Consumer Financial Protection Bureau v. Global Financial Support, Inc. et al

Filing 34

ORDER Granting 25 Motion to Stay. The Court stays this case for a period of 120 days and vacates all dates presently set. The Court sets a status conference for September 16, 2016 at 1:30 p.m. Signed by Judge Gonzalo P. Curiel on 5/17/16. (dlg)

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UNITED STATES DISTRICT COURT

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SOUTHERN DISTRICT OF CALIFORNIA

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CONSUMER FINANCIAL
PROTECTION BUREAU,

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Case No.: 15-cv-02440-GPC-WVG
ORDER GRANTING STAY

Plaintiff,

[ECF No. 25]

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v.

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GLOBAL FINANCIAL SUPPORT, INC.,
d/b/a Student Financial Resource Center,
d/b/a College Financial Advisory; and
ARMOND ARIA a/k/a ARMOND AMIR
ARIA, individually and as owner and
CEO of GLOBAL FINANCIAL
SUPPORT, INC.,

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Defendants.

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Before the Court is a motion to stay proceedings filed by Defendants Global

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Financial Support, Inc. d/b/a Student Financial Resource Center d/b/a College Financial

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Advisory and Armond Aria (collectively “Defendants”). (Mot. Stay, ECF No. 25.) The

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motion has been fully briefed. (See Opp’n, ECF No. 31; Reply, ECF No. 32.) The Court

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finds the motion suitable for disposition without oral argument. CIV. L. R. 7.1(d)(1). Upon

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consideration of the moving papers and the applicable law, and for the following reasons,

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the Court GRANTS in part Defendants’ motion and STAYS the case for 120 days

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following this Order.

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BACKGROUND

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On October 29, 2015, Plaintiff Consumer Financial Protection Bureau’s (“Plaintiff”)

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filed its Complaint against Defendants for alleged violations of Sections 1031(a),

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1036(a)(1)(B), 1053 and 1055 of the Consumer Financial Protection Act (“CFPA”), 12

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U.S.C. §§ 5531, 5536(a)(1)(B), 5564(a) and 5565 in connection with the offering,

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marketing, sale and provision of student financial aid advisory services, and under Section

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1016 of Regulation P, 12 C.F.R. § 1016.4(a), based on Defendants’ failure to provide a

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required notice. (Compl. ¶ 1, ECF No. 1.) Defendant Aria is the owner and registered

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agent of Global Financial Support, Inc., the President of College Financial Advisory, and

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the CEO of Student Financial Resource Center. (Id. ¶ 10.)

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Plaintiff alleges that from at least January 2011 until the present (the “Relevant

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Period”), Defendants have run a deceptive scheme to persuade high school seniors,

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enrolled college students and their families to participate in a student financial aid

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“program.” (Id. ¶ 22.) As part of the program Defendants promise to match students with

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targeted financial aid opportunities.

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purchasing lists of student information from online vendors. (Id. ¶ 28.) Plaintiff alleges

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that Defendants have sent millions of letters to consumers nationwide that employ seals

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and watermarks of iconic images found predominantly on seals and watermarks used by

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government agencies. (Id. ¶ 30.) At the top of each letter is a bold print box that includes

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a “filing deadline” and a “filing status,” which always reads “pending.” (Id. ¶ 31.) Each

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letter also includes in large bold print in a box at the center of the page a nine–digit “student

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profile number” and the name of the student’s academic institution. (Id. ¶ 32.)

(Id.)

Defendants identify these consumers by

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The letters instruct students or their families to fill out and return an application

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called a “Student Aid Profile Form” along with a “refundable processing fee”—which has

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varied from $59 to $78 depending on the year—to proceed with the student aid “program”

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and “apply for the maximum merit and need–based financial aid programs.” (Id. ¶¶ 33–

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34.) Plaintiff alleges that the “Student Aid Profile Form” looks visually similar to the Free

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Application for Federal Student Aid (“FAFSA”) and uses similar terms. (Id. ¶ 33.) On the
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Student Aid Profile Form, Defendants promise to “review” and “assess” borrowers’

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applications and “strive to provide as many targeted financial aid opportunities as possible

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to each and every student, regardless of his/her financial status or academic performance.”

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(Id. ¶ 35.) Defendants’ letters warn that completed forms must be received by the filing

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deadline and that “the entire processing fee will be returned within ten (10) business days

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to all students who do not qualify or do not receive financial aid funding.” (Id. ¶¶ 37, 39.)

