Amerix / CareOne Dispute With CESI Debt Solutions May Prove Fatal

In a recent filing by Amerix / CareOne over a dispute with the non-profit credit counseling group CESI Debt Solutions, some interesting statements were made. This stems from a round of suits by Amerix and CESI that you can read about here and here.

In a document filed with the court in North Carolina, Amerix revels just how dependent they are on the contractual relationship with CESI Debt Solutions.

“All involved have always understood that Amerix could not adjust to an immediate change quickly enough to avoid its demise, unless it either could perform run-off services or had a sufficient bank of early termination fees to carry it through a lengthy marketing, selling and transition period of its own.”

“Amerix has enjoyed unprecedented success, and has set CESI up for any success that it may enjoy in the coming years. Nevertheless, when cash flow is unexpectedly cut by well over 37% over the period of a day or two, even the healthiest business would flounder.”

Here, the irreparable harm to Amerix, if CESI is allowed to breach the Services Agreement, is clear: if CESI is allowed to breach the Services Agreement and truncate the run-off period, Amerix will suddenly lose 37% of its business and $31,500,000 in revenue in 2012, which will kill Amerix, unless it has time to search out replacements for CESI to fill the void, consistent with the architecture of the Service Agreement.

Amerix argues that one solution to their dispute with CESI is to do nothing and allow the relationship to continue. “Here, the preservation of the status quo effectively protects financially disadvantaged consumers so that they may continue to receive the appropriate credit counseling services and care. Even a minor disruption of those services jeopardizes the financial well-being of approximately 58,000 Clients. Amerix has been performing Services for these Clients for over thirteen years.”

At the heart of this matter appears to be a desire for CESI debt solutions to terminate their relationship with CareOne and take over the 58,000 or so credit counseling clients they received from CareOne and proceed forward on their own.

CESI is making an argument that the previous consent agreements that CareOne signed with a number of states allows they to terminate the agreement with Amerix / CareOne. And while that may be true, the larger issue here is the compensation due Amerix from terminating that relationship suddenly without paying ” a fair and reasonable” early termination fee.

Here, Amerix merely, and correctly, note that the Service Agreement contemplates that CESI has the option to pay Amerix an early termination fee, because CESI is terminating Amerix’s services before the run-off period ends. In fact, the early termination fee would amount to approximately the same amount of money as the fees that Amerix would generate, net of expenses, absent CESI’s breach.

This provision was specifically written into the Service Agreement so as to avoid the very circumstance that CESI has created — a demand for immediate cessation of all services — including run-off services and a related immediate cessation of the fee payment obligation.

Thus, the early termination fee was designed to give Amerix something on which it could “live” if and when CESI decided to move in a different direction. CESI bargained and negotiated this obligation, and CESI enjoyed the benefit of that bargain. Now, post-expiration, CESI seeks to rewrite the contract. All involved have always understood that Amerix could not adjust to an immediate change quickly enough to avoid its demise, unless it either could perform run-off services or had a sufficient bank of early termination fees to carry it through a lengthy marketing, selling and transition period of its own. Here, Amerix’s irreparable harm arises only if CESI both refuses to allow Amerix to continue performing services during the run-off period and refuses to pay Amerix its early termination fee. The early termination fee will not save Amerix if it is recovered at the end of lengthy litigation, months or years after Amerix’s demise.

Amerix states, “Amerix has plainly admitted that CESI had the right to decline to renew the Service Agreement and that Amerix may only continue servicing Existing Clients for a definite, temporary and ever-reducing transition period. During this “run-off” period, the number of CESI clients for whom Amerix provides service will reduce by a factor of around 1,600-2,500 per month.”

See also  Neil Ruther and Persels & Associates, New Details in Suit for Millions

The stakes are exceedingly high in this dispute between Amerix and CESI. It is fairly likely that both organizations will not emerge in the same strong standing they possess today. And this dispute make intact lead to the downfall and closure of one or both of the groups.

