Attorneys – Sanctions – Fraud – Credit Card Debt

Lucas v. R.K. Locke & Associates. (Lawyers Weekly No. 11-16-0238, 14 pp.) (Linda M. McGee, J.) Appealed from the Bladen County District Court. (Sherry Dew Tyler, J.) N.C. App. Unpub. Click here for the full text of the opinion.

Holding: Where an attorney employed by a credit collection group sued the group and others on behalf of the plaintiffs who claimed the defendants engaged in fraud, the orders imposing Rule 11 sanctions against the attorney and plaintiffs, jointly and severally, are vacated since the collection group was not a defendant in any of the actions and had no standing to request Rule 11 sanctions related to these actions.

We dismiss plaintiffs’ appeals in part and the orders entered on Oct. 29, 2009, imposing sanctions against the attorney and plaintiffs, jointly and severally, are vacated.

Background

Plaintiffs initiated these actions by three separate complaints filed Sept. 12, 2008, by plaintiffs’ attorney. Relevant to these appeals, one defendant was an Illinois general partnership d/b/a as CCDN. The actions against the other named defendants in plaintiffs’ complaints were dismissed by orders not subject to this appeal.

Plaintiffs sought money damages for an alleged scam on the part of defendants whereby defendants promised to assist plaintiffs in legally avoiding payment of credit card debt in return for a fee. Plaintiffs alleged fraud and various other causes of action.

Plaintiffs’ attorney had previously entered into an associate attorney agreement with CCDN and was to represent clients referred by CCDN. Plaintiffs’ attorney accepted client referrals from CCDN, including plaintiffs. Once he reviewed the documents from CCDN, he realized CCDN’s methods were not legally sound. Upon further investigation, he realized that CCDN was conducting a scam.

Plaintiffs’ attorney also stated he attempted to locate CCDN but came to believe there was no limited liability company registered as CCDN and he filed these actions on behalf of plaintiffs. He named other defendants but did not include CCDN as a defendant.

Plaintiffs moved for entries of default against defendants and defaults were entered. Plaintiffs filed motions for default judgments. All of defendants’ motions to dismiss were to be heard by Judge Barefoot, who believed that, because of the agreement, plaintiffs’ attorney was an attorney for CCDN and could not represent plaintiffs against CCDN because it would constitute a conflict of interest.

Judge Barefoot removed plaintiffs’ attorney as their counsel. The judge later set aside the prior order removing plaintiffs’ counsel and ruled that he could represent the plaintiffs because CCDN was not a party to the actions.

CCDN’s attorney’s motions for Rule 11 sanctions against plaintiffs’ attorney and plaintiffs, jointly and severally, were granted. This appeal followed.

Analysis

Plaintiffs’ attorney appeals from the order imposing sanctions pursuant to Rule 11. Because we hold that motions signed by CCDN’s attorney on did not vest jurisdiction in the trial court to consider the requested Rule 11 sanctions, we vacate the orders imposing sanctions pursuant to Rule 11.

Defendants, through their attorney, successfully argued to the trial court that plaintiffs’ complaints were improper because plaintiffs failed to name a necessary party, being CCDN. Because CCDN was not a “defendant” in any of these actions, and had not been brought in as a party in any of these actions, CCDN had no standing to request Rule 11 sanctions related to these actions.

The trial court lacked jurisdiction to impose sanctions pursuant to these motions. These appeals are dismissed in part and the orders imposing Rule 11 sanctions against plaintiffs’ attorney and plaintiffs, jointly and severally, are vacated.

Dismissed in part and vacated in part.