Zimmerman v. Cambridge Credit Counseling Corp.

• Citation: 529 F.Supp.2d 254
• Decision Date: 07 January 2008
• Docket Number: C.A. No. 03-30261-MAP.
• Parties: Andrew ZIMMERMANN and Kelly Zimmermann, on behalf of themselves and all others similarly situated, Plaintiffs v. CAMBRIDGE CREDIT COUNSELING CORP., Cambridge Brighton Budget Planning Corp., Brighton Credit Management Corp., Debt Relief Clearinghouse, Ltd., Cambridge Credit Corp., Cypress Advertising and Promotions, Inc., Brighton Credit Corp., Brighton Debt Management Services, Ltd., Brighton Credit Corp. of Massachusetts, Southfork Asset Management Corp., First Consumers Credit Management Corp., John Puccio, and Richard Puccio, Defendants.
• Court: U.S. District Court — District of Massachusetts

529 F.Supp.2d 254

Andrew ZIMMERMANN and Kelly Zimmermann, on behalf of themselves and all others similarly situated, Plaintiffs v. CAMBRIDGE CREDIT COUNSELING CORP., Cambridge Brighton Budget Planning Corp., Brighton Credit Management Corp., Debt Relief Clearinghouse, Ltd., Cambridge Credit Corp., Cypress Advertising and Promotions, Inc., Brighton Credit Corp., Brighton Debt Management Services, Ltd., Brighton Credit Corp. of Massachusetts, Southfork Asset Management Corp., First Consumers Credit Management Corp., John Puccio, and Richard Puccio, Defendants.

C.A. No. 03-30261-MAP.

United States District Court, D. Massachusetts.

January 7, 2008.

COPYRIGHT MATERIAL OMITTED

Daniel F. Schreck, G. Oliver Koppell, John F. Duane, Law Offices of G. Oliver Koppell, Joseph S. Tusa, Whalen & Tusa, P.C., New York, NY, David J. Vendler, Morris, Polich & Purdy, LLP, Los Angeles, CA, Garrett M. Smith, Michie Hamlett, Lowry Rasmussen & Tweel, PLLC, Gregory S. Duncan, Charlottesville, VA, Stephen G. Hennessy, Milton, MA, for Plaintiffs.

Brian J. Davis, Law Office of Brian J. Davis, Islandia, NY, Andrew B. Schultz, Great Neck, NY, John E. Garber, Paul S. Weinberg, Weinberg & Garber, P.C., Northampton, MA, Tani E. Sapirstein, Sapirstein & Sapirstein, Springfield, MA, for Defendants.

MEMORANDUM AND ORDER REGARDING CROSS MOTIONS FOR SUMMARY JUDGMENT AND DEFENDANTS' MOTION TO WITHDRAW ADMISSIONS (Dkt. Nos. 187, 198, 200, & 232)

PONSOR, District Judge.

I. INTRODUCTION

In November 2003, Plaintiffs Andrew and Kelly Zimmerman¹ ("the Zimmermans") brought this class action suit against Defendants John and Richard Puccio (collectively the "Individual Defendants") and Cambridge Credit Counseling Corp, Cambridge/Brighton Budget Planning Corp., Brighton Credit Management Corp., Debt Relief Clearinghouse, Ltd., Cambridge Credit Corp., Cypress Advertising and Promotions, Inc., Brighton Credit Corp., Brighton Debt Management Services, Ltd., Brighton Credit Corp. of Massachusetts, Southfork Asset Management Corp., and First Consumers Credit Management Corp. (collectively the "Corporate Defendants") in connection with services they had sought from Cambridge Credit Counseling Corp. The Zimmermans charged Defendants with violating the Credit Repair Organizations Act ("CROA"), 15 U.S.C. §§ 1679 et seq., and the Federal Debt Collection Practices Act ("FDCPA"), 15 U.S.C. §§ 1692 et seq.; unjustly enriching themselves at the expense of Plaintiffs; and acting in contravention of the Virginia Consumer Protection Act, Va.Code Ann. § 59.1-196 et seq. (Dkt. No. 1, Compl.¶¶ 141-182.)

This court initially allowed a motion to dismiss the Zimmermans' federal claims in June 2004. Zimmerman v. Cambridge Credit Counseling Corp., 322 F.Supp.2d 95 (D.Mass.2004). Plaintiffs appealed that ruling only as to the CROA claim. On May 31, 2005, the First Circuit vacated the dismissal, ruling that a statutory exception to CROA liability for "any nonprofit organization which is exempt from taxation under section 501(c)(3)" of the Internal Revenue Code, 15 U.S.C. § 1679a(3)(B)(i), did not apply to the defendant entities merely because they had registered as section 501(c)(3) organizations. Zimmerman v. Cambridge Credit Counseling Corp, 409 F.3d 473 (1st Cir.2005). The First Circuit then remanded the case for proceedings consistent with its ruling that to qualify for the statutory exemption, entities "must actually operate as nonprofit organizations and be exempt from taxation under section 501(c)(3)." Id. at 478 (emphasis in original).

