UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF CALIFORNIA SOUTHERN DIVISION
January 15, 2010
FEDERAL TRADE COMMISSION, PLAINTIFF,
DATA MEDICAL CAPITAL, INC., ET AL. DEFENDANTS.
The opinion of the court was delivered by: Alicemarie H. Stotler United States District Judge
ORDER ADJUDICATING CONTEMPT DEFENDANTS IN CONTEMPT OF COURT AND FINDINGS OF FACT AND CONCLUSIONS OF LAW IN SUPPORT THEREOF; ORDER FOR PHASE II PROCEEDINGS
TABLE OF CONTENTS INTRODUCTION .........................
1 FINDINGS OF FACT .......................3
I. The Case and the Parties. ................3
A. Federal Trade Commission and Prior Proceedings. ...3
B. Contempt Citees. ..................5
1. Contempt Defendant D'Antonio. .........5
2. Contempt Defendant RLG. ............9
3. Contempt Defendant ALG. ........... 12
4. Contempt Defendant TFG ............ 16
II. Contempt Defendants' Business Practices......... 17
A. Telemarketing. .................. 17
B. Material Misrepresentations. ........... 19
1. Contempt Defendants Misrepresented That They Would Stop Foreclosures. ........... 20
2. Contempt Defendants Misrepresented That They Would Modify Consumers' Mortgages. ...... 21
3. Contempt Defendants Misrepresented That Highly Qualified Attorneys Would Prevent Foreclosures and Negotiate Modified Mortgages. ...... 26
4. Contempt Defendants Misrepresented That They Conducted "Forensic" Analyses of Consumers' Mortgages. .................. 33
5. Contempt Defendants Changed Policies and Practices After They Learned of the FTC's Investigation. ................ 35
a. Contempt Defendants introduced disclaimers and terminated a group of recent telemarketer hires after they learned of the FTC's investigation. ............. 35
b. Contempt Defendants implemented other operational changes after the FTC and other federal and state law enforcement agencies announced a crackdown on mortgage relief fraud. ................. 37
CONCLUSIONS OF LAW ..................... 38
I. The Court Has Inherent Power to Enforce the Permanent Injunction through Civil Contempt ........... 38
A. Jurisdiction. ................... 38
B. Legal Standard for Civil Contempt. ........ 39
C. The Permanent Injunction Applies to Contempt Defendants. .................... 40
1. Contempt Defendant D'Antonio Is Bound by the Permanent Injunction. ............ 40
2. Contempt Defendant RLG Is Bound by the Permanent Injunction. ................. 40
3. Contempt Defendant ALG Is Bound by the Permanent Injunction. ................. 43
4. Contempt Defendant TFG Is Bound by the Permanent Injunction. ................. 44
5. Corporate Contempt Defendant TFG Was an Alter Ego of D'Antonio, and Therefore Is Bound by the Permanent Injunction ............. 45
6. Corporate Contempt Defendants Are Bound by the Permanent Injunction as a Common Enterprise. . 47
II. Contempt Defendants Violated a Definite and Specific Court Order.......................... 48
A. The Permanent Injunction Is Definite and Specific . 48
1. The Telemarketing Ban Is Definite and Specific. 48
2. The Prohibition on Misrepresenting Material Facts Is Clear and Definite. ......... 53
B. The FTC Established by Clear and Convincing Evidence That Contempt Defendants Violated the Permanent Injunction's Prohibition Against Telemarketing. .. 53
C. The FTC Has Established by Clear and Convincing Evidence That Contempt Defendants Violated the Permanent Injunction's Prohibition Against Making Material Misrepresentations. ........... 54
1. Contempt Defendants Misrepresented the Nature of the Services Provided, Their History of Success, and the High Likelihood That Contempt Defendants Would Negotiate a Substantially Reduced Mortgage Payment. ................... 55
2. Contempt Defendants' Misrepresentations Were Material ................... 58
3. Contempt Defendants' Disclaimers Did Not Change the Net Impression of the Misrepresentations . 58
4. Evidentiary Objections are Overruled in Part and Sustained in Part. .............. 59
D. The Contempt Defendants Did Not Substantially Comply with the Permanent Injunction. .......... 61
III. Contempt Defendants Face Sanctions to be Determined . . 64
CONCLUSION ......................... 64
The Court read and considered all materials submitted in connection with the November 18, 2009 civil contempt hearing, including:
* The FTC's Ex Parte Application for Order to Show Cause Why Contempt Defendants Should Not be Held in Contempt (Doc. 91); Memorandum of Points and Authorities in Support of that Application (Doc. 92); and Ex Parte Application to Modify Stipulated Final Order; Memorandum in Support (Doc. 94); Contempt Defendants The Rodis Law Group, Inc.'s ("RLG") and Bryan D'Antonio's ("D'Antonio's) oppositions to those applications (Docs. 245, 246, 247); and the FTC's reply briefs (Docs. 271, 272);
* All of the Exhibits submitted by the parties in support of their respective applications and memoranda for or against a finding of civil contempt, including Exhibits 3-30, 32-38, 40-51, 53-65, 68, 76, 84-85, 89-90, 93, 97, 102, 104-109, and 500-501;
* Volumes I-III of Declarations In Support of Federal Trade Commission's Ex Parte Applications Seeking Civil Contempt Sanctions and to Modify Stipulated Final Order; Supplemental Declaration of Kenton Johnson (Doc. 275); Supplemental Declaration of Naomi Parnes (Doc. 276); and Declaration of Victor Nguyen (Doc. 277); and all of the related attachments thereto;
* Declarations in support of Opposition of Defendant Bryan D'Antonio to Ex Parte Application for Order to Show Cause Why Contempt Defendants Should Not be Held in Contempt, including J. Gregory Dyer; Victoria Vanransom; Consumers Martin Aiello, Bob Barton, Ted Bernard, Bill Dynek, Paulette Olsen, Deborah Ray, Rebecca Spallino, and William Young; Previous Employees Thi Cao, Dianna Castillo, Maria Del Gallego, Aaron Garcia, Linda Le, Christopher Lekawa, Katherina Nguyen, Jamie Norris, Ralph Osborne, and Nadar Qsar; Second Declaration of Nadar Qsar; and all of the related attachments thereto;
* America's Law Group's ("ALG") designated declarations, including the declarations of Jane Marchman and Nadar Qsar;
* The FTC's designations of the depositions of Nicholas Chavarela (August 19, 2009); Bryan D'Antonio (June 11, 2009); Charles Wayne Farris (August 18, 2009); and Ronald P. Rodis (June 12, 2009);
* All of the parties' designations -- including initial, counter, supplemental, updated, and reply, as appropriate -- of the depositions of David Dyssegard (August 24, 2009); Rick McCullar (August 26 and 28, 2009); Nadar Qsar (October 27, 2009); Sarah Rudder (August 27, 2009); Juliette Smith (August 27, 2009); and Thomas Yeager (July 28, 2009);
* The Report of Temporary Receiver's Activities for the Period of May 27, 2009 through June 12, 2009, filed with the Court on June 16, 2009 ("Temp. Receiver's Rpt.," Doc. 119), which the Court approved by Order issued on September 25, 2009 (Doc. 230);
* All other materials filed or lodged in support or opposition in this matter; and;
* The arguments made by the parties at the November 18, 2009 hearing.
The Court grants judicial notice as requested in D'Antonio's Request for Judicial Notice re Ex Parte Application for Order to Show Cause re: Why Contempt Defendants Should Not Be Held in Contempt (Doc. 248).
After due consideration of the submissions made before and after the hearing, including all proposed findings of fact and conclusions of law and various parties' objections, the Court finds by clear and convincing evidence the following facts which support the Court's conclusion, as set forth in the following Conclusions of Law, that defendant Bryan D'Antonio and all named contempt citees are in contempt of the Court's July 13, 2001 Permanent Injunction.
II. FINDINGS OF FACT
I. The Case and the Parties
A. Federal Trade Commission and Prior Proceedings
1. Plaintiff, the Federal Trade Commission ("FTC" or "Commission"), initiated this action on October 14, 1999, by filing a complaint against D'Antonio and entities he controlled (Doc. 1) and seeking an ex parte TRO with an asset freeze, which the Court granted on October 18, 1999 (Doc. 10).
2. The Complaint alleged that defendants used general media advertisements to generate inbound telemarketing calls and then made deceptive representations during their telemarketing operation. (Doc. 1.)
3. D'Antonio agreed to the Stipulated Final Judgment and Order for Permanent Injunction ("Permanent Injunction") that the Court entered on July 13, 2001. (Doc. 74.)
4. The Permanent Injunction, inter alia, permanently banned D'Antonio, and "all persons or entities directly or indirectly under [defendants'] control, and all other persons or entities in active concert or participation with them who receive actual notice of this Order by personal service or otherwise, and each such persons, whether acting directly or through any corporation, limited liability company, subsidiary, division, or other device, are hereby permanently restrained and enjoined from: (1) telemarketing or assisting others engaged in telemarketing" ; and (2) making, or assisting in the making of, expressly or by implication, any false or misleading statement or representation of material fact, including, but not limited to, any misrepresentation about any other fact material to a consumer's decision to purchase any employment program."
5. In a related criminal proceeding, D'Antonio entered a guilty plea to one count of mail fraud in connection with telemarketing and one count of wire fraud in connection with telemarketing in a criminal indictment alleging similar facts. D'Antonio was sentenced to a term of four years in prison followed by three years supervised release for leading that enterprise. (U.S. v. D'Antonio, CR-00158-AHS (C.D. Cal.) J. & Prob./Commitment Order, March 6, 2003, Ex. 108.)
6. On May 27, 2009, the FTC filed its Ex Parte Application for a Temporary Restraining Order and a Preliminary Injunction, Pending Decision on Its Ex Parte Application for An Order to Show Cause Why Contempt Defendants Should Not Be Held in Contempt ("TRO Application"). (Doc. 83.)
7. On May 27, 2009, this Court issued a Temporary Restraining Order ("TRO") with an asset freeze and appointment of a Temporary Receiver. (Doc. 85.) The Contempt Defendants were served with the TRO on May 28, 2009. (Doc. 110.)
8. On June 22, 2009, the Court issued the requested Preliminary Injunction, including a continued asset freeze and receivership, and set the contempt hearing for July 28, 2009. (Docs. 136, 140, 172.) The contempt hearing was subsequently continued to November 18, 2009.
B. Contempt Citees
9. For purposes of this contempt proceeding, the Contempt citees, collectively hereafter referred to as "Contempt Defendants" are:
a. Bryan D'Antonio ("D'Antonio");
b. The Rodis Law Group, Inc. ("RLG");
c. America's Law Group ("ALG"); and
d. The Financial Group, Inc. ("TFG").
1. Contempt Defendant D'Antonio
10. D'Antonio provided the FTC with a sworn statement acknowledging receipt of the Permanent Injunction on July 23, 2001. (Doc. 95, Ex. 2.)
11. D'Antonio controlled the RLG, ALG, and TFG foreclosure prevention and loan modification operation. He oversaw and controlled the business operations of RLG, ALG, and TFG, set basic marketing and operational policies and philosophies, and served as the final senior officer to resolve problems with clients.
12. Wayne Farris (aka C. Wayne Farris and Charles Wayne Farris, hereafter "Farris"), a senior manager for Contempt Defendants, and Rob Hart, a sales manager for Contempt Defendants, informed employees that D'Antonio determined how much money the company spent on advertising and that D'Antonio and others spent extensive time developing advertising scripts (Exs. 63, 64).
13. D'Antonio oversaw critical financial aspects of the operations, including commission structure and funding of leads (Ex. 15), as well as approval of refunds, particularly refunds involving large amounts (Temp. Receiver's Rpt., Doc. 119 at 16 (the Temporary Receiver's Report is not paginated consecutively throughout; the page numbers referenced herein are the page numbers assigned to the filed document (Doc. 119)) (Ex. 25); Lekawa Decl. ¶¶ 4, 8, Nov. 2, 2009), and approval of advance issuance of employee pay checks (McCullar Dep. 138:13-139:10). D'Antonio also funded the start-up expenses for ALG. (Ex. 27; Temp. Receiver's Rpt., Doc. 119 at 30-31.)
