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Morgan Drexen Court Action Reads Like a Soap Opera

Written by Steve Rhode

In just the past few days the Morgan Drexen case with the Consumer Financial Protection Bureau took some strange twists. The court documents lay out a series of alleged events which paints an unusual story.

I’ll let the court documents write this story. From this point on, the information in this story will be from these recent court documents which you can read for yourself. Doc1, Doc2, Doc3.

I asked a law firm representing Howard Law to feel free to respond to the allegations made by the Consumer Financial Protection Bureau (CFPB) in the court documents. I forwarded the documents to them for review. At the time of publication I had not received a statement from them regarding the documents.

If there is a court filing in response to the allegations made by the CFPB, I’ll post an update.

Court Documents Tell This Story

“Pursuant to Local Rule 7-19, Plaintiff, the Consumer Financial Protection Bureau (“Bureau”), hereby submits this ex parte application for an order to show cause why Vincent Howard, Lawrence Williamson, Howard Law, PC, the Williamson Law Firm, LLC, and Williamson & Howard, LLP (collectively, “the Attorneys”), should not be held in contempt.

When the Court issued its June 18, 2015 Order re: Permanent Injunction (hereinafter “Injunction Order”), holding that Defendant Morgan Drexen, Inc. (“Morgan Drexen”) violated the Telemarketing Sales Rule (“TSR”) and the Consumer Financial Protection Act of 2010 (“CFPA”), the Attorneys could have washed their hands of Morgan Drexen’s unlawful enterprise and distanced themselves from the individuals responsible for facilitating the company’s scheme.

Or they could have attempted to minimize the damage caused by Morgan Drexen by assisting consumers in obtaining refunds of money in their trust accounts. Instead, they preyed on the very same consumers harmed by Morgan Drexen’s practices. Among other things, they hired a substantial number of former Morgan Drexen employees—including the company’s former Chief Financial Officer and Chief Technology Officer—and used these employees to keep Morgan Drexen’s debt relief scheme alive. In furtherance of the scheme, the Attorneys have gone to significant lengths to confuse consumers about their rights, including sending letters to consumers that contradict the Court-approved letters sent by the Trustee for the Morgan Drexen Bankruptcy Estate. In fact, the Attorneys’ letters instruct consumers that the Bureau’s lawsuit has “no effect” on consumers’ payment plans, and that consumers should keep paying their Attorneys. Worst of all, in the past two months alone, the Attorneys have collected hundreds of thousands of dollars in unlawful fees from former Morgan Drexen customers, even though the Court explicitly prohibited the collection of such unlawful fees in its Injunction Order.

By their brazen actions, the Attorneys have made clear that they will stop at nothing to line their pockets with the last pennies of vulnerable consumers. In preying upon these consumers, the Attorneys have thwarted every vital consumer protection this Court built into its Injunction Order. Severe sanctions are necessary to compel the Attorneys to comply with the Court’s Order and to compensate the consumers they have harmed. The Bureau therefore respectfully requests that this Court enter an Order to Show Cause why the Attorneys should not be held in contempt.

Pursuant to Local Rule 7-19.1, the Bureau informed counsel for Vincent Howard, Howard Law, PC, and Williamson & Howard, LLP, via telephone on August 19, 2015, that it would file this ex parte application. Counsel advised the Bureau that his clients would oppose the ex parte application. The Bureau also made a reasonable, good faith effort to orally advise Lawrence Williamson and the Williamson Law Firm, LLC of this ex parte application, but was not able to reach Mr. Williamson or his representative.”

THE ATTORNEYS’ CONDUCT

Rather than comply with the Court’s Injunction and Clarification Orders and the Ninth Circuit’s denial of their emergency motion to stay, the Attorneys have engaged in conduct that blatantly violates this Court’s Orders and undermines the notices the Court ordered to ensure that consumers would be apprised of their rights in connection with the cessation of Morgan Drexen’s debt relief services.

