Many Americans are struggling with credit card debt, and some have turned to debt relief law firms for help. After a California firm called Litigation Practice Group collapsed last year, a new law firm, Morning Law Group, took over. The process has left some clients confused and angry, and has drawn the attention of both state and federal regulatory agencies. (iStock.com/Lesia G)
For tens of thousands of consumer clients who signed up to receive debt relief services from the California-based Litigation Practice Group, the law firm's collapse into bankruptcy last year amid allegations of fraud was not the end of the story.
Rather than simply allowing the defunct firm to wind down operations, a bankruptcy judge approved a plan last summer to sell about 35,000 client files to a new firm: Morning Law Group.
The Morning Law sale included available client files left over from Litigation Practice Group's disorderly implosion, a process in which its files were scattered among different firms.
Where LPG had been beset by complaints that it charged its clients automatic monthly fees without providing any meaningful legal services in return, Morning Law pledged to do right by its customers as it took over their files.
However, this attempt to turn the page from LPG has brought a fresh round of complaints, with some consumers questioning whether the plan represents a real solution.
"This company took over our debt relief from another law group and is probably a scam just like the other group," one customer wrote in a Jan. 6 Better Business Bureau review. "You call, and they give you the run-around with no answers. It seems they are more about taking your money and not helping you."
Morning Law responded to the complaint online, confirming that, yes, the client's file had been transferred to its firm, and offering assurances "that our law firm is legitimate and is not a scam."
Morning Law and its supporters have repeatedly said that it was the previous firm, Litigation Practice Group, that caused problems for customers, and that Morning Law has been working diligently to clean up its predecessor's mess. People who criticize Morning Law today, the firm has said, are confused.
Law360 attempted to contact dozens of former clients of Litigation Practice Group and was able to interview nine. A few were current clients of Morning Law, while others had dropped out.
Some clients were, in fact, confused – in some cases, the clients' files had passed among three different law firms in a matter of months, each of which drew money from the clients' bank accounts. Some clients said they had no idea what was happening or why.
But in some other interviews and online reviews, clients said they knew about the firm-to-firm transfers, and they still had specific complaints about Morning Law.
"This is the third holder of my account that has done literally 'NOTHING' to resolve our debt … You pay money monthly that does NOT go towards your debts at all," one person wrote in a Yelp review of Morning Law in January.
Underlying such complaints are bigger questions about Morning Law's business model. The law firm's principals did not agree to interviews, but court documents suggest Morning Law's primary service is debt validation, a process of writing letters to challenge the validity of a person's debts. Consumer advocates argue that this service is often worthless and can leave the debtor in worse shape.
Thousands of client files were transferred to Morning Law, and it is unclear how many clients ever speak with an attorney. Morning Law began with just one lawyer, and has not publicly disclosed how many lawyers it has now.
Meanwhile, regulatory agencies are watching.
The U.S. Consumer Financial Protection Bureau is pursuing a national crackdown on debt relief companies, especially those that, like Morning Law, charge monthly fees. In some cases, state governments have joined the CFPB in going after debt relief firms.
Experts interviewed by Law360 say such operations face a high risk of a civil enforcement action. Any such action could permanently close Morning Law, potentially affecting hundreds or thousands of customers nationwide.
According to bankruptcy court records, representatives of multiple state law enforcement agencies have been in regular talks for months with a court-appointed ethics monitor charged with overseeing the new firm's operations.
In February, the monitor, Nancy Rapoport of the University of Nevada, Las Vegas, William S. Boyd School of Law, reported that representatives of the CFPB were joining those talks as well.
In an email to Law360, the monitor described these as voluntary talks and said that, to her knowledge, none of the agencies had launched formal investigations or issued subpoenas. The monitor said Morning Law was "doing a good job of representing its clients ethically."
The CFPB and state-level agencies declined to comment.
Legacy Of A Disbarred Lawyer
The story of how Morning Law ended up stepping in to buy the client files begins with a California lawyer named Tony Diab.
