American Debt Settlement Solutions, Inc.,and Michael DiPanni
Documents in this case
Case summary
CFPB filed a complaint in a federal district court against a Florida debt-relief company that misled consumers across the country and charged illegal fees for their services.
Complaint ()
PDF of this document (17 pages)
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United States District Court Southern District of Florida
Case No. _________-Civ-_________-_________
Consumer Financial Protection Bureau,
Plaintiff,
v.
American Debt Settlement Solutions, Inc., a Florida corporation, and Michael DiPanni, owner of American Debt Settlement Solutions, Inc.,
Defendants.
Complaint
The Consumer Financial Protection Bureau (the “Bureau”) alleges the following against American Debt Settlement Solutions, Inc. (“ADSS”) and Michael DiPanni (“DiPanni”) (together, “Defendants”):
Introduction 1.
The Bureau brings this action under sections 1031(a), 1036(a), 1054(a), 1055, and 1061 of the Consumer Financial Protection Act of 2010 (CFPA), 12 U.S.C. §§ 5531(a), 5536(a), 5564(a), 5581, and under the Telemarketing and Consumer Fraud and Abuse Prevention Act, 15 U.S.C. §§ 6102(c)(2), 6105(d), based on Defendants’ violations of the Telemarketing Sales Rule (TSR), 16 C.F.R. pt. 310, in connection Case 9:13-cv-80548-DMM Document 1 Entered on FLSD Docket 05/30/2013 Page 1 of 17
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with the marketing and sale of debt-relief services, and Defendants’ violations of sections 1031(a) and 1036(a)(1) of the CFPA, which prohibit unfair, deceptive, and abusive acts or practices. Specifically, the Bureau brings this action against Defendants based on their violations of 16 C.F.R. § 310.3(a)(1), 310.3(a)(2), and 310.4(a)(5) and 12 U.S.C. §§ 5531(a) and 5536(a)(1).
Jurisdiction and Venue 2.
This Court has subject-matter jurisdiction over this action because it is brought under Federal consumer financial law, 12 U.S.C. § 5565(a)(1), presents a federal question, 28 U.S.C. § 1331, and is brought by an agency of the United States, 28 U.S.C. § 1345.
3.
Venue is proper in this district because ADSS is located, resides, and does business here, and because DiPanni resides and does business here. 28 U.S.C. §1391(b); 12 U.S.C. § 5564(f).
Plaintiff
4.
The Bureau is an independent agency of the United States charged with regulating the offering and provision of consumer financial products or services under Federal consumer financial laws. 12 U.S.C. § 5491(a). It has independent litigating authority, 12 U.S.C. § 5564(a)-(b), including the authority to enforce the TSR as it applies to persons subject to the CFPA, 15 U.S.C. §§ 6102(c)(2), 6105(d); 12 U.S.C. Case 9:13-cv-80548-DMM Document 1 Entered on FLSD Docket 05/30/2013 Page 2 of 17
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§ 5531(a).
Defendants 5.
ADSS is a Florida for-profit corporation that is located, resides, and does business in this district at 7601 N. Federal Hwy., #2108, Boca Raton, Florida 33487. At all times material to this Complaint, ADSS has provided and offered a consumer financial product or service that is covered by the CFPA. 12 U.S.C. § 5481(5), (15)(A)(viii)(II). Accordingly, ADSS is a “covered person” under the CFPA. 12 U.S.C. § 5481(6). At all times material to this Complaint, ADSS has transacted business in the Southern District of Florida.
6.
DiPanni is ADSS’s owner and at all times material to this Complaint is, or has been, charged with managerial responsibility for ADSS. He has approved, ratified, endorsed, directed, controlled, and otherwise materially participated in the conduct of ADSS’s affairs. Given his status as an officer or managerial employee, DiPanni is a “related person” under the CFPA. 12 U.S.C. § 5481(25). Because of his status as a related person, DiPanni is deemed a “covered person” for purposes of the CFPA. Id. At all times material to this Complaint, DiPanni has transacted business in the Southern District of Florida.
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ADSS’s Debt-Relief Services 7.
ADSS began doing business in late 2008. Since then, it has sold or offered to sell debt-relief services to consumers. 8.
In exchange for a fee, ADSS has promised to renegotiate, settle, reduce, or otherwise alter the terms of at least one debt between consumers and one or more unsecured creditors or debt collectors pursuant to a settlement agreement, debtmanagement plan, or other contractual agreement executed by a consumer. 9.
ADSS has marketed its debt-relief services via the Internet at http://www.americandebtss.com and received telephone calls from consumers in response to its Internet marketing efforts.
10.
As part of the consumer-enrollment process, ADSS has required that consumers complete detailed worksheets describing their monthly income (including income sources), expenditures, and debts. ADSS has then reviewed these worksheets with consumers before they enter into any debt-relief program. 11.
ADSS has enrolled consumers in debt-relief programs varying in length from 24 to 48 months by entering into contracts with them. 12.
Under the terms of ADSS’s contracts with consumers, consumers have paid ADSS an “enrollment” fee in an amount calculated as a percentage – typically 15 percent – of the amount of the consumers’ enrolled debts. Since its inception, ADSS has collected the balance of this “enrollment” fee in the first three to six months of a consumer’s enrollment.
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13.
Under the terms of ADSS’s contracts with consumers, consumers also pay ADSS a “service” fee that is assessed on a monthly basis for the duration of the debt-relief program. This monthly service fee is typically $99, of which a portion is applied to pay a payment processor.
14.
At all times material to this Complaint, ADSS’s practice has been to request or receive enrollment fees, processing fees, debt-relief service fees, or other types of fees in advance of settling at least one of a consumer’s debts. 15.
ADSS entered into a contract with a payment processor to receive services for the management, processing, and administration of payments. Under this contract, the payment processor has managed the savings account (“Dedicated Account”) of each consumer who is enrolled in an ADSS debt-relief program. Since its inception, ADSS has required and relied on assistance from the payment processor to collect and disburse monies through the consumer’s Dedicated Accounts. 16.
