IN THE CIRCUIT COURT OF THE THIRTEENTH JUDICIAL CIRCUIT HILLSBOROUGH COUNTY, FLORIDA - CIVIL DIVISION - Defendants..!

Transcription

1 IN THE CIRCUIT COURT OF THE THIRTEENTH JUDICIAL CIRCUIT HILLSBOROUGH COUNTY, FLORIDA - CIVIL DIVISION - STATE OF FLORIDA, DEPARTMENT OF LEGAL AFFAIRS, OFFICE OF THE ATTORNEY GENERAL, CASE NO.: 09-CA DIVISION: A Plaintiff, vs. CSA- CREDIT SOLUTIONS OF AMERICA, INC., and CSA - CREDIT SOLUTIONS OF AMERICA, LLC, Defendants..! FINAL JUDGMENT AND ORDER GRANTING PLAINTIFF'S MOTION FOR PARTIAL SUMMARY JUDGMENT Before the Court is Plaintiff, State Of Florida, Department Of Legal Affairs, Office of the Attorney General (the "Attorney General"), on the motion for partial summary judgment pursuant to Fla. R. Civ. P (a), as to Counts I and II contained in the Amended and Supplemental Complaint for Injunctive and Other Statutory Relief against CSA - Credit Solutions of America, Inc., and CSA - Credit Solutions of America, LLC, hereinafter collectively referred to as "CSA" or "Defendants." A hearing was conducted on March 26, 2012, and the court having reviewed the file and the papers submitted by counsel, having heard argument of counsel and no opposition from Defendants, is fully advised of the matters presented, ORDERS and ADJUDGES as follows:

2 Findings offact 1. Plaintiff, the Attorney General, is an enforcing authority pursuant to (2), Florida Statutes, and is authorized to seek monetary, equitable, declaratory and injunctive relief. 2. The Attorney General has determined that this enforcement action serves the public interest as required by (2), Florida Statutes. 3. The Attorney General is authorized pursuant to (1)(b), Florida Statutes, to seek injunctive relief against any person who has violated, is violating, or is otherwise likely to violate Chapter 501, Part II, Fla. Stat. 4. Defendants are CSA- Credit Solutions of America, Inc. and CSA -Credit Solutions of America, LLC, with a principal business address of 2370 Performance Drive, Building D, Richardson, Texas, Defendants have conducted operations at Park Central Drive, 9th Floor, Dallas, Texas, Defendants operate the website 5. Since at least 2006, Defendants have offered debt settlement services to consumers for a fee by advertising to settle debts for less than the amount owed. At all times material hereto, Defendants engaged in "trade or commerce" as defined in (8), Florida Statutes, by enrolling thousands of Florida residents into debt settlement programs. 6. CSA claimed "SETTLE your debt up to 50%" and "DEBT FREE in as little as months" on creditsolutions.com prior to the October 19, 2009, litigation filed by the Attorney General. CSA maintained such claims up until at least the temporary injunction hearing on August 16, Defendants offered a debt settlement program to consumers to pay off debts, typically in a lump sum, at an amount significantly less than the total debt. Since at least 2006, -2 of 15-

3 Defendants have used telephone sales and their website to emoll Florida residents into the CSA program. During emollment, Defendants either expressly instruct, or indirectly encourage, consumers to stop paying their creditors, regardless of whether they are current on their obligations. Instead of paying creditors, consumers are directed by Defendants to deposit funds into a savings account to purportedly accumulate for settlements. This account is also the same account from which CSA fees are drafted. Over time, CSA debited 100%, 85% or 46% of the amount of money customers deposited into the savings account in each of the first three months for its fees, leaving customers no or little money to accumulate for settlements and faced with mounting debt balances and stressful and burdensome collection activities. Defendants charged 15% of a customer's total emolled debt as CSA's fees, with the fee budgeted into monthly payments and collected in advance of settlement. 8. The amount of fees paid to CSA by 13,205 Florida residents who emolled since January 1, 2006, through August 13, 2010, was$ 22,342, , minus refunds to these customers, for net fee payments of$21,073, Each of the 13,205 Florida residents paid CSA more than $50.00; detail of the affected Florida residents is provided in Plaintiff's spreadsheets. Six hundred sixty-seven ( 667) Florida residents that are reported as having settled all of the debts emolled in CSA's program account for approximately 5% of the Florida residents who emolled with CSA. Eight thousand two hundred thirty-one (8,231) Florida residents were documented in CSA's records as having cancelled the program with no debt settled. 9. CSA provides "debt settlement" services for a fee to effect the adjustment, compromise or discharge of unsecured debts including credit card accounts of consumer debtors residing in Florida. CSA has collected more than $50.00 from each Florida resident who emolled in the debt settlement program in advance of settling any debt for a customer. -3 of 15-

