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Stewart v. Legal Helpers Debt Resolution, LLC

United States District Court, W.D. North Carolina, Bryson City Division

September 23, 2014

ROBERT STEWART, an individual, and others similarly situated, Plaintiff,



THIS MATTER is before the Court on the Plaintiff's Motion for Confirmation of Arbitration Award solely as to Defendant CDS Client Services, Inc. [Doc. 79]. For the reasons that follow, the Court will grant the Plaintiff's motion.


The Plaintiff, a resident of North Carolina, initiated this action in the Macon County, North Carolina, General Court of Justice, Superior Court Division, against the Defendants Legal Helpers Debt Resolution, LLC ("LHDR"); the law firm Macey, Aleman, Hyslip & Searns ("Law Firm"); attorney Jeffrey Hyslip ("Hyslip"); attorney Linda Carol ("Carol"); and CDS Client Services, Inc. ("CDS"). [Doc. 1-1]. In his Complaint, the Plaintiff seeks declaratory relief, rescission, and damages based on claims of unfair and deceptive trade practices in violation of N.C. Gen. Stat. § 75-1.1, legal malpractice, negligence, and consumer fraud. The Plaintiff further sought to represent a class of North Carolina residents, who from June 9, 2007 to the present, entered into contracts for legal services with LHDR and who paid "advance fees" for such services. [Id. at ¶¶14-19]. The Defendants removed the action to this Court on July 11, 2011. [Doc. 1].

The Complaint alleges that on June 1, 2010, the Plaintiff received a direct mail solicitation from LHDR, offering debt negotiation services. [Id. at ¶¶ 20, 24]. The Plaintiff called the toll free number on the solicitation and spoke to a financial advisor. [Id. at ¶ 25]. After discussing his financial situation with the advisor, the Plaintiff entered into an Attorney Retainer Agreement ("ARA") with LHDR. [Id. at ¶ 28]. The ARA authorized LHDR to negotiate and modify the Plaintiff's unsecured debt in exchange for certain fees. [Doc. 1-1 at 27-30]. Included among these fees was an obligation to pay 15% of the total scheduled debt to a separate entity, CDS. [Id. at ¶ 31]. It is alleged that LHDR used CDS to handle negotiations for debt adjusting under the ARA. [Id. at ¶ 33].

The Complaint further alleges that LHDR represented to the Plaintiff that it was a law firm authorized to provide legal services in North Carolina. [Id. at ¶ 38]. It is alleged that as of May 4, 2011, however, the only attorney employed by LHDR who was properly licensed to provide legal services in North Carolina was Defendant Carol. None of the services provided to the Plaintiff through LHDR, however, were actively performed by Carol. [Id. at ¶¶ 40-42]. Defendant Hyslip, an LHDR attorney not licensed to practice in North Carolina, purported to represent the Plaintiff on behalf of LHDR. [Id. at ¶ 43].

The Complaint alleges that to date, the Plaintiff has paid the total sum of $8, 658.36 under the ARA but has received no offers to settle his debts. [Id. at ¶ 52]. It is alleged that LHDR advised the Plaintiff that it will do nothing to settle his debts until he has paid all payments due under the ARA, a total of $25, 975.20, which is an amount equal to 60% of his original total outstanding debt. [Id. at ¶ 53].

The Defendants asserted that the terms of the ARA required the Plaintiff to submit any dispute against them to arbitration and, therefore, Defendants filed a Motion to Compel Arbitration. [Doc. 26]. On June 1, 2012, the Court entered an Order granting the Defendants' motion to compel arbitration. [Doc. 55]. The Court further ordered that all pending motions would be denied as moot, and that the Plaintiff's class claims would be stayed pending the arbitration. [Id. at 2].

Prior to the arbitration, the Plaintiff agreed to a confidential settlement with every defendant except CDS. [SEALED Doc. 64-1]. Pursuant to such agreement, Plaintiff and Defendants LHDR, Law Firm, Hyslip, and Carol, have resolved all issues among them regarding Plaintiff's individual claims. [Id.].

On April 29, 2013, Plaintiff and Defendant CDS proceeded to arbitration. [Doc. 79-1 at 1]. At the time the arbitration was conducted, CDS was represented in this Court by the Asheville law firm of Roberts & Stevens, P.A. [Docket Sheet]. Counsel representing Defendant CDS at the arbitration, however, was attorney William R. Mitchell, of San Juan Capistrano, California. [Doc. 79-1 at 2]. At arbitration, Plaintiff presented three claims against CDS: (1) the contract between Plaintiff and LHDR was void and therefore rescission relief as against CDS was warranted; (2) CDS was engaged in the unauthorized practice of law in North Carolina and Plaintiff was damaged thereby; and (3) CDS violated North Carolina's Debt Adjusting Act and North Carolina's Unfair and Deceptive Trade Practices Act entitling Plaintiff to damages. [Doc. 79-1 at 7].

At the conclusion of the arbitration, the Arbitrator found in favor Plaintiff on only the last of his three claims. The Arbitrator held that Defendant CDS had violated the North Carolina Debt Adjusting Act by unlawfully acting as an intermediary for Plaintiff in contravention of N.C. Gen. Stat. § 14-423(2). [Id.]. The Arbitrator further held that CDS's violation of the Debt Adjusting Act also constituted an unfair and deceptive trade practice under N.C. Gen. Stat. § 75-1.1(a). [Id.]. The Arbitrator found that CDS received from Plaintiff $1, 701.83, for its services, and Plaintiff, therefore, was damaged in such amount. [Id.]. The Arbitrator then trebled this amount to $5, 105.49 pursuant to N.C. Gen. Stat. § 75-16. [Id.]. Further, the Arbitrator held that Plaintiff was entitled to recover attorney's fees from CDS in the amount of $5, 000.00, raising the subtotal of Plaintiff's award to $10, 105.49. [Id. at 8]. From this subtotal, the Arbitrator held that Plaintiff must reimburse CDS $637.50, which amount was one half of the arbitration fee of $1, 275.00. [Id.]. Plaintiff's total arbitration award against CDS, therefore, equaled $9, 467.99, as of June 13, 2013, the date of the award. [Id.].

Following the arbitration, counsel with Roberts & Stevens, P.A., moved to withdraw from further representing Defendant CDS in this Court. [Doc. 58]. By Order entered June 12, 2013, the Court granted said motion and directed the Clerk to mail of copy of the Order to CDS's arbitration attorney, Mr. Mitchell, in California. [Doc. 59]. After permitting counsel with Roberts & Stevens, P.A., to withdraw from further representing CDS in this Court, no other attorney entered an appearance on behalf of Defendant CDS herein. On May 8, 2014, the Court entered an Order that, inter alia, directed CDS to file a notice of appearance within fourteen days of said entry date listing counsel retained to represent it in this Court or suffer the entry of default.[1] [Doc. 77 at 3]. On May 13, 2014, Plaintiff filed his motion to confirm the arbitration award against CDS. [Doc. 79]. Also on that date, Plaintiff filed a dismissal of the class claims in this action. [Doc. 78]. Plaintiff's Motion for Confirmation of Arbitration Award solely as to Defendant CDS, the only unresolved matter remaining in this lawsuit, is thus ripe for review.


The Supreme Court has made clear that Congressional policy, specifically a preference for the arbitration of disputes under the Federal Arbitration Act, 9 U.S.C. § 1 et seq. ("FAA"), when the parties to a contract ...

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