Attorneys with embattled Houston-based law firm McClenny, Moseley and Associates, which has filed over 2,100 hurricane damage lawsuits in Louisiana, were again called upon to answer for their business practices in U.S. District Court in New Orleans on Friday.
The firm has been in trouble in courts across the state, resulting in sanctions, orders halting their cases and professional complaints in recent months.
On Friday, Chief Magistrate Judge Michael B. North called out the firm’s Louisiana managing partner William Huye for saying that McClenny hadn’t engaged in questionable marketing practices, when a recently filed contract with marketing company Velawcity suggests that it did.
According to the contract, McClenny paid a marketing company to identify and potentially sign up clients, the latter of which is prohibited by state law.
North had requested to see the contract after a February 2 hearing at which the firm’s marketing practices were discussed. In response, the firm produced a series of contracts with Velawcity showing that it paid the marketing company $3,500 per potential client, to a total tune of nearly $14 million.
The contract also stated that Velawcity would provide potential clients with fee agreements for them to sign to become clients of the law firm.
“That’s a violation of Louisiana law,” North said.
Attorneys in Louisiana aren’t allowed to reach out to prospective clients to solicit employment. They can only advertise their services and hope that clients reach out to retain them.
The firm’s newly hired counsel, criminal defense attorney William Gibbens, said they were no longer working with Velawcity.
“I understand this is inappropriate,” Gibbens said of the alleged conduct, while asserting that the letter of the contract didn’t match the firm’s actual marketing practices.
The law firm’s counsel conceded to a number of issues North found with its handling of clients and their cases, including a litany of problems around McClenny’s arrangement with Alabama-based Apex Roofing and Restoration.
The firm is accused of using the roofing company to sign up clients as well, in some cases without their knowledge. The two companies would then allegedly share all or a portion of the insurance proceeds. In at least one case cited in court Friday, the amount seemed to far exceed the likely price for fixing a roof.
In that case, cited by North, the settlement agreement stated that the entire amount of $46,000 — left after the law firm had taken out its fees — would go to Apex. “That can’t be just the money for a roof,” North said, implying that the amount included funds for other repairs not to be performed by Apex, but that would go to the roofer regardless.
What’s more, Gibbens admitted that “in a number of cases, Apex didn’t do the work,” after being asked by North whether a client whose case came to the firm through its arrangement with Apex had actually gotten her roof fixed, a question the defense attorney couldn’t answer.
“The entire arrangement is screwed up,” North said of the collaboration between the firm and the roofing company. Gibbens agreed. “I can’t explain why it’s okay. It’s not,” he told the judge.
The law firm has defended its actions by saying it is helping storm victims attain insurance proceeds and recover. Apex has denied any wrongdoing.
On Thursday, U.S. Eastern District Chief Judge Nannette Jolivette Brown ordered all of the firm’s cases in her district to be put on hold pending review. This follows a similar order by Judge James D. Cain of the Western District, meaning nearly all of the firm’s active cases in Louisiana are currently halted.
Both judges have also asked the firm to produce a list of all its current clients with lawsuits in their respective courts, including clients’ contact information. North on Friday told the firm’s attorneys present in the courtroom, Zach Moseley and Huye, that he would also refer them for professional discipline, adding to existing disciplinary complaints in front of the Louisiana Attorney Disciplinary Board.
The firm is also faced with a cease-and-desist letter issued by the state insurance commissioner, ordering it to stop signing up clients through Apex Roofing and sending demand letters to insurance companies on their behalf. The commissioner in an interview last month mentioned the potential for criminal referrals as well, but would not comment on whether such referrals had already been made.
In his letter to staff, Moseley said the firm was preparing “an aggressive response” to the Louisiana Department of Insurance.
“You’re going to need more lawyers if you’re trying to unwind this mess,” North told the attorneys and their counsel in court.