Crazy Times for Legal Helpers and Macey Bankruptcy Law

Old dogs in the debt relief field will instantly recognize the names Legal Helpers and Macey Bankruptcy Law from the debt settlement heyday.

A tipster (send in your tips here) brought to my attention that Macey Bankruptcy Law, Macey & Aleman, Legal Helpers, and Jacoby & Meyers Bankruptcy were all named in an involuntary bankruptcy filing by a handful of their creditors.

In an involuntary bankruptcy filing creditors can initiate the filing in order to try to recover money owed.

The bankruptcy filings, yes there are two, can be read here and here.

The creditors consist mostly of the group below.

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So all of that is kind of interesting but it’s not the juicy bit. No, that can be found in the additional filings.

The creditors allege the Macey groups hid their assets and more.

“On July 10, 2012, Jacoby & Meyers, L.L.C. (“J&M”) and Macey announced “the most significant merger for consumer law in U.S. history,” with the creation of J&M Bankruptcy. It was stated that J&M Bankruptcy would “have the combined resources of the two nationwide law firms.”2 A year and a half later, on or around December 30, 2013, the Alleged Debtors ceased operations and executed trust agreements and assignments for the benefit of creditors purportedly transferring all their assets to Trusts (collectively, the “Trusts”) and appointing Robert P. Handler as assignee and trustee of the trusts (the “Assignee”). At the same time, J&M continues to operate with at least thirty offices across the nation, and the most profitable offices of the Alleged Debtors, including those in Chicago, Denver and Miami, appear to be continuing operations as the Law Offices of Jason Blust (“Blust”).”

The creditors lay out a bigger story and make allegations about how all of this happened.

“In July 2012, Macey, then the nation’s largest consumer bankruptcy firm, and J&M, the nation’s largest consumer law firm, announced their merger under the umbrella of J&M Bankruptcy. In connection with the merger, Thomas Macey, the senior partner of Macey, stated that, “[i]n addition to its offices nationwide, Macey Bankruptcy Law credits its successful growth to its dedication to customer service and commitment to fair and reasonable fees, which are a perfect match with Jacoby & Meyers’ corporate philosophy of offering quality services at affordable rates, which it has done for 40 years.”

Almost contemporaneously with the merger of J&M and Macey, Macey affiliate Legal Helpers Debt Resolution LLC (“LHDR”) entered into an agreement with the Illinois Attorney General pursuant to which it agreed to refund $2.1 million to Illinois consumers following accusations by the Attorney General that the lawyers at LHDR, including Thomas Macey and Jeffrey Aleman, “were a ‘front’ to collect hefty fees from struggling consumers.”

Similar claims were made by numerous other individuals and state governments across the country, most of which have not yet been resolved.

On or around December 30, 2013, Thomas Macey executed the Assignment and Trusts documents on behalf of each of the Alleged Debtors.

On January 27, 2014, the undersigned counsel sent a letter to the Assignee requesting certain information and documents and proposing case management and information sharing protocol so that all creditors could be kept informed and could have confidence in the integrity of the process, including the creation of a website for disseminating information about the administration of the Trusts. Counsel further sought assurances that the Assignee would investigate and pursue any claims against insiders. To date, the Assignee has not responded at all to that letter or the proposals made therein.

At this time, very little is known about the Alleged Debtors’ assets and liabilities. The Assignee has made the following simple statement in connection with a form letter providing notice to potential creditors of the Alleged Debtors: Based on the financial information provided to the Trustee/Assignee by the Company [the Alleged Debtors], without audit or verification, the Company’s assets include the following:

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1. Contingency fees receivable and

2. Office furniture and equipment, desktop computers and peripheral equipment.

The Assignee has generally refused to provide any information regarding the identity of the Alleged Debtors’ creditors. However, in a letter from the Assignee’s counsel to one of the Petitioning Creditors, counsel explained the Assignee’s position with respect to a certain alleged secured debt of the Alleged Debtors as follows:

Other than CIT Finance which has a lien on a copy machine, the only secured creditor shown [on the UCC search] is Tom’s LLC. The Assignee/Trustee has reviewed the notes [November 28, 2012 for $375,000 and February 7, 2013 for $250,000] and security agreements of the same dates and has verified that funds in the amount of the notes were advanced into the Companies’ account when the notes were made. As such, the secured debt appears valid.

What the Assignee’s counsel failed to say is remarkable. After a brief investigation by the Petitioning Creditors, it appears that “Tom’s LLC,” an entity that the Petitioning Creditors are unable to verify even exists, lists an address on its financing statements of 100 S. Pointe Drive, Apt. 2801, Miami Beach, Florida 33139.

A review of the deed record for that property reveals that it is owned by Thomas Macey, the managing partner/member of the Alleged Debtors, and was purchased by him in or around December 2011 for $1.75 million. The Petitioning Creditors believe that an insider alleged secured claim warrants far more scrutiny than the Assignee appears willing to give.

