Court Opinion

ID: 4674059
Source: CourtListenerOpinion
Date Created: 2021-04-02 00:00:39.357941+00
Date Added: 2024-06-11T08:03:18.276670
License: Public Domain

Case: 20-10166     Document: 00515805477         Page: 1     Date Filed: 04/01/2021

           United States Court of Appeals
                for the Fifth Circuit                                   United States Court of Appeals
                                                                                 Fifth Circuit

                                                                               FILED
                                                                            April 1, 2021
                                  No. 20-10166                            Lyle W. Cayce
                                                                               Clerk

   The CBE Group, Incorporated; RGS Financial,
   Incorporated, on behalf of themselves and all others similarly situated,

                                                           Plaintiffs—Appellants,

                                      versus

   Lexington Law Firm; Progrexion, Incorporated; John C.
   Heath, Attorney at Law, P.L.L.C., doing business as
   Lexington Law Firm,

                                                        Defendants—Appellees.

                  Appeal from the United States District Court
                      for the Northern District of Texas
                           USDC No. 3:17-CV-2594

   Before Stewart, Higginson, and Wilson, Circuit Judges.
   Carl E. Stewart, Circuit Judge:
          Plaintiffs-Appellants CBE Group and RGS Financial, which furnish
   consumer financial information to credit bureaus, sued Defendants-
   Appellees Lexington Law and its vendor, Progrexion, for purportedly
   perpetrating a fraud in which the firm failed to disclose that it was sending
   letters to the companies in its clients’ names and on their behalves. A jury
   agreed that Defendants had violated Texas law in committing fraud and fraud
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   by non-disclosure (though found in favor of Defendants on the Plaintiffs’
   claim of conspiracy to commit fraud). The district court, however, set aside
   the verdict regarding the fraud and fraud by non-disclosure claims and issued
   a judgment in favor of Defendants as a matter of law. Plaintiffs appealed.
          For the reasons that follow, we AFFIRM.
                        I. FACTS & PROCEDURAL HISTORY
          Lexington Law is a consumer advocacy law firm that offers credit-
   repair services to its clients. As part of its services, the firm consults with its
   clients on how to challenge entries that the clients believe are incorrectly
   included in their credit reports, which are called negative “tradelines.” The
   firm sends letters on their clients’ behalves to data furnishers, such as CBE
   Group and RGS Financial, contesting the negative tradelines. The letters are
   formatted using one of several templates generated by Progrexion that
   incorporates digital copies of the clients’ signatures. Lexington Law does not
   identify itself as the sender of the letters.
          An engagement agreement, which customers must sign before
   engaging    the     firm’s   services,    notifies   prospective    clients   that
   “[c]ommunications sent by Lexington to [data furnishers] and [credit
   bureaus] on your behalf will be sent in your name, and will not be identified
   as being sent by Lexington.” Elsewhere the agreement provides Lexington
   Law with the ability to sign and send communications on behalf of clients and
   in their names that “verify and/or challenge the accuracy of [the clients’]
   credit reports.”
          As early as 2010 and 2012, CBE Group and RGS Financial,
   respectively, began to question whether letters that they had received
   disputing negative tradelines and purporting to be from consumers had in fact
   been sent by the consumers themselves. Plaintiffs grew suspicious because
   the letters were “strikingly similar in format, wording, and signature” and

