UpRight Isn’t

Posted by NCBRC - January 26, 2023

Although the complaint against him alleged violations of the Bankruptcy Code and he was ultimately sanctioned for ethical violations under Virginia Rules of Professional Conduct, a lawyer with UpRight was given due process in his sanctions hearing where the complaint specified the alleged misconduct and he was afforded the opportunity to prepare and present a defense. U.S. Trustee v. Delafield, No. 21-1632 (4th Cir. Jan. 11, 2023).

This case arose out of an adversary complaint filed by the U.S. Trustee against UpRight, a legal services company with offices and “partners” throughout the country; Delafield, an UpRight partner; and Sperro, LLC, a repossession company. The Williamses were bankruptcy clients of Delafield who were subjected to the practices challenged by the Trustee.

The complaint alleged that UpRight created a New Car Custody Program (NCCP) which was ostensibly to help UpRight’s bankruptcy clients who had to surrender their cars, but which, in fact, benefitted Sperro and UpRight. UpRight funneled clients to Sperro and Sperro, for no legitimate reason, towed the client’s cars to states where towing and mechanic’s liens took priority over first liens. Sperro earned income either by collecting excessive fees or by selling vehicles that the owners determined were not worth paying the fees for. UpRight benefitted by a deal with Sperro under which Sperro paid the client’s attorney and filing fees. The court summed it up thus: “So UpRight’s fees were paid by a company that fraudulently generated towing charges and paid them by forcing the sale of cars at the expense of the lenders who held the first liens.” With respect to Delafield, the complaint alleged that his participation in the NCCP was unethical and illegal.

At trial, the Trustee pointed to other unethical practices of UpRight and its partners involving strong-arming potential clients into entering into agreements precipitously. In this case, the evidence showed that, during the pendency of the adversary proceeding, Delafield attempted to strong-arm the Williamses into signing a conflict of interest waiver.

The bankruptcy court was unpersuaded by Delafield’s claims of ignorance. It found he was aware of the NCCP and UpRight’s unethical practices even if he did not actively create or participate in them. The court found other conduct of Delafield’s sanctionable as well, including filing an amendment to the Williamses’ petition without their signature or permission, and acting inappropriately in attempting to get them to sign a conflict of interest waiver.

The bankruptcy court found Delafield violated Virginia Rules of Professional Conduct 5.1 and 5.3. J.A. 723–24. It ordered Delafield to pay $5,000 in sanctions and suspended his license for one year. The district court affirmed.

Delafield appealed to the Fourth Circuit arguing that he was deprived of Due Process because he was not given advance notice of sanctions hearing and the hearing itself was “incomplete.” Specifically, he argued that he was sanctioned under Virginia Rules of Professional Conduct even though the complaint did not cite those Rules, and the complaint was otherwise “scattershot” and did not include specific allegations concerning the conflict of interest waiver.

The circuit court began its analysis with Nell v. United States, 450 F.2d 1090 (4th Cir. 1971). In that case, alawyer who was suspended from practice had not been provided due process where the allegations against him and the purpose of the sanctions hearing were vague. More importantly, though, the attorney had not been told that he was in danger of suspension or disbarment. Nell established a lawyer’s right to notice and an opportunity to provide a defense.

Unlike in Nell, though, Delafield was provided both. Here, the complaint included detailed allegation of misconduct, and specific provisions of the Code he was alleged to have violated. The complaint also made clear that Delafield was threatened with monetary sanctions and disbarment. Though the complaint did not point to the Virginia Rules he was ultimately found to have violated, Delafield had all the necessary notice of the conduct under scrutiny and had ample opportunity to prepare and present a defense.

With respect to Delafield’s argument that he should not have been sanctioned for his conduct surrounding the conflict of interest waivers because that conduct took place after the complaint was filed, the court disagreed. It found that conduct related to Delafield’s efforts to conceal information about the NCCP.

Judge King wrote a concurrence to congratulate the majority for reinvigorating the 1971 Nell decision.

Delafield 4th cir Jan 2023


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