REX VENTURE GROUP, LLC d/b/a ZEEKREWARDS.COM, and PAUL BURKS,
Defendants.
Civil Action No. 3:12 cv 519
RECEIVERS OBJECTION TO COUNSELS NOTICE OF ATTORNEYS CHARGING LIEN AND REQUEST FOR ORDER IN AID OF DISTRIBUTION
Kenneth D. Bell, Court-appointed Receiver (Receiver) of Rex Venture Group, LLC d/b/a ZeekRewards.com (RVG or Receivership Defendant), by and through counsel, respectfully submits this Objection to Marc R. Michauds Notice of Attorneys Charging Liens (the Notice). 1 (Doc. No. 258). The Receiver respectfully requests that the Court strike the Notice and the liens asserted therein from the docket or, in the alternative, decline to rule on the validity of these liens and confirm that the Receiver may distribute the proceeds free and clear of any third-party claim. The Notice appears to be an attempt by Mr. Michaud to circumvent the Courts prior orders regarding this issue and insert himself as the recipient of money that belongs to victims. In directly rejecting Mr. Michauds prior attempts to obtain this money before his clients, the
1 Mr. Michaud represents the Belsome Plaintiffs in Belsome v. Rex Venture Group LLC, No. 3:12-cv-800 (W.D.N.C. 2012). That action was transferred from Eastern District of Louisiana and then stayed by order of this Court. Case 3:12-cv-00519-GCM Document 260 Filed 10/10/14 Page 1 of 8 2
Court determined that the Receiver should distribute this money directly to victims without regard to any interest asserted by a third-party. Order Approving Claims Process (Doc No. 199 at 9); Order Granting Motion for Reconsideration and/or Clarification (Doc No. 221 at 12). As set forth more fully below, this case is simply not the appropriate forum for the resolution of third-party claims to distribution proceeds. Additionally, the Receiver respectfully requests that the Court enter an order directing Mr. Michaud to immediately and without any further delay provide the Receiver with the addresses of those victims whom he purports to represent. The Court has already addressed this issue when, in addressing Mr. Michauds most recent motion regarding the distributions, the Court specifically directed claimants to amend the address on the Claim Portal to provide the claimants actual address. (Doc No. 221 at 1). Three months have passed since the Court entered this Order and only eight claims have been amended to provide the claimants actual address. Hundreds of other claims continue to list Patrick Miller LLC (Mr. Michauds law office) as their mailing address. Although Mr. Michaud has repeatedly maintained that his representation of these victims includes helping them navigate the claims portal, he apparently does not consider complying with this Order and changing these addresses within the scope of such representation. Unfortunately for these victims, because these addresses were not changed, they did not receive their portion of the first distribution. 2
2 Mr. Michauds refusal to comply with the Courts Order and provide these claimants addresses through the Claims Portal may constitute a violation of both the Louisiana and North Carolina Rules of Professional Conduct. It appears that Mr. Michaud refused to provide these addresses in the hopes of securing a lien on the proceeds before it was distributed to claimants. However, both the Louisiana and North Carolina Rules of Professional Conduct prohibit attorneys from placing their own financial interests before those of their clients. See N.C. R. Profl Conduct R. 1.7 Comment 1 (Loyalty and independent judgment are essential elements in the lawyers relationship to a client.); R. 1.7 Comment 10 (The lawyers own interests should not be Case 3:12-cv-00519-GCM Document 260 Filed 10/10/14 Page 2 of 8 3
ANALYSIS
I. Receivers Objections to the Notice
Mr. Michaud claims a 25% interest in the distribution proceeds owed to his clients, claiming a charging lien under North Carolina state law and a privilege under Louisiana state law. See La. Rev. Stat. Ann. 9:5001; La. Rev. Stat. Ann. 37:218. It appears that Mr. Michaud may be attempting to bind the Receiver and require that 25% of these proceeds be sent to him and not the victims. As stated above, the Court has already considered and rejected Mr. Michauds prior attempts to insert himself in the distribution process, ordering the Receiver to distribute the money solely to the holders of allowed claims without regard to any third partys interest. (Doc. No. 199 at 9; Doc No. 221 at 1-2). The Receiver respectfully requests that the Court exercise its equitable authority over this matter and strike the Notice from the docket or, in the alternative, decline to rule on the validity of the asserted liens and find that the Receiver may distribute any proceeds free of any third party claim. The Court has broad powers and wide discretion to determine relief in an equity receivership action such as this. CFTC v. Barki, LLC, 2009 U.S. Dist. LEXIS 112998, *34 (W.D.N.C. Nov. 12, 2009) (Mullen, J .); SEC v. Wealth Mgmt. LLC, 628 F.3d 323, 33233 (7th Cir. 2010). Further, a charging lien under North Carolina law is an equitable lien subject to the Courts equitable discretion. See, e.g., Wilson v. Wilson, 644 S.E.2d 379, 381 (N.C. Ct. App.