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   came in envelopes that were “similarly addressed and stamped . . . .” A pre-
   discovery suit filed by CBE Group in state court in January 2017 revealed the
   letters had been sent by Lexington Law. CBE Group received 120,716 such
   letters between 2015 and 2018, while RGS Financial reviewed 5,600 of them
   between 2014 and 2018.
          In July 2017, CBE Group filed a lawsuit in a Texas court, which
   claimed that Lexington Law committed fraud by sending dispute letters
   purporting to be from consumers. Lexington Law then removed the suit to
   federal court. Following removal, CBE Group added RGS Financial as a
   plaintiff to its lawsuit and Progrexion as a defendant. As the district court
   observed, “In a nutshell, Plaintiffs contend that Defendants run a nationwide
   fraudulent credit-repair scheme, preying on financially troubled consumers
   by drafting, signing, and mailing frivolous dispute correspondences—all
   using Progrexion’s patented software that generates context-based unique
   letters—in the name of consumers, without the consumer’s specific
   knowledge or consent, and without identifying that the letters are from a law
   firm, rather than a consumer.” Plaintiffs averred that they suffered damages
   because of Defendants’ fraudulent conduct since, under the Fair Credit
   Reporting Act (“FCRA”), 15 U.S.C. § 1681 et seq., and the Fair Debt
   Collection Practices Act (“FDCPA”), 15 U.S.C. § 1692 et seq., they must
   investigate a challenge to a negative tradeline when a consumer, rather than
   a law firm, sends a dispute letter. In other words, Plaintiffs alleged that they
   incurred costs investigating dispute letters between 2014 and 2018 that they
   would not have otherwise investigated had they known the letters came from
   a law firm.
          The operative complaint asserted claims under Texas law for (1)
   fraud, (2) fraud by non-disclosure, (3) tortious interference with Plaintiffs’
   existing contracts with creditors, (4) tortious interference with Plaintiffs’

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   prospective relations, and (5) conspiracy to commit fraud. Plaintiffs
   withdrew their tortious interference claims at trial.
          Defendants did not file any dispositive motions until the close of
   evidence at trial when they filed for judgment as a matter of law under Federal
   Rule of Civil Procedure 50(a). In their motion, Defendants argued that
   Plaintiffs had not satisfied the burden of proof on their claims and had not
   overcome the Defendants’ affirmative defenses that (1) Plaintiffs’ claims
   were time barred and (2) Plaintiffs had failed to mitigate their damages. The
   district court reserved judgment on the motion pending the jury’s verdict.
          The jury then rendered a verdict in favor of Plaintiffs on their fraud
   and fraud by non-disclosure claims but found for Defendants on Plaintiffs’
   conspiracy claim. The jury awarded (1) CBE Group approximately $513,000
   in actual damages jointly against Defendants, (2) CBE Group about $1.86
   million in punitive damages jointly against Defendants, (3) RGS Financial
   around $38,000 in actual damages jointly against Defendants, and (4) RGS
   Financial roughly $86,300 in punitive damages jointly against Defendants.
          After trial, Defendants renewed their motion for judgment as a matter
   of law, which the district court granted.
          Plaintiffs timely appealed the district court’s dismissal of their fraud
   and fraud by non-disclosure claims, as well as the jury’s verdict on their
   conspiracy claim.
                            II. STANDARD OF REVIEW
          The court reviews de novo a district court’s ruling on a motion for
   judgment as a matter of law. Allstate Ins. Co. v. Receivable Fin. Co., 501 F.3d
   398, 405 (5th Cir. 2007). Such a motion may be granted “only if, when
   viewing the evidence in the light most favorable to the verdict, the evidence
   points so strongly and overwhelmingly in favor of one party that the court

