Consumer Financial Protection Bureau v. USASF Servicing, LLC

Filing 16

OPINION AND ORDER: Plaintiff's Motion for Default Judgment 12 is GRANTED IN PART as to liability and injunctive relief. It is FURTHER ORDERED that Plaintiff is DIRECTED to supplement the Kelly Declaration as set forth in this Order within 35 days of the date of entry of this Order. Signed by Judge Victoria M. Calvert on 8/28/2024. (jbu)

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF GEORGIA
ATLANTA DIVISION
CONSUMER FINANCIAL
PROTECTION BUREAU,
Civil Action No.
1:23-cv-03433-VMC

Plaintiff,
v.
USASF SERVICING, LLC,
Defendant.

OPINION AND ORDER
Before the Court is the Motion of Plaintiff Consumer Financial Protection
Bureau (the “Bureau”) for Default Judgment (“Motion,” Doc. 12). The Clerk
entered default against defendant USASF Servicing, LLC (“USASF”) on October
10, 2023. No timely response was filed to the Motion. For the reasons that follow,
the Court will grant the Motion as to liability only and injunctive relief, and will
direct supplementation as to damages.1
Background
I.

Challenged Business Practices

Don A. Beskrone, Chapter 7 Trustee of USAF Servicing, LLC filed a response to
the Bureau’s Motion for Clerk’s Entry of Default after the Clerk entered default.
(Doc. 8). The Court discusses this response in Section II.B. below.
1

USASF is the servicer of car loans originated by its affiliate U.S. Auto Sales,
Inc., a buy-here, pay-here car dealer with dealerships throughout the Southeast
United States. (Compl. ¶ 2). USASF’s principal place of business is at 540 U.S. Auto
Sales Blvd., Lawrenceville, Georgia 30046. (Id. ¶ 8). USASF services automobile
loans that are used by consumers for personal, family, or household purposes. (Id.
¶ 9).
A.

Starter Interruption Devices

Since at least March 2016, starter-interruption devices (SID) were installed
in the vehicles whose loans USASF serviced, with the exception of vehicles sold in
November 2016. (Id. ¶ 11).
A starter-interruption device (SID) is a device that an auto-loan servicer can
activate to sound warning tones or disable the car altogether. (Id. ¶ 10).
When USASF activated the warning tones, every time the consumer turned
their vehicle on or off, a ten-second series of beeps would occur. (Id. ¶ 12).
According to USASF, a consumer is delinquent and in default the moment the
consumer misses one payment. (Id. ¶ 13). According to USASF’s internal
procedures, USASF would activate warning tones for the first four days following
a missed payment and would disable the vehicle once the consumer was five days
past due, but would not activate the SID if the consumer had made a promise to
pay their loan. (Id.).
2

Since 2016, USASF activated SIDs in consumers’ vehicles tens of thousands
of times in violation of its own policy, including at least 7,500 erroneous disables
and over 71,000 erroneous warnings. (Id. ¶ 14). USASF admitted to the Bureau
that, due to programming errors, system miscommunication, and human error,
USASF erroneously disabled vehicles at least 7,500 times. (Id. ¶ 15). Of the
erroneous disables, at least 5,200 occurred when the consumer was not in default
or had made a promise to pay. (Id. ¶ 16). USASF wrongfully disabled vehicles at
least another 1,500 times after it had explicitly promised the consumers that it
would not. (Id.). USASF also admitted to the Bureau that, due to programming
errors, system errors, and human error, USASF erroneously sent warning tones
over 71,000 times to consumers who had made a payment or were not in default.
(Id. ¶ 17). The erroneous warning tones persisted for four days for many
consumers, and they lasted more than four days in hundreds of instances. (Id. ¶
18).
B.

Guaranteed Asset Protection Premiums

U.S. Auto Sales, Inc., an affiliate of USASF, sold Guaranteed Asset
Protection (“GAP”) to consumers from February 2017 until October 2022. (Id. ¶
23). From February 2017 through August 2021, around 64,000 consumers
purchased GAP from U.S. Auto Sales, Inc. (Id.).

3

GAP is an add-on product that covers some of the deficiency balance if a car
is totaled and the consumer still owes money on their car loan after the application
of auto-insurance proceeds. (Id. ¶ 22). When GAP was sold to consumers, its cost
was added to the loan used to purchase the car, and the loan was then serviced by
USASF. (Id. ¶ 24). Although U.S. Auto Sales, Inc. sold the GAP and USASF
serviced the loan that paid for it, the GAP product was administered by
unaffiliated companies. (Id.).
USASF repossessed cars from consumers before the end of their loan term
in certain circumstances, for example if the consumer stopped making payments
on their loan. (Id. ¶ 25). USASF would then “charge off” the accounts of some of
these consumers, meaning USASF wrote off the account as a loss. (Id.). Consumers
whose loans were charged off were still legally obligated to pay any outstanding
loan amount. (Id.).
GAP coverage becomes void and worthless to the consumer when USASF
repossesses a car and charges off the loan because the consumer no longer has the
car. (Id. ¶ 26). Because the consumer paid for GAP based on the entire loan term
and the car was repossessed prior to the end of the term, some of the GAP
premiums that the consumer paid and the interest charged on such premiums
were not earned and are therefore eligible to be refunded by the GAP
administrator. (Id.).
4

