Upshot: Multiple Sanctions Against UpRight Upheld After Bankruptcy Courts Apply Their Authority to Regulate the Conduct of Attorneys

In Law Solutions Chicago LLC v. United States Trustee (In re Banks),[1] the Fifth Circuit upheld multiple sanctions against a national consumer bankruptcy law firm for misleading and neglecting clients. The district and bankruptcy court opinions thoroughly illustrate the complexities and pitfalls operating a high-volume, multi-jurisdictional law firm, and serve as a cautionary tale for debtors who search the internet for bankruptcy advice.

UpRight Law, LLC, which advertises itself as a “national law firm,” is based in Chicago and provides consumer bankruptcy referral services in many states, including Louisiana, by “partnering” with lawyers around the country.[2] UpRight solicits consumer bankruptcy business over the internet, and collects a referral fee for signing up clients and then referring them to “partner” attorneys, who might not practice in the jurisdiction where the debtor is located. The “partner” attorneys maintain their own independent practices and are not full-time UpRight employees.

Lillie Mae Banks discovered UpRight through the internet and contacted it for bankruptcy advice and representation. She was initially assigned to a local “partner” attorney in Tennessee, although she lived in Louisiana and the Tennessee attorney was not admitted to practice in Louisiana. The Tennessee attorney electronically signed a retainer agreement with Banks without having seen the agreement or ever speaking with her.

Andrea Augustus is an attorney licensed in Louisiana and had entered into a “partnership” agreement with UpRight. By mid-January 2016,[3] Augustus was assigned to handle Banks’s bankruptcy case, despite being located 350 miles from her and never having spoken to her.

In February 2016, after a series of phone calls between Banks and UpRight, Banks finally spoke to Augustus for the first time, but her chapter 7 case was not filed until June 2016. After what no one disputed was a seriously botched and bungled case, with multiple failures to communicate with and counsel Banks, her case was dismissed due to UpRight’s failure to file the mandatory credit counseling certificate.[4] Worse, Banks was repeatedly misled about her case having been dismissed, leading to even more false and misleading statements from UpRight and Augustus.

In March 2017, Augustus filed a second case for Banks, using the exact same petition that was used in the first case, which Banks had neither reviewed nor signed. After yet another series of missteps, on May 11, 2017, Banks’s second case was dismissed, this time under § 521.

In May 2017, the U.S. Trustee filed a motion to reopen Banks’s second case and to, inter alia, disgorge fees. The bankruptcy court held a hearing on the motion and issued a thorough order detailing an extensive series of negligence, misrepresentations and false statements made by UpRight and Augustus, [5] and finding multiple violations of § 528 and the Louisiana Rules of Professional Conduct.[6] In addition to requiring UpRight to disgorge all fees, reimburse Banks the $30 she spent on credit counseling and pay a $5,000 sanction, the court imposed the following on UpRight:

1. suspension from filing any bankruptcy cases in the Western District of Louisiana for a period of 90 days, which was extended to any of UpRight’s partner attorneys filing on UpRight’s behalf;
2. prohibition from accepting “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 the District and is able to represent them”;[7]
3. requiring UpRight’s contracts or retainer agreements to conform to Louisiana Rule of Professional Conduct 1.5(f)(5) and that all contracts between UpRight and residents of the Western District of Louisiana contain a specified paragraph of text taken from that rule;[8]
4. prohibiting attorneys acting on behalf of UpRight from filing any document that is electronically signed by a client (i.e., using the /s/ notation) and requiring all documents filed by UpRight and its partner attorneys in the W.D. La. that contain a client signature to include a scanned original signature;[9]
5. requiring every employment contract for debt-relief services between UpRight and its clients to contain the original “wet” signatures of both the client and the UpRight attorney licensed in the W.D. La., that the attorney who executes that contract shall be designated as the attorney in charge of that case, and prohibiting UpRight and its affiliates from accepting a retainer from any client before an employment contract is executed;[10] and
6. requiring that every attorney affiliated with UpRight and its affiliates who file a pleading within the W.D. La. on behalf of those entities 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 their firm’s name as UpRight.[11]

The district court affirmed on all grounds, identifying multiple misstatements or misrepresentations made to Banks, consistently neglecting to contact Banks, delaying filing her first bankruptcy petition, negligently allowing the first bankruptcy case to be dismissed and remain dismissed, falsely indicating that she had signed her second bankruptcy petition, and allowing the second bankruptcy to be dismissed by failing to file required documentation.[12] Parts of the district court’s opinion addressed the bankruptcy court’s authority under its inherent power and its local rules to regulate the conduct of attorneys who appear before it, as well as the court’s statutory authority to regulate debt-relief agencies as provided in § 526 et seq.[13] In particular, both the bankruptcy and district courts focused on relief that can be granted under § 526(c)(5) when a debt-relief agency fails “to perform any service that such agency informed an assisted person or prospective assisted person it would provide in connection with a case or proceeding under this title.”[14] The district court also underscored the bankruptcy court’s frustration that UpRight’s retainer agreement provided that she could be charged an additional fee for help with reaffirmation agreements, which the Fifth Circuit considers to be an integral part of representation in a chapter 7 case and cannot be unbundled.

UpRight also objected to the bankruptcy court’s characterizations of it as a “referral service” and a “marketer of legal services.” While the district court noted that these comments were dicta and not intended to be findings of fact, it emphasized that it was “far from convinced that the Bankruptcy Court’s characterization was improper.”[15]

The Fifth Circuit summarily affirmed the rulings in the bankruptcy and district courts, describing UpRight’s conduct as “appalling” and its mishandling of the debtor’s case as “egregious.”

Other courts have also sanctioned UpRight for similar misconduct.[16] One court described UpRight’s problematic practice well:

[T]hese cases reflect the Pandora’s Box of ethical issues opened by multijurisdictional 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.[17]

That is just a partial list of cases involving UpRight.[18] What these cases make clear is that when a firm advertises itself as a multi-jurisdictional law firm, it will be held to the same ethical standards and scrutiny in each jurisdiction in which the local attorneys practice, and that those standards will be applied to ensure competent and ethical representation of consumer debtors.[19]