Fed. Trade Comm'n v. Wash. Data Res.

• Citation: 856 F.Supp.2d 1247,23 Fla. L. Weekly Fed. D 239,2012 Trade Cases P 77956
• Decision Date: 23 April 2012
• Docket Number: Case No. 8:09–CV–2309–T–23–TBM.
• Parties: FEDERAL TRADE COMMISSION, Plaintiff, v. WASHINGTON DATA RESOURCES, et al., Defendants.
• Court: U.S. District Court — Middle District of Florida

856 F.Supp.2d 1247

2012-1 Trade Cases P 77,956

23 Fla. L. Weekly Fed. D 239

FEDERAL TRADE COMMISSION, Plaintiff,

v.WASHINGTON DATA RESOURCES, et al., Defendants.

Case No. 8:09–CV–2309–T–23–TBM.

United States District Court,

M.D. Florida,

Tampa Division.

April 23, 2012.

Jonathan L. Kessler, Michael B. Rose, Sara Catherine DePaul, Christopher D. Panek, Harris A. Senturia, Michael Milgrom, Federal Trade Commission, Cleveland, OH, for Plaintiff.

Marlow V. White, Jr., Lewis & White, PLC, Tallahassee, FL, Richard L. Wilson, Richard L. Wilson, Attorney at Law, Orlando, FL, for Defendant.

Brent McDaniel, Palm Harbor, FL, pro se.

Tyna Caldwell, Clearwater, FL, pro se.

ORDER

STEVEN D. MERRYDAY, District Judge.

Alleging violations of Section 5 of the Federal Trade Commission Act (“FTC Act”), 15 U.S.C. §§ 45(a), and the Telemarketing Sales Rule, 16 C.F.R. Part 310, the Federal Trade Commission sues (Doc. 1) three corporate defendants and six individual defendants. Each of the nine defendants engaged in the marketing and sale of mortgage loan modification services. The FTC seeks both an injunction and a money judgment.

A bench trial, during which the FTC presented evidence of alleged deceptive trade practices, commenced on October 3, 2011, and ended on October 11, 2011. Before the trial, a consent judgment (Docs. 296, 424) was entered against the defendants Crowder Law Group, PA; Optimum Business Solutions, LLC; Bruce Meltzer; Kathleen Lewis; and Douglas Crowder. The Clerk entered a default (Doc. 202) against the defunct defendant Washington Data Resources, Inc. The defendants Richard Bishop, John Brent McDaniel, and Tyna Caldwell stood trial. ¹

Each entity central to this action, despite shifts in the name, the organization, the personnel, and even in the products and services sold, functioned as a contributing component of a comprehensive and continuing enterprise (“the Enterprise”) controlled historically by Richard Bishop and Brent McDaniel. On the one hand, consisting of a law firm, an administrative services company, a marketing company, a payment collector, and an employee leasing company and, on the other hand, employing a collection of attorneys, salesmen, administrative assistants, and businessmen,the Enterprise solicited financially distressed homeowners and offered the prospect of relief through either a loan modification or a bankruptcy.

The Enterprise's loan modification “program” operated in accord with an established template that unfolded as follows: The marketing company, Nationwide Marketing, contracted with a third-party direct-mailing company, Genesis Direct, which sent an oversized postcard to a homeowner with a mortgage payment at least two months in arrears. Each postcard offered financial relief to the homeowner and displayed prominently both a toll-free telephone number and the signature of an attorney who was local to the homeowner. When the homeowner called the toll-free telephone number a salesperson at the administrative services company, “Jackson Crowder” or “Washington Data Resources,” (collectively “Fresh Start”) ² answered in Clearwater, Florida; read a sales script; and collected financial information to determine whether the homeowner “qualified” for a Fresh Start “program,” that is, assistance with either a loan modification or a bankruptcy. If the “program” interested the homeowner, the salesperson obtained payment information, established a payment plan, and sent the homeowner an enrollment package that consisted of an attorney retainer agreement. The homeowner paid for the service by establishing a payment plan at the initial contact with the salesperson. The homeowner paid the Enterprise payment processor, Attorney Finance Services (“AFS”), which collected, processed, and disbursed the payment among the Enterprise. When the homeowner returned the enrollment package to Fresh Start, a customer service representative in Clearwater, Florida, often introduced to the customer as a “legal assistant” or “paralegal,” reviewed the documents for completeness, forwarded the retainer agreement to the designated “outlying” attorney, and telephoned the client about the status of the application. The outlying attorney received $100 for each retainer agreement the outlying attorney signed. The attorney sometimes called the homeowner and explained the loan modification procedure. The customer service representative communicated with the homeowner, gathered lender-required financial documents (such as weekly pay stubs and tax returns) from the homeowner, and submitted the required documents to the lender.

