Yesterday the State of North Carolina and the North Carolina State Bar filed suit against Swift Rock Financial, World Law Debt, World Law Group, Orion Processing, World Law Processing, Derin Scott, and Global Client Solutions.
This suit is different than many others I’ve seen in that it is a joint effort by both the State Bar and the Attorney General.
Temporary Restraining Orders were obtained today against both Global Client Solutions and Swift Rock Financial, World Law Debt, World Law Group, Orion Processing, World Law Processing, and Derin Scott. The copy of the TROs can be found here and here.
The suit goes after the following defendants:
Defendant Swift Rock Financial, Inc. (hereafter “Swift Rock”), is a Texas corporation with a principal place of business in Austin, Texas. According to an Assumed Name Certificate filing with the Texas Secretary of State, Swift Rock conducts business under the assumed name “World Law Debt.” Defendant Swift Rock is not a company or corporation authorized to practice law in North Carolina under the provisions of Chapter 55B of the General Statutes ofNorth Carolina
Defendant Orion Processing, LLC (hereafter “Orion”), is a Texas limited liability company with a principal place of business in Austin, Texas. According to an Assumed Name Certificate filing with the Texas Secretary of State, Orion conducts business under the assumed name “World Law Processing.” Defendant Orion is not a company or corporation authorized to practice law in North Carolina under the provisions of Chapter 55B of the General Statutes of North Carolina.
Defendant Derin Scott is a Texas resident. Defendant Scott is the sole Managing Member of Orion, and defendant Scott is the sole Officer of Swift Rock, according to filings with the Texas Secretary of State. Defendant Scott is sued individually and in his capacity as Managing Member of Orion and Officer of Swift Rock. Defendant Scott is not a licensed attorney at law and is not authorized to practice law in the State of North Carolina. Upon information and belief, at all times relevant hereto, defendant Scott has formulated, directed, controlled, participated in, and had knowledge of the illegal acts and practices of Swift Rock and Orion. Defendant Scott has filed, or caused to be filed, filings with the Texas Secretary of State relating to these defendants and other, numerous “World Law” related entities, all of which are signed and authorized by defendant Scott.
The defendants operate their business in conjunction with a number of other related business entities at the same business location, including but not limited to: Clear Your Debt, LLC and World Law Advantage, LLC. The defendants also conduct business under the names “World Law Group,” “World Law Advantage,” and “WLD Credit Repair” among other names. On information and belief, there is significant common ownership, control and revenue sharing among these various entities.
Defendant Global Client Solutions, LLC (“Global”) is an Oklahoma limited liability company with a principal place of business in Tulsa, Oklahoma. Defendant Global is a third-party payment processor which handles payment processing for World Law and other unrelated companies, many of which are in the debt settlement business. As set forth herein, under consumers’ contracts with World Law and with Global, defendant Global is the payment processor responsible for debiting consumers’ bank accounts on a monthly basis for deposit into a special purpose account administered by Global for the purpose of paying consumers’ creditors. Global disburses consumers’ moneys to World Law for World Law’s fees on a monthly basis from this special purpose account. Global is not related to World Law and is named as a defendant in this action solely for purposes of injunctive relief to restrain the payment of unlawful fees to World Law. Global Client Solutions, LLC is expressly referred to in this Complaint as “Global” or “defendant Global” and is not included in the general reference
The suit alleges the defendants are offering an illegal debt settlement scheme to consumers in North Carolina. The defendants use deceptive representations to solicit consumers, including misrepresentations that the services are performed by attorneys and misleading suggestions that the defendants’ debt settlement program is government-affiliated.
The defendants promise to reduce consumers’ unsecured (credit card) debt obligations by more than 50 percent and to leave their clients debt-free without bankruptcy.
In fact, the defendants are operating a classic advance fee scam designed to extract exorbitant upfront fees from financially distressed consumers. As shown below, consumers rarely obtain debt settlements through the defendants, and the defendants retain substantial fees despite their nonperformance, which leaves vulnerable consumers in an even worse financial position.
