Federal Trade Commission v. Good EBusiness, LLC et al
Filing
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ORDER GRANTING PLAINTIFFS MOTION FOR DEFAULT JUDGMENT 45 by Judge Otis D. Wright, II; The Court GRANTS Plaintiffs Application for Default Judgment against Defendants Good Ebusiness (d/b/a AAP Firm, Student Loan Help Direct, and Select Student Loan), Select Student Loan Help, and Select Document Preparation as well as Relief Defendant Beverley Hills Tax Group. (lc)
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United States District Court
Central District of California
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FEDERAL TRADE COMISSION,
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Plaintiff,
ORDER GRANTING PLAINTIFF’S
v.
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Case No. 2:16-cv-01048-ODW-JPR
MOTION FOR DEFAULT
GOOD EBUSINESS, LLC, also d/b/a
AAP FIRM, STUDENT LOAN HELP
DIRECT, and SELECT STUDENT
LOAN; SELECT STUDENT LOAN
HELP, LLC; SELECT DOCUMENT
PREPARATION, INC.; TOBIAS
WEST; and KOMAL WEST,
Defendants, and
BEVERLY HILLS TAX GROUP, LLC,
Relief Defendant.
JUDGMENT [45]
I.
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INTRODUCTION
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On March 8, 2016, Plaintiff Federal Trade Commission filed its First Amended
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Complaint against Defendants Good Ebusiness, LLC (doing business as AAP Firm,
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Student Loan Help Direct, and Select Student Loan), Select Student Loan Help, LLC,
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Select Document Preparation, Inc., Tobias West, and Komal West (“Defendants”), as
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well as Relief Defendant Beverly Hills Tax Group, LLC (“Relief Defendant”).
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Plaintiff alleges Defendants violated the Federal Trade Commission Act (“FTC
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Act”), the Telemarketing and Consumer Fraud and Abuse Prevention Act
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(“Telemarketing Act”), and the 2009 Omnibus Appropriations Act (“2009 Omnibus
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Act”) by preying on financially struggling consumers and promising to make their
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mortgage or student loan payments substantially lower by renegotiating with their
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lender—but without ever having any intention of actually doing so.
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Compl. (“FAC”), ECF No. 31.)
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Defendants Good Ebusiness, Student Loan Help Direct, Select Student Loan, Select
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Student Loan Help, and Select Document Preparation (“Defaulting Defendants”) and
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Relief Defendant on March 29, 2016. (ECF No. 40.) Plaintiff subsequently moved
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for default judgment against Defaulting Defendants, in which Plaintiff seeks monetary
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relief equal to revenues less chargebacks between August 2013 and the end of
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February 2016 (totalling $2,329,456), disgorgement of all funds in Beverley Hills Tax
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Group’s accounts, and an injunction banning Defaulting Defendants from selling
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unsecured or secured debt relief products or services, making material
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misrepresentations in connection with any product or service, or making claims in
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connection with any product or service without possessing competent and reliable
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substantiation.
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discussed below, the Court GRANTS Plaintiff’s Motion.1
(First Am.
The Clerk of Court entered default against
(Mot. Default J. (“Mot.”) 8–13, ECF No. 45.)
For the reasons
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After carefully considering the papers filed in support of the Motion, the Court deems the matter
appropriate for decision without oral argument. Fed. R. Civ. P. 78; L.R. 7-15.
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II.
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FACTUAL BACKGROUND
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Plaintiff Federal Trade Commission (“FTC”) is an independent agency of the
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United States Government created by 15 U.S.C. §§ 41—58. (FAC ¶ 4.) Defendant
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Good Ebusiness, LLC (“GEB”) is incorporated in Nevada and has also done business
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as The AAP Firm (“AAP”), Student Loan Help Direct (“SLHD”), and Select Student
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Loan (“SSL”). (Id. ¶ 6.) Defendant Select Student Loan Help, LLC (“SSLH”) is
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incorporated in Florida. ( Id.¶ 7.) Defendant Select Document Preparation, Inc.
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(“SDP”) is also incorporated in Nevada. (Id. ¶ 8.) Each corporation is controlled by
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Defendants Tobias West and his wife, Komal West. (Id. ¶¶ 9–10.) Relief Defendant
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Beverly Hills Tax Group has received funds or assets that can be traced to
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Defendants’ fraudulent business practices as alleged in the FAC. (Id. ¶ 11.)
