The Mortgage Law Group, LLP d/b/a The Law Firm of Macey, Aleman & Searns, Consumer First Legal Group LLC, Thomas G. Macey, Jeffrey J. Aleman, Jason Searns, and Harold E. Stafford
Documents in this case
- Complaint · · 21 p.
- Stipulation · · 12 p.
- Opinion · · 27 p.
- Opinion · · 29 p.
- Opinion · · 16 p.
- Dismissal · · 2 p.
- Dismissal · · 3 p.
- Settlement · · 4 p.
Case summary
On July 22, 2014, the Bureau filed a complaint against The Mortgage Law Group, LLP (TMLG), the Consumer First Legal Group, LLC (CFLG), and attorneys Thomas Macey, Jeffrey Aleman, Jason Searns, and Harold Stafford. The Bureau brought suit alleging that the defendants violated Regulation O, formerly known as the Mortgage Assistance Relief Services Rule, by taking payments from consumers for mortgage modifications before the consumers signed a mortgage modification agreement from their lender, by failing to make required disclosures, by directing consumers not to contact lenders, and by making deceptive statements to consumers when providing mortgage assistance relief services. A trial was held in April 2017. On June 21, 2017, the district court entered a stipulated judgment against the bankruptcy estate of TMLG, which sought Chapter 7 bankruptcy. The court enjoined TMLG from operating and ordered TMLG to pay $18,331,737 in redress and $20,815,000 in civil money penalties. On May 29, 2018, the Bureau filed an unopposed motion to increase the redress amount ordered by the court to $18,716,725.78, based on newly discovered information about additional advance fees paid by consumers. The amended stipulated judgment against TMLG increasing redress to $18,716,725.78 was issued by the court on November 15, 2018. On November 15, 2018, the court issued an opinion and order ruling that defendants CFLG, Macey, Aleman, Searns, and Stafford violated Regulation O by taking upfront fees and by failing to make required disclosures, and that some of the defendants also violated Regulation O by directing consumers not to contact their lenders and by making deceptive statements. The court directed that the parties submit briefs addressing what damages, injunctive relief, and civil money penalties, if any, should be awarded. On November 4, 2019, the court issued an opinion and order against defendants CFLG, Macey, Aleman, Searns, and Stafford, imposing a total of $21,709,022 in restitution ($18.7 million of which TMLG is also jointly and severally liable for) and $37,294,250 in civil money penalties. CFLG, Macey, Aleman, and Searns were permanently enjoined from marketing, selling, providing, or assisting others in selling or providing any mortgage-assistance-relief or debt-relief products or services. Stafford was enjoined from marketing, selling, providing, or assisting others in selling or providing mortgage-assistance-relief services for five years. CFLG, Macey, Aleman, Searns, and Stafford filed an appeal with the Seventh Circuit on December 4, 2019. On July 23, 2021, the Seventh Circuit affirmed the district court’s rulings that defendants violated Regulation O, vacated the remedial order, and remanded to the district court for further proceedings on remedies. On August 1, 2022, the district court awarded $10,854,510.85 in restitution and $18,410,500 in penalties against the defendants, and imposed an eight-year ban on all the defendants except Stafford, whose five-year ban remained in place, on mortgage-assistance relief services. On August 11, 2022, defendants filed a notice of appeal, and the Bureau filed a notice of cross-appeal on September 15, 2022. On February 5, 2024, the remaining defendants entered into a settlement under which the parties dismissed their respective appeals, and on February 7, 2024, the Seventh Circuit dismissed the appeals. The settlement requires defendants to pay $10.9 million in consumer redress and a $1.1 million penalty. The individual defendants remain subject to the bans from the mortgage assistance industry under the district court’s August 1, 2022 order.
Complaint ()
PDF of this document (21 pages)
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ANTHONY ALEXIS, DC Bar #384545 ORI LEV, DC Bar #452565 LAUREL LOOMIS RIMON, CA Bar #166148 NELLE ROHLICH, WI Bar #1047522 (Email: [email protected]) 1700 G Street, NW Washington, DC 20552 Phone: (202) 267-8901 Fax: (202) 435-7722 Attorneys for Consumer Financial Protection Bureau UNITED STATES DISTRICT COURT WESTERN DISTRICT OF WISCONSIN INTRODUCTION 1.
The Consumer Financial Protection Bureau (Bureau) brings this action under sections 1031, 1036(a), 1054, and 1055 of the Consumer Financial Protection Act of 2010 (CFPA), 12 U.S.C. §§ 5531, 5536(a), 5564, 5565, and under section 626 of the Omnibus Appropriations Act, 2009 (as amended by section 1097 of the CFPA), 12 U.S.C. § 5538, and its CONSUMER FINANCIAL PROTECTION BUREAU, Plaintiff, v.
THE MORTGAGE LAW GROUP, LLP, (D/B/A THE LAW FIRM OF MACEY, ALEMAN & SEARNS), CONSUMER FIRST LEGAL GROUP, LLC, THOMAS G. MACEY, JEFFREY J. ALEMAN, JASON E. SEARNS, and HAROLD E. STAFFORD, Defendants.
Case No. 3:14-cv-00513 COMPLAINT Case: 3:14-cv-00513 Document #: 1 Filed: 07/22/14 Page 1 of 21
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implementing regulation, the Mortgage Assistance Relief Services Rule (MARS Rule, or Regulation O), 12 C.F.R. pt. 1015 (2011), in connection with Defendants’ marketing and sale of purported mortgage assistance relief services.
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 pursuant to 28 U.S.C. § 1391(b) and 12 U.S.C. § 5564(f) because a substantial part of the events or omissions and course of conduct giving rise to the claims set forth in this Complaint occurred in this judicial district. PARTIES 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, including the CFPA and Regulation O. 12 U.S.C. §§ 5481(12)(Q), (14), 5491(a), 5531, 5538.
5.
The Bureau is authorized to initiate federal district court proceedings, by its own attorneys, to enjoin violations of the CFPA and Regulation O, and to secure such relief as may be appropriate in each case. 12 U.S.C. §§ 5564(a)-(b), 5565. This includes the rescission or reformation of contracts, the refund of moneys paid, restitution, disgorgement or compensation for unjust enrichment, and civil money penalties. Id. § 5565(a)(2). 6.
At all times relevant to this complaint, Defendant The Mortgage Law Group (d/b/a The Law Firm of Macey, Aleman & Searns) (TMLG) was a Nevada limited liability Case: 3:14-cv-00513 Document #: 1 Filed: 07/22/14 Page 2 of 21
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partnership with a principal place of business at 233 S. Wacker Dr., Suite 5150, Chicago, Illinois. TMLG contracted with consumers nationwide, including within the State of Wisconsin. 7.
At all times relevant to this complaint, Defendant Consumer First Legal Group (CFLG) was a Wisconsin limited liability company with a principal place of business located at 2810 Crossroads Drive, Suite 4000, Madison, Wisconsin.
8.
At all times relevant to this complaint, Defendant Thomas G. Macey (Macey) was a partner with 76.6 percent interest in TMLG and, since July 2012, a partner with approximately 78 percent interest in CFLG.
9.
At all times relevant to this complaint, Defendant Jeffrey J. Aleman (Aleman) was a partner with 14.3 percent interest in TMLG and, since July 2012, a partner with approximately 17 percent interest in CFLG.
10.
At all times relevant to this complaint, Defendant Jason E. Searns (Searns) was a partner with 9.1 percent interest in TMLG.
11.
At all times relevant to this complaint, Defendant Harold E. Stafford (Stafford) was a partner of CFLG. Stafford was the sole owner of CFLG from at least 2011 until July 2012 when he sold 95% of his interest to Macey and Aleman, retaining 5% interest. 12.
Defendants TMLG, CFLG, Macey, Aleman, Searns, and Stafford, each acting alone or in concert with others, offered, provided, or arranged for others to provide, “mortgage assistance relief services,” as defined in Regulation O (12 C.F.R. § 1015.2 (2011)), and provided “financial advisory services” within the meaning of the CFPA, 12 U.S.C. § 5481(15)(A)(viii), including, but not limited to, providing or offering to provide loan modification and foreclosure relief services. At all times material to this Complaint, Defendants have transacted business in this District.
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SUMMARY OF COMPLAINT 13.
Since at least 2011, Defendants have marketed and sold purported mortgage assistance relief services to consumers. Defendants attracted financially distressed homeowners through various marketing methods, deceptively promising that they would assist homeowners in obtaining loan modifications and foreclosure relief in exchange for the payment of advance fees. Defendants also promised that they would obtain such results within a certain period of time and misled consumers into believing an attorney would represent them in negotiations with their mortgage lenders or servicers. In the end, consumers routinely paid thousands of dollars each in advance fees, while receiving none of the promised services or relief. Since 2011, Defendants TMLG and CFLG have collectively enrolled at least 12,290 consumers in their programs and collected at least $19.2 million from consumers nationwide. TMLG’S BUSINESS PRACTICES 14.
At all times relevant to this complaint, Macey was an attorney licensed in Illinois. 15.
At all times relevant to this complaint, Aleman was an attorney licensed in Illinois and Wisconsin.
16.
At all times relevant to this complaint, Searns was an attorney licensed in Colorado.
17.
Macey, Aleman, and Searns have had managerial responsibility for TMLG and have materially participated in the conduct of its affairs, including the development and approval of the purported mortgage assistance relief services complained of herein by, among other things: coordinating “partnerships” with local attorneys in states in which TMLG operated; contracting with entities or individuals who performed certain services for TMLG including, but not limited to, marketing, enrolling consumers in their programs, and providing client support Case: 3:14-cv-00513 Document #: 1 Filed: 07/22/14 Page 4 of 21
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services; responding to regulatory inquiries; and setting fees, controlling collection of consumer payments, and controlling TMLG’s finances.
18.
Macey, Aleman, and Searns are intimately familiar with and direct TMLG’s operations. Macey, Aleman, and Searns knew of and approved all of TMLG’s practices described in this Complaint.
19.
TMLG’s loan modification services were marketed using a variety of methods including, but not limited to, television and internet advertisements, and telephone and direct mail solicitations. The advertisements were directed to consumers who were in financial distress, behind on their mortgage loans, or in danger of losing their homes to foreclosure. 20.
Consumers who contacted TMLG were connected with a company representative to discuss their mortgage and financial situation. The representative made statements aimed at convincing consumers that they were eligible for a loan modification, and that they would obtain a mortgage modification if they hired TMLG. TMLG staff also indicated to consumers during the intake call that they would be receiving the services of an attorney. 21.
In some instances, TMLG instructed consumers to stop paying their mortgage altogether.
22.
TMLG enrolled over 10,200 consumers through these practices. 23.
After the initial call, TMLG would send consumers a welcome packet with a cover letter and Retainer Agreement. These documents misleadingly suggested to consumers that they would be receiving the services of an attorney. For example, the cover letter begins by thanking the consumers for “entrusting their home to TMLG. . . a full service law firm that focuses on resolving all mortgage related issues.”
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24.
TMLG’s cover letter included a warning to consumers: “[w]hile we will not tell you not to speak to your servicer, we must advise you that to do so is risky. We have seen several clients hurt by deceptive practices when their servicer calls.” 25.
The cover letter also states “[c]urrently we are seeing many workouts take anywhere from 90-120 days; however, every case is unique. . .[f]ortunately by using an attorney you have a significant advantage because we are familiar with the process and expedite it through our contacts.”
26.
Under the terms of its Retainer Agreement, TMLG charged consumers an “Initial Flat Fee Retainer,” the amount of which varied but which typically was around $1,195. This fee was purportedly for an initial review and analysis of the consumer’s financial situation such as a “preliminary underwriting” analysis. Thereafter, TMLG collected a “Monthly Flat Fee Retainer” of around $795, purportedly for continued underwriting analysis, transmission of the loan modification package to the lender, and continued monitoring of the loan modification package review with the lender.
27.
Consumers routinely paid all such fees before any written agreement was reached with the consumer’s lender or servicer or before any other mortgage assistance relief was obtained.
28.
After consumers paid TMLG’s advance fees, TMLG routinely failed to answer or return consumers’ telephone calls and emails and failed to provide updates about the status of consumers’ loan modification applications.
29.
After consumers paid TLMG’s advance fees, TMLG routinely failed to obtain loan modifications or foreclosure relief for consumers. Case: 3:14-cv-00513 Document #: 1 Filed: 07/22/14 Page 6 of 21
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30.
Many consumers report that they did not receive representation by an attorney. Although they may have been assigned an attorney in a nominal sense, they never met or consulted with any attorney, including any attorney licensed in the state where they reside. In some instances, TMLG closed consumers’ accounts after advance fees had been paid by informing consumers that they were not eligible for particular programs or other assistance after all, or by telling consumers that their accounts were being closed because they had not provided sufficient paperwork.
31.
In some instances, TMLG refused to refund money to consumers, taking the position that it had done sufficient work to be entitled to the payments received or that the terms of agreements signed by consumers allowed it to keep the money paid. CFLG’S BUSINESS PRACTICES 32.
From at least 2011 until July 2012, Defendant Stafford, an attorney licensed in Wisconsin, was the sole owner and operator of CFLG.
33.
In July 2012, Macey and Aleman together purchased a 95% interest in CFLG. 34.
Macey, Aleman, and Stafford have had managerial responsibility for CFLG and have materially participated in the conduct of its affairs, including the development and approval of the purported mortgage assistance relief services complained of herein by, among other things: coordinating “partnerships” with local attorneys in states in which CFLG operated; contracting with entities or individuals who performed certain services for CFLG including, but not limited to, marketing, enrolling consumers in their programs, and providing client support services; responding to regulatory inquiries and consumer complaints; and setting fees, controlling collection of consumer payments, and controlling CFLG’s finances. Case: 3:14-cv-00513 Document #: 1 Filed: 07/22/14 Page 7 of 21
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35.
Macey, Aleman, and Stafford are intimately familiar with and direct CFLG’s operations. Macey, Aleman, and Stafford knew of and approved all of CFLG’s practices described in this Complaint.
36.
CFLG’s loan modification services were marketed in a variety of ways including, but not limited to, television and internet advertisements. The advertisements were directed to consumers who were in financial distress, behind on their mortgage loans, or in danger of losing their homes to foreclosure.
37.
CFLG’s advertisements deceptively suggested that CFLG enjoyed high rates of success in obtaining loan modifications and other foreclosure relief, and misled consumers into believing that they would receive the services of an attorney. For example, CFLG’s website described CFLG as “one of the most sophisticated consumer protection law firms in the country” with over 100 associate attorneys “insuring the best possible outcome during uncertain times.” 38.
The website also made representations about the quality of services CFLG would provide, such as: “[w]hile foreclosure scams are rampant, our mortgage relief specialists are some of the highest rated professionals in the field;” and “[CFLG attorneys] have years of experience keeping people in their homes and have a long list of testimonials from people who were on the brink of disaster.”
39.
CFLG’s website also warned consumers about working with the government or non-profit certified housing counselors - which offer free services to distressed homeowners. The website stated: “[t]here may be non-profit organizations that can assist you in your quest to stop foreclosure proceedings, but that kind of mortgage relief might involve a long wait. In addition, by not paying you may not have any leverage when something goes wrong or the process drags on for a dangerously long time.”
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40.
Consumers who contacted CFLG were connected with a company representative to discuss their mortgage and financial situation. The representative made statements aimed at convincing consumers that they were eligible for a loan modification, and that they would obtain a mortgage modification if they hired CFLG. CFLG staff also indicated to consumers during the intake call that they would be receiving the services of an attorney and that the firm had a high success rate and a special relationship with various lenders. 41.
CFLG enrolled at least 2,090 consumers through these practices. 42.
Following the initial intake call, CFLG would send consumers a welcome packet with a cover letter and a Retainer Agreement.
43.
CFLG’s cover letter included a warning to consumers: “[w]hile we will not tell you not to speak to your servicer, we must advise you that to do so is risky. We have seen several clients hurt by deceptive practices when their servicer calls.” 44.
The cover letter also states “[c]urrently we are seeing many workouts take anywhere from 90-120 days; however, every case is unique. . .[f]ortunately by using an attorney you have a significant advantage because we are familiar with the process and expedite it through our contacts.”
45.
Under the terms of its Retainer Agreement, CFLG charged consumers an “Initial Flat Fee Retainer,” the amount of which varied but which typically was around $1,195. This fee was purportedly for an initial review and analysis of the consumer’s financial situation, such as a “preliminary underwriting” analysis. Thereafter, CFLG collected a “Monthly Flat Fee Retainer” of around $895, purportedly for continued underwriting analysis, transmission of the loan modification package to the lender, and continued monitoring of the loan modification package review with the lender.
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46.
Consumers routinely paid all such fees before any written agreement was reached with the consumer’s lender or servicer or before any other mortgage assistance relief was obtained. After consumers paid CFLG’s advance fees, CFLG failed to answer or return consumers’ telephone calls and emails and failed to provide updates about the status of consumers’ loan modification applications.
47.
After consumers paid CFLG’s advance fees, CFLG failed to obtain loan modifications or foreclosure relief for consumers. 48.
Consumers report that they did not receive representation by an attorney. Although they may have been assigned an attorney in a nominal sense, they never met with or consulted with any attorney, including any attorney licensed in the state where they reside. 49.
In some instances, CFLG closed consumers’ accounts after advance fees had been paid by informing consumers that they were not eligible for particular programs or other assistance after all, or by telling consumers their accounts were being closed because they had not provided sufficient paperwork.
50.
In some instances, CFLG refused to refund money to consumers, taking the position that it had done sufficient work to be entitled to the payments received or that the terms of agreements signed by consumers allowed it to keep the money. 51.
Since 2012, in the course of conducting business CFLG transferred funds related to loan modification services to TMLG accounts.
REGULATION O 52.
In 2010, the Federal Trade Commission promulgated the MARS Rule to prohibit unfair and deceptive acts or practices with respect to mortgage loan modification or foreclosure relief services. 16 C.F.R. Part 322. In the CFPA, Congress transferred rulemaking authority over Case: 3:14-cv-00513 Document #: 1 Filed: 07/22/14 Page 10 of 21
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the MARS Rule to the Bureau, which recodified the Rule as 12 C.F.R. Part 1015 and designated it “Regulation O.” The Bureau has authority to enforce Regulation O pursuant to 12 U.S.C. §§ 5538(a), 5564. (References below to “Regulation O” encompass both Regulation O and the MARS Rule.) 53.
Regulation O defines “mortgage assistance relief service” as “any service, plan, or program, offered or provided to the consumer in exchange for consideration, that is represented, expressly or by implication, to assist or attempt to assist the consumer with . . . [n]egotiating, obtaining, or arranging a modification of any term of a dwelling loan, including a reduction in the amount of interest, principal balance, monthly payments, or fees.” 12 C.F.R. § 1015.2 (2011).
54.
Regulation O defines “mortgage assistance relief service provider” as “any person that provides, offers to provide, or arranges for others to provide, any mortgage assistance relief service,” other than the dwelling loan holder, the servicer of a dwelling loan, or any agent or contractor of such individual or entity. 12 C.F.R. § 1015.2 (2011). 55.
Defendants are “mortgage assistance relief provider[s]” engaged in the provision of “mortgage assistance relief services” as those terms are defined in Regulation O. 12 C.F.R. § 1015.2 (2011).
56.
Regulation O prohibits any mortgage assistance relief service provider from requesting or receiving payment of any fee or other consideration until the consumer has executed a written agreement between the consumer and the consumer’s dwelling loan holder or servicer that incorporates the offer that the provider obtained from the consumer’s dwelling loan holder or servicer. 12 C.F.R. § 1015.5(a) (2011).
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57.
Regulation O further prohibits any mortgage assistance relief service provider from representing, expressly or by implication, in connection with the offering or performance of such a service, that a consumer should not contact or communicate with his or her lender or servicer.
58.
Regulation O further prohibits any mortgage assistance relief service provider from misrepresenting, expressly or by implication: (1) the likelihood of negotiating, obtaining, or arranging any represented service or result; (2) the amount of time it will take the mortgage assistance relief service provider to accomplish any represented service or result; (3) a consumer’s obligation to make scheduled periodic payments or any other payments pursuant to the terms of the consumer’s dwelling loan; (4) that the consumer will receive legal representation; or (5) the availability, performance, cost, or characteristics of any alternative to for-profit mortgage assistance relief services through which the consumer can obtain mortgage assistance relief, including negotiating directly with the dwelling loan holder or servicer, or using any nonprofit housing counselor agency or program. 12 C.F.R. §§ 1015.3(a), (b) (1), (2), (4), (8), (9) (2011).
59.
Regulation O further requires any mortgage assistance relief service provider in every consumer-specific commercial communication as defined by 12 C.F.R. § 1015.2 to disclose that the consumer may stop doing business with the provider or reject an offer of mortgage assistance without having to pay for the services. 12 C.F.R. § 1015.4(b)(1) (2011). 60.
Regulation O further provides that it is a violation “for a person to provide substantial assistance or support to any mortgage assistance relief service provider when that person knows or consciously avoids knowing that the provider is engaged in any act or practice that violates” the rule. 12 C.F.R. § 1015.6 (2011).
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61.
