State Unauthorized Practice of Law Committee v. Paul Mason & Associates, Inc.

IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
_______________
No. 93-9058
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STATE UNAUTHORIZED PRACTICE OF LAW COMMITTEE,
Plaintiff-Appellant,
VERSUS
PAUL MASON & ASSOCIATES, INC.,
d/b/a Creditors Bankruptcy Service,
and PAUL MASON, Individually,
Defendants-Appellees.
_________________________
Appeal from the United States District Court
for the Northern District of Texas
_________________________
(February 21, 1995)
Before SMITH and EMILIO M. GARZA, Circuit Judges, and BERRIGAN,
District Judge.*
JERRY E. SMITH, Circuit Judge:
The Unauthorized Practice of Law Committee ("UPLC") of the
State Bar of Texas appeals a summary judgment in favor of defen-
dants, Paul Mason & Associates, Inc., d/b/a Creditors Bankruptcy
Service, and Paul Mason (collectively "CBS"). For the reasons
discussed below, we affirm.
*
District Judge of the Eastern District of Louisiana, sitting by
designation.
I.
CBS acts as an agent for a number of creditors, mostly
national retail companies, administering the creditors'
noncontingent, liquidated claims against debtors in bankruptcy.
The average amount of each claim is small and effectively precludes
economically efficient management by the creditor or an attorney.
Typically, CBS files a proof of claim in the bankruptcy proceeding,
monitors the status of the case, and, where appropriate, contacts
the debtor's counsel to determine whether a reaffirmation of debt
is possible in lieu of relinquishing collateral. Where
reaffirmation is an option, CBS negotiates the agreement within
certain parameters set by the client; where agreement is reached,
CBS fills in appropriate blanks on a reaffirmation form provided by
its creditor clients.
CBS handles no disputed claims and prohibits its employees
from providing any legal advice to its clients, which are national
concerns with their own legal departments. CBS has acted as
creditors' agent for more than ten years and has processed more
than 1,000,000 bankrupt accounts nationwide. It has handled over
100,000 claims in the Texas bankruptcy courts and presently has
over 26,000 claims pending in the bankruptcy court for the Northern
District of Texas.
The UPLC sued CBS for the unauthorized practice of law in
Texas, alleging that in addition to the foregoing activities, CBS
also negotiates with debtors to reduce clients' losses where
fraudulent or objectionable debts are involved, takes necessary
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action when a case is converted from one chapter to another,
advises clients to seek legal counsel with suggestions for further
handling of their claims, and attends § 341 creditors' meetings.
CBS argues that BANKR. R. 9010(a) provides authority for its
activities:
Authority to Act Personally or by Attorney. A
debtor, creditor, equity security holder, indenture
trustee, committee or other party may (1) appear in a
case under the Code and act either in the entity's own
behalf or by an attorney authorized to practice in the
court, and (2) perform any act not constituting the
practice of law, by an authorized agent, attorney in
fact, or proxy.
In addition, CBS finds statutory support for its activities in
BANKR. R. 1001's mandate that "[t]hese rules shall be construed to
secure the just, speedy, and inexpensive determination of every
proceeding." The specific authority for an agent's execution of a
proof of claim, one of CBS's activities that the UPLC is not
challenging, is contained in BANKR. R. 3001(b).
The UPLC argues that there is no federal law authorizing CBS's
activities to be performed by nonlawyers. Since there are no
applicable federal standards defining the term "practice of law"
that is mentioned in rule 9010(a), the UPLC argues that the federal
courts have adopted Texas licensing standards, which are consistent
with federal standards. As none of the challenged activities is
specifically authorized for nonlawyers under federal statute or
rule, the UPLC asserts that each constitutes the unauthorized
practice of law under Texas law.
The district court reasoned that federal law preempts state
regulation in the area of bankruptcy, holding that "the business
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practices of . . . CBS complained of by the UPLC do not constitute
the practice of law in the uniquely administrative practice of the
federal bankruptcy courts." State Unauthorized Practice of Law
Committee v. Paul Mason & Assocs., 159 B.R. 773, 778 (N.D. Tex.
1993). It entered summary judgment in favor of CBS.
II.
The UPLC concedes that the federal courts have the undisputed
inherent authority to regulate the practice of law in federal
forums. Accordingly, the UPLC argues that the federal district
courts "have effectively adopted Texas licensing standards," in
that (1) the Northern District of Texas has not promulgated its own
unauthorized practice standards; (2) there are no independent
federal unauthorized practice standards; (3) the district courts
employ reciprocal admission where an attorney is licensed to
practice in the highest court of any state or the District of
Columbia; and (4) federal courts routinely apply the unauthorized
practice of law standards of the forum state in other respects.
