A U.S. Bankruptcy Court has denied a creditor’s motion for sanctions against a law firm in the Middle District of Florida which the creditor alleged engaged in serial filings.
Lash Wilcox & Grace PL (“LW&G”), formerly known as Lash & Wilcox PL, is a law firm with a niche practice specializing in the prosecution of consumer protection cases on behalf of chapter 7 trustees. CadleRock Joint Venture, LP was a creditor of Oiledkin Gonzalez, who filed for Chapter 7 bankruptcy. At his first meeting of creditors in 2013, Gonzalez testified that CadleRock called his cell phone several times demanding repayment after he had previously requested that calls cease.
LW&G subsequently filed a lawsuit against CadleRock on Gonzalez’s behalf alleging multiple violations of the Florida Consumer Collection Practices Act and the Telephone Consumer Protection Act. After reviewing the complaint, CadleRock sent LW&G a letter stating that the allegations contained therein lacked merit. In order to drive this point home, CadleRock enclosed a proposed motion for sanctions with its letter. Shortly thereafter, LW&G dismissed the complaint with prejudice and the matter was closed.
However, the matter was far from over. CadleRock filed a motion for sanctions based on the Court’s inherent authority and 28 U.S.C. § 1927. During discovery, the parties produced statistics regarding the number of consumer protection cases filed by LW&G during the period January 1, 2011 through December 31, 2014. Based on these statistics, it was determined that LW&G filed between 2,865 and 3,324 TCPA complaints arising out of bankruptcy proceedings in the Middle District of Florida during that time period. Although the court found that there were exceptions, the net recovery to the estate was typically between $1,300 and $2,000 per case after attorneys’ fees were paid to LW&G. None of these cases went to trial.
CadleRock argued that this sort of serial-filing by LW&G made the law firm “birds of prey” and constituted conduct warranting sanctions. The Court did not agree with this argument, finding that LW&G’s practice of educating trustees to look for potential consumer claims is no different than teaching them the right questions to ask to discover any other previously overlooked asset. The questions asked by trustees in these cases offer an opportunity, but not a guarantee, “to enhance the bankruptcy estate,” the Court found. Therefore, it denied CadleRock’s motion for sanctions.
The Court did find that some arguments advanced by CadleRock had merit. It ruled that it would be necessary for LW&G to do more than simply rely on debtor testimony going forward. Specifically, the Court ordered that additional due diligence be conducted before an application to employ is filed. Namely, the Court ruled that starting on April 15, 2019, prospective special counsel for consumer protection cases must declare that he or she has listened to or read the debtor’s testimony at the meeting of creditors and that (i) counsel has spoken directly with the debtor; (ii) the trustee has sent a request to the debt collector for call records that went unanswered for 14 days; or (iii) counsel has engaged in some other form of pre-suit investigation.