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In re Johnson

United States District Court, S.D. Illinois

April 3, 2017

IN RE X'LEXUS JOHNSON, Debtor,
v.
WENDELL TAYLOR, Respondent. NANCY GARGULA, United States Trustee, Petitioner, Ch. 13 Bankruptcy Case No. 15-31025

          MEMORANDUM AND ORDER

          J. PHIL GILBERT DISTRICT JUDGE.

         This matter comes before the Court on the Report and Recommendation and Certification (“Report”) (Doc. 4) of Bankruptcy Judge Laura K. Grandy finding respondent Wendell Taylor violated the terms of a Consent Judgment and Injunction entered in In re Cross, Bankr. Case No. 11-32217, Adv. Case No. 11-3392 (Bankr. S.D. Ill.), and violated 11 U.S.C. § 110 in a number of ways in connection with the bankruptcy proceeding of debtor X'Lexus Johnson. Judge Grandy recommended the Court grant the United States Trustee's motion for sanctions (Doc. 2) and find Taylor in civil and criminal contempt. Taylor filed an objection to the Report (Doc. 10).

         The Consent Judgment in In re Cross prohibits Taylor from preparing any bankruptcy petition for filing in the Bankruptcy Court, delivering any bankruptcy paper to the Bankruptcy Court for filing, or giving any advice in any bankruptcy matter:

Accordingly, Taylor, and each of his agents, servants, employees, associates, and all persons and entities in active concert participation with any of them are permanently enjoined from preparing for compensation, or not for compensation, any bankruptcy petition in the United States Bankruptcy Court in connection with a case under title 11 of the United States Code, as of the date of the entry of this Consent Judgment or otherwise acting as a bankruptcy petition preparer as that term is defined in 11 U.S.C. § 110. Taylor is further prohibited from delivering any bankruptcy paper to the bankruptcy court for filing. Taylor is also prohibited from providing any advice in any bankruptcy related matter to any person.

Consent Jmt. ¶ 4 (Bankr. Case No. 11-32217, Adv. Case No. 11-3392, Doc. 18). Taylor stipulated to the Consent Decree on March 8, 2012, and Judge Grandy entered it on March 13, 2012.

         The pending matter arose in connection with Johnson's bankruptcy after her voluntary Chapter 13 petition was dismissed for want of prosecution because she failed to submit the required documents with her petition. In considering Johnson's request to reinstate her case, the Bankruptcy Court came to believe Taylor had prepared Johnson's petition in violation of the In re Cross Consent Judgment and Injunction set forth above.

         The Bankruptcy Court was tipped off to Taylor's alleged involvement at an August 13, 2015, hearing on Johnson's request to reinstate her case. Johnson was able to remember a number of details concerning the person who helped her prepare her petition. She testified that her mother had helped her contact a man her mother knew who had helped Johnson's aunt file a bankruptcy petition. That man helped Johnson file her bankruptcy case. The man was in O'Fallon, Illinois. Johnson met with him at the O'Fallon Library. He was about 58 or 56 years old, was black and was short. He drove a red Chrysler Sebring to the meeting; Johnson could tell it was a rental car because of the license plates. At some point, the man talked to her on the phone and asked a lot of questions, and then asked her to take some kind of test on a website. Johnson then met the man again at the mall after school to get her completed bankruptcy papers from him. At that time he was driving a white Dodge Dart, which Johnson also believed was a rental car. He told Johnson where to turn the papers in to the Bankruptcy Court, and she did. He had prepared Johnson's bankruptcy plan for her and told her there would be a monthly payment, but he never told her how much the monthly payment would be. The man had helped Johnson's aunt, Carrie Clay, prepare the paperwork for her bankruptcy case. He had also helped Johnson file a Chapter 7 bankruptcy petition a few years earlier. Transcript of Aug. 13, 2015, Hrg. (Doc. 26).

         During Johnson's testimony, Judge Grandy looked up Carrie Clay's case and found that Taylor had prepared Clay's petition. Judge Grandy found Johnson's testimony credible and concluded that Taylor had also prepared Johnson's petition. Of course, Taylor did not receive notice of the hearing because Johnson's petition did not disclose that Taylor had prepared her petition, and until the hearing, there was no indication he was connected to the case.

