Up-Ending UpRight: UpRight Law and Ethical Considerations at Virtual Firms

The virtual law firm is often presented as a method for providing services more efficiently and conveniently on a high-volume scale, untethered by specific geography. However, the virtual firm model can present ethical risks for attorneys, as shown in the sanctions order recently issued by the U.S. Bankruptcy Court for the Western District of Virginia against the virtual “multi-jurisdictional” bankruptcy firm of UpRight Law, L.L.C. in UST v. UpRight Law L.L.C., et al.  (In re Williams & In re Robbins) (“Williams”).[1]

UpRight advertises itself as an alternative to brick-and-mortar firms.[2] Headquartered in Chicago, most of its legal services are rendered by non-equity, non-voting “partner attorneys” located around the country, who serve as UpRight attorneys as part of their own practices. UpRight obtains clients through responses to its website. A non-attorney salesperson located in Chicago pitches the prospective client by telephone, and once a sale “closes,” the new client is placed with an UpRight attorney located near the client.

UpRight has been the subject of numerous motions and complaints regarding its fees and practices.[3] In bankruptcy court litigation since 2016:

• An UpRight attorney’s fee agreement was partially canceled due to an improper carve-out of basic bankruptcy services.[4]
• UpRight was sanctioned $15,000 for discovery violations involving production of its own business documents.[5]
• UpRight conceded “much of the UST’s motion for disgorgement.”[6]
• An UpRight attorney had to disgorge his fees, and the UST was requested to consider filing a complaint with the state bar grievance committee.[7]
• UpRight’s motion to dismiss was denied, in an order detailing how the UST had stated claims for the unauthorized practice of law and negligence.[8]
• UpRight was sued by the UST for alleged violations of FRCP 2016 and Bankruptcy Code § 329 for fees paid to UpRight in Fair Debt Collection Practices Act litigation.[9]
• A chapter 13 trustee sought disgorgement of UpRight’s fees, alleging that UpRight’s fee-sharing agreement violates rules of professional conduct.[10]
• A chapter 7 trustee filed motions for sanctions, alleging that an UpRight attorney filed false certifications in a pattern that occurs in “virtually all cases” filed by this attorney.[11]
• A bankruptcy administrator filed a “Motion to Examine Debtor’s Transactions with Attorney,” alleging insufficient evidence to determine who the debtor dealt with at UpRight and whether there was improper fee-sharing.[12]
• The UST filed motions for Rule 2004 exams, seeking information regarding UpRight’s fee agreement, the unauthorized practice of law, and violations of §§ 329 and 526.[13]

But the game-changer came on Feb. 12, 2018, when a Virginia bankruptcy court issued its 62-page opinion in Williams (“Williams Order”[14]).

At the heart of Williams is a rip-off. UpRight partnered with Sperro Inc., a vehicle repossession company, in a scam called the “New Car Custody Program.” UpRight offered the client the opportunity to have his bankruptcy case filing fee and attorneys’ fees paid if the client surrendered his vehicle to Sperro. Then, before the filing, Sperro towed the vehicle to one of three states with lien laws giving towing companies a warehouseman’s priming lien ahead of the vehicle lienholder. The lienholder could recover the vehicle, but only after paying Sperro the towing and storage charges. The evidence showed that about 40 percent of the time, the lienholder abandoned the vehicle — enabling Sperro to auction it off and keep the sale proceeds after paying the client’s fees. The result was the systematic interstate conversion of the lienholders’ property. Then, in some cases, UpRight attorneys failed to reveal who paid the bankruptcy fees and costs.

In the course of UpRight’s participation in the scam being revealed at trial, many other facts also came to light:

• UpRight mischaracterized itself as having “local offices nationwide,” and made dubious representations about the quality of its attorneys (one of the attorneys in Williams, John C. Morgan, Jr., was a felon with a suspension record, and the other, Darren Delafield, had been admonished by the court and privately reprimanded by the bar).
• Non-attorney salespersons followed UpRight’s “Sales Play Book” to use high-pressure, hyper-personalized (and even deity-invoking) now-or-never ABC[15] tactics in a relentless quest to “close.”
• The commission-incentivized non-attorney salespersons gave legal advice to prospective clients.
• No conflicts checks were done before a client was presented with an oral retention agreement.
• Filings contained misrepresentations and inaccuracies, and fee statements provided that fees were earned upon receipt, despite no legal services having been performed.
• The Rule 2016 disclosures were prepared by the Chicago office, not by the local attorney licensed to practice in the state in which the disclosure was filed.
• The local attorney’s signature was placed on the Rule 2016 disclosure by the Chicago office, without review by the attorney.
• Correspondence bearing the local attorney’s signature (but with the Chicago office address) was prepared and sent by UpRight on behalf of clients, without the attorney’s knowledge.
• Morgan allowed his non-attorney wife to prepare error-filled pleadings, without his review, explaining, “My wife has superior knowledge of the law.”
• Delafield falsely stated at a § 341 meeting that he had no knowledge of why Sperro paid his clients’ fees.

The court determined that the UpRight defendants engaged in the unauthorized practice of law, failed to properly represent clients, made false representations in the solicitation of business, and scammed secured lenders.[16] Moreover, the court determined that, given “hard sell” sales tactics and the commission-based sales structure, the focus on cash flow at the expense of professional responsibility, and the lack of supervision and control over salespersons, as well as the participation in the Sperro scheme, the defendants acted in bad faith. The Williams court therefore devised a series of punishments against UpRight and its attorneys.

The court ordered that the corporate entities, the firm manager and a CEO have their filing privileges in the district revoked for five years and be fined $250,000. In addition, the manager received an additional $50,000 fine for his role in the Sperro scam. Delafield and Morgan were determined to be equally responsible for the actions of the salespersons. Delafield had his filing privileges revoked for one year, Morgan had his filing privileges revoked for 18 months, [17] and each was sanctioned $5,000.

The court closed with a warning: “Local attorneys joining multi-jurisdictional law firms as local or limited partners cannot be both tall and short. An attorney cannot claim to be a partner in the firm and file cases with the Court as lead counsel, but yet claim no responsibility for what happens in the main office on the files the attorney decides to take. Attorneys considering joining firms with this business model should understand that, in this Court, while an injury might be initiated elsewhere — there is a real possibility the pain is going to be felt at home.”[18]

Williams makes clear that an attorney may be responsible for the acts of non-attorneys who operate as other spokes in the wheel of the business. An attorney cannot find shelter from responsibility in the “virtual” nature of his firm. In light of Williams, a bankruptcy attorney partnered in a similar virtual firm structure should conduct considerable initial, as well as ongoing, due diligence, to have full details on how support services are being provided, and what measures are in place to prevent the unauthorized practice of law. Boiler room-style “closing” tactics are not appropriate in the legal services context, where attorneys are subject to professional ethics regarding client solicitations. In addition, an attorney should not authorize the use of his signature without his permission and review. And, given the numerous cases that were filed against UpRight before the Williams Order, an attorney should run periodic litigation searches for the virtual firm to determine whether it faces repeated legal challenges in other jurisdictions.

However, it should be noted that Williams does not stand for the proposition that the virtual firm model per se presents an ethical problem. The court did not reject the idea that client contact can be appropriately managed via Skype or a similar mechanism. It seems that virtual lawyering, and a virtual law firm, could be done well and ethically, and offer benefits in terms of convenience and travel. The UpRight model of the virtual law firm — with its focus on the quantity of sales, rather that the quality of lawyering, and its failure to ensure professional ethics were being met —may merely be an unfortunate false start on the way to a virtual firm model that can meet the ethical demands of the legal services business.