Law Solutions Chi. LLC v. U.S. Tr.

• Decision Date: 24 September 2018
• Docket Number: CIVIL ACTION NO. 18-216
• Parties: LAW SOLUTIONS CHICAGO LLC d/b/a UpRight Law LLC, Appellant v. UNITED STATES TRUSTEE, Appellee
• Court: U.S. District Court — Western District of Louisiana

592 B.R. 624

LAW SOLUTIONS CHICAGO LLC d/b/a UpRight Law LLC, Appellant

v.UNITED STATES TRUSTEE, Appellee

CIVIL ACTION NO. 18-216

United States District Court, W.D. Louisiana, Shreveport Division.

Signed September 24, 2018

Patrick Lawrence McCune, Adams & Reese, Baton Rouge, LA, John M. Duck, Adams & Reese, New Orleans, LA, for Appellant.

Richard Harmon Drew, U.S. Trustee's Office, Shreveport, LA, Sumi Sakata, U.S. Dept. of Justice Trustee's Office, Washington, DC, for Appellee.

MEMORANDUM RULING

ELIZABETH ERNY FOOTE, UNITED STATES DISTRICT JUDGE

Before the Court is an appeal from an order of the United States Bankruptcy Court, Western District of Louisiana. Appellant, Law Solutions Chicago, LLC, doing business as UpRight Law, LLC ("UpRight"), appeals from the Bankruptcy Court's Order [Bankr. Doc. 41]¹ ("the Order") on the United States Trustee's Motion to Disgorge Fees and For Other Appropriate Relief in the underlying bankruptcy matter, In re Lillie Mae Banks, Case No. 17-10456 ("the Banks case"). For the reasons announced herein, the Order of the Bankruptcy Court is AFFIRMED.

BACKGROUND INFORMATION

UpRight characterizes itself as a "national consumer bankruptcy law firm, headquartered in Chicago, Illinois, with a practice model that differs from some law firms." Record Document 32, p. 30. Specifically, its Chicago office addresses the firm's administrative functions, advertising, and provides assistance to the "local partners" – the approximately 400 attorneys nationwide who "have a relationship with the firm but also maintain a separate practice." Id. The local partners do not have any managerial authority in the firm, id. at 31, but receive a percentage of the fees that a client pays to UpRight if the partner provides services for that client, Bankr. Doc. 40, pp. 156-57. When a prospective client reaches out to UpRight, the Chicago-based staff enters the client's information into a system, a fee is generated, and a partner attorney is assigned to the case. See id. at 190, 213-14; Record Document 32, pp. 33-34.

In the underlying bankruptcy case, the debtor, Lillie Mae Banks ("Banks"), discovered UpRight through the internet and called UpRight at a number provided on its website. Bankr. Doc. 40, pp. 10-11. Though initially assigned an attorney not licensed to practice in the Western District of Louisiana, Banks was eventually represented by Andrea Augustus ("Augustus"), an attorney located in New Orleans who was formerly a local partner at UpRight. After a series of missteps by both UpRight and Augustus, the United States Trustee ("UST") filed a Motion to Disgorge Fees and For Other Appropriate Relief [Bankr. Doc. 16] in the Banks case. Generally, the UST's motion gave an account of the events that had taken place in the case, which all parties agree was "horribly screwed up," Record Documents 7, p. 19; 22-9, p. 199, and requested that the court disgorge all fees collected, issue a $5,000 civil penalty, and issue certain injunctive relief to prevent future abuse and neglect by UpRight. Bankr. Doc. 16. The Bankruptcy Court held a hearing on the motion, at which it heard testimony from Banks, attorney Augustus, and David Menditto, the associate general counsel for litigation at UpRight. See Bankr. Doc. 40. On February 6, 2018, the Bankruptcy Court issued its Order [Bankr. Doc. 41], which imposed a 90-day suspension and additional requirements on UpRight, and is the subject of this appeal.²

The Bankruptcy Court's Order generally found that UpRight failed to adequately represent Banks in what should have been a simple bankruptcy case. For example, the court found that UpRight: (1) initially assigned Banks an attorney located in Tennessee and not licensed to practice in Louisiana; (2) later assigned Banks to attorney Augustus, who was located 350 miles from Banks, despite promising that she would be represented by a local attorney; (3) never sent Banks a retainer agreement signed by an attorney licensed to practice in Louisiana; (4) used a problematic retainer agreement with terms that violate Louisiana Rule of Professional Conduct 1.5 concerning fees and fee disputes; (5) made oral representations that contradicted the written retainer agreement; (6) made multiple misstatements or misrepresentations, and repeatedly broke promises made to Banks; and (6) failed to properly supervise Augustus over the entire course of UpRight's representation of Banks. Bankr. Doc. 41, pp. 3-25. The court also found Augustus at fault, as she: (1) consistently neglected to contact Banks; (2) delayed filing Banks' first bankruptcy petition; (3) negligently allowed the first bankruptcy case to be dismissed and remain dismissed; (4) falsely indicated that Banks had signed her second bankruptcy petition; and (5) allowed the second bankruptcy to be dismissed by failing to file required documentation.³ Id. at 9-28. The court found professional negligence on the part of both Augustus and UpRight, including multiple, continuous violations of the Louisiana Rules of Professional Conduct.⁴ The court further found that UpRight failed to comply with the Bankruptcy Code, 11 U.S.C. § 528, when Banks' retainer agreement was electronically signed by an attorney not licensed to practice in Louisiana and who never saw or physically signed the agreement. Id. at 33.

