Memorandum of Decision Re: Unauthorized Practice of Law

FOR THE NORTHERN DISTRICT OF CALIFORNIA In re MITCHELL and KELLY KILGORE,                                         No. 1-87-01697      Debtors. ___________________________/ In re BECKY KALTZ,                                                                       No. 1-87-01707      Debtor. ___________________________/ In re BRIAN CRANE,                                                                       No. 1-87-01709      Debtor. ___________________________/ In re DOUGLAS SEAMES,                                                               No. 1-87- 01726      Debtor. ____________________________/ In re DAVID and ELLA HATT,                                                         No. 1-87-01756      Debtors. ____________________________/ In re SUSAN LARSEN,                                                                     No. 1-87-01765      Debtor. ____________________________/ In re CARLYN MARTIN,                                                                 No. 1-87-01814      Debtor. _____________________________/ In re DARCI GUNTER,                                                                     No. 1-87-01842      Debtor. _____________________________/
Memorandum of Decision
     Larry and Kathleen Percy are not attorneys. They operate a business known as California Legal Alternatives, advertising divorce, wills, restraining orders, legal separations, and bankruptcy. In the above bankruptcy cases, they charges fees ranging from $150.00 to $185.00 (not including court fees) for the preparation and filing of Chapter 7 bankruptcy petitions, schedules, and statements of affairs. In three of the cases, they charged an extra $15.00 for filing the case in Eureka even though the court had by then moved from Eureka to Santa Rosa. These charges were not refunded to the debtors.      While most of the Percys' services are offered in relation to state legal proceedings, over which there is no direct court supervision, federal bankruptcy law is significantly different. Section 329 of the Bankruptcy Code provides for direct court supervision and review of legal fees paid in all bankruptcy cases. This supervision extends to unlicensed persons who engage in acts normally performed by attorneys. In re Telford (9th Cir.B.A.P. 1984) 36 B.R. 92.      The Percys claim that they are not engaged in the unlawful practice of law, merely operating a "typing service." However, their fee schedule, their advertising, and their admitted practices belie this position.      None of the above matters are complex or lengthy; this judge handled hundreds of such cases while in practice and could type the most complex of these cases in an hour or so, even without the aid of one of the computer programs now in widespread use. The Percys have stated under oath that they spend an average of five or six hours per case, and admit that only a fraction of this time is spent actually typing. The rest of the time is spent by Mr. Percy with the "clients" telling them how to fill out the questionnaire used to type the forms, reviewing the questionnaire with them after it has been completed, and referring them to "another" attorney if Mr. Percy thinks the case warrants it. All of these latter services constitute the practice of law. See, e.g., People v. Landlords Professional Services, Inc. (1986) 178 Cal.App.3d 68, 69, in which the court found that the conducting of interviews, the eliciting of information, and the selection and preparation of appropriate forms constituted the unlawful practice of law when performed by a non-attorney.      The Percys' advertising is also an admission that they unlawfully practice law. They advertise "BANKRUPTCY Chapter 7 $150." A copy of their advertisement is attached as Exhibit "1." This is blatantly false advertising, as the Percys have no ability whatsoever to handle a Chapter 7 bankruptcy.      A bankruptcy lawyer performs a wide range of services for debtors. The lawyer helps the debtor investigate non-bankruptcy alternatives; advises the debtor on the pros and cons of Chapters 7, 13 and 11; analyzes the debts to see which ones are dischargeable and which ones may not be; analyzes the assets to see which are exemptible, which can lawfully be converted to exempt status, and which exemption scheme is best for the debtor (an area of the law which changes almost daily); analyzes payments and transfers to see which ones might be avoidable, either by the debtor or the trustee; advises the debtor as to when he should reaffirm a secured debt, or redeem or surrender collateral; avoids liens against the debtor's home or household goods which could otherwise result in seizure after bankruptcy; assists the debtor in completing the forms so that the debtor does not have his discharge denied for failing to disclose an important fact; tells the debtor when and where to appear for court hearings, and what will happen there; deals with inquiries from creditors and the trustee; and generally shepherds the debtor through the bankruptcy process. The Percys do none of this, and it is therefore completely false and fraudulent for them to advertise that they do bankruptcies. The Percys type bankruptcy forms; they no more do bankruptcies than someone who helps a patient fill out a hospital admissions form does surgeries.      