Challenges Beset Low-Cost Paralegal Aid

When customers decide to use We the People, they first pay for a workbook that gives them information on the process and worksheets to fill out. The worksheet information is then sent to one of the company's eight regional processing centers, which, in turn, fills out the appropriate legal papers and returns them to the local office for the customer to pick up, sign and file in court .

The company also offers customers the opportunity to chat with a "supervising attorney," a company-paid, local attorney who will answer general questions, but not specifics, about a customer's case. Searns said the attorney is offered as a service to help give legal information and alternatives, but since attorneys are not paid by the customers, they don't represent them and therefore it would be improper to give specific advice.

It is the supervising attorney concept that is drawing criticism from the judges who have ruled against We the People in recent years. Colorado Bankruptcy Judge Sid Brooks, for example, issued a ruling late last year barring the local franchises from providing the service of a supervising attorney. "It gives the perception that WTP is backed up by a staffed attorney to guide the debtors through the troubled waters of bankruptcy. This is unfair, deceptive, and detrimental to any debtor."

Jim D. Pappas, the chief U.S. bankruptcy judge for Idaho, similarly faulted We the People in a 2002 decision for referring customers to a supervising attorney: "By necessity, the information the lawyer provides them is no more customized or trustworthy than they could obtain consulting a book at the library."

We the People is appealing both decisions. "We think we should be constitutionally protected to hand out materials if they are written by an attorney, and our customers should be able to talk to an attorney if they have general questions," Searns said. He added that another Colorado judge upheld the company's practices.

Company Chairman Ira Distenfield leaves no doubt that his company is ready to fight each and every court challenge and ruling. "We're not going to allow the local bar, state bar or judge -- who is nothing but a lawyer who knows the governor -- to stop us" from giving legal access to the consumer, he said in a telephone interview. "We're trying to serve the vast underserved population who can't afford lawyers," said Distenfield, who along with his wife, Linda, has run the company since 1993.

Ira Distenfield is a former stockbroker and key political strategist for former Los Angeles mayor Tom Bradley. He has also served as president of the Los Angeles Port Authority. He resigned from the Port Authority amid allegations that he misused his position with Bradley to win a city contract for a former employer. He has denied the allegations, calling them politically inspired, and said they never resulted in any lawsuits.

Distenfield figures We the People charges about 6 percent of a typical lawyer's fee. Last year, customers paid the company a total of $29.2 million for its services. Even assuming this amount is as much as 10 percent of traditional legal fees, Distenfield said, "I find it extremely hard to believe you're going to get an endorsement of the value of our services when last year about $292 million went away from the traditional legal community."

The Distenfields' plan for future growth is ambitious. The company has hired a Los Angeles investment banking firm as well as former New York mayor Rudolph W. Giuliani's managing consulting firm. With their help, the company is now talking to well-known corporate names about investing in the firm, partnering with it or even purchasing it outright. Ira Distenfield declined to say which companies, but said, "It is my guess that We the People will be in every neighborhood in this country. It could well be as part of an existing Fortune 500 company that already has a distribution system in place."

That goal concerns some bankruptcy lawyers who have been retained by former We the People customers.

"It would be a disaster for lower-income people who need help, because so many of their cases go bad," said New York attorney Charles Juntikka, who has three former We the People customers, including one who almost lost her car. "People end up paying twice -- they pay them trying to get away without having to see a lawyer and then have to see a lawyer who sometimes can fix things and sometimes they can't."

We the People's Searns said that last year the company processed 20,000 bankruptcy petitions around the country. "The vast majority of those went through fine and consumers got what they needed. A small percentage didn't work out for a number of reasons; just like [with] attorneys, a small percentage doesn't work out."

Staff researcher Richard Drezen contributed to this report.