On August 12, 2015, the Morgan Drexen Trustee and the Bureau took sworn testimony (in connection with Morgan Drexen’s bankruptcy proceedings) from Morgan Drexen’s former Chief Financial Officer, David Walker, who is now an employee at Howard Law, PC. Among other things, Walker testified that:

  • Howard Law, PC, now employs 50-60 former Morgan Drexen employees, including a former owner of Morgan Drexen who was the company’s Chief Technology Officer Avi Gupta, to perform the same debt relief services that Morgan Drexen previously performed and which the Court enjoined;
  • From the time Morgan Drexen went out of business in June 2015 to the present, Howard Law, PC, has worked to ensure that Affected Consumers would stay in the debt relief program;
  • Vincent Howard purchased a “backup and data storage” company called LegalSoft, Inc., from Defendant Walter Ledda for $25,000, which included all the information that had previously been stored in Morgan Drexen’s case management system (MDIS) relating to the files of Affected Consumers;
  • From the time Morgan Drexen went out of business in June 2015, the Attorneys have collected “a couple hundred thousand dollars” from Affected Consumers in fees;
  • The Attorneys continue to charge Affected Consumers impermissible up-front fees; and
  • The Kesher Law Group, which is the law firm formed by former Morgan Drexen General Counsel Jeffrey Katz, has invoiced the Attorneys for “legal advisory services” in connection with their continuation of Morgan Drexen’s debt relief services.

In addition, Walker testified that Howard Law, PC, has no intention of winding down the debt-relief scheme that Howard and the other Attorneys took over from Morgan Drexen, and, in fact, Howard is planning on running “new advertisements” and “marketing [debt relief services] and accepting new consumers” as debt relief clients.

Aside from going to great lengths to continue Morgan Drexen’s debt relief scheme and collect fees from Affected Consumers, the Attorneys engaged in numerous tactics designed to ensure consumers would—at a minimum—be confused about their rights, if not misinformed. Prior to July 17, 2015, when Morgan Drexen began the process of mailing and emailing the notifications required by this Court’s Injunction Order, Howard Law, PC, mailed a letter dated July 10, 2015, to Morgan Drexen’s former customers to inform them, among other things, that, even though Morgan Drexen has gone out of business, “[t]his change will have no effect on your monthly ACH payment or fees—these items will remain the same.”

The letter informed consumers that they needed to do “[n]othing” in the wake of Morgan Drexen’s shut-down, but that they should “NOT speak to any Morgan Drexen representatives.”

To further confuse consumers about their rights, a website at the domain
name www.morgandrexenbankruptcy.com instructs consumers to, among other things, “NOT contact [] creditors directly,” and “not make payments directly to [] creditors” in the wake of Morgan Drexen’s shut-down.

The website notes that consumers will receive a letter or email from Morgan Drexen and the Bureau, but states that this letter “may not apply to you and in fact, may actually be putting your legal rights in jeopardy!” Instead of explaining that the letters and emails from Morgan Drexen and the Bureau were required by an Order of this Court, the website states that these letters and emails were the result of a “wrongful[] assum[ption] that without Morgan Drexen’s support, your attorney would be incapable of handling your debts. THIS WAS WRONG!”

The “FAQ” portion of the website notes that Morgan Drexen’s bankruptcy “will not have any effect on your monthly ACH payment or your attorney’s fees—these items will remain the same.”

As a result of the Attorneys’ blatant disregard of this Court’s Injunction and Clarification Orders—and the significant measures they have taken to confuse and mislead consumers about their rights in the wake of Morgan Drexen’s shut-down—the Bureau now respectfully requests that this Court enter an Order to Show Cause why the Attorneys should not be held in contempt.”

THE ATTORNEYS VIOLATED SPECIFIC AND DEFINITE ORDERS OF THE COURT.

The Attorneys have blatantly violated at least four specific and definite provisions of this Court’s Injunction and Clarification Orders.

First, for over two months, the Attorneys have collected fees from Affected Consumers in violation of Section I of the Injunction Order, which prohibits the collection of fees from Affected Consumers “as of the date of this Order” (June 18, 2015). As Walker testified, the Attorneys have collected hundreds of thousands of dollars in fees from Affected Consumers in the past two months alone, and there is no indication that the Attorneys intend to comply with this Court’s Injunction Order any time soon. Indeed, in letters to consumers, Vincent Howard states that there will be “no effect on your monthly ACH payment or fees—these items will remain the same.” This evidence demonstrates that the Attorney have ignored—and will continue to ignore—this Court’s Injunction Order and, absent severe sanctions from this Court, will continue to prey upon vulnerable consumers.

Second, the Attorneys have violated Section I(B) of the Injunction Order by, among other possible violations, “providing any debt relief product or service that charges consumers advance fees.” By definition, “Affected Consumers” are individuals who were charged advance fees for debt relief services. As noted, in the last two months, Attorneys have received hundreds of thousands of dollars in fees. Moreover, Howard’s hiring of a significant portion of Morgan Drexen’s former staff to work directly for Howard Law, PC makes it abundantly clear that the Attorneys intend to step into the shoes of Morgan Drexen indefinitely and “[a]dvertis[e], market[], promot[e], offer[] for sale, sell[], or provid[e] . . . debt relief product[s] or service[s] that charge[] consumers advance fees” to a whole new group of unsuspecting consumers moving forward.

