By Stephen Nellis Sunday, January 25th, 2009

Ira and Linda Distenfield, who grew legal services firm We the People Forms & Service Centers into a national brand, filed for Chapter 7 bankruptcy Jan. 14.

The Summerland residents listed $515,000 in assets and more than $5 million in liabilities.

The Distenfields sold We the People for $12 million and $2 million in stock in 2005 to publicly traded Dollar Financial Group, according to court filings. But legal wrangling broke out afterward over payment.
In an interview, Ira Distenfield said the couple filed for bankruptcy because it became “financially prohibitive” to keep up the legal fight over payment for We the People.

“After dealing with the litigation and related expenses for almost four years, we came to the decision that we needed to end that pain and move on,” Distenfield said.

As the Business Times was going to press, a Los Angeles court sentenced Ira Distenfield to five days in jail on contempt of court charges for failing to turn over assets that were supposed to be liquidated, according to published reports.

Among listed assets in the Distenfields’ bankruptcy is the couple’s current venture, a stake in 20 PRstore franchises in Southern California, including one in Santa Barbara. The stores offer walk-in marketing and image-molding services such as press release writing and logo design, often at a discount from dedicated public relations firms.

Distenfield said he did not expect the bankruptcy to affect the stores.

Public relations crisis management experts said the Distenfields’ bankruptcy, if handled adeptly, likely won’t generate much bad PR for the couple’s PR venture.

“What’s most important is to communicate clearly, share the information and let your clients know what’s going on,” said Maggie Cox, chief executive of San Luis Obispo-based Barnett Cox & Associates. “I don’t think it makes a difference that it’s a public relations firm.”

The Distenfields listed their interest in the stores as worth $100,000 in bankruptcy filings, though they noted they don’t know the actual value. Distenfield explained that the bulk of the value in the venture lies with those running it, rather than the business itself.

“It’s an asset which we have to list,” Distenfield said. “We’re not appraisers. We don’t really know the value.”

Among local creditors, the Distenfields owe more than $300,000 to the Bank of Santa Barbara for a business loan, according to court filings.

Another of the Distenfields’ largest creditors is Cappello & Noel, a Santa Barbara-based law firm. The Distenfields owed the firm about $130,000 in an arbitration agreement stemming from Cappello & Noel’s work on the litigation against Dollar Financial.

“We intend to prosecute whatever rights we have in bankruptcy court,” Barry Cappello, managing partner of Cappello & Noel, told the Business Times. “As a judgment creditor, we do have priority over unsecured creditors but not priority over secured creditors.”

After buying the company name in 1993, the Distenfields grew We the People into a national presence with more than 100 stores in 30 states.

The storefronts offered to prepare routine legal documents that weren’t in dispute, providing forms for bankruptcies, living trusts and incorporations. The cost started at $199 and often saved customers money compared to lawyers’ fees.

We the People attracted the ire of attorneys and state bars, which filed lawsuits against it. But the company won them and continued to expand. By 2004, it swept into New York and opened 15 storefronts in the city, attracting the attention of former Mayor Rudolph Giuliani, whose consulting firm came aboard to help We the People scope new locations.

By 2005, Dollar Financial – a publicly traded Pennsylvania firm that operates retail financial services locations for “under banked” customers – had taken interest in We the People and offered to buy it. But the deal encountered trouble from the start: After more than a year of due diligence, according to court filings, Dollar Financial’s offer fell from $27 million to $17 million and finally to $14 million.

Once the Distenfields paid their expenses, they got a net of $1.3 million for We the People, but a dispute broke out. Dollar Financial accused the couple of making misrepresentations and held up payment, according to court filings.

The litigation lasted nearly a year, from September 2005 to December 2006, and ended when the two sides settled. The Distenfields were allowed to keep the $1.3 million but didn’t receive the rest of the price for We the People, according to court filings.

After settlement, the Distenfields paid $1 million in legal fees, $600,000 of that to Cappello & Noel. The couple still owed $400,000 more to the Santa Barbara firm, but arbiters reduced that to $130,000.

Ira Distenfield said he is looking to “close the chapter” on the Dollar Financial litigation.

“Since that sale was made almost four years ago, there has been a substantial amount of litigation, all of which began after our sale,” Distenfield said. “It became financially prohibitive for Linda and I to be a party to that litigation, as well as the related legal fees.”

The Jan. 14 bankruptcy follows two prior bankruptcies for the Distenfields. They filed for Chapter 7 in 1991 and for Chapter 13 in 1995. Both cases were discharged and closed.