States settle with bankrupt U.S. Fidelis

Keith Loria Nov. 9, 2010, 2:40pm


DES MOINES, Iowa (Legal Newsline) - Iowa Attorney General Tom Miller announced on Monday that he and 10 other state attorneys general have obtained judgments against an auto service contract company that allegedly engaged in consumer fraud.

Cory Atkinson and Darain Atkinson, who founded and owned the Missouri-based U.S. Fidelis, operating under the business names National Auto Warranty Services and Dealer Services, were allegedly paid thousands of dollars by consumers for overpriced service contracts that were sold through illegal and deceptive means.

The two men allegedly plundered $101 million in corporate assets for their own personal gain.

"This is a case where many consumers tried to take advantage of U.S. Fidelis offers supposedly to extend the warranty on their vehicles," Miller said. "Instead, U.S. Fidelis took advantage of many consumers."

The states alleged that through deceptive junk mail, illegal telemarketing robocalls and misleading TV ads, the solicitations made by the company misled consumers to believe their auto warranties had expired or would expire soon.

The calls allegedly misrepresented that they were representing a manufacturer or entity affiliated with their vehicle warranty.

Complaints came in from confused consumers that they thought they were purchasing a warranty providing "bumper to bumper" coverage of all major repairs, but instead learned the contracts were full of exemptions.

The states also alleged that the defendants violated Do-Not-Call laws and used technology to bypass caller ID to hide the origin of sales calls. The company also allegedly refused to give consumers an opportunity to review the complete written service contracts, denied valid refund requests, improperly obtained consumers' personal information and violated numerous state licensing and registration laws.

U.S. Fidelis was the nation's number one extended-warranty dealer for autos before its collapse and filing of bankruptcy in March.

Under terms of the judgment, the men and their companies are barred from ever selling auto service contracts or engaging in telemarketing in Iowa and the other 10 states.

In addition, the judgment severely restricts how the Atkinson brothers may advertise other products or services.

The agreement calls for the Atkinson brothers to include 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 and consumers.

Darain Atkinson 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 judgments impose civil penalties of $2.86 million on each of the individual defendants, plus an additional $20,000 each for costs associated with the litigation.

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

In October, 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 Atkinson'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.

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