Complaint Review: World Law Group - Internet

Derin Scott Haskins Shannon Scott Sued 107 million in Florida. 6 Million lawsuit in North Carolina. Unlicensed practice of law.Writing for the Court, Chief Judge James Gale sided with the State Bar and N.C. DOJ. “The Amended Complaint contains extensive, specific allegations against the World Law Defendants and WLS individually that, taken as true, state a UPL claim against WLS,” Gale says.

The Business Court’s decision to allow the lawsuit to proceed is the latest legal setback for Austin-based Orion and Sacramento-based World Law.

State and federal officials from across the country are going after the companies for allegedly promising debt relief services to thousands of consumers but never providing those services. At least four states have sued the companies for charging legal upfront fees and making false promises of legal representation.

The companies have already been enjoined from doing business in North Carolina after a Wake County Superior Court judge determined they were improperly engaging in the practice of law.

   

Sept. 12

The companies are also facing a federal lawsuit filed by the U.S. Consumer Financial Protection Bureau, which alleges the two companies collected $67 million in illegal fees from at least 21,000 consumers.

Orion has already filed for bankruptcy and was ordered into liquidation in August by a federal judge in Austin.

Attorney Alfred Carlton was representing the companies until recently. He has since withdrawn, according to the Business Court decision. Gale notes World Law is no longer represented by counsel.

Katherine Jean, general counsel for the North Carolina State Bar, declined to comment on the case, saying it was “not proper” to comment on pending litigation.

Last month, the State Bar reached a settlement with LegalZoom in a long-running dispute over whether the online legal service provider was giving unauthorized legal advice. The settlement resolved a $10.5 million lawsuit filed by LegalZoom, which claimed the State Bar was illegally "monopolizing" the state's legal market by refusing to register LegalZoom's prepaid legal plans marketed to individuals and small businesses.

 

Two firms, two lawsuits and a twisted tale of consumer debt settlement         Most Popular

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Not too far removed from his military service and struggling to make payments on a pair of Navy Federal Credit Union Visa cards, Jonathon Sauseda needed a financial lifeline.

The World Law Group agreed to throw him one.

World Law told him it would negotiate a settlement with his creditors and put him on a three-year payment plan. Sauseda, a Georgetown resident in his mid-30s, started sending $400.07 a month to cover his debts and World Law attorneys’ fees.

The lawsuit arrived two years and $10,000 later.

“I received paperwork from a lawyer ... saying that Navy Federal was suing me because there was no communication, there was no payment plan, nothing was provided,” Sauseda testified in a federal bankruptcy court case against Orion Processing, an Austin company that contracted with World Law.

World Law stonewalled him when he called to investigate, Sauseda said. So he took up an attorney’s services — the type of services World Law had promised but never provided, he said in court. The new lawyer helped set up a payment plan with the credit union.

He eventually signed a settlement with World Law, so he declined to comment for this story. But state and federal officials from around the country say Sauseda was among thousands of debt-ridden consumers victimized by World Law and Orion Processing, its Austin-based partner.

In a federal lawsuit filed in Miami against World Law, Orion and several related entities and people — including Orion owner Derin Scott and World Law chairman Bradley Haskins — the Consumer Financial Protection Bureau claims the firms charged customers illegal upfront fees and made false promises of legal representation.

 

KEY PLAYERS IN THE CASE

All told, the bureau’s Aug. 17 complaint claims, World Law and Orion collected $67 million in illegal fees from at least 21,000 indebted consumers nationwide.

At least four states had already lodged similar complaints against Orion, actions that helped push the Austin-based company into federal bankruptcy court. On Aug. 20, a bankruptcy judge in Austin ordered the company liquidated.

That same day, agents from the consumer protection bureau raided Orion’s headquarters in North Austin.

“My clients do not believe they’ve defrauded anyone,” said Jeffrey Cohen, who represented Scott, Orion COO David Klein and the firm itself in the bankruptcy case, but not World Law or Haskins.

Orion is “a processing company,” Cohen said. “They send things out, take phone calls (and) keep records of accounts and payments. They’re under contract to World Law to provide a service, they provided a real service, and there’s a record of all of that.”

In their Sept. 25 response to the CFPB complaint, Cohen and the defendants denied the charges, and they argued that federal regulators went too far when they raided the company’s offices. The plaintiffs “failed to seek or obtain permission from the Bankruptcy Court or this court to seize property of the bankruptcy estate,” the counterclaim said.

What the current record shows depends on who interprets it. The plaintiffs see World Law and Orion as a common operation — Scott, Klein and Haskins working together. The defendants have suggested that the two firms are distinct entities, connected through a legal contract.

What’s clear is that roughly 40 Orion employees are out of a job and the company has been shuttered, a trustee taking control of its assets. Beyond that, though, the complex mix of cases provides more questions than answers.

What was the precise business relationship between World Law Group and Orion? How will the two cases proceed concurrently? Will consumers recover any losses? Will there be any criminal charges?

Lucrative business model

By most accounts, Derin Scott lived the All-American life — a man of faith, a successful entrepreneur, with a beautiful family whose members participated in triathlons together, a grand home along the shores of Lake Travis and another in South Florida.

He launched a string of businesses over the years, from fracking to software development to representing athletes. But most of his success, and much of his notoriety, emerged from his debt-settlement companies.

Scott entered the business in 2006, when he created Swift Rock Financial Inc., according to documents in the bankruptcy case. He created Orion a couple of years later to help service Swift Rock’s clients.

