UNITED STATES DISTRICT COURT WESTERN DISTRICT OF KENTUCKY
LOUISVILLE DIVISION MELINDA SPENCER et al., Plaintiffs/Counter Defendants, v. Civil Action No. 3:20-cv-803-DJH-RSE KING FINANCIAL REPAIR, LLC, Defendant/Counter Claimant.
* * * * * MEMORANDUM OPINION AND ORDER Plaintiffs Melinda Spencer, Bobetta Long, Alison Smith, and Andre Woods allege that Defendant King Financial Repair, LLC charged them for credit-repair services before fully performing the services, made untrue or misleading representations of its services, and committed or attempted to commit fraud on them in connection with its services, in violation of the Credit Repair Organizations Act, 15 U.S.C. § 1679 et seq. (Docket No. 1) King asserts several counterclaims against Spencer and Long (D.N. 6) and now moves for summary judgment on -of-contract counterclaims. (D.N. 29) King also moves to file its motion for summary judgment under seal, and Plaintiffs move to file their response to the summary-judgment motion under seal. (D.N. 28; D.N. 33) For the reasons explained below, the Court will deny the motions to seal and grant in part and deny in part motion for summary judgment.
I. King is a credit-repair organization (CRO) that (D.N. 29-3, PageID.114; see D.N. 29-2, PageID.100) To this end, it contracts with
DisputeSuite Mirku, a third-party vendor, to draft and mail letters to credit bureaus request[ing] the removal of errors on the Case 3:20-cv-00803-DJH-RSE Document 36 Filed 07/06/22 Page 1 of 15 PageID #: 465 reports. (D.N. 29-3, PageID.117; see D.N. 29-2, PageID.103 05; D.N. 34-1, PageID.435) King reviews the letters before DisputeSuite mails them. (D.N. 29-2, PageID.105)
Plaintiffs are consumers who had initial consultations with King regarding credit repair. (See D.N. 29-6, PageID.155 56; D.N. 29-17, PageID.280; D.N. 29-21, PageID.316 17; D.N. 29- 25, PageID.380) During its initial consultations, King sets up the case file, audits the [s] a plan to delete, correct or change inaccurate, unverifiable s. (D.N. 29-3, PageID.117) King charged Woods and Smith $199 and Spencer and Long $299 after their consultations. 1
(See D.N. 29-6, PageID.155 56; D.N. 29-17, PageID.280; D.N. 29-21, PageID.316 17; D.N. 29-25, PageID.380; D.N. 34-2, PageID.444; D.N. 34-3, PageID.447; D.N. 34-4, PageID.450; D.N. 34-5, PageID.453)
Spencer, Long, and Smith ultimately entered into contracts with King. 2
(D.N. 29-3; D.N. 29-15; D.N. 29-22) Pursuant to these contracts, they agreed to pay King a monthly fee in exchange for its services. (See D.N. 29-3; D.N. 29-15; D.N. 29-22) services included
the continuing analysis/audit of up to three credit bureau reports per client, all correspondence associated with the credit improvement process, the review for changes requested by the Client to the Cli of contacts behalf with each applicable credit bureau, creditor or public record holder, phone consultations (up to 20 minutes per month is included in the fee) with client and the continuing planning and creation of documents for the purpose of credit report improvement. (D.N. 29-3, PageID.117; D.N. 29-15, PageID.264; D.N. 29-22, PageID.337) The contract states that King would charge its clients for the preceding month services have been -3, PageID.117; D.N. 29-15, PageID.264; D.N. 29-22, PageID.337)
1 Woods and Smith received a $100 discount on their consultations. (See D.N. 34-3, PageID.447; D.N. 34-5, PageID.453) 2 Woods paid the initial consultation fee but did not enter into the contract with King. (See D.N. 29-25, PageID.384) King does not claim that Woods owes it any money. (See D.N. 6; D.N. 29- 1)
Spencer, Long, and Smith opted into King to pay King $147 per month for at least six months. (D.N. 29-3, PageID.117; D.N. 29-15, PageID.264; D.N. 29-22, PageID.337) The contracts allowed King to calculate their charges differently, however, if they canceled the contract or refused payment within the six-month period: Under its pricing plan and in lieu of $147 per month, King charged $235 per hour (D.N. 29-3, PageID.117; D.N. 29-15, PageID.264; D.N. 29-22, PageID.337)