4 10. Customers reported suffering harm after enrolling with CSA and ceasing to pay the debts they enrolled in debt settlement. Customers suffered a decline in their credit ratings though they entered the program with the belief that their credit ratings would not be seriously affected. Some customers report that they were advised to let accounts fall delinquent or the program would not work. Customers reported that their credit was ruined or seriously damaged. Accrued interest, late fees and penalties caused harm in the form of increased indebtedness, with some customers suffering increases that exceeded the amount of fees paid. Other customers were sued by creditors. Some customers filed for protection under Chapter 7 or Chapter 13 of the U.S. Bankruptcy Code. Florida residents were harmed by paying CSA advance fees for debt settlement services, as many paid thousands of dollars in fees and cancelled the program without obtaining even one settlement. 11. CSA used sales scripts to enroll consumers into its program. CSA's scripts make representations about credit to prospective customers and offer debt settlement services to consumers whether they are or are not current on their payments. CSA represented that negative effects to credit continue only until all the debts are paid off and specifically, CSA scripts indicate "since you have already fallen behind on your payments, your credit has been affected and will continue to be affected until all debts are paid off." CSA's current sales scripts as of August 16, 2010 did not represent to consumers that negative payment history can affect a consumer's credit for as long as seven years. CSA has not disclosed the extent of the possible short-term and long-term consequences to a consumer's credit as a result of enrolling in CSA's program and failing to pay creditors. CSA customers did not understand that their credit would be affected. From at least 2006 until August 2010, CSA represented to consumers that the negative consequences to their credit extend only until the customer pays the debt. -4 of 15-

5 12. The practice of Trans Union and the consumer reporting agencies, specifically including Experian and Equifax, is to report negative payment history for seven years from the date of the delinquency, even after the debt is paid, as stated in an affidavit from a Trans Union representative. CSA consistently made statements to consumers from at least 2006 through the August 2010 temporary injunction hearing about the consequences to their credit, which are inconsistent with the practices of Trans Union and the major consumer reporting agencies. 13. CSA has represented from before the filing of litigation through at least August 16, 2010, that consumers have to pay their debts in bankruptcy. Standing Chapter 13 Trustee Terry Smith affirmed in an affidavit that in his experience Chapter 13 plans which are confirmed by the United States Bankruptcy Court will pay anywhere between 0% to 100% of an individual debtor's general unsecured indebtedness, such as credit card indebtedness, that many debtors make no payments to their general unsecured indebtedness and confirmed that consumers are not required to pay their debts in a Chapter 13 bankruptcy proceeding. CSA claims that consumers have to pay their debts in bankruptcy are inconsistent with consumer experiences in bankruptcy. 14. Plaintiff filed in support of the motion three investigator affidavits with numerous exhibits (some voluminous, with detail of CSA customer transactions and payment data), eight consumer affidavits, an affidavit of a Trans Union representative, an affidavit of the Standing Chapter 13 Trustee and transcripts of the testimony by Plaintiff's investigator and consumer witnesses, together with exhibits admitted into evidence at the hearings on Plaintiffs motion for temporary injunction on February 16, 2010, and August 16, 2010, which include testimony from CSA representatives and CSA consumer witnesses. 15. It is undisputed that with respect to CSA's collection of advance fees or CSA's representations about bankruptcy or credit that: -5 of 15-

