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Federal Trade Commission v. Kahram Zamani; Infinity Group Services

September 28, 2011

FEDERAL TRADE COMMISSION, PLAINTIFF(S),
v.
KAHRAM ZAMANI; INFINITY GROUP SERVICES, INC., DEFENDANT(S).



The opinion of the court was delivered by: David O. Carter United States District Judge

AMENDED FINDINGS OF FACT AND CONCLUSIONS OF LAW

This action was tried to the Court between September 14, 2010 and October 4, 2010. Pursuant to the Rule 52 of the Federal Rules of Civil Procedure, the Court hereby issues its findings of fact and conclusions of law.

I. EVIDENTIARY DISPUTES

1. The Federal Trade Commission ("FTC") seeks the admission of consumer declarations that were prepared and submitted in accordance with 28 U.S.C. § 1746 (unsworn declarations under penalty of perjury). These declarations are, as the FTC concedes, hearsay. See Pl.'s Mtn. In Limine (Docket 98), at 4:3-7. The declarations are nonetheless admissible because they have "circumstantial guarantees of trustworthiness" and it would be unduly consumptive of time and burdensome for the FTC to call each aggrieved consumer into Court to testify in person. See Fed. R. Evid. 807. The consumer declarations identify the declarants with specificity and recite similar factual accounts about the consumer-declarants' experiences with Infinity Group Services ("IGS") during the time period at issue in this lawsuit. The Ninth Circuit has recognized, in identical circumstances, that the consumer complaints are admissible under Rule 807 because "[t]he fact that they all reported roughly similar experiences suggests their truthfulness." FTC v. Figgie Int'l, Inc., 994 F.2d 595, 608-09 (9th Cir. 1993). The consumer declarations (Exs. 98-100, 102-112) are accordingly received into evidence.

2. The FTC also seeks the admission of a number of consumer letters filed on the FTC's website. In those letters, consumers complain about IGS' failure to timely obtain loan modifications and/or loan refinancing on behalf of its clients. The vast majority of the consumer complaints describe IGS' business operation -- its fees, services, and performance -- in nearly identical terms. Such "report[s] [of] roughly similar experiences suggests the[] truthfulness" of the letters on the FTC's website. See id.; see also FTC v. Magazine Solutions, LLC, No. 7-692, 2009 WL 690613, at *1 (W.D. Pa. Mar. 16, 2009) (admitting consumer complaints to Better Business Bureau in part because "[t]he consistency of the representations [described in the consumers' letters] reinforces the trustworthiness of the complaints"). During trial, the Court identified the factual parallels between the consumer complaints admitted in Figgie and those the FTC seeks to admit here. However, the FTC was cautioned to make clear, through electronic identifying information, that the consumer complaints were submitted by different individuals, instead of a single disenchanted IGS customer committed to flooding the internet with his complaints. The FTC made that showing, and the consumer complaints are therefore admitted.

II. PROCEDURAL HISTORY

1. On September 9, 2010, the Court granted in part and denied in part the FTC's motion for summary judgment on its claims against Kahram Zamani ("Zamani") and his California corporation Infinity Group Services, Inc. d/b/a IGS, Hope to Homeowners, ASKIGS, and ASKIGS, Inc. ("IGS"), for violations of Section 5(a) of the FTC Act, 15 U.S.C. § 45(a). The FTC's August 26, 2009 Complaint separately alleges three "counts" or violations of Section 5(a).

2. The Complaint's first count alleges that Zamani and IGS (collectively "Defendants") falsely represented to consumers that they would "obtain a loan modification in all, or virtually all, instances." Compl. ¶ 33. The FTC alleged that misrepresentations were made in the course of advertising, marketing, promoting, offering for sale, or actually selling mortgage loan modification services to customers in the United States and, more specifically, the state of California. Id.

3. The Complaint's second count alleges that, in connection with the sale of these loan modifications services, Defendants falsely promised consumers "full refunds . . . if Defendants fail[ed] to obtain modifications of their loans." Id. ¶ 36. These misrepresentations were likewise made in advertising, marketing, promotional, and other materials that offered for sale, or actually consummated the sale, of mortgage loan modification services. Id.

4. The Complaint's third count alleges that Defendants falsely represented to consumers that they would "obtain refinancing for consumers' mortgage loans for an up-front flat fee of [nine-hundred and ninety five dollars]." Id. ¶ 39. These misrepresentations, like the first two categories of alleged misrepresentations, were made in Defendants' advertising, marketing, promotional, and other materials that offered for sale, or actually consummated the sale of, mortgage loan refinancing services. Id.

