MEMORANDUM OF DECISION ON FIRST AND FINAL APPLICATION OF PHILIP M. STONE FOR FEES AND EXPENSES
JOEL B. ROSENTHAL, Bankruptcy Judge.
This matter came before the Court for a hearing on the First and Final Application of Philip M. Stone for Fees and Expenses [# 69] and the Addendum thereto [# 74]. At the conclusion of the hearing, the Court entered an order allowing the Application in full with the exception of $150.00 which the Applicant sought as reimbursement for a fee paid to a paralegal not employed by him. Instead the Applicant contracts with the paralegal, who has over 25 years of bankruptcy experience, on an as-needed basis to prepare bankruptcy schedules and Chapter 13 plans, for a negotiated flat fee. In this case, the Applicant sought reimbursement of $150 paid to the independent paralegal for the preparation of an amend
ed Chapter 13 plan. The Court took the issue of whether the Applicant should be reimbursed for the fee paid to the paralegal under advisement in order to address the responsibilities of attorneys and non-attorneys and to caution those practitioners who typically engage independent paralegals and such paralegals of the often imprecise boundaries that encircle the area known as the practice of law. For the reasons set forth herein, the Court finds that the Applicant and the independent practitioner correctly observed their respective duties and responsibilities and thus the Application is now allowed in full.
Section 504 of the Bankruptcy Code prohibits the sharing of fees awarded pursuant to section 503(b)(2)
or 503(b)(4) except among members or employees of the same firm.
“By enacting § 504, ‘Congress sought to generally prohibit the sharing of compensation or fee splitting among attorneys in a bankruptcy case.’
In re Matis,
73 B.R. 228, 231 (Bankr.N.D.N.Y.1987). As explained more fully in
In re Matis,
the purpose of the statute is to ensure that lawyers preserve the integrity of the bankruptcy process and not treat ‘bankruptcy matters as matters of traffic.’
Id.” In re Warner,
141 B.R. 762, 765-66 (M.D.Fla.1992). Although many courts refer to the prohibition in section 504 as a prohibition of fee-sharing among attorneys,
the statute is more broadly drafted. It prohibits the sharing of compensation “with another person” who is not a member, partner, or employee of the retained professional’s firm. 11 U.S.C. § 504.
See In re Soulisak,
227 B.R. 77, 81 (Bankr.E.D.Va.1998).
Because section 504’s express language includes lawyers and non-lawyers alike, this Court has denied reimbursement for an independent paralegal’s time in previous cases.
See, e.g., In re Tarasiak,
280 B.R. 791 (Bankr.D.Mass.2002). In
Tarasiak
the Court concluded that the independent paralegal who prepared the debtor’s bankruptcy schedules and statement of financial affairs functioned as a professional for whom separate employment was required.
Tarasiak,
however, was originally commenced as a case under Chapter 11 of the Bankruptcy Code and therefore raised other issues.
In
Tarasiak
the Court did not address the issue of when services rendered by an independent paralegal in connection with the preparation of a debtor’s bankruptcy schedules and statements constituted the unauthorized practice of law.
“Attorneys who practice before a bankruptcy court must not only concern themselves with the obligations set forth in the Bankruptcy Code and the Federal Rules of Bankruptcy Procedure, but also with the application of state ethical rules.”
In re Soulisak,
227 B.R. at 80 (footnote omitted). Rule 5.5 of the Massachusetts Rules of Professional Conduct prohibits a lawyer from assisting a non-lawyer in the unauthorized practice of law. “Whether a particular activity constitutes the practice of law is fact specific.”
Massachusetts Conveyancers Ass’n., Inc. v. Colonial Title & Escrow, Inc.,
13 Mass. L. Rptr. 633, 2001 WL 669280, *4 (Mass.Super.), citing
In re Shoe Manufacturers Protective Ass’n,
295 Mass. 369, 372, 3 N.E.2d 746, 748 (1936). As the
Shoe Manufacturers
court stated
We believe it is impossible to frame any comprehensive and satisfactory definition of what constitutes the practice of law. To a large extent each case must be decided upon its own particular facts. But at least it may be said that in general the practice of directing and managing the enforcement of legal claims and the establishment of the legal rights of others, where it is necessary to form and act upon opinions as to what those rights are and as to the legal methods which must be adopted to enforce them, the practice of giving and furnishing legal advise as to such rights and methods and the practice, as an occupation, of drafting documents by which such rights are created, modified, surrendered or secured....
Shoe Manufacturers,
295 Mass. at 372, 3 N.E.2d at 748.
As recognized by the court in
In re Ellingson,
230 B.R. 426, 433 (Bankr.D.Mont.1999), there is a split among the states as to whether just the completion of printed forms constitutes the unauthorized practice of law.
