Ad Astra Recovery Servs. v. Heath
| Decision Date | 22 May 2020 |
| Docket Number | Case No. 18-1145-JWB-ADM |
| Court | U.S. District Court — District of Kansas |
| Parties | AD ASTRA RECOVERY SERVICES, INC., Plaintiff, v. JOHN CLIFFORD HEATH, ET AL., Defendants |
This matter comes before the court on Plaintiff's Motion to Disqualify Defendants' Counsel (ECF No. 164). Plaintiff Ad Astra Recovery Services, Inc. ("Ad Astra") seeks disqualification of the pro hac vice attorneys representing Defendant Kevin Jones and a declaration that the general release entered into by Mr. Jones and his former employer, a codefendant, is null and void because it violates a federal anti-gratuity statute and amounts to payment for testimony. Ad Astra also contends that that the firm's "enforcement" of the release and other nonconsentable conflicts among Mr. Jones and his codefendants, previously represented by the same firm, require disqualification of Mr. Jones' counsel.1
The court disagrees. Ad Astra's arguments are largely unsupported, both legally and factually. The agreement between Mr. Jones and his former employer is a standard release by which Mr. Jones agreed to release any claims he may have had in exchange for a better severance package than he would have received under his employment agreement. It is not a contract for or because of his testimony. Ad Astra attempts to transform a standard release and Mr. Jones' fairly mundane criticisms of the firm and his former boss into a basis for disqualifying his counsel of choice and having the court declare the release null and void because it violates a federal criminal statute. Such relief is unwarranted given the record before the court and the absence of any legal authority to support the relief Ad Astra seeks. Accordingly, for the reasons explained in greater detail below, Ad Astra's motion is denied.
Ad Astra is a debt collector and credit agency that alleges defendants "engaged in a fraudulent credit-repair scheme designed to bombard debt collectors with false credit dispute letters with the intention of deceiving debt collectors . . . and frustrating their efforts to collect legitimate debts." (Am. Compl. ¶ 3 (ECF No. 120).) At the center of the allegations is that John C. Heath, Attorney at Law, PPLC, d/b/a Lexington Law Firm ("Lexington Law"), related corporate entities, attorneys with Lexington Law, and the CEO of some of the related corporate entities used deceptive marketing techniques to solicit financially troubled consumers by offering services from a law firm in hopes that the consumers would sign up for their credit-repair services. (Id. ¶ 5.) According to Ad Astra, once consumers signed up, Lexington Law would transmit mass credit-dispute letters to creditors in the consumer-clients' names without disclosing that the firm preparedand transmitted them. Ad Astra alleges this practice was designed to circumvent the Fair Credit Reporting Act and cause Ad Astra to perform certain onerous statutory investigative requirements. (Id. ¶¶ 6-9.) Ad Astra asserts claims under the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. §§ 1962(c) and (d). Ad Astra also asserts Kansas common law claims for fraud and tortious interference with existing contractual relationships.
Ad Astra filed this lawsuit on May 21, 2018, naming, among others, Mr. Jones, who served as the firm's managing attorney of firm operations. (ECF No. 1.) At that time, counsel Brent W. Martinelli, Frank Alvarez, and Steven A. Wood of the Dallas law firm Quintairos, Prieto, Wood & Boyer, PA ("Quintairos") represented all defendants, including Mr. Jones. According to Mr. Jones, Quintairos represented all defendants based on the common allegations against them, including that defendants acted in concert. (ECF No. 120, at ¶11, ¶73; and ECF No. 181, at 3.) Defendants generally deny the allegations and maintain that their conduct was not fraudulent.
Years before this lawsuit was filed, Mr. Jones had an employment agreement with Lexington Law that was effective September 16, 2014. It provided him with various levels of severance packages for a "qualifying termination," including payment of Mr. Jones' base salary, prorated target bonus, and health benefits. (ECF No. 167-3, at 14.) If a qualifying termination occurred before September 15, 2014, the payments/benefits would last 24 months; if a qualifying termination occurred between September 15, 2014, and September 15, 2015, the payments/benefits would last twelve months; and, if a qualifying termination occurred after September 15, 2015, the payments/benefits would last six months. (Id.)
