On Nov. 8, lawyers for New York-based EasyKnock filed a defamation lawsuit in Houston federal court against Houston plaintiff’s law firm Feldman & Feldman that seeks a temporary injunction.
Feldman & Feldman’s lawyers filed a response the very next day. And by the following day, Nov. 10, EasyKnock had already filed a response to the response.
What’s the urgency?
From EasyKnock’s perspective, it’s urgent because the facts surrounding the case pose a threat to its business as each day passes. For Feldman & Feldman, the urgency concerns the lawyers’ First Amendment rights — and poses what they say is a threat to the concept of free speech in general.
On Thursday, the parties will have the chance to elaborate on their positions before U.S. District Judge George Hanks, who will decide whether he will order Feldman & Feldman to remove from its website what EasyKnock claims are false, disparaging statements about its business.
The new lawsuit is the latest battle in a war that Feldman & Feldman waged earlier this year against EasyKnock, a residential sale leaseback company founded in 2016 to offer alternatives to home equity loans.
It began when Feldman & Feldman published a post on its firm website in late July that EasyKnock claims was designed to mislead its customers with false, defamatory statements about its business. The post says that EasyKnock is a predatory lender, that EasyKnock lures Texas homeowners into suspect agreements that jeopardize their ownership rights to their homestead and that many of the company’s practices violate the Truth in Lending Act.
The following month, according to EasyKnock’s lawsuit, Feldman & Feldman began soliciting business by sending “uninvited letters” to EasyKnock customers that invited them to pursue legal action against EasyKnock. Over the last four months, Feldman & Feldman has filed nine federal lawsuits across Texas against EasyKnock on behalf of customers.
EasyKnock’s lawsuit also names the law firm’s named partners, Cristen Feldman and David Feldman, as individual defendants and claims they “engaged in a campaign of barratry” to lure customers into pursuing legal action against EasyKnock and its affiliate, EK Real Estate Services of NY.
“In our lawsuit, we are not seeking a TRO to prevent Feldman & Feldman from commencing or prosecuting litigation, including against EasyKnock,” EasyKnock’s lead lawyer, Chris Trowbridge of Bell Nunnally, told The Texas Lawbook. “We’re not trying to keep them from practicing law, from using advertising services or from sending uninvited solicitation letters. But a law firm cannot advertise its services by promoting false or misleading statements about the company it wants to sue. We believe that’s what’s happening here. And we believe the court should put an end to it.”
But Feldman & Feldman’s lead lawyer, Chip Babcock of Jackson Walker, said EasyKnock’s position in the case is dangerous. A TRO in EasyKnock’s favor would amount to unconstitutional prior restraint — established by the U.S. Supreme Court as “the most serious and least tolerable infringement of First Amendment rights,” Babcock said in Feldman & Feldman’s response.
“I have rarely seen an effort to obtain a prior restraint under circumstances like this,” Babcock told The Texas Lawbook. “It is frankly a huge issue anytime there’s a request for prior restraint. It has to be defended vigorously and reacted to with an appropriate amount of outrage.
“When the government tells people they can’t say things, it’s harmful to the speaker and harmful to the public,” Babcock added. “We have based our entire system of government on the right of people to speak freely subject to very, very limited exceptions where the court applied very strict scrutiny to the efforts to keep people from speaking.”
In EasyKnock’s response to the response, the company argues that Feldman & Feldman’s prior restraint argument is “inapplicable” because it is only requesting “permissible erasure of previously published defamatory speech” — not “impermissible, prior restraint of future speech.”
EasyKnock’s chief executive officer and co-founder is Jarred Kessler, a former investment banker who also wears the hats of philanthropist, author and contributing writer to Forbes. According to a spokesperson for the company, Kessler was motivated to start EasyKnock after his Wall Street days observing the impact of the 2008 recession and related housing dip. Kessler wanted to create a new alternative for homeowners — who had been left behind in the recession by traditional lenders — to convert their equity into cash.
According to its lawsuit, EasyKnock’s business model revolves around a “sell and stay” sell-leaseback program targeted toward middle-class homeowners in which EasyKnock purchases their homes at market value and leases the homes back at a market rate. This allows the homeowners to obtain the cash they need for whatever is going on in their lives without a loan and without having to move. Homeowners have the flexibility to repurchase their home at a fixed, previously agreed upon price or ask the company to sell the home based on its market value, the lawsuit says.
In 2019, when EasyKnock expanded its footprint into North Texas, Kessler told The Dallas Morning News that about 50% of EasyKnock’s business came from Texas.
One of the key factual arguments at issue in the defamation fight is over whether EasyKnock is a lender. EasyKnock says Feldman & Feldman falsely stated on its website and in its solicitation letters that the sales-leaseback firm is a lender. Feldman & Feldman argues that assertion is true because EasyKnock markets itself on the internet and in its own newsletter as a home refinancer and provider of bridge loans.
Feldman & Feldman began soliciting lawsuits against EasyKnock after a state lawsuit surfaced in Brazos County last year that was later removed to federal court. Once there, the case resulted in a ruling from Chief Judge Lee Rosenthal of the Southern District of Texas in March that said the deed at issue was actually a mortgage subject to the Truth in Lending Act.
According to the judge’s ruling, which declined to compel arbitration, the plaintiff was unaware that she had deeded her entire interest of her house, valued at more than $200,000, to EasyKnock’s EK Real Estate in exchange for $50,000. The legal dispute arose after the plaintiff, Vanessa Jackson, fell behind on payments.
“They don’t like the fact that a law firm has an article on a website that is critical of their company — even in the face of a decision by the chief judge of the Southern District of Texas that questioned their practices and said they were subject to the Truth in Lending Act,” Babcock said of EasyKnock. “Normally as a lawyer, I can see the other side of the coin. It’s what we’re paid to do, but I don’t see it here.”
But in court filings, EasyKnock explained that Judge Rosenthal only relied on evidence submitted by Jackson and made no reference to a risk disclosure from the sale-leaseback transaction that EasyKnock’s counsel (at the time, McGlinchey Stafford), failed to put into evidence (which also led to a malpractice suit EasyKnock filed earlier this year against McGlinchey Stafford).
In April, Judge Rosenthal vacated her ruling to facilitate settlement between the parties. The Feldman & Feldman suits began surfacing a few months later, citing Judge Rosenthal’s ruling.
“Defending nine federal lawsuits, especially at once, is incredibly taxing to a business. Anyone with experience in litigation would tell you that,” Trowbridge said. “But EasyKnock believes it will prevail in each of those lawsuits. Worse than the lawsuits, though, is the damage to EasyKnock’s reputation, good will, and customer relationships. That kind of damage is severe and can be very difficult to quantify.
“If Feldman & Feldman wants to solicit EasyKnock’s customers and file multiple lawsuits against EasyKnock, they must do so fairly,” Trowbridge added. “But using false and misleading statements to solicit those lawsuits is over the line. EasyKnock is ready and willing to engage in a fair fight and is confident it will prevail. That’s the point of this lawsuit: to make the fight fair by requiring Feldman & Feldman to remove statements from [its] website that EasyKnock intends to prove are false and defamatory.”
In addition to Trowbridge, EasyKnock’s legal team also includes Bell Nunnally partner Kristopher Hill and associate Scott Larson. Defense counsel for EasyKnock so far have only appeared in a few of the nine lawsuits initiated by Feldman & Feldman, and in those Chris Davis of Gray Reed is listed as lead attorney. Cristen Feldman is listed as one of the attorneys for the plaintiffs in all nine suits.
In addition to Babcock, Feldman & Feldman’s legal team in the defamation case also includes Jackson Walker partner John Edwards.