Universal Debt & Payment Solutions, LLC, Universal Debt Solutions, LLC, WNY Account Solutions, LLC, and Associated Companies and Individuals
Documents in this case
- Complaint · · 64 p.
- Stipulation · · 31 p.
- Stipulation · · 31 p.
- Stipulation · · 33 p.
- Dismissal · · 2 p.
- Judgment · · 37 p.
- Judgment · · 33 p.
- Dismissal · · 23 p.
- Opinion · · 25 p.
Case summary
On March 26, 2015, the Bureau filed a lawsuit against a group of seven debt collection agencies and six individual debt collectors, four payment processors and individual sales organizations, and a telephone marketing service provider alleging unlawful conduct related to a phantom debt collection operation. Phantom debt is debt that consumers do not actually owe or debt that is not payable to those attempting to collect it. The Bureau alleged that the individuals, acting through a network of corporate entities, used threats and harassment to collect phantom debt from consumers. The Bureau alleged the defendants violated the FDCPA and the CFPA’s prohibition on unfair and deceptive acts and practices and substantial assistance to unfair or deceptive conduct. On April 7, 2015, the Bureau obtained a preliminary injunction against the debt collectors that froze their assets and enjoined their unlawful conduct. On August 25, 2017, as a discovery sanction against the Bureau, the court dismissed the Bureau’s claims against the payment processors and the telephone marketing service provider: Frontline Processing Corp., Global Payments, Inc., Pathfinder Payment Solutions, Inc., Francis David Corp. d/b/a/ Electronic Merchant Systems, and Global Connect, LLC. The Bureau voluntarily dismissed one individual defendant, Varinderjit Bagga.
On August 21, 2019, the court entered a stipulated final judgment and order against Sumant Khan and S Payment Processing Solutions, LLC. Among other things, the stipulated judgment and order requires the settling defendants to transfer all the funds in their various bank accounts to the Bureau in partial satisfaction of a judgment of equitable monetary relief and damages in the amount of $633,710, which is partially suspended based on inability to pay. The stipulated judgment and order permanently bans the settling defendants from engaging in debt collection activities and prohibits them from making certain misrepresentations.
On November 15, 2019, the court entered a stipulated final judgment and order against Mohan Bagga. Among other things, the stipulated judgment and order imposes a suspended judgment against Bagga of equitable monetary relief and damages in the amount of $5,261,484, orders him to pay a $1 civil money penalty, permanently bans him from engaging in debt collection activities, and prohibits him from making certain misrepresentations. The suspension of the judgment and the $1 civil money penalty are based on his inability to pay.
On February 19, 2020, the court appointed a receiver to, among other things, identify and conserve frozen assets of certain defendants for future potential consumer redress.
On December 15, 2020, the court entered a stipulated final judgment and order against Tasha Pratcher. Among other things, the stipulated judgment and order imposes a $300,000 judgment against Pratcher for monetary relief and damages, which amount is suspended upon her payment of $2,500 and turnover of assets, orders her to pay a $1 civil money penalty, permanently bans her from engaging in debt collection activities, and prohibits her from making certain misrepresentations.
On October 20, 2021, the court entered a permanent injunction and final judgment against Marcus Brown, Sarita Brown, and WNY Account Solutions, LLC and a default judgment against the five corporate debt collectors—Check & Credit Recovery, LLC, Credit Power, LLC, Universal Debt & Payment Solutions, LLC, Universal Debt Solutions, LLC, and WNY Solutions Group, LLC—which had previously defaulted. These orders impose judgments for monetary relief against Marcus Brown, Sarita Brown, WNY Account Solutions, LLC, and the defaulted defendants, joint and severally, in the amount of $5,183,947.71 and require them to pay civil money penalties totaling $2,016,000. The orders also permanently ban them from engaging in debt collection activities, prohibit them from making certain misrepresentations, and prohibit them from using consumer information they obtained during the course of the debt collection scheme.
On December 17, 2021, the Bureau filed a notice of appeal of the court’s August 25, 2017 order dismissing its claims against the payment processors and the telephone marketing services provider. On June 12, 2023, the United States Court of Appeals for the Eleventh Circuit ruled against the Bureau and affirmed the August 25, 2017, sanctions order.
Complaint ()
PDF of this document (64 pages)
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IN THE UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF GEORGIA, ATLANTA DIVISION CONSUMER FINANCIAL PROTECTION BUREAU, Civil action no.
COMPLAINT FILED IN CLERK'S OFFICE U.S. D.C. -Allanla MAR 2 6 2015 Plaintiff, 1 : 15 -·'C V - 0 8 5 9 v.
UNIVERSAL DEBT & PAYMENT SOLUTIONS, LLC; UNIVERSAL DEBT SOLUTIONS, LLC; WNY ACCOUNT SOLUTIONS, LLC; WNY SOLUTIONS GROUP, LLC; CHECK & CREDIT RECOVERY, LLC; CREDIT POWER, LLC; S PAYMENT PROCESSING & SOLUTIONS, LLC; MARCUS BROWN; MOHAN BAGGA; SARITA BROWN; TASHA PRATCHER; VARINDERJIT BAGGA; SUMANT KHAN; GLOBAL PAYMENTS, INC.; PATHFINDER PAYMENT SOLUTIONS, INC.; FRONTLINE PROCESSING CORP.; FRANCIS DAVID CORP. d/b/a ELECTRONIC MERCHANT SYSTEMS; and GLOBAL CONNECT, LLC· , Defendants.
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The Consumer Financial Protection Bureau (“Bureau”) brings this action against Universal Debt & Payment Solutions, LLC; Universal Debt Solutions, LLC; WNY Account Solutions, LLC; WNY Solutions Group, LLC; Check & Credit Recovery, LLC; Credit Power, LLC; S Payment Processing & Solutions, LLC; Marcus Brown; Mohan Bagga; Sarita Brown; Tasha Pratcher; Varinderjit Bagga; and Sumant Khan (collectively, “Debt Collectors”); Global Payments, Inc.; Pathfinder Payment Solutions, Inc.; Frontline Processing Corp.; and Francis David Corp. d/b/a Electronic Merchant Services (collectively, “Payment Processors”); and Global Connect, LLC and alleges as follows:
INTRODUCTION 1.
The Bureau brings this action under the Consumer Financial Protection Act (“CFPA”), 12 U.S.C. §§ 5531, 5536(a), and the Fair Debt Collection Practices Act (“FDCPA”), 15 U.S.C. §§ 1692-1692p, to obtain preliminary and permanent injunctive relief, restitution, disgorgement for unjust enrichment, civil money penalties, and other appropriate relief for defendants’ acts or practices in violation of the CFPA and FDCPA in connection with unlawful collection of purported debt. 2.
The Debt Collectors are engaged in a scheme to defraud consumers by using threats, intimidation, and harassment to collect
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“phantom” debts. The Debt Collectors used collectors and automated telephone broadcasting services to contact consumers and their family members to threaten consumers with false allegations of check fraud and false claims of debt owed, which would result, according to the Debt Collectors, in service of a “financial restraining order,” notification to the consumer’s employer of the alleged fraud or debt, garnishment of wages, and arrest, unless the consumers paid the alleged debt. The Debt Collectors refused to identify the issuer of the supposed debt to consumers, but convinced consumers of their legitimacy by providing the consumer’s personal information, including date of birth, place of employment, and Social Security number. In most, if not all, cases, consumers did not owe any debt the Debt Collectors had a right to collect.
3.
Because of the Debt Collectors’ threats and false statements, consumers collectively paid millions of dollars to the Debt Collectors. 4.
The Payment Processors facilitated the Debt Collectors’ largescale fraud by enabling the Debt Collectors to accept payment by consumers’ bank cards when the Payment Processors knew, or should have known, that the Debt Collectors were engaged in unlawful conduct.
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5.
The Payment Processors, and the service they provided, gave the Debt Collectors an air of legitimacy and allowed the Debt Collectors to efficiently process a high volume of collections. 6.
The Debt Collectors’ conduct was facilitated by Global Connect, LLC, which provided the Debt Collectors with the ability to effortlessly broadcast millions of threatening and false statements to consumers in telephone messages.
7.
Global Connect, LLC provided this service when it knew, or should have known, that the messages it broadcast for the Debt Collectors were unfair or deceptive, and materially contributed to the Debt Collectors’ scheme.
JURISDICTION AND VENUE 8.
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. 9.
Venue is proper in this District because defendants do business in this District and the events or omissions giving rise to this complaint substantially took place in this District. 28 U.S.C. § 1391(b) and 12 U.S.C. § 5564(f).
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PARTIES 10.
The Bureau is an independent agency of the United States charged with regulating the offering and providing of consumer financial products or services under federal consumer financial laws, including the CFPA and FDCPA, 12 U.S.C. §§ 5481(12), 5481(14), 5491(a), and 5531; and 15 U.S.C. §§ 1692-1692p. The Bureau has enforcement authority over, inter alia, persons who offer or provide consumer financial products or services (“covered persons”); related persons who have managerial responsibility for, or materially participate in, the covered person’s business; persons that provide a material service to a covered person; and persons that knowingly or recklessly provide substantial assistance to a covered person’s or service provider’s violation of the CFPA. 12 U.S.C. §§ 5481(6), (25), (26), and 5536(a)(3). The Bureau has independent litigating authority to enforce federal consumer financial laws, including the CFPA and the FDCPA. 12 U.S.C. §§ 5564(a), (b); 15 U.S.C. § 1692l(b)(6). Debt Collectors 11.
Universal Debt & Payment Solutions, LLC is a Georgia limited liability company registered at 3939 Lavista Road, Ste. 312, Tucker, Georgia. 12.
This address belongs to a post office box at a UPS Store, which is registered to Marcus Brown.
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13.
Universal Debt & Payment Solutions, LLC was organized by Mohan Bagga.
14.
Marcus Brown is the entity’s registered agent. 15.
Sarita Brown is its treasurer.
16.
Universal Debt & Payment Solutions, LLC is also registered as a limited liability company in New York. 17.
The New York articles of incorporation were filed by Sarita Brown, who provided a mailing address of 142 Stratford Rd., Buffalo, New York, which is Marcus Brown’s residential address. 18.
The New York and Georgia entities are indistinct and are collectively referred to in this complaint as “UDPS.” 19.
UDPS engaged in offering or providing the collection of debt related to a consumer financial product or service and is, therefore, a “covered person” under the CFPA. 12 U.S.C. §§ 5481(6), (15)(A)(x). 20.
UDPS provided material services to the other Debt Collectors in connection with the other Debt Collectors’ offering or provision of consumer financial products or services; UDPS is therefore a “service provider” under the CFPA. 12 U.S.C. § 5481(26).
21.
UDPS transacts, or has transacted, the conduct alleged herein in this District and throughout the United States.
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22.
Universal Debt Solutions, LLC (“UDS”) is a New York limited liability company also registered at 142 Stratford Rd., Buffalo, New York. 23.
UDS engaged in collecting debt related to a consumer financial product or service and is, therefore, a “covered person” under the CFPA. 12 U.S.C. §§ 5481(6), (15)(A)(x).
24.
UDS provided material services to the other Debt Collectors in connection with the other Debt Collectors’ offering or provision of consumer financial products or services; UDS is therefore a “service provider” under the CFPA. 12 U.S.C. § 5481(26).
25.
UDS transacts, or has transacted, the conduct alleged herein in this District and throughout the United States. 26.
WNY Account Solutions, LLC is a New York limited liability company registered at a UPS Store in Williamsville, New York. 27.
WNY Solutions Group, LLC is a limited liability company registered a 140 Chatham Ave., Buffalo, New York, which address is associated with Marcus Brown and Tasha Pratcher, Brown’s wife. 28.
WNY Account Solutions, LLC and WNY Solutions Group, LLC are indistinct; for example, Sarita Brown opened and maintained a bank account in the combined name of “WNY Account Solutions Group.”
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29.
WNY Account Solutions, LLC and WNY Solutions Group, LLC are collectively referred to in this complaint as “WNY.” 30.
WNY engaged in collecting debt related to a consumer financial product or service and is, therefore, a “covered person” under the CFPA. 12 U.S.C. §§ 5481(6), (15)(A)(x).
31.
WNY provided material services to the other Debt Collectors in connection with the other Debt Collectors’ offering or provision of consumer financial products or services; WNY is therefore a “service provider” under the CFPA. 12 U.S.C. § 5481(26).
32.
WNY transacts, or has transacted, the conduct alleged herein in this District and throughout the United States. 33.
Check & Credit Recovery, LLC (“Check & Credit Recovery”) is a Georgia limited liability company organized by Marcus Brown at 50 Executive Park Drive South, Suite 5010, Atlanta, Georgia. 34.
Check & Credit Recovery engaged in collecting debt related to a consumer financial product or service and is, therefore, a “covered person” under the CFPA. 12 U.S.C. §§ 5481(6), (15)(A)(x). 35.
Check & Credit Recovery provided material services to the other Debt Collectors in connection with the other Debt Collectors’ offering or provision of consumer financial products or services; Check & Credit
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Recovery is therefore a “service provider” under the CFPA. 12 U.S.C. § 5481(26).
36.
Check & Credit Recovery transacts, or has transacted, the conduct alleged herein in this District and throughout the United States. 37.
Credit Power, LLC (“Credit Power”) is a Georgia limited liability company organized by Mohan Bagga at 6375 White Stone Pl., Jones Creek, Georgia.
38.
Credit Power engaged in collecting debt related to a consumer financial product or service and is, therefore, a “covered person” under the CFPA. 12 U.S.C. §§ 5481(6), (15)(A)(x).
39.
Credit Power provided material services to the other Debt Collectors in connection with the other Debt Collectors’ offering or provision of consumer financial products or services; Credit Power is therefore a “service provider” under the CFPA. 12 U.S.C. § 5481(26). 40.
Credit Power transacts, or has transacted, the conduct alleged herein in this District and throughout the United States. 41.
S Payment Processing & Solutions, LLC (“SPPS”) is a Georgia limited liability company organized by Sumant Khan at 3008 Oak Park Circle, Atlanta, Georgia.
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42.
SPPS engaged in collecting debt related to a consumer financial product or service and is, therefore, a “covered person” under the CFPA. 12 U.S.C. §§ 5481(6), (15)(A)(x).
43.
SPPS provided material services to the other Debt Collectors in connection with the other Debt Collectors’ offering or provision of consumer financial products or services; SPPS is therefore a “service provider” under the CFPA. 12 U.S.C. § 5481(26).
44.
SPPS transacts, or has transacted, the conduct alleged herein in this District and throughout the United States. 45.
UDPS, UDS, WNY, Check & Credit Recovery, Credit Power, and SPPS are collectively referred to in this complaint as the “Debt Collector LLCs.”
46.
Marcus Brown is an individual residing at 142 Stratford Avenue, Buffalo, New York.
47.
Marcus Brown is a person engaged in collecting debt related to consumer financial products or services and is, therefore, a covered person under the CFPA. 12 U.S.C. §§ 5481(6), (15)(A)(x). 48.
Marcus Brown is a related person and officer of the Debt Collector LLCs who materially participated in the conduct of the affairs of the
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Debt Collector LLCs and is, therefore, a “covered person” under the CFPA. 12 U.S.C. §§ 5481(6), (25).
49.
Marcus Brown and the entities he controls transact, or have transacted, the conduct alleged herein in this District and throughout the United States.
50.
Mohan Bagga is an individual residing at 6375 Whitestone Place, Duluth, Georgia.
51.
Mohan Bagga is a person engaged in collecting debt related to consumer financial products or services and is, therefore, a covered person under the CFPA. 12 U.S.C. §§ 5481(6), (15)(A)(x). 52.
Mohan Bagga is a related person and officer of the Debt Collector LLCs who materially participated in the conduct of the affairs of the Debt Collector LLCs and is, therefore, a “covered person” under the CFPA. 12 U.S.C. §§ 5481(6), (25).
53.
Mohan Bagga and the entities he controls transact, or have transacted, the conduct alleged herein in this District and throughout the United States.
54.
Sarita Brown is an individual residing at 39 Ritt Avenue, Buffalo, New York.
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55.
Sarita Brown is a person engaged in collecting debt related to consumer financial products or services and is, therefore, a covered person under the CFPA. 12 U.S.C. §§ 5481(6), (15)(A)(x). 56.
Sarita Brown is a related person and officer of the Debt Collector LLCs who materially participated in the conduct of the affairs of the Debt Collector LLCs and is, therefore, a “covered person” under the CFPA. 12 U.S.C. §§ 5481(6), (25).
57.
Sarita Brown and the entities she controls transact, or have transacted, the conduct alleged herein in this District and throughout the United States.
58.
Tasha Pratcher (“Pratcher”) is an individual residing at 142 Stratford Avenue, Buffalo, New York.
59.
Pratcher is a person engaged in collecting debt related to consumer financial products or services and is, therefore, a covered person under the CFPA. 12 U.S.C. §§ 5481(6), (15)(A)(x). 60.
Pratcher is a related person who materially participated in the conduct of the affairs of the Debt Collector LLCs and is, therefore, a “covered person” under the CFPA. 12 U.S.C. §§ 5481(6), (25).
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61.
Pratcher and the entities she controls transact, or have transacted, the conduct alleged herein in this District and throughout the United States.
62.
Varinderjit Bagga is an individual residing at 6375 Whitestone Place, Duluth, Georgia.
63.
Varinderjit Bagga is a person engaged in collecting debt related to consumer financial products or services and is, therefore, a covered person under the CFPA. 12 U.S.C. §§ 5481(6), (15)(A)(x). 64.
Varinderjit Bagga is a related person who materially participated in the conduct of the affairs of the Debt Collector LLCs and is, therefore, a “covered person” under the CFPA. 12 U.S.C. §§ 5481(6), (25). 65.
Varinderjit Bagga and the entities she controls transact, or have transacted, the conduct alleged herein in this District and throughout the United States.
66.
Sumant Khan (“Khan”) is an individual residing at 3008 Oak Park Circle, Atlanta, Georgia.
67.
Khan is a person engaged in collecting debt related to consumer financial products or services and is, therefore, a covered person under the CFPA. 12 U.S.C. §§ 5481(6), (15)(A)(x).
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68.
Khan is a related person and officer of the Debt Collector LLCs who materially participated in the conduct of the affairs of the Debt Collector LLCs and is, therefore, a “covered person” under the CFPA. 12 U.S.C. §§ 5481(6), (25).
69.
Khan and the entities he controls transact, or have transacted, the conduct alleged herein in this District and throughout the United States. 70.
The individual defendants and Debt Collector LLCs are collectively referred to in this complaint as the “Debt Collectors.” 71.
Defendants UDPS, UDS, WNY, Check & Credit Recovery, Credit Power, SPPS, Marcus Brown, Mohan Bagga, Sarita Brown, Pratcher, Varinderjit Bagga, and Khan have operated as a common enterprise while engaging in debt collection activities that are unfair and harassing and in other conduct alleged below.
72.
The Debt Collectors all operated out of an office at 1401 Peachtree St., Atlanta, Georgia.
73.
The Debt Collector LLCs shared common control of the collection scheme, office space, and officers; transacted business through a maze of interrelated companies; and failed to maintain separate companies. 74.
The Debt Collectors commingled funds among accounts opened and maintained by Sarita Brown in the names of WNY and UDS; by Mohan
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Bagga in the names of UDPS and Credit Power; and by Sumant Khan in the name of SPPS.
75.
Individuals Marcus Brown, Mohan Bagga, Sarita Brown, Pratcher, Varinderjit Bagga, and Khan participated directly in the conduct described below, had authority to control the corporate defendants, and knew of each other’s conduct that constitutes the common enterprise. Payment Processors 76.
Global Payments, Inc. (“Global Payments”) is a Georgia corporation with a principal place of business at 10 Glenlake Parkway, Atlanta, Georgia.
77.
Global Payments provided payment processing services, including material payment processing services to persons who collect debt, including the Debt Collectors, in connection with their collection of debt; Global Payments, therefore, is a “covered person” and a “service provider” under the CFPA. 12 U.S.C. §§ 5481(15)(A)(vii), (26). 78.
Global Payments and its subsidiaries transact, or have transacted, the conduct alleged herein in this District and throughout the United States.
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79.
Pathfinder Payment Solutions, Inc. (“Pathfinder”) is a Maryland corporation with a principal place of business at 6452 River Run, Columbia, Maryland.
80.
Under its merchant services agreement with Global Payments Direct, Inc., a Global Payments subsidiary, Pathfinder agreed to market Global Payments’ processing service to merchants, prescreen and underwrite for credit purposes all potential merchants, monitor processing activity to detect fraud and risk, and advise Global Payments accordingly. 81.
Pathfinder provided payment processing services, including material services to persons who collect debt, including the Debt Collectors, in connection with their collection of debt; Pathfinder, therefore, is a “covered person” and a “service provider” under the CFPA. 12 U.S.C. §§ 5481(15)(A)(vii), (26).
82.
Pathfinder transacts, or has transacted, the conduct alleged herein in this District and throughout the United States. 83.
Frontline Processing Corp. (“Frontline”) is a Nevada corporation with a principal place of business at 3701 Trakker Trail, Bozeman, Montana. 84.
Under its merchant services agreement with Global Payments Direct, Inc., Frontline agreed to market Global Payments’ services to
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merchants and prescreen merchants for compliance with Global Payments’ credit criteria.
85.
Frontline provided payment processing services, including material services to persons who collect debt, including the Debt Collectors, in connection with their collection of debt; Frontline, therefore, is a “covered person” and a “service provider” under the CFPA. 12 U.S.C. §§ 5481(15)(A)(vii), (26).
86.
Frontline transacts, or has transacted, the conduct alleged herein in this District and throughout the United States. 87.
Global Payments identifies Frontline and Pathfinder, among others, as independent sales organizations (“ISO”). 88.
Francis David Corp. d/b/a Electronic Merchant Services (“EMS”) is an Ohio corporation with a principal place of business at 5005 Rockside Rd., Cleveland, Ohio.
89.
EMS provided payment processing services, including material payment processing services to persons who collect debt, including the Debt Collectors, in connection with their collection of debt; EMS, therefore, is a “covered person” and a “service provider” under the CFPA. 12 U.S.C. §§ 5481(15)(A)(vii), (26).
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90.
EMS transacts, or has transacted, the conduct alleged herein in this District and throughout the United States. Telephone Broadcast Service Provider 91.
Global Connect, LLC (“Global Connect”) is a New Jersey limited liability company registered at 5218 Atlantic Avenue, Mays Landing, New Jersey.
92.
Global Connect provided material services to persons who collect debt, including the Debt Collectors, in connection with their collection of debt; Global Connect, therefore, is a “service provider” under the CFPA. 12 U.S.C. § 5481(26).
93.
Global Connect transacts, or has transacted, the conduct alleged herein in this District and throughout the United States. FACTUAL ALLEGATIONS The Debt Collection Scheme 94.
The Debt Collectors contacted millions of consumers by telephone to collect debts they asserted to be owed. 95.
Typically, the Debt Collectors, using such names as “LRS Litigation Group,” “Worldwide Requisitions,” and “Arbitration Resolution,” accused the consumer of having committed check fraud.
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96.
The Debt Collectors threatened that litigation would be filed against the consumer if the consumer, or his or her attorney, did not call the Debt Collectors back within 24-48 hours. 97.
When the consumer returned the call, the Debt Collectors told the consumer that the consumer needed to settle the debt to avoid court action, such as a restraining order or criminal prosecution. 98.
The Debt Collectors refused to identify the supposed lender of the claimed debt, but convinced the consumer that the debt existed and was owed to them by reciting the consumer’s personal information, such as date of birth, place of employment, and Social Security number. 99.
With threats of arrest or contact of the consumer’s employer, the Debt Collectors convinced the consumer to provide his or her bank card information to the Debt Collectors.
100.
The Debt Collectors provided the consumer’s payment information to the Payment Processors, who facilitated the withdrawal of funds from the consumer’s account and deposit of funds into the Debt Collectors’ accounts.
Obtaining consumers’ information 101.
The Debt Collectors purchased consumer information from debt and data brokers.
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102.
From debt brokers, the Debt Collectors purchased spreadsheets of consumer information including consumers’ Social Security numbers, addresses, home phone numbers, work phone numbers, cell phone numbers, employers, email addresses, and, in many cases, bank account and routing numbers.
103.
In numerous instances, the Debt Collectors were not owed the purported debt and had no authority to collect it. 104.
From data brokers, the Debt Collectors purchased consumer information from payday loan lead generators. 105.
The Debt Collectors used this information to collect, and attempt to collect, debts that the Debt Collectors had no authority to collect and may not have ever been owed.
106.
To ratify and update, or “scrub,” consumer information obtained from debt and data brokers, the Debt Collectors used the services of at least one consumer reporting agency.
Contacting consumers 107.
Global Connect provided telephone broadcast services to the Debt Collectors and other persons who collect debt that enabled them to make millions of collection calls to individuals victimized by the Debt Collectors’ scheme.
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108.
To use Global Connect’s telephone broadcast service, the Debt Collectors uploaded to Global Connect a list of names and phone numbers and a recorded message.
109.
To the consumers the Debt Collectors identified, Global Connect broadcasted the following message, among others, on behalf of the Debt Collectors:
We are contacting [consumer’s name] in reference to an allegation of check or bank fraud. It is imperative that we speak to you regarding this allegation. Our office has been mandated to contact your employer to verify your employment to issue paperwork for you to appear in court. If you wish to stop said action, press 9 or call 202-803-[####]. Once again, contact us at 202-803-[####]. You have until the close of business today.
110.
The pre-recorded voice message did not identify the caller. 111.
The Debt Collectors concealed their identity by causing “000-000- 0000” to appear on the consumer’s caller identification when he or she received a call from Global Connect.
112.
If a consumer did not answer Global Connect’s phone call, the service left the pre-recorded voice message with the consumer’s voice mail or answering machine.
113.
Over one million consumers either answered Global Connect’s call and received this message or had it left on their voicemail or answering machine.
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114.
If the consumer called the phone number in the message, or pressed “9” during the message, the call was directed to phone numbers registered to the Debt Collectors.
115.
When a consumer responded to this automated message, the Debt Collectors threatened the consumers with legal process, including arrest, that the Debt Collectors were not authorized, and did not intend, to pursue.
116.
In numerous instances, in response to the Debt Collectors’ threats, consumers paid debts that they did not owe or that the Debt Collectors were not authorized to collect. 117.
In May 2014, in response to the Bureau’s civil investigative demand, Global Connect provided the Bureau with copies of the messages it was broadcasting on behalf of the Debt Collectors. 118.
Global Connect also provided the Bureau will call logs, which showed these messages were being broadcast to millions of consumers. 119.
Since the time it provided the Bureau with copies of the recordings, if not before, Global Connect knew it was broadcasting unfair or deceptive messages that materially contributed to the Debt Collectors’ scheme.
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The individual defendants were personally engaged in the unlawful scheme
120.
Each individual defendant played an essential role in the debt collection scheme.
121.
Marcus Brown is an officer of UDPS and Check & Credit Recovery, LLC.
122.
All the Debt Collector LLCs are registered to addresses associated with Marcus Brown, including a post office box that is registered to him.
123.
Brown controlled, or was able to control, all aspects of the Debt Collectors’ business: he purchased consumer debt and leads, he controlled the data scrubbing accounts used to obtain consumers’ current personal information, he controlled the accounts for telephones and telephone broadcasting service, and he leased office space for the collectors. He managed the Debt Collector LLCs’ day-to-day operations and controlled the entities’ finances.
124.
Marcus Brown received payments for the collection scheme from WNY, UDS, Credit Power, UDPS, and SPPS.
125.
Mohan Bagga is an officer of Credit Power and UDPS and controlled bank accounts in the names of Credit Power and UDPS.
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126.
Mohan Bagga used these accounts to receive deposits from the payment processors of funds taken from consumers; to pay for consumer debt and leads, data scrubbing services, telephone services, payment processing services, and the UPS mailbox registered to Marcus Brown; and to distribute funds generated by the collection scheme to Marcus Brown, Sumant Khan, Varinderjit Bagga, UDS, WNY, and Credit Power. 127.
Mohan Bagga opened and controlled the payment processing accounts for Credit Power and UDPS.
128.
Mohan Bagga created and managed the accounts for data scrubbing services and for message broadcasting by Global Connect. 129.
Mohan Bagga also provided a financial guarantee of the lease for the Debt Collectors’ office space.
130.
Mohan Bagga received payments for the collection scheme from UDPS and Credit Power.
131.
Sarita Brown is an officer of UDPS.
132.
Sarita Brown controlled bank accounts for WNY and UDS from which she and Marcus Brown paid expenses for the collection scheme, including purchasing consumer information, paying collectors and managers who carried out the collection activities, and paying rent for office space.
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133.
Sarita Brown received payments for the collection scheme from WNY and UDS.
134.
Tasha Pratcher managed a payment processing account in the name of WNY, which was used to process funds from the collection scheme. 135.
Pratcher provided financing for the scheme, including paying the rent for office space, and received significant payments generated by the collection scheme from WNY and UDS.
136.
Sumant Khan created and controlled SPPS, the sole purpose of which was to further the collection scheme. 137.
Khan controlled processing accounts used to process payments from consumers, and associated bank accounts, in which he received consumer funds from the collection scheme and from which he made payments to payment processors, Marcus Brown, WNY, and for other expenses related to the collection scheme. 138.
Khan received payments for the collection scheme from SPPS, WNY, UDS, and UDPS.
139.
Varinderjit Bagga was the owner of WNY and opened and controlled a payment processing account for the entity. 140.
She used this account to collect and distribute consumer funds generated by the collection scheme.
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141.
Varinderjit Bagga provided financing for the collection scheme, and is the owner of the residence that the Debt Collector LLCs, at various times, used as their principal place of business, 6375 Whitestone Place. 142.
Varinderjit Bagga also created a limited liability company with Sumant Khan, VS Payment Solutions, LLC, for the sole purpose of furthering the collection scheme.
143.
Varinderjit Bagga received payments for the collection scheme from WNY, Credit Power, and UDPS.
The Payment Processors Facilitated the Debt Collection Scheme 144.
Payment processors, like Global Payments and EMS, provide services that enable merchants to accept check, card, and electronic payments at a point of sale.
145.
Payment processors promote their service as providing increased sales and “enhanced business image.”
146.
By enabling the Debt Collectors and other persons who collect debt to accept credit and debit card payments, the Payment Processors enabled them to efficiently accept payments and convince consumers that they were credible merchants.
147.
During the typical card transaction, when a cardholder presents a card for payment at a merchant location, the card information is captured
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by a point of sale terminal card reader and transmitted to a payment network.
148.
Payment processors must be sponsored by an acquiring bank that is registered with one or more of the card associations, such as Visa or MasterCard.
149.
Payment processors are subject to the rules and credit risk policies of the card associations.
150.
The illustration below shows the flow of a typical $100 card transaction:
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151.
By granting access by the Debt Collectors and other persons who collect debt to this payment processing infrastructure, the Payment Processors enabled them to quickly, conveniently, and efficiently collect consumer payments.
The Payment Processors and ISOs failed to follow policies and procedures to prevent consumer harm
152.
In general, because merchants are paid quickly for card transactions, the merchant processing relationship creates credit exposure for payment processors.
153.
Consumers’ payments are provisional and may be reversed when a consumer disputes a charge, which may result in a “chargeback.” 154.
If a merchant is unable or unwilling to fund the reversed transaction, the chargeback would become the responsibility of the payment processor.
155.
To minimize credit exposure, the Payment Processors were required to follow policies and procedures to evaluate merchant creditworthiness and identify fraud.
156.
One such card association policy stated, “A Merchant must not accept a Card to collect or refinance an existing debt….”
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157.
Similarly, consistent with the card networks’ policy, Global Payments’ own credit policy specifically identified collection agencies among “prohibited merchants” that ISOs were not to solicit, and which required Global Payments’ approval.
158.
Pathfinder (but not Frontline) also deemed collection agencies to be prohibited merchants.
159.
The Payment Processors deemed collection agencies to be high risk merchants.
160.
In addition to collection agencies, Global Payments’ list of prohibited merchants included “Aggregators,” or merchants that use their processing account to process payments for other merchants, a practice known as “factoring.”
161.
According to Global Payments’ policy, an indicator for factoring was “any Merchants using ‘Pay’ or ‘Payment’ in either DBA or Legal names.” 162.
The Payment Processors and card associations also considered the Debt Collectors high risk merchants because they processed only “cardnot-present” transactions.
163.
Global Payments’ policies required enhanced scrutiny of card-notpresent merchants.
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164.
Although the Payment Processors classified the Debt Collectors and other persons who collect debt as high risk – indeed, prohibited – merchants, as described below, the Payment Processors approved the Debt Collectors’ numerous applications for payment processing accounts and failed to reasonably monitor those accounts for signs of unlawful conduct. Pathfinder’s underwriting and risk monitoring were deficient 165.
In February 2011, Mohan Bagga, on behalf of Credit Power, submitted an application to Pathfinder for a Global Payments merchant processing account.
166.
Pathfinder’s underwriting purported to include a review for criminal activity, associates, verification of addresses, business filings or corporate affiliations.
167.
Although Credit Power’s “chief executive officer” had recently finished a sentence for drug trafficking and shared an address with Mohan Bagga, Pathfinder and Global Payments approved Credit Power’s application. 168.
In November 2011, Mohan Bagga applied for a second account with Pathfinder, in the name of UDPS.
169.
In the application, Mohan Bagga identified UDPS as a collection agency that had been in business for one month.
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170.
The application provided the same address for Mohan Bagga’s residence and UDPS’s business.
171.
Although Pathfinder’s vice president for compliance recognized that a merchant’s operating out of his home indicated the business may not be legitimate, Pathfinder and Global Payments approved the application. 172.
Pathfinder’s site survey for the UDPS application stated that the business premises, Mohan Bagga’s home, was leased and “the amount of inventory and merchandise on the shelves and floor appear to be consistent with the type of business.”
173.
UDPS’s application shows that Mohan Bagga’s minimal income was derived from self-employment and he had a subprime credit score. 174.
Although the Global Payment’s risk policy stated that a principal’s creditworthiness was critical to the underwriting decision, Pathfinder and Global Payments approved UDPS’s application notwithstanding Bagga’s credit history and status. 175.
Global Payments deposited monies processed through the UDPS and Credit Power accounts into bank accounts opened and maintained by Mohan Bagga in the names of UDPS and Credit Power.
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176.
Once Credit Power and UDPS began processing with Global Payments, Global Payments and Pathfinder continued to ignore indicators that the collectors were committing fraud. 177.
For example, in January 2012, Pathfinder recognized that UDPS was processing payments for RSB Equity Group, LLC (“RSB”). Although Global Payments’ policy prohibited processing payments for another merchant, or “factoring,” the Payment Processors allowed UDPS and Credit Power to continue processing payments.
178.
In November 2012, Pathfinder received a MATCH alert for UDPS and RSB.
179.
MATCH refers to the “Member Alert to Control High-risk merchants” system that MasterCard maintains to identify and prevent fraud, which Global Payments, EMS, and their ISOs are required to consult, according to MasterCard’s and Global Payments’ rules. 180.
