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| vol 16, num 2 | May, 2018 |
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| 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”). |
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| Court Orders Disgorgement of Counsel Fees as Unreasonable |
| In a recent ruling by the U.S. Bankruptcy Court for the Eastern District of New York, the court ordered the disgorgement of fees paid to the debtors’ counsel, finding that while “no counsel can guarantee success of a case when it is undertaken … the fee allowed must be reasonable for the services actually rendered as they were rendered”. The debtors in Bennett filed chapter 13 petitions in 2016 represented by a partner at the law firm of Tirelli & Wallshein (the debtors’ counsel). The debtors’ counsel disclosed that its “usual rate” for such work was $6,500 and that it had received $5,500 prior to the petition date
(contrary to the debtors’ Statement of Financial Affairs, which reflected a $4,000 pre-petition payment to debtors’ counsel). |
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| Secured Creditor Does Not Have a Lien on Retainer Paid to Debtor’s Counsel |
| In In re Tuscany Energy, the U.S. Bankruptcy Court for the Southern District of Florida recently addressed the issue of whether a pre-petition retainer paid to a debtor’s attorney from an account encumbered by a security interest remains subject to the creditor’s lien. Corporate debtors must be represented by counsel in bankruptcy, and attorneys typically require a retainer. Because many debtors have creditors with blanket liens encumbering all assets, this situation arises frequently. The bankruptcy court noted that few reported cases involve a secured creditor claiming a continuing security interest in a retainer because, under
the U.C.C., the secured creditor retains no interest at all in funds paid to debtor’s counsel as a pre-petition retainer, except in extremely unusual circumstances. |
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| Ignorance of Ethical Guidelines Can Cost You Money |
| A cautionary tale in the failure to have written fee agreements and maintain good records of client interactions is evidenced in a recent court decision out of the U.S. Bankruptcy Court for the District of Massachusetts. All attorneys, not just the bankruptcy practitioner, should take a glance at the following case to be reminded of the seriousness of not abiding by practices upholding the highest degree of ethical standards.
The court in In re Thorpe held that the debtor’s civil attorney did not have a valid claim for attorneys’ fees due in part to the attorney’s unethical failure to disclose the debtor’s claim to the bankruptcy court, the attorney’s failure to have a written contingency fee agreement, and the attorney’s failure to maintain billing records. By not doing those things, the attorney lost out on fees of upwards of $100,000 from more than five years of intense litigation.
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| Nettlesome Neighbors: When Can Non-Client Outsiders Challenge Retentions? |
| Many lawyers may have dealt with a challenging neighbor in their personal lives, but it is fair to say that few have dealt with a difficult neighbor challenging their retentions in their professional lives. However, the U.S. Bankruptcy Court for the Southern District of Alabama recently addressed such a scenario in In re Breland, where the neighbor of a debtor objected to the bankruptcy estate’s retention of litigation counsel by alleging that the counsel had a conflict of interest, even though the neighbor was neither a current nor former client of the counsel, nor a party in interest in the bankruptcy proceeding. |
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| Annual Spring Meeting Materials Available to All Members |
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At this year's Annual Spring Meeting, the Ethics & Professional Compensation Committee paired with the Consumer Bankruptcy Committee to host a session titled Access to Chapter 13 Justice. Speakers for this session included:
- Margaret A. Burks - Office of the Trustee; Cincinnati
- Hon. Mildred Caban - U.S. Bankruptcy Court; San Juan, PR
- B. Summer Chandler - Georgia State University College of Law; Atlanta
- Elizabeth Gunn - Virginia Office of the Attorney General; Richmond, VA
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