When USASF repossessed a car and charged off an account, its policy was
to obtain a refund of any unearned GAP premiums that consumers had paid by
submitting a refund request to the GAP administrator. (Id. ¶ 27). USASF would
then apply any refund to the deficiency balance on the loan, reducing the amount
that the consumer still owed on the car loan. (Id.). USASF failed to follow this
policy for at least 2,870 consumers, resulting in over $1 million in refunds that were
not obtained and applied to those consumers’ deficiency balances. (Id. ¶ 28).
GAP coverage also becomes void and worthless when a consumer’s loan is
paid off before the end of the loan contract because, once the loan is paid off, there
is no possibility of a deficiency for GAP to cover. (Id. ¶ 29). When a consumer’s
loan was paid off early, USASF requested a payoff amount that included GAP
premiums for the full term of the loan contract. (Id. ¶ 30). As a result, a portion of
the GAP premiums that USASF collected at early payoff was unearned because
consumers paid for coverage that could never be provided. (Id.).
When a third party paid off a consumer’s loan early, such as a lender paying
off the loan because the consumer was refinancing, then USASF as a matter of
course submitted a refund claim to the GAP administrator. (Id. ¶ 31). When doing
so, USASF used the date of the loan payoff as the date the GAP was cancelled. (Id.).
In contrast, when a consumer paid off their loan early, USASF would not
submit a refund request to the administrator unless the consumer specifically
5

requested a refund of unearned premiums from USASF. (Id. ¶ 32). USASF imposed
this requirement even though the request provided USASF with no new
information and was not necessary for USASF to obtain a consumer refund from
the administrator. (Id.). And rather than use the payoff date as the date the GAP
was cancelled, USASF used the date of the refund request, which resulted in lower
payouts for consumers who requested refunds. (Id.).
USASF failed to provide refunds of unearned GAP premiums and unearned
interest totaling at least $4 million for an estimated 5,600 consumers who paid off
their car loans early. (Id. ¶ 33). Even when USASF requested consumer refunds at
early payoff, it provided consumers with inaccurately small refunds because it
failed to request the refund as of the payoff date and failed to refund interest
charged on unearned premiums, totaling at least an additional $2 million. (Id.).
Consumers whose loans were charged off were harmed by owing inflated
deficiency balances totaling over $1 million. (Id. ¶ 34). Consumers whose loans
were paid off early were harmed by being deprived of their refunds totaling more
than $6 million. (Id.).
C.

Double Billing for Collateral-Protection Insurance

Collateral-protection insurance (CPI) is physical-damage insurance that
protects the lender if the consumer does not have auto insurance that covers the
amount of the loan. (Id. ¶ 37).
6

U.S. Auto Finance, Inc., an affiliate of USASF, placed consumers under its
CPI in two ways. (Id. ¶ 38). First, consumers could voluntarily agree to CPI at the
point of sale for the vehicle. (Id.). Second, consumers could be automatically placed
under U.S. Auto Finance, Inc.’s CPI if the consumer’s comprehensive-and-collision
insurance expired or was cancelled. (Id.). In either circumstance, USASF, as the
loan servicer, charged the consumer for the CPI and collected payments for it. (Id.).
The cost of CPI to consumers was around $100 per month, depending on their
billing plan and area. (Id. ¶ 39).
From December 2015 through August 2021, USASF billed consumers at least
34,000 times in error for CPI by charging them twice, totaling an estimated $1.9
million. (Id. ¶ 40). USASF identified four causes of its double billing, including
manual and system-processing errors by USASF. (Id.).
From 2015 to 2019, during the time when USASF used a servicing system
called AutoStar, it often took more than 60 days for USASF to correct the doublebilling error. (Id. ¶ 41). Later, from 2019 to 2021, after USASF switched providers
to Spectrum, it took USASF even longer to correct its double billing, averaging
over 120 days. (Id.). In over 5,800 instances, when USASF was using Spectrum,
USASF failed to correct the double-billing error for more than one year. (Id. ¶ 42).
While USASF was double-billing consumers, it was erroneously charging
them twice per billing cycle. (Id. ¶ 43). Further, during the time when USASF used
7

Spectrum, the erroneously billed CPI fee was included in the amount USASF
reported to credit-reporting agencies. (Id. ¶ 44).
Consumers who were charged twice for CPI were deprived of the use of
their funds totaling $1.9 million, and in addition some consumers became
delinquent because of the billing error and as a result had their cars repossessed
and were subjected to erroneous debt-collection efforts. (Id. ¶ 45).
D.

