State of N.C. v. Orion Processing, LLC

State of N.C. v. Orion Processing, LLC, 2015 NCBC 48.

STATE OF NORTH CAROLINA IN THE GENERAL COURT OF JUSTICE
SUPERIOR COURT DIVISION
COUNTY OF WAKE 13 CVS 7161

STATE OF NORTH CAROLINA, ex )
rel. ROY COOPER, Attorney General, )
and THE NORTH CAROLINA STATE )
BAR, )
)
Plaintiffs, )
)
v. )
)
ORION PROCESSING, LLC, d/b/a )
OPINION AND ORDER ON PLAINTIFFS’
World Law Processing, World Law )
MOTION TO DETERMINE
Debt, World Law Group, and World )
APPLICABILITY OF THE POLICE AND
Law Plan; SWIFT ROCK )
REGULATORY EXCEPTION AND TO
FINANCIAL, INC., d/b/a World Law )
EXTEND SCHEDULING ORDER
Debt, World Law Group, and World )
Law Plan; DERIN ROBERT SCOTT; )
BRADLEY JAMES HASKINS, d/b/a )
World Law Group; WORLD LAW )
SOUTH, INC., d/b/a World Law )
Group; and GLOBAL CLIENT )
SOLUTIONS, LLC, )
)
Defendants. )
)

{1} THIS MATTER is before the Court on Plaintiffs’ Motion to Determine
Applicability of the Police and Regulatory Exception and to Extend Scheduling
Order (“Motion”).1 For the reasons expressed below, the Motion is GRANTED, and
the Court finds that the automatic stay provided by 11 U.S.C. § 362(a) (2014) does
not apply.

1
The portion of this Motion requesting the extension of deadlines in the Court’s December 29, 2014,
Scheduling Order has been ruled upon by Order dated March 12, 2015, and will not be further
addressed here.
North Carolina Department of Justice by M. Lynne Weaver and Michael T.
Henry for Plaintiff State of North Carolina ex rel. Roy Cooper, Attorney
General; The North Carolina State Bar by David R. Johnson for Plaintiff The
North Carolina State Bar.

Blanchard, Miller, Lewis & Isley, P.A. by E. Hardy Lewis for Defendants
Orion Processing, LLC and Derin Robert Scott; Roberts & Stevens, P.A. by
Mark C. Kurdys for Defendant Global Client Solutions, LLC

Gale, Chief Judge.

I. BACKGROUND

{2} The Court lists only the background necessary to provide context for
this Order. Background provided in the Court’s April 16, 2015, Order and the
Court’s other Orders entered in this case is incorporated by reference.
{3} Plaintiffs filed their original Complaint on May 22, 2013, and
subsequently filed their Amended Complaint on June 25, 2014. The Amended
Complaint alleges claims of violations of the North Carolina Debt Adjusting Act and
the Unfair and Deceptive Trade Practices Act, unauthorized practice of law, and
conspiracy against Orion Processing, LLC (“Orion”), Swift Rock Financial, Inc.,
Derin Robert Scott, Bradley James Haskins, World Law South, Inc., and Global
Client Solutions, LLC.
{4} Three other cases with similar claims against Orion are pending before
state courts in Colorado, Oregon, and Illinois.
{5} After substantial motion practice, and while several motions were
calendared to be heard, Orion filed a suggestion of bankruptcy with this Court on
March 1, 2015, following a voluntary petition of Chapter 11 bankruptcy in the
United States Bankruptcy Court for the Western District of Texas (“Bankruptcy
Court”) filed on February 27, 2015. Because of the suggestion of bankruptcy, the
Court cancelled its hearing on pending motions and Plaintiffs deferred further
discovery until resolution of the issue of the stay.
{6} On March 10, 2015, Plaintiffs filed the instant Motion, seeking a ruling
that the stay provided by § 362(a) is exempted from this action under the “police
powers exception” provided in § 362(b)(4).
{7} In its brief opposing the Motion, and in statements made at a status
conference held on April 2, 2015, Orion expressed that it would prefer to seek a
single, binding ruling from the Bankruptcy Court regarding whether the stay
applied both to this action and to other state proceedings in which Orion is involved.
The Court deferred ruling on the Motion pending a further update from Orion
regarding whether it had sought or secured such a ruling.2
{8} On April 14, 2015, Orion filed a report as to the status of the action in
the Bankruptcy Court, stating that Orion would seek a ruling in that court on the
applicability of the stay if the action in this Court were to continue, but failing to
indicate that any action had been taken to obtain such a ruling. The Court has not
been advised of any proceeding before the Bankruptcy Court to resolve any common
issues among the various state actions.
{9} On April 16, 2015, the Court set a briefing schedule for optional,
supplemental briefing in support of, or in opposition to, the Motion. Any
supplemental brief was due from Plaintiffs on or before April 22, 2015, any
supplemental response was due by May 1, 2015, and any reply was due on May 6,
2015. No such further briefing was filed.

