United States v. ACB Sales & Service, Inc.

• Decision Date: 19 June 1984
• Docket Number: Civ. No. 80-251 PHX CLH.
• Citation: 590 F. Supp. 561
• Court: U.S. District Court — District of Arizona
• Parties: UNITED STATES of America, Plaintiff, v. ACB SALES & SERVICE, INC. et al., Defendants.

590 F. Supp. 561

UNITED STATES of America, Plaintiff, v. ACB SALES & SERVICE, INC. et al., Defendants.

Civ. No. 80-251 PHX CLH.

United States District Court, D. Arizona.

June 19, 1984.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

A. Melvin McDonald, U.S. Atty., James P. Loss, Asst. U.S. Atty., Phoenix, Ariz., Vicki G. Golden, Anita Johnson, Civil Div., U.S. Dept. of Justice, Washington, D.C., for plaintiff.

Warren C. Ridge, Ladendorff & Ridge, Phoenix, Ariz., and Basil J. Mezines, Jacob A. Stein, Michael G. Charapp, Stein, Mitchell & Mezines, Washington, D.C., for defendants.

MEMORANDUM OPINION AND ORDER

HARDY, District Judge.

Acting upon notification and authorization to the Attorney General by the Federal Trade Commission (FTC), the United States filed this civil action for penalties under sections 5(l) and 5(m)(1)(A) of the Federal Trade Commission Act, 15 U.S.C. §§ 45(l), 45(m)(1)(A) (Supp.1984), against fourteen corporations, collectively known as the ACB Companies, and Jerry Middleman, Jack J. Schwartz, and Jerry Raker, individually and as directors of the ACB Companies. The complaint alleges that the debt collections practices of the defendants violated an FTC consent order and the Fair Debt Collections Practices Act (FDCPA), 15 U.S.C. § 1692 et seq. (1982). The Government has moved for summary judgment concerning 723 alleged violations, and the defendants ACB Sales & Service, Inc., ACB Management Services, Inc., Jerry Middleman, Jack J. Schwartz, and Jerry Raker have filed a cross-motion for summary judgment. For the reasons stated below, the motions of the Government and the defendants will both be granted in part.

I. FACTS

During the early 1970s, Jerry Middleman, Jack J. Schwartz, and Jerry Raker directed no less than thirteen corporations engaged in the business of debt collection in the nation's largest cities. On December 4, 1974, the FTC filed an administrative complaint against these thirteen corporations¹ and against Middleman, Schwartz, and Raker, individually and as directors of the corporations, alleging that the debt collection practices of the respondents constituted "unfair and deceptive acts and practices in commerce in violation of section 5 of the Federal Trade Commission Act." The respondents consented to a cease and desist order (the Order) issued by the FTC, which was simultaneously filed with the administrative complaint and became final and effective on March 7, 1975, 60 days after its issuance. The Order prohibits twelve collections practices, eight of which are relevant to this action:

ORDER

IT IS ORDERED that respondents ... do forthwith cease and desist from:

....

2. Representing, directly or by implication, orally or in writing, contrary to fact, that legal action has been, is being or will be taken against a debtor.

3. Representing, directly or by implication, orally or in writing, contrary to fact or law, that failure by any debtor to pay amounts requested will result in garnishment of wages or attachment of property of debtor; or misrepresenting, in any way, the remedies available to the respondents or to creditors or the defenses available to debtors in the jurisdiction in which collection is sought.

5. Representing, directly or by implication, orally or in writing, that failure by debtors to pay the amounts requested will result in criminal action by law enforcement authorities.

6. Placing telephone calls to any alleged debtor at his place of employment or appearing in person at any alleged debtor's place of employment; provided, however, that nothing herein shall prohibit any contact with the debtor at his place of employment before such debtor has requested orally or in writing, that no telephone calls or personal visits be made to him at his place of employment, where respondents have been totally unable after having exercised available lawful means, to a reasonable extent, to contact an alleged debtor by telephone or in person at his residence or elsewhere.

7. Representing, directly or by implication, orally or in writing, that any of respondents' employees are government officials, law enforcement officers or agents of businesses other than debt collection; misrepresenting to any debtor, in any manner, the position or function of any of respondents' agents or employees.

8. Placing of any telephone calls to any debtor between the hours, in the time zone of the debtor, of 9:00 o'clock P.M. and 8:00 o'clock A.M. on weekdays, including Saturdays, and between the hours of 9:00 o'clock P.M. and 11:00 o'clock A.M. on Sundays, without first receiving permission from such debtor to call during those hours.