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Plaintiff alleges that Defendants’ letters represent that consumers will lose their

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opportunity to obtain student financial aid unless they submit the Student Aid Profile Form

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and pay the fee to Defendants by a specified date. (Id. ¶ 40.) Plaintiff alleges that

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Defendants’ “program” deadline does not correspond to any real deadline associated with

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any particular financial aid opportunity and is an arbitrary date that serves only to give the

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letters an artificial sense of urgency. (Id. ¶ 60.) Plaintiff alleges that Defendant Global

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Financial Support, Inc. claims its physical address is 3268 Governor Drive, Suite F, PMB

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144, San Diego, CA 92122 but the address is merely a PostalAnnex+ store near Defendant

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Aria’s home and not a business address. (Id. ¶¶ 7, 49.)

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Along with the letters, Plaintiff alleges that Defendants’ scheme utilizes two

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websites—www.collegefinadv.org and www.studentctr.org—with .ORG as its generic

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top–level domain. (Id. ¶ 40.) The main pages of these two websites prompt consumers to

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input a “Student Profile Number” in order to enter the site and view content. (Id. ¶ 45.)

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However, although consumers are instructed that they must input their individual nine–

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digit number in order to access the content on the website, there is no individualized content

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on the website. (Id. ¶ 47.) The website provides instructions for downloading and filling

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out the Student Aid Profile Form. (Id.)

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Defendants claim consumers can use a toll–free phone number to reach the “College

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Financial Advisory Student Aid Information Center.” (Id. ¶ 48.) Consumers’ calls to this

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number and the number provided for the Student Financial Resource Center are directed to

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a third–party answering service where an unaffiliated person answers the call, disclaims

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any association with the Defendants, and purportedly forwards any message along to the
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Defendants. (Id.)

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Plaintiff alleges that Defendants do not provide the services offered in their letters

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and on their website and do not fulfill their promise that “the entire processing fee will be

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returned within ten (10) business days to all students who do not qualify or do not receive

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financial aid funding.” (Id. ¶¶ 51, 57.) Instead, many consumers receive absolutely nothing

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or a generic booklet that is not tailored to the consumers’ circumstances in exchange for

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sending in their Student Aid Profile Form and fee. (Id. ¶¶ 58–59.) Plaintiff alleges that

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Defendants have obtained at least $4.7 million in fees from at least 76,000 consumers

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during the Relevant Period. (Id. ¶ 60.)

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On April 7, 2016, Defendants filed the instant motion to stay proceedings. (Mot.

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Stay, ECF No. 25.) On April 26, 2016, Magistrate Judge Gallo stayed all discovery

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pending resolution of Defendants’ motion to stay. (ECF No. 30.) On April 29, 2016,

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Plaintiff filed an opposition (Opp’n, ECF No. 31) and on May 5, 2016, Defendants filed a

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reply (Reply, ECF No. 32).

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LEGAL STANDARD

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“The Constitution does not ordinarily require a stay of civil proceedings pending the

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outcome of criminal proceedings.” Keating v. Office of Thrift Supervision, 45 F.3d 322,

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324 (9th Cir. 1995). Parallel civil and criminal proceedings are unobjectionable under

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Ninth Circuit precedent unless such proceedings substantially prejudice the right of the

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parties involved. Id. “The decision whether to stay civil proceedings in the face of a

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parallel criminal proceeding should be made ‘in light of the particular circumstances and

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competing interests involved in the case.’” Id. (quoting Fed. Sav. and Loan Ins. Corp. v.

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Molinaro, 889 F.2d 899, 902 (9th Cir. 1989)).

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In deciding whether to stay civil proceedings in light of parallel criminal

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proceedings, courts consider the following six factors: (1) the extent to which the

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defendant's Fifth Amendment rights are implicated; (2) the plaintiff's interests in

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proceeding expeditiously and potential prejudice resulting from a delay; (3) judicial

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efficiency; (4) the interests of nonparties; and (5) the public's interests in the pending civil
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and criminal litigation. Keating, 45 F.3d at 324–25. However, “the strongest case for

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deferring civil proceedings until after completion of criminal proceedings is where a party

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under indictment for a serious offense is required to defend a civil or administrative action

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involving the same matter.” SEC v. Dresser Indus., Inc., 628 F.2d 1368, 1375–76 (D.C.