6 a. CSA has collected a fee of more than $50.00 from each Florida customer for debt settlement services in advance of settling debts for customers. b. CSA has represented on its website that consumers have to pay all their debts in bankruptcy. c. CSA has represented to prospective customers through approved telephone sales scripts from at least 2006 through the August 16, 2010, temporary injunction hearing that the negative consequences to their credit extend only until the customer pays the debt. 1. It is undisputed that CSA collected fees from 13,205 Florida residents amounting to $21,073, , after accounting for partial refunds to some customers. It is undisputed that CSA collected more than $50.00 from each Florida customer in advance of settling a debt. Summary Judgment Standard Applicable Law 17. Rule 1.510(c), Fla. R. Civ. P., provides that summary judgment shall be rendered forthwith if the pleadings, depositions, answers to Interrogatories, admissions, affidavits, and other materials as would be admissible in evidence on file show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law. 18. The prerequisite to determining entitlement to summary judgment as a matter of law is the absence of genuine issues of material fact. Fla. R. Civ. P ( c). See also, Foots tar Corp. v. Doe, 932 So. 2d 1272, 1274 (Fla. 2d DCA 2006). Initially, the party requesting sun1mary judgment has the burden of demonstrating the absence of a genuine dispute over the material facts. Almand Constr. Co. v. Evans, 547 So. 2d 626, 628 (Fla. 1989). Once the moving party n1eets its burden of conclusively demonstrating that there is no genuine issue of material fact, summary judgment should be granted unless the opposing party can prove the existence of -6 of 15-

7 genuine triable issues. First North American Nat. Bank v. Hummel, 825 So. 2d 502, 503 (Fla. 2d DCA 2002). 19. Summary judgment is appropriate if after discovery and the filing of affidavits there is no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law. Fla. R. Civ. P (c). The Supreme Court has found that the mere existence of some factual dispute is not enough to defeat a motion for summary judgment, as "the requirement is that there is no genuine issue of material fact." Anderson v. Liberty a Lobby, Inc., 477 U.S. 242, (1986) (interpreting F.R.C.P. 56( c), which contains the satne standard as the cited Florida rule of civil procedure). A fact is material is under governing law it affects the outcome of the proceedings. Anderson, 477 U.S. at 248. A fact is "genuine" if a rational trier of fact could find in favor of the nonmoving party on the evidence presented. Anderson, 477 U.S. at In reviewing a ruling for summary judgment the court must examine all of the facts and inferences in the light most favorable to the nonmoving party. Valk v. J.E.M Distributors of Tampa Bay, Inc., 700 So. 2d 416, 419 (Fla. 2d DCA 1997) (citing Athans v. Soble, 553 So. 2d 1361, (Fla. 2d DCA 1989)). If after reviewing the evidence there is but one reasonable conclusion as to the verdict and reasonable minds would not differ as to the import of the evidence, summary judgment is appropriate. Anderson, 477 U.S. at 250. FDUTPA Standard General deception and unfairness standard. 21. This action was commenced under the Florida Deceptive and Unfair Trade Practices Act (FDUTPA), Chapter 501, Part II, Fla. Stat. Pursuant to (1) offdutpa, "unfair or deceptive acts or practices in the conduct of any trade or commerce" are unlawful. A -7of15-