14. D'Antonio had signature authority for bank accounts for each of the Contempt Defendants (R. Lewis Decl. ¶¶ 27-30, Atts. CC, DD, May 18, 2009; Ex. 13, 14, 34) and directed the entities' Controller, Linda Le (L. Le Decl. ¶ 3, Oct. 30, 2009), to transfer more than one million dollars in corporate funds to his personal accounts (Exs. 23, 27, 57, 28-30; Temp. Receiver's Rpt., Doc. 119 at 7, 14; Supp. Decl. of K. Johnson, Att. B).
15. D'Antonio influenced operational and other policies in areas ranging from matters involving retainer agreement language (Ex. 56) and how to handle retainer agreements received under the RLG name after the business began using the ALG name (Ex. 57) to employee dress code and office space logistics (Ex. 15).
16. D'Antonio recruited, first, Ronald P. Rodis ("Rodis"), and then Nicholas Chavarela ("Chavarela"), to be involved with Contempt Defendants' operations. (Rodis Law Group, Inc.'s Opp. To Pl.'s App. For Contempt Order "RLG Opp.," Doc. 245 Att. C. (Mar. 6, 2009 letter from Rodis to D'Antonio, describing how D'Antonio influenced Rodis' involvement and describing how D'Antonio's management impacted RLG); McCullar Dep. 110:3-111:20, 112:2-13, 114:4-115:2 (D'Antonio and Farris first announced loan modification business pilot program, then offered opportunity for telemarketers to transition from TFG dba Tax Relief ASAP to RLG); Ex. 24; Kane Decl. Att. A; Exs. 21, 24, 53-55 (e-mails establishing D'Antonio's connection to Nick Chavarela, role in recruiting him to replace Rodis, and position of authority in determining whether and how to respond to Chavarela's correspondence.))
17. D'Antonio expressly held himself out as CEO of Contempt Defendants. (Dyssegard Dep. 43:10-21, Aug. 25, 2009.) His name, with the title "CEO," appeared on pages of the RLG employee handbook, entitled "Welcome to Rodis Law Group" and "Closing Statement." (Exs. 10, 11.) He identified himself as TFG's president and CEO on documents provided to U.S. Bank. (R. Lewis Decl. ¶ 30, Att. CC at 441, 445, 452.)
18. D'Antonio conveyed his authority to staff in various meetings by making statements about corporate goals and, at times, stating that he would fire employees who did not follow his instructions. (McCullar Dep. 62:23-63:8, 110:3-111:8, 112:2-13, 183:23-184:8, 197:8-198:23; J. Smith Dep. 82:6-24, Aug. 27, 2009 ("Bryan basically came out and said that what we are going to be doing is just getting as much -- bringing in as much money as possible, files. These people are bottom feeders. They didn't really care about their house and we are going to make as much money as possible."); N. Nguyen Decl. ¶ 7-9; J. Smith Decl. ¶ 4; Rudder Decl. ¶¶ 4-7.) D'Antonio hosted Contempt Defendants' Christmas party at the home he shared with Christi D'Antonio, at which he gave a speech, describing the company as a family-owned company and thanking everyone for "all the hard work" they were doing "for our company." (McCullar Dep. 197:8-10, 198:9-19.)
19. On other occasions, mid-and senior-level managers referred to D'Antonio as the person in charge. (Temp. Receiver's Rpt., Doc. 119 at 6-7; Dyssegard Decl. ¶ 15; McCullar Dep. 183:16-22; 184:18-185:14.) On one such occasion, Farris likened D'Antonio's status to that of Bill Gates at Microsoft, while chastising staff for making "blind transfers" to D'Antonio (transferring callers directly to D'Antonio without announcing them), saying, "Absolutely nobody should be able to call into the floor and then be passed straight on to [D'Antonio]. . . . Can you imagine calling the customer service department of Microsoft and then being transferred straight to Bill Gates? Come on guys, get a clue!" (Kane Decl. ¶ 12, Att. C.)
20. The FTC noticed the depositions of D'Antonio, Rodis, Chavarela, and Farris during the course of these proceedings. Each invoked his Fifth Amendment privilege against self-incrimination as to all questions about D'Antonio's control of and the operations of RLG, ALG, and TFG. (D'Antonio Dep. 58:8-62:3, 63:10-22, 65: 7-71:7, 71:14-73:8, 83:21-107:19, June 11, 2009; Rodis Dep. 23:13-27:19, 37:3-8, 37:20-22, June 12, 2009; Chavarela Dep. 10:23-11:21; 12:16-20, 13:4-14:16, 15:4-6, 25:18-26:18, 35:24-39:1, Aug. 19, 2009; Farris Dep. 11:13-12:16, 13:5-14:9, 15:8-17:1, 40:14-42:3, 54:18-55:20, 62:5-64:19, 65:11-66:6, 70:19-78:21, 86:20-88:24, Aug. 18, 2009.)
2. Contempt Defendant RLG
21. RLG, a California corporation, is located at 1100 Town and Country Road, Orange, Calif. (R. Lewis Decl. ¶ 42.)
22. According to the Temporary Receiver's Report, RLG had gross service revenues approximating $1.1 million in 2008 and $6.2 million in 2009. (Temp. Receiver's Rpt., Doc. 119 at 13.)
23. Rodis incorporated RLG on October 30, 2008. (R. Lewis Decl. Att. A.)
24. The FTC took the deposition of Rodis on June 12, 2009, but he declined to answer questions, invoking his Fifth Amendment privilege against self-incrimination, including but not limited to, questions related to: (a) the operations of RLG; (b) the representations RLG made in sales scripts, telephone sales calls, radio advertisements, and websites; (c) RLG's foreclosure prevention and loan modification services; and (d) D'Antonio's control of Contempt Defendants' operations. (Rodis Dep. 23:13-66:22.)
25. D'Antonio recruited Rodis to be associated with his foreclosure prevention and loan modification operations and set up the "operational framework" for RLG. (Temp. Receiver's Rpt., Doc. 119 at 5; K. Johnson Decl. ¶¶ 2-3; Kane Decl. ¶¶ 2-3; RLG Opp., Doc. 245 Att. C; McCullar Dep. 110:3-111:20, 112:2-13, 114:4-115:2.)
26. TFG, controlled by D'Antonio, recruited, hired, and trained sales personnel and legal support personnel servicing RLG. (Temp. Receiver's Rpt., Doc. 119 at 5; K. Johnson Decl. ¶¶ 2-3; Kane Decl. ¶¶ 2-3.)
27. D'Antonio used the titles CEO and Senior Managing Director while at RLG. (Exs. 10, 11; Dyssegard Decl. Att. C at 60-61; Temp. Receiver's Rpt., Doc. 119 at 18, 74, 77.)
28. D'Antonio, and not Rodis, controlled RLG's operations. On April 1, 2009, RLG filed a Statement of Information with the California Secretary of State, identifying Rodis as CEO for the first time. (RLG Opp. Att. A.) Prior to April 1, 2009, D'Antonio was the only CEO identified for RLG.
29. D'Antonio had signature authority over RLG bank accounts and had ultimate authority over transfers of RLG funds to other accounts, including TFG accounts, and made policy and operational decisions regarding the customers that RLG would accept.
30. Employees who worked at RLG between November 2008 and February 2009 testified that Rodis was a figurehead who did not manage RLG, and who was, at best, minimally involved in providing any services to consumers. (N. Nguyen Decl. ¶¶ 23-26, June 4, 2009; Rudder Decl. ¶¶ 10, 38-41, April 19, 2009.) In a January 22, 2009 e-mail, Rodis told D'Antonio that it was "physically impossible" for him to speak to clients in a timely manner based on the high volume of clients that D'Antonio was bringing in as compared to the amount of staff hired to provide loan modification services. (RLG Opp. Ex. B.)
31. In the January 22, 2009 e-mail, Rodis stated that he would no longer take on clients under his name. (Id.) In a March 6, 2009 letter, Rodis admitted that he knew about the underlying action against D'Antonio, expressed his disappointment that the details had not been disclosed by D'Antonio, and again expressed dissatisfaction with how D'Antonio ran the operation. (RLG Opp. Att. C.) In an April 6, 2009 e-mail, Rodis related his understanding of the contractual agreements between RLG and TFG, and he outlined D'Antonio's actions to the contrary. (Temp. Receiver's Rpt., Doc. 119, at 77-78.) Despite Rodis' requests and complaints, RLG continued to solicit and bring on clients until April 11, 2009. (McCullar Decl. ¶ 12.) Rodis did not stop ongoing deceptive solicitations in RLG's name. Notwithstanding his dissatisfaction with D'Antonio, and although he maintained a law office at another location (Lewis Decl. Att. D), Rodis did continue working with D'Antonio at the RLG/ALG/TFG complex until May 28, 2009, when the Receiver took control of the premises (Temp. Receiver's Rpt., Doc. 119 at 1).
32. Fifteen consumers testified that they rarely or never spoke to Rodis, or spoke to him only after complaining or when facing imminent foreclosure, and did not experience positive results when they did. (Barrett-Sparrow Decl. ¶¶ 13-23, Sept. 18, 2009; Brand Decl. ¶¶ 10, 12-13, April 2, 2009; Caley Decl. ¶¶ 18-30, Sept. 18, 2009; Castro Decl. ¶¶ 10-25, Sept. 22, 2009; Eddinger Decl. ¶¶ 7-12, April 20, 2009; Hottel Decl. ¶¶ 13-20, Sept. 16, 2009; Linares Decl. ¶¶ 11-24, Sept. 29. 2009; Mitchell Decl. ¶¶ 6-8, 12-15, Sept. 17, 2009; Peralta Decl. ¶¶ 10-21, Sept. 25, 2009; Pocasangre Decl. ¶¶ 11-12, November 2, 2009; Reed Decl. ¶¶ 14-26, Oct. 2, 2009; Reyes Decl. ¶¶ 5-19, Sept. 23, 2009; Rodriguez Decl. ¶¶ 13-28, Sept. 18, 2009; Servin Decl. ¶¶ 16-20, 22-28, Sept. 18, 2009; Shusterman Decl. ¶¶ 12-22, Sept. 29, 2009.) D'Antonio identified five consumers who testified that Rodis provided assistance.*fn1 (Aiello Decl. ¶¶ 6-7, Sept. 16, 2009; Barton Decl. ¶ 6, Aug. 29, 2009; Bernard Decl. ¶¶ 6-7, Sept. 16, 2009; Dynek Decl. ¶ 5, Sept. 15, 2009; Young Decl. ¶ 7, Sept. 10, 2009.)*fn2 However, testimony that Rodis was in contact with five consumers does not refute nor overcome the evidence that Rodis' involvement was minimal.
33. Rodis admitted that RLG had not conducted a forensic audit. (Kane Decl. ¶ 6; Temp. Receiver's Rpt., Doc. 119 at 10.)
3. Contempt Defendant ALG
34. ALG is also located at 1100 Town and Country Road, Orange, California. (R. Lewis Decl. ¶ 42.)
35. D'Antonio recruited Chavarela to be associated with his foreclosure prevention and loan modification operations. (Exs. 21, 24, 53-55; Temp. Receiver's Rpt., Doc. 119 at 5, 74-77; K. Johnson Decl. ¶¶ 2-3; Kane Decl. ¶¶ 2-3.)
36. The FTC took the deposition of Chavarela on August 19, 2009. Chavarela invoked his Fifth Amendment privilege against self-incrimination as to all questions, including but not limited to, questions related to: (a) the operations of ALG; (b) the representations ALG made in sales scripts, telephone sales calls, radio advertisements, and websites; (c) ALG's foreclosure prevention and loan modification services; and (d) D'Antonio's control of Contempt Defendants' operations. (Chavarela Dep. 10:23-11:21, 13:4-34:15, 39:3-40:24.)
37. Chavarela incorporated The Law Offices of Nicholas Chavarela, Inc. on April 1, 2009, and filed a fictitious business name statement on April 9, 2009, indicating he would conduct business as ALG. (Temp. Receiver's Rpt., Doc. 119 at 4.)
38. D'Antonio transferred the "operational framework" of RLG to ALG, and TFG, controlled by D'Antonio, funded ALG's start-up and recruited, hired, and trained sales and legal support personnel for the entity. (Ex. 27; Temp. Receiver's Rpt., Doc. 119 at 30-31.)