From October 2010 through February 2013, the latest month for which the Attorney General has obtained payment records, North Carolina consumers have paid more than $4,105,681.00 into the defendants’ debt settlement program for the purpose of paying their creditors. Of this amount, the defendants have paid only $527,328.00, or less than 13% of what North Carolina consumers have paid, to North Carolina consumers’ creditors to settle debts, while the defendants have retained more than $2,643,341.00 in unlawful advance fees from North Carolina consumers.
Despite being given written notice by the North Carolina Attorney General that their activities are unlawful, and written notice by the North Carolina State Bar that their activities constitute the unauthorized practice of law, the defendants are continuing to collect illegal advance fees from North Carolina customers for debt settlement services; to enroll new North Carolina consumers into their debt settlement program; and to provide or purport to provide legal services by non-attorneys and attorneys not licensed in North Carolina in connection with their illegal debt settlement scheme.
The factual allegations in this case state:
Since at least 20lO, World Law has offered “debt settlement” or “debt negotiation” services to financially distressed consumers in North Carolina and other states. World Law solicits prospective customers through a variety of means, including through advertisements on its Internet web sites www.worldlawdebt.com, www.worldlawdirect.com, and www.worldlawdebtsettlement.com among others; television commercials; outbound telemarketing; and direct mailings to consumers.
The defendants’ solicitations are expressly targeted to consumers who are struggling with paying unsecured debts, but who wish to reduce and pay their debts without filing for bankruptcy. Upon information and belief, the defendants target consumers who owe at least $20,000 in credit card debt and who are “overextended” on their credit cards or who are having difficulty paying. In order to better identify these particular consumers, the defendants, and/or lead generators working with the defendants purchase data from credit reporting agencies that lists consumers’ names; the amount of revolving debt owed by the consumer; and whether the consumer is delinquent or past due. (See Affidavit ofCarol Jackson, attached as Exhibit 11 to Plaintiffs’ Motion for a Temporary Restraining Order and Preliminary Injunction.)
The defendants, or lead generators soliciting customers on the defendants’ behalf, then use this information to mail grossly deceptive solicitations directly to consumers, which list the consumer’s name, address, and the total amount of revolving debt owed by the consumer, in an effort to induce the consumer to call the defendants for assistance.
The defendants, or lead generators soliciting customers on behalf of the defendants, have repeatedly issued false mailings suggesting that the defendants are affiliated with the government and can assist consumers in obtaining government “benefits” intended for consumers struggling with unsecured debt. On numerous occasions, the defendants’ mailings have falsely stated that consumers may be eligible for “benefits” under a “2010 U.S. Federal Stimulus Package“; that under the program their interest rates will be reduced to “0%”; and that if consumers fail to call, their “benefits” will expire and that failure to respond may affect the consumer’s legal rights. All of these representations are false.
The defendants have also mailed solicitations to consumers in North Carolina on letterhead titled “NORTH CAROLINA LEGAL ADVOCATES – A PROFESSIONAL ORGANIZATION”, suggesting that they are attorneys and can provide legal assistance to consumers who may be sued by their creditors. A header on the letter solicitation states that the defendants are “State of North Carolina Licensed,” and the bottom of the letter reads “Raleigh Office” with a phone number. The letter claims that it is a “PRIVILEGED AND CONFIDENTIAL COMMUNICATION” and that the defendants are “reaching out” to help the consumer “avoid any pending legal action from your creditors, which could result in wage garnishment, levy of funds from your bank accounts or liens placed against your person or property. Our organization will help you fight to stop these actions.”
The letter further states that North Carolina Legal Advocates “does not charge a fee for its services.” All of these representations by the defendants are false as, among other things, the defendants are not attorneys; they are not licensed in North Carolina; they do not have a North Carolina office; and the defendants do charge fees for their services. A copy of such a solicitation sent by the defendants, or on behalf of the defendants to North Carolina consumers is shown above.
