It will come as no surprise to avid readers of TCPAWorld.com that some folks may take offense to the tactics of Lash & Wilcox.

The Florida based firm has–apparently–been working for years with Chapter 7 bankrutpcy trustees to drum up TCPA cases. The plan is simple– the Trustee asks leading questions at the initial meeting of creditors and the Debtors testify–under oath–that they asked for debt collection calls to stop but the calls kept coming. Then the transcript is lobbed over to Lash & Wilcox and they file suit against the Debtor for, inter alia, TCPA violations. Most of these cases resolve for nuisance value. The estate gets a piece. Lash & Wilcox get a piece. On to the next.

Well, one Defendant who was sued by a debtor who did not have a valid claim was not so keen on these practices and decided to do something about. CadleRock Joint Venture, LP was apparently sued back in 2013 in a TCPA case that had no merit. CadleRock moved for sanctions under BK Rule 9011– similar to FRCP Rule 11– and the claim was dismissed within the safeharbor period. End of story right?

Wrong.

CadleRock kept pursuing Lash & Wilcox and the Trustee for filing the suit. First it apparently filed a RICO action. When that failed it went after both L&W and the trustee for sanctions. That saga ended on Monday of this week with the ruling in In re Gonzalez, Case No. 8:12-bk-19213-RCT, 2019 Bankr. LEXIS 675 (U.S. Bk. M.D. Fl. March 05, 2019). My goodness, what an interesting read.

The Bankruptcy court overseeing the sanctions request took the matter extremely seriously and–over the course of many months–ordered discovery regarding filing statistics and the outcome of actions pursued by L&W arising out of individual consumer bankruptcies. The results were eye-popping.

Lash & Wilcox filed somewhere between 2,865 and 3,324 TCPA claims arising out of consumer bankruptcies in the Middle District of Florida. The vast majority of the recoveries in these cases were under $5k, with numerous dismissals. There were, apparently, no trials.

CadleRock argued that these statistics– large filing numbers, small settlements, no trials–was proof positive that Lash & Wilcox were “birds of prey” knowingly filing meritless lawsuits manufactured by a Trustee who was obviously in cahoots. it argued that Lash & Wilcox should be painfully sanctioned and the Trustee ought to be stripped of her post and tarred and feathered. (Ok, I made that last part up but you get the idea.)

The Court mostly disagreed. It rejected sanctions against Lash & Wilcox or the trustee but it did order that further “due diligence” will be required for consumer protection lawyers filing adversary proceedings in BK court in the MD Florida. (Wow!)

Overall the Court was not bothered with the large volume of filings, the relatively small recoveries or the fact that the lawyers were recovering more than the estate in most claims. All of this is just a byproduct of consumer protection laws, apparently.

Consumer Protection Cases are different from other potential claims only because the statutory damages are small, and they are often overlooked. There are no specific questions on the official bankruptcy schedules and forms to identify a consumer protection claim. There is a general question that asks the debtor to identify any potential claims, but many debtors, especially pro se debtors, cannot be expected to know their rights under consumer protection laws or many other laws for that matter. The trustee, therefore, should not be faulted for asking probing questions at the meeting of creditors.

So the Court had little problem blessing the conduct of the Trustee– she was merely doing her job and uncovering potentially valuable assets for the estate.

But what of Lash & Wilcox? Is there conduct of filing thousands of suits based mostly–if not solely–upon Debtor testimony at a single hearing in response to leading questions acceptable?

The Court found that it was. Mostly. 

Initially, the court finds nothing improper with LW&G’s  practice of educating the trustees to look for potential consumer protection claims by developing and  distributing a questionnaire designed to evaluate such claims. This is no different than trustees learning the right questions to ask to discover any undisclosed or previously overlooked asset. The questions should be asked because it is an opportunity-not a guarantee-to enhance the bankruptcy estate.

But the Court was not entirely sold on the business model. It found that Lash & Wilcox and other lawyers practicing in BK court must do more than merely take a Debtor’s word for what happened: Although the court does not find that LW&G’s reliance on the sworn testimony of the debtor at the meeting of creditors rises to the level of bad faith warranting sanctions, going forward, the court does find it appropriate to require that LW&G, and any other law firm taking on Consumer Protection Cases, conduct additional due diligence before an application to employ is filed.”

The Court goes on to issue a very specific requirement:

Therefore, starting April 15, 2019, this court 140 will require prospective special counsel for Consumer Protection Cases to declare that he or she has listened to or read the debtor’s testimony at the meeting of creditors and has (i) spoken directly with the debtor or (ii) the trustee has sent a request to the debt collector for call records that went unanswered for 14 days or (iii) has engaged in some other form of pre-suit  investigation. This declaration should be included in the affidavit of disinterestedness filed with the attorney’s application for employment, and failure to include the declaration will result in denial of the application.

Wow. Just. Wow.

So there you have it TCPAworld. No sanctions–relying on Debtor testimony is a good faith basis to file suit– but the business model has to change moving forward. The Court cannot abide a huge volume of cases to be filed with so little investigation.