39. On Friday, April 10, 2009, D'Antonio and Farris announced ALG's formation to staff and said that, effective the next day, April 11, 2009, the business would conduct all new sales under the ALG name. (McCullar Decl. ¶ 12.) D'Antonio and the rest of the company management remained the same. (Le Decl. ¶¶ 3; Lekawa Decl. ¶ 4, 8-10; McCullar Decl. ¶¶ 15-16, 19.)
40. Nader Qsar began working at RLG in March of 2009, and testified he worked for both RLG and ALG. He did not distinguish between the entities when testifying regarding various topics including the entities' relationships with lenders, legal support department practices, and loan modification results. (Qsar Dep. 20:16-25, 21:16-22:1, 22:22-24:5, 37:3-25; Qsar Decl. ¶¶ 2, 5-8; Second Qsar Decl. ¶ 4-6.) D'Antonio submitted declarations of a number of former employees who similarly referred to RLG and ALG as a single entity in connection with testimony regarding various matters including operations, sales, refund practices, and management. (Castillo Decl. ¶ 7; Le Decl. ¶ 8; Lekawa Decl. ¶¶ 4-6, 8-12; Osborne Decl. ¶¶ 4, 6, 10, 14-15.)
41. When identifying attorneys besides Rodis and Chavarela who provided assistance at times, D'Antonio, RLG, and ALG name the same attorneys. (RLG Opp., Doc. 245 at 6 (identifying Erik Brimmer, Barbara Marie Dennis, and Jennifer Lee); B.D. Opp., Doc 247 at 13 ("There were five attorneys working on client files, Rodis, Chaverela [sic], Erik Brimmer, Maria Dennis, and Jennifer Lee); Def. ALG's Designated Decls. of Jane A. Marchman and Nader E. Qsar, Doc. 263, at 3 (stating that Erik Brimmer, Barbara Marie ("Maria") Dennis, and Jennifer J. Lee worked with Chavarela on ALG files.))
42. In an April 16, 2009 press release issued by Contempt Defendants to announce the "Homeowner's Benefit Program," it states, quoting Chavarela, that ALG "is currently in the process of helping almost 2,000 customers modify their loan payments in order to stay in their homes." (Ex. 59.) The chart that Qsar helped prepare for the Receiver after May 28, 2009 (Ex. 38) identified 1,760 RLG clients and 408 ALG clients -- a total of 2,168. Thus, the press release total of "almost 2,000" clearly referred to the combined total number of clients.
43. ALG was merely a continuation of the RLG foreclosure prevention and loan modification operation run by D'Antonio. (Exs. 21, 24; Temp. Receiver's Rpt., Doc. 119 at 74-77; McCullar Decl. ¶¶ 12-19; McCullar Dep. 190:24-191:10, 192:20-25; Pocasangre Decl. ¶ 12.) When the name of the company was changed from RLG to ALG, D'Antonio maintained control over the foreclosure prevention and loan modification operation. (McCullar Decl. ¶ 15.)
44. D'Antonio identified himself as Senior Managing Director for ALG to ALG staff (Temp. Receiver's Rpt., Doc. 119 at 16 (approving a $4,000 refund on May 27, 2009) and 30 (approving reimbursement from ALG to TFG on April 21, 2009); Kane Decl. ¶ 3; K. Johnson Decl. ¶ 3). In addition, D'Antonio identified himself as an ALG Director in a sworn financial statement, stating that he earned $128,000 for two months work (D'Antonio Decl., Doc. 116 at 6).
45. D'Antonio controlled the ALG funds. D'Antonio, Sandy Le, and Ngoc Mong Le were the signatories on the bank accounts of The Law Offices of Nicholas Chavarela, Inc. -- but, significantly, Chavarela was not. (Exs. 13, 14; Temp. Receiver's Rpt., Doc. 119 at 7.) D'Antonio's approval was required for refunds to ALG customers (Temp. Receiver's Rpt., Doc. 119 at 16). D'Antonio wired $100,000 from an ALG account to a personal account on May 8, 2009. (Supp. Decl. of K. Johnson, Att. A-4.)
46. According to the Temporary Receiver's Report, ALG had gross service revenues of approximately $986,000 in 2009. (Id. at 13.)
47. Chavarela admitted that ALG had not conducted a forensic audit. (Kane Decl. ¶ 6; Temp. Receiver's Rpt., Doc. 119 at 10.)
4. Contempt Defendant TFG
48. TFG has not entered an appearance or contested any of the allegations in the FTC's motions and applications.
49. TFG is also located at 1100 Town and Country Road, Orange, California. (R. Lewis Decl. ¶ 42.)
50. D'Antonio is a signatory on multiple TFG bank accounts. (Id. ¶ 28, Att. CC-421.)
51. D'Antonio identified himself as the Owner, Secretary, President, and Chief Executive Officer ("CEO") of TFG to U.S. Bank, a bank used by TFG. (Id. ¶ 30, Att. CC-440-41, 452.)
52. D'Antonio controlled TFG and all of the activities it performed in conjunction with RLG and ALG. (Temp. Receiver's Rpt., Doc. 119 at 5; Kane Decl. ¶ 3; K. Johnson Decl. ¶ 3.)
53. D'Antonio approved transfers of funds from ALG accounts to TFG accounts. (Temp. Receiver's Rpt., Doc. 119 at 30-31.) Funds were transferred between RLG and TFG on multiple occasions. (R. Lewis Decl. ¶ 32, Att. GG.)
54. Although some RLG employee paychecks were issued from RLG (see, e.g., Qsar Dep. 28:4-8), many other RLG employee paychecks were issued from a TFG bank account, issued by "The Financial Group, Inc. dba Tax Relief ASAP." (R. Lewis Decl. ¶ 31, Att. II-473-561; McCullar Decl. ¶ 7; Dyssegard Dep. 114:12-17.)
55. Charges for RLG's services appeared on customers' accounts as both TFG and Tax Relief ASAP, as well as RLG. (Brand Decl. ¶ 9; Barrett-Sparrow Decl. Ex. 5; Castro Decl. Exs. 4, 6, 7; Hottel Decl. Ex. 4; Linares Decl. Ex. 4; Pocasangre Decl. Att. B-15; Reyes Decl. Ex. 1-9, Ex. 4-20; K. Rodriguez Decl. Ex. 4-17.) Other consumers made checks payable to RLG. (Peralta Decl. Ex. 2; Pocasangre Decl. Att. B; Reed Decl. Ex. 3.)
56. RLG, ALG, and TFG used the same human resources, accounting, and information technology staff. (Temp. Receiver's Rpt., Doc. 119 at 5, 8; McCullar Decl. ¶ 17; Le Decl. ¶ 3; Lekawa Decl. ¶ 4, 8-10.)
II. Contempt Defendants' Business Practices
57. Contempt Defendants' foreclosure rescue and loan modification operation relied upon a nationwide radio campaign in conjunction with websites to generate thousands of inbound telephone calls from consumers. (R. Lewis Decl. ¶ 14; Kolozsvary Decl. ¶¶ 1-10, Atts. A-C; Temp. Receiver's Rpt., Doc. 119 at 8.) Contempt Defendants' did not make outbound cold calls to procure customers.
58. When consumers called the advertised numbers, they reached telemarketers at RLG or ALG, who made various representations regarding Contempt Defendants' services. (Barrett-Sparrow Decl. ¶¶ 4-5; Brand Decl. ¶ 2; Caley Decl. ¶¶ 4-5; Castro Decl. ¶¶ 4-5; Eddinger Decl. ¶¶ 2-3; Hottel Decl. ¶¶ 4-5; Mitchell Decl. ¶¶ 5-6; Pocasangre Decl. ¶¶ 2-3; Reed Decl. ¶¶ 4, 6; Rodriguez Decl. ¶¶ 4, 6; Shusterman Decl. ¶¶ 4-5; R. Lewis Decl. ¶¶ 4, 7.)
59. Consumer Holly Johnson contacted ALG via its website, after hearing a radio advertisement for ALG. She was subsequently contacted by an ALG telemarketer. (H. Johnson Decl. ¶¶ 2-3.) Similarly, consumer Thomas Yeager initially contacted RLG via its website, but testified regarding RLG's aggressive radio campaign in Nevada. (Yeager Dep. 11:18-13:7, July 28, 2009.)
60. Contempt Defendants employed as many as eighty telemarketers, or "intake officers," in February 2009. (Dyssegard Decl. ¶ 12.) By May 2009, former employee Ralph Osborne oversaw all of Contempt Defendants' telemarketing activity, supervising a sales team of fifty telemarketers and five supervisors. (Osborne Decl. ¶ 6.) Osborne trained telemarketers with "explicit instructions about what they could say and what they could not say to clients." (Id. ¶ 14.) Osborne and other intake supervisors in fact trained Contempt Defendants' telemarketers to misrepresent the companies' history of success, the likelihood of obtaining a loan modification, and other material facts. The telemarketers that Osborne supervised were provided with, and used, deceptive telemarketing scripts.
61. The radio advertisements, websites, and telemarketers' pitches induced consumers to purchase Contempt Defendants' services. (Barrett-Sparrow Decl. ¶¶ 6-10; Brand Decl. ¶ 9; Caley Decl. ¶¶ 4-17; Castro Decl. ¶¶ 5-10; Eddinger Decl. ¶ 6; Hottel Decl. ¶¶ 5-10; H. Johnson Decl. ¶¶ 3-7; Linares Decl. ¶¶ 5-10; Mitchell Decl. ¶¶ 6-10; Pocasangre Decl. ¶¶ 5-8; Reed Decl. ¶¶ 7-14; Reyes Decl. ¶¶ 5-8; Rodriguez Decl. ¶¶ 6-10; Servin Decl. ¶¶ 7-15; Shusterman Decl. ¶¶ 6-7, 10, 12.)
62. D'Antonio invoked his Fifth Amendment privilege against self-incrimination as to all questions, including but not limited to, questions related to: (a) his control of and the operations of RLG, ALG, and TFG; (b) the representations RLG and ALG made in sales scripts, telephone sales calls, radio advertisements, and websites; and (c) RLG's and ALG's foreclosure prevention and loan modification services. (D'Antonio Dep. 17:9-35:6, 36:8-71:13, 93:13-107:19.)
B. Material Misrepresentations
63. From October 2008 to mid-April 2009, D'Antonio marketed purported mortgage rescue services through RLG. (McCullar Decl. ¶ 12.) On or about April 10, 2009, D'Antonio and Farris announced a change in the operation's business name from RLG to ALG. (Id. ¶ 12.)
64. ALG's and RLG's websites were all but identical, using the same 800-number for consumers to call for free consultations. (R. Lewis Decl. ¶ 22, compare Ex. 3 with Ex. 4.) One RLG consumer testimonial from "Randy E." thanking RLG for saving his home and reducing his principal balance was recycled into a testimonial for ALG. (Ex. 5.) This testimonial is fictitious because ALG admitted that none of its customers received mortgage loan modifications. (Ex. 106.)
65. ALG's radio advertisements are very similar to RLG's, encouraging consumers to hire ALG's experienced lawyers and "Put the power of America's Law Group on your side and keep your home." (Exs. 36, 60, 61.)
66. RLG's and ALG's telemarketing scripts and marketing materials were almost identical. (Temp. Receiver's Rpt., Doc. 119 at 8-9; K. Johnson Decl. ¶ 4; Kane Decl. ¶ 4; compare, e.g., Ex. 6 (RLG "Seven Things" telemarketing script) to Ex. 17 (ALG "Seven Things" telemarketing script.))
1. Contempt Defendants Misrepresented That They Would Stop Foreclosures
67. Contempt Defendants represented that they would stop foreclosures and save consumers' homes. They made these representations in radio advertisements, on their websites, and in telemarketing calls and written communications with consumers. (Dyssegard Decl. ¶¶ 4, 7, 9; Barrett-Sparrow Decl. ¶ 9; Brand Decl. ¶ 4; Caley Decl. ¶¶ 4, 6-12; Castro Decl. ¶ 7, Ex. 1-8; Eddinger Decl. ¶ 4; Hottel Decl. ¶ 5; H. Johnson Decl. ¶ 4; Linares Decl. ¶ 7; Mitchell Decl. ¶ 6; Peralta Decl. ¶ 6; Pocasangre Decl. ¶ 7; Reyes Decl. ¶¶ 5-6; Rodriguez Decl. ¶ 7; Servin Decl. ¶ 11; Shusterman ¶ 4; R. Lewis Decl. ¶¶ 13,15, Att. I-123:7-8, 14-16, Att. J-125:14-15, Att. K-129:13-15, Att. L-147:15-16, Att. O-217:11-12, Att. U-378:24-379:7, Att. V-386-87.)