II. ANALYSIS

{10} Generally, the filing of a petition for bankruptcy provides an automatic
stay of all proceedings against the debtor. 11 U.S.C. § 362(a). However, an
exception is made for the “commencement or continuation of an action or proceeding
by a governmental unit . . . to enforce such governmental unit’s . . . police and
regulatory power.” Id. § 362(b)(4). It is well settled that trial courts have
concurrent jurisdiction with the Bankruptcy Court to determine the applicability of

2 The Court also recognized the potential that a proceeding in the Bankruptcy Court might

effectively resolve common issues presented in Orion’s multiple state proceedings.
the police and regulatory exception to the stay. See, e.g., In re Baldwin-United Corp.
Litig., 765 F.2d 343, 347 (2d. Cir. 1985) (“The court in which the litigation claimed
to be stayed is pending has jurisdiction to determine not only its own jurisdiction
but also the more precise question whether the proceeding pending before it is
subject to the automatic stay.”). Orion has not contended otherwise.
{11} The definition of “governmental units” provided in the United States
Bankruptcy Code includes States, state departments, and state agencies. 11 U.S.C.
101(27). It is manifest that the State of North Carolina is a governmental unit and
that the North Carolina State Bar (“State Bar”) is a state agency. See N.C. Gen.
Stat. § 114-1 (2014) (creating the North Carolina Department of Justice, under
supervision of the Attorney General); N.C. Gen. Stat. § 84-15 (2014) (“There is
hereby created as an agency of the State of North Carolina, for the purposes and
with the powers hereinafter set forth, the North Carolina State Bar.”).
{12} There are two recognized tests to determine whether the actions of the
North Carolina State Bar and the State of North Carolina constitute exercises of
their police and regulatory powers: (1) the pecuniary purpose test and (2) the public
policy test. In re Clifton, 441 B.R. 44, 48 (Bankr. M.D.N.C. 2010). The analysis in
Clifton is instructive:
First, the pecuniary purpose test asks whether the government
primarily seeks to protect a pecuniary governmental interest in the
debtor’s property, as opposed to the protection of the public safety and
health. By contrast, the public policy test asks whether the
government is effectuating public policy or adjudicating private rights.
If the purpose of the law is to promote public safety and welfare, or to
effectuate public policy, then the exception to the automatic stay
applies. If, on the other hand, the purpose of the law relates to the
protection of the government’s pecuniary interest in the debtor’s
property or to adjudicate private rights, then the exception is
inapplicable.

Second, in determining whether the governmental action satisfies the
public policy test, the inquiry is objective: we examine the purpose of
the law that the state seeks to enforce rather than the state’s intent in
enforcing the law in a particular case.
Id. (citations omitted) (internal quotation marks omitted).
{13} Plaintiffs’ action satisfies the requirements of both tests. The
gravamen of Plaintiffs’ allegations relate to the unauthorized practice of law and
violations of the prohibition on unlawful debt adjustment. (See Compl. ¶¶ 139–60;
N.C. Gen. Stat. §§ 14-423 to -426; Id. §§ 84-4 to -5.) The statutes upon which
Plaintiffs base their claims are intended to protect North Carolina citizens from
unscrupulous behavior. See State v. Pledger, 257 N.C. 634, 637, 127 S.E.2d 337,
339 (1962) (“The [unauthorized practice of law statute’s] purpose is for the better
security of the people against incompetency and dishonesty in an area of activity
affecting general welfare.”); cf. N.C. Gen. Stat. §§ 14-423 to -426 (falling under
Subchapter XI of the North Carolina Statutes, entitled “General Police
Regulations.”). 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. Therefore, the police powers exception to the
automatic bankruptcy stay applies, and this action should proceed notwithstanding
Orion’s bankruptcy petition.
{14} In reaching its conclusion, the Court acknowledges that Defendants
have challenged or may challenge the merits of Plaintiffs’ claims. The Court need
not address the merits of the claims to determine whether it may proceed with the
action.

III. CONCLUSION

{15} Because the police powers exception serves to prevent a stay of this
litigation, Plaintiffs’ Motion is GRANTED. This Court will calendar this matter for
a status conference to occur within thirty days of the entry of this Opinion.

This the 12th day of May, 2015.

/s/ James L. Gale
James L. Gale
Special Superior Court Judge