The Kansas Court of Appeals has issued a ruling in the case involving Consumer Law Associates, Persels & Associates, David Herron II, Stanley Goodwin, and Laura Simpson-Redmond.
In this case the State of Kansas went after the named parties after receiving some complaints from consumers. The individuals named are licensed attorneys in Kansas but Consumer Law Associates and Persels & Assocaites are both limited liability companies located in Maryland.
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The heart of the issue was if the Kansas Credit Services Organization Act exempted the companies and individuals from its regulation.
it was found that individuals who are licensed to practice law in Kansas are exempt from regulation by the Office of Kansas State Bank Commissioner. The statutory exemption under K.S.A. 50-1116(b) does not apply to a limited liability company or any other entity that is not licensed to practice law by the Kansas Supreme Court.
The district court held a status conference on September 16, 2010, but apparently refused to issue a writ of mandamus or a temporary restraining order. Instead, the district court instructed the OSBC to file its response to Petitioners’ declaratory judgment action. Later that day, the OSBC issued a summary order to cease and desist and pay a fine under the Kansas Administrative Procedure Act (KAPA), K.S.A. 77-501 et seq., and K.S.A. 50-1129. The order required CLA, Persels, and their owners, officers, partners, and directors to immediately cease and desist from engaging in any “credit services organization business, as defined by K.S.A. 50-1117(c), in the State of Kansas and with Kansas residents.” The order directed CLA and Persels to pay a fine of $8,400,000 based on 1,671 violations of K.S.A. 50-1118(a), and at least one violation of K.S.A. 50-1121(a), (b), (d), (f), and (p). The order stated that CLA and Persels could request a hearing under K.S.A. 77-542 to challenge the order. It is undisputed that this order was directed at CLA, Persels, and their owners, partners, officers, and directors, along with Neil J. Ruther and Lisa L. Perillo; furthermore, it did not name or restrict Herron, Goodwin, or Simpson-Redmond.
After analyzing several Kansas Supreme Court Rules, the district court determined that a limited liability company cannot possibly be “licensed to practice law” in Kansas because “a limited liability company cannot obtain an undergraduate or law school degree, cannot pass a written bar examination and cannot meet the other requirements mandated by the Kansas Supreme Court to obtain a license to practice law in this state. Accordingly, the Court concludes that the right to practice law may only be granted to natural persons and cannot be granted to artificial legal entities such as a corporation or a limited liability company.”
The document says Kansas followed the same logic that had been applied in South Carolina in the Lexington Law Firm v. Department of Consumer Affairs case in 2009. In that case the South Carolina Department of Consumer Affairs learned that a Utah-based law firm, Lexington Law Firm, was providing credit counseling services to South Carolina citizens. The Department advised Lexington that the South Carolina Consumer Credit Counseling Act required credit counseling organizations to obtain a license. Lexington agreed but argued that the attorney exemption within the Act exempted it from the Department’s regulation.
Subsequently the court determined the South Carolina Department of Consumer Affairs was in the best position to issue licenses and determine if an exemption was qualified for. Utilizing the reasoning in Lexington, the district court here determined that CLA and Persels could not, as a matter of law, be licensed to practice law in Kansas and, therefore, they were not entitled to the exemption under Kansas law.
You can read the full court document here.
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