UST”), seeks to redress alleged violations of the Bankruptcy Code by Mr. McKenna serving in the bankruptcy case as a petition preparer.
I. Applicable Standards
When reviewing a motion to dismiss, the Court must accept the well-plead facts of the Complaint as true, but need not accept as true any allegations that are no more than “labels and conclusions” or “a formulaic recitation of the elements of a cause of action _” Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (citing Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)). A complaint must “state a claim to relief that is plausible on' its face” rather than merely conceivable. Twombly, 550 U.S. at 570, 127 S.Ct. 1955.
II. Establishing the UST’s Standing Under Bankruptcy Code § 307
Section § 307 of the Bankruptcy Code states, in its entirety, “[t]he United States trustee may raise and may appear and be heard on any issue in any case or proceeding under this title but may not file a plan pursuant to section 1121(c) of this title.” (emphasis added). “The [United States trustee] is an official of the United States Department of Justice charged by statute with the duty to oversee and supervise the administration of bankruptcy
[Supervise the administration of cases and trustees in cases under chapter 7, 11, 12, 13, or 15 of title 11 by, whenever the United States trustee considers it to be appropriate ... (D) taking such action as the United States trustee deems to be appropriate to ensure that all reports, schedules, and fees required to be filed under title 11 and this title by the debtor are properly and timely filed
See also 28 U.S.C. § 586(a)(5) (directing the United States trustee to perform all assigned duties under title 11 and title 28). Collier on Bankruptcy succinctly describes the oversight role of the United States trustees in the bankruptcy system:
[They] are charged with promoting the efficiency and integrity of the bankruptcy system within their assigned regions. They are also responsible for assuring that trustees, attorneys and parties are properly using the system and that bankruptcy laws are properly executed. A broad grant of statutory standing allows United States trustees to address actions taken, or proposed to be taken, by stakeholders in bankruptcy cases-that deviate from standards established by the Code.
Collier on Bankruptcy P 6.01 (Alan N. Resnick & Henry J. Sommers eds., 16th ed.) (citation omitted). “The language, legislative history, and judicial interpretation of § 307 reveal that Congress intended to enhance the role of the United States Trustee by permitting direct involvement in bankruptcy proceedings.” Hayes & Son Body Shop, Inc. v. U.S. Tr„ 124 B.R. 66, 68 (W.D.Tenn. 1990); In re Countrywide Home Loans, Inc., 384 B.R. 373, 384 (Bankr.W.D.Pa. 2008) (“Indeed, it is difficult to conceive of how Section 307 could have been written in any broader language.”) (emphasis in original).
Here, Mr. McKenna conveniently ignores the statute’s separate references to both a “case” and a “proceeding.”
Though the Bankruptcy Code itself is silent as to the precise definition of “case” or “proceeding,” the terms are described in the sections proceeding the Code in the Bankruptcy Code and Rules 2006 version ,,,. [noting that] case and proceeding “are not synonymous or interchangeable terms.” A “case” refers to a matter initiated by the filing of a petition seeking relief under the Bankruptcy Code. A “proceeding” refers to everything which happens within the context of a bankruptcy case.
In re Attorneys at Law & Debt Relief Agencies (In re Attorneys at Law), 353 B.R. 318, 322-23 (S.D.Ga. 2006) (footnote omitted). “Adversary proceedings are separate lawsuits within the context of a particular bankruptcy case and have all of the attributes of a lawsuit ... as provided in Part YII of the Bankruptcy Rules.” Collier on Bankruptcy P 7001.01 (Alan N. Resnick & Henry J. Sommers eds., 16th ed.). See also In re Countrywide Home Loans, Inc., 384 B.R. at 390 (finding that the requirement in § 307 “for the existence of a case or proceeding has clearly been met” when “[a]ll of the Notices of Examination under consideration were issued in the context of bankruptcy cases that were previously filed in this Court”).
III. Analysis
This adversary proceeding was commenced before the Debtor’s bankruptcy case was dismissed and relates to Mr. McKenna’s conduct involving the preparation of the petition and its filing.
This adversary proceeding is a core proceeding stemming from the Bankruptcy Code relating to “matters concerning the administration of the estate.” 28 U.S.C. § 157(b)(2)(A). See, e.g„ In re Briones-Coroy, 481 B.R. 685, 695 (Bankr. D.Colo. 2012);' In re Gomez, 259 B.R. 379, 381-82 (Bankr.D.Colo. 2001). The litigation falls squarely within the authority of the UST “to protect the integrity of the bankruptcy system.” In re Youk-See, 450 B.R. 312, 323 (Bankr.D.Mass. 2011); In re Revco D.S., Inc., 898 F.2d 498, 500 (6th Cir. 1990) (describing the United States trustee as “a watchdog rather than an advocate” protecting the public interest). Mr. McKenna’s position advocated in his three-sentence long Motion that under § 307 the UST “has no standing unless there is a pending case” completely fails to recognize that the “United States Trustee has broad standing to bring actions in its own name in its role as ‘watchdog* of the public interest.” In re LWD, Inc., 342 B.R. 514, 519 (Bankr. W.D.Ky. 2006). “The U.S. Trustee may take necessary actions under § 307 to protect the public interest in the enforcement of federal bankruptcy law.” In re Youk-See, 450 B.R. at 316 n. 3.
Divesting the United States trustee of standing automatically upon the closing of the underlying bankruptcy case would eviscerate the very powers Congress vested in that office, rendering United States trustees “circumscribed and toothless” to “promot[e] the efficiency and integrity of the bankruptcy system .... ” Id. at 323; See also Collier on Bankruptcy P 6.01 (Alan N. Resnick & Henry J. Sommers eds., 16th ed.). Courts have resisted such efforts by those facing such enforcement actions, concluding that “Congress intended the United States Trustee to have the tools ... [necessary] to carry out that duty.” Id. The allegations in the Complaint are sufficient for the UST to sustain a viable enforcement action under § 110, and if established at trial, would permit
The Motion is DENIED.
. See 11 U.S.C. § 110(a)(1) for the definition of a "bankruptcy petition preparer.”
. Unless otherwise indicated, the terms "Bankruptcy Code,” "Chapter,” "section” and "§” refer to Title 11 of the United States Code, 11 U.S.C.§§ 101, et seq. as amended by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, Pub. L. No. 109-8, 119 Stat. 37 ("BAPCPA").
. The statutory authority underlying the UST’s Complaint initiating this adversary proceeding arises out of subsection (j)(l) of the petition preparer enforcement provisions of Bankruptcy Code § 110. In its entirety, this subsection provides: "A debtor for whom a bankruptcy petition preparer has prepared a document for filing, the trustee, a creditor, or the United States trustee in the district in which the bankruptcy petition preparer resides, has conducted business, or the United States trustee, in any other district in which the debtor resides may bring a civil action to enjoin a bankruptcy petition preparer from engaging in any conduct in violation of this section or from further acting as a bankruptcy petition preparer.”
. The Debtor filed her petition -on January 26, ' 2016, Mr. McKenna prepared the following
Reference
- Full Case Name
- IN RE: Sandra SANCHEZ, Debtor William K. Harrington, United States Trustee v. Keven A. McKenna
- Cited By
- 1 case
- Status
- Published