Chase Bank USA, N.A. v. Allegro Law, LLC et al
Filing
91
ORDER granting in part and denying in part 90 Motion for Default Judgment Against Defendant AmeriCorp, Inc. See attached Order. Ordered by Judge Pamela K. Chen on 6/18/2013. (Lo, Justin)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
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CHASE BANK USA, N.A.,
Plaintiff,
ORDER
-against-
08-CV-04039 (PKC)
ALLEGRO LAW, LLC, et al.,
Defendants.
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PAMELA K. CHEN, United States District Judge:
Plaintiff Chase Bank USA, N.A. (“Chase”) commenced this action alleging that
Defendants perpetrated a scheme that fraudulently induced thousands of Chase credit
cardmembers (“participating cardmembers”) to stop paying down the outstanding balances on
their credit cards, for Defendants’ own profit. (E.g., Dkt. No. 40 (“Am. Compl.”) ¶¶ 3, 9.)
On June 23, 2011, Judge Denis R. Hurley allowed original counsel for Defendant
AmeriCorp, Inc. (“AmeriCorp”) to withdraw, and directed AmeriCorp to retain new counsel
within 30 days. (Dkt. No. 84, at 3.)
AmeriCorp has not retained new counsel and accordingly, as a corporation which is not
permitted to proceed without counsel, has “failed to plead or otherwise defend” this action. Fed.
R. Civ. P. (“FRCP”) 55(a); see SEC v. Research Automation Corp., 521 F.2d 585, 589 (2d Cir.
1975) (“It is settled law that a corporation may not appear in a lawsuit against it except through
an attorney[] . . . and that, where a corporation repeatedly fails to appear by counsel, a default
judgment may be entered against it pursuant to [FRCP] 55[.]” (citations omitted)). Accordingly,
on August 31, 2011, the Clerk of this Court entered a default order as to AmeriCorp. (Dkt. No.
88.)
On May 15, 2013, Chase filed its unopposed motion for the entry of default judgment
against AmeriCorp (“Motion”) for $11,767,496.11 in damages, plus pre-judgment interest, under
FRCP 55(b). (Dkt. No. 90, at 1.) This Court GRANTS IN PART and DENIES IN PART
Chase’s Motion for the reasons set forth below.
I.
Background
1. Allegations in the Amended Complaint 1
According to the Amended Complaint, recent “debt settlement” schemes have
“flourished throughout the country.”
(Am. Compl. ¶ 19.) Defendants Allegro Law, LLC
(“Allegro”) and its agent, Keith Anderson Nelms, offered one such scheme to participating
cardmembers (“Allegro scheme”), which started in late April 2008. (Id. ¶¶ 1, 14.) AmeriCorp
operated the Allegro scheme on “a day-to-day basis” by, among other things, (i) providing “back
office and call center services” and (ii) processing payments to Allegro from participating
cardmembers. (Id. ¶¶ 1, 21.)
Here is how the Allegro scheme worked:
•
Defendants convinced participating cardmembers that, by contracting with
Defendants for their services, the cardmembers could legally cease making payments
on and eventually “eliminate or substantially reduce” their obligation to pay the
outstanding balances on their credit cards from Chase. (Id. ¶¶ 9, 19.)
1
Given AmeriCorp’s default in this action, this Court accepts as true the facts alleged in
the Amended Complaint for purposes of Chase’s Motion. See Au Bon Pain Corp. v. Artect, Inc.,
653 F.2d 61, 65 (2d Cir. 1981) (holding that, in considering motions for default judgment,
district courts must “accept[] as true all of the factual allegations of the complaint, except those
relating to damages”); accord Greyhound Exhibitgroup, Inc. v. E.L.U.L. Realty Corp., 973 F.2d
155, 158 (2d Cir. 1992) (“[A] party’s default is deemed to constitute a concession of all well
pleaded allegations of liability[.]”).
2
•
Rather than paying Chase, participating cardmembers redirected their money to
Defendants. In return for “up front” fees from the cardmembers, Defendants
(i) issued boilerplate letters to Chase, claiming that Chase had committed
“unspecified [Fair Credit Billing Act] and/or other statutory violations” with respect
to the cardmembers’ accounts and (ii) falsely promised the cardmembers that Allegro
would retain the rest of the money to subsequently settle with Chase for less than the
outstanding balances for their accounts. (Id. ¶¶ 9, 50.)
•
In reality, Defendants’ services “d[id] not lead to the lawful elimination of any
[participating cardmembers’] debt, but rather to increased balances owed to [Chase],”
because (i) the boilerplate letters were “bogus” and “without legal basis” to excuse
participating cardmembers from paying Chase, and (ii) Defendants “mispresent[ed]
that [participating cardmembers’] money w[ould] be applied to [their] debt” in
settling this debt with Chase. (Id. ¶¶ 35, 43, 71-72.)
In fact, Defendants paid no money to Chase on behalf of participating cardmembers. (See id.
