An interesting twist occurred in the battle against credit repair agencies that flood debt collectors with dispute letters. Last July, a jury in Texas returned a $2.5M verdict in favor of the plaintiffs—The CBE Group and RGS Financial—against Lexington Law and Progrexion, finding that the credit repair organization participated in a fraudulent scheme. On Thursday, Judge Sam A. Lindsay overturned the verdict, despite not being a fan of Lexington Law's conduct.
The judge issued an order on several post-verdict motions filed by both parties in the lawsuit. Ultimately, the court denied plaintiffs' motion for entry of final judgment and granted Lexington Law's motion for judgment as a matter of law (which challenges the legal sufficiency of the verdict).
The ultimate effect of this is that the jury verdict is effectively canceled and "all allowable and reasonable costs are assessed against Plaintiffs."
So, what happened?
Lexington Law's motion rested on the argument that plaintiffs' fraud claim fails due to the failure to demonstrate two required elements: that the credit repair law firm knowingly made a material false statement and that, even if they did, there was no reasonable reliance on plaintiffs' part. Plaintiffs' motion, on the other hand, argues that all elements were met with the evidence presented at trial and Lexington Law failed to present contrary evidence.
The court found that, based on the evidence presented, Lexington Law did not make any material false statement. The court cites Lexington Law's retainer agreements for its clients, which specifically states that Lexington Law may: act as the client's agent or attorney in fact for disputing problematic credit report information; send communications on behalf of the client "and will not be identified as being sent by Lexington"; and sign letters on the client's behalf.
According to the court:
The evidence presented at trial demonstrated that Lexington Law Firm was acting in accordance with the retainer agreement, and that each client explicitly consented to Defendants disputing certain of their credit lines and signing their names on the letters. In light of this evidence, the court fails to see any actionable misrepresentation on the part of Defendants. Plaintiffs have not explained convincingly—at the July 1, 2019 oral argument or in their postverdict briefing—how Defendants’ conduct amounts to an actionable misrepresentation.
The court also found that there was no evidence presented that Progrexion—Lexington Law's co-defendant, made a misrepresentation. This is because Progrexion, while creating templates of letters for Lexington Law, does not itself send letters.
While the court overturned the verdict, it did not have praise for Lexington Law, stating that its conduct is not "cause for approbation."
Now we wait to see if CBE and RGS appeal the judgment.
This is an unfortunate turn of events in the fight against a practice that ultimately harms consumers. Legitimate debt collectors understand the importance of accurately reporting account information to the credit bureaus, and they build robust compliance processes and procedures to ensure they are reporting correctly and are able to quickly investigate—and, if necessary, correct—disputed information. It is believed that many credit report disputes, such as the ones from credit repair organizations, are not legitimate; instead, they are an attempt to remove correct, but unwanted, derogatory items from credit reports. If debt collectors are flooded with these illegitimate disputes, it makes it more difficult to separate the wheat from the chaff and help consumers who have legitimate disputes.