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Focus on Regulation

RICO Complaint Settlement Highlights TCPA Abuse by Plaintiffs’ Law Firms; Serial Plaintiffs and Cy Pres Awards Continue to Flourish

As the number of frivolous Telephone Consumer Protection Act (“TCPA”) class actions continues to grow unabated, the potential rewards have even led to alleged criminal activity by plaintiff firms seeking to game the system.  A recently settled Racketeer Influenced and Corrupt Organizations Act (“RICO”) complaint showcases a particularly egregious series of allegations that several plaintiffs’ law firms conspired with other companies as well as borrowers to provide useless debt counseling that was merely a pretext to manufacture dubious TCPA lawsuits.

While the allegations in this recently settled RICO lawsuit may seem sensational, they reflect an all-too-common example of bad actors taking advantage of the ease of bringing TCPA claims and the urgent need for the Federal Communications Commission to reform its TCPA framework.  In the meantime, target companies can minimize their damage through greater awareness of potential problems and seeking expert counseling on avoiding these TCPA suits and handling filed complaints.

RICO Suit Targets Egregious Alleged TCPA Scheme.  According to the complaint, the defendants’ alleged scheme worked like this: certain defendants acted as recruiters, advertising debt counseling and relief services.  The recruiters instructed borrowers to default on their student loans and pay them instead.  While the defendants claimed that that money was placed in trust, it was simply kept by one of the defendants.  Next, the recruiters gave borrowers a script and told them to read it to their student loan servicer, asking the servicer not to call the borrower.

If the student loan servicer did call in the future, such as to try to help the borrower get out of default, those calls would be logged.  One of the defendants also sent letters to the servicer, trying to spur phone calls.  Once the recruiter thought the loan servicer had made enough calls, the borrower would then be referred to law firms that were part of the scheme.  Those firms would initiate legal actions or pursue arbitration against the loan servicer.  As part of the scheme, the defendants allegedly sent fraudulent communications to the servicer (including forged letters) and instructed their clients to commit perjury.

On April 25, Krohn & Moss, one of the most active TCPA plaintiffs’ law firms in the country, settled the complaint against them (the terms are confidential).  The settlement came one week after the firm was ordered to disclose who had referred nine people – now plaintiffs in TCPA lawsuits against a student loan servicer – to them.  Another firm, the Law Offices of Ryan Lee, settled on May 1 (the terms are also confidential).

The defendants’ alleged conspiracy not only cost a student loan servicer millions of dollars, but it ruined the credit of borrowers who were told to stop paying on their student loans.  Some borrowers even owe more on their student loans now than they did when they entered defendants’ debt counseling.  The borrowers also suffered emotionally; one borrower feared she and her ex-husband could “go to jail” for their unwitting involvement in the scheme.

TCPA Litigation Report Highlights the Impact of Serial Plaintiffs and Law Firms.  “TCPA Litigation Sprawl,” a report released by the U.S. Chamber Institute for Legal Reform, demonstrates that a small number of plaintiffs and law firms file a disproportionate number of TCPA lawsuits.  For example, during the 17-month period covered by the report, one firm filed 263 TCPA lawsuits against hundreds of different companies.  The law firms often worked in conjunction with serial plaintiffs; one plaintiff filed twenty TCPA cases with the same firm while another filed eleven TCPA suits (including ten class actions).  The report even describes plaintiffs who keep multiple telephone numbers – over 20 in one case – in order to induce telephone calls leading to litigation.  Another serial plaintiff made enough money from lawsuits that he no longer qualifies for Social Security disability benefits!

TCPA Cy Pres Settlements.  Another interesting trend has been the rise of “cy pres” settlement recipients in TCPA class actions.  For example, in the past few years alone, one group has been designated as a recipient for unclaimed TCPA class action settlement funds in at least eight TCPA cases.[1]  In one case, it appears to have been earmarked approximately $650,000 in cy pres funds.[2]  And that amount was expressly earmarked for “work associated with the FCC . . . under the TCPA.”[3]

The authors wish to thank Gregory Oshel for his assistance in preparing this article.


[1] See, e.g., Lee v. Global Tel*Link Corp., Case No. 2:15-cv-02495-ODW(PLAx), at 5 (C.D.Cal. filed April 7, 2017) (Order Granting Motion for Class Certification and Preliminary Approval of Class Settlement); Allen v. JP Morgan Chase Bank, Case No. 13-cv-08285 (N.D.Ill. filed Oct. 7, 2015) (Plaintiff’s Motion for Final Approval of Class Action Settlement and Memorandum of Law); Toney v. Quality Resources, Inc., Case No. 1:13-cv-42 (N.D.Ill. dated Nov. 17, 2016) (Plaintiff’s Motion and Incorporated Memorandum in Support of Final Approval of Class Action Settlement).

[2] Willett v. Redflex Traffic Systems, Inc., Case No. 1:13-cv-1241-JCH/LAM (D.NM filed Sept. 7, 2016) (Motion for Final Approval of Class Settlement).

[3] Id. at 9-10.  Other organizations have also been designated as cy pres recipients in TCPA class actions.  See, e.g., Hashw v. Dept. Stores Nat’l Bank, 182 F.Supp.3d 935, 953 (D.Minn. 2016); Vandervort v. Balboa Capital Corp., 8 F.Supp.3d 1200, 1207 (C.D. Cal. 2014).