The court ruled that disgorgement was appropriate under 11 U.S.C. § 526(c)(1), specifically because UpRight failed to provide Banks with a properly executed written contract between them, in violation of 11 U.S.C. §§ 528(a)(1) and (2). Id. at 34-35. In addition to disgorgement, the court found relief under 11 U.S.C. §§ 526(c)(5) and 105 appropriate. Section 526(c)(5) provides that if a court finds an intentional violation of section 526, or a clear and consistent pattern or practice of violating section 526, it may enjoin the violation of that section or impose a civil penalty. The court found that "UpRight's continued failure to provide Banks with bankruptcy services after numerous requests for help amount[ed] to an intentional violation of 11 U.S.C. § 526(a)(1)," and also noted that while UpRight "promised to provide Banks an array of bankruptcy services," it "repeatedly failed to provide those services or misrepresented those services." Id. at 35. Accordingly, the court imposed the sanctions agreed upon by the UST and UpRight: disgorgement of all fees paid by Banks, refunding the $30 Banks paid for credit counseling, and payment of a $5,000 civil penalty to the United States Treasury. Id. at 36. Additionally, the court suspended Augustus from practicing in the United States Bankruptcy Court for the Western District of Louisiana for 90 days and ordered that her electronic filing privileges be suspended until she completes fifteen hours of bankruptcy specific continuing legal education and petitions the court for reinstatement of her privileges. Id. at 36-37. UpRight does not appeal those sanctions or requirements. The court imposed the following additional measures, which are the subject of this appeal:

(1) UpRight was suspended from filing any bankruptcy cases in the Western District of Louisiana for a period of 90 days. The suspension included any of UpRight's partner attorneys filing on UpRight's behalf. However, partner attorneys who maintained separate legal practices could continue to file bankruptcy cases for those clients not contracted with or represented by UpRight, and were also allowed to participate in any bankruptcy cases filed by UpRight prior to entry of the Order. Id.

(2) UpRight "may not accept any payment from any Western District of Louisiana residents who have not had a thorough and adequate consultation with an attorney that is licensed to practice in this District and is able to represent them." Id. at 37.

(3) UpRight's "contracts or retainer agreements must conform to Louisiana Rule of Professional Conduct 1.5(f)(5)" and all contracts between UpRight and residents of the Western District of Louisiana must contain a specified paragraph of text taken from that rule. Id. at 37-38.

(4) Attorneys acting on behalf of UpRight are prohibited from filing any document that is electronically signed by a client (i.e., using the /s/ notation). All documents filed by UpRight and its partner attorneys in this district which contain a client signature must contain a scanned original signature. This applies to all bankruptcy cases filed by UpRight and its affiliates in the Western District of Louisiana. Id. at 38.

(5) "[E]very employment contract for debt relief services between UpRight Law LLC and its clients must contain the original ‘wet’ signatures of both the client and the UpRight Law LLC attorney licensed in the Western District of Louisiana. The attorney who executes that contract shall be designated as the attorney in charge of that case. Further, UpRight Law LLC and its affiliates may not accept a retainer from any client before an employment contract is executed. This order applies with respect to UpRight Law LLC and its affiliates and any of their prospective clients residing in or anticipating filing bankruptcy in the Western District of Louisiana." Id.

(6) Every attorney affiliated with UpRight and its affiliates who files a pleading within this district on behalf of UpRight or its affiliates must contact the clerk of court and update their CM/ECF account or create a duplicate account so that the docket in each case accurately reflects the attorney's firm name as UpRight Law LLC. Id. at 38-39.

UpRight additionally challenges the following statements made in the Order: "Any future retainer agreements between UpRight and its clients in the Western District of Louisiana must specifically include all services integral to a Chapter 7 filing. It also must conform to the Louisiana Rules of Professional Conduct." Id. at 8. Finally, to the extent they are construed as findings of fact, UpRight challenges the Bankruptcy Court's characterizations of it as a "referral service" and a ...