United States of America v. Business Recovery Services LLC et al

Filing 161

ORDER denying 142 Motion to Dismiss; denying as moot 156 Motion for Leave to File Surreply. FURTHER ORDERED vacating the oral argument currently set for 11:00 am. on April 23, 2012. See order for full details. Signed by Judge James A Teilborg on 4/10/12.(SJF)

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IN THE UNITED STATES DISTRICT COURT

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FOR THE DISTRICT OF ARIZONA

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Plaintiff,
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vs.
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Business Recovery Services, LLC; Brian)
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Hessler,
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Defendants.
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United States of America,

No. CV11-390-PHX-JAT
ORDER

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Currently pending before the Court is Defendants’ Motion to Dismiss (Doc. 142). The
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Court will deny the Motion as untimely.1

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BACKGROUND
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Defendant Business Recovery Services (“BRS”) is an Arizona limited liability
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company with its principal place of business in Maricopa County. Defendant Brian Scott
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Hessler is the owner of Business Recovery Services (collectively referred to herein as
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“Defendants”).
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Defendants sell goods and services, including “recovery kits,” that they state allow
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customers to recover funds that consumers have lost in previous transactions. Some of the
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After reviewing the briefing, the Court finds that oral argument would not aid its
decisional process. The Court therefore vacates the oral argument currently set for 11:00
a.m. on April 23, 2012. See e.g., Partridge v. Reich, 141 F.3d 920, 926 (9th Cir. 1998).

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customers who purchase Defendants’ recovery kits lost money or other items of value in

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previous telemarketing transactions.

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Defendants market and sell their recovery kits to customers located across the United

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States. Defendants initiate outbound telephone calls and receive inbound telephone calls.

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These calls are used to induce customers to purchase Defendants’ recovery goods and

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services.

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When a customer agrees to purchase one or more of Defendants’ kits, Defendants

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immediately charge or bill the costumer for the recovery kit(s). Defendants bill and

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customers pay for recovery kit(s) before the recovery kit(s) are sent to the customers.

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Defendants’ recovery kits contain a variety of materials, including a list of the

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business recovery kits Defendants sell, publications produced by the Federal Trade

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Commission on Business Opportunities, and instructions on how to use the recovery kit.

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Additionally, Defendants’ recovery kits contain form letters, with blanks for customers to

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write down their personal information, addressed to the Internal Revenue Service, a state

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attorney general’s office, the Better Business Bureau, the customer’s credit card company,

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and the United States Postal Inspection Service.

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The Federal Trade Commission (the “Government”) filed this suit on March 1, 2011.

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Defendants filed their Answer on March 28, 2011. (Doc. 16.) Among other claims, the

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Government alleges that Defendants’ sale of recovery kits for an up-front fee to customers

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who have lost money in previous telemarketing transactions violates the Telemarketing Sales

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Rule, 16 C.F.R. Part 310. The Telemarketing Sales Rule, in relevant part, prohibits those

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selling recovery goods or services from “requesting or receiving payment of any fee or

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consideration from a person for goods or services represented to recover or otherwise assist

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in the return of money or any other item of value paid for by, or promised to, that person in

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a previous telemarketing transaction, until seven (7) business days after such money or other

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item is delivered to that person.” 16 C.F.R. § 310.4(a)(3).

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The Government filed a Motion for a Preliminary Injunction (Doc. 5) to enjoin

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Defendants from violating the Telemarketing Sales Rule. After holding a hearing on April
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5, 2011, the Court granted the Government’s Motion on April 15, 2011. (Doc. 34.) The

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Court enjoined Defendants from “requesting or receiving payment of any fee or

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consideration from a person for goods or services represented to recover or otherwise assist

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in the return of money or any other item of value paid by that person in a previous

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telemarketing transaction, until seven (7) business days after such money or other item is

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delivered to that person.” (Doc. 34, p. 8.)