Under section 1097 of the CFPA, 12 U.S.C. § 5538, a violation of Regulation O constitutes an unfair, deceptive, or abusive act or practice under the CFPA, in violation of sections 1031 and 1036 of the CFPA, 12 U.S.C. §§ 5531, 5536. THE CFPA 62.
Sections 1031 and 1036(a)(1)(B) of the CFPA, 12 U.S.C. §§ 5531, 5536(a)(1)(B), prohibit “covered person[s]” or “service provider[s]” from engaging in any “unfair, deceptive, or abusive act or practice.” Section 1036(a)(1)(A) also prohibits “covered person[s]” or “service provider[s]” from “offer[ing] or provid[ing] to a consumer any financial product or service not in conformity with Federal consumer financial law, or otherwise commit[ting] any act or omission in violation of a Federal consumer financial law.” 12 U.S.C. § 5536(a)(1)(A). 63.
Section 1036(a)(3) of the CFPA further prohibits any person from “knowingly or recklessly provid[ing] substantial assistance to a covered person or service provider in violation of the provisions of section 1031 . . . and notwithstanding any provision of [the CFPA], the provider of such substantial assistance shall be deemed to be in violation of that section to the same extent as the person to whom such assistance is provided.” 12 U.S.C. § 5536(a)(3). 64.
Section 1002(25) defines the term “related person” to mean “any director, officer, or employee charged with managerial responsibility for, or controlling shareholder of,” or “any shareholder . . . or other person . . . who materially participates in the conduct of the affairs of” a non-bank provider of a consumer financial product or service. 12 U.S.C. § 5481(25)(C). Section 1002(25) further provides that a “related person” shall be “deemed to mean a covered person for all purposes of any provision of Federal consumer financial law.” 12 U.S.C. § 5481(25)(B). Case: 3:14-cv-00513 Document #: 1 Filed: 07/22/14 Page 13 of 21
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65.
Defendants are “covered person[s],” “service provider[s]” and/or “related person[s]” within the meaning of the CFPA. 12 U.S.C. §§ 5481(6), (25), (26). COUNT I (Advance Fees in Violation of Regulation O) (Defendants TMLG, Macey, Aleman, and Searns) 66.
The allegations in paragraphs 1 to 65 are incorporated here by reference. 67.
In the course of providing, offering to provide, or arranging for others to provide mortgage assistance relief services, Defendants TMLG, Macey, Aleman, and Searns have requested or received payment from consumers before those consumers have executed a written agreement with their loan holder or servicer that incorporates any offer obtained by TMLG from the loan holder or servicer, in violation of Regulation O, 12 C.F.R. § 1015.5(a) (2011). COUNT II (Advance Fees in Violation of Regulation O) (Defendants CFLG, Macey, Aleman, and Stafford) 68.
The allegations in paragraphs 1 to 65 are incorporated here by reference. 69.
In the course of providing, offering to provide, or arranging for others to provide mortgage assistance relief services, Defendants CFLG, Macey, Aleman, and Stafford have requested or received payment from consumers before those consumers have executed a written agreement with their loan holder or servicer that incorporates any offer obtained by CFLG, in violation of Regulation O, 12 C.F.R. § 1015.5(a) (2011). COUNT III (Representations in Violation of Regulation O) (Defendants TMLG, Macey, Aleman, and Searns) 70.
The allegations in paragraphs 1 to 65 are incorporated here by reference. Case: 3:14-cv-00513 Document #: 1 Filed: 07/22/14 Page 14 of 21
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71.
In the course of providing, offering to provide, or arranging for others to provide mortgage assistance relief services, Defendants TMLG, Macey, Aleman, and Searns have engaged in making, expressly or by implication, representations that a consumer should not contact or communicate with his or her lender or servicer, in violation of Regulation O, 12 C.F.R. § 1015.3(a) (2011).
COUNT IV (Representations in Violation of Regulation O) (Defendants CFLG, Macey, Aleman, and Stafford) 72.
The allegations in paragraphs 1 to 65 are incorporated here by reference. 73.
In the course of providing, offering to provide, or arranging for others to provide mortgage assistance relief services, Defendants CFLG, Macey, Aleman, and Stafford have engaged in making, expressly or by implication, representations that a consumer should not contact or communicate with his or her lender or servicer, in violation of Regulation O, 12 C.F.R. § 1015.3(a) (2011).
COUNT V (Misrepresentations in Violation of Regulation O) (Defendants TMLG, Macey, Aleman, and Searns) 74.
The allegations in paragraphs 1 to 65 are incorporated here by reference. 75.
In the course of providing, offering to provide, or arranging for others to provide mortgage assistance relief services, Defendants TMLG, Macey, Aleman, and Searns have engaged in misrepresenting, expressly or by implication, material aspects of their services, including but not limited to:
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a.
the likelihood of obtaining mortgage loan modifications or accomplishing any other represented service or result, in violation of Regulation O, 12 C.F.R. § 1015.3(b)(1);
b.
the amount of time it would take to obtain mortgage loan modifications or accomplish any other represented service or result, in violation of Regulation O, 12 C.F.R. § 1015.3(b)(2);
c.
a consumer’s obligation to make scheduled periodic payments or any other payments pursuant to the terms of the consumer’s dwelling loan, in violation of Regulation O, 12 C.F.R. § 1015.3(b)(4); and d.
that consumers will receive legal representation, in violation of Regulation O, 12 C.F.R. § 1015.3(b)(8).
COUNT VI (Misrepresentations in Violation of Regulation O) (Defendants CFLG, Macey, Aleman, and Stafford) 76.
The allegations in paragraphs 1 to 65 are incorporated here by reference. 77.
In the course of providing, offering to provide, or arranging for others to provide mortgage assistance relief services, Defendants CFLG, Macey, Aleman, and Stafford have engaged in misrepresenting, expressly or by implication, material aspects of their services, including but not limited to:
a.
the likelihood of obtaining mortgage loan modifications or accomplishing any other represented service or result, in violation of Regulation O, 12 C.F.R. § 1015.3(b)(1);
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b.
the amount of time it would take to obtain mortgage loan modifications or accomplish any other represented service or result, in violation of Regulation O, 12 C.F.R. § 1015.3(b)(2);
c.
that consumers will receive legal representation, in violation of Regulation O, 12 C.F.R. § 1015.3(b)(8); and d.
the availability, performance, cost, or characteristics of any alternative to for-profit mortgage assistance relief services through which the consumer can obtain mortgage assistance relief, in violation of Regulation O, 12 C.F.R. § 1015.3(b)(9). COUNT VII (Failure to Make Certain Disclosures in Violation of Regulation O) (Defendants TMLG, Macey, Aleman, and Searns) 78.
The allegations in paragraphs 1 to 65 are incorporated here by reference. 79.
In the course of providing, offering to provide, or arranging for others to provide mortgage assistance relief services, Defendants TMLG, Macey, Aleman, and Searns have failed to make the following disclosure in all consumer-specific commercial communications in a clear and prominent manner: “You may stop doing business with us at any time. You may accept or reject the offer of mortgage assistance we obtain from your lender [or servicer]. If you reject the offer, you do not have to pay us. If you accept the offer, you will have to pay us (insert amount or method for calculating the amount) for our services,” in violation of Regulation O, 12 C.F.R. § 1015.4(b)(1).
COUNT VIII (Failure to Make Certain Disclosures in Violation of Regulation O) (Defendants CFLG, Macey, Aleman, and Stafford) 80.
The allegations in paragraphs 1 to 65 are incorporated here by reference. Case: 3:14-cv-00513 Document #: 1 Filed: 07/22/14 Page 17 of 21
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81.
In the course of providing, offering to provide, or arranging for others to provide mortgage assistance relief services, Defendants CFLG, Macey, Aleman, and Stafford have failed to make the following disclosure in all consumer-specific commercial communications in a clear and prominent manner: “You may stop doing business with us at any time. You may accept or reject the offer of mortgage assistance we obtain from your lender [or servicer]. If you reject the offer, you do not have to pay us. If you accept the offer, you will have to pay us (insert amount or method for calculating the amount) for our services,” in violation of Regulation O, 12 C.F.R. § 1015.4(b)(1).
COUNT IX (Deceptive Acts and Practices in Violation of the CFPA) (Defendants TMLG, Macey, Aleman, and Searns) 82.
The allegations in paragraphs 1 to 65 are incorporated here by reference. 83.
In numerous instances in connection with the offering or provision of mortgage assistance relief services, Defendants TMLG, Macey, Aleman, and Searns have engaged in representing, expressly or by implication, that:
a.
they generally will obtain mortgage loan modifications for consumers or will help them avoid foreclosure;
b. they generally will obtain such mortgage assistance relief within a certain time, such as 90-120 days; and c.
they will provide consumers legal representation.
84.
In truth and in fact, Defendants TMLG, Macey, Aleman, and Searns generally do not obtain mortgage loan modifications for consumers, generally do not help them avoid foreclosure, generally provide no actual mortgage assistance relief within the represented time, and generally do not provide lawyers to provide legal representation for consumers. These Case: 3:14-cv-00513 Document #: 1 Filed: 07/22/14 Page 18 of 21
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representations are material and likely to mislead a reasonable consumer at the time they were made.
85.
Therefore, Defendants TMLG, Macey, Aleman, and Searns’ representations as set forth in Paragraph 83 constitute deceptive acts and practices in violation of sections 1031 and 1036 of the CFPA, 12 U.S.C. §§ 5531, 5536.
COUNT X (Deceptive Acts and Practices in Violation of the CFPA) (Defendants CFLG, Macey, Aleman, and Stafford) 86.
The allegations in paragraphs 1 to 65 are incorporated here by reference. 87.
In numerous instances in connection with the offering or provision of mortgage assistance relief services, Defendants CFLG, Macey, Aleman, and Stafford have engaged in representing, expressly or by implication, that:
a.
they generally will obtain mortgage loan modifications for consumers or will help them avoid foreclosure;
b. they generally will obtain such mortgage assistance relief within a certain time, such as 90-120 days; and c.
they will provide consumers legal representation. 88.
In truth and in fact, Defendants CFLG, Macey, Aleman, and Stafford generally do not obtain mortgage loan modifications for consumers, generally do not help them avoid foreclosure, generally provide no actual mortgage assistance relief within the represented time, and generally do not provide lawyers to provide legal representation for consumers. These representations are material and likely to mislead a reasonable consumer at the time they were made.
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89.
Therefore, Defendants CFLG, Macey, Aleman, and Stafford’s representations as set forth in Paragraph 87 constitute deceptive acts and practices in violation of sections 1031 and 1036 of the CFPA, 12 U.S.C. §§ 5531, 5536. PRAYER FOR RELIEF WHEREFORE, the Bureau requests that the Court: a.
permanently enjoin Defendants from committing future violations of Regulation O and the CFPA and enter such other injunctive relief as appropriate; b.
award restitution, jointly and severally, against Defendants in the amount of all unlawfully collected fees;
c.
order disgorgement of ill-gotten revenues against Defendants; d.
award civil money penalties against Defendants; e.
order the rescission or reformation of contracts where necessary to redress injury to consumers;
f.
award costs against Defendants; and g.
award additional relief as the Court may determine to be just and proper. Case: 3:14-cv-00513 Document #: 1 Filed: 07/22/14 Page 20 of 21
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Dated: July 22, 2014
Respectfully submitted,
Anthony Alexis, DC Bar #384545 Acting Enforcement Director
Ori Lev, DC Bar #452565 Deputy Enforcement Director
Laurel Loomis Rimon, CA Bar #166148 Assistant Deputy Enforcement Director
s/ Nelle Rohlich
Nelle Rohlich, WI Bar #1047522 Enforcement Attorney
1700 G Street NW
Washington, DC 20552 Phone: 202-435-7508 [email protected]
Attorneys for Plaintiff
Consumer Financial Protection Bureau Case: 3:14-cv-00513 Document #: 1 Filed: 07/22/14 Page 21 of 21
Stipulation ()
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Case: 3:14-cv-00513-wmc Document #: 410 Filed: 11/15/18 Page 1 of 12
UNITED STATES DISTRICT COURT WESTERN DISTRICT OF WISCONSIN
CONSUMER FINANCIAL PROTECTION BUREAU,
Plaintiff, Vv.
Case No. 3:14-cv-00513 THE MORTGAGE LAW GROUP, LLP (d/b/a THE LAW FIRM OF MACEY, ALEMAN & SEARNS);
CONSUMER FIRST LEGAL GROUP, LLC; AMENDED STIPULATED THOMAS G. MACEY; FINAL JUDGMENT AND JEFFREY J. ALEMAN; ORDER AS TO THE JASON E. SEARNS; and MORTGAGE LAW GROUP, HAROLD E. STAFFORD, LLP Defendants.
INTRODUCTION
The Consumer Financial Protection Bureau (“Bureau”) commenced this civil action in this Court (the “Court”) on July 22, 2014, through its complaint (“Complaint”) to obtain injunctive and monetary relief, including civil penalties, for alleged violations of Regulation O, 12 C.F.R. pt. 1015 (2011), and for alleged violations of sections 1031 and 1036 of the Consumer Financial Protection Act of 2010 (““CFPA”), 12 U.S.C. §§ 5531, 5536, by The Mortgage Law Group, LLP, d/b/a The Law Firm of Macey, Aleman & Searns (“TMLG”), Consumer First Legal Group, LLC, Thomas G, Macey, Jeffrey J. Aleman, Jason E. Searns, and Harold E. Stafford.
The Bureau and Ronald R. Peterson, chapter 7 trustee of Defendant TMLG (“Trustee”) (collectively “Parties”), by and through counsel, have agreed to settle all claims of the Bureau against TMLG, and request that the Court enter this Amended Stipulated Final Judgment and Order (“Amended TMLG Order”), amending the Stipulated Final Judgment and Order entered
on June 21, 2017 (ECF No. 404) (“First TMLG Order’) (attached as Exhibit 1 hereto). The
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purpose of the amendment is to reflect the Parties’ agreement regarding an increase in the redress amount, FINDINGS
1, The Court has jurisdiction over the Parties and the subject matter of this action, and venue in the Western District of Wisconsin is proper.
2. The Complaint states claims upon which relief can be granted for Defendant TMLG’s alleged violations of Regulation O and sections 1031 and 1036 of the CFPA, 12 U.S.C, §§ 5531, 5536,
3. On April 7, 2014, before the commencement of the instant civil action, TMLG filed a voluntary petition for relief under chapter 7 of the United States Bankruptcy Code, 11] U.S.C, §§ 101 et seg. (2012) (“Bankruptcy Code”), initiating a bankruptcy case pending in the United States Bankruptcy Court for the Northern District of Illinois (“Bankruptcy Court”), captioned Jn re The Mortgage Law Group, L.L.P., Case No. 14-12825 (“Bankruptcy Case”).
4, The instant civil action against Defendant TMLG, including the enforcement of a judgment other than a money judgment obtained in this action, is not stayed by the Bankruptcy Code, 11 U.S.C. § 362(a), because it is an exercise of the Bureau’s police or regulatory powers as a governmental unit pursuant to 11 U.S.C. § 362 (b)(4) and thus falls within an exception to the automatic stay,
5. Pursuant to 11 U.S.C, § 323, the Trustee is the representative of TMLG’s bankruptcy estate and has the capacity to sue and be sued.
6. On December 5, 2014, the Bureau timely filed a proof of claim in the Bankruptcy Case seeking $75,932,959.33 in restitution and civil money penalties for Defendant TMLG’s
violations of Regulation O and the CFPA as alleged in the Complaint.
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7. The Bureau and the Trustee agree to entry of this Amended TMLG Order, without adjudication of any issue of fact or law, to settle and resolve all matters in this dispute arising from the conduct of Defendant TMLG alleged in the Complaint to the date this Amended TMLG Order is entered. The Trustee neither admits nor denies any allegation in the Complaint except as stated in this Amended TMLG Order.
8. For purposes of this Amended TMLG Order, the Trustee admits the facts necessary to establish the Court’s jurisdiction over Defendant TMLG, the Trustee and the subject matter of this action.
9, The Trustee is not operating the business of Defendant TMLG and is proceeding with an orderly liquidation under the Bankruptcy Code. Given that the Trustee has agreed not to seek permission to operate TMLG’s business, the Bureau has agreed not to seek its customary injunction, compliance and reporting requirements.
10, The Trustee waives service under Rule 4(d) of the Federal Rules of Civil Procedure and waives all rights to seek judicial review or otherwise challenge or contest the validity of this Amended TMLG Order. The Trustee also waives any claitn that Defendant TMLG may have under the Equal Access to Justice Act, 28 U.S.C. § 2412, concerning the prosecution of this action to the date of this Amended TMLG Order. Each Party will bear its own costs and expenses, including, without limitation, attorneys’ fees.
11. By order filed January 9, 2017, and entered January 10, 2017, a copy of which is attached to the First TMLG Order as Exhibit A, the Trustee obtained the approval of the Bankruptcy Court to enter into the First TMLG Order.
12. On June 21, 2017, the Court entered the First TMLG Order.
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13. In November 2017, Defendants disclosed 184 additional Affected Consumers (defined below), and the fees they paid to TMLG, and additional fees paid by one previouslydisclosed Affected Consumer, resulting in $384,988.78 in net advance fees that was not provided for in the First TMLG Order or in the Bankruptcy Court’s order authorizing the Trustee to enter into the First TMLG Order.
14. Upon the Bureau’s motion requesting that the Bankruptcy Court reconsider the amount of the Bureau’s claim in light of the above newly disclosed information, the Bankruptcy Court entered an order allowing the Bureau’s claim including the additional $384,988.78 and authorizing the Trustee to enter into this Amended TMLG Order that correspondingly increases the redress amount to Affected Consumers. Defendants did not object to the Bureau’s motion. A copy of the Bankruptcy Court’s May 8, 2018 order is attached hereto as Exhibit 2.
15. Entry of this Amended TMLG Order is in the public interest.
DEFINITIONS
16. The following definitions apply to this Amended TMLG Order:
a. “Affected Consumer” means any consumer to whom Defendant TMLG or its officers, agents, servants, employees, or attorneys sold or provided Mortgage Assistance Relief Products or Services between May 2011 and January 2013,
b. “Debt Relief Product or Service” means any product, service, plan, or program represented, expressly or by implication, to renegotiate, settle, or in any way alter the terms of payment or other terms of a debt or obligation, including, but not limited to, a tax debt or obligation, between a person and one or more creditors or debt collectors, including, but not limited to, a
reduction in the balance, interest rate, or fees owed by a person to a creditor or
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debt collector.
“Defendants” means all the defendants in this action, individually, collectively, or in any combination, and each of them by whatever names each might be known, and their successors and assigns.
“Effective Date” means the date on which this Amended TMLG Order is entered by the Court.
“Assistant Director for Enforcement” means the Assistant Director of the Office of Enforcement for the Consumer Financial Protection Bureau, or his or her delegee.
“Estate” or “TMLG Estate” means the bankruptcy estate created upon the filing of TMLG’s chapter 7 petition by operation of law pursuant to 11 U.S.C. § 541.
“Mortgage Assistance Relief Product or Service” means any product, service, plan, or program, offered or provided to the consumer in exchange for consideration, that is represented, expressly or by implication, to assist or attempt to assist the consumer with any of the following:
i. Stopping, preventing, or postponing any mortgage or deed of trust foreclosure sale of the consumer’s dwelling, any repossession of the consumer's dwelling, or otherwise saving the consumer’s dwelling from foreclosure or repossession;
ii. Negotiating, obtaining, or arranging a modification of any term of a dwelling loan, including a reduction in the amount of interest,
principal balance, monthly payments, or fees;
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iii.
iv.
Vi.
Obtaining any forbearance or modification in the timing of payments from any dwelling loan holder or servicer on any dwelling loan, Negotiating, obtaining, or arranging any extension of the period of time within which the consumer may: (i) cure his or her default on a dwelling loan, (ii) reinstate his or her dwelling loan, (iii) redeem a dwelling, or (iv) exercise any right to reinstate a dwelling loan or redeem a dwelling;
Obtaining any waiver of an acceleration clause or balloon payment contained in any promissory note or contract secured by any dwelling; or
Negotiating, obtaining, or arranging: (i) a short sale of a dwelling, (ii) a deed-in-lieu of foreclosure, or (iii) any other disposition of a dwelling other than a sale to a third party who is not the dwelling loan
holder,
The foregoing includes any manner of claimed assistance to consumers with
respect to mortgages, including, but not limited to, auditing or examining a
consumer’s mortgage or home loan application.
h. “Person” means an individual, partnership, limited liability partnership,
company, limited liability company, corporation, association (incorporated or
unincorporated), trust, estate, cooperative organization, or other entity.
i. “Related Consumer Action” means a private action by or on behalf of one or
more consumers or an enforcement action by another governmental agency
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brought against Defendant TMLG based on substantially the same facts as described in the Complaint.
j. “Trustee” means Ronald R. Peterson, Esq., or any person subsequently appointed as chapter 7 trustee in the Bankruptcy Case.
k. The words “and” and “or” will be understood to have both conjunctive and disjunctive meanings as necessary to make the applicable phrase or sentence inclusive rather than exclusive.
ORDER IT IS ORDERED that:
I. Cessation of Business Activities
17. As of the Effective Date, Defendant TMLG, whether acting directly or through any other Person, and the Trustee, whether acting directly or through any Person employed by him, are permanently enjoined and restrained from operating TMLG’s business, including providing or offering to provide any Mortgage Assistance Relief Product or Service or any Debt Relief Product or Service.
