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Law Firm Sued for Allegedly Using Filing Fees for Its Own Expenses
Fulton County Daily Report
July 17, 2009
A national collections company has accused the Sandy Springs, Ga., law firm it hired to file collection actions for clients such as Capital One, American Express and Discover of fraud and other misdeeds.
NCO Financial Systems claims in a suit filed July 1 in Atlanta's federal court that it gave Trauner, Cohen & Thomas more than $1.3 million to reimburse the firm for fees relating to more than 15,000 collection lawsuits that were to have been filed to collect more than $100 million in outstanding debts.
But the company says that Trauner Cohen used the money to cover its own expenses and was also inflating its reimbursement requests beyond the cost of actual filing fees.
The complaint, filed for NCO by Kilpatrick Stockton partner Burleigh L. Singleton, associate Angela N. Frazier and Stephen E. Baskin, managing partner of the firm's Washington, D.C., office, says an audit last month revealed "numerous problems relating to Defendant's collection activity, reporting and financial accounting."
The suit says NCO's auditor discovered files marked "lawsuits" in a mail bin at Trauner Cohen's office. The cost to NCO for the purported filings of those suits totaled $26,667.
"Defendant never filed lawsuits on the accounts" in the bin, the complaint says.
The suit also claims that the auditor found about 100 checks, from as far back as 2007, in a filing cabinet for filing fee reimbursements that "were not signed by Defendant and were never submitted to courts for filing fees."
"NCO has received information that Defendant used NCO's cost reimbursements to fund Defendant's daily operating expenses," the suit says, adding that the firm "purportedly" filed more than 15,000 lawsuits for NCO.
In addition to fraud, the suit alleges breach of contract, breach of fiduciary duty, unjust enrichment, negligence and negligent supervision and seeks an immediate accounting for all the suits, damages and attorney fees and costs. The suit is accompanied by a temporary restraining order, consented to by Trauner Cohen managing partner Russell S. Thomas on June 26, forbidding the law firm from destroying or deleting any materials relating to NCO accounts and guaranteeing access to the firm's files and documents.
In a response to a query for comment, Thomas said that his firm was cooperating with NCO's investigation.
"We have opened our doors to NCO," said Thomas via e-mail. "We are working with our client to resolve any disputes or issues. As this process is just getting started, we have no further comment at this time." Kilpatrick's Baskin likewise declined comment on the case.
In a memo supporting its request for a temporary restraining order, the attorneys for NCO say that the auditor's report spurring the suit is "just the tip of the iceberg. NCO has reason to believe that Defendant prepared thousands of lawsuits but never filed them. Every day that goes by the debts related to those suits get older and more difficult to collect."
The company must be apprised of the status of every account it filed with Trauner Cohen, it says, and each account "needs to immediately be referred to another collection agency or law firm for collection in order to avoid legal defenses such as the statute of limitations."
Trauner Cohen, in business for more than 30 years, is no stranger to either end of a lawsuit, having been sued many times in Georgia and elsewhere by debtors challenging its tactics under the Fair Debt Collection Practices Act.
During one of those cases, U.S. District Judge Marvin H. Shoob, in a widely reported ruling, admonished attorneys representing both the plaintiff and the law firm to stop filing "silly motions" and resolve future disputes by playing "Rock, Paper, Scissors."
The current suit by NCO is NCO Financial Systems v. Trauner, Cohen & Thomas, No. 09-CV-1787.