permitted to have an adverse effect on representation of a client.); La. Rules. Profl Conduct R. 1.7 Comments 1, 10 (same). In addition, both the North Carolina and Louisiana Rules of Professional Conduct prevent attorneys from collecting fees which are clearly excessive, N.C. Rules of Profl Conduct R. 1.5(a), or unreasonable. La. Rules of Profl Conduct R. 1.5 (a). Mr. Michauds attempt to collect $130,000 in legal fees for navigating the Claims Portal, something thousands of other victims have successfully done without the aid of an attorney, may constitute a violation of these Rules of Professional Conduct. In sum, the Receiver believes Mr. Michauds conduct in this matter may warrant alerting the Louisiana Attorney Disciplinary Board. Case 3:12-cv-00519-GCM Document 260 Filed 10/10/14 Page 3 of 8 4
2007). With thousands of allowed claims in this matter, it is impractical to allow third parties to interfere with the distribution process. The Receiver is simply not equipped to assess the validity of every interest asserted by a third party in the distribution proceeds of every victim. To allow otherwise would inundate this matter with third-party claims. Further, the Receiver is ill- equipped to address the validity of such claims given that each claim, in effect, becomes another case in and of itself. Here, Mr. Michaud contends that he is entitled to 25% of these proceeds by virtue of a contingent fee agreement with these victims apparently entered into with regard to the stayed class action suit Belsome et al. v. Rex Venture Group LLC et al., No. 3:12-cv-00800 (W.D.N.C. 2012). 3 Whether and to what extent this agreement entitles Mr. Michaud to a percentage of these proceeds for his aid in the claims process is not for the Receiver to say at this time. Louisiana law expressly governs these agreements, which include a mandatory agreement to submit any disputes to binding arbitration. And whether a 25% contingent fee is patently unreasonable under Louisiana Rules of Professional Conduct Rule 1.5 is uncertain. In any event, neither the Receiver nor this Court has or should now undertake the obligation to enforce ambiguous third- party agreements to which there may or may not be a dispute governed by Louisiana law, particularly where the agreements enforceability and unconscionability plainly may be at issue. In addition, the charging lien asserted in this case cannot comport with North Carolina law because this matter involves a non-legal administrative process as opposed to a typical cause of action. North Carolina courts are clear that a charging lien can only attach to a judgment. Wilson v. Wilson, 644 S.E.2d 379, 383 (N.C. Ct. App. 2007) (citation omitted). And while a
3 A copy of the fee agreement is attached as Exhibit 1 to Receivers Reply in Opposition to Belsome, et al.s Objection to the Receivers Motion for Order Approving Distribution Procedures and Certain Other Related Relief (Doc No. 183). Case 3:12-cv-00519-GCM Document 260 Filed 10/10/14 Page 4 of 8 5
charging lien can attach to a settlement as well as a judgment, see Wilson, 644 S.E.2d at 383 (quoting Mack v. Moore, 418 S.E.2d 685, 688 (1992)), no judgment or settlement has been obtained because this matter involves a non-legal administrative claim determination in which Mr. Michauds clients are involved solely as non-party victims. They have asserted no cause of action in this matter from which a judgment or settlement can be obtained. Further, North Carolina courts have consistently displayed a strong antipathy towards charging liens. See Wilson v. Wilson, 644 S.E.2d 379 (N.C. C.t App. 2007) (Affirming Rule 11 sanctions where attorney wrongfully asserted charging lien against former client); Howell v. Howell, 365 S.E.2d 181 (N.C. Ct. App. 1988) (Affirming lower courts striking of charging lien by attorney against former client); Carmen K. Hoyme, The Problem With Charging Liens, Ethics Opinion Articles NC State Bar J ournal, available at http://www.ncbar.gov/ ethics/eth_articles_12,4.asp (In North Carolina, the availability of attorney charging liens is strictly limited.). Here, a charging lien is inappropriate given that Mr. Michaud continues to represent these victims in a matter which has not yet been