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Coffman v. Williamson

Supreme Court of Colorado, En Banc

May 26, 2015

Cynthia H. Coffman, in her official capacity as Attorney General of the State of Colorado, and Julie Ann Meade, in her capacity as the Administrator, Uniform Debt-Management Services Act, Defendants-Appellants:
v.
Lawrence W. Williamson, Jr., Esq.; Donald Drew Moore, Esq.; and Morgan Drexen, Inc., a California corporation; and Defendant-Appellee: Walter Joseph Ledda, Plaintiffs-Appellees:

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[Copyrighted Material Omitted]

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Appeal from the District Court, City and County of Denver, Case No. 11CV7027. Honorable Michael A. Martinez, Judge.

Judgment Reversed.

SYLLABUS

The supreme court examines the legal services exemption in the Uniform Debt-Management Services Act, § § 12-14.5-201 to -242, C.R.S. (2014) (" DMSA" ), to determine whether the original version of the exemption applies to Morgan Drexen, Inc., a company of nonlawyers. The court also analyzes whether the amended version of the exemption violates the separation of powers doctrine in the Colorado Constitution and the Commerce Clause and Privileges and Immunities Clause in the United States Constitution because certain out-of-state attorneys may be subject to regulation under the DMSA. The supreme court reverses the trial court's order and remands for further proceedings consistent with this opinion.

The supreme court holds that the trial court erred by concluding that Morgan Drexen's services fall within the scope of the legal services exemption in the original DMSA, section § 12-14.5-202(10)(A), C.R.S. (2008). The original exemption encompasses nonlawyer assistants, but Morgan Drexen's activity here does not fall within the scope of that exemption because it performs substantive debt-management services without meaningful instruction and supervision by an attorney.

The supreme court also holds that the amended DMSA does not violate the separation of powers doctrine in article III of the Colorado Constitution or the Commerce and Privileges and Immunities Clauses of the United States Constitution.

For Defendants-Appellants: Cynthia H. Coffman, Attorney General, Jeanine M. Anderson, Senior Assistant Attorney General, Denver, Colorado.

For Lawrence W. Williamson, Jr., Esq. and Donald Drew Moore, Esq., Plaintiffs-Appellees: Bryan Cave LLP, Stephen D. Gurr, Denver, Colorado.

For Morgan Drexen, Inc., Plaintiff-Appellee and Walter Joseph Ledda, Defendant-Appellee: Jason R. Dunn, Brownstein Hyatt Farber Schreck, LLP, Denver, Colorado.

OPINION

HOOD, JUSTICE.

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[¶1] In this case, we examine the scope of the legal services exemption in the Uniform Debt-Management Services Act (" DMSA" ). The DMSA protects consumers seeking concessions from creditors by regulating those who offer their services as intermediaries between creditors and debtors. The DMSA does not apply, however, to certain attorneys who provide " legal services" within an attorney--client relationship. This is referred to as the " legal services exemption." Morgan Drexen, Inc., a legal software and " legal support services" company consisting entirely of nonlawyers, invokes this legal services exemption based on its contracts with " engagement counsel," who receive a monthly fee as low as two dollars per month per debtor--client. In essence, we are tasked with determining whether Morgan Drexen's high-volume, low-dollar contracts with these attorneys improperly circumvent Colorado's regulation of debt-management services. We conclude they do.

[¶2] We address several issues relating to two iterations of the legal services exemption. First, we decide whether the original version shields Morgan Drexen from regulation. In doing so, we examine Morgan Drexen's reliance on Colorado Rule of Professional Conduct 5.3, which sets forth an attorney's responsibilities toward nonlawyer assistants. Second, we address whether an amended version regulates attorneys and thus encroaches upon this court's exclusive authority to do so in violation of the Colorado Constitution. Third, we determine whether the amended version discriminates against out-of-state attorneys in violation of the United States Constitution.