On its web sites, World Law expressly offers debt settlement services under what it describes as “attorney-based debt negotiation.” For example, on its website www.worldlawdebtsettlement.com , Wor1d Law represents that it provides legal services in connection with its debt settlement services, including the following legal services: “Contract Review; Attorney letters of representation sent to creditors; Pre-Bankruptcy screening and analysis; Fair Debt Collection Practices Act education course and collection of violation incidents, and Litigation preparedness program including evaluation of effective creditor collection options.” On its website www.worldlawdirect.com. World Law also offers to provide legal advice to consumers through “World Law Direct” whether or not the consumer is participating in World Law’s debt settlement program.
When consumers call in response to the defendants’ deceptive solicitations and advertisements, consumers speak with an “enrollment specialist” of World Law, who is a sales agent. Among other statements, the defendants and their agents routinely tell consumers that, if they enroll in World Law’s debt settlement program, World Law’s “attorneys” will contact consumers’ unsecured creditors to negotiate substantially reduced settlements of the consumer’s credit card debts. The defendants and their agents tell consumers that: (i) World Law is highly experienced and successful in negotiating and reducing consumers’ debts; (ii) the consumer will be represented by a law firm with practicing attorneys throughout the country and in North Carolina; (iii) World Law’s debt settlement program will reduce the consumer’s debts by at least 40% and possibly as much as 67%; (iv) the consumer’s monthly payments may be reduced by as much as 60%; and (v) consumers can become totally debt free in as little as two to four years without filing for bankruptcy. As set forth in further detail below, these representations by defendants and their agents are false.
The defendants and their agents routinely advise prospective consumer customers that a local attorney will provide them with legal advice regarding their debt situation; that defendants’ program will reduce harassing calls by consumers’ creditors because consumers will be represented by legal counsel; that World Law’s attorneys will “handle everything” and will “be there” for the consumer; and that W orId Law will provide them with legal representation in the event they are sued. All of these representations are false.
Upon information and belief, the defendants’ “enrollment specialists,” or sales agents, are paid on commission based on the number of consumers they enroll and the fees they generate for World Law; therefore, consumers are heavily pressured to enroll in the defendants’ program. Upon information and belief, the defendants’ “enrollment specialists” have no significant training, experience or expertise in the areas of credit counseling, debt settlement, or bankruptcy law. Instead, the defendants’ agents are primarily directed to sell World Law’s debt settlement program without analyzing the consumer’s financial situation and without determining whether a debt settlement program is appropriate for the consumer’s particular financial circumstances.
If a consumer expresses an interest in World Law’s debt settlement program, the enrollment specialist sends the consumer a contract called a “Client Services Agreement” by e-mail if the consumer has a computer or computer access, and the consumer is instructed to electronically sign the agreement immediately. As a result, most consumers are not given an opportunity to fully review World Law’s contract before signing it, and consumers rely upon the oral representations made to them by World Law’s enrollment specialists.
The first paragraph of the defendants’ “Client Services Agreement” states that it is an agreement between the consumer and “World Law Debt.” Upon information and belief, “World Law Debt” does not exist as a legal entity; and World Law Debt is not a law firm authorized to practice law in the State of North Carolina or in Texas. The Agreement further states that “World Law Debt” is “the marketing and client assistance division of World Law Group.” Upon information and belief, “World Law Group” does not exist as a legal entity; and “World Law Group” is not a law firm authorized to practice law in North Carolina or in Texas. Nonetheless, the Agreement claims that “World Law Group” is the “law firm” that provides “the network, state and federal representation” to consumer clients.