There is a split of authority whether preparation of preprinted legal forms constitutes unauthorized practice of law. Montana follows the majority view that preparation or filling in of blanks on preprinted forms constitutes the practice of law.... One district court, citing
Pulse v. North Am. Land Title Co.
[218 Mont. 275, 707 P.2d 1105, 1109 (1985) ], wrote on the unauthorized practice of law:
Preparation of legal documents is commonly understood to be the practice of law.... What constitutes “preparation” of “legal documents” is construed broadly. Preparation of instruments, even with preprinted forms, involves more than a mere scrivener’s duties and, therefore, constitutes the practice of law....
Id.
(internal quotation marks and citations omitted).
In Massachusetts the issue has not be squarely addressed. Although in the
Massachusetts Conveyancers Ass’n
case, the court concluded that the title company engaged in the practice of law, the title company’s activities went well beyond the mere completion of a simple form.
In preparation for the closing, Colonial reviews the lender’s closing documents for accuracy and consistency. On behalf of the lender and the title company, Colonial evaluates the title for defects and clears up those defects.
Free access — add to your briefcase to read the full text and ask questions with AI
MEMORANDUM OF DECISION ON FIRST AND FINAL APPLICATION OF PHILIP M. STONE FOR FEES AND EXPENSES
JOEL B. ROSENTHAL, Bankruptcy Judge.
This matter came before the Court for a hearing on the First and Final Application of Philip M. Stone for Fees and Expenses [# 69] and the Addendum thereto [# 74]. At the conclusion of the hearing, the Court entered an order allowing the Application in full with the exception of $150.00 which the Applicant sought as reimbursement for a fee paid to a paralegal not employed by him. Instead the Applicant contracts with the paralegal, who has over 25 years of bankruptcy experience, on an as-needed basis to prepare bankruptcy schedules and Chapter 13 plans, for a negotiated flat fee. In this case, the Applicant sought reimbursement of $150 paid to the independent paralegal for the preparation of an amend
ed Chapter 13 plan. The Court took the issue of whether the Applicant should be reimbursed for the fee paid to the paralegal under advisement in order to address the responsibilities of attorneys and non-attorneys and to caution those practitioners who typically engage independent paralegals and such paralegals of the often imprecise boundaries that encircle the area known as the practice of law. For the reasons set forth herein, the Court finds that the Applicant and the independent practitioner correctly observed their respective duties and responsibilities and thus the Application is now allowed in full.
Section 504 of the Bankruptcy Code prohibits the sharing of fees awarded pursuant to section 503(b)(2)
or 503(b)(4) except among members or employees of the same firm.
“By enacting § 504, ‘Congress sought to generally prohibit the sharing of compensation or fee splitting among attorneys in a bankruptcy case.’
In re Matis,
73 B.R. 228, 231 (Bankr.N.D.N.Y.1987). As explained more fully in
In re Matis,
the purpose of the statute is to ensure that lawyers preserve the integrity of the bankruptcy process and not treat ‘bankruptcy matters as matters of traffic.’
Id.” In re Warner,
141 B.R. 762, 765-66 (M.D.Fla.1992). Although many courts refer to the prohibition in section 504 as a prohibition of fee-sharing among attorneys,
the statute is more broadly drafted. It prohibits the sharing of compensation “with another person” who is not a member, partner, or employee of the retained professional’s firm. 11 U.S.C. § 504.
See In re Soulisak,
227 B.R. 77, 81 (Bankr.E.D.Va.1998).
Because section 504’s express language includes lawyers and non-lawyers alike, this Court has denied reimbursement for an independent paralegal’s time in previous cases.
See, e.g., In re Tarasiak,
280 B.R. 791 (Bankr.D.Mass.2002). In
Tarasiak
the Court concluded that the independent paralegal who prepared the debtor’s bankruptcy schedules and statement of financial affairs functioned as a professional for whom separate employment was required.
Tarasiak,
however, was originally commenced as a case under Chapter 11 of the Bankruptcy Code and therefore raised other issues.
In
Tarasiak
the Court did not address the issue of when services rendered by an independent paralegal in connection with the preparation of a debtor’s bankruptcy schedules and statements constituted the unauthorized practice of law.
“Attorneys who practice before a bankruptcy court must not only concern themselves with the obligations set forth in the Bankruptcy Code and the Federal Rules of Bankruptcy Procedure, but also with the application of state ethical rules.”