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Cir. 1980).

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DISCUSSION

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After considering the Keating factors, the Court finds that the circumstances weigh

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in favor of granting a temporary stay in the pending civil action.

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A.

Defendants’ Fifth Amendment Rights

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“A defendant has no absolute right not to be forced to choose between testifying in

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a civil matter and asserting his Fifth Amendment privilege.” Keating, 45 F.3d at 326.

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Thus, while the extent to which a defendant's Fifth Amendment rights are implicated is a

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“significant factor” to be considered, it is “only one consideration to be weighed against

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others.” Id. Nonetheless, other than cases involving bad faith or malice on the part of the

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government, “the strongest case for deferring civil proceedings until after completion of

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criminal proceedings is where a party under indictment for a serious offense is required to

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defend a civil or administrative action involving the same matter.” Dresser, 628 F.2d at

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1375–76.

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defendant's Fifth Amendment privilege, expand criminal discovery beyond the limits of

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Federal Rule of Criminal Procedure 16(b), expose the defense strategy to the prosecution

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before the criminal trial, or cause other prejudice. Id. at 1376.

In such cases, allowing the civil action to proceed may undermine the

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Accordingly, where the civil proceeding wholly or substantially overlaps with the

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criminal proceeding, a court may be justified in staying the civil case, deferring civil

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discovery, or taking other protective measures. Id. The case for staying civil proceedings

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is “a far weaker one” when “[n]o indictment has been returned[, and] no Fifth Amendment

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privilege is threatened.” Molinaro, 889 F.2d at 903 (citing Dresser, 628 F.2d at 1376).

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However, the mere possibility of criminal prosecution is all that is necessary for the Fifth

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Amendment privilege against self–incrimination to be invoked. See Matter of Seper, 705
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F.2d 1499, 1501 (9th Cir. 1983). While a defendant in a criminal case may constitutionally

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assert her Fifth Amendment rights with no adverse consequence, a trier of fact in a civil

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case may draw an adverse inference from invocation of the Fifth Amendment. Doe ex rel.

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Rudy–Glanzer v. Glanzer, 232 F.3d 1258, 1264 (9th Cir. 2000). But the Ninth Circuit has

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recognized that this consequence alone does not compel a stay pending the outcome of a

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related criminal case. ESG Capital Partners LP v. Stratos, 22 F. Supp. 3d 1042, 1046

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(C.D. Cal. 2014) (citing Keating, 45 F.3d at 326).

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Here, Defendant Aria’s Fifth Amendment rights are clearly implicated. First,

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although no criminal charges have been filed, the Court has been presented with evidence

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of a current, ongoing law enforcement investigation by the IRS and FBI based on the same

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conduct as here, namely Defendants’ allegedly fraudulent business operations and

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practices. The parallel investigations appear to be as a result of a coordinated effort

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between the CFPB, IRS and FBI. On October 29, 2015, an agent for the CFPB, IRS agents

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and a process server concurrently arrived at Defendant Aria’s personal residence. (Aria

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Decl. ¶ 4, ECF No. 25–1.) The IRS agents, pursuant to criminal warrant (Aria Decl., Ex.

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A, ECF No. 25–1), searched Defendant Aria’s residence and seized electronic equipment,

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financial documents and cash belonging to Defendants. (Id. ¶¶ 5, 11.) Defendant Aria has

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been advised that the IRS’s criminal case against him and Global Financial has been

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referred to the U.S. Attorney’s Office and that federal officials have repeatedly represented

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to Defendants’ criminal defense counsel that the criminal investigation is ongoing. (Id.

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¶ 13.) Defendant Aria represents that the federal government closed his business credit

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card and bank accounts associated with Global Financial. (Id. ¶ 12.)