68. Contempt Defendants told consumers they never lost a home to foreclosure. (See, e.g., R. Lewis Decl., Att. L-146:4-9, Att. M-168:5-7, Att. O-204:23-205:4, Att. R-300:17-20, Att. U-378:22-379:7; Barrett-Sparrow Decl. ¶ 9; Rodriguez Decl. ¶ 7.)
69. Contrary to these promises, consumers lost homes to foreclosure. (Brand Decl. ¶¶ 11,14; Eddinger Decl. ¶¶ 7, 9-10; Reyes Decl. ¶¶ 17-18, 23; see also Rudder Decl. ¶ 27; J. Smith Decl. ¶ 30 (legal support staff were unable to prevent the loss of some consumers' homes to foreclosure); RLG Opp. Att. B (Rodis states foreclosure client lost his home and hired another attorney who threatened malpractice.)) Other consumers listed their homes for sale when RLG failed to help them. (Rodriguez Decl. ¶ 31; Shusterman Decl. ¶ 26.)
70. Moreover, as many as fifty RLG customers had foreclosure sales scheduled after they became clients. (See, e.g., Castro Decl. ¶ 23; Mitchell Decl. ¶ 19; Servin Decl. ¶ 31; see also Rudder Decl. ¶ 37; J. Smith Decl. ¶ 29.)
2. Contempt Defendants Misrepresented That They Would Modify Consumers' Mortgages
71. Contempt Defendants represented that they would "rewrite" and modify mortgages by negotiating substantially lower interest rates, lower and more affordable monthly payments, and reduced principal balances. Contempt Defendants told consumers they routinely obtained these results and had a 90% or 100% success rate in obtaining loan modifications. (Barrett-Sparrow Decl. ¶¶ 7-10; Brand Decl. ¶ 7; Caley Decl. ¶¶ 6-14; Castro Decl. ¶¶ 5-9; Hottel Decl. ¶¶ 5-9; H. Johnson Decl. ¶¶ 3-4; Linares Decl. ¶¶ 6-9; Mitchell Decl. ¶ 8; Peralta Decl. ¶ 6; Pocasangre Decl. ¶¶ 5-8; Reed Decl. ¶¶ 7-8; Reyes Decl. ¶¶ 5-6; Rodriguez Decl. ¶¶ 6-7; Servin Decl. ¶¶ 8-11; Shusterman Decl. ¶¶ 5-7; Yeager Dep. 16:24-17:12, 22:21-24:14, 24:18-25:5, Ex. 40; R. Lewis Decl. ¶ 8, Att. G-64:2-4, 69:22-23, 79:7-8, Att. H-105:8-10, 106:1-3, Att. J-125:9-13, Att. L-145:6-10, Att. M-158:7-11, 163:2-7, Att. N-185:20-25, 187:19-188:2, Att. O-205:13-21, Att. Q-268:17-20, Att. R-294:17-295:6, Att. S-321:9-10, Att. T-353:22-25; Dyssegard Decl. ¶¶ 6-7, 9, Att. B; Temp. Receiver's Rpt., Doc. 119 at 9, 33-46; K. Johnson Decl. ¶ 4; Kane Decl. ¶ 4.)
72. For example, Contempt Defendants' representations include, but are not limited to the following:
a. Telemarketers told Mary Barrett-Sparrow that they "could reduce the principal balance of [her] home loan by fifty percent (50%)" and "they could probably take [her] interest rate down to about three percent (3%)." (Barrett-Sparrow Decl. ¶ 7.)
b. RLG telemarketer "Shu" told Deborah Caley that she "did not know of any instance where one of RLG's clients lost his home to foreclosure," that "RLG would certainly lower [her] interest rate, and possibly reduce it by as much as 4%," and that "RLG had a high success rate because it had relationships with lenders." (Caley Decl. ¶ 11.)
c. RLG promised John Hottel a reduced interest rate and reduced principal balance and stated that interest rate reductions of 4-5% were typical. (Hottel Decl. ¶¶ 5-6.)
d. Mark Berman, an RLG telemarketer, told Maricela Pocasangre that RLG reduced interest rates "100 percent of the time" and promised her an interest rate reduction of between three and six percent. (Pocasangre Decl. ¶ 5; R. Lewis Decl. Att. S-321:6-14.)
e. Rodis told Mary Reyes that RLG was ninety percent (90%) successful. (Reyes Decl. ¶ 6.)
73. The evidence of Contempt Defendants' representations, submitted via consumer testimony, transcripts of recordings between telemarketers and consumers, and former employees, matches the representations in Contempt Defendants' sales scripts, including "rebuttal scripts," about the high likelihood that Contempt Defendants would negotiate a mortgage loan modification resulting in substantial reductions in monthly mortgage payments. For example, scripts prompted telemarketers to tell consumers that:
a. "Now when we take on a client we routinely postpone trustee sales, lower monthly payments and even negotiate for a reduction in principal loan amounts." (Ex. 9; Temp Receiver's Rpt., Doc. 119 at 42; see also Exs. 6, 8, 17, 18 (substantially similar representations about "routine" or "typical" results.))
b. "As A Law Firm We Have Not Taken On A Case We Can't Resolve." (Temp. Receiver's Rpt., Doc. 119 at 33.)
c. "We are a Law Firm, if we do take you on as a client, we will significantly REDUCE your payments, even potentially lowering your principal balance, and getting the lenders to forgive any late payments you may have incurred." (Id. at 36.)
d. "What is your success rate in cases like mine? A) Well, we wouldn't take you on as a client if we weren't confident we can help you." (Id.)
e. "We are a Law Firm, our job is to save your home." (Id.)
74. The Receiver found copies of scripts containing these representations on one-third to one-half of the work areas in the telemarketers' work areas. (K. Johnson Decl. ¶ 4.)
75. Telemarketers also told customers that they would not lose their homes even if they paid Contempt Defendants instead of making a mortgage payment. (R. Lewis Decl. Att. M-167:25-168:7, Att. O-211:14-215:22, Att. P-234:25-235:5, Att. S- 333:5-14; Att. U-378:24-379:7; Barrett-Sparrow Decl. ¶ 8; Caley Decl. ¶ 12; Hottel Decl. ¶ 8; Linares Decl. ¶ 9; Pocasangre Decl. ¶ 7; Reed Decl. ¶ 9; Reyes Decl. ¶ 6; Servin Decl. ¶ 8.) These representations correspond to sales script language prompting telemarketers to tell consumers that if you "feel that is it [sic] in your best interest not to make your payements [sic], you don't have to and we will neg. any future late payments you incur to be eliminated/waived." Also, most of our clients . . . what they "elect" to do is save those payments and create a cash reserve fund. (Ex. 8.)
76. RLG did not deliver on its promises to modify mortgage loans. In addition to the consumers who received foreclosure notices and lost their homes, multiple consumers testified about the lack of results obtained on their behalf by Contempt Defendants. (See, e.g., Barrett-Sparrow Decl. ¶¶ 16-24; Caley Decl ¶¶ 18-31; Castro Decl. ¶¶ 10-24; Hottel Decl. ¶¶ 13-21; Mitchell Decl. ¶¶ 10-14; Peralta Decl. ¶¶ 9-16; Pocasangre Decl. ¶¶ 11-12; Reed Decl. ¶¶ 14-23; Rodriguez Decl. ¶¶ 11-24; Servin Decl. ¶¶ 16-26; Shusterman Decl. ¶¶ 12-22.)
77. Consumer testimony submitted by the Contempt Defendants demonstrates a lack of the promised results. Of eight consumer declarants submitted by D'Antonio, half did not obtain successful results, despite having retained RLG's services six to eight months before the Receiver took control of Contempt Defendants' premises. (See Aiello Decl., Doc. 252-2; Bernard Decl., Doc 252-4; Dynek Decl., Doc. 252-5; Young Decl., Doc. 252-9.) Of the remaining four declarants, two testified that they received mortgage loan modifications (Olsen Decl., Doc. 252-6; Spallino Decl., Doc. 252-8), and the other two, each of whom had multiple properties, testified that they experienced only partial success with Contempt Defendants' assistance (Barton Decl., Doc. 252-3; Ray Decl. 252-7).
78. Qsar created a chart indicating fifty-one loan modifications for 2,138 combined clients of RLG and ALG. (Ex. 38). He estimated that "fifty-one plus another probably handful, dozen, still that needed to go to the attorney for final review, so I would say close to a hundred" RLG customers received loan modifications. (Qsar Dep. 96:21-24.)
79. ALG admitted in its Further Responses and Objections to Plaintiff FTC's First Set of Interrogatories that it attained no completed loan modifications on behalf of clients who retained services while the operation used the name ALG. (Ex. 106.)
80. The Receiver reviewed files for the fifty-one customers that Qsar identified as "mod approved," plus an additional 43 files identified by Rodis, and found that eight received completed loan modifications. (Temp. Receiver's Rpt., Doc. 119 at 6, 11; Kane Decl. ¶¶ 7.)
81. In an April 12, 2009 email, D'Antonio admitted that eleven out of 1,311 clients -- or 0.84% -- were categorized as "Mod Approved." (Kane Decl. Att. B; V. Nguyen Decl. Att. B.) Qsar testified that "Mod Approved" meant that a lender had actually approved a modification. (Qsar Dep. 35: 11-14.)
82. FTC economist Patrick McAlvanah identified a random sample comprised of fifty-five customers of Contempt Defendants*fn3 ; the FTC was able to locate files for forty-nine of those customers among the business records obtained from Contempt Defendants' premises. A review of the paper files, as well as the corresponding "Activity Logs" (logs documenting Contempt Defendants' conversations and other actions performed in connection with the files, sometimes called "con logs" (McCullar Dep. 72:11-15)), revealed that one of the forty-nine received a mortgage loan modification (Parnes Decl. ¶ 6, October 21, 2009; Supp. Parnes Decl. ¶¶ 6-7, Nov. 10, 2009).
3. Contempt Defendants Misrepresented That Highly Qualified Attorneys Would Prevent Foreclosures and Negotiate Modified Mortgages.
83. Contempt Defendants told consumers that experienced attorneys would aggressively negotiate on their behalf. In radio advertisements, websites, e-mails, and telemarketing calls, Contempt Defendants told consumers they had multiple attorneys with foreclosure prevention and mortgage loan modification expertise. (Dyssegard Decl., Att. B; R. Lewis Decl. Att. I-121:7-12, Att. J-125: 6-8, Att. K-129:9-12; Att. M-160:17-19, Att. N-185:20-25, Att. O-198:19-24, Att. P-229:14-18, Att. R-297:12-16, 302:7-19, Att. S-324:18-23, Att. U-377:22-23, Att. V-386-87, Att. Y-408-09, Att. QQ-584; Castro Decl. Ex. 1-8.)
84. Contempt Defendants' representations about their staff and experience, which were often intermingled with other representations about successful results, included, but were not limited to telling consumers:
a. "My staff of real estate attorneys will fight for you. I have been protecting homeowners like you since 1996, and my team of experienced attorneys are highly skilled in negotiating lower interest rates and even lowering your principal balance. Yes, I said even lowering your principal balance." (R. Lewis Decl. Att. I-121:8-13 (radio advertisement.))
b. "[Lenders] won't do anything for you unless you have an attorney in your corner. So, that's why we're so successful at what we do. We're actually 100 percent successful. We've never had one instance where a lender is not willing to work with us." (R. Lewis Decl. Att. N-185:20-25 (telemarketer.))
c. "[W]e're a law firm. We're a law firm. We're made up of several real estate attorneys and we've been doing this for over a decade now, so before this mortgage meltdown even started. . . . if the California Bar Association would let us use the word "guarantee" we would be because we are 100 percent successful. We've never ever had one instance where a lender is not willing to work with us." (R. Lewis Decl. Att. R-302:7-19 (telemarketer.))
d. "We are not mortgage brokers, nor realtors. We are skilled Attorneys who act as tough negotiators between the homeowner and the lender . . . . With our state of the art software and professional staff of attorneys, paralegals, compliance officers, asset managers, real estate agents and brokers we have the experience necessary to achieve the most dynamic resolutions available and help stop foreclosure fast and effectively in this troubled market." (R. Lewis Decl. Att. V-386-87 (RLG website.))
e. "We are not mortgage brokers, nor realtors. We are a law firm with licensed attorneys who act as tough negotiators between the home owner and lender . . . . With our state of the art software and professional staff of licensed attorneys, paralegals, compliance officers, asset managers, real estate agents and brokers we have the experience necessary to achieve the most dynamic resolutions available and help stop foreclosure fast and effectively in this troubled market." (Id. Att. Y-408-09 (ALG website.))
f. "[RLG] is the leading Law Firm in the country, specializing in renegotiating mortgage contracts. Ron Rodis has personally been involved in real estate law since 1996 and has extensive contract and litigation experience. The other attorneys on staff are all highly skilled in real estate law and renegotiating mortgage contracts." (Castro Decl. Ex. 1-8 (e-mail from telemarketer to consumer); see also Linares Decl. Ex. 1-7; Temp. Receiver's Rpt., Doc. 119 at 39-40.))
