IN THE UNITED STATES BANKRUPTCY COURT
FOR THE NORTHERN DISTRICT OF CALIFORNIA
MARY E. ROACH, No. 93-12715
WENDY L. WHITTAKER, No. 93-12545
Memorandum of Decision
Edward M. Krug and David F. Miller operate a business known as Legal Resource Network.
They solicit business from persons who are facing loss of their real property through foreclosure
with the following pitch:
Our team of lawyers, real estate agents, inves-
tors, mortgage brokers, banks, accountants, appraisers
and financial planners will have a well thought out and
coordinated plan for you. In short, we will stop your
[emphasis in original]
Krug was once a lawyer, but was disbarred by the State of California. Miller has never been a
lawyer. In each of the two cases above, Miller and Krug counseled and assisted the debtors to
file a Chapter 11 petition in pro per. Both cases ended in disaster. Now before the court are two
matters brought on by the U.S. Trustee: a motion to review the fees Krug and Miller charged, and
an order to show cause why they should not be sanctioned pursuant to Local Rule 110-8 for the
unauthorized practice of law.
Unlike the other Chapters of the Bankruptcy Code, Chapter 11 is extremely complicated and
demanding; successful negotiation in pro per is virtually impossible. Whittaker filed her petition
on October 19, 1993. Before a month was out, the U.S. Trustee had moved for conversion of the
case due to her failure to comply with U.S. Trustee guidelines. The case was converted on
December 7. Soon thereafter, the deed of trust holder on Whittaker's property obtained relief
from the automatic stay to complete its foreclosure. Krug and Miller charged Whittaker
$1050.00 for their services, which included advice as to the filing of a bankruptcy, the chapter
to file, and the preparation and filing of the bankruptcy schedules and statements.
Mary Roach's case is much more tragic. She is a working mother with two young disabled
children. When her home, inherited from her mother, went into foreclosure, she received the
Legal Resource Network solicitation. Krug and Miller put her into a pro per Chapter 11,
charging her $1,500.00 plus the court filing fee of $600.00, for a total of $2,100.00. Ten days
after the Chapter 11 was filed, the secured creditor filed a motion for relief from the automatic
stay. The motion was granted by default when no opposition was filed and nobody appeared to
oppose the motion at the hearing. Roach did not know she had lost her home until state court
eviction proceedings were commenced.
Krug and Miller are obviously ignorant as to what constitutes the unauthorized practice of
law. Krug himself, in his declaration filed in opposition to the U.S. Trustee's motions, stated:
"I told her she could not afford the house and
that she would probably need to file a bankruptcy
petition to stay the sale . . . . I told her she
needed to file the schedules and a plan, that there
would be notices to her until she got an attorney,
and if she didn't understand the notices, she should
contact Dave [Miller] or myself. . . .
I typed the Petition, Creditor's List, and Matrix
on Sunday with her giving me the information."
While Krug states that all of his services were to be temporary, until Roach could hire a lawyer,
Roach stated in her declaration that Krug and Miller held themselves out as bankruptcy experts
and told her that a lawyer would only be hired "if needed." This version is borne out by a letter
written to Roach by Krug on November 6, 1993. It stated, in part:
In order to stop the pending foreclosure sale
on your home it is necessary to file for an auto-
in the U.S. Bankruptcy Court. This is
not a bankruptcy filing, but what is called a "re-
The letter went on to discuss (wrongly) the differences between Chapter 11 and Chapter 13,
recommend a Chapter 11, and quote fees for both. No mention of a lawyer is made.
In short, Krug counseled Roach as to her rights under the Bankruptcy Code, explained the
different chapters to her, advised her that she needed to file, prepared her petition and other
necessary papers for her, filed the petition for her, and then told her that he would explain to her
the meaning of any legal papers she received. He also charged her more than many of the
attorneys who practice in this court charge. All of this constitutes the unauthorized practice of
law. See, e.g., O'Connell v. David
, 35 B.R. 141, 143 (Bkrtcy.E.D.Pa.1983) modified 35 B.R.
146 (E.D.Pa. 1983) aff'd 740 F.2d 958 (3rd Cir.1984)[actual preparation and direct or indirect
filing of bankruptcy petition and papers constitutes unauthorized practice of law]; In re Herren
138 B.R. 989, 994-95 (Bkrtcy.D.Wyo.1992)[same]; In re Glad
, 98 B.R. 976, 978 (9th Cir.BAP
1989)[solicitation of financial information used to prepare bankruptcy papers was practicing
law]; In re Grimes
, 115 B.R. 639, 643 (Bkrtcy.D.S.D.1990)[same]; In re Harris
, 152 B.R. 440
(Bkrtcy.W.D.Pa.1993)[same]; People v. Landlords Professional Services, Inc.
, 215 Cal.App.3d
1599 (1989) [conducting interview with clients, eliciting information, selecting and preparing
forms from such information was the unlawful practice of law].
Section 329 of the Bankruptcy Code gives the court jurisdiction over all fees paid for legal
services, whether or not they were rendered by a lawyer. in re Telford
, 36 B.R. 92 (9th Cir.BAP
1984). Where a nonlawyer has assisted the debtor in filing a Chapter 11, the court may order the
nonlawyer to disgorge the fees. In re Glad
, 98 B.R. 976 (9th Cir.BAP 1989). Such disgorgement
is clearly mandated here. The fees were charged for illegal services. The advice to file a Chapter
11 was bad, and based on erroneous advice as to the applicability of Chapter 13 and the further
erroneous advice that Chapter 13 debtors needed to pay quarterly U.S. Trustee fees. No
disclosure of fees was filed as required of even nonlawyers who render legal services. Most
importantly, the advice given by Krug and Miller led directly to financial disaster for the debtors.
In the Roach case especially, it appears that the debtor had enough available funds to hire a
competent lawyer who could have saved her property. Krug and Miller shall accordingly be
ordered to return all fees paid to them by the debtors. without prejudice to the debtors' rights to
In addition to being liable for the return of fees, both Krug and Miller are in contempt of court
pursuant to Local Rule 110-8 for their unauthorized practice of law. Krug is clearly the more
guilty party, since he was once a lawyer. Since the the court's primary concern is the protection
of the public, it will order a fine of $20,000.00 for Krug and $10,000.00 for Miller, but will stay
enforcement so long as they cease all bankruptcy-related practices. This civil penalty will be
assessed without prejudice to any criminal prosecutions or criminal contempt sanctions the
district court may wish to assess.
Pursuant to FRBP 9021, the court will enter an order granting the U.S. Trustee's motion for
review of the fees and a separate order, pursuant to FRBP 9020, finding Krug and Miller in
contempt. In addition to the parties, the Clerk shall serve a copy of this decision and the two
order on the U.S. Attorney and the Sonoma County District Attorney.