Thorne v. Prommis Solutions Holding Corp. (In re Thorne)

Decision Date27 April 2012
Docket NumberBankruptcy No. 09–11763–DWH.,Adversary No. 10–1172–DWH.
Citation471 B.R. 496
CourtU.S. Bankruptcy Court — Northern District of Mississippi
PartiesIn re Jonathan R. THORNE and Darlene S. Thorne, Debtors. Jonathan R. Thorne and Darlene S. Thorne, Debtors. Locke Barkley, Chapter 13 Trustee, Plaintiffs v. Prommis Solutions Holding Corporation; Prommis Solutions, LLC; Great Hill Partners, LLC; Morris Schneider and Prior, now Known as Johnson & Freedman, LLC, Defendants.

OPINION TEXT STARTS HERE

D.W. Grimsley, Jeff S. Daniel, Birmingham, AL, James L. Kauffman, Levin, Papantonio, Thomas, Mitchell, Raf, Peter Mougey, Pensacola, FL, Jimmy E. McElroy, Memphis, TN, Nicholas Heath Wooten, Wooten Law Firm, Auburn, AL, Robert G. Rikard, Columbia, SC, for Debtors.

Bill D. Bensinger, James H. White, IV, Birmingham, AL, John P. MacNaughton, John H. Williamson, Morris Manning & Martin, LLP, Atlanta, GA, R. Spencer Clift, III, Memphis, TN, Jason Wilton Bailey, Jones Walker, Olive Branch, MS, Kristina M. Johnson, Jones Walker, James A. McCullough, II, Lindsay C. Thomas, Jones, Walker, Waechter, Poiterent, Car, Jackson, MS, for Defendants.

Locke D. Barkley, Jackson, MS, for Plaintiffs.

OPINION

DAVID W. HOUSTON, III, Bankruptcy Judge.

On consideration before the court are the following pleadings, to-wit:

a. Motion for summary judgment filed by the defendant, Johnson & Freedman, LLC, (J & F).

b. Motion for summary judgment filed by the defendants, Prommis Solutions Holding Corporation, (Prommis Holding), and Prommis Solutions, LLC, (Prommis Solutions).

c. Motion for summary judgment filed by the plaintiffs, Jonathan R. Thome and Darlene S. Thome, debtors, (“Thomes”), and Locke Barkley, Chapter 13 trustee, (trustee).

Appropriate responses, replies, and memoranda of law were filed by each of the parties.

A separate opinion and order was recently entered concerning the motion for summary judgment filed by the defendant, Great Hill Partners, LLC. Previous orders were entered dismissing the defendants, Lender Processing Services, Inc.; LPS Default Solutions, Inc.; and Daniel D. Phelan from this adversary proceeding.

The court, having considered the foregoing pleadings, hereby finds as follows, to-wit:

I.

JURISDICTION/COMPLAINT SUMMARY

The court has jurisdiction of the subject matter of and the parties to this proceeding pursuant to 28 U.S.C. § 1334 and 28 U.S.C. § 157. This is a core proceeding as defined in 28 U.S.C. § 157(b)(2)(A), (B), and (O).

In a previous opinion, dated June 15, 2011, this court set forth a procedural history related to this adversary proceeding, as well as, discussed the mortgage servicing scenario that involved Great Hill Partners, LLC, Prommis Holding, Prommis Solutions, and J & F. Certain modifications and/or refinements to the mortgage servicing scenario addressed in that opinion will be set forth hereinbelow.

The plaintiffs' complaint primarily focuses on charges that the defendants illegally shared attorney fees and engaged in the unauthorized practice of law. The complaint set forth the following counts:

1. Abuse of the bankruptcy process;

2. Fraud on the court;

3. Declaratory and injunctive relief;

4. Violation of the automatic stay;

5. Contempt of the Bankruptcy Code;

6. Contempt of the Federal Rules of Bankruptcy Procedure;

7. Breach of the Uniform Mortgage Covenants;

8. Unauthorized practice of law;

9. Civil conspiracy;

10. Violation of 18 U.S.C. § 155 Proscription Against Fixing Attorney's Fees in a Bankruptcy Proceeding.

II.

AGREED ORDER, FEBRUARY 3, 2010

The alleged unlawful sharing of fees in this proceeding is directly related to an Agreed Order entered by this court on February 3, 2010. The order was dispositive of a motion for relief from the automatic stay which had been filed by J & F on behalf of Chase Home Finance, LLC, (“Chase”). The order restructured the Thornes' Chapter 13 plan payments and provided that the automatic stay would be lifted if the Thornes became delinquent in their monthly payments for more than 60 days. Because the underlying promissory note, executed by the Thornes when their loan transaction was originated, included a provision that allowed the assessment of collection costs, an attorney's fee in the sum of $600.00 was allowed by the court to compensate Chase for filing the motion for relief. Coincidentally, the Agreed Order was approved for entry by Karen A. Maxcy, a J & F attorney licensed in the State of Mississippi, who represented Chase; Jimmy E. McElroy, the attorney representing the Thornes; and W. Jeffrey Collier, the attorney representing the Chapter 13 trustee. Because the $600.00 fee included the statutory filing fee, the court is of the opinion that the amount is clearly reasonable for the services rendered. There was no appeal from this order.

