Parks v. Persels & Assocs., LLC (In re Kinderknecht), Bankruptcy No. 09–13443.
| Decision Date | 13 April 2012 |
| Docket Number | Adversary No. 10–5209.,Bankruptcy No. 09–13443. |
| Parties | In re Levi A. KINDERKNECHT, Debtor. Linda S. Parks, Trustee, Plaintiff, Kansas Attorney General Derek Schmidt, Intervenor v. Persels and Associates, LLC and Stan Goodwin, Defendants. |
| Court | United States Bankruptcy Courts. Tenth Circuit. U.S. Bankruptcy Court — District of Kansas |
470 B.R. 149
In re Levi A. KINDERKNECHT, Debtor.
Linda S. Parks, Trustee, Plaintiff,
Kansas Attorney General Derek Schmidt, Intervenor
v.
Persels and Associates, LLC and Stan Goodwin, Defendants.
Bankruptcy No. 09–13443.
Adversary No. 10–5209.
United States Bankruptcy Court,
D. Kansas.
April 13, 2012.
[470 B.R. 155]
Gaye B. Tibbets, Rachel E. Lomas, Hite Fanning and Honeyman LLP, Wichita, KS, for Plaintiff.
Christopher M. Joseph, Joseph & Hollander LLC, Topeka, KS, W. Thomas Gilman, Wichita, KS, for Defendants.
Derenda J. Mitchell, Kansas Attorney General, Topeka, KS, for Intervenor.
ROBERT E. NUGENT, Chief Judge.
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¦TABLE OF CONTENTS ¦
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¦I.¦Uncontroverted Facts ¦157 ¦
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¦ ¦A. ¦The Players and Persels' Debt Settlement Business Model ¦157 ¦
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¦ ¦B. ¦Kinderknecht's Enrollment in Debt Settlement Plan and ¦159 ¦
¦ ¦ ¦Retention of Persels Law Firm ¦ ¦
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¦ ¦C. ¦Kinderknecht's Performance of Debt Settlement Plan and ¦163 ¦
¦ ¦ ¦Persels' Representation ¦ ¦
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¦ ¦D. ¦Kinderknecht Sued by Citibank and Termination of Debt ¦164 ¦
¦ ¦ ¦Settlement Plan ¦ ¦
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¦ ¦E. ¦The Bankruptcy Trustee Sues Persels and Goodwin and ¦164 ¦
¦ ¦ ¦Procedural History of Case ¦ ¦
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¦II. ¦Jurisdiction ¦165 ¦
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¦III.¦Applicable Summary Judgment Standards ¦166 ¦
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¦IV. ¦Analysis and Conclusions of Law ¦167 ¦
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¦ ¦A. ¦Kansas Credit Services Organization Act [KCSOA] Claims¦167 ¦
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¦ ¦ ¦ ¦Goodwin and Persels are not entitled to summary ¦ ¦
¦ ¦ ¦1. ¦judgment on the KCSOA claims by virtue of the attorney ¦167 ¦
¦ ¦ ¦ ¦exemption in § 50–1116(b) ¦ ¦
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¦ ¦ ¦ ¦Defendants' violation of the KCSOA is, as a matter of ¦ ¦
¦ ¦ ¦2. ¦law, also a deceptive act or practice under the Kansas ¦169 ¦
¦ ¦ ¦ ¦Consumer Protection Act ¦ ¦
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¦ ¦B. ¦Fraudulent Transfer Claim, 11 U.S.C. § 548(a)(1)(B)¦169 ¦
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¦ ¦ ¦ ¦Whether Kinderknecht received less than reasonably ¦ ¦
¦ ¦ ¦1. ¦equivalent value in exchange for his $915 transfer to ¦169 ¦
¦ ¦ ¦ ¦Persels cannot be determined as a matter of law on this¦ ¦
¦ ¦ ¦ ¦summary judgment record ¦ ¦
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¦ ¦C.¦Disgorgement of Attorney Fees ¦171¦
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¦ ¦ ¦1. ¦The Court cannot conclude as a matter of law that ¦171 ¦
¦ ¦ ¦ ¦Persels' and and Goodwin's “legal fees” were reasonable¦ ¦
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¦ ¦D.¦Legal Malpractice ¦171¦
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¦ ¦ ¦ ¦Summary judgment must be denied where the “common ¦ ¦
¦ ¦ ¦1. ¦knowledge exception” may apply to the trustee's legal ¦172 ¦
¦ ¦ ¦ ¦malpractice claim under the factual circumstances ¦ ¦
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¦ ¦E.¦Breach of Fiduciary Duty ¦173¦
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¦ ¦ ¦ ¦Reasonable persons could draw different conclusion s ¦ ¦
