$256 Million Judgment: Charlottesville Attorneys Garner Victory for Virginia Plaintiffs in Cambridge Class Action

Date: March 24, 2009

Last week, Andrew and Kelly Zimmermann, former residents of Palmyra, Virginia, represented by MichieHamlett, may have ended a nearly six-year long odyssey with a $256,527,000 dollar judgment in a nationally certified class action lawsuit filed against two brothers, John and Richard Puccio of New York, and a conglomerate of companies that had used claims of non-profit charity status to lure the Zimmermanns and over 200,000 other consumers into credit counseling companies that were the front companies of the organization. The U.S. District Court in Springfield Massachusetts, where the case was filed, has appointed a receiver to begin the process of marshaling the assets of the Puccios to satisfy the judgment in favor of the class.

The lawsuit filed in late 2003 alleged that Puccios initially set up a for-profit business credit counseling businesses in New York in the mid-1990s, but moved operations in the late 1990s to Agawam, Massachusetts, where they opened Cambridge Credit Counseling Corp. as a 501(c)(3) non-profit. In that year, Cambridge successfully moved to dismiss the Zimmermanns' action based on the IRS's administrative grant of 501 ( c) (3) status, but in 2005, on appeal to the First Circuit Court of Appeals in Boston, the plaintiffs successfully argued that courts could go behind the initial determination of the IRS that Cambridge could rely on its 501(c)(3) designation as a complete defense to the case. This was the first federal court of appeals in the nation to address the viability of such claims and to determine that no one can escape justice by hiding behind the IRS's grant of 501(c)(3) status. In 2006, Cambridge reached a partial settlement with the private attorneys after the Massachusetts Attorney General forced the Puccios out of Cambridge and imposed a monitor. The attorneys now believe Cambridge operates as a non-profit based on reports from the monitor.

Garrett M. Smith of MichieHamlett, and the other private attorneys with whom he worked, next focused their attention on the Puccio brothers, who took in 52 million dollars through their fraudulent credit-counseling scheme. Cambridge-Brighton Budget Planning continued to charge fees that class counsel alleged were exorbitant for non-profit services, while it and its sister Brighton Credit Management both failed to follow the regulatory requirements of the federal Credit Repair Organizations Act. Last year, the federal Court in Massachusetts granted summary judgment, holding that the defendants were liable to the plaintiffs. Along with Garrett Smith, it named as co-lead class counsel Gregory S. Duncan, also of Charlottesville, David J. Vendler of Los Angeles, and Steve G. Hennessy of Milton Massachusetts. Oliver G. Koppell and Joseph S. Tusa of New York were also named class counsel. The Court entered final judgment late last week.

The Credit Repair Organizations Act, a federal law passed in 1997, regulates companies that perform services or promise to help consumers improve their credit record, credit rating or credit history. Said Smith, "By making promises to help consumers improve their credit, the companies exposed their owners, the Puccios brothers, to personal liability for the fraudulent misrepresentations of the companies that falsely claimed non-profit and tax-exempt status. The Court was correct to apply the plain meaning of the language that Congress used to protect consumers from credit repair scams. Companies that promise to repair credit should now be well-aware that neither alleged non-profit status nor the industry they operate in is a shield from liability for fraud. This statute allows consumers to go directly after the players behind the scheme".

This is Smith, Vendler and Duncan's second major victory in an industry that Congress, the Federal Trade Commission, several state Attorneys General and the IRS began to scrutinize in early 2004 after credit counseling exploded in the early 2000s with a flood of advertising on the airwaves and Internet promising over-extended consumers debt relief in the form of reduced monthly payments through a debt management plan offered by a non-profit organization. The attorneys' first victory, against the founder of AmeriDebt, Inc., obtained a $35,000,000 settlement in 2006.

John and Richard Puccio have filed an appeal.

MichieHamlett is a multi-service law firm dedicated to providing exceptional legal services and value to our clients. Since our formation in 1946, we have grown and developed the capability of handling complex matters over a wide geographic area, and yet preserved our emphasis on serving the legal needs of central Virginia.

Back to Articles Page

Copyright @ 2010 MichieHamlett