ZEROING IN ON ZERO-DOWNLIKE VAMPIRES, LAWYERS GOUGING THE POOR WITH QUICK-FIX BANKRUPTCIES
Attorney Michael S. Manning sounds downright chipper in his tape-recorded telephone message.
"Please be advised," he tells his clients, "that we have closed our offices permanently. . . . We can recommend an attorney that is familiar with your case but is not associated with me. Or you can hire an attorney of your choice. Please leave a message. We will return your call as soon as possible."
Manning's law firm closed in July, and he's in a world of hurt. His woes include a class-action lawsuit filed on behalf of ex-clients, and an ongoing criminal investigation by the United States Attorney.
It's no wonder Manning is playing hard-to-get these days.
"Mailbox is full," a disembodied female voice has intoned at the end of his message machine for three weeks. "Please try your call again later."
Mike Manning's crash has been momentous even for Phoenix, the home of the financial free fall. Manning and Associates had taken Arizona's bankruptcy bar by storm last August, opening with a big-bucks ad campaign aimed at consumer debtors. The pitch sounded compelling: Got money problems? We'll take care of your bankruptcy for no money down!
Almost overnight, Manning snatched a hefty share--an estimated 20 percent--of the Valley's lucrative bankruptcy market. His primary competition was another "zero-down" firm named Hessinger and Associates.
NBA Preseason Basketball: Phoenix Suns v. San Antonio Spurs
TicketsMon., Oct. 3, 7:00pm
NBA Preseason Basketball: Phoenix Suns v. Utah Jazz
TicketsWed., Oct. 5, 7:00pm
Arizona Coyotes vs. San Jose Sharks
TicketsFri., Oct. 7, 7:00pm
TicketsSat., Oct. 8, 7:00pm
Much has happened in the wake of a New Times probe into the firms' practices (Debt in the Water," February 2, 1994).
Although the glory days of zero-down bankruptcy in Phoenix are over, maybe forever, greedy practitioners have continued to pull scams on clients and Bankruptcy Court judges even as their empires crumble.
The New Times story showed how no-money-down attorneys were preying on thousands of vulnerable citizens in financial crises. Zero-down firms had been gouging clients for twice the fees--about $1,400 per case--as attorneys who demand payment prior to filing.
The high fees were especially reprehensible because the zero-down attorneys spent little time with clients, often meeting them for the first time moments before crucial court proceedings.
The Valley's two largest zero-down firms collected fees in different ways: Manning and Associates asked clients to sign over to them enough postdated personal checks to cover monthly payments. Hessinger and Associates required clients to sign promissory notes at 18 percent annual interest before filing for bankruptcy.
Manning and Associates is no more, but Hessinger and Associates remains open for business, although the firm is doing few bankruptcy cases.
In recent months, however, the Manning and Hessinger firms cashed in untold thousands of dollars from their clients, even after Arizona's bankruptcy judges ordered them to stop:
In June, a man at a Phoenix bank presented postdated checks signed by Manning and Associates clients, probably for transfer into a cashier's check. This happened days after a judge had ordered Mike Manning to turn the checks over to authorities. Manning had claimed he didn't know where the checks were, then said he'd "sold" most of them to a Mexican businessman.
Finance companies working through Hessinger and Associates have continued to harass bankruptcy clients for payment, also in violation of a court order. Hessinger's former lead bankruptcy attorney, J. Murray Zeigler, has admitted to several judges that he made "false statements" about his firm's collection efforts.
Arizona's bankruptcy judges have been slower in dealing with zero-down companies than jurists in other states. Last month, a San Francisco judge banned Hessinger and Associates from practicing law in northern California. He also fined the firm $100,000.
"The evidence has revealed an incredibly ugly and evil enterprise," Alan Jaroslovsky, the San Francisco judge, wrote August 9 of Hessinger. "In the guise of being a law firm, Hessinger is able to lure debtors into its offices with the sole intent of extracting as much money as possible from them with no concern whatsoever about counseling them."
@body:Zero-down bankruptcy came to Arizona through Larry and Wayne Majors, nonlawyer brothers whose rsums are dotted with white-collar scams and criminal convictions.