85. These claims induced consumers to pay for Contempt Defendants' purported services. For example:
a. "I wanted a firm with actual lawyers to handle my loan modification case since the bank likely had attorneys on its side. Thus, RLG was more appealing to me than other companies, because its advertisement made it seem that the firm consisted of several experienced attorneys that would be handling my loan modification." (Hottel Decl. ¶ 4.)
b. "I felt comfortable ultimately hiring RLG and paying the upfront fee in part because I believed that RLG was a reputable law firm." (Caley Decl. ¶ 10.)
c. "The biggest selling point for me, however, was that [the telemarketer] told me that an attorney would ultimately be responsible for my case. This was the primary reason that I decided to hire RLG in January 2009." (Servin Decl. ¶ 11; see also id. ¶ 4.)
d. Other consumers' testimony similarly demonstrates that the claims about the experience and role of attorneys induced them to pay Contempt Defendants' retainer fees. (Barrett-Sparrow Decl. ¶¶ 9-10; Castro Decl. ¶ 6; Reed Decl. ¶ 5, 7; Reyes Decl. ¶¶ 5-8; Shusterman Decl. ¶ 10.)
86. The evidence of Contempt Defendants' representations about the number and experience of attorneys and others on staff, submitted via consumer testimony, transcripts of recordings between telemarketers and consumers, former employee testimony, radio advertisement transcripts, and copies of the RLG and ALG websites, matches the representations in Contempt Defendants' sales scripts. Scripts, which the Receiver found in one-third to one-half of the telemarketers' work areas, prompted telemarketers to, inter alia, tell consumers that:
a. "Our lead attorney Ron Rodis has been doing this since 1996 and every case he has brought on has had principle [sic] reduction or rate reduction." (Temp. Receiver's Rpt., Doc. 119 at 33.)
b. "[W]e are a law firm, and we won't take on your case unless we are confident we can help your situation." (Id. at 34)
c. "How come I couldn't do this on my own? What makes you different? A) Well, you don't have a Law Degree, do you? You are hiring a Law Group that has been re-writing mortgage contracts since 1996. Our Legal Team will be fighting on your behalf with their Legal Team." (Id. at 35.)
d. "We are a Law Firm, if we do take you on as a client, we will significantly REDUCE your payments, even potentially lowering your principal balance, and getting the lenders to forgive any late payments you may have incurred." (Id. at 36.)
e. "We are a law firm made up of real estate attorneys who have been helping homeowners save their homes from foreclosure and battling mortgage lenders for more than a decade now . . . So we were rewriting the terms and conditions of our clients' mortgages way before the term "Loan Modification" was even used. (Ex. 7.)
f. "We are NOT a loan modification company. We are a Law Firm. Our Attorneys are Federally Licensed, we represent you in court, will they?" and "All of our Attorneys are licensed in Federal Court so we will be able to represent you in any State." (Temp. Receiver's Rpt., Doc. 119 at 36 (scripted responses to "Typical Objections" about how Contempt Defendants are different and how they can represent consumers outside of California.))
87. Contempt Defendants did not employ the promised "team" or "staff" of experienced real estate attorneys purportedly working aggressively on customers' behalf. Rodis was the only lawyer whose involvement with RLG spanned the entire October 2008 to May 2009 time period. (Rudder Decl. at 90 ¶ 15; J. Smith Decl. ¶¶ 12-13.)
88. Rodis' involvement with the great majority of customer files was minimal (N. Nguyen Decl. ¶¶ 23-26; Rudder Decl. ¶¶ 10, 38-41), and for the limited number of customer files he did work on, his involvement was often reluctant, amounted primarily to assuaging irate customers, and rarely involved discussions with lenders. (Rudder Decl. ¶¶ 38-40; J. Smith Decl. ¶¶ 31-32; see also Rodis Dep. 58:9-22; 59:1-8.)
89. In January 2009, Rodis acknowledged that it was "physically impossible" for him to speak to clients in a timely manner based on the high volume of clients (RLG Opp. Ex. B.) Consumer Testimony corroborates Rodis' and former employee testimony regarding his limited involvement.
90. D'Antonio hired Chavarela in March 2009, initially as Senior Partner at RLG. (Exs. 24, 53.) Chavarela was later identified as ALG's managing attorney. (Ex. 59.) Chavarela declined to answer questions regarding his experience at his deposition, instead invoking his Fifth Amendment right against self-incrimination as to all questions. (Chavarela Dep. 11:2-13:3.) However, at the November 18, 2009 contempt hearing, Chavarela's counsel noted that Chavarela has been admitted to practice for less than two years (see also R. Lewis Decl. Att. NN) and stated that Chavarela had taken continuing legal education courses regarding mortgages and loan modification.
91. Besides Rodis and Chavarela, other attorneys at times worked on customer files, but they lacked the promised experience. Nhahanh Nguyen worked at RLG for just three days in February 2009 (N. Nguyen Decl. ¶ 2); she was admitted to practice in November 2008 (id. ¶ 3; R. Lewis Decl. Att. PP). Erik Brimmer transferred to RLG from TFG dba Tax Relief ASAP in January or February 2009; he lacked experience with mortgage loan modifications and "shadowed" existing legal support staff to learn what to do. (Rudder ¶ 17; J. Smith Decl. ¶¶ 13-14.) Contempt Defendants identify Brimmer, as well as Barbara Marie "Maria" Dennis, and Jennifer Lee, as attorneys involved with the operation. RLG's Opposition Brief states that Brimmer and Dennis worked for RLG from January to May 2009 and that Lee joined the staff in May 2009, and D'Antonio, RLG, and ALG each claim that Brimmer, Dennis, and Lee were attorneys who assisted Rodis and Chavarela. Otherwise, there is no record evidence regarding these employment dates, or the experience of either Dennis or Lee.
92. Most of the non-attorney staff did not have foreclosure prevention or loan modification experience, and Contempt Defendants did not provide instruction or training in preventing foreclosures or obtaining loan modifications between November 2008 and mid-April 2009. (See Rudder Decl. ¶¶ 19, 29-30, J. Smith ¶ 22; Temp. Receiver's Rpt., Doc. 119 at 5-6; K. Johnson Decl. ¶ 5; Kane Decl. ¶ 5; Qsar Dep. 75:21-77:13.) To the extent that Contempt Defendants began hiring staff with more experience and started providing more training in mid-April, the timing of the changed practices coincided with public announcements about law enforcement activity in the mortgage loan and foreclosure relief area.
4. Contempt Defendants Misrepresented That They Conducted "Forensic" Analyses of Consumers' Mortgages
93. Contempt Defendants also told consumers they would conduct forensic analyses of their mortgages to use as leverage in negotiations with lenders. (Temp. Receiver's Rpt., Doc. 119 at 9.) The websites and telemarketers claimed that experienced real estate attorneys would carefully review and analyze consumers' mortgages for legal violations. (Brand Decl. ¶ 8; R. Lewis Decl. Att. M-164:20-165:7, Att. V-386.)
94. The websites highlighted Contempt Defendants' promises to conduct a customized forensic review of each consumer's case:
There simply is not one right solution for everyone, and no one can tell you what is right for you without thoroughly analyzing your legal rights, financial situation and a forensic audit of your loan documents. We understand the mortgage industry from years of experience and will use leverage to negotiate to benefit you.
(R. Lewis Decl. Att. V-386, Att. Y-409; Exs. 3, 4.) (Emphasis added.)
95. Contempt Defendants admit they did not conduct a single "forensic analysis" of a customer's mortgage loan documents. (Temp. Receiver's Rpt., Doc. 119 at 10; Kane Decl. ¶ 6; see also Qsar Dep. 21:16-21.)
96. Both Rodis and Chavarela stated that any such audit "would need to be outsourced," but there is no evidence that Contempt Defendants ever outsourced such an audit. (Temp. Receiver's Rpt., Doc. 119 at 10; Kane Decl. ¶ 6.) Both Rodis and Chavarela declined to answer questions regarding forensic audits during their respective depositions, instead invoking their Fifth Amendment rights against self-incrimination as to all questions. (Rodis Dep. 41:7-19, 56:9-57:8; Chavarela Dep. 21:6-19, 24:16-25:8.)
5. Contempt Defendants Changed Policies and Practices After They Learned of the FTC's Investigation
a. Contempt Defendants introduced disclaimers and terminated a group of recent telemarketer hires after they learned of the FTC's investigation.
97. D'Antonio suspected there was an FTC investigation sometime between January 14, 2009, and early February 2009. Christi D'Antonio held a meeting, which Bryan D'Antonio attended, at which she told staff to be careful what they said on the phone and directed them to follow up on every single file by the end of the day, because they "had caught wind of an FTC investigation." (Rudder Dep. 83:3-84:12.) The meeting took place sometime after a meeting with Bryan D'Antonio that Sarah Rudder testified took place on January 14, 2009 (Rudder Dep. 66:8-73:14), and before Rudder resigned from RLG in early February 2009 (Rudder Decl. ¶ 2).
98. During the same period, in late January or early February 2009, RLG instructed its telemarketers to add a "no guarantee" disclaimer at the end of the sales pitch. (Dyssegard Decl. ¶¶ 2, 10; McCullar Dep. 163:21-164:4.)
99. To the extent RLG may have provided the disclaimer to consumers, telemarketers were instructed to do so only after they concluded their sales pitch, including the misrepresentations. (See Dyssegard Decl. ¶ 10; Dyssegard Dep. 136:2-9; McCullar Dep. 265:13-23.) Similarly, Contempt Defendants' retainer agreements included a "No Guarantee- Scheduling" provision. (See, e.g., Barrett-Sparrow Decl. Ex. 1; Caley Decl. Ex. 2; Doc. 131 Ex. C.) The provision appears, however, at the end of three pages of legalese addressing such topics as arbitration, referral fees, jurisdiction, and severability. (Barrett-Sparrow Decl. Ex. 1; Caley Decl. Ex. 2; Doc. 131, Ex. C.) The agreement disclaims any representations regarding success or outcome (Barrett-Sparrow Decl. Ex. 1; Caley Decl. Ex. 2; Doc. 131, Att. C at 19), but was sent to consumers only after telemarketers completed the sales pitch that contained numerous promises about results. (R. Lewis Decl. Att. G-79:4-9 (RLG telemarketer told FTC undercover investigator that, despite retainer agreement language, loan would be modified); see also Temp. Receiver's Rpt., Doc. 119 at 34 (script for rebutting question "What is my guarantee?" directs telemarketers to state "We only bring on cases that we are confident we can help" or that law firms cannot guarantee an outcome, but "we won't take on your case unless we are confident we can help your situation"); id. at 37 (script for rebutting questions about refunds, "we wouldn't take you on as a client if we weren't confident we can help you."))
100. During the corresponding time period, in early February 2009, Contempt Defendants terminated Dyssegard, along with the other telemarketers who had been in his class of new hires. (Dyssegard Decl. ¶ 2.)
101. Contempt Defendants made an effort to hire more legal support staff around the same time period, beginning in February or March 2009. (Castillo Decl. ¶ 5.)
b. Contempt Defendants implemented other operational changes after the FTC and other federal and state law enforcement agencies announced a crackdown on mortgage relief fraud.