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From at least January 2014 to August 2014, Defendants GEB (d/b/a AAP) and
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Tobias West engaged in a course of conduct to market and sell mortgage assistance
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relief services (“MARS”). (Id. ¶ 14.) These “MARS Defendants” marketed their
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services primarily via unsolicited outbound telemarketing calls, inbound telemarketing
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calls from consumers responding to online advertising at their website, and direct mail
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advertising.
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consumers that they would lower the consumer’s monthly mortgage payment,
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mortgage interest rate, or obtain loan forbearance, a loan modification, or other loan
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restructuring. (Id. ¶ 16.) Furthermore, MARS Defendants purported to be a law firm
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that would provide forensic loan audits and other services to identify errors in
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consumers’ mortgage loan documents, ferret out predatory lending practices, gather
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information to defend against foreclosure, and win concessions from lenders. (Id. ¶
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17.)
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$5,000, and represented that, if they were unable to secure the promised relief, they
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would fully refund all fees paid by the consumers. (Id. ¶ 18.) However, in numerous
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instances, MARS Defendants failed to obtain the promised relief for their customers
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and have not provided the promised refund. (Id. ¶ 19.)
(Id. ¶ 15.)
To induce consumers, MARS Defendants promised
MARS Defendants charged an initial up-front fee, ranging from $1,000 to
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From at least June 2014 to the present, Defendants GEB (d/b/a SLHD and
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SSL), SSLH, SDP, Tobias West, and Komal West (“Student Debt Relief Defendants”)
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have engaged in a similar course of conduct to market and sell a program that aims to
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renegotiate, settle, or otherwise alter the terms of payment for a customer’s student
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loan debt. (Id. ¶¶ 37, 40–41.) Student Debt Relief Defendants represent that, if they
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are unable to secure the promised debt relief, they will refund the fees paid by
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consumers (Id. ¶ 38.)
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Defendants have failed to obtain the promised relief and have not provided the
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promised refund. (Id.) Relief Defendant Beverly Hills Tax Group has received,
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directly or indirectly, funds or other assets from Defendants that are traceable to funds
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obtained from Defendants’ customers through these mortgage and student loan relief
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practices. (Id. ¶ 84.)
However, in numerous instances Student Debt Relief
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On February 16, 2016, Plaintiff filed its initial Complaint against Defendants
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seeking a permanent injunction and other equitable relief. (ECF No. 1.) Plaintiff also
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requested an Ex Parte Temporary Restraining Order (“TRO”) and sought asset relief
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and the appointment of a receiver. (ECF No. 3.) The Court granted the TRO. (ECF
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No. 12.) On February 29, 2016, the Court entered a preliminary injunction against
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Defendants Tobias and Komal West, and against Defaulting Defendants on March 1,
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2016. (ECF Nos. 26–27.) On March 8, 2016, Plaintiff filed its First Amended
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Complaint, adding Beverley Hills Tax Group, LLC, as a relief defendant. (ECF No.
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31.) On March 29, 2016, after Defendants failed to timely respond to Plaintiff’s FAC,
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the Clerk of Court entered a default against Defaulting Defendants GEB (d/b/a AAP,
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SLHD, and SSL), SSLH, and SDP, and Relief Defendant Beverley Hills Tax Group.
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(ECF No. 40.) Plaintiff subsequently filed the present Motion for Default Judgment.
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(ECF No. 45.) Plaintiff’s Motion is now before the Court for decision.
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III.
LEGAL STANDARD
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Federal Rule of Civil Procedure 55(b) authorizes a district court to enter a
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default judgment after the Clerk enters a default under Rule 55(a). District courts
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have discretion over whether to enter default judgment. Aldabe v. Aldabe, 616 F.2d
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1089, 1092 (9th Cir. 1980). When a party moves for a default judgment, the Court
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accepts the well-pleaded factual allegations in the complaint as true, with the
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exception that the moving party must submit evidence establishing the amount of
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damages sought. Televideo Sys., Inc. v. Heidenthal, 826 F.2d 915, 917–19 (9th Cir.
