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.
- Kenneth Bell, court-appointed receiver
The court-appointed receiver overseeing recovery efforts for victims of the $600 million Zeek Rewards Ponzi scheme had strong words for a Louisiana law firm that recently filed papers asserting attorney charging liens of over $130,000 against an interim distribution made to victims. Kenneth D. Bell, the receiver, filed his objection to the Notice of Attorney's Charging Liens (the "Notice") filed by Patrick Miller LLC (the "Law Firm"), arguing that the Notice should be stricken or, in the alternative, the Court should decline to rule on the Notice and instead confirm that the Receiver is free to make distributions to affected victims.
The filing is the latest in the back-and-forth between the Law Firm and Bell, and comes after the filing of the Notice on September 29, 2014. 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.
An attorney's charging lien is used to create a security interest in favor of an attorney with a contract entitling him to a portion of the proceeds. When the Notice was filed, it was unclear how the Law Firm intended 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 listed over 400 claimants holding over $1.34 million in total claims who supposedly signed a contingency fee contract with the Law Firm.
In the Objection, the Receiver stated that the Notice "appears to be an attempt by Mr. Michaud to circumvent the Court’s prior orders regarding this issue and insert himself as the recipient of money that belongs to victims." Of note, it appears that all but eight of the hundreds of affected victims were not recipients of the first interim distribution made earlier this month, as the Receiver claimed that the Law Firm had failed to follow an earlier court order requiring the amendment of certain claimants' mailing information to reflect their actual address rather than that of the Law Firm. The Receiver also insinuated that, in failing to comply with the order, the Law Firm may also have violated rules governing attorney conduct in both Louisiana and North Carolina by placing the financial interest of the Law Firm over that of their clients.
The Objection also observes that, while the Receiver did not address the merits of whether the Law Firm was entitled to compensation for whatever assistance it provided to victims during the claims process, neither he nor the Court should be forced to act as the Law Firm's enforcer where "the agreements’ enforceability and unconscionability plainly may be at issue." Rather, the contingency fee contract explicitly provides for mandatory arbitration to resolve disputes. Further, the Objection cites a North Carolina case for the proposition that a charging lien can only attach to a judgment, rather than a non-legal administrative proceeding such as the claims process. The Receiver also notes that charging liens are not particularly favored in North Carolina:
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.
In closing, the Receiver requested an Order directing the Law Firm to timely update the contact information for its clients to reflect their actual address so as to allow the Receiver to make their interim distributions.
The Objection is below: