Fed. Trade Comm'n v. E.M.A. Nationwide, Inc.
| Decision Date | 08 September 2014 |
| Docket Number | No. 13–4169.,13–4169. |
| Citation | 767 F.3d 611 |
| Parties | FEDERAL TRADE COMMISSION, Plaintiff–Appellee, v. E.M.A. NATIONWIDE, INC., New Life Financial Solutions, Inc. ; 1 UC Inc.; 7242701 Canada Inc.; 7242697 Canada Inc.; 7246293 Canada Inc. ; 7246421 Canada Inc.; James Benhaim; Daniel Michaels, Defendants–Appellants. |
| Court | U.S. Court of Appeals — Sixth Circuit |
ARGUED:Jennifer A. Lesny Fleming, Kaufman & Company, LLC, Cleveland, Ohio, for Appellants. David L. Sieradzki, Federal Trade Commission, Washington, D.C., for Appellee. ON BRIEF:Jennifer A. Lesny Fleming, Steven S. Kaufman, Kaufman & Company, LLC, Cleveland, Ohio, for Appellants. David L. Sieradzki, John F. Daly, Federal Trade Commission, Washington, D.C., for Appellee.
Before: SILER, CLAY and GIBBONS, Circuit Judges.
The Federal Trade Commission (“FTC”) filed a complaint against Defendants E.M.A. Nationwide, Inc. (“E.M.A.”), 1 UC Inc. (“First United”), New Life Financial Solutions, Inc. (“New Life”), four Canadian corporations,1 Daniel Michaels, James Benhaim, Phillip Hee Min Kwon, Joseph Shamolian, and Nissim N. Ohayon,2 alleging violations of § 5(a) the Federal Trade Commission Act (“FTC Act”), 15 U.S.C. § 45(a) ; the Telemarketing Sales Rule (“TSR”), 16 C.F.R. Part 310; and the Mortgage Assistance Relief Services Rule (“MARS Rule”), 12 C.F.R. Part 1015. After the district court denied various motions filed by Defendants, including motions to stay proceedings and a motion for further discovery, the FTC filed a motion for summary judgment. Defendants failed to file a brief in opposition to the motion, and the district court granted summary judgment in favor of the FTC. Defendants appealed the district court's denials of the motions to stay proceedings and for further discovery as well as the district court's grant of summary judgment.
For the reasons set forth below, this Court AFFIRMS the district court's orders and entry of summary judgment.
On September 25, 2012, the FTC filed a complaint alleging that Defendants fraudulently marketed and sold debt-related services, failed to provide those services, and retained money as upfront fees in violation of the FTC Act, the TSR, and the MARS Rule. The FTC also filed a motion for a temporary restraining order (“TRO”) and a preliminary injunction, and provided over 1,000 pages of exhibits, including declarations from Defendants' former customers, copies of their contracts, other documents provided by customers, and Defendants' bank records.
On October 10, 2012, Defendants filed a motion to stay proceedings, asserting that a stay was necessary because a criminal investigation had been launched into their business activities, as evidenced by a raid conducted by the Royal Canadian Mounted Police (“RCMP”). According to Defendants, the RCMP, at the direction of the United States Department of Justice (“DOJ”) and the United States Postal Service (“USPS”), raided Defendants' Montreal office and Michaels' Montreal residence, seizing all of their business and personal records—records they claim were necessary to defend against the FTC's allegations. Despite these assertions, the district court denied Defendants' motion on October 11, 2012.
The following day, the district court held a preliminary injunction hearing. At the hearing, Michaels' attorney reminded the court that most of the relevant evidence was in the possession of the Canadian authorities and that the DOJ had “indicated ... indictments would be filed in the Southern District of Florida.” (R. 78, 10/12/2012 Tr. of Hr'g at 1936–37.)3 On October 25, 2012, the FTC and Defendants entered into a stipulated preliminary injunction, enjoining Defendants from operating their businesses.
On June 4, 2013, less than a month before the preliminary discovery deadline, Defendants filed a renewed motion for a stay of proceedings and a memorandum in support of the motion, claiming a stay was necessary to protect Michaels' constitutional rights and to allow Defendants to defend themselves in the instant action. Defendants reasserted that they were unable to access critical records gathered by the DOJ because the investigation was still ongoing. In opposition to the motion, the FTC asserted that although Defendants were then subject to preliminary injunctions preventing them from operating their businesses and continuing to deceive consumers, a stay would be inappropriate. Additionally, the FTC claimed that Defendants had frequently and freely invoked their Fifth Amendment right to remain silent throughout discovery, even in the absence of any formal indictments. Therefore, the FTC claimed, Defendants' constitutional rights would not be violated if the stay were denied.4 Without explanation, the district court denied the motion on June 12, 2013.