¶ 50 (“[D]efendants led Chase’s cardmembers to believe that, using funds that cardmembers
were sending in to Allegro, Allegro would be making payments to Chase and other creditors on
behalf of cardmembers. This occurred even though defendants did not intend to make any such
payments to Chase or other creditors[.]”).
Based on these allegations, Chase asserts five state law claims over which this Court has
diversity jurisdiction: declaratory and injunctive relief (Count I); tortious interference with
contracts (Count II); violations of the New York Consumer Protection Act (Count III); unjust
enrichment (Count IV); and conspiracy (Count V). 2 (See id. ¶¶ 17, 38-81.)
2. Chase’s Motion
In support of its Motion, Chase submits a declaration from Susan Coniglio (“Coniglio”).
Since 1999, Coniglio has worked in Chase’s Credit Card Services business. In 2004, Coniglio
joined the group responsible for devising and implementing this business’s collection policies
and strategies with respect to delinquent credit card accounts. From 2010 onward, Coniglio has
2
This Court is satisfied that “the alleged facts constitute . . . valid cause[s] of action.” Au
Bon Pain Corp., 653 F.2d at 65.
3
served as the group’s “Senior Business Operations Manager.” (Dkt. No. 90-4 (“Coniglio Decl.”)
¶¶ 1-3.)
Coniglio’s declaration proposes “four alternative measurements of [Chase’s] damages”
arising from the Allegro scheme. (Id. ¶ 25.) These measurements calculate damages based on
varying assumptions about “what Chase reasonably would have expected to have been paid by
[participating cardmembers] if Allegro had not sold its scheme to them, causing them to send
Allegro monthly payments, which necessarily resulted in [participating cardmembers] having
insufficient funds to pay Chase at least the minimum payments due each month.” 3 (Id. ¶ 13; see
id. ¶ 26.)
(a)
The first “alternative measurement” calculates a total of $11,767,496.11 in
damages. (Id. ¶ 15.) This calculation assumes that (i) all participating cardmembers possessed
“a desire to settle their [credit card] account balances with Chase for less than the full amount
due” and (ii) absent the Allegro scheme, the cardmembers would have settled with Chase on
their own to pay a portion of the outstanding balances on their credit cards in exchange for
curtailing minimum monthly payments to Chase. (See id. ¶¶ 14-16.)
(b)
The second “alternative measurement” calculates a total of $9,797,229.52 in
damages. (Id. ¶ 21.) This calculation assumes that all participating cardmembers belonged to
the category of Chase cardmembers who, though late in making the minimum monthly payments
on their credit card accounts, “ultimately did not have an ongoing delinquency problem,” and
would have continued to make these payments to Chase, absent the Allegro scheme. (Id.
¶ 17(a).)
3
By applying specific criteria and eliminating certain of the 5,453 cardmembers’ accounts
with alleged connections to the Allegro scheme, Coniglio identifies 3,327 cardmembers’
accounts, with outstanding balances totaling $22,543,096, that are directly attributable to
damages as a result of this scheme. (See id. ¶¶ 7-12.)
4
(c)
The third “alternative measurement” calculates a total of $4,598,791.58 in
damages. (Id. ¶ 22.) This calculation assumes that all participating cardmembers belonged to a
third category of Chase cardmembers who were late in making the minimum monthly payments
on their credit card accounts, failed to timely cure the delinquency, and eventually entered into
Chase’s formal pre-charge off collection process. (Id. ¶ 17(b).)
(d)
The fourth “alternative measurement” calculates $7,394,135.49 in damages. (Id.
¶ 23.) This calculation assumes that participating cardmembers belonged to an equal “blend” of
Chase cardmembers in categories (b) and (c), as detailed above. (Id. ¶ 17(c).)
Chase’s Motion seeks the entry of default judgment against AmeriCorp for damages
based on the first “alternative measurement” ($11,767,496.11). (See Dkt. No. 90, at 1.)
II.
Discussion
FRCP 55(b)(2) provides that, in considering Chase’s Motion, this Court “may conduct
hearings . . . when,
to
enter
or
effectuate
judgment,
it
needs
to[] . . . conduct
an
accounting; . . . determine the amount of damages; . . . establish the truth of any allegation by
evidence; or . . . investigate any other matter.” Id. (emphasis added).
“By its terms, [FRCP]
55(b)(2) leaves the decision of whether a hearing is necessary to the discretion of the district
court. . . . [I]t [i]s not necessary for the District Court to hold a hearing, as long as it ensure[s]
that there [i]s a basis for the damages specified in a default judgment.”
Fustok v.
Conticommodity Servs., Inc., 873 F.2d 38, 40 (2d Cir. 1989).
Here, this Court has determined that Chase’s Motion, supported by Coniglio’s
declaration and accompanying documents, provides sufficient “basis for the damages specified in
a default judgment [against AmeriCorp].” Id. Considering her years of experience in Chase’s
Credit Card Services business, Coniglio credibly alleges how participating cardmembers could
5
have acted in the absence of the Allegro scheme, such that an inquest to “establish the truth”
behind such allegations would add little value. FRCP 55(b)(2)(C). Coniglio gives conservative
calculations for “damages equivalent to what Chase reasonably would have expected to receive
from its [cardmembers] if Allegro had not interfered” (Coniglio Decl. ¶ 26) based on four
“alternative measurements.” As such, an inquest to “conduct an accounting” or “determine the
amount of damages” is similarly unnecessary. FRCP 55(b)(2)(A)-(B). This Court thus considers
Chase’s Motion without conducting an inquest.
