Fed. Trade Comm'n v. Payday Fin. LLC

• Decision Date: 30 September 2013
• Docket Number: No. CIV 11–3017–RAL.,CIV 11–3017–RAL.
• Citation: 989 F.Supp.2d 799
• Parties: FEDERAL TRADE COMMISSION, Plaintiff, v. PAYDAY FINANCIAL LLC, et al., Defendants.
• Court: U.S. District Court — District of South Dakota

989 F.Supp.2d 799

FEDERAL TRADE COMMISSION, Plaintiff,

v.PAYDAY FINANCIAL LLC, et al., Defendants.

No. CIV 11–3017–RAL.

United States District Court,

D. South Dakota,

Central Division.

Signed Sept. 30, 2013.

Cheryl Schrempp Dupris, U.S. Attorney's Office, Pierre, SD, Evan R. Zullow, K. Michelle Grajales, LaShawn M. Johnson, Nikhil Singhvi, Federal Trade Commission, Washington, DC, for Plaintiff.

Cheryl F. Laurenz–Bogue, Bogue & Bogue, LLP, Faith, SD, Claudia Callaway, John W. Black, Katten Muchin Rosenman LLP, Washington, DC, for Defendants.

OPINION AND ORDER GRANTING IN PART AND DENYING IN PART PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT

ROBERTO A. LANGE, District Judge.

I. Introduction.

Plaintiff Federal Trade Commission (“FTC”) filed this action invoking federal court jurisdiction under 28 U.S.C. §§ 1331, 1337(a), 1345, and 1355, as well as under provisions of the Federal Trade Commission Act (“FTCA”), 15 U.S.C. §§ 45(a), 45(m)(1)(A), 53(b), 56(a), and 57(b). There is no question about this Court's jurisdiction or venue.

The FTC filed an Amended Complaint, Doc. 44, setting forth seven separate counts, five of which—Counts I, II, III, VI, and VII—allege violations of § 5 of the FTCA, while the remaining two counts allege violations of the Credit Practices Rule and the Electronic Fund Transfer Act (“EFTA”) and Regulation E. The FTC has sued ten Defendants, asserting that the Defendants have operated as a common enterprise controlled by Defendant Martin A. Webb. The FTC through much of its pleadings refer to the Defendants collectively, seeking to hold all of the Defendants responsible for alleged violations of the FTCA, the Credit Practices Rule, and the EFTA. The Defendants dispute that they constitute a common enterprise or have violated any law.

The FTC filed a Motion for Summary Judgment on all of its counts, except for Count II. Doc. 93. The FTC sought through the summary judgment filing a final judgment and order for permanent injunctive and monetary relief. The FTC requests judgment against the Defendants, jointly and severally for $417,740—the total profit Defendants received through what the FTC views as illegally garnished consumer wages—plus a civil monetary penalty of $3.8 million on the various claims. The FTC proposed a final judgment and order for permanent injunction and monetary relief, Doc. 100, that is twenty-five pages in length. The Defendants contest the FTC's entitlement to summary judgment and dispute the damages claimed and the injunctive relief sought.

The parties have submitted a number of pleadings setting forth what they contend the facts to be. The FTC filed a Statement of Undisputed Material Facts and supporting material consistent with Rule 56 of the Federal Rules of Civil Procedure and this District's Local Civil Rule 56.1. Docs. 95, 96, 97, 98, 99; D.S.D. Civ. LR 56.1. The Defendants filed a response disputingsome of the facts that the FTC contends are not subject to dispute and setting forth additional facts. Docs. 104, 105, 111. In turn, the FTC disputes whether Defendants' response truly creates genuine issues of material fact. Doc. 115. After this Court issued an Opinion and Order Denying Defendants' Motion for Partial Summary Judgment on Count VI of the Amended Complaint, Doc. 117, the FTC and the Defendants filed additional arguments and submissions. Docs. 119, 120, 122, 123, 130.

Upon initial review of the tremendous volume of material submitted by the parties, this Court noticed that there were more versions of loan agreements used by certain Defendants than what was in the record at the time and that the Defendants' financial information in the record was somewhat stale and left unanswered where net profits generated by certain Defendants had gone. After entering an Order Regarding Status Conference, Doc. 124, posing certain questions, this Court, on May 29, 2013, conducted a status conference with counsel during which Defendants' counsel volunteered to file loan agreements and additional financial material. Thereafter, Defendants filed a pleading attaching loan agreements that were used at various times by two of the Defendants. Doc. 126. Defendants also filed under seal additional financial material. Doc. 129.

Certain questions on liability—whether the language of the loan agreements under which certain Defendants made loans contravened Regulation E, the Credit Practices Rule and § 5 of the FTCA and whether certain garnishment practices violated the Credit Practices Rule and § 5—are principally questions of law. The language of the loan agreements and the garnishment practices of certain Defendants are not subject to genuine dispute. The question of whether all Defendants constitute a “common enterprise” is one on which there is some remaining dispute of fact although mostly a dispute concerning characterization of the facts and application of the law to the facts. Some of the conduct alleged to have violated § 5 and some aspects of the relief that this Court should fashion, particularly as to certain civil monetary penalties, are not questions of law readily resolved on this record.

