In a decision signed October 25, 2017, Judge Shannon of the Delaware Bankruptcy Court issued an opinion requiring a professional to disgorge fees, pay a sanction of $25,000, and enjoined him from taking various actions in bankruptcy court. Judge Shannon’s opinion is available here (the “Opinion”).
The United States Trustee filed a Complaint for Injunctive relief, Fines and Civil Contempt against Robert F. Martin. Mr. Martin has twice before been the subject of inquiry and action by the United States Trustee. First in 2011, the United States Trustee alleged that Mr. Martin was acting as a petition preparer in violation of 11 U.S.C. § 110. A Consent Order resolving that litigation was entered by the Court on March 28, 2012 (the “First Consent Order”) by which Mr. Martin agreed to disgorge fees and refrain from acting as a petition preparer in the future.
Two years later, the United States Trustee filed a new complaint against Mr. Martin, alleging that he had acted as a petition preparer in at least 19 cases in violation of the terms of the First Consent Order. Mr. Martin again agreed to disgorge fees and to refrain from acting as a petition preparer in the future.
The United States Trustee alleged that Mr. Martin returned to his prior practice of encouraging homeowners to file for relief under Chapter 13, and assisting them in the process of filing bankruptcy in violation of § 110 of the Bankruptcy Code. Mr. Martin’s debtor clients were not adequately instructed by Mr. Martin regarding the Chapter 13 filing and its potential consequences, and that his efforts constituted a violation of the provisions of Bankruptcy Code § 110 and the First and Second Consent Orders.
The Court held that “Mr. Martin’s business model is based upon practices that violate federal law and orders of this Court.” Opinion at *14. It then levied the above fines and directed that Mr. Martin was to refrain from taking any further actions in violation of Bankruptcy Code § 110.
While this is not the type of case normally discussed on this blog, it illustrates an important principle that I have seen play out several times in the Delaware Bankruptcy Court – each time you are penalized for the same bad act, the consequences get more severe.