Chase’s Motion calculates the amount of damages based on the first “alternative
measurement” ($11,767,496.11), which results in the largest damage award.
The first
“alternative measurement” assumes that, if participating cardmembers had not signed onto the
Allegro scheme, every one of the cardmembers would have separately settled with Chase for less
than the outstanding balances on their credit cards.
Coniglio’s own declaration, however, undercuts the validity of this assumption. Coniglio
attests to the fact that participating cardmembers, i.e., those Chase cardmembers who joined the
Allegro scheme, “most likely resembled” the category of cardmembers “who still managed to
make regular monthly payments which they intended ultimately to go toward paying . . . Chase.”
(Coniglio Decl. ¶ 17(a) (emphasis added).) In other words, according to Coniglio, absent the
Allegro scheme, participating cardmembers were much more likely to persist in paying down
their credit cards on a monthly basis than they were to arrange a settlement with Chase.
The fact that Allegro represented to participating cardmembers that it would use their
monthly payments to settle with Chase does not support the assumption that the cardmembers
would have sought to settle with Chase on their own, which underlies the first “alternative
measurement.”
Indeed, the Allegro scheme appealed to the category of participating
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cardmembers who had every intention of continuing to make minimum monthly payments, but
were enticed by Allegro’s bogus offer to settle with Chase on the cardmembers’ behalf in return
for their redirecting these payments to Allegro. (See id.) Accordingly, this Court alternatively
adopts
the
amount
of
damages
based
on
the
second
“alternative
measurement”
($9,797,229.52)—which more accurately assumes that, “if Allegro had not interfered” (id. ¶ 26),
Chase would have continued receiving minimum monthly payments from participating
cardmembers who were characteristically only late, not delinquent, in making these payments. 4
Tellingly, in at least two other actions involving different “debt elimination” schemes,
Chase sought and obtained judgments in amounts equal to the minimum monthly payments of
which it was deprived, as opposed to settlements that it could have arranged with participating
cardmembers.
In Chase Bank USA, N.A. v. Wickline (“Wickline”), No. 06-cv-00012 (S.D. Ohio), Chase
sought, and the district court entered, default judgment for an amount reflecting minimum
monthly payments that participating cardmembers would have made, but which Chase did not
receive as a result of “Defendants’ promotion of and participation in sham arbitrations and debt
elimination schemes.” See Opinion & Order at 1, Wickline, No. 06-cv-00012 (S.D. Ohio Nov.
26, 2007); Memorandum in Support of Plaintiff Chase Bank USA, N.A.’s Motion for a Judgment
of Default, a Non-Oral Hearing on Damages, & a Permanent Injunction, Ex. 1 ¶¶ 2, 5-6, 9,
Wickline, No. 06-cv-00012 (S.D. Ohio July 13, 2007).
At Chase’s request, the district court in Chase Manhattan Bank USA, N.A. v. Stratia
Corp. (“Stratia”), No. 05-cv-00196 (N.D. Tex.), took the same approach in entering final
4
Coniglio, in effect, admits that the second “alternative measurement” is better than the
third or fourth “alternative measurements,” because it is based on the category of Chase
cardmembers which “best matche[s] the situation of [cardmembers] (like those who signed up
for Allegro’s program).” (Coniglio Decl. ¶ 17(a).)
7
judgment against one of the defendants for damages to Chase arising from his “sham arbitration
and fraudulent debt elimination schemes” involving participating cardmembers’ accounts. See
Final Judgment at 1, Stratia, No. 05-cv-00196 (N.D. Tex. Nov. 17, 2006); Appendix to Chase
Bank USA N.A.’s Brief in Support of Its Partial Motion for Summary Judgment Against Bruce
Hawkins, Ex. G ¶¶ 4, 8, 10, Stratia, No. 05-cv-00196 (N.D. Tex. June 29, 2006).
Thus, this Court finds that the appropriate measure of damages is the one that assumes
that, absent the Allegro scheme, Chase would have collected minimum monthly payments from
participating cardmembers before their credit card accounts became delinquent due to the
withholding of these payments under the scheme (Coniglio Decl. ¶ 20 (“maximum 210 day
period”)), which amounts to $9,797,229.52.
III.
Conclusion
Accordingly, this Court GRANTS Chase’s request for the entry of default judgment
against AmeriCorp, but DENIES the Motion insofar as Chase seeks $11,767,496.11 in damages,
plus pre-judgment interest. A default judgment in Chase’s favor shall be entered in the amount
of $9,797,229.52 in damages, plus pre-judgment interest.
SO ORDERED:
/s/ Pamela K. Chen
PAMELA K. CHEN
United States District Judge
Dated: June 18, 2013
Brooklyn, New York
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