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Proceeding in this case while invoking the Fifth Amendment will protect Defendant

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Aria against self–incrimination. However the civil proceeding may “expand rights of

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criminal discovery beyond the limits of Federal Rule of Criminal Procedure 16(b), expose

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the basis of the defense to the prosecution in advance of criminal trial, or otherwise

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prejudice the case.” Dresser, 628 F.2d at 1376. With respect to Global Financial, the law

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is clear that a corporation has no privilege against compulsory self–incrimination. United
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States v. Kordel, 397 U.S. 1, 7–8 & n. 9 (9th Cir. 1970) (collecting cases). Nevertheless,

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the Fifth Amendment rights of every director or officer who may speak on behalf of the

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corporation are implicated, and thus, the corporation is likely to be greatly prejudiced in its

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ability to meaningfully defend itself in the civil matter. See Cadence Design Sys. v. Avant!,

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Inc., No. C 95–20828, 1997 U.S. Dist. LEXIS 24147 (N.D. Cal. July 22, 1997) (holding

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that a partial stay was appropriate in a civil proceeding against a corporate defendant where

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certain key witnesses would not be able to testify on behalf of the corporation until the

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conclusion of criminal proceedings). Here, Defendant Aria has represented that he is the

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only person who can testify on behalf of Global Financial as the sole owner and operator

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of Global Financial. (Aria Decl. ¶ 2, ECF No. 25–1.) Although Plaintiff argues that Global

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Financial had other employees who may testify (see Opp’n at 11, ECF No. 31), the parties’

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representations suggest that Defendant Global Financial is essentially Defendant Aria.

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Thus, the Court thus finds that Defendants’ risk of forfeiting the privilege against

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self–incrimination or the ability to defend in this civil proceedings weighs in favor of

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granting a stay.

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B.

Prejudice to Plaintiff

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Courts have recognized that a civil plaintiff has an interest in having her case

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resolved quickly. See S.E.C. v. Loomis, No. 2:10–cv–00458–KJM–KJN, 2013 WL

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4543939, at *2 (E.D. Cal. Aug. 27, 2013). Courts have also recognized that there may be

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prejudice to a plaintiff where a stay of discovery might result in her inability to locate other

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potential defendants. See Gen. Elec. Co. v. Liang, No. CV 13–08670 DDP(VBKx), 2014

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WL 1089264, at *4 (C.D. Cal. Mar. 19, 2014).

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Plaintiff argues that it has a strong interest in proceeding expeditiously with this

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litigation and remediating impacted consumers. (Opp’n at 11, ECF No. 31.) As the agency

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charged with the enforcement of federal consumer financial laws, the CFPB must be able

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to respond quickly to violations and seek prompt judicial redress. Here, however, it appears

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unlikely that the alleged violations will continue if the case is stayed. Defendant Global

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Financial is closed or nonoperational as Defendant Aria does not have access to corporate
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bank or credit card accounts. (Aria Decl. ¶ 12, ECF No. 25–1.) Plaintiff argues that

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although Defendant Aria claims he closed Global Financial, “there is no injunction and

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Defendants did not guarantee that GFS, Inc. will stay closed.” (Opp’n at 12, ECF No. 31.)

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Plaintiff also argues that Defendant Aria has withdrawn at least $75,000 in cash from his

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corporate accounts since this action commenced and Plaintiff’s ability to obtain

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remediation will be “severely diminished if Defendants have time to manipulate their assets

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during a stay.” (Id. at 13.)

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Plaintiff represents, the CFPB or the other federal agencies conducting a criminal

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investigation are free to seek a temporary restraining order to ensure the preservation of

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If the risk if dissipating assets is as real and imminent as

corporate assets.

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Plaintiff also argues that an indefinite stay would be prejudicial because it will make

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it more difficult for the CFPB to locate witnesses, especially in this case where Plaintiff’s

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witnesses are students, a transient population. (Id.) The Court agrees that the delay

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associated with a stay may affect the availability of witnesses and documents or the quality

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of testimony. See Dresser, 628 F.2d at 1377 (“If Justice moves too slowly . . . witnesses

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may die or move away, memories may fade . . . .”). However, it is unlikely that a temporary

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stay would meaningfully affect Plaintiff’s ability to locate witnesses. Furthermore, federal

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agents have already seized many documents from Defendant Aria’s home, suggesting that

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much of the relevant evidence may be in the government’s possession. Thus, the Court

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finds that although this factor favors Plaintiff, it does not tip the overall analysis in

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Plaintiff’s favor.

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C.