Misapplied Consumer Payments

Under the contracts that USASF serviced, USASF was required to apply any
payments above the regularly scheduled amount first to accrued interest. (Id. ¶
48). Thousands of times, however, USASF wrongfully applied extra payments first
to late fees or CPI fees instead of accrued interest. (Id.). USASF admitted to the
Bureau that it misapplied extra payments at least 8,738 times over nearly five
years, from November 1, 2016 to August 31, 2021. (Id. ¶ 49). Consumers whose
payments were misapplied were harmed because they paid approximately $1.2
million in interest and fees that they would not have paid if USASF had correctly
applied their payments. (Id. ¶ 50).
E.

Wrongful Repossessions

USASF’s policy is to repossess a vehicle either if a consumer misses a
deferred down payment, which is an additional amount that a consumer is
scheduled to pay within the first 30 days after taking possession of the vehicle and
8

before the first installment payment, or once a consumer is 60 days past due. (Id.
¶ 53).
USASF does not send a notice to the consumer informing them that it plans
to repossess the vehicle unless state law requires a right-to-cure notice, which is a
notice giving consumers a certain amount of time to bring their account current
before their car is repossessed. (Id. ¶ 54).
Since July 2019, USASF has used a repossession forwarder, Primeritus,
which is a company that directs local recovery agents to repossess vehicles on
behalf of USASF. (Id. ¶ 55). From November 2016 to July 2019, USASF worked with
a different repossession forwarder, Consolidated Asset Recovery System (CARS),
before CARS was acquired by Primeritus. (Id.). USASF communicated with both
repossession forwarders to connect with third-party repossession agents through
a software platform called IBEAM. (Id.).
USASF’s communication with repossession agents is limited to notices
through IBEAM, including “holds” on repossession. (Id. ¶ 56). A hold on a
repossession is a direction from USASF to not repossess a vehicle after it initially
ordered a repossession. (Id.). Consumers qualified for holds for various reasons.
(Id. ¶ 57). Under USASF policy, a hold should have been triggered when a
consumer made a payment or a promise to pay, or when a consumer entered
bankruptcy. (Id.). Consumer accounts could also qualify for a repossession hold if
9

USASF agreed to defer a payment, which could be on account of a natural disaster
or the loss of employment, among other reasons. (Id. ¶ 58).
In addition, the Servicemembers Civil Relief Act (SCRA) prohibits
repossession of vehicles of active-duty servicemembers without a court order. (Id.
¶ 59). USASF (or its agent) performed so-called “SCRA scrubs” to check whether
a consumer was on active military duty. (Id.). If so, that should also have triggered
a hold on repossession. (Id.).
Prior to December 2020, USASF did not have a formal process to flag
activities on an account that would trigger a repossession hold. (Id. ¶ 60). As a
result, servicing supervisors were not notified when, for example, a consumer
made a payment or a promise to pay, or when USASF received notice that the
consumer was in bankruptcy. (Id.). Consequently, prior to December 2020, there
was no servicing supervisor oversight as to whether a repossession hold should
be in place on an account that had been sent to a forwarder. (Id.).
Prior to December 2021, USASF did not have a process to automatically send
a repossession-hold request to its repossession forwarder when a consumer made
a payment or a promise to pay, or when USASF received notice that the consumer
was in bankruptcy. (Id. ¶ 61). USASF’s failure to implement these processes caused
dozens of erroneous repossessions of consumers’ vehicles. (Id. ¶ 62).

10

At least 47 consumers made a payment that should have stopped the
repossession, but because USASF failed to close the repossession assignment,
consumers’ vehicles were nonetheless repossessed. (Id. ¶ 63). Even when a USASF
employee correctly closed the repossession assignment, USASF failed to
effectively manage its recovery agents and failed to implement sufficient controls
to ensure that repossession assignments were properly closed, resulting in
wrongful repossessions for at least seven additional consumers. (Id. ¶ 64).
Several more consumers made a promise to pay, and a USASF employee
either failed to close the repossession assignment or failed to enter the promise to
pay into USASF’s system, causing consumers to lose their cars. (Id. ¶ 65). USASF
agreed to a deferred payment with at least two consumers, which, when not
processed by USASF employees, resulted in repossession. (Id. ¶ 66). In at least one
instance, USASF repossessed a vehicle before the state required “right to cure”
letter had expired. (Id. ¶ 67). At least five consumers did not qualify for
repossession in the first instance, yet USASF assigned their accounts for
repossession in error. (Id. ¶ 68). At least another five consumers informed USASF
of their bankruptcy filing, but USASF’s failure to close the repossession
assignment caused consumers to nonetheless have their vehicles repossessed, in
violation of consumer bankruptcy protections. (Id. ¶ 69).

11

In total, USASF admitted to the Bureau that it wrongfully repossessed
vehicles 78 times. (Id. ¶ 70). In addition to those 78 repossessions that USASF
admitted were wrongful, it wrongfully repossessed at least four vehicles where
the consumer was active-duty military. (Id. ¶ 71). Some consumers’ vehicles were
sold by USASF. (Id. ¶ 72). When USASF returned the wrongfully repossessed
vehicles to consumers, as opposed to selling them, consumers were harmed by not
being able to use their vehicles for up to 17 days. (Id.).
II.

