Iowa Joins States Barring Activities of Former U.S. Fidelis Owners

Attorney General Tom Miller and ten other state attorneys general, have obtained judgments against the owners of a former Missouri company, barring them from ever again selling auto service contracts or engaging in telemarketing in Iowa and the other states.

The defendants in the judgments, Cory Atkinson and Darain Atkinson, founded and owned U.S. Fidelis, operating under the business names National Auto Warranty Services and Dealer Services. U.S. Fidelis, was a Missouri corporation located in Wentzville, Mo., is the remaining defendant in the lawsuit filed by the Attorney General last April and is currently in bankruptcy in Missouri. The company has been out of business for some time.

Miller said that, in addition to barring service contract sales and telemarketing, the judgment severely restricts how the Atkinson brothers may advertise other products or services. Miller said that the judgments were obtained by agreement with the Atkinson brothers and included a written agreement in the U.S. Fidelis bankruptcy requiring them to turn over nearly all their assets to the bankruptcy estate to pay back creditors, including consumers.

According to the lawsuits filed by the various states, consumers nationwide paid the Atkinsons’ company thousands of dollars for overpriced service contracts that were sold through illegal and deceptive means. Darain and Cory Atkinson, are accused of plundering $101 million in corporate assets for their own personal gain.

In the lawsuits filed by Miller and the other attorneys general the states accused the defendants of a variety of consumer fraud violations stemming from deceptive junk mail, illegal telemarketing robocalls, and misleading TV ads. They alleged the company’s solicitations misled consumers to believe their auto warranties had expired or would soon expire and confused customers into thinking that they were being contacted by a manufacturer or other entity affiliated with their original vehicle warranty. Many consumers who were led to believe they were purchasing a warranty providing “bumper to bumper” coverage of all major repairs later found the contracts full of exemptions.

The states also accused the defendants of violating Do-Not-Call laws and using technology to bypass caller ID and mask the origin of sales calls, refusing to allow consumers an opportunity to review the complete written service contracts, denying valid refund requests, improperly obtaining consumers’ personal information and violating state licensing and registration laws.

Miller’s office obtained the consent judgments from Polk County District Court Judge Robert Hanson. In settling with the states, Darain and Cory Atkinson denied any wrongdoing but agreed to surrender at least 90 percent of their assets pursuant to the related bankruptcy agreement, including assets from 20 related corporations.

The Iowa Court Order requires Darain and Cory Atkinson to comply with a lengthy list of restrictions on future business and marketing practices. Specifically, they are prohibited from:

• Telemarketing.
• Marketing or selling motor vehicle service contracts (unless employed at a dealership, and then only in connection with the sale of a specific vehicle).
• Misleading consumers about the source of an offer.
• Misrepresenting their relationship with a consumer.
• Representing that an offer is “exclusive” or “final” unless it can be substantiated in writing.
• Disproportionately targeting consumers 65 or older.
• Selling or providing personal information obtained from a consumer to unaffiliated companies for marketing purposes without the consumer’s consent.

Additionally, the Judgment requires the defendants to provide sufficient disclosures in solicitations, honor a consumer’s request to be removed from a mailing list and comply with laws and regulations related to fair business practices, credit offers, privacy rights and licensing and registration requirements.

The Iowa Judgments impose civil penalties of $2.86 million on each of the individual defendants, plus an additional $20,000 each for costs related to the investigation and litigation. With the surrender of their assets, any recovery will come from the U.S. Fidelis bankruptcy. The states continue to negotiate with the bankruptcy estate to benefit creditors and consumers.

The following states joined Iowa in the settlement: Arkansas, Idaho, Kansas, North Carolina, Ohio, Oregon, Pennsylvania, Texas, Washington and Wisconsin.

Background

U.S. Fidelis was the nation’s number one extended-warranty dealer for autos and a primary NASCAR sponsor before its collapse. State attorneys general began investigating U.S. Fidelis in 2008. The company declared bankruptcy on March 1, 2010. The states – whose earlier attempt to negotiate a settlement had stalled – filed their lawsuit soon after the bankruptcy announcement.

In October 2010, a federal bankruptcy judge said he would approve a settlement that requires the Atkinsons to give $10.5 million to U.S. Fidelis and surrender millions in additional assets, including Darain’s 40,000-square-foot mansion, a 50-foot yacht and 10 other boats, 11 autos and 14 motorcycles. The bankruptcy settlement was conditioned on the states’ agreement to settle claims with the Atkinsons.

In addition to the lawsuits filed by the state attorneys general, Verizon sued U.S. Fidelis for making three million illegal calls to wireless customers over seven months in 2008, and BMW and Subaru brought a lawsuit for trademark infringement. U.S. Fidelis’ contracted telemarketer, Voice Touch, was sued by the Federal Trade Commission for robocalls. In March, Voice Touch agreed to pay more than $655,000 in consumer restitution and is banned from telemarketing.

Under federal law, a “factory warranty” or “extended warranty” can only be offered and sold by an automobile manufacturer. Other plans are called service contracts.

Source: Iowa Attorney General’s Office