Amerix is fight back hard to avoid an outcome which might kill them, “Thus, unless the Court is prepared to allow CESI to kill Amerix on the mere chance that CESI’s motion to dismiss has merit, a result for which CESI has failed to present any support, Amerix has easily demonstrated a substantial likelihood of success on the merits.”

“Amerix clearly states that without an injunction in place permitting it to continue
to exercise its contractual right to service clients during the run-off period and up to and
including a decision in this case, Amerix will die.”

You can read the full document here.

The CESI argument is they should be entitled to close the door, take the clients, and walk away. in fact they even say “CESI may also seek a temporary restraining order and/or preliminary injunction with respect to certain aspects of the relief requested through this motion.

Specifically, CESI seeks the following relief:

  1. Confirm that the Consent Decree is properly interpreted to mean that CESI may cancel any ongoing right Defendant Amerix Corporation (“Amerix”) may otherwise have under its Service Agreement with CESI to continue providing any services to existing credit counseling and/or debt management clients of CESI beyond the October 31, 2011 expiration of the term of the Service Agreement.
  2. Confirm that the Consent Decree is properly interpreted to mean that Amerix must provide immediately, and in no event later than five (5) business days from entry of an order of this Court, a detailed sampling of client data, including all database fields and columns, as to the 200 clients for whom only partial data was provided on October 21, 2011. Such a detailed data sampling is essential in order for CESI to construct a database platform for ultimate receipt and handling of all client data for the approximately 58,000 CESI clients for whom Amerix provided services as of the October 31 expiration of the Service Agreement, and for whom CESI will provide such services going forward. Confirm that the Consent Decree is properly interpreted to mean that Amerix must transition all client data and client services for such approximately 58,000 clients from Amerix to CESI within three (3) months of the notice of termination/non-renewal as to the Service Agreement tendered by CESI to Amerix on September 30, 2011 — or on or before December 31, 2011.
  3. Enforce the Consent Decree on an emergency and expedited basis, through a temporary restraining order and/or a preliminary injunction if necessary, to require Amerix to provide the data sample described in paragraph 2 above within the timeframe indicated therein.
  4. Enforce the Consent Decree on an emergency and expedited basis, through a temporary retraining order and/or a preliminary injunction if necessary, to require Amerix to conduct the transition described in paragraph 3 above in good faith and within the timeframe indicated therein.
  5. Modify the Consent Decree to the extent necessary to award the relief requested in paragraphs 2-5 above, should the Court conclude that such modification is necessary.
  6. Interpret the Consent Decree as precluding the two different measures of monetary damages demanded to date by Amerix (i) purported “actual damages” in the form of lost net revenue if Amerix can no longer provide services to CESI’s clients; or (ii) a purported Early Termination Fee in the form of liquidated damages as described in the Service Agreement between the parties..

As part of the CESI filing is the consent agreement referenced. This portion of the consent agreement Amerix signed, that CESI alludes to states:

Defendants shall not limit the rights of any CCA to cancel any Service Agreement it enters into with Defendants, except that this provision does not prohibit Defendants including as a condition precedent in its agreements that a CCA must give reasonable notice of its intent to cancel the agreement under which a Defendant is providing services to the CCA in order to permit an orderly transition to a new service provider. Under this paragraph, reasonable notice shall not exceed ninety (90) days. Nothing contained in this paragraph shall prevent the Defendants from seeking to recover actual damages against a CCA arising from the CCA’s cancellation of any Service Agreement, including any costs that Defendants incurred in reliance that the CCA would fulfill its Service Agreement with Defendants. This Consent Decree is not intended to and does not foreclose Defendants from negotiating with a CCA a formula for the calculation of actual damages as long as such agreement complies with this paragraph. – Source

While I am familiar with both parties in this dispute, I have no idea how this end. It seems that both entities have a lot to lose if the relationship is severed instantly or without termination compensation. This one is going to leave a mark.