The court has been advised that the $600.00 attorney fee is being collected from the Thornes and paid to Chase over time through the Chapter 13 plan distributions. As will be seen in the discussion that appears later in this opinion, J & F sent an invoice to Chase requesting a payment of $800.00 for the services that it rendered in filing the motion. Later, J & F paid Prommis Solutions $506.96 for paralegal and support services that it had outsourced to Prommis Solutions. According to the plaintiffs' complaint, the interaction and relationship between J & F and Prommis Solutions underpins the allegations of the unauthorized practice of law and the illegal sharing of attorney fees.

III.

DEFENDANTS' AGREEMENTS

The Prommis Solutions mortgage servicing scenario, set forth in this court's previous opinion, was drawn from allegations set forth in the plaintiffs' complaint. Now that additional information has been made available to the court through the discovery processes, the court has a much clearer understanding of this scenario, particularly the roles of Prommis Holding, Prommis Solutions, and J & F.

The cover page to the Contribution Agreement, offered as Exhibit A to the plaintiffs' response to J & F's motion for summary judgment, identifies the original parties as follows: Morris, Schneider & Prior, LLC; MR Default Services, LLC; and MR Processing Holding Corporation. These parties are now known respectively as J & F, Prommis Solutions, and Prommis Holding. Prommis Solutions is a wholly owned subsidiary of Prommis Holding. Although the procedural steps establishing the defendants' contractual relationships could best be described as confusing, when all of the dust settled, Prommis Solutions apparently became the owner of all of the non-legal assets of J & F's predecessor, Morris, Schneider & Prior, LLC. In addition, a vast majority of the non-attorney employees became employees of Prommis Solutions. There were numerous ancillary agreements executed between the parties which are set forth as follows:

a. Services and Technology Agreement—Prommis Solutions and J & F entered into an agreement by which Prommis Solutions would provide bankruptcy and foreclosure support services for a term of 20 years.

b. Bill of Sale—J & F conveyed and transferred the Contributed Assets to Prommis Solutions.

c. Assignment and Assumption Agreement—J & F assigned, sold, and transferred to Prommis Solutions all of its “rights, title, benefits, privileges and interests in and to the Contributed Assets ...”

d. Intellectual Property Assignment—J & F assigned its intellectual property rights to Prommis Solutions.

e. Sublease Agreement—J & F agreed to sublease an office building in Atlanta, Georgia, to Prommis Solutions for a term of 60 months.

f. Assignment of Lease—J & F assigned a lease to Prommis Solutions for office space in Raleigh, North Carolina.

g. License Agreement—Prommis Solutions agreed to license a portion of the office space in the Atlanta office building to J & F for a term of 60 months.

h. Non–Compete Agreements—Each of the five former law partners separately agreed not to participate in businesses “which engage or which propose to engage in the provision of non-legal bankruptcy or foreclosure services.”

i. Consulting Agreement—Thomas E. Prior was engaged as an independent contractor with Prommis Solutions for a term of 30 months.

j. Release Agreement–This was a release and indemnification agreement between J & F, Prommis Holding, and Prommis Solutions regarding certain claims and liabilities.

Relevant to this proceeding, the aforementioned agreements established a relationship where J & F outsourced paralegal and support services from Prommis Solutions. Prommis Solutions provided J & F with these services to assist in the representation of J & F's mortgage servicing clients. As discerned from the materials presented in support of the various motions for summary judgment, the court is of the opinion that the scope of these services is identical to the services that would be provided by “in house” paralegals and support staff. The J & F/Prommis Solutions relationship is a unique, although not exclusive, business model which is an innovative departure from the traditional practice of utilizing “in house” employees for these tasks.

The plaintiffs point out that the Form S–1 Registration Statement, filed with the Securities and Exchange Commission by Prommis Holding, contains the following language:

Description of its services—... “Foreclosure and Bankruptcy Services, whereby we prepare foreclosure documentation, publications and notices and bankruptcy court filings for attorney review ...;” (emphasis supplied)

That Prommis Holding began operating ... when it “acquired the mortgage default resolution processing operations of McCalla Raymer, LLC” and that it “acquired certain default resolution processing operations and related employees of three additional law firms.”

In that same document, the “Risks Related to Our Business” section provides the following:

A substantial portion of revenue is dependant on relationships with a limited number of law firms wherein Prommis has “long-term exclusive contracts with these firms ...”

What constitutes the...

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