On July 8, 2013, the FTC filed its motion for summary judgment and attached over 1,000 pages of exhibits. Sixteen days later, on July 24, 2013, Defendants filed a motion for extension of the deadline for filing the response, claiming they were entitled to an extension because they were unable to open the FTC's responses to Defendants' first requests for production, which they had received the day before. The district court denied this motion on July 29, 2013 without analysis or explanation.
Defendants filed a motion to continue the FTC's summary judgment motion to allow for further discovery pursuant to Federal Rule of Civil Procedure 56(d), claiming that only if they were afforded access to their own documents and materials could they properly defend against the summary judgment motion. Defendants also asserted that genuine issues of material fact existed as to the FTC's claims. Without analysis or explanation, the district court also denied this motion. Defendants then failed to respond in opposition to the motion for summary judgment.
Ultimately, the district court granted the FTC's motion for summary judgment on August 26, 2013. The court found that Defendants violated the FTC Act, the TSR, and the MARS Rule, that they acted as a common enterprise and therefore could be held jointly and severally liable for their acts, and that Benhaim and Michaels were personally liable for injunctive and monetary relief for the corporations' acts. The district court ordered Defendants to jointly pay restitution in the amount of $5,706,135.48 to the consumers who were injured by Defendants' practices. Additionally, the court permanently enjoined Defendants from working in “the debt relief and mortgage assistance industries.” F.T.C. v. E.M.A. Nationwide, Inc., et al., No. 1:12–cv–2394, 2013 WL 4545143, at *8 (N.D.Ohio Aug. 27, 2013).
Defendants filed a timely notice of appeal, asserting that the district court abused its discretion in denying their renewed motion for a stay of proceedings and their motion for additional discovery, and that the court erred in granting the FTC's motion for summary judgment.
In 2010, Michaels and Benhaim allegedly constructed a telemarketing operation through which they employed telemarketers to place cold calls to individuals across the United States who were burdened by mortgage, credit card, and student loan debts. It is alleged that in order to achieve this goal and to execute this plan without detection, Michaels and Benhaim created a series of American and Canadian corporations.
The first American corporation in this series was E.M.A., which was initially registered to Ohayon and incorporated by attorney Kwon, and then formally transferred to Michaels, who was listed as the new registered agent in the 2012 For Profit Corporation Annual Report. Numerous documents in the record link Michaels and Benhaim to E.M.A. These include emails sent by Benhaim as President of E.M.A. on which Michaels was copied, and documents laying out the relationship between E.M.A. and a third party payment processor listing Michaels as Vice President of Sales and including his email address as president@emaonline.net.
Late in 2010, Defendants appeared to have abandoned their first corporation and moved on to develop New Life. They used similar means for creating New Life and similar individuals controlled the corporation. For example, New Life's 2012 For Profit Corporation Annual Report also listed Michaels as the newly registered agent. In a series of emails with another third party payment processor, Benhaim identified Michaels as affiliated with New Life. In one particular email, Benhaim signed as president of E.M.A., yet the email's subject line referred to New Life.
Once again, in 2012, Defendants transitioned to another new company, from New Life to First United. An email sent from Benhaim to its third-party payment processor described the transition:
As we discussed a few weeks ago, New Life Financial will be changing its company name and upgrading its process. That time has come, we have the new company incorporated as 1 UC Inc. and will be changing our name to 1st United Consultants.... We will be opening a new bank account today and will provide that information as soon as possible. We will have New Life running simultaneously to close out the existing files.
(R. 5–2, Mot. for TRO Ex. Vol. I, at 195.)
Throughout this time, four Canadian corporations operated in tandem with the American companies. Many of the Canadian corporations used the same business address, commingled funds to pay each other's employees and expenses, and frequently transferred funds from one to another. Additionally, each of the Canadian corporations listed either Benhaim or Michaels as president. The amount of evidence in the record demonstrating the overlapping nature of the Canadian and American corporations is overwhelming. Each of the corporations had many common employees and administrators, the same individuals purchased email accounts and web URLs for each of the three American corporations, the American...
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