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Federal Trade Commission v. Consumer Defense LLC

United States District Court, D. Nevada

April 30, 2019

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

          ORDER

         Presently before the court is defendants Jonathan P. Hanley and Sandra X. Hanley's (collectively “the Hanleys”) motion for reconsideration. (ECF No. 184). Receiver Thomas W. McNamara (“McNamara”) and plaintiff Federal Trade Commission (“FTC”) filed separate responses. (ECF Nos. 189, 190). The Hanleys did not reply and the time to do so has passed.

         Also before the court is Magistrate Judge Peggy A. Leen's report and recommendation. (ECF No. 191). Defendants Consumer Defense, LLC (Utah); Preferred Law, PLLC; American Home Loan Counselors; Consumer Defense Group, LLC; American Home Loans, LLC; AM Property Management, LLC; FMG Partners, LLC; Brown Legal, Inc.; and Zinly, LLC (collectively “Utah entities”) did not file an objection and the time to do so has passed.

         Also before the court Jonathan P. Hanley's (“Mr. Hanley”) motion for leave to file supplemental exhibits. (ECF No. 198). McNamara filed a response. (ECF No. 202). Mr. Hanley did not file a reply and the time to do so has passed.

         I. Facts

         The instant case arises from the Utah entities; Consumer Defense, LLC (Nevada); Consumer Link, LLC; the Hanleys; and Benjamin Horton's (collectively “defendants”) allegedly fraudulent mortgage assistance relief services (“MARS”). (ECF No. 1). The FTC alleges the following facts:

         Defendants began to perpetrate the MARS scheme in 2011, in which they would collect advance fees from consumers and promise to obtain mortgage loan modifications that would stop or prevent foreclosure. Id. Once defendants initiated the loan modification process, they would instruct consumers not to pay their mortgages and not to contact or respond to their lenders. Id.

         Defendants typically failed to obtain mortgage loan modifications. Id. As a result, consumers found themselves with months of interest and missed payments added to their mortgages and, in some cases, faced foreclosure and bankruptcy. Id. Ultimately, defendants used the MARS scheme to swindle consumers out of more than $11 million. Id.

         The MARS scheme was a common enterprise of eleven interrelated entities-the corporate defendants, controlled by the Hanleys and Horton. (ECF No. 6). Most of the corporate defendants interacted with consumers to provide MARS service contracts.[1] Id. The remaining entities functioned as payment collectors and financial conduits that paid for required services, such as websites and office spaces. Id.

         The corporate defendants shared employees and commingled funds. Id. When interacting with consumers, the corporate defendants “blurred corporate distinctions” by intermingling contacts, forms, and consumer payments. Id. The FTC therefore contends that the corporate defendants were a “maze of interrelated companies” that “jointly participated in a ‘common venture' in which they benefitted from a shared business scheme . . .” Id. (citations omitted).

         The Hanleys and Horton formed the pertinent business entities together. (ECF No. 54). Mr. Hanley controlled and operated the majority of the corporate defendants. (ECF No. 63). Sandra X. Hanley (“Ms. Hanley”) managed nearly all the corporate defendants, handled the payroll, and responded to chargebacks on defendants' merchant accounts. Id. Ms. Hanley was also a representative who negotiated mortgage loan modifications pursuant to consumer contracts. Id.

         Benjamin Horton, the only attorney who worked with the Hanleys, allegedly “served as a front for [defendants' claim that they [would] provide expert legal assistance to consumers to negotiate mortgage loan modifications.” (ECF No. 6). Horton was also the owner, manager, and attorney for Preferred Law, PLLC, (“Preferred Law”), which he dissolved after his Utah bar license was suspended. (ECF Nos. 6, 54).

         The FTC filed the underlying complaint on January 8, 2018, alleging six causes of action pursuant to Section 5(a) of the Federal Trade Commission Act (“FTC act”), 15 U.S.C. § 45(a) against all defendants. (ECF No. 1). The causes of action in the complaint are as follows: (1) deceptive representations regarding substantially more affordable loan payments, substantially lower interest rates, or foreclosure avoidance; (2) deceptive representations regarding loan modification services; (3) advance payments for mortgage assistance relief services; (4) prohibited representations; (5) material misrepresentations; (6) failure to disclose. Id[2]

         On February 20, 2018, the court granted the FTC's motion for preliminary injunction, which maintained the asset freeze that the court set in place with a temporary restraining order on January 10, 2018. (ECF Nos. 12, 55). On January 18, 2019, the court granted McNamara's motion for authorization to sell properties and vehicles that the court enjoined with the preliminary injunction. (ECF No. 182). The court also authorized the release of $57, 043.04 for attorney's fees. Id.

         The Hanleys now request that the court vacate its January 18, 2019, order and prevent McNamara from selling the respective real properties and vehicles. (ECF No. 184). The magistrate judge recommends that the court enter default judgment against the Utah entities for failing to comply with court orders. (ECF No. 191). Lastly, Mr. Hanley requests leave to ...


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