Burden on Defendants

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Courts have found that even when a defendant's Fifth Amendment rights are

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implicated, this factor does not support granting a stay unless the defendant can show other

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“compelling factors as described in Keating.” See Gen. Elec. Co., 2014 WL 1089264, at

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*5. The Ninth Circuit has found that where a defendant has had adequate time to prepare

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for a related civil trial, the burden on the defendant is substantially diminished. See

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Keating, 45 F.3d at 325.
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As discussed above, this civil proceeding implicates Defendant Aria’s Fifth

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Amendment rights to a significant degree. Moreover, based on the coordinated effort

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between the federal agencies, it is likely that the agencies are/will be sharing information

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to the extent permitted by law if the criminal proceedings continue, which weighs in favor

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of Defendants’ burden. Defendants also argue that due process rights are implicated due

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to “their inability to elicit useful testimony from Defendant Aria who will (properly) invoke

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his right against self–incrimination.” (Mot. Stay at 10, ECF No. 25.) Plaintiff responds

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that Defendant Aria will be unable to provide exculpatory testimony that Defendants

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earned at least $4.7 million between 2011 and 2015 from at least 76,000 consumers because

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Defendants have conceded this in their Answer. (Opp’n at 14, ECF No. 31.) On balance,

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the Court finds that this factor weighs in favor of Defendants.

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D.

Judicial Efficiency

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The third Keating factor considers “the convenience of the court in the management

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of its cases, and the efficient use of judicial resources.” SEC v. Alexander, No. 10-CV-

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04535-LHK, 2010 WL 5388000, at *5 (N.D. Cal. Dec. 22, 2010) (citing Keating, 45 F.3d

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at 325). Courts have recognized that this Keating factor normally does not favor granting

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a stay, because “the court has an interest in clearing its docket.” Molinaro, 889 F.2d at

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903. On the other hand, a number of courts have concluded that staying a parallel civil

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proceeding in its early stages may prove more efficient in the long run. See Douglas v.

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United States, Nos. C 03–04518, C 04–05357, 2006 WL 2038375, at *5 (N.D. Cal. 2006)

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(allowing the criminal action to proceed first may narrow the issues and streaming

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discovery in the civil proceeding); Jones v. Conte, No. C 045312S1, 2005 WL 1287017, at

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*2 (N.D. Cal. Apr. 19, 2005) (a stay would allow civil discovery to proceeding

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unobstructed by self–incrimination concerns). While this factor on balance favors Plaintiff,

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a stay may make more efficient use of judicial resources.

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E.

Interests of Third–Parties

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Plaintiff argues that the 76,000 plus consumers impacted by Defendants’ scheme

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have an interest in obtaining justice and gaining remediation expeditiously. The Court
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agrees that affected consumers’ interest in obtaining relief is strong. Plaintiff also argues

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that a stay would diminish the CFPB’s ability to obtain remediation for consumers because

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Defendant Aria is dissipating assets. (Opp’n at 13, ECF No. 31.) As discussed supra,

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Defendants contend that they do not have access to corporate funds and federal agencies

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can seek injunctive relief if the possibility of dissipation is imminent. Thus, although the

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Court agrees that consumers have a significant interest in timely litigation of the civil

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proceedings, a temporary stay would not significantly impair those interests.

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F.

Interests of the Public

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Plaintiff argues that there is a strong public interest in proceeding with the civil case

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because delay of proceedings may be detrimental to public confidence, the public has an

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interest that an agency charged with enforcing federal consumer protection laws is able to

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perform its statutory duties, and the public interest demands that Defendants’ scheme be

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stopped and consumers received remediation. (Opp’n at 16, ECF No. 31.) The Ninth

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Circuit has recognized that delay of enforcement proceedings may be detrimental to public

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confidence in an agency's enforcement scheme. Keating, 45 F.3d at 326. However, the

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public also has an interest in ensuring the integrity of criminal proceedings. Thus, although

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the public has a strong interest in the speedy resolution of the civil enforcement action, a

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temporary stay would not undermine the public’s confidence in the CFPB or affected

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consumers’ ability to receive remediation.

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CONCLUSION

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Balancing Defendants’ Fifth Amendment privilege against the other Keating factors,

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the Court concludes that the particular circumstances of this case warrant a stay.

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Accordingly, the Court GRANTS in part Defendants’ motion to stay. The Court STAYS

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this case for a period of 120 days and VACATES all dates presently set. The Court SETS

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a status conference for September 16, 2016 at 1:30 p.m., at which time the parties will

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address whether a further stay of proceedings is necessary. The parties shall file a joint

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status conference statement on or before September 9, 2016, apprising the court of the

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propriety of continuing or vacating the stay.

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IT IS SO ORDERED.
Dated: May 17, 2016

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