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36 thoughts on “Amerix / CareOne Dispute With CESI Debt Solutions May Prove Fatal”

  1. Recent court update may indicate this is coming to a major hurdle:

    Amerix says:

    “To the extent an injunction does not issue by or before January 31, 2012, Amerix  understands and believes that CESI intends to either: (1) instruct Amerix to stop providing  Services to Clients; and/or (2) intends to stop paying Amerix for the services that it is currently  performing or will perform in the coming months; or (3) will insist that Amerix continue under  the present day-to-day regime in which CESI could make a work stoppage demand at any time.   While Amerix considers January 31, 2012, to be a trigger date, even if it is extended for some  short period of time, Amerix can no longer effectively manage its organization and employees  without some certainty as to whether the status quo will be maintained until Amerix’s claims are  adjudicated.  For Amerix, continuing to provide services to CESI’s clients requires significant  organizational planning and structure.”

    CESI responds:

    “Plaintiffs, on the other hand, have suggested that if CESI does not acquiesce to Amerix’s strategy of dragging out this transition process to maximize the time period in which Amerix can collect fees, Amerix might be “forced” to stop services to CESI’s clients.  That contingency – but only that contingency – may very well  justify emergency temporary relief in favor of  CESI to compel  Amerix to complete the  expeditious transition of data and services to CESI in good faith while maintaining uninterrupted  client service until that transition is complete.  In other words, it is Plaintiffs that have threatened  to cut off services and that have failed to complete the transition, despite nearly 120 days to do  so.”

    • We have been following the blog posts and comments here. As you know, this is a legal matter, so we are limited on what we can and cannot say.  I can assure you, there is no reason for clients to worry.  We are servicing and will continue to care for all clients with the same high-quality service we have always provided.  Our management and staff are focused on the future of Consumer Education Services, Inc. (CESI)  and excited about our future as an organization.   – Tracy East, Director of Community Outreach

      • Unfortunately Tracy, you fail to respond to the fact that you only have a handful of employees left at CESI. If CESI is not worried, why get rid of a large portion of staff if CESI is so “excited about our future”? In Economics when companies are confident and “excited about our future” they hire they don’t fire.

        • We don’t feel it is helpful to engage in ongoing dialogue about
          the matter, so this will be our last comment. Like any organization, our
          employee count fluctuates based on a number of factors. “A handful of
          employees left” seems to suggest that we only have a few employees – which
          is not at all the case. In fact, the employee loss we experience3d was primarily limited
          to our origination department and less than 5% were in our client services
          department   – we don’t release the exact headcount of employees, but
          I can confirm that “a handful” is incorrect.  We remain
          committed to serving our clients and growing our company through quality
          services and quality client care consistent with our mission statement.

          • Tracy, I am sorry you were unable to prove my comments wrong. Organizations do fluctuate, the grow in numbers when business is good, they shrink when business is going bad. CESI is shrinking, therefore business is going bad. Until the lawsuit is finalized and hopefully CESI wins (which I do hope) until then… I say no to CESI and I advise others to do the same. Stay away from CESI until the lawsuit has reached an agreement.

          • CESI was well aware that Persels and Associates were handling those accounts before they transferred clients over to the DSP. Employees were told that during orientation, so CESI would be as equally responsible as Care One. Both Care One and CESI are to blame for being money hungry.

      • I don’t get why CESI is not simply asking for their own backup media.  They must know that the Persels data and the CESI data and the other data in DRS and FFC are all mixed together, and it would go very badly for them to admit to the court that they can’t be easily pried apart. Lots of privacy issues there. They misled the court in their submissions about that issue.

  2. I used to work at CESI, Steve you mentioned that CESI has two floors of customer service in Raleigh. That figure has plummeted because of all of the lay-offs and firings done by Dr. Diane Chen, Neil Ellington, and Greg Smalls. I worked there until September 2011 and when I left there were maybe 12 people left downstairs and 18 upstairs, my friend who still works there has told me the numbers have decreased even more and everyone still employed are wondering when they will be let go and many are looking for work outside the company before they get their pink slip. Though I think CESI does a great service to it’s clients, I would not recommend CESI due to the current storm.