King also assessed $30 for each or client-requested refund from th . (D.N. 29-3, PageID.118; D.N. 29-15, PageID.265; D.N. 29-22, PageID.338) Spencer had an initial consultation, signed her contract, and paid the $299 consultation fee on June 19, 2020. (See D.N. 29-3; D.N. 34-2, PageID.444) She paid $147 on July 19, August 19, and September 19 but initiated a chargeback of $147 on September 20. (D.N. 34-2, PageID.444; see D.N. 29-3, PageID.118) In total, Spencer paid King $593. (D.N. 34-2, PageID.444) King asserts that its alternative pricing plan applies, and that Spencer therefore owes an additional $3,556: $75 for each of the fifty items that it disputed on behalf; $299 for her initial consultation; and $100 for the chargeback. (Id.) Long had an initial consultation with King, paid $1, and signed her contract on August 18, 2020. (See D.N. 29-15; D.N. 29-17, PageID.283 84; D.N. 34-4, PageID.450) She paid the remaining $298 of her initial fee on August 21 and made one $147 payment on September 21. (D.N. 34-4, PageID.450) Long terminated her contract in late September or early October and then initiated chargebacks of her $298 and $147 payments, but not the $1 payment, on November 4. (See D.N. 29-17, PageID.284 88; D.N. 34-4, PageID.450) King alleges that its alternative pricing plan applies and that Long owes $5,748: $299 for the initial consultation; $75 for each of
the seventy items that it disputed on her behalf; and $100 per chargeback, less $1 for her previous payment. (See D.N. 34-4, PageID.450) Smith had an initial consultation, signed her contract, and paid the initial $199 consultation fee on March 17, 2020. (D.N. 29-22; see D.N. 34-3, PageID.447) She paid King $147 on April 17, May 17, June 17, July 17, August 17, and October 10, 2020. (See D.N. 34-3, PageID.447) In total, Smith paid King $1,081. (See id.) King does not assert that Smith owes it any money. (See D.N. 6; D.N. 29-1) Plaintiffs filed this action on December 1, 2020, alleging several violations of the CROA, 15 U.S.C. § 1679 et seq. (D.N. 1) Plaintiffs assert that King improperly charged them before fully performing its services (Count I); made untrue or misleading representations of its services (Count II); and committed or attempted to commit a fraud or deception on them in connection with its services (Count III). (Id.) King counterclaims for breach of contract, defamation, and interference with prospective contractual relationships against Spencer and breach of contract against Long. (D.N. 6) breach-of-contract counterclaims. (D.N. 29) King also moves to seal its summary-judgment
motion, and Plaintiffs move to seal their response. (D.N. 28; D.N. 33)
II. A. Motions to Seal King moves to file its motion for summary judgment under seal, and Plaintiffs move to file their response under seal. (D.N. 28; D.N. 33) In support of their motions, the parties assert that cite exhibits that the Court has already placed under seal. (D.N. 28, PageID.73; D.N. 33, PageID.407) But strong presumption in favor of Rudd Equip.
Co. v. John Deere Constr. & Forestry Co., 834 F.3d 589, 593 (6th Cir. 2016) (quoting Brown & Williamson Tobacco Corp. v. FTC, 710 F.2d 1165, 1179 (6th Cir. 1983)), and no party has articulated, nor has the Court discerned, the motion or response justifies sealing them. (D.N. 28; D.N. 33; see D.N. 29-1; D.N. 34) The Court is therefore unable to satisfy its obligation to a seal is warranted for either document. Rudd, 834 F.3d at 594. Accordingly, it will deny the motions to seal. 3
See id. at 595 ( [o]nly the most compelling reasons can justify non-disclosure of judicial records Brown & Williamson, 710 F.2d at 476)); S. Fin. Grp., LLC v. Stoess, No. 3:18- CV-220-DJH, 2018 WL 10758704, at *1 (W.D. Ky. June 22, 2018) (denying motion to seal when movant cited . B. Motion for Summary Judgment
Summary judgment is appropriate when a movant shows, using evidence in the record, nt, the Court must view
the evidence in the light most favorable to the nonmoving party. Loyd v. Saint Joseph Mercy Oakland, 766 F.3d 580, 588 (6th Cir. 2014) (citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, properly support an assertion of fact or fails to properly , 56(e)(2) (3).
