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Federal Trade Commission v. Consumer Defense, LLC

United States District Court, D. Nevada

February 20, 2018

FEDERAL TRADE COMMISSION, Plaintiff,
v.
CONSUMER DEFENSE, LLC, et al, Defendants.

          DAVID C. SHONKA Acting General Counsel ADAM M. WESOLOWSKI GREGORY A. ASHE Federal Trade Commission DAYLE ELIESON United States Attorney BLAINE T. WELSH Assistant United States Attorney Nevada Bar No. 4790 Attorneys for Plaintiff

          FTC'S LODGING OF PROPOSED PRELIMINARY INJUNCTION ORDER

          JAMES C. MAHAN UNITED STATES DISTRICT JUDGE

         Pursuant to the Court's instruction, plaintiff Federal Trade Commission (“FTC”) hereby lodges the proposed preliminary injunction order.

         PRELIMINARY INJUNCTION

         Plaintiff, Federal Trade Commission (“FTC”), commenced this civil action on January 8, 2018, pursuant to Section 13(b) of the Federal Trade Commission Act (“FTC Act”), 15 U.S.C. § 53(b), and the 2009 Omnibus Appropriations Act, Public Law 111-8, Section 626, 123 Stat. 524, 678 (Mar. 11, 2009), as clarified by the Credit Card Accountability Responsibility and Disclosure Act of 2009, Public Law 111-24, Section 511, 123 Stat. 1734, 1763-64 (May 22, 2009), and amended by the Dodd-Frank Wall Street Reform and Consumer Protection Act, Public Law 111-203, Section 1097, 124 Stat. 1376, 2102-03 (July 21, 2010), 12 U.S.C. § 5538. (ECF No. 1.) On motion by the FTC, on January 10, 2018, this Court entered an ex parte temporary restraining order (“TRO”) with asset freeze, appointment of receiver, and other equitable relief against Defendants Consumer Defense, LLC (Nevada); Consumer Link, Inc.; Preferred Law, PLLC; American Home Loan Counselors; American Home Loans, LLC; Consumer Defense Group, LLC; Consumer Defense, LLC (Utah); Brown Legal, Inc.; AM Property Management, LLC; FMG Partners, LLC; Zinly, LLC; Jonathan P. Hanley; Benjamin R. Horton; and Sandra X. Hanley. (ECF No. 12.) On January 22, 2018, on stipulation of the parties, the Court continued the TRO. (ECF No. 23.) On February 1, 2018, on stipulation of the parties, the Court continued the TRO again. (ECF No. 30.) On February 15, 2018, the Court held a hearing on an order to show cause why a preliminary injunction should not issue against Defendants.

         FINDINGS OF FACT

         The Court, having considered the pleadings, declarations, exhibits, and memoranda, and the arguments presented by the parties, and being otherwise advised, finds that:

         A. This Court has jurisdiction over the subject matter of this case, and there is good cause to believe that it will have jurisdiction over all parties hereto and that venue in the District of Nevada is proper.

         B. There is good cause to believe that Defendants have engaged in and are likely to engage in acts or practices that violate Section 5(a) of the FTC Act, 15 U.S.C. § 45(a), and the Mortgage Assistance Relief Services Rule (“MARS Rule” or Regulation O), 12 C.F.R. Part 1015, and that the FTC is therefore likely to prevail on the merits of this action.

         C. There is good cause to believe that immediate and irreparable harm will result from Defendants' ongoing violations of the FTC Act and the MARS Rule unless Defendants are immediately restrained and enjoined by order of this Court.

         D. There is good cause to believe that immediate and irreparable damage to the Court's ability to grant effective final relief for consumers - including monetary restitution, rescission, disgorgement or refunds - will occur from the sale, transfer, destruction or other disposition or concealment by Defendants of their assets or records, unless Defendants are immediately restrained and enjoined by order of this Court.

         E. Good cause exists for continuing the asset freeze over the Defendants' assets and for continuing the receivership over the Receivership Entities.

