Ad Astra Recovery Servs. v. Heath

Decision Date26 February 2021
Docket NumberCase No. 18-1145-JWB
PartiesAD ASTRA RECOVERY SERVICES, INC., Plaintiff, v. JOHN CLIFFORD HEATH, ESQ., et al., Defendants.
CourtUnited States District Courts. 10th Circuit. United States District Courts. 10th Circuit. District of Kansas
MEMORANDUM AND ORDER

This matter comes before the court on the following motions for summary judgment and supporting memoranda: Defendants' joint motion for summary judgment (Docs. 268, 269, 285, 286, 287, 310, 318, 334, 340); Defendant Fullman's motion for summary judgment (Docs. 272, 273, 282, 306, 316, 338); and Defendant Jones' motion for summary judgment (Docs. 276, 277, 308, 317, 337).1 The motions have been fully briefed and the court is prepared to rule. For the reasons stated herein, the joint motions for summary judgment are DENIED IN PART AND GRANTED IN PART. Fullman's motion for summary judgment and Jones' motion for summary judgment are DENIED.

I. Uncontroverted Facts and Statutory Background

The following statement of facts are taken from the parties' submissions and the stipulations in the pretrial order.2 Factual disputes about immaterial matters are not relevant to thedetermination before the court. Therefore, immaterial facts and factual averments that are not supported by the record citations are omitted. Legal conclusions are also not proper facts. Defendants also object to Plaintiff's exhibits that are from other litigation, including deposition excerpts and the pretrial order from another action, CBE Group v. Lexington Law Firm, Case No. 3:17-cv-02594-L (N.D. Tex.). With respect to the excerpts from Fed. R. Civ. P. 30(b)(6) depositions in the CBE Group action, the court finds that these exhibits are admissible as they are not hearsay. They are statements of an opposing party under Rule 801(d)(2)(A) and (D). Although Defendants generally object to the court's considerations of these deposition excerpts, they make no argument as to any specific testimony. With respect to the stipulations in the pretrial order governing the CBE Group case, those stipulations were agreed to for that action and Plaintiff makes no showing that the stipulations are binding beyond that case. The court declines to consider this exhibit on summary judgment.

Plaintiff Ad Astra is a debt collector and data furnisher. Plaintiff brings claims under the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. §§1962(c) and (d), and a Kansas common law fraud claim. (Doc. 257-1.) As a debt collector, Plaintiff collects debts primarily on behalf of one client, CURO Group Holdings Corp. ("CURO"). (Id. at 3.) Plaintiff is subject to the provisions in the Fair Credit Reporting Act ("FCRA"), Fair Debt Collection Practices Act ("FDCPA"), and state laws applicable to debt collection. Defendant John C. Heath, Attorney at Law, PC d/b/a Lexington Law Firm ("Lexington Law") is a law firm that provides services to its clients, including credit repair services. (Id.) Lexington Law's principal place of business is in North Salt Lake City, Utah. Lexington Law employs attorneys in house and it also engages law firms in certain states to serve as "of counsel." (Id.) John Heath is the Directing Attorney of Lexington Law. Defendant Kevin Jones was previously employed by Lexington Law as theDirecting Attorney of Operations and Chief Compliance Officer ("CCO"). In the role of CCO, Jones was responsible for the day to day operation of Lexington Law's compliance program. (Docs. 277 at 2; 308 at 5.) Jones implemented a compliance framework and investigated matters raised by consumers. In the role as Directing Attorney of Operations, Jones hired in house attorneys to work for Lexington Law and directly managed the full-time Lexington Law attorneys. Defendant Adam Fullman is a principal at Fullman Law Firm and serves as of counsel to Lexington Law's clients in California. (Docs. 273 at 2, 306 at 5.) Defendant Jeffrey Johnson served as the Co-CEO of Defendants PGX Holdings, Inc. ("PGX"), Progrexion Holdings, Inc., Progrexion Teleservices, Inc. ("Teleservices"), Progrexion ASG, Inc., Progrexion Marketing, Inc., and Progrexion IP, Inc. (collectively referred to as "the Progrexion entities") prior to his retirement in April 2020. (Doc. 257-1 at 3.) PGX and Progrexion Holdings are both holding companies. The remaining Progrexion entity Defendants are subsidiaries of Progrexion Holdings. According to Defendants, some of these Progrexion entities essentially provide services to Lexington Law as vendors. (Doc. 334-5 at 80:19-24.) For example, ASG provides services to Lexington Law which include paying its bills and managing its bank accounts. (Docs. 318 at 23; 334 at 5.)