The MATCH alert stated that another processor terminated affiliates of UDPS and RSB because the processor, after investigation, found factoring and excessive chargeback volume. 181.
Although Pathfinder, in January 2012, had identified this same factoring conduct by RSB and UDPS, it did not conduct any further
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investigation into its merchants’ conduct and allowed the Debt Collectors to continue processing payments.
182.
In March 2013, Global Payments notified Pathfinder that Visa had prohibited Credit Power from processing payments using the Visa network.
183.
However, Pathfinder and Global Payments continued to allow Credit Power and UDPS to process payments with other card brands. 184.
On July 8, 2013, Global Payments notified Pathfinder that the Discover card association was requiring closure of UDPS’s account due to “prohibited business practices.”
185.
However, Pathfinder and Global Payments allowed UDPS and Credit Power to continue processing MasterCard transactions for almost another year.
186.
Pathfinder routinely experienced difficulties making contact with representatives of UDPS and Credit Power. 187.
For example, mail was often returned and voicemail boxes were full.
188.
Additionally, on at least one occasion, in July 2013, Pathfinder placed a call to UDPS customer service and the owner of RSB answered the phone.
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189.
Communication problems like these should have caused the ISO to more closely monitor or terminate the Debt Collectors. 190.
By Pathfinder’s own admission, any chargeback rate greater than zero was a sign of suspicious activity. 191.
Yet Pathfinder allowed the Debt Collectors to continue processing when, based on data provided by Global Payments, it noted that Credit Power’s chargeback rate for July 2013 was 28.5% and UDPS’s chargeback rate in August 2013, was 31%.
192.
These high rates should have caused Pathfinder and Global Payments to investigate the Debt Collectors’ business practices, if not terminate their accounts.
193.
In August 2013, UDPS changed its address to 3939 Lavista Rd., the address for a UPS store, and changed the contact person to Marcus Brown.
194.
In December 2013, Brown requested an increase in UDPS’s processing volume limit.
195.
Also in December 2013, Pathfinder acknowledged that Marcus Brown was one of its most profitable clients by sending him a gift basket. Frontline’s underwriting and risk monitoring were deficient
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196.
In March 2013, Mohan Bagga submitted merchant applications to Frontline on behalf of UDPS and Credit Power. 197.
Although Frontline is an ISO of Global Payments, whose policy purports to prohibit collection agencies, Frontline’s own list of prohibited merchants does not include collection agencies. 198.
Frontline’s Underwriting Manual begins by declaring Frontline’s “Underwriting Philosophy”: “At Frontline Processing we look for ways to say YES.”
199.
The Debt Collectors’ merchant processing applications were again replete with indicators of fraudulent activity. 200.
UDPS’s March 2013 application identified a physical and legal address as 2256 Northlake Parkway, Suite 301. 201.
UDPS never occupied this space.
202.
The fax imprint on the application shows that it was faxed from a FedEx Office location, and the address on the voided check UDPS provided with its application belongs to another collection agency. 203.
Frontline’s underwriting manual stated that Merchant Category Codes are used by the card associations for activity tracking, reporting, and risk management purposes. “Therefore,” the policy states, “it is important to ensure that the correct MCC code is assigned to a merchant.”
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204.
Although the UDPS application clearly stated that UDPS was in the business of “debt collections,” the underwriting summary included Merchant Category Code 5651, which was the card issuers’ code for “Family Clothing Stores.”
205.
Frontline’s underwriting summary of the UDPS application stated, “Prohibited business model per Global Credit Guidelines.” 206.
Directly underneath this summary, Frontline wrote, “Approved.” 207.
Global Payments also approved the UDPS application. 208.
On March 23, 2013, just weeks after Frontline and Global Payments approved the UDPS application, Mohan Bagga submitted a merchant processing application to Frontline in the name of Credit Power. 209.
The application provided a legal address, 3939 Lavista Rd., that belonged to a UPS Store.
210.
The application was faxed from the same FedEx Office as the UDPS application.
211.
The Better Business Bureau (“BBB”) review of Credit Power, which was included in the underwriting package, showed that Credit Power was rated “F.”
212.
The BBB review also identified Credit Power’s principal as an exfelon.
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213.
Frontline’s underwriting policy states, “The underwriting department is responsible for verifying information contained on the application, including the [customer service] number and website provided. The purpose of verifying this information is to ensure the business is legitimate.”
214.
The manual explains, “In addition to verifying that the number belongs to our merchant, this is a great opportunity to make sure that the guarantor is an active part of the business.” 215.
Neither the UDPS application nor the Credit Power applications that Bagga submitted included a customer service phone number. 216.
Global Payments deposited monies processed through these accounts into bank accounts opened and maintained by Mohan Bagga in the names of UDPS and Credit Power.
217.
In a letter Frontline posted among customer testimonials on its website, Bagga acknowledged Frontline’s assistance in the debt collection scheme.
218.
The letter from Mohan Bagga, “President of Universal Debt & Payment Solutions,” recommends Frontline because it “has been extremely helpful in jump starting my business for many reasons.”
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Global Payments, Pathfinder, and Frontline failed to appropriately monitor the UDPS and Credit Power accounts
219.
Chargebacks occur when a consumer disputes a charge with his or her bank because, for example, a charge was unauthorized, merchandise was not received, or the consumer was victimized by fraud. 220.
Under its agreement with its sponsor bank, Global Payments was responsible for handling all chargebacks and related costs. 221.
The agreement required Global Payments to “[p]erform standard investigations of chargeback transactions” and “provide documentation to the merchant as ‘case documentation’ supporting an adjustment.” 222.
When a consumer disputed a charge that Global Payment processed, Global Payments received the chargeback complaint from the issuing bank and generated a chargeback advice, which it mailed to the merchant to attempt to resolve the dispute. 223.
The advice contained card information, transaction information, and the narrative of a consumer’s dispute. 224.
If the merchant contested the chargeback, it could respond with supporting documentation to Global Payments.
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225.
Global Payments processed the chargeback of one Texas consumer, for example, who disputed a Credit Power transaction from September 16, 2013.
226.
The consumer complained that she received a call from LRS Litigations.
227.
The caller from LRS Litigations said the consumer owed LRS money and stated the consumer’s social security number. 228.
The consumer did not provide debit card information or authorize a charge, but Credit Power withdrew $500 from her account without authorization.
229.
Global Payments processed the chargeback of another consumer who complained that he received a threatening call while he was asleep. 230.
The caller stated that he had a “restraining order against [the consumer] to appear in court if I didn’t settle with them.” 231.
The caller said the consumer had 24 hours to pay $500 on a $1,600 debt to Bank of America, or the collector would “contact [the consumer’s] employer to levy [his] wage, and they were also contacting the local police to serve papers against [the consumer].” 232.
According to the complaint, because he was scared, the consumer provided his bank card information.
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233.
After making the payment, the consumer’s wife informed him that they had never done business with Bank of America. 234.
Global Payments processed a Pennsylvania consumer’s dispute of a $250 debit by Credit Power.
235.
The consumer complained that he received a call on January 30, 2014 from a collection agency that the consumer had to pay two payments of $250 to settle a $3,000 MasterCard debt, or he would be “forced to go to court and pay further fees such as court costs, settlement fees, etc.” 236.
Although the consumer was already paying a collection agency for his credit card debt, “with the scare of court and more fees … I simply gave my debit card number for settlement.” 237.
The caller promised to send a receipt by email, but the consumer never received any paperwork.
238.
Upon hanging up, the caller remembered that he only had one credit card, a Visa.
239.
Global Payments processed the chargeback of a consumer from Oregon who disputed a $600 payment to UDPS. 240.
The consumer complained that a caller claimed to have lost the consumer’s payment information because of a computer server outage.
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241.
However, the consumer had never provided his payment information to the agency the caller claimed to represent. 242.
The caller promised to send a settlement agreement before charging the consumer’s card, but did not. 243.
As the consumer summarized in this dispute, “They lied about who they were, they lied about what they were doing, and they lied about providing documentation.”
244.
Other consumers disputed charges by Credit Power and UDPS when they were unable to reach the merchant, payments they made were not applied to an actual debt, the consumer did not receive a verification of debt, or simply that the charge was not authorized. 245.
Many of the complaints about Credit Power and UDPS refer to LRS Litigations or IRS Equity, which, at least, should have alerted Global Payments, Frontline, and Pathfinder to factoring. 246.
Global Payments, Frontline, and Pathfinder ignored these red flags and allowed UDPS and Credit Power to continue processing unlawfully obtained payments.
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EMS’s underwriting and risk monitoring were deficient 247.
Like Global Payments, EMS provided frontline customer service, chargeback processing and risk monitoring functions for merchant transactions.
248.
EMS’s agreement with its sponsor bank required EMS to maintain underwriting standards, perform due diligence on merchant applications, and monitor risk.
249.
EMS’s agreements with its ISOs required the ISO to market EMS to only “bona fide lawful businesses and merchants that meet EMS’ criteria” and conform with EMS’s, the sponsor bank’s, and the card associations’ underwriting requirements. 250.
In August 2013, UDPS and Credit Power submitted applications to EMS to process an average monthly sales volume of $50,000 and $75,000, respectively.
251.
The applications provided 3939 Lavista Rd. as a legal and physical address.
252.
This address, 3939 Lavista Rd., is the address of a UPS Store. 253.
UDPS and Credit Power also provided 3939 Lavista Rd. as Mohan Bagga’s residential address, while the phone number provided as
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Mohan Bagga’s residential phone is Marcus Brown’s cell phone, including a Buffalo area code.
254.
The site inspection section of the applications stated that the merchant owns the premises, which is consistent with the type of business, but that the inspector did not physically inspect the business. 255.
The address information in the applications was contradicted by other documents in the underwriting packages, including Mohan Bagga’s driver’s license, Mohan Bagga’s credit report, and a voided check for the UDPS bank account.
256.
EMS utilized a fraud detection tool as part of the underwriting process.
257.
On a scale of zero to 50, fraud detection reports included in EMS’s underwriting file rated UDPS and Credit Power zero, or high risk, because there was “[n]othing found to confirm the existence of the business.” 258.
Although the application identified UDPS as a “collections” business, EMS assigned merchant code 7321, “Consumer Credit Reporting Agencies.”
259.
Although the Credit Power and UDPS applications provided the same business address, the Credit Power underwriting file included a merchant site inspection report.
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260.
The inspection was never completed; instead, the report stated, “Inspection was placed on hold because the site contact would not return inspectors [sic] phone calls. Received email from [client] 10/04/13 asking that this order be cancelled out.”
261.
EMS approved both the Credit Power and UDPS applications. 262.
EMS, like Global Payments, processed consumer chargebacks. 263.
Consumer chargebacks processed by EMS involved, for example, a consumer’s complaint that he received a call from “Arbitration Resolution” claiming that he owed a debt to a bank. 264.
The caller told the consumer that the debt was “in the lawyers’ hands now so if I did not settle it today I would be subject to a judgment on my bank accounts.”
265.
After the consumer paid “Arbitration Resolution,” his account showed a corresponding withdrawal by UDPS. 266.
After paying, the consumer learned from his bank that no such debt had existed.
267.
EMS processed the chargeback of a Nebraska consumer who provided an affidavit to her bank disputing a UDPS charge. The affidavit states,
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I was called on Fri Jan 31, 2013 [sic] and was told they were calling from arbitration and that if I didn’t give them $1000.00 the sheriff would be out to take me to jail at 6 pm. I told them what was this about and he said it was in regards to capital one credit card. I told him I only receive SSI, so he asked me how much I could pay and I just got scared and I really thought I was going to jail so I just said $200.00 and he said that was good and they would set up payments for March and April.
268.
Despite numerous consumer disputes telling the same story of fraud, EMS took no action to terminate the UDPS or Credit Power accounts. 269.
In response to the Bureau’s civil investigative demand, in March 2014, EMS terminated UDPS and submitted a MATCH alert to notify payment processors of UDPS’s and Credit Power’s possible fraud. 270.
In April 2014, after the payment processors terminated accounts for Credit Power and UDPS, Khan and Varinderjit Bagga formed SPPS and VS Payment Solutions, LLC for the sole purpose of furthering the collection scheme.
271.
Khan, Varinderjit Bagga, and Brown entered indemnity agreements that stated, “Any investigation by the FTC commission or the Consumer Financial Protection Bureau (CFPB) for any violations will be the responsibility for [sic] Marcus Brown and he will indemnify the company and Mr. Sumant Khan and Ms. Veena Bagga incase [sic] of any violations,
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including violations for processing payments and any fines assessed based on a Civil Investigative Demand by CFPB.” 272.
On April 10, 2014, Varinderjit Bagga submitted an application for a processing account with EMS in the name of WNY. 273.
On the application, the business address is listed as 1401 Peachtree St., the same address UDPS used. 274.
The application also identified as the contact person “Marcus – Office Manager” and included Marcus Brown’s cell phone number. 275.
The application identifies Varinderjit Bagga as the owner of WNY.
276.
Varinderjit’s residential address is listed as 6375 Whitestone Place, the same address the entities had used in prior applications to EMS. 277.
EMS’s business verification report rated WNY as zero, or high risk, because nothing could be found to confirm the existence of the business. 278.
EMS approved the application and capped the account at $30,000 per month.
279.
WNY processed just shy of that limit in the months of April, May, and June 2014.
280.
EMS deposited payments consumers made to WNY in an account opened and maintained by Sarita Brown in WNY’s name.
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281.
In May 2014, Khan submitted an application to EMS for SPPS. 282.
The application provides SPPS’s corporate address as 1401 Peachtree St.
283.
It lists “Marcus” as the office manager and includes Brown’s cell phone number.
284.
EMS performed a business verification report that gave SPPS a zero rating because nothing could be found to confirm the existence of the business.
285.
EMS approved SPPS’s application, and permitted the Debt Collectors to process about $80,000 through the account between May and August 2014, when EMS terminated the account in response to the Bureau’s inquiry.
To continue their collection scheme, Brown, Varinderjit Bagga, and Khan opened additional processing accounts with another payment processor
286.
In April 2014, Marcus Brown contacted another payment processor to open processing accounts for WNY and SPPS. 287.
Brown identified himself to the processor as a consultant for the entities.
288.
WNY’s application for a processing account identified Varinderjit Bagga as WNY’s president and 100% owner.
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289.
SPPS’s application for a processing account identified Sumant Khan as SPPS’s 100% owner.
290.
Both applications referenced the 1401 Peachtree St. address. 291.
In August and September 2014, Khan made significant payments to Brown and WNY from the checking account of SPPS. DEBT COLLECTORS’ VIOLATIONS OF THE FDCPA 292.
The Debt Collector defendants are “debt collectors” as defined by Section 803(6) of the FDCPA, 15 U.S.C. § 1692a(6), because they used instrumentalities of interstate commerce in a business, the principal purpose of which was the collection of any debts, and/or regularly collected or attempted to collect, directly or indirectly, debts owed or due or asserted to be owed or due another.
293.
A “consumer,” as defined in Section 803(3) of the FDCPA, 15 U.S.C. § 1692a(3), “means any natural person obligated or allegedly obligated to pay any debt.”
294.
A “debt,” as defined in Section 803(5) of the FDCPA, 15 U.S.C. § 1692a(5), “means any obligation or alleged obligation of a consumer to pay money arising out of a transaction in which the money, property, insurance or services which are the subject of the transaction are primarily for
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personal, family, or household purposes, whether or not such obligation has been reduced to judgment.”
Count I: Harassment and Abuse in Connection with Collection of a Debt
295.
The Bureau incorporates by reference the allegations in paragraphs 1-294 of the complaint.
296.
In numerous instances, in connection with the collection of purported debts, the Debt Collectors engaged in conduct the natural consequence of which was to harass, oppress, or abuse the consumer, including, but not limited to, placing telephone calls without meaningful disclosure of the caller’s identity, concealing their identity by causing “000- 000-0000” to appear on the consumer’s caller identification, threatening arrest and garnishment of wages, and making false allegations that the consumer committed a crime.
297.
The Debt Collectors’ harassment and oppressive and abusive conduct violated Section 806 of the FDCPA, 15 U.S.C. § 1692d. Count II: Using False, Deceptive, and Misleading Representations to Collect a Debt
298.
The Bureau incorporates by reference the allegations in paragraphs 1-297 of the complaint.
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299.
The Debt Collectors used false, deceptive, or misleading representations or means in connection with the collection of alleged debt, including, but not limited to:
a. falsely representing the character, amount, or legal status of the debt, in violation of 15 U.S.C. § 1692e(2)(A); b. implying that nonpayment of an alleged debt would result in arrest or garnishment, where the Debt Collectors had no intent or ability to take such action, in violation of 15 U.S.C. § 1692e(4);
c. threatening to take action that they could not legally take, or did not intend to take, in violation of 15 U.S.C. § 1692e(5); d. falsely representing that the consumer committed the crime of check fraud to disgrace and threaten the consumer, in violation of 15 U.S.C. § 1692e(7);
e. using false representations and deceptive means, by making allegations of fraud, to collect or attempt to collect any debt, in violation of 15 U.S.C. § 1692e(10);
f.
using business names other than the true name of the Debt Collectors’ business, in violation of 15 U.S.C. § 1692e(10); and
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g. failing to disclose in the initial oral communication with the consumer that the Debt Collectors were attempting to collect a debt and that any information obtained would be used for that purpose, in violation of 15 U.S.C. § 1692e(11). 300.
The Debt Collectors’ false, deceptive, and misleading representations violated Section 807 of the FDCPA, 15 U.S.C. § 1692e. Count III: Failing to Validate Debts 301.
The Bureau incorporates by reference the allegations in paragraphs 1-300 of the complaint.
302.
The Debt Collectors failed to validate alleged consumer debt by failing to provide consumers a written notice, within five days of their initial communication with a consumer, containing: a. the amount of the debt;
b. the name of the creditor to whom the debt was owed; c. a statement that unless the consumer, within thirty days after receipt of the notice, disputes the validity of the debt, or any portion thereof, the debt will be assumed to be valid by the debt collector;
d. a statement that if the consumer notifies the debt collector in writing within the thirty-day period that the debt, or any
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portion thereof, is disputed, the debt collector will obtain verification of the debt or a copy of the judgment against the consumer and a copy of such verification or judgment will be mailed to the consumer by the debt collector; and e. a statement that, upon the consumer’s written request within the thirty-day period, the debt collector will provide the consumer with the name and address of the original creditor, if different from the current creditor.
303.
The Debt Collectors’ failure to validate debt violated Section 809 of the FDCPA, 15 U.S.C. § 1692g.
THE CONSUMER FINANCIAL PROTECTION ACT 304.
The CFPA prohibits covered persons or service providers from engaging “in any unfair, deceptive, or abusive act or practice.” 12 U.S.C. §§ 5531, 5536(a)(1)(B). Section 1054(a) of the CFPA grants the Bureau authority to commence a civil action against any person who violates a federal consumer financial law. 12 U.S.C. § 5554(a). The CFPA and FDCPA are federal consumer financial laws. 12 U.S.C. § 5481(14). 305.
Under the CFPA, a “related person” is deemed to mean a covered person. A related person is:
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(i) any director, officer, or employee charged with managerial responsibility for, or controlling shareholder of, or agent for, such covered person; (ii) any shareholder, consultant, joint venture partner, or other person, as determined by the Bureau (by rule or on a case-bycase basis) who materially participates in the conduct of the affairs of such covered person; and (iii) any independent contractor (including any attorney, appraiser, or accountant) who knowingly or recklessly participates in any . . . violation of any provision of law or regulation . . . .
12 U.S.C. § 5481(25).
306.
The CFPA defines a “service provider” as “any person that provides a material service to a covered person in connection with the offering or provision by such covered person of a consumer financial product or service.” 12 U.S.C. § 5481(26).
307.
The CFPA further makes it unlawful for any person to knowingly or recklessly provide substantial assistance to a covered person or service provider engaged in unfair, deceptive, or abusive acts or practices; the provider of substantial assistance is deemed in violation of the law to the same extent as the person to whom such assistance is provided. 12 U.S.C. § 5536(a)(3).
DEBT COLLECTORS’ VIOLATIONS OF THE CFPA Count IV: Violations of the FDCPA 308.
The Bureau incorporates by reference the allegations in paragraphs 1-307 of the complaint.
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309.
Section 1036(a)(1)(A) of the CFPA provides that it is “unlawful for any covered person to offer or provide to a consumer any financial product or service not in conformity with Federal consumer financial law, or otherwise commit any act or omission in violation of a Federal consumer financial law.” 12 U.S.C. § 5536(a)(1)(A). 310.
The Debt Collectors committed acts in violation of a Federal consumer financial law, the FDCPA.
311.
The Debt Collectors’ harassment and oppressive and abusive conduct, in violation of Section 806 of the FDCPA, 15 U.S.C. § 1692d; false, deceptive, and misleading representations, in violation of Section 807 of the FDCPA, 15 U.S.C. § 1692e; and failure to validate debt, in violation of Section 809 of the FDCPA, 15 U.S.C. § 1692g also violated Section 1036(a)(1)(A) of the CFPA, 12 U.S.C. § 5536(a)(1)(A). Count V: Deceptive Acts or Practices 312.
The Bureau incorporates by reference the allegations in paragraphs 1-311 of the complaint.
313.
In numerous instances, in connection with the collection of alleged debt, the Debt Collectors, for example, represented, directly or indirectly, expressly or by implication, that:
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a. the consumer committed a crime that the Debt Collectors were authorized to prosecute;
b. consumers owed a debt that the Debt Collectors had authority to collect;
c. the consumer had a legal obligation to pay the Debt Collectors; and d. the Debt Collectors had authority to take, and would take, legal action against consumers, including arrest, because of crimes the consumers were alleged to have committed. 314.
In truth and in fact, in numerous instances in which Debt Collectors made the representations set forth in the preceding Paragraph: e. the consumer did not commit a crime that the Debt Collectors had authority to prosecute;
f.
consumers did not owe a debt that the Debt Collectors had authority to collect;
g. the consumer did not have a legal obligation to pay the Debt Collectors; and h. the Debt Collectors did not have authority to take, and did not intend to take, legal action against consumers, including
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arrest, because of crimes the consumers were alleged to have committed.
315.
The Debt Collectors’ misrepresentations led consumers to reasonably believe that they owed the Debt Collectors payment for a debt. 316.
The Debt Collectors’ misrepresentations were material to numerous consumers’ decisions to pay the Debt Collectors. 317.
Therefore, the Debt Collectors’ representations as set forth in Paragraph 313 are false and misleading, and constitute deceptive acts or practices in violation of the CFPA, 12 U.S.C. §§ 5531(a) and 5536(a)(1)(B). Count VI: Unfair Acts or Practices 318.
The Bureau incorporates by reference the allegations in paragraphs 1-317 of the complaint.
319.
In numerous instances, the Debt Collectors caused consumers’ bank accounts to be debited without consumers’ consent, or by using threats and harassment to obtain consumers’ purported consent. 320.
The Debt Collectors’ acts or practices caused, or were likely to cause, substantial injury to consumers that was not reasonably avoidable by consumers and was not outweighed by countervailing benefits to consumers or to competition.
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321.
Therefore, the Debt Collectors’ practices as described in Paragraph 319 constitute unfair acts or practices in violation of the CFPA, 12 U.S.C. §§ 5531, 5536(a)(1)(B).
Count VII: Providing Substantial Assistance to the Debt Collector LLCs’ Unfair or Deceptive Conduct
322.
The Bureau incorporates by reference the allegations in paragraphs 1-321 of the complaint.
323.
The individual defendants provided substantial assistance to the Debt Collector LLCs’ unlawful conduct by purchasing debt and leads, providing skip tracing services, providing telephone lines and broadcasting services, leasing office space, providing access to payment processing services, and hiring and paying collectors. 324.
The individual defendants knowingly or recklessly provided this substantial assistance to the collection scheme and accepted significant monetary returns for their contributions. 325.
Therefore, the individual defendants provided substantial assistance to the unlawful conduct of the Debt Collector LLCs, in violation of 12 U.S.C. § 5536(a)(3).
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PAYMENT PROCESSORS’ VIOLATIONS OF THE CFPA Count VIII: Providing Substantial Assistance to the Debt Collectors’ Unfair or Deceptive Conduct
326.
The Bureau incorporates by reference the allegations in paragraphs 1-325 of the complaint.
327.
Under the CFPA, it is unlawful for any person to “knowingly or recklessly provide substantial assistant to a covered person or service provider in violation of the provisions of section 1031, or any rule or order issued thereunder.” 12 U.S.C. § 5536(a)(3). 328.
The Payment Processors provided substantial assistance to the unlawful conduct of the Debt Collectors and other persons who collect debt by enabling them to accept payment by credit and debit card, legitimizing the Debt Collectors’ business, making transactions easy for consumers and the Debt Collectors, enabling the Debt Collectors to accept payment from consumers with insufficient cash, and facilitating the Debt Collectors’ efficient collection of consumers’ funds.
329.
The Payment Processors knowingly or recklessly provided this substantial assistance by approving merchant applications from the Debt Collectors and other persons who collect debt that were replete with indicia of fraud and ignoring warnings from industry and consumers that the
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Payment Processors’ clients were engaged in a scheme to defraud consumers.
330.
Therefore, the Payment Processors provided substantial assistance to the unlawful conduct of the Debt Collectors and other persons who collect debt, in violation of 12 U.S.C. § 5536(a)(3). Count IX: Unfair Acts or Practices 331.
The Bureau incorporates by reference the allegations in paragraphs 1-330 of the complaint.
332.
The Payment Processors provided material services, including payment processing services, to the Debt Collectors and other persons who collect debt in connection with their collection of debt by enabling them to take funds from consumers.
333.
The Payment Processors failed to conduct reasonable due diligence to detect the unlawful conduct of the Debt Collectors and other persons who collect debt, approved merchant applications that were replete with indicia of fraud, and ignored warnings from industry and consumers that the Payment Processors’ clients were engaged in a scheme to defraud consumers.
334.
The Payment Processors’ acts or practices caused, or were likely to cause, substantial injury to consumers that was not reasonably avoidable
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by consumers and was not outweighed by countervailing benefits to consumers or to competition.
335.
Therefore, the Payment Processors’ practices described in Paragraph 333 constitute unfair acts or practices in violation of the CFPA, 12 U.S.C. §§ 5531(a) and (c)(1), and 5536(a)(1)(B). GLOBAL CONNECT’S VIOLATIONS OF THE CFPA Count X: Providing Substantial Assistance to the Debt Collectors’ Unfair or Deceptive Conduct
336.
The Bureau incorporates by reference the allegations in paragraphs 1-335 of the complaint.
337.
Global Connect provided substantial assistance to the unlawful conduct of the Debt Collectors and other persons who collect debt by broadcasting threatening messages to consumers and enabling them to communicate with millions of consumers using Global Connect’s automated system.
338.
Global Connect knowingly or recklessly provided this substantial assistance by broadcasting a message that it knew, or should have known, was unfair or deceptive, and materially contributed to unlawful debt collection, including the Debt Collectors’ scheme.
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339.
Therefore, Global Connect provided substantial assistance to the unlawful conduct of Debt Collectors and other persons who collect debt, in violation of 12 U.S.C. § 5536(a)(3).
Count XI: Unfair Acts or Practices 340.
The Bureau incorporates by reference the allegations in paragraphs 1-339 of the complaint.
341.
Global Connect provided material services to the Debt Collectors and other persons who collect debt in connection with their collection of debt by broadcasting millions of threatening collection messages to consumers on their behalf.
342.
Global Connect’s acts or practices caused, or were likely to cause, substantial injury to consumers that was not reasonably avoidable by consumers and was not outweighed by countervailing benefits to consumers or to competition.
343.
Therefore, Global Connect’s practices as described in Paragraph 341 constitute unfair acts or practices in violation of the CFPA, 12 U.S.C. §§ 5531(a) and (c)(1), and 5536(a)(1)(B). THIS COURT’S POWER TO GRANT RELIEF 344.
The CFPA empowers this Court to grant any appropriate legal or equitable relief with respect to violations of federal consumer financial law,
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including the CFPA and FDCPA. This relief includes, without limitation, permanent or temporary injunction, rescission or reformation of contracts, the refund of monies paid, restitution, disgorgement or compensation for unjust enrichment, payment of damages, limits on the activities and functions of defendants, and civil money penalties. 12 U.S.C. § 5565(a). In addition, the CFPB may recover its cost in connection with the action, if it is the prevailing party. 12 U.S.C. § 5565(b). PRAYER FOR RELIEF Wherefore, the Bureau requests that the Court: 1. Preliminarily and permanently enjoin defendants from committing future violations of the CFPA and FDCPA;
2. Award such relief as the Court finds necessary to redress injury to consumers resulting from defendants’ violations of the CFPA and FDCPA, including, but not limited to, rescission or reformation of contracts, the refund of moneys paid, restitution, and payment of damages;
3. Award disgorgement or compensation for unjust enrichment; 4. Award the Bureau civil money penalties; 5. Award the Bureau the costs of bringing this action; and
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6. Such other and additional relief as the Court may determine to be just and proper.
Dated: March 26, 2015 Respectfully Submitted,
Attorneys for Plaintiff
Consumer Financial Protection Bureau:
ANTHONY ALEXIS Enforcement Director
FRANK KULBASKI Acting Deputy Enforcement Director for Litigation
/s/ Jonathan B. Engel ____________________________________
JONATHAN B. ENGEL (MA bar #664518) DAVID DUDLEY (WI Bar #1062812) ENFORCEMENT ATTORNEYS 1700 G Street NW Washington, DC 20552 Phone (Engel): 202-435-9037 Phone (Dudley): 202-435-9284 Email: [email protected] Email: [email protected] Fax: 202-435-7722
And
Local Counsel JOHN A. HORN ACTING UNITED STATES ATTORNEY
LENA AMANTI ASSISTANT U.S. ATTORNEY Georgia Bar No. 666825
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600 Richard B. Russell Federal Bldg. 75 Spring Street, S.W.
Atlanta, GA 30303 Telephone: (404) 581-6225 Facsimile: (404) 581-6163 Email: [email protected]
Stipulation ()
PDF of this document (31 pages)
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IN THE UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF GEORGIA, ATLANTA DIVISION FILED IN CLERlft OMR ci@in@§viim AUG 2 1 201O Nee N klATTPV, @kirk DmilyIfk CONSUMER FINANCIAL PROTECTION BUREAU, Plaintiff, V.
UNIVERSAL DEBT & PAYMENT SOLUTIONS, LLC; et al.
Defendants.
Civil Action No.
1:15-CV-0859-RWS STIPULATED FINAL JUDGMENT AND ORDER AS TO DEFENDANTS SUMANT KHAN AND S PAYMENT & PROCESSING SOLUTIONS, LLC Plaintiff, the Consumer Financial Protection Bureau ("Bureau"), commenced this action on March 26, 2015, by filing a complaint [ECF No. 1] ("Complaint") against certain individuals and entities ("Defendants," as further defined below) alleging deceptive and unfair acts and practices in connection with consumer debt collection in violation of the Consumer Financial Protection Act, 12 U.S.C.
5531, 5536 ("CFPA"), and various violations of the Fair Debt Collection Practices Act, 15 U.S.C. §§ 1692-1692p "FD CPA").
Case 1:15-cv-00859-RWS Document 588 Filed 08/21/19 Page 1 of 31
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On March 21, 2019, the Court issued a decision [FCF No. 576] (the "March 21, 2019 Decision") on motions for summary judgment filed by the Bureau and by Defendants Sumant Khan ("Khan") and S Payment Processing & Solutions, LLC ("SPPS"), Khan's company (collectively, "Stipulating Defendants"). The Court found Khan liable for providing substantial assistance to other Defendants' CFPA violations and denied the Bureau's motion with regard to the Bureau's seven other CFPA and FDCPA claims against Stipulating Defendants, finding that issues of material fact remained. The Court awarded summary judgment on all of the Bureau's claims against all remaining Defendants, and denied Stipulating Defendants' summary judgment motion.
The Bureau and Stipulating Defendants, by and through their respective counsel, desire to settle this dispute and, as a result, agree to the entry of this Stipulated Final Judgment and Order ("Order"). FINDINGS 1.
The Court has jurisdiction over the parties and the subject matter of this action.
2.
In the March 21, 2019 Decision, the Court found that the evidence accepted on summary judgment established the existence of an unlawful phantom debt collection scheme among Defendants other than SPPS. ECF No. 576 at 9-12, 25-28, 48-49, fia. The Court found further that Case 1:15-cv-00859-RWS Document 588 Filed 08/21/19 Page 2 of 31
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Khan did not dispute that he was subject to the CFPA as a "covered person" and a "service provider" within the meaning of the statute. ECF No. 576 at 41. The Court also found that the evidence accepted on summary judgment established that Khan provided substantial assistance to the other Defendants in carrying out their violations of the CFPA, ECF No. 576 at 52- 11, but found issues of material fact with respect to all other claims against Stipulating Defendants.
3.
The Bureau and Stipulating Defendants agree to the entry of this Order to settle and resolve all matters in dispute arising from the conduct alleged in the Complaint.
4.
The Court has found that the Complaint states claims upon which relief may be granted under the FDCPA and the CFPA. ECF No. 149. 5.
The relief provided in this Order is appropriate and available pursuant to sections 1054 and 1055 of the CFPA, 12 U.S.C. §§ 5564 and 5565, and pursuant to the FDCPA, 15 U.S.C. § 16921. 6.
Stipulating Defendants neither admit nor deny the allegations in the Complaint except as stated in this Order. For purposes of this Order, Stipulating Defendants admit the facts necessary to establish the Court's jurisdiction over them and the subject matter of this action. 7.
Stipulating Defendants waive all rights to seek judicial review or otherwise challenge or contest the validity of this Order. Stipulating Case 1:15-cv-00859-RWS Document 588 Filed 08/21/19 Page 3 of 31
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Defendants further waive any claim they 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 Order. Each party will bear its own costs and expenses, including without limitation attorneys' fees. 8.
Entry of this Order is in the public interest. DEFINITIONS 9.