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1987) (per curiam); Fed. R. Civ. P. 54(c) (“[a] judgment by default shall not be
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different in kind or exceed in amount that prayed for in the [complaint]”).
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In exercising its discretion, a court must consider several factors (the Eitel
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factors), which include: (1) the possibility of prejudice to the plaintiff; (2) the merits
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of the plaintiff’s substantive claim; (3) the sufficiency of the complaint; (4) the sum of
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money at stake; (5) the possibility of a dispute concerning material facts; (6) whether
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the defendant’s default was due to excusable neglect; and (7) the strong policy
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underlying the Federal Rules of Civil Procedure favoring decisions on the merits.
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Eitel v. McCool, 782 F.2d 1470, 1471–72 (9th Cir. 1986).
IV.
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A.
DISCUSSION
Procedural Requirements
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Before a court can enter a default judgment against a defendant, the plaintiff
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must satisfy the procedural requirements set forth in Federal Rules of Civil Procedure
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54(c) and 55, as well as Local Rule 55-1. Local Rule 55-1 requires that the movant
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submit a declaration establishing: (1) when and against which party the default was
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entered; (2) identification of the pleading on which the default was entered; (3)
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whether the defaulting party is a minor, incompetent person, or active service
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member; and (4) that the defaulting party was properly served with notice if required.
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Vogel v. Rite Aid Corp., 992 F. Supp. 2d 998, 1006 (C.D. Cal. 2014).
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Here, Plaintiff has satisfied these requirements. Plaintiff’s counsel submitted a
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declaration stating that the Clerk entered a default against Defendants on the First
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Amended Complaint on March 29, 2016. (Durham Decl. ¶ 2, ECF No. 45-1; see also
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ECF No. 40.) Plaintiff’s counsel also declares that Defaulting Defendants are not
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infants, incompetent, or active service members, and that they were properly served
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with written notice via email on May 13, 2016. (Durham Decl. ¶¶ 4–6.) Plaintiffs
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have thus complied with the procedural prerequisites for default judgment.
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B.
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Eitel Factors
The Court finds that the Eitel factors also weigh in favor of default judgment.
The Court will discuss each factor in turn.
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i.
Plaintiff Would Suffer Prejudice
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The first Eitel factor considers whether a plaintiff will suffer prejudice if the
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Court does not enter a default judgment against Defendant. PepsiCo, Inc. v. Cal.
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Security Cans, 238 F. Supp. 2d 1172, 1177 (C.D. Cal. 2002). Plaintiff contends that it
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would suffer prejudice in the absence of a default judgment, as it will be forced to
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commit time and resources to prosecute a lawsuit in which the Defaulting Defendants
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will not participate. See, e.g., Fed. Trade Comm. v. 1263523 Ontario Inc., 205 F.
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Supp. 205, 208-09 (S.D.N.Y. 2002) (denial of default judgment would be “unfairly
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prejudicial” to the FTC when defendant failed to respond to a complaint or default
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motion, or to enter an appearance). This factor favors entry of default judgment
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because Defaulting Defendants have failed to appear or offer a defense in this case.
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Therefore, the only way Plaintiff can obtain relief as well as save resources is through
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default judgment.
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ii.
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The second and third factors, the merits of Plaintiff’s substantive claims and the
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sufficiency of its Complaint, also support an entry of default judgment. These factors
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require plaintiffs to “state a claim upon which they may recover.” See Philip Morris
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USA, Inc. v. Castworld Prods., Inc., 219 F.R.D. 494, 499 (C.D. Cal. 2003).
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Merits of the Claims and Sufficiency of the Complaint
a.
False or Unsubstantiated Representations Claims
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Plaintiff contends that Defendants made false and unsubstantiated claims
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regarding their ability to lower consumers’ mortgage and student loan payments.
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(FAC ¶¶ 52–57.) Under the FTC Act, unfair methods of competition in or affecting
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commerce, and unfair or deceptive acts or practices in or affecting commerce, are
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unlawful.
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competitive effect. Cal. Dental Ass’n v. Fed. Trade Comm., 526 U.S. 756, 771–72
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(1999).
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oppression are unfair methods of competition. Consol. Book Publ’rs, Inc. v. Fed.
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Trade Comm., 53 F.2d 942, 945 (1931).
