Morgan Drexen, the debt settlement back office provider, has sued the Consumer Financial Protection Bureau in an effort to hopefully get the CFPB to get out of their business. The company is being represented by Venable, LLP and Randall Miller.
In truth the suit is brought by Kimberly A. Pisinski and Morgan Drexen. The suit says Pisinski is an individual who lives in Connecticut. Her address listed in the suit comes up as a strip mall.
The Plaintiffs and complaint filed make the allegations the CFPB has engaged in “abusive practices, including attempts to regulate the practice of law (a function reserved for state bars), attempts to collect attorney-client protected material, and overreaching demands for, and mining of, personal financial information of American citizens, which has prompted a Government Accountability Office (“GAO”) investigation, commenced on July 12, 2013.”
But I think the crux of the motivation behind the suit comes from the statement, “CFPB has threatened Plaintiffs with legal action and has used improper and coercive tactics against Plaintiffs.”
The Plaintiffs want to “seek an order halting these tactics and declaring CFPB’s structure to be unconstitutional, and declaring unconstitutional the provisions of the Dodd-Frank Act creating and empowering the CFPB.”
Pisinski is said to be an attorney who is licensed to practice law in Connecticut who uses the support services of Morgan Drexen. “Pisinski contracts with Morgan Drexen for support services and for use of the company’s proprietary software for select practice areas that she offers to her clients.”
Oddly, the profile for Pisinski says her speciality is or at least was “Representation exclusively for children and adults with disabilities. PPTs, Mediation, DP, Expulsions, DCF, DMR, court. Presentations on disability and legal issues. IEP and Transition consultations” – Source
But I’m going to go out on a very short limb here and say Pisinski is actually providing debt settlement services in conjunction with Morgan Drexen.
The Superior Court in Rhode Island, on January 13, 2013, in HSBC v. Cournoyer, issued an opinion naming Kimberly A. Pisinski, Esq. over an alleged “ghostwriting” issue.
“In this decision, the Court addresses whether an attorney who drafts a pleading for a pro se litigant without disclosing his or her identity or entering an appearance violates Rule 11 of the Rhode Island Superior Court Rules of Civil Procedure.1 This practice is known as “ghostwriting.” – Source
On May 10, 2011, the Defendant filed an Objection to HSBC‟s summary judgment motion. In an attached seven-page memorandum in support of his Objection, the Defendant signed the pleading as pro se. (Def.‟s Memo at 7.) The Objection stated that “[t]he law firm of Kimberly A. Pisinski, Esq. currently represents [the Defendant] in connection with the consumer debts at issue in this lawsuit,” and further that “Kimberly A. Pisinski, Esq. is a law firm that assists consumers with the settlement of their unsecured debt.”
The matter came up for a hearing on June 3, 2011, on HSBC‟s motion for summary judgment. At the June 3, 2011 hearing, the Defendant signed a stipulation consenting to judgment in favor of HSBC in the amount of $17,674.28. As is the customary practice with pro se litigants, the Court questioned the Defendant about the stipulation. During the course of the colloquy, the Defendant stated that for at least one year prior to the hearing, he had been making escrow payments, in the amount of roughly $575 per month, for the services of a debt settlement company.
The Defendant stated that the company promised to make him “free and clear” of his debts within two years. Id. Among the services provided by the debt settlement company to the Defendant was legal assistance. The assistance included the drafting of pleadings and other court documents.
The Defendant stated that an attorney sent a copy of his paperwork to the Court.
The Defendant acknowledged to the Court that he had not personally prepared his Objection and accompanying memorandum; rather, those documents were prepared by either Wendy Taylor Humphrey (“Taylor Humphrey”), an attorney licensed to practice in Rhode Island, or Kimberly Pisinski (“Pisinski”).
Pisinski is not licensed to practice in this State but plays a supervisory role in the debt settlement company with which the Defendant had become engaged.