The Petitioning Creditors also understand that Clients that fully paid the Alleged Debtors for representation in their bankruptcy cases have appeared at meetings of creditors unrepresented by counsel. Moreover, certain of the attorneys designated to take over various Clients’ files have been unable to obtain the identity and contact information for the Clients, information regarding how much those Clients had paid to the Alleged Debtors, or the legal work already performed. In addition, the Alleged Debtors’ computer server that contains Clients’ confidential information, e-mails, and other essential books and records, does not appear to have been turned over to the Assignee and is believed to be in the possession of Blust.

It is clear that the Alleged Debtors’ liquidation must be done by an independent bankruptcy trustee in a transparent proceeding under the sound supervision of this Court. The Alleged Debtors’ Clients and creditors deserve more and have absolutely no protection in connection with the Assignments. To date, Clients and creditors have absolutely no assurances that the Assignee is going to do the investigation that is warranted here, or pursue any claims against insiders if discovered.”

The filing makes the following statement about two of the attorneys involved, Andrew Magdy and Steven Long.

“The Law Offices of Andrew Magdy, LLC (“Magdy”) entered into an agreement J&M Bankruptcy, dated on or around August 21, 2013, pursuant to which Magdy was to take over J&M’s offices and consumer bankruptcy practice in St. Louis, Missouri and surrounding geographic area (the “Magdy Agreement”). The basic terms of the Magdy Agreement provided that Magdy would honor all retention agreements between J&M Bankruptcy Clients in Magdy’s geographic area and any prepaid legal fees paid to J&M Bankruptcy by the Clients (“Client Retainers”), and prepaid expenses paid by the Clients (“Prepaid Expenses”). In exchange, J&M Bankruptcy was obligated to advise the Clients of the change and provide Magdy with the identity of the Clients and all legal work performed to date (the “J&M Obligations”). Due to J&M Bankruptcy’s liquidation four months after entering into the Magdy Agreement, the J&M Obligations were never fulfilled. At the same time, Magdy has been and continues to perform under the Magdy Agreement and to honor all Client Retainers and Prepaid Expenses. Magdy estimates that his total costs related to honoring Client Retainers and Prepaid Expenses is approximately $365,000, although part of that claim is unliquidated. Thus far, Magdy has determined that 249 J&M Bankruptcy Clients paid $219,502 in Client Retainers and $48,424 in Client Expenses that have been or will have to be honored by Magdy. Magdy is in the process of reviewing another approximately eighty (80) files, in order to determine what Client Retainers and Prepaid Expenses were already paid to J&M Bankruptcy by those clients. Magdy believes in good faith that the remaining Clients will have another approximately $90,000 in Client Retainers and Prepaid Expenses. Thus far, Magdy has filed in excess of 75 bankruptcy petitions of assumed J&M Bankruptcy clients of which those Clients had paid $70,307.85 in Client Retainers and Prepaid Expenses, all of which were honored by Magdy. At the same time, Magdy has lost business opportunities and incurred significant costs due to J&M Bankruptcy’s failure to provide him with the electronic files and Client identities as required. Magdy estimates in good faith that he has been damaged in excess of $50,000 as a result of J&M Bankruptcy failure to perform the J&M Obligations.

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The Law Offices of Steven Long, LLC (“Long”) entered into an agreement J&M Bankruptcy substantially similar to Magdy’s, but covering Kansas City and the surrounding geographic area (the “Long Agreement”). Long has been and continues to perform under the Long Agreement and to honor all Client Retainers and Prepaid Expenses. Long has lost business opportunities and incurred significant costs due to J&M Bankruptcy’s failure to timely provide him with the electronic files and Client identities as required. Long estimates in good faith that he has been damaged in excess of $50,000 as a result of J&M Bankruptcy failure to perform the J&M Obligations.”

You can read the entire document here.

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The Group Responds

It appears the response by Macey, Legal Helpers and others is they involuntary bankruptcy petition was filed in the wrong place, New York instead of Illinois.

“(a) The operations, managerial decisions, and organizational documents all indicate that the Debtors’ principal place of business is in Chicago — not New York;

(b) The Petitioners’ allegation that venue lies in New York is based upon a misreading of the foreign partnership Notice of Registration J&M-Bankruptcy filed with the New York Secretary of State;

(c) The Petitioners concede that the Debtors’ principal assets are in Chicago; and

(d) If the Court does not dismiss these cases, the Court should at least transfer them to the Northern District of Illinois, for the convenience of the parties and in the interest of Justice.”

But the most interesting bit of the whole mess for me was the attached agreement between Jacoby & Meyers and Macey Bankruptcy Law. It starts on page 41 of this document.

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Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here.
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