USASF’s Bankruptcy
On August 25, 2023, USASF commenced a case under chapter 7 of the

Bankruptcy Code, 11 U.S.C. § 101 et seq., by filing a Voluntary Petition with the
U.S Bankruptcy Court for the District of Delaware, Case No. 23-11256-TMH. (See
Doc. 5). USASF’s bankruptcy case was, on September 25, 2023, ordered
procedurally consolidated and jointly administered with 5 other affiliated debtors
under lead case In re U.S. Auto Sales, Inc., Case No. 23-11251-TMH. (Doc. 8 ¶ 1).
Don A. Beskrone was appointed Chapter 7 Trustee of the consolidated cases. (Id.).
The consolidated cases remain pending.
Discussion
I.

Motion to Seal
As an initial matter, the Court first considers the Bureau’s Motion to Seal

certain exhibits to its Motion.

12

A.

Legal Standard for Motion to Seal

“[T]he common-law right of access to judicial proceedings, an essential
component of our system of justice, is instrumental in securing the integrity of the
process.” Romero v. Drummond Co., 480 F.3d 1234, 1245 (11th Cir. 2007) (quoting
Chi. Trib. Co. v. Bridgestone/Firestone, Inc., 263 F.3d 1304, 1311 (11th Cir. 2001). But
this right “may be overcome by a showing of good cause, which requires
‘balanc[ing] the asserted right of access against the other party’s interest in keeping
the information confidential.’” Id. at 1246. “[W]hether good cause exists . . . is . . .
decided by the nature and character of the information in question.” Id.
In balancing the public interest in accessing court
documents against a party’s interest in keeping the
information confidential, courts consider, among other
factors, whether allowing access would impair court
functions or harm legitimate privacy interests, the degree
of and likelihood of injury if made public, the reliability
of the information, whether there will be an opportunity
to respond to the information, whether the information
concerns public officials or public concerns, and the
availability of a less onerous alternative to sealing the
documents. See In re Alexander Grant & Co. Litig., 820 F.2d
352, 356 (11th Cir. 1987); Shingara v. Skiles, 420 F.3d 301,
305–06 (3d Cir. 2005); Amodeo, 71 F.3d at 1050–51. A
party’s privacy or proprietary interest in information
sometimes overcomes the interest of the public in
accessing the information. See Nixon v. Warner Commc’ns,
Inc., 435
U.S.
589,
598
(1978);
Arthur
R.
Miller, Confidentiality, Protective Orders, and Public Access
to the Courts, 105 Harv. L. Rev. 427, 464–74 (1991).
Id.
13

B.

Application to the Bureau’s Motion

The Bureau seeks to seal Attachments S-1 through S-3 to its Motion. The
Bureau’s justification for sealing is that it “has an interest in protecting its law
enforcement techniques and methods so it may effectively enforce consumer
protection laws. (Doc. 14 at 2–3).2 It contends that “[t]he public release of these
Attachments ‘would disclose techniques and procedures for law enforcement
investigations or prosecutions, or would disclose guidelines for law enforcement
investigations or prosecutions if such disclosure could reasonably be expected to
risk circumvention of the law.’” (citing Frank LLP v. Consumer Fin. Prot. Bureau, 480
F.Supp. 3d 87, 103 (D.D.C. 2020); Frank LLP v. Consumer Fin. Prot. Bureau, 327 F.
Supp. 3d 179, 185 (D.D.C. 2018)). To support this argument, the Bureau relies on
cases interpreting the Freedom of Information Act (FOIA). But just as the “nature
of . . . rule[s] in civil discovery . . . is irrelevant in the FOIA context,” so too are
FOIA exemptions in the Rule 26 analysis. F.T.C. v. Grolier Inc., 462 U.S. 19, 27
(1983).
Moreover, courts have held that “[p]ublicly available information cannot be
sealed,” and examples of Bureau Civil Investigative Demands and responses are
readily available on the internet, including on the Bureau’s own website. See In re

The Bureau also originally conceded that USASF should have the opportunity to
argue that S-2 was protected trade secret information, but the Chapter 7 Trustee
for USASF’s bankruptcy estate waived trade secret protection. (Doc. 15).
2

14

Nat’l Credit Sys., Inc’s Petition to Set Aside Civ. Investigative Demand, No. 2022-MISCNational Credit Systems, Inc.-000 (Consumer Fin. Prot. Bureau Oct. 18, 2022),
https://files.consumerfinance.gov/f/documents/cfpb_national-credit-systemsinc_petition_2023-1.pdf. Several examples were even filed publicly in a case before
another judge of this district. See Exhibits A–D of Respondent’s Motion to Stay,
Docs. 3-1 to 3-4, Consumer Fin. Prot. Bureau v. Cmty. Loans of Am., Inc. No. 1:23-mi00100-SEG (N.D. Ga. Nov. 16, 2023).
Accordingly, the Court finds that the Bureau has not met its burden for
sealing the exhibits. However, the Court will not “unseal” the exhibits. Under
Local Rule Appendix H(II)(J)(2)(h), “[d]ocument(s) from a provisionally sealed
filing that the Court did not approve for sealing will be treated as withdrawn and
will not be considered by the Court.” Consideration of these exhibits is
unnecessary because the Bureau’s damages witness, Nicole Kelly, is qualified as
an expert by knowledge, skill, experience, training, or education, and therefore the
bases of her opinion need not be admitted for her opinions to be admitted. (Doc.
12-3 ¶ 2) (“Since 2021, I have been a Senior Data Scientist. My current duties
include conducting financial and data analysis for the Bureau. I have a bachelor’s
degree in Applied Economics and Management from Cornell University.”).
However, as the Court is directing the Bureau to supplement the Kelly