I. Order to Pay Redress IT IS FURTHER ORDERED that:
18. | A judgment for monetary relief is entered in favor of the Bureau and against Defendant TMLG’s Estate in the amount of $18,716,725.78 under section 1055(a) of the CFPA, 12 U.S.C. § 5565(a), for the purpose of providing redress to Affected Consumers for the violations described in the Complaint. This redress is to compensate consumers for their actual
pecuniary losses.
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19. | This monetary judgment will be deemed by the Trustee to be an allowed general unsecured claim against TMLG’s Estate, subject to 11 U.S.C. §§ 507(a) and 726 governing priorities of expenses and claims in the Bankruptcy Case.
20. Any funds received by the Bureau in satisfaction of this judgment shall be deposited into a fund or funds administered by the Bureau or its agent in accordance with applicable statutes and regulations to be used for redress for Affected Consumers, including, but not limited to, refund of moneys, restitution, damages, or other monetary relief, and for any attendant expenses for the administration of any such redress.
21. If the Bureau determines, in its sole discretion, that providing redress to consumers is wholly or partially impracticable or if funds remain after the administration of redress is completed, any funds not used for equitable relief will be deposited in the U.S. Treasury as disgorgement. The Trustee will have no right to challenge the choice of remedies under this Section or to contest the manner of distribution.
22. Payment of redress to any Affected Consumer under this Amended TMLG Order may not be conditioned on that Affected Consumer waiving any right.
I. Order to Pay Civil Money Penalty IT IS FURTHER ORDERED that:
23. By reason of the violations of law alleged in the Complaint, and taking into account the factors set forth in the CFPA, 12 U.S.C. § 5565(c)(3), a civil money penalty in favor of the Bureau and against TMLG’s Estate is ordered in the amount of $20,815,000.
24, The Bureau will deposit any payment made to satisfy the judgment for a civil penalty into the Civil Penalty Fund administered by the Bureau under section 1017(d) of the
CFPA, 12 U.S.C. § 5497(d).
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IV. Additional Monetary Provisions IT IS FURTHER ORDERED that:
25. Subject to 11 U.S.C. §§ 507(a) and 726 governing priorities of expenses and claims in the Bankruptcy Case, the Trustee must relinquish all dominion, control, and title to the funds paid to the fullest extent permitted by law and no part of the funds may be returned to Defendant TMLG’s Estate.
26. Inthe event of any default on the Trustee’s obligations to make payment under this Amended TMLG Order, interest, computed under 28 U.S.C. § 1961, as amended, will accrue on any outstanding amounts not paid from the date of default to the date of payment, and will immediately become due and payable.
27. Under 31 U.S.C. § 7701, the Trustee must, unless he has already done so, provide the Bureau with Defendant TMLG’s taxpayer identifying numbers, which may be used for purposes of collecting and reporting on any delinquent amount arising out of this Amended TMLG Order.
28. Within 30 days of the entry of a final judgment, order or settlement in a Related Consumer Action, the Trustee must notify the Assistant Director for Enforcement in writing of the final judgment, order or settlement. That notification must include the amount of redress, if any, that Defendant TMLG’s Estate paid or is required to pay to consumers and describe the consumers or classes of consumers to whom that redress has been or will be paid.
V. Pendency of Bankruptcy Case IT IS FURTHER ORDERED that:
29. The Bureau must, if it has not already done so, seek leave of the Bankruptcy
Court to amend and reduce its proof of claim to conform with the judgment amounts set forth in this
Amended TMLG Order.
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30. The Trustee shall not object to the Bureau’s proof of claim as amended.
31. The Trustee’s obligations under this Amended TMLG Order will terminate upon the closure of the Bankruptcy Case.
VI. Reporting Requirements IT IS FURTHER ORDERED that:
32. Given that Defendant TMLG’s Estate is being liquidated and the Trustee is not operating and will not seek to operate the business of TMLG, extensive compliance obligations by the Trustee are not warranted. The Trustee shall notify the Bureau of the occurrence of any of the following:
a, The Trustee’s discovery of any assets in the Estate or any assets that could be the subject of a turnover motion by the Trustee; b. The Trustee’s filing of a motion under 11 U.S.C. § 363 in the Bankruptcy Case to use, sell or lease property of the Estate; c. The Trustee’s filing of any interim report to the Bankruptcy Court; and d. The closure of the Bankruptcy Case, The Trustee must provide this notice at least 30 days before the development or as soon as practicable after learning about the development, whichever is sooner. VII. Notices IT IS FURTHER ORDERED that:
33. Unless otherwise directed in writing by the Bureau, the Trustee must provide all submissions, requests, communications, or other documents relating to this Amended TMLG Order in writing, with the subject line, “Re: The Mortgage Law Group LLP, No. 3:14-cv-00513 (W.D.
Wis.)” and send them to:
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Assistant Director for Enforcement Consumer Financial Protection Bureau ATTENTION: Office of Enforcement 1990 K Street, N. W.
Washington D.C. 20006;
and Contemporaneously by email to [email protected] VIII. Cooperation With the Bureau IT IS FURTHER ORDERED that:
34, In connection with this action, the Amended TMLG Order, or any subsequent investigations related to or associated with the transactions or occurrences that are the subject of the Complaint, the Trustee shall cooperate in good faith with the Bureau to the extent there are funds available to the Estate to pay the costs of such cooperation.
35. Within 21 calendar days of receipt of a written request from the Bureau, the Trustee must provide any documents or information that are the subject of the request that are reasonably available to him.
36. Nothing in this Amended TMLG Order will limit the Bureau’s lawful use of civil investigative demands under 12 C.F.R. § 1080.6 or other compulsory process.
IX. Release
37. The Bureau releases and discharges Defendant TMLG’s Estate from all potential liability for violations of law that the Bureau has or might have asserted based on the practices described in the Complaint, to the extent such practices occurred before the Effective Date and the Bureau knows about them as of the Effective Date. This release does not preclude or affect
any right of the Bureau to determine and ensure compliance with the Amended TMLG Order, or
to seek penalties for any violations of the Amended TMLG Order.
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Entered this 15th day of November 2018. s/ J. Smith, Deputy Clerk _________________________________ Peter Oppeneer Clerk of Court Case: 3:14-cv-00513-wmc Document #: 410 Filed: 11/15/18 Page 12 of 12
Opinion ()
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IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF WISCONSIN
CONSUMER FINANCIAL PROTECTION BUREAU,
Plaintiff,
OPINION and ORDER v.
14-cv-513-wmc THE MORTGAGE LAW GROUP, LLP, CONSUMER FIRST LEGAL GROUP, LLC, THOMAS G. MACEY, JEFFERY J. ALEMAN, JASON E. SEARNS and HAROLD E. STAFFORD,
Defendants.
Plaintiff brought this civil enforcement action under the Consumer Financial Protection Act of 2010 (“the Act”), 12 U.S.C. §§ 5564-65, against two former mortgage relief services providers and their principals for violations of Regulation O, 12 C.F.R. part 1015, including misrepresenting their services to consumers in a number of respects, failing to make required disclosures, and illegally collecting advance fees. On July 20, 2016, the Honorable Barbara B. Crabb resolved a number of the claimed violations against defendants on summary judgment, including finding the individual defendants liable under the Act for the misconduct of institutional defendants The Mortgage Law Group (TMLG) and Consumer First Legal Group (CFLG) I and II.1 (Dkt. #191.) Following a subsequent transfer of the case to me for reasons unrelated to the merits, the remaining disputes proceeded to a bench trial in April 2017. In its first post-trial order on June 21, 2017, the
1 “CFLG I” refers to the company solely owned by defendant Stafford between January to July 2012; and “CFLG II” refers to the company jointly owned by defendants Macey, Aleman, Searns, and Stafford after July 2012.
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court entered monetary and injunctive relief against defendant TMLG only, including imposition of civil penalties, while leaving other questions to be further briefed by the other defendants. (Dkt. #404.)2 On November 15, 2018, the court issued its second post-trial order with respect to various issues of liability and level of scienter of the remaining defendants -- CFLG I and II, Harold Stafford, Thomas Macey, Jeffery Aleman, and Jason Searns -- although the court refrained from entering final judgment until the parties had an opportunity to be heard on the issues of damages and injunctive relief. Those issues included: (1) whether civil penalties should be awarded against the remaining defendants under 12 U.S.C. § 5565(c); (2) how those penalties, if any, should be calculated; and (3) whether any relevant mitigating factors apply. (Dkt. #409.) Having considered the parties’ additional briefs with respect to these issues, and the court’s factual findings as set forth in its post-trial orders on liability, the court now orders restitution and disgorgement, civil penalties, and permanent injunctive relief as set forth below.
OPINION
As the court explained in its post-trial orders, the Act authorizes courts to “grant any appropriate legal or equitable relief with respect to a violation of Federal consumer financial law, including a violation of a rule or order prescribed under [that] … law.” 12 U.S.C. § 5565(a)(1). While the Act provides for various forms of relief, including restitution, disgorgement, civil money penalties, and “limits on the activities or functions of the person,” § 5565(a)(2), it does not expressly authorize the imposition of exemplary
2 That order was later amended on November 15, 2018, at the parties’ request. (Dkt. #410). Case: 3:14-cv-00513-wmc Document #: 419 Filed: 11/04/19 Page 2 of 27
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or punitive damages, § 5565(a)(3). Here, the Consumer Financial Protection Bureau (“the Bureau’) seeks restitution, disgorgement, civil money penalties, and permanent injunctive relief, all of which are addressed in this order. I. Restitution and Disgorgement The Bureau seeks restitution jointly and severally from: defendants Macey, Aleman, and Searns with respect to TMLG’s advanced fees in the amount of $18,716,725.78; defendants CFLG, Macey, and Aleman with respect to CFLG II’s advanced fees in the amount of $2,897,566; and defendants Stafford and CFLG with respect to CFLG I’s advanced fees in the amount of $94,730. To the extent that any portion of these amounts can no longer be returned directly to consumers as restitution, the Bureau further asks that the leftover funds be deposited in the United States Treasury as disgorgement of defendants’ ill-gotten gains. See FTC v. Lanier Law, LLC, 194 F. Supp. 3d 1238, 1287 (M.D. Fla. 2016) (ordering disgorgement of revenues that defendants derived through deceptive and improper solicitations, misleading sales tactics, and impermissible advance fees).
Previously, Judge Crabb determined on summary judgment that the appropriate measure for restitution or disgorgement in this case is defendants’ net revenues—the amount of advance fees collected from their clients minus any refunds made to those clients—which totaled $18,331,7373 for TMLG and $2,992,296 for the CFLG entities
3 This first amount differs from the Bureau’s current request of $18,716,725.78, which includes an additional $384,988.78 in TMLG’s net revenue that defendants only disclosed to the Bureau months after trial, and that the TMLG trustee stipulated to for purposes of a settlement with the Bureau. See TMLG Final Order (dkt. #410, ¶ 14).
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($94,730 for CFLG I and $2,897,566 for CFLG II). (Dkt. #191 at 4.) Before trial, defendants moved this court to reconsider that ruling and reduce the restitution amount to account for the benefits that some consumers may have received from defendants’ services in the form of mortgage modifications. The court denied this motion for reconsideration, finding that: (1) defendants had waived the issue by failing to develop it properly in their original response to the Bureau’s motion for summary judgment; and (2) even if no waiver had occurred, the question whether a consumer was lucky enough to obtain a mortgage loan modification is ultimately irrelevant to the question whether defendants used misleading or deceptive representations to induce consumers to pay them fees, particularly since it is highly likely that the client would have obtained the same relief on his or her own or with assistance from a free, non-profit provider of loan resolution services. (Dkt. #256.) Using the briefing on remedies as an opening, defendants once again ask the court to reconsider its prior ruling on the measure and amount of restitution or disgorgement, asserting that there is new, contrary authority on the issue. Specifically, defendants cite CFPB v. Nationwide Biweekly Admin., 2017 WL 3948396 (N.D. Cal. Sept. 8, 2017), and CFPB v. CashCall, Inc., 2018 WL 485963 (C.D. Cal. Jan. 19, 2018), as more recent decisions in which restitution and disgorgement were not ordered. Contrary to defendants’ assertions, however, both of these unpublished decisions turn on facts easily distinguishable from those in this case. In particular, neither Nationwide nor CashCall involved illegal advanced fees or misrepresentations under Regulation O.
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Moreover, the reasons provided for denying restitution in those cases do not apply here. In Nationwide, the Northern District of California found that a complete refund of “set up fees” charged to consumers for a mortgage “interest minimization” program would have been both unfair and unwarranted because the Bureau had only proven that some, rather than all, of defendants' challenged marketing statements were false or misleading and, in particular, the Bureau failed to prove that the nature of the set up fees were not adequately disclosed. Nationwide, 2017 WL 3948396, at *1, 13. Similarly, the Central District of California found in CashCall that restitution was not an appropriate remedy because the Bureau failed to prove that defendants engaged in a deliberate scheme to evade consumer protection laws. For that reason, the Bureau expressly distinguished the facts before it in CashCall from:
The majority of case law in the Ninth Circuit addressing the CFPA and the appropriateness of restitution stem[ming] from cases in which a defendant has engaged in a type of fraud that is akin to what is commonly referred to as that of a “snake oil salesman.” See Nationwide, 2017 WL 3948396, at *11. In these cases, a defendant’s scheme to defraud typically uses fraudulent misrepresentations to dupe consumers into believing they are purchasing something other than what they actually receive. See F.T.C. v. Figgie, Inc., 994 F.2d 595, 604 (9th Cir. 1993) (“the seller’s misrepresentations tainted the customers’ purchasing decisions. If they had been told the truth, perhaps they would not have bought rhinestones at all or only some . . . . The fraud in the selling, not the value of the thing sold, is what entitles consumers in this case to full refunds for each [product] that is not useful to them.”).
CashCall, 2018 WL 485963, at *12. Indeed, the court explained in CashCall that there was no evidence that the defendants “set out to deliberately mislead consumers as to the nature of the Western Sky Loan Program or otherwise intended to defraud them or that consumers anticipated receiving a benefit that they did not actually receive under the loan agreements.” Id.
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Unlike in Nationwide and CashCall, the Bureau here satisfied its burden of proof with respect to both advanced fees charged and misrepresentations made. As this court found in both the summary judgment and post-trial orders, defendants used fraudulent misrepresentations to dupe customers into purchasing in advance a service that they could have received for free and for which they received no readily measurable benefit. Just as with defendants’ earlier-filed motion for reconsideration of the court’s ruling on restitution, “[n]ot only do defendants still fail to present any concrete evidence of satisfied or even partially satisfied clients, they continue to completely ignore that the relevant question is whether any client received a marginal benefit over and above what that same client would have received using the free services.” (Dkt. #256 at 7.) Finally, citing SEC v. Kokesh, 137 S. Ct. 1635 (2017), United States v. Bajakajian, 524 U.S. 321, (1998), and Bell v. Wolfish, 441 U.S. 520 (1979), defendants contend that the Supreme Court generally considers sanctions to be inherently punitive if they are imposed for the purpose of deterring violations of public laws. Under defendants’ reasoning, awarding the restitution amount sought by the Bureau amounts to the same thing, which is precluded under the CFPA, 12 U.S.C. § 5565(a)(3) (“Nothing in this subsection shall be construed as authorizing the imposition of exemplary or punitive damages.”). Said another way, defendants maintain that absent evidence that either TMLG or CFLG were unjustly enriched, any award of disgorgement as a deterrent is inherently punitive.4
4 While defendants cite their tax returns as entered into evidence at trial in support of their contention that they actually lost money, the court held on the record at trial that it was impossible to tell anything from these statements and that there was not a clear record as to the actual, overall Case: 3:14-cv-00513-wmc Document #: 419 Filed: 11/04/19 Page 6 of 27
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In support of their argument, defendants do not even attempt to argue that Bell or Bajakajian are applicable beyond the general proposition that sanctions imposed for the purpose of deterring public law infractions are inherently punitive.5 Instead, defendants principally rely on Kokesh, in which the United States Supreme Court held that disgorgement sought by the SEC in that case should be considered a “penalty” for the purposes of the five-year statute of limitations period on SEC enforcement actions for “any civil fine, penalty, or forfeiture.” Kokesh, 137 S. Ct. at 1639 (citing 28 U.S.C. § 2462). However, Kokesh did not address whether disgorgement qualified as “punitive damages”; to the contrary, the Supreme Court explained in Kokesh that “nothing in this opinion should be interpreted as an opinion on whether courts possess authority to order disgorgement in SEC enforcement proceedings or on whether courts have properly applied disgorgement principles in this context.” Id. at 1642 n.3. For this reason alone, Kokesh has no bearing on what counts as punitive damages under the CFPA. See FTC v. Dantuma, 748 F. App'x 735, 737 (9th Cir. 2018) (limited holding in Kokesh inapplicable to assessing district courts’ power to impose restitution and disgorgement of unjust gains under FTC Act). Unlike an award of punitive damages, the CFPA also expressly allows for disgorgement, 12 U.S.C. § 5565(a)(2)(D), which, contrary to defendants’ suggestion, does
profitability of the companies. Trial Tr. 3-P-80-84 (dkt. #384 at 80-84.) Tellingly, that was evidence in the defendants’ control, not the Bureau’s.
5 The reason for this is obvious: both cases are distinguishable from this case in that they did not address whether disgorgement qualifies as punitive damages in the context of a civil case. In Bell, 441 U.S. at 539-41, the Supreme Court addressed whether the practice of “double-bunking” pretrial detainees in holding cells violated their constitutional right not to be punished before being found guilty. In Bajakajian, 524 U.S. at 332-34, the Supreme Court held that a forfeiture constitutes a fine under the excessive fines clause of the Eighth Amendment, at least if imposed as punishment for an offense.
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not turn on the benefit obtained by defendants, but rather on the amount they wrongfully took. See Jul. 20, 2016 Summ. Judg. Ord. (dkt. #191 at 48-49) (citing cases with holdings to this effect); FTC v. Febre, 128 F.3d 530, 536-37 (7th Cir. 1997) (rejecting argument that relief should be limited to “defendants’ profits” and explaining that “disgorgement is meant to place the . . . consumer in the same position he would have occupied had the seller not induced him into the transaction” and to “prevent[] the defendant from being unjustly enriched”) (emphasis added). In addition, the Court of Appeals for the Seventh Circuit has held that “[d]isgorgement to the United States Treasury does not transform compensatory damages into punitive damages.” Febre, 128 F.3d at 537 (“To ensure that defendants are not unjustly enriched by retaining some of their unlawful proceeds by virtue of the fact that they cannot identify all the consumers entitled to restitution and cannot distribute all the equitable relief ordered to be paid, the FTC often requests orders directing equitable disgorgement of the excess money to the United States Treasury.”).6 Accordingly, the court finds that restitution is warranted where consumers (1) were charged advanced fees that were specifically prohibited by regulation, (2) were enticed to do so through various misrepresentations, and (3) received no measurable benefit for payment of those fees. Specifically, this results in the awards as follows against the
6 Defendants also point for support to FTC v. Figgie Int’l, Inc., 994 F.2d 595, 607-08 (9th Cir. 1993), in which the Ninth Circuit ruled that a district court order requiring defendants to remit funds unclaimed by injured consumers to non-profit organizations was punitive, and unavailable under the FTC Act. However, unlike the CFPA, the FTC Act does not expressly provide for disgorgement, authorizing only “such relief as the court finds necessary to redress injury to consumers.” 15 U.S.C. § 57b(b) (emphasis added). Without more clear authority, therefore, the court is not persuaded that Figgie stands for the general proposition that disgorgement is not available under a statute expressly providing for that remedy while precluding exemplary or punitive damages. Regardless, the Seventh Circuit has not reached such a conclusion. Case: 3:14-cv-00513-wmc Document #: 419 Filed: 11/04/19 Page 8 of 27
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respective defendants:
1. TMLG, Macey, Aleman, and Searns are jointly and severally liable for restitution in the amount of $18,716,725.78 with respect to the advance fees that TMLG collected from consumers.
2. CFLG, Macey, and Aleman Searns are jointly and severally liable for restitution in the amount of $2,897,566 with respect to the advanced fees that CFLG II collected from consumers.
3. Stafford and CFLG are jointly and severally liable for restitution in the amount of $94,730 with respect to the advanced fees that CFLG I collected from consumers.
The Bureau also requests that to the extent any portions of the restitution amounts ordered cannot be returned to the individual consumers, the court order defendants to disgorge their ill-gotten gains to the United States Treasury. While the court agrees that disgorgement is an appropriate remedy under the CFPA, this is a purely theoretical question because it is highly unlikely that the Bureau will begin to recover the full restitution amount from defendants, jointly or severally, given their questionable financial resources. Regardless, to avoid any risk that disgorgement may be deemed punitive in this case, the court will order that any excess restitution—minus any reasonable costs incurred by the Bureau in collecting and dispersing the restitution award—be applied first toward any outstanding civil penalties assessed against defendants, and second that the remainder, if any, revert to defendants on a pro rata basis consistent with the percentages of their allocated debt as set forth above.
