Frankly I get sick of writing about lawsuits in the debt relief industry between partners that have a falling out.
But the reason I find the complaints often fascinating is they provide a look into the history of some organizations and entities. We get to learn how the whole thing developed.
In this case we have the April 1, 2015 suit filed by Ryan Stimson and Aphex Processing Center against Consumer Affairs law Center, Thomas Allen Moore, Christopher Lane, The Law Offices of Christopher Lane, Consumer Legal Services America, and Ira Frazer.
Frazer’s name is familiar to me because he recently claimed to file suit against a number of entities in the debt relief world, but as far as I can see the suit never materialized.
For the sake of brevity, let’s just assume the two parties are having some sort of pissing contest. That seems to sum up most lawsuits anyway. If you want to read the while suit, you can click here.
But for our history lesson today let’s just look at the history lesson and statements Ryan Stimson presented in the suit in the section general allegations to overall business model.
CALC = Consumer Affairs Law Center
LOCL = Law Office of Christopher Lane
CLSA = Consumer Legal Services America
“Plaintiffs are in the business of consumer debt resolution. Plaintiffs and a former principal of APHEX and a former executive of APHEX have various companies who either: 1) market and provide leads (“aka: front-end”) to their own companies and also provide the “backend” administrative services themselves; and/or 2) own and operate companies who market and provide client referrals to law firms and have those law firms subcontract Plaintiffs, or their similar non-attorney companies, to perform the back-end administrative services under the supervision of the law firms.
Plaintiffs marketed and provided client referrals (front-end) to CALC, a national debt resolution law firm.
When a client engaged CALC as his or her lawyer, the client’s file would go directly to CLSA, a law firm providing a national network of attorneys for debt resolution and consumer protection, of which FRAZER is the owner and managing attorney. CLSA was responsible for underwriting, which consisted of a legally required face-to-face meeting with the new client, followed by a review of the client’s file by local counsel in the State in which the client resided.
In furtherance of this scheme. CLSA and FRAZER connected APHEX with CHRISTOPHER D. LANE and the LAW OFFICES OF CHRISTOPHER D. LANE (LOCL), a local North Carolina debt resolution law firm. Under Plaintiffs agreement with CHRISTOPHER D. LANE and LOCL, Plaintiffs marketed and provided client referrals (front-end) directly to CHRISTOPHER D. LANE and LOCL.
Defendants CALC, CSLA, and LOCL each also subcontracted APHEX to provide the back-end administrative services under the supervision of CALC, CSLA, and LOCL.
In early January 2011, IRA FRAZER propositioned Plaintiff RYAN STIMSON (STIMSON), Thomas Lynch (Lynch) and Dale Weikel (Weikel) to form a national debt settlement company with him. FRAZER claimed to have developed a debt settlement attorney model whereby non-attorneys would handle the accounting, marketing, customer service, and debt negotiations.
During January 2011, FRAZER introduced Plaintiff STIMSON, Lynch, and Weikel to attorney, Defendant MOORE, claiming Defendant MOORE would be the managing attorney of the national debt settlement law firm Defendant FRAZER had developed.
During this January 2011 meeting, Plaintiff STIMSON, Lynch, and Weikel entered into an agreement with Defendant MOORE to refer clients who were in need of debt settlement legal services to Defendant MOORE’s law firm, Defendant CALC. In turn, Defendant MOORE agreed to engage and pay Plaintiff STIMSON, Lynch, and Weikel fees for all marketing, administrative, accounting, customer service, negotiations, and processing services with respect to the clients referred by Plaintiff STIMSON, Lynch, and Weikel to Defendants MOORE/CALC.
In subsequent discussions, Defendant FRAZER informed Plaintiff STIMSON, Lynch, and Weikel they would have to start a new company in order to sign the agreements between Defendant MOORE’s law firm, Defendant CALC and Defendant FRAZER’s law firm, Defendant CSLA. Plaintiff STIMSON suggested the new company was to be Aphex Processing Center, Inc. (APHEX), and Defendants FRAZER, MOORE, Lynch and Weikel agreed.
Plaintiff STIMSON, Lynch, and Weikel negotiated with Defendant FRAZER to have 100% of the 1% legal reserve (Reserve Account) be returned to Plaintiffs if not used for legal defense.
The CALC and CSLA agreements indicate a majority of the work was to be done by the non-attorneys directed by APHEX. APHEX was to handle: (a) marketing activities; (b) sales activities; (c) database activities; (d) administrative activities; (e) accounting activities; (f) customer service activities; and (g) negotiation activities.
Marketing activities involved non-attorneys obtaining clients through web-based, telephone, and direct mail efforts by non-attorney APHEX and non-attorney affiliates of APHEX. Sales activities involved non-attorney APHEX and non attorney affiliates of APHEX advising clients to retain the law firms CSLA and CALC.
Database activities involved non-attorney APHEX and non-attorney affiliates of APHEX taking charge of the marketing and sales efforts on behalf of CSLA and CALC and increasing the database by signing on new clients, coupled with retaining confidential attorney/client files for later servicing and 10 negotiation efforts.
Administrative activities involved non-attorney APHEX approving clients and negotiating debt settlements in forty-four (44) other states in addition to California.
Accounting activities involved non-attorneys being authorized signers of the CALC and CSLA accounts and handling all accounting functions: i.e. paying profits to the attorneys, handling client refunds, and paying all required business expenses when they came due. For its efforts, non-attorney APHEX received 98% of the legal fees drafted from the law firm’s clients.
The CSLA and CALC agreements contemplate that the attorneys were to do little work. The agreements proposed items such as placing video cameras in the APHEX office, so that the attorneys would never have to come into the office and supervise the law firm’s staff.
