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Privilege claim rejected in student loan case

student-loan_mainA federal judge’s ruling on attorney-cli­ent privilege has brought to light a novel Virginia lawsuit claim: Lawyers alleged­ly induced student loan debtors to stop making payments in order to trigger ac­tionable collection calls.

A student loan debt servicer claims the lawyers coached debtors to rescind permission for telephone calls in order to “manufacture” claims under a federal statute. Navient Solutions LLC has sued 18 defendants under the Racketeer Influ­enced and Corrupt Organizations Act in Alexandria federal court.

In a March 11 ruling, a federal mag­istrate judge rejected a claim of attor­ney-client privilege, ordering lawyers to turn over their communications with clients and pay fees for procedur­al missteps.

The decision by U.S. Magistrate Judge Theresa C. Buchanan is Navient Solu­tions LLC v. The Law Offices of Jeffrey Lohman PC (VLW 020-3-144).

Collection calls

Navient’s complaint says the company is suing “to address an abuse of the law by legal professionals and associated ‘debt counseling’ practitioners.”

Since at least 2015, the defendants used a “network of referral and fee-shar­ing arrangements” to prey on unsuspect­ing borrowers and to conspire to “manu­facture federal lawsuits and arbitration proceedings” against Navient, the compa­ny charged.

The defendants would recruit bor­rowers seeking debt-relief counseling, misleading them into stopping loan pay­ments and paying the defendants in­stead, the lawsuit said.

Some of the defendants would pro­vide clients with a script for revoking consent to receive telephone calls from Navient, the suit alleged. Then, the de­fendants would tell clients to tally how many calls they received from Navient, the company alleged.

The intent, the suit said, was that the collection calls would form the purported basis of claims under the Telephone Con­sumer Protection Act.

As a result, Navient claims it suffered substantial losses, including the loss of borrowers’ payments and the costs of de­fending TCPA claims, such as settlement payments, cancellation of hundreds of thousands of dollars in student loan debt and legal expenses.

A key defendant is the Jeffrey Lohman law office in Corona, California. Some de­fendant attorneys – allegedly involved in the scheme – were subject to disciplinary proceedings in other states, the suit said.

Crime-fraud exception

In its Alexandria suit, Navient sought Lohman’s communications with its stu­dent-debtor clients regarding the conse­quences of defaulting on loans, the res­olutions of debt-relief matters or TCPA claims and the debtors’ satisfaction with the outcome.

Lohman objected, arguing the docu­ments are protected by the attorney-cli­ent privilege. Navient then raised the crime-fraud exception. Lohman said that exception does not apply to cases where the attorney – not the client – is the one accused of crime or fraud.

Buchanan rejected that distinction.

“The Court is aware that there are relatively few cases discussing the ap­plication of the crime-fraud exception when the attorney is allegedly com­mitting the crime or fraud, as opposed to the client,” Buchanan wrote. “For the sake of the legal profession, this is a positive reality,” she added in a footnote.

As a matter of law and policy, Buchan­an agreed with a ruling from the U.S. 3rd Circuit Court of Appeals that it would not allow a law firm to use its client’s privilege as a shield to hide its allegedly criminal conduct. Allowing the privilege to shield information about the attor­ney-defendants’ conduct “would expand the privilege beyond its logical principle,” the judge said.

Moreover, Buchanan said there is some evidence Lohman’s clients were engaged in the fraudulent scheme or, at the least, were aware of it and knowingly partici­pated.

Sufficient allegations

Lohman contended Navient had not met the prima facie test for alleg­ing that Lohman or its clients were involved in a criminal or fraudulent scheme. Buchanan said she was satis­fied the evidence was sufficient. More­over, she said, the test was met when U.S. District Judge Leonie Brinkema denied the collective Lohman defen­dants’ motion to dismiss.

Buchanan also rejected Lohman’s de­fense that the allegations against at­torneys – considered separately – all consisted of “lawful and ethical” actions. The judge said the allegations, consid­ered together, spell out a scheme – a conglomeration of actions – that encom­passed fraud.

“The attorney-defendants were ulti­mately part and parcel in this scheme to trick student debtors, take their money (that otherwise would have been used to pay off student loans), and advise clients to undertake affirmative actions to man­ufacture lawsuits in hopes that Plaintiff would have to cancel their student-loan debt,” Buchanan wrote.

“Even though Lohman accepted client referrals, gave legal advice, and litigated the underlying TCPA claims, they did so in furtherance of this overarching fraud­ulent scheme,” the judge said.

Buchanan ordered Lohman to pro­duce responsive documents withheld on the basis of the attorney-client priv­ilege. She also held Lohman and his lawyers jointly and severally liable for reasonable attorneys’ fees and costs in­volved in recent pleadings based on pro­cedural errors.

Navient is represented by Jeffrey Ham­lin of Washington. Lohman is represent­ed by Thomas F. Urban of Arlington and Jeffrey E. Grell of Minneapolis.

Grell said the Lohman legal team would be appealing Buchanan’s ruling to Brinkema. MichieHamlett Attorneys At LAw 500 Court Square, Suite 300 P.O. Box 298 | Charlottesville, VA 22902 434-951-7200 Experience. Resources. Results. Personal Injury Group