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Federal Trade Commission v. Hope For Car Owners

April 4, 2012


The opinion of the court was delivered by: Garland E. Burrell, Jr. United States District Judge


Plaintiff, the Federal Trade Commission ("FTC"), filed a motion "under Section 13(b) of the [Federal Trade Commission Act ('FTC Act')], 15 U.S.C. § 53(b), [in which it seeks] issuance of a temporary restraining order ('TRO') with an order to show cause why a preliminary injunction should not issue." (Pl.'s Mot. 1:22-25.) The motion was scheduled for hearing on April 2, 2012, and Defendants were provided a time by which any opposition to the motion was to be filed. However, this hearing date was vacated since Plaintiff failed to file any document showing Plaintiff's efforts to serve Defendants with the motion documents and did not explain whether it gave Defendants notice of the motion, hearing date, and opportunity to respond to the motion. Plaintiff responded by filing its counsel's declaration, in which counsel explained Plaintiff's efforts to notify Defendants of the motion, and requested that the Court reconsider its decision vacating the hearing date. The Court then issued an order scheduling Plaintiff's motion on April 4, 2012, commencing at 11:00 a.m.; the order also provided Defendants an opportunity to file a written response to the motion.

Defendant Patrick Freeman, proceeding pro se, filed an opposition to the motion on April 2, 2012, on behalf of both Defendants. However, "[a] corporation may appear in federal court only through licensed counsel." United States v. High Country Broad Co., 3 F.3d 1244, 1245 (9th Cir. 2010). Therefore, Defendant's opposition with respect to Defendant Hope for Car Owners is stricken. Employee Painters' Trust v. Ethan Enters., Inc., 480 F.3d 993, 998 (9th Cir. 2007) (indicating when a corporation fails to retain counsel it risks losing a case by default judgment).

Defendant argues "Plaintiff's request should be denied due to the fact that Defendants, as of sometime during the first quarter of 2011 have ceased any and all marketing, advertising, [and] solicitation via the website" (Def.'s Opp'n 2:5-8.) Concerning the website, Defendant argues "while it is accurate that Defendant paid for the domain registration, defendant does not now nor have they ever had electronic control of the information contained at the url and a recent review of the site shows details for a company that is in no way associated with the Defendants activities." Id. 4:6-10.

Defendant also contends the website has been removed, the decision was made to dissolve the corporation, and both Defendants will likely file for bankruptcy. Id. 3:1-2, 3:18-19, 4:1-4. Further, Defendants argue as follows:

Pursuant to Defendants['] decision to wind up operations and dissolve the corporation[,] all physical client records have recently been shredded and recycled. All electronic materials such as any computers, printers, drives, monitors, or any other materials used in conjunction with the Defendants efforts have recently been donated and/or sold to repay the outstanding debts of Hope for Car Owners. Id. 4:22-5:2.

The motion is based upon Plaintiff's complaint in which it alleges Defendants violated Section 5(a) of the FTC Act, which "prohibits, inter alia, unfair or deceptive practices in or affecting commerce. An act or practice is deceptive if first, there is a representation, omission, or practice that, second, is likely to mislead consumers acting reasonably under the circumstances, and third, the representation, omission, or practice is material." F.T.C. v. Stefanchik, 559 F.3d 924, 928 (9th Cir. 2009) (internal quotations and citation marks omitted). Specifically, Plaintiff alleges Defendants misrepresented that they would obtain auto loan modifications for their customers and that they would grant full refunds if their loan-modification efforts were unsuccessful. (Complaint ¶¶ 25-30.)

