A Louisiana law firm that signed up hundreds of victims in the aftermath of the $600 million ZeekRewards Ponzi scheme has now filed notice in a North Carolina federal court that it intends to assert charging liens against over $130,000 in interim distributions mailed out today by the court-appointed receiver. Marc Michaud, a New Orleans lawyer in the firm of Patrick Miller LLC (the "Law Firm"), filed a Notice of Attorney's Charging Liens asserting "attorney’s charging liens and other privileges for legal services performed and costs incurred by Attorney in connection with the representation of the 404 Class 3 Claimants listed on Exhibit 'A'." According to the Notice, the Law Firm intends to assert charging liens in the amount of $134,042.78 - constituting 25% of the interim distribution made to those claimants pursuant to contingency fee contracts entered into between victims and the lawyers.
Background
The filing is the latest in a contentious battle between the Law Firm and the court-appointed receiver, Kenneth D. Bell over entitlement to claim distributions. In December 2013, Bell sought court approval for distribution procedures, which included, among other things, a provision that payments would be made directly to victims. The Law Firm filed a sharply-worded objection, claiming that the payments should be sent directly to their firm and characterizing the Receiver's decision as a refusal to consider their clients' claims and a violation of the victims' constitutional due process rights. In his response, the Receiver dismissed the Law Firm's claims, noting that the fee agreement had been procured as part of a class action that had been filed in violation of the stay order, and taking issue with the attorneys' right to such a "large" fee simply for filling out an online claims form. The Receiver also noted that
whether or not the fee agreement would permit Movants’ counsel to claim a large contingent fee (as much as 25%) for simply providing administrative assistance in filing a claim through the Receiver’s claim portal is uncertain.
On April 1, 2014, the Court approved the Receiver's Motion in all aspects. Several days later, the Law Firm filed a Motion for Clarification and/or Reconsideration, which, in the Receiver's words, "again challeng[es] the Court’s decision by seeking to change the approved distribution process to require the Receiver to aid the Movants’ attorneys in collecting their attorneys’ fees from the Movants." Characterizing the reason for the motion as the Law Firm's inability "to let go of their pecuniary interests," the Receiver explained that he sought to make payments directly to victims to prevent duplicative payments, to ensure aggregate net winners do not receive distributions by using multiple addresses, and even ensuring that the Receiver does not unwittingly violate the Department of Treasury’s Office of Foreign Assets Control’s (OFAC) regulations. While observing that his plan "may not assist Movants’ attorneys’ efforts to collect their fees," he argued that no clarification of the Order was necessary.
Contingency Fees for Assisting With Victim Proof of Claim?
An attorney's lien is used to create a security interest in favor of an attorney with a contract entitling him to a portion of the proceeds. With the filing of the Notice, it remains unknown how the Law Firm intends to collect their claimed entitlement to each affected victim's distribution, or if there has been resistance from victims for complying with the demands for payment. The exhibit attached to the Notice lists over 400 claimants holding over $1.34 million in total claims who supposedly signed a contingency fee contract with the Law Firm.
Here, the Law Firm essentially seeks over $100,000 from hundreds of victims of one of the largest Ponzi schemes in history for "assisting" the victims in filing Proof of Claims with the Receiver during the claims process. The claims process in Zeek Rewards was entirely electronic and was done through an internet portal established by the Receiver. As explained in an earlier Ponzitracker post,
After filling out claimant information and registering various contact information, a claimant would identify the type of claim they have from seven listed categories. For affiliate claims, which are believed to be the majority of the claims, the claimant would be required to provide a variety of specific details related to various purchases made, including subscription fees, sample bids, retail bids, auction items purchased, and training materials. Once the total amount of each category is listed, the claimant will then be required to list the date, amount, and reason for each payment and the corresponding payment type. Cnce all payments to Zeek have been provided, the claimant will then be required to list all payments the received from Zeek, the reason, and the payment type.
After this information is provided, the Claimant will be required to answer several questions relating to their involvement in Zeek. This includes:
- A list of all usernames they created;
- A list of all lawsuits or legal proceedings they are involved in;
- Whether they were an employee or officer, or related to any employee or officer of, Zeek;
- Whether they sponsored or assisted any entity or person become an affiliate;
- Whether they paid cash to Zeek on behalf of any other entity or person;
- Whether another person or entity paid cash to Zeek on their behalf or transfer bids to their account; and
- A listing of their upline/downline.
While the extent of the Law Firm's assistance is unknown in compiling and inputting this information, it is for this task that the Law Firm ultimately seeks hundreds of thousands of dollars in fees. Assuming each Proof of Claim took one hour, the amount sought by the Law Firm would equate to over $2,000 per hour per claim.
Perhaps surprisingly, this is not the first time this situation has arisen in the context of a Ponzi scheme distribution. In August 2013, a victim of Scott Rothstein's $1.2 billion Ponzi scheme sought to reject charging liens filed by two Florida law firms that claimed entitlement to millions of dollars in contingency fees from a recent settlement. However, that investor disputed the charging liens on the basis that one of the law firms did not actually represent it and that the other had forfeited any entitlement to fees by withdrawing as counsel. At least one of those law firms ultimately prevailed.
The Notice is below (h/t to ASDUpdates)
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