Nick Hurston//October 30, 2023
Nick Hurston//October 30, 2023//
Damages awarded by a jury to a student loan servicer under the Racketeer Influenced and Corrupt Organizations Act, or RICO, were vacated after an Eastern District of Virginia judge found the defendants’ telephone consumer protection claims were neither shams nor manufactured.
Following the disposal of several lawsuits under the Telephone Consumer Protection Act, or TCPA, the loan servicer sued the plaintiffs’ lawyers and involved businesses, alleging they conspired to violate RICO by manufacturing the claims. A jury awarded millions to the servicer.
After reviewing the record — “which portrayed both the debt collection practices of the servicer, the debt reduction industry, law firms, and lawyers in a very negative light” — U.S. District Judge Leonie M. Brinkema said the evidence didn’t support the jury verdicts.
“Because the Court finds that the TCPA litigation was not sham litigation, as a matter of law, there was no legal basis upon which any damages could be awarded [to plaintiff],” the judge said. “All four of the causes of action at issue in this civil action have an element that the plaintiff suffered damage as a result of the conduct.”
The TCPA prohibits the use of automatic telephone dialing systems without the recipient’s consent and provides fines for violations. Between 2017 and 2019, the Law Offices of Jeffrey Lohman filed lawsuits against Navient Solutions on behalf of 61 student loan borrowers.
According to Lohman, the borrowers paid GST Factoring to get their student loans reduced. Lohman then advised the borrowers to stop paying, trigger Navient to begin collections, withdraw consent for calls and record how many times Navient called again.
One borrower testified that it was necessary to stop paying in order to renegotiate their loans; a Navient officer confirmed that default gave them more and easier options to settle loans.
Navient won four arbitrations and settled 37 claims; 20 were dismissed. Navient made cash payments to borrowers totaling $568,225.13 and wrote off $945,705.11 of debt. Lohman received fees for representing the borrowers.
In 2019, Navient sued several law firms, business and individuals involved with the TCPA litigation — including Lohman and GST — for violations of RICO and tortious interference with contract. Navient also sued Lohman for fraud.
Navient argued that the defendants enticed the borrowers to enter default and trigger the automated collection calls to artificially manufacture sham TCPA cases. The decision to settle many of the cases didn’t mean they were legitimate, the loan servicer claimed.
Only the Lohman and GST defendants went to trial. The jury awarded Navient $860,000 from GST and $50,000 from its principals, as well as $1,146,500 from the Lohman defendants and $100,000 from Lohman himself.
Seeking to vacate the jury verdicts, the defendants filed post-trial motions for judgment as a matter of law pursuant to Federal Civil Procedure Rule 50.
The defendants contended that the TCPA litigation was legitimate and therefore couldn’t support Navient’s claims against them.
“The Fourth Circuit has held that ‘if the verdict in favor of the non-moving party would necessarily be based upon speculation and conjecture, judgment as a matter of law must be entered,” Brinkema explained.
The judge pointed out that it was unclear specifically which automated systems violated the TCPA until the U.S. Supreme Court addressed the statute’s applicability in 2021’s Facebook Inc. v. Duguid.
Unlike the cases cited by Navient, Brinkema found nothing in the trial record showing the proceedings were a sham, such as false evidence or the lack of benefit to the claimants.
“In fact, the vast majority of the successful cases resulted in the borrowers having benefitted by an amount of debt being written off,” she wrote. “That the Lohman defendants also received fees for this litigation does not make it sham litigation.”
Brinkema disagreed with Navient’s claim that the TCPA litigation was manufactured.
“The problem with Navient’s argument is that it was Navient’s conduct violating the TCPA that caused its damages,” she wrote. “Had Navient abided by the borrowers’ revocation of Navient’s right to call them, and not made the significant number of calls — sometimes amounting to 48 calls in a week — Navient would not have been vulnerable to the lawsuits which were the cause of its damages.”
Brinkema wasn’t persuaded by Navient’s argument that the defendants’ advice that borrowers stop making payments impacted Navient’s bottom line and entitled them to nominal damages. Navient neither made that claim during trial nor did it present any evidence of damages resulting from that advice.
“Moreover, there was evidence during the trial that advising a debtor seeking to reduce his debt to stop making payments is, unfortunately, sound advice given the way the debt industry operates,” Brinkema wrote.
“Based on this evidence, which Navient has not refuted, the Lohman defendants’ advice to borrowers seeking payments or debt reductions to default on their loans was not unreasonable legal advice and genuinely reflected the unfortunate realities of debt settlement negotiations,” she added.
Having found that the TCPA litigation wasn’t sham litigation, Brinkema concluded that the evidence didn’t support the jury’s decision to award damages. She granted the defendants’ motions, vacated the jury verdicts and entered judgment in their favor.
Mikhael Charnoff of Charnoff Simpson in Vienna, who represents the GST defendants, said this was an “unusually complex and confusing fact pattern.”
“We more than doubled the number of jury instructions and some of them were two or three pages because you have to define what’s an enterprise, an association,” he told Virginia Lawyers Weekly. “In fairness to the jury, maybe they just got confused.”
Navient has appealed to the Fourth Circuit. That didn’t surprise Minneapolis litigator Jeffrey Grell of Grell Feist, who represents the Lohman defendants.
“This has been a highly contested case and it’s fairly unusual for a judge to overturn a jury verdict,” Grell noted.