3 The Court prior Order granting to seal the exhibits attached to its summary-judgment motion remains in place. (See D.N. 35)
1. Count I Plaintiffs assert in Count I that King charged them before fully performing its services, in violation of the CROA. (D.N. 29) The CROA prohibits a credit-repair organization from charging which the credit repair organization has agreed to perform for any consumer before such service is fully performed. 15 U.S.C. § 1679b(b). Plaintiffs contend that King violated this provision by charging them monthly [we] in the preceding month. (D.N. 34, PageID.419) King moves for summary judgment on Count I, arguing that it charged Plaintiffs only when it fully performed its services in accordance with the contract. (D.N. 29-1, PageID.93) In support, King submits activity it provided services for Spencer, Long, and Smith. (D.N. 29-9; D.N. 29-18; D.N. 29-23) While several courts have held that a CRO violates § 1679b(b) when it demands payment in full before it begins providing services, see, e.g., F.T.C. v. Lalonde, 545 F. App x 825, 838 (11th Cir. 2013); Greene v. CCDN, LLC, 853 F. Supp. 2d 739, 754 55 (N.D. Ill. 2011), few courts have discussed the legality of charging a monthly payment in exchange for ongoing credit-repair services. See § 1679b(b). In DuCharme v. Heath, No. C 10-02763 CRB, 2010 WL 5211502 (N.D. Cal. Dec. 16, 2010), the court rejected the same interpretation proposed by Plaintiffs here, concluding that CROA s ban on advance payments for work that has not been fully performed cannot mean that credit bureaus are not to be paid until all work on a client s behalf is completed. Id. at *5. It reasoned that the statute determining when all work on a client s behalf has been fully performed
is untenable. Id. at *4 5. Consequently, the court found it permissible for a CRO to charge a month, even if those tasks were - Id. at *4 6. The Court agrees with this reasoning. Section 1679b(b) prohibits charging a client before any , includes all types of credit-repair services. § 1679b(b); see DuCharme, 2010 WL 5211502, at *5. A CRO, for example, may charge a client after setting up credit file, reviewing , and drafting a single round of letters to send to credit bureaus. See, e.g., Reid v. Commonwealth Equity Grp., LLC, No. 17-CV-3043, 2017 WL 3457109, at *5 (C.D. Ill. Aug. 11, 2017); DuCharme, 2010 WL 5211502, at *5.
Plaintiffs cite Rannis v. Fair Credit Lawyers, Inc., 489 F. Supp. 2d 1110 (C.D. Cal. 2007), aff d, Rannis v. Recchia, 380 F. App x 646 (9th Cir. 2010), to support their interpretation of § 1679b(b), but Rannis involved a CRO that indisputably mailed letters to credit-repair bureaus on him a lump sum. See 489 F. Supp. 2d at 1117. Here, the issue is whether King performed any services justifying the monthly charges. See DuCharme, 2010 WL 5211502, at *6 n.4 (citing Rannis, 489 F. Supp. 2d at 1117 evidence contradicting the fact that the actual amount paid was consideration for services that
Moreover, Plaintiffs do not explain how a CRO would satisfy the full-performance requirement under their interpretation would it fulfill its statutory obligation to fully perform a service once it receives responses from credit bureaus only if a disputed item is Id. at *5. Like the court in DuCharme, the Court finds that s both - and needed to accomplish the bigger tasks. Id.; see Reid, 2017 WL 3457109, at *4 he statute
itself provides that a credit repair organization may not charge for the performance of any service before such service is fully performed but does not refer to all services being performed before the client is charged. . King is therefore entitled to summary judgment on Count I if it
demonstrates that it -repair service on behalf in the month preceding every charge. See Reid, 2017 WL 3457109, at *4; DuCharme, 2010 WL 5211502, at *4 5; cf. Lalonde, 545 F. App x at 838 (finding a violation of § 1679b(b) where the CRO demanded payment in full before performing any credit-repair services); F.T.C. v. Gill, 265 F.3d 944, 956 (9th Cir. 2001) (finding a statutory violation where the CRO required a down payment before performing any credit-repair services).
