In re Cruz

IN RE: BIANCA CRUZ Debtor

CASE NO: 18-10208

UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF TEXAS BROWNSVILLE DIVISION

June 12, 2020

CHAPTER 7

MEMORANDUM OPINION

Pending before the Court are Deighan Law LLC's ("UpRight") Motion to Strike Portions of the Reply Brief of the United States Trustee ("Motion to Strike") filed on March 5, 2020, and the United States Trustee's ("U.S. Trustee") Objection to the Motion ("Objection") filed on March 16, 2020. On May 27, 2020, the Court held a hearing on the Motion and Objection ("Hearing"). Considering the pleadings on file, arguments of counsel, applicable law, and for the reasons stated on the record, the Court finds that the U.S. Trustee's Objection should be overruled, and UpRight's Motion should be granted in part and denied in part.

A. Procedural History

The instant dispute arises out of a larger dispute regarding a motion filed by the U.S. Trustee styled as "Motion of the United States Trustee For Court To (1) Examine Debtor's Transactions With Attorneys; (2) Cancel Debtor's Agreement With Attorneys; (3) Disallow And Order Disgorgement Of Excessive Fees; and (4) Impose Sanctions Against Attorneys (the "U.S. Trustee's Motion") filed by the United States Trustee for Region 7."¹ The attorneys in this case are Marina R. Dominguez ("Ms. Dominguez"), who was Debtor's former counsel, and Deighan Law, LLC f/n/a Law Solutions Chicago, LLC, d/b/a UpRight Law LLC, d/b/a Chern Law LLC.²

The Court held a trial regarding the U.S. Trustee's Motion over several days which began on November 2, 2018 and concluded on December 6, 2018. At the conclusion of the December 8, 2018 hearing the Court issued certain orders which ultimately resulted in the Court issuing a Show Cause Order on December 27, 2018.³ The Court's Show Cause Order directed David M. Menditto and Marina Dominguez to turn over certain original documents to the Court. On March 4, 2019, and upon request of the parties, the Court abated all post-trial briefing.⁴ A hearing on the Court's Show Cause Order was held on March 6, 2019, continued to March 29, 2019 and concluded on April 26, 2019.

After conducting several other miscellaneous hearings, the Court on July 29, 2019 held a status conference regarding previously abated briefing deadlines and issued a new briefing scheduling order. The Court ordered: (1) the U.S. Trustee shall have until September 13, 2019, to submit its post-hearing brief; (2) Mr. Menditto and Ms. Dominguez shall have until October 11, 2019, to file responsive briefs; and (3) the U.S. Trustee shall then have until October 18, 2019, to file any reply brief.⁵ After granting several extensions to the Court's scheduling order, each of the parties timely filed their post-trial briefs.⁶ On March 5, 2020, Upright filed its motion to strike portions of the U.S. Trustee's post-trial reply brief.⁷ The U.S. Trustee filed itsobjection to Upright's Motion to Strike on March 16, 2020.⁸ On May 27, 2020, the Court held a hearing and at the conclusion of the hearing the Court took both matters under advisement,⁹ and now issues the instant Memorandum Opinion.

B. Jurisdiction, Venue, and Constitutional Authority to Enter a Final Order

The Court holds jurisdiction pursuant to 28 U.S.C. § 1334 and now exercises its jurisdiction in accordance with Southern District of Texas General Order 2012-6.¹⁰ This is a core matter pursuant to 28 U.S.C. § 157(b)(2)(A) as it "concern[s] the administration of the estate." Further, this dispute is a core proceeding pursuant to the general "catch-all" language of 28 U.S.C. § 157(b)(2).¹¹ Nevertheless, to the extent these are non-core matters, parties may consent to jurisdiction of this Court on non-core matters to enter a final order.¹² The U.S. Trustee filed its notice of consent to the entry of final orders on all non-core matters by the Bankruptcy Court on September 14, 2018,¹³ and UpRight filed its notice of consent on October 26, 2018.¹⁴ Therefore, even if the matters before the Court are non-core matters, all parties have consented, and this Court holds constitutional authority to enter a final order and judgment.

Finally, venue is governed by 28 U.S.C. §§ 1408, 1409. Venue is proper because Debtor's principal place of residence has been in the Southern District of Texas for the 180 days immediately preceding the Petition date.

