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Federal Trade Commission v. Dinamica Financiera LLC

June 3, 2009

FEDERAL TRADE COMMISSION, PLAINTIFF,
v.
DINAMICA FINANCIERA LLC, A CALIFORNIA LIMITED LIABILITY COMPANY; SOLUCIONES DINAMICAS, INC., A CALIFORNIA CORPORATION; VALENTIN BENITEZ, AN INDIVIDUAL; JOSE MARIO ESQUER, AN INDIVIDUAL; AND ROSA ESQUER AN INDIVIDUAL, DEFENDANTS.



The opinion of the court was delivered by: Margaret M. Morrow United States District Judge

[PROPOSED] PRELIMINARY INJUNCTION

On May 19, 2009, plaintiff Federal Trade Commission ("FTC" or "Commission") filed this action for a permanent injunction and other equitable relief under Section 13(b) of the Federal Trade Commission Act ("FTC Act"), 15 U.S.C. § 53(b), and applied ex parte for a temporary restraining order ("TRO") and order to show cause why a preliminary injunction should not issue under Rule 65 of the Federal Rules of Civil Procedure. The court entered a TRO and order to show cause on May 20, 2009, and set dates for further briefing of the order to show cause. Although served, defendants have not appeared and have not opposed the entry of a preliminary injunction. Based on the record before it, the court makes the following findings of fact and conclusions of law:

FINDINGS OF FACT AND CONCLUSIONS OF LAW

1. Plaintiff FTC is an independent agency of the United States Government created by statute. 15 U.S.C. §§ 41-58, as amended. The Commission is charged, inter alia, with enforcement of Section 5(a) of the FTC Act, 15 U.S.C. § 45(a) prohibiting unfair or deceptive acts or practices in or affecting commerce. The Commission is authorized to initiate federal district court proceedings, by its own attorneys, to enjoin violations of the FTC Act, and to secure equitable relief, including restitution for injured consumers and disgorgement of ill-gotten gains, as appropriate in each case. 15 U.S.C. § 53(b).

2. Defendant Dinamica Financiera LLC is a California limited liability company that has used the following addresses: 7857 East Florence Avenue, Suite 201, Downey, California 90240, and 9550 Firestone Blvd, Suite 201, Downey, California 90241. Dinamica was formed in August 2000 and operated until at least May 2008.

3. Soluciones Dinamicas, Inc. is a California corporation with its principal place of business at 9550 Firestone Blvd, Suite 201, Downey, California 90241. Soluciones was formed in May 2008 and operated until at least April 2009.

4. Defendant Jose Mario Esquer formed Dinamica in August 2000. Esquer is a member, manager, and supervisor of Dinamica, and manages Soluciones.

5. Defendant Valentin Benitez is a member and manager of Dinamica. Benitez is a manager, supervisor, and owner of Soluciones.

6. Dinamica, Soluciones, Esquer, and Benitez ("defendants") transact or have transacted business in the Central District of California.

7. Defendants have advertised and marketed their services to homeowners facing foreclosure via Spanish-language radio and magazine advertisements, and during in-person and telephone consultations.

8. In numerous instances, defendants have represented to consumers, expressly or by implication, that they are able to obtain a mortgage loan modification or stop foreclosure in all or virtually all instances.

9. Consumers have relied on defendants' representations.

10. Defendants charge their clients the equivalent of one month's mortgage payment for their services. Since January 2006, consumers have paid defendants millions of dollars.

11. Contrary to their representations, defendants are not able to obtain a mortgage loan modification or stop foreclosure in all or virtually all instances.

12. The court has subject matter jurisdiction pursuant to 15 U.S.C. §§ 45(a) and 53(b), and 28 U.S.C. §§ 1331, 1337(a), and 1345.

13. Venue in the United States District Court for the Central District of California is proper under 15 U.S.C. § 53(b) and 28 U.S.C. § 1391(b) and (c).

14. Defendants' acts and practices are in or affecting commerce as "commerce" is defined in Section 4 of the FTC Act, 15 U.S.C. § 44.

15. Section 13(b) of the FTC Act, 15 U.S.C. § 53(b), authorizes the court to issue a preliminary injunction, an asset freeze order, and other appropriate relief.

16. A district court may grant a preliminary injunction if the moving party shows either: (1) a combination of probable success on the merits and the possibility of irreparable injury, or (2) that serious questions of law are raised and the balance of hardships tips in its favor. United States v. Odessa Union Warehouse Co-op, 833 F.2d 172, 174 (9th Cir. 1987).

