Robbins v. Darren Delafield, Upright Law LLC (In re Williams)
| Decision Date | 12 February 2018 |
| Docket Number | Case No. 16-50158,Adversary Proceeding No. 16-05014,Case No. 15-71767,Adversary Proceeding No. 16-07024 |
| Court | U.S. Bankruptcy Court — Western District of Virginia |
| Parties | IN RE: TIMOTHY JAMES WILLIAMS, JR., and ANDRIAN SHANNON WILLIAMS, Debtors. JUDY A. ROBBINS, United States Trustee For Region Four, Plaintiff, v. DARREN DELAFIELD, UPRIGHT LAW LLC, LAW SOLUTIONS CHICAGO LLC, JASON ROYCE ALLEN, KEVIN W. CHERN, EDMUND SCANLAN, and SPERRO LLC, Defendants. IN RE: JESSICA DAWN SCOTT, Debtor. JUDY A. ROBBINS, United States Trustee For Region Four, Plaintiff, v. JOHN C. MORGAN, JR., JOHN C. MORGAN, JR., PLLC, UPRIGHT LAW LLC, LAW SOLUTIONS CHICAGO LLC, JASON ROYCE ALLEN, KEVIN W. CHERN, EDMUND SCANLAN, and SPERRO LLC, Defendants. |
(consolidated with Adversary Proceeding No. 16-07024)
This matter comes before the Court on Complaints filed by the United States Trustee for Region Four ("UST") against Darren T. Delafield, John C. Morgan, Jr., Upright Law, LLC ("Upright"), Law Solutions Chicago, LLC, Jason Royce Allen, Kevin W. Chern, Edmund Scanlan, and Sperro, LLC on May 31, 2016 and June 30, 2016. Separate adversary proceedings were filed in the bankruptcy cases of Timothy and Andrian Williams, filed by Darren Delafield ("Delafield") as an Upright partner, and of Jessica D. Scott, filed by John Morgan ("Morgan") as an Upright partner. The two cases were consolidated for trial. Sperro, LLC did not file a response, nor has it appeared in this action. Default was entered against it on July 15, 2016 and August 17, 2016. The remaining defendants are collectively referred to as the "Upright Defendants." Extensive discovery took place and numerous motions were heard prior to trial. A four day trial was conducted September 25-28, 2017, during which multiple witnesses testified and thousands of pages of exhibits were submitted. All parties submitted post-trial briefing once the transcripts were prepared, which briefing was completed in late December 2017. This matter is now ripe for resolution.
This case involves yet another collision between traditional methods of providing - and policing - legal services to consumers for bankruptcy matters and attempts by attorneys and creative online marketers to tap into that market on a high-volume, multi-jurisdictional basis. On November 15, 2015, this Court issued an opinion in which it stated:
[T]hese cases reflect the Pandora's Box of ethical issues opened by multi-jurisdictional practice [through] the "national law firm" business model, where law firms in distant locations around the country advertise on the internet, and then seek to retain a local attorney to become a local "member" - albeit one with limited, if any, rights other than in the cases they actually take.
Little has changed.
The UST attempts to paint Upright and by association its local "partners" as money hungry "bankruptcy boiler room" operators that have stepped over - and will continue to step over - legal and ethical lines without hesitation in their inexorable quest for the next dollar. The Upright Defendants, in turn, attempt to portray themselves as cutting-edge advocates for the financially distressed consumer. They contend they have identified a void in the legal market for consumers that they are uniquely able to fill by using technology and the internet to match underserved areas of clients with attorneys who have the capacity and ability to fill their needs on a national basis, all while staying within the bounds of the law.
This case was aggressively litigated on both sides. The Court's findings of fact and conclusions of law follow below.1
I. Overview of the Genesis and Structure of "Upright Law"
Upright Law, LLC is a d/b/a for Law Solutions Chicago, LLC ("LSC"), an Illinois limited liability company. LSC also operates under various other assumed names, including Jason Allen Law, LLC, Allen Chern Law, Allen Chern LLC, and Allen & Associates, LLC among others. In at least one instance, Upright Law is referred to as "a service of Allen Chern Law LLC." UST Ex. 3-7. According to Kevin Chern ("Chern"), the members of LSC are Chern, Jason Royce Allen ("Allen"), and David Leibowitz ("Leibowitz"), all members of theIllinois bar.2 Tr. 60-61, Day 3.3 The mangers of LSC are Chern and Allen. Chern is the managing partner of LSC, Allen is its chief operating officer, and Leibowitz is its chief legal officer.