The following definitions apply to this Order: a. "Affected Consumers" means Consumers who paid any money to the LLC Defendants between March 1, 2011 and March 31, 2015.
b. "Consumer" means an individual or an agent, trustee, or representative acting on behalf of an individual. 12 U.S.C. § 5481(4).
c. "Consumer Financial Product or Service" is synonymous in meaning and equal in scope to the definition of the term, as of the Effective Date, in Section 1002(5) of the CFPA, 12 U.S.C. § 5481(5), and, subject to applicable restrictions contained in the CFPA, includes, but is not limited to: i. engaging in deposit-taking activities, transmitting or exchanging funds, or otherwise acting as a custodian of Case 1:15-cv-00859-RWS Document 588 Filed 08/21/19 Page 4 of 31
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funds or any financial instrument for use by or on behalf of a consumer;
ii. providing payments or other financial data processing products or services to a consumer by any technological means, including processing or storing financial or banking data for any payment instrument, or through any payments systems or network used for processing payments data, including payments made through an online banking system or mobile telecommunications network; or iii. providing financial advisory services to consumers on individual financial matters or relating to proprietary financial products or services, including providing credit counseling to any consumer or providing services to assist a consumer with debt management or debt settlement, modifying the terms of any extension of credit, or avoiding foreclosure.
d. "Debt" means any obligation or alleged obligation of a Consumer to pay money arising out of a transaction in which the money, property, insurance or services which are the subject of the transaction are primarily for personal, family, or Case 1:15-cv-00859-RWS Document 588 Filed 08/21/19 Page 5 of 31
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household purposes, whether or not such obligation has been reduced to judgment. 15 U.S.C. § 1692a(5). e. "Debt Collector" means (i) any Person who uses an instrumentality of interstate commerce or the mail in any business the principal purpose of which is the collection of Debts or who regularly collects or attempts to collect, directly or indirectly, Debts owed or due or asserted to be owed or due another; (ii) any creditor who, in the process of collecting its own Debts, uses any name other than its own that would indicate that a third Person is collecting or attempting to collect the creditor's Debts; and (iii) any Person to the extent that such Person collects or attempts to collect any Debt that was in default at the time it was obtained by such Person. f. "Defendants" means all of the Individual Defendants and the LLC Defendants, individually, collectively, or in any combination.
i. "Individual Defendants" means Mohan Bagga, Marcus Brown, Santa Brown, Tasha Pratcher, and Sumant Khan, collectively, or in any combination, and each of them by any other names by which they might be known;
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"LLC Defendants" means Check & Credit Recovery, LLC, Credit Power, LLC, Universal Debt & Payment Solutions, LLC, Universal Debt Solutions, WNY Account Solutions, LLC, WNY Solutions Group, LLC, and S Payment Processing & Solutions, LLC and their successors and assigns, collectively, or in any combination;
iii. "Stipulating Defendants" means Sumant Khan and S Payment Processing & Solutions, LLC, and its successors and assigns, collectively, or in any combination.
g. "Effective Date" means the date on which the Order is issued. h. "Enforcement Director" means the Assistant Director of the Office of Enforcement for the Consumer Financial Protection Bureau, or his or her delegate.
i. "Person" means an individual, partnership, company, corporation, association (incorporated or unincorporated), trust, estate, cooperative organization, or other entity. j. "Related Consumer Action" means a private action by or on behalf of one or more consumers or an enforcement action by another governmental agency brought against one or both Case 1:15-cv-00859-RWS Document 588 Filed 08/21/19 Page 7 of 31
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Stipulating Defendants based on substantially the same facts as this matter.
k. "Relevant Period" means March 1, 2011 through March 31, 2015.
1. "Service Provider" is synonymous in meaning and equal in scope to the definition of the term, as of the Effective Date, in Section 1002(26) of the CFPA, 12 U.S.C. § 5481(26), and, subject to applicable restrictions contained in the CFPA, includes, but is not limited to, any Person that provides material service to a Person that is a "covered person" under the CFPA, 12 U.S.C. § 5481(6), in connection with the offering or provision by such "covered person" of a Consumer Financial Product or Service, including a Person that: i. participates in designing, operating, or maintaining the Consumer Financial Product or Service; or ii. processes transactions relating to the Consumer Financial Product or Service (other than unknowingly or incidentally transmitting or processing financial data in a manner that such data is undifferentiated from other types of data of the same form as the Person transmits or processes).
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ORDER CONDUCT RELIEF Permanent Ban on Debt Collection IT IS ORDERED that:
10.
Stipulating Defendants, whether acting directly or indirectly, are permanently restrained and enjoined from: a. acting as a Debt Collector;
b. holding any ownership interest in (i) a Debt Collector or (ii) a payment processor to a Debt Collector;
c. receiving any remuneration or other consideration from (i) a Debt Collector or (ii) a payment processor to a Debt Collector if the remuneration or consideration relates to the collection of Debts;
d. providing services or assistance to, or working in any capacity for, a Debt Collector, including but not limited to acting as a Service Provider, employee, or independent contractor to a Debt Collector; and e. advertising, marketing, promoting, offering for sale, processing payments for, selling, or buying any Debt or consumer information relating to a Debt. Case 1:15-cv-00859-RWS Document 588 Filed 08/21/19 Page 9 of 31
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Nothing in this Order shall be read as an exception to this Paragraph. Prohibition on Misrepresentations Concerning Consumer Financial Products or Services IT IS FURTHER ORDERED that:
11.
Stipulating Defendants, and their officers, agents, servants, employees, and attorneys, and all other persons in active concert or participation with them who have actual notice of this Order, whether acting directly or indirectly, in connection with any Consumer Financial Product or Service, are permanently restrained and enjoined from misrepresenting, omitting, or assisting others in misrepresenting or omitting, expressly or by implication, any material fact, including but not limited to: a. a business name or identity;
b. that any Person is an attorney or is barred or licensed to practice law in a particular jurisdiction; c. that any Person who is not associated or affiliated with an attorney or law firm is affiliated or associated with an attorney or law firm;
d. that a Consumer will receive legal representation; e. how much a Consumer will save from purchasing, using, or enrolling in a Consumer Financial Product or Service; Case 1:15-cv-00859-RWS Document 588 Filed 08/21/19 Page 10 of 31
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f. how long it will take to settle any Debts; g. the likelihood of any particular outcome or result from a Consumer Financial Product or Service; or h. the nature or terms of any refund, cancellation, exchange, or repurchase policy, including but not limited to the likelihood of a Consumer obtaining a full or partial refund, or the circumstances in which a full or partial refund will be provided to the Consumer.
III.
Prohibition on Unfair Practices Involving Consumer Financial Products or Services IT IS FURTHER ORDERED that:
12.
Stipulating Defendants, and their officers, agents, servants, employees, and attorneys, and all other persons in active concert or participation with them who have actual notice of this Order, whether acting directly or indirectly, in connection with any Consumer Financial Product or Service, are permanently restrained and enjoined from: a. Placing telephone calls to consumers without meaningful disclosure of the caller's identity; and Case 1:15-cv-00859-RWS Document 588 Filed 08/21/19 Page 11 of 31
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b. Concealing their identity by causing "000-000-0000" or any other false or misleading information to appear on a consumer's caller identification.
IV.
Prohibition on Business Ventures with Other Defendants IT IS FURTHER ORDERED that:
13.
Stipulating Defendants, whether acting directly or indirectly, are permanently restrained and enjoined from investing in, providing services to, working for, serving as an officer of, or being otherwise engaged in any business venture or project involving any other Defendant. V.
Consumer Information IT IS FURTHER ORDERED that:
14.
Stipulating Defendants, and their officers, agents, servants, employees, and attorneys and all other Persons in active concert or participation with any of them, who receive actual notice of this Order, whether acting directly or indirectly, are permanently restrained and enjoined from using, disclosing, or benefiting from Consumer information, including the name, address, telephone number, email address, social security number, other identifying information, or any data that enables access to a Consumer's account (including a credit card, bank account, or any Case 1:15-cv-00859-RWS Document 588 Filed 08/21/19 Page 12 of 31
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financial account) that any Defendant obtained before the Effective Date in connection with any Defendant's activity as a Debt Collector. VI.
Prohibition on Certain Merchant Processing Activities IT IS FURTHER ORDERED that:
15.
Stipulating Defendants, and their officers, agents, servants, employees, and attorneys, and all other persons in active concert or participation with them, who receive actual notice of this Order, whether acting directly or indirectly, are permanently restrained and enjoined from allowing third parties to use any merchant processing account that Stipulating Defendants own or control to collect consumer payments. 16.
Stipulating Defendants, and their officers, agents, servants, employees, and attorneys, and all other persons in active concert or participation with them, who have actual notice of this Order, whether acting directly or indirectly, are permanently restrained and enjoined from reopening and using the following merchant payment processing accounts associated with the unlawful debt collection scheme: account number 4445017416651 with DBS/Vantiv and account number 564400000641183 with Francis David Corporation d/b/a Electronic Merchant Systems. Case 1:15-cv-00859-RWS Document 588 Filed 08/21/19 Page 13 of 31
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MONETARY PROVISIONS VII.
Order to Pay Redress IT IS FURTHER ORDERED that:
17.
A judgment for equitable monetary relief and damages is entered in favor of the Bureau and against Stipulating Defendants, in the amount of $633,710.00, for the purpose of providing redress to Affected Consumers; however, full payment of this judgment will be suspended upon satisfaction of the obligations in Paragraphs 18 and 20 of this Section and in Sections IX and X, and subject to Section VIII of this Order. 18.
In partial satisfaction of the judgment against Stipulating Defendants:
a. Within 10 business days of receipt of a copy of this Order by any means, including but not limited to via facsimile or email, Wells Fargo Bank shall transfer to the Bureau or the Bureau's agent, according to the Bureau's instructions, all funds in the account XXXXXX0830 in the name of Sumant Khan; b. Within 10 business days of receipt of a copy of this Order by any means, including but not limited to via facsimile or email, Branch Banking and Trust Company shall transfer to the Bureau or the Bureau's agent, according to the Bureau's Case 1:15-cv-00859-RWS Document 588 Filed 08/21/19 Page 14 of 31
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instructions, all funds in account XXXXXX2400 in the name of Sumant Khan, account XXXXXX5141 in the names of Sumant Khan and others, account XXXXXX8141 in the names of Sumant Khan and others, and account XXXXXX8531 in the name of Sumant Khan.
c. Within 10 business days of receipt of a copy of this Order by any means, including but not limited to via facsimile or email, JPMorgan Chase Bank, N.A. shall transfer to the Bureau or the Bureau's agent, according to the Bureau's instructions, all funds in account XXXXX9239 in the name of Sumant Khan. d. Within 10 business days of receipt of a copy of this Order by any means, including but not limited to via facsimile or email, Citibank, N.A. shall transfer to the Bureau or the Bureau's agent, according to the Bureau's instructions, all funds in account XXXX7049 in the name of Sumant Khan. e. Within 10 business days of receipt of a copy of this Order by any means, including but not limited to via facsimile or email, Francis David Corporation d/b/a Electronic Merchant Systems shall transfer to the Bureau or the Bureau's agent, according to the Bureau's instructions, all funds held in reserve or as retainage for SPPS.
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f. Stipulating Defendants hereby grant to the Bureau all rights and claims they have to the funds in the accounts listed in subsections a through g above, and shall forfeit any rights to those funds.
19.
The Preliminary Injunction [BCF No. 16] is modified to permit the transfers identified in Paragraph 18. Upon completion of those transfers, the Preliminary Injunction's asset freeze as to the Stipulating Defendants is dissolved.
20.
With regard to any redress that Stipulating Defendants pay under this Section, if Stipulating Defendants, or either of them, directly or indirectly, receive any reimbursement or indemnification from any source, including but not limited to payment made under any insurance policy, or if Stipulating Defendants, or either of them, secure a tax deduction or tax credit with regard to any federal, state, or local tax, Stipulating Defendants must: (a) immediately notify the Enforcement Director in writing, and (b) within 10 days of receiving the funds or monetary benefit, the Stipulating Defendant who received the funds or monetary benefit must transfer to the Bureau the full amount of such funds or monetary benefit ("Additional Payment") to the Bureau or to the Bureau's agent according to the Bureau's wiring instructions. After the Bureau receives the Additional Payment, the amount of the suspended judgment referenced in Paragraph 17 will be reduced by the Case 1:15-cv-00859-RWS Document 588 Filed 08/21/19 Page 16 of 31
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amount of the Additional Payment and the Additional Payment will be applied toward satisfaction of the monetary judgment entered in Paragraph 17.
21.
Any funds received by the Bureau in satisfaction of this judgment will be deposited into a fund or funds administered by the Bureau or to the Bureau's agent according to 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. 22.
If the Bureau determines, in its sole discretion, that redress to consumers is wholly or partially impracticable or if funds remain after redress is completed, the Bureau will deposit any remaining funds in the U.S. Treasury as disgorgement. Stipulating Defendants will have no right to challenge any actions that the Bureau or its representatives may take under this Section.
23.
Payment of redress to any Affected Consumer under this Order may not be conditioned on that Affected Consumer waiving any right. Case 1:15-cv-00859-RWS Document 588 Filed 08/21/19 Page 17 of 31
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VIII.
Effect of Misrepresentation or Omission Regarding Financial Condition IT IS FURTHER ORDERED that:
24.
The Bureau's agreement to enter into this Order and the suspension of the monetary judgment entered in Section VII of this Order is expressly premised on the truthfulness, accuracy, and completeness of Stipulating Defendants' financial statements and supporting documents submitted to the Bureau, which Stipulating Defendants have attested, subject to the penalties imposed by 18 U.S.C. §§ 1001 and 3571, are truthful, accurate, and complete, and which are: a. Financial Statement of Khan, including any attachments, executed on April 7, 2015 and submitted to the Bureau on or about that date;
b. Updated Financial Statement of Khan, including the attachments, signed on August 19, 2019, and submitted to the Bureau on or about that date;
c. Financial Statement of SPPS, including any attachments, executed on April 7, 2015 and submitted to the Bureau on or about that date;
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d. Updated Financial Statement of SPPS, including any attachments, executed on August 19, 2019 and submitted to the Bureau on or about that date.
25.
If upon motion by the Bureau, the Court determines that a Stipulating Defendant has failed to disclose any material asset or that any of their Financial Statements listed in Paragraph 24 contain any material misrepresentation or omission, including materially misstating the value of any asset, the Court shall terminate the suspension of the monetary judgment entered in Section VII of this Order and the full judgment of $ 633,710.00 entered shall be immediately due and payable, less any amounts paid under Paragraphs 18 and 20.
26.
If the Court terminates the suspension of the monetary judgment under this Section, the Bureau will be entitled to interest on the Order, computed from the date of entry of this Order, at the rate prescribed by ,2,a U.S.C41961, as amended, on any outstanding amounts not paid. 27.
Provided, however, that in all other respects this Order shall remain in full force and effect unless otherwise ordered by the Court; and, provided further, that proceedings instituted under this provision would be in addition to, and not in lieu of any other civil or criminal remedies as may be provided by law, including any other proceedings that the Bureau may initiate to enforce this Order.
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lX.
Order To Pay Civil Money Penalties IT IS FURTHER ORDERED that:
28.
Under section 1055(c) of the CFPA, 12 U.S.C. § 5565(c), by reason of Khan's violation of the CFPA described in the March 21, 2019 Decision and by reason of the other alleged violations of law by Stipulating Defendants described in the Complaint, and taking into account the factors in 12 U.S.C. 5565(0(3), each Stipulating Defendant must pay a civil money penalty of $1.00 to the Bureau. This nominal penalty is based on Stipulating Defendants' limited ability to pay as attested to in their financial statements listed in Section VIII above.
29.
Within 10 days of the Effective Date, Stipulating Defendants must pay the civil money penalty by wire transfer to the Bureau or to the Bureau's agent in compliance with the Bureau's wiring instructions. 30.
The civil money penalties paid under this Order will be deposited in the Civil Penalty Fund of the Bureau as required by section 1017(d) of the CFPA, 12 U.S.C. § 5497(d).
31.
Stipulating Defendants must treat the civil money penalty paid under this Order as a penalty paid to the government for all purposes. 32.
Regardless of how the Bureau ultimately uses those funds, Respondent may not:
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a. Claim, assert, or apply for a tax deduction, tax credit, or any other tax benefit for any civil money penalty paid under this Consent Order; or b. Seek or accept, directly or indirectly, reimbursement or indemnification from any source, including but not limited to payment made under any insurance policy, with regard to any civil money penalty paid under this Consent Order. X.
Additional Monetary Provisions IT IS FURTHER ORDERED that:
33.
In the event of any default on Stipulating Defendants' obligations to make payment under this 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.
34.
Stipulating Defendants relinquish all dominion, control, and title to the funds paid under this Order to the fullest extent permitted by law and no part of the funds may be returned to Stipulating Defendants. 35.
The facts alleged in the Complaint will be taken as true and be given collateral estoppel effect, without further proof, in any proceeding based on the entry of the Order, or in any subsequent civil litigation by or on Case 1:15-cv-00859-RWS Document 588 Filed 08/21/19 Page 21 of 31
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behalf of the Bureau in a proceeding to enforce its rights to any payment or monetary judgment under this Order, such as a nondischargeability complaint in any bankruptcy case.
36.
The facts alleged in the Complaint establish all elements necessary to sustain an action by the Bureau under to Section 523(a)(2)(A) of the Bankruptcy Code, 11 U.S.C. § 523(a)(2)(A), and for such purposes this Order will have collateral estoppel effect against each Stipulating Defendant, even in such Stipulating Defendant's capacity as debtor-in-possession. 37.
Under 31 U.S.C. § 7701, Stipulating Defendants, unless they have already done so, must furnish to the Bureau their taxpayer identifying numbers, which may be used for purposes of collecting and reporting on any delinquent amount arising out of this Order. 38.
Within 30 days of the entry of a final judgment, consent order, or settlement in a Related Consumer Action, Stipulating Defendants must notify the Enforcement Director of the final judgment, consent order, or settlement in writing. That notification must indicate the amount of redress, if any, that Stipulating Defendants, or either of them, 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.
39.
To preserve the deterrent effect of the civil money penalty in any Related Consumer Action, Stipulating Defendants may not argue that they Case 1:15-cv-00859-RWS Document 588 Filed 08/21/19 Page 22 of 31
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are entitled to, nor may any Stipulating Defendant benefit by, any offset or reduction of any monetary remedies imposed in the Related Consumer Action because of the civil money penalty paid in this action. If the court in any Related Consumer Action offsets or otherwise reduces the amount of compensatory monetary remedies imposed against any Stipulating Defendant based on the civil money penalty paid in this action or based on any payment that the Bureau makes from the Civil Penalty Fund, Stipulating Defendant must, within 30 days after entry of an Order granting such offset or reduction, notify the Bureau and pay the amount of the offset or reduction to the U.S. Treasury. Such a payment will not be considered an additional civil money penalty and will not change the amount of the civil money penalty imposed in this action.
COMPLIANCE PROVISIONS XI.
Reporting Requirements IT IS FURTHER ORDERED that:
40.
Stipulating Defendants must notify the Bureau of any development that may affect compliance obligations arising under this Order, including but not limited to, a dissolution, assignment, sale, merger, or other action that would result in the emergence of a successor company to SPPS; the creation or dissolution of a subsidiary, parent, or affiliate that engages in Case 1:15-cv-00859-RWS Document 588 Filed 08/21/19 Page 23 of 31
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any acts or practices subject to this Order; the filing of any bankruptcy or insolvency proceeding by or against Stipulating Defendants or either of them; or a change in Stipulating Defendants' names or addresses. Stipulating Defendants must provide this notice, if practicable, at least 30 days before the development, but in any case no later than 14 days after the development.
41.
Within 7 days of the Effective Date, Stipulating Defendants must each:
a. Designate at least one telephone number and email, physical, and postal address as points of contact, which the Bureau may use to communicate with Stipulating Defendants; b. Identify all businesses for which a Stipulating Defendant is the majority owner, or that a Stipulating Defendant directly or indirectly controls, by all of their names, telephone numbers, and physical, postal, email, and Internet addresses; c. Describe the activities of each such business, including the products and services offered, and the means of advertising, marketing, and sales.
d. Identify Khan's telephone numbers and all email, Internet, physical, and postal addresses, including all residences; Case 1:15-cv-00859-RWS Document 588 Filed 08/21/19 Page 24 of 31
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e. Describe in detail Khan's involvement in any business for which he performs services in any capacity or which he wholly or partially owns, including Khan's title, role, responsibilities, participation, authority, control, and ownership. 42.
Stipulating Defendants must report any change in the information required to be submitted under Paragraph 41 at least 30 days before the change or as soon as practicable after the learning about the change, whichever is sooner.
43.
Within 90 days of the Effective Date and again one year after the Effective Date, Khan must submit to the Enforcement Director an accurate written compliance progress report sworn to under penalty of perjury ("Compliance Report"), which, at a minimum: a. Lists each applicable paragraph and subparagraph of the Order and describes in detail the manner and form in which Stipulating Defendants have complied with each such paragraph and subparagraph of this Order; b. Attaches a copy of each Order Acknowledgment obtained under Section XII, unless previously submitted to the Bureau. Case 1:15-cv-00859-RWS Document 588 Filed 08/21/19 Page 25 of 31
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XII.
Order Distribution and Acknowledgement IT IS FURTHER ORDERED that:
44.
Within 7 days of the Effective Date, Stipulating Defendants must submit to the Enforcement Director an acknowledgment of receipt of this Order, sworn under penalty of perjury.
45.
For 10 years from the Effective Date, Khan must, for any business that provides Consumer Financial Products or Services or acts as a Service Provider for such a business, and for which he is the majority owner or which he directly or indirectly controls, deliver a copy of this Order to any managers, employees, or other agents and representatives who will have responsibilities related to Consumer Financial Products or Services before they assume their responsibilities.
46.
Khan must, through his counsel, deliver a copy of this Order to the bar of any State of the United States to which he has applied or will apply for admission to practice as an attorney, in addition to any disclosure requirements of such bar.
47.
Stipulating Defendants must secure a signed and dated statement acknowledging receipt of a copy of this Order, ensuring that any electronic signatures comply with the requirements of the E-Sign Act, la Case 1:15-cv-00859-RWS Document 588 Filed 08/21/19 Page 26 of 31
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U.S.C. § 7001 et seq., within 30 days of delivery, from all persons receiving a copy of this Order under this Section.
XIII.
Record-keeping IT IS FURTHER ORDERED that:
48.
Stipulating Defendants must create, or if already created, must retain for the duration of the Order, all documents and records necessary to demonstrate full compliance with each provision of this Order, including all submissions to the Bureau.
XIV.
Notices IT IS FURTHER ORDERED that:
49.
Unless otherwise directed in writing by the Bureau, Stipulating Defendants must provide all submissions, requests, communications or other documents relating to this Order in writing, with the subject line, "In re CFPB v. Universal Debt & Payment Solutions LLC, et al., ENF Matter No. 2013-0916-2," and send them by overnight courier or first-class mail to the below address and contemporaneously by email to [email protected]:
Assistant Director for Enforcement Consumer Financial Protection Bureau ATTENTION: Office of Enforcement Case 1:15-cv-00859-RWS Document 588 Filed 08/21/19 Page 27 of 31
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1700 G Street, N.W.
Washington, D.C. 20552 XV.
Cooperation with the Bureau IT IS FURTHER ORDERED that:
50.
Stipulating Defendants must cooperate fully to help the Bureau determine the identity and location of, and the amount of injury sustained by, each Affected Consumer. Each Stipulating Defendant must provide such information in its or its agents' possession or control within 14 days of receiving a written request from the Bureau.
51.
Stipulating Defendants must cooperate fully with the Bureau in this matter and in any investigation related to or associated with the conduct described in the Complaint, the March 21, 2019 Decision, or Section I herein. Stipulating Defendants must provide truthful and complete information, evidence, and testimony. Khan must appear and SPPS must cause its officers, employees, representatives, or agents to appear for interviews, discovery, hearings, trials, and any other proceedings that the Bureau may reasonably request upon 10 days written notice, or other reasonable notice, at such places and times as the Bureau may designate, without the service of compulsory process.
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XVI.
Compliance Monitoring IT IS FURTHER ORDERED that, to monitor Stipulating Defendants' compliance with this Order, including the financial representations upon which part of the judgment was suspended:
52.
Within 14 days of receipt of a written request from the Bureau, Stipulating Defendants must submit requested non-privileged information related to requirements of this Order, which must be made under penalty of perjury; provide sworn testimony related to requirements of this Order and Stipulating Defendants' compliance with those requirements; or produce nonprivileged documents related to requirements of this Order and Stipulating Defendants' compliance with those requirements. 53.
For purposes of this Section, the Bureau may communicate directly with Stipulating Defendants, unless Stipulating Defendants retain counsel related to these communications.
54.
Stipulating Defendants must permit Bureau representatives to interview about the requirements of this Order and Stipulating Defendants' compliance with those requirements any employee or other person affiliated with Stipulating Defendants who has agreed to such an interview. The person interviewed may have counsel present. Case 1:15-cv-00859-RWS Document 588 Filed 08/21/19 Page 29 of 31
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55.
Nothing in this Order limits the Bureau's lawful use of civil investigative demands under 12 C.F.R. § 1080.6 or other compulsory process. XVII.
Miscellaneous IT IS FURTHER ORDERED that:
56.
If any clause, provision, or section of this Order shall, for any reason, be held to be invalid, illegal, or unenforceable in any respect, such invalidity, illegality, or unenforceability shall not affect any other clause, provision, or section of this Order and this Order shall be construed and enforced as if such invalid, illegal, or unenforceable clause, provision, or section had not been contained herein.
57.
Nothing contained herein shall be construed as to deprive any Person, not a party to this case, of any private right under the law. 58.
The Bureau may serve Stipulating Defendants, directly or through their attorneys, via electronic mail any written notices required or permitted to be served pursuant to this Order. XVIII.
Entry of Judgment IT IS FURTHER ORDERED that:
59.
There is no just reason for delay of entry of this judgment, and under Federal Rule of Civil Procedure 54(b), the Clerk immediately shall Case 1:15-cv-00859-RWS Document 588 Filed 08/21/19 Page 30 of 31
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enter this Order as a final judgment as to Stipulating Defendants Sumant Khan and S Payment Processing & Solutions, LLC. XIX Retention of Jurisdiction IT IS FURTHER ORDERED that:
60.
This Court will retain jurisdiction of this matter for purposes of construction, modification, and enforcement of this Order. IT IS SO ORDERED, , 2019.
The Ho orable Richard S ry United States District dge Case 1:15-cv-00859-RWS Document 588 Filed 08/21/19 Page 31 of 31
Stipulation ()
PDF of this document (31 pages)
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IN THE UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF GEORGIA, ATLANTA DIVISION
CONSUMER FINANCIAL PROTECTION BUREAU,
Plaintiff,
v.
UNIVERSAL DEBT & PAYMENT SOLUTIONS, LLC; et al.
Defendants.
Civil Action No.
1:15-CV-0859-RWS
STIPULATED FINAL JUDGMENT AND ORDER AS TO DEFENDANT MOHAN SINGH BAGGA
Plaintiff, the Consumer Financial Protection Bureau (“Bureau”), commenced this action on March 26, 2015, by filing a complaint [ECF No. 1] (“Complaint”) against certain individuals and entities (“Defendants,” as further defined below), alleging deceptive and unfair acts and practices in connection with consumer debt collection in violation of the Consumer Financial Protection Act, 12 U.S.C. §§ 5531, 5536 (“CFPA”), and various violations of the Fair Debt Collection Practices Act, 15 U.S.C. §§ 1692-1692p (“FDCPA”).
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On March 21, 2019, the Court issued a decision [ECF No. 576] (the “March 21, 2019 Decision”) on the motion for summary judgment filed by the Bureau against certain Defendants, including Defendant Mohan Singh Bagga (“Bagga” or “Stipulating Defendant”). The Court found Bagga liable for violations of the FDCPA and for deceptive and unfair practices and substantial assistance under the CFPA. The Court reserved its ruling on what remedies should be imposed on Bagga.
The Bureau and Stipulating Defendant, acting pro se, desire to settle this dispute and, as a result, agree to the entry of this Stipulated Final Judgment and Order (“Order”).
FINDINGS 1.
The Court has jurisdiction over the parties and the subject matter of this action.
2.
In the March 21, 2019 Decision, the Court found that the evidence accepted on summary judgment established the existence of an unlawful phantom debt collection scheme among Defendants other than SPPS. ECF No. 576 at 9-12, 25-28, 48-49, 63. 3.
The Court found that Bagga organized and was an officer and sole owner of Defendant Universal Debt & Payment Solutions, LLC (“UDPS”). It held that UDPS was a debt collector that engaged in conduct Case 1:15-cv-00859-RWS Document 599 Filed 11/15/19 Page 2 of 31
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prohibited under the CFPA. Through Marcus Brown, UDPS: (a) bought and sold debt portfolios and payday loan leads, (b) performed skip tracing to amass consumer contact information and keep that information up-to-date, and (c) broadcast automated telephone messages to consumers with false or misleading information about purported debts, including threats of legal action. ECF No. 576 at 54.
4.
The Court held that Bagga monitored and controlled UDPS’s bank account and that he handled the company’s accounting. The Court also found that Bagga personally received consumer complaints lodged with the Better Business Bureau and complaint calls made to his telephone number. ECF No. 576 at 54-55.
5.
The Court further found that Bagga financed the launch of Defendant Credit Power, LLC, then took control of Credit Power’s bank account and bought debt for the company to collect on. The Court found that Bagga also reopened Credit Power after it went out of business, and, at that point, was Credit Power’s only officer. ECF No. 576 at 59. 6.
The Court found that Bagga knew that both UDPS and Credit Power were calling consumers and collecting debts that were sometimes not owed and that Defendants were not entitled to collect. ECF No. at 60.
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7.
The Court ruled that Bagga was a debt collector within the meaning of the FDCPA, and was liable for deceiving consumers, using abusive tactics to collect debt, and failing to validate the debts collected. The Court also ruled that Bagga was a covered person under the CFPA and was liable for deceptive and unfair acts and practices as well as providing substantial assistance to other Defendants’ violations of the CFPA. ECF No. 576 at 55, 60-61.
8.
The Bureau and Stipulating Defendant agree to the entry of this Order to settle and resolve all matters in dispute arising from the conduct alleged in the Complaint.
9.
The Court has found that the Complaint states claims upon which relief may be granted under the FDCPA and the CFPA. ECF No. 149. 10.
The relief provided in this Order is appropriate and available pursuant to sections 1054 and 1055 of the CFPA, 12 U.S.C. §§ 5564 and 5565, and pursuant to the FDCPA, 15 U.S.C. § 1692l. 11.
Stipulating Defendant neither admits nor denies the allegations in the Complaint except as stated in this Order. For purposes of this Order, Stipulating Defendant admits the facts necessary to establish the Court’s jurisdiction over him and the subject matter of this action. Case 1:15-cv-00859-RWS Document 599 Filed 11/15/19 Page 4 of 31
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12.
Stipulating Defendant waives all rights to seek judicial review or otherwise challenge or contest the validity of this Order. Stipulating Defendant further waives any claim he 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 Order. Each party will bear its own costs and expenses, including, without limitation, attorneys’ fees. 13.
Entry of this Order is in the public interest. DEFINITIONS 14.
The following definitions apply to this Order: a. “Affected Consumers” means Consumers who paid any money to the LLC Defendants between March 1, 2011 and March 31, 2015.
b. “Consumer” means an individual or an agent, trustee, or representative acting on behalf of an individual. 12 U.S.C. § 5481(4).
c. “Consumer Financial Product or Service” is synonymous in meaning and equal in scope to the definition of the term, as of the Effective Date, in Section 1002(5) of the CFPA, 12 U.S.C. § Case 1:15-cv-00859-RWS Document 599 Filed 11/15/19 Page 5 of 31
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5481(5), and, subject to applicable restrictions contained in the CFPA, includes, but is not limited to: i. engaging in deposit-taking activities, transmitting or exchanging funds, or otherwise acting as a custodian of funds or any financial instrument for use by or on behalf of a consumer;
ii. providing payments or other financial data processing products or services to a consumer by any technological means, including processing or storing financial or banking data for any payment instrument, or through any payments systems or network used for processing payments data, including payments made through an online banking system or mobile telecommunications network; or iii. providing financial advisory services to consumers on individual financial matters or relating to proprietary financial products or services, including providing credit counseling to any consumer or providing services to assist a consumer with debt management or debt Case 1:15-cv-00859-RWS Document 599 Filed 11/15/19 Page 6 of 31
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settlement, modifying the terms of any extension of credit, or avoiding foreclosure.
d. “Debt” means any obligation or alleged obligation of a Consumer to pay money arising out of a transaction in which the money, property, insurance or services which are the subject of the transaction are primarily for personal, family, or household purposes, whether or not such obligation has been reduced to judgment. 15 U.S.C. § 1692a(5). e. “Debt Collector” means (i) any Person who uses an instrumentality of interstate commerce or the mail in any business the principal purpose of which is the collection of Debts or who regularly collects or attempts to collect, directly or indirectly, Debts owed or due or asserted to be owed or due another; (ii) any creditor who, in the process of collecting its own Debts, uses any name other than its own that would indicate that a third Person is collecting or attempting to collect the creditor’s Debts; and (iii) any Person to the extent that such Person collects or attempts to collect any Debt that was in default at the time it was obtained by such Person. Case 1:15-cv-00859-RWS Document 599 Filed 11/15/19 Page 7 of 31
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f. “Defendants” means all of the Individual Defendants and the LLC Defendants, individually, collectively, or in any combination.
i. “Individual Defendants” means Bagga, Marcus Brown, Sarita Brown, Tasha Pratcher, and Sumant Khan, collectively, or in any combination, and each of them by any other names by which they might be known; ii. “LLC Defendants” means Check & Credit Recovery, LLC, Credit Power, LLC, Universal Debt & Payment Solutions, LLC, Universal Debt Solutions, WNY Account Solutions, LLC, WNY Solutions Group, LLC, and S Payment Processing & Solutions, LLC and their successors and assigns, collectively, or in any combination;
iii. “Stipulating Defendant” means Bagga and his successors and assigns.
g. “Effective Date” means the date on which the Order is issued. h. “Enforcement Director” means the Assistant Director of the Office of Enforcement for the Consumer Financial Protection Bureau, or his or her delegate.
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i. “Person” means an individual, partnership, company, corporation, association (incorporated or unincorporated), trust, estate, cooperative organization, or other entity. j. “Related Consumer Action” means a private action by or on behalf of one or more consumers or an enforcement action by another governmental agency brought against Stipulating Defendant based on substantially the same facts as this matter.
k. “Relevant Period” means March 1, 2011 through March 31, 2015.
l. “Service Provider” is synonymous in meaning and equal in scope to the definition of the term, as of the Effective Date, in Section 1002(26) of the CFPA, 12 U.S.C. § 5481(26), and, subject to applicable restrictions contained in the CFPA, includes, but is not limited to, any Person that provides material service to a Person that is a “covered person” under the CFPA, 12 U.S.C. § 5481(6), in connection with the offering or provision by such “covered person” of a Consumer Financial Product or Service, including a Person that: Case 1:15-cv-00859-RWS Document 599 Filed 11/15/19 Page 9 of 31
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i. participates in designing, operating, or maintaining the Consumer Financial Product or Service; or ii. processes transactions relating to the Consumer Financial Product or Service (other than unknowingly or incidentally transmitting or processing financial data in a manner that such data is undifferentiated from other types of data of the same form as the Person transmits or processes).
ORDER CONDUCT RELIEF I.
Permanent Ban on Debt Collection
IT IS ORDERED that:
15.