  3. What puzzles me is that CESI usually responds almost immediately when a note about them is posted…but this particular news have kept them really quiet…I don’t know if as a client this should make me feel confident or nervous…what do you think Steve?

    • Lindsay,

      I understand how you must be concerned and this certainly feels like a mess but I think it’s way too early to panic. As far as I’m aware, client processing is continuing through CareOne and their proven information technology systems.

      The point of concern is what happens if this situation isn’t resolved in some orderly fashion and all of a sudden 58,000 clients get quickly exported from CareOne in a big data dump. If that’s the case I would expect it to be a massive potential mess that can create a customer service nightmare for CESI.

      I’d just keep an eye on if the CESI customer service you’ve come to know all of a sudden starts to get less than expected. If it does that’s when we need to come up with a plan on what to do.

      • “Proven” to do what exactly?  Do you have the success rates?

        Professor Crockson has taught Steve very well, how to say something that is technically a true statement yet designed to mislead you.

        The inadequacy of their “proven” IT systems to do anything other than lock-in partners is what the whole lawsuit, and the whole AG settlement, was really about.
        What he doesn’t explain to you is that “CESI customer service” is performed by CareOne.  They pick up the phone when you call, and will tell you what they want you to know about CESI.  CESI is suing for their own client data, so they can negotiate in good faith for the services they need to at the best price, which CareOne refuses to provide.

        That muffled sound you hear is Steve talking from Mr. Crock-son’s shirt pocket.

        • That’s very misdirected. My comment was about the fact the CareOne IT system has been smoothly running the 58,000 clients which appears to be a valid and true statement since I can’t remember when I’ve ever heard a CESI client complain about their statements or payment posting.

          CESI has already said they will need CreditSoft to custom program a solution to handle all the client data. Years of experience has taught me those transitions always have hurdles and problems, especially if it has to be done quickly and without extensive testing.

          Are you aware of any other CreditSoft installation handling more than 58,000 clients? I’m not.

          In fact CESI customer service is also handled by two floors of CESI employees in Raleigh, NC. I’ve been there and took the tour.

          I stand by my comment.


          • Perhaps I am on the wrong side of this, but at least I am not misleading anyone.

             I like how you slip the “also” in there, very sneaky.  The fact is, when you call CESI, the first person you speak to is a CareOne person, and unless you demand to be connected with a case manager in NC, and get their direct line in NC and call it, CESI will never even know that you called.  Steve doesn’t want you to know that.

            Don’t take his word or mine.  Try it, and tell us who is right.

            And apparently “proven” means “run smoothly.”  Like MF Global’s systems. Or Bernie Madoff’s systems.  They ran very smoothly, until one day they didn’t.

            I don’t “stand by my comment.”  Only liars and scammers demand your trust.  Go and check, see for yourself.  Call your creditors and ask them.  Do an hour of research.  Read CreditSoft’s website. Call them. Call their customers.  Call CESI and ask them.  It’s your money.

          • Errick,

            Not sure why you are making this so personal and attacking me but oh well.

            I’m not hiding anything. It’s true I may not know how the phone system directs calls but when I toured the CESI facility there were two floors of employees on the phones with consumers. Obviously they are talking directly with consumers.

            The CESI contact page can be found here. This is how they direct their customers to call them. I believe their direct dial number is (919) 785-0725.

            I’m not clear what your gale warning here is, that all CESI consumers need to jump ship?

          • Yes, I did cross that line, because I feel you have also crossed a line, from being sympathetic to a point of view, to deliberately withholding information we both know you know, to support that view.

            All I am doing is telling people why they will likely not have any warning if CESI folds.

          • I’ve said my piece.  I am content to wait.  Maybe I am wrong.  One day, it will be obvious to everyone who was right.

      • Quite a heated debate you guys have…anyhow…I have no option but to wait and hope for the best as one of my biggest creditors told me that if I cancel, I won’t be eligible for DMP benefits and my Interest rates will go as they were before…I really do like CESI’s customer service, but all this situation makes me really nervous; at the same time I’m confident as I was referred by one of my closest friends who successfully completed the program and is now Debt free. I guess my timing just wasn’t the right one..Oh well…

        • Sorry you had to witness all of that.