Third, the Attorneys have engaged in obstructionist tactics to confuse and mislead Affected Consumers in order to ensure that they continue to pay unlawful fees instead of taking steps to protect their rights. The Attorneys had a perfect roadmap for how to effectively accomplish their goal: the Court’s Injunction Order specified in great detail the substance of the letters and emails that Morgan Drexen, in consultation with the Bureau, was required to send to consumers, and the parties filed a joint report attaching templates for the letters they anticipated sending.

Before the Morgan Drexen Trustee could generate and mail the letters, however, the Attorneys sent out letters of their own, advising consumers to effectively ignore the Court-ordered letters they were about to receive. To make matters worse, a website that parrots the layout of the Court-ordered website at www.morgandrexen.com—complete with a “Frequently Asked Questions” page, as specifically mandated in the Injunction Order—appeared at the domain name www.morgandrexenbankruptcy.com, which further served to confuse any consumer unfortunate enough to stumble upon it.

Incredibly, the parrot website informs consumers that the letters and emails they will receive from Morgan Drexen and the Bureau “may not apply to you and, in fact, may actually be putting your legal rights in jeopardy!”

The parrot website neglects to mention that these letters and emails were required by Order of this Court. Instead, it states that these communications were the result of a “wrongful[] assum[ption] that without Morgan Drexen’s support, your attorney would be incapable of handling your debts. THIS WAS WRONG!”

The Attorneys’ letters to consumers, coupled with the content at www.morgandrexenbankruptcy.com, serves no purpose other than to undermine the effectiveness of the consumer notices required by Section VII of the Injunction Order. The Attorneys’ efforts to confuse and mislead consumers in the wake of the Court’s Injunction Order is especially egregious given that, as the Court rightfully noted, “[d]ue to the harm already suffered by Affected Consumers, the dissemination of the [] notices and information to Affected Consumers and creditors is of the highest priority.”84 Instead of helping consumers already victimized by Morgan Drexen, the Attorneys lined their pockets at the consumers’ expense. In doing so, the Attorneys thwarted the Court’s highest priority and the Bureau’s entire objective for filing a lawsuit against Morgan Drexen and Defendant Ledda: to protect consumers from being charged unlawful upfront fees for debt relief services.

Fourth, the Attorneys violated the provisions of the Clarification Order prohibiting them from having “unfettered access” to consumer files.85 The Court restricted the Attorneys’ access to the consumer files because of its concern that unfettered access would lead to further victimization of Affected Consumers.

Instead, as the Morgan Drexen Trustee proposed, the Court granted the Attorneys the opportunity to copy the consumer files if they chose to do so. Without the Morgan Drexen Trustee knowing, the Attorneys managed to obtain “unfettered access” to the consumer files on their own. According to David Walker, Vincent Howard paid Defendant Ledda $25,000 to purchase a “backup and data storage” company owned by Ledda called LegalSoft, Inc. (LegalSoft”). Included in that purchase was “the backup data storage of all the attorney information,” which means that all the information that was stored in Morgan Drexen’s software system (MDIS) relating to the files of Affected Consumers was stored in LegalSoft’s system.

This testimony is corroborated by the Morgan Drexen Trustee’s recent filing in this Court, in which he explains that Howard obtained access to the information in the MDIS system through LegalSoft on June 21, 2015.

Despite Howard’s sworn statement to the Court on June 26, 2015—five days after his purchase of LegalSoft—that “irreparabl[e] harm[]” would result if the Court did not grant the Attorneys unfettered access to the MDIS system, in reality, the Attorneys already had unfettered access to the contents of that system through Howard’s acquisition of LegalSoft. The Attorneys’ purchase and use of LegalSoft to obtain unfettered access to the files of Affected Consumers, which presumably enabled the Attorneys to stand in the shoes of Morgan Drexen and continue business as usual, is a fourth violation of a specific and definite order of this Court.

In short, the evidence is beyond clear and convincing that the Attorneys have violated at least three specific provisions of the Injunction Order and at least one specific provision of the Clarification Order. If Walker is correct that Howard is planning to run “new advertisements” and is “marketing [debt relief services] and accepting new consumers” as debt relief clients under the same Morgan Drexen model that this Court shut down, the Attorneys will continue to violate the Injunction and Clarification Orders absent Court action. An Order to Show Cause—and severe sanctions—are warranted to ensure the Attorneys do not continue to stand in the shoes of Morgan Drexen and violate the rights of vulnerable consumers.”

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About the author

Steve Rhode

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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