The U.S. Court of Appeals for the Sixth Circuit recently handled the thorny issue of interstate bankruptcy practice and the unauthorized practice of law. In the case of In re Desilets, 291 F.3d 925 (6th Cir. 2002), the Sixth Circuit permitted an attorney to practice bankruptcy law in a state in which the attorney was not admitted by the state bar, yet was admitted to the appropriate federal district court. There is authority and strong policy rationales both in support of and against the practice permitted by the court in Desilets.

Implications of the Changing Face of Law Practice

The importance of this decision to bankruptcy practice and other federal matters cannot be understated. Unlike a few decades ago, law practice today regularly crosses many jurisdictions. Multi-state practice is not new and in fact has been a reality for many years.² However, technological advancements such as e-mail, faxes and electronic filing make multi-state practice quite feasible. Beyond the technological advances and feasibility of such practices, the economics of practicing law may warrant expanding beyond the local community and taking advantage of economies of scale. Clients are quite mobile and likely to be located in different jurisdictions.³ The days of the "stay-at-home" attorney are no longer the reality.⁴ This transformation in the way law is practiced also applies to bankruptcy attorneys. In specialized areas such as bankruptcy, it is not uncommon for an attorney to handle matters for a single client in multiple jurisdictions. Likewise, it is not uncommon for an attorney to represent debtors in several adjacent jurisdictions.

This change in the nature of law practice can be problematic. When an attorney's practice crosses over into another state jurisdiction in which the attorney is not admitted, the attorney quite likely is engaging in the unauthorized practice of law under most ethic codes.⁵ The sanctions for unauthorized practice of law can be significant, and most state bars can sanction conduct of an admitted attorney even in another jurisdiction. See Rule 5.5 and 8.5, Model Rules of Professional Conduct (1983). Beyond an individual attorney's sanctions, the legal community as a whole should be concerned about behavior that violates the ethics codes. The integrity of the legal profession is diminished with each instance of unethical behavior. We have all seen the integrity of the accounting profession diminished by the behavior of a relatively few members of the profession.

---

[I]t seems like a dangerous road to open an office and advertise "federal bankruptcy practice only" in a state where the attorney is not admitted to the state bar.

---

The Desilets Case

The Sixth Circuit addressed whether a lawyer admitted to practice before the federal district court that limits his or her practice to federal bankruptcy matters can legally practice in a state in which the attorney is not admitted. This issue does not appear to have been addressed by an appellate court, and those courts that have addressed similar fact patterns provide no clear answer.⁶ The Sixth Circuit, in reversing both the bankruptcy and district court, found that such action does not constitute the unauthorized practice of law when the attorney is properly admitted to the federal district court.

The fact situation in Desilets is relatively straightforward. An attorney is licensed to practice law in state A. The attorney practices federal bankruptcy law in state B where the attorney is not licensed to practice law. The attorney is properly admitted to practice before the federal district court in state B, which bases admission on proper admission to any state bar. The attorney has an office in state B and expressly limits his practice to federal bankruptcy matters in state B.

Fundamentally, the Sixth Circuit had to wrestle with the definition of "attorney" under 11 U.S.C. §101(4), which defines attorney as an "attorney, professional law association, corporation or partnership, authorized under applicable law to practice law." Desilets, 291 F.3d at 927. The issue came down to whether "applicable law" under §101(4) includes the rules for admission to the federal bar alone, or also includes state bar admission rules. Id. If "applicable law" included state law¡that is, the state bar admission rules—then an attorney can only be an attorney under the Bankruptcy Code if they are admitted to the state bar. However, if federal law alone is the applicable law, then the attorney need only be admitted to the federal bar.

In resolving this issue, the Sixth Circuit looked to the Ninth Circuit's analysis in In re Poole, 222 F.2d 618 (9th Cir. 2000). Desilets, 291 F.3d at 927-28. In Poole, the Ninth Circuit found that the state and federal systems are independent and distinct, and therefore, "applicable law" under §101(4) referred to federal law alone. Id. The Ninth Circuit holding was premised in large part on the fact that practice in federal court is clearly not controlled by state court rules. Id. This principle is a common thread in many U.S. Supreme Court cases. For example, the U.S. Supreme Court has held that disbarment by a state bar does not automatically mean disbarment from a federal bar. Desilets, 291 F.3d at 928 (citing, e.g., Theard v. United States, 354 U.S. 278 (1957); In re Ruffalo, 390 U.S. 544 (1968)). Similarly, it is well entrenched in the law that federal courts control admission to its bar. Desilets, 291 F.3d at 929 (citing Chambers v. NASCO Inc., 501 U.S. 32, 43 (1991); Frazier v. Heebe, 482 U.S. 641 (1987) (Rehnquist, dissenting)).

With the conclusion that the federal and state systems are distinct, the issue became whether the federal and state admission rules were in conflict. If there is no conflict, then both the state and federal rules must be complied with. If there is a conflict, a state rule cannot control a federal rule, and as such, only the federal rule would need to be complied with. Desilets, 291 F.3d at 928 (citing Sperry v. Florida ex rel. the Florida Bar, 373 U.S. 379, 385 (1963) (when a state licensing law excludes an attorney from practice who is expressly allowed under applicable federal rules, then the two rules are in conflict, and the federal rule prevails over the state rule)).