          I still feel it’s just too early to make any rash decisions. We need to see how this is all going to play out between them and if it looks like it’s going to collapse, I’ll sure write about it to warn people.

          In the past, when there have been similar situations in which companies needed to transfer clients the creditors have been onboard and helpful in transitioning consumers to new plans.

          If you wanted to take a look at all your available major options to dealing with your debt use the free How to Get Out of Debt Calculator.

          Please come back and keep me posted on any new events or issues with this. I’m happy to help.


    • They are in active litigation and probably cannot comment.  But I can.  Your program is in serious trouble and you should get in touch with your creditors and see if they will let you pay out your plans directly, or through someone else.  Remember who told you straight and who blew smoke up your butt.

      • I’m not hesitant is sounding the horn if it’s tie to jump, as I did in the UFS credit counseling situation.

        But let’s not get ahead of ourselves here. As long as processing is going smoothly and there are not immediate threats, in my opinion, it is better for the consumer to remain inside a smoothly flowing process where payments are being posted to the creditors under an established plan.

        Transition is always possible but it can create a series of unintended consequences when moving or switching unnecessarily. I’ve seen plenty of nightmare stories.

        Any consumer can contact their creditors at any time to see what they have to say about taking over their own payments.

        • Being intentionally dense is another Crock-sonism.  Lindsay is asking about HER position.  We both know there is no direct contract between the creditor and the debtor here.  You are really muffled now I don’t think you’re in his shirt pocket, you sound like you’re talking from another confined space.

          Lindsey is a third-party beneficiary to the fair-share deal the bank made with the counselor. She doesn’t have the records to prove up that relationship if she has to go to court over it.  That’s the big scam of credit counseling.  She is trapped in it unless she gets the bank to sign off on a change.  She can only sink or swim.  And since almost everyone sinks, everyone wins except nice people like Lindsay.

          • DMP terms are served at the pleasure of the creditor. They are not a legal agreement between either the DMP provider or the consumer.

            My comments on this have been focused on Lindsey and not with any agenda or attacks on you. I stand by my original statement that there is no reason to rock the boat unnecessarily if things are running smoothly. This is a contract dispute between Amerix and CESI. At this point that’s all there is.

            You didn’t answer the question, “How is the DMP plan setup with the creditor in serious trouble?”

          • You answered that question yourself: “DMP terms are served at the pleasure of the CREDITOR.”  And that’s not what I said anyway.  I said the program that Lindsay is in is in serious trouble.  CESI and CareOne will be fine, except for the loss of business.  Because the party that has her data, keeps her account, and is really doing the work, has no responsibility to her.  And they have a reason to keep her in the dark until the very last minute.  And blame someone else.

            Tell Lindsey about Genus, or North Seattle.  Still don’t know what I’m talking about?

  4. It’s been a blue Christmas for your pals at Amerix/CareOne etc.  First, the Fourth Circuit Court of Appeals drops a lump of coal on them in the DMP class action:

    Then a stale plate of cookies from Public Citizen for the debt settlement class (which you have already mentioned):

    And now the continuing failure to get injunctive relief from CESI in NC.  In a week or so it will be 90 days and Amerix will be in violation of the consent agreement.  Looks like someone is on Santa’s naughty list!  One might get the impression some people don’t think the world of Mr. Crockson like you do.  Like, everyone who tries to work with him.

  5. It’s been a blue Christmas for your pals at Amerix/CareOne etc.  First, the Fourth Circuit Court of Appeals drops a lump of coal on them in the DMP class action:

    Then a stale plate of cookies from Public Citizen for the debt settlement class (which you have already mentioned):

    And now the continuing failure to get injunctive relief from CESI in NC.  In a week or so it will be 90 days and Amerix will be in violation of the consent agreement.  Looks like someone is on Santa’s naughty list!  One might get the impression some people don’t think the world of Mr. Crockson like you do.  Like, everyone who tries to work with him.


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