In Sperry v. Florida ex rel. the Fla. Bar, 373 U.S. 379
(1963), the Court held that a patent agent registered before the
Patent Office pursuant to a federal provision similar to rule
9010(a) was not subject to the State of Florida's licensing
requirements with regard to the preparation of patent applications.
If state law were not preempted, the Court reasoned that the state
would have a constitutionaly impermissible power over federal
licensing requirements. The Sperry Court recognized that the
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patent rule's reference to the unauthorized practice of law "was
intended only to emphasize that registration in the Patent Office
does not authorized the general practice of patent law, but
sanctions only the performance of those services which are
reasonably necessary and incident to the preparation and
prosecution of patent applications." Id. at 386.
The district court found Sperry controlling, reasoning that
the patent agent statute was in all respects analogous to rule
9010(a). It concluded that where the nonlawyer's conduct is
authorized by the bankruptcy rules, any contrary Texas licensing
requirement is preempted, holding that:
Where the federal courts have adopted Bankruptcy Rule
9010(a) to specifically authorize agents to perform acts
that might otherwise be prohibited by state law, however,
the state law must yield. U.S. Const. art. VI, cl. 2.
. . .
. . . [T]he UPLC of the State of Texas is attempting
to dictate to the federal courts who is or is not fit to
handle administrative matters in the federal bankruptcy
courts. The UPLC claims that it can regulate practice in
the federal courts because it believes that the federal
courts have adopted its standards for the unauthorized
practice of law. The UPLC is mistaken.
159 B.R. at 777-78.
Rule 9010(a) specifically permits only those unspecified acts
that do not constitute the unauthorized practice of law. The
legislative history of the Bankruptcy Reform Act of 1978,
furthermore, plainly indicates the intent of Congress to separate
purely administrative functions from judicial ones in the
bankruptcy arena.
The UPLC concedes that CBS has authority to file proof of
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claim forms because that activity is specifically authorized by
rule 3001. If, however, specific acts that otherwise constitute
the practice of law in Texas must be statutorily authorized in
order to pass UPLC approval, then rule 9010(a)'s explicit and
general authority for representation by nonlawyer agents is
meaningless. Furthermore, the UPLC's proposed reading of rule
9010(a) conflicts with the Bankruptcy Code's purpose to secure
just, speedy, and inexpensive determinations without requiring the
adjudication of undisputed matters.
We interpret rule 9010(a)'s authorization, with its exclusion
for the unauthorized practice of law, in light of its legislative
history and the standards applicable to the bankruptcy practice as
recognized by federal courts, not according to the law of the forum
state. Under the applicable standards, the UPLC provides no
support for its position that the challenged activities must be
handled by attorneys. As the district court concluded,
The state standards for the unauthorized practice of
law do not easily apply to the bankruptcy court because
the State of Texas does not have a state analog to the
federal bankruptcy court. A significant amount of
activity in a bankruptcy court is administrative. Within
this administrative context, a federal court may
determine that under Bankruptcy Rule 9010(a) an agent may
perform certain acts because they will best "secure the
just, speedy and inexpensive determination of every case
and proceeding." Bankruptcy Rule 1001. The federal
courts must be able to exercise this inherent power and
make determinations as to what is or is not the practice
of law free from the licensing requirements of the State
of Texas. Federal courts cannot defer to states when
making determinations as to who may perform which acts in
furtherance of the administration of justice. The
federal courts are in the best position to make these
uniquely federal determinations))not the UPLC of the
State of Texas.
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Id. at 780 (footnote omitted).
The challenged activities of CBS have long been recognized by
the bankruptcy courts as administrative functions that can be
performed by authorized nonlawyer agents without offending rule
9010(a)'s prohibition against the unauthorized practice of law.1
We agree with the district court that Texas unauthorized practice
of law standards do not apply to rule 9010(a)'s authorization for
administrative practice in the bankruptcy courts.
The judgment of the district court is AFFIRMED.
1
For instance, § 341 meetings are not considered judicial proceedings,
In re Kincaid, 146 B.R. 387 (Bankr. W.D. Tenn. 1992); attorneys have been
denied fees for administrative services, In re Banks, 31 B.R. 173 (Bankr. N.D.
Ala. 1982); and a layman can act as a bankruptcy trustee without engaging in
the unauthorized practice of law, In re Gem Tire & Serv. Co., 117 B.R. 874
(Bankr. S.D. Tex. 1990).
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