Last week the Consumer Financial Protection Bureau (CFPB) deposed Walter Ledda, the former man in charge of the debt settlement company Morgan Drexen. Ledda disclosed some information that made the ears of the perk up a bit and they filed a new court document.
But to give you a jumping in point on this article, Morgan Drexen went belly up and Howard Law alleges the debt settlement clients serviced by Morgan Drexen were really clients of the law firm and not subject to the court orders closing down the debt settlement activities.
On August 31, 2015 the CFPB responded to the assertions made by Howard Law and not surprisingly so had a different take on the matter.
The CFPB background in the filing said, “In an effort to protect Affected Consumers from suffering further harm as a result of continued violations of law stemming from Morgan Drexen’s unlawful debt relief scheme, this Court made it abundantly clear in its July 6, 2015 Clarification Order (“Clarification Order”) that Vincent Howard, Lawrence Williamson, Howard Law, PC, the Williamson Law Firm, LLC, and Williamson & Howard, LLP (collectively “the Attorneys”) cannot stand in the shoes of Morgan Drexen and continue to prey upon Affected Consumers. The Court explicitly warned that “[a]ny violation of the terms of the Court’s [Injunction Order] by the Attorneys could subject them to contempt proceedings before this Court.” The Attorneys sought emergency relief from the Injunction Order and Clarification Order in the Ninth Circuit, but the Ninth Circuit denied this request. The Attorneys were therefore required to comply with the Court’s Orders pending the resolution of their appeal. The undisputed evidence, however, demonstrates that they failed to do so.
Instead, the Attorneys blatantly violated at least four specific and definite provisions of the Orders and, while doing so, eviscerated the vital consumer protections this Court built into its Orders. There is no dispute that the Attorneys violated: (1) Section I of the Injunction Order (prohibiting the collection of fees from Morgan Drexen’s customers); (2) Section I(C) of the Injunction Order (prohibiting the provision of debt relief products or services that charge consumers advance fees); (3) Section VII of the Injunction Order (which sets forth the Court’s “highest priority” that consumers receive accurate information about their rights); and (4) Section III(A)(2) of the Clarification Order (prohibiting the Attorneys from having unfettered access to the files of Morgan Drexen’s customers). Caught red-handed violating specific and definite Orders of the Court, the Attorneys attempt to complicate the straightforward question of whether their actions warrant contempt sanctions by attacking the propriety of the Court’s Injunction and Clarification Orders, but their arguments fail. It is well-established that non-parties are subject to contempt sanctions where (as here): (a) the nonparty violates specific and definite courts orders addressed to the non-party without obtaining relief through appropriate legal channels; and (b) the non-party has actual notice of an injunction order but acts in concert or participation with a defendant to violate the order. The Attorneys’ arguments to the contrary are meritless. Given that the Attorneys were required to take “all reasonable steps within [their] power to comply” with the Court’s Orders,6 but instead blatantly violated the Orders for over two months while acting in concert or participation with Morgan Drexen, severe contempt sanctions are warranted.” – Source
A few days after filing that document the CFPB had an opportunity to depose Walter Ledda and then provided a additional filing which provided this information.
“First, on September 2, 2015 (after the Bureau filed its reply brief on August 31, 2015), the Bureau took sworn testimony from the individual defendant, Walter Ledda, the former CEO of Morgan Drexen, Inc. (“Morgan Drexen”). Ledda testified to the following facts, which provide further evidence that Vincent Howard, Lawrence Williamson, Howard Law, P.C., Williamson & Howard, LLP, and The Williamson Law Firm, LLC (collectively, “the Attorneys”) have been in active concert and participation with Morgan Drexen:
- Ledda testified that David Walker, the Chief Financial Officer for Morgan Drexen, also served as the Managing Director of Williamson & Howard, LLP
- Ledda testified that Nancy Jin, a Williamson & Howard, LLP employee, supervised Morgan Drexen employees.
- Ledda testified that Desmond Adams, as head of the Creditor Relations department, managed a team of 20 Morgan Drexen settlement officers whose job was to negotiate with creditors. Ledda further testified that Mr. Adams and the entire Creditor Relations department switched over to become Williamson & Howard, LLP employees in 2014.
- In addition to the Creditor Relations Department, Ledda testified that Williamson & Howard, LLP stepped in to take over other Morgan Drexen departments:
- Williamson & Howard, LLP took over intake services from Morgan Drexen in the last few months before Morgan Drexen filed for bankruptcy;
- Williamson & Howard, LLP took over the Preferred Creditor department from Morgan Drexen when it took over the Creditor Relations department; and
- Williamson & Howard, LLP took over the Quality Control department from Morgan Drexen.