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15 U.S.C. § 45(a).
False or misleading representation has an anti-
Business practices characterized by deception, bad faith, fraud, and
Here, Defendants represented themselves as lawyers that would substantially
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lower a consumer’s mortgage and/or student loan payments.
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Furthermore, they told consumers that they would refund their fees if they were
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unsuccessful in obtaining the promised relief. (Id. ¶¶ 25, 52, 55.) However, Plaintiff
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alleges that upon failure to obtain lower payments, Defendants did not provide the
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promised refunds. (Id. ¶¶ 31, 49.) Plaintiff also alleges that such representations were
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false or unsubstantiated at the time they were made. (Id. ¶¶ 53, 56.) Because
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plaintiff’s allegations are taken as true on default, the Court finds that Plaintiff has
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made its prima facie case for a section 45(a) violation. Therefore, the False and
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Unsubstantiated Representations claims are deemed meritorious.
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b.
(FAC ¶¶ 52, 55.)
MARS Rules Violations Claims
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In 2009, Congress directed the FTC to prescribe rules prohibiting unfair or
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deceptive acts or practices with respect to mortgage loans. 2009 Omnibus Act § 626,
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123 Stat. at 678, as clarified by the Credit Card Act, § 511, 123 Stat. at 1763–64.
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These provisions were subsequently codified at 12 C.F.R. Part 1015 and renamed
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“Regulation O.” Under these regulations, a “mortgage assistance relief provider” is
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“any person that provides, offers to provide, or arranges for others to provide, any
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mortgage assistance relief service,” other than the dwelling loan holder, the servicer of
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a dwelling loan, or any agent or contractor of such an individual or entity. 12 C.F.R. §
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1015.2(j). Here, Defendants engaged in a course of conduct to market and sell
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MARS, including home loan modification services. (FAC ¶¶ 13–31.) Therefore, they
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are subject to the MARS regulations.
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Plaintiff contends that MARS Defendants committed multiple violations of
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Regulation O. (Id. 58–68.)
To request or receive payment of any fee, before the
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consumer has executed a written agreement with their dwelling loan holder or servicer
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that incorporates the offer of mortgage assistance relief that the provider obtained, is a
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violation of Regulation O. 12 C.F.R. § 1015.5(a). Representing that a consumer
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cannot or should not contact or communicate with his or her lender or servicer is also
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a violation. 12 C.F.R. § 1015.3(a). Furthermore, it is a violation to misrepresent,
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expressly or by implication, material aspects of one’s services.
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1015.3(b)(1)–(4), (6), (8).
12 C.F.R. §
Finally, one violates MARS Regulation O if they
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inadequately disclose that 1) one’s services are not associated with the government; 2)
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one’s lender may not agree to change the loan; 3) one may choose not to pay for
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services if they decline the mortgage assistance from their lender; and 4) if one stops
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paying their lender they could lose their home and damage their credit. 12 C.F.R. §
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1015.4(a)(1)–(2), (b)(1)–(3), (c).
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Here, Plaintiff alleges consumers paid MARS Defendants advances of $500 to
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$5,000 prior to the consumer executing a written agreement with the lender or servicer
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that incorporated an offer for loan modification. (FAC ¶¶ 27, 65.) Plaintiff contends
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that MARS Defendants have represented, either expressly or by implication, that a
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consumer cannot or should not contact or communicate with his or her lender or
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servicer.
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materially misrepresented consumers’ likelihood of obtaining a mortgage modification
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that would make their payments substantially more affordable, the amount of time it
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would take to accomplish any represented service or result, consumers’ obligation to
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make payments, and the ability to receive legal representation. (Id. ¶¶ 21–24, 67.)
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Moreover, Plaintiff claims that MARS Defendants did not disclose to consumers that
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1) they were not associated with the government; 2) that lenders may not agree to
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change the loan; 3) they may choose not to pay for their services if they declined the
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mortgage assistance offered; and 4) they could lose their home and damage their
(Id. ¶¶ 24, 66.)
Furthermore, Plaintiff asserts that MARS Defendants
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credit if they stopped paying their lender. (Id. ¶¶ 20–21, 68.) Because Plaintiff’s
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allegations are taken as true on default, the Court finds that Plaintiff made out a prima
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facie case for violation of MARS Regulation O.
c.
