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Phoney Lawsuits: How to sue your way out of college debt

Legal Newsline, November 15, 2017

By: John O'Brien

Former students still saddled with college loans were urged by lawyers and debt-relief companies to stop making payments because filing a lawsuit was an easier way to get out of debt, according to racketeering allegations against two law firms.

On Oct. 18, Navient Solutions, the nation’s largest student loan company, filed a racketeering lawsuit in Virginia federal court that alleges a “grave abuse of the law” bilked it out of millions of dollars owed to it. Debt-relief counseling offered by the defendants was actually a tutorial on how to manufacture a lawsuit under the federal Telephone Consumer Protection Act, a 1991 law designed to punish telemarketers.

“Unlike other firms, the… defendants have not been content to merely seek out clients with colorable TCPA claims,” the complaint says.

“Rather, they have collaborated with the Recruiting Defendants and others to recruit clients to manufacture TCPA claims where no claims previously existed.

“In many cases, they did this by inducing borrowers who were current on their loans to become delinquent, thereby causing (Navient) to call them where it had not already been doing so.”

Named as defendants are the law firms Krohn & Moss of Chicago and the Law Offices of Ryan Lee of Scottsdale, AZ. The companies that allegedly recruited former students who would become TCPA plaintiffs are National Consumer Advocates of Northridge, CA, and MB Consulting & Investing, a South Carolina company owned by Michael Biancone.

In an interview with Legal Newsline, Biancone denied participating in any scheme while his company worked with NCAI and fellow defendant Doug Johnson. He also says none of his clients ever mentioned a TCPA scheme after he sent them to NCAI.

“The script, the scheme – nothing,” Biancone said. “I used to tell people that I’m not a part of Doug, and Doug’s not a part of me.”

Many companies have accused plaintiffs of being in the profession of creating TCPA lawsuits. Instances include:

-A Polish immigrant said to have made more than $800,000 by filing more than 30 lawsuits in New Jersey;

-A woman who bought cheap cell phones and gave them repurposed numbers with Florida area codes because she figured debt collectors would call the numbers to contact the previous owner; and

-A Los Angeles man who attributed his many phone numbers to businesses he runs in classified ad sections to invite calls from other business groups.

Now, Navient says the TCPA, which provides for either $500 per violation or $1,500 for more egregious violations, is being used to cheat it – “These attorneys frequently bring class action claims against large defendants and use the threat of potentially crippling damages to extract settlements for suits that may be of questionable merit or which depend on unsettled legal issues.”

Navient’s lawsuit has its genesis in a dispute between NCAI and Krohn & Moss that was filed in April 2015 in Los Angeles County Superior Court.

NCAI filed its lawsuit against Krohn & Moss, Johnson and Biancone. It alleged the three recruited it to assist clients in documenting “legal violations” and that they violated an agreement by not paying NCAI.

“Defendants would refer clients to NCAI, and would, by and through its representative Johnson and Biancone, document a certain amount of ‘violations,’” NCAI’s third amended complaint says.

“These ‘violations’ were monitored by Johnson and Biancone pursuant to K&M’s criteria regarding the same and once the criteria was achieved, the clients were referred back to K&M for litigation.”

NCAI said an addendum in consumer contracts required clients to allow settlement proceeds to be distributed to NCAI to satisfy their obligations to NCAI, which claimed in the lawsuit it was still owed at least $250,000 from these settlements.

In court filings, Biancone said it was NCAI that used unethical practices and withheld commissions owed to him. He added that he never had any relationship with Krohn & Moss, dealing only with NCAI through a market service agreement.

“Whatever they were doing, I was not privy – I had no idea about it,” Biancone said. “It was just their operations. I would learn later that maybe someone would win a case or got their debt forgiven by Navient under TCPA or whatever arrangement.

“What NCAI wanted was to get that money sent directly to NCAI to fulfill the rest of the agreement for debt relief. Krohn & Moss argued they can’t do that, but what (Richard Murkey of NCAI) was doing was fishing: ‘Let’s just take them to court and maybe I’ll win, or maybe they’ll settle.’”

Murkey is a disbarred attorney with a history of legal troubles who is listed as NCAI’s chief executive officer, secretary and chief financial officer.

Once the whole mess settled, Navient filed its lawsuit.

The alleged scam began with the two recruiting defendants, MB Consulting and NCAI, offering counseling and other debt-relief services to former students struggling to repay loans.

Once recruited, the client was allegedly given a script after stopping payments, intended to help create a TCPA claim when Navient called about the delinquent payments.

The alleged script told the client to confirm the name of the caller, confirm the amount owed on the loan and then say, “I ask that you please stop calling me and correspond with me in writing from this point forward.”

The client maintained a log of calls and communicated with Biancone and Doug Johnson of National Consumer Advocates, the lawsuit says.

“In the event that (Navient) stopped making telephone calls, clients were advised to contact (Navient) again to discuss their loans,” the suit says.

“This action was aimed at causing (Navient) to begin calling that customer again to increase the potential damages that could be asserted in any given case.”

Once the client appeared to have a chance at making a TCPA claim that, considering the statutory per-violation penalties, was close to equaling the amount of debt he or she still owed, the recruiters passed them off to the law firms using illegal fee-sharing and referral agreements, the lawsuit says.

However, if the scheme didn’t work, the credit rating of the client was ruined, the suit says.

Navient says the scheme caused it to pay settlements to dozens of customers and cancel hundreds of thousands of dollars in student loans.

It costs a company approximately $100,000 to defend a TCPA claim through trial. That figure goes up to $500,000 if the case is certified as a class action. That amount doesn’t include any potential jury verdict, only legal fees.

Once a lawsuit or arbitration proceeding was filed, the law firms told the client to conceal the roles of the recruiting defendants, the suit says. The client was instructed to lie about the script and that they were taught how to trick Navient into calling more frequently, the suit says.

Navient says it paid more than $1.1 million in settlements to plaintiffs it believes were a part of the scheme, as well as more than $500,000 in attorneys fees.

It provided the case of a divorced couple as an example.

Kyle Bates paid $380 per month to NCAI, the same amount he was supposed to be paying Navient per month on a loan with an outstanding balance of $40,000, the suit says.

Kyle allegedly utilized the script, at the instruction of NCAI’s Johnson, and told ex-wife Emily about the scam.

Emily reluctantly participated in an effort to protect her credit and was provided the script by Johnson, the suit says. In 2015, the two sued Navient in Indiana federal court, represented by K&M.

Emily, after a settlement, took part in a deposition in November 2016 and revealed the alleged scheme. She also claimed Kyle had lied about the existence of the scheme.

“On or about Dec. 6, 2016 – less than a week after Emily Bates’ deposition uncovered the details of the scheme – Kyle Bates dismissed his claims with prejudice,” the suit says.

The complaint is filled with the tales of several more borrowers who took action against Navient. It makes claims for violations of the Racketeer Influenced and Corrupt Organizations Act, as well as fraud and tortious interference with contract.