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On May 24, 2011, the Government filed a Motion to hold Defendants in contempt for

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violating the Court’s injunction by continuing to charge an up-front fee for their recovery kits

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from people who lost money in a prior telemarketing transaction. (Doc. 53.) After holding

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a hearing, the Court granted the Motion on October 17, 2011 and held Defendants in

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contempt. (Doc. 117.) As a contempt sanction, the Court ordered Defendants to pay the

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Government’s attorneys’ fees for the contempt briefing and hearing.

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Also on October 17, the Court denied Defendants’ Motion for New Trial and for

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Opinion Regarding Proposed Conduct (Doc. 38), Motion to Prohibit Website Postings (Doc.

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75), Motion to Dissolve or Modify the Preliminary Injunction (Doc. 83), and Motion to

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Appoint a Master (Doc. 86.) (Doc. 118.) In deciding the Motion to Dissolve, the Court

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found that no significant change in the law or the facts existed justifying a dissolution or

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modification of the injunction. (Doc. 118.) The Court further found that the business-to-

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business exception to the Telemarketing Sales Rule did not apply to Defendants’ sales of the

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recovery kits. (Id.)

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Defendants appealed the Court’s entry of an injunction on November 5, 2011 (Doc.

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128). Despite appealing from the injunction, Defendants filed another Motion to Dissolve

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Preliminary Injunction on November 22, 2011 (Doc. 131) and a Motion to Stay discovery

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pending the appeal (Doc. 132). The Court denied the Motion to Stay and Motion to Dissolve

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on December 8, 2011. (Doc. 137.)

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Defendants did not file their pending Motion to Dismiss for Failure to State a Claim
Under Rule 12(b)(6) until January 16, 2012. (Doc. 142.)

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UNTIMELY MOTION

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Certain defenses, such as failure to state a claim, are waived unless a defendant raises

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them before pleading when a responsive pleading is allowed. Fed.R.Civ.P. 12(b)(6). A Rule

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12(b)(6) motion must be made before a responsive pleading. Elvig v. Calvin Presbyterian

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Church, 375 F.3d 951, 954 (9th Cir. 2004).

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Defendants filed their Answer back on March 28, 2011. (Doc. 16.) They did not file

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the pending Motion to Dismiss until more than nine months later on January 16, 2012, after

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the Court already had conducted both a preliminary injunction and a contempt hearing and

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resolved numerous motions. Because Defendants filed their Rule 12(b)(6) Motion well after

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filing their Answer, the Motion to Dismiss is untimely, and the Court will deny it.

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Both the Government and Defendants suggest that the Court can treat the untimely

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Motion to Dismiss as a motion for judgment on the pleadings. The parties correctly note that

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the Court has the option of treating the pending Motion as one for judgment on the pleadings.

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See Aldabe v. Aldabe, 616 F.2d 1089, 1093 (9th Cir. 1980)(adopting the approach of cases

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holding that “if a motion to dismiss for failure to state a claim is made after the answer is

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filed, the court can treat the motion as one for judgment on the pleadings pursuant to

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F.R.Civ.P.12(c).”). But given the long delay in bringing the Motion and the extensive

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litigation that already has occurred in this case, the Court will decline to treat the Motion to

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Dismiss as a motion for judgment on the pleadings.

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Moreover, even if the Court treated the untimely Motion to Dismiss as a Rule 12(c)

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motion, the Court likely would deny the Motion on the merits. The purpose of proper

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pleading is to give litigants sufficient notice of the claims against them. After holding two

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evidentiary hearings in this case, Defendants undoubtedly have notice of the bases for the

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Government’s claims. Not only do Defendants have notice of the claims, but the Court has

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actually already found that Defendants violated the Telemarketing Sales Rule.

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Accordingly,

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IT IS ORDERED DENYING Defendants’ Motion to Dismiss (Doc. 142).

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IT IS FURTHER ORDERED DENYING as moot the Government’s Motion for
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Leave to File Surreply (Doc. 156).
IT IS FURTHER ORDERED VACATING the oral argument currently set for 11:00
a.m. on April 23, 2012.
DATED this 10th day of April, 2012.

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