Court Opinion

ID: 6971
Source: CourtListenerOpinion
Date Created: 2010-04-25 05:23:30+00
Date Added: 2024-06-11T09:38:50.847585
License: Public Domain

IN THE UNITED STATES COURT OF APPEALS

                          FOR THE FIFTH CIRCUIT

                              _______________

                                No. 93-9058
                              _______________

            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

                                   2
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

                                   3
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

                                     4
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

                                        5
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.

                                    6
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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