A 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).
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.
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.
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