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Chase Bank USA N.A. v. Consumer Law Center of Delray Beach LLC

United States District Court, D. Delaware

July 29, 2015

CHASE BANK USA N.A., Plaintiff,
v.
CONSUMER LAW CENTER OF DELRAY BEACH LLC, et al., Defendants.

Beth Moskow-Schnoll and Paul J. Koop, Esquires, Ballard Spahr LLP, Wilmington, Delaware. Counsel for Plaintiff.

Edward Cherry, a/k/a Edward T. Kennedy, Parkland, Florida. Pro Se Defendant.

MEMORANDUM OPINION

LEONARD P. STARK, District Judge.

I. Introduction

Plaintiff Chase Bank USA, N.A. ("Chase"), a national banking association, filed its original complaint against Defendant Edward Cherry a/k/a Edward T. Kennedy ("Cherry"), [1] as well as Hess Kennedy Chartered, LLC, Laura L. Hess ("Hess"), Laura Hess & Associates, P.A., Hess Kennedy Holdings, Ltd., Hess Kennedy Company Chartered BWI, the Consumer Law Center, LLC, The Campos Chartered Law Firm, Legal Debt Center, LLC, Jeffrey S. Campos, and Jeff Campos, P.A. (collectively "Hess Kennedy Entities"). (D.I. 1) Upon amendment, Eric Siversen, Home Plate Consultants, LLC, and Self Made, LLC (collectively Siversen entities) were added as defendants and Cherry, who has several aliases, was again named as a defendant. (D.I. 82) Chase alleges tortious interference with contractual relations, unjust enrichment, abuse of process, violation of the Delaware Deceptive Trade Practices Act and the Delaware Consumer Fraud Act, and conspiracy.[2] (D.I. 82) Presently before the Court is Plaintiff's unopposed Motion for Summary Judgment against Cherry on the following counts in the Amended Complaint: Count I, tortious interference with contractual relations; Count III, abuse of process; and Count VI, conspiracy. (D.I. 255) Cherry did not file an opposition to the motion despite the Court's entry of a scheduling order. (D.I. 258)

II. Background[3]

On July 20, 2009, this Court signed a consent judgment granting declaratory and permanent injunctive relief to Chase against the Hess Kennedy entities. ( See D.I. 71) On May 14, 2014, the Court signed an Order granting permanent injunctive relief to Chase against the Siversen entities. ( See D.I. 197) On September 30, 2013, the Court entered an Order granting declaratory and permanent injunctive relief to Chase against Hess. ( See D.I. 233)

Cherry was the owner, officer, manager, member, and/or director of three of the Hess Kennedy Entities. ( See D.I. 71 at§ I., ¶¶ D, F, H) The Hess Kennedy entities operated several interrelated debt elimination/settlement companies. ( Id. at § II) The companies were composed of law firms responsible for debt settlement, which Hess, a lawyer, operated, and a company for processing payments, managed by non-lawyer Cherry. ( Id. ) The Hess Kennedy entities organized numerous legal entities and registered a number of fictitious names, which they used in conjunction with their business. ( Id. )

The Hess Kennedy entities promised consumers debt relief by representing they could convince creditors to accept significantly reduced amounts as full payment for unsecured debts. ( Id. D.I. 256 Ex. 3, affs. of Chase cardholders) Cherry knew of, managed, and controlled the activities of the Hess Kennedy entities, which included controlling the Hess Kennedy entities' finances. ( See D.I. 8 Exs. C-J, 0, P; D.I. 118 Ex.Bat 24, 31-32, 36, 47, 53, 83, 84, Ex. D at 33, 110, 111, 126, 127; D.I. 256 Ex. 1 at 46, 57, 73, Ex. 6 at 103, Ex. 8 at 52, 53, Ex. 9 at¶¶ 2, 3, 19) Cherry described himself as the business manager for the Hess Kennedy entities and testified that he was the "go-to" person for the Hess Kennedy entities. (D.I. 256 Ex. 1 at 173; Ex. 10 at 31-32) The marketers and advertisers that referred consumers to the Hess Kennedy entities directed the consumers, including thousands of Chase cardmembers, to discontinue payments on their credit card debt, and instead to send monthly payments to the Hess Kennedy entities. (D.I. 71, §II) As a result, consumers who were Chase cardmembers stopped making payments to Chase. (D.I. 71 at§ II)