The undisputed record shows that King during initial consultations and charged them either $199 or $299 after the consultations. (See D.N. 29-9, PageID.235; D.N. 29-18, PageID.297; D.N. 29-23, PageID.346 47; D.N. 34-2, PageID.444; D.N. 34-3, PageID.447; D.N. 34-4, PageID.450; D.N. 34-5, PageID.453) These charges were therefore proper. See Reid, 2017 WL 3457109, at *5 (finding fee charged after the CRO credit file and analyzed his credit report proper). Because the initial consultation fee was Woods only charge (see D.N. 29-25, PageID.380, 384; D.N. 34-5, PageID.453), the Court will grant
summary judgment as to Woods on Count I. See Reid, 2017 WL 3457109, at *5.
a. Long Long signed her contract with King on August 18, 2020, and King mailed letters to credit bureaus . (See D.N. 29-18, PageID.296) King charged Long $147 on September 21. (D.N. 34-4, PageID.450) Long terminated her contract in late September or October and initiated chargebacks of her payments to King on November 4. (See D.N. 29-17, PageID.284 88; D.N. 29-18, PageID.296; D.N. 34-4, PageID.450) King has demonstrated that it fully performed a service by mailing letters to credit bureaus on behalf in the month preceding the September 21 charge and did not charge her in future months. (See D.N. 29-18, PageID.296; D.N. 34-4, PageID.450) The Court will
accordingly grant summary judgment on Count I. See DuCharme, 2010 WL 5211502, at *4 5.
b. Spencer According to activity log, King mailed letters to credit bureaus on June 24, 2020, contesting several items on credit reports and charged her $147 on July 19. (See D.N. 29-9, PageID.226; D.N. 34-2, PageID.444) King mailed a second round of letters on August 10 and charged Spencer its $147 monthly fee on August 19. (See D.N. 29-9, PageID.225 26; D.N. 34-2, PageID.444) Although with King was viewed twice on August 20, the activity log shows no other activity until September 21. (See D.N. 29-9, PageID.224) Nevertheless, King charged Spencer $147 on September 19. (See D.N. 34-2, PageID.444) Spencer initiated a chargeback of her August 19 payment on September 20, but King mailed a third round of letters on September 24. (See D.N. 29-9, PageID.223; D.N. 34-2, PageID.444) Spencer ultimately attempted to but did not send King the cancellation form attached to the contract. (D.N. 29-
King has established that it mailed letters to credit agencies for Spencer on June 24 and August 10, and then charged Spencer on July 19 and August 19 for those letters, respectively. (See D.N. 29-9, PageID.224 26; D.N. 34-2) It has not demonstrated, however, that it performed any services justifying the September 19 charge, as only that someone prior to the charge. (See D.N. 29-9, PageID.224; D.N. 34-2) Because a genuine issue of material fact exists as to whether King fully performed any services before the September charge, the Court will deny summary judgment on Count I as to Spencer. See § 1679b(b); DuCharme, 2010 WL 5211502, at *4 5.
c. Smith King mailed form letters to credit bureaus on Smith on March 22, 2020, and charged her on April 17. (See D.N. 29-23, PageID.345; D.N. 34-3, PageID.447) It mailed a second round of letters to the bureaus on May 9 and charged her its $147 monthly fee on May 17. (See D.N. 34-3, PageID.447) King charged Smith again on June 17 but did not send the third round of letters until July 7. (See id.) It charged Smith its monthly fee on July 17 and August 17. (See id.) King mailed a fourth round of letters to credit agencies on September 11. (See id.) Smith then called King to cancel her contract. (See D.N. 29-21, PageID.326) King, however, told her that it had already mailed the final round of letters and ultimately charged her for the final time on October 1. (See id.; D.N. 34-3, PageID.447)
The record shows that King charged Smith on April 17, May 17, July 17, and October 1 for letters that it sent in the preceding months. (See D.N. 29-23; D.N. 34-3) King has provided no evidence, however, that it performed any services for Smith justifying its charges on June 17 and August 17. (See D.N. 29-23; D.N. 34-3) Because a genuine issue of material fact exists regarding whether King fully performed any services before the June and August charges, the Court will deny summary judgment on Count I as to Smith. See § 1679b(b); DuCharme, 2010 WL 5211502, at *4 5.