15

Declaration, the Bureau may renew their motion or file the exhibits publicly at
their option.
II.

Motion for Default Judgment
The Court next turns to the Motion for Default Judgment. The Court first

considers the Bureau’s arguments that this civil action is not stayed by USASF’s
bankruptcy filing. Next, it considers liability, and finally remedies.
A.

Legal Standard for Motion for Default Judgment

If a defendant fails to plead or otherwise defend a lawsuit within the time
required by Federal Rule of Civil Procedure 12(a)(1)(A), upon motion, the clerk
must enter default against the defendant pursuant to Federal Rule of Civil
Procedure 55(a). A default constitutes admission of all well-pleaded factual
allegations contained in the complaint but is not considered an admission of facts
that are not well-pleaded or conclusions of law. Cotton v. Mass. Mut. Life Ins. Co.,
402 F.3d 1267, 1278 (11th Cir. 2005). “Before a default can be entered, the court
must have subject-matter jurisdiction and jurisdiction over the party against
whom the judgment is sought, which also means that the party must have been
effectively served with process.” 10A Charles Alan Wright & Arthur R. Miller,
Federal Practice and Procedure § 2682 (4th ed. 2008) (citations omitted).
Once a default has been entered, the Court has the “discretion in
determining whether the judgment should be entered.” Patray v. Nw. Publ’g, Inc.,
16

931 F. Supp 865, 868 (S.D. Ga. 1996) (internal footnote and citation omitted); Fed.
R. Civ. P. 55(b); see also Hamm v. DeKalb Cnty., 774 F.2d 1567, 1576 (11th Cir. 1985)
(“The entry of a default judgment is committed to the discretion of the district
court.”).
The Eleventh Circuit has made clear that entry of judgment by default is not
granted as a matter of right and is judicially disfavored because there is a “strong
policy of determining cases on their merits.” Surtain v. Hamlin Terrace Found., 789
F.3d 1239, 1244–45 (11th Cir. 2015) (citation omitted); see also Mitchell v. Brown &
Williamson Tobacco Corp., 294 F.3d 1309, 1316–17 (11th Cir. 2002) (“Entry of
judgment by default is a drastic remedy which should be used only in extreme
situations, . . . we must respect the usual preference that cases be heard on the
merits rather than resorting to sanctions that deprive a litigant of his day in
court.”).
Entry of default judgment is only warranted when there is “a sufficient basis
in the pleadings for the judgment entered.” Nishimatsu Constr. Co. v. Hous. Nat’l
Bank, 515 F. 2d 1200, 1206 (5th Cir. 1975). Although Nishimatsu did not elaborate as
to what constitutes “a sufficient basis” for the judgment, courts have subsequently
interpreted the standard as being akin to that necessary to survive a motion to
dismiss for failure to state a claim. See Chudasama v. Mazda Motor Corp., 123 F.3d
1353, 1370 n. 41 (11th Cir. 1997) (“[A] default judgment cannot stand on a
17

complaint that fails to state a claim.”). Conceptually, then, a motion for default
judgment is like a reverse motion to dismiss for failure to state a claim. See Wooten
v. McDonald Transit Assocs., Inc., 775 F.3d 689, 695 (5th Cir. 2015) (stating in the
context of a motion for default judgment, “whether a factual allegation is wellpleaded arguably follows the familiar analysis used to evaluate motions to dismiss
under Rule 12(b)(6)”).
When evaluating a motion to dismiss, a court looks to see whether the
complaint “contain[s] sufficient factual matter, accepted as true, to ‘state a claim
to relief that is plausible on its face.”’ Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)
(quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007)). This plausibility
standard is met “when the plaintiff pleads factual content that allows the court to
draw the reasonable inference that the defendant is liable for the misconduct
alleged.” Id. (citing Twombly, 550 U.S. at 556); Surtain, 789 F.3d at 1245 (footnote
omitted). “The court must therefore examine the sufficiency of plaintiff’s
allegations to determine whether plaintiff is entitled to an entry of judgment by
default.” Fidelity & Deposit Co. of Md. v. Williams, 699 F. Supp. 897, 899 (N.D. Ga.
1988). The Supreme Court has explained that the pleading standard of Rule 8 of
the Federal Rules of Civil Procedure “does not require detailed factual allegations,
but it demands more than an unadorned, the-defendant-unlawfully-harmed-me
accusation. A pleading that offers labels and conclusions or a formulaic recitation
18

