Accounts receivable entities which are inundated by seemingly vehicle-produced dispute letters have been paying shut awareness to the circumstance submitted by CBE Group, Inc. (CBE) and RGS Monetary, Inc. (RGS) towards Lexington Law (Lexington) and Progrexion, Inc. What at initial appeared like a sizeable earn for entities becoming flooded with these letters has seemingly finished with the opposite result.
Here is a recap of the saga: in 2017, immediately after yrs of receiving significant quantities of letters with shopper signatures that appeared to be auto-created and not sent from the true consumers them selves, CBE and RGS filed a lawsuit versus Lexington and Progrexion. The suit alleged Lexington and Progrexion (as Lexington’s agent) dedicated fraud by generating the letters appear to be from buyers when the letters ended up truly sent by Lexington on templates designed by Progrexion. In July 2019, a jury returned a verdict awarding a whole of 2.5 million dollars in genuine and punitive damages to CBE and RGS, locating that the apply amounted to fraud, including by failing to disclose materials facts.
What happened soon after the verdict?
Right after the jury came again with its award, Lexington and Progrexion filed publish-judgment motions inquiring the District Courtroom to set aside the jury’s verdict. In February 2020, the District Courtroom granted the motions and overturned the jury verdict primarily on the basis that Lexington’s engagement arrangement with its customers (1) allowed Lexington to mail letters on its client’s behalf in their names, and (2) encouraged every single consumer that the letters “will not be determined as currently being sent by Lexington.” The District Courtroom reasoned that due to the fact Lexington had the legal correct to sign its client’s names, it did not make any bogus representations, material or in any other case when it despatched the letters (a fake representation is a requirement for a fraud assert).
CBE and RGS appealed, and on April 1, 2021, the Fifth Circuit Courtroom of Appeals affirmed the District Court’s ruling, confirming that as a make any difference of law, Lexington’s carry out did not amount of money to fraud. The Fifth Circuit also focused on the language of Lexington’s engagement agreements and rejected CBE and RGS’s competition that there was no genuine lawyer-consumer partnership in between Lexington and its shoppers. Instead, the Court docket mentioned that the engagement agreements had not been proven to be invalid, and even if Lexington’s clientele misunderstood the conditions of the engagement agreement, they were being even now bound by it. Like the District Courtroom, the Fifth Circuit concluded that because Lexington was running with its clients’ consent, it did not make any bogus representations when it sent the letters, nor did Lexington build any wrong impressions requiring disclosure.
Additional, the courtroom held that the fraud promises have to fall short for the reason that CBE and RGS did not “justifiably rely” on the alleged misrepresentations because their interior insurance policies and procedures call for them to look into and answer to dispute letters despatched by buyers 3rd get-togethers alike. About Progrexion, the Court docket held “there is no proof that Progrexion despatched dispute letters fairly the evidence is that Progrexion delivered template letters to Lexington  for its use, hence Progrexion are not able to be liable for fraud because it like Lexington regulation did not make any content misrepresentations.”
As we stated when the District Court vacated the judgment in 2020, this is an unfortunate ruling in the battle versus a apply that ultimately harms customers. Legitimate debt collectors fully grasp the importance of accurately reporting account facts to the credit rating bureaus, and they establish robust compliance processes and procedures to ensure they are reporting correctly and are capable to examine quickly—and, if vital, correct—disputed facts. It is considered that several credit report disputes, such as the kinds from credit score maintenance companies, are not reputable rather, they are an try to get rid of appropriate, but undesired, derogatory items from credit history stories. If credit card debt collectors are flooded with these illegitimate disputes, it would make it much more difficult to independent the wheat from the chaff and help individuals who have legit disputes. It’s possible there is a various legal theory to pursue in this fight, but the Fifth Circuit has created distinct that if the credit restore organization is acting in accordance with its engagement settlement, a fraud suit may not be successful.