Diab lost his law licenses in California and Nevada in early 2019 amid allegations of fraud and theft. He told Law360 last spring that, soon afterward, he created Orange County-based Litigation Practice Group through intermediaries, hired many of its lawyers, and secretly ran the firm's operations for about four years.
LPG represented consumer clients in a process called debt validation: writing form letters to credit card companies and credit reporting agencies in the hope of wiping out consumers' debts. At the same time, LPG promised to defend clients if creditors sued them for unpaid debts.
The firm worked with dozens of marketing firms to line up clients who agreed to pay monthly fees that were deducted directly from their bank accounts. At its peak, LPG reported it was taking in millions of dollars per month from 50,000 to 67,000 customers across the country – $155 million in 2022.
More than 1,000 people would go on to file complaints to the Better Business Bureau, with many saying the firm took their money, failed to protect them from creditor lawsuits, and made their financial situations worse.
Many also complained that their files were transferred without their consent to other law firms, including one called Phoenix Law, which was also allegedly controlled by Diab.
Investors, meanwhile, have accused Diab and colleagues of cheating them out of tens of millions of dollars in capital. Diab, who faces civil suits but has not been charged criminally, denies wrongdoing.
After LPG collapsed in early 2023 and declared bankruptcy, a judge appointed Richard Marshack, a private lawyer with Marshack Hays Wood LLP, as trustee to administer the bankruptcy estate.
While Marshack pushed for a sale of client files, the bankruptcy court system's anti-corruption watchdog, the U.S. Trustee's Office, objected, saying that LPG was a scam and that Marshack was keeping an illegal business alive.
But in July, Bankruptcy Judge Scott C. Clarkson sided with Marshack and approved a deal to sell about 35,000 LPG client files to Morning Law. It was the only such deal presented to the court.
In an interview with Law360, Marshack argued that the alternative of shutting down the law firm would have left thousands of people without legal services.
"It would be like dumping [people] into a pool that can't swim. Like 35,000 people in a pool that can't swim and can't get to the edge," he told Law360. "That's why we did it."
At the time of the sale, Morning Law had existed for about one year and had just one lawyer. That lawyer, Joshua Armstrong, said in a court record that the new firm and a related company planned to take over essentially all of Phoenix Law's lawyers and its non-lawyer staff.
As Morning Law took over, some of the same people who had worked with Diab took on key positions.
Ty Carss, an attorney who has acknowledged in court papers that Diab hired him for key roles in two other law firms Diab was affiliated with – Gallant Law Group and Phoenix Law – currently is a high-level attorney for Morning Law. And Russ Squires, a businessman who invested heavily in LPG before eventually taking the firm to court, heads a company that handles non-legal aspects of Morning Law's operation. Both say they have cut ties with Diab.
"It is true that I was once an investor in the LPG/Tony Diab enterprise, but when I realized that Diab and LPG were not doing right by LPG's consumer clients, [I filed litigation against him] which led to the bankruptcy," Squires said in a statement to Law360.
Carss did not respond to requests for comment.
$385 Per Month
One of the clients whose file was transferred to Morning Law Group was Matthew Harriss, a 52-year-old Illinois resident who runs an education program for prison inmates. He told Law360 he hired Litigation Practice Group in November 2022 as he faced about $26,000 in credit card debt.
He said his file passed between three law firms in the space of a year: first to Litigation Practice Group, then to Phoenix Law, and finally to the court-approved firm Morning Law Group.
Despite the firms taking some $385 per month from his bank account, Harriss told Law360 that all three firms failed to provide useful services.
A bank statement filed by ex-Morning Law client Matthew Harriss as part of a bankruptcy court claim shows monthly withdrawals made as his file transferred between Litigation Practice Group and Phoenix Law before ultimately being sold to Morning Law. Even though the last three deductions say "PHXLAW," court records strongly suggest they are Morning Law transactions. In a deal that closed last August, Morning Law bought Phoenix Law's assets, including the Phoenix Law payment system. (Court Documents)
"They need to be stopped," Harriss told Law360 in a text message. "They say they are different, but I don't believe they are – even though they have court approval."