17. Where the government moves for injunctive relief in a statutory enforcement action, it need not show irreparable injury if it shows a likelihood of success on the merits; in such a case, harm to the public interest is presumed. FTC v. World Wide Factors, 882 F.2d 344, 347 (9th Cir. 1989); see also FTC v. Affordable Media, LLC, 179 F.3d 1228, 1233 (9th Cir. 1999) ("Section 13(b), therefore, 'places a lighter burden on the [FTC] than that imposed on private litigants by the traditional equity standard; the Commission need not show irreparable harm to obtain a preliminary injunction.' FTC v. Warner Communications, Inc., 742 F.2d 1156, 1159 (9th Cir. 1984). Under this more lenient standard, 'a court must 1) determine the likelihood that the Commission will ultimately succeed on the merits and 2) balance the equities. . .'").

18. In weighing the public and private equities, the public interest should receive greater weight. World Wide Factors, 882 F.2d at 347.

19. Section 5(a) of the FTC Act, 15 U.S.C. § 45(a), prohibits "unfair or deceptive acts or practices in or affecting commerce." A violation of Section 5(a) is properly found upon a showing that "first, there is a representation, omission, or practice that, second, is likely to mislead consumers acting reasonably under the circumstances, and third, the representation, omission, or practice is material." FTC v. Pantron I Corp., 33 F.3d 1088, 1095 (9th Cir. 1994), cert. denied, Pantron I Corp. v. FTC, 514 U.S. 1083 (1995); see also Resort Car Rental System v. FTC, 518 F.2d 962, 964 (9th Cir. 1975), cert. denied, 423 U.S. 827 (1975).

20. Misleading statements can be express or implied. FTC v. Gill, 71 F.Supp.2d 1030, 1043 (C.D. Cal. 1999), aff'd, 265 F.3d 944 (9th Cir. 2001); see FTC v. Figgie Int'l, Inc., 994 F.2d 595, 604 (9th Cir. 1993), cert. denied, 510 U.S. 1110 (1994).

21. In determining if a representation is misleading, the court considers the "overall net impression." Gill, 71 F. Supp 2d at 1043 (citing FTC v. U.S. Sales Corp., 785 F.Supp. 737, 745 (N.D. Ill. 1992)); see also FTC v. Cyberspace.com LLC, 453 F.3d 1196, 1200 (9th Cir. 2006).

22. Representations "capable of being interpreted in a misleading way should be construed against the person making the representation." Gill, 71 F. Supp 2d at 1045-46 (citing Resort Car Rental Sys., Inc. v. FTC, 518 F.2d 962, 964 (9th Cir. 1975)).

23. The FTC is likely to prove that, in numerous instances, defendants have represented to consumers, expressly or by implication, that defendants have the ability to obtain a mortgage loan modification or stop foreclosure in all or virtually all instances, and that these representations are false.

24. The FTC is likely to prove that defendants' representations that they have the ability to obtain a mortgage loan modification or stop foreclosure or in all or virtually all instances were material, and that consumers' reliance on those representations was reasonable.

25. If a business is liable for violating Section 5, an individual defendant may be held liable for injunctive relief if the individual defendant participated directly in the practices or acts of the business or had authority to control them. FTC v. Publishing Clearing House, 104 F.3d 1168, 1170 (9th Cir. 1997); FTC v. Amy Travel Services, Inc., 875 F.2d 564, 573 (7th Cir. 1989), cert. denied, 493 U.S. 954 (1989); FTC v. Freecom Communications, Inc., 401 F.3d 1192, 1203-04 (10th Cir. 2005).

26. The FTC is likely to prove that Esquer and Benitez had authority to control and did control Dinamica and Soluciones.

27. The FTC is likely to prove that defendants have engaged in and are likely to engage in acts that violate Section 5(a) of the FTC Act, 15 U.S.C. § 45(a), and thus to prevail on the merits of its claims in this action.

28. It is likely that immediate and irreparable harm will result from defendants' ongoing violations of the FTC Act unless they are restrained and enjoined by entry of a preliminary injunction.

29. An asset freeze may be imposed when the possibility of dissipation of assets exists. Fed. Sav. & Loan Ins. Corp. v. Sahni, 868 F.2d 1096, 1097 (9th Cir. 1989).