Stipulating Defendant, whether acting directly or indirectly, is permanently restrained and enjoined from: a. acting as a Debt Collector;
b. holding any ownership interest in (i) a Debt Collector or (ii) a payment processor to a Debt Collector; c. receiving any remuneration or other consideration from (i) a Debt Collector or (ii) a payment processor to a Debt Collector if Case 1:15-cv-00859-RWS Document 599 Filed 11/15/19 Page 10 of 31
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the remuneration or consideration relates to the collection of Debts;
d. providing services or assistance to, or working in any capacity for, a Debt Collector, including but not limited to acting as a Service Provider, employee, or independent contractor to a Debt Collector; and e. advertising, marketing, promoting, offering for sale, processing payments for, selling, or buying any Debt or consumer information relating to a Debt.
Nothing in this Order shall be read as an exception to this Paragraph. II.
Prohibition on Misrepresentations Concerning Consumer Financial Products or Services
IT IS FURTHER ORDERED that:
16.
Stipulating Defendant, and all other persons in active concert or participation with him who have actual notice of this Order, whether acting directly or indirectly, in connection with any Consumer Financial Product or Service, are permanently restrained and enjoined from misrepresenting, omitting, or assisting others in misrepresenting or omitting, expressly or by implication, any material fact, including but not limited to: Case 1:15-cv-00859-RWS Document 599 Filed 11/15/19 Page 11 of 31
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a. a business name or identity;
b. that any Person is an attorney or is barred or licensed to practice law in a particular jurisdiction; c. that any Person who is not associated or affiliated with an attorney or law firm is affiliated or associated with an attorney or law firm;
d. that a Consumer will receive legal representation; e. how much a Consumer will save from purchasing, using, or enrolling in a Consumer Financial Product or Service; f. how long it will take to settle any Debts; g. the likelihood of any particular outcome or result from a Consumer Financial Product or Service; or h. the nature or terms of any refund, cancellation, exchange, or repurchase policy, including but not limited to the likelihood of a Consumer obtaining a full or partial refund, or the circumstances in which a full or partial refund will be provided to the Consumer.
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III.
Prohibition on Unfair Practices Involving Consumer Financial Products or Services
IT IS FURTHER ORDERED that:
17.
Stipulating Defendant, and all other persons in active concert or participation with him who have actual notice of this Order, whether acting directly or indirectly, in connection with any Consumer Financial Product or Service, are permanently restrained and enjoined from: a. Placing telephone calls to consumers without meaningful disclosure of the caller’s identity; and b. Concealing their identity by causing “000-000-0000” or any other false or misleading information to appear on a consumer’s caller identification.
IV.
Prohibition on Business Ventures with Other Defendants IT IS FURTHER ORDERED that:
18.
Stipulating Defendant, whether acting directly or indirectly, is permanently restrained and enjoined from investing in, providing services to, working for, serving as an officer of, or being otherwise engaged in any business venture or project involving any other Defendant. Case 1:15-cv-00859-RWS Document 599 Filed 11/15/19 Page 13 of 31
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V.
Consumer Information IT IS FURTHER ORDERED that:
19.
Stipulating Defendant, and all other Persons in active concert or participation with him, who receive actual notice of this Order, whether acting directly or indirectly, are permanently restrained and enjoined from using, disclosing, or benefiting from Consumer information, including the name, address, telephone number, email address, social security number, other identifying information, or any data that enables access to a Consumer’s account (including a credit card, bank account, or any financial account) that any Defendant obtained before the Effective Date in connection with any Defendant’s activity as a Debt Collector. VI.
Prohibition on Certain Merchant Processing Activities IT IS FURTHER ORDERED that:
20.
Stipulating Defendant, and all other persons in active concert or participation with him, who receive actual notice of this Order, whether acting directly or indirectly, are permanently restrained and enjoined from allowing third parties to use any merchant processing account that Stipulating Defendant owns or controls to collect consumer payments. Case 1:15-cv-00859-RWS Document 599 Filed 11/15/19 Page 14 of 31
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21.
Stipulating Defendant, and all other persons in active concert or participation with him, who have actual notice of this Order, whether acting directly or indirectly, are permanently restrained and enjoined from reopening or using the following merchant payment processing accounts associated with the unlawful debt collection scheme: account number 8788370013263 with Frontline Processing Corporation, account number 5644000000476853 with Francis David Corporation d/b/a/ Electronic Merchant Systems, and account number 055-70-073-023-000 with Pathfinder Payment Solutions, Inc.
MONETARY PROVISIONS VII.
Order to Pay Redress IT IS FURTHER ORDERED that:
22.
A judgment for equitable monetary relief and damages is entered in favor of the Bureau and against Stipulating Defendant, in the amount of $5,261,484.00, for the purpose of providing redress to Affected Consumers; however, full payment of this judgment will be suspended upon satisfaction of the obligations in Sections IX and X, and subject to Section VIII of this Order. 23.
The asset freeze imposed by the Preliminary Injunction [ECF No. 16] is dissolved as to Stipulating Defendant as of the Effective Date. Case 1:15-cv-00859-RWS Document 599 Filed 11/15/19 Page 15 of 31
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24.
With regard to any redress that Stipulating Defendant pays under this Section, if Stipulating Defendant, directly or indirectly, receives any reimbursement or indemnification from any source, including but not limited to payment made under any insurance policy, or if Stipulating Defendant secures a tax deduction or tax credit with regard to any federal, state, or local tax, Stipulating Defendant must: (a) immediately notify the Enforcement Director in writing, and (b) within 10 days of receiving the funds or monetary benefit, Stipulating Defendant must transfer to the Bureau the full amount of such funds or monetary benefit (“Additional Payment”) to the Bureau or to the Bureau’s agent according to the Bureau’s wiring instructions. After the Bureau receives the Additional Payment, the amount of the suspended judgment referenced in Paragraph 22 will be reduced by the amount of the Additional Payment and the Additional Payment will be applied toward satisfaction of the monetary judgment entered in Paragraph 22.
25.
Any funds received by the Bureau in satisfaction of this judgment will be deposited into a fund or funds administered by the Bureau or to the Bureau’s agent according to applicable statutes and regulations to be used for redress for Affected Consumers, including, but not limited to, refund of Case 1:15-cv-00859-RWS Document 599 Filed 11/15/19 Page 16 of 31
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moneys, restitution, damages or other monetary relief, and for any attendant expenses for the administration of any such redress. 26.
If the Bureau determines, in its sole discretion, that redress to consumers is wholly or partially impracticable or if funds remain after redress is completed, the Bureau will deposit any remaining funds in the U.S. Treasury as disgorgement. Stipulating Defendant will have no right to challenge any actions that the Bureau or its representatives may take under this Section.
27.
Payment of redress to any Affected Consumer under this Order may not be conditioned on that Affected Consumer waiving any right. VIII.
Effect of Misrepresentation or Omission Regarding Financial Condition
IT IS FURTHER ORDERED that:
28.
The Bureau’s agreement to enter into this Order and the suspension of the monetary judgment entered in Section VII of this Order is expressly premised on the truthfulness, accuracy, and completeness of Stipulating Defendant’s financial statements and supporting documents submitted to the Bureau, which Stipulating Defendant has attested, subject Case 1:15-cv-00859-RWS Document 599 Filed 11/15/19 Page 17 of 31
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to the penalties imposed by 18 U.S.C. §§ 1001 and 3571, are truthful, accurate, and complete, and which are:
a. Financial Statement of Bagga, including the attachments, executed on February 6, 2015 and submitted to the Bureau on or about that date;
b. Updated Financial Statement of Bagga, including the attachments, signed on September 27, 2019, and submitted to the Bureau on or about that date.
29.
If upon motion by the Bureau, the Court determines that Stipulating Defendant has failed to disclose any material asset or that any of his Financial Statements listed in Paragraph 28 contain any material misrepresentation or omission, including materially misstating the value of any asset, the Court shall terminate the suspension of the monetary judgment entered in Section VII of this Order and the full judgment of $5,261,484 entered shall be immediately due and payable. 30.
If the Court terminates the suspension of the monetary judgment under this Section, the Bureau will be entitled to interest on the Order, computed from the date of entry of this Order, at the rate prescribed by 28 U.S.C. § 1961, as amended, on any outstanding amounts not paid. Case 1:15-cv-00859-RWS Document 599 Filed 11/15/19 Page 18 of 31
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31.
Provided, however, that in all other respects this Order shall remain in full force and effect unless otherwise ordered by the Court; and, provided further, that proceedings instituted under this provision would be in addition to, and not in lieu of any other civil or criminal remedies as may be provided by law, including any other proceedings that the Bureau may initiate to enforce this Order.
IX.
Order To Pay Civil Money Penalty IT IS FURTHER ORDERED that:
32.
Under section 1055(c) of the CFPA, 12 U.S.C. § 5565(c), by reason of Stipulating Defendant’s violations of the CFPA and FDCPA described in the March 21, 2019 Decision, and taking into account the factors in 12 U.S.C. § 5565(c)(3), Stipulating Defendant must pay a civil money penalty of $1.00 to the Bureau. This nominal penalty is based on Stipulating Defendant’s limited ability to pay as attested to in his financial statements listed in Section VIII above.
33.
Within 10 days of the Effective Date, Stipulating Defendant must pay the civil money penalty by wire transfer to the Bureau or to the Bureau’s agent in compliance with the Bureau’s wiring instructions. Case 1:15-cv-00859-RWS Document 599 Filed 11/15/19 Page 19 of 31
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34.
The civil money penalty paid under this Order will be deposited in the Civil Penalty Fund of the Bureau as required by section 1017(d) of the CFPA, 12 U.S.C. § 5497(d).
35.
Stipulating Defendant must treat the civil money penalty paid under this Order as a penalty paid to the government for all purposes. 36.
Regardless of how the Bureau ultimately uses those funds, Stipulating Defendant may not:
a. Claim, assert, or apply for a tax deduction, tax credit, or any other tax benefit for any civil money penalty paid under this Consent Order; or b. Seek or accept, directly or indirectly, reimbursement or indemnification from any source, including but not limited to payment made under any insurance policy, with regard to any civil money penalty paid under this Consent Order. 37.
Stipulating Defendant agrees that the civil penalty imposed by the Order represents a civil penalty owed to the United States Government, is not compensation for actual pecuniary loss, and, thus, as to Stipulating Defendant, it is not subject to discharge under the Bankruptcy Code under 11 U.S.C. § 523(a)(7).
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X.
Additional Monetary Provisions
IT IS FURTHER ORDERED that:
38.
In the event of any default on Stipulating Defendant’s obligations to make payment under this 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.
39.
Stipulating Defendant relinquishes all dominion, control, and title to the funds paid under this Order to the fullest extent permitted by law and no part of the funds may be returned to Stipulating Defendant. 40.
The facts alleged in the Complaint will be taken as true and be given collateral estoppel effect, without further proof, in any proceeding based on the entry of the Order, or in any subsequent civil litigation by or on behalf of the Bureau in a proceeding to enforce its rights to any payment or monetary judgment under this Order, such as a nondischargeability complaint in any bankruptcy case.
41.
The facts alleged in the Complaint establish all elements necessary to sustain an action by the Bureau under to Section 523(a)(2)(A) of the Bankruptcy Code, 11 U.S.C. § 523(a)(2)(A), and for such purposes this Case 1:15-cv-00859-RWS Document 599 Filed 11/15/19 Page 21 of 31
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Order will have collateral estoppel effect against Stipulating Defendant, even in such Stipulating Defendant’s capacity as debtor-in-possession. 42.
Under 31 U.S.C. § 7701, Stipulating Defendant, unless he has already done so, must furnish to the Bureau his taxpayer identifying numbers, which may be used for purposes of collecting and reporting on any delinquent amount arising out of this Order.
43.
Within 30 days of the entry of a final judgment, consent order, or settlement in a Related Consumer Action, Stipulating Defendant must notify the Enforcement Director of the final judgment, consent order, or settlement in writing. That notification must indicate the amount of redress, if any, that Stipulating Defendant 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.
44.
To preserve the deterrent effect of the civil money penalty in any Related Consumer Action, Stipulating Defendant may not argue that he is entitled to, nor may Stipulating Defendant benefit by, any offset or reduction of any monetary remedies imposed in the Related Consumer Action because of the civil money penalty paid in this action or because of any payment that the Bureau makes from the Civil Penalty Fund. If the court in any Related Consumer Action offsets or otherwise reduces the amount of compensatory Case 1:15-cv-00859-RWS Document 599 Filed 11/15/19 Page 22 of 31
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monetary remedies imposed against Stipulating Defendant based on the civil money penalty paid in this action or based on any payment that the Bureau makes from the Civil Penalty Fund, Stipulating Defendant must, within 30 days after entry of an Order granting such offset or reduction, notify the Bureau and pay the amount of the offset or reduction to the U.S. Treasury. Such a payment will not be considered an additional civil money penalty and will not change the amount of the civil money penalty imposed in this action.
COMPLIANCE PROVISIONS
XI.
Reporting Requirements
IT IS FURTHER ORDERED that:
45.
Stipulating Defendant must notify the Bureau of any development that may affect compliance obligations arising under this Order, including but not limited to, a dissolution, assignment, sale, merger, or other action that would result in the emergence of a successor company to Defendant UDPS, of which he is the sole owner; the creation or dissolution of a subsidiary, parent, or affiliate that engages in any acts or practices subject to this Order; the filing of any bankruptcy or insolvency proceeding by or against Stipulating Defendant; or a change in Stipulating Defendant’s name Case 1:15-cv-00859-RWS Document 599 Filed 11/15/19 Page 23 of 31
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or address. Stipulating Defendant must provide this notice, if practicable, at least 30 days before the development, but in any case no later than 14 days after the development.
46.
Within 7 days of the Effective Date, Stipulating Defendant must: a. Designate at least one telephone number and email, physical, and postal address as points of contact, which the Bureau may use to communicate with Stipulating Defendant; b. Identify all businesses for which Stipulating Defendant is the majority owner, or that Stipulating Defendant directly or indirectly controls, by all of their names, telephone numbers, and physical, postal, email, and Internet addresses; c. Describe the activities of each such business, including the products and services offered, and the means of advertising, marketing, and sales.
d. Identify Stipulating Defendant’s telephone numbers and all email, Internet, physical, and postal addresses, including all residences;
e. Describe in detail Stipulating Defendant’s involvement in any business for which he performs services in any capacity or Case 1:15-cv-00859-RWS Document 599 Filed 11/15/19 Page 24 of 31
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which he wholly or partially owns, including his title, role, responsibilities, participation, authority, control, and ownership.
47.
Stipulating Defendant must report any change in the information required to be submitted under Paragraph 46 at least 30 days before the change or as soon as practicable after the learning about the change, whichever is sooner.
48.
Within 90 days of the Effective Date and again one year after the Effective Date, Stipulating Defendant must submit to the Enforcement Director an accurate written compliance progress report sworn to under penalty of perjury (“Compliance Report”), which, at a minimum: a. Lists each applicable paragraph and subparagraph of the Order and describes in detail the manner and form in which Stipulating Defendant has complied with each such paragraph and subparagraph of this Order;
b. Attaches a copy of each Order Acknowledgment obtained under Section XII, unless previously submitted to the Bureau.
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XII.
Order Distribution and Acknowledgement IT IS FURTHER ORDERED that:
49.
Within 7 days of the Effective Date, Stipulating Defendant must submit to the Enforcement Director an acknowledgment of receipt of this Order, sworn under penalty of perjury.
50.
For 10 years from the Effective Date, Stipulating Defendant must, for any business that provides Consumer Financial Products or Services or acts as a Service Provider for such a business, and for which he is the majority owner or which he directly or indirectly controls, deliver a copy of this Order to any managers, employees, or other agents and representatives who will have responsibilities related to Consumer Financial Products or Services before they assume their responsibilities. 51.
Stipulating Defendant must secure a signed and dated statement acknowledging receipt of a copy of this Order, ensuring that any electronic signatures comply with the requirements of the E-Sign Act, 15 U.S.C. § 7001 et seq., within 30 days of delivery, from all persons receiving a copy of this Order under this Section.
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XIII.
Recordkeeping IT IS FURTHER ORDERED that:
52.
Stipulating Defendant must create, or if already created, must retain for the duration of the Order, all documents and records necessary to demonstrate full compliance with each provision of this Order, including all submissions to the Bureau.
XIV.
Notices IT IS FURTHER ORDERED that:
53.
Unless otherwise directed in writing by the Bureau, Stipulating Defendant must provide all submissions, requests, communications or other documents relating to this Order in writing, with the subject line, “In re CFPB v. Universal Debt & Payment Solutions LLC, et al., ENF Matter No. 2013-0916-2,” and send them by overnight courier or first-class mail to the below address and contemporaneously by email to [email protected]:
Assistant Director for Enforcement Consumer Financial Protection Bureau ATTENTION: Office of Enforcement 1700 G Street, N.W.
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Washington, D.C. 20552
XV.
Cooperation with the Bureau IT IS FURTHER ORDERED that:
54.
Stipulating Defendant must cooperate fully to help the Bureau determine the identity and location of, and the amount of injury sustained by, each Affected Consumer. Stipulating Defendant must provide such information in its or its agents’ possession or control within 14 days of receiving a written request from the Bureau.
55.
Stipulating Defendant must cooperate fully with the Bureau in this matter and in any investigation related to or associated with the conduct described in the Complaint, the March 21, 2019 Decision, or Section I herein. Stipulating Defendant must provide truthful and complete information, evidence, and testimony. Stipulating Defendant must appear for interviews, discovery, hearings, trials, and any other proceedings that the Bureau may reasonably request upon 10 days written notice, or other reasonable notice, at such places and times as the Bureau may designate, without the service of compulsory process.
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XVI.
Compliance Monitoring IT IS FURTHER ORDERED that, to monitor Stipulating Defendant’s compliance with this Order, including the financial representations upon which the judgment was suspended:
56.
Within 14 days of receipt of a written request from the Bureau, Stipulating Defendant must submit requested non-privileged information related to requirements of this Order, which must be made under penalty of perjury; provide sworn testimony related to requirements of this Order and Stipulating Defendant’s compliance with those requirements; or produce nonprivileged documents related to requirements of this Order and Stipulating Defendant’s compliance with those requirements. 57.
For purposes of this Section, the Bureau may communicate directly with Stipulating Defendant, unless Stipulating Defendant retains counsel related to these communications.
58.
Stipulating Defendant must permit Bureau representatives to interview about the requirements of this Order and Stipulating Defendant’s compliance with those requirements any employee or other person affiliated with Stipulating Defendant who has agreed to such an interview. The person interviewed may have counsel present.
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59.
Nothing in this Order limits the Bureau’s lawful use of civil investigative demands under 12 C.F.R. § 1080.6 or other compulsory process. XVII.
Miscellaneous
IT IS FURTHER ORDERED that:
60.
Nothing contained herein shall be construed as to deprive any Person, not a party to this case, of any private right under the law. 61.
The Bureau may serve Stipulating Defendant, directly or through any attorney he retains for this purpose, via electronic mail any written notices required or permitted to be served pursuant to this Order. XVIII.
Entry of Judgment
IT IS FURTHER ORDERED that:
62.
There is no just reason for delay of entry of this judgment, and under Federal Rule of Civil Procedure 54(b), the Clerk immediately shall enter this Order as a final judgment as to Stipulating Defendant Mohan Singh Bagga.
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XIX.
Retention of Jurisdiction IT IS FURTHER ORDERED that:
63.
This Court will retain jurisdiction of this matter for purposes of construction, modification, and enforcement of this Order. IT IS SO ORDERED, ____________________, 2019. ____________________________________ The Honorable Richard Story United States District Judge November 15 Case 1:15-cv-00859-RWS Document 599 Filed 11/15/19 Page 31 of 31
Stipulation ()
PDF of this document (33 pages)
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FICE Rs s ore FILED IN hens penta ‘
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IN THE UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF GEORGIA, ATLANTA DIVISION
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CONSUMER FINANCIAL PROTECTION BUREAU,
Plaintiff, Civil Action No.
1:15-CV-0859-RWS v.
UNIVERSAL DEBT & PAYMENT SOLUTIONS, LLC; et al.
Defendants.
STIPULATED FINAL JUDGMENT AND ORDER AS TO DEFENDANT TASHA PRATCHER
Plaintiff, the Consumer Financial Protection Bureau (“Bureau”), commenced this action on March 26, 2015, by filing a complaint [ECF No, 1] (“Complaint”) against certain individuals and entities (“Defendants,” as further defined below), alleging deceptive and unfair acts and practices in connection with consumer debt collection in violation of the Consumer
Financial Protection Act, 12 U.S.C, §§ 5531, 5536 (““CFPA”), and various
violations of the Fair Debt Collection Practices Act, 15 U.S.C. §§ 1692-1692p (“FDCPA”).
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On March 21, 2019, the Court issued a decision [ECF No. 576] (the “Summary Judgment Decision”) on the motion for summary judgment filed by the Bureau against certain Defendants, including Defendant Tasha Pratcher (“Pratcher” or “Stipulating Defendant”). The Court found Pratcher liable for substantial assistance under the CFPA. The Court reserved its ruling on what remedies should be imposed on Pratcher.
The Bureau and Stipulating Defendant desire to settle this dispute and, as a result, agree to the entry of this Stipulated Final Judgment and Order (“Order”).
FINDINGS
1. The Court has jurisdiction over the parties and the subject matter of this action.
2s In the Summary Judgment Decision, the Court found that the evidence accepted on summary judgment established the existence of an unlawful phantom debt collection scheme among Defendants other than $ Payment Processing & Solutions LLC. ECF No, 576 at 9-12, 25-28, 48-49, 63.
3. The Court ruled that Pratcher rendered substantial assistance to Defendant Marcus Brown, her estranged husband, and to another Defendant in their commission of acts prohibited under the CFPA. The Court held that
Pratcher provided such assistance recklessly, given Brown’s prior criminal
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conviction and her history with Brown, thereby violating 12 U.S.C. § 5536(a)(3). Id. at 31.
4. The Bureau and Stipulating Defendant agree to the entry of this Order to settle and resolve all matters in dispute arising from the conduct alleged in the Complaint.
5. The Court has found that the Complaint states claims upon which relief may be granted under the FDCPA and the CFPA. ECF No. 149.
6. The relief provided in this Order is appropriate and available pursuant to sections 1054 and 1055 of the CFPA, 12 U.S.C. §§ 5564 and 5565.
fe Stipulating Defendant neither admits nor denies the allegations in the Complaint except as stated in this Order. For purposes of this Order, Stipulating Defendant admits the facts necessary to establish the Court’s jurisdiction over her and the subject matter of this action.
8. Stipulating Defendant waives all rights to seek judicial review or otherwise challenge or contest the validity of this Order. Stipulating Defendant further waives any claim she 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 Order. Each party will bear its own costs and expenses, including, without limitation, attorneys’ fees.
9. Entry of this Order is in the public interest.
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DEFINITIONS
10. The following definitions apply to this Order:
a. “Affected Consumers” means Consumers who paid any money to the LLC Defendants between March 1, 2011 and March aL, 2015.
b. “Assisting Others” includes, but is not limited to:
1. consulting in any form whatsoever;
ii, providing paralegal or administrative support services;
lil. performing customer service functions including, but not limited to, receiving or responding to consumer complaints;
iv. formulating or providing, or arranging for the formulation or provision of, any advertising or marketing material including, but not limited to, web or Internet Protocol addresses or domain name registration for any internet websites, affiliate marketing services, or media placement services;
v. providing names of, or assisting in the generation of,
potential customers;
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vi. performing marketing, billing, or payment services of any kind; and
vil. acting or serving as an owner, officer, director, manager, or principal of any entity.
c. “Consumer” means an individual or an agent, trustee, or representative acting on behalf of an individual. 12 U.S.C, § 5481 (4).
d. “Consumer Financial Product or Service” is synonymous in meaning and equal in scope to the definition of the term, as of the Effective Date, in section 1002(5) of the CFPA, 12 U.S.C. § 5481(5), and, subject to applicable restrictions contained in the CFPA, includes, but is not limited to:
1. engaging in deposit-taking activities, transmitting or exchanging funds, or otherwise acting as a custodian of funds or any financial instrument for use by or on behalf of a consumer;
ii. providing payments or other financial data processing products or services to a consumer by any technological means, including processing or storing financial or
banking data for any payment instrument, or through
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any payments systems or network used for processing payments data, including payments made through an online banking system or mobile telecommunications network; or
ill. providing financial advisory services to consumers on individual financial matters or relating to proprietary financial products or services, including providing credit counseling to any consumer or providing services to assist a consumer with debt management or debt settlement, modifying the terms of any extension of credit, or avoiding foreclosure.
e. “Debt” means any obligation or alleged obligation of a Consumer to pay money arising out of a transaction in which the money, property, insurance or services which are the subject of the transaction are primarily for personal, family, or household purposes, whether or not such obligation has been reduced to judgment. 15 U.S.C. § 1692a(5).
f “Debt Collector” means (i) any Person who uses an instrumentality of interstate commerce or the mail in any
business the principal purpose of which is the collection of
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Debts or who regularly collects or attempts to collect, directly or indirectly, Debts owed or due or asserted to be owed or due another; (ii) any creditor who, in the process of collecting its own Debts, uses any name other than its own that would indicate that a third Person is collecting or attempting to collect the creditor’s Debts; and (iii) any Person to the extent that such Person collects or attempts to collect any Debt that was in default at the time it was obtained by such Person.
g. “Defendants” means all of the Individual Defendants and the LLC Defendants, individually, collectively, or in any combination.
i. “Individual Defendants” means Pratcher, Marcus Brown, Sarita Brown, Mohan Bagga, and Sumant Khan, collectively, or in any combination, and each of them by any other names by which they might be known;
i. “LLC Defendants” means Check & Credit Recovery, LLC, Credit Power, LLC, Universal Debt & Payment Solutions, LLC, Universal Debt Solutions, WNY Account Solutions, LLC, WNY Solutions Group, LLC, and $
Payment Processing & Solutions, LLC and their a
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successors and assigns, collectively, or in any combination;
il. “Stipulating Defendant” means Tasha Pratcher or any other name by which she might be known.
h. “Effective Date” means the date on which the Order is issued.
i, “Enforcement Director” means the Assistant Director of the Office of Enforcement for the Consumer Financial Protection Bureau, or his or her delegate.
j. “Person” means an individual, partnership, company, corporation, association (incorporated or unincorporated), trust, estate, cooperative organization, or other entity.
k. “Receiver” means Mark J. Bernet, a partner in the law firm of Akerman, LLP.
l. “Related Consumer Action” means a private action by or on behalf of one or more consumers or an enforcement action by another governmental agency brought against Stipulating Defendant based on substantially the same facts as this matter.
m. “Relevant Period” means March 1, 2011 through March 31,
2015.
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n. “Service Provider” is synonymous in meaning and equal in scope to the definition of the term, as of the Effective Date, in section 1002(26) of the CFPA, 12 U.S.C, § 5481(26), and, subject to applicable restrictions contained in the CFPA, includes, but is not limited to, any Person that provides material service to a Person that is a “covered person” under the CFPA, 12 U.S.C. § 5481/6), in connection with the offering or provision by such “covered person” of a Consumer Financial Product or Service, including a Person that:
i. participates in designing, operating, or maintaining the Consumer Financial Product or Service; or
li. processes transactions relating to the Consumer Financial Product or Service (other than unknowingly or incidentally transmitting or processing financial data in a manner that such data is undifferentiated from other types of data of the same form as the Person transmits
or processes).
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ORDER CONDUCT RELIEF
I, Permanent Ban on Debt Collection IT IS ORDERED that:
11. Stipulating Defendant, whether acting directly or indirectly, is permanently restrained and enjoined from or Assisting Others in: a. acting as a Debt Collector;
b. holding any ownership interest in (i) a Debt Collector or (ii) a payment processor to a Debt Collector;
c. receiving any remuneration or other consideration from fi) a Debt Collector or (ii) a payment processor to a Debt Collector if the remuneration or consideration relates to the collection of Debts;
d. providing services or assistance to, or working in any capacity for, a Debt Collector, including but not limited to acting asa Service Provider, employee, or independent contractor to a
Debt Collector; and
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e, advertising, marketing, promoting, offering for sale, processing payments for, selling, or buying any Debt or consumer information relating to a Debt.
Nothing in this Order shall be read as an exception to this Paragraph. Il.
Prohibition on Misrepresentations Concerning Consumer Financial Products or Services
IT IS FURTHER ORDERED that:
12. Stipulating Defendant, and her officers, agents, servants, employees, and attorneys, and all other persons in active concert or participation with her who have actual notice of this Order, whether acting directly or indirectly, in connection with any Consumer Financial Product or Service, are permanently restrained and enjoined from misrepresenting, omitting, or Assisting Others in misrepresenting or omitting, expressly or by implication, any material fact, including but not limited to:
a. a business name or identity;
b. that any Person is an attorney or is barred or licensed to
practice law in a particular jurisdiction;
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c. that any Person who is not associated or affiliated with an attorney or law firm is affiliated or associated with an attorney or law firm;
d. that a Consumer will receive legal representation:
e. how much a Consumer will save from purchasing, using, or enrolling in a Consumer Financial Product or Service:
f. how long it will take to settle any Debts;
g. the likelihood of any particular outcome or result from a Consumer Financial Product or Service; or
h. the nature or terms of any refund, cancellation, exchange, or repurchase policy, including but not limited to the likelihood of a Consumer obtaining a full or partial refund, or the circumstances in which a full or partial refund will be provided to the Consumer.
II.
Prohibition on Unfair Practices Involving Consumer Financial Products or Services
IT IS FURTHER ORDERED that:
13. Stipulating Defendant and her officers, agents, servants,
employees, and attorneys, and all other persons in active concert or
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participation with her who have actual notice of this Order, whether acting directly or indirectly, in connection with any Consumer Financial Product or Service, are permanently restrained and enjoined from or Assisting Others in:
a. Placing telephone calls to consumers without meaningful disclosure of the caller’s identity; and b. Concealing their identity by causing “000-000-0000” or any other false or misleading information to appear ona consumer's caller identification.
IV.
Prohibition on Business Ventures with Other Defendants IT IS FURTHER ORDERED that:
14. Stipulating Defendant, whether acting directly or indirectly, is permanently restrained and enjoined from investing in, providing services to,
working for, serving as an officer of, or being otherwise engaged in any
business venture or project involving any other Defendant.
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V.
Consumer Information IT IS FURTHER ORDERED that:
15. Stipulating Defendant and her officers, agents, servants, employees, and attorneys, and all other Persons in active concert or participation with her, who receive actual notice of this Order, whether acting directly or indirectly, are permanently restrained and enjoined from using, disclosing, or benefiting from Consumer information, including the name, address, telephone number, email address, social security number, other identifying information, or any data that enables access to a Consumer's account (including a credit card, bank account, or any financial account) that any Defendant obtained before the Effective Date in connection with any Defendant's activity as a Debt Collector.
VI.
Prohibition on Certain Merchant Processing Activities IT IS FURTHER ORDERED that:
16. Stipulating Defendant and her officers, agents, servants, employees, and attorneys, and all other persons in active concert or participation with her, who receive actual notice of this Order, whether
acting directly or indirectly, are permanently restrained and enjoined from
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allowing third parties to use any merchant processing account that Stipulating Defendant owns or controls to collect consumer payments.
17. Stipulating Defendant and her officers, agents, servants, employees, and attorneys, and all other persons in active concert or participation with her, who have actual notice of this Order, whether acting directly or indirectly, are permanently restrained and enjoined from reopening or using the following merchant payment processing accounts associated with the unlawful debt collection scheme: account numbers 8788370013263 and 8788370013280 with Frontline Processing Corporation, account numbers 5644000000476853, 564400000618298, 564400000641183, and 564400000735647 with Francis David Corporation Wb/a/ Electronic Merchant Systems, account numbers 8788730001893 and 8788730002232 with Pathfinder Payment Solutions, Inc., and account numbers
4445017408336 and 445017416651 with Vantiv, Inc. d/b/a PaidSuite.
MONETARY PROVISIONS VII.
Order to Pay Redress
IT IS FURTHER ORDERED that:
18. Ajudgment for monetary relief and damages is entered in favor
of the Bureau and against Stipulating Defendant, in the amount of
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$300,000.00, for the purpose of providing redress to Affected Consumers; however, full payment of this judgment will be suspended upon satisfaction of the obligations in Paragraphs 19 and 20 of this Section and in Sections IX and X, and subject to Section VIII of this Order.
19. Within 10 days of the Effective Date, Stipulating Defendant must pay to the Bureau, by wire transfer to the Bureau or to the Bureau’s agent, and according to the Bureau’s wiring instructions, $2,500.00 in partial satisfaction of the judgment as ordered in Paragraph 18 of this Section.
20. To the extent Stipulating Defendant has not already done so, Stipulating Defendant is ordered to relinquish any interest in and transfer to the Receiver, or to the Receiver’s designated agent, possession, custody, and control of the following assets within seven (7) days of entry of this Order, unless otherwise stated:
a. The real property located at 150 Parkridge, Buffalo, New York.
b. The real property located at 1575 Genesee Ave., Buffalo, New York.
c. The real property located at 1585 Genesee Ave., Buffalo, New York.
d. The real property located at 11 Hastings St., Buffalo, New York.
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e. The real property located at 382 Eggert Rd., Buffalo, New York.
f. The real property located at 426 Dartmouth Ave., Buffalo, New York
g. The real property located at 77 Theodore St., Buffalo, New York.
h. The real property located at 42 Roebling Ave., Buffalo, New York.
i. The real property located at 127 Taunton Pl, Buffalo, New York.
j. The real property located at 2847 Eggert Rd., Buffalo, New York.
Provided, however, that the Receiver may abandon, without further court order, any asset set forth in this paragraph or otherwise he deems in his discretion to be of inconsequential or no value.
21. Stipulating Defendant shall cooperate fully with the Receiver and shall execute any instrument or document presented by the Receiver, and take any other actions the Receiver deems necessary or appropriate to effect the transfers required by Paragraph 20. The properties set forth in Paragraph 20 shall constitute Receivership Assets, as that term is defined in
the Order Appointing Receiver, ECF No, 624. Stipulating Defendant shall
17.
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fully cooperate with Receiver in connection with his efforts to market, sell, or otherwise dispose of the properties described in Paragraph 20.
22. The asset freeze imposed by the Preliminary Injunction [ECF No. 16] is dissolved as to Stipulating Defendant as of the Effective Date as to any assets that are not Receivership Assets, as that term is defined in the Order Appointing Receiver [ECF No, 624].
23. With regard to any redress that Stipulating Defendant pays under this Section, if Stipulating Defendant, directly or indirectly, receives any reimbursement or indemnification from any source, including but not limited to payment made under any insurance policy, or if Stipulating Defendant secures a tax deduction or tax credit with regard to any federal, state, or local tax, Stipulating Defendant must: (a) immediately notify the Enforcement Director in writing, and (b) within 10 days of receiving the funds or monetary benefit, Stipulating Defendant must transfer to the Bureau the full amount of such funds or monetary benefit (“Additional Payment”) to the Bureau or to the Bureau’s agent according to the Bureau’s wiring instructions. After the Bureau receives the Additional Payment, the amount of the suspended judgment referenced in Paragraph 18 will be
reduced by the amount of the Additional Payment and the Additional
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Payment will be applied toward satisfaction of the monetary judgment entered in Paragraph 18.