Today, Morning Law is attempting to address consumer complaints publicly – and to distance the new firm from LPG.
A 400-word statement recently posted on the firm's website says it's striving for a "fresh start."
"Our operations are completely different from LPG with a laser focus on client service excellence. ... We acknowledge the presence of negative reviews stemming from the LPG era. These reviews reflect LPG's past practices and do not represent Morning Law Group's standards, ethics, or operations," the statement says.
Top: An archival image from Litigation Practice Group's website as seen on May 15, 2023. Bottom: The website of Morning Law Group as seen on Feb. 6, 2024.
In or Out
Under ethics rules for California lawyers, when any law firm is sold, the purchasing firm must seek written consent from the clients of the predecessor firm. However, if clients do not respond to "reasonable" efforts to obtain their consent, then their "consent shall be presumed," the rules say.
So when the bankruptcy court signed off on the deal to sell LPG's client files to Morning Law, the firm began the process of reaching out to its new customers by email to inform them of their ability to opt out of representation by a mid-November deadline.
An August Morning Law opt-in/opt-out email reviewed by Law360 said that if the client did not respond within 90 days, Morning Law would take over their representation.
In an April filing, Litigation Practice Group's bankruptcy trustee reported that only 1,745 clients had opted into Morning Law's services – they had replied to the email and said yes, they wanted Morning Law to represent them.
More than twice as many – 4,673 – had opted out, saying no, they did not want Morning Law to represent them. The rest had not responded to the email, and Morning Law kept making monthly withdrawals from their bank accounts. It is unclear how many clients fall into this category.
Harriss told Law360 that he fell into the group that never ended up responding.
"I just didn't do anything," he said. "I was trying to research and research. I couldn't get a good answer of why to opt out. I couldn't really give the answer why to opt in."
Because he did not respond, however, the firm considered him a de facto opt-in and continued to withdraw $385 from his bank account each month.
The money from Harriss and other clients added up. Morning Law reported in an LPG bankruptcy court filing in December that it had withdrawn $12.3 million from client bank accounts over the previous four months, and anticipated client revenue between $2.7 million and $3.3 million per month in the future.
While the December filing said the fees were for services already rendered, not advance payments, the firm did not explain what work it performed to earn the fees.
Law360 posed this question repeatedly to Morning Law representatives, but they never responded. Squires, the businessman who works with Morning Law, said in a text message, "Clients who have opted in are getting valuable and effective legal services." He did not respond to requests to elaborate.
Squires and the firm likewise did not respond to repeated questions about the number of attorneys it has – its website doesn't list any – and what states it operates in.
In a brief conversation with Law360, Zev Shechtman, a bankruptcy attorney representing Morning Law, rejected criticisms from some current and former clients.
"To suggest that there is anything inappropriate going on, when MLG has been doing everything in its power to comply with federal and state laws, I just think is really inappropriate and frankly, a frivolous claim," he said.
The Chapter 11 trustee, Marshack, and an attorney who works with him, Chris Celentino, have referred questions about Morning Law Group's operations – such as the number of lawyers on its roster – back to the firm.
The relationship between the Chapter 11 trustee and Morning Law, meanwhile, has hit a snag.
At the time of the sale of client files last year, Morning Law paid an up-front fee and agreed to remit a share of money to the bankruptcy estate in the future as clients made monthly payments.
Then in late May, Morning Law confirmed in a court filing that it has no plans to make those payments for months.
Celentino declined to comment about the dispute. But in court filings, the parties have said the fight has to do with different methods of calculating the number of active, paying client files for which Morning Law owes money to the bankruptcy estate.
Recent documents don't discuss the precise dollar figure or the number of client files in dispute.
It is unclear to what extent the financial dispute is related to the consumer complaints against Morning Law Group. The parties involved have agreed to take the dispute to mediation. Resolution of the conflict could have major implications for payments to creditors, including former Litigation Practice Group consumers seeking refunds.