Chern has a past business history with an individual named Edmund Scanlan ("Scanlan"), whose expertise is internet marketing, among other things. Scanlan is not an attorney. He holds the title of executive director of LSC, although he holds no actual ownership interest in LSC. Scanlan is paid a base salary of $200,000.00 by LSC for which he receives an IRS Form 1099, presumably as an independent contractor. LSC has very few actual employees - the ones it does have are in-house Chicago attorneys - instead leasing most of its employees from Mighty Legal, LLC.4 Mighty Legal, LLC in turn is owned by Justiva, LLC, which is owned by Chern, Scanlan, Allen and some others not parties to this litigation. Justiva, LLC also owns Royce Marketing, LLC, which provides marketing services to LSC.5 Scanlan does not share in the profits or losses of LSC. However, for all practical purposes, LSC is the only client of both Mighty Legal and Royce Marketing, and the arrangements with Mighty Legal, Royce Marketing - and ultimately Justiva - allow for significant funds generated by LSC to flow to Scanlan, Chern, and others.6
Chern testified that, while working with Scanlan to provide online marketing services to small law firms, he identified "that there was an enormous gap between the number of consumers who are actually reaching out and saying that they need legal assistance and the number of attorneys that are interested in proliferating information about their availability toprovide services to those consumers." Tr. 55, Day 3. In 2013, Chern approached Allen, who at the time ran LSC, and discussed joining with him to attempt to match up on a multi-jurisdictional basis attorneys who were looking for work with consumers who needed bankruptcy assistance, but, for a variety of factors, were unable to obtain counsel. According to their research, clients overwhelmingly preferred not coming into "brick and mortar locations," instead they preferred receiving legal services without the burdens of travel. This led to the establishment of a "remote onboard process for clients," with LSC centralizing its operations in Chicago and abandoning the traditional client office-visit arrangement. Tr. 58-59, Day 3. Unless otherwise described in this Opinion, "Upright Law," "Upright" and "LSC" are generally referred to as one in the same.
The trial evidence reflected that when a prospective client searches the internet for a bankruptcy attorney and comes across Upright Law, the client generally reaches out one of two ways: they either call Upright Law or request information through an online request form. This reach out, in turn, prompts a call back from a "client consultant." In 2015, Upright had a bifurcated client intake process involving non-attorney personnel in Chicago called "client consultants" and "senior client consultants." Client consultants were junior employees whose job it was to gather basic information and probe whether the prospect was really interested in filing for bankruptcy, whether they had the ability to pay for services, and whether they were the decision maker for the family.7 Chern, Tr. 88, Day 3. If those qualifications were met, the prospect was passed on to a senior client consultant.
Senior client consultants were usually former client consultants who had been promoted after a period of time. According to Chern, their job was to identify the consumer's motivationsand desires, what goals they were trying to achieve, and whether there was a precipitating event that was driving them to file. Id. at 88-89. These individuals are not attorneys and are paid a base salary plus commission. Sales employees were also trained in a boot-camp type arrangement. They were provided with a "Playbook," which taught them a variety of methods to "close" the sale of bankruptcy services to individuals seeking relief.
For example, UST Exhibit 37 is an Upright Law "Sales Play Book," which provides at Chapter I "Sales Rules & Theory - Close or be Closed." It includes topics such as the "Pitch Outline," the "Pitch Script," "Moving to the Close," and "Objection Handling." It is replete with high pressure sales tactics, some of which recommended to "close" the sale are unsettling to the Court.8 Under objection handling, senior client consultants are taught to respond as follows if a prospect says "I need to pray about it":
I appreciate that. I pray about every decision I make myself. How are you most comfortable paying? Let's pray together. I trust God won't mislead either of us. I am willing to accept God's will for the both of us.
UST Ex. 37, p. 12. Moreover, if a prospect said, "I need to talk to my Wife/Husband," senior client consultants were advised to respond with responses including: "I agree, and you should, but if your husband/wife is anything like mine, he/she never tells me no when I really need or love something, and I never tell him/her no." Id. Or, "[b]etter to ask for forgiveness than ask for permission, so let's get you going right away[.]" Id. Under the Playbook's "Now or Never" pitch, Upright sales people were advised to state as follows:
This is the offer I am making you for right this moment in time, and it is a now or never offer as I will not be able to make this available tonight, tomorrow, or event [sic] later today. Because we have an incentive available to us right now, I amable to offer this to you...
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