24. Any funds received by the Bureau in satisfaction of this judgment will be deposited into a fund or funds administered by the Bureau or to the Bureau’s agent according to 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.
25. Ifthe Bureau determines, in its sole discretion, that redress to consumers is wholly or partially impracticable or if funds remain after redress is completed, the Bureau will deposit any remaining funds in the U.S. Treasury as disgorgement. Stipulating Defendant will have no right to challenge any actions that the Bureau or its representatives may take under this Section.
26. Payment of redress to any Affected Consumer under this Order
may not be conditioned on that Affected Consumer waiving any right.
VIII.
Effect of Misrepresentation or Omission Regarding Financial Condition
IT IS FURTHER ORDERED that:
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27. The Bureau’s agreement to enter into this Order and the suspension of the monetary judgment entered in Section VII of this Order is expressly premised on the truthfulness, accuracy, and completeness of Stipulating Defendant’s financial statements and supporting documents submitted to the Bureau, which Stipulating Defendant has attested, subject to the penalties imposed by 18 U.S.C. §§ 1001 and 3571, are truthful, accurate, and complete, and which are:
a. Financial Statement of Pratcher, including the attachments, executed on April 8, 2015 and submitted to the Bureau on or about that date;
b. Updated Financial Statement of Pratcher, including the attachments, signed on May 15, 2018, and submitted to the Bureau on or about that date;
c. Updated Financial Statement of Pratcher, including the attachments, signed on June 8, 2020, and submitted to the Bureau on or about that date.
28. Ifupon motion by the Bureau, the Court determines that Stipulating Defendant has failed to disclose any material asset or that any of her Financial Statements listed in Paragraph 27 contain any material
misrepresentation or omission, including materially misstating the value of
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any asset, the Court shall terminate the suspension of the monetary judgment entered in Section VII of this Order and the full judgment of $300,000 entered shall be immediately due and payable.
29. Ifthe Court terminates the suspension of the monetary judgment under this Section, the Bureau will be entitled to interest on the Order, computed from the date of entry of this Order, at the rate prescribed by 28 U.S.C. § 1961, as amended, on any outstanding amounts not paid.
30. Provided, however, that in all other respects this Order shall remain in full force and effect unless otherwise ordered by the Court; and, provided further, that proceedings instituted under this provision would be in addition to, and not in lieu of any other civil or criminal remedies as may be provided by law, including any other proceedings that the Bureau may
initiate to enforce this Order.
Ix, Order To Pay Civil Money Penalty
IT IS FURTHER ORDERED that:
31. Under section 1055(c) of the CFPA, 12 U.S.C, § 5565(c), by reason of Stipulating Defendant’s violations of the CFPA described in the Summary Judgment Decision, and taking into account the factors in IWUSC.§
5565(c\(3), Stipulating Defendant must pay a civil money penalty of $1.00 to
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the Bureau. This nominal penalty is based on Stipulating Defendant’s limited ability to pay as attested to in her financial statements listed in Section VIII above.
32. Within 10 days of the Effective Date, Stipulating Defendant must pay the civil money penalty by wire transfer to the Bureau or to the Bureaw’s agent in compliance with the Bureau’s wiring instructions.
33. The civil money penalty paid under this Order will be deposited in the Civil Penalty Fund of the Bureau as required by section 1017(d) of the CFPA, 12 ULS.C. § 5497(d).
34. Stipulating Defendant must treat the civil money penalty paid under this Order as a penalty paid to the government for all purposes.
35. Regardless of how the Bureau ultimately uses those funds, Stipulating Defendant may not:
a. Claim, assert, or apply for a tax deduction, tax credit, or any other tax benefit for any civil money penalty paid under this Consent Order; or
b. Seek or accept, directly or indirectly, reimbursement or indemnification from any source, including but not limited to payment made under any insurance policy, with regard to any
civil money penalty paid under this Consent Order.
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36. Stipulating Defendant agrees that the civil penalty imposed by the Order represents a civil penalty owed to the United States Government, is not compensation for actual pecuniary loss, and, thus, as to Stipulating Defendant, it is not subject to discharge under the Bankruptcy Code under 1] ULS.C. § 523(a)(7).
X, Additional Monetary Provisions IT IS FURTHER ORDERED that:
37. Inthe event of any default on Stipulating Defendant’s obligations to make payment under this 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.
38. Stipulating Defendant relinquishes all dominion, control, and title to the funds paid and assets transferred under this Order to the fullest extent permitted by law and no part of the funds or other assets may be returned to Stipulating Defendant.
39. The facts alleged in the Complaint will be taken as true and be given collateral estoppel effect, without further proof, in any proceeding
based on the entry of the Order, or in any subsequent civil litigation by or on
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behalf of the Bureau in a proceeding to enforce its rights to any payment or monetary judgment under this Order, such as a nondischargeability complaint in any bankruptcy case.
40. The facts alleged in the Complaint establish all elements necessary to sustain an action by the Bureau under § 523(a)(2)(A) of the Bankruptcy Code, 11 U.S.C. § 523(a)(2)(A), and for such purposes this Order will have collateral estoppel effect against Stipulating Defendant, even in such Stipulating Defendant’s capacity as debtor-in-possession.
41. Under 31 U.S.C, § 7701, Stipulating Defendant, unless she has already done so, must furnish to the Bureau her taxpayer identifying numbers, which may be used for purposes of collecting and reporting on any delinquent amount arising out of this Order.
42. Within 30 days of the entry of a final judgment, consent order, or settlement in a Related Consumer Action, Stipulating Defendant must notify the Enforcement Director of the final judgment, consent order, or settlement in writing. That notification must indicate the amount of redress, if any, that Stipulating Defendant 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.
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43. Topreserve the deterrent effect of the civil money penalty in any Related Consumer Action, Stipulating Defendant may not argue that she is entitled to, nor may Stipulating Defendant benefit by, any offset or reduction of any monetary remedies imposed in the Related Consumer Action because of the civil money penalty paid in this action or because of any payment that the Bureau makes from the Civil Penalty Fund. If the court in any Related Consumer Action offsets or otherwise reduces the amount of compensatory monetary remedies imposed against Stipulating Defendant based on the civil money penalty paid in this action or based on any payment that the Bureau makes from the Civil Penalty Fund, Stipulating Defendant must, within 30 days after entry of an Order granting such offset or reduction, notify the Bureau and pay the amount of the offset or reduction to the U.S. Treasury. Such a payment will not be considered an additional civil money penalty and will not change the amount of the civil money penalty imposed in this action.
44. Upon written request of a representative of the Bureau, any consumer reporting agency must furnish consumer reports to the Bureau concerning Stipulating Defendant under Section 604(a)(1) of the Fair Credit
Reporting Act, 15 U.S.C. § 168]b(a\(1), which may be used for purposes of
collecting and reporting on any delinquent amount arising out of this Order.
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COMPLIANCE PROVISIONS XI.
Reporting Requirements IT IS FURTHER ORDERED that:
45. Stipulating Defendant must notify the Bureau of any development that may affect compliance obligations arising under this Order, including but not limited to, a dissolution, assignment, sale, merger, or other action that would result in the emergence of a successor company to RX Office Solutions, LLC or WNY Solutions Group, LLC, of which she is the sole owner; the creation or dissolution of a subsidiary, parent, or affiliate that engages in any acts or practices subject to this Order; the filing of any bankruptcy or insolvency proceeding by or against Stipulating Defendant; or a change in Stipulating Defendant’s name or address. Stipulating Defendant must provide this notice, if practicable, at least 30 days before the development, but in any case no later than 14 days after the development.
46. Within 7 days of the Effective Date, Stipulating Defendant must:
a. Designate at least one telephone number and email, physical, and postal address as points of contact, which the Bureau may
use to communicate with Stipulating Defendant;
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b. Identify all businesses for which Stipulating Defendant is the majority owner, or that Stipulating Defendant directly or indirectly controls, by all of their names, telephone numbers, and physical, postal, email, and Internet addresses;
c. Describe the activities of each such business, including the products and services offered, and the means of advertising, marketing, and sales.
d. Identify Stipulating Defendant’s telephone numbers and all email, Internet, physical, and postal addresses, including all residences;
e. Describe in detail Stipulating Defendant’s involvement in any business for which she performs services in any capacity or which she wholly or partially owns, including her title, role, responsibilities, participation, authority, control, and ownership.
47. Stipulating Defendant must report any change in the information required to be submitted under Paragraph 46 at least 30 days before the change or as soon as practicable after the learning about the change,
whichever is sooner.
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48. Within 90 days of the Effective Date and again one year after the Effective Date, Stipulating Defendant must submit to the Enforcement Director an accurate written compliance progress report sworn to under penalty of perjury (“Compliance Report”), which, at a minimum:
a. Lists each applicable paragraph and subparagraph of the Order and describes in detail the manner and form in which Stipulating Defendant has complied with each such paragraph and subparagraph of this Order;
b. Attaches a copy of each Order Acknowledgment obtained under Section XII, unless previously submitted to the Bureau.
XII.
Order Distribution and Acknowledgement IT IS FURTHER ORDERED that:
49. Within 7 days of the Effective Date, Stipulating Defendant must submit to the Enforcement Director an acknowledgment of receipt of this Order, sworn under penalty of perjury.
50. Within 30 days of the Effective Date, Stipulating Defendant and for any business for which she is the majority owner or which she directly or indirectly controls, must deliver a copy of this Order to each of its board
members and executive officers, as well as to any managers, employees,
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Service Providers, or other agents and representatives who have responsibilities related to the subject matter of the Order.
51. For 10 years from the Effective Date, Stipulating Defendant, for any business for which she is the majority owner or which she directly or indirectly controls, must deliver a copy of this Order to any business entity resulting from any change in structure referred to in Section XI (Reporting Requirements), any future board members or executive officers, as well as to any managers, employees, or other agents and representatives who will have responsibilities related to Consumer Financial Products or Services before they assume their responsibilities.
52. Stipulating Defendant must secure a signed and dated statement acknowledging receipt of a copy of this Order, ensuring that any electronic signatures comply with the requirements of the E-Sign Act, 15 U.S.C. § 7001 et seq., within 30 days of delivery, from all persons recelving a copy of this Order under this Section.
53. Within 90 days of the Effective Date, Stipulating Defendant must provide the Bureau with a list of all persons and their titles to whom this Order was delivered through that date under Paragraphs 50 and 51 and a copy of all signed and dated statements acknowledging of receipt of this
Order under Paragraph 52.
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XITq.
Recordkeeping IT IS FURTHER ORDERED that:
54. Stipulating Defendant must create, or if already created, must retain for at least 10 years, all documents and records necessary to demonstrate full compliance with each provision of this Order, including all submissions to the Bureau. Stipulating Defendant must make these materials available to the Bureau upon the Bureau's request.
XIV.
Notices IT IS FURTHER ORDERED that:
55. Unless otherwise directed in writing by the Bureau, Stipulating Defendant must provide all submissions, requests, communications or other documents relating to this Order in writing, with the subject line, “In re CFPB v. Universal Debt & Payment Solutions LLC, et al., ENF Matter No. 2013-0916-2,” and send them by overnight courier or first-class mail to the below address and contemporaneously by email to [email protected]:
Assistant Director for Enforcement Consumer Financial Protection Bureau ATTENTION: Office of Enforcement
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must appear for interviews, discovery, hearings, trials, and any other proceedings that the Bureau may reasonably request upon 10 days written notice, or other reasonable notice, at such places and times as the Bureau
may designate, without the service of compulsory process.
XVI.
Compliance Monitoring IT IS FURTHER ORDERED that, to monitor Stipulating Defendant’s compliance with this Order, including the financial representations upon which the judgment was suspended:
59. Within 14 days of receipt of a written request from the Bureau, Stipulating Defendant must submit requested information, which must be made under penalty of perjury; provide sworn testimony; or produce documents.
60. For purposes of this Section, the Bureau may communicate directly with Stipulating Defendant, unless Stipulating Defendant retains counsel related to these communications.
61. Stipulating Defendant must permit Bureau representatives to interview any employee or other person affiliated with Stipulating Defendant who has agreed to such an interview. The person interviewed may have
counsel present.
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62. Nothing in this Order limits the Bureau’s lawful use of civil investigative demands under 12 C.F.R. § 1080.6 or other compulsory process. XVII.
Miscellaneous IT IS FURTHER ORDERED that:
63. Nothing contained herein shall be construed as to deprive any Person, not a party to this case, of any private right under the law.
64. The Bureau may serve Stipulating Defendant, directly or through any attorney she retains for this purpose, via electronic mail any written notices required or permitted to be served pursuant to this Order.
XVIII.
Entry of Judgment IT IS FURTHER ORDERED that:
65. There is no just reason for delay of entry of this judgment, and
under Federal Rule of Civil Procedure 54(b), the Clerk immediately shall
enter this Order as a final judgment as to Stipulating Defendant Tasha
Pratcher.
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XIX.
Retention of Jurisdiction
IT IS FURTHER ORDERED that:
66. This Court will retain jurisdiction of this matter for purposes of
construction, modification, and enforcement of this Order.
IT ISSO ORDERED, £Zremher K_, 2020.
United States District Judge
Dismissal ()
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UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF GEORGIA,
ATLANTA DIVISION
CONSUMER FINANCIAL PROTECTION BUREAU,
Plaintiff,
Vv.
Civil Action No.
UNIVERSAL DEBT & PAYMENT SOLUTIONS, LLC, et al., 1:15-CV-0859-RWS
Defendants.
[PROPOSED] ORDER GRANTING JOINT MOTION BY CONSUMER FINANCIAL PROTECTION BUREAU AND VARINDERJIT BAGGA TO DISMISS THE BUREAU’S CLAIMS AGAINST VARINDERJIT BAGGA WITH PREJUDICE UNDER RULE 41(a)(2)
This matter having come before the Court on a Joint Motion by the Consumer Financial Protection Bureau and Varinderjit Bagga to Dismiss the Bureau’s Claims Against Varinderjit Bagga With Prejudice Under Fed. R. Civ. P. 41(a)(2), itis ORDERED that the motion is GRANTED upon the following terms and conditions:
1. The Preliminary Injunction (ECF No. 16) is modified to exclude V. Bagga and V. Bagga’s assets from its coverage.
2. The entry of this Order will have no issue- or claim-preclusive effect with respect to the pending cross-claim asserted by Cross-Claim Plaintiff EMS against Varinderjit Bagga.
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3. Each party will bear its own costs in connection with litigating the claims subject to this Order.
| 74 SO ORDERED this /0 day of __Zae~ , 2017.
HE HONORABLE RICHARD W. STORY UNITED STATES DISTRICT JUDGE
Judgment ()
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IN THE UNITED STATES DISTRICT CO NORTHERN DISTRICT OF GEORGIA
ATLANTA DIVISION CONSUMER FINANCIAL PROTECTION BUREAU,
Plaintiff, Civil Action No. 1:15-CV-0859-RWS
Vv.
UNIVERSAL DEBT & PAYMENT SOLUTIONS, LLC; et al.,
Defendants.
ORDER GRANTING PLAINTIFF’S MOTION FOR PERMANENT ___ INJUNCTION, CONSUMER REDRESS, AND CIVIL MONEY PENALTIES AGAINST DEFENDANTS MARCUS BROWN, SARITA BROWN, AND WNY ACCOUNT SOLUTIONS, LLC AND ENTERING FINAL JUDGMENT AGAINST THEM
As directed by the Court, Plaintiff, the Consumer Financial Protection Bureau (Bureau), has filed a Motion (Motion) for Permanent Injunctive Relief, Consumer Redress, and Civil Money Penalties and Entry of Final Judgment against Defendants Marcus Brown, Sarita Brown, and WNY Account Solutions, LLC (WNYAS) (collectively, Non-Defaulted Defendants). After considering the Bureau’s briefing in support of the Motion and the
entire record in this matter, the Court hereby orders that the Bureau’s
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Motion is GRANTED. The Court makes the following findings and enters the following Order:
FINDINGS
Procedural History
1. This is an action by the Bureau under (a) sections 1031, 1036, and 1054 of the Consumer Financial Protection Act of 2010 (CFPA), 12 U.S.C. §§ 5531, 5536, 5564; and (b) sections 806, 807, and 809 the Fair Debt Collection Practices Act (FDCPA), 15 U.S.C. §§ 1692-1692p. The Complaint, filed March 26, 3015, as amended by the Court’s order dated August 25, 2017 striking certain of the Bureau’s claims [ECF No. 435], seeks permanent injunctive relief, consumer redress, and civil money penalties against Defendants for their operation of a fraudulent debt collection scheme.
2. Early in the litigation, the following Defendants defaulted: Check & Credit Recovery, LLC, Credit Power, LLC, Universal Debt & Payment Solutions, LLC, Universal Debt Solutions, LLC, and WNY Solutions Group, LLC (hereinafter, Defaulted Defendants). ECF Nos. 150, 199.
3. Subsequently, the Bureau voluntarily dismissed its claims against Defendant V. Bagga and she was thereafter dismissed from the case
by order of the Court. ECF No. 449.
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4. On March 21, 2019, the Court issued a decision and order granting partial summary judgment to the Bureau on its claims [ECF No. 576] (Summary Judgment Order). The Summary Judgment Order held that the remaining Defendants, other than S Payment Processing & Solutions, LLC, were liable for violations of the CFPA and the FDCPA. The Court did not rule on the remedies to be imposed on the liable Defendants, namely whether and what kind of injunctive relief was warranted, whether civil penalties would be awarded, and whether it was appropriate to impose joint and several liability for consumer redress.
5. On February 16, 2020, the Court issued a decision and order (1) appointing a Receiver; (2) imposing contempt sanctions on certain Defendants for violations of the Preliminary Injunction Order [ECF No. 16], and (3) imposing supplemental contempt sanctions on an individual Defendant for continued violations of the Preliminary Injunction Order. ECF No. 624 (Receivership Order).
6. After issuance of the Summary Judgment Order, the following Defendants settled with the Bureau, resulting in the Court’s entry of stipulated judgments against them: Sumant Khan, S Payment Processing & Solutions, LLC, Mohan Bagga, and Tasha Pratcher. ECF Nos. No. 588, 599,
683.
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7. Following these settlements, the Bureau filed briefing and proposed orders on the remedies to be imposed on Individual Defendants Marcus Brown and Sarita Brown, WNYAS, and the Defaulted Defendants.
Findings of Fact
8. The Bureau has the authority under section 1055(a)(1) of the CFPA, 12 U.S.C. § 5565, and section 814 of the FDCPA, 15 U.S.C. § 16921, to seek the relief it has requested, and the Complaint states a claim upon which relief can be granted against the Non-Defaulted Defendants.
9, This Court has jurisdiction over the subject matter of this case and has jurisdiction over all the parties hereto, and venue in this district is proper.
10. Inthe Summary Judgment Order, the Court held that the Non- Defaulted Defendants violated the FDCPA and the CFPA by conducting a fraudulent debt collection scheme. ECF No. 576. The Court’s findings of fact in the Summary Judgment Order are hereby incorporated by reference in this Order.
11. Entry of this Order is in the public interest.
Violations of the CFPA and FDCPA 12. Defendants Marcus Brown and WNYAS are “covered persons” as
defined by the CFPA, 12 U.S.C. §§ 5481(6), (15)(A)(x).
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13. Marcus Brown is also a “related person,” and thus a “covered person,” because he served as an officer, sole and controlling owner, and/or agent of the LLC Defendants, who were covered persons, and he materially participated in the conduct of their affairs. 12 U.S.C. § 5481(25).
14. Defendants Marcus Brown and WNYAS are “debt collectors” collecting “debts,” as those terms are defined by the FDCPA, 15 U.S.C. §§ 1692a(6) & (5).
15. The LLC Defendants operated as a common enterprise under the criteria set forth in FTC v. WV Universal Mgmt. LLC, 877 F.3d 1234, 1240 (11th Cir. 2017) and FTC v. Nat'l Urological Grp., Inc., 645 F. Supp. 2d 1167, 1213 (N.D. Ga. 2008). The LLC Defendants shared officers and office space, operated under the common control of the individual Defendants, shared employees, transferred and commingled money at will between their bank accounts, and paid each other’s expenses. Each LLC Defendant played a role in the debt collection business and none could have operated it independently.
16. Marcus Brown and WNYAS violated sections 1031 and 1036(a)(1)(B) of the CFPA by their deceptive acts and practices in the course of collecting purported debt as found in the Summary Judgment Order.
17. Marcus Brown and WNYAS violated section 806 of the FDCPA,
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15 U.S.C. § 1692d, as found in the Summary Judgment Order, by engaging in practices “the natural consequence of which was to harass, oppress, or abuse” consumers in connection with the collection of a debt.
18. Marcus Brown and WNYAS violated section 807 of the FDCPA, 15 U.S.C. § 1692e, as found in the Summary Judgment Order, by employing “false, deceptive, or misleading representation[s] or mean[s] in connection with the collection of [] debts.”
19. Marcus Brown and WNYAS violated section 809 of the FDCPA, 15 U.S.C. § 1692g, by failing to furnish consumers with validation of debts, as found in the Summary Judgment Order.
20. Marcus Brown is liable under the CFPA and the FDCPA because he controlled, participated directly in, and knew about the deceptive, unfair, harassing, and abusive Debt Collection Activities of the LLC Defendants.
21. Sarita Brown violated the CFPA, 12 U.S.C. § 5536(a)(8), by “knowingly or recklessly provid{ing] substantial assistance to” covered persons UDPS, UDS, WNYAS, and Marcus Brown, as found in the Summary Judgment Order.
22. Each of the Non-Defaulted Defendants is jointly and severally liable, along with the Defaulted Defendants, for the violations enumerated
above.
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Remedies
23. The CFPA empowers this Court to grant any appropriate legal or equitable relief with respect to a violation of Federal consumer financial law, including refund of moneys, restitution, payment of damages or other monetary relief, injunctive relief, and civil money penalties. 12 U.S.C. § 5565.
24. Absent a permanent injunction, there is a reasonable likelihood that the Non-Defaulted Defendants will continue to engage in the unlawful conduct alleged in the Complaint or similar misconduct. The Non-Defaulted Defendants’ unlawful conduct justifies permanent injunctive relief.
25. The Bureau established through competent evidence that the financial harm to consumers from Defendants’ violations was at least $5,261,484.00, which is the amount paid to the LLC Defendants by consumers, net of chargebacks and refunds. As a result of prior settlements in this litigation, $77,536.29 has been paid to the Bureau by former Defendants for purposes of consumer redress. Therefore, the Bureau is entitled to a judgment for monetary relief in the amount of $5,183,947.71 against the remaining Defendants, which shall be used to compensate Affected Consumers (as defined below). The remaining Defendants are the
Non-Defaulted Defendants and Defaulted Defendants.
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26. The Non-Defaulted Defendants and the Defaulted Defendants are jointly and severally liable for the monetary relief awarded by the Court.
27. This action and the relief awarded by this Order are in addition to, and not in lieu of, other remedies as may be provided by law, including both civil and criminal remedies.
ORDER DEFINITIONS
The following definitions apply to this Order:
28. “Affected Consumer” means a person who made payments through credit and debit card transactions, which were not later refunded or otherwise credited, to the LLC Defendants, S Payment Processing & Solutions, LLC, or MC Processing, LLC between March 1, 2011 and March 30, 2015.
29. “Asset” means any legal or equitable interest in, right to, or claim to any real, personal, or intellectual property, including, but not limited to, chattel, goods, instruments, equipment, fixtures, general intangibles, effects, leaseholds, contracts, mail or other deliveries, shares of stock, commodities, futures, inventory, checks, notes, accounts, credits, receivables (as those terms are defined in the Uniform Commercial Code),
funds, cash, and trusts, including trusts held for the benefit of a person’s
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minor children or spouse, wherever located, whether in the United States or
abroad.
30.
“Assist[ing] Others” includes, but is not limited to:
a. consulting in any form whatsoever;
b. providing paralegal or administrative support services;
ce. performing customer service functions, including but not limited to, receiving or responding to consumer complaints;
d. formulating or providing, or arranging for the formulation or provision of, any advertising or marketing material, including but not limited to, any telephone sales script, direct mail solicitation, or the text of any Internet website, email, or other electronic communication or advertisement;
e. formulating or providing, or arranging for the formulation or provision of, any marketing support material or service, including but not limited to, web or Internet Protocol addresses or domain name registration for any Internet websites, affiliate marketing services, or media placement services;
f. providing names of, or assisting in the generation of,
potential customers;
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g. performing marketing, billing, or payment services of any kind; and h. acting or serving as an owner, officer, director, manager, or principal of any entity.
81. “Consumer” means an individual or an agent, trustee, or
representative acting on behalf of an individual. 12 U.S.C. § 5481(4).
32. “Consumer Financial Product or Service” is synonymous in
meaning and equal in scope to the definition of the term, as of the Effective
Date, in section 1002(5) of the CFPA, 12 U.S.C. § 5481(5), and, subject to
applicable restrictions contained in the CFPA, includes, but is not limited to:
a.
engaging in deposit-taking activities, transmitting or exchanging funds, or otherwise acting as a custodian of funds or any financial instrument for use by or on behalf of a consumer;
providing payments or other financial data processing products or services to a consumer by any technological means, including processing or storing financial or banking data for any payment instrument, or through any payments
systems or network used for processing payments data,
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including payments made through an online banking system or mobile telecommunications network; or
c. providing financial advisory services to consumers on individual financial matters or relating to proprietary financial products or services, including providing credit counseling to any consumer or providing services to assist a consumer with debt management or debt settlement, modifying the terms of any extension of credit, or avoiding
foreclosure.
33. “Debt” means any obligation or alleged obligation of a Consumer to pay money arising out of a transaction in which the money, property, insurance or services which are the subject of the transaction are primarily for personal, family, or household purposes, whether or not such obligation has been reduced to judgment. 15 U.S.C. § 1692a(5).
34. “Debt Collector” means (i) any Person who uses an instrumentality of interstate commerce or the mail in any business the principal purpose of which is the collection of Debts or who regularly collects or attempts to collect, directly or indirectly, Debts owed or due or asserted to
be owed or due another; (ii) any creditor who, in the process of collecting its
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own Debts, uses any name other than its own that would indicate that a third Person is collecting or attempting to collect the creditor’s Debts; and (iii) any Person who collects Debt related to any consumer financial product or service.
35. “Defaulted Defendants” means Check & Credit Recovery, LLC, Credit Power, LLC, Universal Debt & Payment Solutions, LLC, Universal Debt Solutions, LLC, and WNY Solutions Group, LLC.
36. “Effective Date” means the date on which this Order is issued.
37, “Enforcement Director” means the Assistant Director of the Office of Enforcement for the Consumer Financial Protection Bureau.
38. “LLC Defendants” means Check & Credit Recovery, LLC, Credit Power, LLC, Universal Debt & Payment Solutions, LLC, Universal Debt Solutions, LLC, WNY Solutions Group, LLC, and WNY Account Solutions, LLC.
39. “Non-Defaulted Defendants” means Marcus Brown, Sarita Brown, and WNY Account Solutions, LLC, individually, collectively, or in any combination, and their successors and assigns.
40. “Non-Defaulted Individual Defendants” means Marcus Brown and Sarita Brown, individually or collectively, and their successors and —
assigns.
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41. “Person” means an individual, partnership, company, corporation, association (incorporated or unincorporated), trust, estate,
cooperative organization, or other entity.
42. “Receiver” means Mark J. Bernet or any successor approved by the Court.
43. “Receivership Assets” are those Assets included in the
Receivership Estate as defined in the Receivership Order.
44, “Receivership Entities’ means the Defaulted Defendants, WNY Account Solutions, LLC, Real Estate of Distinction, LLC, and Rx Office Solutions, LLC, individually, collectively, or in any combination, and any other entity that meets the definition of a Receivership Entity as defined in the Receivership Order.
45. “Receivership Estate” means the Receivership Estate as defined in the Receivership Order.
46. “Receivership Order” means the Court’s order entered February 19, 2020, ECF No. 684, which, inter alia, appointed the Receiver and created a Receivership Estate over the Assets of the Receivership Entities.
47. “Related Consumer Action” means a private action by or on
behalf of one or more consumers or an enforcement action by another
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governmental agency brought against any Non-Defaulted Defendant based
on substantially the same facts as described in the Bureau’s Complaint.
CONDUCT RELIEF
I.
Permanent Ban on Debt Collection
IT IS ORDERED that:
48. Each of the Non-Defaulted Defendants, whether acting directly or indirectly, is permanently restrained and enjoined from or Assisting Others in:
a. acting as a Debt Collector;
b. holding any ownership interest in (i) a Debt Collector or Gi) a payment processor to a Debt Collector;
c. receiving any remuneration or other consideration from (i) a Debt Collector or (ii) a payment processor to a Debt Collector if the remuneration or consideration relates to the collection of Debts;
d. providing services or assistance to, or working in any capacity for, a Debt Collector, including but not limited to acting asa
Service Provider, employee, or independent contractor to a
Debt Collector; and
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e. advertising, marketing, promoting, offering for sale, processing payments for, selling, or buying any Debt or consumer information relating to a Debt.
Nothing in this Order shall be read as an exception to this Paragraph. II.
Prohibition on Misrepresentations Concerning Consumer Financial Products or Services
IT IS FURTHER ORDERED that:
49. Non-Defaulted Defendants and their officers, agents, servants, employees, and attorneys, and all other persons in active concert or participation with Non-Defaulted Defendant who have actual notice of this Order, whether acting directly or indirectly, in connection with any Consumer Financial Product or Service, are permanently restrained and enjoined from misrepresenting, omitting, or Assisting Others in misrepresenting or omitting, expressly or by implication, any material fact, including but not limited to:
a. a business name or identity;
b. that any Person is an attorney or is barred or licensed to
practice law in a particular jurisdiction;
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c. that any Person who is not associated or affiliated with an attorney or law firm is affiliated or associated with an attorney or law firm;
d. that a Consumer will receive legal representation;
e. how much a Consumer will save from purchasing, using, or enrolling in a Consumer Financial Product or Service;
f. how long it will take to settle any Debts;
g. the likelihood of any particular outcome or result from a Consumer Financial Product or Service: or
h. the nature or terms of any refund, cancellation, exchange, or repurchase policy, including but not limited to the likelihood of a Consumer obtaining a full or partial refund, or the circumstances in which a full or partial refund will be provided to the Consumer.
TIT.
Prohibition on Unfair Practices Involving Consumer Financial Products or Services
IT IS FURTHER ORDERED that:
50. Non-Defaulted Defendants and their officers, agents, servants,
employees, and attorneys, and all other persons in active concert or
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participation with the Non-Defaulted Defendants who have actual notice of this Order, whether acting directly or indirectly, in connection with any Consumer Financial Product or Service, are permanently restrained and enjoined from or Assisting Others in:
a. Placing telephone calls to consumers without meaningful disclosure of the caller’s identity; and b, Concealing their identity by causing “000-000-0000” or any other false or misleading information to appear ona consumer’s caller identification.
IV.
Prohibition on Business Ventures with Other Defendants IT IS FURTHER ORDERED that:
51. Non-Defaulted Defendants, whether acting directly or indirectly, are permanently restrained and enjoined from investing in, providing services to, working for, serving as an officer of, or being otherwise engaged
in any business venture or project involving any other Defendant.
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V.
Consumer Information IT IS FURTHER ORDERED that:
52. Non-Defaulted Defendants and their officers, agents, servants, employees, and attorneys, and all other Persons in active concert or participation with the Non-Defaulted Defendants who receive actual notice of this Order, whether acting directly or indirectly, are permanently restrained and enjoined from disclosing, using, or benefitting from Consumer information, including names, addresses, telephone numbers, email addresses, social security numbers, other identifying information, or any data that enables access to a Consumer’s account (including a credit card, bank account, or other financial account), that any Non-Defaulted Defendant obtained before the Effective Date in connection with the collection of Debt; provided however, that such consumer information may be disclosed if requested by a government agency or required by law, regulation, or court order.
VI.
Prohibition on Debiting Consumers’ Financial Accounts 58. Non-Defaulted Defendants and their officers, agents, servants,
employees, and attorneys, and all other Persons in active concert or
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participation with the Non-Defaulted Defendants who have actual notice of this Order, whether acting directly or indirectly, in connection with any Consumer Financial Product or Service, are hereby permanently restrained and enjoined from causing debits to be made from any consumer’s bank or other financial account, and from billing any consumer for any charge, without the consumer’s express, informed consent. VIL.
Prohibition on Certain Merchant Processing Activities
IT IS FURTHER ORDERED that:
54, Non-Defaulted Defendants and their officers, agents, servants,
employees, and attorneys, and all other Persons in active concert or
participation with the Non-Defaulted Defendants who receive actual notice of
this Order, whether acting directly or indirectly, are permanently restrained
and enjoined from allowing third parties to use any merchant processing
account that a Non-Defaulted Defendant owns or controls to collect consumer
payments.
55. The Non-Defaulted Defendants and their officers, agents,
servants, employees, and attorneys, and all other persons in active concert or
participation with the Non-Defaulted Defendants who have actual notice of
this Order, whether acting directly or indirectly, are permanently restrained
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and enjoined from re-opening or using the following merchant payment processing accounts associated with the unlawful debt collection scheme: account numbers 8788370013263 and 8788370013280 with Frontline Processing Corporation, account numbers 5644000000476853, 564400000618298, 564400000641183, and 564400000735647 with Francis David Corporation d/b/a/ Electronic Merchant Systems, account numbers 8788730001893 and 8788730002232 with Pathfinder Payment Solutions, Inc., and account numbers 4445017408336 and 445017416651 with Vantiv,
Inc. d/b/a PaidSuite.
MONETARY PROVISIONS VIII.
Order to Pay Redress
IT IS FURTHER ORDERED that:
56. Ajudgment for monetary relief is entered in favor of the Bureau and against the Non-Defaulted Defendants, jointly and severally with the Defaulted Defendants, in the amount of $5,183,947.71 for their violations of sections 1031 and 1036(a)(1)(B) of the CFPA, 12 U.S.C, §§ 5531,
-5536(a)(1)(B); and sections 806, 807, and 809 of the FDCPA, 15 U.S.C.
§§1692d, 1692e, and 1692¢.
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57. The Non-Defaulted Defendants must pay a total of $5,183,947.71 by wire transfer to the Bureau or to the Bureau’s agent, in compliance with the Bureau's wiring instructions.
58. The monetary judgment set forth in Paragraph 56 is enforceable against any Asset owned by, on behalf of, for the benefit of, or in trust by or for any of the Non-Defaulted Defendants. Any Receivership Assets or Assets subject to the Preliminary Injunction that the Receiver liquidates, with the permission of the Court, and pays to the Bureau for purposes of consumer redress will be deemed to satisfy the money judgment set forth in Paragraph 56 in part or in whole depending on the value of the Receivership Assets so paid.
59. Any funds received by the Bureau in satisfaction of this judgment will be deposited into a fund or funds administered by the Bureau or to the Bureau's agent according to 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.
