Where a “local partner” working under the auspices of Chicago-based UpRight Law botched a Louisiana chapter 7 case, the district court affirmed the bankruptcy court’s order suspending UpRight from practice in the district and other sanctions. Law Solutions Chicago, LLC d/b/a UpRight Law, LLC v. U. S. Trustee, No. 18-216 (W.D. La. Sept. 24, 2018).
Appellant, UpRight Law, is a bankruptcy law practice based in Chicago using a business model under which it contracts with “local partners” around the country to handle cases for a percentage of the fee paid to UpRight. When Lillie Mae Banks sought representation for her Louisiana bankruptcy case, UpRight assigned her case to one of its local partners (after first assigning it to an attorney who was not licensed to practice in Louisiana). After Ms. Banks’s case was “horribly screwed up” the U.S. Trustee stepped in seeking disgorgement of the fees she paid, a civil penalty, and other sanctions against UpRight and local counsel.
The bankruptcy court found that UpRight failed to provide Ms. Banks with competent representation, and failed to comply with many of the requirements set forth in sections 526 and 528, and failed to adhere to the principles set forth in Louisiana Rules of Professional Conduct. The court issued an order suspending UpRight from practicing in the Western District of Louisiana for 90 days. It also ordered UpRight to comply in the future with several contractual and document signing requirements and be listed as counsel in cases filed by local lawyers. The court further ordered UpRight to comply with several provisions in Louisiana’s local rules of professional conduct.
On UpRight’s appeal, the district court began by rejecting its contention that the bankruptcy court issued an injunction against it without complying with FRCP 65. The court found that the bankruptcy court’s 90-day suspension against UpRight was merely an exercise of its authority to police counsel practicing before it rather than an injunction circumscribing UpRight’s practice in other courts. For those reasons, the bankruptcy was not required to engage in the tradition four-part test for imposing injunctions. Because UpRight failed to raise the issue below, the court did not address its argument that the bankruptcy court failed to comply with section 526(c)(5) when it ordered the suspension.
Citing Wells Fargo v. Stewart, 647 F.3d 553 (5th Cir. 2011), UpRight argued that the bankruptcy court lacked jurisdiction to suspend it from practice in the Western District. The court disagreed. Stewart involved a finding by the bankruptcy court that Wells Fargo consistently filed proofs of claim that were rife with errors and, because single debtors rarely challenged the conduct, the court ordered Wells Fargo to conduct its own audits of claims before filing in all future cases in the district. On appeal, the district court found that, where Wells Fargo’s conduct was unlikely to affect the debtor in the future and no other debtors were named in the case, the bankruptcy court did not have jurisdiction to order such broad-ranging relief. The court here distinguished Stewart however, as involving misconduct of a creditor while this case involved supervision of a member of the bar and, in this case, unlike Stewart, the U.S. Trustee raised the issue of future harm to other debtors filing in the district.
UpRight next argued that, with respect to some of the relief ordered, it was denied due process because the sanctions were raised sua sponte during the hearing before the bankruptcy judge. The court found that with the exception of the 90-day suspension, the order of the bankruptcy court consisted merely of good practice requirements and were not punishments requiring due process. As to the 90-day suspension, the court found that UpRight received all the process that was due because the UTS’s motion for sanctions was broad enough to include the possibility of suspension and the conduct upon which sanctions were based was clearly laid out thereby providing adequate notice and opportunity to respond. Moreover, UpRight did respond to the allegations of misconduct with arguments and witnesses.
The court next rejected UpRight’s argument that the challenged sanctions could not stand because the bankruptcy court never made a finding of bad faith. Here, the bankruptcy court imposed the suspension under a Local Rule and the sanctions under Louisiana Rules of Professional Conduct and the Fifth Circuit has confirmed that these rules do not require a finding of bad faith. In any case, the district court found the record sufficiently established that the bankruptcy did find that UpRight operated in bad faith.
Finally, the district court found the sanctions to be sufficiently narrowly tailored as the suspension was relatively short and the requirements of conduct were justified by corresponding lapses in professional conduct by UpRight. The same was true of the sanctions justified by violations of section 526(a). Each of the bankruptcy court’s orders relating to UpRight’s future conduct to correct those lapses related specifically to its failures in Ms. Banks’s case.
The court’s order affirming the order of the bankruptcy court is currently on appeal to the Fifth Circuit, Case No. 18-31145.
