Abusive Ch. 7 Trustee's One-Year Suspension Upheld

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By Daniel Gill

May 23 — A veteran Chapter 7 panel trustee's one year suspension was upheld by the U.S. District Court for the Southern District of New York.

Judge Naomi Reice Buchwald affirmed the decision of the Director of the United States Trustee Program to suspend for one year John S. Pereira so that Pereira is ineligible to receive any new cases during the pendency of the suspension.

In her May 11 memorandum and order, the court found that Pereira's behavior and abusive comments during three meetings of creditors supported the suspension.

Pereira was allowed to continue to serve as trustee on his pending case-load.

Abusive Behavior

Pereira is the senior standing Chapter 7 panel trustee in both the Southern and Eastern Districts of New York, the court said.

In Chapter 7, a debtor's nonexempt assets are liquidated by a trustee, and the property of the estate is distributed to creditors. Those trustees are selected from a panel of professionals, often but not always attorneys, and are supervised by the Office of the United States Trustee, a branch of the Dept. of Justice.

On May 12, 2014, and on July 16, 2014, the Office of United States Trustee for Region 2 received letters complaining about the trustee's behavior at recently conducted 341(a) meetings.

A “341(a) meeting” refers to what is sometimes called a first meeting of creditors, prescribed by Section 341(a) of the U.S. Bankruptcy Code. Chapter 7 debtors appear at a public meeting room to be questioned by the trustee appointed to his or her case and by creditors or other interested parties should any choose to appear. The 341(a) meeting is not a court hearing; the trustee presides over it.

The letters complained of the trustee's behavior in three separate meetings. The U.S. Trustee's office for Region 2 considered the letters and the transcripts of the 341(a) meetings (all such meetings are recorded) and determined that Pereira should be suspended from receiving new case assignments for a one year period. The office said that Pereira's actions in the subject meetings of creditors “were overly aggressive and arguably biased” based on one of the debtor's proficiency in English, and that his conduct was “violative of Program policy, and so egregious that they warrant suspension.”

The office also sanctioned what it called Pereira's “aggressive and unprofessional behavior.”

Suspension Affirmed by the Director

In accordance with applicable administrative procedures, Pereira appealed the Region 2 OUST decision to the national director of the of the U.S. Trustee Program, Clifford J. White. The director concluded that the record supported the regional office's suspension and its determination that Pereira was “unprofessional, discourteous, overly aggressive and improper.”

The trustee challenged the director's decision by filing a complaint in the district court.

Record Supported Suspension

The district court found that the record supported the director's affirmance of the OUST Region 2's suspension of the trustee.

The court's legal analysis focused on 28 U.S.C. § 586(d)(2), which it said provided an adequate remedy in court for the plaintiff trustee, thereby eliminating the need to consider the trustee's argument that the suspension violated the Administrative Procedure Act (5 U.S.C. Section 701).

The court said that to overturn the director's decision, it would have to determine whether his decision was “unreasonable and without cause.”

The court found that the trustee's behavior in the three 341(a) meetings supported the suspension. Among other things, the trustee did not allow one debtor prompt access to a telephonic language interpreter service, despite the debtor's repeated requests for an interpreter and the ready availability of the service. Instead, the trustee made a number of abusive comments challenging the debtor's lack of English proficiency despite becoming a naturalized citizen 10 years earlier.

The court disagreed with the trustee's assertion that the director did not properly consider the trustee's long tenure and service, suggesting that the trustee's service and “good behavior” after the original suspension notice was handed down “no doubt factored into the sanction imposed.” The court suggested that perhaps without those mitigating factors a more severe penalty would be indicated.

Wendy Helene Schwartz of Binder & Schwartz LLP, New York, represented trustee John S. Pereira. Dominika Natalia Tarczynska of the U.S. Attorney's Office, New York, represented the government.

To contact the reporter on this story: Daniel Gill in Washington at dgill@bna.com

To contact the editor responsible for this story: Jay Horowitz at jhorowitz@bna.com