Fed. Trade Comm'n v. Lake

• Decision Date: 24 February 2016
• Docket Number: Case No.: SACV 15-00585-CJC(JPRx)
• Citation: 181 F.Supp.3d 692
• Parties: FEDERAL TRADE COMMISSION, Plaintiff, v. Denny LAKE, et al., Defendants.
• Court: U.S. District Court — Central District of California

181 F.Supp.3d 692

FEDERAL TRADE COMMISSION, Plaintiff,

v.Denny LAKE, et al., Defendants.

Case No.: SACV 15-00585-CJC(JPRx)

United States District Court, C.D. California, Southern Division.

Signed February 24, 2016

John David Jacobs, Federal Trade Commission, Los Angeles, CA, Jonathan A. Cohen, Miriam R. Lederer, Federal Trade Commission, Washington, DC, for Plaintiff.

Sabrina Celia Narain, Thomas John Borchard, Janelle M. Dease, Borchard and Callahan, Mission Viejo, CA, for Defendants.

Denny Lake, Newport Beach, CA, pro se.

ORDER GRANTING THE FTC'S MOTION FOR SUMMARY JUDGMENT

CORMAC J. CARNEY, UNITED STATES DISTRICT JUDGE

I. INTRODUCTION

Plaintiff Federal Trade Commission ("FTC") brings this action against Defendant Denny Lake for violations of the Mortgage Assistance Relief Services ("MARS") Rule, 12 C.F.R. § 1015.6, and the Telemarketing Services Rule ("TSR"), 16 C.F.R. § 310.3.¹ Before the Court is the FTC's motion for summary judgment on both counts. For the following reasons, that motion is GRANTED.

II. BACKGROUND

Defendant Denny Lake claims to have been in the business of assisting distressed homeowners since at least February 2010. (Dkt. 126, "Statement of Plaintiff's Objections to Defendant's Response to Plaintiff's Statement of Uncontroverted Facts" ("UF") 1; 2.)² He does business as "JD United" and "the Advocacy Program," (UF 3), and his business model has been to interview homeowners and then file complaints on their behalf with banks, public officials, and other regulatory agencies, in an attempt to get banks to negotiate mortgage modifications for them. (UF 12.) The way that Lake would retain clients was in large part by contracting with other businesses whose clients were distressed homeowners and who would refer those homeowners to Lake for Lake's "advocacy" services. (UF 16.) Lake did not market his services directly to homeowners—the affiliates who sent him clients did that themselves. (UF 14; Lake Dep. at 231:10-13.) Instead, Lake's role was to work with banks on the "back end" to help consumers obtain modifications. (UF 17.)

Federal regulations prohibit third parties like Lake who help homeowners secure modifications from seeking "advance fees." The third parties may only be paid by a consumer after that consumer "has executed a written agreement between the consumer and the consumer's dwelling loan holder"—in other words, after the consumer has successfully obtained a modification from his or her bank. 12 C.F.R. § 1015.5. This regulation and other related provisions are together known as the "MARS Rule." In Lake's experience, the companies who referred clients to him would unlawfully collect advance fees from those clients before paying Lake to process their files and communicate with their lenders. (UF 21.) Lake assumed that if he had been hired to process files, at some point, the company he had contracted with had been paid by the consumer, and he did not work on a consumer file until he was paid to do so. (UF 22; 23.) Despite understanding that advance fees were illegal and that his affiliates were taking them, Lake believed that so long as he was only doing "back-end work"—i.e., not marketing directly to consumers or asking them for advance fees himself—he was shielded from liability under state and federal laws regulating mortgage assistance relief services.

Two of the companies Lake worked with were "HOPE Services" and "HAMP Services," companies or services run by some or all of the "HOPE Defendants"—Brian Pacios, Chad Caldaronello, Derek Nelson, Justin Moreira, C.C. Enterprises, and D.N. Marketing. (UF 42.) Ultimately, Lake signed contracts with both HOPE Services and HAMP Services, and the two sent Lake clients for whom he would do back-end processing work. (UF 42; 73.) He successfully obtained modifications for some, but not all, of the clients he received from the HOPE Defendants and their companies.