II. Civil Penalties
A. Background For violations of consumer financial laws, including Regulation O, 12 U.S.C. Case: 3:14-cv-00513-wmc Document #: 419 Filed: 11/04/19 Page 9 of 27
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§ 5565(c)(2) provides in applicable part three tiers of civil monetary penalties: (A) First tier For any violation of a law, rule, or final order or condition imposed in writing by the Bureau, a civil penalty may not exceed $5,000 for each day during which such violation or failure to pay continues.
(B) Second tier Notwithstanding paragraph (A), for any person that recklessly engages in a violation of a Federal consumer financial law, a civil penalty may not exceed $25,000 for each day during which such violation continues.
(C) Third tier Notwithstanding subparagraphs (A) and (B), for any person that knowingly violates a Federal consumer financial law, a civil penalty may not exceed $1,000,000 for each day during which such violation continues.7 In determining the amount of any penalty, the court must take into account the appropriateness of the penalty with respect to several mitigating factors discussed below. 12 U.S.C. § 5565(c)(3).
Although there is little case law with respect to assessing civil penalties under the CFPA, district courts generally have broad discretion in calculating civil penalties under federal statutes. See, e.g., Tull v. United States, 107 S. Ct. 1831, 1840 (1987) (penalty calculations under the federal Clean Water Act (“CWA”) are “highly discretionary”); United States v. B & W Inv. Properties, 38 F.3d 362, 367-68 (7th Cir. 1994) (calculating penalty and applying mitigating factors under Clean Air Act is within trial court’s
7 As the Bureau notes, these amounts have since been adjusted upward, but only for penalties assessed after January 31, 2019, whose associated violations occurred on or after November 2, 2015. See 12 C.F.R. § 1083.1. Because this lawsuit concerns activities that predate November 2, 2015, the increased civil penalties do not apply here. Consumer Fin. Prot. Bureau v. Universal Debt & Payment Sols., LLC, 2019 WL 1295004, at *19 (N.D. Ga. Mar. 21, 2019). Case: 3:14-cv-00513-wmc Document #: 419 Filed: 11/04/19 Page 10 of 27
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discretion); U.S. EPA v. Envtl. Waste Control, Inc., 917 F.2d 327, 335 (7th Cir. 1990) (“[A]ssessment of penalties [under the federal Resource Conservation and Recovery Act] is committed to the informed discretion of the trial court, and will be reversed only upon a showing that the district court abused its discretion.”). In its post-trial order, this court determined that certain defendants were subject to penalties under the first tier for the following violations: (1) Stafford and CFLG I for charging advanced fees in violation of 12 C.F.R. §§ 1015.3(b)(9), 1015.4(b)(1) and (4), and 1015.5(a); and
(2) CFLG II, Aleman, and Searns for off-script misrepresentations made by intake specialists in violation of 12 C.F.R. § 1015.3(a).
(Dkt. #409 at 23-24, 34.) The court further determined that certain defendants were also subject to penalties under the second tier for the following violations: (1) Aleman for making certain misrepresentations, failing to make certain disclosures, and charging advanced fees in violation of 12 C.F.R. §§ 1015.3(a) (welcome letter), 1015.3(b)(4), 1015.3(b)(8), 1015.3(b)(9), 1015.4(b)(1) and (4), and 1015.5(a);
(2) Macey for making certain misrepresentations, failing to make certain disclosures, and charging advanced fees in violation of 12 C.F.R. §§ 1015.3(b)(8), 1015.5(a), and1015.4(b)(1) and (4);
(3) Searns for making certain misrepresentations, failing to make certain disclosures, and charging advanced fees in violation of 12 C.F.R. §§ 1015.3(a) (welcome letter), 1015.3(b)(4), 1015.3(b)(8), 1015.4(b)(1) and (4), and 1015.5(a). (4) CFLG II for making certain misrepresentations, failing to make certain disclosures, and charging advanced fees in violation of 12 C.F.R. §§ 1015.3(a) (welcome letter), 1015.3(b)(8), 1015.3(b)(9), 1015.4(b)(1) and (4), and 1015.5(a).
Id. In order to determine the amount of civil penalties against each defendant, however, it is also necessary to consider both the number of violations that occurred and the number Case: 3:14-cv-00513-wmc Document #: 419 Filed: 11/04/19 Page 11 of 27
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of days that defendants engaged in each violation. The parties dispute the method for calculating both.
A. Number of Violations The Bureau proposes to treat the violation of each regulatory section as a separate count, calculating a total of four counts each for Macey, Stafford, and CFLG I and seven counts each for Aleman, Searns, and CFLG II. On the other hand, defendants would have the court calculate the penalties based on the counts in the complaint, which grouped the regulatory violations under the following topic categories: advanced fees (§ 1015.5(a)), communications with lender (§ 1015.3(a)), misrepresenting services (§§ 1015.3(b)(1-9)), and failure to make disclosures (§ 1015.4(b)(1)). In support of the latter approach, defendants argue that it would be duplicative to penalize them for committing different versions of the same type of conduct. For example, § 1015.3(b) prohibits mortgage assistance relief providers from making misrepresentations to consumers concerning a variety of topics, including the likelihood of obtaining mortgage assistance relief, the provision of legal representation, and the availability and effectiveness of non-profit or free mortgage assistance relief.
Said another way, under the Bureau’s proposal, defendants would be penalized separately for violating each of the distinct subsections of § 1015.3(b), whereas defendants propose assessing the penalty based on the general conduct of making misrepresentations, without regard to the subject of the misrepresentations. The Bureau further points out in support of its approach that the civil penalty provision for consumer protection laws refers to “any violation.” Moreover, there is no authority for grouping violations based on the Case: 3:14-cv-00513-wmc Document #: 419 Filed: 11/04/19 Page 12 of 27
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counts in a complaint. For example, the Bureau reasons that by engaging in discreet acts, defendants CFLG II, Aleman, and Searns each committed two separate “violations” of § 1015.3(a)—such as (1) advising consumers not to contact their lenders in welcome letters and (2) providing the same advice through off-script remarks in telephone calls. Whatever merit the Bureau’s interpretation may have on a different set of facts, the court finds that its application would result in excessive and duplicative penalties in this case, particularly in light of the restitution burden that defendants already face. Therefore, exercising the discretion granted by the civil penalty statute and relevant case law, this court will calculate the number of violations based on the general category of each defendants’ misconduct—such as making misrepresentations or failing to make certain disclosures—rather than on subcategories for each specific type of misconduct. B. Duration of Violations The Bureau also proposes basing the penalties on the time period during which defendants collected advanced fees from consumers because (1) data exists to calculate those dates and (2) the receipt of advanced fees can serve as a proxy for other relevant misconduct.8 Therefore, the Bureau estimates that: Macey and Aleman were engaged in violations for the 743 days between July 21, 2011 (the effective date of the statute) and August 1, 2013 (the last day on which CFLG II received an advanced fee); Searns was engaged in violations for the 583 days between July 21, 2011 and February 22, 2013 (the last day on which TMLG received an advanced fee); CFLG II was engaged in violations for
8 To the extent that the illegal practice took place before the effective date of the CFPA (i.e., July 21, 2011), the Bureau used that date to start the clock. Case: 3:14-cv-00513-wmc Document #: 419 Filed: 11/04/19 Page 13 of 27
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the 358 days between August 9, 2012 and August 1, 2013 (the period during which it received advanced fees); and Stafford and CFLG I were engaged in violations for the 47 days between May 14 and June 29, 2012 (the period during which CFLG I received advanced fees). (Dkt. #411 ¶¶ 5-9.) In contrast, defendants argue that their violations ended when their respective companies enrolled their last consumer, not when the last advanced fee was collected.
In its reply brief, the Bureau concedes that it erred in calculating the duration for violations other than for payment of advanced fees. Specifically, the violations relating to misrepresentations, telling consumers not to communicate with their lenders, and failing to make certain disclosures occurred only at the time a consumer was enrolled and not during the entire period that advanced fees were collected. Still, the Bureau correctly points out that because § 1015.5(a) makes it unlawful to “[r]equest or receive payment of any fee . . . until the consumer has executed a written agreement” regarding mortgage assistance relief, defendants continued violating the advanced fee prohibition for as long they kept collecting those fees. Accordingly, the court will calculate the time period for: (1) violations related to misrepresentations (§ 1015.3(b)), telling consumers not to communicate with lender (§ 1015.3(a)), and failing to make certain disclosures ((§ 1015.4(b)) based on the dates of consumer enrollment; and (2) violations related to charging advanced fees (§ 1015.5(a)) based on the dates on which those fees were collected. The parties appear to agree on: the first and late dates on which each company collected advanced fees; the first and last dates that CFLG I enrolled consumers; and the first date on which TMLG and CFLG II enrolled a consumer. However, they dispute the Case: 3:14-cv-00513-wmc Document #: 419 Filed: 11/04/19 Page 14 of 27
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last date of enrollment for TMLG and CFLG II. The Bureau has submitted a declaration from one of its investigators, Ryan Thomas, who reviewed trial exhibits containing client data for TMLG (Jt. Tr. Exh. #1087) and CFLG II (Jt. Tr. Exh. #1112), and found that TMLG last enrolled a client on January 2, 2013, and CFLG II last enrolled a client on January 4, 2013. (Dkt. #417, ¶¶ 7-8.) According to the declaration from defense counsel’s paralegal supervisor, Nicole Waters, however, the trial exhibits show that TMLG enrolled its last client on October 30, 2012, and CFLG II enrolled its last client on November 30, 2012. (Dkt. #416, ¶¶ 6-7.) The court’s review of the declarations, and the client data upon which they relied, shows that the Bureau is correct and Thomas’s declaration is accurate. Moreover, while neither defendants nor Waters explain why she identified an earlier date for TMLG’s last enrollment, Waters acknowledges in her declaration that there is a single client record entry for CFLG II dated January 4, 2013, and she explains that this “date appears to be a data entry error, [because]: (1) no other clients enrolled in December 2012 or January 2013 (see Tr. Ex. 1112); and (2) the parties stipulated that CFLG II stopped enrolling clients in November 2012 (dkt. 329-1 at 32).” Id. As the Bureau points out, however, the parties’ stipulation in this regard states that “[i]n November 2012, after only a few months of operation, Macey directed that CFLG II be wound up” (dkt. # 329-1), but says nothing about when CLFG II stopped enrolling customers. Therefore, the court finds that the date of last client enrollment was more probably than not January 2, 2013, for TMLG and January 4, 2013, for CFLG II.
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Defendants further contend that the Bureau improperly used the combined lifespan of TMLG and CFLG to calculate the number of days (743) for every violation committed by Macey and Aleman, while, as defendants point out, TMLG and CFLG were in business for different amounts of time, and neither company was in business for a total of 743 days. The court agrees that a different number of days should be used for the duration of TMLGrelated violations versus CFLG-related violations. Accordingly, the court finds the following dates apply with respect to the relevant time periods: • TMLG-related advanced fee violations occurred July 21, 2011 through February 22, 2013 (538 days).
• TMLG-related enrollment violations occurred July 21, 2011 through January 2, 2013 (532 days).
• CFLG I-related advanced fee and enrollment violations occurred May 14, 2012 through June 29, 2012 (47 days).
• CFLG II-related advanced fee violations occurred August 9, 2012 through August 1, 2013 (358 days).
• CFLG II-related enrollment violations occurred August 3, 2012 through January 4, 2013 (155 days)
C. Application of Mitigating Factors The CFPA requires the consideration of the following factors, but appears to place no emphasis on any one or group of factors: (1) the size of financial resources and good faith of the person charged; (2) the gravity of the violation or failure to pay; (3) the severity of the risks to or losses of the consumer, which may take into account the number of products or services sold or provided; (4) the history of previous violations; and (5) such other matters as justice may require. 12 U.S.C. § 5565(c)(3). Except for the remaining Case: 3:14-cv-00513-wmc Document #: 419 Filed: 11/04/19 Page 16 of 27
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financial resources of the defendants, all of these factors weigh in favor of substantial civil penalties with respect to each of the defendants.
As to the first factor, the CFPA does not define the term “financial resources” or limit the consideration of this factor to any specific point in time. The Bureau acknowledges that in ordering penalties under other statutory schemes, such as under the securities laws or the Commodity Exchange Act, courts have considered the past, current, and future financial condition of the defendant. SEC v. Narvett, 2014 WL 5148394, at *3 (E.D. Wis. Oct. 14, 2014); SEC v. Amella, 2012 WL 13050551, at *2 (N.D. Ill. Dec. 10, 2012); CFTC v. Reisinger, 2017 WL 4164197, at *12 (N.D. Ill. Sept. 19, 2017). At the same time, the Bureau notes that courts have ordered significant penalties, even though the defendants claimed that they had no current ability to pay and had significant debts, based on the defendants’ ability to earn in the future. See, e.g., SEC v. Michel, 2008 WL 516369, at *2 (N.D. Ill. Feb. 22, 2008) (imposing penalty equal to 150% of disgorgement amount, despite defendant’s claims of large debts, lack of current net worth, and bar on work in securities industry, because defendant has ability to work in other areas); U.S. Commodity Futures Trading Comm'n v. Reisinger, No. 2017 WL 4164197, at *12 (N.D. Ill. Sept. 19, 2017) (imposing penalty of 10% of financial gain because “while [the defendant] is unemployed, the record provides no reason to suppose that she is unemployable”). Moreover, as noted above, neither party in this case presented any clear evidence on summary judgment or at trial from which the court can reach definitive findings with respect to the disposition of the companies’ profits or the financial resources of the individual defendants who started and ran these companies. The Bureau correctly points Case: 3:14-cv-00513-wmc Document #: 419 Filed: 11/04/19 Page 17 of 27
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out that TMLG and CFLG collected millions of dollars in fees from consumers, while defendants argue that neither company is currently in operation, plus Macey and Aleman have had their law licenses suspended. Ultimately, the court agrees with the Bureau that it is likely that Macey, Aleman, Searns, and Stafford, who are all experienced businessmen and trained lawyers, at least have future earning potential, even if much of their past earnings have been on the backs of financially distressed consumers. In addition, Macey was the principal financial backer of both TMLG and CFLG II and held the largest ownership stake. Accordingly, while there is no evidence that any of the defendants have sizable, remaining financial resources, they were in the best position to prove otherwise and chose not to do so. Certainly, this is not a situation where the defendants’ finances are so limited that only a nominal penalty should be imposed, particularly given the egregious and calculated nature of their violations.
The remaining factors overlap because they raise similar issues as to defendants’ conduct, intent, and injury to consumers. In previous rulings on summary judgment and in post-trial orders, the court found that Macey, Aleman, and Searns based their entire business model with respect to TMLG and CFLG II on “bait and switch” practices, all while trying to claim an exemption for the provision of legal services under the CFPA. (Dkt. #191 at 38-46; dkt. #409 at 20.) As discussed at length in the second post-trial order, most of the misconduct attributed to Macey, Aleman, and Searns was also committed in a deliberate or at least reckless manner. (Dkt. #409 at 33.) Macey was a major financial backer of both firms, while Aleman managed the dayto-day business, and Searns was in charge of regulatory and ethics issues. Collectively, Case: 3:14-cv-00513-wmc Document #: 419 Filed: 11/04/19 Page 18 of 27
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defendants Macey, Aleman, and Searns took illegal, advanced fees from 5,449 consumers in the amount of $18,716,725.78 in connection with TMLG over the course of about two years. In addition, defendants Macey and Aleman took further illegal, advanced fees in the amount of $2,897,566 from 1,089 consumers in connection with CFLG II over the course of about a year. Despite the thousands of dollars that they charged each consumer in advanced fees, a majority of TMLG and CFLG II consumers received neither a mortgage loan modification nor the legal representation that had been promised, and for those who did, almost certainly they could have done so without any cost or assistance from defendants.
In contrast, defendants Stafford and CFLG I had less of an impact on the consumers they harmed. CFLG I collected $94,730 in advanced fees from only 27 consumers; moreover, 14 of those individuals received a loan modification. In addition, given the court’s previous findings that Stafford and CFLG I adopted a more modest fee structure and took precautions to ensure that local attorneys actually established a meaningful, ongoing relationship with their clients, their conduct was far less egregious than that of the other defendants.
As the court recognized in the second of its post-trial orders, defendants Macey, Aleman, and Searns also appeared to have had long (and somewhat notorious) histories of offering dubious debt relief services, including running into difficulties with state regulators in the past. Additionally, in its brief in support of civil penalties, the Bureau cites consent decrees entered by various state courts concerning Legal Helpers Debt Resolution—the predecessor to TMLG—and a bankruptcy decision condemning the debt relief and Case: 3:14-cv-00513-wmc Document #: 419 Filed: 11/04/19 Page 19 of 27
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bankruptcy firm previously operated by defendant Searns.9 The Bureau admits that there is no evidence that defendant Stafford had a similar history of past violations. Finally, defendants argue that no separate penalties should be assessed against CFLG for its activities, because doing so would only result in double counting in the event that the individual defendants associated with CFLG I (Stafford) and CFLG II (Macey and Aleman) are held individually liable for CFLG’s penalty.10 Defendants raise a fair point to which the Bureau provides no meaningful response. Therefore, although the court declines to let the corporate entity CFLG off the hook for its actions, defendants Macey, Aleman, and Stafford will not be held individually liable for the civil penalties assessed against that entity.
Considering all of the relevant factors, including defendants’ respective lack of good faith, the gravity of their violations, and the effect on the ultimate consumers they specifically targeted, the court finds that the mitigating factors weigh most strongly against defendants Macey and Aleman, to a somewhat lesser extent against Searns and CFLG II, and by far the least against Stafford and CFLG I. While defendants argue that they should not be subject to any penalty, the Bureau recommends that Macey and Aleman pay 20% of the maximum penalty, Searns and CFLG II pay 15%, and Stafford and CFLG I pay 5%. In light of the above considerations and the court’s rulings with respect to defendants’
9 Even though these documents were not formally admitted into evidence at trial, the Court takes judicial notice of them pursuant to Federal Rule of Evidence 201. 10 As previously noted, CFLG I and II represent different time and ownership periods during which distinct violations occurred. Although the distinction affects how the civil penalties are calculated, CFLG itself remained a single legal entity and is subject to just a single, independent penalty, if that.
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liability, level of knowledge, and duration of misconduct, the court finds the Bureau’s proposal reasonable and will award civil penalties in the following amounts:
Defendant and Type of Violation No. of Counts Per Type of Violation No. of Days Engaged in Violations Penalty Amount at $5,000/day (Strict Liability) Penalty Amount at $25,000/day (Reckless) Total Maximum Penalty Mitigated Penalty
Macey
TMLG advanced fees
$13,450,000
CFLG II advanced fees
$8,950,000
TMLG enrollment violations
$26,600,000
CFLG II enrollment violations
$7,750,000
$56,750,000 $11,350,000
Aleman
TMLG advanced fees
$13,450,000
CFLG II advanced fees
$8,950,000
TMLG enrollment violations
$39,900,000
CFLG II enrollment violations
$11,625,000
$73,925,000 $14,785,000
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Searns
TMLG advanced fees
$13,450,000
TMLG enrollment violations
$39,900,000
$53,350,000 $8,002,500
Stafford
$705,000
$705,000 $35,250
CFLG
CFLG I (advanced fees and enrollment) $705,000
$705,000 $35,250 CFLG II advanced fees
$8,950,000 $8,950,000 $1,342,500 CFLG II enrollment violations
$11,625,000 $11,625,000 $1,743,750
$21,280,000 $3,121,500
III. Permanent Injunction
Finally, the Bureau seeks a permanent injunction banning: (1) defendants Macey, Aleman, Searns, and CFLG from marketing, selling, providing, offering to provide, and assisting others to market, sell, provide, or offer to provide, any mortgage assistance relief products or services as defined in 12 C.F.R. § 1015.2, and any debt relief products or services, as defined in the Telemarketing Sales Rule, 16 C.F.R. § 310.2(o); and (2) defendant Stafford from marketing, selling, providing, offering to provide, and assisting others to market, sell, provide, or offer to provide, any mortgage assistance relief products Case: 3:14-cv-00513-wmc Document #: 419 Filed: 11/04/19 Page 22 of 27
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or services as defined in 12 C.F.R. § 1015.2. Defendants oppose the imposition of a permanent injunction against any of them, particularly one so broad in scope. The Consumer Protection Act grants courts the power to order “limits on the activities or functions of the person” who violates that statute. 12 U.S.C. § 5565(a)(2)(G). “In an action for a statutory injunction, once a violation has been demonstrated, the moving party need only show that there is a reasonable likelihood of future violations in order to obtain relief.” S.E.C. v. Holschuh, 694 F.2d 130, 144 (7th Cir. 1982) (citing Commodity Futures Trading Commission v. Hunt, 591 F.2d 1211, 1220 (7th Cir.1979)). “In predicting the likelihood of future violations, a court must assess the totality of the circumstances surrounding the defendant and his violation, including such factors as the gravity of harm caused by the offense; the extent of the defendant's participation and his degree of scienter; the isolated or recurrent nature of the infraction and the likelihood that the defendant's customary business activities might again involve him in such transactions; the defendant's recognition of his own culpability; and the sincerity of his assurances against future violations.” Id. Under the totality of the circumstances here, a permanent injunction is certainly warranted with respect to defendants Macey, Aleman, Searns, and CFLG, and a five-year injunction is appropriate for defendant Stafford. The gravity of harm caused by defendants’ actions, and their degree of individual participation and scienter, is discussed at length above and in the post-trial orders. Although Stafford’s conduct affected far fewer consumers and involved much less money than that of Macey, Aleman, Searns, and CFLG, all of the defendants were personally involved in a fraudulent scheme to charge already Case: 3:14-cv-00513-wmc Document #: 419 Filed: 11/04/19 Page 23 of 27
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financially-distressed, vulnerable individuals exorbitant fees for purported mortgage relief services that were offered in violation of law and of little, if any, actual value. Consumer Fin. Prot. Bureau v. Siringoringo, 2016 WL 102435, at *5-6 (C.D. Cal. Jan. 7, 2016) (finding similar in issuing permanent injunction). Nor do their violations represent isolated instances; rather, they spanned several months to a few years, and in the case of Macey, Aleman, and Searns, represented a continuation of the same or similar activities that came under regulatory scrutiny in the past. If defendants were to renew the practices of TMLG and CFLG, other potential victims could suffer similar harm and may receive only a fraction of monetary damages to compensate them for their injuries.11 See Siringoringo, 2016 WL 102435, at *5-6 (finding similar).
