NEW ORLEANS (Legal Newsline) - A federal judge didn't fully explain why he was taking attorneys fees from hurricane-damage lawyers facing an FBI criminal investigation over how they handled claims.
It's at least the second time the U.S. Court of Appeals for the Fifth Circuit has reversed disciplinary actions in Louisiana federal court in the saga of Houston's McClenny, Mosely & Associates. Earlier, it found a former lawyer there wasn't given the chance to fight a nine-month suspension.
On June 7, the Fifth Circuit said Judge James David Cain Jr. didn't adequately declare his reasoning when he ruled the firm had no rights to attorney fees in still-pending litigation. It instructed the judge to show his work if he wants to maintain that stance.
"(T)he court exceeded its sanctioning authority in extinguishing property rights of MMA and related parties because it did not issue a show cause order, so as to not offend due process, or clarify the necessity to exercise its discretion over any related parties to this case," the Fifth Circuit ruled.
"The district court stated that 'MMA's clear solicitation of clients voids any contract of representation.' But the court made no findings as to whether the conduct it was sanctioning had a nexus to the litigation pending before it, nor did it explain the legal basis for the sanction against MMA or any related parties."
The firm is accused of using Apex Roofing to earn an assignment of benefits, which means the contractor was free to negotiate with the property owner's insurer.
To do so, Apex allegedly hired MMA without the property owners' knowledge, leading MMA to take a portion of what was obtained from the insurer as attorneys fees while the property owner never realized they were represented by counsel.
The alleged scheme has the FBI's New Orleans division looking for victims to bolster a criminal probe.
In May, the Louisiana Department of Insurance issued fines totaling $2 million against MMA, its founding partners – James McClenny and John Zachary Moseley – and MMA’s former Louisiana managing partner, William Huye III. The fines were based on suspected deception and not paying out insurance claim settlement funds, the complaint states.
MMA also was reported to have received tens of millions of dollars from a Florida-based hedge fund to finance its mass filings of property insurance claims. A bill that would have imposed more transparency in such third-party litigation financing agreements was vetoed this year by Gov. John Bel Edwards.
Equal Access Justice Fund lent money to MMA for the litigation but was denied the chance to intervene in the district court disciplinary fracas. This was in error, the Fifth Circuit said, as EAJF is owed the opportunity to protect its financial interests.
In addition to the criminal probe and various suspensions, MMA also has a class action lawsuit against it to worry about. Louis Carter says an Apex representative approached him about roof damage suffered at his house following Hurricane Ida.
The rep told him he could pay Apex a $500 deductible to fix the roof, then sign an Assignment of Benefits that permitted Apex to "get the ball rolling" on the insurer assessing the damage, the suit says.
Carter alleges this AOB contained no mention of MMA. The insurer, meanwhile, said the damage to the roof was nowhere as severe as Apex claimed.
"Eventually, Plaintiff was able to speak to the adjuster who inspected his property, who informed him off the record that his insurance company had been served with a letter of representation by MMA, who claimed that Plaintiff was their client, so the insurance company was no longer able to speak to Plaintiff directly," the suit says.
"This was the first time Plaintiff had ever heard of MMA or heard that it was claiming to represent him."
After weeks of trying to contact MMA, Carter finally told an attorney there that he did not want MMA representing him, the suit says. Carter preferred to handle the insurance claim himself.
Ultimately, MMA sent a "Notice of Withdrawal of Representation" to the insurer, the suit says. Carter said this was inappropriate, as he had never hired it in the first place.
"Plaintiff's experience dealing with MMA and Apex is similar to the experience of countless others across the State of Louisiana who had run-ins with Apex and MMA, and serves as one example of the schemes perpetrated by Defendants that have caused damage to the class of persons alleged in this petition," the suit says.