2. Counts II and III Plaintiffs also assert violations of 15 U.S.C. § 1679b(a), which prohibits a CRO from of its services. 15 U.S.C. § 1679b(a)(3). The statute additionally makes it unlawful for a CRO to engage, directly or indirectly, in any act, practice, or course of business that constitutes or results in the commission of, or an attempt to commit, a fraud or deception on any person in connection with the offer or sale
of the services of the credit repair organization 15 U.S.C. § 1679b(a)(4). Plaintiffs contend that King violated the statute by hiring an attorney to send a debt-collection letter to Spencer and by credit information on social media through its Julia King. 4
(D.N. 29-1, PageID.78; D.N. 34, PageID.421 22; see D.N. 34-7; D.N. 34-8) Defendant moves for summary judgment on Counts II and III, arguing that this conduct does not violate § 1679b(a)(3) or (a)(4). (D.N. 29-1) A CRO violates § 1679b(a)(3) when it makes misleading or untrue representations about its services. See § 1679b(a)(3); see also, e.g., Helms v. Consumerinfo.com, Inc., 436 F. Supp. 2d 1220, 1237 (N.D. Ala. 2005) (denying summary judgment for defendant when plaintiff showed that website, which advertised its credit-repair services, contained statements that a reasonable jury could find misleading). Courts have found conduct improper under § 1679b(a)(3) where, for example, a CRO guaranteed that consumers would be approved for loans after the credit-repair process, see F.T.C. v. 1st Guar. Mortg. Corp., No. 09-CV-61840, 2011 WL 1233207, at *10 (S.D. Fla. Mar. 30, 2011), or informed consumers that it would continue to monitor their credit reports for twelve months but failed to do so. See Greene, 853 F. Supp. 2d at 755 56; see also Zimmerman v. Cambridge Credit Counseling Corp., 529 F. Supp. 2d 254, 278 79 (D. Mass. 2008), aff d, Zimmerman v. Puccio, 613 F.3d 60 (1st Cir. 2010) (finding a violation of § 1679b(a)(3) where defendant represented that it was a nonprofit entity but accounts to a for-profit organization). Section 1679b(a)(4) is more specific than § 1679b(a)(3)
and, consistent with the requirements of fraud, requires a showing of reliance and actual
4 While Plaintiffs submit an exhibit showing that Julia King and Spencer exchanged comments on , they have not provided any evidence that Julia King posted See D.N. 34-8)
damages. Helms, 436 F. Supp. 2d at 1236. Both provisions prohibit misrepresentations Id. at 1234.
conduct sending a debt-collection letter through an attorney to Spencer and purportedly posting social media (see D.N. 34-7; D.N. 34-8) does not fall within § 1679b(a)(3) or (a)(4) because Plaintiffs have failed to demonstrate that King
falsely, deceptively, or fraudulently represented its services as a CRO in either the letter or the alleged post. See Helms, 436 F. Supp. 2d at 1234. That is, neither the letter nor the post involved misleading or false statements about services or results. See § 1679b(a)(3) (4); Helms, 436 F. Supp. 2d at 1234. At bottom, Plaintiffs have provided evidence only that King attempted to collect an alleged debt from Spencer. (See D.N. 34-7) The Court will accordingly grant summary judgment for King on Counts II and III.