Although defendants argue that both TMLG and CFLG are now out of business, and Macey and Aleman have suspended law licenses, all of the individual defendants have shown a propensity to create new businesses offering to provide loan modification services to financially-strapped consumers. Moreover, defendants appear to have failed to recognize even now their culpability with respect to Regulation O or provide any assurances that they will not commit future violations. Considering the totality of the circumstances, therefore, the court finds that there is a reasonable likelihood that each and every defendant may commit similar violations of the statute in the future. The court further finds that the public interest is best served by the issuance of injunctions reasonably
11 In fact, Stafford testified at his deposition that after he sold his shares in CFLG, he opened another loan modification business called Consumer First Legal Network, which he described as a mirror image of CFLG. (Dkt. #72 at 139-40.)
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preventing defendants from engaging in behavior related to their illegal conduct in this case.
“A federal court has broad power to restrain acts which are of the same type or class as unlawful acts which the court has found to have been committed or whose commission in the future, unless enjoined, may fairly be anticipated from the defendant's conduct in the past.” Zenith Radio Corp. v. Hazeltine Research, Inc., 395 U.S. 100, 132 (1969) (quoting NLRB v. Express Publ'g Co., 312 U.S. 426, 435 (1941)). Defendants argue that the limitation on the offering and provision of mortgage relief services would apply regardless of whether such activity is part of the practice of law, and therefore violates the Consumer Protection Act’s prohibition on the Bureau regulating the practice of law, 12 U.S.C. 5517(e)(1). However, the wording of the proposed injunction makes express that the mortgage assistance relief products or services to be enjoined are those defined in 12 C.F.R. § 1015.2, which under the exemption in 12 C.F.R. § 1015.7(a) does not include the provision of legitimate services provided as part of the practice of law. Finally, defendants argue that the scope of the proposed injunction with respect to Macey, Aleman, Searns, and CFLG is overly broad to the extent that it seeks to prohibit them from offering or providing debt relief services because the Bureau has failed to define those services or show how they relate to the violations at issue in this case. However, the wording of the proposed injunction expressly identifies debt relief services as those set forth in the Telemarketing Sales Rule, 16 C.F.R. § 310.2(o), including “any program or service represented, directly or by implication, to renegotiate, settle, or in any way alter the terms of payment or other terms of the debt between a person and one or more unsecured Case: 3:14-cv-00513-wmc Document #: 419 Filed: 11/04/19 Page 25 of 27
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creditors or debt collectors, including, but not limited to, a reduction in the balance, interest rate, or fees owed by a person to an unsecured creditor or debt collector.” Given the past conduct of Macey, Aleman, Searns, and CFLG with respect to mortgage relief services, it is more than reasonable to anticipate that these defendants will likely to engage in similar illegal practices with respect to other types of debt. Therefore, the court will permanently enjoin defendants Macey, Aleman, Searns, and CFLG from providing debt relief services as well as mortgage relief services. ORDER IT IS ORDERED that:
A. Restitution in the following amounts 1. Defendants TMLG, Macey, Aleman, and Searns are jointly and severally liable for restitution in the amount of $18,716,725.78 with respect to the advance fees that TMLG collected from consumers, payable within 30 days to the Bureau to be disbursed on a pro rata basis to the extent practical (or otherwise as the court might approve in the future).
2. Defendants CFLG, Macey, and Aleman Searns are jointly and severally liable for restitution in the amount of $2,897,566 with respect to the advanced fees that CFLG II collected from consumers, payable within 30 days to the Bureau to be disbursed on a pro rata basis to the extent practical (or otherwise as the court might approve in the future).
3. Defendants Stafford and CFLG are jointly and severally liable for restitution in the amount of $94,730 with respect to the advanced fees that CFLG I collected from consumers, payable within 30 days to the Bureau to be disbursed on a pro rata basis to the extent practical (or otherwise as the court might approve in the future).
4. To the extent that any portions of the restitution amounts paid cannot reasonably be returned to consumers by the Bureau within one year of receipt, then the excess —minus any reasonable costs incurred by the Bureau in implementing the restitution award—shall be applied toward the civil penalties assessed against defendants, with the remainder, if any, reverting to defendants. Case: 3:14-cv-00513-wmc Document #: 419 Filed: 11/04/19 Page 26 of 27
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B. Defendants are directed to pay civil penalties to the Bureau in the following amounts on or before 30 days from date of this order. These amounts represent civil penalties owed to the United States pursuant to 12 U.S.C. § 5565(c) and are not compensation for actual pecuniary loss and, therefore, are not subject to discharge under the Bankruptcy Code pursuant to 11 U.S.C. § 523(a)(7).
1. Macey in the amount of $11,350,000.
2. Aleman in the amount of $14,785,000.
3. Searns in the amount of $8,002,500.
4. Stafford in the amount of $35, 250.
5. CFLG in the amount of $3,121,500.
C. No interest shall accrue on the ordered payments if timely made. In the event of any default in payment, the entire unpaid amount shall constitute a debt due and immediately owing and post-judgment interest shall be assessed from the date of this order until payment is made as set forth in 28 U.S.C. § 1961. D. An injunction pursuant to Federal Rule of Civil Procedure 65 is also ENTERED under the following terms and conditions:
1. Defendants Macey, Aleman, Searns, and CFLG are permanently enjoined from marketing, selling, providing, offering to provide, and assisting others to market, sell, provide, or offer to provide, any mortgage assistance relief products or services as defined in 12 C.F.R. § 1015.2, and any debt relief products or services, as defined in the Telemarketing Sales Rule, 16 C.F.R. § 310.2(o); and
2. Defendant Stafford is enjoined for five years from marketing, selling, providing, offering to provide, and assisting others to market, sell, provide, or offer to provide, any mortgage assistance relief products or services as defined in 12 C.F.R. § 1015.2.
E. The clerk of court is directed to enter final judgment in favor of the Bureau consistent with this court’s summary judgment order, post-trial orders, and this order.
Entered this 4th day of November, 2019.
BY THE COURT:
/s/ WILLIAM M. CONLEY District Judge Case: 3:14-cv-00513-wmc Document #: 419 Filed: 11/04/19 Page 27 of 27
Opinion ()
PDF of this document (29 pages)
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In the United States Court of Appeals For the Seventh Circuit ____________________ No. 19-3396 CONSUMER FINANCIAL PROTECTION BUREAU, Plaintiff-Appellee, v.
CONSUMER FIRST LEGAL GROUP, LLC, et al., Defendants-Appellants.
____________________ Appeal from the United States District Court for the Western District of Wisconsin.
No. 3:14-cv-00513-wmc — William M. Conley, Judge. ____________________ ARGUED JANUARY 12, 2021 — DECIDED JULY 23, 2021 ____________________ Before EASTERBROOK, WOOD, and ST. EVE, Circuit Judges. WOOD, Circuit Judge. The financial crisis of 2007–2008 sent shock waves throughout the national economy. Perhaps nowhere were the effects felt harder than in the residential mortgage sector. According to one source, more than seven million homes entered foreclosure between 2007 and 2010. See S. Rep. No. 111-176, at 39 (2010). This appeal concerns the rules that apply to mortgage-assistance relief services. The question is whether the Consumer Financial Protection Bureau (“the Case: 19-3396 Document: 78 Filed: 07/23/2021 Pages: 29
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No. 19-3396 Bureau”) correctly declined to treat two high-volume, national law practices under the rules governing lawyers, and thus whether the stiff penalties that were imposed on the firms (and their principals) can stand. We conclude that the Bureau’s decision that the firms and lawyers were not engaged in the practice of law was supported by the record, but that further proceedings are necessary on the issue of remedies.
I As desperate people faced the imminent loss of their homes, many for-profit mortgage-assistance relief services (MARS), which promised to obtain loan modifications that would stave off foreclosure, sprang up. The more dubious among these businesses charged consumers thousands of dollars in up-front fees and induced signups through deceptive statements about the quality of their services. Mortgage Assistance Relief Services, 75 Fed. Reg. 75092, 75095–96 (Dec. 1, 2010). The money often bought little to nothing. Once a person enrolled, many MARS providers “fail[ed] to perform even the most basic promised services or achieve any beneficial results.” Id. at 75097. This was doubly unfortunate because, at the same time, many nonprofits and government agencies offered similar services at no cost. Id. at 75093–94 & nn.29–35. Congress quickly identified mortgage-relief scams as a glaring problem, and it directed the Federal Trade Commission to issue rules relating to “unfair or deceptive acts or practices involving loan modification and foreclosure rescue services.” Credit Card Accountability, Responsibility, and Disclosure Act of 2009, Pub. L. No. 111-24, § 511(a), 123 Stat. 1734, 1764; see also Omnibus Appropriations Act of 2009, Pub. L. No. 111-8, § 626(a), 123 Stat. 524, 678 (instructing the FTC to Case: 19-3396 Document: 78 Filed: 07/23/2021 Pages: 29
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No. 19-3396 “initiate a rulemaking proceeding with respect to mortgage loans”).
The FTC did so, issuing its final rule on December 1, 2010. See 75 Fed. Reg. 75092 (then-codified at 16 C.F.R. pt. 322, now at 12 C.F.R. pt. 1015). The rule focused on the “widespread” “unfair or deceptive practices of MARS providers” and the harm these actors had inflicted on consumers. Id. at 75096. Among other things, the rule prohibited MARS providers from charging upfront fees, telling consumers not to talk to their lenders, and misrepresenting material aspects of their services. See 12 C.F.R. §§ 1015.3, 1015.5. The rule also addressed the role of attorneys. It acknowledged that many attorneys and law firms that represent financially distressed persons offer mortgage-relief services in connection with their legal practice. Id. at 75095. Recognizing the traditional role that the states play in regulating the attorneyclient relationship, the final rule exempted attorneys from most MARS regulations so long as they (1) “provide[] mortgage assistance relief service as part of the practice of law,” (2) are “licensed to practice law in the state in which the[ir] consumer … resides,” and (3) “compl[y] with state laws and regulations that cover the same type of conduct the rule requires.” See 12 C.F.R. § 1015.7(a).
While the FTC’s rulemaking was underway, Congress was also busy. It overhauled the federal consumer protection apparatus as part of the Dodd-Frank Wall Street Reform and Consumer Financial Protection Act of 2010, Pub. L. No. 111- 203, 124 Stat. 1376. Title X of Dodd-Frank, known as the Consumer Financial Protection Act (“the Act”), established the Bureau as the federal government’s primary consumer protection agency when it comes to financial matters. 12 U.S.C. Case: 19-3396 Document: 78 Filed: 07/23/2021 Pages: 29
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No. 19-3396 § 5511(a)–(b). The Act also transferred responsibility over numerous consumer protection areas formerly overseen by other agencies to the Bureau. One such area was the FTC’s authority over mortgage practices. See 124 Stat. at 2036–37, 2102–03. This transfer took effect on July 21, 2011, several months after the FTC issued its final rule. See 12 U.S.C. § 5582; 75 Fed. Reg. 57252 (Sept. 20, 2010). Shortly after the baton was passed, the Bureau reissued the FTC’s MARS rule as Regulation O. See 76 Fed. Reg. 78130 (Dec. 16, 2011) (promulgating 12 C.F.R. pt. 1015). Finally, cognizant of the role attorneys may play in the provision of consumer financial services, as well as the traditional role that states play in regulating attorney conduct, Congress stripped the Bureau of “supervisory or enforcement authority with respect to an activity engaged in by an attorney as part of the practice of law under the laws of a State in which the attorney is licensed to practice.” See 12 U.S.C. § 5517(e)(1).
II This case arises out of a civil enforcement action brought by the Bureau against two firms—The Mortgage Law Group, LLP (“the Mortgage Group”), and Consumer First Legal Group, LLC (“Consumer First”)—and four lawyers associated with them—Thomas Macey, Jeffrey Aleman, Jason Searns, and Harold Stafford (collectively, “the Providers”). The Bureau alleges that while providing mortgage-assistance relief services to more than 6,000 customers across 39 states, the defendants violated Regulation O by making misrepresentations about their services, failing to make mandatory disclosures, and collecting unlawful advance fees. Case: 19-3396 Document: 78 Filed: 07/23/2021 Pages: 29
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No. 19-3396 Macey, Aleman, and Searns formed the Mortgage Group in 2011. Stafford founded Consumer First in January 2012. After six months of operation, Stafford sold 95% of Consumer First to Macey, Aleman, and Searns, who operated the firm similarly to the Mortgage Group. (Since Consumer First operated differently before and after the sale, we distinguish the firm’s two ownership periods by referring to it as Consumer First I or Consumer First II where appropriate.) The firms’ business model focused on offering mortgage modification services to distressed homeowners. They directly employed four to five attorneys at their headquarters in Chicago and associated themselves with local attorneys in the various states in which they conducted business. The bulk of the firms’ actual work, however, was performed by 30 to 40 nonattorneys (called “client intake specialists”), who enrolled customers, gathered the necessary documents for modification applications, reviewed those documents, answered consumer questions, and submitted loan-modification applications to lenders.
The intake specialists operated out of a centralized call center and worked off a standardized script. If a consumer expressed interest in mortgage-relief services, the specialist transferred her to an attorney at company headquarters. This attorney also worked off a script, which contained prepared statements about the program and fees. After each statement, the attorney asked the prospective customer whether he or she understood. If the customer answered “yes” each time, the attorney transferred her back to the intake specialist to sign a retainer agreement for services. The firms charged each customer an initial retainer fee of $1,000 to $2,000, followed by recurring monthly fees of $500 Case: 19-3396 Document: 78 Filed: 07/23/2021 Pages: 29
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No. 19-3396 to $1,000 until services were ended. On average, the firms ended up collecting $3,375 per client. Critically, under the terms of the retainer agreement, these fees covered only the firms’ loan-modification services. If a customer asked the firms to perform additional work beyond the submission of the initial loan-modification application—for example, legal representation in a foreclosure proceeding or bankruptcy proceeding—those services had to be negotiated and paid for separately.
Intake specialists gathered from customers the financial documents needed to submit a loan-modification application on the customer’s behalf. Once these documents were in hand, the intake specialist signaled in an internal firm system that the customer’s packet was ready for “attorney review.” An attorney at headquarters would review the customer’s file and then pass it along to a local attorney in the customer’s home state for additional review.
The firms had affiliations with local attorneys in most states in which they accepted customers. The firms classified these arrangements as “Class B” memberships or partnerships. But that label was misleading: the local attorneys did not share in the firms’ profits or losses, nor did they supervise or control the firms’ staff or operations. Instead, they were paid low, flat-rate fees ($25 to $40) for each task they completed.
Local attorney reviews were perfunctory: the attorneys’ primary responsibility was to make sure that all the required documents were present for a loan modification application. Most reviews took between five and ten minutes. Rarely would a local attorney recommend that a customer be declined or send a loan-modification application back because Case: 19-3396 Document: 78 Filed: 07/23/2021 Pages: 29
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No. 19-3396 of problems. Local attorneys almost never communicated directly with customers. After a customer’s file was approved, an intake specialist—not an attorney—sent the loan-modification application to the customer’s loan servicer. The Mortgage Group and Consumer First operated for about two years. During that time, the Mortgage Group obtained loan modifications for 26% of its customers (1,369 out of 5,265) and Consumer First II obtained loan modifications for 17% of its customers (190 out of 1,116). The Mortgage Group ceased operations by the third quarter of 2013. Consumer First II stopped taking new clients in November 2012 and stopped serving existing clients in the second quarter of 2013.
The Bureau initiated this lawsuit in 2014. The case was originally assigned to Judge Crabb, who handled most of the pretrial proceedings. On the Bureau’s motion for summary judgment, Judge Crabb partially invalidated sections 1015.7(a)(3) & (b) of Regulation O’s attorney exemption as inconsistent with the Act, but her order left intact the heart of Regulation O’s exemption, sections 1015.7(a)(1)–(2). In addition, Judge Crabb granted summary judgment against the Providers on the following five issues: (1) charging unlawful advance fees, in violation of 12 C.F.R. § 1015.5(a);
(2) failing to make disclosures required by 12 C.F.R. § 1015.4;
(3) implying in their welcome letter to customers that the customer should not communicate with lenders, in violation of 12 C.F.R. § 1015.3;
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No. 19-3396 (4) implying that consumers current on mortgages should stop making payments, in violation of 12 C.F.R. § 1015.3(b)(4); and (5) misrepresenting the performance of nonprofit alternative services, in violation of 12 C.F.R. § 1015.3(b)(9). Judge Crabb also held that individual defendants Aleman, Searns, and Macey could be held personally liable for the Mortgage Group and Consumer First II, and that the appropriate measure for restitution would be the firms’ net revenue (i.e., fees collected minus refunds given). Shortly thereafter, the case was transferred to Judge Conley, who held a bench trial to resolve the remaining factual issues in the case, including whether the Providers qualified for the attorney exemption in the Act and Regulation O. On November 11, 2018, Judge Conley issued a posttrial order in which he concluded that the Providers were not exempt from Regulation O, because the tasks completed by the firms’ attorneys did not amount to the “practice of law.” Judge Conley also determined that Consumer First II, Aleman, and Searns were liable for (1) misleading customers into thinking that they would receive legal representation and (2) for advising customers during intake calls not to communicate with their lenders. He concluded that Consumer First II, Macey, Aleman, and Searns would be subject to civil penalties under a recklessness standard, but that Consumer First I and Stafford would be subject to the lower civil penalties that apply to offenses that fall under the strict-liability standard. (The Mortgage Group filed for bankruptcy during the pendency of this action; the Bureau and the trustee agreed to a consent order, which the district court entered as amended in November Case: 19-3396 Document: 78 Filed: 07/23/2021 Pages: 29
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No. 19-3396 2018. The Mortgage Group is therefore not a party to this appeal.) The court issued its remedies decision on November 4, 2019. In accordance with Judge Crabb’s earlier rulings, it ordered restitution in the amount of $21,709,021. It then assessed the following civil penalties: $11,350,000 for Macey; $14,785,000 for Aleman; $8,002,500 for Searns; $32,250 for Stafford, and $3,121,500 for Consumer First II. Finally, the court permanently enjoined Macey, Aleman, and Searns from providing “debt relief services.”
III Consumer First II, Macey, Aleman, and Searns (“Appellants”) challenge the district court’s judgment on five grounds. First and foremost, they maintain that they are exempt from liability because they were practicing law. If, however, that exemption does not cover them, Appellants argue in the alternative that the evidence did not support three violations for which they were found liable. Finally, Appellants identify three problems with the district court’s remedy: its use of net profits rather than net revenues for purposes of restitution; the finding of recklessness for the civil penalties, as well as the periods to which those penalties applied; and overbreadth of the injunction.
A We begin with Appellants’ primary contention: that the Bureau lacks the authority to bring this action because as attorneys they are exempt from liability under Regulation O and the Act. The language of the statute is critical, and so we set it out in full:
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No. 19-3396 (1) In general Except as provided under paragraph (2), the Bureau may not exercise any supervisory or enforcement authority with respect to an activity engaged in by an attorney as part of the practice of law under the laws of the State in which the attorney is licensed to practice law. (2) Rule of construction Paragraph (1) shall not be construed so as to limit the exercise of the Bureau of any supervisory, enforcement, or other authority regarding the offering or provision of a consumer financial product or service … (A) that is not offered or provided as part of, or incidental to, the practice of law, occurring exclusively within the scope of the attorney-client relationship; or (B) that is otherwise offered or provided by the attorney in question with respect to any consumer who is not receiving legal advice or services from the attorney in connection with such financial product or service.
(3) Existing authority Paragraph (1) shall not be construed so as to limit the authority of the Bureau with respect to any attorney, to the extent that such attorney is otherwise subject to any of the enumerated consumer laws or authorities transferred under subtitle F or H [of the Dodd-Frank Wall Street Reform and Consumer Financial Protection Act of 2010].
