ATLANTA (CN) – In a federal class action, clients of a law firm specializing in bankruptcy say Clark & Washington made them pay legal fees with postdated checks, without telling them the checks were dischargeable through their bankruptcy cases, and cashed the checks after the cases were filed or discharged. And, the class claims, Clark & Washington did this after a federal bankruptcy judge told it not to.
Lead plaintiff Richard Edwin Lundquist III says he “was not informed that the debt represented by the post-dated checks was subject to discharge through his case, and subsequently allowed defendants to cash said checks.”
As named plaintiff, Lundquist sued Clark & Washington and its managing partner Emory Lee Clark.
Lundquist says he represents hundreds of clients from Georgia, Florida and Tennessee who hired Clark & Washington to file Chapter 7 bankruptcy cases on their behalf, and agreed to pay the legal fees with postdated checks.
Established in 1983, Clark & Washington is one of the largest bankruptcy filers in the Southeast, with 12 offices in the metro Atlanta area and more offices in Florida and Tennessee.
Lundquist says the firm advertises on its website, promising bankruptcy representation for a down payment of $299 and additional installment payments.
“This installment plan includes, and has included on many occasions, the practice of having clients tender personal checks post-dated to be cashed during various intervals following the planned filing of their bankruptcy cases – and sometimes after the bankruptcy cases have been completed,” the complaint states.
“Defendants, despite boasting on their website that they are ‘up front about costs and fees from the very beginning,’ do not disclose to their potential clients that the post-dated checks defendants accept and intend to cash during and/or after the planned bankruptcy cases represent a debt subject to discharge through those same cases. Thus, defendants have established a practice of publicly claiming to absolve clients of all debt incurred prior to the filing of a bankruptcy case (hereafter ‘pre-petition debt’), while privately working instead to create pre-petition debt covering defendants’ fees and concealing said debt from their clients to prevent the clients from exercising the right not to pay the discharged debt.
“Plaintiff, a former client of defendants who was induced to tender post-dated checks to defendants for legal representation, was not informed that the debt represented by the post-dated checks was subject to discharge through his case, and subsequently allowed defendants to cash said checks.”
Lundquist says the firm sent him a letter in late 2010, offering to handle his bankruptcy case and save his home from foreclosure. He says that in addition to the $364 down payment, which covered the filing fee, credit counseling and credit report costs, he was asked to pay $800 for representation, via five postdated personal checks.
Clark & Washington filed Lundquist’s Chapter 7 case in January, according to the complaint.
“While plaintiff’s case was still active, defendants cashed one or more of the post-dated checks issued by plaintiff prior to the filing of the underlying case,” the complaint states. “Defendants neither requested nor received relief from the automatic stay imposed by the case in order to collect the pre-petition debt.”
Lundquist says the law firm violated bankruptcy rules by soliciting clients via direct mail, offering to represent them for a minimum down payment, with the rest of the fees to be paid by postdated checks, and sending clients collection letters to collect a debt incurred before the filing of their cases.
He says, “The practice of collecting pre-petition attorney’s fees in post-dated, post-petition checks was addressed and condemned in several recent decisions,” including rulings by federal bankruptcy courts in Tennessee and Florida.
In a July 12 order, U.S. Bankruptcy Judge Michael Williamson enjoined Clark & Washington from accepting postdated checks after the petition date as payment of its attorney’s fees for bankruptcy cases filed in Tampa.
Judge Williamson ruled that the firm’s practice of depositing postdated checks after the bankruptcy cases have been filed or after a discharge has been entered violated the Bankruptcy Code and created a conflict of interest between the firm and its clients.
Lundquist’s complaint states: “Following these decisions, and without regard for the precedent set therein, defendants willfully continued to solicit and accept post-dated personal checks pre-petition for payment of flat-fee arrangements with the intention of cashing said checks following the filing and discharge of many Chapter 7 cases.”
Lundquist adds: “Unaware that the unpaid portion of their fees (represented by the post-dated personal checks) were dischargeable debts under Chapter 7, plaintiff and the class allowed defendants to unlawfully cash and collect these dischargeable fees following the filing, completion and discharge of their respective cases.” (Parentheses in complaint).
Lundquist seeks class certification, disgorgement of legal fees, and compensatory and punitive damages for federal and state RICO violations, Bankruptcy Code violations, fraud, unjust enrichment and concealment.
He is represented by Terry Haygood of Rome, Ga.