Other related firms came, and some went, but the business remained essentially the same: Sign on debt-ridden consumers, negotiate a settlement with their creditors and then collect and process their restructured payments.

 

Like most debt-settlement firms, Scott’s companies charged a fee for their services.

Toward the end of 2009, the company told the Federal Trade Commission it had enrolled approximately 45,000 accounts with a total $300 million of indebtedness, focusing primarily on clients who had at least $15,000 in debt.

The rising consumer demand for debt settlement services brought sharper scrutiny. Customers bombarded websites with complaints about the fees and failings of debt-settlement companies, including Swift Rock and Orion.

And in 2010, the FTC passed a rule that barred a company from collecting fees until it successfully settled the client’s debt with his or her creditors.

Orion objected, telling the commission it needed those advance fees to cover its expenses. Simply acquiring a client would cost as much as $1,200, the company said in a 2009 letter. It would cost another $2,000 to settle a debt.

The argument failed to sway regulators, so the folks at Orion started looking for alternatives.

‘A pretty big problem’

 

They found one with Bradley Haskins and the World Law Group.

Haskins brought an impressive résumé. A graduate of the University of Michigan Law School, he had clerked for the chief justice of the Michigan Supreme Court before starting a career in international law.

Around 2000, Haskins launched a legal services website called WorldLawDirect.com. However, regulators say, the World Law Group didn’t form until Scott and Haskins developed it in mid-2010, just before the advance-fee ban went into effect.

Under the new rules, companies could still charge upfront fees for legal services. So, the complaint says, World Law claimed to offer legal services — charging $199 up front and then $84.95 a month — and Orion processed the accounts.

But World Law never provided the legal services it promised, federal regulators say. The company would send rote legal filings that weren’t tailored to a client’s case, the complaint said, or unlicensed call center agents would provide advice.

In some cases, the plaintiffs claim, World Law used actual attorneys’ names on letters and forms without their knowledge.

“So what does World Law do?” asked bankruptcy Judge Tony Davis as he summed up his decision to liquidate Orion’s assets. “It promises to deliver a local attorney, but it doesn’t deliver on that promise so far as I can tell. I haven’t seen any evidence that it has ever delivered on that promise.”

 

The bankruptcy case named only Orion. Yet the ubiquitous appearance of World Law in the case documentation, testimony and Davis’ ruling hints at the debate about the firms’ precise relationship. For example, a January 2010 press release touting a donation to Toys for Tots quotes World Law Debt’s chief operating officer, Dave Klein — the same man now identified as the chief operating officer of Orion.

Federal and state attorneys say World Law was created by Haskins, Scott and Klein to get around the advance-fee ban. The states argued that one firm was the alter ego of the other, while the federal complaint claims World Law and Orion were actually a common enterprise.

“Defendants have conducted the business practices described below through an interrelated network of companies that have common business functions, employees, and office locations,” the federal complaint said. “Moreover, defendants have also commingled funds and shared operations and proceeds of the unlawful activity.”

That interconnection makes both companies liable, federal regulators said.

Cohen and the defendants he represented in bankruptcy court argued the two firms were created and operated as distinct entities. That argument essentially boils down to this: If it is true that World Law didn’t provide any legal services (a point the defendants dispute), that’s on World Law, not Orion.

“I think it is a witch hunt, to be frank with you,” Cohen said in the bankruptcy trial. “To lump Orion into these regulatory problems and to say this is a scam that has been recently concocted, in 2010, between Mr. Klein, Mr. Haskins and God knows who else to take advance fees in the form of attorneys’ payments — that’s just fanciful, your honor.”

Davis was not moved.

 

“I’m not making any findings about illegality or anything like that,” he said. “I’m just saying there seems to be a lot more than smoke here to what the regulators are saying. And it’s a pretty big problem for World Law.”

Recovering assets

The Texas Bar Association lists Haskins’ primary practice location in Prague, the capital of the Czech Republic. The federal complaint notes that he has a residence in Fort Lauderdale, Fla. But no one seems to know where he’s been.

He has yet to appear in court to answer these allegations, and a Travis County judge recently found him in contempt for not appearing at a deposition for a different case. Attempts to contact him were unsuccessful.

“He still has not surfaced, although some of the attorneys on the other side have said they’ve been in contact with him,” said Lynn Butler, an Austin attorney who represented the state of Oregon in the bankruptcy case.

For now, Butler is more concerned about the disposition of Orion’s assets and funds, hoping the bankruptcy trustee or the receiver appointed in the Miami case can return some money to consumers.

Aside from those customers, the company does not have a long list of creditors owed large amounts of money. So if the cases go the plaintiffs’ way, it’s likely some money could go back to consumers. But how much will return — and how it will be collected and distributed — remains to be seen.

In the meantime, Butler said, the bankruptcy trustee has already secured at least $8 million that was held in frozen Orion accounts. The next step will be tracing the funds that flowed out to other companies and to other individuals, including Scott, Klein, Haskins and their various businesses.

Butler said the plaintiffs believe most, if not all, of Scott’s other companies were funded with part of roughly $4 million a year that flowed from Orion’s operations to insiders and other firms.

“That will be recoverable, but more difficult because you actually have to sue to recover those assets,” Butler said. “And the reality is sometimes if you’re chasing fraudulent transfers ... it becomes a matter of collection. Does the defendant have a dollar in his pocket to get back?”

Editor’s note: A previous version of this story incorrectly noted how federal and state regulators characterize the relationship between Orion and World Law. The states suggested one firm was the “alter ego” of the other, while federal regulators claim they operated as a common enterprise.

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