resolved; there is no evidence of either an avoidance of payment or a dispute as to the amount of fees; and there is no indication that these victims have received notice that Mr. Michaud seeks to claim 25% of this first distribution. II. Receivers Request for Order in Aid of Distribution In addition to the above requested relief, the Receiver respectfully asks this Court to enter an order directing Mr. Michaud to immediately provide the Receiver with the addresses of the victims he represents. This is an issue the Court has already addressed when, in response to Mr. Michauds previous motion regarding the distribution process (Doc No. 201), the Court specifically ordered that all claims in the Claims Portal be amended to provide the claimants actual address. Order Granting Motion for Clarification and/or Reconsideration (Doc No. 201 Case 3:12-cv-00519-GCM Document 260 Filed 10/10/14 Page 5 of 8 6
at 1-2). The Court further directed that [t]he Receiver will not issue a distribution check to a law firms address. Id. In spite of this clear directive, hundreds of claims continue to list Patrick Miller LLCs address (Mr. Michauds law firm) as their address. Unfortunately for these individuals, until Mr. Michaud complies with the Courts Order and provides the Receiver with their actual addresses, they cannot receive their portion of the distribution proceeds. It is unclear (other than perhaps his personal pecuniary interests) why Mr. Michaud has not complied with the Courts Order and made the appropriate amendments in the Claims Portal. In any event, by not providing the Receiver with these addresses, Mr. Michaud has prevented these individuals from receiving their distribution. The Receiver respectfully requests that the Court enter an order directing Mr. Michaud to immediately provide these addresses so that the claims process can continue for these victims. CONCLUSION The liens asserted in the Notice appear to be an attempt to circumvent the Courts prior orders regarding the distribution process and somehow assert a direct claim to these proceeds. The Court has already ordered twice that the Receiver should distribute proceeds solely to the holders of allowed claims without regard to any Claim or interest asserted by any third party in such distributions. (Doc No. 199 at 9; Doc No. 221 at 1). This case is not the appropriate forum to determine the validity of a contingent fee agreement between certain victims and a third-party attorney under Louisiana law. This is a contractual issue that is more appropriately addressed elsewhere. For these and the other above stated reasons, the Receiver requests that the Court strike the Notice and the liens asserted therein from the docket or, in the alternative, find that that the Receiver can distribute proceeds directly to victims free of any third-party interest. Case 3:12-cv-00519-GCM Document 260 Filed 10/10/14 Page 6 of 8 7
In addition, the Receiver respectfully requests that the Court order Mr. Michaud to immediately provide the relevant addresses to the Receiver or amend each claim in the Claims Portal which continues to list the address of Patrick Miller LLC to the actual address of the claimant. The Receiver believes the Court has already addressed this issue before (Doc. No. 221 at 1-2), yet hundreds of claims continue to list the address of Mr. Michauds law firm as their address. Until Mr. Michaud provides these claimants actual addresses, they will not be able to receive their portion of the proceeds.
Respectfully submitted this 10th day of October, 2014.
By: /s/ Irving M. Brenner Kenneth D. Bell, Receiver, Esq. N.C. State Bar No. 10800 Irving M. Brenner, Esq. N.C. State Bar No. 15483 McGuireWoods LLP 201 North Tryon Street, Suite 3000 Charlotte, North Carolina 28202 Telephone: 704-373-4620 Facsimile: 704-373-8836 kbell@mcguirewoods.com ibrenner@mcguirewoods.com
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CERTIFICATE OF SERVICE
I hereby certify that I electronically filed the foregoing using the CM/ECF system, which will send electronic copies to counsel of record registered to receive electronic service.
This the 10th day of October, 2014.
/s/ Irving M. Brenner
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