Upon enrollment in an ADSS debt-relief program, ADSS has directed consumers to stop paying their creditors. ADSS has directed consumers instead to sign up for a Dedicated Account with the payment processor and to make monthly payments by ACH transfer into that account.
17.
ADSS has represented to consumers that, when a consumer’s Dedicated Account reaches a sufficient balance, ADSS would instruct the payment processor to transmit funds to the consumer’s creditors to help satisfy the consumer’s debts. Case 9:13-cv-80548-DMM Document 1 Entered on FLSD Docket 05/30/2013 Page 5 of 17
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18.
At all times material to this Complaint, ADSS has directed the payment processor to disburse payments to and from consumers’ Dedicated Accounts. 19.
At all times material to this Complaint, ADSS has provided to the payment processor a copy of each contract that it entered into with consumers for its debt-relief program.
20.
At ADSS’s direction, the payment processor has: (1) withdrawn funds from the consumer’s bank account through ACH transfer and deposited them into the Dedicated Account, and (2) transmitted funds from the Dedicated Account to itself and to ADSS for the payment of processing and servicing fees, including the fee ADSS has charged consumers for its debt-relief services. The payment processor has managed the routine transfer of consumers’ funds out of consumers’ accounts to pay ADSS’s debt-relief fees before making any payments to creditors. ADSS and the payment processor have also communicated directly about ADSS’s fee structure. 21.
When consumers have closed their Dedicated Accounts, the payment processor has typically refunded to consumers any money remaining in their Dedicated Accounts. Consumers typically have not received any refunds of fees paid to ADSS or the payment processor.
22.
At all times material to this Complaint, ADSS has represented to all consumers that it will renegotiate, settle, reduce, or otherwise alter the terms of debts that consumers enroll in its program. For example, ADSS’s form contract with consumers makes the following representations:
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a. “Eliminate your unsecured debt sooner than you ever thought possible.”
b. “Reduce your current monthly expense on debt service.” c. “[B]e off the debt treadmill and on the road to recovery.” 23.
Since its inception, ADSS has failed to renegotiate, settle, reduce, or otherwise alter the terms of a single debt for approximately 89 percent of the consumers who enrolled in its debt-relief programs. 24.
In the welcome package provided to all consumers, ADSS has provided a list of “frequently asked questions,” including, “How long does it take for my first settlement?” In response, ADSS has stated: “the first settlement could be in 90 days, or as much as six months.”
25.
Since its inception, ADSS has only rarely renegotiated, settled, reduced, or otherwise altered the terms of debts for consumers within three to six months of their enrollment.
26.
Since its inception, ADSS has known that it was nearly impossible for ADSS to renegotiate, settle, reduce, or otherwise alter the terms of debts under $700. Nonetheless, it has been ADSS’s practice to enroll consumers in its program with debts under $700 without disclosing this limitation. 27.
Since its inception, it has also been ADSS’s practice to enroll consumers in its program even when ADSS knows that the consumers’ incomes are inadequate to complete the debt-relief programs in which they are enrolled. Case 9:13-cv-80548-DMM Document 1 Entered on FLSD Docket 05/30/2013 Page 7 of 17
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28.
Since ADSS’s inception, consumers have deposited more than $9.9 million into their Dedicated Accounts, and ADSS has directed the payment processor to make payments totaling less than $2 million to creditors in settlement of their debts. Most consumers have paid fees to ADSS but closed their Dedicated Accounts before their creditors received any payments in settlement of the consumers’ debts. 29.
With respect to Dedicated Accounts that were established on or after October 27, 2010, the effective date of the TSR, and from which no creditors received payments for settlements achieved through ADSS’s debt-relief program, ADSS collected fees totaling approximately $43,665.95. 30.
ADSS has collected fees on or after July 21, 2011, the effective date of 12 U.S.C. § 5536(a)(1), from consumers who, according to the information they provided to ADSS, had inadequate income to complete the debt-relief program in which they were enrolled.
DiPanni’s Role as Owner of ADSS 31.
DiPanni is ADSS’s owner. As owner, DiPanni has managed ADSS’s dayto-day operations, including ADSS’s Internet marketing of debt-relief services, ADSS’s interactions with consumers who signed up for those services, and ADSS’s request and receipt of fees for the services. He also has engaged directly in debt-relief sales and customer-support functions on ADSS’s behalf. Case 9:13-cv-80548-DMM Document 1 Entered on FLSD Docket 05/30/2013 Page 8 of 17
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32.
DiPanni designed and implemented the front-loaded debt-relief service fee structure through which ADSS charged advance fees. 33.
DiPanni selected and hired the payment processor on ADSS’s behalf. 34.
Since ADSS’s inception, DiPanni has known or should have known that ADSS represented that it could likely renegotiate, settle, reduce, or otherwise alter the terms of the debts of consumers enrolled in its debt-relief program. DiPanni also has known or should have known that ADSS represented to consumers that it could renegotiate, settle, reduce, or otherwise alter the terms of at least one debt within three to six months of enrollment. DiPanni also has known or should have known that ADSS enrolled consumers in its program who had debts under $700. Finally, DiPanni has known or should have known that ADSS enrolled consumers with inadequate income to complete a debt-relief program. In addition, DiPanni had authority to control these actions by ADSS.
Count One (ADSS’s Violations of the TSR and the CFPA – Advance Fees)
35.
The allegations in paragraphs 1-34 are incorporated here by reference. 36.
In the course of telemarketing debt-relief services from approximately October 27, 2010 to present, ADSS requested or received fees from consumers for debt-relief services before renegotiating, settling, reducing, or otherwise altering the terms of at least one of such consumers’ debts. ADSS requested or received payment Case 9:13-cv-80548-DMM Document 1 Entered on FLSD Docket 05/30/2013 Page 9 of 17
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of these fees prior to consumers’ making at least one payment pursuant to any settlement agreement, debt-management plan, or other valid contractual agreement between consumers and their creditors.
37.
