Can Software Be a Bankruptcy Petition Preparer

By: Thomas Szaniawski

St. John's Law Student

American Bankruptcy Institute Law Review Staff

 

In a case of first impression that addressed the intersection of cyberspace and bankruptcy, the Ninth Circuit, in Reynoso v. United States (In re Reynoso),

[1]

held that a provider of web-based bankruptcy software was a bankruptcy petition preparer (“BPP”)

[2]

under 11 U.S.C. section 110(a)(1),

[3]

and that, under California law, the features of the petition preparing software went beyond mere typesetting and constituted the unauthorized practice of law.

[4]

In finding that defendant seller of software was a BPP, the court relied on parallels to other cases deeming individuals or corporations BPPs.  In Ferm v. U.S. Trustee (In re Crowe),

[5]

the Bankruptcy Appellate Panel for the Ninth Circuit held that the author of an instructional book on bankruptcy petitions was a BPP where he made the guarantee that he would complete his customers’ petitions for free if they were unable to do so themselves using the information in the book.  The court indicated that the mere fact the defendant author had no actual in-person contact with purchasers of the book did not per se exclude defendant from BPP status.

[6]

  Similarly, in Doser v. U.S. Trustee (In re Doser),

[7]

the Ninth Circuit held that an agent who prepared petitions even without personally meeting customers was a BPP.  There, the agent received the necessary information from a remote franchisee (who received the information from the customer) and returned a completed petition to the franchisee.

[8]

  The Reynoso court reasoned that the defendant software provider was analogous to the BPPs in In re Doser and In re Crowe because “[i]n sum, for a fee, [defendant] provided customers with completed bankruptcy petitions.  Customers merely provided the data requested . . . and printed the finished forms.”

[9]

 

In finding that defendant seller of software had engaged in the unauthorized practice of law, the Reynoso court noted that “the practice of law . . . includes legal advice and counsel and the preparation of legal instruments and contracts[,]”

[10]

but further commented that “ascertaining whether a particular activity falls within this general definition may be a formidable endeavor.”

[11]

  The Reynoso court looked to California v. Landlords Professional Services

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for the proposition that mere clerical assistance did not constitute the practice of law, but noted that People v. Sipper

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established that any activity beyond pure clerical assistance—even merely suggesting what type of document is appropriate—constituted legal practice.

[14]

  As to advice given by BPPs, the Reynoso court looked to In re Kaitangian,

[15]

In re Anderson,

[16]

and Hastings v. U.S. Trustee (In re Agyekum)

[17]

as establishing that personalized guidance in selecting specific exemptions constituted unauthorized practice of law.  Thus, by providing software that held itself out as offering legal advice, projected an aura of expertise, and provided specific advice tailored to each customer’s situation, the defendant had, in fact, engaged in the unauthorized practice of law.

[18]

 

In re Reynoso is significant because it established that the mere act of providing software may qualify an individual as a BPP; in that situation, the software provider is subject to the strictures of section 110.  Further, a software provider that does qualify as a BPP must obey the strict limitations on permissible BPP conduct.  Any conduct beyond mere typesetting can result in liability for the unauthorized practice of law; the fact that such conduct occurs by way of a software application instead of traditional interpersonal interaction is not a defense.  With the widespread utilization of software like Turbo Tax in the tax field, e.g., it is not difficult to envision similar automation of certain predominantly transactional legal services.  In re Reynoso stands for the proposition that putative providers of such software must carefully consider the contours of permissible conduct to avoid adverse legal consequences.