12 U.S.C. § 5517(e) (emphasis added). Case: 19-3396 Document: 78 Filed: 07/23/2021 Pages: 29
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No. 19-3396 Regulation O’s exemption is worded differently. It provides:
(a) An attorney is exempt from this part, with the exception of § 1015.5, if the attorney: (1) Provides mortgage assistance relief services as part of the practice of law;
(2) Is licensed to practice law in the state in which the consumer for whom the attorney is providing mortgage assistance relief services resides or in which the consumer’s dwelling is located; and (3) Complies with state laws and regulations that cover the same type of conduct the rule requires. (b) An attorney who is exempt pursuant to paragraph (a) of this section is also exempt from § 1015.5 if the attorney:
(1) Deposits any funds received from the consumer prior to performing legal services in a client trust account; and (2) Complies with all state laws and regulations, including licensing regulations, applicable to client trust accounts.
12 C.F.R. § 1015.7 (emphasis added). Before trial, the district court assigned Appellants the burden of proving their eligibility for the attorney exemption. After trial, the court held that they failed to meet that burden, because they did not show that the attorneys associated with the firm were engaged in the “practice of law” as defined by any of the states in which they did business. As this was a bench trial, we review the court’s factual findings for clear Case: 19-3396 Document: 78 Filed: 07/23/2021 Pages: 29
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No. 19-3396 error and its legal conclusions de novo. Morisch v. United States, 653 F.3d 522, 528 (7th Cir. 2011). Clear error review also applies to the court’s applications of law to facts in this setting. We begin with the relation between the Act and Regulation O. We do so because, if and to the extent that Regulation O strays beyond the statutory boundaries, we cannot rely on it. This problem arises because (as we highlighted above) the attorney exemption is expressed differently in the Act and the Regulation. Appellants pointed this out before trial. They argued that the Act establishes the outer bounds of the Bureau’s authority over attorneys, and that the Bureau cannot expand its authority by imposing in a regulation additional requirements attorneys must meet to be exempt from liability. Since sections 1015.7(a)(3) and (b) of Regulation O do exactly that, Appellants contended, they must be set aside as contrary to the Bureau’s statutory authority. See 5 U.S.C. § 706(2)(C). The Bureau did not deny that Regulation O exempts a narrower category of attorneys from liability than section 5517(e)(1) of the Act describes. Instead, it maintained that the Regulation O attorney exemption is a valid exercise of the authority conferred by the saving clause of section 5517(e)(3). Subsection (e)(3) says that the attorney exemption in section 5517(e)(1) does not limit the Bureau’s authority over any attorneys “otherwise subject to any of the enumerated consumer laws or authorities transferred under subtitle F or H [of the Dodd-Frank Act.]” In the Bureau’s view, Regulation O is one of those “authorities transferred under subtitle F or H,” because it originally was authorized and promulgated as an FTC rule pursuant to section 626 of the Omnibus Appropriations Act of 2009. The Dodd-Frank Act later transferred that Case: 19-3396 Document: 78 Filed: 07/23/2021 Pages: 29
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No. 19-3396 authority to the Bureau. Thus, the Board argued, section 5517(e)(1) of the Act does not constrain the scope of the attorney exemption in Regulation O.
The district court found that Appellants had the better of this argument. It invalidated sections 1015.7(a)(3) and (b) of Regulation O, concluding that they were in “direct conflict” with the attorney exemption in the Act. The court rejected the Bureau’s use of the saving clause, because it failed to explain why “Congress would prohibit [the Bureau] from regulating attorneys engaged in the practice of law” in subsection (e)(1) “and then create an exception that swallows the general prohibition.” It left undisturbed the other provisions of Regulation O’s attorney exemption, see 12 C.F.R. § 1015.7(a)(1)–(2), because Appellants did not argue that they exceeded the Bureau’s rulemaking authority.
On appeal, the Bureau asserts that the district court erred in its legal assessment of sections 1015.7(a)(3) and (b). Appellants defend the court’s ruling and argue—for the first time on appeal—that it should have gone further. Their new focus is on section 1015.7(a)(2), which requires an attorney to be licensed in the same state as the consumer-client in order to be exempt.
We can be brief about sections 1015.7(a)(3) and (b) of the regulation. They exceed the Act’s grant of authority to the Bureau and so must be set aside. See 5 U.S.C. § 706(2)(C). We also reject the idea that section 5517(e)(3) furnishes the necessary authority to add extra conditions that an attorney must meet to qualify for exemption. On the latter point, we agree with the district court that the Bureau’s reading of section 5517(e)(3) would effectively render subsection (e)(1) a nullity. That is not a sensible way to read a statute. Subsection (e)(3) Case: 19-3396 Document: 78 Filed: 07/23/2021 Pages: 29
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No. 19-3396 performs a clarifying function: it confirms that an attorney who otherwise is subject to liability for violating consumer laws in his personal capacity—that is, outside the context of an attorney-client relationship—cannot escape liability simply by virtue of being an attorney. Two aspects of section 5517(e) confirm this reading. First, subsection (e)(3) begins with the words “Paragraph (1) shall not be construed so as to …”—indicating that subsection (e)(3) clarifies subsection (e)(1)’s meaning but does not make a substantive change to it. Second, subsection (e)(1) itself purports to be limited only by subsection (e)(2), but not (e)(3), since it begins: “Except as provided under paragraph (2), the Bureau may not exercise any supervisory or enforcement authority with respect to an activity engaged in by an attorney as part of the practice of law … .” (Emphasis added.) While we affirm this aspect of the district court’s order, we agree with Appellants that section 1015.7(a)(2) of Regulation O exceeds the statutory boundaries. We acknowledge that they did not present this argument to the district court. We have discretion, however, to address pure questions of law for the first time on appeal. See, e.g., Hively v. Ivy Tech Cmty. Coll. of Ind., 853 F.3d 339, 351 (7th Cir. 2017) (en banc); Amcast Indus. Corp. v. Detrex Corp., 2 F.3d 746, 750 (7th Cir. 1993). We exercise that discretion here in the interest of judicial economy and because the resolution of this issue is important to the coherence and continued functioning of the regulatory scheme.
An easy way to illustrate the problem with section 1015.7(a)(2) is by considering the nature of national law firms. Lawyers licensed in and operating out of one state (“national attorneys”) are entitled to advise clients in other states in Case: 19-3396 Document: 78 Filed: 07/23/2021 Pages: 29
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No. 19-3396 which they are not licensed, so long as they affiliate themselves with local counsel. See, e.g., MODEL RULES OF PRO. CONDUCT r. 5.5(c) (AM. BAR ASS’N 2019). This arrangement is permitted under the legal-practice rules of every state. Section 1015.7(a)(2) sits uneasily with this rule. It purports to exempt from the Act only those attorneys who are “licensed to practice law in the state in which the[ir] consumer … resides.” In other words, it allows the Bureau to regulate a “national attorney” who provides legal services to a client living in a state where the attorney is not licensed.
The Act, by contrast, exempts such an attorney from regulation so long as she is engaged in the practice of law as defined by the state in which she is licensed. The Act does not care about the state where the client lives. It follows that section 1015.7(a)(2), like sections 1015.7(a)(3) and (b), impermissibly broadens the class of attorneys who are subject to Regulation O, in direct conflict with the Act. This conflict is unambiguous, and so our inquiry stops there. See Chevron U.S.A. Inc. v. Nat. Res. Def. Council, Inc., 467 U.S. 837, 842–43 (1984); City of Arlington v. FCC, 569 U.S. 290, 296–97 (2013) (applying Chevron to agency interpretations concerning the scope of their statutory authority). Section 1015.7(a)(2) is contrary to the Bureau’s statutory authority and cannot stand. See 5 U.S.C. 706(2)(C).
With this much established, we are ready to turn to the merits of the appeal. Under the Act and the remaining provision of Regulation O, the Bureau is authorized to bring its action against Appellants so long as the attorneys associated with the firms did not provide mortgage relief services “as part of the practice of law.” 12 U.S.C. § 5517(e)(1); 12 C.F.R. Case: 19-3396 Document: 78 Filed: 07/23/2021 Pages: 29
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No. 19-3396 § 1015.7(a)(1). The district court made just that finding after the bench trial.
In an effort to simplify its task, the district court surveyed the practice-of-law definitions of the 39 states in which Appellants serviced clients. Based on this review, it distilled the inquiry down to the following question, common to all: whether the attorney’s conduct involved “[t]he application of legal principles and judgment to a particular set of facts.” (The court noted that it had been guided in this respect by ABA Model Rule of Professional Conduct 5.5.) It invited the parties to explain why it could not analyze practice-of-law in each state according to this common inquiry. Neither side responded.
Having settled on a test common to all states, the district court proceeded to analyze the activities of the firms’ attorneys. It focused on the firms’ local attorneys—that is, the people who the firms represented to customers would be providing them with legal representation. The court determined as a factual matter that “local counsel’s involvement consisted primarily, and in most cases exclusively, of pro forma document review” and that “the role of the local attorney was by design almost always perfunctory, rather than substantive.” As a result, the court concluded that the firms’ local attorneys did not apply “legal principles and judgment to a particular set of facts” and so were not engaged in the “legitimate practice of law.”
While some might have seen the facts the other way, we see no clear error in this conclusion. The record at trial showed that, in the normal course of the firms’ provision of mortgage-relief services, attorneys conducted brief reviews to be sure that a few basic pieces of financial information Case: 19-3396 Document: 78 Filed: 07/23/2021 Pages: 29
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No. 19-3396 (already reviewed and approved by nonattorney intake specialists) were in the file. They were not checking these documents for substance. At trial, two local attorneys testified that nothing they did during their “review” involved the application of legal principles or use of legal knowledge. Apart from a few rare exceptions, local attorneys did not meet with consumers, email consumers, or exchange information with consumers. Nor did they negotiate with or even contact lenders or servicers—that work was undertaken by the firms’ nonattorney staff. When customers received modifications from their loan servicers, the firms’ attorneys did not review or advise consumers on their terms.
Defendants maintain that the firms’ local attorneys practiced law because they sometimes provided legal services such as a foreclosure defense. But these services were performed for only a tiny number of customers. These isolated instances do not undermine the court’s conclusion. As section 5517(e)(2)(B) of the Act makes clear, the Bureau is authorized to regulate services performed for customers who do not receive any legal advice or services in connection with those services. That is the case here.
Appellants raise two further objections to the district court’s “practice of law” holding, both for the first time on appeal. First, they complain that the district court committed legal error by selecting a common definition of “practice of law” for all the states in which the firms did business. They criticize the court for failing to find that its common inquiry was a necessary condition for the practice of law in each state, and now, on appeal, they point to examples of states that use a broader definition than the one the court adopted. (They identify Texas, Minnesota, and South Carolina as examples.) Case: 19-3396 Document: 78 Filed: 07/23/2021 Pages: 29
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No. 19-3396 That may be, but we consider this argument to be waived and without merit in any event. The court said that its definition was a “fundamental inquiry” in all relevant states—a sine qua non for the practice of law in each of the relevant jurisdictions. The court did not force this definition on anyone. To the contrary, it expressly invited the parties to explain why the test it had selected would not work for every state. Appellants passed up this opportunity. If they now are unsatisfied with the test the district court selected, they have only themselves to blame.
Appellants’ second objection concerns the burden of proof. For purposes of summary judgment, the district court determined that they had the burden of proving that they qualify for the attorney exemption. See NLRB v. Kentucky River Cmty. Care, Inc., 532 U.S. 706, 711 (2001) (“[T]he burden of proving justification or exemption under a special exemption to prohibitions of a statute generally rests on one who claims its benefits.”); see United States v. An Article of Device, 731 F.2d 1253, 1260–62 (7th Cir. 1984) (applying the same principle to a regulatory exemption).
Appellants now argue, once again for the first time on appeal, that the burden should have been placed on the Bureau, because it is the Bureau that is claiming the benefit of an exemption, not them. Appellants reason that section 5517(e)(1) of the Act creates a baseline rule under which the Bureau cannot enforce regulations against any attorneys engaged in the practice of law. Section 5517(e)(2) then carves out an exception to that rule for attorneys who provide mortgage-relief services separate from the practice of law. It is through this “exemption-within-an-exemption,”
Appellants conclude, Case: 19-3396 Document: 78 Filed: 07/23/2021 Pages: 29
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No. 19-3396 that the Bureau obtains the authority to enforce Regulation O against a subset of attorneys.
In the abstract, this may not be a bad point, but it runs up against the statute’s own characterization of these subsections. The Act labels subsection (e)(2) as a “rule of construction”—not an exception—and then explains that the general rule in subsection (e)(1) “shall not be construed so as to limit” the Bureau’s authority over mortgage services provided separately from the practice of law. This indicates that subsection (e)(2) is part of the general prohibition, not an exception to it. Moreover, section 5517(e) is titled “Exclusion for practice of law,” which suggests that the entire section operates as an exception to the Bureau’s general authority to regulate “unfair, deceptive, or abusive” practices. 12 U.S.C. § 5511(b)(2). We need not conclusively resolve this matter, because Appellants forfeited their argument by failing to raise it before the district court. See, e.g., Scheidler v. Indiana, 914 F.3d 535, 540 (7th Cir. 2019). When the court considered where to place the burden of proof, the only consideration Appellants raised related to the difficulty of proving some of the criteria imposed by Regulation O (e.g., 12 C.F.R. § 1015.7(a)(3)’s requirement that firm attorneys comply with “state laws and regulations”). They did not contend that the burden should be placed on the Bureau because section 5517(e) was an authority-stripping provision rather than an exemption. It is too late now to raise that argument.
That leaves one final matter for us to address before we proceed to the district court’s findings on liability. The district court’s practice-of-law analysis predominantly focused on whether the attorney exemption in Regulation O applied to Appellants’ conduct. But its analysis depended on its view Case: 19-3396 Document: 78 Filed: 07/23/2021 Pages: 29
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No. 19-3396 that section 1015.7(a)(2) was valid. This caused it to limit itself to the work done by “attorney[s] licensed in the state in which the consumer … resides.” In other words, its focus was on the local attorneys, not the handful of headquarters attorneys. This omission is potentially significant, because the Act’s attorney exemption removes enforcement authority from the Bureau if any attorney who provides mortgage-relief services to a customer does so as part of the practice of law (not just the “local attorneys” licensed in the state in which the customer resides). If the firms’ headquarters attorneys were engaged in the practice of law, then we can assume that Appellants would be exempt from liability.
Although the apparent lack of discussion about the headquarters attorneys seems troublesome at first glance—it is the district court’s job, not ours, to find facts—upon closer examination we see that the problem is more one of labels and opinion organization than it is of omitted findings. The district court found as a matter of fact that the headquarters attorneys’ involvement with any given customer was limited to two things: (1) performing a brief, redundant review of financial documents (just as the local attorneys were doing), and (2) reading through an enrollment script with “prepared consumer statements about the program and fees” when a customer first signed up. Under the common definition of practice of law that the court employed in this case, these activities do not amount to legal practice. The district court took into account the work that headquarters attorneys performed when it considered whether Appellants had misrepresented to customers that they would receive legal services. It concluded that the headquarters attorneys’ role did nothing to cure that misrepresentation. These findings, while perhaps Case: 19-3396 Document: 78 Filed: 07/23/2021 Pages: 29
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No. 19-3396 somewhat misfiled, show that the role of the headquarters attorney cannot save Appellants here.
B The Bureau had to show more than the Appellants’ ineligibility for the legal-services exemption. It had to establish a substantive violation. Some of the practices on which the court based its liability findings are, at this point, uncontested: collecting upfront fees, 12 C.F.R. § 1015.5(a); misrepresenting to consumers that they would receive legal representation, id. § 1015.3(b)(8); and failing to provide required disclosures, id. § 1015.4(b). Appellants do, however, still contest their liability on three other counts:
(1) advising customers not to communicate with their loan servicers in their welcome letter and during sales calls, id. § 1015.3(a);
(2) telling consumers to stop making payments to their lenders, id. § 1015.3(b)(4); and (3) misrepresenting the performance of free alternatives to their services, id. § 1015.3(b)(9).
Judge Crabb found that Appellants had engaged in the second and third of these practices in her summary judgment ruling; Judge Conley found the first after trial. Although two different standards of review apply (de novo for items 2 and 3, clear error for item 1), in the end we find no cause for reversal. The first finding is strongly supported by Appellants’ “welcome letter.” It advised customers that speaking to loan servicers was “risky” and could lead to customers being “hurt by deceptive practices,” implying that they should avoid contacting their servicers. Even though the Case: 19-3396 Document: 78 Filed: 07/23/2021 Pages: 29
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No. 19-3396 letter was prefaced by a seemingly contrary statement (“While we will not tell you not to speak to your servicer … .”), the court was entitled as trier of fact to conclude that this preface did not do enough to dispel the message found in the letter’s body. Appellants counter that the information they communicated was true, and that based on experience they in fact believed that communicating with servicers was risky. But the Regulation takes the opposite view, and no one has challenged section 1015.3(a). Judge Conley also found, based on unrebutted evidence at trial, that Appellants’ customers were told on sales calls not to contact their loan servicers. There was ample evidence to support the first point above. Appellants also fail to persuade us that we should reverse their liability on the second point—improperly telling consumers to stop making payments to their lenders. See 12 C.F.R. § 1015.3(b)(4). At summary judgment, Judge Crabb determined that certain statements in the sales scripts communicated to customers that they should cease making payments to their lenders. These included informing customers that mortgage-relief programs are “hardship based,” and that a “person who is a year behind is much more helpful than some[one] who is current”—a statement that was followed up with the question “[w]ill you be helpful during this process … ?” The record also indicated that staff routinely told consumers to stop making payments, which they called “strategically falling behind.” Appellants point to other parts of the script that seem contradictory, such as advice to salespeople not to “tell a client … to stop paying a mortgage,” and they note that the typical customer was already behind on her mortgage. Neither of these points undermines summary judgment. Unrebutted evidence in the summary judgment record showed that the salespeople routinely made these Case: 19-3396 Document: 78 Filed: 07/23/2021 Pages: 29
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No. 19-3396 misleading statements, perhaps confusing matters even further with contradictions. And even though many clients were in arrears, it still could have been possible for them to keep current with their payments.
We also affirm Appellants’ liability on the third point— misrepresenting the performance of alternatives to for-profit MARS providers. See 12 C.F.R. § 1015.3(b)(9). Judge Crabb grounded her summary judgment ruling on certain statements in the sales script that advised customers that free MARS alternatives only provide “a document checklist,” “tell you what paper work you’ll need to gather to submit to your bank to attempt a modification,” and won’t “get the results you’re really after, which is mortgage relief.” A salesperson testified that intake specialists discouraged customers on the phone from using free loan-modification services. At summary judgment, defendants’ sole response was that they disclosed in their retainer agreement that free services were available. But disclosure of services does nothing to correct misrepresentations about the quality of nonprofit alternatives. Appellants now assert that summary judgment was inappropriate because there was no evidence in the record that their statements were wrong. But by not raising this argument in the district court, they have forfeited it. See Nichols v. Mich. City Plant Planning Dep’t, 755 F.3d 594, 600 (7th Cir. 2014). In any event, this argument is not persuasive because the misrepresentation Appellants made was not solely about the relative effectiveness of for-profit and nonprofit mortgage assistance services. Appellants insinuated that nonprofit alternatives would not get consumers any relief. No evidence existed that would have permitted a trier of fact to find that Appellants were not engaged in that behavior, and indeed, the Case: 19-3396 Document: 78 Filed: 07/23/2021 Pages: 29
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No. 19-3396 record indicated that Appellants’ success rate was not materially different from that of the nonprofits. IV That brings us to remedies. As we noted earlier, the overall monetary judgment was very large. The district court based its order of restitution on the firms’ net revenues; this came to $21,709,021. It then assessed the following civil penalties: $11,350,000 for Macey; $14,785,000 for Aleman; $8,002,500 for Searns; $32,250 for Stafford, and $3,121,500 for Consumer First. Finally, the court permanently enjoined Macey, Aleman, and Searns from providing “debt relief services” in the future. Appellants urge us to vacate all aspects of the remedial order. They argue that the restitution order was legally erroneous because it exceeded the firms’ net profits. They also contend that the court’s civil penalties were excessive because they were based on a miscalculation of the penalty period and on an erroneous finding that Appellants acted recklessly. Finally, they assert that the district court’s injunction was overbroad. We agree with Appellants on all three points. A We first address the district court’s restitution award. The Act permits a court to grant “any appropriate legal or equitable relief,” including restitution. See 12 U.S.C. § 5565(a). At summary judgment, Judge Crabb defined the appropriate level of damages in this case as “net revenues”—that is, gross receipts minus any refunds issued. This total came out to $21,709,021.
After the court issued its restitution award, however, the Supreme Court handed down its decision in Liu v. SEC, 140 S. Ct. 1936 (2020). In Liu, which dealt with the scope of equitable Case: 19-3396 Document: 78 Filed: 07/23/2021 Pages: 29
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No. 19-3396 relief available in an SEC civil enforcement action, the Court held that a disgorgement award may not exceed a firm’s net profits. Id. at 1946. The question is whether Liu compels us to vacate the restitution award here and remand for re-calculation based on net profits. We are persuaded that it does. The Bureau disagrees with this position. It points out that Liu concerned disgorgement, whereas the district court here ordered restitution. But we find this to be too narrow a reading of Liu. Liu’s reasoning is not limited to disgorgement; instead, the opinion purports to set forth a rule applicable to all categories of equitable relief, including restitution. Id. at 1945– 46.