Therefore, ADSS’s acts or practices violate the TSR, 16 C.F.R. § 310.4(a)(5)(i), and are unlawful acts or practices in telemarketing. Because ADSS is a “covered person,” its conduct is unlawful under sections 1031(a) and 1036(a)(1) of the CFPA, 12 U.S.C. §§ 5531(a), 5536(a)(1).
Count Two (ADSS’s Violations of the TSR and the CFPA - Deception)
38.
The allegations in paragraphs 1-34 are incorporated here by reference. 39.
Section 310.3(a)(1)(ii) of the TSR prohibits a seller or telemarketer from failing to truthfully disclose all material restrictions, limitations, or conditions to purchase, receive, or use the goods or services that are the subject of the sales offer before a customer consents to pay for goods or services offered. 40.
In connection with the advertising, marketing, promoting, offering for sale, or sale of debt-relief services, in numerous instances, ADSS has represented, directly or indirectly, expressly or by implication, that it likely will renegotiate, settle, reduce, or otherwise alter the terms of consumers’ debts. Case 9:13-cv-80548-DMM Document 1 Entered on FLSD Docket 05/30/2013 Page 10 of 17
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41.
In truth, ADSS failed to disclose the material restriction, limitation, or condition that it is nearly impossible for ADSS to renegotiate, settle, reduce, or otherwise alter the terms of debts under $700. 42.
Therefore, ADSS’s practices violate the TSR, 16 C.F.R. § 310.3(a)(1)(ii), and are deceptive acts or practices in telemarketing. Because ADSS is a “covered person,” its conduct is unlawful under sections 1031(a) and 1036(a)(1) of the CFPA, 12 U.S.C. §§ 5531(a), 5536(a)(1).
Count Three (ADSS’s Violations of the TSR and the CFPA - Deception)
43.
The allegations in paragraphs 1-34 are incorporated here by reference. 44.
Section 310.3(a)(2)(ii) of the TSR prohibits a seller or telemarketer from misrepresenting any material restriction, limitation, or condition to purchase, receive, or use goods or services that are the subject of a sales offer. 45.
Section 310.3(a)(2)(x) of the TSR prohibits a seller or telemarketer of a debt-relief service from misrepresenting any material aspect of any debt-relief service, including, but not limited to, the amount of time necessary to achieve the represented results.
46.
In numerous instances, in connection with the advertising, marketing, promoting, offering for sale, or sale of debt-relief services, ADSS has represented, directly or indirectly, expressly or by implication, that it will likely renegotiate, settle, Case 9:13-cv-80548-DMM Document 1 Entered on FLSD Docket 05/30/2013 Page 11 of 17
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reduce, or otherwise alter the terms of consumers’ debts within the first three to six months after consumers enroll in a debt-relief program with ADSS. 47.
In truth, ADSS is not likely to renegotiate, settle, reduce, or otherwise alter the terms of debts within the first three to six months after consumers enroll in a debt-relief program with ADSS.
48.
Therefore, ADSS’s representations as described in paragraph 46 violate the TSR, 16 C.F.R. § 310.3(a)(2)(ii), (x), and are deceptive acts or practices in telemarketing. Because ADSS is a “covered person,” its conduct is unlawful under sections 1031(a) and 1036(a)(1) of the CFPA, 12 U.S.C. §§ 5531(a), 5536(a)(1).
Count Four (ADSS’s Violations of the TSR and the CFPA – Deception)
49.
The allegations in paragraphs 1-34 are incorporated here by reference. 50.
Section 310.3(a)(2)(iii) of the TSR prohibits a seller or telemarketer from misrepresenting any material aspect of the performance, efficacy, nature, or central characteristics of goods or services that are the subject of a sales offer. 51.
Section 310.3(a)(2)(x) of the TSR prohibits a seller or telemarketer of a debt-relief service from misrepresenting any material aspect of any debt-relief service. 52.
In numerous instances, in connection with the advertising, marketing, promoting, offering for sale, or sale of debt-relief services, ADSS has represented, directly or indirectly, expressly or by implication, that it likely will renegotiate, settle, Case 9:13-cv-80548-DMM Document 1 Entered on FLSD Docket 05/30/2013 Page 12 of 17
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reduce, or otherwise alter the terms of debts for consumers who enroll in its debtrelief programs.
53.
In truth, ADSS is not likely to renegotiate, settle, reduce, or otherwise alter the terms of debts for consumers who enroll in its debt-relief programs. 54.
Therefore, ADSS’s representations as described in paragraph 52 violate the TSR, 16 C.F.R. § 310.3(a)(2)(iii), (x), and are deceptive acts or practices in telemarketing. Because ADSS is a “covered person,” its conduct is unlawful under sections 1031(a) and 1036(a)(1) of the CFPA, 12 U.S.C. §§ 5531(a), 5536(a)(1).
Count Five (ADSS’s Violations of the CFPA – Abusiveness)
55.
The allegations in paragraphs 1-34 are incorporated here by reference. 56.
Section 1036(a)(1)(B) of the CFPA prohibits “unfair, deceptive, or abusive acts or practices.” 12 U.S.C. § 5536(a)(1)(B). An act or practice is abusive if it “takes unreasonable advantage of . . . (A) a lack of understanding on the part of the consumer of the material risks, costs, or conditions of the product or service; (B) the inability of the consumer to protect the interests of the consumer in selecting or using a consumer financial product or service; or (C) the reasonable reliance by the consumer on a covered person to act in the interests of the consumer.” 12 U.S.C. § 5531(d)(2).
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57.
In numerous instances, in connection with the advertising, marketing, promoting, offering for sale, or sale of debt-relief services, ADSS has enrolled in its debt-relief programs consumers whose financial conditions make it highly unlikely that they can complete the programs.
58.