IT IS FURTHER ORDERED that respondents, their successors and assigns, with respect to communications to persons other than the alleged debtor, cease and desist from:

a. Communicating or threatening to communicate or implying the fact or existence of any debt to a debtor's employer prior to any judgment, unless specifically called for by or necessary to a procedure prescribed by statutes.

b. Communicating with or threatening to communicate or implying the fact or existence of any debt to any other third parties, including former employers, other than one who might be reasonably expected to be liable

therefore, except with the written permission of the debtor.

....

On May 1, 1976, Middleman, Schwartz, and Raker effected a major reorganization of their debt collection businesses. Several new corporations were formed, and others were dissolved. ACB Sales & Service, Inc., became the parent corporation for the remaining defendant corporations:

ACB Management Services, Inc.

American Creditors Bureau, Inc.

Jemama Investment Company, Inc., doing business as American Creditors Bureau of San Diego

American Creditors Bureau of San Francisco

American Creditors Bureau of Los Angeles

Affiliated Creditors Bureau, Inc.

American Creditors Bureau of Houston, Inc.

American Creditors Bureau of Dallas, Inc.

American Creditors Bureau of Philadelphia, Inc.

American Creditors Bureau of Colorado, Inc.

American Creditors Bureau of New York, Inc.

American Creditors Bureau of Florida, Inc.

American Creditors Bureau of Ohio, Inc.

American Creditors Bureau of Boston, Inc.

American Creditors Bureau of Georgia, Inc.

Middleman and Schwartz are officers and directors of all of the ACB Companies; Raker is an officer and director of each company except ACB Management Services. Middleman's primary responsibility is management of ACB Management Services, and Raker's primary responsibility is the management of ACB Sales & Service. Due to poor health, Schwartz' responsibility is limited to long-range planning for the ACB Companies. Together, these individuals occupy the highest management levels of the reorganized ACB Companies.

ACB Sales & Service and ACB Management Services together form the "home office" of the ACB Companies. ACB Sales & Service, in addition to serving as the parent corporation, enters into contractual relations with creditors for debt collection services. ACB Management provides management, accounting, purchasing and administrative services for the local ACB collection agencies. When a creditor refers a debt to ACB Sales & Service for collection, ACB Management Services creates a debtor account with any specific collection instructions of the creditor and sends the account in a document known as a debtor jacket to one of the local agencies for collections activity.

The collections activity by the local agencies includes correspondence with the debtor through form letters prepared by the home office and telephone calls by an individual collector. Failing to collect the debt, the collector may recommend to his office manager that legal action be taken to recover on the debt. If the office manager concurs, the account is referred to the home office for further consideration. If the home office agrees that legal action would be cost effective, ACB Sales & Service requests written authorization to sue from the creditor. Upon receipt of the authorization, the matter is referred to an attorney.

Since the Order became final, the ACB Companies have used three form letters in their collections activities:

1. Letter 003

48 HOUR NOTICE

TAKE NOTICE ... That your creditor alleges that you are justly indebted in the amount listed with us for collection. Further we have been authorized to proceed with any necessary lawful action to effect such collection. Therefore, you have 48 Hours in which to pay the amount indicated above.

TIME IS OF THE ESSENCE!

IF YOU REMIT WITHIN 48 HOURS NO ACTION WILL BE TAKEN

2. Letter 005

Your account has been referred to my desk for processing. In a percentage of cases referred to us, we find it necessary to resort to legal proceedings through attorneys and the civil courts.

If this account is referred to counsel, and he determines that suit should be filed against you, it may result in the recovery of a judgment which may pursuant to law, include not only the amount of your indebtedness, but in addition, the amount of any statutory costs, legal interest, and where applicable, reasonable attorney's fees.

If the judgment is not thereon satisfied, it may be collected by attachment of and execution upon your real and personal property. Garnishment is also an available remedy to satisfy an unsatisfied judgment.

We, therefore, suggest two alternatives:

1. Bring or send this balance personally by return mail.

2. Come to this office personally to see me and make arrangements for the satisfaction of this account.

We are not representing either directly or by implication that legal action has been or is being taken against you at this time.

We would appreciate hearing from you or your attorney within the next forty-eight (48) hours.

3. Letter 006 (identical to Letter 005 in all respects except the penultimate paragraph)

We do not mean to represent directly or indirectly that legal action has been, is being, or will be taken against you. We would, however,

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