The Bureau’s argument also founders because it assumes that equitable restitution and disgorgement are two different animals. The Court, however, expressed doubts on this point in Liu. See id. at 1942–43 (observing that the definition of the equitable remedy of disgorgement is unclear and has gone by several labels over time, including restitution). The district court seemed unsure whether there was a difference between the two terms: its order interchangeably uses the words restitution and disgorgement to describe its remedy. Finally, the Bureau suggests that Liu is inapplicable because the statute at issue in Liu authorized only “equitable relief,” whereas the Act in our case authorizes courts to award equitable and legal relief. Compare 15 U.S.C. § 78u(d)(5), with 12 U.S.C. § 5565(a). Accordingly, the Bureau urges us to uphold the court’s order as an award of legal restitution. We reject this argument also. The district court understood itself to be awarding equitable relief, which is why it cited equitable restitution cases in support of its order. See, e.g., FTC v. Febre, 128 F.3d 530, 536 (7th Cir. 1997).
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No. 19-3396 B Appellants next ask us to vacate the court’s civil penalties. The Act authorizes courts to assess such penalties against defendants who violate federal consumer financial laws. It establishes three tiers of culpability: strict-liability violations, which carry penalties of $5,000 per day; reckless violations, at $25,000 per day; and knowing violations, at $1,000,000 per day. 12 U.S.C. § 5565(c)(2). We generally review an award of civil penalties for an abuse of discretion. See, e.g., SEC v. Williky, 942 F.3d 389, 393 (7th Cir. 2019). The district court concluded that Macey, Aleman, and Stearns acted recklessly with respect to their violations; that Stafford was liable for his violations only under a strict liability theory; that Consumer First I committed strict-liability violations; and that Consumer First II committed reckless violations.
Appellants take issue with the district court’s conclusion that Macey, Aleman, Searns, and Consumer First II recklessly violated the Act. A defendant acts recklessly when his conduct involves “an unjustifiably high risk of harm that is either known or so obvious that it should be known.” Safeco Ins. Co. of Am. v. Burr, 551 U.S. 47, 68–69 (2007). (There was some uncertainty below as to whether the Bureau was required to prove recklessness only with respect to the facts constituting an offense, or with respect to the illegality of that conduct. We agree with the district court that the latter test is the correct one, since the conduct at issue here is not obviously wrongful, dangerous, or illegal on its face. See Liparota v. United States, 471 U.S. 419, 433 (1985).) Case: 19-3396 Document: 78 Filed: 07/23/2021 Pages: 29
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No. 19-3396 Appellants insist that they were not aware of a risk that their conduct was illegal, nor should they have been, because Regulation O prohibits conduct that is commonplace for lawyers, such as requiring advance retainer payments and providing advice not to communicate with opposing parties. They also maintain that because Regulation O is a complicated regulatory regime, their violations were more a product of misapprehending the regulation’s applicability than of recklessness. Finally, they point to a legal opinion they received; that opinion informed them that their structure qualified as a national law firm. They contend that this opinion led them to believe they would be exempt from Regulation O. Appellants have a point. Although we have found that they were not engaged in the practice of law, the question was a legitimate one. We consider it a step too far to say that they were reckless—that is, that they should have been aware of an unjustifiably high or obvious risk of violating Regulation O. We thus vacate the district court’s recklessness finding with respect to Macey, Aleman, Searns, and Consumer First II. On remand, the district court must apply the penalty structure for strict-liability violations.
Appellants’ next challenge is to the period that each penalty covers. The Act assigns a monetary penalty for each day a violation persists. See 12 U.S.C. § 5565(c)(2). The district court calculated a different penalty period for each category of violations. One of these related to enrollment violations. The district court measured these periods by selecting the last day each firm enrolled a customer as the end of its period of “enrollment violations.” It selected January 2, 2013, for the Mortgage Group and January 4, 2013, for Consumer First II. Appellants contend that the record does not support those Case: 19-3396 Document: 78 Filed: 07/23/2021 Pages: 29
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No. 19-3396 dates. Instead, it shows that the Mortgage Group and Consumer First II stopped accepting new clients on October 30, 2012, and November 30, 2012, respectively. Appellants argued, though did not prove conclusively, that the January 2013 data entries were coding errors. But even if the January outliers were true enrollments, Appellants contend that it was error for the district court to include all the days between October 30, 2012, and January 2, 2013, for the Mortgage Group and all the days between November 30, 2012, and January 4, 2013, for Consumer First II, when no enrollments happened between those dates.
Once again, we think that Appellants have the better of the debate. Although they failed to prove their data-entry-error theory, they should not have been accountable for all the days between their second-to-last enrollments in Fall 2012 and their last enrollments in January 2013. Instead, the court should have ended the firms’ enrollment violations penalty periods on October 30, 2012, and November 30, 2012, and (if it so wished) tacked on one extra day of violations to account for the January 2013 enrollments. We therefore vacate this portion of the court’s order and remand for recalculation. C Finally, Appellants object to the breadth of the injunction, which permanently banned Macey, Aleman, and Searns from providing “debt relief services,” as that term is defined in 12 C.F.R. § 310.2(o). They argue that the record does not support such a broad injunction and complain that it would create undue hardship for the individual defendants, who are career bankruptcy attorneys and so would be banned from practicing law in their chosen field.
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No. 19-3396 The scope of an injunction generally is committed to the discretion of the district court. Russian Media Grp., LLC v. Cable Am., Inc., 598 F.3d 302, 307 (7th Cir. 2010). “[An] injunction must … be broad enough to be effective,” id.; but it cannot be “more burdensome to the defendant than necessary to accord complete relief to the plaintiffs,” Califano v. Yamasaki, 442 U.S. 682, 702 (1979).
This injunction needs some tailoring. A few considerations lead us to this conclusion. First, the violations at issue here concerned mortgage-relief services, not debt-relief services as a whole. Moreover, we have found that Appellants’ violations were not knowing or reckless, and so an injunction of this breadth is not necessary to protect the public against future harm. Finally, we think it significant that Appellants’ mortgage-relief operations, though undoubtedly flawed in many respects, were not a complete scam: at the end of the day, the Mortgage Group and Consumer First did in fact obtain loan modifications for hundreds of customers during their roughly two years of operation. Those firms have long since gone out of business, and so the injunction need only ensure that the individual defendants do not stray beyond the scope of the Act and its implementing regulations. V The judgment of the district court is AFFIRMED IN PART and VACATED IN PART. We VACATE the district court’s restitution award, civil penalties, and injunction, and REMAND the case for further proceedings consistent with this opinion.
Case: 19-3396 Document: 78 Filed: 07/23/2021 Pages: 29
Opinion ()
PDF of this document (16 pages)
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IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF WISCONSIN
CONSUMER FINANCIAL PROTECTION BUREAU,
Plaintiff,
OPINION and ORDER v.
14-cv-513-wmc THE MORTGAGE LAW GROUP, LLP, CONSUMER FIRST LEGAL GROUP, LLC, THOMAS G. MACEY, JEFFERY J. ALEMAN, JASON E. SEARNS and HAROLD E. STAFFORD,
Defendants.
This court entered an amended, final judgment in favor of plaintiff Consumer Financial Protection Bureau (“CFPB”) on November 18, 2019, which awarded: (1) over $20 million in restitution to the consumers of The Mortgage Law Group (“TMLG”) and Consumer First Legal Group (“CFLG”) I and II1 for the advanced fees defendants had wrongfully collected in violation of the Consumer Financial Protection Act of 2010 (“CFPA”), 12 U.S.C. § 5481 et seq.; (2) civil penalties for defendants’ reckless and strict liability violations; and (3) a permanent injunction against defendants Thomas Macey, Jeffery Aleman, Jason Searns, and CFLG regarding mortgage assistance and debt relief products or services, as well as a five-year injunction against defendant Harold Stafford regarding mortgage assistance relief products or services. (Dkt. ##419 at 26-27, 426.) On appeal, the Seventh Circuit affirmed this court’s liability findings against defendants,
1 “CFLG I” refers to the company solely owned by defendant Harold Stafford from January to July 2012, and “CFLG II” refers to the company jointly owned by defendants Thomas Macey, Jeffery Aleman, Jason Searns, and Stafford after July 2012. Case: 3:14-cv-00513-wmc Document #: 600 Filed: 08/01/22 Page 1 of 16
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except for recklessness. However, the court of appeals vacated the award of restitution, civil penalties, and injunctive relief, remanding for further proceedings as to those remedies. Consumer Fin. Prot. Bureau v. Consumer First Legal Grp., LLC, 6 F.4th 694 (7th Cir. 2021). Specifically, the Seventh Circuit found: (1) equitable restitution should have been calculated using defendants’ net profits, rather than net revenues; and (2) the civil penalties should be revised in part based on the miscalculation of the penalty period for defendants TMLG and CFLG II’s enrollment violations, and an erroneous factual finding that all defendants (except Stafford and CFLG I) had acted recklessly. Finally, the court found that the permanent injunction must be tailored in breadth to reflect that the violations at issue were not knowing or reckless and concerned only mortgage-relief services, rather than debt-relief services as a whole. Id. at 710-13. After denying plaintiff’s petition for rehearing en banc, the Seventh Circuit issued its mandate on December 7, 2021. (Dkt. ##571-2, 571-3.) On remand, this court directed the parties to brief what, if anything, would be an appropriate entry of restitution, civil penalties, and injunctive relief against defendants. In something of an “you don’t get what you don’t ask for,” plaintiff requests that this court: (1) simply award $21.7 million again, though this time as legal restitution in the full amount of advanced fees that defendants wrongfully took from consumers, minus refunds, or equitable restitution in the same amount with no deduction for expenses because they were incurred in carrying out unlawful conduct; (2) impose the maximum strict liability penalty against Macey ($10,380,000) and Aleman ($13,330,000), impose a strict liability penalty against Searns limited to the amount previously imposed against him Case: 3:14-cv-00513-wmc Document #: 600 Filed: 08/01/22 Page 2 of 16
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($8,002,500), and reimpose the same strict liability penalties against Stafford ($35,250) and CFLG ($3,121,500);2 and (3) permanently ban Macey, Aleman, Searns, and CFLG from providing mortgage-relief services, as well as reimpose the five-year ban on Stafford. Conversely, defendants now request that the court: (1) award no restitution absent evidence that defendants netted any profits, or alternatively, hold another bench trial to determine the amount of profits; (2) limit civil penalties to $1,000 a day, subject to the previously imposed mitigation of 80%; and (3) impose a time-limited injunction related solely to the offering of mortgage relief services for all defendants. Having considered the court of appeals’ instructions on remand and the parties’ additional briefing, this court now orders entry of a reduced civil remedy in lieu of equitable restitution relief, lower civil penalties, and time-limited injunctive relief as set forth below.
OPINION I.
Civil Relief In Lieu of Equitable Restitution For their violations of Regulation O, this court originally ordered: defendants TMLG, Macey, Aleman, and Searns to provide restitution to TMLG consumers in the amount of $18,716,725.78; defendants CFLG, Macey, and Aleman to provide restitution to CFLG II consumers in the amount of $2,897,566; and defendants CFLG and Stafford to provide restitution to CFLG I consumers in the amount of $94,730. (Dkt. #419 at
2 While neither Stafford’s penalty nor his ban were explicitly disturbed on appeal, the Seventh Circuit stated that it was vacating the restitution, civil penalties, and injunction ordered by this court. Therefore, at plaintiff’s request and to avoid any possible confusion, the court will impose a revised civil penalty and injunction against Stafford in its new judgment proportional to the reduced awards against the other defendants.
Case: 3:14-cv-00513-wmc Document #: 600 Filed: 08/01/22 Page 3 of 16
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26.) As noted by the Seventh Circuit, this court determined these amounts by looking to defendants’ net revenues, calculated based on the amount of advance fees collected from consumers minus any refunds to those consumers. Id. at 3-4. In vacating this restitution award on appeal, the Seventh Circuit held that under the Supreme Court’s recent decision in Liu v. Sec. & Exch. Comm’n, 140 S. Ct. 1936 (2020), “all categories of equitable relief,” including restitution and disgorgement, “may not exceed a firm’s net profits.” CFLG, 6 F.4th at 710. The court of appeals further observed that in ordering restitution, this court “understood itself to be awarding equitable relief because it cited equitable restitution cases in support of its order,” and for that reason, declined plaintiff’s request to affirm the award as legal restitution. Id. at 711.
Obviously following up on this observation, plaintiff now asks this court to award the full amount taken from consumers either as legal restitution or a refund of moneys under 12 U.S.C. § 5565(a)(2), arguing that it has always sought a monetary judgment, rather than the return of specific funds or property to the firms’ consumers. As plaintiff points out, a claim for legal restitution only requires a defendant “to pay a sum of money,” whereas a claim for equitable restitution “restore[s] to the plaintiff particular funds or property in the defendant’s possession,” and neither legal restitution nor a refund under § 5565(a) are concerned with disgorgement of defendant’s profits or refunds. Great-West Life & Annuity Ins. Co. v. Knudson, 534 U.S. 204, 213-14 (2002) (citations omitted); see also Mooney v. Illinois Educ. Ass’n, 942 F.3d 368, 371 (7th Cir. 2019) (“Where a plaintiff seeks ‘recovery from the beneficiaries’ assets generally’ because her specific property has dissipated or is otherwise no longer traceable, the claim ‘is a legal remedy, not an equitable Case: 3:14-cv-00513-wmc Document #: 600 Filed: 08/01/22 Page 4 of 16
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one.’”); Fed. Trade Comm’n v. Inc21.com Corp., 475 F. App’x 106, 108 (9th Cir. 2012) (“legal restitution [is] measured by the loss to consumers”).
In particular, as support for its argument that this court has the authority to recharacterize its previous equitable award as legal restitution, plaintiff cites Fed. Trade Comm'n v. Credit Bureau Ctr., LLC, No. 17 C 194, 2021 WL 4146884, at *12 (N.D. Ill. Sept. 13, 2021). In that case, the Northern District of Illinois awarded legal restitution on remand under § 19 of the Federal Trade Commission (“FTC”) Act, despite the Seventh Circuit having vacated the district court’s original award under § 13(b) of the FTC Act as unauthorized. In doing so, that district court was persuaded in particular by its authority to amend the original judgment under Fed. R. Civ. P. 59(e), due to the intervening change in the law after having issued its original, vacated judgment.3 Id. Defendants do not address the thrust of plaintiff’s argument that legal restitution or § 5565(a) provide separate grounds for monetary relief in light of their violations of the CFPA. Rather, they argue that the Seventh Circuit explicitly rejected both equitable and legal restitution as a basis for relief in this case, having vacated an award of equitable relief. Defendants further argue that the specific nature of the Seventh Circuit’s holding on appeal distinguishes this case from the Northern District of Illinois Court’s non-precedential decision in Credit Bureau Ctr., because unlike here, the Seventh Circuit did not expressly or impliedly consider the availability of restitution under the specific provision upon which the district court relied following remand.
3 That case is again on appeal before the Seventh Circuit. Id. Case: 3:14-cv-00513-wmc Document #: 600 Filed: 08/01/22 Page 5 of 16
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Although the parties do not address it, their disagreement about what should be the basis of any monetary relief involves the related mandate rule and law-of-the-case doctrine. “The mandate rule requires a lower court to adhere to the commands of a higher court on remand,” while the “law of the case doctrine is a corollary to the mandate rule and prohibits a lower court from reconsidering on remand an issue expressly or impliedly decided by a higher court absent certain circumstances.” Carmody v. Bd. of Trustees of Univ. of Illinois, 893 F.3d 397, 407 (7th Cir. 2018) (internal quotations and citations omitted). Although “[b]oth the mandate rule and the law-of-the-case doctrine are strong, . . . they can bend in sufficiently compelling circumstances,” including subsequent changes in the law. Id. at 407-08.
While the Seventh Circuit's opinion in this case plainly forecloses any award of equitable restitution based on net revenues, it does not address the merits of plaintiff’s argument that § 5565(a) authorizes a court’s grant of both equitable and legal relief or forecloses an award of legal restitution as a possible remedy. Indeed, the court of appeals interpreted this court’s previous orders as awarding equitable as opposed to legal restitution based only on the cases cited in this court’s opinion. Further, during the earlier stages of this lawsuit through entry of final judgement in 2019, the question of whether the restitution award should be characterized as equitable or legal was not even before this court, largely because the distinction did not make a difference until the Supreme Court’s Liu decision changed the law in 2020, at least with respect to how equitable restitution should be calculated. Therefore, this court finds that neither the law of the case nor the Case: 3:14-cv-00513-wmc Document #: 600 Filed: 08/01/22 Page 6 of 16
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Seventh Circuit’s 2021 mandate precludes reconsideration on remand of the appropriate type of restitution or statutory remedy best suits any monetary award. In particular, characterizing this relief as either legal restitution or, alternatively, an order for return of money under § 5565(a)(2)(B), is appropriate in this case because plaintiff’s claim is against defendants generally and not one, identifiable fund or asset. See Mooney, 942 F.3d at 371 (holding same and emphasizing that “[i]t is not enough that [plaintiff’s] fees once contributed to [defendant’s] overall assets.”); Montanile v. Bd. of Trustees of Nat. Elevator Indus. Health Benefit Plan, 577 U.S. 136, 144-45 (2016) (“[S]tandard equity treatises. . . make clear that a plaintiff could ordinarily enforce an equitable lien only against specifically identified funds that remain in the defendant's possession or against traceable items that the defendant purchased with the funds (e.g., identifiable property like a car). . . . The plaintiff then may have a personal claim against the defendant's general assets—but recovering out of those assets is a legal remedy, not an equitable one.”). This is especially appropriate in a case like this one, where the court already found that the so-called “legal services” defendants and their corporate fronts purported to provide at exorbitant upfront fee were actually worth zero or next to zero, which despite being advertised as coming from local lawyers with special expertise, were national processing services essentially nothing more than clerical at worst and available through free clinics at best.
Accordingly, the court agrees that compensating consumers for their advanced fees paid to TMLG and CFLG I and II remains a valid and necessary remedy for the reasons explained in this court’s previous order regarding remedies, which were not disturbed on Case: 3:14-cv-00513-wmc Document #: 600 Filed: 08/01/22 Page 7 of 16
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appeal (dkt. #419 at 3-9), and this court will recharacterize plaintiff’s restitution claim as legal and award it based on defendants’ net revenues consistent with the Supreme Court’s decision in Liu. See 140 S. Ct. at 1942 (“consulting works on equity jurisprudence” to determine scope of “equitable relief”); CFLG, 6 F.4th at 710 (“Liu purports to set forth a rule applicable to all categories of equitable relief.”). Still, because the Seventh Circuit found that defendants’ conduct was not the product of reckless disregard of the CFPA, but rather a failure to fit themselves under an exception for the delivery of legal services, the court has reconsidered the appropriate relief under § 5565(a)(2) from a complete restitution or disgorgement under (C) and (D). Instead, each defendant shall refund 50% of the moneys paid, which plaintiff shall return directly to the injured parties to the extent practical. Any portion that plaintiff is unable to be returned to the victims may be applied to the civil penalties assessed against defendants with the remainder, if any, reverting to defendants. Thus, the amended final judgment shall reflect reduced civil relief in the amount of $10,850,000: defendants TMLG, Macey, Aleman, and Searns are jointly and severally liable for $9,358,362.85 with respect to TMLG consumers; CFLG, Macey, and Aleman are jointly and severally liable for $1,448,783 with respect to CFLG II consumers; and defendant Stafford and CFLG are jointly and severally liable for $47,365 with respect to CFLG I consumers.
II.
Civil Money Penalties Similarly, this court also imposed civil penalties at the “recklessness” tier against (1) Macey in the amount of $11,350,000, (2) Aleman in the amount of $14,785,000, (3) Case: 3:14-cv-00513-wmc Document #: 600 Filed: 08/01/22 Page 8 of 16
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Searns in the amount of $8,002,500, and (4) CFLG II in the amount of $3,086,250. These awards were obviously much greater than those against both Stafford and CFLG I in the amount of $35,250 at the strict liability tier.4 (Dkt. #419 at 21-22, 27.) In calculating these penalties, this court expressly adopted plaintiff’s recommendation that: Macey and Aleman pay 20% of the maximum reckless penalty of $25,000/day for six (Macey) to eight (Aleman) different violations they committed; Searns and CFLG II pay 15% of the maximum reckless penalty for four different violations; and Stafford and CFLG I pay 5% of the maximum strict liability penalty of $5,000/day for three violations. Id. The court further found that: TMLG-related enrollment violations occurred from July 21, 2011, through January 2, 2013 (532 days); CFLG I-related enrollment violations occurred from May 14, 2012 through June 29, 2012 (47 days); and CFLG II-related enrollment violations occurred from August 3, 2012 through January 4, 2013 (155 days). Id. at 16. On appeal, the Seventh Circuit vacated this court’s original finding of recklessness with respect to Macey, Aleman, Searns, and CFLG II, and instead ordered this court to make two adjustments in its penalty calculations on remand: (a) apply the penalty structure for strict-liability violations, which is limited to “$5,000 for each day during which such violation . . . continues,” 12 U.S.C. § 5565(c)(2)(A); and (b) end the enrollment violation penalty period on October 30, 2012 for TMLG, and on November 30, 2012 for CFLG II, while tacking on one extra day of violations to account for the January 2013 enrollments “if it so wish[es].” CFLG, 6 F.4th at 712.
