Southwood v. Solution, 7:09-CV-00081-F

• Decision Date: 26 February 2016
• Docket Number: No. 7:09-CV-00183-F,No. 7:09-CV-00081-F,7:09-CV-00081-F,7:09-CV-00183-F
• Parties: Sharon Southwood, for herself, and all others similarly situated, Plaintiff, v. The Credit Card Solution, et. al, Defendants. Chris Taylor, for himself and all others similarly situated, et al., Plaintiffs, v. Lee W. Bettis, Jr., Esq. et al., Defendants.
• Court: U.S. District Court — Eastern District of North Carolina

Sharon Southwood, for herself, and all others similarly situated, Plaintiff,
v.
The Credit Card Solution, et. al, Defendants.

Chris Taylor, for himself and all others similarly situated, et al., Plaintiffs,
v.
Lee W. Bettis, Jr., Esq. et al., Defendants.

No. 7:09-CV-00081-F
No. 7:09-CV-00183-F

UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF NORTH CAROLINA SOUTHERN DIVISION

February 26, 2016

Memorandum & Recommendation

This consolidated action¹ presents the question of whether the Plaintiffs are entitled to a default judgment against a group of Defendants who organized and operated a sham credit repair program. Although the court has entered a default against the remaining defendants, that is not the end of the inquiry. The court must determine whether the pleadings contain sufficient factual allegations to grant a judgment against each Defendant. While Plaintiffs were undoubtedly taken

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advantage of and should be made whole, the allegations in their pleadings are not sufficient to provide them with all the relief they seek. Therefore, the undersigned magistrate judge recommends that Plaintiffs' Motion for Default Judgment (Southwood, D.E. 60) be granted in part and denied in part.

I. Procedural History

A. Southwood Action

Plaintiff Sharon Southwood filed a verified Complaint in North Carolina Superior Court on January 7, 2009, on behalf of herself and a putative class of similarly situated individuals. The Complaint alleges seven claims for relief: a violation of North Carolina's prohibition on unfair and deceptive trade practices ("UDTPA") (Southwood Compl. ¶ 166, D.E. 1-4); fraud (id. ¶ 167); gross and willful legal malpractice (id. ¶ 168); a violation of the North Carolina Racketeer Influenced and Corrupt Organizations Act ("NC RICO") (id. ¶ 169); a violation of the federal Credit Repair Organizations Act ("CROA") (id. ¶ 170); a violation of the federal Racketeer Influenced and Corrupt Organizations Act ("RICO") (id. ¶ 171); and civil conspiracy (id. ¶ 172).

Southwood brings these claims against The Credit Card Solution ("TCCS"); CCDN, LLC; R.K. Lock & Associates; Robert K. Lock, Jr.; Colleen Lock; Philip M. Manger; and Robert M. "Bob" Lindsey. She seeks to pierce the corporate veil of the entity defendants in order to hold the individual defendants personally liable for the alleged corporate misdeeds.

After Defendants removed the case to federal court, the parties filed a variety of motions. While many of the motions have no bearing on Southwood's Motion for Default Judgment, the court will briefly address those which do. First, Southwood requested and was granted leave of court to dismiss TCCS and Lindsey without prejudice. D.E. 43, 46. Second, in connection with a

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motion to dismiss filed by some of the Defendants, the court determined² that Southwood sufficiently alleged a UDTPA claim against CCDN, LLC and R.K. Lock & Associates; a claim of fraud against CCDN, LLC and R.K. Lock & Associates; a CROA claim against CCDN, LLC and R.K. Lock & Associates (Order at 15, 17, 34, Southwood D.E. 46), and a RICO claim against Robert Lock and Manger (id. at 27). Finally, the court ordered that the Clerk of Court enter a default judgment against Robert Lock; Colleen Lock; Manger; R.K. Lock & Associates; and CCDN, LLC. D.E. 53, 54.

B. Taylor Action

The 158 page, 768-paragraph Amended Complaint filed on behalf of Plaintiffs Chris W. Taylor, William G. Harrison, Sr., Linda Sheryl Lucas, Cathy Horton Hunt, Sharon Southwood, and Dorman and Brenda Beasley asserts 13 claims against 32 defendants. The Amended Complaint contains eleven causes of action: unjust enrichment (Taylor Am. Compl. ¶ 757, D.E. 23), conversion (id. ¶ 758); a violation of NC RICO (id. ¶ 759); a violation of the CROA (id. ¶ 760); a violation of RICO (id. ¶ 761); civil conspiracy (id. ¶ 762); tortious interference with a prospective business advantage (id. ¶ 764); negligence (id. ¶ 765); a violation of North Carolina's UDTPA (id. ¶ 766); fraud (id. ¶ 767); and gross and willful legal malpractice (id. ¶ 768). Additionally, Plaintiffs seek to pierce the corporate veil of the entity defendants in an effort to hold the individual defendants personally liable for corporate misdeeds. Id. ¶ 763. Plaintiffs also assert that they are entitled to a constructive trust. Id. ¶ 756.

Plaintiffs assert these claims against a number of defendants and divides them into various groups: "Lawyer Defendants," "CCDN Defendants," "R&G Marketing Defendants,"

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"TCCS Defendants," and "Aegis Defendants."

The "Lawyer Defendants" include Lee W. Bettis, Jr., Pat Leigh Pittman, Joanne K. Partin, Robert L. Emanuel, Stephen A. Dunn, Raymond E. Dunn, Jr., Emanuel & Dunn, PLLC, and Bettis Dunn & Dunn;³ W. Andrew Arnold and The Law Office of W. Andrew Arnold, P.C.;⁴ Richard Jude Wasik; and Barrister Legal Services, P.C.