Moreover, the fees charged by the Percys are way out of line for what they do, and give the impression that they perform almost as much as a lawyer when this is not the case. Attorney's fees for relatively uncomplicated Chapter 7 cases are often no more than $250.00 or $300.00.* It is a blatant ripoff for the Percys, who do not possess a fraction of the knowledge of bankruptcy lawyers, to charge fees anywhere near what real lawyers charge. The actual value of the Percys' services cannot possibly exceed $50.00, and even this figure is generous.      To the lay person, the practice of bankruptcy law may seem a simple matter of filling out a few forms. In reality, however, bankruptcy is a very complex area of law with dozens of pitfalls for the unwary. The penalties for mistakes are often severe, and can include loss of assets, failure to discharge a debt, and even loss of the entire discharge, which condemns a debtor to be hounded by his creditors for years and years without relief. Persons who elect to proceed without an attorney are given no special treatment. In fact, their cases are if anything given closer scrutiny, as the trustees know that persons often represent themselves because an attorney has told them that they must disclose the existence of an asset, debt or transfer which they do not wish to disclose. No reputable attorney will take such a client's case, so such debtors often turn to people like the Percys, who are either ignorant of bankruptcy law or do not share the ethical concerns of licensed attorneys.      Sooner or later, the Percys will be put out of business by one of their own "clients." The Court will deny one of them his discharge for failure to honestly and fully complete his schedules or statement of affairs. The debtor will blame the Percys, who will be held to the same standard of care as licensed attorneys. Restatement of Torts 2d, section 299A. The disclaimer signed by the debtors will be held to be a nullity pursuant California Civil Code section 1668. Until this happens, however, the Court must formulate an order which protects honest but foolish debtors from thinking that they are getting any sort of valuable service from the Percys.      This Court has broad authority, under both its inherent equitable powers and sections 105(a) and 329 of the Bankruptcy Code, to issue appropriate orders regarding the Percys' fees and conduct. Matter of Arthur (Bkrtcy.E.D.Pa.1981) 15 B.R. 541, 547-48. In re Anderson (Bkrtcy.S.D.Cal.1987) 79 B.R. 482. Accordingly, the Court will make the following order:
     1. The maximum fee which the Percys may charge for their "services" is $50.00 per case. The maximum they may charge for costs, such as photocopying, postage, delivery, etc., is $20.00 per case. The Percys are permanently enjoined from charging anything more without leave of court.
     2. Within sixty days after entry of this order, the Percys shall return to debtors Kilgore, Kaltz, Crane and Martin all fees collected in excess of the above guidelines.
     3. In the Hatt, Larsen and Gunter cases the Percys admit to charging the debtors extra for delivering their petitions to Eureka even after the court had moved to Santa Rosa, and to failure to return the fee after they found out where the court was. In these cases, the Percys shall return all fees to the debtors within sixty days.
     4. The Percys are permanently enjoined from advertising or otherwise representing to the public that they do bankruptcies. They may lawfully perform nothing more than bankruptcy form typing, and may not give the impression in any advertisement that they do anything more.
     5. The trustee in each case shall monitor compliance with this order. The Percys shall forward proof of payment in accordance with paragraphs 2 and 3 above to the respective trustee.
     6. Each trustee shall give a copy of this opinion to every debtor who in the future identifies himself as having consulted the Percys.
     7. The Clerk of the Court shall send a copy of this opinion to the Sonoma County District Attorney, in the hope that even with the heavy demands on his office he will see fit to pursue the clear violation of section 6126 of the California Business and Professions Code by the Percys.
     8. This order is without prejudice to the rights of any other "clients" of the Percys to seek reimbursement, or the rights of the trustees to recover payments to the Percys as fraudulent transfers.
     Pursuant to Rule 9021, the Court will enter a separate order consistent with this opinion.
Dated: January 4, 1988                                                                              __________________________                                                                                                                      ALAN JAROSLOVSKY                                                                                                                      U.S. BANKRUPTCY JUDGE
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     *This judge was a bankruptcy lawyer not very long ago. His fee schedule started at $250.00 for relatively uncomplicated cases, with no extra charges for photocopying, postage, etc. See, e.g., cases 1-86-00556, 1-86-00985, 1-86-01396, 1-86-01829. These fees were neither the least nor most expensive in this