ADSS knows that the financial conditions of these consumers make it highly unlikely that they will complete the debt-relief program in which ADSS enrolls them, especially given ADSS’s knowledge that ADSS is unlikely to settle their debts within the first three to six months of enrollment. Before enrolling consumers in its debt-relief programs, ADSS has secured from consumers a detailed worksheet describing their monthly income (including income sources), expenses, and debts. Using this information, ADSS can determine whether a consumer is able to afford the monthly payments required by the debt-relief program. 59.
Despite receiving financial information showing that some consumers could not afford the monthly payments under the debt-relief program in which they were enrolled, ADSS nonetheless collects “enrollment” fees from these consumers in the first three to six months of their enrollment. This practice causes certain consumers to spend their last savings paying ADSS fees for a service from which they will not benefit.
60.
Instead of negotiating any debts with creditors during the first three to six months of a consumer’s enrollment – as it represents to consumers that it will – ADSS collects its “enrollment” fees during this period. As a result, consumers with Case 9:13-cv-80548-DMM Document 1 Entered on FLSD Docket 05/30/2013 Page 14 of 17
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inadequate income to complete the program drop out after paying significant fees and without receiving any benefit.
61.
This practice takes unreasonable advantage of consumers’ lack of understanding of how long it will take ADSS to settle their debts and therefore how much money they will spend before realizing any benefits from enrolling in ADSS’s debt-relief program.
62.
Consumers also reasonably rely on ADSS to act in their interest by enrolling them in a debt-relief program that they can be reasonably expected to complete, and which will therefore result in the negotiation, settlement, reduction, or alteration of the terms of their debts. Consumers also reasonably rely on ADSS to act in their interest by settling their debts as soon as possible and, in particular, within three to six months of enrollment as represented by ADSS. 63.
Therefore, ADSS’s acts or practices violate sections 1031(a) and 1036(a)(1)(B) of the CFPA, 12 U.S.C. §§ 5531(a), 5536(a)(1)(B), and are abusive.
Count Six (DiPanni’s Violations of the TSR and the CFPA)
64.
The allegations in paragraphs 1-34 are incorporated here by reference. 65.
DiPanni is a “related person” and a “covered person,” 12 U.S.C. § 5481(25), who is liable for violations of sections 310.3 and 310.4 of the TSR, 16 Case 9:13-cv-80548-DMM Document 1 Entered on FLSD Docket 05/30/2013 Page 15 of 17
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C.F.R. § 310.3, 310.4, and sections 1031(a) and 1036(a)(1) of the CFPA, 12 U.S.C. §§ 5531(a), 5536(a)(1).
Demand for Relief
Wherefore, the Bureau requests that the Court: 1.
permanently enjoin Defendants from advertising, marketing, promoting, offering for sale, or selling any debt-relief product or service; 2.
permanently enjoin Defendants from assisting others engaged in advertising, marketing, promoting, offering for sale, or selling any debt-relief product or service;
3.
permanently enjoin Defendants from committing future violations of the CFPA, 12 U.S.C. §§ 5531, 5536, and the TSR, 16 C.F.R. pt. 310; 4.
award restitution against Defendants in the amount of all unlawfully collected fees;
5.
order disgorgement of ill-gotten profits against Defendants; 6.
award civil money penalties against Defendants; 7.
award attorneys’ fees and costs against Defendants; and 8.
award additional relief as the Court may determine to be just and proper.
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Respectfully submitted,
Kent Markus Enforcement Director
Anthony Alexis Deputy Enforcement Director for Field Litigation
Jeffrey Paul Ehrlich Assistant Litigation Deputy for Field Litigation
s/ Meredith B. Osborn Meredith B. Osborn J.H. Jennifer Lee Enforcement Attorneys Consumer Financial Protection Bureau 1700 G Street, NW Washington, DC 20552 Telephone: 202-435-7159 Facsimile: 202-435-7722 e-mail: [email protected]
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Judgment ()
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UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF FLORIDA Cast No. 9:13-cv-80548-DM M CONSUM ER FINAN CIAL PROTECTION BUREAU, Plaintiff, VS.
AM ERICAN DEBT SETTLEM EN T SOLUTION S, INC. and M ICHAEL DIPAN NI, Defendants.
/ STIPULATED FINAL JUDGM ENT AND ORDER THIS CAU SE comes before the Court upon the Parties' A greed M otion Requesting Entry of the Stipulated Final Judgment and Order (DE 3), filed May 30, 2013. l have reviewed the M otion and the Record in this case, and I nm otherwise fully advised in the prem ises. The Consumer Financial Protection Bureau (the tlBureau''l commenced this civil action on May 30, 2013, to obtain injtmctive relief-, civil money penalties; restitution; the disgorgement of ill-gotten monies; attorneys' fees and costs; and other relief from Am erican Debt Settlem ent Solutions, Inc. (ISADSS'') and Michael Dipnnni (ç$DiPanni'') (collectively, dsDefendants'') for alleged conduct in violation of the Telemarketing Sales Rule ($ûTSR''), 16 C.F.R. pt. 310, and the Consumer Financial Protection Act of 2010 (1çCFPA''), 12 U.S.C. j 5481 ef seq. The parties, by and tk ough respective counsel, agree to the entry of this Stipulated Final Judgment and Order ($ûOrder''). Defendants have waived service of the Summons and Complaint. Accordingly, it is hereby ORDERED, ADJUDGED, and DECREED as follows; Case 9:13-cv-80548-DMM Document 5 Entered on FLSD Docket 06/07/2013 Page 1 of 17
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FINDINGS OF FACT
ADSS’s Debt-Relief Services
1, ADSS is a Florida for-profit corporation that is located, resides, and does business in this district at 7601 N. Federal Hwy., # 2108, Boca Raton, Florida 33487.
2. ADSS began doing business in late 2008. Since then, it has sold or offered to sell debt-relief services to consumers.
3. In exchange for a fee, ADSS has promised to renegotiate, settle, reduce, or otherwise alter the terms of at least one debt between consumers and one or more of their unsecured creditors or debt collectors pursuant to a settlement agreement, debt-management plan, or other contractual agreement executed by a consumer.
