F.T.C. v. Check Investors, Inc.

• Decision Date: 06 September 2007
• Docket Number: No. 05-3957.,No. 05-3558.,05-3558.,05-3957.
• Citation: 502 F.3d 159
• Parties: FEDERAL TRADE COMMISSION v. CHECK INVESTORS, INC.; Check Enforcement; Jaredco, Inc.; Barry S. Sussman; Elizabeth M. Sussman; Charles T. Hutchins. Charles T. Hutchins, Appellant No. 05-3558. Federal Trade Commission v. Check Investors, Inc.; Check Enforcement; Jaredco, Inc.; Barry S. Sussman; Elizabeth M. Sussman; Charles T. Hutchins. Check Investors, Inc., Check Enforcement, Jaredco, Inc., Barry S. Sussman, Appellants No. 3957.
• Court: U.S. Court of Appeals — Third Circuit

502 F.3d 159

FEDERAL TRADE COMMISSION v. CHECK INVESTORS, INC.; Check Enforcement; Jaredco, Inc.; Barry S. Sussman; Elizabeth M. Sussman; Charles T. Hutchins.

Charles T. Hutchins, Appellant No. 05-3558.

Federal Trade Commission v. Check Investors, Inc.; Check Enforcement; Jaredco, Inc.; Barry S. Sussman; Elizabeth M. Sussman; Charles T. Hutchins.

Check Investors, Inc., Check Enforcement, Jaredco, Inc., Barry S. Sussman, Appellants No. 3957.

No. 05-3558.

No. 05-3957.

United States Court of Appeals, Third Circuit.

Argued October 4, 2006.

Opinion filed: September 6, 2007.

Charles T. Hutchins, Esq. (Argued), Pro se.

Stephen Robert LaCheen, Esq. (Argued), Anne M. Dixon, Esq., Philadelphia, PA, Attorneys for Appellants, Check Investors, Inc., Check Enforcement, Inc., Jaredco, Inc., and Barry Sussman.

William Blumenthal, Esq., General Counsel, Federal Trade Commission, John F. Daly, Esq., Deputy General Counsel for Litigation, Federal Trade Commission; Lawrence DeMille-Wagman, Esq. (Argued), Attorney, Federal Trade Commission, Washington, D.C., Attorneys for Appellee.

Before: McKEE, AMBRO, NYGAARD, Circuit Judges.

OPINION

McKEE, Circuit Judge.

Check Investors, Inc., Check Enforcement, Inc., Jaredco, Inc., Barry Sussman (hereinafter collectively "Check Investors")¹ and Charles T. Hutchins² appeal the district court's grant of injunctive relief and $10.2 million in fines in this action that the Federal Trade Commission initiated against them. The FTC claimed that their debt collection practices violated the Federal Trade Commission Act ("FTC Act"), 15 U.S.C. §§ 41 et seq., and various provisions of the Fair Debt Collection Practices Act ("FDCPA"), 15 U.S.C. §§ 1692 et seq. For the reasons that follow, we will affirm.

I. FACTS³

Check Investors is in the business of purchasing large numbers of checks written on accounts with insufficient funds ("NSF checks"). The payors of those checks typically wrote them in connection with retail transactions and purchases. Check Investors purchased over 2.2 million NSF checks having an estimated face value of approximately $348 million. The checks were purchased from companies such as Telecheck, Inc., Certegy, Inc., and Cross Check, Inc. (collectively "Telecheck").

Telecheck is in the business of guaranteeing checks tendered to pay for consumer transactions. When checks are dishonored, Telecheck pays the merchant/payee the full face value of the check, thereby making the merchant whole. The merchant therefore has no need to attempt to collect the check from the payor/customer. In return for the payment, the merchant assigns all of its rights and benefits to Telecheck, and Telecheck then attempts to collect on the defaulted check to reimburse itself for its payment.

Telecheck first attempts to collect by making three electronic re-presentments of an NSF check to the financial institution the instrument was drawn on. If unsuccessful, Telecheck then sends the payor notices and attempts to contact him/her by telephone. This process may continue for approximately sixty to ninety days. If these efforts fail, Telecheck hires a debt collector, who makes further attempts to collect on the check from the payor. If the debt collector is not able to collect after six months to a year, Telecheck contracts with a second debt collector. Both the first and second debt collectors work on a contingency basis, and, if successful, will receive one-third of the payment received. If the second debt collector is also unsuccessful, Telecheck sells the rights it acquired from the original merchant to Check Investors, and Check Investors initiates additional collection efforts.

Initially, Check Investors collected NSF checks on behalf of large retail clients. However, by 2002 it was purchasing NSF checks from check guarantee companies such as Telecheck for pennies on the dollar and collecting on its own behalf as part of the process we have just described.

