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Federal Trade Commission v. Ideal Financial Solutions, Inc.

United States District Court, D. Nevada

June 5, 2014

Federal Trade Commission, Plaintiff
Ideal Financial Solutions, Inc., et al., Defendants


JENNIFER A. DORSEY, District Judge.

Currently before the Court are: Defendants Michael Sunyich and Melissa Sunyich Gardner's Motions to Dismiss [Docs. 103, 115]; and the FTC's Second Motion to Strike Notice, and Direct Clerk to Entry a Default [Doc. 145]. Finding that Defendants Ideal Financial Solutions, Inc; Ascot Crossing, LLC; Bracknell Shore, LTD; Chandon Group, Inc.; Fiscal Fitness, LLC, and Avanix, LLC, have failed-despite numerous opportunities-to retain counsel and file a proper answer in this action, the Court grants the FTC's Second Motion to Strike, strikes the defendants' April 25, 2013, answer to the extent it purports to respond on behalf of these entities and directs the Clerk of the Court to enter default against them. The Court also denies Michael Sunyich and Melissa Sunyich Gardner's motions to dismiss because these defendants failed to demonstrate that the FTC's complaint does not state plausible claims against them.


The FTC alleges that since 2009, Defendants-corporate entities and the individuals who controlled them-took money from consumers' bank accounts or billed their credit cards without their knowledge, consent, or prior adequate notice. Doc. 32 at 9. The FTC claims that Defendants set up shell companies, established merchant accounts with third-party payment processors, and billed consumers using these merchant accounts, with charges upwards of $30. Id. at 9-10. For example, during a 2010 "Debt2Wealth Campaign, " deductions between $30 and $40 were charged to consumers' credit cards; when those consumers called the phone number listed on the debit transaction, they were falsely told they had purchased financial counseling services. Id. And during a 2011 "Funding Assurance Campaign, " Defendants deducted approximately $30 from numerous consumer accounts without authorization, and falsely told consumers they had purchased payday-loan-matching services from the Defendants. Id. During the 2012 "Avanix Campaign, " consumers contesting a $31.96 charge were told they had purchased assistance in completing a payday-loan application. Id. The FTC alleges that numerous other campaigns were instituted by the Defendants during this time. Id.

The FTC contends that the high transaction-reversal and return rates indicate a lack of consumer authorization. Doc. 32 at 12-13. While the 2011 average total return rate was 1.52%, during the "Debt2Wealth" campaign, Defendants' total return rate was 54% for all payments processed by one unnamed processor. Id. at 13. Similarly, while the overall 2011 unauthorized return rate was 0.03%, during the "Funding Assurance Campaign, " the unauthorized return rate was approximately 2.7%. Id. The FTC alleges that the defendants massaged even these disproportionate figures by taking multiple de minimus unauthorized debts from consumer accounts and then refunding them as direct deposits, and not refunds, prior to deducting far larger amounts. See id. at 14. It also alleges that Defendants established call centers in the United States and abroad to handle the heavy volume of consumer complaints, and that their call-center agents misrepresented the nature of the transactions in question. Id. at 15-16. The FTC alleges that Defendants hid their actions by using a number of shell entities, which share the same office space and commingle assets. Id at 16.

The FTC sued Defendants on January 28, 2013, bringing three counts globally against all defendants in this case: unfair billing practices, deceptive billing practices, and deceptive statements that consumers authorized payment. Doc. 32 at 18-20. The FTC successfully sought a temporary restraining order against all defendants. Docs. 1; 2; 10. On February 14, 2013, the Court followed up with a preliminary injunction that instituted, inter alia , an asset freeze to prevent "immediate and irreparable damage to this Court's ability to grant effective final relief for consumers, including monetary restitution." Doc. 18 at 3, 5. Upon issuing the preliminary injunction, the Court also appointed Thomas McNamara as receiver over Ideal. Id. at 8-9, 10-12.

A. The FTC's Second Motion to Strike Notice and Direct Clerk to Enter a Default [Doc. 145]

The Court first considers the FTC's Motion to Strike Defendant Steven Sunyich's "notice, " Doc. 40, which advised that Ideal Financial, Ascot Crossing, LLC, Bracknell Shore, Chandon Group, Avanix, LLC, and Fiscal Fitness, LLC ("Corporate Defendants") can not afford to retain counsel because all of the assets of the Corporate Defendants have been seized. Sunyich, purportedly on behalf of the Corporate Defendants, requested relief from their deadline to answer the FTC's Amended Complaint. Id. at 1-2. Defendants Steven Sunyich, Christopher Sunyich, Michael Sunyich, Shawn Sunyich, and Melissa Sunyich Gardner answered the FTC's complaint on April 25, 2013, both on their own behalf and "as officers and directors" of the Corporate Defendants and other unnamed entities. Doc. 41. None of the individual defendants are attorneys, and the FTC moved to strike both the notice (Doc. 40) and the answer to the extent it was filed on behalf of any corporate entity . The FTC also asks the Court to direct the Clerk of Court to enter a default against the Corporate Defendants for their failure to answer. Docs. 45 at 1-2; 46.

Although no response to the FTC's motion was filed, the Court issued an Order on October 3, 2013, noting that corporate entities may only appear in federal court through a licensed attorney. Doc. 99. It then denied the FTC's motion without prejudice and provided the Corporate Defendants with 20 days to retain attorneys and file an answer to the FTC's complaint. Id. at 2. The Court "strongly cautioned that failure to timely obtain proper representation or file a proper response may result in the striking of [Corporate Defendants'] Response... and the entry of default." Id.

On October 25, 2013, Defendants Steven and Christopher Sunyich moved separately to "clarify" the order and requested that the Court permit additional time for the Corporate Defendants to obtain counsel, although neither defendant provided reasons for their extension requests. See Docs. 130 at 3; 131 at 3. By November 8, 2013, with no indication that any of the Corporate Defendants had answered or otherwise taken steps to comply with the Court's order, the FTC re-urged its motion to strike and for entry of a clerk's default, noting that the Corporate Defendants' time for response has long-since passed. Doc. 145, 146.

Artificial entities like corporations, limited liability companies, and limited partnerships can only appear in Federal Court through licensed attorneys;[2] thus, pleadings filed on behalf of corporations by non-attorneys are of no effect. Under Federal Rule of Civil Procedure 15(a)(3), "Unless the court orders otherwise, any required response to an amended pleading must be made within the time remaining to respond to the original pleading or within 14 days after service of the amended pleading, whichever is later."[3] "When a party against whom a judgment for affirmative relief is sought has failed to plead or otherwise defend, and that failure is shown by affidavit or otherwise, the clerk must enter the party's default."[4]

The FTC has filed proof of service on all of the Corporate Defendants.[5] The Court concludes that this proof establishes, by "affidavit or otherwise" that none of the Corporate Defendants answered the FTC's First Amended Complaint within the time period specified in the Federal Rules of Civil Procedure. Thus, a clerk's entry of default is warranted in this case against all of these entities. The FTC's motion is granted in this respect.

For the same reasons, the Court also grants the FTC's second request to strike any portions of Doc. 41, filed by the individual defendants, that purports to assert a defense on behalf of the Corporate Defendants. Accordingly, the Answer contained at Document 41 will be construed only as the answer of Steven Sunyich, Christopher Sunyich, Michael Sunyich, Shawn Sunyich, and Melissa Sunyich Gardner, individually. However, the Court denies the request to strike Steven Sunyich's "notice" at Doc. 40. Federal Rule of Civil Procedure 12(f) permits courts to "strike from a pleading an insufficient defense or any redundant, immaterial, ...

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