4, ADSS has marketed its debt-relief services via the Internet at
http://www.americandebtss.com and received telephone calls from consumers in response to its
Internet marketing efforts.
5. As part of the consumer-enrollment process, ADSS has required that consumers complete detailed worksheets describing their monthly income (including income sources), expenditures, and debts. ADSS has then reviewed these worksheets with consumers before they enter into any debt-relief program.
6. ADSS has enrolled consumers in debt-relief programs varying in length from 24 to 48 months by entering into contracts with them.
7. Under the terms of ADSS’s contracts with consumers, consumers have paid ADSS an “enrollment” fee in an amount calculated as a percentage—typically 15 percent—of the amount of the consumers’ enrolled debts. Since its inception, ADSS has collected the
majority of this “enrollment” fee in the first three to six months of a consumer’s enrollment.
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8. Under the terms of ADSS’s contracts with consumers, consumers also pay ADSS a “service” fee that is assessed on a monthly basis for the duration of the debt-relief program. This monthly service fee is typically between $49 and $99,
9. ADSS’s practice has been to request or receive fees in advance of settling at least one of a consumer’s debts.
10. ADSS entered into a contract with a dedicated-account provider (“Provider”) for the management, processing, and administration of payments. Under this contract, the Provider has managed the dedicated account of each consumer who enrolled in an ADSS debt-relief program. Since its inception, ADSS has required and relied on assistance from the Provider to collect and disburse monies through the consumer’s dedicated accounts.
11. | Upon enrollment in an ADSS debt-relief program, ADSS has directed consumers to sign up for a dedicated account with the Provider and to make monthly payments by ACH transfer into that account.
12. With the consent of each enrolled consumer and when the consumer’s account had a sufficient balance, ADSS would instruct the Provider to transmit funds to a consumer’s creditors to help satisfy the consumer’s debts.
13. Since its inception and pursuant to its contracts with consumers, ADSS has directed the Provider to disburse payment amounts to and from consumers’ dedicated accounts.
14. Since its inception, ADSS has furnished the Provider with a copy of each contract that it entered into with consumers for its debt-relief program.
15, The Provider has: (1) withdrawn funds from the consumer’s bank account through ACH transfer and has deposited them into the dedicated account, and (2) transmitted funds from
the dedicated account to itself and to ADSS to cover processing and servicing fees, including the
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fee ADSS has charged the consumer for its debt-relief services. The Provider has managed the routine transfer of consumers’ funds out of consumers’ accounts to pay ADSS’s debt-relief fees before any payments go to any creditors. ADSS and the Provider have also communicated directly about ADSS’s fee structure.
16. | When consumers have closed their dedicated accounts, the Provider has typically refunded to consumers any money remaining in their dedicated accounts. Consumers typically have not received any refund of money paid in fees.
17. Since its inception, ADSS has represented to all consumers that it will renegotiate, settle, reduce, or otherwise alter the terms of debts that consumers enroll in its program. For example, ADSS’s form contract with consumers makes the following representations:
a. “Eliminate your unsecured debt sooner than you ever thought possible.” b. “Reduce your current monthly expense on debt service.” c. “[B]e off the debt treadmill and on the road to recovery.”
18. Since its inception, ADSS has failed to renegotiate, settle, reduce, or otherwise alter the terms of a single debt for approximately 89 percent of the consumers who enrolled in its debt-relief programs.
19. In the welcome package provided to all consumers, ADSS has provided a list of “frequently asked questions,” including, “How long does it take for my first settlement?” In response, ADSS has stated: “the first settlement could be in 90 days, or as much as six months.”
20. Since its inception, ADSS has rarely renegotiated, settled, reduced, or otherwise altered the terms of debts for consumers within six months of their enrollment.
21. Since its inception, ADSS has had reason to know that it was nearly impossible
for ADSS to renegotiate, settle, reduce, or otherwise alter the terms of debts under $700.
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Nonetheless, it has been ADSS’s practice to enroll consumers with debts under $700 in its program without disclosing this limitation.
22. Since its inception, it has also been ADSS’s practice to enroll consumers in its program even when ADSS has known that the consumers’ incomes are inadequate to complete the debt-relief programs in which they are enrolled.
23. Since ADSS’s inception, consumers have deposited more than $9.9 million into their dedicated accounts, and ADSS has directed the Provider to make payments totaling less than $2 million to creditors in settlement of the consumers’ debts. Most consumers have paid fees to ADSS but closed their dedicated accounts before their creditors received any payments in settlement of the consumers’ debts.
24. With respect to dedicated accounts that were established on or after October 27, 2010, the effective date of the TSR, and from which no creditors received payments through ADSS’s debt-relief program, ADSS collected fees totaling $43,665.95.
25. ADSS has collected fees on or after July 21, 2011, the effective date of 12 U.S.C. § 5536(a)(1), from consumers who, according to the information they provided to ADSS, had inadequate income to complete the debt-relief program in which they were enrolled.
DiPanni’s Role as Owner of ADSS
26. DiPanni is ADSS’s owner. As owner, DiPanni has managed ADSS’s day-to-day operations, including ADSS’s Internet marketing of debt-relief services, ADSS’s interactions with consumers who signed up for those services, and ADSS’s request and receipt of fees for the services. He also has engaged directly in debt-relief sales and customer-support functions on
ADSS’s behalf.
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27. DiPanni designed and implemented the debt-relief service fee structure through which ADSS charged fees in advance of settlement of at least one of a consumer’s debts.
28. DiPanni selected and hired the Provider on ADSS’s behalf.
29. Since ADSS’s inception, DiPanni has known or should have known that ADSS represented that it could likely renegotiate, settle, reduce, or otherwise alter the terms of the debts of consumers enrolled in its debt-relief program; that ADSS represented to consumers that it could renegotiate, settle, reduce, or otherwise alter the terms of at least one debt within three to six months of enrollment; that ADSS enrolled consumers in its program who had debts under $700; and that ADSS enrolled consumers with inadequate income to complete a debt-relief
program. In addition, DiPanni had authority to control these actions by ADSS.