102. On April 6, 2009, the FTC, the United States Department of Justice (DOJ), the United States Department of Housing and Urban Development (HUD), and state Attorneys General announced a crackdown on fraud and deception in the mortgage relief area. FTC Chairman Jon Leibowitz, Treasury Secretary Timothy Geithner, United States Attorney General Eric Holder, HUD Secretary Shaun Donovan, and Illinois Attorney General Lisa Madigan participated in a widely covered press conference. Among other actions and initiatives, the FTC announced four law enforcement actions alleging deceptive practices by loan modification companies, including one in Orange County, California. (Supp. Parnes Decl. Att. B., Doc. 276.)
103. Shortly thereafter, Contempt Defendants purportedly took steps to implement policies and procedures to return client phone calls and keep track of client files. These policies were largely unsuccessful, as consumers still had a difficult time reaching someone at RLG or ALG who could answer their questions. (See Caley Decl. ¶ 24; Hottel Decl. ¶ 18; Mitchell Decl. ¶¶ 13-14; Reed Decl. ¶ 20; Servin Decl. ¶ 23; Shusterman Decl. ¶ 18.) In addition, the Receiver found that, on May 28, 2009, the client files "were not physically maintained in a systematic or orderly manner." (K. Johnson Decl. ¶ 6.) Contempt Defendants also hired additional legal support personnel and made a concerted effort to submit a large number of loan modification packages to lenders, including "aged" clients whose files had been sitting untouched for months. (Qsar Dep. 75:21-77:13; DelGallego Decl. ¶ 5.)
104. Qsar, who began work with Contempt Defendants on March 6, 2009 (Qsar Decl. ¶ 1), testified that 700 loan modification application packages were submitted during his tenure (Qsar Dep. 22:2-13), and that he implemented effective new policies in mid-April 2009 (id. 14:5-15:1). Even this were true, and the Court does not find it to be true that 700 loan packages were submitted, it would mean that virtually every loan modification package submitted to lenders by the Contempt Defendants was submitted during the six-week period between the government's April 6, 2009 announcement of a crackdown on loan modification fraud and entry of the TRO.
106. According to the Temporary Receiver's Report, the combined entities' books and records disclose total intake of $12,116,252 from consumers, with $1,483,469 thereof refunded to consumers. (Temp. Receiver's Rpt., Doc. 119 at 90-91.)
III. CONCLUSIONS OF LAW
I. The Court Has Inherent Power to Enforce the Permanent Injunction through Civil Contempt
1. The Court has jurisdiction over this matter for all purposes, as specifically reserved in Section XV ("Continued Jurisdiction") of the Permanent Injunction. (Doc. 74.) //
B. Legal Standard for Civil Contempt
2. The Court has the inherent power to enforce its Permanent Injunction through civil contempt. Shillitani v. United States, 384 U.S. 364, 370, 86 S.Ct. 1531, 1535, 16 L.Ed. 2d 622 (1966). As a party to the original action, the FTC may invoke the court's power by initiating a proceeding for civil contempt. Gompers v. Bucks Stove & Range Co., 221 U.S. 418, 444-45, 31 S.Ct. 492, 55 L.Ed. 797 (1911). The contempt "need not be willful," and there is no good faith exception to the requirement of obedience to a court order. Stone v. City and County of San Francisco, 968 F.2d 850, 856 (9th Cir. 1992); In re Crystal Palace Gambling Hall, Inc., 817 F.2d 1361, 1365 (9th Cir. 1987).
3. "The standard for finding a party in civil contempt is well settled: 'The moving party has the burden of showing by clear and convincing evidence that the contemnors violated a specific and definite order of the court. The burden then shifts to the contemnors to demonstrate why they were unable to comply.'" FTC v. Affordable Media, LLC, 179 F.3d 1228, 1239 (9th Cir. 1999) (citations omitted). The contemnors "must show they took every reasonable step to comply." Stone, 968 F.2d at 856; SEC v. Children's Internet, Inc., 2009 WL 2160660, *2 (N.D. Cal., July 20, 2009).
4. Third parties, such as RLG, ALG, and Financial Group, are subject to an injunctive order when they are "in active concert or participation with [a party]" and "receive actual notice of [the order] by personal service or otherwise." Fed. R. Civ. P. 65(d)(2).
C. The Permanent Injunction Applies to Contempt Defendants
5. Clear and convincing evidence establishes that the Permanent Injunction applies to all of the Contempt Defendants.
1. Contempt Defendant D'Antonio Is Bound by the Permanent Injunction
6. The Permanent Injunction binds D'Antonio because he was a party to the original litigation in this matter and signed an affidavit declaring that he received that order.
2. Contempt Defendant RLG Is Bound by the Permanent Injunction
7. The Permanent Injunction binds RLG because it had actual notice of the Permanent Injunction and acted in concert and participation with D'Antonio. Fed. R. Civ. P. 65(d).
8. The knowledge of a company's officer and manager is imputed to the company. Cal. Civ. Code § 2332; See Bank of New York v. Fremont General Corp., 523 F.3d 902, 911 (9th Cir. 2008) ("'Generally, the knowledge of a corporate officer within the scope of his employment is the knowledge of the corporation.' Meyer v. Glenmoor Homes, Inc., 246 Cal. App. 2d 242, 54 Cal. Rptr. 786, 800-01 (1966)."); United States v. One Parcel of Land Located at 7326 Highway 45 North, Three Lakes, Oneida County, Wisconsin, 965 F.2d 311, 316 (7th Cir. 1992) ("a corporation 'knows' through its agents"); People v. Forest E. Olson, Inc., 137 Cal. App. 3d 137, 140, 186 Cal. Rptr. 804, 806-07 (Cal. Ct. App. 1982). See also FTC v. Neiswonger, 494 F. Supp. 2d 1067, 1079 (E.D. Mo. 2007) ("Personal service is not required under Rule 65(d). All that is required is knowledge of the mere existence of the injunction; not its precise terms. Furthermore, direct evidence is not required to sustain the FTC's burden of showing actual notice."(citation omitted)).
9. D'Antonio was a de facto officer and manager of RLG. D'Antonio identified himself as Chief Executive Officer ("CEO") and Senior Manager of RLG in corporate documents and in written and verbal communications to employees, and he demonstrated control of RLG by providing the initial financing of the company, subsequently directing allocation of company funds, exercising hiring and firing authority, dictating company sales strategy, and making other operational decisions. D'Antonio was a signatory on all of RLG's bank accounts.
10. D'Antonio, Rodis, and Chavarela each asserted their Fifth Amendment privilege against self-incrimination when questioned at their depositions about D'Antonio's title, ownership, and control over RLG, TFG, and ALG. Therefore, the Court infers that D'Antonio was in fact an officer, principal, and owner of RLG, TFG, and ALG, and that he controlled their daily operations. See SEC v. Gemstar-TV Guide Int'l, Inc., 401 F.3d 1031, 1046 (9th Cir. 2005) (citing SEC v. Colello, 139 F.3d 674, 677 (9th Cir. 1998)).
11. D'Antonio was the de facto principal and CEO of RLG/ALG from their inception through May 28, 2009. John Paul Lumber Co. v. Agnew et al., 125 Cal. App. 2d 613, 619, 270 P.2d 1044, 1048 (1954) ("A de facto officer of a private corporation is defined as being one who has the reputation of being the officer he assumes to be in the exercise of the functions of the office, and yet is not a good officer in point of law; and as one who is in possession of an office and discharging its duties under color of authorities.") D'Antonio controlled the operations until the Receiver took control on May 28, 2009. From its incorporation on October 20, 2008 through April 1, 2009, when RLG filed a notice with the California Secretary of State listing Ronald Rodis as its sole officer, D'Antonio was the only person who claimed to be CEO of RLG. D'Antonio's actual knowledge of the Permanent Injunction, while he acted as de facto principal and CEO of RLG, is imputed to RLG. FTC v. Vocational Guides, Inc., 2009 WL 943486 at *15, ¶ 22 (M.D. Tenn. April 6, 2009) ("Because Jackson was Grant Info's de facto principal and controlled the company, his knowledge of the Final Order . . . is imputed to Grant Info.")
12. In addition, D'Antonio's actual knowledge of the Permanent Injunction is imputed to RLG as its agent acting within the scope of his agency. D'Antonio exercised ultimate decision-making authority over RLG's contumacious marketing activities. He was, at a minimum, a senior manager with actual and apparent authority over RLG's advertisements, telemarketing, individual telemarketing pitches, collection of fees from consumers, refunds to consumers, and the relative amount of funding to provide to the marketing and service fulfillment sides of RLG's operations. D'Antonio was, if not a principal, RLG's agent for all activities related to RLG's contumacious activities, and, therefore, his actual knowledge of the Permanent Injunction is imputed to RLG. Cal. Civ. Code § 2332. ("As against a principal, both principal and agent are deemed to have notice of whatever either has notice of, and ought, in good faith and the exercise of ordinary care and due diligence, to communicate to the other.")
13. Rodis, whose name and law license were used by RLG, had actual knowledge of the Permanent Injunction since at least March 6, 2009.
14. RLG acted in concert with D'Antonio. RLG was the entity through which D'Antonio engaged in telemarketing and made misrepresentations about RLG's foreclosure and loan modification services, from October 2008 through mid-April 2009.
3. Contempt Defendant ALG Is Bound by the Permanent Injunction
15. The Permanent Injunction binds Contempt Defendant ALG because it had actual notice of the Permanent Injunction and acted in concert and participation with D'Antonio. Fed. R. Civ. P. 65(d).
16. Like RLG, ALG received actual notice of the Permanent Injunction through D'Antonio because he was a de facto principal, officer, and controlling manager of ALG (which did not have any formal officers).
17. D'Antonio identified himself as a Senior Director of ALG in corporate documents and written communications to employees and demonstrated control of ALG by providing the initial financing of the company, subsequently directing allocation of company funds, exercising hiring and firing authority, dictating company sales strategy, and making other operational decisions. D'Antonio was a signatory on all of ALG's bank accounts. ALG was a continuation of D'Antonio's foreclosure prevention and loan modification operation begun as RLG.
18. In addition, ALG received actual notice of the Permanent Injunction through D'Antonio's role as its agent with control over ALG's telemarketing operations and general advertising.
19. ALG also acted in concert with D'Antonio. ALG was the entity through which D'Antonio continued to engage in telemarketing and make misrepresentations about foreclosure and loan modification services, from mid-April 2009 until May 28, 2009, when Contempt Defendants were served with the TRO.
4. Contempt Defendant TFG Is Bound by the Permanent Injunction
20. The Permanent Injunction binds Contempt Defendant TFG because it had actual notice of the Permanent Injunction and acted in concert or participation with D'Antonio. Fed. R. Civ. P. 65(d).
21. Like RLG and ALG, TFG received actual notice of the Permanent Injunction through D'Antonio because he was a de facto principal, officer, and controlling manager of TFG.
22. D'Antonio identified himself as a Senior Director of TFG in corporate documents and in written and verbal communications to employees, and demonstrated control of TFG by directing allocation of company funds, exercising hiring and firing authority, dictating company sales strategy, and making other operational decisions.
23. In addition, TFG received actual notice of the Permanent Injunction through D'Antonio's role as its agent with control over TFG's telemarketing operations and general advertising.
24. TFG received actual notice of the Permanent Injunction against D'Antonio because TFG was the alter ego of D'Antonio. The Contempt Defendant TFG acted on behalf of D'Antonio and therefore acted with his knowledge.
25. TFG was in active concert or participation with D'Antonio, RLG, and ALG. TFG shared human resources, accounting, and information technology staff with ALG and RLG, and D'Antonio was a signatory on bank accounts for all three corporate Contempt Defendants. TFG was integrally involved with the management and allocation of funds between the entities, as well as with the mortgage rescue operations.
26. TFG has not made an appearance or contested this proceeding in any way and is therefore in default. Based on TFG's default, along with D'Antonio's assertion of his Fifth Amendment privilege against self-incrimination when questioned at his deposition about his title, ownership, and control over TFG, as well as the clear and convincing evidence of D'Antonio's control over TFG, the Court concludes that TFG had actual notice of the Permanent Injunction and acted in concert with D'Antonio.
