An estimated 20,000 to 25,000 collection lawsuits filed in Maryland will be dismissed as a result of the collapse of legal collection giant Mann Bracken LLP, Maryland District Court Chief Judge Ben Clyburn's office confirmed today. Clyburn made the decision to dismiss the lawsuits after learning the firm had notified district court clerks across the state that it will shut down by the end of this month.

Mann Bracken's troubles follow the November bankruptcy filing and subsequent liquidation of affiliate Axiant LLC. That company's Chapter 11 filing revealed it owes Mann Bracken more than $10.5 million, making the firm Axiant’s largest unsecured creditor. Axiant provided phone, computer and staffing and support services to Mann Bracken. In late December, Axiant's bankruptcy plan was converted to Chapter 7 liquidation.

According to a cease-and-desist order by Maryland's Collection Agency Licensing Board, Mann Bracken filed motions in some of its cases this month stating that Axiant’s failure left the law firm unable to handle litigation. The cease-and-desist order says the state began investigating Mann Bracken on Jan. 4 after hearing from consumers who were unable to contact the firm because its phones were disconnected. Mann Bracken also had stopped cashing collection checks.

It was not immediately clear how many of the dismissed cases will be picked up and refiled by other firms. Mann Bracken executives could not be reached for comment today. Mann Bracken told Maryland officials it would try to obtain new counsel and was "working with clients to transfer cases" but that it might not be able to do so. Clyburn says the dismissed lawsuits could be refiled, but added that it was not fair to leave the current cases pending because Mann Bracken "has been irresponsible."

"The bottom line is, we’ve taken action so that the citizens will not be inconvenienced, and we’ve taken action so that the judges are aware that some of these refilings may be barred by the statute of limitations,” he says.

Mann Bracken was under pressure from lawsuits, as well. In Washington, D.C., the Better Business Bureau had given the firm its lowest rating and several lawsuits accused it of using illegal tactics against borrowers whose bills had fallen into default, officials tell Collections & Credit Risk. Mann Bracken is based in Rockville, Md. but has 24 offices nationwide.

The law firm was formed in 2007 by the merger of three of the five largest collection firms in the country, including legal giant Wolpoff & Abramson LLP. The three firms’ non-legal support services were consolidated into Axiant.

As a formality, Maryland Commissioner of Financial Regulation Sarah Bloom Raskin suspended Mann Bracken from performing any collections work. The suspension follows an investigation by Raskin's office that confirmed the firm already had stopped doing business - including failing to cash checks sent to the firm concerning collection-related issues. "This is yet another in a string of problems we are uncovering as the collections industry has made a headlong rush for our state's courtrooms," Raskin says.

Raskin's office is a division of the state's Department of Labor, Licensing and Regulation (DLLR). In a prepared statement, DLLR Secretary Alexander M. Sanchez said, "We are determined to make sure that consumers receive the protections they deserve whether collections are done through the mail, on the phone or, increasingly, through our courts. When they do not, we will act and act quickly."

Last month, the state's Collection Agency Licensing Board concluded an investigation of large Mann Bracken client, Encore Capital Group of San Diego and its subsidiaries - Midland Funding LLC, Midland Portfolio Services LLC and Midland Credit Management Inc. Under terms of a settlement, the companies agreed to pay $1 million in civil penalties, become licensed collectors in Maryland and change their business practices. In September, the state's DLLR said the companies had violated federal and state laws by refusing to validate bad debts when challenged (Collections & Credit Risk, Sept. 18).

Encore Capital is the third-largest debt buyer in the U.S. with more than $240 million in revenue from purchased debt in 2008, according to Collections & Credit Risk.

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