Relevant to the issues in this case, the FCRA gives consumers the right to have negative information on their credit reports, which are generated by Equifax, Experian, and TransUnion (the "Bureaus"), referred to as "tradelines," investigated for accuracy. A consumer may submit a dispute by: (1) submitting it directly to the Bureau that generated the report with the negative tradeline; (2) submit a dispute to the "reseller" of the negative tradeline; or (3) submit a direct dispute to the data furnisher that provided the negative information. See 15 U.S.C. §§ 1681i(a)(1)(A), 1681s-2(a)(8). Upon receiving notice of a dispute, the person who provided the negative information must conduct an investigation, review the information provided by theconsumer, and report the results of the investigation within 30 days. Id. § 1681s-2(a)(8)(E). The investigation requirement does not apply to a dispute submitted by a credit repair organization ("CRO"). Id. § 1681s-2(a)(8)(G). A dispute submitted by a CRO is considered a frivolous dispute. Id. § 1681s-2(a)(8)(F); 12 C.F.R. § 1022.43(f). An investigation is also not required when "the furnisher has a reasonable belief" that a CRO submitted or prepared the dispute for the consumer or the dispute is submitted on a form supplied to a consumer by a CRO. 12 C.F.R. § 1022.43(b)(2). The applicable statute defines a CRO as a

person who uses any instrumentality of interstate commerce or the mails to sell, provide, or perform (or represent that such person can or will sell, provide, or perform) any service, in return for the payment of money or other valuable consideration, for the express or implied purpose of--
(i) improving any consumer's credit record, credit history, or credit rating; or
(ii) providing advice or assistance to any consumer with regard to any activity or service described in clause (i)...

15 U.S.C. § 1679a(3). Lexington Law is registered as a credit services organization in both Utah and California under those states' statutes regarding credit repair agencies, which are similar in definition to the federal statute.3 (Doc. 318-13.) A brief history of the Credit Repair Organizations Act ("CROA"), 15 U.S.C. § 1679, et seq., explains why Congress exempted CRO disputes from the investigation requirement.

Congress enacted the CROA to ensure that buyers of CROs' services were provided with information necessary to make an informed decision and to protect the public from unfair or deceptive advertising. 15 U.S.C. § 1679(b). Congress was concerned with entities that were leading consumers to believe that all adverse information in a consumer report could be deleted. The legislative history explains that

[T]he "Credit Repair Organization Act," addresses credit repair fraud. As consumers have experienced problems with the consumer reporting industry, credit repair organizations have emerged offering, for a fee, to help consumers eliminate adverse information from consumer reports. While some of these organizations may benefit consumers, the Committee is aware that a number of fraudulent credit repair organizations have inappropriately led consumers to believe that adverse information in consumer reports can be deleted or modified regardless of the accuracy of the information.

S. Rep. 103-209, *7 (1993), 1993 WL 516162.

The House Report also explains that some CROs had marketed services to consumers and led them to believe that adverse information can be deleted even if it is accurate and that their practice was to "inundate[e] consumer reporting agencies with so many challenges to consumer reports that the reinvestigation system breaks down, and the adverse, but accurate, information is deleted." H.R. Rep. No. 103-486, at 57 (1994), 1994 WL 164513. Plaintiff essentially alleges that Lexington Law operates in this same manner.

Lexington Law, along with Progrexion Marketing, markets Lexington Law as a leading credit repair law firm. (Doc. 310-47.) Consumers are referred to Lexington Law from Teleservices by intake agents. These consumers may have originally been transferred to an intake agent with Teleservices after calling one of the numerous "hot swap" partners that are affiliated with Teleservices. (Doc. 310-5 at 121:7-25.) For example, a consumer might have initially called a hot swap partner for a loan but was informed that he needed to repair his credit prior to receiving a loan. (Doc. 318-16 at 3.) These hot swap partners are paid for referring clients to LexingtonLaw. (Doc. 310-34 at 174-175.) Teleservices employs approximately 1,100 intake agents. (Docs. 318 at 21, 334 at 5.) During an intake call, Teleservices' agents may offer consumers a free credit repair consultation based on their credit situation. (Docs. 318 at 22, 334 at 5.) Teleservices' agents then provide the consumers with an engagement agreement for Lexington Law. Commissions are earned by the referring agent after a consumer signs the engagement agreement. (Doc. 310-5 at 109:3-25.) Lexington Law does not perform any services for a consumer client until the engagement agreement is executed. According to Lexington Law, a consumer or a Lexington Law employee can talk to an attorney by calling a hotline that is answered by an attorney during business hours. (Doc. 334-5 at 45:7-12, 147:10-19.) If the consumer enrolls as a client, Teleservices will start the dispute process. This process...

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