In April 2015, the FTC filed a complaint for a permanent injunction and equitable relief against the HOPE Defendants and Lake. (Dkt. 1 ("Compl.").) The complaint alleges a three-phase scheme on the part of the HOPE Defendants to defraud homeowners. In the first phase, according to the FTC, the HOPE Defendants would mail marketing materials and make unsolicited outbound telephone calls to distressed homeowners, advertising modification services. They would falsely represent to homeowners that they were a government-affiliated nonprofit that could help them obtain loan modifications. When a consumer expressed interest, HOPE Services would request some initial documents and then congratulate the customer on being "preliminarily approved" for a modification. (Compl. ¶¶ 18–28.) In the second phase, the HOPE Defendants and their employees would inform consumers that they were required to pay a "reinstatement fee"—typically a percentage of the past-due amount owed on the consumer's mortgage—and then make three monthly "trial mortgage payments" into their lender's "trust account," which was actually just a HOPE account. (Id. ¶ 31.) The HOPE Defendants would demand "certified funds only" and instruct consumers to make the funds payable to HOPE entities, who sometimes had names styled to resemble the consumer's lender. (Id. ¶ 32.) After a consumer made the first trial payment, the HOPE Defendants would then direct him or her to Lake's "Advocacy Department." The third phase involved Lake: he or one of his employees would contact a consumer, reassure them that the modification process was unfolding (even if the consumer was receiving foreclosure warnings or a sale date was approaching), and generally ask additional financial questions or request additional documentation before "advocating" on the client's behalf to banks or public officials. (Id. ¶¶ 43–49.) The FTC alleges that Lake's role in the scheme was crucial because it kept consumers making "trial payments" to the HOPE Defendants for months longer than they would have otherwise, all the while accruing interest and penalties with their actual lender. (Id. )

Based on these allegations, the FTC brought counts for violations of the MARS Rule and the TSR against the HOPE Defendants, and counts for assisting violations of the MARS Rule and the TSR against Lake. The individual Hope Defendants stipulated to liability and the entry of permanent injunctions against them. (See Dkt. 89 (Caldaronello); 90 (Moreira); 91 (Pacios); and 96 (Nelson).) Lake refused to stipulate, and on May 13, 2015, the Court granted a preliminary injunction freezing Lake's assets and enjoining him from violating the MARS Rule's prohibition against receiving advance fees for modification-related work. (Dkt. 68.) Lake was initially represented by counsel, but after disagreements on strategy and payment (due, apparently in large part, to Lake's asset freeze), his attorneys moved to withdraw. The Court granted their motion on January 15, 2016, and Lake is now appearing pro se. The FTC moved for summary judgment on January 11, 2016.

III. LEGAL STANDARD

The Court may grant summary judgment on "each claim or defense—or the part of each claim or defense—on which summary judgment is sought." Fed. R. Civ. P. 56(a). Summary judgment is proper where the pleadings, the discovery and disclosure materials on file, and any affidavits show that "there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Id. ; see alsoCelotex Corp. v. Catrett , 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). The party seeking summary judgment bears the initial burden of demonstrating the absence of a genuine issue of material fact. Celotex Corp. , 477 U.S. at 325, 106 S.Ct. 2548. A factual issue is "genuine" when there is sufficient evidence such that a reasonable trier of fact could resolve the issue in the nonmovant's favor. Anderson v. Liberty Lobby, Inc. , 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). A fact is "material" when its resolution might affect the outcome of the suit under the governing law, and is determined by looking to the substantive law. Id. "Factual disputes that are irrelevant or unnecessary will not be counted." Id. at 249, 106 S.Ct. 2505.

Where the movant will bear the burden of proof on an issue at trial, the movant "must affirmatively demonstrate that no reasonable trier of fact could find other than for the moving party." Soremekun v. Thrifty Payless, Inc. , 509 F.3d 978, 984 (9th Cir. 2007). In contrast, where the nonmovant will have the burden of proof on an issue at trial, the moving party may discharge its burden of production by either (1) negating an essential element of the opposing party's claim or defense, Adickes v. S.H. Kress & Co. , 398 U.S. 144, 158–60, 90 S.Ct. 1598, 26 L.Ed.2d 142 (1970), or (2) showing that there is an absence of evidence to support the nonmoving party's case, Celotex Corp. , 477 U.S. at 325, 106 S.Ct. 2548. Once this burden is met, the party resisting the motion must set forth, by affidavit, or as otherwise provided under Rule 56, "specific facts showing that there is a genuine issue for trial." Anderson , 477 U.S. at 256, 106 S.Ct. 2505. A party opposing summary judgment must support its assertion that a material fact is genuinely disputed by (i) citing to materials in the record, (ii) showing the moving party's materials are inadequate to establish an absence of genuine dispute, or (iii) showing that the moving party lacks admissible evidence to support its factual position. Fed. R. Civ. P. 56(c)(1)(A)–(B). The opposing party may also object to the material cited by the movant on the basis that it "cannot be presented in a form that would be admissible in evidence." Fed. R. Civ. P. 56(c)(2). But the opposing party must show more than the "mere existence of a scintilla of evidence"; rather, "there must be evidence on which the jury could reasonably find for the [opposing party]." Anderson , 477 U.S. at 252, 106 S.Ct. 2505.

In considering a motion for summary judgment, the court must...