Hessinger and Associates was the brainchild of Larry Majors. He served almost a year in jail in 1991 after a felony conviction for stealing from Indian customers as general manager of a Payson car dealership.
The Hessinger firm grew like a weed after it started advertising zero-down in 1992. It later opened seven branches in California after offices in Phoenix and Tucson hit paydirt. (Joe Hessinger, whose name tops the masthead, is a Pinetop attorney who is more figurehead than force at his own firm.)
The power over at Manning and Associates resided in Larry Majors' brother, Wayne. He, not Mike Manning, hired and fired attorneys, and made girlfriend Jennifer Metzger the firm's manager and bookkeeper.
The Majors brothers and many members of their family have moved around the Southwest and California like a band of crooked gypsies, working their white-collar schemes in city after city.
"They wrap unsuspecting fools like myself around their little fingers," says Charles Paternostro, a 54-year-old Dallas attorney now serving a one-year suspension from practicing law in Texas because of his own unethical zero-down activities. "They were ripping me and the clients off blind, and they were smooth as glass about it."
@body:Three former clients of Manning and Associates on May 12 filed a racketeering and consumer fraud lawsuit against the firm, Mike Manning, Wayne Majors and Majors' nephew, Lee. A federal judge recently certified the suit as a class-action, which means that thousands of other aggrieved clients may also become plaintiffs.
One issue that arose quickly after the lawsuit was filed involved the postdated checks signed over to Manning and Associates by zero-down clients. Mike Manning told Judge Redfield Baum on June 1 he'd turn over the checks--estimated at hundreds of thousands of dollars--to authorities. Manning reneged on his promise to the judge, stonewalling the many attempts by the plaintiffs' attorneys to collect the checks. The stalemate led to an emergency June 15 hearing before Judge Baum, who wanted to know why Manning hadn't turned over the checks.
What transpired at the hearing was maddening and, at times, farcical.
Appearing for the plaintiffs was attorney Donald Gaffney of Snell & Wilmer. That firm's clients are mostly big wheels--Arizona Public Service Company, Del Webb, CIGNA and Bank of America. But Gaffney and his colleague Lisa Coulter are litigating this little-guy case with great fervor, and they're doing it pro bono--for free.
Attorney Hugh Hull, formerly a key zero-down player at Manning and Associates, was present to represent his former employer. (Hull and Kevin Lewis, another ex-Manning attorney, had just started their own firm in the same office building that once housed Manning and Associates.) Also attending was an attorney for the U.S. Trustee's Office.
Gaffney started with a bang. Mike Manning not only hadn't turned over the postdated checks, Gaffney told Judge Baum, but an unidentified man had been trying to pass them at a bank.
"We have someone who is disobeying the basic fundamentals of being an attorney," Gaffney said of Manning.
Manning's actions shouldn't have been surprising, given his pathetic record as a barrister: A two-year suspension from the practice of law that ended in August 1993 noted Manning's "inexcusable pattern of neglect and abuse" to his clients. In June, the State Bar recommended Manning again be suspended, for more violations that predated zero-down.
Hugh Hull, the onetime Manning colleague, hemmed and hawed about the checks, but finally told Baum that Manning would "turn [the checks] over within the next 24 hours. . . . I think the checks are just kind of assembled in boxes at the moment."
The judge is an affable sort for whom compromise is the norm. He agreed to give Manning one more day to deliver the postdated checks.
But Gaffney wasn't so congenial.
He stressed to Baum that Manning firm guru Wayne Majors and its manager/bookkeeper Jennifer Metzger had disappeared.
"I need someone here to state to me that they know that these people don't have . . . [the checks]," Gaffney said. "Because otherwise, I am being set up here."
Baum agreed to ask Manning a few questions.
"I want to know where the checks are," Baum told Manning.
Manning paused for several seconds.
"As of this moment, the checks that I have are sitting in my office," Manning finally said, in a nasal monotone.
"That's not the question. So you've got checks at your office, right?"
The usually calm Baum was getting testy.
"Answer my question," he snapped. "Have you turned any checks over to anyone else?"