World Law informs consumers that their monthly payments will be placed into an account located at a third party bank on behalf of the consumer and accumulated for payment to the consumer’s creditors. Consumers’ funds are debited from the consumer’s bank account by defendant Global Client Solutions, LLC (“Global”). Defendant Global is a third party payment processor and acts as an escrow agent. Global debits consumers’ bank accounts on a monthly basis and places those funds in a “special purpose account” in the consumer’s name in a third party bank. If and when settlements are reached, defendant Global disburses payment to the consumer’s creditor from the consumer’s special purpose account.
Under its Client Services Agreements with consumers, World Law is authorized to collect its fees from consumers’ deposits in advance before any settlements are negotiated or obtained. Accordingly, when defendant Global debits consumers’ monthly payments from consumers’ personal bank accounts, defendant Global immediately disburses World Law’s fees to World Law pursuant to World Law’s instructions to defendant Global.
World Law charges consumers grossly exorbitant fees for its debt settlement services that range from approximately 20% of the consumer’s unsecured debt to as high as 39% of the consumer’s unsecured debt. Thus, in a typical example, a consumer who complained to the Attorney General’s Office had approximately $26,600 in credit card debt. World Law’s projected fees for its debt settlement services totaled more than $8,000, which represented 29% of the consumer’s credit card debt.
World Law’s “Client Services Agreement” sets forth a confusing panoply of fees, including: (i) a “one time Attorney initial fee” of $199.00; (ii) a purported “bundled legal services fee,” which is based on the amount of the consumer’s debt (and monthly payment), and which is deemed to be “earned” by World Law “within the first 30 to 60 days” although virtually no consumers’ debts are settled in the first 30 to 60 days; (iii) a “debt settlement legal fee,” which is represented to be a “flat fee for prorated debt settlement legal services”; and (iv) a “monthly attorney fee” of$84.95. In addition, consumers are charged a one-time bank set up fee of $5.00, plus a monthly fee of$9.95, which is paid to defendant Global.
Notwithstanding this exorbitant and confusing fee structure, when “enrollment specialists” enroll customers into World Law’s program, these sales agents rarely, if ever, fully explain World Law’s fees to consumers, nor do the sales agents explain that World Law collects a substantial portion of its fees in advance, before World Law engages in any negotiations with consumers’ creditors and before any settlements are reached.
As a result of defendants’ front-loaded fee collection, typically little or no funds are accumulated in the consumer’s account to offer creditors during the first few months a consumer participates in World Law’s program. Further, because of defendants’ punitive front loaded fee collection scheme, typically consumers must remain in World Law’s program for at least one to two years before amassing sufficient moneys to fund substantial settlements with creditors.
After consumers enroll in World Law’s program, the defendants have very little further contact with consumers. The defendants typically do not provide consumers with periodic reports or other information about World Law’s communications with consumers’ creditors, other than sending consumers a copy of a form “Notice ofRepresentation” letter sent to consumers’ creditors. After consumers enroll in World Law’s program, consumers often find it difficult to obtain information about the status of settlement activities. Further, as reported by creditors’ attorneys in North Carolina and by consumers, defendants almost never engage in settlement negotiations with consumers’ creditors as promised.
Many consumers are led to believe by the defendants that when they enter World Law’s program, World Law will immediately contact their creditors, negotiate settlements, and begin paying their creditors. However, due to World Law’s front-loading of its fees, consumers rarely have available funds in their accounts with which to pay creditors unless they remain in the program for at least one to two years. As a result, despite its representations, World Law makes no meaningful efforts to reach settlements with consumers’ creditors, and World Law is typically unable to reach settlements with creditors.
Because World Law instructs consumers to stop making monthly payments to their creditors -and because consumers cannot afford to pay both World Law and their creditors -consumers’ debts continue to increase while they are in World Law’s debt settlement program due to fees and additional interest charges assessed by their creditors.
World Law’s debt settlement program places consumers at significantly greater risk of being sued by their creditors. Indeed, World Law’s instructions to consumers to stop communicating with their creditors, stop paying their creditors, and let World Law “handle everything” causes numerous creditors to resort to legal action, which is what many consumers are seeking to avoid when they enter the defendants’ program.