Mr. Jones' 14-year employment relationship with Lexington Law ended on March 26, 2019, about ten months into this case. At that time, Lexington Law and Mr. Jones entered into a release agreement. Quintairos had no part in drafting or negotiating the release. (ECF No. 175-2,at 3.) The release provides that Mr. Jones agreed to release all claims he may have had against Lexington Law and its vendors (many of which are codefendants) arising out of, based on, or related to "the termination of employment of the undersigned by the Releasees" in exchange for a severance package. (ECF No. 167-2, at 1.) The release also addresses Mr. Jones' representation in this lawsuit. It states that so long as Mr. Jones "remains in a non-adversarial position vis-à-vis the Company in this litigation, the Company will continue to pay the defense costs to cover the undersigned's activities as an employee of the Company." (Id. at 3.) It specifies that Mr. Jones' communications with defense counsel must be coordinated through Progrexion ASG's litigation manager. (Id.) The release also states that if Mr. Jones' interests became adversarial, he agrees to immediately engage separate defense counsel and bear the costs of his personal representation. (Id.) The release also provides that if this lawsuit results in a damages award against Mr. Jones personally resulting from his activities as an employee, "the Company shall pay the damages awards." (Id.) The release contains confidentiality and non-disparagement clauses but also specifies that "nothing herein shall be construed to prevent the undersigned from providing truthful testimony to any court or tribunal pursuant to legal process." (Id.) The severance portion provides for twelve monthly installment payments that total Mr. Jones' annual salary, standard benefits for that period, reimbursement for COBRA costs, his 2018 bonus, CLE costs, bar registration dues, and costs for legal or accounting advice. (Id. at 6.)
Ad Astra deposed Mr. Jones on September 24, 2019. This was about six months after he stopped working for Lexington Law. Ad Astra highlights certain aspects of Mr. Jones' deposition testimony, including the fact that he voiced criticism of some of the language used in the letters Lexington Law sent to credit furnishers—that they "look like they're written by someone who speaks English as a second language." (ECF No. 165-2 at 40:20-24; 41: 5-8.) He also testifiedthat he raised concerns about Progrexion's encroachment in Lexington Law's decision-making process, and he raised questions about why letters were not sent on firm letterhead. (Id. at 41:16-17; 42:20-25.)
Mr. Martinelli represented Mr. Jones at the deposition, and he improperly instructed Mr. Jones not to answer questions relating to the release in order to prevent Mr. Jones from violating the release's confidentiality provision. (ECF No. 165-2, at 101:6-102:22.) Mr. Jones testified that he was concerned about discussing the release in the event it could be a breach that could create liability. (Id. at 14:20-23; 21:4-12.) But he also testified that, as a licensed attorney, he had ethical obligations and assured Ad Astra's counsel that "if someone sued me in an attempt to color my testimony, I would turn them in immediately to the judge." (ECF No. 175-4, at 236:15-237:2.). The following day, Ad Astra deposed Mr. Heath. Counsel for Mr. Heath raised the same objections to questions about the release. At the parties' request, the court convened a telephone conference and instructed the parties that Mr. Health must answer the questions because counsel could not instruct a witness not to answer based on a confidentiality objection. (ECF No. 73.)
Ad Astra reconvened Mr. Jones' deposition on October 3. He testified that he believed Mr. Heath "spins facts" but that he would hesitate to call anyone dishonest. (Id. at 272:13-15.) In response to a question about Mr. Heath's recollection that the two were just "work friends," Mr. Jones stated that he had spent time with Mr. Heath outside of work multiple times. (Id. at 271:11-13.) He also disagreed with Mr. Heath's statements about the reason for Mr. Jones' separation from Lexington Law—that Mr. Jones would not show up to work for some time and would not finish tasks as assigned. (Id. 277:8.) He further stated that he was not screening his testimony based on a fear that Lexington Law would stop indemnifying him. He pointed out that the (ECF No. 175-5, at 280:10-19.) By the time of Mr. Jones' deposition, he had already been receiving his installment payments under the release, and Lexington Law continued making those payments after his deposition. (ECF No. 181, at 2.)
By late November, Mr. Jones' codefendants hired Williams & Connolly, LLP to represent them. Quintairos' representation of those defendants ceased, but the firm continued to represent Mr. Jones. On December 26, one of the Williams & Connolly attorneys of record emailed Mr. Martinelli to relay Lexington Law's understanding of the release in light of Ad Astra's "concerns reflecting a misunderstanding of certain provisions." (ECF No. 175-7, at 1.) The email states that...
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