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Telemarketing Sales Rule Violations Claims
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Congress directed the FTC to prescribe rules prohibiting abusive and deceptive
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telemarketing acts or practices pursuant to the Telemarketing Act, 15 U.S.C. § 6101,
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et seq.
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initiates or receives telephone calls to or from a customer or donor. 16 C.F.R. §
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310.2(cc).
A “telemarketer” is any person who, in connection with telemarketing,
A “seller” is any person who, in connection with a telemarketing
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transaction, provides, offers to provide, or arranges for others to provide goods or
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services to a customer in exchange for consideration. 16 C.F.R. § 310.2(aa). A “debt
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relief service” refers to any program or service represented, directly or by implication,
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to renegotiate, settle, or in any way alter the terms of payment or other terms of the
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debt between a person and one or more unsecured creditors or debt collectors. 16
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C.F.R. § 310.2(m). Here, Student Debt Relief Defendants made initial outbound calls
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to potential customers. (FAC ¶ 40.) Further, Student Debt Relief Defendants offered
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to provide alterations to the payment of debt between customers and creditors in
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exchange for a fee. (Id. ¶¶ 37–49.) Therefore, the FTC rules prohibiting certain
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telemarketing rules apply to Student Debt Relief Defendants.
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Plaintiff contends that Student Debt Relief Defendants committed multiple
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violations of the Telemarketing Sales Rule Act (“TSR”). (Id. ¶¶ 69–83.) The TSR
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prohibits any seller or telemarketer from requesting or receiving payment of any fees
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or consideration for any debt relief service unless a) they have renegotiated, settled,
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reduced, or otherwise altered the terms of at least one debt pursuant to a settlement
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agreement, debt management plan, or other such valid contractual agreement executed
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by the customer and b) the customer has made at least one payment pursuant to that
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agreement. 16 C.F.R. § 310.4(a)(5)(i). The TSR also prohibits misrepresentation of
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debt relief services including sellers’ affiliation with the government and any material
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aspect of any debt relief services. C.F.R. § 310.3(a)(2)(vii), (x). Finally, under the
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TSR, sellers and telemarketers are prohibited from failing to disclose truthfully that
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the use of the debt relief service may increase the amount of money the customer
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owes due to the accrual of fees and interest. 16 C.F.R. § 310.3(a)(1)(viii)(C).
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Here, Plaintiff contends that Student Debt Relief Defendants required payment
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of a fee typically ranging from $500 to $800, prior to consumers executing a written
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agreement with their lender or servicer that incorporates an offer for student loan debt
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relief.
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misrepresented their affiliation with the government by claiming a false association
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with the United States Department of Education. (Id.¶ 44.) Furthermore, Plaintiff
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alleges that Student Debt Relief Defendants made material misrepresentations when
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they represented to consumers 1) that they would renegotiate, settle, or alter the terms
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of payment of consumers’ student loan debts to secure a specified lower payment; 2)
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that the promised debt relief is guaranteed and if they are unable to secure the
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promised debt relief they will fully refund consumers’ fees; and 3) that consumers
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would not be responsible for the interest that accrues during forbearance. (Id. ¶¶ 42–
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43, 47.) On many occasions, consumers have not received the promised relief and
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upon contacting their lender discovered that Student Debt Relief Defendants never
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made contact. (Id. ¶ 48.) Subsequently, many consumers have been unable to receive
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their refund. (Id. ¶ 49.) Moreover, many consumers have accrued thousands of
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dollars in unpaid interest during forbearance based on the misrepresentations. (Id. ¶
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47.) Lastly, Plaintiff asserts that Student Debt Relief Defendants failed to disclose to
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customers that debt relief service may increase the amount of money the customer
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owes due to fees and interests. (Id. ¶¶ 47, 49, 83.)
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facts to support a Telemarketing Sales Rule Act claim.
(FAC ¶¶ 45, 78.)
Plaintiff asserts that Student Debt Relief Defendants
Plaintiff has alleged sufficient
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iii.
The Amount at Stake Weighs in Favor of Default Judgment
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The fourth factor balances the sum of money at stake “in relation to the
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seriousness of the action.” Lehman Bros. Holdings Inc. v. Bayporte Enters., Inc., No.