         F. Weighing the equities and considering the FTC's likelihood of ultimate success on the merits, this order is in the public interest.

         G. This Court has authority to issue this Order pursuant to Section 13(b) of the FTC Act, 15 U.S.C. § 53(b); Section 626 of the Omnibus Act, 12 U.S.C. § 5538; Federal Rule of Civil Procedure 65; and the All Writs Act, 28 U.S.C. § 1651.

         H. No. security is required of any agency of the United States for issuance of a preliminary injunction. Fed.R.Civ.P. 65(c).

         DEFINITIONS

         For the purpose of this Order, the following definitions shall apply:

         A. “Asset” means any legal or equitable interest in, right to, or claim to, any property, wherever located and by whomever held.

         B. “Commercial communication” means any written or oral statement, illustration, or depiction, whether in English or any other language, that is designed to affect a sale or create interest in purchasing any service, plan, or program, whether it appears on or in a label, package, package insert, radio, television, cable television, brochure, newspaper, magazine, pamphlet, leaflet, circular, mailer, book insert, free standing insert, letter, catalogue, poster, chart, billboard, public transit card, point of purchase display, film, slide, audio program transmitted over a telephone system, telemarketing script, on hold script, upsell script, training materials provided to telemarketing firms, program-length commercial (“infomercial”), the Internet, cellular network, or any other medium. Promotional materials and items and Web pages are included in the term “commercial communication.”

         C. “Consumer” means any person.

         D. “Consumer-specific commercial communication” means a commercial communication that occurs prior to a consumer agreeing to permit the provider to seek offers of mortgage assistance relief on behalf of the consumer, or otherwise agreeing to use the mortgage assistance relief service, and that is directed at a specific consumer.

         E. “Corporate Defendants” means Consumer Defense, LLC (a Nevada LLC); Consumer Link, Inc.; Preferred Law, PLLC; American Home Loan Counselors; American Home Loans, LLC; Consumer Defense Group, LLC; Consumer Defense, LLC (a Utah LLC); Brown Legal, Inc.; AM Property Management, LLC; FMG Partners, LLC; Zinly, LLC; and each of their subsidiaries, affiliates, successors, and assigns.

         F. “Defendants” means the Corporate Defendants and the Individual Defendants, individually, collectively, or in any combination.

         G. “Document” is synonymous in meaning and equal in scope to the usage of “document” and “electronically stored information” in Federal Rule of Civil Procedure 34(a), Fed.R.Civ.P. 34(a), and includes writings, drawings, graphs, charts, photographs, sound and video recordings, images, Internet sites, web pages, websites, electronic correspondence, including e-mail and instant messages, contracts, accounting data, advertisements, FTP Logs, Server Access Logs, books, written or printed records, handwritten notes, telephone logs, telephone scripts, receipt books, ledgers, personal and business canceled checks and check registers, bank statements, appointment books, computer records, customer or sales databases and any other electronically stored information, including Documents located on remote servers or cloud computing systems, and other data or data compilations from which information can be obtained directly or, if necessary, after translation into a reasonably usable form. A draft or non-identical copy is a separate document within the meaning of the term.

         H. “Electronic Data Host” means any person or entity in the business of storing, hosting, or otherwise maintaining electronically stored information. This includes, but is not limited to, any entity hosting a website or server, and any entity providing “cloud based” electronic storage.

         I. “General commercial communication” means a commercial communication that occurs prior to the consumer agreeing to permit the provider to seek offers of mortgage assistance relief on behalf of the consumer, or otherwise agreeing to use the mortgage assistance relief service, and that is not directed at a specific consumer.

         J. “Individual Defendant(s)” means Jonathan P. Hanley, Benjamin R. Horton, and Sandra X. Hanley, individually, collectively, or in any combination.