In re Soulisak,
227 B.R. at 80 (footnote omitted). Rule 5.5 of the Massachusetts Rules of Professional Conduct prohibits a lawyer from assisting a non-lawyer in the unauthorized practice of law. “Whether a particular activity constitutes the practice of law is fact specific.”
Massachusetts Conveyancers Ass’n., Inc. v. Colonial Title & Escrow, Inc.,
13 Mass. L. Rptr. 633, 2001 WL 669280, *4 (Mass.Super.), citing
In re Shoe Manufacturers Protective Ass’n,
295 Mass. 369, 372, 3 N.E.2d 746, 748 (1936). As the
Shoe Manufacturers
court stated
We believe it is impossible to frame any comprehensive and satisfactory definition of what constitutes the practice of law. To a large extent each case must be decided upon its own particular facts. But at least it may be said that in general the practice of directing and managing the enforcement of legal claims and the establishment of the legal rights of others, where it is necessary to form and act upon opinions as to what those rights are and as to the legal methods which must be adopted to enforce them, the practice of giving and furnishing legal advise as to such rights and methods and the practice, as an occupation, of drafting documents by which such rights are created, modified, surrendered or secured....
Shoe Manufacturers,
295 Mass. at 372, 3 N.E.2d at 748.
As recognized by the court in
In re Ellingson,
230 B.R. 426, 433 (Bankr.D.Mont.1999), there is a split among the states as to whether just the completion of printed forms constitutes the unauthorized practice of law.
There is a split of authority whether preparation of preprinted legal forms constitutes unauthorized practice of law. Montana follows the majority view that preparation or filling in of blanks on preprinted forms constitutes the practice of law.... One district court, citing
Pulse v. North Am. Land Title Co.
[218 Mont. 275, 707 P.2d 1105, 1109 (1985) ], wrote on the unauthorized practice of law:
Preparation of legal documents is commonly understood to be the practice of law.... What constitutes “preparation” of “legal documents” is construed broadly. Preparation of instruments, even with preprinted forms, involves more than a mere scrivener’s duties and, therefore, constitutes the practice of law....
Id.
(internal quotation marks and citations omitted).
In Massachusetts the issue has not be squarely addressed. Although in the
Massachusetts Conveyancers Ass’n
case, the court concluded that the title company engaged in the practice of law, the title company’s activities went well beyond the mere completion of a simple form.
In preparation for the closing, Colonial reviews the lender’s closing documents for accuracy and consistency. On behalf of the lender and the title company, Colonial evaluates the title for defects and clears up those defects. It is Colonial that determines whether there is a title problem and in this regard it is exercising legal judgment.... It generates several documents including the Real Estate Settlement Purchase Agreement (“RESPA”).
If borrowers have questions about the various legal documents at the closing Colonial answers them. By Parente’s own admission he points out “important facts” to the borrowers____
Massachusetts Conveyancers Ass’n,
2001 WL 669280 at *6.
It may not always be clear when the completion of forms constitutes the practice of law under Massachusetts law,
but even if the completion of schedules and statements do not constitute the unauthorized practice of law, it may, in certain instances, trigger the requirement that the paralegal sign the same as a petition preparer.
And it is likely that in most cases the preparation of a Chapter 13 plan by a non-lawyer, if not under the direct supervision of an attorney, constitutes the unlawful practice of law.
Because many bankruptcy attorneys are employing independent contractors to prepare schedules and statements, and, as in this case, the Chapter 13 plan, it is imperative that the attorneys and independent contractors are mindful of the different roles each may legally play.
[Bankruptcy lawyers can use paraprofessionals to assist them in rendering legal services to their clients.... However, in doing so, several conditions must be met. The paralegals must be qualified through training and experience, and capable of performing those functions. They must be adequately supervised .... Paralegals may not independently provide legal advice, and can legitimately be delegated work only after the attorney has met with the client, determined what tasks need to be performed, and determined who may competently perform those tasks. And when compensation is sought for paralegals’ services under § 329 or § 330, the work done must be itemized in detail and the rate charged must be justified.
In re Castorena,
270 B.R. 504, 519 (Bankr.D.Idaho 2001) (citations and footnote omitted).
The Court is satisfied that, as evidenced by the detailed time descriptions,
the debtor’s counsel closely supervised the paralegal in this case. For example, counsel was present during the entire the initial meeting with the debtor and personally reviewed all of the papers which the debtor filed when she commenced the case
pro se.
Counsel had extensive meetings with the debtor about the proposed amendments and the amended plan. There is no evidence and no suggestion that the debtor was counseled by anyone other than her attorney once he was engaged. The independent paralegal functioned as a paraprofessional.
Conclusion
For the foregoing reasons, the Application is ALLOWED IN FULL.