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C 11–0961–CW, 2011 WL 6141079, at *7 (N.D. Cal. Oct. 7, 2011) (internal citations
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and quotations omitted). The amount at stake must not be disproportionate to the
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harm alleged. Id. Judgment by default is disfavored where the sum of money at stake
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is too large or unreasonable in relation to defendant’s conduct. Truong Giang Corp. v.
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Twinstar Tea Corp., No. C 06-03594 JSW, 2007 WL 1545173, at *12 (N.D. Cal. May
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29, 2007).
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Plaintiff seeks $2,329,456 as well as disgorgement of frozen funds from Relief
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Defendant. (Mot. 6.) $2,329,456 represents the net sales revenue (revenues less
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chargebacks and refunds) from Defaulting Defendants’ debt relief operations. (Van
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Wazer Decl. ¶¶ 6–11, ECF No. 7-1; Setala Decl. ¶ 4, ECF No. 45-2.) The Court
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received bank statements that demonstrate Defendants and Relief Defendant
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commingled funds and otherwise operated as a common enterprise. (Exs. A–B, ECF
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No. 32-1.) Therefore, the requested relief is directly proportional to the seriousness of
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Defendants’ conduct because it represents value of the consumer injury they caused.
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This factor favors entering a default judgment.
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iv.
There is No Possibility of Dispute as to Material Facts
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The next Eitel factor considers the possibility that material facts are in dispute.
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PepsiCo, 238 F. Supp. 2d at 1177; see also Eitel, 782 F.2d at 1471–72. Upon entry of
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default, all well-pleaded facts in the complaint are taken as true. PepsiCo, 238 F.
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Supp. 2d at 1177. As discussed above, Plaintiff has adequately stated claims for
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violations of the FTC, MARS, and TSR Acts in its FAC. Defendants did not appear
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and thus the Court takes these allegations as true. This factor, therefore, favors the
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entry of default judgment against Defendants.
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v.
There is Little Possibility Default was Due to Excusable Neglect
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Defendants’ default does not appear to be a result of excusable neglect. Where
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there is little possibility of excusable neglect, default judgment is favored when the
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defendant fails to respond after being properly served. See Wecosign, Inc. v. IFG
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Holdings, Inc., 845 F. Supp. 2d 1072, 1082 (C.D. Cal. 2012) (default judgment is
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favored when defendant has been properly served or the plaintiff demonstrates that the
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defendant is aware of the lawsuit). Defaulting Defendants were properly served with
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the FAC by e-mail on March 8, 2016. (ECF No. 34.) Defendants authorized service
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by e-mail on February, 24, 2016. (Ex. A, ECF No. 39-1.) Further, entry of default
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judgment is appropriate when a corporation fails to retain counsel. See High Country
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Broad Co., Inc., 3 F.3d 1244, 1245 (9th. Cir. 2013). Here, Defendants failed to
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respond or appear before this Court and did not obtain counsel. Accordingly, the sixth
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Eitel factor favors default judgment.
vi.
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Policy of Deciding Cases on the Merits
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In Eitel, the court maintained that “[c]ases should be decided upon their merits
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whenever reasonably possible.” 782 F.2d at 1472. However, where, as in the case at
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bar, a defendant fails to answer the plaintiff’s complaint, “a decision on the merits [is]
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impractical, if not impossible.” PepsiCo, 238 F. Supp. 2d at 1177 (“Under Fed. R.
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Civ. P. 55(a), termination of a case before hearing the merits is allowed whenever a
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defendant fails to defend an action.”)
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Plaintiff’s complaint, the Court finds the seventh and final Eitel factor does not
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preclude default judgment. Accordingly, the Court finds default judgment proper in
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the instant matter.
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C.
Because Defendant failed to respond to
Relief Sought
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After determining liability, the Court must determine the relief to which the
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Plaintiff is entitled. Wecosign, 845 F. Supp. 2d at 1078. While for purposes of default
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judgment the Court generally accepts as true the factual allegations of the complaint,
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the Court need not do so regarding damages. Id.
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i.
Monetary Relief Equal to Revenues Less Chargebacks
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Plaintiff seeks monetary relief of $2,329,456, which is the net sales revenue
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(revenues less chargebacks and refunds) of Defendants’ debt relief operations. (Mot.