30. The possibility of dissipation exists where defendants have engaged in pervasive fraudulent activity. See, e.g., FTC v. H.N. Singer, Inc., 668 F.2d 1107, 1113 (9th Cir. 1982) (noting that the purpose of an assets freeze order is to ensure that those who were defrauded are compensated, and that, while the district court must carefully consider whether to issue such an order, there was "no danger [in the case before it] that the freeze [would] disrupt the defendants' business affairs, to the detriment of those whom the defendants have defrauded. They are out of business, and their activities, as shown in the record, lead to the conclusion that, absent a freeze, they would either dispose of, or conceal, or send abroad, all of the moneys that they have obtained from their victims"); SEC v. Manor Nursing Ctrs., Inc., 458 F.2d 1082, 1106 (2d Cir. 1972) ("the court could not be assured that appellants would not waste their assets prior to refunding public investors' money. Moreover, at the time the court's order was entered, a great deal of uncertainty existed with respect to the total amount of proceeds received and their location. Appellants' failure to present evidence to remove this uncertainty warranted a measure designed to preserve the status quo while the court could obtain an accurate picture of the whereabouts of the proceeds of the public offering. In addition, the continued failure of some appellants to furnish the information necessary to a complete understanding of the current situation justified extension of the temporary freeze until appellants have refunded the proceeds. Under the circumstances, we hold that there is no basis for disturbing the district court's finding that a temporary freeze was necessary to protect the public interest"); see also SEC v. Chemical Trust, No. 00-8015-CIV, 2000 WL 33231600, *12 (S.D. Fla. Dec. 19, 2000) ("[T]he pre-trial orders freezing assets and requiring the repatriation of assets are hereby extended. It would be highly inequitable and illogical if, after a finding against the defendants that they committed securities fraud, and after a finding against ACC that it possesses some of the fruits of the fraud, ACC were then allowed to dissipate stolen investor funds that had once been frozen. Instead, the present asset freeze and repatriation orders should be continued so that, after the defendants and relief defendants eventually reveal the whereabouts of the stolen investor funds, the Commission can meaningfully pursue proceedings in execution of this Court's order").

31. The magnitude of defendants' ultimate liability may also warrant the entry of an asset freeze. See, e.g., FTC v. USA Beverages, Inc., No. 05-61682 CIV, 2005 WL 5654219, *8-9 (S.D. Fla. Dec. 6, 2005) ("An asset freeze is appropriate where, as here, it is necessary to preserve the possibility of restitution for victimized consumers. . . . The scope of the monetary liability for Defendants' unlawful conduct is enormous and provides considerable motivation for defendants to place their assets beyond the Court's reach" (citations omitted)) (Report and Recommendation), adopted by FTC v. USA Beverages, Inc., No. 05-61682-CIV, 2005 WL 5643834 (S.D. Fla. Dec. 9, 2005).

32. There is good cause to believe that defendants are engaged in a pattern of fraudulent activity and face a potential liability of millions of dollars, and thus might possibly dissipate their assets.

33. An individual who is liable for injunctive relief under Section 13(b) of the FTC Act is also liable for monetary relief if the individual had sufficient "knowledge" of the deception. Publishing Clearing House, 104 F.3d at 1171; Freecom Communications, 401 F.3d at 1207; Amy Travel, 875 F.2d at 573-74.

34. The requisite degree of knowledge can be demonstrated by showing actual knowledge of material misrepresentations, reckless indifference to the truth or falsity of the misrepresentations, or an awareness of a high probability of fraud along with an intentional avoidance of the truth. Publishing Clearing House, 104 F.3d at 1171.

35. The extent of an individual's involvement in the business affairs of a company engaged in deception "alone is sufficient to establish the requisite knowledge for personal restitutionary liability." FTC v. Affordable Media, LLC, 179 F.3d 1228, 1235 (9th Cir. 1999).

36. The FTC will likely prove that Benitez and Esquer have the requisite degree of knowledge to be held liable for monetary relief.

37. Immediate and irreparable damage to the court's ability to grant effective final relief for consumers -- including refunds, rescission and restitution, disgorgement, or other equitable monetary relief -- will occur from the sale, transfer, or other disposition or concealment by defendants of assets or records unless defendants are immediately restrained and enjoined by entry of a preliminary injunction and asset freeze order.

38. Considering plaintiff's likelihood of ultimate success and weighing the equities, a preliminary injunction ("Order"), coupled with an asset freeze and other equitable relief is in the public interest.

39. No security is required of any agency of the United States for issuance of a preliminary injunction. FED.R.CIV.PROC. 65(c).

ORDER

DEFINITIONS

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

1. "Assets" means any legal or equitable interest in, right to, or claim to, any real or personal property, including, without limitation, chattels, goods, instruments, equipment, fixtures, general intangibles, leaseholds, mail or other deliveries, inventory, checks, notes, accounts, ...


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