8 definition of what constitutes a deceptive practice is not set forth within FDUTPA; however, Florida follows the "standards of unfairness and deception set forth and interpreted by the Federal Trade Commission or the federal courts." Section (3)(b), Florida Statutes. To that end, the Florida Supreme Court has noted that "deception occurs if there is a representation, omission, or practice that is likely to mislead the consumer acting reasonably under the circumstances, to the consumer's detriment." PNR Inc. v. Beacon Prop. Mgmt., Inc., 842 So. 2d 773, 777 (Fla. 2003). 22. A practice is considered unfair when it "offends public policy and when the practice is immoral, unethical, oppressive, unscrupulous, or substantially injurious to consumers." PNR, 842 So. 2d at A deceptive practice is one which "involves a material misrepresentation or omission that is likely to mislead consumers acting reasonably under the circumstances." Millenium Communications & Fulfillment, Inc. v. Department of Legal Affairs, 761 So. 2d 1256, 1263 (Fla. 3d DCA 2000); FTC v. World Travel Vacation Brokers, Inc., 861 F.2d 1020, 1029 (ih Cir. 1988); FTC v. Wilcox, 926 F.Supp 1091, 1098 (S.D. Fla. 1995). 24. A representation is material if it induces a consumer to purchase the service or product. Kraft Inc. v. FTC, 970 F.2d 311, (ih Cir. 1992). 25. FDUTPA does not require that a statement be false to be deceptive, only that it is likely to mislead; that is, it is probable rather than possible. See, Montgomery v. The New Piper Aircraft, 2002 U.S. Dist. Lexis (S.D. Fla., August 6, 2002). Probable deception means that the advertising is likely to mislead, rather than that advertising could possibly deceive, or has the ability to mislead. Montgomery v. The New Piper Aircraft, 2002 U.S. Dist. Lexis (S.D. Fla., August 6, 2002) (Findings and Recommendations adopted, 2002 U.S. Dist. Lexis -8 of 15-

9 18219). Reasonableness is determined by examining the company's target audience, and the "totality of the practice." Cliffdale Assoc., Inc., 103 F.T.C 110 (1984). Accordingly, if the target audience is one lacking a particular expertise, then "reasonable" interpretations can be unsophisticated or credulous responses. Luskin's, Inc. v. Consumer Protection Division, 353 Md. 335, 726 A.2d 702, (Md. Ct. App. 1999). 26. "A deceptive or unfair trade practice constitutes a somewhat unique tortious act because, although it is similar to a claim of fraud, it is different in that, unlike fraud, a party asserting a deceptive trade practice claim need not show actual reliance on the representation or omission at issue". Wyndham, 869 So. 2d at 598 (citing Davis v. Powertel, Inc., 776 So. 2d 971, 974 (Fla. 1st DCA 2000)). 27. An act need not violate a specific rule or regulation in order to violate FDUTPA. Dept. of Legal Affairs v. Father and Son Moving and Storage, Inc., 643 So. 2d 22, 24 (Fla. 2d DCA 1994); Mack v. Bristol-Myers Squibb Co., 673 So. 2d 100, 104 (Fla. 1st DCA 1996). Rather, FDUTP A is liberally construed to protect the consuming public from those who engage in deceptive or unfair acts or practices in trade or commerce. See, (2), Florida Statutes; Samuels v. King Motor Co. of Fort Lauderdale, 782 So. 2d 489,499 (Fla.4th DCA 2001) ("While the Legislature does not define what 'an unfair or deceptive act' is, it has mandated that FDUTPA is to be liberally construed"); Millenium, 761 So. 2d at 1263; Mack, 673 So. 2d at 104 (citing Father and Son, 643 So. 2d 22 (Fla. 2d DCA 1994), rev. denied, 651 So. 2d 1193 (Fla. 1995)). 28. A finding of fraud is not necessary to sustain a violation under the FDUPTA. Urling v. Helms Exterminators, Inc., 468 So. 2d 451, 53 (Fla. 1st DCA 1985). In fact, a mere promise not performed can result in liability under FDUPTA. See, Izadi v. Machado (Gus) Ford, -9 of 15-