Manning paused again, even longer this time.
"There were checks," he said, "that as part of an agreement to bring in cash, were [turned over] to a third party, yes."
"Who did they go to?"
"They went to a Mr. Jimenez," Manning said.
The man's first name possibly was James, he continued, but he couldn't be certain. Manning did recollect that he'd sold Jimenez the postdated checks in mid-May, in return for a promise of $300,000 in cash over an 18-month period.
"He sends me a monthly payment," Manning explained, adding he had a copy of the Mexican resident's previously undisclosed promissory note back at the office.
"Is Mr. Jimenez Mr. Majors?" Don Gaffney asked Manning, referring to the law firm's founder, Wayne Majors.
This was not a far-fetched proposition. Majors had lived in Mexico in the 1980s while trying to evade criminal prosecution on unrelated mail-fraud and promotion-of-prostitution charges. And Manning owed what brief financial successes he had found to the zero-down mastermind.
"No," Manning told Gaffney.
The following day, June 16, the Manning/Hull team turned over about 100 checks--just a handful, considering the firm's vast client base.
They also produced the promissory note allegedly signed with a flourish May 13 by the mysterious Mr. Jimenez.
The business address for Jimenez Financial was said to be the #2 Latino Americana Tower Building in Mexico City. His telephone number also was listed on the note.
But the one-page note made no mention of the sum of postdated checks Manning allegedly sold to Jimenez.
"Got any inventory documentation on those checks, Mr. Manning?" Judge Baum asked Manning at the June 16 hearing.
"Not today," Manning said.
The noose around the Manning crowd seemed to be tightening. But that didn't stop a man on June 22 from passing postdated checks made out to the firm. Surveillance cameras at a Bank of America branch office near 20th Street and Camelback in Phoenix photographed the transaction.
Bank of America is a client of the Snell & Wilmer law firm, a fact that had bearing on events that followed. The firm had asked bank officials in early June to keep an eye out for someone trying to pass postdated checks made out to Manning and Associates or the Bankruptcy Center.
A teller at a branch on 20th Street in Phoenix recalled a man who fit the bill. On June 11, and then June 22--exactly a week after Manning's bizarre performance in Baum's courtroom--she recalled that a clean-cut man had walked in with a stack of checks made out to Manning and Associates.
It's uncertain if the man took out a cashier's check or deposited the checks into accounts controlled by Manning/Majors. It's also uncertain how many checks the man had been holding or their total amount.
Former Manning clients who have seen photos of the transaction identify the man bearing the postdated checks as Tommy Majors, a nephew of Wayne Majors who was on Manning's payroll at that time.
But in an August 24 deposition, Tommy Majors' brother, Jeff--a former Manning and Associates salesman now working for the firm of Hull and Lewis--denied that the man in the photos is Tommy. (Jeff Majors also swore his uncle Wayne Majors had little to do with the Manning firm, a statement that flies in the face of evidence provided by former clients and employees.)
On June 28, Mike Manning appeared at the Phoenix offices of Snell & Wilmer for a deposition in the civil suit against him and the Majorses.
Attorney Don Gaffney got to the point: "Mr. Manning, when did you first hear of Mr. Jimenez of Jimenez Financial?"
"Upon the advice of counsel," Manning replied, "I have been advised that there is a pending criminal investigation into these same matters by the United States Attorney's Office."
Thus, Manning concluded, he planned to take the Fifth at the deposition so as not to incriminate himself.
New Times tried to contact Jimenez at the phone number listed in the May 13 promissory note. A woman who answered said she was a reservations clerk for the Camino Real Hotels in Mexico City. She said she'd never heard of a James Jimenez.
A directory-assistance operator had no listing for a Jimenez Financial in Mexico City.
@body:Hessinger and Associates, the Valley's other major zero-down law firm, also has hit the skids in recent months. Rather than ask their clients to postdate checks, Hessinger employees--attorneys and salespeople called "credit specialists"--had clients sign promissory notes before filing for bankruptcy protection. The notes carried an 18 percent annual interest rate.
If clients didn't pay up on time, collection companies working with Hessinger would threaten an end to their "fresh starts."