3. Counterclaim King also moves for summary judgment on its breach-of-contract counterclaims against Spencer and Long. (D.N. 29) To prove breach of contract, King must establish (1) existence of a contract ; (2) breach of that contract ; and (3) Henderson v. Skyview Satellite Networks, Inc., 474 F. Supp. 3d 893, 904 (W.D. Ky. 2020) (quoting , 326 S.W.3d 1, 8 (Ky. App. 2009)) (internal quotation marks omitted). In support of its motion, King submits the contracts signed by Spencer on June 19, 2020, and Long on August 18, 2020. (See D.N. 29-3; D.N. 29-15) The record also shows that Spencer and Long initiated chargebacks of their monthly payments in September and November 2020, respectively, and thereafter failed to make any additional payments to King. (See D.N. 29-19; D.N. 34-2; D.N. 34-4)
As previously discussed, King has not demonstrated that it performed any credit-repair services for Spencer in the month preceding her September 19 charge, even though the contract permitted King to charge her only after . (See D.N. 29-9; D.N. 34-2) Because a genuine issue of material fact exists as to whether King breached the contract by charging her before providing its services, the Court cannot grant summary judgment for King on its breach-of-contract counterclaim against Spencer. See Owensboro Mercy Health Sys., Inc. v. Willis N. Am., Inc., No. CIV.A. 06-586-C, 2009 WL 1405172, at *4 (W.D. Ky. May 18, 2009) (denying motion for summary judgment on breach-of-contract claim when a genuine issue of material fact remained as to whether the movant complied with the terms of its contract); cf. Graves v. Standard Ins. Co., No. 3:14-CV-00558- CRS-DW, 2016 WL 6875786, at *4 (W.D. Ky. Nov. 21, 2016) (granting summary judgment for defendant where no genuine issue of material fact remained as to whether plaintiff, but not defendant, breached their contract). In contrast, King is entitled to summary judgment on its breach-of-contract counterclaim against Long because King has demonstrated that it fulfilled its contractual obligations before each charge. (See D.N. 29-18; D.N. 29-20; D.N. 34-4) Long had an initial consultation with King in August 2020 and then paid $299 consultation fee in two payments of $1 and $298. (See D.N. 29-17, PageID.283; D.N. 34-4, PageID.450) After Long signed the contract on August 18, King mailed letters to three credit bureaus on August 25, challenging several items on her credit reports. (See D.N. 29-15; D.N. 29-20) Long $147 monthly fee on September 21 but terminated her contract in late September or October and initiated chargebacks of her $298 and $147 payments on November 4. (See D.N. 29-17, PageID.284 88; D.N. 29-18, PageID.296; D.N. 34-4, PageID.450)
only one month after signing the contract allowed King to charge her in accordance with its alternative pricing plan. (See D.N. 29-15, PageID.264 66) In the absence of a meaningful defense to the breach-of-contract counterclaim, King is entitled to summary judgment because there is no genuine issue of material fact that it provided credit-repair services to Long in accordance with their contract; Long failed to pay for those services; and King incurred damages as a result . See Ohio Farmers Ins. Co. v. Charlie s Elec. Serv., Inc., No. 1:16-CV-00101-GNS, 2017 WL 1380470, at *2 4 (W.D. Ky. Apr. 14, 2017) -of-contract claim when it established that defendant failed to perform as agreed in ; Graves, 2016 WL 6875786, at *4; Bellsouth Telecomms., LLC v. Serenity, Inc., No. CIV.A. 5:14-139-KKC, 2015 WL 3690302, at *1 (E.D. Ky. June 12, 2015) breach-of-contract claim when it showed that defendant failed to pay plaintiff for its services,
thereby violating the .
III. For the reasons set forth above, and the Court being otherwise sufficiently advised, it is hereby
ORDERED as follows: (1) (D.N. 33) is DENIED. (2) motion to seal (D.N. 28) is DENIED. (3) motion for summary judgment (D.N. 29) is GRANTED in part and DENIED in part. It is GRANTED as to Long on Counts I, II, and III, and breach-of-contract counterclaim; as to Spencer and Smith on Counts II and III; and as to Woods
15 on Counts I, II, and III. The motion is DENIED as to Spencer and Smith on Count I and as to -of-contract counterclaim.
(4) The Court requests that within thirty (30) days of entry of this Memorandum Opinion and Order, Magistrate Judge Regina S. Edwards (D.N. 4) conduct a status conference with the parties to set a final trial schedule and, at her discretion, a settlement conference.
July 6, 2022