- Ledda testified that the Morgan Drexen employees who became Williamson & Howard, LLP employees performed the same work as when they had been Morgan Drexen employees, and that some even stayed in the same office they had occupied when they were Morgan Drexen employees.
- Ledda testified that there were people working in the office and he did not know whether they were Morgan Drexen employees or Williamson & Howard, LLP employees.
Ledda also testified about his last conversation with Vincent Howard, in which Howard expressly stated that Williamson & Howard, LLP would be stepping in to replace Morgan Drexen. Ledda stated:
“My last conversation with Howard was in the parking lot when I was resigning, and he told me that, you know, that he was going to continue with his – with his program, without Morgan Drexen. And my understanding was that [was] what Williamson & Howard was going to do. So, where Morgan Drexen could no longer operate, the law firm will continue without Morgan Drexen . . . . The Williamson & Howard law firm was my understanding of how, or that was my understanding of [how] they were going to continue according to Mr. Howard.”
Along with undisputed facts set forth in the Bureau’s reply brief, Ledda’s testimony confirms that the Attorneys are the exact type of continuing business enterprise that must comply with the Court’s injunction.
Second, on September 2, 2015, the Trustee for the Bankruptcy Estate of Morgan Drexen, Inc. (the “Trustee”) provided the Bureau with a copy of a letter dated June 21, 2015 that Sean O’Keefe, counsel for the Attorneys, had sent to the Trustee. In that letter, Mr. O’Keefe responds to the Trustee’s questions about how Howard Law, P.C., obtained back-up copies of consumer files that were formerly stored on Morgan Drexen’s computers. Mr. O’Keefe states: “These files were obtained on or about June 21, 2015, and they were obtained from Legal Soft, Inc., a third party service that backs-up these files.” Thus, at this point, there is no factual dispute that Howard Law obtained the files of Affected Consumers through LegalSoft instead of from the Trustee, as the Court had directed.” – Source
Walter Ledda Opens Up
Walter Ledda, who is reported to currently be on a temporary business assignment in Poland, reveled some additional information in his deposition.
- “David Walker was the CFO of Morgan Drexen, and the managing director of Williamson & Howard.”
- “Q. You mentioned Mr. Adams was also a Williamson & Howard employee?
Q. Was Mr. Adams at one point a Morgan Drexen employee?
Q. And do you recall approximately when Mr. Adams became a Williamson & Howard employee?
A. A year ago.
Q. And how long had Mr. Adams worked for Morgan Drexen prior to becoming a Williamson & Howard employee?
A. Since 2007.
Q. So, Mr. Adams was a Morgan Drexen employee for seven years, approximately, and then you think about a year ago in 2014 he became a Williamson & Howard employee. Is that correct?
Q. And what was Mr. Howard’s position when he was still at Morgan Drexen?
Q. I’m sorry, what was Mr. Adams’ position when he was still at Morgan Drexen?
A. He managed the settlement officers, and that entire group became an activity that Morgan Drexen could no longer provide, law firms, so Williamson & Howard took over that activity and so Mr. Adams and that entire group became Williamson & Howard employees.
Q. Was that the creditor relations department?
Q. And you mentioned Mr. Adams and the entire creditor relations department, how many other employees or how many other individuals worked in the credit relations department, approximately?
Q. And you stated, if I have this correctly, that the creditor relations group performed work that Morgan Drexen could no longer provide. So, Williamson & Howard stepped in to continue providing those services to law firms. Is that accurate?
Q. Why could Morgan Drexen no longer provide that service?
A. After the administrative decision in Wisconsin, after reviewing the order, from the Administrative Law Judge, it became clear that in order to safely provide these services, that Morgan Drexen could not provide that particular service, negotiating directly with creditors.” – Source
- “Q. So, the quality control department moved over to Williamson & Howard at some point?
A. I — yes. I believe so.
Q. About how many Morgan Drexen employees worked in the quality control department?
A. Between nine and 12.
Q. Okay. For the employees who were working for Morgan Drexen and then became employees of Williamson & Howard, did they have to move office space when they became Williamson & Howard employees?
Q. Were there occasions when they stayed in the same office they had been occupying as Morgan Drexen employees and continued their work as Williamson & Howard employees?
Q. To your knowledge, for the employees who moved over from Morgan Drexen to Williamson Howard, was the day-to-day work they were performing the same when they moved over to Williamson & Howard as it had been when they were working for Morgan Drexen?
- “Q. So, just to — so I understand, you’re testifying today that there were people working in the office and you didn’t know whether they were Morgan Drexen employees or Williamson & Howard employees? Is that fair?
A. That would be fair.”
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