Neither the customer service representative nor the outlying attorney nor Fresh Start nor the Enterprise controlled whether a homeowner obtained a loan modification, a result that was entirely within the discretion of the lender. Collecting documents and negotiating with the lender, the Enterprise served as an intermediary only. Once the lender decided whether to grant a loan modification, Fresh Start conveyed the terms to the attorney, and the attorney usually called the homeowner to explain. The homeowner ultimately decided whether to accept the loan modification.

The FTC alleges that the defendants violated the FTC Act, 15 U.S.C. § 45(a), both (1) by misleading homeowners into the mistaken belief that the defendants “in all or virtually all instances” can reduce mortgage payments and (2) by misleading homeowners into the mistaken belief that the defendants “were an agency of, or affiliated with,” the United States government. Additionally, the FTC alleges that the defendants violated the Telemarketing Sales Rule by deceptively overstating both the efficacy of the service and the involvement of the attorney and by deceptively claiming Fresh Start was affiliated with the United States government.

I. THE HISTORY, STRUCTURE, AND CONTROL OF THE ENTERPRISE

The defendants Richard Bishop and Brent McDaniel first met in February, 1984, when McDaniel became a sales manager at a California “solar company” owned and operated by Bishop. Throughout the eighties and nineties, the pair opened and operated a collection of small businesses. After a few years apart in the early 2000's, Bishop contacted McDaniel in 2004 about the prospect of starting a “loss mitigation” company, an operation designed to secure debt relief, including a loan modification, refinancing, or a bankruptcy, for a financially distressed homeowner. (Tr. Oct. 5, 2011, at 187–89)

In August, 2004, after attending a loss mitigation training in Virginia, Bishop, McDaniel, and Michael Stoller established Mortgage Assistance Solutions (“MAS”), a “loss mitigation” company and the precursor to the corporate defendants in this action. A sharing arrangement entitled Bishop to 50%, McDaniel to 30%, and Stoller to 20% of MAS's profit. McDaniel managed sales and marketing, and Stoller, an attorney, handled “all the legal aspects” of the operation. Bishop managed the company's “fulfillment” or “day-to-day” or “back-end” operation and was eventually aided in 2006 by the future “Senior Vice–President of Operations,” defendant Tyna Caldwell. (Tr. Oct. 5, 2011, at 189–90; PX 289, at 147) ³

Seeking direct-mail advertisement, Bishop and McDaniel hired Rodael Direct, Inc. (d/b/a Genesis Direct) (“Genesis”). Bishop and McDaniel asked Genesis to create and mail commercial postcards designed to generate telephone calls from prospective customers. Genesis contracted with Nationwide Marketing, a shell corporation owned by Bishop. The contract between Genesis and Nationwide Marketing continued throughout the operation of the Enterprise. (Tr. Oct. 4, 2011, at 137–140, 142)

According to McDaniel's testimony, many disreputable “loss mitigation” companies emerged when the foreclosure crisis began in 2006 and attracted the attention of several government agencies. In early 2007, Stoller received from the government of Illinois a letter informing MAS of a new Illinois law prohibiting a “loss mitigation” company's collecting a fee “up front,” that is, collecting a fee before obtaining debt relief for the homeowner. The law exempted an attorney. Reasoning that MAS fell within the attorney exemption, Stoller ignored the letter, and MAS continued to collect a fee “up front.” Illinois filed suit against MAS. After a $45,000 settlement, MAS closed in late 2007. After MAS's closure, Bishop, McDaniel, and Stoller briefly operated the Stoller Law Firm, solely a bankruptcy firm. After a business disagreement, Bishop and McDaniel separated from Stoller. (Tr. Oct. 5, 2011, at 190–91)

Seeking to mass-produce homeowner bankruptcy services with the assistance of an attorney in several states, Bishop and McDaniel in a March, 2008, meeting pitched the idea to Jim Jackson and Douglas Crowder, each a California bankruptcy attorney. On March 11, 2008, the group formed Jackson, Crowder, and Associates (“Jackson Crowder”), which began representing homeowners in bankruptcy; ⁴ the firm contracted with Nationwide Marketing to create (through Genesis) direct-mail advertisement, answered the initial telephone call from a potential customer, and assigned an outlying Jackson Crowder attorney to each interested homeowner. (Tr. Oct. 5, 2011, at 190–92; PX 289, at 51)

Along with several employees from MAS and the Stoller firm, Caldwell joined Jackson Crowder. Managing nearly thirty employees, Caldwell continued to oversee the operation division. Although never hiring or firing an employee without approval from McDaniel or Bishop, Caldwell interviewed potential employees and recommended hires to McDaniel. (Tr. Oct. 6, 2011, at 174, 210–12; PX 292, at 11–14; PX 289, at 49)

In October, 2008, Crowder approached McDaniel about a bill recently passed by the United States House of Representatives. Designed to give a bankruptcy judge the power to “cram down” an underwater mortgage principal to the market value of the home, the bill required as a condition precedent that each homeowner attempt to...