5. TFG Was an Alter Ego of D'Antonio, and Therefore Is Bound by the Permanent Injunction
27. TFG is bound by the Permanent Injunction as the alter ego of D'Antonio. As alter ego of D'Antonio, TFG shares D'Antonio's knowledge of the Permanent Injunction. "Under the alter ego doctrine, . . . [w]hen the corporate form is used to perpetrate a fraud, circumvent a statute, or accomplish some other wrongful or inequitable purpose, the courts will ignore the corporate entity and deem the corporation's acts to be those of the persons or organizations controlling the corporation, in most instances the equitable owners." Sonora Diamond Corp. v. Superior Court, 83 Cal. App. 4th 523, 538, 99 Cal. Rptr. 2d 824 (2000); See also Troyk v. Farmers Group, Inc., 171 Cal. App. 4th 1305, 1342-43, 90 Cal. Rptr. 589, 619-20 (2009).
28. To determine whether TFG is the alter ego of D'Antonio, the Court inquires whether: (1) there is a "unity of interest and ownership" between TFG and D'Antonio, and (2) there will be an "inequitable result" if the company's acts "are treated as those of a corporation alone." Sonora Diamond, 83 Cal. App. 4th at 538.*fn4 TFG meets this test. First, the Contempt Defendants used the same employees and offices and were all controlled by D'Antonio and his senior managers. There is no evidence that the Contempt Defendants followed corporate formalities. They acted interchangeably and in concert to market and sell mortgage loan modification and foreclosure rescue services. D'Antonio controlled all expenditures by RLG, TFG, and ALG, and transferred money between these entities and ultimately to his personal accounts. As the person with ultimate control over all of their assets, and the person who profited directly from their practices, D'Antonio was the equitable owner of RLG, TFG, and ALG.
29. Allowing the non-party Contempt Defendant TFG to circumvent the Permanent Injunction would frustrate the equitable purposes of the Permanent Injunction, undermine the inherent authority of this Court to enforce its orders, and be an "inequitable result." Troyk, 171 Cal. App. 4th at 1343, 90 Cal. Rptr. at 620-21.
6. Corporate Contempt Defendants Are Bound by the Permanent Injunction as a Common Enterprise
30. Contempt Defendants acted as a common enterprise. Participants in a "common enterprise" share liability for the unlawful practices of any of the participants without regard to their corporate identities or affiliation. The factors courts typically consider to determine the existence of a "common enterprise" include: (1) whether purportedly separate corporations share employees, officers and office space; (2) whether corporate entities deal at arms-length; (3) whether corporate entities have their own substantive businesses; and (4) whether there is a commingling of corporate assets. See, e.g., FTC v. J.K. Publications, 99 F. Supp. 2d 1176, 1202 (C.D. Cal. 2000) (common enterprise found where corporate defendants were under individual defendant's common control, shared office space, employees, and officers); See also Sunshine Art Studios v. FTC, 481 F.2d 1171, 1173, 1175 (1st Cir. 1973); Delaware Watch Co. v. FTC, 332 F.2d 745, 746 (2d Cir. 1964); Waltham Precision Instrument Co. v. FTC, 327 F.2d 427, 431 (7th Cir. 1964); FTC v. Ameridebt, 343 F. Supp. 2d 451, 462 (D. Md. 2004); CFTC v. IBS, Inc., 113 F. Supp. 2d 830, 849 (W.D.N.C. 2000); FTC v. U.S. Oil & Gas Corp., 1987 U.S. Dist. Lexis 16137 (S.D. Fla. July 10, 1987).
31. In this case, the corporate Contempt Defendants shared office space, managers, employees, human resources, accounting, and IT support. The funds of RLG, ALG, and TFG were commingled, as D'Antonio moved money freely between corporate accounts and to his personal accounts. D'Antonio also used various corporate accounts to accept payment from consumers and to pay employees. The corporate Contempt Defendants worked together to market mortgage modification and foreclosure rescue services. Most significantly, RLG, ALG, and TFG were under the common control of Bryan D'Antonio and his senior managers.
32. The Contempt Defendants are jointly and severally liable as a common enterprise. J.K. Publications, 99 F. Supp. 2d at 1202. As a common enterprise, the corporate Contempt Defendants shared the actual knowledge of the Permanent Injunction with each other, and thus the actual notice of any corporate Contempt Defendant is imputed to each of the corporate Contempt Defendants.
II. Contempt Defendants Violated a Definite and Specific Court Order
A. The Permanent Injunction is Definite and Specific
33. The relevant provisions of the Permanent Injunction -- the telemarketing definition (in "Definitions"), Section I ("Permanent Ban") and Section II ("Prohibited Representations") are definite and specific.
1. The Telemarketing Ban Is Definite and Specific
34. Section I.B. of the Permanent Injunction bans D'Antonio, and those in active concert with him, from: engaging in, or receiving any remuneration of any kind whatsoever from, holding any ownership interest, share, or stock in, or serving as an officer, director, trustee, general manager of, or consultant or advisor to, any business entity engaged, or assisting others engaged in any of these activities, in whole or in part, in . . . [t]elemarketing or assisting others engaged in telemarketing.
(Doc. 74 at 5-6.)
35. The Permanent Injunction defines the term "telemarketing" as "[a] plan, program or campaign which is conducted to induce the purchase of goods or services by the use of one or more telephones and which involves more than one interstate telephone call." (Id. at 4.) The Contempt Defendants' practice of marketing and selling their mortgage loan modification and foreclosure rescue services ("to induce the purchase of . . . services") during thousands of interstate telephone calls that were initiated by consumers in response to Contempt Defendants' Internet and radio advertising (the "plan, program or campaign") fits within this definition of telemarketing and is prohibited by the Permanent Injunction.
36. "Telemarketing" does not mean, nor could it be understood to mean, only outbound telephone sales calls to persons with whom the callers have no prior relationship (i.e. "cold-call" telemarketing). There is no such limitation in the definition. The definition of "telemarketing" and the injunctive prohibition against it in the 2001 Order are not vague, but clear and unambiguous on their face.
37. The Court need not look beyond the four corners of the Order to determine its scope when the provisions are clear on their face. Firefighters Local Union No. 1784 v. Stotts, 467 U.S. 561, 574, 104 S.Ct. 2576, 2585, 81 L.Ed. 2d 483 (1984) ("the 'scope of a consent decree must be discerned within its four corners, and not by reference to what might satisfy the purposes of one of the parties to it'") (quoting United States v. Armour & Co., 402 U.S. 673, 681-82, 91 S.Ct. 1752, 1757-58 (1971)); Stone, 968 F.2d at 861.
38. Telemarketing is sufficiently defined by the Order, without reference to any outside source, to include all campaigns that use telephones and interstate telephone calls to complete sales. The definition describes Contempt Defendants' telephone sales operations. There is no need to look beyond the Order to consider D'Antonio's interpretation of the Order.
39. To look outside the four corners of the Permanent Injunction to either the circumstances under which the Permanent Injunction was entered or the common understanding of the term "telemarketing" does not help D'Antonio. In the original action against D'Antonio, the Commission alleged that defendants used general media advertisements to generate inbound telemarketing calls and then made deceptive representations during their telemarketing operations. D'Antonio admitted to these inbound telemarketing practices by pleading guilty to an indictment alleging the same facts. The telemarketing ban stemming from his inbound telemarketing scheme was designed -- at a minimum -- to prohibit future, similar, inbound telemarketing. Thus, D'Antonio's argument, which is made through counsel and without sworn testimony, that he did not understand the ban to apply to inbound telemarketing is not credible.
40. The American Heritage Dictionary defines "telemarketing" as "the business or practice of marketing goods or services by telephone." (4th Ed. 2009.) This definition is consistent with that in the Permanent Injunction and covers the Contempt Defendants' inbound telemarketing program. D'Antonio's reliance on the FTC's Telemarketing Sales Rule, 16 CFR Part 310 ("TSR"), does not support excluding inbound telemarketing from the scope of the Preliminary Injunction. The original, and still primary, purpose of the TSR, as set forth in the authorizing legislation, is to prevent telemarketing fraud, not to stop irritating cold call telemarketing.*fn5 The TSR's definitions of "telemarketing" and "telemarketer" ("any person who, in connection with telemarketing, initiates or receives telephone calls to or from a customer or donor") describe the Contempt Defendants' telephone sales operation. 16 C.F.R. §§ 310.2 (bb) and (cc).
41. D'Antonio suggests, through counsel, that he read the definition of telemarketing to incorporate certain exceptions in the TSR to its general requirements. However, the Commission may seek broader remedies against individuals whom it sues in Federal Court for engaging in deceptive, inbound telemarketing, and the Court may proscribe a defendant's future conduct in consideration of his past conduct. See FTC v. J.K. Publications, 99 F. Supp. 2d at 1176. Even had D'Antonio supplied evidence that he subjectively understood the definition of "telemarketing" in the Permanent Injunction to incorporate the TSR's exceptions, this understanding would not be reasonable given the clarity of the definition, the totality of the circumstances, and the common meaning of the term.
42. D'Antonio contends that he reasonably believed the Permanent Injunction prohibited "telemarketing" when selling "business ventures" because both bans are in the same section of the Permanent Injunction, separated by the word "and." This narrow reading of the Permanent Injunction would ignore the definitions section, which states that "[t]he terms 'and' and 'or' have both conjunctive and disjunctive meanings."*fn6 Most importantly, D'Antonio offered no evidence concerning his understanding of the Permanent Injunction, choosing instead to remain silent.
43. D'Antonio also argues that it would be impracticable for him to know whether inbound telemarketing calls were interstate. Given Contempt Defendants' national advertising and nationwide distribution of customers, the argument lacks merit.
2. The Prohibition on Misrepresenting Material Facts Is Clear and Definite
44. Section II of the Permanent Injunction prohibits D'Antonio, and those in active concert with him, from misrepresenting, "in connection with the advertising, marketing, promoting, telemarketing, offering for sale, or sale of any good or service, . . . any fact material to a consumer's decision to buy or accept the good or service." (Doc. 74 at 8-9.)
45. The Permanent Injunction provides "fair and well-defined notice" that telemarketing and making material misrepresentations are prohibited. See Reno Air Racing Assoc., Inc. v. McCord, 452 F.3d 1126, 1132 (9th Cir. 2006).
B. The FTC Established by Clear and Convincing Evidence That Contempt Defendants Violated the Permanent Injunction's Prohibition Against Telemarketing
46. There is clear and convincing evidence that Contempt Defendants violated the Permanent Injunction's telemarketing ban. Contempt Defendants' operation was based on a concerted telemarketing campaign. Contempt Defendants devoted significant resources to their nationwide radio advertising, which, along with their websites, directed consumers to call a toll-free telephone number. Thereafter, Contempt Defendants' dozens of telemarketers fielded thousands of consumer calls and made false promises of modified mortgage loans with lower interest rates and substantially reduced monthly payments. The telemarketers used scripted sales pitches and "rebuttal" scripts to induce consumers to purchase the Contempt Defendants' mortgage loan modification and foreclosure rescue services. D'Antonio, TFG, RLG, and ALG all participated directly in the telemarketing campaign. Therefore, Contempt Defendants violated the Permanent Injunction by engaging in telemarketing.
C. The FTC Has Established by Clear and Convincing Evidence That Contempt Defendants Violated the Permanent Injunction's Prohibition Against Making Material Misrepresentations
47. There is clear and convincing evidence that Contempt Defendants violated the Permanent Injunction's ban against making material misrepresentations. Contempt Defendants made numerous material misrepresentations to market and sell foreclosure prevention and mortgage loan modification services. Specifically, Contempt Defendants falsely represented to consumers that: (1) none of their clients had ever lost a home to foreclosure; (2) consumers would receive mortgage loan modifications with substantially reduced interest rates, reduced principal balances, and substantially reduced and affordable monthly payments; and, (3) highly experienced attorneys would fight for them in ways that included conducting "forensic audits" that would compel lenders to offer affordable mortgage terms.
1. Contempt Defendants Misrepresented the Nature of the Services Provided, Their History of Success, and the High Likelihood That Contempt Defendants Would Negotiate a Substantially Reduced Mortgage Payment
48. Contempt Defendants misrepresented that they employed multiple attorneys with foreclosure prevention and loan modification expertise and had never lost a home to foreclosure.
Contempt Defendants did not employ the number of attorneys promised, or attorneys with the promised qualifications. Contempt Defendants did not have ten to twelve years of experience successfully negotiating reduced mortgage modifications. Neither RLG nor ALG conducted forensic audits, pursued legal action against lenders, or, in most instances, even negotiated with lenders' legal departments.
