The state’s unauthorized practice case against bankrupt debt collection company Orion Processing is rolling forward, albeit very slowly.
The Texas-based company is fending off allegations that it practiced law illegally in North Carolina and duped residents with an unlawful debt adjustment scheme. A Wake County Superior Court judge has issued a restraining order to prevent Orion from continuing its business here while the case against it plays out.
Orion filed for Chapter 11 bankruptcy in Texas in February, which led the North Carolina Business Court to issue an automatic stay freezing discovery and a hearing on pending motions in the case.
In April, Orion told the Business Court that it would seek a single, binding ruling from the Texas bankruptcy court about whether the stay applied to the North Carolina case as well as other similar suits pending against the company in Colorado, Oregon and Illinois.
But after Orion failed to take any action in the bankruptcy court, Gale lifted the stay on the North Carolina case. Gale found that the North Carolina State Bar and the state attorney general’s office, both of which are going after Orion, fell within an exception to automatic stays on proceedings against debtors who have filed for bankruptcy, carved out for state agencies that are exercising their police and regulatory powers.
His decision was based on a two-pronged test that asks whether the state agency that initiated an action against a debtor is seeking to protect the public and what the government’s interest is in the debtor’s property.
“Plaintiffs are not protecting their own pecuniary interest but instead are attempting to effectuate public policy and promote the safety and welfare of North Carolina citizens,” he wrote. “Therefore, the police powers exception to the automatic bankruptcy stay applies, and this action should proceed notwithstanding Orion’s bankruptcy petition.”
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