In the meantime, law enforcement agencies seem to be curious about Morning Law, too.
In time sheets filed with the bankruptcy court since September, the firm's court-appointed ethics monitor, Rapoport, listed conversations with representatives of the state attorneys general of Pennsylvania, California, Ohio and Oregon, as well as the California Department of Financial Protection and Innovation and the CFPB.
A time sheet filed in September by Nancy Rapoport, the court-appointed ethics monitor for Morning Law Group, describes contact with state prosecutors. Rapoport has said that Morning Law is participating in the talks voluntarily and that no formal inquiries into the firm have been initiated. (Court Documents)
She has reported to the bankruptcy court that the discussions so far had focused on Morning Law's acceptance or rejection of client contracts, and how the firm is representing its current clients.
In subsequent email exchanges with Law360, Rapoport described the conversation as "a voluntary monthly-ish meeting with various regulators to make sure we're all on the same page."
"No regulator, to my knowledge, has initiated any inquiry into MLG's activities," she added.
CFPB Has Targeted Similar Companies
In recent years, the CFPB has hammered debt relief companies with enforcement actions.
For instance, the CFPB, acting alongside state attorneys general in Colorado, Delaware, Illinois, Minnesota, New York, North Carolina, and Wisconsin, filed suit in January against New York-based StratFS and its leaders.
The agencies accuse the leaders of running an elaborate debt relief fraud that took more than $100 million from customers through advance fees, and left many of the debtors in worse financial shape.
That alleged fraud relied on an interlocking network of companies and multiple "facade" law firms, the regulatory agencies say. A federal judge approved a preliminary injunction – including a continued asset freeze – on March 4.
Two of the key defendants, Ryan Sasson and Jason Blust, have denied the allegations in court filings. Litigation is ongoing.
And in 2019, the CFPB brought a lawsuit against debt relief company PGX Holdings Inc. and related companies, including Lexington Law.
The CFPB case forced the companies to seek Chapter 11 bankruptcy protection, and in August the companies agreed to pay about $2.7 billion in restitution and about $64 million in civil penalties.
One person familiar with these types of cases is Sheppard Mullin Richter & Hampton LLP special counsel Mehul Madia, a former senior attorney with the CFPB.
While he said he was unfamiliar with the specifics of Morning Law Group's operations, he told Law360 that any company that takes monthly subscription-based payments from debt customers is putting itself at risk.
"I think, generally speaking, subscription fee arrangements that a credit repair or debt relief company offers are going to be viewed very skeptically by the CFPB," Madia said.
Madia said the CFPB can bring actions under the federal Credit Repair Organizations Act, a key provision of which bars companies that offer "credit repair" services from demanding advance payments.
While Morning Law makes clear in its consumer contracts that it does not perform credit repair work, a warning that its predecessor did not explicitly include, Madia said that, in some cases, such caveats might not be enough to insulate entities from CFPB scrutiny.
Instead, he said, the CFPB might ask what services the firm is in fact providing.
And he said the CROA isn't the only enforcement tool that debt relief companies have to worry about.
Another federal regulation, the Telemarketing Sales Rule, is even stricter – it says a debt relief program must not only abstain from charging advance fees, the firm cannot collect fees for six months after the service is performed, Madia said.
When debt relief companies collect monthly fees, Madia said they usually can't defend themselves by arguing they're not collecting advance fees, Madia said.
"When companies have made those arguments, the bureau has said, 'No, you can't do that, that essentially violates the TSR. It's a form of an advance fee,'" he said.
One Lawyer Covering Cases In Five States
In the fall of 2023, Harriss' debt problems compounded. Citibank sued him in state court in late October looking to collect on what Harriss said was about $5,000 in debt.
Seeking assistance from a lawyer, he said, he called Morning Law Group.
"I kept calling them, I kept calling them, I kept calling them. And finally my case coordinator called me back and said, 'Okay, here's what we've done. We've got you an attorney. His name's Kent Cobb. And he's out of Arkansas.'"
