Navient Sols., LLC v. Law Offices of Jeffrey Lohman

NAVIENT SOLUTIONS, LLC, Plaintiff, v. THE LAW OFFICES OF JEFFREY LOHMAN, et al., Defendants.

1:19-cv-461 (LMB/TCB)

UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF VIRGINIA Alexandria Division

April 20, 2020

MEMORANDUM OPINION

Before the Court is defendants The Law Offices of Jeffrey Lohman's and Jeffrey Lohman's (collectively, "LOJL") Objection to the Magistrate Judge's Order Dated March 11, 2020 ("Objection").¹ In that Order, the magistrate judge denied LOJL's Motion for Reconsideration and imposed sanctions jointly on LOJL and its counsel.² For the following reasons, LOJL's Objection will be overruled in part and sustained in part.

I. BACKGROUND

A. Plaintiff's Complaint³

In this civil action, plaintiff Navient Solutions, LLC ("plaintiff" or "Navient") generally alleges that the defendants, who are largely debt counseling companies and law firms, as well as various individuals affiliated with them, conspired together to defraud plaintiff out of millions of dollars in outstanding student loan debt in part by manufacturing federal lawsuits and arbitrationclaims against plaintiff for purported violations of the Telephone Consumer Protection Act ("TCPA"). In short, the alleged scheme operated as follows. The debt-counseling companies would advertise debt-relief programs to student loan debtors, offering to consolidate, reduce, or eliminate their student loans. When the student loan debtors inquired about these debt-relief programs, they would be persuaded to sign a letter of engagement with the law firms, such as LOJL. After the student loan debtors had signed on as clients of the law firms, they would be instructed to stop submitting their loan payments to plaintiff and to start submitting payments to a different entity. Although the student loan debtors often believed that these payments were being directed towards their student loans, the payments would in fact be split between the debt-counseling companies, the law firms, and others involved in the scheme.

The student loan debtors' failure to submit their loan payments to plaintiff would cause them to default on their loans. In accordance with its debt collection practices, these defaults would trigger calls from plaintiff to the student loans debtors about their arrearages. Around the same time, the law firms would instruct the student loan debtors to call plaintiff, using a script provided by the law firms, to revoke their consent to receive calls from plaintiff about their loans. The law firms would then instruct the student loan debtors not to answer any calls from plaintiff, and instead to tally the number of calls they received. The law firms operated under the belief that every one of these calls was a TCPA violation because it was made via an automated telephone dialing system, the use of which the TCPA prohibits in certain circumstances, including when the recipient has revoked his or her consent to receive such calls.

Eventually, the law firms would determine that plaintiff had made a sufficient number of calls, which was often enough calls that the statutory damages available under the TCPA would exceed each student loan debtor's outstanding debt. The law firms would then initiate TCPAactions against plaintiff in the form of federal lawsuits and arbitration claims. At times, the student loan debtors, on whose behalf the law firms were purportedly litigating, had no knowledge of and did not consent to, the actions being brought. These actions caused plaintiff to expend significant litigation costs, enter into substantial settlement agreements, and otherwise forego student loan payments to which it was entitled. These actions also did nothing to resolve the significant and lasting damage to the student loan debtors' credit caused by their having defaulted, often unknowingly, on their student loans.

B. The Motions at Issue

On December 13, 2019, plaintiff filed a Motion to Compel seeking the production of "all documents withheld by [LOJL] on the basis of the attorney-client privilege," including documents withheld by LOJL's former and current employees, which encompassed defendants Jeremy Branch, Alyson Dykes, and Ibrahim Muhtaseb. [See Dkt. 90]. Specifically, plaintiff narrowed its request to defendants' communications with the student loan debtors who had been referred to them as clients. [See Dkt. 91]. Plaintiff argued that the communications were discoverable under the crime-fraud exception to the attorney-client privilege. Id. In response, the defendants argued that the crime-fraud exception was inapplicable where only the attorney had purportedly committed a crime or fraud. [See Dkt. 108].