On February 24, however, Judge Baum ruled that the Hessinger method of collection defeated the purpose of bankruptcy. Baum then ordered Hessinger and Associates to cease all collection efforts until further notice. Several other Arizona judges followed Baum's lead, agreeing that the Hessinger fee collections are "void and unenforceable."
But on May 9, the lead bankruptcy attorney of Hessinger and Associates sent a letter to four Arizona bankruptcy judges.
J. Murray Zeigler was in a jam. His career perhaps hanging in the balance, Zeigler wrote:
"I have very recently discovered that the statements I made at the time of the hearing are not true. Hessinger and Associates, through its collectors, is continuing to pursue clients for fees. Collection efforts are being made on both current and delinquent accounts."
This was quite an admission for Zeigler to make.
He had avowed at an April 21 hearing that his firm was obeying the February 24 court order not to collect zero-down fees.
But in early May, Zeigler continued, he had "learned" that Hessinger bill collectors were again threatening clients' debtors. That's when he wrote his beat-them-to-the-punch letters to the bankruptcy judges.
Baum scheduled a May 24 hearing on Zeigler's revelations. If the collections continued, the judge told Joseph Hessinger at the hearing, "I can promise the full wrath that I have the power to deliver will be delivered."
After the hearing, Zeigler and Hessinger penned an in-house memo to the collectors. It warned that the judge seemed to mean business.
But in mid-June, according to Zeigler's affidavit, he was contacted by Mesa-based bill collector Kevin Miller, who has held about 90 percent of Hessinger's zero-down contracts in Arizona.
Miller said a Utah lawyer had given him the go-ahead to return to business as usual, no matter what the Bankruptcy Court had ordered.
Zeigler phoned Joe Hessinger in Pinetop. Hessinger told him he knew nothing about the Utah attorney's instructions and would look into it. A week passed, during which Zeigler got calls from zero-down clients complaining that bill collectors were pushing them for payments.
Skittish about "the full wrath" of Judge Baum, Zeigler and two other Hessinger attorneys wrote to Joe Hessinger on July 7. "Be advised," they said, "that we will not appear on behalf of the firm at any hearings, meetings or other proceedings relating to collection activities from bankruptcy clients. None of us wishes to place our careers and licenses in jeopardy."
On the morning of July 11, Zeigler concluded in his affidavit, he "discovered that my office computer was missing and that my office had been ransacked."
He had been fired. Sources inside Hessinger say the firm had decided to scale back its bankruptcy section, at least until things blew over.
It would be nice to cast Murray Zeigler as an attorney who finally saw the light and took steps to correct things before it was too late. But that's not entirely true.
On August 4, he filed notice with the Bankruptcy Court that he will be representing Hessinger in its appeal of a judge's fee-collection ruling against the firm.
Zeigler is working out of an office at his Tempe home. He did not respond to requests from New Times for an explanation of his changes of heart.
@body:Many judges, such as Redfield Baum, prefer arbitration and negotiation to contention and controversy. But there are other jurists who react in the strongest way they can.
One such is Alan Jaroslovsky, a San Francisco-based bankruptcy judge. On August 9, Jaroslovsky dealt Hessinger and Associates a greater blow to its practice in northern California than any it has suffered in Arizona.
In a scathing, 17-page ruling concerning the firm's zero-down practices, the judge disbarred Hessinger from practicing in the Northern District of California. He also fined the firm $100,000.
Jaroslovsky traced the firm's origin back to Arizona, where the "unconscionable" fees and hardball collecting began.
"The individuals receive no counseling," the judge wrote of the zero-down debtors, "and in fact are looked upon as customers to be bilked and milked rather than clients."
Jaroslovsky concluded that Hessinger's ethical violations "are rampant and outrageous," and demanded the strongest sanctions possible. "This conduct is reprehensible beyond words. To anyone who has any degree of love for the law, it is physically revolting.
Get the This Week's Top Stories Newsletter
Every week we collect the latest news, music and arts stories — along with film and food reviews and the best things to do this week — so that you'll never miss Phoenix New Times' biggest stories.