5. The Court's order on the motions for summary judgment concluded that the undisputed facts established liability as to IGS on all three counts. See Docket 105 at 9:27-12:10. The Order also concluded that the undisputed facts established Zamani's liability on the third claim for misrepresentations made in connection with the sale, or offering for sale, or mortgage loan refinancing services. Id. at 12:11-13:3. The remaining disputed issues to be resolved at trial were

(1) Zamani's liability on the Complaint's first two counts; (2) the remedies, including injunctive, restitutionary, and equitable relief that should flow from Defendants' conduct. See id. at 13:15-15:14.

III. FINDINGS OF FACT

1. Zamani is the founder and Chief Executive Officer of IGS, a California corporation. Like IGS, Zamani is a resident of California. See Stipulated Fact Nos. 1-7, Proposed Pre-Trial Conference Order (Docket 96-1), at 3-4.

2. Between 2008 and 2009 IGS advertised its services to mortgagees whose loans were subject to high interest rates. Between November 1, 2008 and early February 2009, IGS offered a service named "Hope to Homeowners" pursuant to the Economic Stabilization Act of 2008 (the "Act"). The Act authorized the Federal Housing Authority (FHA) to guarantee certain classes of home loans that lenders refinanced in order to relieve borrowers burdened by high interest rates. The government program was called "Hope for Homeowners"; it insured refinanced loans that satisfied the following conditions among others: (a) the principal balance could not exceed ninety percent of the home's value; (b) the refinanced loan amount could not exceed $550,440; (c) the Federal Housing Authority would be entitled to a share of any equity eventually realized in the subject property. See Bush Administration Launches "Hope for Homeowners" Program to Help More Struggling Families Keep Their Homes (Exhibit A to Trial Ex. 444).

3. IGS marketed the Hope to Homeowners service as an off-shoot of the program sponsored by the federal government. It paid a prominent Southern California radio station to advertise Hope to Homeowners as "the only program available that can reduce your principal balance, and for some, up to 50 percent." Trial Ex. 162A; see also Trial Ex. 163A (similar advertisements). The advertisements for the Hope to Homeowners program were created on November 4, 2008, December 11, 2008, and December 12, 2008, and aired thereafter. Id. Early advertisements aired in November 2008 purported to describe the government program and instructed interested consumers to call IGS' toll free number. See, e.g., id. at 3. Radio station employees reminded each other that, at least one version of the advertisement, "[Zamani] would like to leave his company name out and just focus on the program." Id. at 7. Given the near identity between the name of the government program ("Hope for Homeowners") and the product marketed by IGS ("Hope to Homeowners"), the Court finds that IGS was intentionally trying to confuse consumers into believing that the radio advertisements were sponsored by the federal government when, in fact, they were not. See id.

4. In December 2008, IGS altered the text of its radio advertisements slightly. Each advertisement now included a statement that "no mortgage modification company or law firm can guarantee a reduction in your principal loan balance, period!" Id. at 1. That statement immediately followed the claim that "this is the only program available that can reduce your principal balance." See id.

5. Potential customers called an IGS hotline monitored by sales representatives. These sales representatives generally gathered identifying financial information and purported to express an opinion about the customers' eligibility for the government-sponsored Hope for Homeowners program. See, e.g., Andrew Carlson Decl. (Trial Ex. 102) ¶ 3. In a pre-printed form, IGS represented to potential customers that IGS would contact each customer's lender and negotiate a loan modification. See, e.g., Hope to Homeowners Fee Acknowledgment, Ex. B to Robert Millspaugh Decl. (Trial Ex. 108).

6. In addition to generally providing each potential customer with a preliminary opinion about her eligibility for a government-insured refinanced loan under the Hope for Homeowners program, IGS' sales representatives also solicited an initial payment of $995.00 from customers interested in engaging IGS' services: representing customers in "negotiations" with their lenders. IGS presented its customers with paperwork making clear that the $995 fee was a non-refundable amount charged "in consideration for an evaluation by [IGS] of the borrowers' [sic] financial condition. The evaluation is to determine the suitability of the borrower for the selection of one or more of the actions identified above and is completed prior to a presentation of any request(s)." Id. The form further clarified that "[IGS] will use its best efforts in making the presentations, but there are no express or implied guarantees." Id. Of course, IGS could make no guarantees because (as its pre-printed forms made clear) "[t]he ...


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