Court Compels Lexington Law to Produce Client Communications Related to Generating Credit Dispute Letters

Ad Astra Recovery Services, Inc. is currently fighting a lawsuit against John C. Heath, Attorney at Law, PLLC d/b/a Lexington Law Firm (Lexington Law) for allegedly engaging “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.” Ad Astra claims that “these letters are sent using ‘forged’ client signatures without any indication that they are actually prepared and transmitted by a law firm.”

In a recent decision, the court granted Ad Astra’s motion to compel Lexington Law to produce “communications from clients that resulted in Lexington Law generating credit dispute letters sent to Ad Astra under the clients’ signature.” The decision can be found here.

After Ad Astra served its discovery requests for documents and communications regarding the credit dispute letters, Lexington Law argued that these items were protected by attorney-client privilege. During a discovery conference, Lexington Law stated that its client communications go through a “case valet” portal on the firm’s website, where clients can log in, communicate with the firm, and direct the firm about which debts to dispute.

In analyzing attorney-client privilege, the court looked to federal law and cited the Tenth Circuit’s definition of the privilege’s scope:

The attorney-client privilege protects confidential communications by a client to an attorney made in order to obtain legal assistance from the attorney in his capacity as a legal advisor. The mere fact that an attorney was involved in a communication does not automatically render the communication subject to the attorney-client privilege; rather, the communication between a lawyer and client must relate to legal advice or strategy sought by the client.

(Internal citation and emphasis omitted.)

Ad Astra argued that Lexington Law’s credit repair business functions exactly like other credit repair businesses run by non-attorneys, thus falling outside the spoke of the attorneys acting as legal advisors. Lexington Law argues that it also represents clients in FDCPA and FCRA cases and their practice is not limited to credit disputes.

The court went through a long analysis of the current legal framework of attorney-client privilege, which is a nuanced case-by-case determination. Of note, the court stated that simply because attorneys were involved in the service does not mean that the communications fall under the attorney-client privilege. The court found as follows:

Defense counsel did not state that any attorney was even involved in the decision to dispute a particular debt and, if so, what legal judgment was exercised in doing so. Rather, the present record suggests an essentially automated process by which information the consumer provided in the web portal somehow auto-generated a credit dispute letter. Instead of refuting this, defense counsel instead argued that Lexington Law's practice extends beyond issuing dispute letters and also includes representing clients in FDCPA and FCRA cases. But the fact that some of the firm's communications might be privileged is insufficient to establish that all communications are privileged. Courts have uniformly rejected these types of blanket privilege assertions.

The court ultimately found that Lexington Law failed to sufficiently establish that the privilege applied. The court granted the motion to compel, but left open the opportunity for Lexington Law to provide a privilege log of why specific communications should be considered privileged. The court provided the following instruction:

Lexington Law shall apply the undersigned's guidance in this order about what constitutes legal assistance—namely, confidential communications by a client to an attorney made in order to obtain legal assistance from the attorney in his or her capacity as a legal advisor. Any privilege log entry should therefore specify, at a minimum, (1) the identity of the attorney who exercised legal judgment with respect to the debt at issue, and (2) the nature of the legal services that were sought or rendered.

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insideARM Perspective

The mass credit dispute issue has been plaguing the industry for a little while now, and Ad Astra is fighting back. insideARM reported on Ad Astra’s suit when it was filed back in 2018. While the suit slugs its way through the court system, it seems Lexington Law is going to have a difficult time asserting that privilege applies to these automated letters. Serendipitously, the same argument that consumer attorneys make against debt collection law firms on the issue of meaningful attorney involvement can be made here: it is nearly—if not absolutely—impossible that an attorney reviewed and exercised legal judgment on each of credit dispute letter due to the sheer volume of such letters sent to debt collectors.