Public Citizen Steps In to Oppose Persels & Associates and CareOne Class Settlement Offer to Consumers

The consumer advocacy group Public Citizen has stepped into a proposed class action suit involving a case against Persels & Associates and CareOne. The issues seems to be that the proposed class action settlement does not benefit consumers.

A class of more than 120,000 people alleges that the law firm and an affiliated credit counseling company offered to help consumers settle their debts with their creditors but instead took large fees from the consumers. Additionally, the law firms are alleged to have misrepresented their debt-settlement services, failed to assist their clients and discouraged their clients from responding to creditors even when the consumers were sued.

Often in settlements in cases against debt-adjustment firms, the plaintiffs recover most or all of the money they paid to the debt adjustor. But under the proposed settlement, wronged members of the class would give up their right to take legal action against the defendants but get nothing in return. The defendant law firms and affiliated credit counseling company would make a payment to the American Bar Foundation ($100,000), to the settling attorneys (up to $300,000) and to the named plaintiff in the class action ($5,000), and would be responsible for the costs of administering the settlement. The more than 120,000 other consumers in the class would be forced to surrender any claims that they have against the defendants but not get a penny.

“The release under the proposed settlement is of staggering breadth,” said Michael Kirkpatrick, the Public Citizen attorney representing a member of the class who objects to the proposed settlement. “The release sweeps far beyond the conduct at issue in this lawsuit to grant defendants blanket immunity for any type of claim. The settlement is unfair because in exchange for giving up their legal rights, class members get nothing in return. A settlement that provides no value to the class should be rejected.”

“Class counsel and the representative plaintiff should not be rewarded for selling out the class,” said Scott Michelman, another Public Citizen attorney working on the case.Source

Details from the Brief

Plaintiff Miranda Day brought this putative class action against certain law firms and lawyers (the “Law Firm Defendants”) and affiliated debt management businesses (the “CareOne Entities”).

The Law Firm Defendants include Persels & Associates, 1 LLC, Ruther & Associates, LLC, Jimmy B. Persels, Neil Ruther, Robyn R. Freedman, and Legal Advice Line, LLC. The CareOne Entities include CareOne Services, Inc., CareOne Credit Counseling, Ascend One Corp., 3C Inc., Freedom Point, and Bernardo Dancel.

The complaint and the amended complaint describe an elaborate scheme under which the Law Firm Defendants and the CareOne Entities offered to help consumers settle their debts by negotiating with their creditors, but when the consumers gave defendants money to carry out the debt settlement plan, the defendants took such large fees out of the consumers’ payments that the system was “designed to fail.” Doc. 98, ¶ 55. Together, the complaints allege that defendants misrepresented their debt settlement services, failed to assist their clients, and discouraged their clients from responding to creditors even after the consumers were sued. According to the complaints, the law firms promised legal assistance to consumers but did not provide it; instead, they passed consumers’ cases off to employees of the CareOne Entities acting as “paralegal negotiators” whom the Law Firm Defendants did not supervise and who did not provide any legal help to the consumers.

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The original complaint asserted claims under the Florida Deceptive and Unfair Trade Practices Act and the federal Credit Repair Organizations Act (“CROA”), and common-law claims for unjust enrichment, legal malpractice, breach of fiduciary duty and negligence. All defendants moved to dismiss and the CareOne Entities moved to compel arbitration. See Doc. 25, 39. The motion to dismiss was denied as moot pending an amendment of the complaint, Doc. 67, but the motion to compel arbitration as to the CareOne Entities was granted except as to claims against CareOne Services, Inc. (“CareOne”) arising from consumers’ retainer agreements with the Law Firm Defendants. Doc. 82.

On June 10, 2011, plaintiff filed her amended complaint against the Law Firm Defendants and CareOne in its capacity as the law firms’ agent. Doc. 98. The amended complaint alleges violations of CROA and raises common-law claims for legal malpractice, breach of fiduciary duty, aiding and abetting breach of fiduciary duty, and three counts of negligence including negligent supervision. Id. On June 28, less than three weeks after the filing of the amended complaint and before the remaining defendants had answered, the parties announced that they had reached an “agreement in principle regarding the settlement of this case.” Doc. 102. The parties filed their motion for preliminary approval on September 20, Doc. 100, attaching their settlement agreement, Doc. 110-1. The Court granted preliminary approval on September 29, Doc. 112, and the settling parties sent a notice of the proposed settlement to the members of the class, Doc. 111-1. The settlement class includes approximately 125,012 consumers nationwide who entered into retainer agreements with the Law Firm Defendants on or after April 28, 2005, to receive legal advice and services to help get out of debt, except for members of a statewide class in a putative class action pending against the Law Firm Defendants in the Eastern Distirct of Washington. Doc. 110-1, ¶¶ 7 and 16. – Source

The Proposed Settlement

The issue that Public Citizen took exception with was the settlement did not appear to provide class members with much of a benefit and no monetary award.