of the elements of a cause of action will not do. Nor does a complaint suffice if it
tenders naked assertions devoid of further factual enhancement.” Iqbal, 556 U.S.at
678 (citations and quotations omitted).
“This analysis is equally applicable to a motion for default judgment.”
Edenfield v. Crib 4 Life, Inc., No. 6:13-CV-319-Orl-36KRS, 2014 WL 1345389, at *2
(M.D. Fla. Apr. 4, 2014) (adopting Report and Recommendation) (citing De Lotta v.
Dezenzo’s Italian Rest., Inc., No. 6:08-CV-2033-Orl-22KRS, 2009 WL 4349806, at *5
(M.D. Fla. Nov. 24, 2009)).
Further, the Court may only enter a judgment by default without a hearing
where the amount of damages is a liquidated sum or one capable of mathematical
calculation. Fed. R. Civ. P. 55(b): Jenkins v. Clerk of Court, 150 F. App’x 988, 989 (11th
Cir. 2005). Whether to hold a hearing is committed to the Court’s discretion.
DIRECTV, Inc. v. Huynh, 318 F. Supp, 2d 1122, 1129 (M.D. Ala. 2004) (citing Fed.
R. Civ. P. 55(b)(2)).
A plaintiff requesting a default judgment award under Rule 55(b)(1) must
provide an affidavit and evidence supporting that it is entitled to a specific, certain
sum of money. Lubin, Sarl, a French Co. v. Lubin N. Am., Inc., No. 1:13-CV-2696-AT,
2014 WL 11955396, at *2 (N.D. Ga. Apr. 10, 2014). “A claim is not a sum certain
unless there is no doubt as to the amount to which a plaintiff is entitled as a result
of the defendant’s default. Examples of actions seeking a sum certain include
19

actions on money judgments and negotiable instruments.” Id. (citations and
internal punctuation omitted).
B.

Automatic Stay and Bankruptcy Consequences

Before the Court can reach the merits of the Bureau’s Motion, the Court must
consider the consequences of USASF’s bankruptcy filing. The filing of USASF’s
Voluntary Petition operated as an automatic stay of, among other things, “the
commencement or continuation, including the issuance or employment of process,
of a judicial, administrative, or other action or proceeding against the debtor that
was or could have been commenced before the commencement of the case” under
the Bankruptcy Code. 11 U.S.C. § 362(a)(1). However, the filing did not operate as
a stay “of the commencement or continuation of an action or proceeding by a
governmental unit . . . to enforce such governmental unit’s or organization’s police
and regulatory power, including the enforcement of a judgment other than a
money judgment . . . .” 11 U.S.C. § 362(b)(4). This exception to the operation of the
automatic stay is often referred to as the “police power” exception. See In re Harris,
592 B.R. 750, 755 (Bankr. N.D. Ga. 2018).
This Court has concurrent jurisdiction with the bankruptcy court to
determine whether the “police power” exception applies to the continuation of
this case, which was commenced prepetition. See In re Cole, 552 B.R. 903, 908
(Bankr. N.D. Ga. 2016). “An analysis under § 362(b)(4) ‘requires a court to
20