According to the Federal Trade Commission, Check Investors was the brainchild of Barry Sussman. After graduating from law school (and after serving time in prison for attempting to collect debts by posing as an FBI agent), Sussman theorized that if a debt collection business collected only debts it actually owned based on purchasing NSF checks, it would not be subject to the FDCPA, and would therefore be free to use collection techniques prohibited by the FDCPA such as harassment and deception.

In collecting checks, Check Investors routinely added a fee of $125 or $130 to the face amount of each check; an amount that exceeded the legal limit for such fees under the laws of most states. Check Investors would then aggressively dun the defaulting payors without disclosing either the original face amount of the check, or that the amount it was demanding in "satisfaction" of the check included a fee that was higher than permitted under the laws of the applicable state.

Check Investors used both dunning letters and phone calls to collect debts. However, its primary modus operandi was to accuse consumers of being criminals or crooks, and threatening them with arrest and criminal or civil prosecution. The collectors it employed were provided with a script that directed them to begin calls by advising consumers that a "criminal complaint recommendation" was pending, and that the consumer would be arrested and prosecuted if he/she did not pay the amount demanded in full. Collectors were allowed to personalize the approach they used, but the approach always focused on threats of prosecution. By way of example, one of Check Investor's collectors left the following message on a consumer's answering machine:

This message is for the criminal check writer, Stephanie ____. If you think that you could rip these merchants off with your hot checks and hide behind your telephone, I guess you'll just have to explain to the judge why you stole from this merchant, from [name of merchant], with your fraudulent check. At this moment, we do not have any intentions of working this matter out with you voluntarily. You may need to turn yourself in to the local county sheriff's office.

Another consumer was told that if she did not pay, her children would "watch their mother being taken away in handcuffs," and they would "be bringing their mommy care packages in prison."

Check Investors also threatened consumers by sending a form collection letter that purported to be from defendant Hutchins, who as noted, see n. 2, supra, is an attorney. The letter informed the recipient that Hutchins had been retained by a client who was considering taking criminal or civil action. Hutchins did not actually send the letters or sign them, he had no idea about the number of letters that were sent out purporting to be from him, and he made no inquiry about the status of any of the debts underlying the letters that were sent.⁴

Check Investors' threats of prosecution were made without regard to the amount of the underlying obligation. Employees of Check Investors told one consumer who allegedly wrote an NSF check for $14.70 that she would be "sitting in jail" unless she immediately paid $144.70 (the amount of the original check plus Check Investors' additional fee of $130). Faced with the threat, the consumer paid the full amount demanded.

Check Investors' threats of prosecution were all false. It never notified law enforcement authorities, nor did it take any steps to initiate civil suit against any consumer. Indeed, perhaps because of the small face amount of many of the debts it was collecting, Hutchins conceded that it would have been a "ridiculous proposition" to file suit.

Check Investors' tactics apparently knew no limits. It routinely contacted family members of obligors. In one case, Check Investors' repeatedly called a 64-year old mother regarding her son's debt; fearing that her son would be arrested and carted off to jail, she paid the amount of the demand. Another technique that Check Investors employed can best be described as "saturation phoning." One consumer stated that Check Investors' collectors called him 17 times in 10 minutes. Collectors also used abusive language, referring to consumers as "deadbeats," "retards," "thieves," and "idiots." The tactics often yielded results. Between January 1, 2000, and January 6, 2003, Check Investor's collection efforts netted $10.2 million from more than 42,000 consumers.

II. DISTRICT COURT PROCEEDINGS

On May 12, 2003, the Federal Trade Commission filed a seven-count complaint in the United States District Court for the District of New Jersey against Check Investors⁵ and Hutchins alleging that they had violated Section 5(a) of the FTC Act, 15 U.S.C. § 45(a), and various provisions the FDCPA, in their attempts to collect from consumers who had written NSF checks. More specifically, the FTC alleged that Check Investors was a "debt collector," collecting "debts", within the meaning of the FDCPA. The complaint further alleged that, in the course of collecting debts, Check Investors had violated, inter alia, 15 U.S.C. § 1692d (by using abusive language, and calling consumers repeatedly); § 1692e (by falsely representing that communications came from an attorney, by falsely representing that the consumer would be arrested or imprisoned or had committed a crime, and by falsely threatening legal action); and § 1692f (by adding impermissible charges to the face amounts of the debts it was collecting). The complaint also alleged that many of the acts that violated the FDCPA also violated the FTC Act. The FTC sought to enjoin Check Investors' conduct and obtain restitution for injured consumers, including a refund of the money Check Investors had collected using these techniques.

The district court issued a temporary restraining order enjoining Check Investors from engaging in the conduct alleged in the FTC's complaint, and the court also froze most of Check Investors' assets.⁶ On August 14, 2003, the district court entered a...