60. Ifthe Bureau determines, in its sole discretion, that redress to consumers is wholly or partially impracticable or if funds remain after
redress is completed, the Bureau will deposit any remaining funds in the U.S.
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Treasury. The Non-Defaulted Defendants will have no right to challenge any actions that the Bureau or its representatives may take under this Section.
61. Payment of redress to any Affected Consumer under this Order _may not be conditioned on the Affected Consumer waiving any right.
IX.
Order To Pay Civil Money Penalty IT IS FURTHER ORDERED that:
62. Under Section 1055(c) of the CFPA, 12 U.S.C. § 5565(c), by reason of the violations of law described in this Order, and taking into account the factors in 12 U.S.C. § 5565(c)(8), the Non-Defaulted Defendants must pay civil money penalties to the Bureau as follows:
a. Marcus Brown must pay $15,000;
b. Sarita Brown must pay $1,000; and c. WNYAS must pay $500,000.
63. In setting the civil penalties for the individual Non-Defaulted Defendants, the Court has considered their limited ability to pay based on the Declaration of the Receiver. ECF No. 715-3 at 8 & 9. Non-Defaulted Defendants must pay their respective civil penalty amounts set forth in Paragraph 62 by wire transfer to the Bureau or to the Bureau’s agent in
compliance with the Bureau’s wiring instructions.
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64. The civil money penalties paid under this Order will be deposited in the Civil Penalty Fund of the Bureau as required by section 1017(d) of the CFPA, 12 U.S.C. § 5497(d).
65. The Non-Defaulted Defendants must treat the civil money penalties paid under this Order as penalties paid to the government for all purposes. Regardless of how the Bureau ultimately uses those funds, the Non-Defaulted Defendants may not: (a) claim, assert, or apply for a tax deduction, tax credit, or any other tax benefit for any civil money penalty paid under this Order; or (b) seek or accept, directly or indirectly, reimbursement or indemnification from any source, including but not limited to payment made under any insurance policy, with regard to any civil money penalty paid under this Order.
66. To preserve the deterrent effect of the civil money penalties in any Related Consumer Action, the Non-Defaulted Defendants may not argue that any Non-Defaulted Defendant is entitled to, nor may any Non-Defaulted Defendant benefit by, any offset or reduction of any compensatory monetary remedies imposed in the Related Consumer Action because of the civil money penalties paid in this action or because of any payment that the Bureau makes from the Civil Penalty Fund (Penalty Offset). If the court in any
Related Consumer Action grants such a Penalty Offset to any Non-Defaulted
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Defendant, the Non-Defaulted Defendant must, within 30 days after entry of a final order granting the Penalty Offset, notify the Bureau, and pay the amount of the Penalty Offset to the U.S. Treasury. Such a payment will not | be considered an additional civil money penalty and will not change the amount of the civil money penalties imposed in this action. X.
Additional Monetary Provisions
IT IS FURTHER ORDERED that:
67. Inthe event of default on any Non-Defaulted Defendant's obligations to make payment under this Order, interest, computed under 28 U.S.C. § 1961, as amended, will accrue on any outstanding amounts not paid from the date of termination of the Receivership to the date of payment, and will immediately become due and payable.
68. The Non-Defaulted Defendants 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 the Non-Defaulted Defendants.
69. The facts alleged in the Complaint will be taken as true and be given collateral estoppel effect, without further proof, in any proceeding based on the entry of the Order, or in any subsequent civil litigation by or on
behalf of the Bureau in a proceeding to enforce its rights to any payment or
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monetary judgment under this Order, such as a nondischargeability complaint in any bankruptcy case.
70. The facts alleged in the Complaint establish all elements necessary to sustain an action by the Bureau under to section 523(a)(2)(A) of the Bankruptcy Code, 11 U.S.C. § 523(a)(2)(A), and for such purposes this Order will have collateral estoppel effect against each Non-Defaulted Defendant, even in such Non-Defaulted Defendant’s capacity as debtor-inpossession.
71. Under 31 U.S.C. § 7701, each Non-Defaulted Defendant, unless it already has done so, must furnish to the Bureau its taxpayer identifying numbers, which may be used for purposes of collecting and reporting on any delinquent amount arising out of this Order.
72. Within 30 days of the entry of a final judgment, consent order, or settlement in a Related Consumer Action against any Non-Defaulted Defendant, the Non-Defaulted Defendant must notify the Enforcement Director of the final judgment, consent order, or settlement in writing. That notification must indicate the amount of redress, if any, that the Non- Defaulted Defendant 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. To preserve the deterrent effect of the civil money penalty in any
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Related Consumer Action, Non-Defaulted Defendants may not argue that Defendant is entitled to, nor may Non-Defaulted Defendants benefit by, any offset or reduction of any monetary remedies imposed in the Related Consumer Action because of the civil money penalty paid in this action or because of any payment that the Bureau makes from the Civil Penalty Fund. If the court in any Related Consumer Action offsets or otherwise reduces the amount of compensatory monetary remedies imposed against the Non- Defaulted Defendants based on the civil money penalty paid in this action or based on any payment that the Bureau makes from the Civil Penalty Fund, the Non-Defaulted Defendants must, within 30 days after entry of a final order granting such offset or reduction, notify the Bureau and pay the amount of the offset or reduction to the U.S. Treasury. Such a payment will not be considered an additional civil money penalty and will not change the amount of the civil money penalty imposed in this action. XI.
Assets Subject to Preliminary Injunction
IT IS FURTHER ORDERED that:
73. To the extent they have not done so already, the Non-Defaulted Defendants are ordered to forfeit to the Receiver all rights and claims they
have to any Assets frozen by the Court’s Preliminary Injunction Order. To the
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extent those Assets are released by order of the Court and paid by the Receiver to the Bureau, or liquidated by the Receiver with the Court’s permission with the proceeds paid to the Bureau, to provide redress for Affected Consumers, the funds received by the Bureau will be considered payments made by the Non-Defaulted Defendants in partial satisfaction of the judgment ordered in Paragraph 56.
74. Upon completion of the requirement in Paragraph 73 and all payments required under Sections VII and IX of this Order, the Preliminary Injunction will be modified to exclude the Non-Defaulted Defendants and their Assets from its coverage.
COMPLIANCE PROVISIONS XII.
Reporting Requirements
IT IS FURTHER ORDERED that:
75. Hach Non-Defaulted Individual Defendant must notify the Bureau of any development that may affect compliance obligations arising under this Order, including but not limited to, a dissolution, assignment, sale, merger, or other action that would result in the emergence of a successor company; the creation or dissolution of a subsidiary, parent, or
affiliate that engages in any acts or practices subject to this Order; the filing
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of any bankruptcy or insolvency proceeding by or against any Non-Defaulted
Individual Defendant; or a change in a Non-Defaulted Individual Defendant’s
name or address. The Non-Defaulted Individual Defendants must provide
this notice, if practicable, at least 30 days before the development, but in any
case no later than 14 days after the development.
76.
Within 7 days of the Effective Date, the Non-Defaulted Individual
Defendants must:
a.
Identify each Non-Defaulted Individual Defendant’s telephone numbers and all email, Internet, physical, and postal addresses, including all residences;
Designate. at least one telephone number and email, physical, and postal address as points of contact, which the Bureau may use to communicate with each;
Identify all businesses for which each Non-Defaulted Individual Defendant is the majority owner, or that each Non- Defaulted Individual Defendant directly or indirectly controls, by all of their names, telephone numbers, and physical, postal, email, and Internet addresses; and
Describe in detail each Non-Defaulted Individual Defendant’s
involvement in any business for which he performs services in
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any capacity or which he wholly or partially owns, including each Non-Defaulted Individual Defendant’s title, role, responsibilities, participation, authority, control, and ownership.
77. The Non-Defaulted Individual Defendants must report any change in the information required to be submitted under this Section at least 30 days before the change or as soon as practicable after the learning about the change, whichever is sooner.
78. Within 90 days of the Effective Date, and again one year after the Effective Date, each Non-Defaulted Individual Defendant must submit to the Enforcement Director an accurate written compliance progress report (Compliance Report), which, at a minimum:
a. Lists each applicable paragraph and subparagraph of the Order and describes in detail the manner and form in which the Non-Defaulted Individual Defendant has complied with each such paragraph and subparagraph of this Order;
b. Attaches a copy of each Order Acknowledgment obtained under Section XIII, unless previously submitted to the
Bureau.
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XII.
Order Distribution and Acknowledgment IT IS FURTHER ORDERED that:
79. Within 7 days of the Effective Date, each Non-Defaulted Individual Defendant must submit to the Enforcement Director an acknowledgment of receipt of this Order, sworn under penalty of perjury.
80. Within 30 days of the Effective Date, each Non-Defaulted Individual Defendant must deliver a copy of this Order to each of its board members and executive officers.
81. For 5 years from the Effective Date, each Non-Defaulted Individual Defendant must deliver a copy of this Order to any business entity resulting from any change in structure referred to in Section XII, any future board members and executive officers before they assume their responsibilities.
82. Each Non-Defaulted Individual Defendant must secure a signed and dated statement acknowledging receipt of a copy of this Order, ensuring
that any electronic signatures comply with the requirements of the E-Sign Act, 15 U.S.C. §§ 7001-7006, within 30 days of delivery, from all persons
receiving a copy of this Order under this Section.
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83. Within 90 days of the Effective Date, each Non-Defaulted Individual Defendant must provide the Bureau with a list of all persons and their titles to whom this Order was delivered through that date under Paragraphs 80 and 81, and a copy of all signed and dated statements acknowledging of receipt of this Order under Paragraph 82.
XIV.
Recordkeeping
IT IS FURTHER ORDERED that:
84. The Non-Defaulted Individual Defendants must create, or if already created, must retain for the duration of the Order, all documents and records necessary to demonstrate full compliance with each provision of this Order, including all submissions to the Bureau.
XV.
Notices IT IS FURTHER ORDERED that:
85. Unless otherwise directed in writing by the Bureau, the Non- Defaulted Individual Defendants must provide all submissions, requests, communications, or other documents relating to this Order in writing, with
the subject line, “CFPB v. Universal Debt & Payment Solutions, LLC, Case
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No. 1:15-cv-859,” and send them by overnight courier or first-class mail to the below address and contemporaneously by email to [email protected]:
Assistant Director for Enforcement Consumer Financial Protection Bureau ATTENTION: Office of Enforcement 1700 G Street, N.W.
Washington D.C. 20552
XVI.
Cooperation with the Bureau and the Receiver
IT IS FURTHER ORDERED that:
86. The Non-Defaulted Defendants must cooperate fully to help the Bureau and the Receiver determine the identity and location of, and the amount of injury sustained by, each Affected Consumer. The Non-Defaulted Defendants must provide such information in its or its agents’ possession or control within 14 days of receiving a written request from the Bureau or the Receiver.
87. The Non-Defaulted Defendants must cooperate fully with the Bureau in this matter and in any investigation related to or associated with the conduct described in the Complaint, the Court’s order granting summary
judgment to the Bureau [ECF No. 576], or the Findings herein. The Non-
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Defaulted Defendants must provide truthful and complete information, evidence, and testimony. The Non-Defaulted Defendants must cause their officers, employees, representatives, or agents to appear for interviews, discovery, hearings, trials, and any other proceedings that the Bureau may reasonably request upon 15 days written notice, or other reasonable notice, at such places and times as the Bureau may designate, without the service of compulsory process.
XVII.
Compliance Monitoring
IT IS FURTHER ORDERED that, to monitor the Non-Defaulted Defendants’ compliance with this Order:
88. Within 14 days of receiving a written request from the Bureau, each Non-Defaulted Defendant must submit additional Compliance Reports or other requested information, which must be made under penalty of perjury; provide sworn testimony; or produce documents.
89. For purposes of this Section, the Bureau may communicate directly with each Non-Defaulted Defendant, unless the Non-Defaulted Defendant retains counsel related to these communications.
90. The Non-Defaulted Defendants must permit Bureau
representatives to interview any employee or other person affiliated with any
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Non-Defaulted Defendant who has agreed to such an interview regarding: (a) this matter; (b) anything related to or associated with the conduct described in the Complaint, the Court’s order granting summary judgment to the Bureau (ECF No. 576), or the Findings herein or (c) compliance with this Order. The person interviewed may have counsel present.
91. Nothing in this Order limits the Bureau’s lawful use of compulsory process, pursuant to 12 C.F.R. § 1080.6 or other compulsory process.
XVIII.
Continuity of Receivership IT IS FURTHER ORDERED that:
92. The Receivership Order shall continue as modified by this Section.
93. No later than one hundred and eighty (180) days from the Effective Date, the Receiver shall file and serve on the parties a report to the Court (Final Report) that details the steps taken to collect and administer the Receivership Assets. The Final Report must include an accounting of the Receivership Assets and a description of what other actions, if any, must be taken to wind down the Receivership Estate (as defined in the Receivership
Order) and to dissolve the Receivership Entities under their respective state
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laws of incorporation. At the time of filing the Final Report, the Receiver shall also file an application for final payment of compensation and expenses associated with its performance of its duties as Receiver. The Court will review the final payment application and any objections thereto and, absent a | valid objection, will issue an order directing that the Receiver:
a. Pay from the Receivership Estate the reasonable costs and expenses of administering the Receivership Estate, including compensation of the Receiver and the Receiver’s personnel and the actual out-of-pocket costs incurred by the Receiver in carrying out his duties; and
b. After making the payments referenced in Paragraph 93(a), pay all funds remaining in the Receivership Estate to the Bureau within ten (10) days by wire transfer to the Bureau or to the Bureau’s agent, and according to the Bureau’s wiring instructions, for the purpose of paying the monetary judgment and penalties set forth in this Order.
94. Ifthe Receiver believes that the Receivership Estate cannot be liquidated or that adequate consumer transaction information for purposes of redress cannot be obtained within one hundred and eighty (180) days of the
Effective Date, or if the Receiver believes that additional actions need to be
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taken more than one hundred and eighty (180) days after the Effective Date, the Receiver will move the Court for an appropriate extension of the Receivership and the deadline to file the Final Report.
95. Until the date the Court issues an order based on the Receiver’s Final Report, if there is any final judgment, consent order, or settlement in a Related Consumer Action, the Receiver must notify the Enforcement Director of the final judgment, consent order, or settlement in writing. That notification must indicate the amount of redress, if any, that any Receivership Entity 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.
96. Upon the transfer of funds to the Bureau pursuant to this
Section, the Receivership will be terminated.
XIX, Entry of Judgment IT IS FURTHER ORDERED that:
97. There being no just reason for delay of entry of this judgment, under Federal Rule of Civil Procedure 54(b), the Clerk will immediately enter
this Order as a final judgment as to the Non-Defaulted Defendants.
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XX, Retention of Jurisdiction IT IS FURTHER ORDERED that:
98. All pending motions are hereby denied as moot. 99. This Court retains jurisdiction of this matter for purposes of construction, modification, and enforcement of this Order. XXII.
Service IT IS FURTHER ORDERED that:
100. This Order may be served upon the Non-Defaulted Defendants by electronic mail, certified mail, or United Parcel Service, either by the United
States Marshal, the Clerk of the Court, or any representative or agent of the
Bureau.
Ai SO ORDERED this W day of LEY , 2021.
DQttttrs
PAE HONORABLE RICHARD. STORY _ UNITED STATES DISTRICT JUDGE
Judgment ()
PDF of this document (33 pages)
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IN THE UNITED STATES DISTRICT COUP NORTHERN DISTRICT OF GEORGIA
ATLANTA DIVISION CONSUMER FINANCIAL PROTECTION BUREAU, Plaintiff, Civil Action No. 1:15-CV-0859-RWS
V.
UNIVERSAL DEBT & PAYMENT SOLUTIONS, LLC; et al.
Defendants.
DEFAULT JUDGMENT AND FINAL ORDER FOR PERMANENT INJUNCTION, CONSUMER REDRESS, AND CIVIL MONEY PENALTIES AGAINST DEFENDANTS CHECK & CREDIT RECOVERY, LLC, CREDIT POWER, LLC, UNIVERSAL DEBT & PAYMENT SOLUTIONS, LLC, UNIVERSAL DEBT SOLUTIONS, LLC,
AND WNY SOLUTIONS GROUP, LLC
Plaintiff Consumer Financial Protection Bureau (Bureau) filed a Complaint on March 26, 2015, seeking a permanent injunction and other relief, under (a) sections 1031, 1036, and 1054 of the Consumer Financial Protection Act of 2010, 12 U.S.C. §§ 5531, 5536, 5564 (CFPA); and (b)
sections 806, 807, and 809 the Fair Debt Collection Practices Act, 15 U.S.C.
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§§ 1692-1692p (FDCPA).
The Bureau’s Complaint and summons was served on the abovereferenced Defendants (collectively, Defaulted Defendants) on or about March 31, 2015. ECF No. 20. The Defaulted Defendants other than Universal Debt & Payment Solutions, LLC did not file either an answer or a motion to dismiss the Complaint within 21 days of service of the Complaint. Universal Debt & Payment Solutions, LLC filed an answer but after its counsel withdrew, it failed to retain new counsel. Accordingly, the Clerk entered default against the Defaulted Defendants pursuant to Federal Rule of Civil Procedure 55(a). ECF Docket Entry dated 09/02/2015 (Clerk’s Entry of Default as to Check & Credit Recovery, LLC, Credit Power, LLC, Universal Debt Solutions, LLC, WNY Solutions Group, LLC) (text modified by Clerk on 9/8/2015); ECF No. 199 (Order ruling Universal Debt & Payment Solutions, LLC to be in default); ECF No. 200 (Clerk’s Default Judgment Order) (both entered 11/24/15).
On February 20, 2020, the Court appointed a Receiver over the Assets of the Defaulted Defendants and certain other entities.
The Bureau now moves this Court for entry of a judgment by default and determination of remedies pursuant to Federal Rule of Civil Procedure
55(b)(2), against the Defaulted Defendants. The Court, having considered
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the memoranda and exhibits filed in support of said motion, its order granting summary judgment to the Bureau as to certain Defendants (ECF No. 576), and all other pleadings and filings in this action, GRANTS the Bureau’s Motion and HEREBY ORDERS, ADJUDGES, AND DECREES as follows:
FINDINGS
1. This is an action by the Bureau instituted under (a) sections 1031, 1036, and 1054 of the Consumer Financial Protection Act of 2010, 12 U.S.C. §§ 5531, 5536, 5564 (CFPA); and (b) sections 806, 807, and 809 the Fair Debt Collection Practices Act, 15 U.S.C. §§ 1692-1692p (FDCPA). The Complaint seeks both permanent injunctive relief, consumer redress, and civil money penalties for the Defendants’ violations of the CFPA and FDCPA.
2. This Court has subject-matter jurisdiction over this action because it is brought under federal consumer financial law, 12 U.S.C. § 5565(a)(1), presents a federal question, 28 U.S.C. § 1331, and is brought by an agency of the United States, 28 U.S.C. § 1345.
3. Venue is proper in this District because defendants do business in this District and the events or omissions giving rise to this complaint
substantially took place in this District. 28 U.S.C. § 1391(b) and 12 U.S.C. §
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5564(f).
4, The Bureau has the authority under the CFPA and FDCPA to seek the relief it has requested. 12 U.S.C. § 5491 (a); 12 U.S.C. 5565; 12 U.S.C. §§ 5564(a), (b); 15 U.S.C. § 16921(b)(6).
5. The Complaint states claims upon which relief can be granted.
6. The Defaulted Defendants were each properly served with a Summons and the Complaint.
7. The Defaulted Defendants failed to answer the Complaint or to defend the action. The clerk of the Court has entered default against each of them.
8. Because of their defaults, the Defaulted Defendants are each deemed to have admitted the well-pleaded facts of the Complaint, and the allegations are taken as true. Fed. R. Civ. P. 8.
9. Entry of this Order is in the public interest.
Violations of the CFPA and the FDCPA
10. The Defaulted Defendants are “covered persons” under the CFPA. 12 U.S.C. § 5481(6).
11. The Defaulted Defendants are “debt collectors” collecting “debts,” as those terms are defined by the FDCPA, 15 U.S.C. §§ 1692a(6) & (5).
12. The Defaulted Defendants and WNY Account Solutions, LLC
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(collectively, the “LLC Defendants”) operated as a common enterprise under the criteria set forth in FTC v. WV Universal Mgmt. LLC, 877 F.3d 1234, 1240 (11th Cir. 2017) and FTC v. Nat'l Urological Grp., Inc., 645 F. Supp. 2d 1167, 1182 (N.D. Ga. 2008), aff'd, 356 F. Appx 358 (11th Cir. 2009). The LLC Defendants shared officers and office space, operated under the common control of the individual Defendants, shared employees, transferred and commingled money at will between their bank accounts, and paid each others’ expenses. Each LLC Defendant played a role in the debt collection business and none could have operated it independently.
13. Each of the Defaulted Defendants is jointly and severally liable for the acts and practices alleged in the Complaint.
14. As alleged in Count V of the Complaint, the Defaulted Defendants used false and misleading representations to collect debts, including representations that: consumers owed debts that in fact they did not owe or that the Defaulted Defendants had no authority to collect; the Defaulted Defendant’s debt collectors were “litigators”; consumers were liable for bank or check fraud; the Defaulted Defendants had filed, or intended to file legal actions against consumers, and the Defaulted Defendants would have consumers arrested. These false and misleading representations were
likely to mislead consumers acting reasonably under the circumstances.
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Therefore, the Defaulted Defendants’ acts and practices were deceptive in violation of the CFPA, 12 U.S.C. §§ 5531(a), 5536.
15. As alleged in the Complaint’s Count VI, the Defaulted Defendants’ practices described above were also unfair, in violation of the CFPA, 12 U.S.C. §§ 5531 (a), 5536. The Defaulted Defendants’ practices caused substantial injury to consumers which was not reasonably avoidable by consumers, and such substantial injury was not outweighed by countervailing benefits to consumers or to competition. re U.S.C. § 5531(c)(1).
16. As alleged in Counts I, IT, and III of the Complaint, in making the above representations, the Defaulted Defendants also: (a) falsely represented or implied that nonpayment of a debt would result in the arrest or imprisonment of a person, in violation of section 807(4) of the FDCPA, 15 U.S.C. § 1592e(4); and b) threatened to take actions that Defendant did not intend to take, such as filing a lawsuit in violation of section 807(5) of the FDCPA, 15 U.S.C. § 1692e(5). In addition, the Defaulted Defendants failed to send a written notice validating the amount of the debt and the creditor and supplying certain other information required by the FDCPA, in violation of section 809 of the FDCPA, 15 U.S.C. § 1692g.
17. Section 1036(a)(1)(A) of the CFPA provides that it is “unlawful
for any covered person to offer or provide to a consumer any financial product
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or service not in conformity with Federal consumer financial law, or otherwise commit any act or omission in violation of a Federal consumer financial law.” 12 U.S.C. § 5536(a)(1)(A). The FDCPA is a Federal consumer financial law. 12 U.S.C. § 5481(12)(H), (14). The Defaulted Defendants’ violations of the FDCPA constitute violations of section 1036(a)(1)(A) of the CFPA, 12 U.S.C. § 5536(a)(1)(A).
18. Given the Complaint’s well-pleaded allegations, the Court’s finding and conclusions in its order granting summary judgment to the Bureau (ECF No. 576), and the Defaulted Defendants’ failure to answer or defend in this action, the Court enters a default judgment against the Defaulted Defendants for their violations of sections 1031, 1036, and 1054 of the CFPA, 12 U.S.C. §§ 5531, 5536, 5564; and sections 806, 807, and 809 of the FDCPA, 15 U.S.C. §§ 1692-1692p.
Remedies
19. The CFPA empowers this Court to order grant any appropriate legal or equitable relief with respect to a violation of Federal consumer financial law, including refund of moneys, restitution, payment of damages or other monetary relief, injunctive relief, and civil money penalties. 12 U.S.C. § 5565.
20. Absent a permanent injunction, there is a reasonable
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likelihood that the Defaulted Defendants will continue to engage in the unlawful conduct alleged in the Complaint or similar misconduct. The Defaulted Defendants’ unlawful conduct as alleged in the Complaint justifies permanent injunctive relief.
21. The Bureau established through competent evidence that the financial harm to consumers from Defendants’ violations was at least $5,261,484.00 which is the amount paid to the LLC Defendants by consumers, net of chargebacks and refunds. As a result of prior settlements in this litigation, $77,536.29 has been paid to the Bureau by former Defendants for purposes of consumer redress. Therefore, the Bureau is entitled to a judgment for monetary relief in the amount of $5, 183,947.71 against the remaining Defendants, which shall be used to compensate Affected Consumers (as defined below). The remaining Defendants are the Defaulted Defendants and the Non-Defaulted Defendants WNY Account Solutions, LLC, Marcus Brown, and Sarita Brown.
92. The Defaulted Defendants and the Non-Defaulted Defendants are jointly and severally liable for the monetary relief awarded by the Court.
23. This action and the relief awarded by this Order are in addition
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to, and not in lieu of, other remedies as may be provided at law, including
both civil and criminal remedies.
ORDER DEFINITIONS
The following definitions apply to this Order:
24. “Affected Consumer” means a person who made payments through credit and debit card transactions, which were not later refunded or otherwise credited, to the LLC Defendants, S Payment Processing & Solutions, LLC, or MC Processing, LLC between March 1, 2011 and March 30, 2015.
25. “Asset” means any legal or equitable interest in, right to, or claim to any real, personal, or intellectual property, including, but not limited to, chattel, goods, instruments, equipment, fixtures, general intangibles, effects, leaseholds, contracts, mail or other deliveries, shares of stock, commodities, futures, inventory, checks, notes, accounts, credits, receivables (as those terms are defined in the Uniform Commercial Code), funds, cash, and trusts, including trusts held for the benefit of a person’s minor children or spouse, wherever located, whether in the United States or
abroad.
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26. “Assist[ing] Others” includes, but is not limited to:
a.
b.
consulting in any form whatsoever;
providing paralegal or administrative support services; performing customer service functions, including but not limited to, receiving or responding to consumer complaints; formulating or providing, or arranging for the formulation or provision of, any advertising or marketing material, including but not limited to, any telephone sales script, direct mail solicitation, or the text of any Internet website, email, or other electronic communication or advertisement; formulating or providing, or arranging for the formulation or provision of, any marketing support material or service, including but not limited to, web or Internet Protocol addresses or domain name registration for any Internet websites, affiliate marketing services, or media placement services;
providing names of, or assisting in the generation of, potential customers;
performing marketing, billing, or payment services of any
kind; and
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h. acting or serving as an owner, officer, director, manager, or
principal of any entity.
27. “Consumer” means an individual or an agent, trustee, or representative acting on behalf of an individual. 12 U.S.C. § 5481(4).
28. “Consumer Financial Product or Service” is synonymous in meaning and equal in scope to the definition of the term, as of the Effective Date, in section 1002(5) of the CFPA, 12 U.S.C. § 54816), and, subject to applicable restrictions contained in the CFPA, includes, but is not limited to:
a. engaging in deposit-taking activities, transmitting or exchanging funds, or otherwise acting as a custodian of funds or any financial instrument for use by or on behalf of a consumer;
b. providing payments or other financial data processing products or services to a consumer by any technological means, including processing or storing financial or banking data for any payment instrument, or through any payments systems or network used for processing payments data, including payments made through an online banking system
or mobile telecommunications network; or
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c. providing financial advisory services to consumers on individual financial matters or relating to proprietary financial products or services, including providing credit counseling to any consumer or providing services to assist a consumer with debt management or debt settlement, modifying the terms of any extension of credit, or avoiding
foreclosure.
29. “Debt” means any obligation or alleged obligation of a Consumer to pay money arising out of a transaction in which the money, property, insurance or services which are the subject of the transaction are primarily for personal, family, or household purposes, whether or not such obligation has been reduced to judgment. 15 U.S.C. § 1692a(5).
30. “Debt Collector” means (i) any Person who uses an instrumentality of interstate commerce or the mail in any business the principal purpose of which is the collection of Debts or who regularly collects or attempts to collect, directly or indirectly, Debts owed or due or asserted to be owed or due another; (ii) any creditor who, in the process of collecting its own Debts, uses any name other than its own that would indicate that a
third Person is collecting or attempting to collect the creditor's Debts; and
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(iii) any Person who collects Debt related to any consumer financial product or service.
31. “Defaulted Defendants” means Check & Credit Recovery, LLC, Credit Power, LLC, Universal Debt & Payment Solutions, LLC, Universal Debt Solutions, LLC, and WNY Solutions Group, LLC, individually, collectively, or in any combination, and their successors and assigns.
39. “Effective Date” means the date on which this Order is issued.
33. “Enforcement Director” means the Assistant Director of the Office of Enforcement for the Consumer Financial Protection Bureau.
34. “LLC Defendants” means Check & Credit Recovery, LLC, Credit Power, LLC, Universal Debt & Payment Solutions, LLC, Universal Debt Solutions, LLC, WNY Solutions Group, LLC, and WNY Account Solutions, LLC, individually, collectively, or in any combination, and their successors and assigns.
35. “Non-Defaulted Defendants” means Marcus Brown, Sarita Brown, and WNY Account Solutions, LLC, individually, collectively, or in
any combination.
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36. “Person” means an individual, partnership, company, corporation, association (incorporated or unincorporated), trust, estate, cooperative organization, or other entity.
37, “Receiver” means Mark J. Bernet or any successor approved by the Court.
38. Receivership Assets’ are those Assets included in the Receivership Estate as defined in the Receivership Order.
39. “Receivership Entities” means the Defaulted Defendants, WNY Account Solutions, LLC, Real Estate of Distinction, LLC, and Rx Office Solutions, LLC, individually, collectively, or in any combination, and any other entity that meets the definition of a Receivership Entity as defined in the Receivership Order.
40. “Receivership Estate” means the Receivership Estate as defined in the Receivership Order.
Al. “Receivership Order” means the Court’s order entered February 19, 2020, ECF No. 684, which, inter alia, appointed the Receiver and created a receivership estate over the Assets of the Receivership Entities.
42. “Related Consumer Action” means a private action by or on
behalf of one or more consumers or an enforcement action by another
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governmental agency brought against any Defaulted Defendant based on substantially the same facts as described in the Bureau’s Complaint. CONDUCT RELIEF I.
Permanent Ban on Debt Collection IT IS ORDERED that:
43. Each of the Defaulted Defendants, whether acting directly or indirectly, is permanently restrained and enjoined from or Assisting Others in:
a. acting as a Debt Collector;
b. holding any ownership interest in (i) a Debt Collector or (ii) a payment processor to a Debt Collector;
c. receiving any remuneration or other consideration from (i) a Debt Collector or (ii) a payment processor to a Debt Collector if the remuneration or consideration relates to the collection of Debts;
d. providing services or assistance to, or working in any capacity for, a Debt Collector, including but not limited to acting as a Service Provider, employee, or independent contractor to a
Debt Collector; and
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e. advertising, marketing, promoting, offering for sale, processing payments for, selling, or buying any Debt or consumer information relating to a Debt.
Nothing in this Order ghall be read as an exception to this Paragraph.
Il.
Prohibition on Misrepresentations Concerning Consumer Financial Products or Services
IT IS FURTHER ORDERED that:
44. Defaulted Defendants and their officers, agents, servants, employees, and attorneys, and all other persons in active concert or participation with the Defaulted Defendants who have actual notice of this Order, whether acting directly or indirectly, in connection with any Consumer Financial Product or Service, are permanently restrained and enjoined from misrepresenting, omitting, or Assisting Others in misrepresenting or omitting, expressly or by implication, any material fact, including but not limited to:
a. a business name or identity;
b. that any Person is an attorney or is barred or licensed to
practice law in a particular jurisdiction;
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c. that any Person who is not associated or affiliated with an attorney or law firm is affiliated or associated with an attorney or law firm;
d. that a Consumer will receive legal representation;
e. how much a Consumer will save from purchasing, using, or enrolling in a Consumer Financial Product or Service;
£ how long it will take to settle any Debts;
g. the likelihood of any particular outcome or result from a Consumer Financial Product or Service; or
h. the nature or terms of any refund, cancellation, exchange, or repurchase policy, including but not limited to the likelihood
| of a Consumer obtaining a full or partial refund, or the circumstances in which a full or partial refund will be provided to the Consumer.
Il.
Prohibition on Unfair Practices Involving Consumer Financial Products or Services
IT IS FURTHER ORDERED that:
45. Defaulted Defendants and their officers, agents, servants,
employees, and attorneys, and all other persons in active concert or
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participation with the Defaulted Defendants who have actual notice of this Order, whether acting directly or indirectly, in connection with any Consumer Financial Product or Service, are permanently restrained and enjoined from or Assisting Others in:
a. Placing telephone calls to consumers without meaningful disclosure of the caller’s identity; and b. Concealing their identity by causing “000-000-0000” or any other false or misleading information to appear on a consumer’s caller identification.
IV.
Prohibition on Business Ventures with Other Defendants IT IS FURTHER ORDERED that:
4G. Defaulted Defendants, whether acting directly or indirectly, are permanently restrained and enjoined from investing in, providing services to, working for, serving as an officer of, or being otherwise engaged in any
business venture or project involving any other Defendant.
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V.
Consumer Information IT IS FURTHER ORDERED that:
47. Defaulted Defendants, and their officers, agents, servants, employees, and attorneys and all other Persons in active concert or participation with the Defaulted Defendants, who receive actual notice of this Order, whether acting directly or indirectly, may not disclose, use, or benefit from Consumer information, including names, addresses, telephone numbers, email addresses, social security numbers, other identifying information, or any data that enables access to a Consumer’s account (including a credit card, bank account, or other financial account), that Defendant obtained before the Effective Date in connection with the collection of Debt; provided, however, customer information may be disclosed if requested by a government agency or required by law, regulation, or court order.
VI.
Prohibition on Debiting Consumer’s Financial Accounts
AS. Defaulted Defendants and their officers, agents, servants, employees, and attorneys, and all other Persons in active concert or
participation with the Defaulted Defendants who have actual notice of this
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Order, whether acting directly or indirectly, in connection with any Consumer Financial Product or Service, are hereby permanently restrained and enjoined from causing debits to be made from any consumer’s bank or other financial account, and from billing any consumer for any charge, without the consumer's express, informed consent. VII.
Prohibition on Certain Merchant Processing Activities IT IS FURTHER ORDERED that:
49. Defaulted Defendants and their officers, agents, servants, employees, and attorneys, and all other Persons in active concert or participation with the Defaulted Defendants who receive actual notice of this Order, whether acting directly or indirectly, are permanently restrained and enjoined from allowing third parties to use any merchant processing account that a Defaulted Defendant owns or controls to collect consumer payments.
50. Defaulted Defendants and their officers, agents, servants, employees, and attorneys, and all other persons in active concert or participation with the Defaulted Defendants who have actual notice of this Order, whether acting directly or indirectly, are permanently restrained and enjoined from re-opening or using the following merchant payment
processing accounts associated with the unlawful debt collection scheme:
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account numbers 8788370018263 and 8788370013280 with Frontline Processing Corporation, account numbers 5644000000476853, 564400000618298, 564400000641183, and 564400000735647 with Francis David Corporation d/b/a/ Electronic Merchant Systems, account numbers 8788730001893 and 8788730002232 with Pathfinder Payment Solutions, Inc., and account numbers 4445017408336 and 445017416651 with Vantiv,
Inc. d/b/a PaidSuite.