determine whether the action in question is undertaken by a governmental unit
and whether it is an action enforcing that unit’s police or regulatory powers.’”
Harris, 592 B.R. at 754 (quoting In re Chintella, No. 13-73481, 2014 WL 3672882, at
*4 (Bankr. N.D. Ga. June 20, 2014)). “While the Eleventh Circuit has not adopted
any test, courts have generally used two tests to assess whether an action should
be exempt from the automatic stay under § 362(b)(4): the pecuniary purpose test
and the public purpose test.” Id. (collecting cases). “Under the pecuniary purpose
test, if the action taken by the governmental unit relates primarily to the protection
of a pecuniary interest in the debtor’s property, the automatic stay applies.” Id. at
754–55 (citing In re Chintella, 2014 WL 3672882, at *5). “If the action is more closely
related to matters concerning public welfare, it may be excepted from the stay.
Similarly, the public purpose test looks to whether a proceeding is designed to
‘effectuate public policy’ or ‘adjudicate private rights.’” Id. at 755 (citing In re
Chintella, 2014 WL 3672882, at *5–6). “[W]hen the action incidentally serves public
interests but more substantially adjudicates private rights, courts should regard
the suit as outside the police power exception, particularly when a successful suit
would result in a pecuniary advantage to certain private parties vis-a-vis other
creditors of the estate, contrary to the Bankruptcy Code’s priorities.” Id. (quoting
Chao v. Hosp. Staffing Servs., Inc., 270 F.3d 374, 390 (6th Cir. 2001)). Regardless of
which test is applied, “[t]he exceptions to the automatic stay in § 362(b) are to be
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read narrowly.” Id. at 757 (citing Hillis Motors, Inc. v. Haw. Auto Dealers’ Ass’n, 997
F.2d 581 (9th Cir. 1993)).
The Bureau contends that it satisfies the pecuniary purpose test because it
“seeks an injunction prohibiting future violations of the Consumer Financial
Protection Act (CFPA), redress for consumers, a penalty against Defendant, and
costs,” contending that “[s]uch a consumer-protection action effectuates public
policy and is not solely in the Bureau’s pecuniary interest, and therefore is the
government’s enforcement of its police and regulatory power.” (Doc. 6 at 2). Other
judges in this district have held that a suit by a government agency seeking redress
for harms done to private persons satisfies the pecuniary purpose test. Equal Emp.
Opportunity Comm’n v. Krystal Co., 615 B.R. 332, 335 (N.D. Ga. 2020).
Moreover, the Court agrees that the public purposes served by the Bureau’s
enforcement action here is not merely incidental, but rooted in the concern for the
financial wellbeing of the public by seeking an injunction against unfair and
deceptive acts and practices. (See generally Doc. 1). Accordingly, the Court finds
that the police power exception applies.
However, this does not end the Court’s inquiry. Trustee Beskrone filed a
response requesting a stay of the case, explaining that “[w]hile I appreciate and
acknowledge the arguments put forth by the CFPB regarding the ‘police and
regulatory power’ exception to the automatic stay[,] I respectfully submit that the
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case should not move forward nor should default be entered” because “I believe
the entry of a default may have unintended prejudicial effects on the Debtors'
estates and their assets.” (Doc. 8 ¶¶ 4 n.1, 6).
First, Beskrone contends that there is no longer urgency to resolve this civil
action because the commencement of a chapter 7 case precludes operation of
USASF’s continued operations without authorization from the bankruptcy court,
authorization he represents he does not intend to seek. (Id. ¶ 5, 7) (citing 11 U.S.C.
§ 721). Nonetheless, Beskrone does not oppose the injunctive relief sought here.
(Id.).
Second, Beskrone argues that the Bureau’s damages claims should be
addressed in the claims allowance process to ensure fair and equal treatment
among all creditors. (Id. ¶ 8). In the claims allowance process, a party in interest,
including another creditor, may object to the allowance of a claim. 11 U.S.C.
§ 502(a); see also In re C.P. Hall Co., 513 B.R. 540 (Bankr. N.D. Ill. 2014) (“The right
to object to claims that section 502(a) grants creditors . . . is unqualified.”). But see
Trauner v. Huffman (In re Trusted Net Media Holdings, LLC), 334 B.R. 470, 476 (Bankr.
N.D. Ga. 2005) (“[S]everal courts have held that where a trustee is appointed to
administer an estate, a creditor can object to the claim of another creditor only if,
upon demand, the trustee refuses to do so and the court grants the creditor the
right to act on behalf of the trustee”). In such a case, the bankruptcy court must
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“determine the amount of such claim in lawful currency of the United States as of
the date of the filing of the petition” in a summary proceeding known as a
contested matter, where certain of the Federal Rules of Civil Procedure apply. Fed.
R. Bankr. P. 3007(b), 9014; see also 4 Collier on Bankruptcy ¶ 502.02[3][b] (16th
2024). To the extent a claim is allowed and otherwise unsecured by collateral, it is
paid pro rata with other allowed, unsecured claims. 11 U.S.C. § 726(b). Resolving
the claim here arguably short-circuits this process.3 That said, Congress seemed
comfortable with that result by enacting Section 362(b)(4). By only precluding
enforcement of money judgments in police power actions, Congress inherently
permitted the entry of money judgments. Cf. Krystal, 615 B.R. at 336 (“The Court
declines to impose this more generally applicable discretionary stay, however,
where there is a more specific staying mechanism provided for by a statute, 11
U.S.C. § 362(a), that expressly does not apply.”). Moreover, it seems the Trustee’s
concerns are largely hypothetical here. The Bureau filed Proof of Claim No. 322 on
February 20, 2024 in the unsecured amount of $42,627,689.00. U.S. Auto Sales, No.
23-11251-TMH. It does not appear that any other creditor or party in interest
objected to the claim since then.

The preclusive effect of a judgment of this court exercising federal question
jurisdiction in the claims allowance process is of course a question of federal law
to be determined by the bankruptcy court in the first instance.
3

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Lastly, any civil penalties sought by the Bureau will likely be subordinated
to general unsecured creditors, ameliorating some concerns about dilution of other
claims. 11 U.S.C. § 726(a)(4) (providing fourth priority for allowed claims arising
from “any fine, penalty, or forfeiture, or for multiple, exemplary, or punitive
damages, arising before the earlier of the order for relief or the appointment of a
trustee, to the extent that such fine, penalty, forfeiture, or damages are not
compensation for actual pecuniary loss suffered by the holder of such claim.”).
Accordingly, the Court will not issue a discretionary stay of this matter pending
claims allowance.
C.