C. Analysis

UpRight's Motion Was Proper

UpRight's Motion to Strike alleges that the U.S. Trustee raised several arguments for the first time in its Reply Brief filed on February 28, 2020 ("Reply Brief"),¹⁵ and that such arguments should be struck. In response, the U.S. Trustee, in its Objection, argues that the Motion to Strike is simply an unauthorized sur-reply disguised as a Motion and should not be considered by this Court.¹⁶ Per the Court's post-trial briefing deadlines, Upright was not permitted to file a sur-reply.¹⁷ At the Hearing, the U.S. Trustee argued that the proper procedural vehicle for UpRight would have been to file a motion for leave to file a sur-reply instead of the instant Motion to Strike.¹⁸

The Court recognizes that UpRight could have filed a motion for leave to file a sur-reply, but Rule 7012 does not apply to this contested matter.¹⁹ The Code sections cited by the U.S. Trustee in support of its position do not demonstrate why UpRight's Motion to Strike should not be considered by this Court. Rules 9013 and 9014 bring the determination of UpRight's Motion to Strike within the purview of this Court.²⁰ Additionally, UpRight's Motion to Strike is appropriate because it seeks affirmative relief from the Court where a sur-reply does not. Accordingly, the Court overrules the U.S. Trustee's Objection and exercises its authority pursuant to 11 U.S.C. § 105(a) in addressing UpRight's Motion to Strike.²¹

i. Section IV, Footnotes 3 and 4 of the U.S. Trustee's Reply Brief

First, UpRight argues that the Court should strike Footnotes 3 and 4 of the Reply Brief because the U.S. Trustee inappropriately cited to two non-final decisions issued by other courts in which they criticized UpRight's counsel.²² UpRight asserts that the U.S. Trustee has sought no relief against UpRight's counsel in the U.S. Trustee's Motion, it is not a party to the Order to Show Cause Why David M. Menditto and Marina Dominguez Should Not Be Held in Contempt ("Show Cause Order"), and the U.S. Trustee did not argue that any sanctions or discipline should be imposed upon UpRight's counsel.²³ UpRight contends that even if the U.S. Trustee had sought relief against UpRight's counsel in the U.S. Trustee's Motion or had advocated that sanctions or discipline be imposed in connection with the Court's Show Cause Order, the comments offered by the U.S. Trustee in footnotes 3 and 4 are not evidence that can be considered by the Court in this case.²⁴ In response, the U.S. Trustee argues that footnotes 3 and 4 are within the scope of and are responsive to arguments made by UpRight in its briefing.²⁵

Pursuant to Federal Rule of Evidence 201, the Court, on its own, may judicially notice a fact that is not subject to reasonable dispute because it is generally known within the trial court's territorial jurisdiction or can be accurately and readily determined from sources whose accuracy cannot reasonably be questioned.²⁶ Nevertheless, although this Court may take judicial notice of the two non-final decisions issued by other courts in which they criticized UpRight's Counsel, this Court may not take judicial notice that its contents are accurate.²⁷ Accordingly, the Courtcannot properly consider the cases cited in Footnotes 3 and 4 of the U.S. Trustee's Reply Brief.²⁸ Therefore, UpRight's Motion to Strike Footnotes 3 and 4 of the U.S. Trustee's Reply Brief is granted.

ii. Sections III and IV of the U.S. Trustee's Reply Brief

Second, UpRight asks the Court to strike Sections III and IV of the U.S. Trustee's Reply Brief in which the U.S. Trustee argues that the Court should "suspend" UpRight's ability to file cases in the Southern District of Texas.²⁹ UpRight contends that any arguments related to a suspension of UpRight have been waived because the U.S. Trustee never sought a suspension in the U.S. Trustee's Motion, nor did he suggest a suspension of the firm was appropriate during the two-day hearing on the U.S. Trustee's Motion.

The U.S. Trustee, on the other hand, argues that Sections III and IV of its Reply Brief are appropriate because UpRight in its post-trial brief made the argument that due process precludes the Court from considering any claims or imposing any relief against UpRight that was not specifically included in the U.S. Trustee's Motion.³⁰ Additionally, the U.S. Trustee contends that UpRight was put on notice that the Court could consider suspending UpRight's ability to file cases in the Southern District of Texas because the Court has inherent authority pursuant to 11 U.S.C. § 105 to deter UpRight from repeating such misconduct in the future.³¹

Upon examination of the docket, the U.S. Trustee requested relief under § 105 in the U.S. Trustee's Motion.³² Section III of the U.S. Trustee's Reply Brief references the Court's inherent authority and states that "the Court should exercise its authority under 11 U.S.C. § 105(a) or its inherent authority to address the misconduct proven over multiple hearings, and some of which occurred in the presence of the Court."³³ Section III makes no reference to a suspension of UpRight's ability to file cases in the Southern District of Texas. As such, since Section III of the Reply Brief references arguments made in the U.S. Trustee's Motion and makes no mention of a suspension of any kind, the Court will not strike Section III of the U.S. Trustee's Reply Brief. Section IV of the U.S. Trustee's Reply Brief does reference a suspension of UpRight.³⁴ However, the U.S. Trustee addressed the possibility of a suspension in its original post-trial brief, and cited to the Court's inherent authority as grounds for determining whether a suspension is...