A law firm can sign and send letters on its clients’ behalf that challenge the accuracy of its clients’ credit report information without disclosing the firm’s involvement. A federal court of appeals has held that this practice does not violate state fraud laws as long as the clients specifically authorized such action in the retainer contract. ABA Litigation Section leaders note that the decision is important because it rises and falls on the details of the engagement agreement.
In The CBE Group v. Lexington Law Firm, two companies that supply consumer financial information to credit bureaus sued a law firm acting as a credit repair organization in the U.S. District Court for the Northern District of Texas. The organizations alleged the law firm sent thousands of nearly identical dispute letters that appeared to come directly from their clients and were not signed by any member of the law firm. Under the Fair Credit Reporting Act (FCRA) and the Fair Debt Collection Practices Act (FDCPA), furnishers of credit information must investigate when a consumer disputes credit report information, but not when a law firm does so.
The plaintiffs contended that by misrepresenting who sent the dispute letters, the defendants caused the plaintiffs to expend additional resources investigating disputes that they otherwise would not have. The complaint raised claims under Texas law based in fraud and tortious interference with both the plaintiffs’ existing contracts with creditors and the plaintiffs’ prospective relations.
A jury awarded the plaintiffs over $2 million. However, on the defendants’ motion, the district court vacated the verdict, finding that the evidence failed to show that the law firm made any false statements or representations, material or otherwise, when it signed its clients’ names. The district court found that the law firm “had the legal right to sign its clients’ names on the correspondence it sent on their behalf to data furnishers who reported inaccurate information about the clients’ credit.”
On appeal to the U.S. Court of Appeals for the Fifth Circuit, the appellate court affirmed the lower court’s decision. The appeals court agreed that the law firm did not make any false or misleading representations under Texas’s fraud statute because the law firm had a legal right to sign and send the letters under the law firm’s engagement agreement. The contract specifically stated that the letters would be sent under the clients’ name “and [would] not be identified as being sent by” the law firm.
Additionally, the Fifth Circuit reasoned that because the attorney-client relationship is an agency relationship, an attorney’s actions within the scope of his or her employment are attributed to the client. It also noted that the plaintiffs failed to establish that they justifiably relied upon any representation in the letters, as their “internal policies require[d] them to investigate and respond to dispute letters sent by consumers and third parties alike.” Lastly, the appellate court held that the law firm did not have a duty to disclose the origin of the letters, because the firm had a legal right to send the letters on the clients’ behalf and with their signature affixed.
Litigation Section leaders note that attorneys should designate all aspects of the engagement agreement to protect themselves against liability. As a practical matter, the “best practice would have been to avoid this lawsuit either as providing a disclosure or having the clients actually sign the prepared letters,” advises John S. Austin, Raleigh, NC, cochair of the Section’s Trial Practice Committee.
Nevertheless, leaders suggest that the law firm was able to act on its clients’ behalf because of the agency relationship. “An agent may speak for and on behalf of its client, within the bounds of authority granted by that client,” opines Elizabeth T. Timkovich, Charlotte, NC, cochair of the Section’s The Woman Advocate Committee. “As attorneys, we regularly prepare correspondence for our clients, to be signed by our clients. And clients may authorize us (or others) to put pen to paper and sign correspondence for them,” Timkovich suggests. She noted that this principle also applies to guardians, conservators, and individuals with powers of attorney.
If law firms are unable to have their clients sign these letters, specifically detailed agreements are necessary. Section leaders suggest that engagement agreements should establish the scope of an attorney’s agency to write credit dispute letters. “The fact that the engagement agreement expressly set forth authorization for [the law firm] to prepare the type of correspondence in question, and to sign for the client/consumer, is what was fatal here to the plaintiffs’ fraud-based claims,” Timkovich concludes.