[¶3] We hold that the trial court erred by concluding that Morgan Drexen's services fall within the scope of the legal services exemption in the original DMSA. The original exemption encompasses nonlawyer assistants, but Morgan Drexen's activity here does not fall within the scope of that exemption. Morgan Drexen finds no safe harbor under Colo. RPC 5.3, given that it performs substantive debt-management services without meaningful instruction and supervision by an attorney. We also conclude the amended DMSA does not violate the separation of powers doctrine in article III of the Colorado Constitution or the Commerce and Privileges and Immunities Clauses of the United States Constitution. Consequently, we reverse the trial court's order and remand for further proceedings consistent with this opinion.

I. Facts and Procedural History

[¶4] Walter Ledda is the founder, Chief Executive Officer, and majority shareholder of Morgan Drexen. He describes Morgan Drexen as a " legal software and legal software development company" that is owned and operated by nonlawyers but provides paraprofessional and administrative support to attorneys and performs " routine tasks." Although Morgan Drexen alternates between calling itself a California and a Nevada corporation, its principal place of business is in California. Morgan Drexen employs what it

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terms " nonlawyer assistants" and provides debt-management services nationwide in conjunction with contracting attorneys known as " engagement counsel" or " engagement law firms," some of whom then engage local counsel. Engagement counsel or local counsel enter into attorney--client fee agreements with debtors. Those fee agreements state that counsel may use the services of outside companies such as Morgan Drexen; however, Morgan Drexen is not a party to the agreements.

[¶5] Morgan Drexen refers to engagement counsel as its " clients" and pays them a minimal fee that passes through the law firms' trust accounts, sometimes as low as two dollars per month per debtor--client. Two of those attorneys are parties to this lawsuit: Donald Drew Moore and Lawrence Williamson, Jr. Moore is a Colorado-licensed attorney who acts as both engagement counsel and local counsel. Williamson is a Kansas attorney who acts as engagement counsel and represents Colorado clients through association with Moore. Williamson is " authorized" (but not licensed) to practice law in Colorado as an out-of-state attorney under C.R.C.P. 205.1 (which replaced former C.R.C.P. 220 in 2014). Williamson submitted an affidavit to the trial court that characterizes Morgan Drexen's services as " back office, paralegal services" and avers that he (and Moore) " maintain full control over the course of the representation and exercise such control according to [their] independent judgment."

[¶6] This action dates back to 2011 when the Administrator of the DMSA denied Morgan Drexen's application to become a registered debt-management services provider under the amended DMSA and issued a cease and desist order instructing Morgan Drexen to stop providing debt-management services to Colorado residents and collecting fees from them. Morgan Drexen, Moore, and Williamson then filed a complaint for a declaratory judgment, seeking a declaration that (1) they did not provide debt-management services under the original DMSA and (2) the amended DMSA is unconstitutional. The Colorado Attorney General and the Administrator answered and filed counterclaims, alleging that Morgan Drexen and its Chief Executive Officer, Ledda, violated numerous provisions of the DMSA, § § 12-14.5-201 to -242, C.R.S. (2014), and the Colorado Consumer Protection Act (" CCPA" ), § § 6-1-101 to -1121, C.R.S. (2014).

[¶7] Before conducting any discovery, the State filed a motion for a determination of questions of law pursuant to C.R.C.P. 56(h). It sought a determination that (1) Morgan Drexen was a provider of debt-management services under the original DMSA and (2) the amended DMSA does not violate the separation of powers doctrine. Morgan Drexen and the named attorneys then filed a cross-motion under Rule 56(h), which raised related issues.

[¶8] In a September 12, 2012 order, the trial court concluded that Morgan Drexen provided debt-management services to Colorado consumers based on the plain language of the original DMSA. Nevertheless, the trial court held that Morgan Drexen was exempt from regulation under the legal services exemption of the original DMSA for three reasons. First, the services that Morgan Drexen performed (particularly soliciting settlement offers on behalf of attorneys' clients) were " legal services" because Morgan Drexen is a nonemployee, nonlawyer assistant retained by or associated with a lawyer as permitted under Colo. RPC 5.3. Second, those services were provided in an attorney--client relationship because " the attorneys enter into fee agreements with their debtor clients, and the fee agreements specifically reference Morgan Drexen as an intermediary." And third, those services were provided by an attorney licensed or otherwise authorized to practice law in Colorado because Morgan Drexen was " acting under the supervision of attorneys, as contemplated by" Colo. RPC 5.3.