The settlement offer would pay $100,000 to the American Bar Foundation, up to $300,000 in attorney fees, and a $5,000 payment to the representative plaintiff named in the case.

The proposed settlement also sets forth three steps for the Law Firm Defendants in the nature of “injunctive relief.” First, in the future, they may only collect fees from consumers after negotiating a settlement with the consumers’ creditors. This “relief” is limited in three crucial respects: (1) the Law Firm Defendants may continue to collect fees in advance “to the extent permitted by law”; (2) the change in the law firms’ practice does not modify any agreement made prior to October 1, 2010; and (3) the Law Firm Defendants may continue to charge fees for other services, including specifically an upfront “consultation fee” that is “currently set at $150” but which the settlement agreement does not prohibit the defendants from raising.

Second, the Law Firm Defendants agree to “modify the retainer agreement with their clients” to disclose an estimate of total amounts payable by clients, an estimate of the amounts of fees the firms will take, an estimated date by which clients’ debts will be satisfied, the nature of the firms’ services, and the cost of additional services. However, these changes apply only “prospectively” and therefore do not benefit the class.

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Third, the firms agree to “establish or demonstrate to Class Counsel that they already have established processes that provide reasonable assurance that clients requesting assistance with matters that should be appropriately handled by an attorney are able to communicate with an attorney within a reasonable period of time.”

Finally, CareOne, “in its role of providing administrative support services” to the Law Firm Defendants, agrees in unspecified terms to “assist” them in complying with their obligations to provide the agreed-upon injunctive relief, although this obligation terminates if CareOne’s contractual relationship with the Law Firm Defendants terminates “at any time for any reason.”

In exchange for the “relief” described above, the proposed agreement requires the class not
only to dismiss this lawsuit, but to release, on behalf of themselves and “all of their spouses, former spouses, administrators, executors, personal representatives, heirs, agents, attorneys, assigns, predecessors and successors,” an extraordinary range of claims: namely, “any and all claims, demands, suits, or causes of action of any nature or description whatsoever, whether known or unknown, that Representative Plaintiff and/or Class Members may have against the Released Persons or any of them.”

Public Citizen noted, “The most glaring deficiency with this settlement is that the class receives absolutely nothing.” Their opinion is that it creates an atmosphere of unfairness for class members and in return class member release all claims against the defendants.

The absence of any benefit to the class, monetary or otherwise, demonstrates that the settlement is unfair. Whether or not the claims are valuable, there is no justification for compelling the class to release defendants in exchange for nothing. The class would be in no worse position if defendants moved to dismiss and won, because the class would get precisely the same compensation in that circumstance as under the proposed settlement: zero. A settlement that provides no value to the class should be rejected.


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5 thoughts on “Public Citizen Steps In to Oppose Persels & Associates and CareOne Class Settlement Offer to Consumers”

  1. Currently Persels & Associates and CareOne Services are in the process of settling a class action lawsuit in the state of Florida. The proposed Settlement does not mean that any law was violated. The lawsuit stems from the accusation that the firms provide credit improvement services, and misled consumers in regards to the service provided. All parties vehemently deny the allegations and take the position that the plaintiff’s accusations have absolutely no merit.
    Persels & Associates and CareOne both firmly assert that they met their obligations and the claims are baseless.  The settlement was reached after substantial negotiations and the determination that despite their confidence in their ability to prove the claims baseless, a speedy resolution instead of a lengthy court process, was the best course of action.
    Please note that this suit was specific to the debt settlement services and not alternative debt relief services as quoted in the above complaint. CareOne Services, Inc. has an A rating with the Better Business Bureau. To better understand the distinction between debt settlement and other debt relief services; please visit http://www.CareOneCredit.com for more information.

    • Wow, that response was really unexpected.  That’s not at all what I thought you would say.  I am so shocked I am speechless.  Psych! Not really.  Hey if you deny all wrongdoing, why are you agreeing to changes in your business practices in the settlement?  Nothing wrong, right?

      • Settling was a smart business decision, those bottom feeding attorneys would have dragged it out and the legal fees would have tripled.  For the most part it looks like the changes they agreed to are the changes the whole industry has to now follow, a good faith estimate outlining the costs associated with a settlement plan is required.  

        Although you may not agree with their way of doing business, CareOne has always conducted business legally and has helped consumers.  I give them kudos for being one of the very few companies that publicly offer DMP and settlement and chose to walk away from fair share (which no one else has had the courage to do)  

        Like I said, in my opinion the lawsuit was nothing more than legalized extortion. These attorneys should be going after the attorney model loopholers who are actually hurting consumers, my guess is that they are one in the same.

        • Okay, we’ve been back and forth on this many times so I’ll be brief(er).  CareOne is compliant with regulations, AND a scam, at the same time.  And where are those grateful consumers who have been helped?  Come out come out wherever you are!

  2. Really??  5k for the Plaintiff and 300K for the attorneys behind the lawsuit?  Really?? 

    I believe the term is called legal extortion, the attorneys are the only ones who benefit.


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