Holding

Consistent with Sperry, the Sixth Circuit concluded that the state licensing rules at issue were in conflict with the federal admission rules, and therefore the federal law trumped the state law. Desilets, 291 F.3d at 929. The Sixth Circuit rejected other case law that makes a distinction between "the right to practice law" granted under most state bar rules and "the right to practice before a court" under most federal bar rules. Id. at 929 (citing Peterson, 163 B.R. at 673). An argument can be made that the right to practice before a federal court granted by admission to the district court is very limited; whereas the "right to practice law" under state rules is much broader. Under a limited interpretation of the meaning of "the right to practice before a court," there is no conflict between the federal and state bar rules because each rule is authorizing a different type of practice. The Sixth Circuit did not resolve this distinction because the federal local rules at issue in Desilets defined "practice before the court" broadly to include activities such as to "counsel a client in the action or proceeding for compensation." Desilets, 291 F.3d at 930. Therefore, admission to the federal bar granted a right to practice law that entailed activities much broader than just appearing in federal court, and therefore the state rules were in conflict with the federal bar rules. Id.

Ramifications of Desilets

Bankruptcy lawyers need to be very cautious in interpreting the Desilets opinion as authority to expand a practice beyond states in which they are properly admitted. First, the exact requirements of the particular district court admission requirements must be carefully examined. In Desilets, the attorney was properly admitted to the federal district court. The district court rules at issue permitted admission if an attorney is admitted, in active status and in good standing of a state court. Although these are common admission requirements to federal district courts—admitted to the highest court in any state—not all federal district courts have these same requirements. Some district courts have arguably easier admission requirements where admission is open to attorneys admitted to any other federal district court.⁷ Other district courts such as the U.S. District Court for Arizona have limited full admission to the federal bar only to members of the Arizona State Bar.⁸ It will not be surprising if district courts without admission requirements based on admission before the highest court in the state where the district court is located modify the admission requirements to mirror those of the U.S. District Court for Arizona to avoid situations such as Desilets.

Second, even if an attorney is properly admitted to the applicable federal district, the attorney must carefully see if the local rule has a limited or broad definition of what admission entails. In Desilets, the practice before the court was defined very broadly to embrace activities outside of merely appearing in federal court. If a district court has a reciprocity requirement for admission or a requirement to be admitted to a state court, yet has limited what constitutes practice before the court, then admission to the federal bar may not authorize the broader practice of law. Attorneys should also recognize that regardless of how the federal district court rules define practice of law, most states define the practice of law very broadly to include advice regarding state law, litigating and reviewing documents.⁹ Therefore, in order to attempt to avoid conflict with the state bar, attorneys should conduct a careful review of the state law definition of the practice of law.

Third, attorneys must consider whether it is it really possible to limit a practice to federal bankruptcy law. Granted, from a theoretical standpoint, this can be done; however, many areas of bankruptcy law clearly rely on state law. Therefore, to restrict a practice to "federal bankruptcy law" seems a practical impossibility. It is not to suggest that an attorney cannot become familiar with the underlying state law, but it seems like a dangerous road to open an office and advertise "federal bankruptcy practice only" in a state where the attorney is not admitted to the state bar. Such a practice seems to invite misunderstandings with clients, possible deceptive advertising claims and legal malpractice claims.

Conclusion

State regulation of lawyers, accountants, realtors, teachers, nurses, hairdressers or tattoo artists is derived from police power. Police power is based on a state's obligation to protect its citizens. As attorneys, we should embrace that role of government and the state bar. The regulation of attorneys—integral components of a state judicial system—should be recognized as an important function. Circumventing regulation by the forum state bar through meeting the technical requirements of a federal admission rule may not violate a rule, but it does not seem to mark the behavior of a professional. It has often been said by many that ethics rules set the minimum requirements of expected behavior, whereas professional behavior reaches a much higher level. As attorneys, we should set the bar much higher than the minimum standards. Such an approach to this thorny issue would limit potential problems for attorneys in disputes with clients, other attorneys, the federal district courts and state bars.

Footnotes

¹ The views and opinions expressed herein are those of the author and are not necessarily those of the U.S. Bankruptcy Administrator or the U.S. Courts. Return to article

² See, e.g., "Note: Attorneys' Interstate and Federal Practice," 80 Harv. L. Rev. 1711 (June, 1967). Return to article

³ See Glebe, David Curtis, "Interstate Practice and the Unauthorized Practice of Law: Uncertainties Mandate Professional Caution," 14 Del. Law. 20 (Spring 1996). Return to article

⁴ See, e.g., Wolfram, Charles W., "Sneaking Around in the Legal Profession: Interjurisdictional Unauthorized Practice by Transactional Lawyers," 36 S. Tex. L. Rev. 665, 668-72 (November 1995). Return to article

⁵ See, e.g., Babb, Diane Leigh, "Take Caution When Representing Clients Across State Lines: The Services Provided May Constitute the Unauthorized Practice of Law," 50 Ala. L. Rev. 535 (Winter 1999). Return to article

⁶ See, e.g., "Topic: Unauthorized Practice of Law; Out of State Lawyer Admitted in Federal Court in Illinois," IL Adv. Op. 92-6 (Oct. 23, 1992). Return to article

⁷ See Needham, Carol A., "Splitting Bar Admission into Federal and State Components: National Admission for Advice on Federal Law," 45 U. Kan. L. Rev. 453, 506-7, n. 269-70 (March 1997). Return to article

⁸ See Reimer, George A., "Limited Practices: Is There a 'Federal Law Only' Exception to the Oregon Bar Examination?" 61 Or. St. B. Bull. 25, 28 (June 2001). Return to article

⁹ Zacharias, Fred C., "Federalizing Legal Ethics," 73 Tex. L. Rev. 335, 346 (December 1994); see, also, Davis, Christine R., "Approaching Reform: The Future of Multijurisdictional Practice in Today's Legal Profession," 29 Fla. St. U. L. Rev. 1339, 1342-43 (Spring 2002) (noting the different definitions of practice of law in different jurisdictions). Return to article