The "CCDN Defendants" include CCDN, LLC; Legal Debt Cure, LLC; R.K. Lock & Associates; Jen Devine; Robert K. Lock, Jr.; Colleen Tomasino Lock; Philip M. Manger; S. John Hagenstein; and Tracy Webster.

The "R&G Marketing Defendants" include Richard D. Russ; Ernest Greg Britt, Jr.; and Excell Marketing, LLC.

The "TCCS Defendants" include The Credit Card Solution; Robert Mitchell "Bob" Lindsey; and Rodney Emil Brisco. Finally, the "Aegis Defendants" include Aegis Corporation; Debt Jurisprudence, Inc.; M. David Kramer; and Marcia M. Murphy.

The Amended Complaint seeks compensatory and treble damages totaling "not less than $1,044,000,000" plus punitive damages. Taylor Compl. ¶ 4, D.E. 23. Although not specified in the Complaint, Plaintiffs' motion for default judgment seeks a punitive damages award that would be at least 80 times the compensatory damages awarded by the court. Southwood D.E. 60.

As in Southwood, the parties filed a variety of motions that impacted both the parties and claims that are remaining in this case. The court dismissed the E&D Defendants (D.E. 117, 120)

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and the Arnold Defendants (D.E. 117) as a result of various dispositive motions. Additionally, the court dismissed R.K. Lock & Associates; Devine; the Locks; Hagenstein; TCCS; Lindsey; Russ; Britt; R&G Marketing; Excell Marketing, LLC; and Webster because Plaintiffs did not serve them with process within the time required by the federal rules. D.E. 120. The Clerk of Court subsequently entered a default against Aegis; Brisco; Debt Jurisprudence, Inc.; Kramer; Murphy; Barrister Legal Services, P.C.; CCDN, LLC; Legal Debt Cure LLC; Wasik; and Russ.⁵ D.E. 72-76, 84-87, 114.

C. Consolidated Action

As noted above, the court consolidated Southwood and Taylor. D.E. 54. After Plaintiffs filed their Motion for Default Judgment (Southwood, D.E. 60), this court held a hearing on the motion pursuant to Rule 55 of the Federal Rules of Civil Procedure. See Fed. R. Civ. P. 55(b)(2) (allowing the court to conduct a hearing "when, to enter or effectuate judgment, it needs to: conduct an accounting; determine the amount of damage; establish the truth of any allegation by evidence; or investigate any other matter.").

II. Factual Background

A. Southwood Action

In late 2007, Southwood was in financial distress. She had seven credit cards with outstanding balances and a company called Unifund CCR Partners sued her in North Carolina

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District Court to recover the debt she allegedly owed. Compl. ¶¶ 102-04, Southwood D.E. 1-4. However, she was unable to find an attorney to represent her and began to search online "for a way to deal with this account and others." Id. ¶¶ 105-07. Her search led her to a website for TCCS. Id. ¶ 107.

TCCS is a Texas-based company that, in exchange for a payment of between $2,500 and $8,000, would promise to restore its customers' credit, eliminate their debt, and obtain damages from debt collectors. Id. ¶ 6. The company was owned and operated by Lindsey, who appeared in videos on TCCS's website. Id. ¶¶ 6, 57.

TCCS's promises of financial salvation were part of a credit repair and debt elimination program designed by CCDN, LLC. Id. ¶¶ 53-54. TCCS was one of several entities that marketed CCDN, LLC's program through videos and other information posted at various locations on the internet. Id. ¶¶ 46, 57, 59.

CCDN, LLC is a Nevada-based company, founded in the early 2000s by Robert Lock and Philip Manger. Id. ¶ 36, 37. The company is owned by Robert Lock and his wife, Colleen. Id. ¶¶ 38, 39. The Locks and Manger appear to be responsible for the company's operations. Id. ¶¶ 40, 43. CCDN, LLC works in conjunction with R.K. Lock & Associates, an entity owned and operated by Robert Lock and Manger. Id. ¶¶ 8, 10. Both CCDN, LLC and R.K. Lock & Associates do business under various names, including "CCDN," "The CCDN," and "The Credit Collections Defense Network."⁶ Id. ¶¶ 8-10.

CCDN's credit repair process has several steps. First, CCDN requires that consumers make an advance payment prior to enrolling in its "process." Id. ¶ 91. The enrollee must then execute a power of attorney authorizing CCDN to "prepare and sign all documents written with

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the intent of researching, challenging, negotiating, and otherwise corresponding with creditors, debt buyers, debt collectors, lw [sic] firms, credit reporting bureaus, and government agencies" with respect to specified accounts. Id. ¶ 92. CCDN then sends letters to the enrollees' creditors demanding validation of enrollees' accounts and asking the creditors to execute an affidavit drafted by CCDN that gives certain "assurances" regarding the enrollees' accounts. Id. ¶¶ 93-94.

In conjunction with the completion of this paperwork, CCDN instructs enrollees not to repay their debts. Id. ¶ 100. CCDN—or those marketing its plan—represent in videos and other testimonials on websites that they then document the various ways debt collectors violate the Fair Debt Collections Practices Act, "build a violations file[,]" and then turn the file over to an attorney who will file a lawsuit against the debt collector. Id. ¶ 69. CCDN claims that...