Additionally, Defendants FRAZER and MOORE had a mandate that debt settlement reviews be emailed to their respective firms, and if no response was given within 24 hours, it was deemed approved. With this methodology, Defendants FRAZER and MOORE rarely responded to any emails, so all settlements sent to them were deemed approved by default.
At other times during the debt settlement relationship, Defendants FRAZER and MOORE stated that as long as the debt was settled under a certain metric (i.e., 40 cents on the dollar), the clients were blanket-approved for a monthly “bulk settlement” policy.
Since the inception of Plaintiff APHEX’s business relationship with Defendants FRAZER, CSLA, CALC and MOORE in January 2011, Defendants FRAZER, CSLA, CALC and MOORE had no real concerns with the way Plaintiff APHEX was handling their role in the business model. In the two-and-half-years in which Plaintiff APHEX did business with Defendants FRAZER, CSLA, CALC and MOORE, never once were any of the seven-hundred-fifty (750) clients referred by APHEX to CALC ever rejected from their alleged initial attorney review for client acceptance to the law firm. Never once were any of the thousands of settlements submitted by Plaintiff APHEX rejected as a result of Defendants FRAZER, CSLA, CALC and MOORE’s settlement review.
Moreover, under FRAZER’s business model if a client requested to speak to their attorney, Plaintiff APHEX was directed to tell the client it would cost additional money; namely, seventy-five ($75.00) for each half hour or portion thereof. Never was the client permitted to have access to a direct telephone number of any lawyer. This language was drafted by FRAZER and appeared in Defendant MOORE’s engagement agreement sent to each LOCL client.
At all relevant times hereto, Defendants MOORE and FRAZER also acted in the capacity of personal attorneys for Plaintiff STIMPSON and APHEX’s executive, Lynch on other matters, both personal and professional
During February 2011, Defendant FRAZER informed Plaintiff STIMSON, Lynch and Weikel that in order to handle clients who resided in North Carolina, they would have to have a separate agreement with a North Carolina attorney due to the laws in North Carolina being more restrictive for consumer debt settlement.
Thereafter, Defendant FRAZER introduced Plaintiff STIMSON, Lynch, and Weikel to attorney, Defendant CHRISTOPHER D. LANE (LANE) claiming Defendant LANE would be the managing attorney of the debt settlement law firm in the state of the North Carolina.
During this February 2011 meeting, Plaintiff STIMSON, Lynch, and Weikel entered an agreement with Defendant LANE to refer clients who were in need of debt settlement legal services to Defendant LANE’s law firm, Defendant LAW OFFICE OF CHRISTOPHER D. LANE. In turn, Defendant LANE agreed to engage and pay Plaintiff STIMSON, Lynch, and Weikel fees for all marketing, administrative, accounting, customer service, negotiations, and processing services with respect to the clients referred by Plaintiff STIMSON, Lynch, and Weikel to Defendants LANE and LOCL.
Defendants LANE and LOCL had no real concerns with the way STIMSON, Lynch, and Weikel were handling their roles in the business.
Beginning March 2013 Defendant FRAZER began contacting APHEX executives stating that he met with an investor who was well-capitalized and interested in purchasing APHEX and the related operation.
Defendant FRAZER specifically stated that the opportunity existed because of Defendant FRAZER’s “belief that your team has operated in a clean fashion,” and that, “this could be a win-win for everyone.”
Also during this time, Defendant FRAZER began describing his own personal financial difficulties and demanded monies due and owing by APHEX and another entity doing business with FRAZER. In an email, Defendant FRAZER commented, [b]etween the absence of file reviews, the absence of educational course payments and the absence of payment on legal fees this has become a real problem for me financially. I have to be made whole from the past, fix it going forward and make certain it gets better and not worse. I will end up bk unless it gets fixed immediately and is solved permanently.”
Plaintiffs ultimately rejected Defendant FRAZER’s offer to purchase APHEX
Thereafter, Defendant FRAZER acted deliberately to ruin Plaintiffs’ business relationships with Defendants MOORE and LANE by threatening that APHEX was putting their law licenses in jeopardy. Interestingly, Defendant FRAZER took no action against Defendants MOORE and LANE for their willful failure to properly handle the clients’ files which would have contributed to Defendants’ FRAZER and CLSA’s alleged damages.
Plaintiffs are informed and believe and thereon allege that Defendants FRAZER MOORE and LANE systematically use non-attorney administrative workers to handle debt settlement files without proper supervision as required by Defendants under the professional rules of conduct.
Plaintiffs further allege that when the system implemented by Defendants FRAZER, MOORE and LANE failed they acted to insulate themselves from any personal and professional liability by claiming that the non-attorney administrative workers engaged wrongdoing, when, in fact, they simply followed protocol and it is was the Defendant attorneys who had the duty to act and fell below the standard of duty, not the back-end support staff acting for the benefit of the Defendant attorneys.
In response, Defendant MOORE requested access to the database referred to as CRM to review client files for the first time in two years. None of the client files in the CRM have any notes from MOORE. During the two-and-half year relationship, MOORE has never spoken to one of his seven-hundred fifty (750) clients APHEX referred to Defendants MOORE and CALC.
Defendant MOORE then removed all access to APHEX funds used for company operations. Due to this APHEX was unable to make payroll, pay rent, or pay a third-party marketer who referred clients to Defendant LOCL.
On April 1, 2013, Defendant MOORE sent a termination notice to then principal of operations, Thomas Lynch.
On April 18, 2013, Defendant LANE sent a termination notice to then principal of operations, Thomas Lynch. The termination notice requested that all records and files be immediately delivered to Ms. Sandy Barnes at Ace Business Solutions. Copies of the termination notice were sent to both Defendant FRAZER and Ms. Sandy Barnes.”