10 Inc., 550 So. 2d 1135, (Fla. 3d DCA 1989); Stires v. Carnival Corp., 2003 U.S. Dist. LEXIS 6528, *4-*5 (M.D. Fla. Jan. 2, 2003). Intent to deceive or intent that the recipient rely on representations are not required elements of proof a deceptive practice. Rollins v. Heller, 454 So. 2d 580 (Fla. 3d DCA 1985). Laws Alleged in Count II 29. Pursuant to (4), Florida Statutes, '"[d]ebt management services' means services provided to a debtor by a credit counseling organization for a fee to: (a) Effect the adjustment, compromise, or discharge of any unsecured account, note, or other indebtedness of the debtor." Section (1), Florida Statutes, provides that [i]t is unlawful for any person, while engaging in debt management services or credit. counseling services, to charge or accept from a debtor residing in this state, directly or indirectly, a fee or contribution greater than $50 for the initial setup or initial consultation. Subsequently, the person may not charge or accept a fee or contribution from a debtor residing in this state greater than $120 per year for additional consultations Pursuant to (1), Florida Statutes, "[a]ny person who violates any provision of this part commits an unfair or deceptive trade practice as defined in Part II of Chapter 501. Violators shall be subject to the civil penalties and equitable remedies provided therein." Customer Restitution 30. Section (3), Florida Statutes, authorizes reimbursement to consumers who have been damaged by deceptive or unfair trade practices. In addition to other relief, this Court is authorized pursuant to (3), Florida Statutes, to make appropriate orders, including to "reimburse consumers or governmental entities found to have been damaged; to carry out a transaction in accordance with the reasonable expectations of consumers or governmental -10of15-

11 entities; to strike or limit the application of clauses of contracts to avoid an unconscionable result;... to impose reasonable restrictions upon the future activities of any defendant to impede her or him from engaging in or establishing the same type of endeavor;... or to grant legal, equitable, or other appropriate relief' (emphasis added). Section (3), Florida Statutes, also authorizes the court to grant legal, equitable, or other appropriate relief "[E]quitable or other appropriate relief' allows for the full range of equitable remedies, including restitution and disgorgement. See, Federal Trade Commission v. Gem Merchandising Corp., 87 F.3d 466, 469 (11th Cir 1996). Final relief may include restitution of amounts paid by consumers. Federal Trade Commission v. Verity Int '1 Ltd., 443 F.3d 48, 67 (2d Cir. 2006). 31. In an action of this kind where customers paid money for services provided directly from CSA rather than a third-party, the proper measure of restitution is the purchase price of Defendants' services less any refunds paid to customers. See, Gem Merch. Corp., 87 F.3d at (affirming an award of consumer redress as calculated by consumers' losses and an order of disgorgement to the Treasury). 32. All consumers who paid money in response to a deceptive practice are entitled to their money back, and there is no need for an individualized inquiry into how or why each injured consumer was affected by the practice. FTC v. Wilcox, 926 F. Supp. 1091, 1105 (S.D. Fla. 1995); See also, Davis v. Powertel, 776 So. 2d 971, 974 (Fla. 1st DCA 2000) (holding that plaintiffs seeking restitution do not have to show individualized injury). Permanent Injunctive Relief 33. This Court is authorized to enter a permanent injunction pursuant to ( 1 )(b), Florida Statutes, as the Attorney General is authorized to bring "an action to enjoin any person who has violated, is violating, or is otherwise likely to violate, this part" -11 of15-

12 (emphasis added). Pursuant to 60.08, Florida Statutes, no bond is required for an injunction sought by the state as provided in (l)(b), Florida Statutes. ORDER 1. The Attorney General's Motion for Partial Summary Final Judgment is GRANTED. 2. Defendants CSA - Credit Solutions of America, Inc., and CSA - Credit Solutions of America, LLC, engaged in deceptive and unfair business activities in violation of Florida Deceptive and Unfair Trade Practices Act, Chapter 501, Part II, Florida Statutes, including acts and practices that misled consumers acting reasonably under the circumstances or that were likely to mislead consumers acting reasonably under the circumstances; as well as practices that offend public policy and are immoral, unethical, oppressive, unscrupulous and have been substantially injurious to consumers. 3. Defendants are liable on Counts I and II of the Plaintffs Amended and Supplemental Complaint for Injunctive and Other Statutory Relief and judgment is entered in favor of Plaintiff and for the amount set forth herein. 4. Defendants unfairly collected advance fees for debt settlement services before settling debts for Florida customers, in violation of the standards of unfairness as set forth and interpreted by the Federal Trade Commission or the federal courts and thereby in violation of (1 ), Florida Statutes, with judgment entered in favor of Plaintiff under Count I. 5. Defendants unlawfully and unfairly collected fees from Florida residents for debt settlement services in excess of the fees allowed to be collected pursuant to (1), Florida Statutes; pursuant to (1 ), Florida Statutes, any person who violates (1 ), -12of15-