         K. “Mortgage assistance relief service” means any product, service, plan, or program, offered or provided to the consumer in exchange for consideration, that is represented, expressly or by implication, to assist or attempt to assist the consumer with any of the following:

1. stopping, preventing, or postponing any mortgage or deed of foreclosure sale for the consumer's dwelling, any repossession of the consumer's dwelling, or otherwise saving the consumer's dwelling from foreclosure or repossession;
2. negotiating, obtaining, or arranging a modification of any term of a dwelling loan, including a reduction in the amount of interest, principal, balance, monthly payments, or fees;
3. obtaining any forbearance or modification in the timing of payments from any dwelling loan holder or servicer on any dwelling loan;
4. negotiating, obtaining, or arranging any extension of the period of time within which the consumer may (i) cure his or her default on a dwelling loan, (ii) reinstate his or her dwelling loan, (iii) redeem a dwelling, or (iv) exercise any right to reinstate a dwelling loan or redeem a dwelling;
5. obtaining any waiver of an acceleration clause or balloon payment contained in any promissory note or contract secured by any dwelling; or
6. negotiating, obtaining, or arranging (i) a short sale of a dwelling, (ii) a deed-in-lieu of foreclosure, or (iii) any other disposition of a dwelling other than a sale to a third party who is not the dwelling loan holder.

         The foregoing shall include any manner of claimed assistance, including auditing or examining a consumer's mortgage or home loan application.

         L. “Person” means a natural person, an organization or other legal entity, including a corporation, partnership, sole proprietorship, limited liability company, association, cooperative, or any other group or combination acting as an entity.

         M. “Receiver” means the receiver appointed in Section XIII of this Order and any deputy receivers that shall be named by the receiver.

         N. “Receivership Entities” means Corporate Defendants as well as any other entity that has conducted any business related to mortgage assistance relief services, including receipt of Assets derived from any activity that is the subject of the Complaint in this matter, and that the Receiver determines is controlled or owned by any Defendant.

         ORDER

         PROHIBITED BUSINESS ACTIVITIES

         I. IT IS THEREFORE ORDERED that Defendants, Defendants' officers, agents, employees, and attorneys, and all other persons in active concert or participation with them, who receive actual notice of this Order by personal service or otherwise, whether acting directly or indirectly, in connection with the advertising, marketing, promoting, or offering for sale of any mortgage assistance relief services, are hereby restrained and enjoined from:

         A. misrepresenting or assisting others in misrepresenting, expressly or by implication:

1. that any person generally will obtain mortgage loan modifications for consumers that will make their payments substantially more affordable, substantially lower their interest rates, or help them avoid foreclosure;
2. that any person is affiliated with, endorsed or approved by, or are otherwise associated with the maker, holder, or servicer of a consumer's dwelling loan, including claiming that any person has a special relationship or special agreements with the maker, holder, or servicer of a consumer's dwelling loan;
3. that any person is part of or affiliated with, endorsed or approved by, or is otherwise associated with the federal government or federal government programs;
4. that a consumer is not obligated to, or should not, make scheduled periodic payments or any other payments pursuant to the terms of the consumer's dwelling loan; and
5. any other fact material to consumers concerning any mortgage assistance relief service, such as: the total costs; any material restrictions, limitations, or conditions; or any material aspect of its performance, efficacy, nature, or central characteristics; and

         B. making or assisting others in making, any representation, expressly or by implication, about the benefits, performance, or efficacy of any product or service, unless the representation is non-misleading and, at the time such representation is made, Defendants possess and rely upon competent and reliable evidence that is sufficient in quality and quantity based on standards generally accepted in the relevant fields, when considered in light of the entire body of relevant and reliable evidence, to substantiate that the representation is true.

         PROHIBITION ON COLLECTION OF ADVANCE FEES

         II. IT IS FURTHER ORDERED that Defendants, Defendants' officers, agents, employees, and attorneys, and all other persons in active concert or participation with them, who receive actual notice of this Order by personal service or otherwise, whether acting directly or indirectly, in connection with the advertising, marketing, promoting, or offering for sale of any mortgage assistance relief services, are hereby restrained and enjoined from requesting or receiving payment of any fee or other consideration for any mortgage assistance relief service before the consumer has executed a written agreement with the consumer's dwelling loan holder or ...


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