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   believes that reasonable jurors could not arrive at any contrary conclusion.”
   U.S. ex rel. Small Bus. Admin. v. Commercial Tech., Inc., 354 F.3d 378, 383 (5th
   Cir. 2003) (citation omitted); see also Pineda v. United Parcel Serv., Inc., 360
   F.3d 483, 486 (5th Cir. 2004) (“A motion for judgment as a matter of law
   should be granted if ‘there is no legally sufficient evidentiary basis for a
   reasonable jury to find for a party.’” (quoting FED R. CIV. P. 50(a))).
                                   III. DISCUSSION
                                       A. Fraud
            Since jurisdiction here is predicated on diversity of citizenship, the
   court must apply the substantive law of the forum state, in this case Texas.
   See Wisznia Co. v. Gen. Star Indem. Co., 759 F.3d 446, 448 (5th Cir. 2014).
   Under Texas law, a plaintiff must prove the following elements to establish
   fraud:
            (1) the defendant made a material representation that was false;
            (2) the defendant knew the representation was false or made it
            recklessly as a positive assertion without any knowledge of its
            truth; (3) the defendant intended to induce the plaintiff to act
            upon the representation; and (4) the plaintiff actually and
            justifiably relied upon the representation and suffered injury as
            a result. The fourth element has two requirements: the plaintiff
            must show that it actually relied on the defendant’s
            representation and, also, that such reliance was justifiable.
   JPMorgan Chase Bank, N.A. v. Orca Assets G.P., L.L.C., 546 S.W.3d 648, 653
   (Tex. 2018) (internal citations and quotation marks omitted). Defendants
   argue that Plaintiffs’ fraud claim fails on the first and fourth elements. We
   agree.
            The district court concluded that Defendants did not make any false
   representations (material or otherwise) when signing and sending the dispute
   letters because Lexington Law “had the legal right to sign its clients’ names

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   on the correspondence it sent on their behalf to data furnishers who reported
   inaccurate information about the clients’ credit.” Indeed, Lexington Law’s
   engagement agreement provided the firm with the ability to sign and send
   letters on the clients’ behalves and in their names. Under Texas law, “[i]t is
   well settled that the attorney-client relationship is an agency relationship; the
   attorney’s acts and omissions within the scope of his or her employment are
   regarded as the client’s acts.” In re R.B., 225 S.W.3d 798, 803 (Tex. App.—
   Fort Worth 2007) (citing, inter alia, Gavenda v. Strata Energy, Inc., 705
   S.W.2d 690, 693 (Tex. 1986)). Given this principle, Texas courts have
   repeatedly upheld settlement agreements signed by attorneys on behalf of
   their clients. See, e.g., id. at 803; Wakefield v. Ayers, No. 01-14-648-CV, 2016
   WL 4536454, at *4 (Tex. App.—Houston [1st Dist.] Aug. 30, 2016); Green
   v. Midland Mortg. Co., 342 S.W.3d 686, 691 (Tex. App.—Houston [14th
   Dist.] 2011). While this case does not involve a settlement agreement, the
   principle stated in R.B. has persuasive value here.
          Attorney Grievance Commission of Maryland v. Paul, 187 A.3d 625 (Md.
   2018), upon which the district court relied in concluding Defendants had not
   made any misrepresentations, is instructive on this point. In Paul, an attorney
   signed a non-disclosure agreement in his client’s name without disclosing to
   opposing counsel that he had done so. Id. at 632. The Maryland State Bar
   initiated disciplinary proceedings against the attorney, arguing that the
   attorney “made a knowing misrepresentation that a non-disclosure
   agreement being sent to the opposing parties’ counsel was ‘signed by [the
   client] and [the attorney]’ and when he knew that his client had not signed
   the agreement.” Id. at 635. Observing that the client gave the attorney
   permission to sign the agreement in his stead since the client was away on
   vacation, the court determined that the attorney’s statement that the
   agreement “‘was signed by [the client] and myself’ cannot be construed as