CONCLUSIONS OF LAW
1, The Bureau has commenced this action under sections 1031(a), 1036(a)(1), 1054(a), and 1061 of the CFPA, 12 U.S.C. §§ 5531(a), 5536(a)(1), 5564(a), 5581, and under the Telemarketing and Consumer Fraud and Abuse Prevention Act, 15 U.S.C. §§ 6102(c)(2), 6105(d).
2. The Bureau is authorized to seek the relief that it has requested under 12 U.S.C. § 5564(a) and (b), including the authority to enforce the TSR as it applies to persons covered by the CFPA, 15 U.S.C. §§ 6102(c)(2), 6105(d); 12 U.S.C. § 5531(a).
3. This Court has jurisdiction over the parties and subject-matter jurisdiction over the Bureau’s claims because they are brought under Federal consumer-financial law, 12 U.S.C. § 5565(a)(1), present a federal question, 28 U.S.C. § 1331, and are brought by an agency of the
United States, 28 U.S.C. § 1345.
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4.
ADSS provides and offers a consum er-financial product or service that is covered by the CFPA. 12 U.S.C. j 548 1(5)(A), (15)(A)(viii)(Il). ADSS is therefore a dçcovered person'' under the CFPA, 12 U.S.C. j 548146), and is subject to sections 1031(a) and 1036(a)(1) of the CFPA, 12 U.S.C. jj 5531(a), 5536(a)(1).
5.
Dipanni is ADSS'S owner and is charged with managerial responsibility for ADSS. He approves, ratifes, endorses, directs, controls, and otherwise materially participates in the conduct of ADSS'S affairs. Dipanni is a Sdrelated person'' and a Sçcovered person,'' 12 U.S.C. j 5481425), who is liable for violations of sections 310.3 and 310.4 of the TSR, 16 C.F.R. jj 310.3, 310.4, and sections 1031(a) and 1036(a)(1) of the CFPA, 12 U.S.C. jj 5531(a), 5536(a)(1).
6.
Venue is business here, and Dipanni resides and does business here. 28 U.S.C. j 1391(b); 12 U.S.C. j 556449.
proper in this district because ADSS is located, resides, and does Since its inception, ADSS has provided a debt-relief service to consllm ers and acted as a seller subject to the TSR.
8.
ADSS'S acts or practices violate the TSR, 16 C.F.R.j 310.4(a)(5)(i), because, from October 27, 2010 to February 28, 2013, ADSS charged fees in consideration for debt-relief services in advance of settling consumers' debts. These acts or practices violate sections 1031(a) and 1036(a)(1) of the CFPA, 12 U.S.C. jj 5531(a), 5536(a)(1). Dipanni is liable for violating sections 1031(a) and 1036(a)(1) of the CFPA, 12 U.S.C. jj 5531(a), 5536(a)(1). 9.
ADSS'S acts or practices are deceptive acts or practices in telemarketing that violate the TSR, 16 C.F.R. j 310.3(a)(1)(ii), because, from late 2008 to February 28, 2013, AD SS routinely failed to disclose the m aterial restriction, lim itation, or condition that it is nearly Case 9:13-cv-80548-DMM Document 5 Entered on FLSD Docket 06/07/2013 Page 7 of 17
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impossible for ADSS to renegotiate, settle, reduce, or otherwise alter the terms of debts under $700. These deceptive acts or practices violate sections 1031(a) and 1036(a)(1) of the CFPA, 12 US.C. §§ 5531(a), 5536(a)(1).
10. ADSS’s acts or practices are also deceptive acts or practices in telemarketing that violate the TSR, 16 C.F.R. § 310.3(a)(2)(ii), (x), because, from late 2008 to February 28, 2013, ADSS routinely represented, directly or indirectly, expressly or by implication, that it will likely renegotiate, settle, reduce, or otherwise alter the terms of consumers’ debts within the first three to six months after consumers enroll in a debt-relief program with ADSS although, in truth, ADSS is not likely to do so. These deceptive acts or practices violate sections 1031(a) and 1036(a)(1) of the CFPA, 12 U.S.C. §§ 5531(a), 5536(a)(1). DiPanni is liable for violating sections 1031(a) and 1036(a)(1) of the CFPA, 12 U.S.C. §§ 5531(a), 5536(a)(1).
11. ADSS’s acts or practices are deceptive acts or practices in telemarketing that violate the TSR, 16 C.F.R. § 310.3(a)(2)(iii), (x), because, from late 2008 to February 28, 2013, ADSS has represented directly or indirectly, expressly or by implication, that it will likely renegotiate, settle, reduce, or otherwise alter the terms of debts for consumers who enroll in its debt-relief programs when, in truth, ADSS is not likely to do so. These deceptive acts or practices violate sections 1031(a) and 1036(a)(1) of the CFPA, 12 U.S.C. §§ 5531(a), 5536(a)(1).
12. ADSS’s acts or practices are abusive acts or practices that violate the CFPA, 12 U.S.C. § 5536(a)(1)(B), because, from late 2008 to February 28, 2013, ADSS has knowingly enrolled in its debt-relief programs consumers whose financial conditions make it highly unlikely that they can complete the programs, and ADSS has nonetheless collected fees from consumers who had inadequate income to complete their debt-settlement programs. These abusive acts or
practices violate sections 1031(a) and 1036(a)(1)(B) of the CFPA, 12 U.S.C. §§ 5531(a),
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5536(a)(1)(B). Dipnnni is liable for violating sections 1031(a) and 1036(a)(1) of the CFPA, 12 U.S.C. jj 5531(a), 5536(a)(1).
13.
Defendants waive all rights to seek judicial or appellate review or otherwise challenge or contest the validity of this Order. Defendants also waive any claim that they may have held tmder the Equal Access to Justice Act, 28 U.S.C. j 2412, concerning the prosecution of this action to the date of this Order.
1.