¦ ¦ ¦1. ¦whether Persels and Goodwin breached their fiduciary ¦173 ¦
¦ ¦ ¦ ¦duty to Kinderknecht and therefore, summary judgment is¦ ¦
¦ ¦ ¦ ¦inappropriate ¦ ¦
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¦ ¦F. ¦Kansas Consumer Protection Act [KCPA] Claims¦173 ¦
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¦ ¦ ¦1. ¦Persels and Goodwin are “suppliers” and subject to the ¦173 ¦
¦ ¦ ¦ ¦provisions of the KCPA ¦ ¦
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¦ ¦ ¦2. ¦Deceptive Acts or Practices, § 50–626 ¦175 ¦
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¦ ¦ ¦ ¦ ¦Defendants are entitled to summary judgment on ¦ ¦
¦ ¦ ¦ ¦a. ¦some, but not all, of the “knowing ¦175 ¦
¦ ¦ ¦ ¦ ¦misrepresentation” claims, § 50–626(b)(1) ¦ ¦
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¦ ¦ ¦ ¦ ¦Defendants are entitled to summary judgment on ¦ ¦
¦ ¦ ¦ ¦ ¦some, but not all, of the “representations ¦ ¦
¦ ¦ ¦ ¦b. ¦willfully using exaggeration, falsehood, innuendo, ¦177 ¦
¦ ¦ ¦ ¦ ¦or ambiguity as to a material fact” claims, § ¦ ¦
¦ ¦ ¦ ¦ ¦50–626(b)(2) ¦ ¦
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¦ ¦ ¦ ¦ ¦Defendants are entitled to summary judgment on ¦ ¦
¦ ¦ ¦ ¦c. ¦some, but not all, of the “willful omission of a ¦177 ¦
¦ ¦ ¦ ¦ ¦material fact” claims, § 50–626(b)(3) ¦ ¦
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¦ ¦ ¦ ¦ ¦Defendants are entitled to summary judgment on ¦ ¦
¦ ¦ ¦ ¦d. ¦some, but not all, of the remaining deceptive act ¦179 ¦
¦ ¦ ¦ ¦ ¦claims under § 50–626(b) ¦ ¦
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¦ ¦ ¦ ¦Defendants are not entitled to summary judgment on the ¦ ¦
¦ ¦ ¦3. ¦KCPA unconscionability claims where there is sufficient¦180 ¦
¦ ¦ ¦ ¦evidence in the record of unconscionable conduct ¦ ¦
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¦ ¦G. ¦Constitutionality of the KCPA, the KCSOA, and the KCSOA's ¦182 ¦
¦ ¦ ¦Attorney Exemption ¦ ¦
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¦ ¦ ¦1. ¦The KCPA and the KCSOA do not violate the separation of¦183 ¦
¦ ¦ ¦ ¦powers doctrine ¦ ¦
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¦ ¦ ¦2. ¦The KCSOA attorney exemption statute, § 50–1116(b), is ¦184 ¦
¦ ¦ ¦ ¦not unconstitutionally vague as applied to Persels ¦ ¦
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¦V.¦Summary ¦185 ¦
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[470 B.R. 156]
Kansas consumer protection law prohibits both deception and unconscionable conduct in offering consumers debt settlement services. While it also prohibits firms that are not registered with the State Bank Commissioner from supplying those services, Kansas law establishes a safe harbor that exempts Kansas lawyers who supply debt settlement services in the course of practicing law from registration and regulation by the Commissioner. Persels and Associates, L.L.C. (“Persels”), a law firm owned and controlled by Neil J. Ruther, Esq., enters into independent contractor agreements with Kansas attorneys as part of a calculated effort to slip into this safe harbor. None of the lawyers who work directly for Persels is admitted to the Kansas bar or practices in Kansas. Persels is an unregistered credit services organization that represents to Kansas consumers that it will “represent” them as attorneys in the negotiation and settlement of their debts. It made these (and more) representations to Levi Kinderknecht, the debtor in this chapter 7 case, and received over $1,000 from Kinderknecht for its purported services.
[470 B.R. 157]
His chapter 7 trustee, Linda S. Parks, sued both Persels and Stan Goodwin, one of Persels' field attorneys in Kansas, in connection with their “representation” of Kinderknecht.1 Parks asserted a variety of state law tort claims, state law consumer violations, and a 11 U.S.C. § 548 fraudulent conveyance claim, all arising from Kinderknecht's enrollment and participation in a debt settlement plan with Persels. After discovery was complete, the defendants moved for summary judgment on all claims. Because...
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