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Internet Law Firms, Real Life Problems

by Laura Loyek |

It has become increasingly common for attorneys to leverage technology and alternative business models to build their practices.  Non-traditional firms can operate almost entirely online – soliciting clients across state lines and recruiting attorneys to handle matters in various jurisdictions.  While this type of arrangement may seem like a promising way for a local attorney to generate business, it raises a number of serious ethical issues.

A recent Order from the U.S. Bankruptcy Court for the Western District of North Carolina describes the potential dangers of signing on as local counsel for an out-of-state law firm.  The firm, Volks Anwalt Law, was formed in 2015 by a recent law school graduate.  Its business plan used direct mailings to target individuals subject to foreclosure proceedings.  As of February 2016, the firm had handled more than 400 bankruptcy cases in 43 states.  The founder testified that she made no effort to research the laws of each state or the ethical requirements of the various state bars before soliciting and conducting business in these states.

The firm finds local attorneys through a recruiting website and by searching a resume website.  It performs minimal due diligence before entering into a “Partnership Agreement” with the local attorney.  Under the firm’s business plan, the local “partner” is not required to appear at all hearings and meetings of creditors.  Instead, the firm uses MyMotionCalendar.com to find other attorneys to cover hearings. 

A prospective bankruptcy client in North Carolina contacted the firm in response to a direct mailing and explained that her objective was to save her home from a pending foreclosure.  Though the debtor provided all requested documents and information, the bankruptcy petition filed by the firm (using the local attorney’s name) was deficient and untimely.  After other filings were found to be deficient, the bankruptcy court entered Show Cause Orders as to both the local attorney and the firm.

In its Order, the Court concluded that the local attorney acted improperly by:

  • sharing his ECF login and password with the firm “in return for the expectation of easy money for little or no effort on his part;”
  • failing to communicate with the debtor before the petition was filed;
  • failing to prepare any of the schedules, statements or plan documents filed in the case;
  • failing to attend hearings (including his own Show Cause hearing) based on his assumption that the firm would find other counsel to appear; and
  • taking no action to correct known problems with documents filed in the case.  

The court also determined that the arrangement constituted the unauthorized practice of law in violation of Rule 5.5 of the North Carolina Rules of Professional Conduct.  It found that the local attorney assisted the firm in its unauthorized practice contrary to Rule 5.5(f).

The local attorney was disbarred from practicing before the United State Bankruptcy Court for the Western District of North Carolina.

This case highlights the potential pitfalls of handling matters for an out-of-state firm or online “network.”  Anyone agreeing to serve as a local attorney must be certain that she can provide competent and diligent representation to the client.  At a minimum, this requires knowledge of the subject matter, the ability to communicate with the client, active involvement in the case, and meaningful review of work product. 

In addition, to avoid ethical violations, the local attorney must ensure that the arrangement does not constitute the unauthorized practice of law.  Carefully review Rule 5.5, and if there is any question about UPL, contact the State Bar for guidance.

About the Author

Laura Loyek

Laura Loyek is a claims attorney with Lawyers Mutual, focusing in the areas of real estate, litigation, appellate law, and bankruptcy.  Prior to joining Lawyers Mutual in 2009, Laura practiced for six years in the areas of complex commercial litigation and land use/zoning.  Laura received her J.D. from Harvard Law School and her undergraduate degree from Wake Forest University.  She is an active member of the North Carolina Association of Women Attorneys and the Real Property Section of the North Carolina Bar Association. 

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