IT IS HEREBY ORDERED that Defendants, whether acting directly or through any Ban on Debt-Relief Products and Services other person, are permanently restrained and enjoined from: a. Advertising, m arketing, prom oting, offering for sale, or selling any debt-relief product or service; and b. Assisting others engaged in advertising, m arketing, promoting, offering for sale, or selling any debt-relief product or service.
II.
Equitable Relief and Dam ages IT IS FURTHER ORDERED that a judgment for equitable monetary relief and damages is hereby entered in favor of the Bureau and against Defendants, jointly and severally, in the amount of four htmdred and ninety-nine thousand two hundred and forty-seven dollars and ninety-six cents ($499,247.96); provided, however, that full payment of this judgment shall be suspended upon satisfaction of the obligations set forth in Section llI of this Order, and subject to Section IV of this Order.
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Any funds received by the Bureau in satisfaction of this judgment shall be deposited into a fund or fnnds administered by the Bureau or its agent in accordance with applicable statutes and regulations to be used for redress for injured consumers, including, but not limited to, refund of moneys, restitution, dsmages, or other m onetary relief, and for any attendant expenses for the adm inistration of any such redress.
If the Bureau detexm ines, in its sole discretion, that providing redress to consum ers is wholly or partially impracticable or if funds remain after the adm inistxation of redress is completed, the Bureau may apply any remaining ftmds for such other equitable relief (including consumer information remedies) as determined to be reasonably related to the violations described in this Order. Any ftm ds not used for such equitable relief shall be deposited in the U.S. Treasury as disgorgement. Defendants shall have no right to challenge the Bureau's choice of rem edies under this Section, and shall have no right to contest the m anner of distribution chosen by the Bureau.
Redress provided by Defendants shall not limit consumers' rights in any way. 111.
Civil M oney Penalty IT IS FURTHER ORDERED that by reason of Defendants' practices alleged in the Com plaint from late 2008 to February 28, 2013, the appropriateness of the penalty with respect to Defendants' financial resources, Defendants' good-faith cooperation with the Bureau's investigation, the gravity of Defendants' conduct,the severity of the risks to and losses experienced by consllmers, the history of previous violations by Defendants, and such other matters as justice may require, judgment for a civil penalty is entered tmder section 1055(c) of the CFPA, 12 U.S.C. j 5565/), against Defendants and in favor of the Bureau in the amount of tm een thousand dollars ($15,000.00), which Defendants shall pay to the Bureau by wire transfer Case 9:13-cv-80548-DMM Document 5 Entered on FLSD Docket 06/07/2013 Page 10 of 17
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within ten (10) days of the Court's entry of this Order, pursuant to instmctions to be provided by a representativt of the Bm eau. Defendants shall not be obligated to m ake such paym ent until the Bureau provides com plete account instructions on where to pay such funds. The Bureau will dtposit those funds into the Civil Penalty Fund adm inistered by the Bureau under section 1017(d) of the CFPA, 12 U.S.C. j 54974*.
The civil penalty shall be treated as a penalty paid to the governm ent for al1 purposes, including a11 tax purposes. Regardless of how the Bureau ultimately uses those funds, Defendants shall not:
@ Seek or accept, directly or indirectly, reimbursem ent or indem nification from any source, including but not limited to payment m ade pursuant to any insurance policy, with regard to any civil penalty am ounts that Defendants pay pursuant to this Order, * Claim , assert, or apply for a tax deduction or tax credit with regard to any federal, state, or local tax for any penalty amounts that Defendants pay pursuant to this Order.
For purposes of this Section, a SçRelated Consumer Action'' means a private action, or enforcement action by another governmental entity, brought against Defendants based on substantially the same facts as alleged in the Complaint in this action. To preserve the deterrent effect of the civil penalty, in any Related Consumer Action Defendants shall not argue that they are entitled to, nor shall they benefit by, any offset or reduction of any monetary rem edies imposed in the Related Consum er Action by the amount of any part or a11 of Defendants' payment of a civil penalty in this action (çlpenalty Offsef'). Case 9:13-cv-80548-DMM Document 5 Entered on FLSD Docket 06/07/2013 Page 11 of 17
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If the court in any Related Conslzm er Action grants such a Penalty Offset, Defendants shall, within thirty (30) days after entry of a final ordtr granting the Penalty Offset, notify the Bm eau's cotmsel in this action and pay the am ount of the Penalty Offset to the United States Treasmy or to the Civil Penalty Fund, as the Bureau directs. Such a payment shall not be deem ed an additional civil penalty and shall not be deem ed to change the nm ount of the civil penalty imposed in this action.
ln the event of any default on Deftndants' obligations to m ake paym ent under this Order, interest, computed pursuant to 28 U.S.C. j 1961, as nmended, shall accrue on any outstanding nm ounts not paid from the date of default to the date of paym ent, and shall im mediately become due and payable.
Defendants shall relinquish a11 dom inion, control, and title to the ftmds paid to the fullest extent perm itted by law and no part of the funds shall be retum ed to Defendants. In accordance with 3 1 U.S.C. j 7701, Defendants, unless they already have done so, shall furnish to the Bureau their taxpayer identifying num bers, which shall be used for purposes of collecting and reporting on any delinquent nmotmts arising out of this Order. Within 30 days of the entry of a final judgment, consent order, or settlement in a Related Consumer Action, Defendants shall notify the Bureau of the final judgment, consent order, or settlem ent in writing. That notification shall indicate the nmount of redress, if any, that Defendant paid or is required to pay to consum ers and should describe the consum ers or classes of consum ers to whom that redress will be paid.
Pursuant to Section 604(a)(1) of the Fair Credit Reporting Act, 15 U.S.C. Case 9:13-cv-80548-DMM Document 5 Entered on FLSD Docket 06/07/2013 Page 12 of 17
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j 168lb(a)(1), any consumer reporting agency may furnish a consumer rtport conceming any Defendant to the Bm eau, which shall be used for pup oses of collecting and reporting on any delinquent nm ount arising out of this Order.
IV.
