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AD Astra Recovery Services, Inc. v. Heath

United States District Court, D. Kansas

April 19, 2019

AD ASTRA RECOVERY SERVICES, INC., Plaintiff,
v.
JOHN CLIFFORD HEATH, ESQ., et al., Defendants.

          MEMORANDUM AND ORDER

          ANGEL D. MITCHELL U.S. MAGISTRATE JUDGE.

         This matter comes before the court on Plaintiff's Motion to Compel Compliant Discovery Responses (ECF No. 33). On April 4, 2019, the court held an in-person discovery conference and ruled on most of the discovery disputes at issue in the motion. However, the court held in abeyance the portion of the motion seeking to compel a defendant law firm, John C. Heath, Attorney at Law, PLLC d/b/a Lexington Law Firm (“Lexington Law”), to produce communications with its clients regarding clients' debts that Plaintiff was attempting to collect. At the hearing, the Plaintiff's arguments focused on a narrower category of information encompassed in the requests: communication from clients that resulted in Lexington Law generating credit-dispute letters sent to Ad Astra under the clients' signatures. For the reasons set forth below, the court grants Plaintiff's motion as to this narrow category of documents, and otherwise denies the motion without prejudice.

         I. Background

         Plaintiff Ad Astra Recovery Services, Inc. (“Ad Astra”), a debt collector and credit agency, alleges that the “defendants engaged in a fraudulent credit-repair scheme designed to bombard debt collectors with false credit dispute letters with the intention of deceiving debt collectors . . . and frustrating their efforts to collect legitimate debts.” (Compl. ¶ 3, ECF No. 1.) Ad Astra asserts mail fraud, wire fraud, and conspiracy claims under the Racketeer Influenced and Corrupt Organizations Act (“RICO”), 18 U.S.C. §§1962(c) and (d). Ad Astra also asserts Kansas common law claims for fraud and tortious interference with existing contractual relationships. Defendants are Lexington Law, three attorneys with the law firm, the law firm's printer, and the law firm's mass mailer. Defendants deny Ad Astra's allegations.

         Ad Astra served Request for Production (“RFP”) Nos. 88 and 89 on Lexington Law that seek a broad category of documents-namely, all documents, communications, and call recordings received from consumers that hired Lexington Law to address debts that Ad Astra was attempting to collect. In response to these RFPs, Lexington Law asserted an attorney-client privilege objection, and it continues to rely on the objection in response to the motion to compel. During the discovery conference on April 4, defense counsel explained that Lexington Law's client communications are facilitated through a “case valet” portal on the firm's website. The portal allows clients to log in, communicate with Lexington Law, and direct Lexington Law as to what debts to dispute.

         Lexington Law and/or related entity(ies) ultimately generate credit-dispute letters that are sent to debt collectors. During the April 4 hearing, Ad Astra's counsel explained that RFP Nos. 88 and 89 seek information directly relevant to Ad Astra's allegation that Lexington Law disputed clients' debts without obtaining the clients' consent to do so. The thrust of Ad Astra's claims in this litigation is that Defendants “flood the consumers' creditors, like Ad Astra, with generic, forged, frivolous credit report dispute letters.” (Pl.'s Br., ECF No. 34, at 2.) According to Ad Astra, these letters are sent using “forged” client signatures[1] without any indication that they are actually prepared and transmitted by a law firm. Ad Astra attached examples of these letters to its Complaint. (Compl. Exs. A & C, ECF No. 1.) Given this showing of relevance, the court will focus on a narrower category of information encompassed in the requests: communication from clients that resulted in Lexington Law generating credit-dispute letters sent to Ad Astra under the clients' signatures, such as communications directing Lexington Law to dispute a debt that Ad Astra was attempting to collect.[2]

         II. Analysis

         Fed. R. Evid. 501 directs that federal common law governs claims of privilege, but “in a civil case, state law governs privilege regarding a claim or defense for which state law supplies the rule of decision.” See also Sprague v. Thorn Ams., 129 F.3d 1355, 1369 (10th Cir. 1997) (considering both federal and state law when plaintiff asserted both federal and state law claims). Here, Ad Astra asserts both federal and state law claims. The court will apply federal law for clarity and because “no real conflict between federal and Kansas law regarding the attorney client privilege [exists].” In re Motor Fuel Temperature Sales Practices Litig., No. 07-MD-1840-KHV, 2010 WL 11431875, at *2 (D. Kan. July 7, 2010). In other words, the court would reach the same conclusion regardless of which body of law it applies.

         The Tenth Circuit defines the scope of the attorney-client privilege as follows:

The attorney-client privilege protects confidential communications by a client to an attorney made in order to obtain legal assistance from the attorney in his capacity as a legal advisor. The mere fact that an attorney was involved in a communication does not automatically render the communication subject to the attorney-client privilege; rather, the communication between a lawyer and client must relate to legal advice or strategy sought by the client.

In re Grand Jury Proceedings, 616 F.3d 1172, 1182 (10th Cir. 2010) (internal quotations omitted) (emphasis added). The privilege also protects attorney-to-client communications that constitute legal advice or that tend to reveal the confidences of the client. Id. “A party claiming the attorney-client privilege must prove its applicability, which is narrowly construed.” United States v. Merida, 828 F.3d 1203, 1209 (10th Cir. 2016). “The party must bear the burden as to specific questions or documents, not by making a blanket claim.” Foster v. Hill, 188 F.3d 1259, 1265 (10th Cir. 1999).

         The parties dispute whether Lexington Law clients' communications were made to obtain legal assistance from attorneys acting in their capacities as legal advisors. On the one hand, Ad Astra argues that Lexington Law operates largely as a credit-repair business, which is no different from other credit-repair businesses run by non-attorneys. On the other hand, Lexington Law pointed out that the firm's attorneys also represent clients in cases involving claims 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., and that the firm's practice is not limited to sending dispute letters to debt collectors.

         The Tenth Circuit has not decided the issue of whether a law firm is acting in a capacity as a legal advisor when communicating with a client about whether to generate a credit-dispute letter to be sent to a debt collector under the client's signature. To be clear, the present record contains no evidence that any attorney was involved in the communication at issue. Rather, defense counsel represented at the April 4 hearing that these communications are facilitated through a “case valet” portal on the firm's website, which allows clients to log in and direct Lexington Law as to what debts to dispute. And Lexington Law and/or its affiliates then generate credit dispute letters under the client's signature.

         By analogy, the issue of whether an attorney is providing legal assistance has arisen in several contexts. For example, the Tenth Circuit considered whether the attorney-client privilege applies to documents given to an attorney (who was also a certified public accountant) to aid the attorney in preparing a tax return. See In re Grand Jury Subpoena Duces Tecum Issued on June 9, 1982, 697 F.2d 277, 279 (10th Cir. 1983). The court declined to decide whether preparing tax returns constitutes a legal service, and instead concluded that the attorney-client privilege could not apply to documents ultimately included in the tax return because such information is not confidential. Id. However, the Tenth Circuit held open the possibility that the attorney-client privilege could apply to this information “when a client provides information to an attorney and ...


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