It is unclear how many Morning Law Group clients ever speak with an attorney. Under Litigation Practice Group, only about 8% to 9% of clients ended up in litigation, at which time the firm would assign a lawyer, according to a court filing last year by the U.S. Trustee's Office.
Harriss said the Arkansas lawyer got him a settlement offer to pay back $5,700 – an amount that included late fees, interest and court costs – over 33 months.
Harriss was not impressed with what he considered a low-quality offer.
"He didn't do anything I couldn't have done," he told Law360.
In an interview with Law360 in February, Cobb said he was working as a staff attorney for Morning Law covering cases in Arkansas, Oklahoma, Illinois, Iowa and Wyoming.
He added that he was in the process of obtaining licenses in Indiana, Kansas, Kentucky, Virginia and North Carolina so he can represent clients there, too.
"Like anything in the digital age, things are done remotely," Cobb told Law360. "It's through phone, text, email. You're negotiating for the clients, on the phone or email with other firms, you're obtaining the information, you're responding electronically with an answer."
Kent Cobb
He said he wasn't sure of the exact number of Morning Law Group attorneys in the U.S. today.
"But we've had, of course, Zoom attorney meetings, and I would think there are probably 35."
He said he was probably handling around 300 cases, adding that he was uncertain about the precise number.
He said his work provides distinct benefits for people: the firm responds to suits so people don't get default judgments, and they help people avoid judgments and wage garnishments.
"So anybody that comes and says out there, 'They're not doing anything for these guys,' They just don't really know the process. They haven't talked to our clients."
He said he could not respond directly to Harriss' complaints due to attorney-client privilege, but suggested that those airing grievances with the firm were a small but vocal minority.
"I mean, you're talking about 35,000 people," he said. "If you take a small percentage of that, and have them post negative stuff online, it's going to look massive."
"The Angriest Clients"
In a court filing this month, Rapoport, Morning Law's court-appointed ethics monitor, described visiting Morning Law's offices in California.
As part of her trip, she reported sitting in as a team of non-lawyer firm workers fielded calls from sometimes "angry" clients.
"Many of the angry callers are angry due to the actions of LPG, not MLG, and appeared to have understood from prior communications with LPG that some of their payments to LPG were going toward the debts themselves, rather than going toward payments to the firm for legal services," Rapoport wrote.
The monitor also described meetings with other non-lawyer staffers, including the escalation team, "which is the group that interacts with the angriest clients."
She also reported meeting with a non-attorney legal assistant "who, under supervision of the attorneys, helps coordinate with clients on settlements offered by creditors."
The monitor's report also described that the firm now helps some clients with filing for bankruptcy protection.
In the end, Rapoport said the firm was doing its best to provide quality services to its clients.
"Although it makes mistakes from time to time — as any law firm will do — it owns up to those mistakes immediately and works hard to fix them."
Rapoport's fees have been funded through Morning Law and by surcharges to secured creditors through the bankruptcy estate, according to court records.
Morning Law agreed to advance payments covering the monitor's fees and expenses for the final six months of last year, which would be represented as a credit on the balance of the purchase price owed by Morning Law. While at least some of the funding for Rapoport's fees hinges on Morning Law, Rapoport told Law360 in a November interview that the bankruptcy judge would ultimately have to sign off on any fee awards. She rejected the risk of potential conflicts.
"The court has the opportunity to decide whether or not I'm unbiased when it reads my reports and looks at my fee [applications]," she said.
Harriss, by contrast, concluded that Morning Law couldn't help him. He dumped the firm in mid-December, hired a local lawyer, and declared bankruptcy.
He filed a claim in the Litigation Practice Group bankruptcy case seeking a refund of about $4,200 in fees, wrote about his experience in the online forum Reddit, and posted a Better Business Bureau complaint against Morning Law.
"For a year of payments NOTHING was done NOTHING! As a result, I have had to file bankruptcy and you will too," he wrote in his BBB complaint.
Morning Law posted an online response to Harriss' complaint, saying he had been a client of the firm "for only one month during which time we resolved one of his legal matters."