[¶9] With respect to the statute's constitutionality, the trial court held that the amended DMSA violates the separation of powers doctrine of article III of the Colorado Constitution because (1) it regulates attorneys who are not licensed but are otherwise authorized to practice law in Colorado and (2) it regulates nonemployee, nonlawyer assistants in conflict with Colo. RPC 5.3. In addition, the trial court held that the amended

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DMSA burdens interstate commerce and puts out-of-state attorneys at a competitive disadvantage in violation of the federal Commerce Clause. Finally, the trial court held that the amended DMSA violates the federal Privileges and Immunities Clause because residency " is necessarily at issue in the determination of whether an attorney will be subjected to" the DMSA's requirements.

[¶10] The trial court entered final judgment for Morgan Drexen, Moore, and Williamson. The State appealed. The court of appeals referred the case to us under section 13-4-110(1)(a), C.R.S. (2014), because it does not have initial jurisdiction over appeals in cases in which a statute has been declared unconstitutional. See § 13-4-102(1)(b), C.R.S. (2014).

II. Standard of Review

[¶11] C.R.C.P. 56(h) allows a party to move for a " determination of a question of law." See generally In re Bd. of Cnty. Comm'rs v. United States, 891 P.2d 952, 963 n.14 (Colo. 1995) (explaining that the purpose of Rule 56(h) is " 'to allow the court to address issues of law which are not dispositive of a claim (thus warranting summary judgment) but which nonetheless will have a significant impact upon the manner in which the litigation proceeds'" so as to " 'enhance the ability of the parties to prepare for and realistically evaluate their cases . . . and allow the parties and the court to eliminate significant uncertainties on the basis of briefs and argument'" (quoting 5 Robert Hardaway & Sheila Hyatt, Colorado Civil Rules Annotated § 56.9 (1985))).

[¶12] A trial court's order deciding a question of law under Rule 56(h) is subject to de novo review. Henisse v. First Transit, Inc., 247 P.3d 577, 579 (Colo. 2011). The summary judgment standard applies: an order is proper under Rule 56(h) " [i]f there is no genuine issue of any material fact necessary for the determination of the question of law." C.R.C.P. 56(h). The nonmoving party is entitled to all favorable inferences from the undisputed facts, and all doubts as to the existence of a triable issue of fact must be resolved against the moving party. See Henisse, 247 P.3d at 579.

[¶13] The constitutionality of a statute is also a question of law subject to de novo review. E-470 Pub. Highway Auth. v. Revenig, 91 P.3d 1038, 1041 (Colo. 2004). Because " declaring a statute unconstitutional is one of the gravest duties impressed upon the courts," a court must presume that a statute is constitutional unless the party challenging it proves its unconstitutionality beyond a reasonable doubt. City of Greenwood Vill. v. Petitioners for the Proposed City of Centennial, 3 P.3d 427, 440 (Colo. 2000). " Further, we must uphold the constitutionality of a statute unless a 'clear and unmistakable' conflict exists between the statute and a provision of the Colorado Constitution." E-470 Pub. Highway Auth., 91 P.3d at 1041 (quoting Greenwood Vill., 3 P.3d at 440); see also People ex rel. Dunbar v. Gym of Am., Inc., 177 Colo. 97, 493 P.2d 660, 665 (Colo. 1972) (" Not only, then, does appellee have a heavy burden to overcome with respect to [the CCPA's] alleged unconstitutionality, especially in light of its particular subject matter, but also this Court has an equally certain duty to construe the statute in such a way that it is not void for vagueness whenever a reasonable and practical construction can be given to its language." ).

III. Analysis

[¶14] Following a brief overview of the DMSA, we trace the evolution of the legal services exemption for debt-management providers. We then apply the exemption as it existed in the original DMSA to determine whether Morgan Drexen, a nonlawyer, avoids the DMSA's regulatory scheme by associating with attorneys, as it has here. After we evaluate the exemption as originally drafted, we turn our attention to the constitutionality of the amended DMSA. We assess whether the current version of the DMSA encroaches upon this court's authority to regulate attorneys in violation of the separation of powers doctrine of our ...


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