MONETARY PROVISIONS VIII.
Order to Pay Redress
IT IS FURTHER ORDERED that:
51. Ajudgment for monetary relief is entered in favor of the Bureau and against the Defaulted Defendants, jointly and severally with the Non- Defaulted Defendants, in the amount of $5,183,947.71 for their violations of sections 1031 and 1036(a)(1)(B) of the CFPA, 12 U.S.C. §§ 5531, 5536(a)(1)(B); and sections 806, 807, and 809 of the FDCPA, 15 U.S.C. §§1692d, 1692e, and 1692¢.
52. The Defaulted Defendants must pay a total of $5,183,947.71 by wire transfer to the Bureau or to the Bureau's agent, in compliance with the
Bureau’s wiring instructions.
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53. The monetary judgment set forth in Paragraph 51 is enforceable against any Asset owned by, on behalf of, for the benefit of, or in trust by or for any of the Defaulted Defendants. Any Receivership Assets or Assets subject to the Preliminary Injunction that the Receiver liquidates, with the permission of the Court, and pays to the Bureau for purposes of consumer redress will be deemed to satisfy the money judgment set forth in Paragraph 51 in part or in whole depending on the value of the Receivership Assets so paid.
54. Any funds received by the Bureau in satisfaction of this judgment will be deposited into a fund or funds administered by the Bureau or to the Bureau's agent according to 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.
55. Ifthe Bureau determines, in its sole discretion, that redress to consumers is wholly or partially impracticable or if funds remain after redress is completed, the Bureau will deposit any remaining funds in the U.S. Treasury. The Defaulted Defendants will have no right to challenge any
actions that the Bureau or its representatives may take under this Section.
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56. Payment of redress to any Affected Consumer under this Order may not be conditioned on the Affected Consumer waiving any right. IX, Order To Pay Civil Money Penalty IT IS FURTHER ORDERED that:
57. Under section 1055(c) of the CFPA, 12 U.S.C. § 5565(c), by reason of the violations of law described in this Order, and taking into account the factors in 12 U.S.C. § 5565(c)(8), the Defaulted Defendants must pay civil money penalties to the Bureau as follows: .
a. Check & Credit Recovery, LLC must pay $500,000;
b. Credit Power, LLC must pay $500,000;
c. Universal Debt & Payment Solutions, LLC must pay $200,000;
d. Universal Debt Solution, LLC must pay $200,000; and
e. WNY Solutions Group, LLC must pay $100,000.
58. The Defaulted Defendants must pay the civil penalty amounts set forth in Paragraph 57 by wire transfer to the Bureau or to the Bureau's
agent in compliance with the Bureau’s wiring instructions.
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59. The civil money penalties paid under this Order will be deposited in the Civil Penalty Fund of the Bureau as required by section 1017(d) of the CFPA, 12 U.S.C. § 5497(d).
60. The Defaulted Defendants must treat the civil money penalties paid under this Order as penalties paid to the government for all purposes. Regardless of how the Bureau ultimately uses those funds, the Defaulted Defendants may not: (a) claim, assert, or apply for a tax deduction, tax credit, or any other tax benefit for any civil money penalty paid under this Order; or (b) seek or accept, directly or indirectly, reimbursement or indemnification from any source, including but not limited to payment made under any insurance policy, with regard to any civil money penalty paid under this Order.
61. To preserve the deterrent effect of the civil money penalties in any Related Consumer Action, the Defaulted Defendants may not argue that any Defaulted Defendant is entitled to, nor may any Defaulted Defendant benefit by, any offset or reduction of any compensatory monetary remedies imposed in the Related Consumer Action because of the civil money penalties paid in this action or because of any payment that the Bureau makes from the Civil Penalty Fund (Penalty Offset). If the court in any Related
Consumer Action grants such a Penalty Offset to any Defaulted Defendant,
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the Defaulted Defendant must, within 30 days after entry of a final order granting the Penalty Offset, notify the Bureau, and pay the amount of the Penalty Offset to the U.S. Treasury. Such a payment will not be considered an additional civil money penalty and will not change the amount of the civil money penalties imposed in this action.
X.
Additional Monetary Provisions
IT IS FURTHER ORDERED that:
62. In the event of default on any Defaulted Defendant’s obligations to make payment under this Order, interest, computed under 28 U.S.C. § 1961, as amended, will accrue on any outstanding amounts not paid from the date of termination of the Receivership to the date of payment, and will immediately become due and payable.
63. The Defaulted Defendants 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 the Defaulted Defendants.
64. The facts alleged in the Complaint will be taken as true and be given collateral estoppel effect, without further proof, in any proceeding based on the entry of the Order, or in any subsequent civil litigation by or on
behalf of the Bureau in a proceeding to enforce its rights to any payment or
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monetary judgment under this Order, such as a nondischargeability complaint in any bankruptcy case.
65. The facts alleged in the Complaint establish all elements necessary to sustain an action by the Bureau under to section 523(a)(2)(A) of the Bankruptcy Code, 11 U.S.C. § 523(a)(2)(A), and for such purposes this Order will have collateral estoppel effect against each Defaulted Defendant, even in such Defaulted Defendant’s capacity as debtor-in-possession.
66. Under 31 U.S.C. § 7701, each Defaulted Defendant, unless it already has done so, must furnish to the Bureau its taxpayer identifying numbers, which may be used for purposes of collecting and reporting on any delinquent amount arising out of this Order.
67. Within 30 days of the entry of a final judgment, consent order, or settlement in a Related Consumer Action against any Defaulted Defendant, the Defaulted Defendant must notify the Enforcement Director of the final judgment, consent order, or settlement in writing. That notification must indicate the amount of redress, if any, that the Defaulted Defendant 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. To preserve the deterrent effect of the civil money penalty in any Related Consumer Action,
Defendant may not argue that Defendant is entitled to, nor may Defendant
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benefit by, any offset or reduction of any monetary remedies imposed in the Related Consumer Action because of the civil money penalty paid in this action or because of any payment that the Bureau makes from the Civil Penalty Fund. Ifthe court in any Related Consumer Action offsets or otherwise reduces the amount of compensatory monetary remedies imposed against Defendant based on the civil money penalty paid in this action or based on any payment that the Bureau makes from the Civil Penalty Fund, Defendant must, within 30 days after entry of a final order granting such offset or reduction, notify the Bureau and pay the amount of the offset or reduction to the U.S. Treasury. Such a payment will not be considered an additional civil money penalty and will not change the amount of the civil money penalty imposed in this action.
XI.
Assets Subject to Preliminary Injunction IT IS FURTHER ORDERED that:
68. To the extent they have not done so already, the Defaulted Defendants are ordered to forfeit to the Receiver all rights and claims they have to any Assets frozen by the Court's Preliminary Injunction Order. To the extent those Assets are released by order of the Court and paid by the
Receiver to the Bureau, of liquidated by the Receiver with the Court’s
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permission with the proceeds paid to the Bureau, to provide redress for Affected Consumers, the funds received by the Bureau will be considered payments made by the Defaulted Defendants in partial satisfaction of the judgment ordered in Paragraph 51.
69. Upon completion of the requirement in Paragraph 68 and all payments required under Sections VIII and IX of this Order, the Preliminary Injunction will be modified to exclude the Defaulted Defendants and their Assets from its coverage.
COMPLIANCE PROVISIONS XII.
Cooperation with the Bureau and the Receiver
IT IS FURTHER ORDERED that:
70. The Defaulted Defendants and their officers, directors, managers and managing members must cooperate fully to help the Bureau and the Receiver determine the identity and location of, and the amount of injury sustained by, each Affected Consumer. The Defaulted Defendants must provide such information in its or its agents’ possession or control within 14 days of receiving a written request from the Bureau or the Receiver.
71. The Defaulted Defendants must cooperate fully with the Bureau
in this matter and in any investigation related to or associated with the
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conduct described in the Complaint, the Court’s order granting summary judgment to the Bureau (ECF No. 576), or the Findings herein. The Defaulted Defendants must provide truthful and complete information, evidence, and testimony. The Defaulted Defendants must cause their officers, employees, representatives, or agents to appear for interviews, discovery, hearings, trials, and any other proceedings that the Bureau may reasonably request upon 15 days written notice, or other reasonable notice, at such places and times as the Bureau may designate, without the service of compulsory process.
XIII.
Compliance Monitoring
IT IS FURTHER ORDERED that, to monitor the Defaulted Defendants’ compliance with this Order:
72. Within 14 days of receiving a written request from the Bureau, each Defaulted Defendant must submit additional requested information, which must be made under penalty of perjury; provide sworn testimony; or produce documents.
73. For purposes of this Section, the Bureau may communicate directly with each Defaulted Defendant, unless the Defaulted Defendant
retains counsel related to these communications.
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74, The Defaulted Defendants must permit Bureau representatives to interview any employee or other person affiliated with any Defaulted Defendant who has agreed to such an interview regarding: (a) this matter; (b) anything related to or associated with the conduct described in the Complaint, the Court’s order granting summary judgment to the Bureau (ECF No. 576), or the Findings herein or (c) compliance with this Order. The person interviewed may have counsel present.
75. Nothing in this Order limits the Bureau’s lawful use of compulsory process, pursuant to 12 C.F.R. § 1080.6 or other compulsory process.
XIV.
Continuity of Receivership IT IS FURTHER ORDERED that:
76. The Receivership Order shall continue as modified by this Section.
77. No later than one hundred and eighty (180) days from the Effective Date, the Receiver shall file and serve on the parties a report to the Court (Final Report) that details the steps taken to collect and administer the Receivership Assets. The Final Report must include an accounting of the
Receivership Assets and a description of what other actions, if any, must be
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taken to wind down the Receivership Estate (as defined in the Receivership
Order) and to dissolve the Receivership Entities under their respective state
laws of incorporation. At the time of filing the Final Report, the Receiver
shall also file an application for final payment of compensation and expenses
associated with his performance of its duties as Receiver. The Court will
review the final payment application and any objections thereto and, absent
a valid objection, will issue an order directing that the Receiver:
a.
78.
Pay from the Receivership Estate the reasonable costs and expenses of administering the Receivership Estate, including compensation of the Receiver and the Receiver’s personnel and the actual out-of-pocket costs incurred by the Receiver in carrying out his duties; and
After making the payments referenced in Paragraph 77(a), pay all funds remaining in the Receivership Estate to the Bureau within ten (10) days by wire transfer to the Bureau or to the Bureau’s agent, and according to the Bureau’s wiring instructions, for the purpose of paying the monetary judgment
and penalties set forth in this Order.
If the Receiver believes that the Receivership Estate cannot be
liquidated or that adequate consumer transaction information for purposes
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of redress cannot be obtained within one hundred and eighty (180) days of the Effective Date, or if the Receiver believes that additional actions need to be taken more than one hundred and eighty (180) days after the Effective Date, the Receiver will move the Court for an appropriate extension of the Receivership and the deadline to file the Final Report.
79. Until the date the Court issues an order based on the Receiver’s Final Report, if there is any final judgment, consent order, or settlement in a Related Consumer Action, the Receiver must notify the Enforcement Director of the final judgment, consent order, or settlement in writing. That notification must indicate the amount of redress, if any, that any Receivership Entity 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.
80. Upon the transfer of funds to the Bureau pursuant to this Section, the Receivership will be terminated.
XIV.
Entry of Judgment IT IS FURTHER ORDERED that:
81. There being no just reason for delay of entry of this judgment,
under Federal Rule of Civil Procedure 54(b), the Clerk will immediately
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enter this Order as a final judgment as to the Defaulted Defendants. XV.
Retention of Jurisdiction IT IS FURTHER ORDERED that:
82. All pending motions are hereby denied as moot. 83. This Court retains jurisdiction of this matter for purposes of construction, modification, and enforcement of this Order. XVI.
Service IT IS FURTHER ORDERED that:
84. This Order may be served upon the Defaulted Defendants by serving the Receiver via electronic mail, certified mail, or United Parcel Service, either by the United States Marshal, the Clerk of the Court, or any
representative or agent of the Bureau.
SO ORDERED this day of ZZ, , 2021.
THE HONORABLE RICHARD W. STORY UNITED STATES DISTRICT JUDGE
Dismissal ()
PDF of this document (23 pages)
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IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF GEORGIA ATLANTA DIVISION
CONSUMER FINANCIAL PROTECTION BUREAU,
Plaintiff, : CIVIL ACTION NO.
Vv. : 1:15-CV-859-RWS
UNIVERSAL DEBT SOLUTIONS, LLC, ef al.,
Defendants.
ORDER
This case comes before the Court on Defendant Pathfinder Payment Solutions, Inc.’s (“Pathfinder”) Motion for Sanctions [352]; Defendants Frontline Processing Corp. (“Frontline”), Global Payments, Inc. (“Global Payments”), and Pathfinder’s Motion for Sanctions [397]; Defendant Electronic Merchant Systems, Inc.’s (“EMS”) Joinder in Consolidated Motion for Rule 37 Sanctions [407]; Frontline’s Motion for Reconsideration [409]; and Defendant Global Connect, LLC’s (“Global Connect”) Joinder in Consolidated Motion for Rule 37 Sanctions [418]. After reviewing the record, the Court enters the
following Order.
AQ 72A (Rev.8/82)
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AO 72A (Rev.8/82)
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Background
The Consumer Financial Protection Bureau (“CFPB”) brings this suit against numerous individuals and entities in connection with a massive debtcollection scheme. According to the CFPB, several individuals (“Debt Collectors”) created limited liability companies in Georgia and New York to perpetrate a debt-collection scheme targeting millions of consumers. The Debt Collectors allegedly used the telephone broadcast services of Defendant Global Connect to broadcast millions of threatening and false statements to consumers in telephone calls and messages.
When consumers provided their payment information, the Debt Collectors then used several payment processors to withdraw funds from the consumers’ accounts. Those payment processors include Defendants Global Payments, Pathfinder, Frontline, and EMS (collectively, “Payment Processors”), The CFPB accuses the Payment Processors, along with Global Connect, of violating the Consumer Financial Protection Act (“CFPA”), 12 USS.C. §§ 5531, 5536(a), by providing substantial assistance to the debt collectors’ unfair or deceptive conduct (Counts VIII and X), and by engaging
in unfair acts or practices (Counts IX and X]).
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Presently pending are a number of sanctions motions filed by Defendants. One of those motions—Pathfinder’s Motion for Rule 11 Sanctions [352]—stands on its own. The remaining motions seek sanctions under Federal Rule of Civil Procedure (“Rule”) 37 for issues arising out of Defendants’ Rule 30(6)(6) depositions of the CFPB. The Court will provide a brief background for each of those motions.
I, Pathfinder’s Motion for Rule 11 Sanctions
In May 2015, only two months after this case was filed, Pathfinder served on the CFPB a motion for sanctions under Rule 11. (See Dkt. [3 52-3].) Pathfinder contended that the CFPB’s case against Pathfinder lacked a basis in law and fact, and that it was merely an exercise in government overreach. Over eighteen months later, and with fact discovery complete, the CFPB was still asserting its claims against Pathfinder. As a result, on January 4, 2017, Pathfinder filed its Motion for Rule 11 Sanctions [352] with the Court. While the particular content of the motion has changed since Pathfinder served it on the CFPB, the overarching argument is the same: the CFPB’s claims against
Pathfinder are frivolous and warrant dismissal.
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II. Defendants’ Rule 30(b)(6) Depositions of the CFPB and Subsequent Motions for Rule 37 Sanctions
By August 2016, several Defendants had served the CFPB with Rule 30(b)(6) deposition notices. The CFPB objected to those notices, arguing that the Court should not require it to sit for 30(b)(6) depositions for three reasons: (1) the CFPB had already provided the information that Defendants were seeking in written responses to Defendants’ contention interrogatories; (2) the noticed topics included inquiry into topics protected by the law enforcement and deliberative process privilege; and (3) the depositions were an improper attempt to depose the CFPB’s counsel as to counsel’s mental impressions and anlyses. (See Dkt. [316-1] at 2.) The Court rejected those arguments and refused to categorically bar depositions of the CFPB. (See generally Dkt. [316].) The Court noted that Defendants could not depose the CFPB regarding its counsels’ mental impressions, case strategies, or legal opinions, but that—at the same time—factual matters were within the bounds of inquiry. (Id. at 2-3.)
Before long, the Payment Processors and Global Connect had all served the CFPB with 30(b)(6) deposition notices. The CFPB responded with motions
for protective orders, arguing that the vast majority of Defendants’ noticed
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topics should be stricken or narrowed. In those motions, the CFPB recycled many of the same arguments it had used in opposing the depositions in the first place. For example, it asserted that many topics were duplicative because they sought information the CFPB had already outlined in its responses to defendants’ contention interrogatories. The CFPB also asserted that many topics intruded into privileged areas and would require it to divulge information protected by the work product doctrine. The CFPB was particularly concerned about being asked to marshal its evidence and to link its allegations to the specific facts that support those allegations.
In ruling on the motions for protective orders, the Court consistently permitted topics that sought the facts relevant to the CFPB’s claims. To give a few examples, the Court permitted the following topics in full:
° The facts relating to the CFPB’s claim that EMS knowingly
provided substantial assistance to the unlawful conduct of the Debt Collectors by approving merchant applications from the Debt Collectors that were replete with indicia of fraud. (See Dkt. [343-2, 374].)
° The factual bases, including the source of those facts, for
each and every allegation pleaded against Frontline in the
CFPB’s Complaint. (See Dkt. [342-2, 375].)
° The factual bases, for each and every one of the CFPB’s
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allegations or contentions set out in the Complaint pleaded against Global Connect... , including identifying the sources of those facts.... (See Dkt. [348-2, 376].) The Court also permitted the following topics, but narrowed them to “all facts relevant to [the CFPB’s] claims against [the pertinent Defendant], including all facts that [the CFPB] could reasonably identify as exculpatory.” ° Any and all facts that the CFPB obtained about Global through its investigation and/or that the CFPB pleaded in its Complaint. (Dkt. [327-2, 371].) ° The CFPB’s investigation of Frontline regarding Frontline’s processing of transactions for the Debt Collectors, including all facts that the CFPB obtained about or concerning Frontline. (Dkt. [342-2, 375].) . All facts within the CFPB’s knowledge related to Pathfinder’s processing of transactions for the Defendant Debt Collectors or other persons who collect debt. (Dkt. [368-2, 392].) Fach of these rulings reinforced the Court’s earlier finding that Defendants were entitled to question the CFPB about the factual underpinnings of its allegations against them.
On April 11, 2017, Global Payments took the first 30(b)(6) deposition of the CFPB. Global Payments, Frontline, and Pathfinder all took issue with the
CFPB’s responses during that deposition. Because Frontline and Pathfinder
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were scheduled to take the CFPB’s deposition later that week, the Court held a telephone conference on the very next day, April 12, 2017. Defendants raised two broad objections to the CFPB’s deposition responses. First, they objected to the CFPB witness’s use of “memory aids” to deliver rote, sometimes unresponsive answers to Global Payments’ questions. Second, they objected to the CFPB’s counsel’s extensive use of privilege objections to prevent the witness from answering questions about the facts the CFPB was relying on to support its allegations.
Responding to the second concern, the Court again reiterated that “factual support for contentions is an area of inquiry that’s appropriate, it’s not protected by work product.” (Dkt. [397-5] at 27:24-25.) Later, the Court further clarified that point, hoping to provide guidance for the upcoming depositions:
[When the question is asked, you look at what it goes to, and if it
goes to an element of the claim, then that is a fair question. If it’s
asking the witness to analyze it beyond offering the facts then
you're out of bounds and you’re arguably getting over into work product....
(Dkt, [397-5] at 41:1-5.) Over the following weeks, the CFPB was deposed by
Frontline, Pathfinder, EMS, and Global Connect. Defendants contend that,
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during each of those depositions, the problems identified during the telephone conference persisted.
As a result, there are now three motions for Rule 37 sanctions pending. The first is Global Payments, Frontline, and Pathfinder’s Consolidated Motion for Rule 37 Sanctions [397], while the second and third are EMS and Global Connect’s joinders in that consolidated motion [407, 418]. Together, Defendants argue that the CFPB’s conduct was contrary to the Court’s instructions and prevented them from taking meaningful depositions. They contend that the Court should sanction the CFPB’s conduct by striking Counts VII, IX, X, and XI.
Discussion
I. Pathfinder’s Motion for Rule 11 Sanctions [352]
Pathfinder moves for sanctions under Federal Rule of Civil Procedure (“Rule”) 11, which says:
By presenting to the court a pleading .. . an attorney . . . certifies
that to the best of the [attorney’s] knowledge, information, and
belief, formed after an inquiry reasonable under the circumstances:
(1) it is not being presented for any improper purpose, such as to
harass, cause unnecessary delay, or needlessly increase the cost of litigation;
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(2) the claims, defenses, and other legal contentions are warranted
by existing law or by a nonfrivolous argument for extending,
modifying, or reversing existing law or for establishing new law;
(3) the factual contentions have evidentiary support ....
FED. R. Clv. P. 11(b)(1)-(3). Rule 11 empowers courts to “impose an appropriate sanction” when they determine that Rule 11(b) has been violated. FED. R. Civ. P. 11(c)(1).
Pathfinder begins by noting the crux of the CFPB’s claims against it: Pathfinder should have noticed the debt collectors’ excessively high chargeback rates for particular months and should have heeded those and other ongoing warning signs of fraudulent activity. It then argues that neither the CFPB’s pre-suit investigation nor discovery have revealed evidence to support those allegations. Instead, Pathfinder contends, support for the CFPB’s allegations is limited to a misleading selection of a single month of chargeback data for certain debt collectors. Pathfinder argues that the evidence clearly shows that its monitoring conduct, viewed properly as a whole, met industry standards and practices, and that the CFPB’s maintenance of its claims
therefore warrants sanctions.
As the Advisory Committee Notes for Rule 11 explain, “Rule 11 motions
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... Should not be employed . . . to test the legal sufficiency or efficacy of allegations in the pleadings” or “to emphasize the merits of a party’s position.” FED. R. CIV. P. 11 advisory committee’s notes (1993 Amendments). Yet Pathfinder’s motion does just that. It reflects a disagreement with the CFPB about its view of the evidence and the application of that evidence to the relevant law. A Rule 11 motion filed in advance of any ruling on summary judgment is not the proper procedural mechanism for the Court to resolve such a disagreement. As a result, Pathfinder’s motion is DENIED. II. Defendants’ Motions for Rule 37 Sanctions [397, 407, 418]
A. Legal Standard
The pending motions implicate both Rule 37(b) and Rule 37(d). Rule 37(b) provides that a district court may impose sanctions upon a party for failure to comply with a discovery order. It says:
If a party or a party’s officer, director, or managing agent—or a
witness designated under Rule 30(b)(6) or 31(a)(4)—fails to obey
an order to provide or permit discovery . . . the court where the
action is pending may issue further just orders. They may include the following:
(iii) striking pleadings in whole or in part... .
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Fed. R. Civ. P. 37(b)(2)(A). Rule 37(b) gives district courts broad discretion to fashion appropriate sanctions for the violation of discovery orders. See
Malauetea v. Suzuki Motor Co., Ltd., 987 F.2d 1536, 1342 (11th Cir. 1993),
At the same time, that discretion is not unlimited, and an extreme sanction requires “a willful or bad faith failure to obey a discovery order.” Id. But “when a defendant demonstrates flagrant bad faith and callous disregard of its responsibilities, the district court’s choice of the extreme sanction is not an
abuse of discretion.” Emerick v. Fenick Indus., Inc., 539 F.2d 1379, 1381
(11th Cir. 1976),
As for Rule 37(d), it similarly provides that a court may order sanctions when “a party .. . or a person designated under Rule 30(b)(6) . . . fails, after being served with proper notice, to appear for that person’s deposition.” A failure to appear includes circumstances where the witness “is not knowledgeable about relevant facts, and the principal has failed to designate an
available, knowledgeable, and readily identifiable witness.” Resolution Trust
Corp. v. Southern Union Co., Inc., 985 F.2d 196, 197 (Sth Cir. 1993). The breadth of sanctions available under Rule 37(d) is the same as those available
under Rule 37(b). See FED. R. CIv. P. 37(d)(3).
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B. Analysis
Across their motions, Defendants raise two arguments in support of sanctions: (1) the CFPB did not present a knowledgeable witness under Rule 30(b)(6); and (2) the CFPB’s privilege and work product objections were highly improper and obstructed Defendants from receiving answers to questions that the Court had expressly identified as fair territory. Global Payments, Pathfinder, and Frontline insist that reopening the depositions would be futile, and that the only appropriate sanction is striking the claims against them. EMS and Global Connect join that position, but argue alternatively that the Court reopen their 30(b)(6) depositions. As discussed more thoroughly below, the Court finds that the CFPB’s pattern of conduct warrants substantial
sanctions.
A. ‘The CFPB’s Failure to Produce a Knowledgeable Witness
Defendants first argue that the CFPB consistently failed to produce a knowledgeable witness. Specifically, they argue that the witness’s heavy—if not exclusive—reliance on various memory aids was improper. The CFPB responds to this argument by repeatedly noting the Court’s comment during the
April 12 telephone conference that the 30(b)(6) depositions were not to be
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conducted as memory tests. (See Dkt. [397-5] at 4:20-25.)! The CFPB further contends that, given the volume of facts and documents in this case, testimony without memory aids was impossible.
Reviewing the various deposition transcripts reveals, however, that these “memory aids” are more properly characterized as scripts. At one point, Global Payments asked the CFPB’s witness to explain the CFPB’s factual understanding of what happened in Pathfinder’s underwriting of Credit Power, one of the Debt Collectors’ entities. (See Dkt. [397-2] at 68:25-69:14.) The witness then proceeded to read directly from the memory aid. (Id. at 69:15.) Though he was frequently interrupted by counsel, the time stamps show that the witness’s response to this single question lasted nearly forty minutes and was read, in its entirety, from the memory aid. This was hardly an isolated incident. To give another example, Global Payments’ counsel later asked the witness the following:
Q Okay. So for the first, that Global Payments knew that
UDPS and CP were prohibited and high-risk merchants.
What facts does the Bureau have that Global had actual knowledge of that?
' The cited page numbers for all transcripts refer to the page numbers in the CM/ECF headers, not the page numbers on the documents themselves.
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(Id. at 206:1-5.) The witness responded by reading, practically uninterrupted, for forty five minutes. (Id. at 206:10-239:16.) The parties took a break from the deposition, and returned fifteen minutes later. The deposition resumed with an additional fifteen minutes of reading, and even that did not complete the witness’s answer. (Id. at 240:7-252:20.) While these are the most egregious examples, similar ones abound throughout the transcripts. Indeed, the witness was hardly able to offer any testimony at all beyond what he read off the memory aids. And as the Defendants frequently pointed out, the readings were often unrelated to the question asked.
In the April 12 telephone conference, the Court repeatedly emphasized the importance of the witness’s ability to provide a “human touch” by responding to Defendants’ follow-up questions. (See, e.g., Dkt. [397-5] at 7:22-8:3.) At one point, the Court said the following:
So there’s an allusion in Mr. Engel’s e-mail to me today that the
witness will be prepared by the CFPB to be able to address matters
that aren’t just memory tests, which some of the factual aspects of
it are. So my expectation is that the witness would answer those
questions and, for lack of a better term, the human touch
questions, but would be prepared to answer those and to represent
the position of the CFPB.
(Id. at 28:1-7.) Based on the transcripts, it is clear that the CFPB’s witness was
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not prepared to answer follow-up questions or to stray from the memory aids in any way. The Court was quite clear, both in its initial order that the CFPB sit for 30(b)(6) depositions and during the April 12 telephone conference: more was expected of the CFPB’s witness than rote answers similar to what was already available to Defendants through contention interrogatories. By relying almost exclusively on the memory aids, the CFPB’s witness failed to abide by the Court’s instructions.
Turning away from the issue of the memory aids, Defendants also argue that the CFPB’s witness was not knowledgeable because he was not prepared to testify as to any exculpatory facts. In several of the Orders ruling on the CFPB’s motions for protective orders, the Court instructed the CFPB to be prepared to testify as to any facts that it “could reasonably identify as exculpatory.” (See, e.g., Dkt. [371] at 2.) Despite those instructions, the CFPB repeatedly took the position that its investigation had not yielded a single exculpatory fact. For example, early in Global Payments’ deposition, the following exchange took place:
Q The judge in his ruling said that the Bureau was to provide a
witness who would testify as to all facts the plaintiff could reasonably identify as exculpatory. Are you familiar with
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that part of the judge’s ruling in your testimony here today? Yes, What, if anything, did you do to identify exculpatory facts?
I didn’t identify any.
QO - NH PY
So in the 300 hours that you spent preparing for this, you didn’t identify a single fact that was exculpatory as to Global Payments?
Mr. Engel: Objection. Asked and answered.
A That’s correct.
(Dkt. [397-2] at 24:2-17.) This same issue cropped up again later, when the CFPB’s counsel said, “our view is that there aren’t any exculpatory facts. Your view is different. But we’re not required beforehand to identify what you may think is exculpatory and educate a witness to provide that testimony.” (Id. at 132:11-16.) Similar exchanges occurred during both Pathfinder’s deposition, (see dkt. [397-4] at 80:19-23), and Global Connect’s deposition, (see dkt. [418] at 44:3-14),
In other words, despite frequently reminding the Court of the immense
volume of documents and facts in this case, the CFPB’s position is that not a
single fact is exculpatory to any of the Defendants. In asserting that position,
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the CFPB takes advantage of the Court’s instruction to testify about any exculpatory facts that it could reasonably identify. It makes the CFPB’s job much easier if it simply claims to not be able to identify any such facts. But the CFPB’s position is not a reasonable one. Surely, in the mass of evidence in this case, the CFPB could find some exculpatory evidence. Its insistence that it could not reflects an unwillingness to comply with the Court’s instructions and a bad faith attempt to frustrate the purpose of Defendants’ depositions. At the very least, the CFPB’s refusal to testify about any exculpatory evidence amounts to a failure to present a knowledgeable witness.
B. The CFPB’s Improper Objections
Defendants next argue that the CFPB improperly relied on privilege and work product objections to prevent the witness from answering questions about the factual bases of the CFPB’s claims. The CFPB responds that its production of the memory aids accomplished the task the Court set out—to apprise Defendants of what they would be up against at trial—and that anything more amounted to the impermissible marshaling of evidence.
The questions to which the CFPB lodged work product objections are
too numerous to recount. But here is a selection:
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What facts are you aware of that global Payments had actual knowledge of the allegation in Paragraph 299B of the complaint? (Dkt. [397-2] at 191:4-9.)
What facts is the Bureau aware of that Global recklessly disregarded the conduct described in Paragraph 299 of the complaint? (Id. at 192:17-21.)
Mr. Godard, on what facts does the CFPB rely to establish that Frontline’s acts were unfair? And maybe the best place to start is, which acts are we talking about? (Dkt. [397-3] at 44:1-6.)
Does the CFPB rely on any facts to demonstrate that Frontline’s practices actually caused substantial consumer harm? (Id. at 23:5-9.)
Does the CFPB contend that Pathfinder knew that UDPS and Credit Power were collecting debts illegally? (Dkt. [397-4] at 264:9-13.)
One crucial point is that Defendants took the CFPB’s deposition in the following order: Global Payments, Frontline, Pathfinder, EMS, and Global Connect. The April 12 telephone conference occurred immediately after Global Payments’ deposition, and thus the Court’s instructions during that conference should have guided the parties at the later depositions.
During the telephone conference, Frontline’s counsel noted that the CFPB had been asked “what facts does the Bureau rely on to establish that
Global Payments knew that the debt collectors were collecting debt illegally,”
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and that the CFPB had instructed the witness not to answer on the basis of work product. (Dkt. [397-5] at 36:1-6.) He then noted that the CFPB lodged the same objection to a similar question asking about Global Payments’ alleged reckless disregard of the fact that the debt collectors were collecting debt illegally. (1d. at 36:7-13.) The Court then had the following exchange with the CFPB’s counsel:
THE COURT: Mr. Engel, why would the witness . . . not have to answer a question for the facts that—on which you’re relying to establish that there was actual knowledge on the part of Global Payments?”
MR. ENGEL: Ifa deposition notice had asked for that information the witness would have been prepared to provide it. But this witness was a fact witness who is not in a position to make a distinction between facts that support knowledge versus recklessness.
THE COURT: To me, to ask, if the claim is that the defendant either knew or recklessly disregarded information or facts, if that’s the contention, then to ask, well, what facts show what they actually knew, it seems to me to be a question directed specifically at the claim. It then asks, well, any facts that support that they recklessly disregarded.
T realize what you’re — I guess what you’re saying is that’s
asking the witness to figure out which facts show which of those matters. But those are essential elements of those claims and so if
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one were going to testify about the facts supporting the claim... the fact is that would be a fact that would be relevant.
I don’t know that we can plow through every one of these questions but the point is that those are facts — J think what you do is when the question is asked, you look at what it goes to, and if it goes to an element of the claim, then that is a fair question. If it’s asking the witness to analyze it beyond offering the facts then you’re getting out of bounds and you’re arguably getting over into work product or you’re getting into questions that the witness is not qualified to answer and that are subject to legitimate objections.
But so long as the inquiries are into facts that are within the
knowledge of the Bureau and that are within the scope of the
notice, then I think they’ve got to be answered. And the notice did
include the facts related to the claims against, and limited to the
claims, against that defendant. And so I think the example that
was just given would be one where I would expect the question to
be answered.
(Id. at 37:7-41:15.) On the next day, despite the Court’s instructions, when Frontline’s counsel asked the very questions he used as examples at the telephone conference, the CFPB asserted the same objection and instructed the witness not to answer. (Dkt. [397-3] at 19:21-20:8.)
That blatant disregard for the Court’s instruction is reflective of a larger
problem. The parties have been litigating issues related to the CFPB’s 30(b)(6)
depositions for quite some time. The Court has consistently held that the CFPB
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was obligated to sit for those depositions, and that it needed to produce a witness prepared to apprise the Defendants of the facts they would face at trial. But the CFPB has put up as much opposition as possible at every turn. And in doing so, it has recycled many of the same arguments over and over. The deposition transcripts show that the CFPB’s approach comes in two forms. The first is to bury the Defendants in so much information that it cannot possibly identify, with any reasonable particularity, what supports the CFPB’s claims. The second is to assert privilege objections to questions that the Court has repeatedly ordered to be answered. Neither form is proper, and together they demonstrate a willful disregard of the Court’s instructions.