Liability

The CFPA “makes it unlawful for any ‘covered person’—defined as anyone
who ‘engages in offering or providing a consumer financial product or service’—
or any service provider ‘to engage in any unfair, deceptive, or abusive act or
practice.’” Consumer Fin. Prot. Bureau v. CashCall, Inc., 35 F.4th 734, 740 (9th Cir.
2022) (citing 12 U.S.C. §§ 5481(6)(A), 5536(a)(1)(B)). “The statute does not define
‘unfair,’ ‘deceptive,’ or ‘abusive,’ id., but another part of the CFPA providing the
Bureau with rulemaking authority to declare acts and practices “to be unlawful on
the grounds that such act or practice is unfair,” requires a showing that
(A) the act or practice causes or is likely to cause
substantial injury to consumers which is not reasonably
avoidable by consumers; and
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(B) such substantial injury is not outweighed by
countervailing benefits to consumers or to competition.
12 U.S.C. § 5531(c).
Assuming this standard applies, USASF has conceded upon default that the
challenged practices caused substantial injury to consumers (Doc. 1 ¶¶ 18, 34, 45,
50, 72) which was not reasonably avoidable by consumers. (id. ¶¶ 20, 35, 46, 51, 73,
78). The Bureau has adequately alleged, as discussed in the Background section
above, the many ways that USASF has caused harm to consumers. Moreover, the
Court agrees that consumers would have no reason to expect that USASF would
wrongfully disable or repossess vehicles or charge fees without a legal basis. Fed.
Trade Comm’n v. Fleetcor Techs., Inc., 620 F. Supp. 3d 1268, 1325 (N.D. Ga. 2022)
(“Where ‘anticipatory avoidance’ and ‘subsequent mitigation’ are not reasonably
possible, the injury is not reasonably avoidable.”) (citing Orkin Exterminating Co.,
849 F.2d at 1365–66 (11th Cir. 1988)). Lastly, assuming that the Bureau, and not
USASF, would have the burden of showing an absence of countervailing benefits
at trial, the Court finds that the Bureau has met its burden. Any minute benefit to
consumers or competition from challenged practices in the form of lower financing
costs would be drastically outweighed by the instability that would come with
unpredictable and unlawful fees and collection activity. The Court thus turns next
to remedies.

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D.

Injunctive Relief

Injunctive relief under the CFPA is available. 12 U.S.C. § 5565(a)(1)
(providing the Court with jurisdiction “to grant any appropriate legal or equitable
relief with respect to a violation of Federal consumer financial law”), (2) (“Relief
under this section may include . . . limits on the activities or functions of the
person.”). USASF’s Chapter 7 Trustee Beskrone does not oppose entry of the
requested injunctive relief. (Doc. 8 ¶ 7). Accordingly, the Court will enter the
proposed injunctive relief at the time of final judgment.
E.

Damages

The Bureau seeks restitution for unearned GAP premiums, compensatory
damages for wrongful activation of SIDs and repossessions, and a civil monetary
penalty.
To calculate restitution and compensatory damages, the Bureau relies on the
Declaration of Senior Data Scientist Nicole Kelly. (Doc. 12-3). However, the Kelly
Declaration’s compensatory damages estimate is flawed because it relies on
estimates provided by litigation counsel. (Doc. 12-3 ¶ 12 (“At the request of Bureau
counsel, I used $500 as the amount of harm to each consumer for an erroneous SID
disable.”), ¶ 20 (“At the request of Bureau counsel, I used $100 as the amount of
harm to a consumer for each day an erroneous warning tone occurred.”), ¶ 29 (“At

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the request of Bureau counsel, I used a flat amount of $5,000 of harm for each
wrongful repossession.”).
The Bureau derived these flat amounts based on declarations submitted by
consumers harmed by USASF and citations to damages awards in similar cases.
The Bureau contends that the Court may use these amounts to reasonably estimate
damages. But “[w]here the defendant by his own wrong has prevented a more
precise computation, the jury may not render a verdict based on speculation or
guesswork.” Bigelow v. RKO Radio Pictures, 327 U.S. 251, 264 (1946). Instead, “the
jury may make a just and reasonable estimate of the damage based on relevant
data, and render its verdict accordingly.” Id.
The Court is not comfortable extrapolating from the anecdotal evidence
provided by the Bureau without further evidence that the estimates are based on
sufficient facts or data and drawn from the data based on reliable methods. The
Bureau must supplement the Kelly Declaration with more expert evidence to
support the veracity of these flat amounts. The Court will not direct the evidence
to take any particular form, but at a minimum it must provide some basis within
a reasonable degree of confidence that these flat amounts are representative of the
classes of injuries consumers generally faced in this case.
Conclusion
For the above reasons, it is
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ORDERED that Plaintiff’s Motion for Default Judgment (Doc. 12) is
GRANTED IN PART as to liability and injunctive relief. It is
FURTHER ORDERED that Plaintiff is DIRECTED to supplement the Kelly
Declaration as set forth in this Order within 35 days of the date of entry of this
Order.
SO ORDERED this 28th day of August, 2024.

_______________________________
Victoria Marie Calvert
United States District Judge

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