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Lawyer Says E-Filing Rule Is Anticompetitive

CHICAGO (CN) - The combination of Bush-era bankruptcy law reform and a new electronic filing rule in the Northern District of Illinois bankruptcy court reduced competition among lawyers, increased legal fees and hindered the public from trying to rescue their homes from foreclosure, a lawyer argues in a federal lawsuit.

Attorney Thomas Holstein claims that the two actions, which he describes as "two sides of the same coin," are "overly broad and restrictive."

In particular, Holstein says the mandatory electronic filing rule adopted by the bankruptcy court just months after the Bush reforms went into effect wrongfully "impedes consumers trying to save their homes from foreclosure under Chapter 13."

The Bankruptcy Reform Bill, signed into law in April 2005 by then-President George Bush, made it more difficult to file for Chapter 7 bankruptcy protection.

Holstein is a founding member of Lawline, a national network of licensed attorneys, law students and paralegals who offer free legal advice to the public.

He estimates that over the years the organization has answered legal questions for more than 2.5 million people.

But the organization has long butted heads with certain segments of the Illinois legal community. The complaint says that between 2002 and 2006, members of the legal, government and banking communities conspired against it, and that this "restraint of trade" continues.

Holstein argues that the filing of a bankruptcy case is "an entirely clerical act" that doesn't require the skills of a licensed attorney. However, the bankruptcy court's mandatory e-filing rule holds that only lawyers are allowed to register for the service, Holstein says.

He bases his challenge on federal antitrust law, which he says favors competition and is based on the principle that increased competition stimulates lower prices in the public interest.

But Holstein takes his argument a step further, saying the "overly broad" restrictions in the new rule codify an American bar Association rule that prohibits lawyers from practicing in any form of business organization in which a non-lawyer holds an ownership stake.

This rule has remained unchanged for more than 40 years, he says, and continues to keep legal fees artificially high by restricting competition.

"It pre-dates allowing lawyers to advertise, does not reflect the evolution of our society, and does not meet the needs of consumers today," the lawsuit states.

Holstein, who is representing himself, insists that a less restrictive rule would adequately safeguard the general public without restricting competition.

He seeks a declaration that the mandatory e-filing rule, the ABA rule and a new Illinois Rule of Professional Responsibility that is to go into effect on Jan. 1, 2010, are unconstitutional and go far beyond their stated aim of protecting consumers.

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