The Defendant stated that Taylor Humphrey was his lawyer, even though they had never met in person. The Defendant expressed surprise that Attorney Taylor Humphrey had not appeared in court on the day of the hearing. Before adjourning the June 3, 2011 hearing, the Court continued HSBC‟s summary judgment motion to June 6, 2011 and made it known that Attorney Taylor Humphrey‟s presence would be required. The Defendant was also required to appear to meet his attorney, Taylor Humphrey, on June 6, 2011.
Attorney Taylor Humphrey arrived at the Superior Court as requested on June 6, 2011. She entered her appearance for the Defendant at the direction of the Court. Attorney Taylor Humphrey admitted that she had prepared the Defendant‟s Answer, Objection, and memorandum regarding HSBC‟s motion for summary judgment. She also admitted that she was “working for” a debt settlement company based out of California called Morgan Drexen.
Additionally, she claimed that prior to her involvement with Morgan Drexen, she had spoken extensively with Chief Disciplinary Counsel David Curtin, Esq., and that she had expressly “got[ten] his blessing . . . in order to be able to assist these people.” Taylor Humphrey acknowledges an attorney-client relationship with the Defendant. She also assumes responsibility for the drafting and submission of the Defendant‟s litigation papers in this case, despite the fact that her name is not on any document.
At the conclusion of the June 6, 2011 hearing, the hearing justice issued an Order finding that Attorney Taylor Humphrey‟s ghostwriting was unethical, lacking in candor to the Court, and a sanctionable violation of Rule 11 of the Rhode Island Superior Court Rules of Civil Procedure. The hearing justice then sanctioned Attorney Taylor Humphrey in the amount of $750, and ordered that any and all attorney fees she had received from the Defendant were to be refunded to the Defendant‟s escrow account. – Source
A Morgan Drexen YouTube video, below, states “The lawsuit accuses the agency of overstepping its authority by attempting to “data mine” sensitive and privileged information related to thousands of Ms. Pisinski’s clients who are considering bankruptcy.” – Source
But why are they considering bankruptcy if they are working with debt settlement providers of Pisinski and Morgan Drexen?
What is interesting is that the Rhode Island Superior Court opinion says Pisinski was involved in providing debt settlement services for Morgan Drexen but the complaint filed by Pisinski and Morgan Drexen against the CFPB make it sound as if she had only incidential interaction with debt settlement services and the primary focus was bankruptcy.
“Pisinski is an attorney licensed to practice law in Connecticut.
From 1998 to 2000, Pisinski served as a Deputy Assistant Public Defender in Litchfield County, Connecticut.
Since 2000, Pisinski has focused her practice on providing legal representation to adults and children in criminal court, juvenile court, civil court, administrative hearings, and education settings.
When not providing the underprivileged with legal advice and counseling, Pisinski spends her time volunteering for non-profit organizations such as MotherWoman, Inc., and Zonta International – organizations dedicated to promoting and improving the welfare of women and children worldwide.
Pisinski is a solo practitioner.
In order to continue providing legal services to the underprivileged, Pisinski keeps her operation costs down by employing a very limited office staff.
Pisinski offers her clients bankruptcy services.
As a part of any bankruptcy engagement with Pisinski, clients may elect for her to first attempt to amicably resolve their debts with creditors prior to filing a bankruptcy petition.
Pisinski’s efforts at resolving her clients’ debts are ancillary to, and a part of, the bankruptcy services that she provides for her clients.
Pisinski does not charge an additional upfront fee if her clients request that she first attempt to amicably resolve their debts with their creditors.
Pisinski does not collect any fees for the time and expense she incurs in attempting to settle with her clients’ creditors until she successfully obtains a settlement agreement for the account on behalf of her clients and at least one payment is made per the terms of the agreement.
Law firms which provide bankruptcy services to consumers are often high volume practices.
Pisinski may represent dozens of individual bankruptcy clients at a time.
In representing her clients in bankruptcy or other legal matters Pisinski can delegate tasks to non-attorney support staff when such staff is supervised by Pisinski, pursuant to Rule 5.3 of the Connecticut Rules of Professional Conduct, and Pisinski remains responsible for her non-attorney staff.
In order to represent her clients in the most efficient and cost-effective way possible, and rather than hiring additional full-time paralegals and administrative staff, Pisinski has chosen to engage independent contractor non-lawyer assistants to provide support services for her law practice.