4 The total civil penalty award against defendant CFLG was $3,121,500 ($3,0826,250 for CFLG II plus $35,250 for CFLG I).
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On remand, therefore, plaintiff asks this court to impose: the maximum strict liability penalty against Macey and Aleman; a strict liability penalty against Searns and CFLG II limited to the penalty amounts previously imposed on those defendants; and the same strict liability penalty against Stafford and CFLG I. More specifically, plaintiff recalculated the penalties based on the strict liability tier, using the following dates and time periods for the enrollment violations:
• TMLG-related enrollment violations occurred July 21, 2011 through October 30, 2012, and then again on January 2, 2013 (469 days).
• CFLG II-related enrollment violations occurred August 3, 2012 through November 30, 2012, and then again on January 4, 2013 (121 days).
Repeating many of the arguments that they made on summary judgment, at trial, and in post-trial briefing, defendants assert that assessing the maximum strict liability penalties would be unconstitutional under the Excessive Fines clause of the Eighth Amendment and the Due Process clause of the Fifth Amendment because they provided legitimate services that helped many clients submit loan modification applications, did not wholly misrepresent their services, engaged in the practice of law, and did not commit grave offenses. However, the court of appeals did not criticize this court’s previous analysis with respect to defendants’ liability or dubious engagement in the practice of law. Rather, it merely limited the tier to which all defendants’ culpability laid, considering “it a step too far to say that [defendants] were reckless—that is, that they should have been aware of an unjustifiably high or obvious risk of violating Regulation O.” CFLG, 6 F.4th at 712. Defendants further argue that when it comes to determining the appropriate penalty amount, the court must adopt the same level of mitigation that plaintiff previously Case: 3:14-cv-00513-wmc Document #: 600 Filed: 08/01/22 Page 10 of 16
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recommended and the court adopted in its original remedies order—20% of the maximum recklessness penalty for Macey and Aleman and 15% of the penalty for Searns and CFLG II—because those figures are the law of the case, and plaintiff is judicially estopped from arguing for a higher penalty. While the court of appeals did not disturb this court’s ruling with respect to mitigation, this court finds that neither judicial estoppel nor the law of the case require it to adhere to its previous ruling regarding the 75-80% reductions in defendants’ civil penalties. Instead, judicial estoppel “generally prevents a party from prevailing in one phase of a case on an argument and then relying on a contradictory argument to prevail in another phase.” New Hampshire v. Maine, 532 U.S. 742, 750 (2001) (citations and internal quotations omitted). For the doctrine to apply, “a party’s later position must be clearly inconsistent with its earlier position,” id., but plaintiff’s current position regarding mitigation is not inconsistent with its earlier recommendation. To the contrary, plaintiff previously recommended substantial mitigation because defendants faced enormous maximum available penalties in the reckless tier, whereas now defendants now face more manageable maximum available penalties for the strict liability tier. Further, the law of the case doctrine “posits that when a court decides upon a rule of law, that decision should continue to govern the same issues in subsequent stages in the same case.” Pepper v. United States, 562 U.S. 476, 506 (2011) (citation omitted). However, the doctrine is discretionary rather than mandatory and “does not prohibit a court from revisiting an issue when there is a legitimate reason to do so, whether it be a change in circumstances, new evidence, or something the court overlooked earlier.” Boyer v. BNSF Ry. Co., 824 F.3d 694, 711-12 (7th Cir.), opinion modified on reh’g, 832 F.3d 699 Case: 3:14-cv-00513-wmc Document #: 600 Filed: 08/01/22 Page 11 of 16
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(7th Cir. 2016) (internal citations omitted). This court did not decide upon any “rule of law” in deciding to impose penalties at 75-80% below the statutory maximum, but rather exercised its discretion in choosing the appropriate penalty amount within the permissible range of the then applicable penalty tier, which obviously has changed. Finally, defendants challenge the new enrollment time periods proposed by plaintiff, arguing that the Seventh Circuit held plaintiff was entitled to a penalty only for those days on which defendants actually committed a violation, and not the entire time period that the firms were open for business. However, the court of appeals made no such finding. Rather, it affirmed this court’s approach with one caveat: defendants “should not have been accountable for all the days between their second-to-last enrollments in Fall 2012 and their last enrollments in January 2013,” directing instead that “the court should have ended the firms’ enrollment violations penalty periods on October 30, 2012, and November 30, 2012, and (if it so wished) tacked on one extra day of violations to account for the January 2013 enrollments.” CFLG, 6 F.4th at 712. Therefore, the court will use the following dates and time periods for the enrollment violations:
• TMLG-related enrollment violations occurred July 21, 2011 through October 30, 2012, and then again on January 2, 2013 (469 days).
• CFLG II-related enrollment violations occurred August 3, 2012 through November 30, 2012, and then again on January 4, 2013 (121 days).
This just leaves the amount of strict liability penalties to be imposed against defendants Macey, Aleman, Searns, and CFLG II. In assessing penalties, the CFPA requires courts to “take into account the appropriateness of the penalty with respect to” the following factors: (1) the size of the financial resources and the good faith of the Case: 3:14-cv-00513-wmc Document #: 600 Filed: 08/01/22 Page 12 of 16
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person charged; (2) the gravity of the violation; (3) the severity of the risks to or losses of the consumer; (4) the history of previous violations; and (5) such other matters as justice may require. 12 U.S.C. § 5565(c)(3). This court considered these factors in detail in its original, post-trial relief opinion, and determined that “[e]xcept for the remaining financial resources of the defendants, all of these factors weigh in favor of substantial civil penalties with respect to each of the defendants.” (Dkt. #419 at 16-17.) Moreover, although the court of appeals concluded defendants’ conduct did not rise to the level of recklessness, none of the facts informing this court’s analysis of the mitigating factors has changed. If anything, the financial resources factor now further tips in plaintiff’s favor because the future earning potential of Macey, Aleman, and Searns has improved with the more limited injunction mandated by the court of appeals. Accordingly, this court adopts by reference its previous analysis of the mitigation factors.
In light of the above considerations and the court’s rulings with respect to defendants’ liability, level of knowledge, and duration of misconduct, the court finds that imposing strict liability penalties at 50% below the statutory maximum is reasonable and will award civil penalties as follows: Macey in the amount of $5,190,000; Aleman in the amount of $6,665,000; Searns in the amount of $4,682,500; and CFLG II in the amount of $1,802,500. As for the $35,250 strict liability penalties previously awarded against Stafford and CFLG I and undisturbed by the court of appeals, those will remain the same.
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III.
Injunction Finally, this court had permanently enjoined Macey, Aleman, Searns, and CFLG from providing any mortgage-relief and debt-relief services, as well as enjoined Stafford from providing mortgage-relief services for five years. On appeal, the Seventh Circuit held that the “injunction needs some tailoring,” as the “violations at issue here concerned mortgage-relief services, not debt-relief services as a whole” and the “violations were not knowing or reckless.” CFPB, 6 F.4th at 712. While plaintiff asks that this court permanently enjoin Macey, Aleman, Searns, and CFLG from providing mortgage relief services, defendants correctly point out that the Seventh Circuit instructed that “an injunction of this breadth is not necessary to protect the public against future harm” and “need only ensure that defendants do not stray beyond the scope of the Act and its implementing regulations.” Id.
In accordance with the mandate of the court of appeals, therefore, this court will: (1) impose an eight-year injunction (ending on November 4, 2027) against defendants Macey, Aleman, Searns, and CFLG, against marketing, selling, providing, offering to provide, as well as assisting others to market, sell, provide, or offer to provide, any mortgage assistance relief products or services as defined in 12 C.F.R. § 1015.2; and (2) reimpose the undisturbed, five-year injunction against Stafford, which will end on November 4, 2024, against his marketing, selling, providing, offering to provide, as well as assisting others to market, sell, provide, or offer to provide, any mortgage assistance relief products or services as defined in 12 C.F.R. § 1015.2.
Case: 3:14-cv-00513-wmc Document #: 600 Filed: 08/01/22 Page 14 of 16
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ORDER IT IS ORDERED that:
A. Civil relief as set forth above in the following amounts 1. Defendants TMLG, Macey, Aleman, and Searns are jointly and severally liable for $9,358,362.85 with respect to the advance fees that TMLG collected from consumers, payable within 30 days to plaintiff to be disbursed on a pro rata basis to the extent practical (or otherwise as the court might approve in the future).
2. Defendants CFLG, Macey, and Aleman are jointly and severally liable for $1,448,783 with respect to the advanced fees that CFLG II collected from consumers, payable within 30 days to the Bureau to be disbursed on a pro rata basis to the extent practical (or otherwise as the court might approve in the future).
3. Defendants Stafford and CFLG are jointly and severally liable for $47,365 with respect to the advanced fees that CFLG I collected from consumers, payable within 30 days to the Bureau to be disbursed on a pro rata basis to the extent practical (or otherwise as the court might approve in the future).
4. To the extent that any portions of these amounts paid cannot reasonably be returned to consumers by plaintiff, then the excess—minus any reasonable costs incurred by plaintiff in implementing the award—shall be applied toward the civil penalties assessed against defendants, with the remainder, if any, reverting to defendants. Plaintiff shall apply any excess toward civil penalties, with the remainder reverting to defendants, when it determines, in accordance with its standard practices for administering payments to victims, that it is not practicable to distribute the remaining funds to consumers. Plaintiff shall apprize the court annually of its progress.
B. Defendants are directed to pay civil penalties to plaintiff in the following amounts on or before 30 days from date of this order. These amounts represent civil penalties owed to the United States pursuant to 12 U.S.C. § 5565(c) and are not compensation for actual pecuniary loss and, therefore, are not subject to discharge under the Bankruptcy Code pursuant to 11 U.S.C. § 523(a)(7).
1. Macey in the amount of $5,190,000.
2. Aleman in the amount of $6,665,000.
3. Searns in the amount of $4,682,500.
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4.
Stafford in the amount of $35,250.
5.
CFLG in the amount of $1,837,750.
C. No interest shall accrue on the ordered payments if timely made. In the event of any default in payment, the entire unpaid amount shall constitute a debt due and immediately owing and post-judgment interest shall be assessed from the date of this order until payment is made as set forth in 28 U.S.C. § 1961. D. An injunction pursuant to Federal Rule of Civil Procedure 65 is also ENTERED under the following terms and conditions:
Defendants Macey, Aleman, Searns, and CFLG are enjoined for a period of eight years ending on November 4, 2027, and defendant Stafford is enjoined for a period of five years ending on November 4, 2024, from marketing, selling, providing, offering to provide, and assisting others to market, sell, provide, or offer to provide, any mortgage assistance relief products or services as defined in 12 C.F.R. § 1015.2.
E. The clerk of court is directed to enter final judgment in favor of plaintiff consistent with this order.
Entered this 1st day of August, 2022.
BY THE COURT:
/s/ WILLIAM M. CONLEY District Judge Case: 3:14-cv-00513-wmc Document #: 600 Filed: 08/01/22 Page 16 of 16
Dismissal ()
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Nos. 22-2430, 22-2620 IN THE UNITED ST ATES COURT OF APPEALS FOR THE SEVENTH CIRCUIT CONSUMER FINANCIAL PROTECTION BUREAU, Plaintiff-Appel/eel Cross-Appellant, V.
CONSUMER FIRST LEGAL GROUP, LLC, et al., Defendants-Appel/an ts/ Cross-Appellees.
Case Nos. 22-2430, 22-2620 Appeal from the U.S. District Court for the Western District of Wisconsin No. 3: l 4-cv-00513 William M. Conley, District Judge JOINT DISMISSAL AGREEMENT Plaintiff-Appellee Consumer Financial Protection Bureau and Defendants-Appellants Consumer First Legal Group, LLC, Thomas G. Macey, Jeffrey J. Aleman, Jason Seams, and Harold E. Stafford (collectively, "Parties") jointly stipulate to the dismissal of their respective appeals in this case, Nos. 22-2430, 22-2620, under Federal Rule of Appellate Procedure 42(b)(l). Under Rule 42(b )( 1 ), as amended effective December 1, 2022, "[t]he circuit clerk must dismiss a docketed appeal if the parties file a signed dismissal agreement specifying how costs are to be paid and pay any court fees that are due." See also Laufer v. Rasmus, No. 21-1360, 2023 WL 2754710, at *2 & n.l (7th Cir. Apr. 3, 2023) (noting that, under the amended version of Rule 42 now in effect, dismissal is "automatic" and "ministerial," rather than "permissive"). The Parties agree that each side shall bear its own costs and that no court fees are due. Dated: February 5, 2024 Respectfully submitted, Case: 22-2430 Document: 49 Filed: 02/06/2024 Pages: 2
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)~~ • evm . ne Senior Counsel Consumer Financial Protection Bureau 1700 G Street NW Washington, DC 20552 (202) 435-9268 kevin. fried I Jon Loevy Loevy 311 N Aberdeen St., 3rd Floor Chic go, IL 60607 (312) 243-5900 [email protected] Counsel for De.fenda11ts-Appel/ants Nos. 22-2430, 22-2620 Case: 22-2430 Document: 49 Filed: 02/06/2024 Pages: 2
Dismissal ()
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UNITED STATES COURT OF APPEALS FOR THE SEVENTH CIRCUIT
Everett McKinley Dirksen United States Courthouse Room 2722 - 219 S. Dearborn Street Chicago, Illinois 60604 Office of the Clerk Phone: (312) 435-5850 www.ca7.uscourts.gov
February 7, 2024
By the Court:
Nos. 22-2430 and 22-2620
CONSUMER FINANCIAL PROTECTION BUREAU, Appeals from the United Plaintiff-Appellee,
States District Court for Cross-Appellant,
the Western District of
Wisconsin.
v.
No. 3:14-cv-00513-wmc CONSUMER FIRST LEGAL GROUP, LLC, et al., Defendants-Appellants,
William M. Conley, Cross-Appellees.
Judge.
Upon consideration of the JOINT DISMISSAL AGREEMENT, filed on February 6, 2024, by counsel for the parties,
IT IS ORDERED that this appeal is DISMISSED pursuant to Federal Rule of Appellate Procedure 42(b)(1).
form name: c7_FinalOrderWMandate (form ID: 137)
Case: 22-2620 Document: 44-1 Filed: 02/07/2024 Pages: 1
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UNITED STATES COURT OF APPEALS FOR THE SEVENTH CIRCUIT
Everett McKinley Dirksen United States Courthouse Room 2722 - 219 S. Dearborn Street Chicago, Illinois 60604 Office of the Clerk Phone: (312) 435-5850 www.ca7.uscourts.gov
NOTICE OF ISSUANCE OF MANDATE February 7, 2024
To: Joel W. Turner UNITED STATES DISTRICT COURT Western District of Wisconsin Madison, WI 53703-0000 No. 22-2430 CONSUMER FINANCIAL PROTECTION BUREAU, Plaintiff - Appellee
v.
CONSUMER FIRST LEGAL GROUP, LLC, et al., Defendants - Appellants No. 22-2620 CONSUMER FINANCIAL PROTECTION BUREAU, Plaintiff - Appellant
v.
CONSUMER FIRST LEGAL GROUP, LLP, et al., Defendants - Appellees Originating Case Information: District Court No: 3:14-cv-00513-wmc Western District of Wisconsin District Judge William M. Conley Originating Case Information: District Court No: 3:14-cv-00513-wmc Western District of Wisconsin District Judge William M. Conley Clerk/Agency Rep Joel W. Turner
Herewith is the mandate of this court in this appeal, along with the Bill of Costs, if any. A certified copy of the opinion/order of the court and judgment, if any, and any direction as to costs shall constitute the mandate. Case: 22-2620 Document: 44-2 Filed: 02/07/2024 Pages: 2
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TYPE OF DISMISSAL:
F.R.A.P. 42(b)
STATUS OF THE RECORD:
no record to be returned
form name: c7_Mandate (form ID: 135)
Case: 22-2620 Document: 44-2 Filed: 02/07/2024 Pages: 2
Settlement ()
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SETTLEMENT AGREEMENT This Settlement Agreement ("Agreement") is entered into between the Consumer Financial Protection Bureau ("Bureau") and Defendants Consumer First Legal Group, LLC, Thomas G. Macey, Jeffrey J. Aleman, Jason Seams, and Harold E. Stafford (collectively "Defendants"), through their authorized representatives. RECITALS A.
On July 22, 2014, the Bureau filed a complaint against Defendants in the U.S. District Court for the Western District of Wisconsin, alleging violations of Regulation 0. See CFPB v. The Mortgage Law Group LLP, No. 3: 14-cv-00513 (W.D. Wis.). B.
The district court entered a second amended judgment against Defendants and in favor of the Bureau on March 6, 2020.
C.
Defendants appealed the district court's judgment to the Seventh Circuit. To stay enforcement of the judgment while the appeal was pending, Defendants Macey and Stafford sought and received leave of the district court to deposit with the court the total sum of the money judgments against them.
D.
The Seventh Circuit resolved Defendants' appeal in 2021. Its decision affirmed Defendants' liability for violations of Regulation 0 , vacated the district court's remedial award, and remanded for further proceedings.
E.
After additional proceedings on remand, the district court entered a new judgment against Defendants and in favor of the Bureau on August 2, 2022. That judgment ordered Defendants to pay to the Bureau a combined $10,854,510.85 in legal restitution or refunds, and to also pay to the Bureau a combined $18,410,500 in civil money penalties.
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F.
Defendants appealed that judgment to the Seventh Circuit, and the Bureau crossappealed. See CFPB v. Consumer First Legal Group LLC, Nos. 22-2430, 22-2620 (7th Cir.). The Seventh Circuit heard oral argument on November 7, 2023. The appeals remain pending as of the date of this agreement.
To avoid the delay, uncertainty, inconvenience, and expense of further protracted litigation of the Bureau's claims in this case, and in consideration of the mutual promises and obligations of this Agreement, the Bureau and Defendants (collectively "Parties") agree and covenant as follows:
TERMS AND CONDITIONS l.
This settlement is premised upon the agreement of Defendants to pay the Bureau $10,854,5 l 0.85 in legal restitution or refunds and an additional $1,145,489.15 in civil money penalties in full satisfaction of the judgment entered by the district court on August 2, 2022. 2.
This settlement is further premised upon the Parties agreeing to file a joint stipulation dismissing their appeals, as specified in the following paragraph. In the event that the Seventh Circuit issues a decision on the merits of the Parties' appeals, the Agreement is terminated and the Parties shall not be bound by the terms of the Agreement. 3.
Within 3 business days of the date of signature of the last signatory to the Agreement, the Parties will file a joint stipulation dismissing both Defendants' appeal and the Bureau's cross-appeal in this case, Nos. 22-2430, 22-2620 (7th Cir.), pursuant to Federal Rule of Appellate Procedure 42(b)(l). That stipulation of dismissal will specify that each party will bear its own costs and that no court fees are due.
- 2 -
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4.
Following dismissal of both appeals, the Parties will file a joint motion to disburse funds currently held on deposit by Defendants Macey and Stafford with the U.S. District Court for the Western District of Wisconsin. The joint motion will specify that a total of $12 million of these funds be disbursed to the Bureau in satisfaction of the judgment entered by the district court on August 2, 2022, with the remainder being disbursed to Defendants Macey and Stafford according to instructions provided by Defendants to the Court. 5.
Following receipt of the $12 million, the Bureau will file one or more satisfactions of judgment with the district court sufficient to reflect that the monetary judgment against each of the Defendants has been satisfied. 6.
The Bureau agrees to file any and all IRS documentation relevant to this Agreement as the Bureau determines is required by law. 7.
Defendants will remain enjoined pursuant to the terms of the district court's judgment of August 2, 2022.
8.
The terms of the district court's judgment of August 2, 2022 will continue to govern the Bureau's allocation of legal restitution or refunds paid under this Agreement, except that Defendants waive any claim that any such funds should revert to them. 9.
Each Party will bear its own legal and other costs incurred in connection with this matter, including the preparation and performance of this Agreement. 10.
Each Party and signatory to this Agreement represents that it freely and voluntarily enters into this Agreement without any degree of duress or compulsion. 11.
This Agreement constitutes the complete agreement between the Parties. This Agreement may not be amended except by written consent of the Parties. - 3 -
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12.
The undersigned counsel represent and warrant that they are fully authorized to execute this Agreement on behalf of the persons and entities indicated below. 13.
This Agreement may be executed in counterparts, each of which constitutes an original and all of which constitute one and the same Agreement. 14.
All Parties consent to the Bureau's disclosure of this Agreement, and infom1ation about this Agreement, to the public.
15.
This Agreement represents a settlement of disputed claims concerning the proper relief in this case, entered into while the parties' appeals on that issue were still pending. Nothing in this Agreement shall be construed as either an admission or a denial by any party that the relief ordered in the judgment was proper.
,L~ Kevin E. Friedl Senior Counsel Consumer Financial Protection Bureau Counsel for Consumer Financial Protection Bureau Dated:
February 5, 2024 - 4 - Co11nselfor Consumer First Legal Group, LLC, Thomas G. Macey, Jeffrey J.
Aleman, Jason Searns, and Harold E. Stafford