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   ‘false’ or ‘misleading’ even though [the client] did not physically sign the
   agreement.” Id. at 636.
          Plaintiffs object to the district court’s reliance on Paul, specifically,
   and the court’s conclusion that Defendants did not make any
   misrepresentations more generally. As to Paul, Plaintiffs first contend that,
   unlike in that case, “there is no true attorney-client relationship” present
   between Lexington Law and its clients. But even assuming that were true, the
   engagement agreements, which provide Lexington Law with the legal right
   to sign and send correspondence on their clients’ behalves and in their
   names, have not been shown to be invalid. Consequently, Plaintiffs’ initial
   attempt to distinguish Paul is unpersuasive.
          Plaintiffs also assert that the district court’s reliance on Paul is
   misplaced because Lexington Law did not discuss the dispute letters with its
   clients before mailing them, while the attorney in Paul discussed the non-
   disclosure agreement with his client before signing the agreement on the
   client’s behalf. As evidence for their assertion, Plaintiffs point to deposition
   testimony introduced at trial in which a former Lexington Law client,
   Agustina Chavarria, testified that she did not understand that Lexington Law
   intended to send letters on her behalf. They also rely upon a recording of a
   phone call played at trial between another former client, Lance Garza, and a
   Lexington Law intake consultant in which the consultant “glossed over”
   how the firm would provide credit-repair services. Both Chavarria and Garza,
   however, signed the firm’s engagement letter. While Chavarria and Garza
   may have misunderstood the process through which Lexington Law would
   represent them (and that misunderstanding may have been prompted by the
   firm’s actions), they were still bound by the terms of an engagement
   agreement the validity of which is not in doubt. “Absent fraud,
   misrepresentation, or deceit, a party is bound by the terms of the contract he
   signed, regardless of whether he read it or thought it had different terms.” In

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   re McKinney, 167 S.W.3d 833, 835 (Tex. 2005). And the engagement
   agreements permitted Lexington Law to sign and mail correspondence on its
   clients’ behalves and in theirs names. Accordingly, whether the firm
   discussed the dispute letters with its clients before sending them is
   immaterial to whether the firm misrepresented itself in the letters.
          Rather than cite to any case law illustrating Defendants’ conduct
   amounts to fraud, Plaintiffs argue that the conduct undermines the FCRA
   and the FDCPA. But Plaintiffs did not bring claims under those statutes.
   Hence, the two cases upon which Plaintiffs rely in support of their
   argument—Warner v. Experian Information Solutions, Inc., 931 F.3d 917 (9th
   Cir. 2019), and Turner v. Experian Information Solutions, Inc., No. 16-CV-630,
   2017 WL 2832738, at *1 (N.D. Ohio June 30, 2017)—are inapposite and
   arguably undercut the claims they do in fact assert here. Both Warner and
   Turner involved consumers who claimed that Experian, a consumer reporting
   agency, violated their rights under the FCRA by not investigating dispute
   letters sent by Go Clean Credit, a credit-repair organization, on their
   behalves. 931 F.3d at 918–19; 2017 WL 2832738, at *1. As indicated above,
   the FCRA mandates that a credit-reporting agency investigate dispute letters
   when those letters are sent by the consumers themselves. § 1681i(a)(1)(A).
   The Warner and Turner courts concluded that Experian was not required by
   federal law to investigate Go Clean Credit’s dispute letters since the FCRA
   only mandates that credit-reporting agencies respond to dispute letters sent
   “directly” by the consumer. 931 F.3d at 921; 2017 WL 2832738, at *8.
   Applied here, these cases suggest that Plaintiffs did not have a statutory
   obligation to investigate the correspondence Lexington Law sent on its
   clients’ behalves and in their names; they do not imply that the firm made
   any misrepresentations when it sent the letters.
          Moreover, to the extent Warner and Turner indicate that Plaintiffs
   were not required to investigate the dispute letters, those cases also suggest