"Unfortunately, he then canceled our services before we could assist on his other debts. While we greatly sympathize with the clients who were mistreated by LPG and misled by LPG's false promises, Morning Law Group is not LPG and is not to blame for LPG's actions."
Harriss showed Law360 emails in which Morning Law first acknowledged him as a client in November. He dropped the firm about a month later.
Even though the firm acknowledged Harriss as a client for only about one month, available records suggest the firm withdrew money from his account for three months.
The bank record which Harriss sent to the bankruptcy court shows payments being deducted from his account on Aug. 14, Oct. 2, and Nov. 3.
The annotation on these deductions says PHXLAW – Phoenix Law – but Morning Law had purchased Phoenix Law's assets on Aug. 4, including its bank payment systems, according to court records, strongly suggesting that these are Morning Law deductions.
Harriss' bank record – plus the December status report by Morning Law – strongly suggests Morning Law was withdrawing money from client bank accounts during the 90-day opt-in period, which ran from mid-August until mid-November.
Morning Law representatives did not respond to questions about why the firm would have withdrawn money from clients' accounts during the 90-day opt-in/opt-out period.
Losing A Default Judgment
While Rapoport, the ethics monitor, has defended Morning Law, she has acknowledged at least one case in which the firm had failed to properly handle a client matter.
In a May 15 filing, she said that Morning Law had contacted her about a default judgment that had been entered against a client because the firm failed to respond to communications from a creditor.
"No law firm is perfect, and sometimes a client issue falls through the cracks," Rapoport wrote. "Naturally the client was incensed about the entry of a default judgment."
Rapoport then praised Morning Law for handling the issue proactively, and said she was working with the firm to prevent something similar from happening again.
The total number of consumer complaints against Morning Law is relatively small: the Better Business Bureau listed 10 complaints and seven negative reviews as of Friday, compared to the well over 1,000 complaints for predecessor firm Litigation Practice Group.
Other complaints have come in through the Chapter 11 process.
Margaret Lindquist of Fairfax, Virginia, filed a bankruptcy court claim in January alleging she had been defrauded by Litigation Practice Group, then by Phoenix Law, then by Morning Law Group, losing a total of about $3,900.
"This is an outright crime and would appreciate the bankruptcy court do due diligence in keeping these law firms accountable for their actions and pay me back," she wrote.
Lindquist did not respond to requests for comment.
Law360 learned of other complaints by making calls to various clients around the country.
One of them was south Texas resident Belkys Cisneros, who told Law360 that she had signed up with Litigation Practice Group, agreeing to pay $261 per month. When she spoke with Law360 in January, she said the money was still being withdrawn from her account with nothing to show in return.
"I don't know why or how or what. I don't know anything. The only thing I know: they [deduct] my money every month," Cisneros said. Alternating between English and Spanish, she said she now considers the operation a fraud. "They're stealing money from people."
Cisneros' name appears on a list of clients, filed as part of another client's bankruptcy court claim, whose files were transferred to Morning Law.
Chris Celentino, an attorney working with bankruptcy trustee Richard Marshack, said that customers like this need to call Morning Law directly.
He also said some customers are confusing bad actions under the prior firm, Litigation Practice Group, with current, valid actions by Morning Law.
Shechtman, the attorney for Morning Law, declined to respond to the complaints from Lindquist and Cisneros. "The ethics rules do not permit my client to discuss that," he wrote in an email. "MLG has no other comments."
On June 17, Law360 spoke again with Cisneros. She said that the final withdrawal from her bank account took place in April, and she was no longer being charged. LPG clients had signed contracts to make payments for a set length of time, and Cisneros said it was her understanding her contract had expired.
She said she had never spoken with anyone with Morning Law Group.
--Additional reporting by Brandon Lowrey, Craig Clough, Katryna Perera, Jeff Montgomery and Julie Manganis. Graphics by Jason Mallory. Editing by Peter Rozovsky.
Update: This article was updated with additional information on the funding for the ethics monitor through the bankruptcy estate.
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