Pisinski has exercised her right as an attorney to engage Morgan Drexen as a non-lawyer assistant to provide her with these legal support services.
Morgan Drexen personnel serve as Pisinski’s paralegals and support staff.
By contracting with Morgan Drexen for these legal support services, Pisinski is able to realize efficiencies and significant cost savings for her law practice and serve a greater number of consumers with dire legal needs, but limited financial means.”
If this matter, as shown by the Morgan Drexen video and the complaint, is primarily about bankruptcy filings then you would expect Kimberly Pisinski to have been very busy filing bankruptcy petitions and in great need of the Morgan Drexen support services to minimize her costs.
Afterall the suit says, “Law firms which provide bankruptcy services to consumers are often high volume practices.
Pisinski may represent dozens of individual bankruptcy clients at a time.”
And remember that Morgan Drexen video that said there were “thousands of Ms. Pisinski’s clients who are considering bankruptcy,” really?
According to a Pacer search, Pisinski has filed only one bankruptcy case. Apparently, ever.
There is no mention in that case if Morgan Drexen was involved in either a support capacity or if this consumer came first as a debt settlement client. Pisinski however does state she did not share any of the bankruptcy compensation with “any other person unless they are members or associates of my law firm.” – Source
Morgan Drexen Under Investigation by the CFPB
According to the lawsuit filed by Morgan Drexen we learn they are actively under investigation by the CFPB.
“On March 13, 2012, CFPB issued a Civil Investigative Demand (“CID”) to Morgan Drexen seeking various categories of information.
The information sought by CFPB is relevant to Morgan Drexen’s business and its relationship with attorneys that provide debt settlement services that are ancillary to their legal representation.
Morgan Drexen cooperated with CFPB’s investigation, providing numerous responses to interrogatories and producing documents. The following occurred as part of CFPB’s investigation:
a. CFPB sent CIDs or similar documents seeking information to at least one attorney supported by Morgan Drexen;
b. CFPB sent CIDs or similar documents seeking information to financial institutions and other companies associated with Morgan Drexen;
c. CFPB demanded that Morgan Drexen produce confidential financial information belonging to the clients of the attorneys supported by Morgan Drexen; and
d. CFPB deposed various officers of Morgan Drexen, including its Chief Executive Officer, Walter Ledda.
For more on Walter Ledda and his run in with the FTC, click here.
Most recently, on April 22, 2013, CFPB staff contacted counsel for Morgan Drexen by telephone.
CFPB staff advised that CFPB was proceeding in accordance with its Notice and Opportunity to Respond and Advise (NORA) process, and that CFPB was considering enforcement action against Morgan Drexen.
CFPB has also taken the position that the attorneys supported by Morgan Drexen are in violation of the Telemarketing Sales Rule (“TSR”), 16 C.F.R. §§ 310.1 et seq., because CFPB considers the attorneys’ hour rates for bankruptcy services as “upfront” fees, apparently because the attorneys also perform ancillary debt-settlement services.
CFPB staff sent a letter on April 22, 2013, inviting Morgan Drexen to submit its own written statement as to why CFPB should not take action against Morgan Drexen.
On May 8, 2013, counsel for Morgan Drexen responded with a written submission refuting CFPB’s allegations.
Specifically, Morgan Drexen explained that CFPB did not have jurisdiction over the law practice of the attorneys supported by Morgan Drexen; that the fees charged by the attorneys supported by Morgan Drexen for bankruptcy services are not collected in connection with debt settlement and are thus not “upfront fees” prohibited by the TSR; and that CFPB could not prohibit Morgan Drexen from supporting attorneys who provide services in parallel with debt settlement because this would be tantamount to an outright ban on commercial speech in violation of the First Amendment.
CFPB Hates Lawyers?
The complaint alleges the CFPB does not have the authority to regulate attorneys engaged in “the practice of law” even if those services are debt relief services.