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   that Plaintiffs did not justifiably rely on any representations Lexington Law
   may have made. 1 Before the time period during which Plaintiffs claim they
   were injured by Defendants’ fraudulent conduct, Plaintiffs began to question
   whether the dispute letters had in fact been sent by consumers themselves.
   For, witnesses from each plaintiff testified that the letters looked “similar”
   as indicated by the “verbiage,” “stamps,” and envelope formatting. CBE
   Group reviewed the letters and concluded that “all of the letters were coming
   from the same place and . . . they were not written . . . by consumers.” RGS
   Financial also reviewed the letters and determined that “they weren’t
   directly [sent by] consumer[s] . . . .” Once Plaintiffs developed suspicions
   that the letters may not have been sent from consumers themselves, they
   incurred costs in investigating correspondence on their own accord rather
   than because of the FCRA or the FDCPA. Indeed, Plaintiffs’ internal policies
   require them to investigate and respond to dispute letters sent by consumers
   and third parties alike. Thus, Plaintiffs fraud claim falls short for the
   additional reason that they did not justifiably rely on any alleged
   misrepresentations. See N. Cypress Med. Ctr. Operating Co., Ltd. v. Aetna Life
   Ins. Co., 898 F.3d 461, 475 (5th Cir. 2018) (“Here, red flags, Aetna’s
   independent investigation, and Aetna’s sophistication negate any justifiable
   reliance Aetna had on NCMC’s alleged misrepresentations.”).
           Additionally, Plaintiffs repeatedly observe that Defendants sent many
   dispute letters on behalf of a given client, sometimes even after the
   consumer’s account had closed. They focus on testimony provided at trial by
   Erin Harness, an RGS Financial employee, who testified that she received 29

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             Although the district court did not reach the element of justifiable reliance, this
   this court “may affirm on any basis supported by the record.” El Aguila Food Prod., Inc. v.
   Gruma Corp., 131 F. App’x 450, 452 (5th Cir. 2005) (citing, inter alia, LLEH, Inc. v. Wichita
   County, 289 F.3d 358, 364 (5th Cir. 2002)).

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   dispute letters pertaining to one account and 50 regarding another. Putting
   aside the fact that the witness could not confirm that those letters were in fact
   sent by Lexington Law, this evidence at most suggests that the firm did
   unnecessary work on behalf of a couple clients. It does not suggest that
   Lexington Law committed fraud. In truth, Harness also testified that she
   could not identify any client of the firm that did not provide it with
   permission to mail dispute letters in the client’s name and on his or her
   behalf.
             A final word as to Plaintiffs’ fraud claim against Progrexion,
   specifically. As the district court concluded, “There is no evidence that
   Progrexion sent dispute letters; rather the evidence is that Progrexion
   provided template letters to Lexington Law Firm for its use.” Hence,
   Progrexion cannot be liable for fraud since it, like Lexington Law, did not
   make any material misrepresentations. Nevertheless, Plaintiffs argue that
   Progrexion is still liable for fraud because it was in a master-servant
   relationship with Lexington Law. This argument is unpersuasive for two
   reasons. First, implicit in the argument is the notion that Progrexion is
   somehow vicariously liable for Lexington Law’s fraudulent conduct. But, for
   the reasons discussed above, the firm did not commit fraud. Furthermore,
   the case upon which Plaintiffs rely in support of their argument—Parex
   Resources, Inc. v. ERG Resources, LLC, 427 S.W.3d 407 (Tex. App.—Houston
   [14th Dist.] 2014)—is inapt. That case addressed whether a corporate
   executive’s contacts with the forum state were sufficient to create personal
   jurisdiction over a foreign corporation. Id. at 440.
             In sum, Plaintiffs have not shown that Defendants committed fraud.
                              B. Fraud by Non-Disclosure
             Plaintiffs also claim that Defendants committed fraud by non-
   disclosure. “Fraud by non-disclosure, a subcategory of fraud, occurs when a