49. Although Contempt Defendants were sometimes successful in delaying foreclosure sales for their clients, a significant number of Contempt Defendants' customers lost their homes to foreclosure.
50. Contempt Defendants made express and implied representations to consumers that they would successfully reduce consumers' monthly mortgage rates by negotiating with their lenders to drastically reduce interest rates and principal balances. Contempt Defendants, in their national radio advertisements, Internet website, and telemarketing pitches, told consumers that they routinely obtained lower interest rates, lower monthly payments, and reduced principal balances. Once consumers called the toll-free number, Contempt Defendants' telemarketers repeated these claims, frequently asserting a 90% or 100% success rate over a ten to twelve year history of successful modifications for their clients.
The Contempt Defendants did not "routinely" negotiate reduced interest rates for its clients nor have a success rate of 90% or 100%. Even accepting the Contempt Defendants' contention of 100 successful loan modifications for more than 2,000 clients, the result is less than five percent. The Receiver, after having reviewed the case files and corresponding computer files for each of the clients identified by Rodis and Chavarela as a successful modification, could substantiate only eight files wherein the borrower had been offered and accepted a mortgage loan modification by their lender.
51. ALG admitted that it did not successfully modify any mortgage loans.
52. The FTC found one successful modification in its random survey of 49 RLG clients who first contacted RLG at least three months before May 28, 2009. This is not "routine" success. Contempt Defendants' advertising and marketing claims of routine success, and their frequent claims of 90 % or 100% success over 10 to 12 years of operation, were false.
53. Contempt Defendants' express claims to consumers that they would only take them on as clients if they could dramatically reduce their mortgage payments were false.
54. Contempt Defendants' telemarketers, relying on scripts provided by Contempt Defendants, misrepresented the extensive experience and uniform success of the attorneys that would be working for them, and they made repeated express and implied misrepresentations to consumers that they would, in fact, obtain a significant mortgage payment reduction for them in a relatively short period of time. In many instances, Contempt Defendants' telemarketers told consumers that they would be better off paying for Contempt Defendants' services than continuing to make mortgage payments because Contempt Defendants had never lost a home to foreclosure and because of the inevitable and substantial reduction in payment that their attorneys would negotiate for the consumer.
55. The content of RLG's and ALG's websites, radio advertisements, sales scripts, and other marketing materials were virtually identical, and telemarketers for both entities made the same misrepresentations. When RLG stopped accepting new clients, its telemarketers became telemarketers of the foreclosure and loan modification services under ALG's name. RLG and ALG both misrepresented that they would conduct forensic audits and aggressively negotiate on consumers' behalf, and both relied on the same deceptive customer "testimonial." ALG continued to use RLG's telemarketing scripts, including misrepresentations that it had a long history of success in negotiating substantially reduced mortgage payments and misrepresentations that it would successfully negotiate a substantially reduced mortgage payment for all of its customers.
56. ALG continued RLG's misrepresentations that it had ten to twelve years of experience. ALG also falsely touted its successful representation of over 2,000 homeowners in an April 16, 2009 press release , even though it had a total of only 408 clients as of May 28, 2009, and had not successfully obtained a loan modification for any of its clients.
2. Contempt Defendants' Misrepresentations Were Material
57. Contempt Defendants' misrepresentations to potential customers about the nature of the services they would provide, the experience of their lawyers, their history of success in preventing foreclosure and negotiating a mortgage modification, and the extremely high likelihood that they could negotiate substantial reductions in mortgage loan payments were false and deceptive. See FTC v. Cyberspace.com, LLC, 453 F.3d 1196, 1199 (9th Cir. 2006) (a practice is deceptive "(1) if it is likely to mislead consumers acting reasonably under the circumstances (2) in a way that is material.") These misrepresentations were clearly material to consumers' decisions to purchase services from Contempt Defendants. FTC v. Five-Star Auto Club, Inc., 97 F.Supp. 2d 502, 528 (S.D.N.Y. 2000) (internal citations omitted) ("'Consumer reliance on express claims is  presumptively reasonable. . . . It is reasonable to interpret express statements as intending to say exactly what they say.'") Therefore, Contempt Defendants made material misrepresentations in violation of the Permanent Injunction.
3. Contempt Defendants' Disclaimers Did Not Change the Net Impression of the Misrepresentations
58. Starting sometime in February 2009, Contempt Defendants began to provide consumers with a verbal and written disclaimer that results were not "guaranteed." However, these disclosures were given only after consumers heard or saw Contempt Defendants' deceptive advertising, and after Contempt Defendants' telemarketers made repeated false claims about the nature of the services they would provide, the experience of their lawyers, their history of success in preventing foreclosure and negotiating a mortgage modification, and the great likelihood that they could negotiate substantial reductions in mortgage loan payments. Scripts used by Contempt Defendants prompted the telemarketers to repeat and stress the deceptive claims about history of success and the high likelihood that they would negotiate a substantial reduction in mortgage loan payments even while answering consumers' questions about the "no guarantee" policy. The false promises overshadowed the disclaimers; consequently, the disclaimers did not alter the "net impression" conveyed by Contempt Defendants' misrepresentations. See Cyberspace.com, LLC, 453 F.3d at 1200 ("net impression" representation misleading even if it also contains truthful disclosures); FTC v. Medlab, Inc., No. C 08-822 SI, slip op. at 7-8 (N.D. Cal. April 21, 2009) (parties cannot "innoculate themselves" from net impression with cautionary statements); FTC v. Vocational Guides, Inc., 2009 WL 943486, *16, ¶¶ 25-27 (M.D. Tenn. April 6, 2009) (disclaimer did not change the net impression because "[t]he 'no guarantee' caveat in the script was buried in a series of upbeat pronouncements about the easy availability of grant money.")
4. Evidentiary Objections are Overruled in Part and Sustained in Part
59. D'Antonio objects that consumer testimony about the telephone conversations that those consumers had with Contempt Defendants' telemarketers is inadmissible hearsay. For the most part, these statements recount the sales pitches made by Contempt Defendants' telemarketers to these consumers. These statements are not hearsay because the FTC is not introducing them for the truth of the matter asserted, but rather to show that the statements were made. United States v. Gibson, 690 F.2d 697, 700 (9th Cir. 1982) ("The investor's testimony was offered to prove the existence of a scheme; the statements were not offered for their truthfulness. The purpose of the testimony was solely to establish the fact that the salesmen and employees had made the statements.") In those instances where the testimony about the conversation is offered for the truth of the matter asserted, and is therefore hearsay, it is still admissible as a statement of an agent for a party pursuant to Fed. R. Evid. 801(d)(2)(D).
The Temporary Receiver's Report is hearsay insofar as the Court is asked to make factual findings based on the various conclusions drawn by the Receiver as to how the entities were operated (pages 3 through 14), and D'Antonio's objections thereto are sustained. However, certain facts referred to therein stand uncontroverted, e. g., the amounts of revenue and refunds based on the companies' books and records, and have been relied on by all parties in their arguments and proposed findings of fact and conclusions of law, and, are, therefore, accepted as correct for these proceedings. In addition, the Report has attached to it numerous exhibits, particularly office e-mails, that disclose how D'Antonio and his associates operated the Contempt Defendant entities. D'Antonio's objections to the communications found by the Receiver, or communications made directly to the Receiver, whether in attachments or in pages 3 through 14, are overruled.
The remaining parties' objections on foundation and hearsay grounds as to numerous declarations submitted by plaintiff as well as Contempt Defendants are overruled. The Court's findings are based on those facts found to be reliable and admissible.
D. The Contempt Defendants Did Not Substantially Comply with the Permanent Injunction
60. Contempt Defendants D'Antonio and RLG argue that they were in substantial compliance with the Permanent Injunction based upon a "good faith and reasonable interpretation of the order." In re Dual-Deck Video Cassette Recorder Antitrust Litigation, 10 F.3d 693, 695 (9th Cir. 1993) ("'Substantial compliance' with the court order is a defense to civil contempt, and is not vitiated by 'a few technical violations' where every reasonable effort has been made to comply.")
The FTC has proven, by clear and convincing evidence, that the Contempt Defendants' violations of the Permanent Injunction were substantive and that Contempt Defendants did not make reasonable efforts to comply.
61. Contempt Defendant D'Antonio's purported understanding that the Permanent Injunction's telemarketing prohibition did not apply to Contempt Defendants' telephone marketing campaign is neither in good faith nor reasonable. Contempt Defendants have not proffered any alternative "good faith and reasonable" interpretation of the prohibition on material misrepresentations.
62. Contempt Defendants' operation of a large-scale, nationwide telemarketing operation cannot be considered a "merely technical" violation of the prohibition against telemarketing. The Contempt Defendants' advertising and telemarketing were permeated with material misrepresentations. They operated a multi-million dollar telemarketing fraud to obtain substantial fees from desperate consumers who, concerned with losing their homes, ended up paying for services the Contempt Defendants did not deliver.
63. Contempt Defendants argue that they were in substantial compliance with the Permanent Injunction because they made good faith efforts to provide the promised services to their customers, focusing on purported improvements in the "legal department" starting in mid-April, 2009.
The Contempt Defendants continued to engage in telemarketing in violation of the Order until the Receiver took possession pursuant to the TRO on May 28, 2009. The Contempt Defendants also continued to make material misrepresentations in their national radio advertisements, on their website, in a press release, in telemarketing pitches to consumers, and in emails to potential clients until their marketing was stopped pursuant to the TRO on May 28, 2009.
The Contempt Defendants were well aware that they were inducing consumers to purchase their services by making material misrepresentations, yet continued to make these representations. There is no evidence that Contempt Defendants had obtained or could obtain the promised results for their new clients.
64. Although the Contempt Defendants made some improvements to their practices, there is strong reason for the Court to question whether the changed practices, which started in mid-April -- nearly six months after the first consumers started retaining Contempt Defendants' services -- were voluntary. See FTC v. Sage Seminars, Inc., No. C 95-2854 SBA, 1995 WL 798938, at *6 (N.D. Cal. Nov. 2, 1995) (citing United States v. W.T. Grant Co., 345 U.S. 629, 632 n.5, 73 S.Ct. 894, 97 L.Ed. 1303 (1953) (acknowledging that courts should be skeptical of evidence of changed practices when the timing demonstrates anticipation of suit).
65. Contempt Defendants point to consumer refunds of $1,483,469 (out of $12,116,252 in total customer payments) as evidence of substantial compliance. Although many consumers received full or, more commonly, partial refunds, many consumers found it difficult or impossible to obtain refunds. Furthermore, the argument that providing refunds somehow makes the falsity of an ad irrelevant "has been repeatedly rejected." FTC v. Think Achievement, 312 F.3d 259, 261 (7th Cir. 2002) ("No one would buy something knowing it was worthless and that therefore he would get a refund of his purchase price."); Cyberspace.com, 453 F.3d at 1201-1202 ("Similarly, the fact that companies provided consumers a toll free number to call for refunds does not affect our conclusion that the solicitation" was deceptive); FTC v. Pantron, 33 F.3d 1088, 1103 (9th Cir. 1994) ("the existence of a money-back guarantee is insufficient reason as a matter of law to preclude a monetary remedy."); Vocational Guides, Inc., 2009 WL 943486, at *16, ¶¶ 28 - 29 (rejecting defense that contemnors did not violate prohibition against material misrepresentations because refunds provided.)
III. Contempt Defendants Face Sanctions to be Determined
66. Courts have the authority to impose sanctions for violations of their orders, including coercing compliance with the order, requiring compensation for losses sustained as a result of failure to comply with the order, or both. United States v. United Mine Workers of Am., 330 U.S. 258, 303-04 (1947); Koninklijke Philips Elec. N.V. v. KXD Tech., Inc., 539 F.3d 1039, 1042 (9th Cir. 2008) (purpose of civil contempt is coercive or compensatory).
In accordance with the foregoing, the Court finds and concludes that all Contempt Defendants are in contempt of the Court's Permanent Injunction issued July 13, 2001.
A Phase II hearing to determine appropriate sanctions and to adjudicate the FTC's Ex Parte Motion to Modify the Permanent Injunction shall be held on March 1, 2010, at 2:00 p.m. A separate minute order sets the briefing schedule.
IT IS SO ORDERED.
The Clerk shall serve this Order on all counsel involved with the Order to Show Cause re Contempt.