Judge Denies Charging Lien On Ponzi Victim Distributions
A federal judge has issued an order denying an attempt by lawyers for certain victims of the $600 million ZeekRewards Ponzi scheme to place a "charging lien" against hundreds of thousands of dollars in interim distributions due to those victims. U.S. District Judge Graham C. Mullen issued the order nearly two months after Marc Michaud, a New Orleans lawyer with the firm of Patrick Miller LLC, 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" approximately 400 claimants. In the order, Michaud was also ordered to "immediately and without further delay" provide the contact information for his clients to allow the Receiver to make the first interim distribution directly to those clients.
Michaud filed the Notice of Attorney's Charging Liens in late September, seeking to create a security interest entitling Michaud and his firm to a portion of distributions made by court-appointed Receiver Kenneth Bell to Michaud's clients. The exhibit attached to the original Notice listed approximately 400 claimants holding over $1.34 million in total claims who supposedly signed a contingency fee contract with Michaud's law firm agreeing to turn over a portion of any funds recovered from the scheme. However, it appears that the only assistance provided by Michaud's firm was the filling out of proof of claim forms for those victims as part of the court-approved claims process; indeed, each of the proof of claim forms filled out for those victims listed Michaud's law firm as the address to which distributions should be sent.
Kenneth D. Bell, the court-appointed receiver, opposed sending victim distributions to any third party, and filed a motion in December 2013 seeking court approval for distribution procedures that included a provision that payments would be made directly to victims. Michaud's firm filed a pointed 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.
Judge Mullen subsequently approved the Receiver's Motion in all aspects.
Following the filing of the Notice of Attorney's Charging Liens, the Receiver filed a sharply-worded objection contending 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." The Receiver also noted that nearly all of Michaud's clients were included in the group of victims that had not yet received the first interim distribution made in late September 2014 due to the fact that Michaud's 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 Receiver raised multiple issues with the entitlement to a charging lien for representation of Ponzi scheme victims, and concluded that
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.
Under the terms of Judge Mullen's Order, Michaud's firm is directed to "immediately and without further delay" provide the direct contact information for his clients to the Receiver so that those victims may receive the first interim distribution. While Michaud had apparently sought the use of a charging lien to prevent the scenario where he was forced to collect the contingency fee directly from his clients, it appears that he will have no other choice with the Court's ruling.
A copy of Judge Mullen's Order is below (as always, thanks to ASD Updates)