Furthermore, the Plaintiffs allege the, “CFPB has demanded that Morgan Drexen produce documents that contain the personal financial information that belongs to clients of attorneys (like Pisinski) that are supported by Morgan Drexen, and that have been retained with regard to possible bankruptcy.”
The Plaintiffs feel this information, although for debt relief services, is “protected by the attorney-client privilege.”
Morgan Drexen says turning over such information would harm them:
Providing this information to CFPB would cause Morgan Drexen harm because:
a. Attorneys who contract with Morgan Drexen will potentially terminate their contracts in favor of other companies that are not being required to produce their clients’ personal financial information to CFPB;
b. Clients of the attorneys that contract with Morgan Drexen would potentially terminate their attorneys (who would then stop paying Morgan Drexen for its services); and
c. Morgan Drexen would potentially be at risk for lawsuits related to the violation of any applicable laws requiring the protection of client confidences and personal financial data, particularly if Morgan Drexen produces such data to an unconstitutional entity and one that is under investigation by the GAO.
The CFPB has allegedly told Morgan Drexen to stop providing services. “CFPB agents have stated to Morgan Drexen that the only way it can comply with CFPB’s directives is to stop providing non-attorney/paralegal services to attorneys who offer their clients debt settlement services as a component of the attorneys’ bankruptcy services or as a separate engagement along with the attorneys’ bankruptcy services.”
So that along with the loss of revenue from providing such services seems to be the heart of this complaint.
It could be argued this complaint is not about protecting consumers but about Morgan Drexen protecting its income and profits. Then again Morgan Drexen actually says that in the complaint, “any requirement that Morgan Drexen stop providing these services to attorneys would threaten the viability of Morgan Drexen’s business.”
And Morgan Drexen says the CFPB investigation of its business practices have already caused them serious harm:
“Morgran Drexen has diverted substantial attention and resources, in terms of paying attorney’s fees, as well as the company time necessary to provide officers for depositions, collect and review documents, and otherwise respond to CFPB’s demands;
CFPB’s investigation has significantly increased Morgran Drexen’s costs with respect to accessing credit. For example, CFPB sent a CID to Morgan Drexen’s banking partners, which led to the company’s losing its credit facilities. CFPB also sent a CID to U.S. Capital, which has impacted Morgan Drexen’s ability to obtain reasonable financing. Morgan Drexen now pays 22% interest where, before the CID, Morgan Drexen was able to obtain financing at 4.5%;
Responding to CFPB’s investigation has placed a severe strain on Morgan Drexen’s business operations;
CFPB has demanded documents from certain of attorneys supported by Morgan Drexen;
CFPB has demanded documents of Kovel/Fuller, which partners with Morgan Drexen to provide marketing services to the attorneys supported by Morgan Drexen;
CFPB’s investigation, coupled with Morgan Drexen’s disclosure of the investigation to its attorney business customers, has been stigmatizing to Morgan Drexen; and
CFPB has threatened to send CIDs to all of Morgan Drexen’s attorney customers in order to obtain their clients’ bankruptcy information.”
Of course the data burden objection seems silly since isn’t it the claim that Morgan Drexen automation skills and abilities are integral to the services they provide?
What Does Morgan Drexen Want?
Morgan Drexen does not ask for much in this complaint, he said sarcastically. All they want is:
- Provide for expeditious proceedings in this action in light of CFPB’s threatened actions and irreparable harm faced by Plaintiffs;
- Enter judgment in the Plaintiffs’ favor;
- Declare unconstitutional the provisions of the Dodd-Frank Act creating and empowering CFPB;
- Provide for preliminary and permanent injunctive relief;
- Award the Plaintiffs their costs and reasonable attorneys’ fees incurred in this action pursuant to 28 U.S.C. § 2412; and
- Grant Plaintiffs such other relief as the Court deems just and proper.
It’s Time for This Case
Personally I would like to see this attorney loophole addressed by any regulating body. The FTC mostly punted this down the field when they passed the Telemarketing Sales Rules and this looks like a good case to bring this issue to a head. At the outcome of this case Morgan Drexen will probably sink or sail.
Boy, talk about going all in.
Is this what we should call a Hail Mary pass in the debt relief world?