Cc. Conclusion
For the reasons above, the Court finds that the CFPB willfully violated the Court’s repeated instructions to identify for Defendants the factual bases for its claims and that, in each deposition, it willfully failed to present a knowledgeable 30(b)(6) witness. In light of the CFPB’s pattern of conduct in this case, the Court is not optimistic that reopening the depositions would be fruitful. That is especially true given the CFPB’s continued use of privilege
objections in response to questions that the Court expressly identified as
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Frontline’s Motion for Reconsideration [409] Frontline asks the Court to reconsider its September 1, 2015 denial of Frontline’s Motion to Dismiss. Because Count IX is now stricken, there is no need for the Court to reconsider its earlier ruling. Frontline’s motion is DENIED as moot.
Conclusion As discussed above, Pathfinder’s Motion for Rule 11 Sanctions [352] is DENIED, but Defendants’ Motions for Rule 37 Sanctions [397, 407, 418] are all GRANTED. Accordingly, Counts VIII, IX, X, and XI of the Complaint are STRICKEN, and Frontline’s Motion for Reconsideration [409] is DENIED as moot. Having stricken all the claims against them, the following Defendants are hereby DISMISSED from this action: Frontline Processing Corp.; Global Payments, Inc.; Pathfinder Payment Solutions, Inc.; Electronic Merchant Systems, Inc.; and Global Connect, LLC.
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el SO ORDERED, this 75 day of August, 2017.
2hithhn
RICHARDW. STORY .~ UNITED STATES DISTRICT JUDGE
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Opinion ()
PDF of this document (25 pages)
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[PUBLISH] In the United States Court of Appeals For the Eleventh Circuit
____________________ No. 21-14468 ____________________
CONSUMER FINANCIAL PROTECTION BUREAU, Plaintiff-Appellant, versus MARCUS BROWN, SARITA BROWN, TASHA PRATCHER, GLOBAL PAYMENTS, INC., FRONTLINE PROCESSING CORP.,
Defendants-Appellees,
CHECK & CREDIT RECOVERY, LLC, UNIVERSAL DEBT SOLUTIONS, LLC, USCA11 Case: 21-14468 Document: 94-1 Date Filed: 06/12/2023 Page: 1 of 23 Case 1:15-cv-00859-RWS Document 768 Filed 06/12/23 Page 1 of 25
Page 257
Opinion of the Court 21-14468 WNY SOLUTIONS GROUP, LLC, WNY ACCOUNT SOLUTIONS, LLC, CHECK & CREDIT RECOVERY, LLC, CREDIT POWER, LLC, S PAYMENT PROCESSING & SOLUTIONS, LLC, MOHAN BAGGA, VARINDERJIT BAGGA, SUMANT KHAN,
Defendants-Cross Defendants- Appellees,
GLOBAL CONNECT, LLC, FRANCIS DAVID CORP, d.b.a. Electronic Merchant Systems, Inc.,
Defendants-Cross Claimants- Appellees,
PATHFINDER PAYMENT SOLUTIONS, INC., et al.,
Defendants.
____________________ USCA11 Case: 21-14468 Document: 94-1 Date Filed: 06/12/2023 Page: 2 of 23 Case 1:15-cv-00859-RWS Document 768 Filed 06/12/23 Page 2 of 25
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21-14468 Opinion of the Court Appeal from the United States District Court for the Northern District of Georgia D.C. Docket No. 1:15-cv-00859-RWS ____________________
Before BRANCH and GRANT, Circuit Judges, and SCHLESINGER,∗ District Judge.
BRANCH, Circuit Judge:
The Consumer Financial Protection Bureau (“CFPB”) is not exempt from the rules of discovery. Nonetheless, the CFPB tried to bring a wide-ranging civil lawsuit against 18 defendants without ever being deposed. When the district court ordered the CFPB to sit for Rule 30(b)(6) depositions, the CFPB doubled down by engaging in dramatic abuse of the discovery process. The district court imposed sanctions for this misconduct.
On appeal, the CFPB maintains that it behaved properly. We conclude, however, that violating the district court’s clear orders and derailing multiple depositions is nowhere near proper conduct. Thus, after careful review and with the benefit of oral argument, we affirm the district court’s sanctions order. I.
Background A.
The Underlying Lawsuit
∗ Honorable Harvey Schlesinger, United States District Judge for the Middle District of Florida, sitting by designation. USCA11 Case: 21-14468 Document: 94-1 Date Filed: 06/12/2023 Page: 3 of 23 Case 1:15-cv-00859-RWS Document 768 Filed 06/12/23 Page 3 of 25
Page 259
Opinion of the Court 21-14468 The CFPB brought this action under the Consumer Financial Protection Act (“CFPA”) and the Fair Debt Collection Practices Act (“FDCPA”) against 18 defendants for engaging in or substantially assisting a fraudulent debt collection scheme. Essentially, the CFPB alleged that several individuals “created limited liability companies in Georgia and New York” to “perpetrate a debt-collection scheme targeting millions of consumers.” Thirteen of the defendants were individuals, and their respective companies, who directly participated in the scheme.
The other five defendants—the appellees here—were not direct operators of the scheme; rather, they simply provided services to the individuals who were. One appellee, Global Connect, LLC (“Global Connect”), allegedly provided the telephone broadcast services that the individual debt collectors used to “broadcast millions of threatening and false statements to consumers.” The other four appellees—Global Payments, Inc. (“Global Payments”), Pathfinder Payment Solutions, Inc. (“Pathfinder”), Frontline Processing Corp. (“Frontline”), and Electronic Merchant Systems (“EMS”)—allegedly provided the processing services that were used to “withdraw funds from the consumers’ accounts.”
The CFPB alleged that these service-providing entities “provided substantial assistance” to the debt collectors’ “unlawful conduct” and engaged in “unfair acts or practices” in violation of the CFPA. In other words, these service-providing entities knew USCA11 Case: 21-14468 Document: 94-1 Date Filed: 06/12/2023 Page: 4 of 23 Case 1:15-cv-00859-RWS Document 768 Filed 06/12/23 Page 4 of 25
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21-14468 Opinion of the Court or should have known that their platforms were advancing the debt collectors’ unlawful conduct.
B.
The CFPB’s Conduct During Discovery The CFPB’s problematic conduct began during discovery. At first, the CFPB objected on the following grounds when it was served with deposition notices pursuant to Federal Rule of Civil Procedure 30(b)(6):1 (1) it had “already . . . provided [the information] to [d]efendants . . . in responses to written interrogatories,” (2) “[d]efendants inquire[d] into topics within the law enforcement and deliberative process privilege,” and (3) “the depositions [were] an improper attempt to question [CFPB] counsel as to counsel’s mental impressions and analyses.” The district court overruled the objections, reasoning that Rule 30(b)(6) applies with equal force to government agencies and “factual matters are subject to inquiry even if those matters have been disclosed in interrogatory responses.”
1 Rule 30(b)(6) is the principal mechanism for deposing entities, including government agencies. The rule allows the entity to designate a representative who testifies on the agency’s behalf. See Fed. R. Civ. P. 30(b)(6) (“The named organization must designate one or more officers, directors, or managing agents, or designate other persons who consent to testify on its behalf . . . . The persons designated must testify about information known or reasonably available to the organization.”). In the instant case, the service-providing entities sought to use 30(b)(6) depositions to uncover the factual bases for the CFPB’s claims against them.
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Opinion of the Court 21-14468 Dissatisfied, the CFPB tried again to avoid providing a 30(b)(6) representative. This time it moved for protective orders to reduce the scope of defendants’ questioning, relying on the same arguments the district court had already rejected. The court granted in part and denied in part the CFPB’s motions, striking the balance that facts—including “exculpatory facts”—were fair game while questioning that “would delve into Plaintiff’s trial strategy” was off limits.
1.
The First Deposition During the first 30(b)(6) deposition,2 counsel for Global Payments met heavy resistance from the CFPB. The 359-page transcript reveals that the CFPB avoided answering questions through a number of impermissible tactics. First, the CFPB lodged more than 70 work product objections—even objecting to fact-based questions that the district court had instructed it to answer. For example, the CFPB objected to the question “[a]re you aware of any facts that Global Payments knew that the debt collector defendants . . . were collecting phantom debt?” And it objected to the yes-or-no question “[a]re you aware of any facts that [a pertinent document] was sent to Global [Payments]?” As a final and particularly egregious
2 The CFPB designated Michael Godard, a supervisory investigator at the CFPB, as its 30(b)(6) representative for each deposition covered in this appeal. Godard spent “a little over 300 hours” preparing for the depositions by reviewing documents and meeting with counsel. USCA11 Case: 21-14468 Document: 94-1 Date Filed: 06/12/2023 Page: 6 of 23 Case 1:15-cv-00859-RWS Document 768 Filed 06/12/23 Page 6 of 25
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21-14468 Opinion of the Court example,3 to a question asking if the deponent spoke to any witnesses in the case, the CFPB objected and argued that “[t]he identity of witnesses is work product.” These objections were often accompanied by an instruction for the CFPB’s witness “not to answer.”
Second, the CFPB equipped its witness with so-called “memory aids”4 from which the witness read verbatim for extended periods of time. In response to one question, for example, the witness read from his memory aid for more than 40 minutes and then, after a break, continued reading for 18 minutes before the parties stipulated that he would have read another 93 pages. This filibuster-style reading occurred repeatedly. And when Global Payments’s attorneys objected, the CFPB’s counsel would insist that the witness needed to finish his answer: “Let him finish the answer, maybe it will be [responsive].”
Third, in response to the district court’s instruction that exculpatory facts were fair game, the CFPB took the position that it had not “identified any exculpatory facts” in the entire record. One illustrative back-and-forth follows: [Deposing counsel]: The judge in his ruling said that the [CFPB] was to provide a witness who would
3 There are many, many more examples in the record, but we do not include them all in the interest of conciseness. 4 The “memory aids” were essentially lawyer-prepared scripts that were hundreds of pages in length.
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Opinion of the Court 21-14468 testify as to all facts the plaintiff could reasonably identify as exculpatory. Are you familiar with that part of the judge’s ruling in your testimony here today? [CFPB’s witness]: Yes.
[Deposing counsel]: What, if anything, did you do to identify exculpatory facts? [CFPB’s witness]: I didn’t identify any. [Deposing counsel]: So in the 300 hours that you spent preparing for this, you didn’t identify a single fact that was exculpatory as to Global Payments? . . .
[CFPB’s witness]: That’s correct. 2.
Telephonic Hearing with the District Court Because Global Payments felt it was denied the opportunity to conduct a meaningful deposition—and Frontline and Pathfinder had noticed depositions for later that week—defendants alerted the district court to the CFPB’s behavior. Specifically, defendants expressed concern with the CFPB’s repeated work-product objections and its witness’s complete reliance on memory aids. In USCA11 Case: 21-14468 Document: 94-1 Date Filed: 06/12/2023 Page: 8 of 23 Case 1:15-cv-00859-RWS Document 768 Filed 06/12/23 Page 8 of 25
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21-14468 Opinion of the Court light of these concerns, the district court conducted a telephonic hearing with the parties.5 During the hearing, the district court reiterated its guidance from previous orders that the CFPB’s witness must answer factbased questions:
I think what you do is when the question is asked, you look at what it goes to, and if it goes to an element of the claim, then that is a fair question. If it’s asking the witness to analyze it beyond offering the facts[,] then you’re getting out of bounds and you’re arguably getting over into work product or you’re getting into questions that the witness is not qualified to answer and that are subject to legitimate objections. But so long as the inquiries are into facts that are within the knowledge of the [CFPB] and that are within the scope of the notice, then I think they’ve got to be answered.
It also reemphasized that defendants were entitled to question the CFPB about exculpatory facts.6 The district court also
5 We appreciate that the district court did not yet have a transcript of the first deposition at the time of the hearing, so it had only the parties’ finger-pointing as evidence and was unable to analyze independently the extent of the CFPB’s obstructive conduct.
6 Regarding exculpatory evidence, the district court stated: I believe I have ruled the defendants are entitled to question and it’s exculpatory information, and I know I’m using criminal terms and we just talked about this being a civil case, but evidence that would be in the possession of the [CFPB] USCA11 Case: 21-14468 Document: 94-1 Date Filed: 06/12/2023 Page: 9 of 23 Case 1:15-cv-00859-RWS Document 768 Filed 06/12/23 Page 9 of 25
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Opinion of the Court 21-14468 indicated that memory aids were acceptable due to the voluminous record but regurgitating pre-written information would be insufficient in many cases.7
that would show that the defendants had not violated these provisions.
7 The district court described the extent to which it would permit the CFPB’s witness to use memory aids and when it would expect testimony with a “human touch”:
[N]umber one, it’s okay for a witness to have these kinds of things with him or her at the time the deposition is given. It seems to me that this is a good faith effort on the part of CFPB to give what I said they had to give in denying many parts of the protective order and the rulings on the protective order, trying to make it clear that there had to be specific information given. It seems that these exhibits are, at least on their face, a good faith effort to accomplish that. At the same time, I think the witness needs to be prepared and versed, and Mr. Engel has represented in his e-mail that he does intend to have a witness who has been prepared to address these topics that require a more generalized response or a response that’s more of a human touch than some listing that might be contained in the exhibits.
It continued: “[M]y expectation is that the [CFPB’s] witness would answer those questions and, for lack of a better term, the human touch questions, but would be prepared to answer those and to represent the position of the CFPB.” USCA11 Case: 21-14468 Document: 94-1 Date Filed: 06/12/2023 Page: 10 of 23 Case 1:15-cv-00859-RWS Document 768 Filed 06/12/23 Page 10 of 25
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21-14468 Opinion of the Court 3.
Subsequent 30(b)(6) Depositions Despite having received additional instructions from the district court, the CFPB continued its obstructionist conduct during the next four depositions.8 To start, the CFPB continued to object on work product grounds and instruct its witness not to answer even simple factbased, yes-or-no, and follow-up questions. A few examples are instructive.9 The CFPB raised a work product objection to the question “does the CFPB rely on any facts to demonstrate that Frontline’s practices were unfair?” The CFPB also lodged the same objection to the question “did you review any fact that leads you to the conclusion that Global Connect authored [an e-mail exhibit]?” And, after being shown an exhibit that arguably contradicted the script its witness read, the CFPB objected on work product grounds to the question “do you still believe [your testimony] was correct?” This pattern persisted throughout all four depositions.
The CFPB’s witness continued to rely exclusively on memory aids, but the amount of time he spent reading was reduced because defendants’ counsel resorted to incorporating into the record the portions that the witness would have otherwise read
8 In the second deposition after the hearing with the district court, Pathfinder’s counsel notified the CFPB that it “reserve[d] its rights to move for sanctions and other remedies available.”
9 Again, we reproduce only a few of many, many examples. USCA11 Case: 21-14468 Document: 94-1 Date Filed: 06/12/2023 Page: 11 of 23 Case 1:15-cv-00859-RWS Document 768 Filed 06/12/23 Page 11 of 25
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Opinion of the Court 21-14468 aloud. One example is sufficient to show the extent of the witness’s reliance on the memory aids and why incorporation was necessary: [Deposing counsel]: [I]f you and your counsel don’t mind, would you be willing to tell us what pages in [the underwriting document] you plan to read in providing a response to the question . . . . . . .
[CFPB’s witness]: So again in the underwriting document, I would start at Page 32 at the bottom, 33, 34, 35, 36, and towards the end of 37. And then as far as the memory aid, I would not include the monitoring section, which starts at Page 78. Starting with the memory aid at Page 5. I would go 5 to 78. [Deposing counsel]: Pages 5 through 78 of the memory aid? [CFPB’s witness]: Correct.
[Deposing counsel]: So that I’m clear, do all of the facts at Pages 5 through 78 of the memory aid [address the question]? . . .
[CFPB’s witness]: I don’t think I can say that every fact within – on each page. I’d have to look through every fact to determine that. But I believe those pages would be generally responsive to your question, that they contain facts that would answer your question. [Deposing counsel]: Other than reading Pages 5 through 78 of [the memory aid] and Pages 32 through USCA11 Case: 21-14468 Document: 94-1 Date Filed: 06/12/2023 Page: 12 of 23 Case 1:15-cv-00859-RWS Document 768 Filed 06/12/23 Page 12 of 25
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21-14468 Opinion of the Court 37 of [the underwriting document] into the record, are you prepared to testify about facts [pertinent to the question]? . . .
[CFPB’s witness]: Other than these documents, no. [Deposing counsel]: And other than reviewing the tracts – the tract of [the underwriting document] and all of [the memory aid] less monitoring provisions, are you prepared to testify today about any facts [pertinent to the question]? . . .
[CFPB’s witness]: My preparation to testify to those questions would be contained in the memory aid or in the underwriting summary.
All in all, in each 30(b)(6) deposition, whether the CFPB’s tactic was to object at every turn, instruct its witness not to answer, refuse to acknowledge any exculpatory facts, or have its witness read extended and nonresponsive answers, the CFPB tried to game the system so that nothing was accomplished. USCA11 Case: 21-14468 Document: 94-1 Date Filed: 06/12/2023 Page: 13 of 23 Case 1:15-cv-00859-RWS Document 768 Filed 06/12/23 Page 13 of 25
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Opinion of the Court 21-14468 C.
The District Court’s Sanctions Order Because of the CFPB’s contumacious conduct, defendants moved for sanctions pursuant to Rule 37,10 requesting that the district court strike the CFPB’s claims against them.11 The district court granted defendants’ motions, beginning its analysis with the rules and what conduct they covered—i.e., Rule 37(b) is applicable when a party fails to “obey an order to provide or permit discovery” and Rule 37(d) is applicable when a “person designated under Rule 30(b)(6)” fails to appear for that person’s deposition. Under both rules, potential sanctions included “striking pleadings in whole or in part.” Fed. R. Civ. P.
10 Federal Rule of Civil Procedure 37 permits a district court to impose sanctions for a party’s “failure to make disclosures or to cooperate in discovery.” Fed. R. Civ. P. 37. Specifically, under Rule 37(b)(2)(A), a district court may issue sanctions “[i]f a party or a party’s officer, director, or managing agent—or a witness designated under Rule 30(b)(6) . . .—fails to obey an order to provide or permit discovery . . . .” Id. at 37(b)(2)(A). And, under Rule 37(d), sanctions are appropriate if “a party or a party’s officer, director, or managing agent—or a person designated under Rule 30(b)(6) . . . —fails, after being served with proper notice, to appear for that person’s deposition . . . .” Id. at 37(d)(1)(A)(i).
11 Defendants technically brought three different motions which all sought sanctions in the form of striking the claims against them. Considered together, these motions are the subject of this appeal. Pathfinder also moved for Rule 11 sanctions against the CFPB and its counsel (seeking an award of costs and attorneys’ fees as well), alleging that the CFPB’s claim amounted to government overreach and was frivolous. The court denied this motion, and it is not part of this appeal.
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21-14468 Opinion of the Court 37(b)(2)(A)(iii); see also id. at (d)(3) (“Sanctions may include any of the orders listed in Rule 37(b)(2)(A)(i)–(vi).”).
In its Rule 37(b) analysis (failure to obey a court order to provide or permit discovery), the court found that, despite its instructions that defendants were entitled to question the CFPB about the factual underpinnings of its claims, the CFPB “put up as much opposition as possible at every turn” through a two-pronged strategy of (1) reading from the memory aids to “bury the [d]efendants in so much information that it [could not] possibly identify, with any reasonable particularity, what support[ed] the CFPB’s claims,” and (2) “assert[ing] privilege objections to questions that the [c]ourt ha[d] repeatedly ordered to be answered.” Because “neither form [of opposition was] proper,” the district court sanctioned the CFPB under Rule 37(b), finding that the CFPB “demonstrate[d] a willful disregard [for] the [c]ourt’s instructions.”
The district court also found that the CFPB’s witness “failed to appear” pursuant to Rule 37(d) because, even though he was physically present, he was effectively unavailable due to his inability to answer questions without memory aids and refusal to address exculpatory evidence.
Finally, because the CFPB’s conduct was egregious,12 and “the Court [was] not optimistic that reopening the depositions
12 In addition to the bad faith usage of objections and memory aids, the district court also found that the CFPB’s repeated insistence that there were no USCA11 Case: 21-14468 Document: 94-1 Date Filed: 06/12/2023 Page: 15 of 23 Case 1:15-cv-00859-RWS Document 768 Filed 06/12/23 Page 15 of 25
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Opinion of the Court 21-14468 would be fruitful,” the district court granted defendants’ motions for Rule 37 sanctions, struck all claims against the five serviceproviding defendants, and dismissed them from the case. II.
Standard of Review
“The standard of review for a Rule 37(b) dismissal is not whether the reviewing court would, as an original matter, have dismissed the action; it is whether the district court abused its discretion in dismissing the action.” Aztec Steel Co. v. Fl. Steel Corp., 691 F.2d 480, 481 (11th Cir. 1982); see also Marshall v. Segona, 621 F.2d 763, 766 (5th Cir. 1980) (“The bandwidth of the District Court’s power to impose Rule 37 sanctions is broad indeed. We will not interfere unless . . . there has been an abuse of discretion.”).13 When reviewing discovery motions, “wide discretion” is proper because “[a] judge’s decision as to whether a party or lawyer’s actions merit imposition of sanctions is heavily dependent on the court’s firsthand knowledge, experience, and observation.” Harris v. Chapman, 97 F.3d 499, 506 (11th Cir. 1996).
If the district court applies an incorrect legal standard, fails to follow the appropriate procedures when making the relevant determination, or makes findings of fact that are clearly erroneous,
exculpatory facts in the voluminous record was a “bad faith attempt to frustrate the purpose of the [d]efendants’ depositions.” 13 In Bonner v. City of Prichard, 661 F.2d 1206, 1209 (11th Cir. 1981) (en banc), this Court adopted as precedent the decisions of the former Fifth Circuit handed down prior to October 1, 1981.
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21-14468 Opinion of the Court it abuses its discretion. Lugo v. Sec’y, Fla. Dep’t of Corr., 750 F.3d 1198, 1207 (11th Cir. 2014). “A factual finding is clearly erroneous when although there is evidence to support it, the reviewing court on the entire evidence is left with the definite and firm conviction that a mistake has been committed.” United States v. Robertson, 493 F.3d 1322, 1330 (11th Cir. 2007) (quotation omitted). III.
Discussion
The district court dismissed the service-providing defendants after finding that the CFPB violated both Rule 37(b)— for failure to obey a court order to provide or permit discovery— and Rule 37(d)—for the witness’s failure to appear at a Rule 30(b)(6) deposition. We affirm because we conclude that sanctions were clearly permitted under Rule 37(b) and the CFPB’s discovery abuses were sufficiently egregious to merit dismissal; thus, the district court did not abuse its discretion.14 See Aztec Steel, 691 F.2d at 481.
A.
Rule 37(b) Sanctions Generally The CFPB argues that the district court abused its discretion in sanctioning the CFPB under Rule 37(b) because the CFPB “made all reasonable efforts” to comply with the court’s unclear instructions. We conclude that the district court did not abuse its discretion in imposing Rule 37(b) sanctions against the CFPB
14 We do not reach the question of whether a 30(b)(6) witness who is physically present but refuses to offer meaningful testimony has “failed to appear” pursuant to Rule 37(d).
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Opinion of the Court 21-14468 because it repeatedly disobeyed the district court’s instructions and orders regarding the Rule 30(b)(6) depositions. See Aztec Steel, 691 F.2d at 481.
Rule 37(b) provides: “If a party or a party’s officer, director, or managing agent—or a witness designated under Rule 30(b)(6) or 31(a)(4)—fails to obey an order to provide or permit discovery . . . the court where the action is pending may issue further just orders.” Fed. R. Civ. P. 37(b). “This rule gives district judges broad discretion to fashion appropriate sanctions for violation of discovery orders[.]” Malautea v. Suzuki Motor Co., Ltd., 987 F.2d 1536, 1542 (11th Cir. 1993). “Sanctions . . . for violation of an order are only appropriate if ‘the order stated in specific and clear terms what acts were required or prohibited.’” In re Se. Banking Corp., 204 F.3d 1322, 1332 (11th Cir. 2000) (quoting E.E.O.C. v. Gen. Dynamics Corp., 999 F.2d 113, 116 (5th Cir. 1993)). But “Rule 37, on its face, does not require that a court formally issue an order compelling discovery before sanctions are authorized.” United States v. Certain Real Prop. Located at Route 1, Bryant, Ala., 126 F.3d 1314, 1317 (11th Cir. 1997).
Contrary to the CFPB’s argument, the district court’s instructions and orders were clear.15 See In re Se. Banking Corp.,
15 As a starting principle, district courts are not required to hold a litigant’s hand and guide him through the basics of discovery. By repeatedly telling the CFPB what was expected during a deposition, the district court was already going out of its way to provide extra instruction to an off-track party. Unfortunately, the CFPB was not an unsophisticated litigant that merely USCA11 Case: 21-14468 Document: 94-1 Date Filed: 06/12/2023 Page: 18 of 23 Case 1:15-cv-00859-RWS Document 768 Filed 06/12/23 Page 18 of 25
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21-14468 Opinion of the Court 204 F.3d at 1332 (affirming sanctions that were issued after the defendant violated multiple clear discovery orders). Before the CFPB sat for the first Rule 30(b)(6) deposition, the district court considered the CFPB’s initial objections and reconsidered those same arguments when it moved for protective orders. The district court emphasized on multiple occasions that “factual matters are subject to inquiry . . . .” For example, in ruling on one motion for a protective order, the district court narrowed a potential topic to “all facts relevant to Plaintiff’s claims against Global Payments, including all facts that Plaintiff could reasonably identify as exculpatory.”16 The clear upshot was that the CFPB had to sit for depositions during which defendants were “entitled to question the CFPB about the factual underpinnings of its allegations against them.” The CFPB did not misunderstand—it disagreed. If these instructions were not enough—and they should have been—the district court reasserted these points during the telephonic hearing after the first deposition. During the hearing,
misunderstood the rules, but rather an arm of the federal government that sought to overrun them.
16 The CFPB argues that the district court overreached in issuing this instruction. In its words, “it was improper for the district court to order [CFPB] to specifically identify evidence that it considered exculpatory,” so it was assuredly improper to sanction the CFPB for failing to do so. The CFPB overstates its case. The district court’s instruction did not ask the CFPB to hand over the keys to its case; rather, it merely reiterated that facts—including those that were exculpatory—were fair game and could not be hidden from the service-providing defendants during 30(b)(6) depositions. USCA11 Case: 21-14468 Document: 94-1 Date Filed: 06/12/2023 Page: 19 of 23 Case 1:15-cv-00859-RWS Document 768 Filed 06/12/23 Page 19 of 25
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Opinion of the Court 21-14468 the district court stressed that work product objections should be limited to work product concerns—“so long as the inquiries are into facts that are within the knowledge of the [CFPB] . . . they’ve got to be answered”—and that the CFPB’s witness must do more than just read verbatim from a lawyer-prepared script—“the witness needs to be prepared and versed . . . to address these topics that require . . . a response that’s more of a human touch . . . .” Nevertheless, the CFPB again ignored these directions in subsequent depositions. The CFPB’s witness continued to read— or stipulate that he would have read—canned answers from memory aids rather than offering organic answers with a “human touch.” This continued refusal undermined the very purpose of a Rule 30(b)(6) deposition and rendered the practice nothing more than a glorified document production—an entirely different discovery tool with a different purpose. See Fed. R. Civ. P. 34. The CFPB does not have the power to decide which discovery rules it will abide by and which it will ignore.17 Similarly, the CFPB continued to lodge work-product objections to simple, fact-based questions. During the four depositions after the telephonic hearing (when the CFPB was given
17 The CFPB asks us to credit it for preparing its witness for a significant amount of time. We are unaware of any rule or case law that recognizes preparation time as a metric of measuring compliance with the Federal Rules of Civil Procedure and it is not clear why preparation time—rather than level of preparedness exhibited during the deposition, for example—should be considered at all.
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21-14468 Opinion of the Court at least its third set of instructions), there were a shocking number of improper objections and instructions for its witness not to answer.18 To top it off, the CFPB continued to take the incredible position that exculpatory facts did not exist as to any defendant in the case.
In light of the CFPB’s repeated failure to obey the district court’s orders, we conclude that the district court did not abuse its discretion in imposing Rule 37(b) sanctions. See Aztec Steel, 691 F.2d at 481; Malautea, 987 F.2d at 1542.
B.
Dismissal as an Appropriate Sanction
At this point, the question shifts from “should the district court have issued sanctions?” to “should the district court have issued that sanction?”19 The CFPB argues that the district court abused its discretion by imposing a sanction that was too severe.
“[D]ismissal is a severe sanction . . . .” United States v. $239,500 in U.S. Currency, 764 F.2d 771, 773 (11th Cir. 1985). Nonetheless, “the district court retains the discretion to dismiss a complaint where the party’s conduct amounts to flagrant disregard
18 In its brief, the CFPB calls our attention to the few times that it lodged a proper work product objection and/or allowed its witness to answer a factbased question without objecting. We think it obvious that a splash of proper conduct amidst an expansive sea of impropriety is insufficient to save the CFPB from sanctions.
19 Again, one of the potential sanctions for a Rule 37(b) violation was “striking pleadings in whole or in part.” Fed. R. Civ. P. 37(b)(2)(A)(iii). USCA11 Case: 21-14468 Document: 94-1 Date Filed: 06/12/2023 Page: 21 of 23 Case 1:15-cv-00859-RWS Document 768 Filed 06/12/23 Page 21 of 25
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Opinion of the Court 21-14468 and willful disobedience of the court’s discovery orders.” Hashemi v. Campaigner Publ’ns Inc., 737 F.2d 1538, 1539 (11th Cir. 1984) (quotation omitted). Although the district court is always required to assess whether lesser sanctions would suffice, it is not required to explicitly say as much when the rest of its analysis makes that finding obvious. See Betty K Agencies, Ltd. v. M/V MONADA, 432 F.3d 1333, 1337–38 (11th Cir. 2005) (“[A] dismissal with prejudice, . . . is an extreme sanction that may be properly imposed only when . . . the district court specifically finds that lesser sanctions would not suffice.” (emphasis in original)); Phipps v. Blakeney, 8 F.3d 788, 791 (11th Cir. 1993) (“[S]ome cases speak for themselves and are clear enough without the district court adding a section to its opinion to explain why lesser sanctions were not used.”). Finally, the Supreme Court has warned against viewing dismissal as too extreme when reviewed on appeal with the benefit of hindsight. Nat’l Hockey League v. Metro. Hockey Club, Inc., 427 U.S. 639, 642 (1976) (“There is a natural tendency on the part of reviewing courts . . . to be heavily influenced by the severity of outright dismissal as a sanction for failure to comply with a discovery order. . . . But here, as in other areas of the law, the most severe in the spectrum of sanctions provided by statute or rule must be available to the district court in appropriate cases . . . .”).
Whether dismissal was an appropriate sanction does not require much additional analysis. The district court dismissed the claims against defendants only after determining that “in light of the [CFPB’s] pattern of conduct in this case, [it was] not optimistic USCA11 Case: 21-14468 Document: 94-1 Date Filed: 06/12/2023 Page: 22 of 23 Case 1:15-cv-00859-RWS Document 768 Filed 06/12/23 Page 22 of 25
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21-14468 Opinion of the Court that reopening the depositions would be fruitful.” That is, the district court offered its rationale for why the severe sanction of dismissal was necessary.
We are reviewing under the abuse of discretion standard. There was no such abuse, and we decline to second-guess the district court’s conclusion that reopening discovery would not be fruitful in this case that it was intimately familiar with. Hashemi, 737 F.2d at 1539; Nat’l Hockey League, 427 U.S. at 642. Finally, while the CFPB argues that dismissal was improper because the service-providing defendants were not prejudiced by its conduct, we staunchly disagree and believe the record (as reiterated throughout this opinion) speaks for itself in refuting this contention.
IV.
Conclusion The CFPB was determined to avoid 30(b)(6) depositions. To realize its goal, the CFPB employed tactics that the district court repeatedly forbade. As such, the CFPB clearly violated Rule 37(b) and severe sanctions were warranted. We therefore hold that the district court’s sanctions order dismissing the CFPB’s claims against the five appellees was not an abuse of discretion. AFFIRMED.
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UNITED STATES COURT OF APPEALS FOR THE ELEVENTH CIRCUIT ELBERT PARR TUTTLE COURT OF APPEALS BUILDING 56 Forsyth Street, N.W.
Atlanta, Georgia 30303 David J. Smith Clerk of Court
June 12, 2023 For rules and forms visit www.ca11.uscourts.gov
MEMORANDUM TO COUNSEL OR PARTIES
Appeal Number: 21-14468-AA Case Style: Consumer Financial Protection Bureau v. Universal Debt Solutions, LLC, et al District Court Docket No: 1:15-cv-00859-RWS
All counsel must file documents electronically using the Electronic Case Files ("ECF") system, unless exempted for good cause. Although not required, non-incarcerated pro se parties are permitted to use the ECF system by registering for an account at www.pacer.gov. Information and training materials related to electronic filing are available on the Court's website. Enclosed is a copy of the court's decision filed today in this appeal. Judgment has this day been entered pursuant to FRAP 36. The court's mandate will issue at a later date in accordance with FRAP 41(b).
The time for filing a petition for rehearing is governed by 11th Cir. R. 40-3, and the time for filing a petition for rehearing en banc is governed by 11th Cir. R. 35-2. Except as otherwise provided by FRAP 25(a) for inmate filings, a petition for rehearing or for rehearing en banc is timely only if received in the clerk's office within the time specified in the rules. Costs are governed by FRAP 39 and 11th Cir.R. 39-1. The timing, format, and content of a motion for attorney's fees and an objection thereto is governed by 11th Cir. R. 39-2 and 39-3. Please note that a petition for rehearing en banc must include in the Certificate of Interested Persons a complete list of all persons and entities listed on all certificates previously filed by any party in the appeal. See 11th Cir. R. 26.1-1. In addition, a copy of the opinion sought to be reheard must be included in any petition for rehearing or petition for rehearing en banc. See 11th Cir. R. 35-5(k) and 40-1 .
Counsel appointed under the Criminal Justice Act (CJA) must submit a voucher claiming compensation for time spent on the appeal no later than 60 days after either issuance of mandate or filing with the U.S. Supreme Court of a petition for writ of certiorari (whichever is later) via the eVoucher system. Please contact the CJA Team at (404) 335-6167 or [email protected] for questions regarding CJA vouchers or the eVoucher system.
Pursuant to Fed.R.App.P. 39, costs taxed against the appellant. USCA11 Case: 21-14468 Document: 94-2 Date Filed: 06/12/2023 Page: 1 of 2 Case 1:15-cv-00859-RWS Document 768 Filed 06/12/23 Page 24 of 25
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Please use the most recent version of the Bill of Costs form available on the court's website at www.ca11.uscourts.gov.
Clerk's Office Phone Numbers General Information: 404-335-6100 Attorney Admissions: 404-335-6122 Case Administration: 404-335-6135 Capital Cases: 404-335-6200 CM/ECF Help Desk: 404-335-6125 Cases Set for Oral Argument: 404-335-6141
OPIN-1A Issuance of Opinion With Costs
USCA11 Case: 21-14468 Document: 94-2 Date Filed: 06/12/2023 Page: 2 of 2 Case 1:15-cv-00859-RWS Document 768 Filed 06/12/23 Page 25 of 25