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6.) When consumers suffer economic injury from a violation of the FTC Act, equity
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supports granting monetary relief equal to the resulting injury. See Fed. Trade Comm.
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v. Stefanchik, 559 F.3d 924, 931 (9th Cir. 2009) (affirming summary judgment award
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equal to the full amount of loss incurred by consumers); Fed. Trade Comm. v.
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Inc21.com Corp., 745 F. Supp. 2d 975, 1011 (N.D. Cal. 2010) (“[because the] FTC
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Act was designed to protect consumers from economic injuries . . . courts have often
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awarded restitution in the full amount of funds lost by consumers rather than limiting
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restitution solely to a defendant’s profits.”). The correct measure of the monetary
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award is “the amount of money paid by consumers, less any refunds made.” Fed.
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Trade Comm. v. Commerce Planet, Inc., F. Supp. 2d 1048, 1088 (C.D. Cal. 2012). So
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long as the FTC reasonably approximates the amount of consumer harm, that damage
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figure should stand unless a defendant can show it is not reasonable. Sec. Exch.
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Comm. v. Platforms Wireless Int’l Corp., 617 F.3d 1072, 1096 (9th Cir. 2010) (the
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risk of uncertainty of a monetary judgment should fall on the wrongdoer whose illegal
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conduct created that uncertainty).
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Here, FTC’s forensic accountant, Tom Van Wazer, analyzed the bank records
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provided by Defaulting Defendants’ financial institutions and calculated the amount of
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revenues, less chargebacks, that Defendants received from August 2013 through
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March 2015 as $1,031,274. (Van Wazer Decl. ¶ 8.) FTC paralegal Eric Setala also
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analyzed bank records and calculated the revenues, less chargebacks, that Defendants
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received from April 2015 through February 2016 as $1,298,182. (Ex. A., ECF No.
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45-2.) Therefore, an award of $2,329,456 is appropriate because this is the total paid
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by consumers less any refunds made, and because Defendants made no showing that
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this amount is unreasonable.
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ii.
Disgorgement of Funds in Relief Defendant’s Accounts
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Plaintiff also seeks disgorgement of all funds in Relief Defendant’s accounts.
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(Mot. 9.) Federal courts may order equitable relief as to a person against whom no
26
wrongdoing is alleged in an enforcement action “if it is established that the relief
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defendant possesses property or profits illegally obtained and the relief defendant has
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no legitimate claim to them.” Fed. Trade Comm. v. Think Achievement Corp., 144 F.
13
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Supp. 2d 1013, 1020 (N.D. Ind. 2000) (citing Sec. Exch. Comm. v. Cherif, 933 F.2d
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403, 414 & n.11 (7th Cir. 1991). “The ill-gotten gains must be linked to the unlawful
3
practices of the liable defendants.” Fed. Trade Comm. v. Bronson Partners, LLC, 674
4
F. Supp. 2d 373, 392 (D. Conn. 2009), aff’d, 654 F.3d 359 (2d Cir. 2011). Direct
5
tracing is unnecessary where, for example, there is a common enterprise or
6
commingling of funds. See Fed. Trade Comm. v. Network Serv.’s Depot, Inc., 617
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F.3d 1127, 1142 (9th Cir. 2010). A party lacks a legitimate claim to illegally obtained
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assets where he or she does not provide consideration for those funds. Sec. Exch.
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Comm. v. Vassallo, No. CIV-S-09- 0665 LKK/DAD, 2012 WL 1868559, at *3 (E.D.
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Cal. 2012). Thus “the receipt of property as a gift, without the payment of any
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consideration, does not create a ‘legitimate claim’ sufficient to immunize the property
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from disgorgement.” Commod. Futures Trading Comm. v. Walsh, 618 F.3d 218, 226
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(2d Cir. 2010).
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On February 19, 2016, Defendant SDP transferred $20,000 from its bank to the
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bank account of Relief Defendant. (Prelim. Report of Temp. Receiver 3–4, ECF No.
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24.)
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appeared to operate as a common enterprise. Id. Furthermore, in between December
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2015 and January 2016, Relief Defendant processed $11,600 in consumer payments
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through its merchant account into one of Defendant SDP’s accounts. (Ex. A, ECF No.
