Small Law Firms

When #Altlaw Is Bad, It Is Truly Horrid

Firm that held itself out as an alternative model for bringing justice to lower-income clients is benchslapped hard.

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Law futurists aspire to A2J,
implemented the technology way.
To serve clients near and much farther,
and when it its good, it is very, very good
but when it is bad, it is horrid

The legal media is flush with stories of how new technology tools, or techno-powered legal practices are expanding affordable access to law. As these optimistic stories bear out, when innovation works well, it’s a magical triumph. But when innovation works poorly, the results are spectacularly horrid. And what’s even worse, no one bothers to acknowledge them.

Take, for example, the Chicago-based Upright Law Firm, a national bankruptcy firm founded by former Total Attorneys owners Ed Scanlan and Kevin Chern. Upright is an #Altlaw fantasy come to life — a new business model with a self-proclaimed mission of promoting access to justice through “cutting edge technology” and 24/7 online access. Upright is operated and at least partially owned by a non-lawyer and relies heavily on non-lawyer staff to dispense legal advice to clients. Instead of hiring full-time attorneys, Upright farms out most of its cases to local attorneys called “partners” who maintain their own practices. Plus, the firm focuses on work-life balance and employee well-being with benefits like student loan repayment, free online classes, and a company-wide beach volleyball team. What’s more, Upright was a financial success as well — a company that was growing rapidly while supporting participating attorneys with an added stream of revenue .

But if Upright sounds too good to be true… well, no surprise, it is. Earlier this month, a Louisiana bankruptcy court sanctioned Upright and its local attorney for professional negligence. Worse, this past week, the darker side of Upright’s practices came to light in a blistering ruling by a federal bankruptcy court Virginia in response to a complaint filed by the Region Four Bankruptcy Trustee against Upright Law, several of its principals and two solo attorneys who acted as Upright’s local partners. From the court’s decision, here’s a sampling of what really went down at Upright behind the glowing headlines:

  • Senior client consultants, who were not attorneys were provided with a “Playbook,” which taught them a variety of high-pressure methods to “close” the sale of bankruptcy services to individuals seeking relief. These tactics included discouraging prospects from consulting with a spouse about whether to sign up with lines like “better to ask for forgiveness than permission” or “if your spouse is like mine, he/she never tells me no if I really love something.”
  • Senior consultants — though instructed not to provide legal advice — often did so in order to close a deal. Many consultants examined callers to determine whether they qualified for bankruptcy, or advised them that they could omit certain debts from the bankruptcy schedule;
  • Once consultants closed a deal with a potential client, they entered into an oral retention agreement under which clients were offered payment plans for services. The retention agreement provided that the firm would not take action until the fees were paid in full. The evidence showed that 48 percent of clients in the Western District of Virginia never completed their payment plans — no cases were filed. The fees were retained by Upright and not refunded or shared with local partners and were, in the judge’s words, “a scam from the start;”

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  • Upright would contract with local attorneys with independent practices to handle cases received for a given jurisdiction. Upright provided the local attorneys with a separate ECF number to use when filing cases for Upright clients. Although participating attorneys had their own firms, they became limited partners of Upright and were held out to the public as partners;
  • Upright contracted with Sperro, a towing company which was pitched to potential clients as a service to facilitate the surrender of their vehicles and return of collateral to the auto-finance company. Subsequently, Sperro would transport cars out of state and auction them off, effectively denying creditors of their collateral while enabling Sperro to profit from the vehicle sales. As part of this agreement, Sperro paid the legal fees for Upright clients. In total, Upright earned approximately $333,000 from its arrangement with Sperro.

Needless to say, the Bankruptcy court wasn’t particularly impressed with Upright’s new age ways which preyed on some of the most vulnerable in our society. As to Upright, the court found that its principals:

have acted in bad faith and the privileges of LSC, Upright Law, Chern, and Allen to file or conduct cases, directly or indirectly, in the Western District of Virginia shall be revoked for a period of five (5) years.73 This includes any firm that that LSC, Upright Law, Allen, or Chern, directly or indirectly, have an ownership interest in or control over. Further, LSC, Upright, Chern, Allen, Scanlan and Sperro shall be fined collectively the sum of $250,000.00.74 Chern shall be separately and personally fined the sum of $50,000.00 for his participation in and leadership of the Sperro scheme.

Upright’s local attorneys didn’t escape culpability either. The court found that the local attorneys knew that Upright’s non-lawyer consultants were giving legal advice to clients, and that the Upright-Sperro deal violated bankruptcy laws and raised serious conflicts of interest. Thus, the court revoked one of the local lawyer’s privileges to practice before the court for one year and fined him $5000, while a second less remorseful local attorney was similarly fined and suspended for 18 months. The judge also sent a message to other local lawyers considering participation in similar schemes:

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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.

So what lessons can the legal profession take away from the Upright saga?

First, solos presented with opportunities to join these new-age networks must proceed with caution — because if the venture goes south, participating solos stand to lose the most. Sure, Upright was sanctioned $250,000 and barred from filing cases in the Western District of Virginia — but the firm can still continue with business as usual in other jurisdictions. By contrast, the two local attorneys were banned for a year or more from filing any bankruptcy cases in the Western District of Virginia, which likely accounts for a huge portion of their revenues. Moreover, I wouldn’t rule out a disciplinary action by regulators which could result in an all-out license suspension. The Upright case makes clear that lawyers accepting cases from these types of networks will face grievous consequences if they fail to engage in due diligence with regard to the network’s practices.

Second, although it’s tempting to use the Upright case to justify a continuing prohibition on non-lawyer ownership, that response goes too far. Sadly, lawyer-owned firms are just as capable of outrageously unethical conduct as their non-lawyer owned counterparts — as demonstrated by the Prenda debacle from several years back. That said, the Upright saga warrants an examination of the economics of a national firm (whether owned by lawyers or not) that serves financially strapped consumers — because it may not be as viable as many futurists contend.

Here’s what I mean. Though it’s all too easy to chalk up Upright’s hard-sell tactics, scammy payment plans, reliance on non-lawyer advisors, and seamy car-repo programs to cold, hard greed, as I see it, Upright had no choice but to employ these tactics to keep itself financially afloat. For example, when all was said and done, Upright generated only $333,000 annually from the Sperro car program — hardly an impressive number for a national firm with a 150-person staff. Likewise, by handling one-off matters at $1500 a pop, Upright had to constantly generate a steady stream of clients to feed the beast. In short, Upright was nothing more than a volume practice on a massive scale — and its various unethical practices were desperate measures to stay afloat.

Finally, we can’t ever forget that real clients are often guinea pigs as we experiment and innovate. As much as many futurists urge lawyers to take a lesson from Facebook and move fast and break things, broken lives aren’t so easy to repair.

Carolyn ElefantCarolyn Elefant has been blogging about solo and small firm practice at MyShingle.comsince 2002 and operated her firm, the Law Offices of Carolyn Elefant PLLC, even longer than that. She’s also authored a bunch of books on topics like starting a law practice, social media, and 21st century lawyer representation agreements (affiliate links). If you’re really that interested in learning more about Carolyn, just Google her. The Internet never lies, right? You can contact Carolyn by email at elefant@myshingle.comor follow her on Twitter at @carolynelefant.

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