Upon information and belief, the defendants’ debt settlement program is managed and administered entirely by employees and contractors of the defendants, and these employees and contractors are not attorneys. Despite leading consumers to believe that their debt-settlement program is attorney-based, there are virtually no attorneys employed or affiliated with World Law who conduct debt settlement negotiations on behalf of consumers.
Despite the defendants’ claims that they are a “law firm” with “local attorneys,” World Law does not employ any North Carolina-licensed attorneys who assess North Carolina consumers’ debt situation, conduct debt settlement negotiations, or otherwise represent or perform services on behalf of any North Carolina consumers. Upon information and belief, no North Carolina consumer has ever talked with or communicated with a North Carolina licensed attorney affiliated with World Law, and World Law does not provide North Carolina consumers with the name of any North Carolina licensed attorney who is affiliated with World Law and who will perform services on behalf of the consumer.
The defendants have fraudulently listed the names of North Carolina-licensed attorneys on World Law’s letters of representation to consumers’ creditors without the consent or knowledge of the North Carolina attorneys – in an attempt to mislead consumers and creditors into believing that a local attorney is involved and is representing the consumer, but such representations are false. This fact is evidenced by a letter sent by World Law Processing’s Chief Operations Officer Dave Klein to the North Carolina Attorney General’s Office in response to a consumer complaint about World Law submitted to the Attorney General’s Office. Chief Operations Officer Klein responded to the complaint by contending that the North Carolina consumer “had agreed to the representation by our attorneys.” Chief Operations Officer Klein further contended that the defendants’ representation was evidenced by copies of “Notice of Attorney Representation” letters, which were submitted with World Law’s response.
The letters of representation sent by World Law to the consumer’s creditors and provided by World Law listed the name of an attorney, a Richard B. Sorrell, as a cc on the letters and, after Mr. Sorrell’s name, stated “North Carolina.” Further investigation by the Attorney General and the State Bar revealed that Mr. Sorrell was licensed in North Carolina.
However, upon being contacted, Mr. Sorrell attested that he had never worked with or for World Law; that he had never represented the named consumer; and that he had never been contacted by World Law, and had never authorized World Law to use his name.
When consumers are sued by their creditors, World Law prepares form pleadings which World Law e-mails to consumers and instructs them to file pro se with the court. None of the pleadings provided to World Law customers have been prepared by an active member of the North Carolina State Bar. Among other documents, World Law has prepared and sent North Carolina consumers form answers, responses to discovery, and affidavits in reply to plaintiff creditors’ motions for summary judgment.
These pleadings and documents prepared by the defendants on behalf ofNorth Carolina consumers assert patently frivolous defenses and assert claims which have no evidentiary or factual basis. For example, World Law has routinely instructed consumers to answer that they never opened the credit card account at issue, even though the consumers previously did not dispute that they owed the debts, and in fact, had instructed World Law to settle the same debts. Similarly, World Law has routinely instructed consumers to assert to the court that the plaintiff-creditors and their attorneys “are under investigation by state and federal authorities for robo-signing.”
The defendants have caused virtually identical frivolous and baseless pleadings to be filed in more than 120 cases brought by creditors against World Law’s customers that have pended or are currently pending in North Carolina district courts. At the instruction of World Law, consumers often appear in court proceedings, but the consumers are often disappointed to find that no one from World Law is in court to represent them; the consumers do not understand the substance of the documents prepared by World Law and, upon questioning by the court, concede that the assertions made by World Law in the documents are untrue. In at least one such action filed by Citibank against a World Law customer, in an order issued on April 25, 2013, District Court Judge Meredith Shuford in Cleveland County observed that World Law had caused numerous identical filings to be made in other cases throughout the State in bad faith and sanctioned the consumer debtor, ordering the consumer to pay Citibank an additional $500.00 in sanctions, in addition to costs and attorney’s fees awarded with the judgment.
