insideARM has been following the lawsuit filed by Ad Astra Recovery Services, Inc. against Lexington Law alleging the firm is engaged in “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.” There have been some developments related to discovery in this case that are worth noting.
As a brief recap, Ad Astra filed this suit in June 2018. Back in April of this year, the court compelled Lexington Law to produce communications from its clients that resulted in the generation of the credit dispute letters that were to be sent to Ad Astra under the consumer’s signature. The court ultimately found that these communications were not protected by the attorney-client privilege.
The first development is that at a discovery conference, the court denied Lexington Law’s motion to quash and motion for a protective order—both are tools to prevent providing certain information in the litigation discovery process. Not too much should be read into this denial, as it was based purely on failure to follow court rules rather than on the merits, and thus the court allowed Lexington Law to re-file its requests.
The second development is that Ad Astra filed a motion for sanctions against Lexington Law for the spoliation of evidence, which is a fancy legal phrase for the destruction of evidence due to negligence or bad faith. The motion alleges that Lexington Law knew that it had a duty to preserve the evidence—in this case, copies of the credit dispute letters it sent—when this and another lawsuit were filed against it as well as under Utah’s Rules of Professional Conduct for attorneys. According to the motion:
Defendants maintain that copies of the 594,117 letters1 sent to Plaintiff do not exist, despite witness testimony and Defendant documents that reflect otherwise. Given Defendants’ current representations that these letters no longer exist, the only logical conclusion is that the letters were destroyed in bad faith to prevent Plaintiffs from establishing that Defendants prepared and sent the letters.
The court has a hearing on the motion for sanctions scheduled for December 3. insideARM will follow the progress and provide updates.
The pressure is on Lexington Law for its practices, and not just from this lawsuit. The Consumer Financial Protection Bureau (CFPB) filed a lawsuit against Lexington Law back in May of this year for problematic marketing practices. Lexington Law moved for dismissal of the CFPB suit, arguing that the firm is not liable for acts of third-parties (the ones who engaged in the marketing practices alleged in the suit) and also arguing that the CFPB’s structure is unconstitutional. The hearing on the motion to dismiss is scheduled for December 13.
In a separate lawsuit filed by The CBE Companies and RGS Financial, a jury recently found that Lexington Law’s scheme of mailing mass volumes of credit dispute letters was fraudulent. The jury awarded to the debt collectors a little over half a million dollars in damages and expenses, as well as a whopping $1,948,317 in exemplary damages. That case is still awaiting the court's entry of judgment against Lexington Law.
Overall, not a great outlook for Lexington Law, but some justice for debt collectors who have been flooded by fraudulent credit dispute letters from this and other credit repair organizations.