13 Florida Statutes, commits an unfair or deceptive trade practice as defined in Chapter 501, Part II, Florida Statutes, with judgment entered in favor of Plaintiff under Count I and II. 6. Defendants unfairly and deceptively represented to consumers that Bankruptcy "requires you to pay your complete outstanding balance" or otherwise represented that all debts are required to be paid in a Chapter 13 bankruptcy, in violation of the standards of unfairness and deception as set forth and interpreted by the Federal Trade Commission or the federal courts and thereby in violation of (1), Florida Statutes, with judgment entered in favor of Plaintiff under Count I. 7. Defendants unfairly and deceptively represented to consumers that the negative consequences to their credit for failing to pay creditors end when the consumer pays the debt or otherwise minimized the short-term and long-term consequences to consumers' credit, in violation of the standards of unfairness and deception as set forth and interpreted by the Federal Trade Commission or the federal courts and thereby in violation of ( 1 ), Florida Statutes, with judgment entered in favor of Plaintiff under Count I. 8. Defendants are liable for refunds to the 13,205 Florida residents who enrolled with Defendants from January 1, 2006, through August 13, 2010, for refund of the amounts paid to Defendants more than $50.00 in advance of settlement by each Florida resident (less any refund paid to the customer), in the aggregate amount of$20,413, as relief awarded in favor of Plaintiff pursuant to (3), Florida Statutes. 9. Defendants have violated FDUTP A and the temporary injunction entered against Defendants on August 26, 2011, nunc pro tunc to August 16, 2010, is converted to a permanent injunction, therefore permanently enjoining and prohibiting collection by either Defendant of an advance fee prior to settlement of debts, including any fee in excess of that permitted by -13of15-

14 (1), Florida Statutes, provided that collection of any fee is in compliance with the advance fee prohibitions pertaining to debt relief providers in accordance with the Federal Trade Commission's Telemarketing Sales Rule (16 CFR 310), amendments effective October 27, Defendants have violated FDUTPA and are permanently enjoined from representing, expressly or by implication, to Florida consumers that: a. the negative effects to a consumer's credit as a result of enrolling in CSA's program and failing to pay debts end with the payment of a consumer's debt or otherwise minimizing the consequences to short term or long term credit associated with failing to pay debts; and b. bankruptcy requires payment of all debts or similar representations disparaging bankruptcy as an option for consumers. 11. The Court retains jurisdiction over this matter to determine the amount of attorneys' fees and costs awarded at a future date and in the event future orders to compel compliance are appropriate. 12. In accordance with the Order, FINAL JUDGMENT is hereby entered against Defendants CSA - Credit Solutions of America, Inc., and CSA - Credit Solutions of America, LLC, whose last known address was Park Central Drive, 9th Floor, Dallas, Texas, 75251, in the amount of TWENTY MILLION FOUR HUNDRED THIRTEEN THOUSAND FOUR HUNDRED SEVENTY-FOUR DOLLARS ($20,413,474.00) for customer refunds to the 13,205 Florida residents who enrolled with Defendants from January 1, 2006, through August 13, 2010, of the amounts paid to Defendants more than $50.00 in advance of settlement by each Florida resident (less any refund paid to the customer), as further identified in Plaintiff's spreadsheet of -14of15-

15 affected Florida residents ; such FINAL JUDGMENT awarded in favor of Plaintiff pursuant to (3), Florida Statutes, which such judgment amount shall bear interest at a rate of 4.75% per year until fully paid. Let execution issue forthwith. DONE and ORDERED in Chambers at Tampa, Hillsborough County, Florida, this day of ORIGINAL SIGNED CONFORMED COPY MA Honorable Sam D. Pendinn.. Circuit Judge -SAM D.PENOINO CIRCUIT JUDGE Conformed copies to: Julia A. Harris, Esq. John Greco, Assistant General Counsel CSA - Credit Solutions of America, Inc Park Central Drive, 9th Floor Dallas, Texas of15-