For their services, the Hess Kennedy entities received attorneys' fees ranging from 15 to 20 per cent of the amount of debt each client invested in the programs, in addition to monthly processing fees. (D.I. 71, §II) A significant portion of the attorneys' fees were diverted to marketers and advertisers for referring consumers to the Hess Kennedy entities (in violation of state law). ( Id. ) The Hess Kennedy entities did not maintain any consumer escrow payments in client trust accounts, despite advising clients their payments would accrue in such accounts. ( Id. ) The Hess Kennedy entities never explained to consumers that it would take a year or longer before consumers would accrue money to pay toward any settlements with creditors. (D.I. 256 Ex. 1 at 109) Cherry testified that the Hess Kennedy entities probably acted deceptively by using a confusing contract and that its customers relied upon misrepresentations made on behalf of the Hess Kennedy entities. ( Id. at 113).

During the time consumers paid monthly fees to the Hess Kennedy entities, their advertisers, and marketers, Chase continued seeking payment from its cardmembers. ( Id. at Ex. 3) Because of their debt settlement arrangement with the Hess Kennedy entities, the debt problems for some clients became significantly worse. ( See id. ) In addition, during the same time-frame, Cherry and the Hess Kennedy entities illegally diverted and used millions of dollars of clients' funds for personal expenses and payments to others not entitled to those funds. ( Id. at Ex. 8 at 112-115)

Cherry admitted to the scheme's fee structure, testifying that referral agencies would refer clients to the Hess Kennedy entities for debt settlement. ( Id. at Ex. 1 at 27-28). Once the clients were referred, "[c]orrespondence would go out to the banks and then [Hess Kennedy's clients would] make payments to the law firm, first legal fees. And then once they exhausted their legal fees, the rest would be for the debt settlement plan." ( Id. at 28) Cherry explained that the referral agencies would get a processing fee per client for each month that the consumer remained in the program, which ranged from $29 through $49 per month. ( Id. at 42-45) After the referral agencies were paid and the remaining expenses were covered from the client fees, Cherry split the remaining net operating income with his brother-in-law. ( See id at 46-48, 52-53) From 2006 through the middle of 2008, Cherry testified that he "took home" $6.5 million. ( Id. at Ex. 1 at 48)

The Hess Kennedy entities initiated actions under the Fair Credit Billing Act ("FCBA"), 15 U.S.C. §§ 1666 et seq., on behalf of their clients for purported "billing error disputes" against Chase, wherein the cardholder clients challenged their entire Chase credit card account balances and withheld any and all payments to Chase. (D.1. 71, §II) The Hess Kennedy entities drafted legally insufficient form letters, and encouraged cardmembers to send them to Chase, as well as to assert frivolous claims and counterclaims. ( Id. ) Cherry testified that he drafted legal memoranda and pleadings. (D.1. 256 Ex 5 at 118) The Hess Kennedy entities never advised clients that issuing dispute letters under the FCBA did not toll or relieve liability for payments due on their credit card accounts. ( Id. ) Cherry testified that Chase was a creditor with whom he dealt while operating the debt settlement scheme. (D.1. 256 Ex. 1 at 115, 133)

The Court determined that the form letters created and used by the Hess Kennedy entities and their Chase cardmember clients to be a "sham and do not assert valid billing error disputes" under the FCBA, and further that the billing error disputes did not provide any legal or valid basis for withholding payments to Chase. (D.I. 71, §IV, ¶¶ 1, 2) Cherry testified that he drafted the form letters. (D.I. 256 Ex. 5 at 113-114, 116, 118) The Court further held the claims and counterclaims asserted against Chase were frivolous and legally insufficient to ...


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