Attorneys General settle with Atkinson brothers
OLYMPIA – The Washington Attorney General’s Office spearheaded a multistate settlement with the former owners of U.S. Fidelis that ensures the brothers will never again sell auto service contracts or telemarket in 11 states. The agreement also severely restricts how the duo advertises any other product or service and requires them to turn over nearly all their assets.
The business practices of U.S. Fidelis, which operated as National Auto Warranty Services and Dealer Services until its bankruptcy last spring, have been widely reported. More than 400,000 consumers nationwide paid the Wentzville, Mo., company thousands for overpriced service contracts that were sold through illegal and deceptive means. Its founders, Missouri brothers Darain and Cory Atkinson, are accused of plundering $101 million in corporate assets for their own personal gain.
“U.S. Fidelis suckered consumers through a multitude of lies while its owners, the Atkinsons, drained money out of the company to maintain a lavish lifestyle,” Attorney General Rob McKenna said. “This settlement helps ensure they won’t harm Washington consumers again.”
Attorneys general sued the defunct company and the Atkinsons shortly after March 2010. Assistant Attorney General Mary Lobdell, with the Washington Attorney General’s Consumer Protection Division, led the investigation.
The states accused the defendants of a variety of illegal actions 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.
“Only a vehicle manufacturer can provide an extended warranty,” Lobdell said. “U.S. Fidelis hooked consumers by using a multitude of lies, including describing expensive service contracts as ‘extended warranties’ provided on behalf of specific manufacturers.”
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.
Washington filed its version of the settlement today in Thurston County Superior Court. The Atkinsons denied any wrongdoing but agreed to surrender at least 90 percent of their assets pursuant to a related bankruptcy agreement, including assets from 20 related corporations. The settlement also requires the Atkinsons to comply with a lengthy list of restrictions on future business and marketing practices. Specifically, they are prohibited from:
- Telemarketing in any of the participating states.
- 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 settlement 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 Atkinsons each owe Washington more than $4.6 million in civil penalties, as well as about $300,000 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 participated in the settlement: Arkansas, Idaho, Iowa, Kansas, North Carolina, Ohio, Oregon, Pennsylvania, Texas, Washington and Wisconsin.
U.S. Fidelis was the nation's No. 1 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 approved 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 3 million illegal calls to cell phone 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.
Federal investigators continue probing whether U.S. Fidelis committed any criminal wrongdoing.
- 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.
- Under Washington law, the company that must pay for vehicle repairs must be registered with the state Office of the Insurance Commissioner. Consumers can check whether a company is registered online here and find additional information at http://www.insurance.wa.gov/consumers/Other/warranties.shtml. The marketing company that sold the contract is not necessarily the same business obligated to pay for repairs.
- You have the right to request a refund any time during the life of your contract. A registered provider must honor the request.
- If you cancel within 10 days of purchase and make no claims, you must receive a full refund.
- If you cancel after 10 days but before 30 days, you must receive a full refund minus a $25 cancellation fee.
- After 30 days, you’re entitled to a pro-rated refund. The amount refunded will depend on how long it took you to cancel the contract or mileage on the vehicle.
- Beware of any contract that comes with an additive or liquid that you must put in your engine. These are not service contracts, but a product warranty that covers only certain lubricated parts of your engine or transmission. You don’t have the same legal protections as a service contract. In fact, you have no right to a refund with most product-based contracts if you put the product in your engine or request a refund more than 30 days after purchase.
- If a registered service contract provider refuses to honor your refund request, file a complaint with the Office of the Insurance Commissioner online at http://www.insurance.wa.gov/consumers/Complaints.shtml. If the company required to cover the repairs isn’t registered, file a complaint with the state Attorney General’s Office at http://atg.wa.gov/FileAComplaint.aspx.
- Consumers with insurance questions, complaints or problems can call the Office of the Insurance Commissioner at 1-800-562-6900 or e-mail AskMike@oic.wa.gov. The Attorney General's Office Consumer Resource Center can be reached at 1-800-551-4636 between 10 a.m. and 3 p.m. weekdays.
State of Washington v. U.S. Fidelis complaint
Consent Decree - Cory Atkinson
Consent Decree - Darain Atkinson
Consumers may submit a claim in the bankruptcy case. Download and complete this form and mail to:
United States Bankruptcy Court
Eastern District of Missouri
Thomas F. Eagleton US Courthouse
111 S. 10th Street, 4th Floor
St. Louis, MO 63102
Note: The Attorney General's Office cannot advise individuals on how to fill out the bankruptcy claim form.
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