By Ray Stern
By New Times
By Amy Silverman
By Stephen Lemons
By Stephen Lemons
By Monica Alonzo
By Chris Parker
By New Times
--Testimony of Chapter 13 debtor Frank Aline Jr., April 18, 1997, before Bankruptcy Judge James Marlar
Is that the kind of shop you're running out there?
--Judge Marlar to Berry,
on the Aline matter
That [Aline] case, that's isolated.
Arizona's bankruptcy war is a microcosm of a nationwide debate over the courtroom role of document preparers.
In the late 1980s, the confluence of home computers and increasing bankruptcy filings created a market for what became known as the document-preparation industry.
"In the late '80s, we'd see legal secretaries making some extra money on weekends helping people who couldn't afford an attorney," says Chapter 13 trustee Ralph McDonald, a nonlawyer. "Their work was reasonably good and their prices weren't out of line. In the early 1990s, it became an industry to itself, and it hasn't stopped, for better in some cases and for worse in others. . . . This is not lemonade-stand money we're talking about."
Questions arose in Arizona and elsewhere about how far "doc-prep" operations could go in providing legal advice to customers.
The unauthorized practice of law (UPL) debate became news in the early 1990s, after two Florida trial judges ruled the state's UPL law was unconstitutionally vague, and dismissed misdemeanor charges against a husband-wife paralegal team.
Other states weren't so charitable, stiffening UPL penalties.
Arizona, as it often does, took an unorthodox route. In 1984, the state's lawmakers allowed a law against UPL to expire, opening the door for document-preparation services to work without fear of prosecution.
About 100 such businesses now operate in the state, many of the mom-and-pop variety, says an industry spokesman. Many provide good, affordable, basic service in simple divorce cases, bankruptcies, name changes, living wills and other court matters.
But in the early 1990s, the state bar opened a file of UPL complaints. The grievances have run the gamut.
One was against a Gregory Maxon, who portrayed himself as a member of the "Arizona Law Courts, Civil Mediation Division."
And there was a complaint against a Carl Smith, who in 1995 subjected a customer to the following tape-recorded hogwash:
Debtor: "So Paul [Demos, a bankruptcy petition preparer] isn't a lawyer in the state of Arizona?"
Smith: "No, he's a lawyer, he's not an attorney. There's a major difference between an attorney and a lawyer. A lawyer means that you've graduated from law school and that you are a registered attorney somewhere. An attorney means that you're the attorney for the state."
In April 1992, Jim Marlar, then an attorney in private practice, complained that a disbarred lawyer had started a quasi-law firm.
"This type of practice is dangerous to the innocent public," Marlar wrote to then-chief bar counsel Harriet Turney.
"Thank you for your letter regarding People's Law and the infamous Richard S. Berry," Turney responded. "The [UPL] Task Force hopes to come up with some kind of solution that will both protect the public and enhance access to legal services, particularly for lower-income individuals."
Solutions have been elusive.
It was the first UPL complaint against Dick Berry. Four years later, in 1996, Jim Marlar--by then a Bankruptcy Court judge--ordered Berry to take the word "Law" out of his business name, then called People's Law.
Berry renamed it People's Paralegal.
In October 1994, a new federal law acknowledged the need for low-cost legal services by recognizing "petition preparers" as a bona fide part of the system. At the same time, the new law spelled out a system of accountability for document preparers.
Some members of Congress considered it a consumer-protection measure; naysayers called it a thinly veiled attempt to protect attorneys by allowing stiff fines--up to $500 per violation--against errant document preparers.
Trustees around the nation soon persuaded judges to limit preparers' fees, and recommended fines for violating the new requirements. Many trustees interpreted the law to mean document-preparation firms may provide a typing service, but everything else constitutes the practice of law.
Shortly after the 1994 law took effect, the U.S. trustee's Phoenix office sent explanatory fliers to area document-preparation firms and others.
In 1995, the Arizona Legislature attempted to resurrect the state's UPL statute, making it a felony for nonlawyers to perform legal work, with certain exceptions. The bill passed the state Senate, but died in the House. It failed despite--or perhaps because of--an intense lobbying effort by the state Bar of Arizona and other pro-lawyer groups.
"Part of our problem is the Legislature hates us," state bar special services counsel Lynda Shely told a seminar last month. Shely often responds to UPL complaints, usually with a tone of resignation.
"As you know, regrettably," she wrote to one complainant last year, "the state bar will not be able to do much with the information that we receive, other than to add you to our ever-increasing UPL files."
Chapter 13 trustee Russell Brown points out that Arizonans who sell hay, cut hair, trade horses or do nails must be licensed--but not independent paralegals.
"If a lawyer screws up badly enough, he or she can have his ticket punched, as in suspension or disbarment," Brown says. "If a petition preparer messes up a bankruptcy filing, too bad."
That's true, but the state bar's disciplinary arm is no panacea. In 1993, a pair of Phoenix law firms took the Chapter 7 bankruptcy market by storm, advertising that clients didn't have to pay them anything up-front ("Debt in the Water," February 2, 1994).