         The information that came to light at the August 13, 2015, hearing spurred the United States Trustee to file a motion for sanctions against Taylor and for a referral from the District Court for possible criminal prosecution (Doc. 2). The United States Trustee's motion was based in part on Taylor's apparent preparation of Johnson's bankruptcy petition. The motion was served on Taylor by mail. Judge Grandy set a hearing on that motion for October 15, 2015, and notice of that hearing was served on Taylor by mail. He failed to appear at the hearing. At that hearing, the United States Trustee represented that he had provided a recent picture of Taylor to Johnson's counsel to show to Johnson for identification purposes. Johnson's counsel represented to the Court that he had shown Johnson the picture and that she had confirmed that the individual in the picture was the man who had prepared her bankruptcy petition for her. Transcript of Oct. 15, 2015, Hrg. at 5-6 (Doc. 27).

         After considering the United States Trustee's motion and Taylor's failure to appear at the October 15, 2015, hearing, Judge Grandy issued the Report finding Taylor had violated the Consent Judgment and Injunction in In re Cross and had independently violated various provisions in 11 U.S.C. § 110. She recommends that the Court withdraw, in part, the Bankruptcy Court reference in the instant case and in In re Cross pursuant to 28 U.S.C. § 157(d) for the limited purpose of considering criminal contempt proceedings or further civil contempt proceedings against Wendell Taylor for the foregoing violations. Judge Grandy specifically recommends:

• Granting the U.S. Trustee's motion for sanctions (Doc. 2);
• Imposing a fine of $7, 500.00 pursuant to 11 U.S.C. § 110(l)(1) and (2), payable to the United States Trustee, for violations of 11 U.S.C. §§ 110(b)(1), (b)(2), (c)(1), (e)(2)(A), and (h)(2);
• Imposing a $2, 000.00 fine payable to debtor X'Lexus Johnson pursuant to 11 U.S.C. § 110(i)(1);
• Ordering that Taylor fully disgorge and forfeit the $400.00 fee that he received from Johnson in this case;
• Finding that Taylor is in civil contempt of the Consent Judgment and Injunction entered by the Bankruptcy Court on March 13, 2012, in In re Cross, Bank. Case No. 11-32217, Adv. Case No. 11-3392; and
• Finding that Taylor is in criminal contempt of the Consent Judgment and Injunction entered by this Court on March 13, 2012, in In re Cross, Bank. Case No. 11-32217, Adv. Case No. 11-3392.

         Taylor was served by mail with the Report and advised in writing that he had fourteen days to file written objections to the Report.

         Taylor did not file objections within fourteen days, so the Bankruptcy Court transmitted the Report to this Court for its consideration. This Court then extended Taylor's time to object until March 25, 2016; Taylor filed a late objection on March 28, 2016. Taylor objects only to Judge Grandy's finding that he prepared Johnson's bankruptcy petition, calling Johnson's testimony “so incredibly unbelievable” that with proper cross-examination, it would have been obvious she was not telling the truth. Obj. at 3 (Doc. 10).

         The Court accepted Judge Grandy's recommendation with respect to the bankruptcy reference and, pursuant to 28 U.S.C. § 157(d), withdrew in part the bankruptcy reference in this case and in In re Cross, Bankr. Case No. 11-32217, Adv. Case No. 11-3392, (Bankr. S.D. Ill.), to the extent necessary to consider the United States Trustee's motion (Doc. 2) and Judge Grandy's Report (Doc. 4).

         The Court then issued an order for Taylor to show cause at a hearing on September 16, 2016, why the Court should not find him in civil contempt for violation of the Consent Judgment and Injunction entered by the Bankruptcy Court on March 13, 2012, in In re Cross, Bank. Case No. 11-32217, Adv. Case No. 11-3392, and impose the additional sanctions recommended by Judge Grandy (Doc. 11). The United States Marshals Service served the order to show cause on Taylor pursuant to Federal Rule of Civil Procedure 4(e)(2)(B) by leaving a copy of the order at Taylor's usual place of abode with someone of suitable age and discretion who resides there. The United States Trustee also arranged informally with Johnson and her bankruptcy attorney for Johnson to appear voluntarily at the show cause hearing, but four days before the hearing, Johnson's attorney informed the United States Trustee that she was no longer willing to appear voluntarily. The United States Trustee was not able to arrange for service of a subpoena in time to secure Johnson's appearance at the hearing. Johnson did not appear at the hearing, so the Court continued it to enable the United States Trustee to compel her appearance by subpoena.

         At the December 9, 2016, Johnson appeared and testified when called by the United States Trustee. This time, her memory of her petition preparation was much less distinct. For example, when questioned by the United States Trustee, she was fuzzy about the help she received filing her petition:

Q. Your 2015 case --
A. Uh-huh.
Q. -- that you filed last year, --
A. Okay.
Q. -- you filed that on your own, correct? You didn't have an attorney help you?
A. Right.
Q. You had someone help you, though, isn't ...

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