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.
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.
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. ...