By leading consumers to believe that they are attorneys and that World Law will represent them if they are sued, and by preparing ineffectual and baseless pleadings for consumers to file pro se, consumers are induced by World Law to remain in the program and continue making their monthly payments to World Law after they are sued by their creditors, thereby further depriving consumers of funds that could be used to pay their debts or settle with their creditors. Upon information and belief, no North Carolina consumers have successfully challenged legal actions brought by their creditors by filing pro se pleadings prepared by World Law.
Because World Law fails to render any beneficial services to consumers, many consumers drop out of World Law’s program after a few months. When consumers terminate World Law’s debt settlement program, World Law refuses to provide consumers with refunds of the advance fees World Law has collected.
World Law fails to adequately disclose to consumers, either orally and/or in its contracts with consumers, the following material facts regarding its debt settlement program: (a) the vast majority of the consumer’s initial payments will be paid to World Law as World Law’s fees; (b) consumers must pay into World Law’s program for a long period, typically at least one to two years, before there will be sufficient funds in the consumer’s account to offer meaningful settlements to consumers’ creditors; (c) most creditors will be paid nothing by World Law for at least a year or more, if anything is paid at all; (d) consumers are at significantly greater risk of being sued by their creditors after joining World Law’s debt settlement program; (e) most consumers drop out of World Law’s debt settlement program before any accounts are settled; and (f) when consumers drop out of World Law’s program, consumers often lose most, if not all, of the money they paid as World Law appropriates their funds as World Law’s fees.
World Law has obtained very few settlements on behalf of North Carolina consumers with consumers’ creditors. Further, World Law has disbursed only a small portion of the money World Law has collected from North Carolina consumers to consumers’ creditors, and, instead, World Law has retained most consumers’ moneys as the defendants’ fees.
In May 2012, Ms. Wamagata was sued by Citibank for the amount of$11,840.00. Extremely worried, Ms. Wamagata called World Law and sent World Law a copy of the complaint. A “legal assistant” for World Law instructed Ms. Wamagata that the summons would be given to an attorney, but Ms. Wamagata was never provided with the purported attorney’s name. The “legal assistant” informed Ms. Wamagata that an attorney would call her before her court date to advise her.
Despite Ms. Wamagata’s repeated attempts to contact World Law, no attorney or anyone else contacted her, and a default judgment was entered against her on July 6, 2012. When she received the default judgment, Ms. Wamagata did not understand it, and contacted World Law for assistance. Two months after the entry of the default judgment, in September 2012, the “litigation department” of World Law e-mailed Ms. Wamagata an “Answer” to the Complaint, as well as a “Motion to Set Aside Default Judgment,” which World Law instructed Ms. Wamagata to file with the court.
On the night before her court appearance, Ms. Wamagata was contacted by a man named “Greg” from World Law, who did not provide his last name but represented that he was an attorney licensed in Texas. “Greg” told Ms. Wamagata to tell the court that she did not have a Citibank credit card, and that the company had misstated its place of business as North Dakota instead of South Dakota. Ms. Wamagata asked “Greg” why an attorney would not go to court with her, but “Greg” instructed her that she “did not need one” and that “having an attorney would make [her] creditors think [she] had a lot of money and was just refusing to pay what [she] owed.” After appearing in court the next day, the judge denied Ms. Wamagata’s motion. Feeling betrayed, Ms. Wamagata tried several times to reach “”Greg” after she got home, but her calls were never returned.
Over the course often months, Ms. Wamagata paid World Law ten monthly payments for a total of $3326.70 to settle her debts. After no debts were settled and after a default judgment was entered against her, in November 2012, Ms. Wamagata cancelled the program, and received a refund of a mere $168.70, which was issued by defendant Global.
The full complaint can be read here.