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32-1.) During this same period, Relief Defendant issued payroll checks to Defendant
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Kamal West totaling $32,483, when there was only $17,835 in Relief Defendant’s
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account to make such a payment. (Ex. B, ECF No. 32-2.) Because the funds were
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illegally obtained and there was no consideration provided, and because there is
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evidence of a common enterprise, disgorgement of all funds in Relief Defendant’s
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accounts is appropriate.
The temporary receiver concluded that Defendants and Relief Defendant
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iii.
Injunctive Relief
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Plaintiff also seeks injunctive relief that 1) bans Defendants from selling
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unsecured or secured debt relief products or services; 2) enjoins Defendants from
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1
making material misrepresentations in connection with the sale of financial products
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or services, other than secured or unsecured debt relief products or services, including
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certain misrepresentations specific to financial products or services; 3) prohibits
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material misrepresentations in connection with the sale of any products or service; and
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4) enjoins Defendants from making claims in connection with the sale of any products
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or services without possessing competent and reliable substantiation.
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Section 13(b) of the FTC Act provides that “after proper proof, the court may issue, a
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permanent injunction.” Fed. Trade Comm. v. Pantron I Corp., 33 F.3d 1088, 1102
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(9th Cir. 1994) (FTC Act provides courts with broad authority to grant any ancillary
(Mot. 11.)
10
relief necessary to accomplish complete justice).
A permanent injunction is
11
appropriate where there is a “cognizable danger of recurrent violation, or some
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reasonable likelihood of future violations. United States v. W.T. Grant Co., 345 U.S.
13
629, 633 (1953). To determine the appropriate scope of an injunction, courts analyze:
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“(1) the seriousness and deliberateness of the violation; (2) the ease with which the
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violative claims may be transferred to other products [or services]; and (3) whether the
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[defendant] has a history of prior violations.” Fed. Trade Comm. v. Grant Connect,
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LLC, 763 F.3d 1094, 1105 (9th Cir. 2014).
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Here, the injunctive relief is appropriate given the seriousness of the FTC Act
19
violations, the scope of consumer injury, and the transferability of the false claims at
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issue to other products and services. The ban on Defendants selling debt relief
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products or services is appropriate because they have demonstrated an inability to
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engage in the debt relief business lawfully and only a permanent ban will assure they
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will not similarly be able to take advantage of consumers in the future. Courts in the
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Ninth Circuit have approved similar categorical bans as proper injunctive relief. See,
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e.g., Fed. Trade Comm. v. John Beck Amazing Profits, LLC, 888 F. Supp. 2d 1006,
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1014–15 (C.D. Cal. 2012) (infomercial marketing and telemarketing ban); Inc21.com,
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745 F. Supp. 2d at 1010 (ban on telephonic billing); Fed. Trade Comm. v. Medicor,
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LLC, F. Supp. 2d 1048, 1050–51 (C.D. Cal. Jul. 18, 2002) (telemarketing and work-
15
1
at-home medical billing opportunities bans). The other injunctive prohibitions are
2
appropriate because they are reasonably related to Defaulting Defendants’ illegal
3
practices and have sufficient breadth to provide fencing-in relief to ensure they will
4
not transfer their business tactics to other products or services. Fed. Trade Comm. v.
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Colgate-Palmolive Co., 380 U.S. 374, 395 (1965) (violations of the FTC Act justify
6
fencing-in relief); Litton Indus. v. Fed. Trade Comm., 676 F.2d 364, 370 (9th Cir.
7
1982); John Beck, 888 F. Supp. 2d at 1011. Because Defendants’ violations were
8
particularly severe and because of the transferability of the false claims at issue to
9
other products and services, the proposed injunctions are appropriate.
VI. CONCLUSION
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For the foregoing reasons, the Court GRANTS Plaintiff’s Application for
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Default Judgment against Defendants Good Ebusiness (d/b/a AAP Firm, Student Loan
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Help Direct, and Select Student Loan), Select Student Loan Help, and Select
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Document Preparation as well as Relief Defendant Beverley Hills Tax Group.
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IT IS SO ORDERED.
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July 12, 2016
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____________________________________
OTIS D. WRIGHT, II
UNITED STATES DISTRICT JUDGE
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