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   party has a duty to disclose certain information and fails to disclose it.”
   Bombardier Aerospace Corp. v. SPEP Aircraft Holdings, LLC, 572 S.W.3d 213,
   219 (Tex. 2019). To establish fraud by non-disclosure under Texas law, a
   plaintiff must prove:
          (1) the defendant deliberately failed to disclose material facts;
          (2) the defendant had a duty to disclose such facts to the
          plaintiff; (3) the plaintiff was ignorant of the facts and did not
          have an equal opportunity to discover them; (4) the defendant
          intended the plaintiff to act or refrain from acting based on the
          nondisclosure; and (5) the plaintiff relied on the non-
          disclosure, which resulted in injury. In general, there is no duty
          to disclose without evidence of a confidential or fiduciary
          relationship . . . . [But] [t]here may [] be a duty to disclose when
          the defendant . . . made a partial disclosure that created a false
          impression . . . .
   Id. at 219–20 (internal citations omitted).
          As an initial matter and for the reasons discussed above, Plaintiffs’
   fraud by non-disclosure claim must be dismissed because they did not
   justifiably rely on any failure of the Defendants to disclose material facts.
   Additionally, Plaintiffs have not shown that Defendants had a duty to disclose
   that they were the ones actually sending the dispute letters. Plaintiffs contend
   that Defendants defrauded them through partial disclosures in their
   correspondence that their clients were disputing negative tradelines, which
   in turn gave the false impression that the clients themselves had sent the
   letters. In support of their argument, Plaintiffs rely on Ralston Purina Co. v.
   McKendrick, 850 S.W.2d 629 (Tex. App.—San Antonio 1993, writ denied);
   International Security Life Insurance Co. v. Finck, 475 S.W.2d 363 (Tex. Civ.
   App.—Amarillo 1971); and Formosa Plastics Corp. v. Presidio Engineers and
   Contractors, Inc., 941 S.W.2d 138 (Tex. App.—Corpus Christi 1995). But
   each of these cases stand for a different proposition, namely that one party

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   may have a duty to speak when it makes a partial disclosure during contract
   negotiations. Moreover, Plaintiffs have not shown that Progrexion disclosed
   any facts—material or otherwise—and so cannot be liable for fraud by non-
   disclosure. And as the fact that Lexington Law had the legal right to send
   dispute letters on their clients behalves and in their names suggests that the
   firm did not make any false representations, so, too, does it indicate that the
   firm did not create any false impressions requiring disclosure. Therefore,
   Plaintiffs’ fraud by non-disclosure claim fails as well.
          Finally, Plaintiffs argue that the facts Defendants stipulated to in a
   joint pretrial order “alone establish fraud and fraud by nondisclosure.” In the
   stipulated facts, Defendants state that they do not disclose to recipients of
   dispute letters that they have mailed the letters on their clients’ behalves, in
   their names, and from the clients’ states of residence. They also state that
   they “intended that the recipient of the dispute letters treat them as if the
   consumer personally drafted, signed, and mailed them.” But Plaintiffs do not
   provide any precedential support or explanation for their assertion that these
   facts demonstrate Defendants committed fraud and fraud by non-disclosure
   beyond the observation that the jury found for them on those claims. In
   reality, Plaintiffs stated multiple times on the record that there are no cases
   directly on point—from Texas or elsewhere—that buttress their claims.
   While we do not hold today that there are no situations in which a third party
   may act fraudulently when it mails dispute letters (and leave for another day
   what those situations may be), we can safely say that this is not one of them.
   To conclude otherwise would risk undermining well-settled principles of
   contract law and agency law that have long bound this court.
                           C. Conspiracy to Commit Fraud
          Plaintiffs conclude by arguing that the jury erred in finding in
   Defendants’ favor on the Plaintiffs’ conspiracy claim. However, Plaintiffs

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   waived this argument by failing to move for judgment as a matter of law on
   the claim before and after the case was submitted to the jury or for a new trial.
   See Acadian Diagnostic Labs., L.L.C. v. Quality Toxicology, L.L.C., 965 F.3d
   404, 412–13 (5th Cir. 2020) (“By failing to file any [] [such] motions in the
   district court, Acadian forfeited its ability to seek appellate review of the jury
   verdict.” (citing Unitherm Food Sys., Inc. v. Swift-Eckrich, Inc., 546 U.S. 394,
   404 (2006))). Thus, the jury’s verdict on the conspiracy claim must stand.
                                  IV. CONCLUSION
          For the foregoing reasons, the judgment of the district court is
   AFFIRMED.

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