Section 13(b) prescribes:

Whenever the Commission has reason to believe--

(1) that any person, partnership, or corporation is violating, or is about to violate, any provision of law enforced by the Federal Trade Commission, and (2) that the enjoining thereof pending the issuance of a complaint by the Commission and until such complaint is dismissed by the Commission or set aside by the court on review, or until the order of the Commission made thereon has become final, would be in the interest of the public--the Commission by any of its attorneys designated by it for such purpose may bring suit in a district court of the United States to enjoin any such act or practice. Upon a proper showing that, weighing the equities and considering the Commission's likelihood of ultimate success, such action would be in the public interest, and after notice to the defendant, a temporary restraining order or a preliminary injunction may be granted without bond . . . Provided further, That in proper cases the Commission may seek, and after proper proof, the court may issue, a permanent injunction.

15 U.S.C. § 53(b) (emphasis added). "Section 13(b), therefore, places a lighter burden on the Commission than that imposed on private litigants by the traditional equity standard; the Commission need not show irreparable harm to obtain a preliminary injunction. Under this more lenient standard, a court must 1) determine the likelihood that the Commission will ultimately succeed on the merits and 2) balance the equities." F.T.C. v. Affordable Media, 179 F.3d 1228, 1233 (9th Cir. 1999) (internal quotation marks and citations omitted).

"Individuals are personally liable for restitution for corporate misconduct if they had knowledge that the corporation or one of its agents engaged in dishonest or fraudulent conduct, that the misrepresentations were the type upon which a reasonable and prudent person would rely, and that consumer injury resulted." Id. at 1234. "The knowledge requirement can be satisfied by showing that the individuals had actual knowledge of material misrepresentations, were recklessly indifferent to the truth or falsity of a misrepresentation, or had an awareness of a high probability of fraud along with an intentional avoidance of the truth." Id.

Plaintiff argues it will ultimately succeed on the merits of its claims against both Defendants and provides documents in support of the following arguments:

Defendants represent that they will obtain an auto loan modification that will reduce consumers' monthly payments between 30% and 50%. Defendants make this representation on their website, and then reinforce the claim in their telephone sales pitches. . . .

Although Defendants promise refunds, in fact they routinely deny their clients' requests for refunds. . . .

Bank documents suggest that Defendants have taken in gross revenue of at least $370,378 between March 20, 2009 and October 31, 2011. In a letter to the Better Business Bureau of Northeast California in January 2011, Defendant Freeman wrote 'to date, we have assisted more than 13,000 [consumers]. Thus, the actual consumer injury could be much higher.

(Pl.'s Mot. 4:3-5, 11:17-18, 12:14-18 (internal citations omitted).)

Regarding Freeman's involvement, Plaintiff argues as follows and provides documents supporting these contentions:

Defendant Patrick Freeman is the sole manager of HCO and its registered agent. He also has signatory authority over its bank accounts. Freeman is the registrant as well as administrative contact, technical, and billing contact for HCO's Internet websites. The domain registration and hosting fees for HCO's Internet website are paid for with Freeman's personal credit card. In additional Freeman responds on behalf of HCO to Better Business Bureau ("BBB") complaints against it and sends emails to consumers.

Id. 2:25-3:5 (internal citations omitted). Defendant does not respond to these arguments. Plaintiffs have shown that it is likely to prevail on its claims that Defendants have engaged, and are likely to continue to engage, in acts or practices that violate Section 5.

Concerning balancing the equities, "when a district court balances the hardships of the public interest against a private interest, the public interest should receive greater weight." F.T.C. v. Affordable Media, 179 F.3d 1228, 1236 (9th Cir. 1999). Further, under the Section 13(b) standard,"[h]arm to the public interest is presumed." F.T.C. v. World Wide Factors, Ltd., 882 F.2d 344, 346 (9th Cir. 1989). Plaintiff argues as follows:

The public interest in halting Defendants' misrepresentations and deceptive claims about their vehicle loan modification services far outweighs any interest Defendants may have in continuing to deceptively market their services. . . . Granting such relief is also necessary because Defendants' conduct indicates that they will likely continue to deceive the public. . . . In contrast, the private equities in this case are not compelling. Compliance with the law is hardly an unreasonable burden. . . . Because the injunction will preclude only ...

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