The Zimmermans then filed an amended complaint in October 2005, charging Defendants with violations of CROA (Count I) and unfair or deceptive acts or practices in violation of the Massachusetts Consumer Protection Act, Mass. Gen. Laws ch. 93A (Count II).² (Dkt. No. 65, Am. Compl.¶¶187-233.) Both Plaintiffs and Defendants have moved for summary judgment on these claims. (Dkt.Nos.187, 198, 200.) Additionally, Defendants seek to withdraw admissions resulting from their failure to respond to requests for admissions served by Plaintiffs in 2005. (Dkt. No. 232.) For the reasons stated below, Defendants' motion to withdraw their admissions will be denied, as will their motion for summary judgment, and Plaintiffs' motion for summary judgment will be allowed.

II. FACTS³

A. The Credit Repair Organizations Act

The Credit Repair Organizations Act ("CROA"), 15 U.S.C. §§ 1679 et seq., was passed in 1996 in response to the growing trend whereby "credit repair" companies used abusive and misleading practices to take advantage of debtors seeking to improve their credit records. See 15 U.S.C. § 1679(a); Fed'l Trade Comm'n v. Gill, 265 F.3d 944, 947 (9th Cir.2001). The statute was meant "to ensure that prospective buyers of the services of credit repair organizations are provided with the information necessary to make an informed decision regarding the purchase of such services" and "to protect the public from unfair or deceptive advertising and business practices by credit repair organizations." 15 U.S.C. § 1679(b).

In support of those purposes, Congress developed a scheme to subject credit repair organizations ("CROs") to certain ex ante disclosure requirements in dealing with consumers and to prohibit them from engaging in deceptive practices injurious to the public. See id. §§ 1679b-1679e. This case presents the issue of whether any Defendant was acting as a credit repair organization and was therefore subject to the requirements and penalties of CROA. As will be seen, the undisputed facts confirm that all Defendants were either acting as CROs or were intertwined in the Puccios' credit repair business and that the federal statute is fully applicable.

B. Factual Background

1. The Puccio Companies.

John and Richard Puccio are brothers who founded Cambridge Credit Counseling Corporation ("CCCC") in 1996 as a Massachusetts corporation. They filed papers to register CCCC as a nonprofit entity under Massachusetts law and as a 26 U.S.C. § 501(c)(3) nonprofit entity under federal law. The IRS form accompanying CCCC's application for § 501(c)(3) status signed by defendant John Puccio, stated that the company's clients would enjoy, among other benefits, an "Improved Credit it Rating." CCCC's website and its customer service agreements represented that it was a "not-for-profit" organization. Defendant Richard Puccio served as CCCC's vice president and strategic planner and as one of its board members.

CCCC was staffed by personnel from John Puccio's previous New York businesses Brighton Credit Corporation ("BCC") and Cambridge Credit Corporation ("CCC"),⁴ which had been ordered to cease operating by the New York Banking Department in October 1996, and it provided the same services as BCC and CCC. CCCC also purchased the New York companies' "intangible assets," described as the goodwill in their trademarks and copyrights, for $14.1 million. Significantly, neither BCC nor CCC had been, issued any trademarks or copyrights at the time of the purchase. Moreover, no negotiations regarding the purchase took place and CCCC did not have independent representation. John Puccio signed the sale, agreement on behalf of CCCC and both he and Richard Puccio signed it on behalf of CCC and BCC.

John Puccio managed the day-to-day operations of CCCC. While he did so, CCCC paid large sums of money to other companies that he owned, despite their not having rendered any services to CCCC. For example, John and Richard Puccio owned JRJ Associates, Inc., which received $150,000 from CCCC without having done any work for it.

After BCC and CCC ceased operating, John Puccio started Cambridge/Brighton Budget Planning Corporation ("CBBPC") in New York as a so called "credit counseling" agency and served as its president. CBBPC advertised its not-for-profit status on its website and on its service agreements. Puccio also created Brighton Credit Management Corporation ("BCMC") as a Florida nonprofit entity, and was its sole officer and director. All of these companies used virtually identical service agreements, and CCCC, CBBPC, and BCMC publicized their affiliation with each other.

A major service advertised by the Puccios' credit companies was the development of individualized Debt Management Plans ("DMPs") for clients. After gathering information about a customer's debts, the business would devise a plan setting a single monthly payment to be remitted to it by the client for disbursement to his or her creditors. CCCC's 2001, 2002, and 2003 tax returns described "the principal objectives of the Corporation's Debt Management Program" as including "improv[ing] a consumer's credit rating over time by establishing a consistent payment history ..." Customers were charged an initial up-front "Design Fee" for the development of this DMP.

The credit companies would also negotiate with a client's creditors for better terms on their debt, for example seeking the reduction of interest rates on debt or a decrease in the debt principal. They would additionally attempt to "re-age" the customer's accounts by contacting a creditor to whom a customer owed late payments and convincing the creditor to relabel the account current (thus avoiding late fees and a negative report by the creditor to credit bureaus), in exchange for the customer committing to payments on that account for a set amount of time. (See Mt. No. 224, Ex. 10, Wobig Dep. 155:6-164:18.)

For some period, of time, employees of CCCC, BCMC, and CBBPC were compensated based on how many customers they enrolled, receiving commissions from the initial fee paid by the client. At CCCC, low sales volumes were penalized and bonuses were given for high sales.

Brighton Credit Corporation of Massachusetts ("BC Mass"), also known as Brighton Debt Management Services ("Brighton DMS") and First Consumers Credit Management corp. ("First Consumers"),⁵ provided "back-office support" for the other three companies' customers. BC Mass would design...