Right to Reopen IT IS FURTHER ORDERED that the Bm eau's agreem ent to, and the Court's approval of, this this (lrder is expressly premised on the truthfulness, accm acy, and com pleteness of Defendants' financial statements and any supporting docum ents subm itted to the Bureau on or about November 26, 2012, which Defendants assert are truthful, accurate, and complete. If, upon motion by the Bureau, the Court finds that either of the Defendants has failed to disclose any m aterial asset or that the financial statement of either Defendant contains any m aterial m isrepresentation or om ission, including m aterially misstating the value of any asset, then this Order shall be reopened and the Court shall terminate the suspension of the monetary judgment entered in Section II. The Court, without further adjudication, shall reinstate the judgment entered in Section 11 of this Order and the full nm ount of four hundred and ninety-nine thousand two hundred and forty-seven dollars and ninety-six cents ($499,247.96) will become immediately due and payable.
Provide4 however, that in al1 other respects this Order shall remain in full force and effect unless otherwise ordered by the Court; and, providedfurther, that moctedings instituted under this provision would be in addition to, and not in lieu of any other civil or criminal remedies as m ay be provided by law, including any other proceedings that the Bm eau may initiate to enforce this Order. For purposes of this Section, Defendants waive any right to contest any of the allegations in the Complaint.
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Upon any reinstatement of the monetary judgment pursuant to this Section, the Court shall make an express determination that the monetary judgment shall be immediately due and payable. The Bureau shall be entitled to interest on the judgment, computed from the date of entry of this Order, at the rate prescribed by 28 U.S.C. j 1961, as smended, on any outstanding amounts not paid. The Bureau shall be permitted to execute on the judgment immediately after the suspension is lifted and engage in discovery in aid of execution. V.
IT IS FURTHER ORDERED that Dtfendants shall, in connection with this action or any Cooperation with Bureau Counsel subsequent investigations related to or associated with the transactions or the occurrences that are the subject of the Complaint, cooperate in good faith with the Bureau and appear at such places and times as the Bureau shall reasonably request, after written notice, for interviews, conferences, pretrial discovery, review of documents, and for such other m atters as m ay be reasonably requested by the Bureau.
VI.
Compliance M onitoring IT IS FURTHER ORDERED that, for a period of two (2) years from the date of entry of this Order, ADSS agrees to be subject to the Bureau's supervisory authority under 12 U.S.C. j 5514.
VII. Com pliance Reporting IT IS FURTHER ORDERED that, for a period of two (2) years from the date of entry of this Order, the Defendants must submit a compliance notice, sworn under penalty of perjury, within fourteen (14) days of:
a. for ADSS, any change in: (i) any designated point of contact; (ii) the structure of ADSS that m ay affect com pliance obligations arising under this Order, including: Case 9:13-cv-80548-DMM Document 5 Entered on FLSD Docket 06/07/2013 Page 14 of 17
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creation, incorporation, or other organization; a dissolution, assignm ent, sale, m erger, or other action; or a change in the business nnme or address. b. for Dipnnni, any change in: (i) nnme, including aliases or fictitious nnmes, or residence address; or (ii) title or role in any business activity, including any business for which Dipanni performs services whether as an employee, ofûcer, or otherwise, and any entity in which Dipnnni has any ownership interest, and identify its nam e, physical address, and Internet address, if any.
Each Defendant m ust also subm it to the Bureau notice of the filing of any banknlptcy petition, insolvency proceeding, or any sim ilar proceeding by or against such Defendant within fourteen (14) days of its filing.
For purposes of this Order, Defendants shall, unless otherwise directed by the Bureau's authorized representatives, send by overnight delivery a1l reports and notifications required by this Order to the Bureau to the following address:
Assistant Director for Enforcem ent Consum er Financial Protection Bureau ATTENTION : Office of Enforcement 1700 G Street, N .W .
W ashington D .C. 20552 RE: Bureau v. AD SS, M atter No. 12-0001-02 In lieu of overnight courier, Defendants m ay send such reports or notifcations by firstclass mail, but only if Defendants contemporaneously send an electronic version of such report or notitkation to the Btlreau at [email protected]. VIII. Direct Com m unications IT IS FURTHER ORDERED that, for purposes of Section V of this Order, the Bureau is authorized to communicate directly with ADSS.
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IX.
Recordkeeping IT IS FURTHER ORDERED that, for a period of two (2) years from the date of entry of this Order, AD SS must maintain the following Records: accotmting records show ing the revenues from a1l goods or services sold, a1l costs incurred in generating those revenues, and the resulting net profit or loss; b. persormel records showing, for each person providing services, whether as an employee or otherwise, that person's: name, addresses, telephone numbers, job title or position, dates of service, and, if applicable, the reason for termination; c. custom er files containing the nsm es, addresses, phone numbers, dollar amounts paid, to the extent such information is obtained in the ordinary course of business; d. complaints and refund requests (whether received directly, indirectly, or through any third party) and any responses to those complaints or requests; copies of a11 sales scripts, training m aterials, advertisem ents, direct mail solicitations, contracts sent to consum ers, or other m arketing materials; and f. al1 records and docum ents necessary to demonstrate full compliance with each provision of this Order, including all subm issions to the Bureau. X.
Acknowledgement of Receipt of Order IT IS FURTHER ORDERED that Defendants, within ten (10) business days of receipt of this Order as entered by the Court, must submit to the Btlreau a truthful swom statem ent acknowledging receipt of this Order.
XI.
Retention of Jurisdiction IT IS FURTHER ORDERED that this Court shall retain jurisdiction of this matter for purposes of construction, m odification, and enforcement of this Order. Case 9:13-cv-80548-DMM Document 5 Entered on FLSD Docket 06/07/2013 Page 16 of 17
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DONE AND ORDERED in Chambers at West Palm Beach, Florida, this X day of June, 2013.
D M . M IDDLEBROOKS UNITED STATES DISTRICT JUDGE Copies to:
Counsel of Record Case 9:13-cv-80548-DMM Document 5 Entered on FLSD Docket 06/07/2013 Page 17 of 17