PASADENA, Calif. (CN) — The Ninth Circuit Wednesday reversed and remanded a contempt ruling from Los Angeles against law firms the Consumer Protection Financial Bureau accused of perpetuating Morgan Drexen's illegal debt collections.
In 2010, Costa Mesa-based Morgan Drexen, debt consolidators, began facing state and federal investigations of charging illegal upfront fees and failing to provide the bankruptcy services it sold. It was enjoined from this in June 2015 and went bankrupt.
Some attorneys, however, allegedly tried to keep collecting money from consumers. The U.S. District Court found them in contempt of the injunction against Morgan Drexen. They were Vincent Howard, Lawrence Williamson, Howard Law P.C., The Williamson Law Firm LLC, and Williamson & Howard LLP.
But on Wednesday a Ninth Circuit panel found that the district court failed to demonstrate that the attorneys were bound to the injunction as nonparties.
The district court's July 2015 clarification order suggests the attorneys actively participated with Morgan Drexen in the scheme. The contempt order repeats this finding, but adds that the attorneys "became a disguised continuance of Morgan Drexen."
"The problem with relying on a successor theory here, however, is that the Permanent Injunction did not expressly bind 'successors,'" the panel wrote. "Moreover, the record in its current iteration does not support a finding that the [a]ttorneys acquired Morgan Drexen's assets after the Permanent Injunction was entered [...] and even if they did so, the Permanent Injunction failed to provide notice that 'successors' would be bound."
If the district court is to hold the attorneys in contempt, then it will have to hold an evidentiary hearing and determine that the attorneys were bound to the injunction and that they violated it.
The unsigned, unpublished reversal and remand came from Ninth Circuit Judges Stephen Reinhardt, Kim McLane Wardlaw and John Owens.
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