March 08, 2007
Bankruptcy Expert System is Practice of Law
In re Reynoso, No. 04-17190 (9th Cir. Feb. 27, 2007)
This case holds that an online bankruptcy expert system constitutes the unauthorized practice of law. As usual in these types of cases, every little fact matters. According to the court,
Frankfort sold access to websites where customers could access browser-based software for preparing bankruptcy petitions and schedules, as well as informational guides promising advice on various aspects of relevant bankruptcy law.
The site's marketing included the following statement:
Ziinet is an expert system and knows the law. Unlike most bankruptcy programs which are little more than customized word processors the Ziinet engine is an expert system. It knows bankruptcy laws right down to those applicable to the state in which you live. Now you no longer need to spend weeks studying bankruptcy laws.
The court continues in describing the site:
It explained that its program would select bankruptcy exemptions for the debtor and would eliminate the debtor’s “need to choose which schedule to use for each piece of information.” The site also offered customers access to the “Bankruptcy Vault”—a repository of information regarding “loopholes” and “stealth techniques.” For example, according to the site, the Vault would explain how to hide a bankruptcy from credit bureaus and how to retain various types of property."
Not surprisingly, the court concluded that this expert system constitutes the unauthorized practice of law:
Several features of Frankfort’s business, taken together, lead us to conclude that it engaged in the unauthorized practice of law. To begin, Frankfort held itself out as offering legal expertise. Its websites offered customers extensive advice on how to take advantage of so-called loopholes in the bankruptcy code,8 promised services comparable to those of a “top-notch bankruptcy lawyer,” and described its software as “an expert system” that would do more than function as a “customized word processor[ ].”
As usual, the words used in marketing these electronic tools are critical to the ultimate determination on UPL. Some of the word choices here were unfortunate--they were designed to entice users to use the system by promising more personalized solutions. There's a very fine line between legitimate technological tools that are user-controlled and software that crosses over to UPL by personalizing the results too much. Personally, I'm not sure where that line is, but it seemed pretty obvious to me that this software implementation crossed it. Plus, having an injured party (the bankruptcy debtor, whose case was hurt by errors in the system) didn't help.
HT: Poulsen at Wired.
Posted by Eric at March 8, 2007 10:33 AM | Legal Industry
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