This Court in ruling on the FTC's motion for summary judgment is obliged to construe the facts in the light most favorable to the Defendants as the non-moving party. Fed.R.Civ.P. 56. In doing so, this Court grants summary judgment on Count IV of the Amended Complaint for violation of the Credit Practices Rule and on Count V of the Amended Complaint for violation of the EFTA and Regulation E as to those Defendants that engaged in conduct in violation of those laws. This Court likewise grants partial summary judgment on Count I, but, given the muddled nature of the record and the directive to resolve disputes of material fact in favor of the Defendants at this juncture, denies summary judgment on Count III, Count VI, and Count VII of the Amended Complaint.

Ordinarily, this Court would set forth the facts not subject to genuine dispute and then analyze each of the legal issues based on those facts. But the issues framed by the FTC's Motion for Summary Judgment yield themselves to consideration in separate topic areas.

II. Facts and Issues on Summary Judgment Motion.A. Whether the Defendants are a “Common Enterprise” as a Matter of Law.

1. Undisputed Facts Regarding “Common Enterprise” Issue.

Defendant Martin A. Webb is an enrolled member of the Cheyenne River Sioux Tribe. Doc. 53 at ¶ 1. Webb has worked in the banking industry for over thirty years. Doc. 98–1 at 5. Webb did not personally offer, provide a loan, or collect or attempt to collect on any loan, or bring any lawsuit in Cheyenne River Sioux Tribal Court against any Defendants' loan customer. Doc. 104 at ¶¶ 106–108. Webb, however, was the founder, organizer, and owner of various of the corporate Defendants sued by the FTC. Doc. 53 at ¶ 2; Doc. 105 at ¶ 2. Webb is the registered agent for each of the corporate Defendants. Doc. 97–1 at 18, 28, 36; Doc. 97–2 at 5, 15, 23, 33, 44; Doc. 97–3 at 5. Webb is the sole member of Defendants PayDay Financial LLC and Financial Solutions LLC. Doc. 97–2 at 15; Doc. 97–1 at 28.

Defendant PayDay Financial LLC has been marketing and making high-interest short-term loans to consumers nearly nationwide. PayDay Financial LLC has conducted business under trade names such as Lakota Cash, Big Sky Cash, and Big $ky Cash. Webb organized PayDay Financial LLC on October 22, 2007, and has always been its sole member and owner. Loan agreements of PayDay Financial LLC contained a wage assignment clause. Doc. 104 at ¶¶ 100–101. PayDay Financial LLC filed some collection actions in the Cheyenne River Sioux Tribal Court against certain borrowers. Doc. 104 at ¶ 102.

PayDay Financial LLC was the sole member at the time of incorporation of the following Defendants: 24–7 Cash Direct LLC, Doc. 97–1 at 18; Management Systems LLC, Doc. 97–2 at 5; Red Stone Financial LLC, Doc. 97–2 at 23; Western Sky Financial LLC, Doc. 97–2 at 33; Red River Ventures LLC, Doc. 97–2 at 44; High Country Ventures LLC, Doc. 97–3 at 5; and Great Sky Finance LLC, Doc. 97–1 at 36. PayDay Financial LLC on February 9, 2011, filed to “disassociate” itself under SDCL § 47–34A–605 from 24–7 Cash Direct LLC, Management Systems LLC, Red Stone Financial LLC, and Western Sky Financial LLC. Doc. 97–1 at 22; Doc. 97–2 at 9; Doc. 97–2 at 28; Doc. 97–2 at 38. Defendants state that the effect of PayDay Financial LLC disassociating itself from these other Defendants was not to cease the existence of those entities, but to make them owned and operated solely by Webb. Doc. 129 at 3. PayDay Financial was the sole member of and has not disassociated from Red River Ventures LLC and High Country Ventures LLC; rather those two entities filed to cancel their limited liability company status with the South Dakota Secretary of State. Doc. 97–2 at 48; Doc. 97–3 at 9. All net profits generated by Red River Ventures LLC and High Country Ventures LLC ended up with PayDay Financial LLC. Doc. 129 at 2–3.¹ A sizeable portion of the net profits of PayDay Financial LLC have been transferred to certain of Webb's limited liability companies that own land and are neither defendants in this case nor directly involved in the sub-prime lending business.²

PayDay Financial LLC was the sole member of certain named Defendants that appear to no longer function. Great Sky Finance LLC, which did business as Great Sky Cash and Great $ky Cash, was incorporated on May 15, 2009, with PayDay Financial LLC as its sole member. According to the Defendants, Great Sky Finance LLC was operational from October 13, 2009 until September 20, 2011. Doc. 104 at ¶ 17. During the time it was operational, Great Sky Finance LLC offered small dollar, high-interest, short-term consumerloans. Doc. 104 at ¶ 18. Great Sky Finance LLC used loan agreements with various versions of wage assignment clauses. Doc. 104 at ¶ 27; Doc. 111–15 at 6; Doc. 126–1 at 3; Doc. 126–2 at 3; Doc. 126–3 at 3.³ However, ...