The briefing of the Motion to Compel overlapped with a change of counsel for some of these defendants. [See Dkt. 166]. Originally, the law firm of Woods, Smith, Henning & Berman LLP ("WHSB") represented both LOJL and its former and current employees; however, sometime before November 21, 2019, the defendants decided that potential conflicts of interest warranted separate counsel on substantive matters. Id. Accordingly, on November 21, 2019, Thomas F. Urban II and Jeffrey E. Grell (collectively, "LOJL's new counsel") filed a notice ofappearance and motion to appear pro hac vice, respectively, as counsel for LOJL, and on November 26, 2019, WHSB filed a motion to withdraw as counsel for LOJL. [See Dkt. 72-73, 75]. Both motions were granted. [See Dkt. 74, 76]. LOJL's new counsel and WHSB then entered into a joint defense agreement confirming that WHSB would continue to handle all of the defendants' discovery-related matters. [See Dkt. 166].

On December 27, 2019, a substantial, actual conflict arose between LOJL and WHSB. Id. As a result of this conflict, the joint defense agreement between LOJL's new counsel and WHSB was terminated and responsibility for handling LOJL's discovery-related matters shifted to LOJL's new counsel. Id. From that date onward, it appears that LOJL's new counsel worked closely with plaintiff's counsel and the magistrate judge to narrow the issues presented by plaintiff's Motion to Compel. Id. For example, whereas approximately 300 pages of documents were produced by WHSB in the first seven months of this litigation, Lohman's new counsel produced approximately 25,000 pages of documents within two weeks of taking over LOJL's discovery-related matters. Id. This production was due in part to LOJL's new counsel having obtained attorney-client privilege waivers from some of the student loan debtors who had been referred to LOJL. Id. Additionally, on January 6, 2020, LOJL's new counsel, as opposed to WHSB, filed LOJL's supplemental brief in opposition to plaintiff's Motion to Compel, in which LOJL continued to argue that the crime-fraud exception was inapplicable where only the attorney had purportedly committed a crime or fraud. [See Dkt. 120]. On January 17, 2020, the magistrate judge granted the Motion to Compel, and ordered the defendants to "produce all responsive documents currently being withheld pursuant to the attorney-client privilege." [See Dkt. 126].

On January 30, 2020, LOJL filed an objection to that decision. [See Dkt. 136]. In that objection, LOJL raised two arguments neither of which had been raised before the magistrate judge: (1) that plaintiff had not made the requisite prima facie showing that LOJL had committed a crime or fraud; and (2) that LOJL was immune from liability under the Noerr-Pennington doctrine. Id. Both of these new arguments centered on LOJL's assertion that the only purportedly criminal or fraudulent conduct in which they had engaged was litigation activity, such as advising clients and filing federal lawsuits. Id. In its objection, LOJL did not inform the Court of the change of counsel that had occurred during the briefing on the Motion to Compel. See id.

On February 18, 2020, the Court remanded LOJL's objection both "to have the magistrate judge address [LOJL's] new arguments in the first instance" and to consider LOJL's "explanation as to why these new arguments were not raised initially." [See Dkt. 154]. The Court explained:

A magistrate's decision should not be disturbed on the basis of arguments not presented to him or her. The purpose of the Magistrates Act is to allow the magistrates to assume some of the burden imposed on the district courts and to relieve the courts of unnecessary work. Allowing parties to raise new issues or arguments at any point in the life of the case would frustrate this purpose and result in a needless complication of litigation. Instead, parties should fully plead their claims, and fully advance their arguments, at all stages of litigation, unless they are prepared to waive them. Thus, the court is not obligated to consider new arguments raised by parties for the first time in objections to the magistrate's order.

Id. (quotations, citations, and alterations omitted). The Court further explained that, on remand, "[t]he magistrate judge may also consider whether monetary sanctions should be imposed on [LOJL] and/or [its] counsel for causing unnecessary litigation costs." Id.

On February 19, 2020, the magistrate judge gave plaintiff and LOJL one week to file a second round of supplemental briefing, explaining that LOJL's objection would be construed as a Motion for Reconsideration and that, in accordance with the remand order, the consideration ofsanctions against LOJL and its counsel had been authorized. [See Dkt. 156]. Both parties filed supplemental briefing addressing LOJL's new arguments. As relevant here, plaintiff also argued that "sanctions [were] warranted" due to LOJL's "belated assertion" of arguments which it "had months to raise." [See Dkt. 165]. LOJL responded that neither it nor its counsel "should be sanctioned for any argument made in [its] objection" because both had worked diligently to avoid unnecessary litigation costs. [See Dkt. 166].⁴

On March 11, 2020, the magistrate judge issued the Memorandum Opinion and Order to which LOJL now objects. The...